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What every CEO should ask and do to drive sustainability
For climate change to succeed, every CEO will need to take their responsibility, as part of the private sector’s contribution to the needed transition. Akram Alami and François Faelli from Bain & Company provide their view on what CEOs should be doing to ensure sustainability is deeply rooted in their strategic decision-making processes.
It was already clear that climate change is real, but it has gotten a lot more real over the past few months. From Canada to Greece, from India to Dubai, citizens, farmers, tourists, and, of course, executives are witnessing the climate crisis up close.
In the Middle East and North Africa (MENA), a region already facing a host of unique environmental challenges, this situation raises distinct concerns. Over the past 40 years, the region has warmed at a rate twice the global average, and by the middle of the century, it is expected to be 4 degrees Celsius warmer.
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.
Combining new technologies, policies, and behaviors is essential to mitigating human impact on the planet, including greenhouse gases, and addressing broader sustainability issues like biodiversity, water, human rights, and racial equity.
While governments are playing their part by setting a net-zero ambition and creating an enabling environment, companies must take sustainable action and advance the conversation on climate adaptation.
While executives worldwide recognize their responsibilities, they at the same time struggle with oversimplistic answers to complex realities. There is also a growing gap between corporate sustainability pledges and delivery. According to Bain & Company survey data, 75% of leaders believe their organizations haven’t effectively embedded sustainability, and fewer than 40% of major companies are on track to meet their environmental goals.
One key challenge is balancing sustainability investments with financial returns. Balancing immediate profits with environmental and social commitments is particularly challenging for P&L owners who face the difficult task of reconciling immediate profit delivery with environmental and social commitments. They are increasingly averse to simplistic views of sustainability as a land of opportunity and higher returns.
Making these trade-offs calls for a blend of vision and pragmatism. At Bain & Company, we believe there are three things leaders can do today to drive impact:
1. Ask the critical questions in strategy development
2. Push for an “and” agenda: technology and behaviors and policy
3. Listen to P&L owners and work to translate their struggles into team-sized challenges
Three questions: purpose, externalities, and shortages
Adopting the wisdom – often misattributed to Albert Einstein – that most of our time should be spent refining a question rather than working on its answer, here are three smart 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 must pinpoint the risks posed by climate change and identify potential shortages in essential resources or capabilities, from water to cobalt, nurses to programmers, ships to affordable energy.
Three levers: technology, policy, and behaviour
The latest report from IPCC makes clear that it will take a combination of technology, policy, and behavior change to face our sustainability challenges.
Rediscover the technology experience curve. Executives often incorrectly compare the costs of established brown technologies with nascent green alternatives. Companies should recognize the potential to rapidly advance down the experience curve to establish market dominance and secure competitive advantages via sustainable innovation.
For many, policy and collaboration are new levers. Effective green technologies depend on favorable regulations. Strategies should focus on shaping these frameworks and fostering industry-wide collaboration to implement them.
Consumer behavior is eminently actionable. Bain research released in 2023 found consumers are willing to pay a premium of 12% on average for minimized environmental impact, with the most concerned customers willing to pay even more. This sentiment is growing as direct experiences with climate events heighten consumer concern.
Making sustainability a team-sized challenge
There is a way to help P&L owners: address trade-offs, align teams, and convert ESG commitments into team-sized challenges that can become new routines or innovations. While it is challenging, tapping the creative energy of your people can lead to real progress toward a more sustainable future.
Leaders for a Sustainable MENA
To advance the discussion with leaders, the World Economic Forum and Bain & Company have established the Leaders for a Sustainable MENA coalition, comprising over 40 influential participants from governmental ministries, businesses, and financial institutions focused on accelerating corporate-led climate action and sustainability-related topics in the region.
