A devilish duality: How CEOs can square resilience with net-zero promises
Amid turbulence on the path to net zero, leaders will have to be much nimbler to balance resilience with an energy future that is secure, affordable, and clean. Five actions can help.
The pressure to demonstrate real progress on and create true value through sustainability is growing. The world has, however, entered an era that is increasingly challenging for CEOs and business leaders to navigate. There is a new strategic paradigm—one with reasonable certainty of where the world needs to be in the medium and long term and tremendous volatility in terms of how and when it will get there.
Leaders must build resilience to today’s shocks to build tomorrow’s champions. Some approaches will be easier than others and offer a good starting point.
Accelerate capital deployment with a private-equity mindset
Leading with resilience while navigating toward net zero means participating early in the materials transition and green-business-building wave to secure exposure to promising innovations (exhibit). Earlier-cycle investments have higher risk but also higher returns because they benefit from early policy funding, greater willingness for counterparties to participate (for example, through sustainable aviation fuel contracts, which guarantee demand from airlines that allows investment in supply), new talent, and the opportunity to gain first-mover advantage in nascent and emerging value chains.
In many industries, there will be multiple sustainability winners. For example, we expect both hydrogen-fueled and electric vehicles to be part of the 2050 ground transport system. This is another reason to consider an investor mindset—spreading bets across multiple potential investments earlier. Companies can further manage their transition risk by aggressively pursuing operational decarbonization measures that already pay for themselves (for example, through energy efficiency) while making longer-term investments in sustainable infrastructure and building new businesses. Pursuing energy efficiency and rapidly scaling distributed clean heating (for example, via heat pumps) will become a critical lever in Europe to manage the energy crisis.
Play offense through a sustainable value creation strategy
Two objectives should be paramount: to extend and decarbonize the core business and to build new sustainable businesses in reshaped value chains. This would represent an “Apollo 11 moment” in many industries—a moon shot requiring not just incremental improvements but wholesale rethinking of how to build, operate, and maintain every sector of the economy. Leaders need to make quantum leaps to meet the moment, by getting smart on climate tech fast, engaging with the innovation ecosystem, and leveraging their engineering and business-building talent. Similarly, a focus on sustainability—and ESG measures, more broadly—is defensible, pragmatic, and needed. CEOs can articulate their approach to ESG topics proactively by focusing on resilience and value creation, not simply as part of “right to play” and risk mitigation.
Two objectives should be paramount: extend and decarbonize the core business, and build new sustainable businesses in reshaped value chains.
Go beyond net zero
CEOs should also look to make their companies net nature positive. Actions include moving ahead in the game on biodiversity, demonstrating stewardship of shared water and air resources, ensuring a responsible supply chain, and contributing to a just transition, among other steps. Adaptation investments to address physical risks will also be critical. Companies able to weather the storm, literally, will have a material advantage.
In some instances, sustainability aims come into conflict—for example, lithium brine operations are less carbon intensive than hard-rock extraction but consume far more water. CEOs will need to weigh current trade-offs carefully and invest in innovation that meets multiple aims, “squaring the circle” in an increasingly complex ecosystem. The bar is rising on sustainability; companies need to have a plan on these and other factors.
Build the partnership and ecosystem muscle
CEOs should realize that the challenge of maintaining resiliency while driving toward net zero is too great to go it alone. New public–private partnerships will be needed because many of the emerging energy and materials value chains will require full ecosystem development. Consider, for example, clean-fuel consortiums, such as those developing around hydrogen hubs, and shared CCUS networks. There are also opportunities to partner with competitors on shared tech road maps to mitigate tech risk and to better direct innovation funding.
Aggressively reskill leadership teams, boards, and frontline workers
As companies embrace a sustainable future, they will need new skills. Sustainable fashion, for example, requires fully rethinking design, manufacturing, procurement, marketing, and waste management processes while also better tracking carbon emissions and circularity. Talent across the organizations will need to reskill to meet these new demands. Companies need to identify the skills needed for their more sustainable business models and work toward acquiring them and building them internally.
Navigating the current turbulent period for the net-zero agenda may require temporary responses that, in some cases, may look like setbacks. They need not be. CEOs who understand the virtues of strategic resilience know that addressing immediate hardship and building a sustainable future can—and should—be pursued at the same time. By maintaining vision, moving nimbly, playing offense, and embracing opportunity instead of recoiling from risk, leaders can improve the future of their businesses and the planet.
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