Client
Expertise
Climate risks and opportunities
Impact
Underpinning opportunities to protect business value.
CHALLENGE
How can energy suppliers prepare for the opportunities that come with the energy transition?
Damage to energy infrastructure, deployment disruptions, and changing consumption patterns demonstrate how the global energy sector is increasingly susceptible to the risks posed by climate change. Even energy suppliers that support customers with low carbon technologies face such risks; especially while the energy grid remains mixed.
OVO has centred its business around the UK’s energy transition. As one of the UK's biggest energy suppliers, OVO actively supports the growth of renewable energy on the UK grid by buying more power directly from renewable generators and investing in renewable generators that are unable to get government subsidy support. The energy supplier has also worked to shift customers’ energy use to times when the grid is greener and reduce energy consumption with its Zero Carbon Living products. Despite these commercial developments, OVO’s business model remains reliant on gas, which is why – next to better understanding the implications of climate change on its business – the company sought to plan for the future.
SOLUTION
Quantifying climate risks, opportunities and inaction
Where there is uncertainty and risk, there is also opportunity. At the Carbon Trust we firmly believe that reporting risks alone is not enough. Businesses inevitably must understand the financial ramifications of their climate risks alongside the opportunities that can protect, and even grow, business value. To help OVO bring sustainability to the fore of everyday business, we:
Held workshops with OVO’s sustainability and risk management decision-makers to identify the three material risks that will need to be prioritised for operational stability: impacts on energy procurement costs, changing energy consumption patterns, and competitive demand for raw materials.
Ran through hypothetical stress scenarios to see how OVO would perform against climate-linked supply chain disruptions, rising temperatures and geoeconomic changes such as carbon pricing.
Completed a value-at-stake analysis, modelling the financial risks of a business-as-usual versus a Net Zero business model. Using OVO’s own data, we found that continued reliance on natural gas suppliers could leave the business exposed to future carbon pricing policies.
Outlined the transition opportunities ahead, such as an accelerated rollout of the company's Zero Carbon Living products, or procuring recycled raw materials for these products, thereby introducing circularity into the business model.
Weighted the risks against the opportunities. It revealed that some risk mitigation activities could, in fact, turn into a market opportunity to diversify revenue streams. Reducing reliance on gas revenue by 2035, in combination with the projected sales of Zero Carbon Living products, could significantly boost annual revenue, for example.
Translated our findings into a business narrative that outlines the economic opportunities at hand and presented this to OVO’s risk and sustainability teams.
IMPACT
A compelling narrative for futureproofing and business resilience
Quantifying the impact of the energy transition on OVO’s business model helps build the case for climate mitigation. It brings internal decision-makers across finance, product, and operations onto the journey and shifts mindsets, showing that a climate risk assessment is more than a mere compliance exercise; instead, it shows the value of adapting business models. Seeing the financial context of diversified revenue systems in combination with mitigation actions, reassured OVO of its plan to reduce gas dependency. As OVO focuses on action, decision-makers have the insights to:
Better plan for the future. The insights answer common questions from senior management, in particular where investment should flow, cost-effective levers for decarbonisation, their value, and the return on investment.
Innovate its business model. The findings provided a clear picture of the transformational changes OVO will need to make to its business model. It reinforced, for example, the business case for expanding OVO’s Zero Carbon Living offering. OVO is now actively setting up franchises to scale the development of these renewable energy products for homes.
Prepare for and ultimately offset the risks that OVO is exposed to. OVO has now integrated the identified climate risks into its standard risk management process, which are reviewed on a quarterly basis by the board.
Be transparent. OVO can now communicate these risks and opportunities to build trust with employees and investors. Consequently, it positions the business to adapt with confidence.
The Carbon Trust’s work has reconfirmed the need to lead the UK's energy transition. We particularly valued how the team showed the impact of climate mitigation in tandem with the business opportunities. It revealed that climate mitigation and sustainable ways of working go hand-in-hand and, together, have a much bigger impact on protecting our business long term.
