Jesper Brodin, president and CEO of Ingka Group, which franchises Ikea stores, says a vast majority of the home goods and furnishing retailer’s customers take action in their daily lives to address climate change. And yet only 6% of them can afford to pay more for sustainable goods.
“It’s not in their economy or in their wallet to be paying for this,” says Brodin, speaking during a virtual conversation about navigating climate change in a complex geopolitical environment with CEOs and other C-suite leaders, hosted by Fortune with global consulting firm BCG.
But the company’s research also shows that 68% of Ikea’s customers across 34 markets are still “very concerned” about climate change and a vast majority are willing to take more action. Ikea is aligning with its consumer base’s aspirations by committing to half greenhouse gas emissions across the company’s value chain by 2030 and reaching net-zero emissions by 2050.
Beyond societal good, Brodin also makes the case that doing nothing will be costly later down the road. Raw materials, which account for 39% of Ikea’s costs, are especially sensitive to swings in the price of carbon-based energy sources like fossil fuels. “If we don’t get this right, our prices will go up in the future,” says Brodin. “It is the biggest threat to our business model.”
Rich Lesser, global chairman of BCG, says that business leaders are in a conundrum when it comes to addressing climate change. On one hand, there’s recognition among the business community and climate experts that the world is falling short of missing the goals set in the Paris Accord, the pledge many nations made to limit global warming. There’s also been a political backlash to efforts to fight climate change and the use of environmental factors to drive investment decisions.
These pressures make it more difficult for companies to clearly explain how their pro-environmental actions are fully in line with value creation that shareholders demand.
“It does not mean we get to walk away from mitigation and (trying) to tackle climate change,” says Lesser. “Every tenth of a degree adds impact and risk and most likely, adds it in an exponential way.”
The AI boom’s environmental cost
And yet, many of the world’s largest multinational companies set their long-term sustainability and net-zero targets before the generative AI boom, a very energy-intensive technology that’s also seeing a meteoric rise in popularity.
“I don’t think that they knew when they made those pledges in 2019 to 2021 what we would get at the end of 2022 and going into the future,” says Lesser. “These are companies that are profitable, well market capitalized, and highly ambitious to make a difference. And I think they have big choices in front of them.”
The Royal Bank of Canada, the eighth largest bank in the world by market capitalization, says it has seen a retreat on commitments to the climate from major financial institutions.
Earlier this month, Goldman Sachs quit the United Nations-backed Net-Banking Alliance, which calls on banks to align lending, investment, and capital market activities to net-zero greenhouse gas emissions by 2050. Meanwhile, earlier this year, JPMorgan, State Street, and other financial titans pulled out from Climate Action 100+, which also focused on actions to address climate change.
David McKay, president and CEO of RBC, says most of the burden has fallen unevenly on suppliers.
“Too many of our average citizens are struggling and they’re incapable—even if they are willing—of spending more for a product that’s green,” says McKay. “We need everybody. We need good policy. We need clients willing to make behavior and financial change. And we’re not seeing that.”
Tru Earth, meanwhile, is changing the messaging on the company’s eco-friendly household cleaning products in the U.S. away from saving the planet and more focused on the future. Co-founder and CEO Brad Liski says this pivot aligns with his reading of the latest presidential election results, which he says reflects the financial pressures consumers are facing today.
“Unfortunately, ESG is the first thing to go, the environment is the first thing to go when we can’t put food on our table,” says Liski.
China’s advantage
Lesser warns that while the C-suite’s focus may be shifting to subjects like potential U.S. tariffs, the complex geopolitical landscape, and the challenges and opportunities presented by emerging technologies like artificial intelligence, it would be wrong to ignore climate change. He says China may be developing a long-term competitive advantage over the U.S. and Europe by investing in solar and other renewable energy sources, gobbling up market share for these solutions and securing critical patents.
“They’re seeing this as part of the fuel of an industrial competitive advantage that I think can last for decades,” Lesser adds.
Paul Marushka, CEO of Sphera, struck a more positive note on the commitment to a more sustainable future. Sphera sells software to help clients manage their environmental, social, and governance performance and risk. The business is growing faster than ever and Marushka says he’s encouraged by pro-climate actions from the likes of energy giant ExxonMobil, which shortly after the election, urged President-elect Donald Trump not to withdraw from the Paris Agreement for a second time.
“I don’t see the momentum stopping,” says Marushka. “I actually see it accelerating.”