August 17, 2022
In the last article of this series, we asked the rhetorical question of whether integrating climate management into business models is the premise of leading our global economy towards carbon neutrality. Rhetorical, because we think this question does not need further weighing up arguments and facts. Considering the world’s status quo and the effect of our degenerative production patterns, we claim that net zero business models must be the new ‘business as usual’. The better question is: how can we integrate climate management in a way that does not burden our performance but leverages financial success?
Climate and sustainability risks are real and dominate now annual meetings from the United Nations and the World Economic Forum. They also trickled down to national governments and city councils, especially if those were challenged with recurring events of heavy rainfalls and droughts. Equally, companies have started to consider climate and sustainability factors as part of ESG criteria, but also as part of Corporate Social Responsibility (CSR) initiatives, as these frameworks for responsible leadership are ultimately strongly overlapping.
A group of nearly 7.000 companies that report regularly to the Climate Disclosure Project estimated a total cost of 1 trillion US dollars due to climate change-related risks. Many of those risks are very likely to occur - expected to happen within the next several years (Global Climate Change Analysis 2018) . Further, more than 3000 companies and financial institutions are collaborating with the Science Based Targets initiative (SBTi) to reduce their emissions in line with climate science. Around half of them already integrated approved science-based targets to reach their net zero goals (SBTi Target Dashboard 2022). No doubt, things are moving.
Today’s modern-age leadership workshops teach ESG, CSR, and agility to help managers to lead responsibly, with integrity, and to navigate their businesses through the ever-changing nature of our fast-paced world. So yes, we have started to lead with more awareness and to apply a certain degree of whole system thinking. So should climate change not move to the forefront and appear in every SWOT analysis? The reality is: that climate management still seems to stay an add-on feature for many business models. We must ask: Why is that?
Michael Raynor and Derek Pankratz argue in their article ‘A new business paradigm to address climate change’:
“We do not lack resources, tools, or cleverness. What is missing is a set of new decision-making paradigms suited to such an unprecedented challenge.”
Scientists and practitioners equally agree that climate thinking is the missing piece in ‘Business models for the Anthropocene’. This age [the Anthropocene] and a net zero future
“require[..] a shift in mindsets and value systems towards consideration of constituencies without a voice (such as future generations and non-human nature)”.
As Dr. Doroteya Vladimirova from the Cambridge Centre for Industrial Sustainability further points out:
“We need business models that can reconcile how a company can create and deliver value for its multiple stakeholders while capturing value for itself.”
Redefining value is the first step to challenge the baseline on what success is measured. While this applies to individual success and happiness, it equally applies to any corporate undertaking. The Cambridge Institute for Sustainability Leadership defines sustainable value as “the well-being, improvement, continuity and preservation of the individual, company, society and environment, in such a way that satisfies the needs of the present without compromising inter-generational equity”. Looking at value creation holistically opens up perspectives on uncaptured value across social, environmental, and economic spheres. The university’s Institute for Manufacturing developed the Cambridge Value Mapping Tool which enables executives and engineers to identify value in the form of failed value exchanges in a structured and visual way. The value creation process is analysed from the perspective of each stakeholder in the business network, with the natural ecosystems and communities each being given its own voice and stake in the business.
Interesting to observe throughout the facilitation of the tool: even if the business owners don't care about the climate and their long-term impact, the mapping process clearly shows the benefits of cooperating and taking social and environmental boundaries into account. We can explain this with a simple cause-effect relationship that applies to all living systems including businesses: a healthy regenerative ecosystem replenishes and reinvests in the underlying systems on which it relies and creates more energy than it consumes. The consulting and IT-service company Accenture can confirm that correlation with comprehensive data. Research results from their own client base and that of Arabesque showed, companies with high environmental social and governance performance outperform their peers by more than 3.7 times over seven years (Accenture Report 2021).
Carbon taxes and other governmental regulations also made those companies act whose top management would surely continue with ‘business as usual’ if there wasn’t someone giving them a rap on the knuckles if they didn’t. And that’s where the younger generation highly differs from the older crowd: Taking sustainability as a core value of their business models appears to them more as common sense rather than an imposition. Nonetheless, the practicability and profitability of implementing a sustainable business model is still put highly in question by all of our generations. And this is not only due to a confusing fragmentation in Sustainability approaches, but also because of ongoing greenwashing and empty promises across all levels. While CSR projects and ESG measurements are just added to conventional business operations, it seems common to tweak, and blow up things bigger and better than they are for clients and investors.
But who can blame our current executives if their business schools never taught them how to do it differently and professors keep teaching a one-sided approach to corporate sustainability? The hard truth is, the urgency that the climate topic is running us over with hits a lack of experience. Business owners simply have never walked the path. As the aforementioned authors Raynor & Pankratz put it: “The swift and dramatic shift has left many businesses without a set of analytical tools and decision-making mindsets commensurate with this broader purpose.”
In summary, we can say that the successful integration of climate management faces similar challenges as other frameworks for responsible leadership (ESG, CSR, etc.) do:
So what is needed to apply climate management holistically across all business processes? How can we integrate climate thinking in a way that enables us to add real financial value?
Find the answers in our next article of this series. In any case, we hope you trust in your ability to grow & take the leap toward carbon neutrality. Stay tuned & climate-smart with Net0.
Other articles in this series:
If you would like to expand your knowledge about the successful integration of climate management, please refer to our following content:
• Previous article: Are Net Zero Business Models The Future of Responsible Leadership?
• Next article: Integrating Climate Thinking Into Corporate Strategy For Net Zero Business Models
To get to know a practical tool that enables your company to incorporate climate management through an AI-powered platform, book a demo with Net0. We are eager to show you how to simplify and automate your net zero journey.
This article is authored by Julia Ruff - Founder & Lead Trainer of JR | Regenerative Leadership, a consultancy agency & knowledge hub for Conscious Business & Leadership Development