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The new measure of corporate success

Apr 06,2021 - Last updated at Apr 06,2021

By Michel Fredeau and Jules Kortenhorst 

BOSTON — For decades, global leaders have failed to respond to climate change with appropriate urgency, even though the science has long been clear. Now, the problem has become so acute that it is impossible to ignore, and those in positions of power are under growing pressure to start making up for lost time.

For businesses, the pressure is no longer coming only from protesters, but also from shareholders, customers, investors, lenders, employees, policymakers and every other stakeholder with a true understanding of the climate threat. From supply-chain disruptions to lethal conditions for outdoor workers, the risks to business are multiplying.

From now on, CEOs will need to answer four key questions: What will my market look like in a net-zero-emissions world? What is my business model for succeeding in that market? What changes should I make now to prepare for success? What supporting conditions will I need, and how do I go about securing them?

CEOs who act early can secure competitive advantages and capture major economic opportunities for their companies. The global shift toward a net-zero global economy is already underway, auguring a complete transformation of almost every sector, with some players reaping major rewards while others commit to major write-downs.

Consider the stock performance of power companies that have committed to the clean energy transition. The Danish multinational Ørsted has gone from supplying 85 per cent of its power with fossil fuels in 2009 to supplying 88 per cent with renewables today. It expects to reach net-zero energy generation and operations by 2025, and to eliminate all emissions associated with its business by 2040. During this transformation, the company has started to post consistent profits, and its stock valuation has soared. “Shares in the company have more than doubled since its listing in 2016, giving Ørsted a valuation of $56 billion,” E&E News reports. “That is more than ConocoPhillips and all but a handful of American utilities.”

As the energy transition continues to accelerate, climate commitments increasingly will be seen as table stakes for doing business. Climate champions will surge ahead of the laggards, and this first-mover advantage will cascade across the economy, starting in the sectors with a relatively straightforward path to de-carbonisation: electricity, transportation, and buildings. Progress here will then enable similar transformations in industries that are harder to de-carbonise, such as shipping, steel, cement, and aviation.

In fact, climate leaders are already emerging even in these more challenging sectors. In shipping, Maersk has committed to deploying a carbon-neutral vessel by 2023. “Fast-tracked by advances in technology and increasing customer demand for sustainable supply chains,” the company reports that it “is accelerating [previously announced] efforts to de-carbonise marine operations”.

Similarly, in aviation, Airbus is leading the way with plans to deploy a carbon-neutral hydrogen-powered aircraft by 2035. Its chief executive, Guillaume Faury, sees this as “a historic moment for the commercial aviation sector” that marks “the most important transition this industry has ever seen”.

Such de-carbonisation ambitions in hard-to-abate sectors should be a signal to CEOs everywhere that the net-zero transition is already here. As Ernest Hemingway famously said about personal bankruptcy, it often happens “gradually, then suddenly”. The shift to a green economy will be no different. Increasingly, business leaders are recognising that the risks of being left behind will grow larger by the day.

The imperative to achieve net-zero emissions is not merely about positioning one’s company for survival; it will also be good for business. Chief executives can start implementing initiatives that will actually save money, by reducing waste, increasing circularity, and improving energy efficiency. Moreover, adopting sustainable systems and operations will yield significant benefits to a company’s brand, attracting not just customers but also top talent. Investors, board members, policymakers and other key stakeholders are increasingly interested in companies with a sustainable plan for the future.

As leaders with an important role to play in global decision-making, CEOs have an enormous responsibility to help drive progress toward net-zero emissions. We are in the race of our lives, and so are companies. Any attempt to win by moving slowly will amount to a defeat for everyone. But while we all must take action, it is incumbent on those with the most power to leverage their positions in the interest of rapid change.

We still have a chance to avoid truly catastrophic climate-change scenarios, but only if every leader steps up. The risks posed by climate change are an existential threat that no one, and no company, can avoid.

 

Michel Fredeau is managing director and senior partner at Boston Consulting Group and a member of the World Economic Forum Global Future Council on Net-Zero Transition. Jules Kortenhorst is CEO of the Rocky Mountain Institute. Copyright: Project Syndicate, 2021. 

www.project-syndicate.org

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