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A systematic shift is needed across all sectors of the UK economy to support the government’s net zero commitment by 2050. Industries that produce significant volumes of carbon emissions have much to do to play their part. These include the manufacturing and construction sectors that together account for 16 per cent of total UK emissions.
Stakeholder requirements, regulation and incentives are driving decarbonisation efforts. However, UK manufacturers have the opportunity to go beyond expectations on improving the environmental and social impact of their products and services. Ultimately, they need to create value and competitive advantage by putting sustainability at the centre of business strategy and pursuing meaningful decarbonisation objectives. Such an approach will help businesses reach two main objectives: meeting regulatory requirements on managing their own carbon footprint during operations and through their supply chains (scope 1 and 2 emissions) and reducing the impact of their products and offerings on the environment when in use (scope 3 emissions). Additionally, companies may also find that putting sustainability at the heart of their business strategy will open up opportunities for developing new products and entering new markets.
Minimising the environmental impact of offerings can be a complex strategic decision that will require closer collaboration with a company’s entire stakeholder community – including suppliers and customers – and forging new alliances with other companies, centres of innovation and educational institutions.
Energy transition and digital transformation are rapidly changing what work we do, how we do it and where we do it. However, growing competition for both sustainability and digital competencies [from other sectors], an ageing workforce, fewer new recruits and a lack of diversity all point to increasing skills challenges in the future.
After considering the net-zero related opportunities and challenges, this article explores how companies can improve their workforce approach and better align their skills agendas to maximise opportunities in energy transition.
Environmental, social and governance (ESG) scrutiny of businesses is increasing rapidly as investors and UK policy makers put more pressure on companies to disclose and reduce the environmental impact of their operations. For example, the scope of Streamlined Energy and Carbon Reporting (SECR) legislation was extended on 1 April 2019 to large UK incorporated companies (including private companies) that meet certain qualifying criteria.1 The scheme requires businesses to report on their energy consumption, scope 1 and 2 greenhouse gas emissions and explain their actions to improve energy efficiency.2
Further, the government aims to expand the scope of the Task Force on Climate-related Financial Disclosures (TFCD) in the UK. In November 2020, the UK government announced mandatory climate risk reporting aligned with TCFD guidelines for premium listed companies, for accounting periods beginning on or after 1 January 2021. It also laid out a roadmap to bring all listed entities, large private companies and limited liability partnerships in the UK under the scope of TFCD by 2025, most by 2023. This means that every year an increasing number of UK manufacturers will have to report on their governance and strategies for managing climate-related risks and opportunities and assess the financial impact of such risks on their business based on a number of scenarios.
In addition to tightening the rules around climate-related financial disclosures, two recent policy papers set out measures to help the UK meet its net zero target and the role that the manufacturing sector is expected to play in the process.
The UK government’s Ten Point Plan for a Green Industrial Revolution outlines the technology areas that will benefit from greater government support as well as policy proposals and funding packages to scale them up. These technologies include advancing offshore wind, low carbon hydrogen production, zero emission vehicles and their associated infrastructure, greener buildings as well as carbon capture, usage and storage (CCUS). The Plan aims to mobilise £12 billion government investment and potentially three times as much private money, while also creating and supporting up to 250,000 green jobs.
The Industrial Decarbonisation Strategy sets ambitious carbon emission reduction targets for industry to support the UK’s net zero effort. The Strategy expects industrial emissions to be reduced by two-thirds by 2035 and by 90 per cent by 2050, with 3 megatonnes of CO2 (Mt Co2) captured through CCUS and around 20 terawatt-hour (TWh) of energy used in the form of low carbon fuels by 2030. This is a tall order for the sector that was responsible for 72 Mt Co2e emissions in 2018. However, the government is confident that “ the UK can have a thriving industrial sector aligned with the net zero target, without pushing emissions and business abroad”.
The new financial reporting requirements and the two policy papers create a level of urgency that requires manufacturers to take greater responsibility for the environmental impact of their activities. While the pressure falls more immediately on listed companies and large private businesses, the inference is clear for all UK companies, regardless of their size.
According to a 2020 survey by the Institution of Engineering and Technology (IET), 53 per cent of manufacturing and 61 per cent of construction businesses in the UK have sustainability agendas. The top three actions companies took to deliver these agendas related to using new, greener technologies, adapting existing technologies to be more green and encouraging telecommuting/remote working.
However, the real challenge and opportunity will be for both UK and global businesses to combine carbon focus with efforts to improve their productivity and international competitiveness. This cannot be done by treating sustainability as just one of many company initiatives. Sustainability has to be a strategic driver. This may drive a company to reconfigure its entire manufacturing lifecycle. This is a complex decision that could involve a company’s entire supply chain and require forging new partnerships. Areas that need to be considered include:
The benefits of sustainable manufacturing go beyond meeting regulatory compliance and energy cost reduction. They can include better risk management, improved overall operational efficiency, reduced waste, a positive impact on the company’s brand and reputation as well as relationships with local communities. While cost efficiency is a key performance indicator for nearly every business, companies realise that green credentials can help build trust with customers and open new markets. It also helps that customer perceptions of value are changing: 51 per cent of respondents of a recent survey think that the environmental credentials of a product or service are now just as important as the price they pay for it.
No manufacturer was left untouched by COVID-19. Business models, operations and attitudes to technology and the workforce all had to change as the pandemic rapidly unfolded. As leaders reflect on lessons from the pandemic, many realise that the speed of decision-making, agility to change operating models and a more resilient supply chain will be crucial for a long-term, green recovery.
As complex international supply chains were disrupted during national lockdowns, companies needed to consider multiple sourcing and, in some cases, relocating parts of the manufacturing lifecycle.
Digital adoption and the potential for increasing carbon costs may provide further incentives to establish regional, distributed manufacturing hubs across the UK. The term ‘green-shoring’ could be used to describe this potential trend.3 These hubs could be driven by businesses that engage in the circular economy and focus strongly on customers. For example, networks of small additive manufacturing facilities could serve specific customer needs faster and potentially cheaper if they are located close to their clients – thus reducing carbon emissions, time and cost spent on transport. Further opportunities may also arise in the future in combining low carbon energy sources and circular economy concepts in ‘reindustrialising’ certain parts of the country very much in line with the government’s levelling up agenda.
The pandemic gave leaders an opportunity to rethink strategies. As companies adapt and learn to live with the virus, we may see a growing number of manufacturers choosing to re-engineer their product portfolios towards the new energy technologies highlighted in the two policy papers. Undoubtedly, there will be opportunities to build infrastructure, manufacture equipment and components, and supply services for these green technologies. Initially, these will be focusing on the large industrial clusters to provide volume. While the pipeline of activities and a low carbon supply chain are slowly building, most of the projects that will make a material contribution to the net zero objective need to mature to provide opportunities on scale for UK businesses. However, companies need to get ready for when the floodgates open – as they may do when strategies and financial support mechanisms for various green technologies are established. Therefore, the question arises: what can manufacturers do now to create a competitive advantage for the green industrial revolution?
The key opportunity for companies is to put sustainability at the heart of their business strategy and attract, develop and retain a motivated workforce to execute their plans.
However, building a workforce quickly that is capable of delivering a strategy with sustainability at its core will be a challenge. Only slightly more than half of manufacturing and construction businesses have sustainability agendas in the UK and less than one in ten have all the skills they need to deliver these programmes.
There are also some long-standing workforce issues the industry needs to address alongside sustainability. According to the Employer Skills Survey 2019, 36 per cent of vacancies in manufacturing and construction were hard to fill because applicants lacked the appropriate skills, qualifications or experience – compared to the national average of 24 per cent.4 In construction alone, an additional 350,000 full-time equivalent workers will be needed by 2028, mainly to upgrade existing buildings to reduce their energy consumption. With 11 per cent of the sector’s workforce coming from the EU, the UK’s departure has exacerbated skills shortages. The ageing workforce and lack of diversity are also issues. While women make up 48 per cent of the overall UK workforce, they only accounted for 28 per cent of manufacturing and 14 per cent of constructions occupations between January and March 2021.
Attracting future talent will also be difficult. While remote working provides more opportunities to recruit globally, Engineering UK estimates that there is an annual shortfall of between 37,000 and 59,000 engineering graduates and technicians to meet the yearly demand for 124,000 engineering roles across the UK economy. But it is not only about the numbers: the majority of graduates and apprentices finish their programmes with little training in the digital skills they will need for a future in manufacturing.
Indeed, the government set up the Green Jobs Taskforce following the publication of the Ten Point Plan for a Green Industrial Revolution policy paper to address the skills challenge. Its recently published report explains how the UK skills sector needs to adapt to support net zero.
Delivering the sustainability agenda will also require new skills that businesses have not traditionally targeted. These include the ability to quantify and analyse a company’s emissions data, set targets, articulate abatement pathways, forecast costs and timings as well as liaise closely with stakeholders around targets, actions and progress. Companies will also need new skills in emerging green technologies that will help them move from using hydrocarbons as a fuel source to hydrogen and batteries. Many of these skills are not industry-specific, so competition for them will certainly increase across the economy. To stay ahead of the competition, leading companies are appointing chief sustainability officers, starting to build sustainability teams and/or working with external advisers.
Digital technology will be key to optimise and make company operations, wider supply chains as well as products and offerings more sustainable. As smart factory principles and exponential technologies – such as robotics, cognitive automation, artificial intelligence, data analytics and the Internet of Things – advance, they will require digital skills and create roles and career pathways that do not exist today. Given that many manufacturing businesses are not yet investing at scale in net zero opportunities until more projects materialise, how do companies know what skills, knowledge and capabilities they need to recruit for in the future?
1. Put sustainability at the heart of business strategy
To meet decarbonisation targets for their operations, supply chain and product portfolio, manufacturing and construction companies should consider including sustainability in their business purpose, set clear decarbonisation targets and build their company strategy around it.
There is also a need for strong leadership that can articulate the benefits of sustainability to the business. This is crucial as decarbonisation targets and plans are likely to be set out by central sustainability officers but executing them and finding new opportunities will require the company’s entire workforce.
Each and every employee across the business will need to be empowered to play their part and bring fresh ideas to help the company exceed its targets. Having individual responsibility and ability to act will be important to reach net zero targets. Working for a business with strong sustainability credentials and a culture of innovation will give the workforce the opportunity to see the positive impact they are making.
2. Focus on digital and transferable skills and capabilities that allow learning rather than focusing on industry knowledge and experience
Leaders have the opportunity to reconsider the short- and long-term workforce needs of their organisation and find the right blend of specific skills and knowledge, soft skills and capabilities, and digital/human interface.
Electrical, mechanical and civil engineering skills will continue to play key roles in designing and making products and offerings for energy transition. However, materials, technologies and operational setups will change more rapidly and frequently in a sustainable, digital world. This means that in addition to core engineering skills, the workforce needs to demonstrate agility and the ability to learn quickly. The ability to work alongside and effectively incorporate artificial intelligence, machine learning, augmented reality tools and robotics into day-to-day activities will also become critical capabilities. Indeed, the Deloitte Human Capital Trends report highlights that using digital technology to increase the capability of teams to learn, create and perform in new ways leads to better outcomes. Organisations will also need effective cross-functional skills, including collaboration and social intelligence, as well as more technical skills such as cybersecurity, regulatory or commercial strategy.
These highly transferable skills will become more important than industry knowledge or experience. Continuing to strengthen these along with adopting a mindset focused on problem-solving and soft skills should make the company more adaptable and flexible to access further skills when necessary.
Companies need to build a net zero workforce that has both the skills and capabilities as shown in Figure 1.
3. Build the net zero workforce
Building the net zero workforce should start by redefining work in three different, yet intrinsically connected dimensions: the work itself, the workforce and the workplace. The table below provides questions manufacturing companies may want to explore.
Unleash the net zero workforce
Adapt the workplace
When focusing on the workforce, organisations first need to understand what the desired work outcomes are. Next, they will need to follow a set of steps to anticipate both the technical skills and soft skills the workforce will need in the future. Once these are identified, companies will need to assess where potential gaps could arise and develop a strategy and roadmap to meet future workforce requirements. Key considerations are shown in the table below.
Anticipate skills and capabilities
Assess the current skills and capabilities gap
Develop a skills and capabilities strategy and roadmap
Organisations should also consider the following questions:
4. Collaborate, collaborate, collaborate
In a world focused on reducing environmental impact of climate change and navigating rapid change, manufacturers can no longer act alone. There is an increasing need to collaborate with suppliers, energy providers, neighbours and, potentially, competitors and customers themselves to make the manufacturing lifecycle greener and help support customers decarbonise better. As the Green Jobs Taskforce recommendations suggest: business, the government and the education sector working closely together would ensure that the green jobs of the future provide high quality careers that are accessible for people from all backgrounds, in every region of the country.
Manufacturing and construction companies that realign their purpose and strategy around ESG goals early may not only able to meet regulatory and stakeholder requirements more easily but could also be better positioned to seize opportunities in energy transition. Re-energising their workforce approach and creating an environment for attracting and fostering the right balance of human and digital skills and capabilities will be the key to achieving sustainability goals.
Therefore, companies should:
These actions should build a highly motivated workforce that is ready to deliver the net-zero goals in support of a cleaner, brighter and more sustainable future for the benefit of both business and the wider society.