Enough talk on decarbonisation targets and commitments. It’s time for action.
According to the Bain & Company brief, Beyond COP26: An Action Plan for CEOs, companies looking to meet their climate goals should make the carbon transition integral to their strategy, by embedding sustainability into their business operations, finding ways to monetize investments in carbon reduction and engaging frontline employees in the transition.
“Sustainability initiatives have a higher risk of failure than other transformations, meaning the challenge to making it happen is much greater,” said Jenny Davis-Peccoud, co-head of Bain & Company’s global Sustainability & Responsibility practice.
She opined those corporate leaders should not shy away from this challenge. Like many successful transformations in years past, businesses can play a leading role in combatting climate change and overcoming the difficulties of the carbon transition.
Four key actions for CEOs
- Make carbon transition a pillar of strategy. Too often, a company’s carbon transition ambitions are formulated as afterthoughts. Instead, they should be a core part of the strategy process, with executives using their sustainability goals to guide their business decisions.
This includes where to play, identifying new products or markets that benefit from transition, and how to win, by creating new or prioritizing low-carbon differentiation. These ambitions should then be translated into resource allocation and capability building.
- Get more bang for your net-zero buck. Increasingly, companies are pushing their carbon transitions with the same rigour as any other business initiative, which means improving the efficiency and effectiveness of the effort while also measuring and reducing cost.
- Embed carbon transition into the fabric of the business. Even the best strategy and value creation plan will fall flat without the correct supporting practices. Three tactics, in particular, are helping companies through their carbon transitions:
- Pricing. Internal carbon pricing is becoming mainstream; more than 2,000 companies representing $27 trillion of market capitalization have embraced it. Once carbon is priced, companies consider it like any other cost in their decisions about capex, procurement, and R&D, guiding their portfolio decisions. It is not unusual to see pricing of $50 to $100 or more per ton of CO2 equivalent, with the median of $25 in 2020.
- Incentives. Linking short-term and long-term incentives to the transition ensures it remains on the agenda. Leading companies have a significant share of variable pay linked to sustainability and deploy these incentives across the organization.
- Tracking. Leading companies increasingly treat greenhouse gas emissions as they would cost, and they track, report and manage them similarly. Instead of a once-a-year, compliance-driven, Excel-based exercise, companies use the latest software-as-a-system platforms, such as Persefoni, to extract data from their systems and convert activities into precise carbon emissions. This helps them understand their footprint and guides improvement.
- Avoid the hourglass effect. Sustainability transformations have a lower success rate than other transformations, with only 7% of these efforts meeting their goals, compared to 12% of all change efforts.
This is, in part, due to the hourglass effect, where top management embraces the transition, new workers have chosen their employment based on its sustainability credentials and middle management is left to turn these net-zero goals into tangible results—despite possibly having limited knowledge of the topic or little experience managing trade-off decisions.
These workers are also expected to manage revenue, cost and safety in aligning these goals. Leadership teams should bridge this disconnect by simplifying their targets, clarifying trade-offs, and training and educating their employees on how to make good, strategic decisions.
Torsten Lichtenau, partner and global head of Bain & Company’s Carbon Transition Impact Area, says COP26 is a momentous occasion: the business world is focusing on decarbonisation more than ever before, creating a tremendous opportunity for change.
“But moving from targets and promises to actions and results requires bold action and dedication—leading businesses will treat decarbonisation as they would any other business transformation, by setting a robust strategy and plan and preparing for some difficult decisions along the way,” he concluded.