Climate change: How can companies have to make the best of this inevitable transition
Global Lead Sustainable Development & Climate Change at Sia Partners – 50+ Advisory Consulting Offerings on Climate
Reinventing mobility, new regulations, raising employee awareness: the desire for a greener, fairer and more ethical world is expressed in words and deeds. Companies are under an increasing pressure to adapt their ways of operating and respond to these growing needs. Today, companies seem to be under pressure to take reactive bursts when a proactive approach to these fundamental movements could prevail. In fact, major trends are identified and anticipated:
- Regulations will multiply in the months and years to come, with an emphasis on value chain traceability;
- The appetite of investors for more sustainable solutions is growing as stakeholders, shareholders, investors and customers become more aware of the issue;
- The revolution in mentalities obliges organizations to bring their project to their interlocutors, clients and talents: the goal is to maintain the relationship on the terms agreed upon by concerned and committed individuals.
The sooner the impact is integrated into the company's project, the less risky its deployment will become.
Already in 2017, Unilever - and its 2 billion consumers - has integrated more sustainable cycles into its operational cycles. Resting on three pillars, based on the United Nations Sustainable Development Goals, its commitments to results are also successful, as profitability continues to be the order of the day. No one is irreproachable, but Unilever's virtuous ambition makes it a strategic trailblazer.
What are the main changes?
Activist, concerned, climatosceptic or wait-and-see: whatever we believes, our activities include almost systematically a climate dimension. It is a proven fact: the sense of responsibility for climate change is growing stronger and stronger. At the end of 2017, 85% of Belgians consider climate change to be a problem that requires an urgent response, 5 points more than in 2013[1]; above all, 61% of them commit their own responsibilities by stating that individual actions can make a difference to climate change, 10% more than in 2013. This materializes in individual choices, as a consumer, investor, influencer... And expectations can be easily guessed by companies, as they seem so full of common sense.
The introspection of organizations that have rethought their impact integrates several complementary aspects:
1. Aiming for a more transparent business model
Transparency becomes a key decision element for the customer, who can rely his buying decision on price, brand or package. The entire value chain will be impacted, from the sourcing strategy for product components - or the resources that develop your service - to marketing and sales. In the food industry, blockchain technology proves the virtuous origin of products: Nestlé makes its Mousline puree[2] traceable, you can follow the path of the eggs from the distributor Albert Heijn... "Only [with the transparency of the whole chain] can we be sure that the product has been created with respect for people, animals and the environment. We are happy to show this to our customers…"; [3] says the spokesman for the Benelux distributor. If we want to make a sales argument out of it, we really have to do it: green marketing is based on green industrying.
2. Rethinking all its processes... with multiple points of view
Any business process can be reviewed to fundamentally integrate the notion of sustainability. The holistic view of the impact of the company's processes is built by comparing several points of view, which are embodied in:
- business expertise
- customer perception
- cooperation with suppliers
- cooperation with competitors
Each of your company's processes can be fundamentally rethought by building on your customers' expectations and constantly challenging suppliers and teams, and even competitors, to develop circular thinking where value creation is omnipresent from start to finish, and with each new value cycle.
3. Disseminate corporate culture by recognizing generational differences
The new generations are waiting for more committed companies, whether they are considered a supplier or an employer. Older generations may wonder about the urgency or imminence of change, as long as the indicators are positive, and the effectiveness is there. For all, pedagogy must take precedence to justify the long-term gain behind short-term effort, the opportunity behind constraint. And even if it's a bit disconcerting at first.
How organisations are turning the moral obligation to address climate change into an opportunity
Companies (and countries) that initiate a movement towards greater sustainability gain a competitive advantage today and tomorrow: early transformation appeals to today's convinced people, and facilitates the changes still to come to reach tomorrow's standard.
1. Identifying the issues and embodying the vision
To go beyond the philosophy, concrete actions must be implemented to work towards a lesser environmental impact:
- measuring the full contribution of activities to the environment: the equivalent of a financial audit for activities with an impact on the climate and the environment in an analytical way.
- design a business model that makes sense for the consumer, the employee, the management and the investors.
- create a positive, coherent and moving image - through consistency between strategy and communication, sharing vision and results.
2. Selecting your value levers
In theory, the creation of a circular economy makes it possible to optimise the entire value chain, and it also facilitates the creation of strategic partnerships, making it possible to generate more value for different actors in the same production cycle.
In practice, companies can focus on very concrete first steps: improving product or service design, adapting sourcing from suppliers, redefining pricing, rethinking distribution channels.
Little by little, the ecological solution takes shape, one milestone after another, involving various stakeholders. Even more committed are products that maintain the value creation cycle after the sales act (circular flow): the philosophy behind these products is to include more uses, more consumers, in a longer product life cycle. Already, the European Union has in its sights, "the plethoric supply of chargers (...) which generates an unnecessary ecological footprint" [4]. The single charger is still a non-binding legislation... but for how long?
3. Changing mindset and taking advantage of it to innovate and make people innovate
The key to success will once again be the company's ability to transform itself: adapting its organization, acquiring new skills and facilitating the participatory engagement of its employees. In doing so, the business should also benefit from leaner and more efficient processes, capable of integrating innovative thinking and instilling in partners and subcontractors the desire or need to evolve as well. Participatory approaches operate by involving multiple stakeholders; they make it possible to come up with common solutions. Their scope is strong because it is consensus as a group that is generated.
The keystone and the real accelerator: financing
Finally, the financial world is also changing and offers its clients products where the climate risk of an investment is an integral part of the investment plan. Non-climate-certified investment products will include a risk premium. On the other hand, "healthy" products will offer a lower risk to projects and will allow for the wider deployment of sustainable and/or circular projects.
Already the largest financial centres are taking action to clean up their portfolios. Larry Fink, CEO of Blackrock, announced last month the decision to exclude companies generating more than 25% of their revenues from coal production from the actively managed portfolio; at the same time, Fink said that the financial centre would not hesitate to sanction managers if progress on sustainability issues is not up to expecation[5].
Conclusion
This new and urgent transformation will not wait for the advent of your digital program, nor for your AI integration projects. Faced with environmental disruption, companies have to choose between two troubling options:
- Anticipating the market, with transformations requiring financial and human investments
- Waiting for legal or financial regulation, at the risk of being overtaken by competitors and sanctioned by consumers.
- Ecological transition is a challenge on any scale. But there are opportunities for all, beyond the effort that needs to be made.
[1] Climate Survey, October 2017, FPS Public Health, Safety of the Food Chain and Environment
[3] "Albert Heijn legt eierketen bloot" in distrifood.nl, 2 April 2019.
[4] "MEPs call for universal charger despite Apple opposition" in La Libre Belgique, 30 January 2020
[5] “Larry Fink is not going to read your sustainability report”, in Harvard Business Review, 20 janvier 2020