David Bach keynote OWP liVe 2022 - IMD Business School
Leadership - Sustainability

Courageous leadership needed to decarbonize the global economy

September 2022

Only with leaders focused on long-term and systems-based thinking, will we achieve a ‘just transition’ to a green economy.

The deadly heat-waves that swept across Europe this summer, breaking record temperatures, underscore how climate change is no longer some abject threat in the future: it is a clear and present danger.

The urgency for action is also becoming increasingly evident, with scientists warning that global emissions will need to peak by 2025 and reduce by 43% by 2030 if the world is to avoid a climate catastrophe.

Is this dramatic change even possible? Keryn James, former CEO of top sustainability consulting firm ERM, thinks so. In her keynote OWP address, James told participants that, “human beings are nothing if not ingenious. A lot of the technology we need exists. And a lot of the business commitment is out there”.

However, in her dialogue with David Bach, Professor of Strategy and Political Economy at IMD, she expressed some doubt about whether achieving the needed reductions by 2030 was probable, given the considerable social, economic and policy hurdles to overcome. And she was clear that courageous leadership, focused on long-term and systems-based thinking, would be decisive.

Focus on stakeholders, not just shareholders

“The problems that we face are difficult, they require long-term thinking and therefore that requires courage. And this is very much about leadership,” James said, adding that leaders need the ability to make decisions that trade-off short-term benefit for a long term gain.

“Your primary responsibility is to act in the best long-term interest of all stakeholders, not just shareholders,” she told delegates, underscoring not just the risk, but the business case for sustainability, in terms of access to talent, customers and capital.

James said: “Companies need to think about ‘double materiality’ — what is my business’s impact on climate change but equally, what is the impact of climate change on my business, and will it be sustainable in the context of that change?”

Leaders also need to think in terms of systems, she added. For instance, there is a great deal of focus on emissions reductions targets, but James urged business leaders to think holistically about their impact on people and planet.

A ‘just energy transition’

By way of example, the global executive with 30 years of experience in environmental and sustainability consulting underscored the risks of the green energy transition for developing economies. Responding to one of many questions from the audience on policy, stakeholders and the economic transition, she said these countries missed out on the fossil fuel-fuelled industrial revolution of the richer world. And although they have contributed little to the climate crisis, they will be among the worst affected by it.

“Millions of people are getting left behind and that reinforces the importance of us thinking about a ‘just energy transition’,” said James, adding that rising energy costs may price out poorer countries, creating social issues.

“There is a direct link between rising energy prices, rising food prices, and social unrest.”

Furthermore, in dealing with energy’s climate impact, she said leaders cannot ignore the effects of biodiversity loss, either. “Nature is an extortionary machine and her ability to absorb carbon is phenomenal,” she said, referring to the process of photosynthesis, a nature-based solution to global warming.

Regenerative agriculture: net positive

She is also excited by the concept of regeneration, particularly regenerative agriculture that can actually have a positive environmental impact by reversing climate change through rebuilding biodiversity. “It’s a bit like being not net zero, but net positive,” said James. “It changes what people think is possible.”

She went on to say that climate change is a double-edged sword, and urged participants to seize the opportunities as well as minimize the risks. “There is a lot of capital out there looking to be deployed. There’s no shortage of investment, but there’s a shortage of projects,” James said, noting that ESG disclosure and reporting requirements were mobilizing investment in green projects.

‘We need every single weapon in our arsenal’

One area of innovation that was especially excited about was hydrogen, because it has an exceptionally high heating volume, which means it can be used in heavy industry and transportation, including shipping. “I am very optimistic that we will start to see some real progress over the next five to 10 years,” James said.

Carbon capture, reuse and storage is another area of interest. “We need every single weapon in our arsenal,” she said, an approach the Intergovernmental Panel on Climate Change (IPCC) has called for. “We cannot afford to just rely on one strategy to solve this problem, we’re going to need it all.”

In contrast, she thought that renewable power would make up a smaller but still important part of the energy mix of the future. “Not all fuels are fungible – you cannot use renewables for industrial activity, because of the intermittent nature of the energy source,” she said.

Yet the even bigger issue, in her view, is the lack of energy infrastructure. “This hidden underinvestment in generation and transmission infrastructure is hugely problematic. Unless we put some real effort into that over the next decade, the risk of energy poverty increasing will be significant.”

But although business is stepping up to play an increasingly prominent role in financing and driving the energy transition, James said that public policy would be critical in providing the incentives and support to decarbonize the economy.

“You need policy and regulation to drive the pace of change. Just relying on voluntary action by corporates isn’t going to be sufficient, no matter how many wonderful businesses we have out there trying to move the needle.”

And yet, she warned that a lack of global coordination, geopolitical tensions, and macroeconomic distractions, had led to “knee-jerk” policy-making from governments. “The one thing business needs more than anything else is clarity and certainty over the short and medium term, otherwise it’s very difficult to make investment decisions and allocate capital.”