The need for incentives
Knut Haanaes, Professor of Strategy and Lundin Sustainability Chair at IMD, then examined how government can work with companies to speed up the green transformation.
“Business needs carrots and sticks, otherwise we will not see the needed acceleration,” he said.
While a lot of focus has been put on the strategic transformation required to combat climate change, Haanaes said he believed more attention should be given to the leadership aspect of climate change. “How do we lead and show courage? And make change happen at the same time?”
He cited the example of three companies that had taken measures to transform: Denmark’s Maersk is moving towards net-zero shipping, Royal DSM has made commitments to make food systems more sustainable, and Nestlé is adapting to more discerning consumer tastes.
Organizations should ask themselves the following four questions:
- How can we speed up change and transformation?
- How can we address the changes in a just way?
- How can companies move to a circular economy?
- How to make business work together and collaborate more broadly to create stronger impact?
The need for collaboration
Building on this, Marya Besharov, Professor of Organisations and Impact at Oxford SaĂŻd Business School, discussed the leadership practices required for firms to make climate action a core part of their business strategy and to effectively collaborate with government and other key stakeholders.
Companies are facing both internal organizational challenges and external systemic challenges when it comes to addressing climate change, she said. “The challenge for leaders is about managing what often seem to be competing demands between profit and sustainability.”
Besharov advocated a three-pronged approach. Firstly, firms should think about adopting a “both/and mindset” by considering how they can achieve business success through sustainability. Secondly regulators and companies need to strengthen the so-called “guardrails” to ensure that the goals, metrics and incentives around sustainability are as tough as those around finance and profit. Thirdly, established firms need to cultivate the ability to learn, experiment and fail to come up with new solutions, she said.
Companies will also have to work out how to collaborate with diverse stakeholders ranging from activists such as Extinction Rebellion to investors and fund managers, NGOs, and government agencies. “All have a role to play. Some are highlighting the problem, some are operationalizing ways of addressing the problem and some are orchestrating and connecting across sectors”, said Besharov.
To foster catalytic collaboration, companies, governments, and NGOs will need to create a shared narrative and vision for the future that motivates individuals and firms to shift behavior. They will also have to create trust between organizations and communities that differ in the power, perspective, and resources that they bring to sustainability efforts, such as those working across different industries or in the global north versus global south. Finally, there will need to be increasing accountability, particularly for businesses that exert substantial influence on the natural world and those with the resources to harness opportunities.
Mohaddes cited the example of Norway as a country where collaboration between the government and business has led to emission reductions. By taxing combustion engines and rewarding those owning electric vehicles, all-electric vehicles now make up 86.1% of all cars in the country.
Haanaes called for more incentives to help startups, particularly those in emerging markets, achieve scale. He advised startups to seek partnerships with bigger, established companies to help scale their technologies.
Finally, the professors addressed the need to transfer technological know-how and capital to emerging economies to ensure that the transition is fair. The bottom line is that mobilising climate finance and providing low-income countries with access to technology is a win-win for both the advanced and the developing economies, and will help accelerate a transition to net zero globally, said Mohaddes.