Why climate action demands strategy as well as measurement
Our new report, Getting Going, in collaboration with Oliver Wyman, provides a toolkit to drive real-world progress on corporate climate action. Leading with how you will contribute to the transition, rather than with emissions outcomes, is essential for orchestrating the big shifts required and directing the actions needed.
- 30 corporate climate professionals were interviewed to discover what is impeding their progress and how they are breaking through the barriers they find.
Aligning metrics with the impact of actions is found to be an effective climate action strategy.
By uniting climate and business agendas you can achieve change at scale.
In preparation for the upcoming Climate Week NYC 2022, Oliver Wyman and international non-profit Climate Group conducted 30 interviews with advanced climate practitioners in large corporations from a broad range of sectors around the world. The people that the team spoke to are responsible for driving the climate transition throughout their organizations. In parallel, they ran a quantitative survey with climate practitioners from more than 100 corporations active in the climate transition. Through all of this research, they wanted to discover how climate progress is perceived, what holds back greater progress and how these barriers are broken down. The stories we heard range from exhilaration to frustration and the pattern is clear.
Where the tales are exhilarating, climate professionals and their companies have a clear strategy for the role they want to play in the climate transition. They see Scope 3 not as a measurement challenge, but as an opportunity to have an impact bigger than themselves. Of course, they have metrics and targets, but these are a means to pursue the strategy – not an end in themselves. They measure progress towards their strategic goals, not only in terms of emissions.
When it comes to the stories of frustration, the task of reporting often overwhelms the task of transition. In theory, the metrics should provide the impetus for change. In practice, without an agreed strategy, the changes needed can be too fundamental for this incentive mechanism to work, shifting the organization’s focus to near-term, incremental efforts that won’t achieve what is required.
Building a transition plan
Leading with how you will contribute to the transition, rather than with emissions outcomes, is essential for orchestrating the big shifts required and directing the actions needed. This is no different from the commercial agenda for the business. You can achieve incremental growth by setting individual departments' financial targets and budgets, but a business transformation requires more strategic direction. In climate, we sometimes expect incremental management tools to yield transformational outcomes. Yet in our survey of more than a hundred professionals globally, 40% said they thought the climate transition would be transformative for their business.
Conventionally, you might set a performance indicator in terms of the outcome you want to achieve, and let the business find the actions to take to achieve it. In climate, this can be a recipe for perverse incentives. One tech company we interviewed, for example, is currently not paying out the climate incentives in its senior leadership’s compensation plan, because the success of its programme has increased the company’s total direct emissions – in the course of avoiding a greater quantity of emissions by its customers, which are beneficial for the world but not measured in the plan.
This happens because the standardised measure of Scope 3 emissions includes customers’ emissions through the use of your product, e.g. from the electricity used at home during a Zoom call – but not the emissions avoided by customers using Zoom versus travelling by car. Another company is finding it hard to meet its targets, and the pressure is driving short-term priorities to meet the numbers, rather than investment in what they now feel would have the most impact.
Aligning metrics with actions
Ingka, the largest IKEA retailer, is one company working the logic differently. It uses a dedicated 'climate measurements development team' to align metrics with 'the impact of actions,' rather than focusing only on the projected footprint. The insight here is that you often cannot measure Scope 3 emissions (and more indirect influences on avoided emissions, sometimes dubbed Scope 4) robustly enough in advance to set meaningful targets, but you know what actions you want to incentivise, and you can set the appropriate detailed emissions metrics over time as more is learned.
For similar reasons, renewable energy provider Ørsted introduced management incentives on climate only once it had made the cultural shift that shaped what the business was trying to do when the incentives would reinforce the strategic direction, rather than be a substitute for it.
Now is the time to resolve this tension, because now is the time when many organizations are making a shift: Instead of the climate agenda being the responsibility of specialist sustainability teams, it is being embedded across organizations as part of 'business as usual' across the organization. This smart move unites climate and business agendas – a common theme in the companies we talked to – and it achieves change at scale. It also creates an urgent need to make sure that what you embed in the organization is a strong, purposeful drive that can deliver transformation, not just a culture of technocratic compliance. Such a drive is not only suited to the scale of the task, it will also energise the business. A narrative of relentless reduction and squeeze will inspire people across the organization less than a positive, inspirational vision for their business.
Embedding strategy in climate action
The importance of strategy may seem obvious. But in many organizations, climate action has been a response to pressure from investors. In our survey, 39% said the most pressure came from investors, compared with 24% saying business customers, 14% employees, 9% consumers and 8% policymakers. This pressure, particularly where it is dealt with organizationally, has sometimes favoured a focus on emissions metrics and disclosures ahead of the strategy to tackle the transition.
The 2020s are supposed to be our Decade of Delivery, when we need to halve global emissions to stay on track with the 1.5˚C ambition. We can’t afford for the Decade of Delivery to be just the Decade of Disclosure.