Deloitte's World Climate Commitments - A Chat With Scott Corwin

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We, are connected to most, organizations of consequence as clients and as collaborators. So we felt very strongly that we had to make our own commitment and then follow through. We are the first professional service firm to be recognized by the Science-Based Target Initiative. Most of our competitors have followed and we're really delighted that, you know, everyone's getting on board and that's just really a beginning. And then the second and third part are really the connection to clients.

So in the United States, we're about half of Deloitte global revenues We have 140,000 employees. We have a very large, accounting and audit business. We have a very large advisory practice, a very big consulting practice and a tax practice.

And, that's the area that I really focus on, which is how do you, help guide and lead and shape what 140,000 employees do with the work we're doing with clients to help them make the transition successfully to a low carbon future and to do it with great equity in terms of the markets and customers that they serve. And then the third, core, pillar to our overall strategy is that as a citizen of the world, we feel very committed to supporting what I would call planetary impact initiatives.

And so we've got a bunch of those things in our portfolio. And that's also, in the area that I help to oversee and manage.

And, I think what we all recognize from the leadership of the firm on down is that there is no greater challenge than addressing climate change, sustainability overall, and equity, and that they're highly interconnected. And in this world, now that we've moved away from a Milton Friedman view that everything we do is about optimising shareholders.

It's really about all of the communities that we engage with, whether it be our employees, our customers, our suppliers, and cities and the communities that we live and work in. And we've been at this for a long time. We have had a lot of different efforts in terms of, healthcare equity. In terms of social justice in terms of the work that our colleagues at the Monitor Institute have been doing with foundations.

We've been really on the front lines of a lot of these things, but we decided to make this an absolute corporate priority, both in the US. And globally. And so the work that we're doing globally it, in terms of commercially is how do we help our clients, whether they're in hard to abate sectors, like oil and gas or transportation or industrials to kind of more service-based businesses to make this transition. And, I think I shared with you in our preparatory call.

We've kind of taken what we're calling a systems view or a systems approach to this. And I'd be delighted to

The UN IPCC, none of this is new by the way, has declared that if we have any prayer of keeping the planet's temperature from rising above two degrees and hopefully closer to one and a half degrees, we have to cut emissions by half in the current decade from 20, 20 to 2030. Half again, 2030 to 20, 40 and half again, 2040 to 2050. We're emitting on the order of about 60 gigatons of carbon, annually. So that means we have to cut that number down to 30 gigatons.

And in the most recent, report out of the UN we have barely at the end of 2021, not even 1%. So we've got a long ways to go to get to 50%. And while you and I were talking earlier, there are a lot of, really cool initiatives out there. They are kind of disconnected. And so we, we felt that it's really great that all these corporations and governments are making these commitments to, um, get to net zero to get to net positive.

In some instances, these are all the right things that need to be done. However, the challenge is, is that no single organization, just like no individual or household alone can make a difference. We need. Everything to come together and now we need it because of the timing challenge is to be tightly synchronized. So we decided that the north star for us was.

How do we, in terms of our work with clients really affect large scale change, to help us have a chance of achieving the targets that were set in the Paris agreement and where we've landed on that. After a lot of hard thinking, a lot of work in different places is that. We need to adopt, a systems approach to this, which means that we have to do a bunch of things in parallel that get orchestrated across a whole bunch of different sectors. So what do I mean by that? And, it means that.

By the way we know exactly the source of all of these emissions. We know that, you know, making things is roughly a third, creating electricity is about 27%. the food systems about 20% transportation is 16%. We know exactly the source of these emissions. We, even actually know what needs to be done. In most of them.

So for us, the view is that we have this complex set of interconnected systems that now need to number one Institute, sustainable operating practices, as fast as possible; two invest in new breakthrough technologies that we will need eventually to take carbon out of the atmosphere; and three probably transform business models very fundamentally it terms what it means to be successful in a low carbon future. So for us, it starts with the energy system.

We know that in the energy system to decarbonize it, we have to move away from fossil fuels. We have to accelerate the adoption of renewable energy as fast as possible. We have to build a smart grid. We need to build storage capabilities. We need transmission lines and we've had phenomenal impact with renewable energy, but it's taken too long. We cannot wait another 20, 30 years for the organic market to evolve.

In parallel, we know that the movement of goods and the movement of people, and particularly in the United States, it's the largest source of greenhouse gases is. We have to move to clean power trains.

And we got, which means moving to electricity and hydrogen, or with sustainable aviation fuel or biofuels as an interim technology until you get, electric for sort of, EVTOLs, you know, vertical takeoff and landings, or eventually hydrogen for, much, further distance aviation, ocean shipping, class, 8 trucking, like all of that is coming. We just need to accelerate it. And then on top of it.

And a lot of work I did prior to taking on this role and mobility was around how do you build the idea of seamless, integrated mobility in urban environments so that we actually take the entire mobility system and you optimize it for accessibility for inclusion for sustainability, for community impact and quality of life, and probably create different funding sources. Similarly in industrials, we have to move away from the high energy intensity that's needed.

For making chemicals for making cement and steel and, we're a long ways away from that, that there's no silver bullet on those things. But, you know, we know from work we've done in the chemical sector that eventually the emergence of hydrogen with sort of carbon capture could play a pretty big role. We know that, maybe the idea of using modular nuclear could work, but the key to. Energy transportation and industrials for sure. And I would add the food system.

We know in the food system, all the things we need to do, to kind of move to more organic, stewardship of the land and the way that we use it, moving to less, carbon emitting fertilizers and, and feed stock. And, and the cool thing is that the ag companies are building these technologies. These are not way out in the future. We actually have them. So the question is how do you begin to scale and adopt them? And so as we decarbonize energy, we need to parallel take what technologies we have.

And decarbonize these other systems and then related to that, but equally important is that financial services, government, and tech are kind of forced multipliers.

You look at what's going on in, finance and you look at it like in Glasgow, um, the commitments made by major financial institutions to, be more focused in investing $130 trillion in assets towards those things that helped to accelerate the transition to a more sustainable economy, or you look at the very early days of the emerging, carbon credit trading markets, which will be very important in terms of helping to create a market price for carbon above and beyond

whatever we do from a government level. And then a bunch of the large global banks have put together, half a trillion trillion dollar funds to restructure the balance sheet and help corporates transition from high emitting to lower carbon futures. We need all of those things and we need them like yesterday. Government and at least here in the us, but it's been in Europe for a long time, they play kind of, they wear a lot of different hats.

There are capitalists they're convener, they're regulator. They happen to be the biggest buyer of goods and services. And so we need a whole of government approach with consistency to help enable that.

And then the tech players, particularly the big cloud providers and platform players have the ability to help us create, much greater precision and understanding of how to create lean and agile supply chains and value chains and the technologies that are being built enable us literally across every piece of a value chain to take bits of carbon out that collectively begin to add up. And so the question really is, is that we understand all of that. And it's how do you synchronize all of that?

How do you actually get every player has a role in the constellation of what I'm talking about, but no, single player is actually the quarterback and probably shouldn't be. And so how do we now get everyone to row in the same way? And so, for us at Deloitte, where we landed is we're actually working in all of these spaces and we've been doing it in a disparate way. And by creating this as a north star, we now basically have context for how these pieces fit together.

And we have, uh, launched, uh, a sustainable systems initiative where we want to work in an open-source way with a bunch of players that are working on all parts of this and to contribute to the collective sort of advancement and to try to win this battle of climate change within the timeframes that we're, we're working against. So I'll stop there, cause I'm sure you have some questions, but that is, but that's the basic thrust of the position that we're taking.

And. I'll just from a personal level. It's, daunting to say the least it's really ambitious, but I honestly can't imagine that there's a better answer for how we can affect change. And I'm really I am so thrilled that our leadership is supportive and really understands that this is beyond us. We're we're just a member in a much bigger community to making a contribution.

And in the very first chapter, he talks about, we need to approach these things as systems and to bring together players in very non traditional unconventional forms of collaboration. And in many ways we've been seeing these trends kind of play out for quite some time now, in a much more sort of atomization of the economy and, the way that value has shifted profoundly that, capital is pretty ubiquitous now or readily available, that technology is enabling communities to form.

So it's probably leveraging those things and there are NGO NGOs, there are academic institutions, there are leading players that are really trying to move this forward.

I would just say that a lot of what's written out there has sort of recognized here's where we are in terms of, of carbon impact, here's where we need to get to, but we haven't really built our synchronized pathways to transition these complex interconnected systems to understand how they need to move together to effect this change. And I think that's where we want to really try to hone in on that.

Not to say here is the answer, but here are different ways that this could happen and then help each organization really think about the role that they play. What does it mean for their strategy? What does it mean for their future business model? How are they going to invest in terms of innovation and transformation and do it with a real informed set of choices about what the future might be like

So yeah, no, absolutely. There's been, I want to think a realization by business, particularly in the last, maybe five years that this is really serious. I would say maybe since, maybe since shortly after Paris in 2015, I'm not sure that, the political side of the house is as serious as business has become in the last five years. is that fair comment, do you think? Or is that something you even want to get into?

We just saw this in the United States with the SEC now instituting much greater transparency around what corporations are doing, and that will empower employees. It will empower customers. It will empower, uh, suppliers to have a much greater understanding of this.

The example that's given is, in like automotive, for example, that parts suppliers use lightweight materials that reduce the, fuel consumption of an automobile. But the OEM gets the credit for that, even though the investment was made by the supplier or the chemical sector to create the new, you know, um, materials that, that, that did that. So how do you create incentives? And as everyone is now, Working to reduce their overall carbon profile, understanding that profile.

Is clearly a very first, you know, start about this. The second point about the SEC that I think is interesting is that a lot of what they're talking about is aligned with where Europe has been for a while. And for global multinationals, this has been a real head banger because you kind of have different rules in different markets, the cost of, pulling all that information together, vetting it, validating it, especially if it's going into the public, filings that, markets depend on moving.

Yeah, there's been a clamor to try to create something that constitutes at least a global reporting standard. And I'm not saying that this has accomplished that, but it's certainly movement in that direction. And, and so, um, the other, the third piece, that's kind of interesting about it is that companies that you think would be, not in favor of this actually prefer having clarity than the ambiguity that existed previously.

The starting point is that most economic analyses do not factor in the cost of climate change into those estimates. So the negative externalities that result from that are not factored into this.

And in a way, it sort of suggests that, we can continue to have growth without having to worry about the true costs of what we're, we're bearing for that growth. And this was a longitudinal study. It basically looked at two different scenarios. One is kind of business as usual and then a, more.

Positive aggressive scenario, kind of tied to the Paris Accords and hitting those targets so that the baseline was assuming we're kind of on a trajectory to three degrees rise and climate by the end of the century and looking at our current

industrial structure in the United States and looking at regions, the estimate that they came up with is that by 2070, the true cost of increased climate impact. And to put this into context last year, the cost of climate impact to the United States was $105 billion. 60 billion of it was tied to hurricane Ida. It's related to the California wildfires, the smoke that came across the country and historic heat wave in the Pacific Northwest, the drought and lake Mead, rising sea levels.

In the prior 50 years, the total cost of climate impact was about eight to nine times that number. So it was $1.4 trillion and that number's rising every year. And it has incredible economic impacts in terms of heat stress, in terms of sea level rise, in terms of wetter winters, in terms of human health, lost tourism, agricultural loss. So there are real economic damages that come from that. And if that trend line continues.

So the economist basically projected out and said, if we kind of look at the, where this is headed, the US economy on a net present value would lose 14 and a half trillion dollars between now and 2070. In 2070 alone, we'd lose one and a half trillion dollars. It would in that 2070 would be about 4% of GDP. And that equates to like a $70,000 lifetime income loss in net present value for every working American today.

The positive side of this story is that if we move quickly to clean, renewable energy to power our economy. and just one other thing about the 14 and a half trillion dollars, it's about two-thirds of one year of GDP. I mean, our GDP is about 20, 21 trillion dollars more or less. So, we're basically saying we're going to just wipe out, you know, two thirds of a year over those next few decades. And, and there's kind of no recovery from that. And the impact happened sooner. Right. You know?

It grows and grows and grows. The positive story is if we invest now to move, to clean renewable energy, instead of losing 14 and a half trillion dollars, we could gain $3 trillion in gross domestic product. We could in 2070 instead of losing one and a half trillion dollars, actually add $885 billion to our economy. The GDP in 2070 would grow at two and a half percent. That's the equivalent of adding an Amazon, an Alphabet, and Microsoft to our economy. I mean, that's how significant it is.

And the cost coming around to that is that our team estimates that it would be roughly about 0.1% of GDP for the next several years. And that kind of in the mid to late 2040s, we would have this turning point. So these investments would start to bear dividends So, it's 20, 25 years of investing. it will play out differently in different regions.

Obviously the, higher abating regions are going to take longer for the transformation, however they will get the biggest benefit and ultimately have the highest economic growth associated with this. So it's look it's one set of estimates. It's grounded on, a set of assumptions. We can argue with it a little bit.

You can play with the modeling of it, but it was an attempt to try to quantify what has not been quantified and to help give policy makers corporate decision-makers, a perspective about what this impact is and what it meant to different sectors. And there are other reports out there. I think you'll increasingly see a bunch of them. Princeton did a fantastic study about a year ago. A year ago, Christmas, called the net zero America, 2050, um, study.

And it basically laid out five different pathways that the US economy could get to a net zero future by 2050. And, their number is a bit different than ours in the sense that, they think that over the next decade, we need two and a half trillion dollars of incremental investment on top of the investments that are made in industry today, which would need to be redirected to get there. But it's a very credible study.

There's um, I really liked the depth of what they've done there and, uh, we need these insights to help guide all of us in the way that we're thinking about our collective decision-making and investments and priorities.

You are reducing pollution because something like, uh, I think it's 8.7 million people die every year as a result a direct result of the burning of fossil fuels. You stop burning fossil fuels. That's eight and a half million people whose lives have been saved or who have a longer life span and who have fewer health problems. So you're not adding costs to your health care system as well. So, there's a lot of wins that come oout of this.

It taught us that tele-health something we've talked about for 25 years could actually work or even distance learning, which is, for younger children not as, not as effective, but, all these things we had talked about overnight, like new models. But we know that as we begin to come out of COVID that the pendulum will swing back. Maybe not as far back as it once was. And one of the things we're really determined to do is obviously.

I do a much better job in terms of how we work with our clients and the amount of traveling, and to really make sure that as carbon investments are right. The other thing we're doing is, we know that eventually we're going to have to buy and we are buying carbon offsets for the things we're doing. So what we decided is why not just go right to de-carbonization and so we have been a big backer of the adoption of sustainable aviation fuel as a bridge technology.

It's not a perfect technology, but the good thing, you know, it's like ethanol in a car. You can, it cuts emissions by 30 to 40%, it can go into existing jet engines. So you don't need a different kind of airplane. The problem is it's very limited and it works. If you're kind of recycling French fry oil from fast food places, you don't want to actually take food stock and use it for transportation as the energy source.

So there's a limit probably to how much of that we can use, and it takes energy to transform that food stock into this form of fuel, but on a net basis, it saves about 30 to 40%. The problem is today, it costs four to five times the cost, even with rising oil prices, of, you know, jet fuel and there's very limited supply. And so, in a sense, What you can see happen.

And one of the things that will need to happen is that those of us who can need to pay a bit of a green premium to send a signal to the marketplace that you should invest. So the companies that can create that supply. From the refiners to the fuel companies, to the airlines, like have the incentives to want to move forward. And of course there'll be some tax incentives.

So we have made and this is public, you know, we purchase sustainable aviation fuel with a number of major airlines in the United States. And we're very busy working on that. That isn't a, we're not getting paid to do this. This is where we think we can make a difference. There were all sorts of those kinds of plays where the demand side can come together.

So, we've been exploring with, some NGOs and even our competitors and the ride hailing companies. How do you actually, you know, if we're willing to pay a premium for every ride, How do you then use that capital to bridge some of the financial difference? And the point about both of these examples is not that they're perfect examples, but they're examples where the technology exists. What we're, what we've got is a market challenge. We just need to scale the adoption faster.

And if we do that, we can get the carbon benefit today instead of several years from now, when the markets will organically get there.

But you know, we, the sort of the best insights of it is that tablets, same with ocean shipping, by the way it is, you know, it's, uh, it's, it's absolutely critical to our supply chains. and it's a very big emitter and a combination of using tech to be better about, where those ships go, how long they're in port. I mean, here's an example.

We did some work with, um, one of the cloud providers to build a container inspection system so that you could move containers through ports faster, and therefore. You don't have trucks idling. So it's minuscule, but if you add it up globally, it could, could add up similarly with shipping that's where sort of real insights and the digitization to be able to take out the friction that exists there. We have the ability to do that today.

We just have to create the incentives for the players to want to participate in that it's similar to the food system. How do you build a digital backbone that every player in the value chain is contributing to it so that we can actually look at the carbon impact and begin to make more informed choices and create the incentives for them. And it means that the producers and consumers are going to have to come together in some way to find common ground.

Our, our society is being ripped apart in a lot of the, you know, migration of people is tied to climate impact and, it's only gonna get worse. If we don't begin to address this. And so the question is how do we create this kind of common humanity? And biodiversity, which we don't tend to talk so much about is really, really important. We can't keep losing all these species and think that the things that make life livable will continue.

Thanks catch you all next time.