December 13, 2022

By: Anand Rao, Associate Vice President & Portfolio Head (UKI, Europe & Africa), LTIMindtree Consulting

“Climate change is humanity’s code red warning,” stated a recent Sustainable Development Goals Report (2022). With the increasing centrality of issues such as climate change, energy security, and water stress, several enterprises across industry verticals and sectors have begun recognizing environmental risks and the growing importance of managing their impact on the environment. Economies and corporations are just as fragile in the face of climate change as ordinary people. Companies are now increasingly acknowledging this fact, which has provided enterprises and their ecosystem of partners with an opportunity to reimagine materiality from the double materiality philosophy, handprint, and footprint assessments of their operations beyond mere compliance reporting. However, rising to this challenge requires enterprises to revisit their business models – to accelerate the green transformation of their ecosystem, as well as speed up the transition to a Net Zero economy. As Larry Fink, CEO of BlackRock, put it: “We focus on sustainability not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients.”

According to Intergovernmental Panel on Climate Change (IPCC) research, “limiting warming to around 1.5°C (2.7°F) requires global greenhouse gas emissions to peak before 2025 at the latest and be reduced by 43% by 2030“. Several major countries have announced that they aim to achieve Net Zero (i.e., a state, sometimes interchangeably referred to as Carbon Neutral, Climate Neutral where the greenhouse gas emissions produced are balanced by removals) by various points in time, ranging from 2045 to 2070. The UK and European Union have pledged to become Net Zero by 2050. It means that their greenhouse gas emissions (GHG) into the atmosphere need to be net neutral by that date.

The European continent is currently experiencing macro and micro economic issues, first, the COVID-19 pandemic outbreak, followed by supply chain related labor and material challenges, then the Russia-Ukraine conflict, a cost-of-living crisis, and inflation, all of which call for the UK and other EU member states to step up their climate commitments and increase the implementation of low-carbon solutions as a pathway to Net Zero commitments. Change is already underway in the UK, with the Glasgow Financial Alliance for Net Zero (GFANZ) having committed more than $130trn (£95trn) of private capital to transform the economy for net zero. For a number of years, the UK has not had an overarching strategy for meeting its climate goals until more recently in 2021, when the UK net-zero strategy was published, with CCC chief executive Chris Stark tweeting: “We didn’t have a plan before, now we do.” In addition, the UK government promised to make the country the first-ever net-zero-aligned global financial center at the COP26 climate summit by requiring private and public sector businesses to submit thorough public plans by 2023 outlining how they will transition to a low-carbon future in line with the UK’s 2050 net-zero target. As a result of this global push toward sustainability to counter the 21% of global greenhouse gas emitted by corporations, there is increasing pressure on business leaders to bring sustainability to the forefront of their operations and to commit to achieving Net Zero in the next few decades.

Working towards becoming a ‘Net Zero Company’

LTIMindtree is part of Larsen & Toubro (L&T) which is one of the largest and most respected companies in India’s private sector, with capabilities in engineering, construction manufacturing, and financial services conglomerate, with global operations. Sustainability permeates the value structure of L&T with an aim to be carbon-neutral by 2040, and all its technology group arms, all of whom are working towards becoming a ‘Net Zero company’. LTIMindtree has incorporated sustainability into every aspect of its culture and business strategy. We are a conscientious, futuristic, and sustainable organization committed to an inclusive vision, shared growth, and positive value creation with our stakeholders. LTIMindtree, which has been actively helping companies accelerate their digital transformation roadmaps toward Net Zero commitments, sees great promise in the ecosystem design and emerging technology principles of the Industry X.0 framework. Industry X.0, the way we observe is an evolution in the industrial revolution program; a paradigm shift in and from how businesses outline, govern, and approach their operations using Industry 4.0 programs which are centered largely around the emergence of cyber-physical objects, digital connectivity, and artificial intelligence to Industry 5.0 vision which builds pathways towards environmental, social and human capital, and which truly integrates European Green Deal principles, in the context of achieving Net Zero ambitions.

Figure: ecosystem value chain redesign that moves beyond a singular emphasis on cost optimization or effectiveness toward business models that are more restorative, circular, and regenerative by design.

Technology challenges we face and the break-through we need in the implementation of Net Zero solutions

The 2023 roadmap towards mandatory TCFD-aligned disclosures (Task Force on Climate-related Financial Disclosures) and application of SFDR regulations and Taxonomies (Sustainable Finance Roadmap Disclosure) in the UK, as well as EU’s plan for green transition with Fit for 55 packages to reduce net greenhouse gas emissions by at least 55% by 2030, are some of the key regulation and policy pathway to achieve net zero ambitions. However, many businesses are struggling to articulate meaningful climate-neutral strategies for their business operations and are confronted with some level of “analysis paralysis” when it comes to defining, managing, and executing digital transformation programs. While companies are optimistic about their ability to decarbonize, however, there are several crucial factors that can prevent enterprises today from developing and implementing effective Net Zero strategies with technology. Some of these are, and are not limited to:

• Making carbon data pervasive: a lack of reliable, integrated data regarding their current carbon footprint across partners, applications, systems, and marketplaces, which makes it impossible to reduce it; if it cannot be measured with accurate and timely data, it cannot be improved.
• Ensuring usability and alignment of Taxonomy data: solving EU taxonomy and UK related-frameworks data challenges and providing them in the form of semantic data assets and graph models – ontologies, schematics, domain models, catalogs, reference datasets, master data, etc.
• Computing for Net Zero: there is a scarcity of technologies that have been proven to work on large scales and a lack of understanding of how clean energy can be harnessed and required to transform the core systems to support the organization’s digital agenda.
• Onboarding the organisation for adoption: difficulties with innovation and behavioral change to adopt a whole supply chain perspective, which requires the entire organization to be activated – from the plan, source, manufacturing to logistics, delivery, sales operations, and right up to C-suite.
• Incorporate carbon into business decisions: developing incremental strategies based on personas’ decision-making objectives – user needs, end-to-end journeys, motivations, and goals, and requiring Carbon KPIs to be integrated into the experience and process journey maps.
• Building a culture of rapid prototyping and learning: few firms have the skills and resources to implement a full-scale program, and therefore incremental rapid testing and implementation of new processes and business models need to be compounded with the speed of digitalization.
• Prioritizing of technology spending: investment cycles usually take longer to replace the existing digital, physical, and emotional infrastructures. It is no longer a question of when these infrastructure changes, but how to assess their value returns.
• Principles and ethics of human-machine collaboration: as data becomes more pervasive, it also becomes more susceptible to being abused. It is therefore important for policymakers to invest in technical experts around data protection, cyber security, and the ethical usage of technology.

Such limitations can throttle the pace of companies’ impact journeys towards Net Zero goals, leaving them unprepared for any unexpected regulatory changes, and in the process, impact profits due to inefficiencies.

Why the tenets of Industry X.0 matter

The term ‘Industry 4.0’ is used to refer to the ongoing Fourth Industrial Revolution, which is based upon the synergy and interactions between novel technologies such as the Internet of Things (IoT), artificial intelligence, robotics, 3D printing, blockchain, and more. Implementing Industry 4.0 can unlock significant value: reductions in machine downtime by up to 50%, and improvements in forecasting accuracy of up to 85%.

However, the fact that Industry 4.0 mainly focuses on the use of these technologies in manufacturing, and on shop floors, has led to the emergence of the term ‘Industry 5.0’, which imagines these same technologies being deployed throughout the entirety of an organization and its ecosystem, along with a mandatory environmental and societal dimension, unlocking even more massive amounts of economic value creation and equitable prosperity as a result. Industry X.0, is thus, the way as we observe, an evolution in the industrial revolution with agile, circular supply loop; addressing regenerative metrics with foresight dashboard indicators using AI-enabled enterprise supply chain control towers; enabling open innovation guided with strong governance, skills, and mindsets for complex adaptive business; and is about the building of the ecosystem of partners to be vital for companies today. By encouraging the pursuit of third-party expertise, as well as connectivity, digitalization, data interoperability, and standardized interfaces, these principles also make for an immensely valuable toolkit for any company aiming for Net Zero.

Expertise and technology: the pathway towards Net Zero

It should come as no surprise that several organizations today are looking for realistic and effective ways to reduce their carbon footprints by aligning themselves with the principles laid out above. However, this is an extremely challenging problem and is further complicated by the fact that each organization and country’s policies have its own idiosyncratic infrastructure and systems. Thus, the effective implementation of such a transition relies heavily on the presence of an ecosystem of partners that are leaders in their domains.

Keep an eye out for our forthcoming in-depth analysis of Net Zero in association with the UKIBC. Please get in touch with us to learn how LTIMindtree can help your organization.