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Commentary

Net Zero is Bringing Business Back to Britain

Graham Upton, Chief Architect – Intelligent Industry, Capgemini UK, explains how climate goals are driving UK firms to reindustrialise.

The UK has recently been accused of watering down its net zero ambitions, with a report from the Climate Change Committee suggesting that the UK is on course to miss meeting the pledges it made at COP28.

Despite this, new data indicates UK businesses are taking decarbonisation efforts seriously, increasingly bringing their manufacturing back home to shorten supply chains and cut emissions. According to a new report by the Capgemini Research Institute, UK organisations are investing £338.5 billion into reindustrialisation over the next three years, an increase of £57.8 billion on the previous three years.

Sustainability is a driver of reindustrialisation

Reindustrialisation, or the act of moving manufacturing operations closer to home, is emerging as a key strategy to decrease a company’s greenhouse gas (GHG) emissions. Responsible for 54% of the world’s energy consumption, manufacturing has a massive carbon footprint, and is a key concern for any business considering how they can balance economic growth with a responsibility to work towards net zero.

Ensuring that a business has a strong ESG strategy adherence is also attractive to investors. Companies committed to ESG are often at less risk of exposure to accidents or lawsuits, and so offer better returns. Data from credit ratings agency and index provider Standard & Poor’s show that its ESG index has outpaced the S&P 500 in recent years.

As UK manufacturing has shrunk over the past 50 years, the proportion of emissions produced beyond its borders has ballooned. Today, around half of the UK’s carbon footprint is found abroad. However, companies are now increasingly aware of their indirect Scope 2 and 3 emissions, both because of increased corporate social responsibility, and because the regulatory environment grows more stringent. For example, UK companies trading in the US and the EU now need to comply with regulations like the EU’s Corporate Sustainability Due Diligence Directive, its Circular Economy Action Plan, and the US’s Uyghur Forced Labor Prevention Act.

As a result of this and other concerns about supply chain resiliency and geopolitics, 78% of UK execs have a reindustrialisation strategy or are currently developing their strategies, and around two thirds are banking on reindustrialisation to help their organisation meet its climate ambitions in the next three years. According to our data, reindustrialisation is expected to drive on average a 13% reduction in carbon emissions in the next three years as well as a 13% improvement in customer satisfaction rates and a 11% reduction in time to market.

In my decades of experience working at the heart of UK manufacturing, I have seen the full scope of the trend to globalise manufacturing and the impact this has been having on the environment. It is so refreshing to see that this trend is now reversing.

Sprawling supply chains no longer make sense

Offshoring has previously been used as a tool to move carbon emissions away from where a business primarily operates, but overall it contributes to increased global carbon emissions and resource depletion. Moreover, supply chains are increasingly disrupted by the effects of climate change, with biodiversity loss resulting in resource scarcity, high or volatile prices for raw materials, and increased production costs.

As a result, executives see reindustrialisation as a way to mitigate biodiversity loss, improve supply chain resilience, and reduce transportation-related and other indirect carbon emissions. We found that 58% of UK executives identify sustainability concerns with long supply chains as a leading driver of reindustrialisation.

Having manufacturing operations closer to a company’s home market also provides an organisation with more control over their production processes, allowing more sustainable practices. As a result, we are seeing major manufacturers invest in the latest industrial technologies.

Previous research from the Capgemini Research Institute shows that organisations can reduce their GHG emissions by 30% over five years by scaling up digital adoption alone. In our research into reindustrialisation in the US and Europe, 59% of executives globally believe that the success of their reindustrialization initiatives hinges upon better digitalisation and sustainability within their industry, and 62% are investing in digital technologies to advance their sustainability objectives.

Overhaul manufacturing processes

However, as the eye-watering investment sums show, reindustrialisation will mean completely rewiring global business and transforming the world economy. As companies invest in domestic production, they must avoid the trap of bringing low-skill, labour-intensive processes back from the past. Instead, higher wages, energy costs, and regulatory controls necessitate that companies in the world’s most advanced economies reinvent their factories, processes, and automation levels to increase productivity and improve green credentials.

Reindustrialisation offers the best opportunity to embed sustainability, energy and resource efficiency into the factories of the future. In the coming decades, manufacturing workers will be augmented by technologies like AI, generative AI, Internet of Things and operational technology, making jobs more skilled, and industrial processes less resource intensive.

Benefits beyond sustainability

Reindustrialisation makes good business sense as it bakes in new competitive advantages as well as sustainability gains. Onshoring makes sense for ESG reasons, but many other reasons besides: from providing businesses with more control over their operations, to delivering a better customer experience and speeding up innovation. Companies that reindustrialise, and reindustrialise well, will be best placed to navigate a business environment where ESG issues are more and more critical, and offer the best returns for investors as a result.

Beyond business actions, the success of UK reindustrialisation depends on strong government support and a clear strategy that encourages growth and provides incentives for investment in green technologies and skills. To be able to make the most of this opportunity, policymakers need to prioritise environmental sustainability and foster collaborative initiatives with like-minded partners to enhance domestic industrial capabilities. This needs to be underpinned by laws and regulations that enhance the attractiveness of reshoring and encourage the growth of a healthy manufacturing ecosystem that attracts ESG investment and skilled talent.

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