7 Key Insights on The Future of Corporate Sustainability Strategy
General consensus states that this decade is our last chance to turn the collective ship around and avert climate catastrophe. What’s top-of-mind for corporate sustainability leaders as they head into 2022?
by Tobias Heger
Rising ocean levels are driving a corporate sustainability sea-change: an emphasis on integrating sustainability measures into company strategy is stronger than ever before – in fact, it’s become more of an imperative. The pressure to implement change to mitigate the effects of a growing climate crisis is mounting and coming from multiple directions: from scientific reports and government regulations, of course, but also from investors’ assessments and employees’ and consumers’ concerns. How amenable are deeply ingrained business-as-usual practices, especially in large companies, when it comes to integrating sustainability initiatives? Will the private sector be able to implement meaningful, impactful change before time runs out?
These and other questions were the topics of discussion at our Foresight & Sustainability Summit earlier this year. With representatives from the energy, mobility, food, construction, tech, financial industries and academia, the three expert panels explored everything from post-growth sustainability scenarios to meeting green consumers’ demands. Despite the variety of companies on stage, there were clear undercurrents that connected everyone, from European cheese manufacturer Hochland to global semiconductor giant Intel. Here are seven key takeaways from this melding of minds:
1. With sustainability front and center, there’s no longer a need to make a distinction between building a “sustainability strategy” and a general business strategy – they’re increasingly one and the same.
Once a concept relegated exclusively to subject experts, sustainability has gone from waiting in the wings to taking center stage as companies seek to future-proof their business models in an increasingly volatile world. Now, more than ever, the looming climate crisis is front-of-mind for many, from classrooms of schoolchildren to boardrooms full of company executives. Sustainability is “front and center, hitting the highest levels of the company as an important imperative that’s going to reshape our industry,” stated John Miranda, Director at the Data Center and AI Strategy Office at Intel Corporation. From tech and food to energy, mobility and finance: many voices at our summit echoed this, confirming an underlying cross-industry paradigm shift wherein sustainability plays an increasingly essential role.
In a welcome contrast to recent decades, the topic of sustainability is being taken seriously, so much so that often there is no longer a distinction to be made between a “sustainability strategy” and a business strategy in and of itself. “I think most companies know that they have to change their business strategy so they don’t even start with separate strategies at this point…a few years ago, the answer would have been completely different,” observed Leonie Gros, Corporate Strategist at Berlin Hyp, the German real estate and mortgage bank. The 2020s are often described as the defining decade for mitigating climate catastrophe, but a pressing question remains: though sustainability’s importance has become a given, will organizations be able to move quickly enough to implement meaningful changes?
2. For infrastructure-heavy industries, what’s built today will still be there in 30 years’ time. That requires systemic change, now.
The need for speed and a herculean to-do list before time runs out: committing to sustainability goals for 2050 implies that there are still 30 years to make needed changes, but it’s not that simple for infrastructure-heavy industries such as energy and construction. A decades-long timeline essentially disappears when it comes to building tomorrow’s sustainable energy infrastructure and spaces: “Practically everything that we build today will be around in 2050,” explained Thomas Boermans, Head of Foresight at German energy company E.ON, highlighting infrastructure hardware’s average lifespan of 30 to 40 years. “So we’ll need to be more or less ready today – how can we achieve that?” he asked, underscoring the immediacy of the challenge at hand.
When framed in this way, E.ON’s timeline, as well those of other, similar companies, suddenly shrinks from “over the next 30 years” to, well, now. Add to this the need to incorporate as yet still-emerging sustainable technologies, and the immensity of the task comes into sharper focus: not only do companies such as E.ON need do things in new and innovative ways, but also within an increasingly tight time frame. “We need all hands on deck because we basically have this decade left to act,” stated Stephanie Hubold, head of ESG (Environmental, Social, and Corporate Governance) at Altor Equity Partners, the Swedish investment fund. Her statement was repeated again and again over the course of the day: time is running out to make the necessary changes that will keep the planet from warming more than 1.5 degrees Celsius.
But the pressure on companies to enact sustainability initiatives isn’t only coming from ever-more dire scientific reports. These very reports and the models themselves are making inroads in the financial and investment sectors and are increasingly playing a decisive role in risk assessment.
3. A silent revolution is brewing in the banks – companies must increasingly answer to pressure from investors.
“Carbon pricing can affect (a company’s) solvency, (its) ability to pay its debts and shareholders,” explained Gianfranco Gianfrate, Professor of Finance at EDHEC Business School, located in Lille, France. If realistic carbon prices were implemented today, “many companies would go bankrupt,” he predicted, citing the woefully low carbon pricing estimates currently embraced by many companies. Adjusting for a more accurate carbon price at 400-800 US dollars per ton, Gianfrate described a dire situation of bankruptcies en masse, something that creditors would want to avoid at all costs – hence the increasing incorporation of climate risk into financial institutions’ assessments.
It’s a “silent revolution” Gianfrate went on, citing banks’ relative political independence: they don’t have to worry about securing electoral votes, so “central banks are seriously looking into the issue…pushing the financial system to integrate exposure to climate risk” in their lending policies. The Professor of Finance also highlighted the increasing precision and granularity with which rating agencies, banks, and other financial players can measure a company’s climate risk exposure – these metrics are now part and parcel to calculating risk assessments.
Any organization whose plans include undergoing a sustainability transformation is going to need money to finance it: “it’s the bank’s role to work with customers and reorientate money to…sustainable companies and business models” said Leonie Gros from Berlin Hyp. But a willing adoption on the clients’ side depends in part on the angle from which you pitch the process: “it’s a lot easier to address customers by making them sensible to risks concerning their business model, than talking about a transformation plan.” With more stringent regulatory initiatives on the horizon and models that are better at predicting climate change vulnerabilities, increasingly companies have no other choice but to secure better financing conditions by doing what it takes to improve their sustainability credentials.
Of course, risk has not only downsides but also upsides: sustainability strategy isn’t all gloom and doom – quite the contrary. With this shift in priorities and perspective come new and lucrative opportunities.
4. Sustainability makes sound business sense and corporations are catching on.
The transition to sustainability, while certainly requiring significant changes and re-orientation for many established business models, can drive business growth: “When you look at…the investments that are needed to transform our society, we are speaking of tens of trillions of dollars in new equipment, new technologies that have to be deployed very quickly in order to avoid climate catastrophe. So there are opportunities for companies,” explained Gianfrate. “Undoing (damage) can be a big business. How cool is that?” asked Boermans from E.ON, citing new grids, appliances, and emerging capabilities for removing CO2 in the form of carbon capture and storage as promising business playgrounds. Reframing this crisis as an impetus for developing solutions that help to solve the problem – a compelling idea and an emerging driver of innovation.
“I think it’s really about understanding ESG as a new innovation playbook and thinking about “what’s in it for us?” explained Altor Equity Partners’ Hubold. “The one red thread throughout my career is that you can actually reconcile economic and environmental objectives,” she explained. Companies can lower costs by increasing energy and resource efficiency, viewing ESG as an opportunity to tap into new markets or experiment with business model innovation. Take for example Intel, an industry leader that is itself engaging in these same conversations. From John Miranda: “When you design a server, are you thinking about circular economy principles? Can it be more modular? Can it be more upgradable? Can it be more repairable?…Introducing these concepts will be incredibly important. I do see the (tech) industry moving in the direction of an increasing focus on circularity.”
5. The onus is on industry to make sustainability sexy for the consumer.
Many consumers want to do the right thing. They try to make sustainable choices that are good for their health and the health of the planet, but it’s not easy. Consider all the variables that make something sustainable: How far did it travel to get here? What does this stamp of eco-approval on the label even mean? Why does it feel like you have to have a PhD in Environmental Science to understand the impact of your daily choices? It’s all just too complicated. Josef Mair, Professor of Packaging Technology at the University of Applied Science in Stuttgart, put it this way: “I visited the “unpackaged store” (a supermarket where you bring your own reusable jars and bags rather than buy pre-packaged goods) and I bought a chocolate bar and some shampoo. I paid more than 10 Euros and I felt like a superhero – I’m saving the world! But then yesterday I traveled to Berlin by train, emitting 19 kilograms of carbon dioxide.” So how does this all add up? What’s a consumer to do?
One way forward to make it easier for consumers to navigate this complexity is that the industry can take the reins and make sustainable products the compelling choice for consumers. “We know that people want to be more environmentally friendly, but we (the industry) need to do the work,” explained Dorothy Shaver, Global Marketing Sustainability Lead at Unilever. It’s imperative that industry players make the necessary changes so that sustainable products are the best choice: in the case of a food manufacturer, affordable, healthy, and delicious. “It’s up to us to grow the demand,” continued Shaver, “and the way we grow the demand is by making it easy, accessible and desirable to use these products that are better for the planet.”
Of course, making sustainable products the obvious choice for consumers requires a base level of trust in a company and its products, that the company does what it says and that it’s truly committed to making its fair share of changes. Consider the frustrated and confused shopper: as their questions narrated above show, the devil is in the details.
6. The transparency imperative: consumers are calling companies’ bluffs
It’s one thing for companies to committed to “becoming more sustainable,” but quite another for organizations to prove that they are walking the walk, not just talking the talk. Who is holding companies accountable for their claims? And what would incentivize organizations to invest in transformative changes? An increasingly popular route is committing to so-called science-based targets and attaching real numbers to measure milestones and assess progress on committed values. “We need to just look at facts, numbers (and) we need to act. (Bouygues Construction) announced that we will reduce our carbon footprint by 40 percent over the next ten years…by having targets and naming commitments (we show that) we are serious. At some point people are calling your bluff and rightly so. This is why we decided to name numbers and have full transparency,” explained François Pitti, VP Strategic Marketing & Foresight at the French construction company.
BMW Group also hopes that by committing to transparent climate change mitigation milestones, it too will earn and maintain that most precious of commodities: consumers’ trust. “We committed to the ambition to keep global temperature rise below one point five degrees, we are partnering with the United Nations Race to Zero, and we have submitted the targets across our lifecycle to the Science-Based Targets initiative,” shared Alexander Nick, Lead Climate Strategy and ESG Standards at the automotive and mobility giant. With an emphasis on setting goals anchored in sound scientific study and joining forces with other global industry players, in partnership with established institutions, companies are positioning themselves as trustworthy and truly committed to making changes for a better future. But will this market-led approach be enough? Gianfrate is skeptical: “Nowadays all companies are doing something that…looks sustainable. The problem is: how much of their value chain is (truly) clean production and consumption? My personal take is that unless there is strong, clear regulation, companies alone will not fully and quickly switch.”
7. A new battleground in the war for talent
Informed, connected, and empowered, Gen Z (born between 1995 and 2012, approximately) is not only keenly aware of the climate crisis and the need for sustainable practices, but is proving to be passionate and uncompromising to such as degree as strikes potential employers as unprecedented and surprising. They are committed to holding their employers to account, factoring in the ways in which their job impacts the health of the planet. Pitti at Bouygues Construction told a story of interviewing a young graduate: “There is an awareness, you can feel it. I had an interview and (it felt like) I was being interviewed: What are your values? What do you stand for? What are your goals? Are you greenwashing?” Meanwhile at Intel, Miranda characterized new hires as more concerned about issues than pure profit motives, signaling a new front in the battle to attract talent: “they think more deeply about the issues…(one candidate) would only join Intel after she understood our environmental commitment. I’ve never experienced that in 20 plus years of hiring.”
Whether or not this growing pressure from a younger generation has enough power to push organizations to adopt sustainable initiatives and truly deliver remains to be seen – here we’ve named just two data points. But with the combined pressures from employees, consumers, governments, NGOs, plus the increasing volatility of essential operations such as supply chains, the collective surge in demands for accountability will hopefully result in real changes for the better.
Sustainability: from senseless buzzword to strategic bedrock
Common challenges call for collective solutions – this was a unifying sentiment shared again and again by summit participants. The stage is set for adopting new ways of thinking and favoring an approach that recognizes that siloed structures (within companies as well as between industries) no longer serves us as we endeavor to address challenges that are both global in breadth and complex in depth.
The types of connections made and conversations fostered at the summit were opportunities to connect the dots and share experiences, giving rise to hope for real change: “You run into people and need to think for three or four seconds; then you find things that you should do together in the future,” remarked E.ON’s Boermans, reflecting on the fact that no matter the industry, the coming years will require a united front and allied forces to pursue transformational change for good.
Emily Phillips contributed research and writing.