Industrial Revolution: The path to decarbonisation transcript

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27:29

Nick Atkin:

Good morning everybody, my name is Nick Atkin, and I'm the leader of industry for Industrial, Manufacturing and Services here in PwC. Welcome to our first LinkedIn Live episode in the Industrial Revolution series. Today's episode is focusing on manufacturing and the efforts needed to decarbonise. We've pulled together data from our recent Make UK survey, the PwC CEO survey and more, to give you a wide perspective of the sentiments of the manufacturing industry. Today I am joined by two guests Cara Haffey and Verity Davidge. Welcome! Cara, can I start with you, maybe just introduce yourself? 

Cara Haffey:

Yeah, I’m Cara Haffey and I’m privileged to lead Manufacturing for PwC in the UK. I work with our manufacturing community and across everything we do in our services for those clients.

Nick Atkin:

Great. Thank you.

Verity Davidge:

Hi I'm Verity Davidge, I'm Director of Policy at Make UK. We are the trade body for manufacturing engineering companies and it's really great to be talking about this really important topic, which is high on manufacturers' agendas right now. 

Nick Atkin:

Right, and it's great to have you both here. Thank you. If you do have any questions throughout the event, please write them in the comments section and we'll come to those at the end of the end of the session.

But maybe just to kick us off, I'm going to come to you Cara, if that's okay. We found in our survey that 43% of manufacturing businesses are increasing their focus on ESG. Are you seeing noticeable changes in what their needs are?

Cara Haffey:

Yeah, definitely so. I suppose one of the parts of the survey where I wasn't surprised but was pleased to see that I suppose over the years that we've done the survey with Make UK, that that has kind of increased in focus. Definitely seeing it at clients. You know, I think if you sort of take it back not that long ago it was a huge cost line, in new power or kind of, or you know, how much cost there wasn't a business but there wasn't really a focus on it. It was kind of like something that was just assumed, right that's what it is, that's what we're doing. And I think there's now such a focus on that as well as all the issues that certainly our manufacturing community either are feeling themselves or new is coming in terms of their clients, asking them more about what they're doing on ESG. And we all know that that is coming as well in their reporting. So it's kind of across lots of things from costs through to reporting through to how they're actually looking at their staff base and resourcing.

Nick Atkin:

It's quite wide ranging, isn’t it? 

Cara Haffey:

Yeah, definitely. I think sometimes we can just talk in terms of climate, but actually the wide ranging issues that people talk about in this category are fascinating.

Nick Atkin:

Yeah, absolutely. Absolutely. And Verity, I think many would agree that we aren’t perhaps moving as fast as we could be on the decarbonisation agenda. How do you think we could speed that up?

Verity Davidge:

I think you're right in that if we look at where we need to be, if we want to be as a sector net zero by 2050, we've got some key milestones. So by 2050, the manufacturing sector has to cut its emissions by around 90%. But before then, by 2035, they need to be cut by 67%. And even by 2030, let's remember, that's only seven years away now by 50%. So that is quite a challenge. I think the positive thing we see across the sector is actually decarbonisation, and net zero is very much high on manufacturers’ agendas. Overwhelmingly, companies are saying it's a high and medium priority and actually 96% of companies that we spoke to said that they are either decarbonising their processes right now or have plans to in the next 12 months.

So I think that's positive news. It doesn't come without its challenges. As companies begin their journey, they tell us there are challenges around the, you know, the cost of upgrading capital equipment, challenges around skills and even a challenge around awareness. You know, what do I need to do? What works for my business? And I think importantly, what is out there to help me decarbonise because it can kind of be quite overwhelming, particularly if you're a small business with lots of other things to do at the moment.

I think in terms of speeding it up, I would say, you know, my active advice for a lot of companies would be go and see what's out there, because actually there's quite a lot of support in terms of grants or reliefs. We've actually done a little bit of a cheat sheet that we've prepared for companies when it comes to things like funding and grants. There is the Industrial Energy Transformation Fund, there is the UK RIs Industrial Challenge Fund. And if you're the kind of company that thinks I don't like to go into the kind of grant territory, there are things like tax relief, there are business rates reliefs, it's just understanding what's out there and then utilising it within your business. And I think that's a really important part of the journey and actually helps you progress a lot faster than perhaps you would have done so otherwise.

Nick Atkin:

Absolutely. It's very, very far reaching in terms of both the here and now product development and the future product development isn’t it, you know actually thinking around designing it into the product right now for a product which might not come to market for a few years time. So actually quite, quite fundamental. And I guess a question for each of you, maybe just to talk to me a little bit about what does decarbonisation mean to you and how are you seeing that sort of play out?

Cara Haffey:

Yeah, what a good question, a word we use all the time, ‘what does it really mean?’ I think for me, I think we talk a lot about efficiency of things, but there is a point where actually it's about consumption and it's first like, do I actually need to use this rather than becoming more efficient at using something? And I think what we're seeing in our client base now is a lot more thought around the use of power and the use of things that are producing carbon and actually really being thoughtful about, you know, when are you doing that? Is that right? Is that the most efficient way to do it? Is it the right machine to be using? And I think that's a very different conversation than we would have been having not so long ago. So for me, it's about that. I think, you know, if we look at certainly in our operational business when we're working with clients, looking at cost out, cost restructuring, also people are turning those skills to carbon restructuring and really putting it at the same level as cost, which is quite, you know, actually that's quite fundamental.If we've got at the same level of how do we do something more efficiently and cost as well as carbon and then clearly has hit quite a level at the boardroom now. 

Nick Atkin:

That's quite interesting, they put the cost agenda next to it and tie that to speed that we talked about a moment ago, perhaps there's a competitive advantage opportunity there for people to actually move quickly.

Cara Haffey:

Yeah. And I think, you know, if you think of it that way, then, you know, unfortunately, given where we are and costs at the moment, and power costs and actually, is there any better time to be looking at this, even if you don’t truly believe that it's what you want to look at. You know, if you have that agenda along with the cost agenda, the right time to be doing it, it feels like the payback must be there compared to what it was.

Nick Atkin:

Yeah, absolutely, Verity, how are you seeing it, what does it mean to you and Make UK? 

Verity Davidge:

You know, on a very, very basic level, it's cutting your emissions. And I think that, you know, it's looking both, you know, inside your factory and outside of your factory. And that's important. But also is a challenge itself, which you perhaps touch upon, I think where we see companies, you know, focus at the moment, as Cara alluded to, because of the cost pressures, particularly what we're seeing around energy is a strong focus on energy efficiency. That's, you know, very much the kind of the key pathway key driver. I think we're also seeing far more companies now, you know, either installing new or upgrading capital equipment that is more energy efficient or even seeing companies do that when they haven't actually come to the end of their life cycle of their previous equipment. So sometimes it's a bit of a question of what have we got on return on investment here because we're about to upgrade it. But actually it is more energy efficient to do that and to do so earlier. And I think a bit of myth busting around that in terms of that return on investment, I think perhaps it's often assumed that investing in new green technologies will require a long payback, but on average, just about 3 to 5 years. So actually we are getting the return on investment back a lot quicker. And I think, you know, as Cara mentioned around consumption, we are seeing a lot greater focus on, you know, energy monitoring of consumption that has become very much kind of a fundamental core part of the business. I think the more challenging area is the value chain. So what we know is, you know, scope three emissions, which are ultimately outside of your control. But that's key because actually it's probably the largest proportion of a company's emissions. So in terms of, you know, engaging in your value chain and collaborating with it. So I think that's the piece we need to tackle and the more we need to do to support companies if we are to meet net zero. That said, you know, one in five companies said they were already actively doing that, so we're beginning to see that movement of this isn't just about me and my business, it's also about my value chain. And likewise the importance of your employees. So we are seeing far more, you know, training of employees around the sustainability agenda, making sure it's kind of from the shop floor right up to the boardroom, that this is really important to us. And even companies introducing things like, you know, EV fleets and purchase schemes and obviously potentially semiconductors challenge, you might be waiting a while for one, but all of that intention is there. So I think we are definitely moving in the right direction and there is that acknowledgement, I think, around you know the boardroom that there is a commercial benefit to doing this. This isn't just a, perhaps a perceived cost. There are commercial advantages and actually we have a competitive advantage if we move fast and we move at speed. 

Nick Atkin:

Yeah, absolutely. I know that we're seeing the search for verifiable and accurate data across the value chain as being one of the first things that organisations are needing to do so that they can then plan how they how they make those sort of transformation changes around the value chain and can report accurately back out to the market because you've all heard of greenwashing, but actually with the data and the platform around the data, the information that makes it a lot more easier to to describe the customer proposition of the of a particular organisation. So I'm pretty sure that I'm sure that will continue. I guess I'm just moving on to another area around skills because obviously in some ways the two things quite, quite nicely go together. We saw a large amount of businesses, you know, intending to upskill and retrain their staff as a means to unlocking growth; growth potential in their businesses. I mean, is that something you've seen Cara in terms of your engagement with clients?

Cara Haffey:

Yeah, I think I suppose I've seen a range. I think people really recognise the theme and the problem and opportunity really. You know, I think there's definitely a gap out there and it can stall people because you're right, around 43% of the people don’t have the skills around it. And I also think, you know, the opportunity for that. So if you're selling into this new market of decarbonisation, what do your customers want? And actually, if you got, you know, the people and your sales front that actually understand, and therefore the new world and actually what your customers are looking for for the future as well. So I think it's about, to Verity’s point as well, about the entirety of your organisation, but also if you can assist the customer-led journey to actually what are your customers want and if you've got the right sales into that as well. And I think sometimes we think in our industry, in skills a lot about shop floor, how is it in the operations and actually I think this is so, so much wider to people understanding how are you going to sell into the opportunity here because actually our manufacturing clients have so many opportunities for new markets here as well.

Nick Atkin:

Absolutely. I think that's such a key point. In some ways it's dragging innovation and growth because the skills are not actually there that you need. I know in the survey it came up quite, quite highly…

Verity Davidge:

And I think it's great to see that commitment to an investment in people because every manufacturer you speak to say, my people are the most important part of my business and they are for this industrial decarbonisation piece as well. When we've asked companies what are the drivers that you're seeing that's changing the skills needs between now and 2030, the top three are flexible work, automation and our transition to net zero. So companies are aware that this is a thing that they need to be focusing on. I think the positive news was in wider Make UK research showed that actually two thirds of companies feel that they do have the potential workforce that they need to upskill and reskill to meet that net zero challenge. It does leave a third that aren’t ready so we need to think about, okay, so what do you need, what you need to be doing now, what you need to be looking at in terms of your skills strategy to make sure that you are confident that you have them, and we are seeing now more companies saying, actually, we are revising our skills strategy on a more regular basis because we need to kind of keep up to speed with all of the technological advancements and actually the sustainability agenda. I think what's quite interesting is the kind of skills needs are changing and what we are seeing is there is a real strong focus around leadership and management, we always know that, that’s also always a skill set they're looking for. But really the kind of innovation side as well, because this is in a way about doing things a lot differently. So innovation is really important. And then skill sets around resource efficiency, data collection, as you alluded to, it's really important. almost this new layer of skills that perhaps we haven't been naturally as a sector have been tapping into that we need to work out like how are we going to get those skills? So I think what the survey shows is I actually, I'm going to try and get them within my workforce. And actually by doing so, I can potentially create, you know, better, well-paid, even better paid jobs. And I think, again, that's an opportunity for employees with this. We tend to talk about, you know, skills needs at level three, which is what the equivalent to like an entry level apprenticeship or a level six, which is, you know, equivalent to a graduate level. But for green skills, it's a bit in the middle level four and five. And so as long as companies are confident they can find, you know, the training provision to match that need, then actually there's a real opportunity for us to create really great green jobs for this and future generations.

Nick Atkin:

That’s really interesting as you say it brings into context productivity in this broader sense as well, isn't it?

Because without skills you can't create the productivity pull through that you need. Do you think there's a role for technology, what you just said, maybe just coming back to yourself for a second, Verity, in terms of how technology can help fill some of that skills gap or does it just move the problem elsewhere?

Verity Davidge:

I think when you're facing a labour shortage, which we are right now, we're at about 74,000 live vacancies in manufacturing, it has improved, towards the end of last year it was around 95,000. But 74,000 is still quite significant. I think the natural thing to do is look at your workforce and the workplace and think, can I increase my automation within the business? Can I create, you know, labour efficiencies essentially, And we are seeing that happen. I think the challenge is, you know, it's slightly chicken and egg. If you invest in automation, you may be replacing that very assembly line with robots and cobots. You still need people to operate a robot, you still need people to service a robot. So are you confident you can find that next level of skill set, which is why that retraining and upskilling piece is so important, because if you are transforming your company, if you are bringing them on this kind of technology and their journey, you have to bring your people with you, because without them you won't actually succeed in that.

Nick Atkin:

So you are to do both together. 

Cara Haffey:

And that came up a bit in our Green Jobs Barometer is actually the amount of some set industries as they're termed, and actually by region that's very different across the UK and how that features. So it's, as you say, fascinating to see how kind of different industries will focus on that and actually put that training in to really, you know, you could be having leadership in that and actually been really positive about the leading that could be done.

Nick Atkin:

Yeah, absolutely. 

Verity Davidge:

I think it's also a real opportunity to attract the next generation. So it’s the sector we've always said always, you know, is challenging to get young people interested in manufacturing and we've got loads to offer. And actually if you look at the generation coming up, they are very into, you know, sustainability, environment, they're asking those questions to manufacturers in the interview stage and now we have this great, even better story to tell of we are providing the solution to the climate change crisis, come and work with us. So I think actually opens up that talent pool available to us and will attract kind of a great pool of talent. 

Cara Haffey:

Exactly

Nick Atkin:

Absolutely, so getting access to that sort of experience and training is amazing for any young person and experienced person coming through. So yeah, I agree. I look, I can see we've had quite a few questions come in actually online. So thanks everybody for putting those forward. Let me take the first one. Where is the UK in terms of decarbonising for manufacturers in comparison to the rest of the world? I don't know whether you see that Verity in your work with other organisations.

Verity Davidge:

I think that we are, you know, quite far ahead, to be honest. I mean, we work very closely with our European umbrella organisation CMET. So we see what companies are doing across Europe and actually in terms of what industry itself is doing, it is moving along quite quickly. I think we're perhaps in a way lacking, and back to, you know, how can we speed it up is in our European competitors or counterparts, there is arguably a bit more support there. So for thinking about the energy crisis and energy costs, we are a little bit at risk of becoming less internationally competitive because there's more kind of support in place for those, you know, for those countries and therefore they can decarbonise a lot quicker because actually that cost pressure is reduced. But actually I think in terms of intention, actually what we are doing in the UK is very innovative and back to that competitive advantage. You know, we need to move fast and move at speed and actually it could be quite a game changer for us. 

Nick Atkin:

I agree, I think even if you look at the take up of EV in the UK compared to parts of Europe, which is very significant. So I think we're making some good strides in that. I mean you're seeing that with some of your…

Cara Haffey:

Yeah, definitely. I think, you know, we are and I think it's, to Verity’s point, it's how do you keep momentum in that? How do you get our infrastructure working? How do you make it all doing together? I always feel like it's that bit that then, we see the charging how that works for that, you know, it's just making it all kind of come together is a bit. But at the same time there's amazing stories out there and amazing things being done in that ecosystem which actually, you know, if we all sat here and thought would that happen, you know, so I can be really positive about that. 

Nick Atkin:

Yeah. Yeah. Good. I mean, maybe it's a follow on question actually quite nicely. Do you think the current geopolitical scenarios around the world will impact decarbonisation goals in Europe and in the UK? I guess to lead off, we're an interconnected network and most of the companies that we work with are either national or transnational, so therefore they're connected through those scenarios anyway. I mean, you know, we've heard the word friendshoring during whether that's actually happening or not. We will see. But the implications of productivity coming out of China, for example, on PV panels, etc., is going to impact what we can do in the rest of Europe, we’re just so interconnected. So I guess from my perspective it would be, but what do you think?

Cara Haffey:

I think, you know, I bet you can't help but look at, you know, what's happened with the war in Ukraine and understand how connected we are from a power energy usage. And therefore, how much change there's had to be. And, you know, I think therefore geopolitically, you know, there's a lot going on and sometimes that can feel overwhelming, about really, when you look at actually the geopolitics in the world. I think what is interesting, I suppose in each company, as you say, a lot of our companies are international, so they're dealing with these pain points. And so I think it has to come into the new each company is looking at the politics and the implications for government and what's available in each country, and therefore, it must impact. And I think, you know, it does therefore push you to things will change and actually is change a good thing? Ultimately for decarbonisation we do need to change and we haven't changed quick enough as a whole globe. So therefore, that push, whether it comes from horrible events through or otherwise, you know, I can't change that. But actually I do feel like there is change there and that people are really focused on this now.

Nick Atkin:

Yeah, Yeah. 

Verity Davidge:

I think, you know, if the energy crisis has spurred on companies to really think about consumption and around energy efficiency, would we be so far ahead in our journey two years ago if certain events haven't happened? Possibly not. I think it has got companies thinking about how can I reduce consumption, therefore, cost. I think the interesting point about friendshoring, the latest concept is, I think a phrase that I like a good buzz word, and I think we are seeing companies look at their supply base, we are seeing it moving back home but not quite reshoring fully.

But then, you know, you throw into that the new kind of concept of greenshoring where companies are looking particularly regionally and locally, diversifying the supplier base and really thinking about their carbon footprint. So we do, I think, we almost will, see more of the greenshoring happening and less of the friendshoring and that will be about how you achieve your net zero target and how you really think about the value chain in those scope three emissions.

Cara Haffey:

That wouldn't even come into it for, you know, it's like not long ago we weren’t considering the where or the how mileage or you know anything like that. 

Nick Atkin:

Yeah, absolutely. The simple question, but it's quite a long answer, I suspect. What one thing would help manufacturers achieve net zero, if there is one thing or the prioritised thing, do you think manufacturers should focus on.

Verity Davidge:

I would say consider, you know, digitise to decarbonise. I think the role of digital technology in becoming more energy efficient, the evidence base is just building and building. We're seeing companies and, you know, you want to do both because you want to transition to net zero, but you also want to take advantage of the great industrial digital technologies that we have available.

And the two go hand in hand. So if you are making those investments in robotics, cobotics, AI and machine learning, you actually begin to get payback in terms of energy efficiency. I appreciate that probably is like a stretch for some companies who aren’t ahead of that journey. So I say for those now at the start, sharing best practices and going out to companies and looking and learning at what they are doing and realising that it's not kind of scary and overwhelming and that those payback periods can come out. So I think for us, we know we tend to try to get manufacturers to go out and visit others to see how that, what they are doing and how they are doing it. But the role of digital technology does play I think a really key role is that the common theme amongst the success around decarbonisation.

Nick Atkin:

Yeah, I tend to fully agree because with data and information comes facts; and fact gives you credibility to talk to your customers about what you're doing, to position your customers products in a new way to attract green finance in a way that is actually probably going to give you a lower cost of capital, etc. So I agree it's a very fundamental aspect. And do you feel the same way around digital technology, is there one area that you think would be a focus for manufacturers?

Cara Haffey:

I think if I answer it slightly, I think it leads on very well from the digital point. I think for me it's where I've seen it done best in private businesses where the owners or the board really want that. So it's kind of led from the top and therefore it is very much a whole company’s focus and actually you see that massively where they you know, because all of this is about very small things a lot of the time, but all done, there's not one thing that's ever going to change it. And therefore, I think that company, that culture across actually just gets people really innovating and very focused on it. And therefore you've got the data, the board level to really know what's happening then that really works. 

Nick Atkin:

Great, thank you. Believe it or not, we're getting close to time. So probably a quickfire last question, quite topical and timely. What would you like to see announced for the sector in the Budget next month? Maybe. 

Verity Davidge:

I'm going to definitely have a hit list.

Cara Haffey:

Yes, you would, right? Make UK would have a hit list. 

Verity Davidge:

Yes, We would like to see the chancellor get up and announce a super green deduction. So extending the super deductions scheme. But to focus on green technologies and energy efficiency. We would love to see the R&D tax relief scheme extended to include capital expenditure to support industrial decarbonisation. And I think, you know, on the EBDS, as we've known it, a new incoming scheme around energy support, if we think that that scheme is going to get triggered, which it possibly might not, let’s ring fenced that 5.5 billion and spend it on industry to drive energy efficiency and really pursue our journey on industrial decarbonisation.

Nick Atkin:

Brilliant. Thank you. And on your list Cara?

Cara Haffey:

It’s never going to be as good as that, but I think for me and the one thing I hear from clients is the R&D tax credits, and maybe that’s because of who we are at PwC. But actually that's the one area that people focus on because it is driving good behaviour and capital investment, and people have really got into the way of how that works.

Nick Atkin:

Yeah, brilliant. Well, I think let's draw it to a close. That's been super insightful. Thank you both for your input. Really, really helpful. And thank you for joining our discussion today.

For more insight on our PwC services, you can reach out to myself or Cara and you can find our Make UK survey link in the description to the event. Please keep an eye out for the next episode in this Industrial Revolution series. So thank you very much for joining us today and have a good rest of the day.

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