4 ways companies can align competing interests to scale up climate action

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Simon Glynn, Partner and Climate & Sustainability Co-lead, Oliver Wyman, Mike Peirce, Executive Director of Systems Change, The Climate Group

• Climate action by business has exploded, but more needs to be done to effectuate a full energy transition.
• Corporate climate leaders recognize that the next stage of action must be qualitatively different.
• A new survey reveals insights by 200 climate practitioners about how to progress on decarbonization.

The step change in corporate climate action in the past few years has been extraordinary. Yet we are more than halfway through the critical period between the 2015 Paris Agreement and 2030, and emissions are still rising. Clearly, the world needs to scale up.

For our research report on Climate Action At Scale, launched at Climate Week NYC, we spoke to climate and sustainability practitioners from some of the world’s largest corporations on their experiences in making this shift. They recognize that what needs to come next will be qualitatively different from what we have seen so far. In a survey of 200 climate practitioners, half see decarbonization as being a serious challenge – either an “existential threat” or “highly concerning” – by 2030, while a third already see it that way.

They are also clear about what is needed, what they can do and where they depend on others. Here are four lessons we learned:

1. You can’t act at scale against your interests. Leaders at scaling up are creating the conditions for corporate and climate interests to align

Doing something because it is the “right thing” is a recipe for incrementalism. Trying to act at scale on that basis creates justifiable resistance, because the pressure to perform commercially is too strong. This resistance fades when a company’s corporate interests and climate interests coincide.

The strongest examples are in B2B businesses that are finding profitable ways to act as decarbonization service providers for their corporate customers. Interests might align for Ball Corporation, for example, if investment in building a circular economy in aluminum displaces the use of competing, less recyclable materials in beverage packaging. Interests might align for Maersk if consumer brands concerned about their own carbon footprints pay a premium for shipping powered by biofuels rather than fossil fuels.

2. You can’t achieve climate action at scale just by reducing. But you can by building

Emission reductions are critical, but reducing to zero means doing something differently, not just emitting less. Scale leaders embrace the creative destruction that typically drives transformation and innovation. It’s about renewal: of the business, the industrial sector it operates in and the broader economy. At the core, it’s about new value propositions that companies have developed. These include offerings that grow the share, whether or not at a price premium, of low-carbon solutions at the expense of higher-carbon alternatives, and propositions that save money through operational efficiencies, usually in energy but also in people and materials.

Sodexo, for example, is reducing its Scope 3 emissions by rebalancing the food it serves in clients’ offices, schools and other institutions. It is introducing “low carbon meals”: not plant-based or vegetarian diets, but a shift in the balance of what is on the plate toward less meat and more vegetables. The initiative takes a big investment in the reskilling of its cooks, but it pays for itself in the competitive proposition for corporate clients, and in the shift from animal to vegetable protein, in addition to the decarbonization benefit.

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3. Leaders in climate action at scale are adopting new business designs, using new mindsets to earn new rewards

As one practitioner put it: “What we can do a traditional business case for, we’ve done.” To go beyond, leading organizations are open to new ways of thinking – about risk and uncertainty, about what makes a business case and about the capabilities that will matter in the future. We identified a wide range of arguments used to support investments at scale that would not convincingly generate a competitive financial return relative to the baseline of today’s business.

Businesses that are moving ahead are instead using arguments based on:

• Competitive differentiation:Positioning to meet new demand from business customers.
• Protecting revenue: Investments to preserve the company’s licence to operate as stakeholder expectations change.
• Enabling revenue: Investments without which some of the value-creating visions described earlier would not be viable.
• First mover advantage: Investments to learn, demonstrate and lead.
• Anticipating or influencing regulation: Take action to remain competitive in the face of future regulation or carbon pricing.
• Delegating investments: Impose decarbonization requirements on the supply chain.
• Avoiding stranded assets. Move forward to avoid being left behind.
• Filling the return gap. Structure or fund an investment that gets an innovative solution to a tipping point, making a non-commercial solution commercially viable.

4. Climate action at scale depends on investors, policy-makers and other players for solutions as well as profitability. Companies can’t do it by themselves, but they can show the way

In the absence of much pull from the end consumer – which nobody is expecting – these corporate initiatives are built on two insecure foundations: continuing investor commitment and evolving public policy.“Creating the conditions”, as we described in the first point, may mean bringing about whole ecosystems, regulatory environments and financing, not just new customer value propositions.

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What’s the World Economic Forum doing about the transition to clean energy?

Moving to clean energy is key to combating climate change, yet in the past five years, the energy transition has stagnated.

Energy consumption and production contribute to two-thirds of global emissions, and 81% of the global energy system is still based on fossil fuels, the same percentage as 30 years ago. Plus, improvements in the energy intensity of the global economy (the amount of energy used per unit of economic activity) are slowing. In 2018 energy intensity improved by 1.2%, the slowest rate since 2010.

Effective policies, private-sector action and public-private cooperation are needed to create a more inclusive, sustainable, affordable and secure global energy system.

Benchmarking progress is essential to a successful transition. The World Economic Forum’s Energy Transition Index, which ranks 115 economies on how well they balance energy security and access with environmental sustainability and affordability, shows that the biggest challenge facing energy transition is the lack of readiness among the world’s largest emitters, including US, China, India and Russia. The 10 countries that score the highest in terms of readiness account for only 2.6% of global annual emissions.

To future-proof the global energy system, the Forum’s Shaping the Future of Energy and Materials Platform is working on initiatives including, Systemic Efficiency, Innovation and Clean Energy and the Global Battery Alliance to encourage and enable innovative energy investments, technologies and solutions.

Additionally, the Mission Possible Platform (MPP) is working to assemble public and private partners to further the industry transition to set heavy industry and mobility sectors on the pathway towards net-zero emissions. MPP is an initiative created by the World Economic Forum and the Energy Transitions Commission.

Is your organisation interested in working with the World Economic Forum? Find out more here.

The appetite is strong for a clear policy environment that will make companies’ plans for climate action at scale viable, both practically and commercially. Meanwhile, the leading companies we interviewed are not passively waiting. They are positioning themselves, making the moves they can, and working together with business partners, investors and policy-makers to shape a future in which they can scale up their climate transitions.