5 November, 2020 earth desert dry hot

Climate change is becoming a “hot topic” in the transport and logistics sector

Extreme weather events damage important infrastructure, low water levels make waterways impassable, regulatory requirements lead to increased pricing of CO2 emissions and alternative propulsion systems such as fuels are increasingly coming into focus: climate change is having an increasing impact on the business models of the transport and logistics industry. Logistics companies are called upon to further develop their approaches to dealing with energy consumption and greenhouse gas emissions into a holistic, long-term climate strategy. This includes assessing the financial impact of climate change on their own company. These are the findings of an analysis by the auditing and consulting firm PricewaterhouseCoopers (PwC).

Greenhouse gas emissions from transport in the EU have risen steadily in recent years. The main cause is the transport of people and goods by road. “This makes the transport and logistics industry the only sector in Europe where emissions are growing and the existing potential is not being exploited,” says Ingo Bauer, head of Transport and Logistics at PwC Germany.

If Germany is to become climate-neutral by 2050 as planned, everyone must do their bit. To this end, the 2019 Climate Protection Act sets annual emission targets for each sector. Under these targets, the transport sector would have to reduce its greenhouse gas emissions by 25 per cent by 2025 and by 42 per cent by 2030 compared to 1990 levels. In order to achieve this, “a radical turnaround is needed,” says Dr. Nicole Röttmer, Partner in Sustainability at PwC Germany. However, she concludes that this “cannot be achieved” by simply increasing efficiency without modal shift and the transition to alternative propulsion systems and fuels.

Röttmer pleads for companies in the transport and logistics sector to define an integrated climate strategy as quickly as possible. According to the PwC analyst, this strategy must encompass two perspectives: “On the one hand, transport and logistics companies face the task of measuring their impact on climate change and contributing to the reduction of greenhouse gas emissions. On the other hand, they must understand the financial impact climate change can have on the industry and their own business – and know and evaluate key measures for their future success”.

Using the Corona crisis and growing capital market requirements as an opportunity

In addition to the negative effects, the Corona crisis also has positive aspects that could lead to a reversal towards more climate-friendly transport. Many companies are currently realigning their logistics processes. Regional economic cycles are gaining in importance, while global dependencies are being critically questioned. “The current crisis situation offers the opportunity to rethink one’s own business model and to align it in a sustainable and thus future-proof manner,” says Ingo Bauer, assessing the situation of logistics companies.

Regulatory developments are also forcing companies in the transport and logistics sector to address the issue. For example, the requirements for comprehensive integrated reporting are also increasing. Companies listed on the stock exchange have long had to report on non-financial issues such as the carbon footprint in addition to the established financial reporting. In the future, other sustainability factors and information on climate-related risks and opportunities will increasingly be added.

How a holistic climate strategy can be developed

“Many logisticians try to assess the impact of their own company on climate change, for example by calculating the carbon footprint, but the next step, to sound out the physical effects of global warming and the impact of the efforts of the global community to limit climate change for their own company, is only taken by a few,” summarizes Ingo Bauer. It is not just a matter of recognizing risks, but also what new business opportunities may arise.

The analyses carried out with the PwC Climate Excellence Tool have shown that logistics companies listed in the MSCI index can increase their earnings (EBITDA) by an average of 16 per cent by 2025 in a scenario in which global warming is successfully limited in line with the goals of the Paris Climate Convention, if they respond early to regulatory changes, new technologies and changing markets. “However, companies in the industry that do not prepare in time for the coming changes will lose up to 20 per cent of their profits over the same period,” said Nicole Röttmer about the outlook for the coming years.

Physical risks describe the direct climate-change-related dangers such as heatwaves and flooding. Transition risks include, for example, increased operating costs as a result of a CO2 tax on fuels, changing mobility behaviour or the rising cost of capital resulting from the switch to alternative drives. “Opportunities arise, for example, when companies are present in future growth markets or position themselves strategically early on with regard to potentially relevant future technologies,” adds Ingo Bauer.

Last but not least, the relationship with customers and other stakeholders also benefit from a holistic climate strategy: “Those who report on their climate commitment demonstrate transparency and can thus enhance the confidence of customers, investors and stakeholders in general,” Bauer is convinced.

Source: PwC – press release as of 15.10.2020