Nestlé CEO: We don’t have to sacrifice shareholders to fight climate change

The global challenge of climate change is no longer the can that can be kicked down the road. Businesses like Nestlé, with a global footprint and vast supply chains, need to take the threat climate change poses to our civilization seriously to prosper in the long term.

Nestlé is committed to stepping up to the challenge and leading our industry toward a sustainable future, but it’s time for some soul-searching—and some truth-telling.

While our climate work is costly, it cannot be viewed as a giveaway or as corporate philanthropy. We are, after all, a business. We must deliver within the parameters of our society, and that means delivering for our environment and for our shareholders. The tension that businesses like ours must navigate is between today and tomorrow. We know that managing this tension may not fully satisfy environmentalists or investors at any given moment. A viable plan requires pragmatism, as we balance near-term and long-term expectations. We plan to do this by leading with stretch targets, creating oxygen to invest, getting over the hump of transition costs, and gaining a competitive advantage.

The first step for a company of our size and reach is to lead boldly and transparently. Nestlé operates in nearly every country in the world, and the decisions we make can drive change in the food industry. We do not take that responsibility lightly. We have never wavered in our support for the Paris Agreement—no matter how the political winds have shifted—and we have publicly detailed our commitment to halve our greenhouse gas emissions by 2030 and to achieve net-zero carbon emissions by 2050.

Though it’s tempting to end this thought right there, the truth is we’re doing all of this in a way that will allow us to grow our businesses and edge ahead of our competitors. For consumer-facing businesses like ours, it’s clear that consumers are putting more and more emphasis on environmental stewardship and transparency. Ignore their needs and they will ignore our products. On the positive side, bold and meaningful action in this space can become a competitive advantage, contributing to improved market share and growth. And sustaining strong organic growth in a low-inflation, zero interest rate world is the ultimate value driver for a business like ours.

Nestlé can only deliver on our environmental ambitions if we create the space to invest in these efforts. There will be significant transition costs, as the first unit of new and improved climate-friendly solutions are more expensive than the last unit of what is currently in place. Waiting until costs come down will result in no action, a vicious cycle that will prevent new technologies from scaling up. This is the reality facing businesses in every industry, and we will fail to address climate change if we do not solve for this.

The upfront costs of seeking greenhouse-gas neutrality are no different than other types of forward-looking expenditures, such as R&D spending. Without them, a business will wither. This does not mean businesses can invest heedlessly. The size of the spend must be carefully calibrated. Internal savings will need to be targeted so resources can be shifted toward climate work without hurting near-term profits. Spending levels need to be communicated upfront. Never use this type of spend to justify an earnings miss, unless you aim to destroy investor trust and confidence. This is a tricky balancing act, but there is good news—digitalization offers significant efficiency improvements to almost every business on the planet, which means new ways to power progress.

Keeping your batting average high on future-focused projects has always been the hallmark of successful company management—it does not matter whether we are talking about R&D projects, advertising campaigns, or improving the environmental footprint of the company. Investors call this challenge “implementation risk,” and some companies will be better at handling it than others. After a few years, the initial hump—lots of effort but no results yet to show—will be overcome, and we will be able to usher in and scale technologies that will help to address climate change.

Nestlé recently announced the development of its first net-zero dairy farm in South Africa.

In addition to consumer favor and growth, there is more upside to this path. Climate laggards risk being increasingly taxed and regulated by governments. The cost of doing business as usual is going up and needs to be properly reflected when pondering climate-friendly investments. And let’s not forget the cost of capital: For all public companies, the inclusion of environmental criteria into mainstream investment fund decisions is gathering pace. “Green investing” used to be a niche but is fast becoming the standard. It is safe to assume that laggards in all industries will pay a price over time.

Did I mention employee morale and engagement? Over my years in corporate leadership, I’ve seen that little else gets people as energized as helping to future-proof life on our planet. Doing good and doing well gives us an edge in the global race for top talent.

My favorite professor at Harvard Business School was Michael Jensen, the esteemed, if sometimes maverick, economist. He has been arguing for a generation that, instead of “shareholder versus stakeholder,” we should aim for “enlightened value maximization,” which includes properly quantified and relevant societal goals. “It is obvious that we cannot maximize the long-term market value of an organization if we ignore or mistreat any important constituency,” Jensen wrote in 2000.

This is the crux of the business case—never mind the moral imperative—for a global company like ours going all in on climate change. Doing right by the planet will ultimately mean that Nestlé will be serving our consumers, suppliers, communities around the world, and the Earth itself.

And by doing things right, we will be serving our shareholders, too.

Mark Schneider is the chief executive officer at Nestlé.