This article first appeared in Forum, The Edge Malaysia Weekly on September 5, 2022 - September 11, 2022

The year 2021 was about setting ambitions. The number of companies establishing science­-based targets for decarbonisation had strongly increased since 2015, but it rose dramatically from 2020 to 2021 in the run-up to COP26, the United Nations Climate Change Conference (see Figure 1).

Now, 2022 and beyond will be about delivering on and monetising those ambitions. The world will eventually get to net zero — but the critical issue is getting there in time to limit global warming to 1.5°C. The urgency is real: reaching net zero by 2050 requires halving emissions between 2020 and 2030.

It is not surprising that many CEOs feel overwhelmed as they face the climate challenge. There is no shortage of headlines highlighting the trillions of dollars it will take to green the economy. And the opportunities are endless, with possibilities to exponentially grow customer demand for green products.

Yet the day-to-day work of turning ambition into reality is undeniably challenging. Consider that 31% of companies missed Scope 1 and 2 carbon emissions targets they set for 2020 with the Science-Based Targets initiative, despite the fact that these emissions are the most controllable and there are many options available to address them (see Figure 2).

Of course, all of this is not happening in a green vacuum. Executives are trying to pursue their decarbonisation targets during a period of turbulence that has created historic levels of uncertainty and numerous difficulties. They are grappling with ways to make an orderly carbon transition amid an unsettling geopolitical atmosphere, chronic supply chain disruptions and rampant inflation.

To translate ambition into delivery, leaders will need to adopt a mindset that we call visionary pragmatism. Organisations that meet their decarbonisation goals bring dreamers and doers on the executive team together to get five things right.

Companies don’t need more climate scenarios but, rather, clarity on the relevant ones. They also need to watch the signposts that will indicate what is coming next, especially regulations and advances in technology.

The best companies will embrace an adaptable approach to strategy. For example, instead of viewing it as a five-year exercise with some additional yearly refreshes, winners proactively drive the delivery agenda (what has been committed to and needs to be delivered) and the development agenda (what needs to be advanced). Continuing assessment of signposts guides ongoing and quarterly discussions within the executive team and the board as part of the living strategy.

Investors as well as lenders are increasingly assertive and discerning about decarbonisation expectations. At the same time, they may not be willing to compromise on near-term returns. There is often dissonance between a company’s green ambitions and its growth and return aspirations, and often a perception that there will be trade-offs. Many capital markets day events have become longer, but not clearer.

Executives need to strengthen the investor dialogue. That means focusing on strategic clarity, with both concrete near-term plans to achieve decarbonisation commitments and pathways to net zero. They should emphasise specific proof points showing that decarbonisation is happening and that it contributes to making the business more valuable. Companies need to demonstrate progress in everything from Scope 1 and 2 decarbonisation to customer collaboration on green products and meaningful portfolio shifts.

In many sectors, the bulk of emissions happen when customers use the products that companies sell (downstream Scope 3 emissions). In addition, what the customer wants deeply impacts embedded emissions generated during production and in the supply chain. Companies that are most successful in their climate transitions start decarbonisation with the customer in mind and work backward across offerings, operations and the supply chain.

In both business-to-business and and business-to-consumer situations, visionary pragmatists will know how to promote their green credentials and innovate with customers toward a lower-carbon, circular world. They will ask what are the customer’s own ambitions, and how can the company support them? Decarbonisation will have very clear implications for how products are designed and used, as well as for emissions in production and across the value chain. Many executives view Scope 3 with trepidation, but it can provide the most powerful opportunities.

Carbon transition is a problem far too big to be solved by any company on its own, and the need to engage the wider ecosystem of customers, suppliers, peers, governments and civil society is increasing. Executives must decide where to collaborate versus compete, picking the few partnerships that can make a difference. They should forge those partnerships across the value chain, or with peers or non-governmental organisations, to reach a critical mass for change. It is important not to lose precious time on initiatives where there is much talk but little action. Instead, aim to ruthlessly deliver results with a clear intent for the partnership, and with early proof points gained through experimentation.

Top management usually is fully convinced of the need for aggressive decarbonisation, given interactions with investors, the board and key customers. New recruits often have chosen an employer based on its green credentials. Yet companies may lack committed middle management to get the job done. Too often, middle managers get bogged down when required to deliver key performance indicators for environmental, social and governance targets on top of those for revenues, costs and safety, for example. Sometimes, they are asked to do it without explanation or help in making trade-offs.

How can they become net-­zero heroes? The only way to create effective green middle management is to be extremely clear about which decisions to make differently and how to resolve trade-offs. The organisation needs to be trained, guided and aligned to embed their goals as realistic deliverables. As an example, procurement is critical to address Scope 3 emissions. Managers who have been trained for years to focus on optimising cost for given specifications need clear guidance on how to reflect carbon in procurement decisions, next to specs and price (for example, through internal carbon pricing), plus the tools to pragmatically assess where in the supply chain to push.

The whole organisation needs to be upskilled, though not to the same level or the same purpose. That starts by investing to understand who is most impacted and needs the most training, and then rolling out support accordingly.

The urgency of decarbonisation and the need to limit global warming to 1.5°C are largely undisputed. Most companies raced to establish their targets in time for last year’s COP26. Now, as they come face to face with the hard part — delivering on those ambitions and the opportunities available by greening the business — those that combine vision and pragmatism will get there first. 

Shazrul Asari is a partner and Alicia Goh is an associate partner at Bain & Company, based in Kuala Lumpur. Jenny Davis-Peccoud is partner and co-founder of Bain & Company’s global Sustainability & Responsibility practice, based in Amsterdam. Torsten Lichtenau is based in London and leads Bain & Company’s Carbon Transition Impact Area globally.

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