Should Decarbonization Projects be Technical, Cost Reduction, or Strategic Innovation Projects?

Contributed by: Stephan M. Liouzu

Decarbonization and strategic carbon emission reduction projects must be run within the corporate strategic innovation process and not as a cost-reduction initiative or a corporate technical program. Decarbonization projects can be included in various processes, depending on the focus and goals of the project. Here are some general guidelines:

1. Technical process: Include decarbonization projects in the technical process when the focus is on improving operational efficiency, reducing energy consumption, or implementing new technologies. Examples include upgrading to energy-efficient equipment, implementing carbon capture and storage, or integrating renewable energy sources.
2. Cost-reduction process: Include decarbonization projects in the cost-reduction process when the focus is on reducing costs through energy savings, waste reduction, or optimized resource usage. Examples include implementing energy-efficient practices, reducing waste through recycling, or optimizing supply chain logistics.
3. Innovation process: Include decarbonization projects in the innovation process when the focus is on developing new products, services, or business models that address climate change or sustainability challenges. Examples include developing new renewable energy technologies, creating sustainable products, or exploring new business models that promote sharing or circularity. 

It's important to note that decarbonization projects can overlap across these processes, and companies should consider a holistic approach that integrates decarbonization across multiple areas. Having said that, the third option is the most viable one.

READ: Sustainability and Decarbonization: What Language Are We Speaking?

So, lets start by defining what the strategic innovation process means. It refers to a structured and purposeful approach that organizations adopt to generate, develop, and implement innovative ideas, products, technologies, services, or processes aligned with their long-term strategic objectives. This process involves systematically integrating innovation into the organization's overall strategy, ensuring that innovation efforts are not isolated but instead contribute to the achievement of broader business goals. The strategic innovation process typically includes the following key components: identification of strategic goals, resources allocation, portfolio rationalization, business case development, and scaling strategies to cite a few. On the process side, a strategic innovation process uses very practical and structured methodologies to make sound business and technological decisions such as Agile Development, Stage Gate process, Scrum, Rapid Prototyping, Lead Product and Product Development (LPPD), Kanban, and Open Innovation.

Why incorporate these projects into the corporate strategic innovation process? 

1. Integrate into a Corporate Process: 
   Most medium and large companies operate under a centralized corporate innovation or R&D process, managing projects from all strategic functions. Decarbonization impacts various functions like operations, supply chain, production, and product design. Treating it solely as an environmental and technical project is limiting as it fails to involve key strategic functions such as product development and marketing. 
2. Leverage Existing Processes: 
   Companies with a robust innovation culture typically use an advanced innovation management process standardized across the corporation. Including ESG and decarbonization projects in this process enhances efficiency and automation. People are familiar with such processes. While technical and cost-reduction projects share this familiarity, innovation processes like Stage Gate or LPPD are highly standardized and widely accepted across divisions. 
3. Drive Internal Focus on ROI, Impact, and Resource Competition: 
   Elevating decarbonization projects to the corporate level ensures thorough impact calculations by central technical and costing teams, gathering relevant data from across the corporation. Innovation teams can survey the organization and conduct in-depth data gathering in collaboration with ESG and technical teams. Decarbonization initiatives should compete on merit, considering their holistic impact on the organization, encompassing cost reduction, market differentiation, and advanced technical expertise. 
4. Expose Projects to Diverse Perspectives: 
   Similarly, incorporating decarbonization innovations into the corporate innovation portfolio increases visibility throughout the organization. This heightened visibility fosters awareness, collaboration, support, and adoption. Making these projects visible beyond finance and technical teams raises awareness for ESG strategic initiatives and goals. 
5. Balance Cost Reduction and Customer Impact: 
   Decarbonization projects contribute not only to internal cost savings but also potential gains in the marketplace. Some companies, already ahead of their competition, have invested significant sums in R&D to establish market leadership and technical competitive advantage. They are transitioning from internal total cost of ownership analysis to a holistic total benefits analysis. This marks a substantial shift in thinking and is an innovation in itself.  

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Decarbonization projects should be considered strategic, not just technical, and operational projects. One might think it does not make a difference to be managed either way, but it does for several compelling reasons. These reasons are related to the fact that ESG goals have become very strategic, decarbonization can be very costly, and the stakes are extremely high both for business and for the planet. Here’s looking at five dimensions: 

1. Market Leadership and Differentiation: Incorporating decarbonization as a strategic innovation demonstrates a commitment to sustainability and positions the company as a market leader. It differentiates the business from competitors by showcasing a forward-thinking approach to environmental responsibility, attracting eco-conscious consumers. 
2. Regulatory Compliance and Risk Mitigation: Many regions are implementing stricter environmental regulations. Treating decarbonization as a strategic innovation ensures that the company proactively addresses regulatory requirements. Managing it through the innovation process allows for agility in adapting to evolving compliance standards, reducing legal and financial risks. 
3. Operational Efficiency and Cost Savings: Decarbonization initiatives often involve optimizing processes and adopting energy-efficient technologies. Treating these projects as strategic innovations ensures a holistic approach to improving operational efficiency. Through the innovation process, companies can identify and implement cost-effective solutions, leading to long-term savings. 
4. Stakeholder and Investor Relations: Investors and stakeholders increasingly value companies with robust sustainability initiatives. By framing decarbonization as a strategic innovation, businesses can enhance their reputation, attracting socially responsible investors. Managing these initiatives through the innovation process ensures transparency and aligns with stakeholders' expectations. 
5. Technological Advancements and Futureproofing: Decarbonization often involves leveraging innovative technologies. Treating these projects as strategic innovations allows companies to stay at the forefront of technological advancements. Through the innovation process, businesses can continuously assess and adopt emerging technologies, ensuring they remain competitive in a rapidly evolving landscape. 

All five dimensions touch finance, technology, marketing, manufacturing, and risk management, proving that decarbonization requires a though out technological agenda and must be managed as a strategic transformational innovation.  

More from Stephan M. Liozu: The Economic Value of Decarbonization Strategies