OPINION: Political uncertainty has become a business risk for industry
Swedish manufacturing companies have ambitious climate targets and concrete plans to reduce emissions as an important part of strengthening their competitiveness. However, weak demand in the short term and a lack of political predictability are hampering the transition. Sweden’s next government must create conditions that make climate-related investments profitable and scalable, argue representatives of the innovation programme Net Zero Industry.
Sweden needs a strong manufacturing industry that creates growth and jobs, develops lower-emission solutions and remains competitive globally. For companies to continue investing in solutions with a lower carbon footprint, being a frontrunner must also make business sense. Climate ambitions must be matched by market conditions that enable companies to turn their targets into reality.
A recent report from the innovation programme Net Zero Industry shows that the transition towards net zero is firmly established at a strategic level in many companies across Sweden’s discrete manufacturing industry. Companies have targets, action plans and monitoring procedures in place. Efforts are also under way in day-to-day operations, particularly to reduce emissions from their own production and purchased energy.
Companies are at different stages of the transition. Larger companies are more likely to have the necessary resources, expertise and data in place, while smaller companies face different circumstances. Nevertheless, the report paints an overall picture of an industry that is actively pursuing the transition and recognises its potential to strengthen competitiveness. The next step requires investments to make commercial sense in the shorter term as well.
The most commonly cited commercial barrier is insufficient demand or willingness to pay for lower-emission products. Companies can develop better solutions – and are prepared to invest their own capital in them – but customers must also be willing to buy these products at prices that make the investments financially viable.
There is also a time dimension to this conflict.
The commercial dilemma of the transition becomes clear when companies distinguish between the short and long term. A large majority believe that the transition will strengthen their competitiveness in the longer term. However, only 37 per cent see a competitive advantage within one to three years. Investments need to be made now, while the expected commercial benefits lie further ahead.
Investment cycles are longer than electoral terms
Factories, production lines, energy systems and new products are not built with the next financial year or electoral term in mind. They are developed on the basis of assumptions about how markets, energy systems and regulatory frameworks will operate well into the future.
A majority of companies believe that neither Sweden’s nor the EU’s climate and energy policies are sufficiently predictable to enable sound long-term investment decisions. This does not mean that companies want an absence of climate policy. They want a clear direction that remains sufficiently stable over time to give them the confidence to invest.
When policy signals change and regulations and ambitions shift abruptly, more companies will hold back. Those that have taken the lead are left bearing the costs of the transition without being rewarded by the market conditions and regulatory frameworks that shape competition.
What Swedish manufacturing companies want from policymakers
Above all, companies want conditions that enable them to invest their own capital sustainably and with a long-term perspective. Simplified and better-coordinated legislation, regulations and reporting requirements are among the measures most widely regarded as important, alongside long-term political decisions and price incentives for fossil-free alternatives.
We therefore urge Sweden’s next government to prioritise three key areas:
1. Ensure long-term predictability in climate and energy policy. Companies need sufficient certainty to make investment decisions with economic lifespans extending far beyond a single electoral term. Businesses have demonstrated their ability to adapt to demanding requirements, but it is difficult to respond to requirements whose direction and level of ambition are constantly changing.
2. Simplify regulations and reduce administrative burdens. Administration is not a climate objective in itself. When companies spend more effort interpreting overlapping reporting and regulatory requirements than transforming their products and production processes, policy has failed to achieve its intended purpose.
3. Make the green transition commercially viable. Policymakers cannot legislate profitability into an individual factory, but they have tools that influence market conditions. Standards, public procurement, energy systems and economic policy instruments are among them.
Swedish manufacturing industry is not waiting for someone else to solve the climate challenge, but companies need conditions that support their ambitions and long-term commitment. If Sweden wants its manufacturing industry to achieve net zero while strengthening its position in global competition, the political and regulatory framework must not be more short-term in its outlook than the investments companies are making.
Political uncertainty is a business risk.
Sofia Wieselfors
Programme Director, Net Zero Industry
Cecilia Ramberg
Deputy Programme Director, Net Zero Industry