Lead before being lead

More than a fifth of the world’s largest corporations, with combined sales of nearly US$14 trillion, are estimated to have committed to reach net-zero carbon emissions by 2050 at the latest. Many more still need to do so.

The challenge is to make their intentions real: to turn commitments into sustainable plans and actions, says ‘Getting Real – A blueprint for commercially smart climate transition’, produced by Oliver Wyman.

Corporations need to do this at pace and at scale. They need to do it with the tools and constraints they have today, without waiting for a more supportive environment. Yet they must achieve this within the normal pressures of sustaining and growing a profitable business.

Corporations are under pressure from different quarters – pressures that can drive them to action or hold them up. Investors are increasingly motivated to finance the transition, but the territory is complicated by multiple agendas, unsettled priorities and insufficient data.

Smaller businesses are less focused or equipped to participate, and most consumers are still inactive. Regulatory pressures mostly remain in the future, but anticipated regulations are incentivising companies to avoid dangers ahead.

Working with the Climate Group, Oliver Wyman talked to 27 major corporations, who have a track record of setting, pursuing and generally meeting climate goals.

Their progress has been impressive (and real) but their focus is rightly on what they still have to do. It is the anticipation of pressures that do not exist yet.

The report identified four domains that businesses need to manage in order for their transition plans to be commercially successful and to have impact.

• Leadership: It begins at the top – in signalling priorities, demonstrating commitment, showing a long-term perspective, empowering colleagues, enabling investments, influencing other players in the system, supporting risk-taking, and protecting against failure.
• Business System: This is where decarbonisation takes place. But the task is deep and broad. Climate leaders work strategically on transitioning the whole value chain, rather than just the scope of their own business, creating opportunities for great climate impact and commercial value.
• Customers: Companies in all sectors are engaging their customers. Big, corporate customers are active and offer commercial opportunities, through collaborative relationships more than paying product premiums. Smaller businesses tend to be reactive, while consumers’ climate concerns are mostly not leading to action today.
• Finance: Climate action financing is currently abundant – for ventures that can demonstrate the right combination of financial and climate returns in the context of a planned transition. One result is a fast-evolving industry of metrics, disclosures, ratings, carbon budgeting and carbon pricing – at a company level with external funders and at a project level within organisations.

What do leaders need to do, and how are they managing to do it?

Now is the time to lead, before being led – to envision an organisation’s role in a low carbon and then net-zero world, as well as in driving the transition, and to chart a path to achieve it. This is a strategic challenge that goes far beyond incremental reductions in carbon emissions and reacting to regulation or to environmental, social, and governance (ESG) scoring systems.

Net-zero commitments don’t fit the norm of businesses’ forward-looking statements. What does it even mean to commit to something that they don’t know how to do and that will be tested only long after the leadership team retires?

Yet, interviewees said repeatedly that bold commitments and targets have unlocked progress, making the previously impossible possible. “If targets were not set, technologies would not be pursued,” said one executive. “It’s self-fulfilling,” said another. “If you don’t put the goal out there, you won’t find a way.”

How can a company achieve breakthroughs and acceleration from such comments?

Live your purpose: organisations that are led by purpose have drawn heavily on this to shape and justify their commitments. A purpose can also help guide the resolution of conflicting goals.

Build confidence in steps: committing to the transition is not a one-off action – it’s a journey. Building confidence through small leaps of faith, and past achievements, paves the way for taking on bigger commitments.

Model the alternative: Climate action leaders often talk about their commitments by contrasting them with the realistic future alternative. They recognise that to ‘do nothing’ is not the same as ‘nothing changes’. As one interviewee said: “You can’t model how fast it will happen, but what is guaranteed is that the cost of carbon credit – the cost of compliance – will go up”.

The report also found two overarching themes:

1. Own the problem - Don't offload it

Climate change is a collective action problem and this comes across clearly in the approach of the climate action practitioners. Their mindset is not to offload the problem to other players, but to take it on and make the biggest impact they can, given who they are. The key to success is for this generation of leaders “to embrace the reality of climate change”, says Steve Howard, Chief Sustainability Officer for the Singapore government’s investment company Temasek, and “to recognise that it is happening now, on their watch, in their term of office, and to take responsibility knowing their success will be measured on it”. Taking responsibility means looking beyond a company’s own operations, which in many cases are small compared with the overall impact of their value chain or the system of which the business may be a core part.

2. Innovate the business, not just the technology

Less visible than innovations in enabling technologies such as hydrogen or carbon capture is the need and opportunity to innovate the business itself. This can involve strategically rethinking the business design or working tactically with customers, investors and colleagues. An overall objective of innovating the business provides a strong theme to shape and enrich each of the four domains. 

Read the full report at oliverwyman.com