Let Science Be the Guide for Net-Zero Targets
Unless companies’ climate targets align with the latest science, they won’t be sufficient. Leaders must embrace bold action internally, within their value chains, and beyond.
Climate change is precipitating the largest industrial transformation since World War II, perhaps ever. BCG’s global chair, Rich Lesser, explains what it means for CEOs and business leaders.
Businesses that lead on climate and sustainability will have tailwinds at their back, says Rich Lesser, BCG’s global chair. Reaching net zero will require investments of $3 trillion to $5 trillion per year for the next 30 years—and it is much smarter to participate in this massive industrial transformation than to fight it. To succeed, businesses will need to engage deeply with other businesses, their customers, and governments. The challenge is too large to go it alone or to view government as an impediment. For businesses that want to do the right thing, Lesser says, “getting government policies that raise the standard for everyone is in their interest.” Lesser also talks about his own evolution in understanding the climate crisis, how purpose can drive performance, and why the job of CEO today is harder but more rewarding than it was a decade ago.
Rich Lesser is BCG’s global chair; he previously served as BCG's CEO from 2013-2021. As CEO, Rich initiated BCG's pledge to reach net zero climate impact by 2030. Rich currently serves as chief advisor to the World Economic Forum’s Alliance of CEO Climate Leaders, on the steering committee of the Council for Inclusive Capitalism, on the board of directors of the Centre for Public Impact, and is a member of several leading organizations, such as the WEF’s Community of Chairpersons, the EDISON Alliance, Southern Communities Initiative, among others.
GEORGIE FROST: Right now when it comes to climate, business leaders are watching each other carefully. There have been big promises and big commitments, but the world is a volatile place. If you're a CEO, you're focusing on threats to global trade, the Great Resignation, and your customers' tightening belts. So is it better to let your competitors move first on climate policy and learn from their mistakes, or be out in front investing early? Or is treating climate like an oncoming storm for your business exactly where we're going wrong? I'm Georgie Frost, and this is "The So What from BCG."
GEORGIE: Today, I'm talking to Rich Lesser, former CEO and now global chair of Boston Consulting Group who led BCG's presence at COP26.
RICH: While this COP overdelivered against the political backdrop and incoming expectations, it still underdelivered against the science. We need to be on a pathway ideally to 1.5 degrees, if not that, as close as we can get. And while this was the targets that were put forward were meaningful improvements, we're not yet on the pathway that we need to be on.
GEORGIE: The desire from businesses and business leaders is clearly there, but if the systems and structures aren't in place yet with which to meet that demand, how can we hope to achieve what we've already committed to, let alone even more?
RICH: First, getting to the commitments that have already been made will not be easy, and frankly, in the very short term, what we're seeing with the war that's going on, the implications for energy security that many parts of the world are feeling, let alone even worse challenges like food security, but even on the energy side, we face near-term challenges and we face, you know, broader medium-term challenges to realize it.
And some of it is working with governments to put good policies in place, policies that encourage decarbonization, ideally, including a price on carbon, policies that encourage investment in new technology, because while we can make enormous progress with the technology that exists today, we will never get to the net-zero goal unless we bring down the cost of advanced technologies that'll be critical to go after--the harder to abate parts of our global economy. So we do need action from government. But it is also true business can do a lot even with the mechanisms already in place. And what we see in working with clients across many, many sectors is that you can actually take out more carbon than you realize, not just in your own operation, but with your business partners, more than you realize with the technologies that currently exist. It does require a change of mindset, it does require reprioritization, it requires some investment. It's not easy, but it is doable.
GEORGIE: Rich, how did you as CEO of BCG reach your own climate commitment?
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RICH: I was fortunate. When you're at BCG, you have very smart, passionate people around you. It's just part of being here. It's one of the privileges of being here actually, and I was fortunate to have a number of colleagues, who felt like the world was not acting fast enough post the Paris Accord, so this is in the 2017-18 period. We weren't seeing the actions that we had thought might come out of the Paris Accord.
That was true across the full economy, and frankly, around the world, and that BCG was in a unique position to have impact in accelerating progress, because we have this privilege of working with businesses and governments around the world. We know how to make really hard change happen; we know how to solve hard problems, and while we were working in this space, we weren't working at the level we needed to, and if we were going to be credible to work with others and advise others, we had to walk the walk ourselves and our own commitments, while we had green initiatives in place in different offices, but we were not doing what we needed to do to show our own commitment to being net zero, let alone then have the credibility to walk into somebody else's office and say we can help them. When you first hear tough messages, I think we all have a tendency to maybe put up antibodies at the beginning to, to resist a bit, but--
GEORGIE: Did you?
RICH: [laughs] Yeah, for a bit, you know, I'll send a video to the entire partnership of how we are not doing enough, whatever. You know at first you say, wow, you know, really? But then you say, you watch the video and you say, OK. And I was just entering my final term as CEO, you also start to think about your legacy. And I feel like this is like a really important thing, and if I don't do this, I'm not meeting the responsibilities to our partnership, to the world, to what BCG lives, tries to live in our own purpose statement. But I think at some point I said, I really just thought they were right and I was wrong to have...not ignored it, but not taken it at the level of seriousness that it deserved to be treated.
And so I told the partners that. I said, we are going to change the way we act, but we're also going to realize that our biggest impact-- that we do have to get better ourselves-- is to help our clients, because we work with clients across so many sectors of the economy, get tons of emissions across our whole client base, and how do we help them improve? And for some it'll take longer, some will go further, some will go less far, but we should be a force for good and a force to help drive positive change and do what BCG does best, which is help our clients understand how they make changes they need to make and do it in a way that leads to sustainable and lasting advantage for them, and that we are uniquely positioned to bring those kinds of insights and then to also contribute to the world through our Social Impact practice. So then you get to work.
GEORGIE: With so much volatility in the world, are we in danger of taking a step back perhaps from the commitments made in Glasgow? I say this because I was at a financial services event last night actually, and there were a people there who were saying to me, do you think consumers really care about green anymore with the cost of living crisis, inflation so high, a war going on in Europe? I mean, it's also been argued the Ukraine war spells the end of globalization, yet this is surely a global problem and a global solution is required. Do you sense that some of that momentum from COP26 is being lost and actually, given the current situation, could seriously be dented, or are you more hopeful than the people last night?
RICH: Both. War--when it leads to energy issues that are going to raise energy prices, and food security issues that are going to raise food prices, and people worrying in a way they haven't about security and all of those pressures--how can that not take up a high share of mind? So in that sense, I think those concerns in the very near term are justified. We're all hoping we'll get beyond this before too long. And I won't try to project how that's going to evolve, but we just have to remember we're in a 30-year battle here.
To your point about consumers, I think it's a fair observation, not in every sector and not every consumer, but many consumers in many sectors are currently unwilling to shift behavior, or pay premiums for more green products, at least not high shares of them. A few, a small percentage will, but not enough. But frankly we're making it so hard for consumers right now. There's no consistent labeling. The messages of what it means to be green aren't clear because the measurements aren't fully transparent. At one level, it's easy to say consumers don't care. It's another to say it's our job, as business leaders and government leaders, to create an environment where consumers who are committed will make smarter choices on this just as they hope we will in other aspects of their lives and where we invest to educate consumers on what it means to make smart choices.
And very little of that has happened. And so to write off the consumer over a ten-year horizon I think is both wrong and dangerous for a business who thinks that way because they could really miss the boat. As we've seen on what's happened on electrified cars and how fast that market has taken off versus what people were projecting five or ten years ago, that will happen in other categories. But it's also underestimating the consumer. Yeah, if I make it really hard for people, of course they won't do it to the extent we want. We need to make it easy for people to make those choices.
I think there is a responsibility from both business and government to work together to enable us to go as far, as fast, as we need to go to be able to deliver.
GEORGIE: I said at the start, a business leader balancing their responsibility to their company with that of the planet, but do you think there is that sort of split, that you can only do good for your company or for the planet, or actually we're at such a stage now that if you don't consider the planet in your business planning, you're not considering your business?
RICH: believe it's that logic, of it's one or the other, breaks down for two reasons. One, just in general, companies that live purpose, companies that come at things with a multi-stakeholder mindset, yes, of course they have to deliver value to their shareholders and their owners, but they also deliver you to employees and society and customers and doing the latter is essential to being able to create long-term value for the investors. We've seen that over and over. And what, in BCG parlance, it means the total societal impact and total shareholder returns are synergistic rather than in conflict with each other, if done well, if done with strategy and thoughtfulness and good execution. It doesn't mean one automatically is synergistic with the other, but it means it's very possible to make that.
The second thing specific to climate and sustainability:
To not think that it's in your business's interest to figure out how to align with that tailwind rather than to argue for the status quo and to face that as a headwind, as a business leader, (I heard Indra Nooyi, the former CEO of PepsiCo, talk so passionately about, the first starting point for good strategy is look to align with tailwinds rather than try to run your business against headwinds) if investing in climate and sustainability, when the world is going to spend trillions and trillions to do this, and governments and customers are going to change their behavior, sometimes faster, sometimes slower, if that isn't the kind of tailwind you want to align with, I don't know what is.
Now, does that mean it's easy, does that mean it happens in every business at the same time? Of course not, and it doesn't mean you can do everything that the world might want you to do all at once. It does mean, considering this is a core part of how you develop strategy and then not just how you could develop the strategy, but then how you actually act on it, how you engage with society more broadly to be an enabler for good rather than a resistor. I mean, I think all of those things take on great importance.
GEORGIE: There is also tailwind and headwinds within moving forward in this space and trying to reach net zero. Do you want to be a company that just goes with the easy approach and tinkers around the edges, does the minimum of what you need to do to get to where you want to go, or do you want to be a business that stands out in front, that perhaps makes bolder moves, bigger investments, or is there a first-player disadvantage here?
RICH: It's going to be some of...and part of the job of leadership is to figure out how to do that which is right in the right way so that you can also be successful as a business, so that you can thrive, so you have reinvestment capacity, so that you can take market share and then double down with winning strategies that are aligned with our planet and climate and sustainability, and other priorities. I would argue diversity and equity and inclusion would be another one of those. It's not the only one. It's just the one that touches all of us globally in such a huge way. I think that's the responsibility.
But if you know that the right change is a really hard change, government policy that forces everyone to be transparent, that allows it to be easier to show that you're differentiated if you're outperforming, because others can't obfuscate it so easily, that force everyone to incur some level of transition cost to a lower carbon economy, so if you're the one making the investment, it doesn't seem like your costs are going up and no one else is, everyone else has a cost advantage, I mean, those things are in your interest.
And I use the business to government example, but I could say that for companies in the same sector. Imagine being a supplier to four different companies downstream of you and each one of them sets different standards of how they want to measure, of what data you need to submit, of all those things. Imagine how complex you made it for a supplier, which might just be a mid-sized company, to try to live up to its customers' expectations. So when sectors align and say, we're not going to align on our plans, we each make our own plans, but we are going to align on the kind of data we want from our suppliers, the formats we want it in. Sectors aligning on things like that help everyone.
So while I do think individual actions of companies need to be bold, they also need to be thoughtful about how we move together in ways that make it easier and less risky for all of us to move and don't have the ones that go a little faster feeling like they're really taking risks in terms of their near-term performance in ways that will scare off their investors or put more pressure on them to not take those kinds of actions.
GEORGIE: You spoke a lot about engagement, so engaging across industries, engaging with sector leaders. It seems that messaging, communication, engagement, collaboration are absolutely fundamental.
RICH: I completely agree. I would argue that engagement strategy will be different for different companies and different sectors, but is critical everywhere. I think almost every leading company needs to engage across its supply chain, should be engaging with others in its sector to align on standards, to talk about initiatives that they can move together on that will make it both less risky and more impactful than each company trying to do it alone, to engage across industries on things like breakthrough energy catalysts, where companies from across sectors try to fund new technology or do other things to ensure progress, and of course, of course, with the public sector, to try to get smart government policy that can allow us all to go further, faster, and to still have a very productive and growing economy in the process.
That engagement strategy is absolutely essential, and every CEO needs to think carefully--three things: Commit, act, engage. Commit, you do as an organization, or as a leader and as an organization. Act, you have to mobilize your team and figure out how to make it real.
GEORGIE: Rich, you finished your final term as CEO of BCG very recently, but are you still personally as committed as ever to the climate cause?
RICH: Yeah, so I stepped out of the CEO role at the end of September. It was a big change. I'd been doing that role for a long time, and honestly, I didn't know what I would do next. Even a year ago, I wasn't sure what, where my time would go. But as it turns out, it's probably about 60% to 70% of my time now is working on climate- and sustainability-related topics, partly helping BCG, because we've started this new practice under my successor who formalized it as a practice, and I'm so excited about that. So I try to contribute to that team in any way I can.
Some of it's talking to CEOs and other business leaders. Some of it's helping a few clients specifically because I have to stay on top of what it takes to do this; and the real problem...it's easy to talk theoretical, it's hard to be on the ground, actually making it happen. And then of course, to contribute to society, meeting our COP delegation as senior advisor, to the WEF CEO Climate Leader Alliance, you know, and in other societal ways where I can contribute and make a difference.
I feel like I have this privileged position where, having been a CEO who had to step up to these challenges myself, and as I said, wasn't the first person to realize that, you know, I had to come along on my own journey to get to talk to leaders across so many businesses and across society, and to have the time now to really engage, whether it's in the science of new technologies or the operational challenges of changing supply chains, or CO2 AI and how you put a whole new measurement and AI infrastructure in to make this better. I've got this privilege of time and now it's my job to use that privilege in the most productive way I possibly can.
GEORGIE: Do you think this situation makes the job of a CEO much harder, or is it just another challenge to be faced, and actually there's a real opportunity? As you said, I mean, just one aspect, to leave a legacy, to leave a very positive lasting legacy on a company and on the world.
Yes, it is a harder job. It is also a more privileged job because I think a decade ago when you stepped into the CEO role in most companies, BCG was a bit different because we're a private partnership, but I'd say for most companies, the focus really centered around the shareholders and investor returns, and that was the one yardstick. I think what we've seen over this last decade, where purpose has come much more to the fore. There's so much more emphasis on how do you articulate purpose? How do you live it, how do you tie it to your history? How do you use it as an engagement tool within your company and in the world? It's a privilege for a CEO to have the license to do that versus just thinking about like what they're going to deliver over the next year or two in terms of performance.
And then the other thing, I'd say, the tools that are at our disposal to make a difference. I mean, what's going on in technology, and not just the technologies we've already put in place, the ones that are coming, offer enormous opportunities to build a deeper relationship with customers, to have better data to make smart decisions, to have new tools to create better offerings for customers. I mean, it's an extremely exciting time, but you know, with excitement comes stress, and there is a lot of stress too.
GEORGIE: Rich, thank you so much. I really appreciate your time.
RICH: It's really been a pleasure, Georgie.
GEORGIE: And thank you too for listening. We'd love to know your thoughts. To get in contact, leave us a message at firstname.lastname@example.org. And if you like this podcast, why not hit Subscribe and leave a rating wherever you found us. It helps other people find us too.
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