‘It has to become a way of doing business’ How top executives think about sustainability
Corporate America has finally wised up in realizing that sustainability matters.
For years, the concept was somehow framed as outside the C-suite’s purview. Like Milton Friedman imagined, a company’s sole duty was to its shareholders: Board directors and executives were to act with the intent of maximizing their investors’ returns, no matter the cost.
A pandemic later and the tone has shifted considerably.
Corporations and businesses of all sizes around the world are slowly but increasingly becoming indoctrinated into the one-time fringe school of thought that they bear a responsibility for the environment and must adapt accordingly—a theme that was on full display at the Fortune Global Sustainability Forum held virtually Tuesday.
“It has to become a way of doing business,” Hershey Chairman, President, and CEO Michele Buck said of sustainability during the event. “We are integrating sustainability into the core commercial operations of our business, so that any initiative we’re working on not only has that traditional P&L lens, but also has the sustainability lens as well.”
So far, about 42.8% of companies included in the Russell 1000 have publicly committed to cutting their carbon emissions, with a little more than a tenth saying they will try and reach net zero by 2050, according to JUST Capital.
It’s far from enough, though. Climate change is bearing down on society, with the United Nations having declared earlier this year that the Paris Agreement’s goal of limiting the world’s average temperature increases to 1.5°C is essentially unreachable now. Government officials, investors and even C-suite executives, as a result, are finally recognizing that commitments are just that. Companies need to be taking specific steps toward positioning themselves for what will hopefully be a decarbonized future, which could prove to be beneficial for their own operations, too.
“Once you decide something is a priority, you set clear goals, allocate the resources, put a plan in front of you—the math and the path, so to speak—and then you hold yourself accountable,” 3M CEO Mike Roman said at the Tuesday event.
Decarbonizing the supply chain
One of the clearest and possibly least restrictive ways companies can address their environmental footprint lies in their supply chains.
Take the top eight global supply chains: automotive, construction, consumer goods, electronics, fashion, fast-moving consumer goods, freight, and professional services. Together, they currently account for more than half of global greenhouse gas emissions. But a January report from Boston Consulting Group and the World Economic Forum found that decarbonizing those supply chains would only raise consumer costs by 1% to 4%.
“The large leading companies of the world with these massive global supply chains have enormous power to shape, not just what happens close to their corporate headquarters, but in the far reaches of their supply chains that extend all around the world,” BCG CEO Rich Lesser told participants at the Fortune event.
IKEA, for instance, has for years pushed to make its iconic assemble-yourself products more sustainably. The Swedish furniture maker has been buying up hundreds of thousands of acres of forests around the world, and, in recent years, has even moved to make mattresses with materials from disposed ones, which represents IKEA’s “best source of affordable raw material,” said Ingka CEO Jesper Brodin, whose company oversees more than 85% of IKEA stores. The company now plans to be using 100% renewable or recycled raw materials in its products by 2030.
“We are in a hurry to make sure that our equation is built on the right combination” of renewable and circular material, Brodin said Tuesday. Brodin encouraged other executives to conduct a review of their companies’ Scope 3 emissions, which assess the indirect carbon output that can be traced back to a company. And while such a review can be difficult and open up “a lot of questions and some concerns,” it can also create new opportunities for a company’s business, Brodin said.
“Being in business and doing good business is actually the same thing,” he said.
Is the future nuclear?
For Dominion Energy, the question of how to do business more sustainably is a vastly different one than a company like IKEA faces.
The Virginia-based electric utility has long faced a conundrum—along with other energy giants—on how to best serve its customers with sustainable forms of electricity while not drastically raising prices.
So far, it has managed to cut down its use of coal from more than 50% in 2005 to just 10% today. But the company plans to slash that even further to less than 1% by 2035, when it hopes to have decarbonized. And while renewable forms of energy like solar and wind will play a critical role in the transition, CEO Robert Blue says nuclear power will, too.
“There’s only one source of round-the-clock, carbon-free electricity that exists today, and it’s nuclear,” Blue said at the Fortune event.
Nuclear energy remains controversial for many Americans, but U.S. Energy Secretary Jennifer Granholm, like other members of President Joe Biden’s administration, says the power source will need to be used if the U.S. electricity grid is to become less reliant on coal in the years ahead. (In 2020, about the same amount of electricity was generated by coal as it was by nuclear power and renewable ones.) Said Granholm on Tuesday: “Nuclear is safe. We have the gold standard in the United States of regulation.” Granholm also encouraged business leaders to speak up in support of Biden’s budget and infrastructure bills, which would provide more funding for clean energy.
The pressure isn’t going to subside
Companies around the world may be trending in the right direction, but the pressure from investors for not handling the risks their businesses face from a perceived over-reliance on fossil fuels is unlikely to stop any time soon.
Investors big and small—ranging from the world’s largest in BlackRock to the tiny hedge fund that could with Engine No. 1—have been ramping up their scrutiny of their portfolio companies over such environmental, social, and governance issues for several years now.
And while divestment does remain on the table for some, CalPERS, the pension fund that oversees almost $500 billion of assets, says engagement is where its focus lies today and in the future.
“For CalPERS, being this institutional investor, we’re a universal owner,” CalPERS CEO Marcie Frost said Tuesday. “It’s not that we would not move away from a particular company if we do not think that they are managing their risks appropriately. It is never our first step. Engagement is.”
More must-read business news and analysis from Fortune:
- What a modern energy crisis looks like and why no country is safe
- Frustrated carmakers upend industry after chip shortage shatters their faith in suppliers
- Portugal leads the world in COVID-19 vaccinations
- A WHO-approved Novavax vaccine could upstage mRNA jabs—if it can solve its manufacturing delays
- Bitcoin has another major pollution problem brewing
Subscribe to Fortune Daily to get essential business stories straight to your inbox each morning.