Sparking an innovation step change

Creating a roadmap for the diffusion

of radical climate innovation in
European business
December 2015

Sparking an innovation step change

Contents

1.
Executive Summary page 07
2.
Methodology page 09
3.

Turning A Threat Into An Opportunity

page 10

4.

The Critical Role Of Innovation

page 20

5.

Barriers To Diffusion Of Climate Innovation

page 26

6.

Looking To The Future: Recommendations For Business

page 38

02 / 03

Bertrand Van Ee, CEO, Climate-KIC

Foreword

OP21 is finally upon us. Leaders have taken their

dependent on companies having enough of an understanding

places in Paris, ready to enact a crucial milestone in

of climate risk and of the opportunities for climate change

pulling the emergency brake on the defining global

to shape an actionable business case for purchasing new

issue of our generation - climate change.

equipment, learning new ways of doing things, or adapting

existing capital to new business models and processes.

Science has defined the scale of the challenge ahead. In order

to set a pathway to safely keep global warming below the

And that is precisely the focus of this report. We have

necessary 2C target by the end of the century, modelling for

undertaken research of C-level European business

the COP21 Calculator1 by Climate-KIC, Imperial College London

leaders from Chief Executives, Chief Financial Officers,

and the Financial Times shows 2030 cumulative emissions

Chief Technology Officers and Chief Operating Officers to

must be cut from 3,745 gigatons of CO2 (GtCO2) to below 3,550

understand their readiness to deploy transformational

GtCO2, or the equivalent of cutting the combined emissions of

technologies to mitigate and adapt to climate change.

the USA and EU in their entirety by 2030. New tools such as

the COP21 Calculator have computed, on a per capita basis, the

opportunities of the low carbon economy. A single silver bullet

effectiveness of nations COP21 pledges; giving a clear line of

will not be sufficient to bring about the systemic change

sight for sharing carbon debt equitably across nations. Science

required. We need an armoury of silver bullets to transform

has set the pace for the COP negotiations.

how we live, what we consume, and how we do business.

The 2C trajectory is not out of reach, but it is clear that

Thats where Climate-KIC comes in. We feed European

achieving the required emissions reduction requires a

organisations with transformational ideas and skilled human

paradigm shift in the global economy. That shift promises to

capital across four priority themes: urban areas, land use,

be highly lucrative for business; already theres a $5.5 trillion

production systems and climate finance. We provide a

market for low carbon technologies and products. And thats

framework for great ideas to be scaled-up into commercially-

just the tip of the iceberg. If, in a victory for rationalisation,

viable models, products and technologies. Climate-KIC has

negotiators agree an ambitious policy pathway that

spawned a range of cutting-edge innovations, from climate

reconfigures our economy in-line with 2C, it will unlock a

change mitigation technologies, such as carbon negative

blue ocean of uncontested opportunities for business.

power technology Cogent Heat Energy Storage Systems

If an effective deal is not reached at this COP, greater

pressure will fall upon business to voluntarily protect the
socioeconomic landscape from the severe, pervasive, and
irreversible impacts of a 2C world, which are priced at a
2

minimum of 15-20% of GDP by the end of the century.

3

Whatever degree of success the negotiations achieve, policy

will not dictate the solution needed to capitalise on the

1ig.ft.com/sites/climate-change-calculator
2 Synthesis Report the Intergovernmental Panel on Climate Change (IPCC) 2014
3 Professor Nicholas Stern, Grantham Institute for Climate Change, LSE

Sparking an innovation step change

Our survey on the adaptive capacity of European business

was not targeted at the superbrands which we so often hear
from on the issue of climate action. We intentionally polled the
regular, large business-to-business companies from a variety
of industrial sectors, such as construction, manufacturing and
engineering.
We were encouraged to find that the majority of the leaders
we spoke to recognise the regulatory and physical risk that
climate change poses to their business and 59% even have a
strategy in place to respond to climate change. The erroneous
and outdated narrative that climate action is a cost is
disappearing from boardrooms. However, a surprising amount
are not looking to innovation to secure their place in a carbon
constrained economy. Seemingly, many European business

(CHESS), through to Aqysta, a hydro-powered irrigation pump

leaders have been lulled into the false illusion that their

that can double crop yields in developing countries, without

operations can transition into the new economy incrementally.

using any fuel or electricity. Last year 40 of our start-ups

The reality is that, however difficult it may seem, the huge

won funding of over 1 million, with one entrepreneur, tado,

leaps we require must be powered by both radical innovation

winning 10 million.

and by people with the skills and capabilities to trigger this

innovation within business.

Transformation cannot come from invention alone, it is also

dependent on the adoption of new, innovative products and

Bertrand van Ee

services across the economy.4 This diffusion of innovation is

Chief Executive Officer, Climate-KIC

4 The three steps invention, innovation and diffusion identified in Schumpeter, J. A.,
1942. Capitalism, Socialism and Democracy.

04 / 05

01

Executive Summary
Most European businesses are
aware of their exposure to material
risks from climate change, as well
as the upside business growth
opportunities from climate-driven
demand. Many have implemented
strategies which aim to manage the
risks and opportunities. However, a
lack of focus on radical innovation
indicates that they plan to approach
the issue within a Business-AsUsual framework.
Sparking an innovation step change

Climate-KIC has undertaken research with European business

63% believe that reducing exposure to carbon emissions

leaders to understand their views on:

can increase topline growth as carbon constraints grow

The commercial opportunities and threats

and demand for environmentally sound products and

companies perceive when considering implementation

services increases

of radical innovation

Customer demand is another key driver forcing businesses

The extent that business is equipped to forecast and

to quickly and effectively adapt to climate change. Nearly

quantify the impacts of climate change and to respond

two-thirds (63%) of business leaders agree that customers

to it by innovating their business model

are increasingly demanding corporates reduce their carbon

What needs to happen in the future to enable business

footprints, to respond to climate change.

to understand the role of radical innovation and to

scale it up in their organisations to effectively respond

However, they lack the know-how to frame risks and

to climate change

opportunities in a way that they can be actioned effectively

within planning horizons.

Based on our research, we are optimistic about the high levels

of awareness that European businesses demonstrated both of

This is attributable to the focus on quarterly results at the

the need to avoid a 2C world and to manage the unavoidable

expense of long term value which is endemic in corporate

impacts of climate change.

spheres. However, the myopic focus on maximising short term

shareholder value is not fit for purpose in a post-COP21 world,

In total, 63% of European business leaders surveyed by

where corporates must make transformational leaps to avert

Climate-KIC think climate change poses a regulatory and

climate change driven impacts upon the value chain.

physical risk to their business.

There is a firm belief among the vast majority of business
leaders that real financial opportunities exist if businesses are

The research shows there are four

fundamental barriers to diffusion of
innovation within business:

able to implement effective ways to address climate change:

More than two-thirds (68%) believe that investing

to address their companys carbon footprint would help
to secure their place on supply chains and stay ahead
of regulation

8 in 10 (78%) believe there are opportunities to reduce

Addiction to incrementalism

Corporate inertia due to lack of climate skills and

empowerment to act

their bottom line costs by responding to climate change

(eg through energy efficiency)

Three-quarters (73%) believe that investments in

responding to climate change are a necessary bottom
line cost to increase the resilience of the macro economy
as a whole

06 / 07

Lack of regulatory certainty

Restrictions on the ability to collaborate

Subtitle

02

Title

Methodology
Company size breakdown

The research was conducted by Edelman Berland, an

independent strategic research firm, in partnership with

(Number of employees)

Climate-KIC.
In the first phase, exploratory in-depth interviews with
business leaders, policy experts and NGOs were conducted.
These interviews included Paul Simpson, Chief Executive

50%

Officer, CDP; Vincent Champain, Economist, Observatoire du

Long Terme; Ged Holmes, Commercial Director, Open Energi;

26%

Paul Crewe, Head of Sustainability, Engineering, Energy &

Environment, Sainsburys; and Michael K Rasmussen, Chief
Marketing Officer, VELUX. The findings from this phase were
used to develop a hypothesis as well as to build a quantitative
C-suite questionnaire to test the trends.
In the second phase, 115 board level executives from

24%

European businesses (32 from UK; 28 from France; 30 from

Germany; 25 from Italy) were surveyed. Board level executives
were defined as individuals who sit on their company board
and have one of the following roles, Chief Executive Officer;
Chief Financial Officer; Chief Operating Officer;

This research was conducted between

September and October 2015.

Chief Technology Officer/Chief Information Officer).

Sparking an innovation step change

08 / 09

101-249 employees
250-499 emplyees
500+ employees

03

A real threat that

can become an
opportunity
Heightened price and market volatility ranks as the number

Overview

one climate concern amongst business leaders, with 73% and

The majority of surveyed European business leaders

terms respectively.

acknowledge that climate change is a material

threat to their business, across both the short and
long term

We have been asking business

about their understanding of
climate change as a business
risk since 2002 and awareness
is relatively high within European
companies, compared to the
rest of the world, due to general
public awareness and policy on
climate change.
Paul Simpson
CEO, CDP

There is also strong recognition of the upside

business opportunities presented by responding to
climate change

More than half of businesses have developed

a strategy to protect against the impacts of
climate change

Some have already pivoted their operations to turn

the threat of climate change into an opportunity and
are reaping the benefits as a result

But many more havent, despite recognising both

the short and longer term benefits

81% of respondents recognising risk over short and long

These findings were echoed by the Carbon Disclosure Project,

a key contributor to this report, which in a recent audit found

Perceived impacts of climate change

to business in the short and long-term
(next 10+ years)

that more than 90% of its members (large businesses that

voluntarily report their carbon emissions) now have a strategy
on climate change, and last year, 5,000 of these companies

70%
77%

Damage to infrastructure essential

for a functioning supply chain

Heightened price
and
market
volatility
Heightened
price
and market
volatility

Market volatility from high cost, carbon intensive assets has

been clearly evidenced by the impact of the falling oil price,

Disrupted transport
and logistics
Disrupted transport
and logisticsroutes
routes

which has weakened entire currencies and economies. For

Unpredictable impacts on workforce

due to climate refugees

example, by August 2015, the oil crash had caused energy

Unpredictable impacts on workforce due to climate refugees

companies to shelve $200bn of spending on new projects,

An increase in climate-related hazards

(such as forest fires, flooding and
storms) affecting centres of operation

laying off an estimated 70,000 workers, particularly in high-

An increase in climate-related hazards (such as forest fires, flooding and storms) affecting centres of operation

cost areas such as Canadas oil sands and the deepwater

fields of the Gulf of Mexico1.

Short-term (3+ years)

Long-term (10+ years)

availability of natural resources and raw materials necessary

The climate is changing, and will continue to change, in

for production, to damage to the infrastructure essential

ways that affect both day-to-day operations and the future

for a functioning supply chain. Supply chain impacts also

of businesses across Europe. An encouraging number of

ranked highly in the form of disrupted transport and logistics

European companies already acknowledge this significant

routes, and justification for such concerns is becoming more

threat to business operations.

progressively available.

In total, 63% of European business leaders surveyed by

Sparking an innovation step change

Limited availability of natural resources

necessary for production, e.g. water and land
Damage to infrastructure essential for a functioning supply chain

disclosed some 10,000 low emissions projects.

and present supply chain risk in various forms, from limited

physical risk to their business.

73%
74%

Limited availability of natural resources necessary for production, e.g. water and land

Business leaders also say that climate change presents a real

Climate-KIC think climate change poses a regulatory and

Limited availability of raw materials necessary

for production, e.g. energy, chemicals, etc.

Limited availability of raw materials necessary for production, e.g. energy, chemicals, etc.

1 Financial Times, The New Oil Order, August 11th 2015:

www.ft.com/cms/s/2/ccd5c56a-36ce-11e5-b05b-b01debd57852.html#axzz3r1u4IXYJ

10 / 11

61%

76%

73%
81%
66%
70%
62%
64%
73%
77%
10 20
20 30
30 40
40 50
50 60
60 70
70 80
80
00 10

Percentage of European businesses

Subtitle

Title
Most European business leaders now recognise that action to

Customer demand is another key driver forcing businesses to

mitigate climate risk not only builds longevity and resilience,

quickly and effectively adapt to climate change. Nearly two-

but also presents additional and significant new opportunities

thirds (63%) of business leaders agree that customers are

for business growth.

increasingly demanding that corporates reduce their carbon

More than two-thirds (68%) of business leaders believe that

footprints, to respond to climate change.

investments in addressing their companys carbon footprint

Here again there is a steadily growing financial reward for

is a means to secure their place on supply chains and stay

businesses that are able to adapt their models, especially

ahead of regulation. Italy is the country where the largest

consumer brands. Recent research from Nielsen found that

number of businesses believe this (84%), followed by the UK at

two-thirds of consumers are willing to pay more for products

72%, and Germany and France at 60% and 57% respectively.

and services that come from companies committed to positive

There is a firm belief among the vast majority of business

leaders that real financial opportunities exist if businesses are
able to implement effective ways to address climate change:

social and environmental impact, up from 55% in 2014 and

50% in 2013.
In line with this, some businesses have already pivoted
their operations to turn the threat of climate change into an

78%

8 in 10 believe there are

opportunities to reduce their

bottom line costs by responding to climate

change (eg through energy efficiency)

73%

Three-quarters believe that

investments in responding to

climate change are a necessary bottom line

cost to increase the resilience of the macro

opportunity and they are reaping the rewards.

This awareness of the material risk of climate change
has driven a relatively high degree of strategic thinking in
boardrooms. 59% of respondents said they have a strategy in

The VELUX Group was forced to adapt our business

model and product development due to the oil
embargo in the 70s. When the cost of oil went
up, energy consumption went down; so many
developers began designing buildings with fewer
and smaller windows.
We realised that a volatile oil price would jeopardise
our category, but we also recognised a major
opportunity.
Our challenge to our product development team
was to enable architects to respond to the energy
shortage, without degrading the indoor climate, but
by improving it. We pivoted our business from just
selling building components to selling a utility; the
access to liveable environments.
Michael K Rasmussen
Chief Marketing Officer, the VELUX Group

place to protect the business against the impacts of climate

change. However, insight from our research raised questions
about how effective those strategies were, especially
regarding the extent to which the adoption of innovation was
being factored into them.

economy as a whole

63%

63% believe reducing exposure

to carbon emissions can

increase topline growth as carbon constraints

grow and demand for environmentally sound
products and services increases

Sparking an innovation step change

12 / 13

CASE STUDY

With the support of collaboration

partnerships, Naked Energy has
taken its technology through a
development and demonstration
accelerator programme and it is
now working with big business on a
full commercial roll-out.

Naked Energy and Jabil

Half of the worlds energy is used for heating and cooling

in 2012. The collaboration with Climate-KIC provided a

buildings. Naked Energy has developed Virtu a building

platform for Naked Energy to accelerate its technology, invest

mounted hybrid solar collector that captures up to 85% of the

in its IP and demonstrate the Virtu system to the market.

suns energy, producing both heat and power.

Naked Energy recently signed an agreement with Jabil Circuit,

The pioneering combination of photovoltaic cells in an

one of the worlds largest contract manufacturers, to support

evacuated tube collector results in higher electrical and

the commercial launch of Virtu in 2016. Jabil has substantial

thermal yields. The generation of heat and power from the

capabilities in distributed energy technologies and having

same roof area leads to much more effective use of space,

conducted a thorough review of the product is excited at the

greater financial returns and more CO2 displaced.

prospects for Virtu in the global solar market.

The company has received both financial and incubation

support from Climate-KIC since becoming an affiliate partner

Christophe Williams
Founder and Managing Director, Naked Energy
Sparking an innovation step change

14 / 15

CASE STUDY

Subtitle

Title

Innovation has enabled Diageo to

grow its business while reducing the
environmental impacts associated
with its own operations, as well as
its risk exposure to energy insecurity
and rising costs.

Diageos Roseisle distillery

Diageos Roseisle distillery in Scotland is one of the most

environmental impact significantly lower than a distillery of an

environmentally sustainable Scotch whisky distilleries in

equivalent size.

the UK.

With proven technology for implementation at other sites,

The majority of the by-products from the whisky distilling

Roseisle is part of a 600m investment by Diageo into

process are recycled on site in its 17m bioenergy facility,

Scotch whisky in Scotland, including an ambitious investment

helping the distillery to generate over 50% of its own energy

programme in bioenergy and carbon reduction. Other

and reduce potential CO2 emissions by approximately 13,000

distilleries that also have renewable technology capabilities

tonnes (equivalent to 10,000 family cars) through direct

include the 6m biomass plant at Glenlossie distillery and the

savings on fuel use for steam raising.

65m bioenergy plant at Cameronbridge distillery. Overall,

Diageo has been able to grow its business while reducing the

It is the first new major distillery to be built in Scotland for

environmental impacts associated with its own operations, as

30 years and is the first malt whisky distillery to generate

well as its risk exposure to energy insecurity and rising costs.

significant renewable energy from its co-products, making its

Diageo

Sparking an innovation step change

16 / 17

CASE STUDY

Londons green economy is

booming and I want to make sure
that our brightest young minds
are firmly engaged with its huge
potential. I am convinced that
somewhere out there is the next
big idea that will not only help us
reduce our carbon emissions but
also encourage huge investment
and growth in the capital.
Boris Johnson
Mayor of London

Mayor of London
The Mayor of London actively encourages innovation to

food than a standard expiry date. BioBean (2012) turns coffee

help tackle climate change and environmental issues. His

grounds from the capitals coffee shops into biofuels. Their

Low Carbon Entrepreneur programme sponsored by Citi

new factory will this year divert 25k tonnes of waste from

Foundation, offers a prize fund of 20,000 to help budding

landfill, saving over 139,500 tonnes of CO2.

student entrepreneurs develop their solutions and bring their

Exploiting Londons secondary heat resource forms part of our

ideas to the market. The programme also offers training

strategy to decarbonise Londons heat supply. In partnership

on entrepreneurship and employability skills, as well as

with Islington Council and Transport for London we are

internships at Citi.

developing a demonstration project that aims to capture

Past winners include Climate-KIC start-up Bump Mark (2015)

waste heat from London Underground tunnels and integrate

with their new expiry label which changes form when the

it into Islington Councils Bunhill Heat and Power Network to

food inside the package goes bad. This new labelling aims to

warm local homes and cut their energy bills.

reduce food waste by telling more about the state of packaged

Sparking an innovation step change

18 / 19

04

The critical role

of innovation
The globally accepted threshold for avoiding
dangerous climate change impacts is 2C. The
COP21 Calculator clearly highlights that we can
meet our 2C target while maintaining good
lifestyles and a prosperous economy but to
be successful the world needs to act now and
transform the technologies, knowledge base and
fuels we use.
Dr Jeremy Woods
Calculator Programme Lead for Climate-KIC UK
Imperial College London

Overview
Ability to innovate plays a critical role in how
business can respond to climate change

Innovation must be transformational, not

incremental, to close the gap between countrys
climate pledges and the emission commitments
required for limiting warming to safe levels

Not enough businesses understand the importance

of transformational innovation in responding to
climate change

A step change is needed

If business can develop and implement large-scale, timely

Worryingly, not enough businesses believe they are in a

innovation it will prove to be a key contributor to efforts to

position to do this at present.

close the existing gap between the current climate pledges

Despite high awareness of the risks posed by climate change

and the emission commitments required for limiting warming

and of the opportunities available for those who take action

to safe levels.

to manage this risk, too few businesses feel they are in a

Perhaps more importantly for business leaders, those

position to apply innovative solutions.

organisations that are able to identify and scale up new

Fundamental barriers remain to the diffusion of cutting

innovation to decarbonise their operations will be the first to

edge innovation into businesses, and until these barriers are

capitalise on the financial opportunity to effectively address

addressed, the effectiveness of attempts by companies to

climate change.

flexibly and successfully respond to climate change will

It is clear that incremental innovation, which is usually focused

be limited.

on squeezing value from existing assets, will be insufficient

in addressing climate change or capitalising on the financial
opportunity; there needs to be a step change towards more
ambitious innovation.

It is widely acknowledged that the ability to innovate, be it

through changes to business models or the development of

Scaling up low carbon innovation has a benefit to us

as a business and for the Government in meeting EU
climate change targets.
At Sainsburys, we focus our investment on cutting
down energy and water consumption, and reducing
waste. This makes commercial sense while
addressing our sustainably commitments.
Paul Crewe
Head of Sustainability, Engineering Energy & Environment
Sainsburys

new products, plays a critical role in how effectively the global

economy is able to address climate change.

29%

Only 3 in 10 European
businesses surveyed see a

large amount of scope to respond to climate

Advances in digitisation, materials, science and biotechnology,

ways of working in the coming years.

along with new business models, all have the potential to

In Italy, 40% of businesses see a large amount

transform markets and dramatically cut resource consumption

and carbon emissions.
Climate-KIC and the Financial Times COP21 Calculator clearly
illustrates the need for businesses and governments alike to
take sharp action to ramp up innovation and to sustain their

of scope for technology to revolutionise their

change using innovative technologies and
ways of working in coming years, followed
by the UK at 38%, 20% in Germany and 18% in
France.

This is backed up by economists from The New Climate

14%

engine of long-term productivity and growth, and is critical for

delivering low-carbon growth in particular.

Sparking an innovation step change

Those businesses pushing innovation to the top

of their corporate agenda are already reaping the
benefits, but despite awareness of this by the
wider market, the majority of businesses are not
converting their awareness of climate risk and
opportunity into concrete action. It is essential that
we overcome the barriers holding business back.

business dramatically to respond to climate

efforts over the decades to come.

Economy, who contend that innovation is a fundamental

Incremental innovation isnt enough. It needs to be

more drastic and more systemic to create climate
impact and socioeconomic benefits at a large and
self-sustaining scale.

change using innovative technologies and

Even fewer believe there

Daniel Zimmer
Director of Innovation, Climate-KIC

is a large amount of scope

to evolve their business model to reduce

resource consumption and carbon emissions.

20 / 21

CASE STUDY

Water treatment is a really energy

intensive process power is one
of our biggest operating costs
so were looking both inside and
outside our business to see how we
can work smarter. That means using
less power and being willing to be
flexible in the way we use
that power.

Open Energi and United Utilities

United Utilities, the United Kingdoms largest listed water

The results were so successful that it is now rolling out the

company, was the first water firm in the country to sign-up for

programme across the whole North West region. To date,

Dynamic Demand, a unique form of Demand Response. Open

Dynamic Demand has been installed at 10 of United Utilities

Energis innovative technology has allowed United Utilities to

larger wastewater treatment plants with more sites in the

cut UK carbon emissions and generate additional revenues.

pipeline. New waste and fresh water processes that could

work with the technology are also being evaluated.

Open Energis system acts like a virtual power station,

allowing National Grid to even out temporary peaks and

Over the next five years the company expects to have a total

troughs in demand instead of turning power stations up and

of 50MW of flexible capacity to offer up to National Grid the

down. A smart box installed at United Utilities sites allows its

equivalent of a conventional power station reducing carbon

process equipment to talk to the grid in real-time. Motors

emissions by 100,000 tonnes per year. The income this will

and pumps can be turned on and off in seconds in response to

generate is around 5m, which will be reinvested into site

variations in power frequency.

assets to reduce operating costs.

In 2014 United Utilities trialled the initiative at three sites - its

wastewater treatment plants at Bolton and Birkenhead and a
water pumping station at Hoghton near Blackburn.

Andy Pennick
Energy Manager, United Utilities
Sparking an innovation step change

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CASE STUDY

Subtitle

Title

Technological innovation and

collaboration are two vital
ingredients in our recipe to drive
significant improvements year on
year in both energy savings and
carbon reduction.

Sainsburys
Sainsburys 20x20 plan sets out 20 commitments, each linked

We also rely upon engagement of our 160,000 brilliant

to one of our core values and the way we operate in the

colleagues through our award-winning Greenest Grocer

environment. Under the Respect for our Environment Value

behaviour change programme, which has reduced our energy

we have an ambitious target to reduce our absolute carbon

demand by 1.5 per cent through simple actions like closing

emissions by 30% compared to 2005/06.

fridge doors and not over-filling freezers.

Our established Graphite programme has made significant

Our operational carbon emissions are today lower than the

investments in excess of 185 million over the past five

amount of floor space we had in 2005/06, despite our 51 per

years, including into energy reduction and renewable energy

cent sales space growth. Our ability to grow whilst reducing

generation across our estate. Investments have included

carbon emissions has been achieved through innovations

170,000 solar panels, 98 biomass boilers and 27 Ground

like our Cannock Store, which is powered from an Anaerobic

Source Heat Pumps, all of which deliver both good commercial

Digestion plant situated 1.5km from the store, via a private

returns and carbon reduction.

wire, meaning our waste powers the completely self-sufficient

and off grid store.

We have also installed LED lighting in a significant number of

our stores, which has so far achieved an immediate energy

Technological innovation and collaboration are two vital

reduction of 59%. Lighting is around 20% of a stores electrical

ingredients in our recipe to drive significant improvements

load, and taking into consideration that Sainsburys consumes

year on year in both energy savings and carbon reduction.

just under 1% of all the energy consumed in the UK, you can

Sainsburys

see how this is a huge benefit to both Sainsburys and the

stretched UK electricity grid.

Sparking an innovation step change

24 / 25

05

Barriers to diffusion
of climate innovation
to climate change, it is vital that many more businesses are
empowered to innovate and adopt innovation to meet the

Overview

demands of the low carbon economy.

The majority of business leaders are aware of the

short and long term risks posed by climate change and
many have strategies in place to respond to the threat

Without this, the scope for countries to close the

emissions gap and for business to capitalise on the
financial opportunity of managing climate risk will
be greatly reduced

Climate-KICs research shows there are four fundamental

barriers to progress:
1.

Addiction to incrementalism

2.

Corporate inertia due to lack of climate skills and

empowerment to act, as well as a lack of ability to
forecast and quantify commercial opportunities from
adopting radical innovation

3.

Lack of regulatory certainty

4.

Restrictions on the ability to collaborate

The majority of European companies already acknowledge

that climate change is a threat to their business across both
the short and long term. There is also strong recognition
from business leaders of the opportunities available to
increase top-line growth as carbon constraints and demand
for environmentally sound products and services increase. In
order for European companies to be in a position to respond

not connected with the transformational levels of innovation

required for them to prosper in the low carbon economy.

Despite widespread agreement on both the risks to business

bottom line from climate change and the potential for growth

Worryingly, 1 in 10 (11%) businesses dedicate none of their

At present, there are four key barriers that prevent businesses

from climate-driven demand, this message has not effectively

R&D budget to supporting innovations designed to respond to

from responding to climate change:

reached the departments concerned with adapting the business

climate change.

to meet evolving challenges.

In order for European companies to effectively

respond, it is vital that mainstream business
is empowered to implement transformational
innovation projects

1. Addiction to incrementalism

38
%
24
%

Irrespective of climate change, over a third (35%) of

Addiction to incrementalism
Despite the majority agreement on the
significance of climate change, just 38% of
R&D teams have sufficient knowledge of
climate risk.
Corporate inertia due to existing structures
and a lack of empowerment to act
Nearly one in four (24%) business leaders say
current corporate structures and systems
are the biggest barriers to action for
instance, bonuses awarded for year-on-year
growth dont encourage long-term thinking.

31
%

Lack of regulatory certainty

31% of respondents say the lack of
greenhouse gas regulation (EU or in-country)
is the largest barrier to their company taking
action to respond to climate change.

65
%

Restrictions on the ability to collaborate

Two-thirds (65%) of businesses believe
competition regulations limit industrys
ability to collaborate in order to respond to
climate change.

Sparking an innovation step change

respondents concluded their market was unchanging, so they

do not need to incorporate innovation.
Business schools have myriad examples of cost crises, changing
labour markets and new technology turning an established
business model on its head; for example, the emergence of digital
cameras challenging Kodaks leadership of the film photography
market, or more recent internet driven business revolutions, such
as AirBnBs recent explosion onto the rental property market.
The service-based economy continues to shift from a society
built around ownership to one built on access to assets and
services. Excitingly, new technologies hold untapped potential
to reduce resource consumption; protecting the environment
and the economy.
Against this background, the statement by more than a third
of European business leaders that their marketplace is static
implies that many have either forgotten how to innovate, or are
delaying thinking around innovation until they have received the
right market signals.
The high levels of concern amongst the sample about the
material risks of climate change (e.g. scarce raw materials,
price volatility and the rise of climate refugees) have
encouraged many business leaders to incorporate low carbon
strategies into their planning cycle, but seemingly they are

26 / 27

2. Corporate inertia due to lack

of climate skills and empowerment
to act

teams have the skills and knowledge to respond to the risk of

Climate change is a strategic priority on many business

agendas, but the response on the ground is not consistent
with this awareness.

3. Lack of board level action and

knowledge within companies

Strong leadership on climate change that feeds through the

inconsistencies in business leaders awareness of climate risk

European businesses are already aware that climate change

change into an opportunity. CEO-led action often sees climate

and action actually taken to adopt radical innovation.

is impacting their business operations, whether through

change embedded in the very culture of an organisation, with

limited availability of raw materials and natural resources,

significant improvements in business performance as a result.

climate change just 10% for finance and 7% for marketing

is even more concerning, but goes a long way in explaining

Education sits at the core of this issue. If climate change was

regarded as a new piece of regulatory compliance, companies

organisation is a common theme binding together those

businesses that have already turned the threat of climate

or disrupted transport and logistics routes. Accordingly, the

More businesses need to be aware of the importance of having

majority of businesses want to act in line with the science that

The prevalence of climate change on the risk registers of

would seek to hire employees with specific skillsets to stay

business leaders, compared to the low levels of investment

on the front foot. However, when it comes to the potentially

from the R&D department, represents a broken feedback loop

catastrophic socioeconomic impacts of climate change,

to just have awareness and discussions at the board level, nor

in European business, as well as a lack of skills to apply R&D

corporates seem to be paralysed by the scale of the issue.

is it enough to have an isolated CSR team. Real action needs

to the challenge.

With Human Resources departments most under resourced

to be taken. Board responsibilities now incorporate executive

in terms of climate change expertise, the issue is likely to

ownership of health and safety, and progressive boards should

become self-perpetuating, leaving business woefully under

be taking a similar approach with climate risk.

Critically, less than 4 in 10 business leaders believe that

their R&D department has sufficient expertise to respond to
climate change. While R&D functions normally do not have

an individual on their board who is empowered to ensure real

calls for a decarbonised pathway.

action is taken to respond to climate change. It is not enough

prepared for a changing operating environment.

Overall, a lack of knowledge and skills within an organisation

the strategic mandate and skills to make adoption of climate

The inertia is not helped by internal corporate structures.

represents a key barrier to greater dispersion of innovation. Not

innovation a more fundamental part of the corporate strategy,

Nearly one in four (24%) business leaders say current

nearly enough businesses feel any of their departments have

they are still considered most likely to identify and develop

corporate structures and systems are the largest barrier to

the sufficient expertise and knowledge to assess and respond

the innovations necessary for business to effectively address

action for instance, bonuses awarded for year-

to the risk climate change poses. Climate savvy individuals may

climate change.

on-year growth do not encourage long-term thinking.

be developed and nurtured internally, but strategic recruitment,

education and in-sourcing of skills is also a key requirement for

Given how important finance and marketing are to the corporate

business. Climate-KICs core focus on business education to

strategy formation process, the fact that so few of these

develop more skills and conscious behaviour as well as to align

current internal capabilities to greater effect stems directly

Percentage of European business leaders who believe each department has

sufficient expertise and knowledge to respond to the risk of climate change

50

from this need.

With this in mind, it is critical for companies to have an

individual on their board with sufficient power and expertise
to lead and implement strategies that enable their business to
effectively respond to climate change.
However, only half of business leaders surveyed (52%) think it

50

is important at present for their company to have a dedicated

40

40

30

30

20

20

10

10

individual sitting on the board who can perform this role.

36%

28%

18%

17%

16%
10%

Research and
Development

Production

Manufacturing

Logistics

Procurement

Accounting
and finance

7%

6%

Marketing Human Resources

and personnel

Companies that are adapting to climate change most

successfully have a sustainability or climate change
function which is integrated across the business. The
old world is CSR people locked away in siloes thinking
about how they present sustainability, nowadays,
smart businesses are integrating sustainability
across their operations.
Daniel Zimmer
Director of Innovation, Climate-KIC

Sparking an innovation step change

28 / 29

4. Lack of regulatory certainty

In the context of the COP21 negotiations, it is of the upmost

The research showed that, when it comes to responding to

has the most influence on corporates decision to act

importance that regulation works for business, as government

the material risk of climate change, Government has the most

influence a companys decision to act.

to constantly create value. This is precisely why EU-level

organisations like the European Institute of Innovation and

However, the current lack of EU regulation hasnt given

companies the certainty they need to innovate and adapt their
business models to effectively address climate change.

13%

especially since businesses need to stay ahead of regulation

Technology (EIT) are so essential in helping business to

navigate the regulatory environment and maximise their
ability to innovate.

Only 13% of European

businesses believe that EU

regulation introduced over the last 10 years

has made it easier for them to respond to
climate change effectively

30%

50

Only 3 in 10 (30%) believe

that current EU regulation

on climate change encourages companies

40

to develop and scale up new innovative

technologies and ways of working in order to

30

respond to climate change

Corporates need more flexibility to focus on rolling

out resource efficiency technology projects smartly
and holistically, and that they can pay back over
a longer period. Governments must deliver that
certainty via policy decisions to address climate
change as a global economy.
Ged Holmes
Commercial Director, Open Energi

20

10

The
typs of collaboration European business leaders believe have the most
0
potential for enabling their sector to respond to climate change and the
actions they have taken
40

30

32%
28%

33%

32%

27%
22%

20

16%

18%
14%

17%

20%

17%
The types of collaboration
businesses believe have
the most potential for
enabling their sector to
respond to climate change

10

Sharing best practice

related to improving
efficiency and reducing
emissions

Sharing costs and

resources to improve
efficiency and reduce
emissions

Sharing infrastructure
with competitors to
improve efficiency and
reduce emissions

Sharing IP which would Sharing IP which would Sharing results of tests

enable the sector as
grow new addressable
related to improving
a whole to improve
markets for you and your efficiency and reducing
efficiency and reduce
competitors in the low
emissions
emissions
carbon space

Sparking an innovation step change

Types of collaboration
businesses have already
undertaken to improve the
resilience of their sector in
the face of climate change

30 / 31

5. Restrictions on the ability to

collaborate

33%

It is also important to note that it isnt just collaboration

between companies that will lead to significant developments

Given the global scale of the challenge ahead, the ability

of companies to collaborate with peers in their sector is
recognised as a fundamental way to unlock the large-scale,
timely innovation required for businesses to address climate
change. Cross-industry collaboration creates an ecosystem
for climate action, allowing industries to solve common issues.
Collaboration is an essential diffuser of innovation; enabling
businesses to share their knowledge, share costs, pioneer
new approaches and technologies, test and roll out solutions.
Those sectors which are able to work together to promote
industry-level innovation are seeing significant progress. For
example, when looking at the automotive industry, a range of
brands have recently publicly shared patents for hydrogenpowered vehicle technology, in order to promote a mass
market for fuel cell cars.

Business leaders demonstrated a surprisingly

strong willingness for collaboration as a solution for
incorporating innovation and responding to climate
change.
Executive education can create the conditions
of trust and co-operation, and indeed it is not
unusual to see programmes which bring together
competitors in a framework of co-opetition;
collaboration between business competitors in the
hope of mutually beneficial results.
Business education that is more integrated, more
interdisciplinary and more oriented towards thinking
about the bigger system-level picture is needed.
Ebrahim Mohamed
Director of Education, Climate-KIC

A third (33%) of business leaders surveyed believe sharing

costs and resources to improve efficiency and reduce
emissions has the potential to enable them to respond
effectively to climate change, while just under a third (32%)
believe sharing the results of tests and best practice related
to improving efficiency and reducing emissions could enable
them to respond effectively to the challenge ahead.

Climate-KICs experience as a collaboration community for

competitive peers is that greater sharing of the information that
frames a low carbon economic playing field can actually raise
more competition, not limit it. At this point, in order to disperse
transformative innovation to meet climate goals, it is vital that
business is empowered to collaborate, to help them make a

Our experts noted that collaboration could enhance the

in terms of innovation. Academia and start-ups are usually

responding to the risk of climate change and

more business can leverage this, the more effective they will

its impact on the marketplace

be in addressing climate change.

18%

Again a small number of companies are already collaborating

in this manner. However, in the next 10 years the number will

the risk of climate change and its impact on

play a significant role in closing the emissions gap.

the marketplace

Most companies, especially in the commodities

space, cannot be seen to discuss or share ideas
amongst themselves on carbon pricing as they
could be called out for price fixing. Corporate law
has been designed to prevent monopolies, but it
can hold back sustainability. In my view, business
needs to first collaborate to create a sustainable
system then compete.
Paul Simpson
CEO, CDP

step change in their approach to addressing climate change.

competition law prevents them from collaborating: Two-

Certainly, international competition regulations, going back

to the US Clayton Antitrust Act of 1914 and the 1957 Treaty
on the Functioning of the European Union, were established
to prevent corporations from creating cartels and monopolies
that would damage the economic interests of society.
However, competition is not a goal in itself - it is a means
to reach a fairer society. When that society is challenged so
directly by the threat of climate change, we would recommend
that the process is adapted to better enable collaboration.

Our product development is based on an enormous

amount of ongoing market research that naturally,
we keep to ourselves. However, we openly share
best practice on how products should be applied to
perform as efficiently as possible, for example, we
are founding partners in the International Active
House Alliance, where manufacturers, architects,
designers, building companies and academics can
openly share best practice to reduce energy without
compromising indoor comfort.
Michael K Rasmussen
Chief Marketing Officer, the VELUX Group

Sparking an innovation step change

input from entrepreneurs/

on the financial opportunity of managing climate risk and to

However, currently too many businesses believe that EU

to climate change.

Less than 2 in 10 seek

start-ups when it comes to responding to

need to increase significantly in order for business to capitalise

impacting the end product or customer experience.

law has limited industrys ability to collaborate and respond

input from universities on

the latest innovations when it comes to

where the most progressive innovations originate, and the

efficiency of their business operations without negatively

thirds (65%) of those surveyed believe EU-level competition

Only a third currently seek

32 / 33

CASE STUDY

Subtitle

Title

Aviation is a big contributor to CO2

emissions, but through innovation
we can find immediate solutions to
help reduce its carbon footprint.
Pierre Jouniaux
CEO, Safety Line

Safety Line
used during each planes climb - around 100kg for each flight.

Safety Line is a five-year-old company specialising in Big Data

applied to aviation. With a team of highly experienced Aviation

Today, because the fuel saving solution can be applied to each

experts, data scientists and IT specialists, Safety Line, together

aircraft and each airline, many other airlines around the world

with the INRIA (French Institute for Research in Computer

including Lufthansa, Azul or United are interested in adopting

Science and Automation), created OptiClimb, a world innovation

OptiClimb.

to reduce fuel consumption and CO2 emissions.

At a time when almost 3% of global CO2 emissions are produced

By using black box data which is currently far from being

by air transport, protection of environmental quality is an

exploited, even though it is free and available - OptiClimb

important issue for Safety Line. So, aside from the obvious cost

learns from this data and optimises a planes climb profile to

savings, the French start-up is giving major energy consumers

reduce airliners fuel consumption.

the opportunity to make the planet a little greener.

It is the first time that such an approach has been proposed

and Transavia France, the launch airline, saved 10% of the fuel

Sparking an innovation step change

34 / 35

CASE STUDY

Based on 21 experiments across

Europe, we have shown that it is
possible to meet the 2020 targets
with the technology available today.
Michael K Rasmussen
Senior Vice President, the VELUX Group
Sparking an innovation step change

VELUX Group
The VELUX Group, a globally leading manufacturer of roof

factories, located in 9 different countries all over the world. So

windows, is committed to safeguard the planet and works

far, we have reached a 29% reduction from the 2007 baseline.

systematically to limit the negative impact on the environment

Furthermore, we have built 21 houses, in 12 countries with

and the worlds resources. Addressing climate change is part

different climatic conditions, to develop sustainable solutions

of this commitment and by developing sustainable building

for future buildings and thereby shape the building design of

solutions the VELUX Group contributes to a more climate

the future. Society is in need of energy efficient buildings that

friendly future.

provide a healthy indoor climate for people living, working and

In 2009, the VELUX Group made its commitment to reduce

playing inside them, while leaving a minimal impact on the

the CO2 emissions by 50% before 2020 compared to the 2007

environment. The houses prove that this is achievable and that

level of 107,000 tons CO2. To reach this goal, we are reviewing

2020 building targets can be reached with todays products.

all our internal processes across the entire supply chain. The
next step is to implement certified energy management in our

36 / 37

06

Looking to the future:

recommendations
for business

Transformational innovation must be

channelled into business

Teams must have the skills to respond

to climate change

The world is changing rapidly. Regardless of climate

In some cases, board leaders may be empowered to take

change, new virtual models and technological advances are

climate action, but are poorly equipped with the direct

dramatically altering the shape of the global economy.

resources needed to implement change. For example, just

38% of R&D departments have the necessary skills to respond

Innovation is a fundamental engine of productivity and

to climate change.

progress, and is critical for delivering low-carbon growth.

Businesses must actively place themselves on an innovation

R&D is the core organisational function for identifying and

journey; creating channels for transformational innovation to

responding to the needs of the changing marketplace. If

flow into their models, making them more resilient and able to

businesses do not have a bedrock of skills in R&D, they

seize first-mover advantage.

are likely to remain seriously unprepared to address the

Transformational innovation rarely originates from big business;

it is usually stymied by the pressure to meet quarterly targets

Dont wait for a policy silver bullet

collaborate upon existing platforms

by applying tried and tested processes. Radical innovation

usually resides within Universities and start-ups with a vision of

Our research points to a conflict in European business,

how the future can look. Climate-proof businesses will actively

boundaries have been set for a revolution in addressing

climate change, which cannot be achieved without the
private sectors ability to internalise material risk, raise funds,
convene productive capacity and scale up solutions at speed.

of a sustainable, low carbon future, or to be shaped by it.

Companies can either ride the wave of oncoming regulation
and the demand it creates for low carbon products and
services, or be forced along by it.

need to avoid a 2C world and to manage the unavoidable

impacts of climate change. However, what appears to be
lacking is the know-how to frame risks and opportunities
in a way that businesses can action effectively within their
planning horizon.

Accurate evaluation of financial

exposure to climate risk and
opportunity is vital

to unknown business models. When faced with a burning

Boards need a climate leader

empowered to take action

raw materials, the danger is that businesses attempt to drive

than take the risk of transitioning to the next stage.

limited availability of raw materials and natural resources,

through tax incentives or financial support, or for legislation

disrupted transport and logistics routes). With this in mind,

such as carbon pricing and softer competition laws before

it is critical for companies to install an individual on the

diffusing radical innovation through their organisations.

board with sufficient knowledge and expertise to lead and

sectors - is the failure to accurately price environmental damages

equipping business leaders with the knowledge and skills to

and other externalities. If you are one of the 41% of businesses

shift their thinking towards the bigger system-level picture.

in finding and qualifying new innovations, preparing these

innovations (and companies) for scale, and then instigating
industry and cross-industry collaborations, is a prime example
of the structures already in place to commercialise radical new
technologies for commercial and environmental gain.

Education is at the heart of Climate-KICs activities and we

Businesses need to adopt strategies with sufficient ambition

aim to inspire and empower the next generation of climate

climate proof. Below are our key recommendations for

When only 10% of accounting and finance teams have climate

urban areas, land use, production systems, and climate

change expertise, its not surprising that so many businesses

finance. Organisations need to recognise where the skills gaps

do not have an adequate strategy in place.

lie in those areas and take action to fill them.

Sparking an innovation step change

them to seize first-mover advantage. Climate-KICs work

respond to climate change.

Business education can drive organisational change by

climate change, its likely that you have not assessed the risks and

But there are already non-fiscal means available to enable

implement strategies that enable the business to effectively

opportunities of moving your business to a climate-proof footing.

to make their entire organisations climate proof post-COP21.

residual value from existing processes and models, rather

Many business leaders will wait for financial risk mitigation

various traits which will help make their business operations

business leaders looking to cultivate and expand those traits

issue, such as the impact of climate change on availability of

significantly impacting their business operations (e.g. through

The most significant market failure on climate change across all

without a strategy in place to protect against the impacts of

Across the survey, many business leaders demonstrated

input from Universities and entrepreneurs.

Most European business leaders accept that climate change is

Business has a choice, either to shape the needs and impacts

of awareness that European businesses demonstrated of the

climate action, and uncertainty in transitioning from known

organisations, by augmenting their own R&D departments with

increased carbon constraints for doing business. Scientific

Based on our research, we are optimistic about the high levels

regarding the strong awareness of risk and opportunity from

steer new transformational thinking and innovation into their

Going forward from COP21, the direction of travel is towards

opportunities and risks that are already on most of their radars.

and urgency to make a true impact, while at the same time

leaders to address climate change across four priority themes:

operating within current political and economic realities.

38 / 39