- Peter Agnefjäll is the former CEO of IKEA Group and current Chair of Ahold Delhaize; Hixonia Nyasulu is the former Chair of Sasol and current board member of Anglo American; and Feike Sijbesma is the former CEO of Royal DSM and current Chair of Phillips
Just as climate change threatens a future of more extreme weather events, so too are we entering a stormy period for corporate climate action. The case for global companies to decarbonize swiftly is stronger than ever. But we are also now in an era of increasing global disruption, polarization, and complexity. CEOs committed to climate action will need to navigate this new landscape with both vision and delicacy.
The strengthening case for rapid action springs partly from the worsening impacts of climate change and partly from the improving economics of decarbonization. This year is on track to be the hottest year on record, according to the World Meteorological Organization, with extreme weather affecting millions around the globe. Meanwhile, the falling costs of clean energy technologies are driving huge business opportunities. According to the International Energy Agency, annual investment in clean energy is now almost double that of fossil fuels.
However compelling the case for action by companies, the broader context is fraught. Consider with the policy context. Overwhelmed by domestic and economic concerns, many governments are distracted from or flip-flopping on the climate agenda. The incoming US administration appears positively skeptical about it. To add to this, the societal debate about climate has become polarized in some countries, fueled by culture wars and understandable concerns on the part of groups who may lose economically from the energy transition.
In terms of financial markets, while many investors continue to support corporate climate action, others have gone cold on ambitious approaches in this area. Recent moves by some global firms to soften their decarbonization targets to protect near-term profits have been welcomed by many of their investors. Finally, growing geopolitical divides and looming trade wars are adding a further layer of complexity for global firms.
How can business leaders committed to swift climate action navigate this testing landscape? As members of the Council on Sustainability Transformation, a small group of business and environmental leaders convened by ERM, the largest global sustainability consultancy, we have been examining ways to accelerate private sector action on climate change.
One thing has become clear from the Council’s discussions: in the current context, it is no longer enough for CEOs simply to press ahead with unilateral decarbonization of their own companies and supply chains. Unilateral moves are important and CEOs with strategic vision understand that the global economy will ultimately need to be decarbonized, providing long-term commercial rationale for corporate climate action. But working in a vacuum can prove overwhelmingly difficult, inviting doubt or even cynicism. Even where it succeeds, it can lead to short-term competitive disadvantage and investor disquiet.
CEOs wishing to push ahead on climate need to do more to build broad coalitions of support. Through ambitious collaborations, they need to try to reshape the overall system and incentives for corporate climate action. They need to engage energetically but sensitively with those yet to be converted to the cause. This approach offers the best path through current turbulence.
The Council on Sustainability Transformation has published a white paper analyzing ways to strengthen and transform companies’ engagement with their investors.
On this front, there is a case for more concerted effort by business leaders to demonstrate to investors, through stronger communication and collaboration, that their decarbonization plans will maximize commercial value over time. Currently, many of these plans are seen as costly endeavors to be endured. Investors likewise need to be pushed and prodded to take a rounded view of corporate climate action, and to develop better ways to evaluate and compare the plans companies have in place.
Business leaders may need to be more proactive in recruiting investors, orienting their shareholder base more towards those focused on the long term. They should also support broader initiatives aimed at reforming capital markets so that the long-term commercial value of a stable climate, say, is built effectively into investment decisions.
Coalition building with other groups is also increasingly important. With governments moving at multiple speeds and sometimes in different directions, companies need to collaborate at an industry or cross-sectoral level. One focus should be engaging with policy makers to bring more coherence to the rules of the game and create more certainty behind long-term climate targets. Similarly, when governments seem set on counterproductive or regressive moves, this needs to be called out with tact and diplomacy.
Business leaders should also collaborate on climate action with other firms in their sector or value chain to tackle the risk that unilateral action might put them at competitive disadvantage. Working together can help set the bar high for all firms, as well as spread the costs and risks of investing in innovative low carbon approaches.
Finally, there is a need for engagement and coalition building aimed more generally at winning the hearts and minds of all stakeholders. Given current levels of polarization and mistrust, this is another critically important task for business leaders. Any company embarking on an ambitious climate strategy needs to begin with ensuring its employees are on board for the journey. The same goes for local communities and the broader public. It is easy but dangerous to assume that all are convinced from the start.
None of the above means to suggest that many CEOs are not already engaging proactively. Nor is it to diminish the valuable work of existing industry collaborations on climate. It is rather that such approaches now need to be accelerated and expanded.
This is no easy task for business leaders – it requires a combination of strategic vision and systems thinking combined with deep powers of persuasion and diplomacy. However, the case for swifter corporate climate action is now so compelling, and the broader context now so charged, that the time has come to rise to this challenge. By becoming Chief Coalition Builders, CEOs can drive the bold changes needed while ensuring their companies thrive in the new green economy.
Please note the authors write here in a personal capacity. Their views do not necessarily represent those of the organizations they are currently or previously affiliated with.
