From fossil fuels to renewables – within a decade: key lessons from Ørsted’s green transformation
To win the Race to Zero, all companies must put sustainability at the heart of their business model and undergo their own green transformation, argues Jakob Askou Bøss, Senior Vice President of Corporate Strategy & Stakeholder Relations at Ørsted
Climate change is one of the greatest challenges we are facing today – but it is one that we can overcome together through collective action, robust policies, and bold leadership. Companies have a central role to play in combatting climate change by driving action both within their operations and supply chains, demanding ambitious policies from governments, providing solutions that enables the global green transformation, and inspiring peers across industries to act.
At Ørsted, we’ve undergone a green transformation over the last decade and we are often asked to share our learnings. As a result, we produced a lessons learned paper to demonstrate that there is no long-term trade-off between sustainability and financial value creation and to be a catalyst of change – helping other companies and governments embark on their own green transformation.
A brief history of Ørsted’s formation and transformation
In 2006 we were known as DONG Energy, formed by a merger between the Danish state-owned oil and natural gas company and five Danish energy companies. At that time, our energy generation was 85% fossil fuel based – mainly coal – and we were one of Europe’s most fossil fuel intensive companies, accounting for a third of Denmark’s emissions, with an expanding oil and gas production business.
Shortly after, a confluence of events forced us to confront a shifting reality. The science on climate change was becoming increasingly clear, the issue was rising up the political agenda, countries began setting emissions reduction targets, and the economic potential of the renewable energy sector was increasing. At the same time, our fossil-based earnings were under pressure, due to a number of external events, including the financial crisis.
In 2008, we set out a vision to transform from black to green energy. Our goal was to flip the ratio of heat and power production from fossil fuel to renewable sources so that by 2040, 85% would be green and 15% would be from fossil fuels. To realize this, we have taken several concrete actions to reinforce our focus on building a global renewable energy business:
- Closed coal-fired heat and power plants, or converted them to run on sustainable biomass
- Set a complete coal phase out target by 2023
- Divested our upstream oil and gas business
- Increased investments into offshore wind and made it a strategic core of our business
- Diversified further into onshore wind, solar, green hydrogen, and energy storage
We met our goal of green transformation in 2019, a full 21 years ahead of schedule. By the end of 2020, 90% of our energy generation was renewable and we had reduced CO2 emissions per kWh by 87%. However, our green transformation is not yet fully completed. We are on track to become fully carbon neutral in our energy generation and operations by 2025 and have set a target for our entire value chain to be carbon neutral by 2040 with a 50% reduction by 2032.
Today, we are the global leader in offshore wind, with a 25% market share, and develop and operate offshore wind farms in Europe, Asia and the US. We also have a growing onshore wind and solar PV business as well as a strong and expanding pipeline of renewable hydrogen and green fuel projects.
What did we learn?
Our green transformation was difficult but necessary. As we enter a critical decade of climate action, there is real urgency for all stakeholders – especially companies – to put sustainability at the heart of their decisions and operations. Our lessons learned paper offers what we believe are seven important lessons applicable to all companies across sectors, with the goal of helping others in their journey. Here are a select few:
- Confront your reality in a changing landscape
Climate change is one of the biggest issues facing humanity today. Business models will be disrupted if companies fail to act or adapt – both from the physical risks of climate change as well as from the increased scrutiny from customers, investors and policymakers. Therefore, it’s important for all companies to take an honest view of the long-term viability of their business models in light of the changing context.
There is momentum towards a net-zero society and a material risk of being left behind for companies that fail to act – the Race to Zero coalition has mobilized thousands of companies, cities, and investors committed to reach net-zero by 2050, who collectively represent 25% of global emissions and over 50% GDP.
- Drive tangible action.
Set science-based targets to help guide the transformation. Targets should be ambitious enough to drive change and realistic enough for the organisation to achieve. It’s important to translate the targets to concrete one-year action items so that all employees engage with them during their daily work. Crucially, companies must also review and report progress on their targets frequently.
At Ørsted, we set targets around decarbonisation and coal phase-out, and they have been instrumental in mobilising resources and aligning the organisation behind a shared objective.
- Expect exponential change.
Experience has shown us that across industries, transformations happen slowly at first – in what is known as an ‘emergence phase’ – and then exponentially in a ‘diffusion stage’. We tend to underestimate the speed of change and the challenge for leadership is to stay ahead of the curve and be open to the new possibilities as they arise.
We reached our transformation goals in a decade, rather than 30 years as originally expected, demonstrating that with the right momentum in the organisation – you can achieve much more than you could originally imagine.
Ahead of COP26, business can drive real change
The growing momentum from companies, cities and investors committing to a net-zero future is important in the run up to COP26 – to both provide clear signals to governments and to encourage others to join. Over 2,000 leading companies from across 84 countries have committed to cut emissions in line with the science, and we encourage all companies to follow suit and join the Race to Zero.
The private sector, by and large, has both the technical capabilities as well as the financial means to help speed up the green transition. As such, companies and investors can drive and demand real change from their peers across industries and from policymakers and governments. By building on the momentum and creating more ambition loops – businesses can move the needle on climate action.
We must once again confront the reality of a changing landscape: CO2 levels are at the highest levels of human history despite a year of lockdowns and we now have a 40% chance of exceeding the Paris Agreement’s 1.5 °C temperature target within the next five years.
Whether you’re a business leader or a politician, we all have a role to play in ensuring an all-of-society transformation. It’s time to speed up action and drive emissions down rapidly across all industries. We are quite literally running out of time.