IWA Analysis: Sustainable Business for Future Generations with Wales & West Utilities

The IWA has partnered with WWU to host two roundtable events, the second of which focussed on the role of business in driving forward net zero (an analysis of the first event is available here). Bringing together leaders in the private, public and third sectors, the conversation sought to discuss challenges and opportunities for the private sector in delivering a just transition to net zero, and the ability for key wellbeing principles, as laid out in the Well-being of Future Generations Act, to guide sustainable business practice.

Context

A new UK Government has recently been elected, with their term stretching out to 2029. By which point we will be hurtling past the halfway point of the UK’s legally mandated net zero by 2050 journey, from the passing of the landmark Climate Change Act in 2008.

The UK Climate Change Committee’s recent report on the UK’s progress against emissions reduction targets further emphasised the need to accelerate the pathway to net zero, stating ‘the previous Government signalled a slowing of pace and reversed or delayed key policies.’ The report notes that ‘the new [UK] Government will have to act fast to hit the country’s commitments.’ 

Energy plays a pivotal role in the transition to a net zero economy in Wales, with both households and businesses expected to decarbonise. At this stage, there is a need for a broader discussion on Wales’ future energy mix (as part of a UK-wide system). Whilst the new UK Government, alongside Welsh Government, have ambitious, and welcome, targets of decarbonising electricity generation over the next decade (by 2030 and 2035 respectively), the pathway to achieve them is challenging and requires an immediate acceleration of action. Importantly, generation needs to keep pace with the scale of increased usage expected by the electrification of key sectors such as transport and industry. The future for the gas network, however, is less clear.

Gas systems continue to play a major role in power generation in Wales and across the UK. This is especially true for  housing, with many more homes heated by gas in England and Wales than with electricity. With the recent Welsh Government Heat Strategy for Wales highlighting the need to accelerate the transition to heat pumps if they are to play a more significant role, adequately incentivising and supporting households will be vital. Local authorities and regions will also need to consider their options including heat networks and other net zero energy sources, such as hydrogen. Government, in this environment, can crowd-in investment (as GB Energy intends to do), providing a clear pathway for business which acts to de-risk investment, thus stimulating further activity.

As in energy, so in all other parts of the net zero transition, actions must be socially just to maintain public support and drive progress towards wider economic and social targets.

The role of business in delivering a just net zero transition

As the IWA’s Fiscal Firepower report laid out, Welsh Government’s budget provides only limited ability to kickstart major projects to improve people’s lives. This is especially the case given recent pressures to its budget, with more and more being allocated towards supporting the delivery of statutory services (mainly health and social care).

The recent launch of Wales’ publicly owned renewable energy developer, Trydan Gwyrdd Cymru, is a positive step. Its focus on renewable energy developments on the Welsh Government estate shows the limit of government in Wales to invest in infrastructure on the scale needed by ambitious net zero targets. It thus represents a good opportunity for the public sector to showcase ‘best practice’ projects which deliver meaningful returns to communities.

As in energy, so in all other parts of the net zero transition, actions must be socially just to maintain public support and drive progress towards wider economic and social targets.

As such, and as evidenced by the partnership approach laid out in UK Government’s GB Energy, the private sector will be vital in delivering against governments (at UK and devolved level) net zero goals.

At the roundtable, participants reflected that investment in net zero projects in Wales is not in short supply, yet it needs to be directed towards a social or public purpose. Long-term certainty and direction enable the private sector to play their role in investing in the infrastructure needed for current and future generations alike. It was also noted that new initiatives from UK Government, such as GB Energy and the launch of a new National Wealth Fund, which aims to ‘mobilise billions… in private investment and generate a return for taxpayers,’ were positive steps in increasing long-term confidence across the private sector in the UK. This will have a positive impact on Wales.

Whilst these are positive steps, government in Wales has a key role to play in mobilising and directing private sector investment in Wales. During this transition phase, Welsh businesses need clarity and certainty to invest. Co-designing future pathways alongside business is therefore vital. Importantly, we will need a clear return for public and private partners alike.

Collaboration and coordination to unlock transformation

Roundtable participants highlighted that when it comes to net zero policy and planning in Wales, we are all too often ‘world class’ at policy rhetoric whilst delivering mid-table (if that) results. Part of the issue, stated some participants, is a siloed approach to policy making, with public sector departments, which are responsible for delivery, not lending themselves to collaboration, particularly with the private sector. Transforming good policy into good delivery on the scale required necessitates the input of business, alongside a well-resourced public sector.

It was noted that Corporate Joint Committees (CJCs), newly incorporated with broader powers over transport and energy, and with decent funding arrangements, have a number of levers to pull to support the acceleration of a just transition to net zero. Pooling decision making to the regional level such as CJCs, it was argued, may lend itself to collaboration to a greater extent than with local authorities. It was posited that CJCs could deliver targeted funding towards Welsh Government’s net zero goals, and in doing so enable greater devolution within Wales. The future of Shared Prosperity Funding, managed, as it has been to date, on a regional level, could significantly enhance the ability of CJCs to deliver, especially if part of a multi-year funding programme. Additionally, enabling the articulation, at a regional level, of what social value looks like could have a big impact on the shape of projects delivered in partnership with businesses. 

Connecting SMEs with best practice when it comes to decarbonising and aiding them to deliver wider social benefits to their customers, service users and supply chains could unlock long-term economic returns alongside adding social value to communities.

Roundtable participants highlighted the role of SMEs in Wales’ net zero journey. With SMEs representing the majority of businesses in Wales (although this is not reflected in contributions to greenhouse gas emissions), they are vital to deliver a positive local socio-economic impact. Whilst it was recognised that there is a lot of willingness amongst small businesses across Wales about decarbonising their operations, there is a gap in their understanding of how they can go about it. Connecting SMEs with best practice when it comes to decarbonising and aiding them to deliver wider social benefits to their customers, service users and supply chains could unlock long-term economic returns alongside adding social value to communities. On focussing on decarbonising large-scale businesses, which represent the bulk of Wales’ greenhouse gas emissions, it is important to equally focus on ensuring that SMEs are not left behind in considering the mix of the future of Wales’ green economy.

Finally, ensuring that a long-term skills strategy aligns with regional economic priorities is critical. Businesses will be vital partners to government in not only supporting training opportunities for a raft of green jobs, but also in ensuring such skills are adequately sustainable in the communities that need them.

Using the Well-being of Future Generations Act as a guide for sustainable business practices which deliver social value

The Well-being of Future Generations Act (henceforth, the Act) is a globally pioneering piece of legislation which oriented the UN sustainability goals into a Welsh context. The seven well-being goals and five ‘ways of working,’ now firmly established as part of the Act, set the context for what kind of Wales we collectively want to see and how we can work together to achieve it.

Legally, the Act covers (to date) 48 public bodies, a list which has consistently grown. Whilst the Act is slowly fulfilling its intended purpose of helping to transform the delivery of public bodies in alignment with the wellbeing goals, it has gained significant interest from businesses looking to establish corporate goals in a Welsh context. Whilst some of this has been driven by proactive procurement practices by the public sector, the interest goes beyond this, with businesses recognising the need to play their part in creating the socially just green economy of the future.

It has thus become increasingly common for businesses to align their strategies and missions to the goals of the Act. For example, WWU’s 2023 Sustainability Strategy has been aligned to the Seven Wellbeing Goals as well as the UN Sustainable Development Goals. In doing so, WWU map their activities across relevant aims, essentially using the Act as a driver to deliver wider sustained social value. Further than this, the use of the goals of the Act extend the vision in which the organisation’s activities are taking place, ensuring a longer-term approach is taken.

Whilst organisations are seeking to align themselves with key wellbeing and sustainable development principles, there remains a question over measurement, accountability and reporting against said principles. Alas, stating an alignment to social value is necessary but not sufficient. How businesses, of all sizes, can demonstrate social value as well as analyse how to monitor and improve their impact is an important, yet missing piece of the puzzle.

At the roundtable, participants discussed the need for a ‘wellbeing scorecard’. A simple, user-friendly toolkit which can help businesses align their activities against wellbeing goals helping them deliver social value could prove transformational in encouraging sustainable business practices. Such a toolkit should enable organisations to collect data on their impact with steps on how they can lessen their environmental impact. A roundtable participant stated that an AI model could provide the basis for this resource. It could also build upon existing resources such as the B-Corp platform, but seek to place them in a Welsh specific context aligned to the Act. This platform should aim to be open source, ensuring there are no barriers to establishing sustainable business practices.

A shared set of terminology alongside a clear articulation of the type of economy Welsh Government want to foster will become increasingly important as the state attempts to provide the direction of travel for economic transformation in the next decade.

Importantly, this approach would remove some of the burden for small businesses, who may not have the resources or skills to consider how they can deliver long-term benefit to communities. Many stakeholders including from public bodies, the third sector and businesses, stated  confusion over terminology in the wider economic policy in Wales. Indeed, Wales has, to some extent, wavered over the economic model its policies are attempting to pursue, with interest in the Foundational Economy making way for Wellbeing Economy theory and practice. Such wavering erodes confidence and comprehension in non-state actors. A shared set of terminology alongside a clear articulation of the type of economy Welsh Government want to foster will become increasingly important as the state attempts to provide the direction of travel for economic transformation in the next decade. A wider, more representative set of economic indicators, which speak to this economic strategy, would help policy implementation and scrutiny. A set of indicators was also called for in the IWA’s recent report with Oxfam Cymru: A Wales that Cares for People and Planet.

In addition to the above policy ‘carrots’, there is a need to effectively implement a set of policy ‘sticks,’ which disincentivise extractive, exclusively profit driven business practices. Some of this can be done by effective procurement processes, but that is not sufficient in and of itself. Ways of making it harder to do bad business should be considered alongside the above ideas for making good business easier. Taxation, subsidy and licensing for projects are all ways of doing such. 

What next?

There is clearly work to be done in Wales in articulating to a greater extent how businesses looking to invest in the nation can effectively deliver sustained social value to communities. The Future Generations Act has a role to play in providing a framework for businesses to orientate their business and investment decisions, and indeed, it is already doing so. Yet, this currently sits out of the remit of the Commissioner’s Office. As such, there is work to be done at Welsh Government level in setting clear economic strategy and policy which sets out how the private sector can contribute to achieving more just and sustainable socio-economic outcomes. 

New Welsh Labour leader and First Minister Eluned Morgan has pledged to undertake a national listening exercise to establish her priorities for Wales. As challenges mount for a Welsh Labour Government to deliver against their priorities ahead of a Senedd election in 2026, their focus should include collaboration with businesses seeking to create social and wellbeing benefits. Business will have a fundamental role in delivering Wales’ economic policy intention, and they should be able to co-create a set of indicators which provide confidence and reassurance to crowd-in net zero investments.

Organisations represented at the roundtable included The Office of the Future Generations Commissioner for Wales, Arup, Net Zero Industry Wales, FSB Wales, Celtic Freeport, Cardiff Capital Region, Institute of Directors, Afallen, Port of Milford Haven and a number of political stakeholders. The IWA and WWU are thankful to Jenny Rathbone MS for sponsoring the event which took place at the Senedd. 

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