The Visionary CEO’s Guide to Sustainability
It was already clear that climate change is real, but it’s gotten a lot more real over the past few months. From Canada to Greece, from India to Texas, citizens, farmers, tourists, and, of course, executives are witnessing the climate crisis up close.
Climate change will create discontinuity for two reasons: first, because we will have to adapt to new environmental and social realities, and second, because we will have to change and invest to prevent further crises.
The science is very clear. It will take a combination of new technologies, new policies, and new behaviors to address the negative consequences that the exponential growth achieved by humans has had on the planet and society. This is evident for greenhouse gases as well as for other aspects of sustainability, from biodiversity to water and human rights to racial equity.
If the science is unambiguous, the implications for society in general and the role of corporations in particular are still being debated, and for the right reasons. This is not just about the money that will have to be invested to fund the green transition—$4.6 trillion annually by 2030 to reach net zero by 2050, the International Energy Agency estimates. Since the United Nations defined sustainability in 1987, it has been clear that reaching its Sustainable Development Goals will require a careful balance between securing the right future for the next generations and protecting the well-being of current ones.
In ancient Greek, the word politics referred to managing the city, and as sustainability challenges touch more and more of us, political debate is everywhere. For corporate leaders, the emerging answers vary considerably depending on geography and industry. Europe is pursuing an ambitious policy agenda but raising questions about European competitiveness vs. other, more cautious economies. While some industries have line of sight into things like affordable new green technologies and the path to more humane supply chains, others seem stuck in an unsolvable price and regulatory conundrum.
We have talked to thousands of executives around the world. They get it. They know they have a role to play and that the public expects them to lead. But they are worried. First, because they are presented with too many simplistic answers to what they know is an incredibly difficult balancing act. Immediately stopping the use of fossil fuels? Well, today they are essential to most human activity and are literally fueling the development of new economies. Focus on short-term profits? But employees and communities expect change, and companies today are trusted to take on their share of environmental and social challenges. By the way, executives are people too, and many see this as their legacy.
The second thing worrying executives is the growing gap between their public commitments and delivery on them. Most large corporations that have committed to reducing greenhouse gas emissions are falling behind. Some 75% of business leaders surveyed by Bain believe they have not effectively embedded sustainability into their business. Bain research has also found that fewer than 40% of major companies across sectors are tracking to their sustainability goals, including those related to water use, waste reduction, and preservation of biodiversity.
Goals that are top of mind for corporate boards and top management, and inspirational to employees, are proving difficult for the P&L owners who must reconcile immediate profit delivery with these environmental and social commitments. Feeling “taxed and told,” they are increasingly allergic to simplistic pictures of the sustainability revolution as a land of opportunity and higher returns.
What to do about all of this? Making these trade-offs calls for a mix of vision and pragmatism. Though no one has all the answers, it is not just possible but essential to act. The Intergovernmental Panel on Climate Change (IPCC), the UN body assessing the science related to climate change, estimates that current policies, infrastructure, and technology would allow for a 40-70% reduction in greenhouse gases by 2050, with certain changes to our lifestyles and behaviors to be built on with greater far-reaching change in order to achieve the world’s climate goals.
It's hard to distill a full report, one that we hope offers useful tools and points of view, into advice suited to any executive in any company. Still, there are several things we think leaders can—and should—do today:
- In your next meeting about your 5- to 10-year strategy, ask the three critical questions below.
- Push for an “and” agenda: technology and behaviors and policy.
- Listen to P&L owners and work to translate their struggles into team-sized challenges.
Three questions: purpose, externalities, and shortages
There’s a famous quote, often (and probably wrongly) attributed to Albert Einstein, that one should spend most of one’s time refining the question rather than working on the answer. We have sympathy for the challenge. Here are the three best questions for executives to ask during their next strategic cycle:
- What good do we bring to the world, and what is our purpose as a company? It is incredibly useful to anchor long-term plans on the unique, positive impact a company has on consumers and customers, employees, and communities. A debate over sustainability cannot just be defensive and put teams on their back foot. It should also be about pride and impact.
- What cost will humanity have to pay for us to grow? This question might come across as gloomy, but it is critical. Externalities—the unpriced costs of business activities—are increasingly measured, and they will get priced eventually. We need to become much better at understanding what those costs are and how we can mitigate or compensate for them.
- What will get in our way, and what will we run short of? We are entering a period of scarcity, shortages, and physical risks. Our plans need to identify the risks that climate change will create. They also need to identify the raw materials or the capabilities we will be short on, from water to cobalt, nurses to programmers, ships to affordable energy.
Three levers: technology, policy, and behavior
The IPCC 2023 Synthesis Report makes clear that it will take a combination of technology, policy, and behavior change to face our sustainability challenges.
- Rediscover the technology experience curve. Many executives today wrongly compare the cost of a long-established brown technology, which is way down the experience curve (E-curve), with the cost of a very new green technology. Companies need to remember they can drive fast down the E-curve, become a market maker, and even create competitive advantages through sustainable innovation.
- For many, policy and collaboration are new levers. Not all green technologies will be affordable without the right regulatory environment. Every new strategy should include a point of view on how to build the right regulatory framework and how to work precompetitively as an industry to create it.
- Consumer behavior is eminently actionable. Too many executive teams consider consumer behavior to be fixed and worry that people will not pay for sustainable offers. Our data shows this is at least partially wrong. The majority of global consumers recently surveyed by Bain expect to spend more on sustainable products in the next three years, and some consumers are already doing so. Bain’s 2023 Consumer Lab ESG Survey found consumers are willing to pay a premium of 12% on average for minimized environmental impact, and the most concerned consumers will pay significantly more depending on the product. This sentiment is growing, and, in our research, consumers report that direct exposure to climate events has caused concern to rise.
Making sustainability a team-sized challenge
There is a way to help P&L owners who feel taxed and told: Discuss the trade-offs they face and align your teams on how to solve them. Ultimately, the key is to translate broad ESG commitments into team-sized challenges that can become new routines or new innovations. This is very easy to write and very difficult to do, but by tapping the creative energy of your people, it is possible to make real progress toward a more sustainable future.