How to become a sustainability leader—and create sustainable value
This essay is part of The Path to Zero, a series of special reports on how business can lead the fight against climate change. This quarter’s stories explore new markets emerging in the sustainability space.
The pressure is on, and the stakes are huge. As companies figure out how to transform themselves to become more sustainable, ready to drive positive environmental and societal change, we will see enormous change within industries—and brand-new opportunities for growth.
The efforts to reach the Paris Agreement goals alone will transform the global economy and require investments totaling an estimated $100 trillion to $150 trillion by 2050. Embedding sustainability in the core of the business agenda is not only the right thing to do, but will be a critical source of competitive advantage for the companies that do it right.
Here’s one example of a unique advantage that’s up for grabs:
As more companies pursue net-zero agendas, there will be a fierce struggle to obtain the resources, infrastructure, capabilities, and talent that they’ll need to reach their goals. In 2025, right around the corner from now, supply of recycled plastic is projected to be 45% short of demand. And today we have less than one-third the supply of raw materials that we’ll need to meet the battery demand of 2030.
The scarcities caused by the race to sustainability can bring substantial headaches—or companies can find ways to turn them into sources of advantage while mitigating risk, deepening their own resilience, and accelerating a change of great benefit to our planet.
Other opportunities to uncover important sources of value abound. In the case of auto manufacturers, for instance, eliminating 60% of scope 1 and 2 carbon emissions during an initial phase of decarbonization has the potential to generate significant annual savings, and those cost reductions can help fund the costs of eliminating the remaining 40%. Even when manufacturing a sustainable product means higher costs, the increases are often marginal—less than 1% for a $400 smartphone built with a net-zero supply, for example.
The main trick to seizing these opportunities is to move beyond looking at sustainability only through an ESG (environmental, social, and governance) compliance lens. It’s much larger than that, and for most company leaders it will be core to their strategic agendas for years to come. They have to find ways to make a societal impact while creating real value for the business, integrating these efforts into every part of the organization.
Here are six actions essential to that value creation agenda:
- Anchor sustainability in purpose. Emphasize the areas of ESG that are most aligned with the unique impact your company is trying to have on the world and with the values and needs of your broader stakeholders. Connecting sustainability strategy to the company’s purpose will make it more lasting and impactful.
- Capture business value. Make sure that all critical areas of the business—including marketing, sales, product development, and finance—are able to capture the value created and track and measure it accurately. Public policy efforts should prioritize accelerated innovation and investment, reducing downside risks when market and technology uncertainties are very high. Efforts that directly link to value creation will strengthen the overall transformation agenda and can help fund other aspects of the journey, as in the example of auto manufacturers, above.
- Build new sustainable businesses. As the public and private sectors invest more and more in a net-zero economy, companies have the chance to dive into new markets where they can offer unique advantages. This requires creative thinking, experimentation, and bold actions to combine the strengths of the core business with insights into how to get involved in new opportunities as they arise.
- Make the core sustainable. It’s imperative to make supply chains more transparent from end to end, creating consistent metrics and data and analytic tools to guide prioritization and push suppliers toward greater sustainability.
- Build capabilities. Sustainability requires the right foundation, including a strong governance system, new people and organization skills, extensive data capabilities, and robust reporting processes. And as the requirements for being a sustainability leader become more challenging, it’s important to have a continuous improvement mindset toward ESG skills and innovation.
- Own the narrative. Share the company’s sustainability story in a way that engages employees, investors, and other stakeholders. Don’t let the ratings agencies, activists, and media define you, your progress, and what you stand for.
Just as some companies understood early on how to take advantage of fast-growing digital disruption, there will be (and already are) leaders in sustainability transformation. The challenges are many, and they’ll get more complex over the years. But by driving a sustainability strategy from the inside out, companies can manage that complexity, create meaningful societal and environmental impact—and capture value that lasts.
Rich Lesser is CEO of Boston Consulting Group. Rich Hutchinson leads BCG’s Social Impact practice.
More must-read commentary published by Fortune:
- Net zero isn’t enough. We need to get to net negative
- How to become a sustainability leader—and create sustainable value
- E-commerce’s COVID boost is a wake-up call for Asia’s policymakers
- The U.S. is taking decisive action against cybercrime
- Businesses should open their doors to Afghan allies and refugees
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