Sustainability at Speed and Scale Requires the Right Data and Technology
February 2, 2024 by Cognizant
Any conversation about society, the environment, climate change and the economy must start from two well-established premises.
First, investing to avoid the worst effects of climate change is far cheaper than allowing them to materialize. We’ve known this since at least 2006, when British economist Nicholas Stern published his landmark review. Comparable findings around biodiversity loss were published in Pavan Sukhdev’s seminal The Economics of Ecosystems and Biodiversity 2011 study.
Second, despite intense attention, growing concern, ever more universally visible evidence and some recent good news—such as the new projection by the International Energy Agency (IEA) that fossil fuel demand will peak this decade—we are still losing the race against catastrophic climate change.
A simple and sobering data point for us all (regardless of where we sit in the anthropogenic debate) is that the potent combination of climate change and El Niño, a recurrent weather pattern, has made it “virtually certain” that 2023 will be the warmest of the last 125,000 years.
We’re not just approaching highly dangerous tipping points—such as the melting of the West Antarctic ice sheet— much more quickly than expected; at least some of these future impacts are likely already locked in. For example, scientists believe we can no longer avoid additional melting of that ice sheet throughout the 21st century even if we manage to drastically cut emissions. This will create different knock-on effects, from rising sea levels to lower planetary capacity to reflect solar radiation back into our atmosphere.
Clearly, we need to reach further and move much faster. To borrow from the title of a book written by US venture capitalist John Doerr, “Speed & Scale” really is the name of the game.
The view from the corporate world
What does this mean for leaders at all levels of business?
Climate change has always been a “tragedy of the commons” problem of global proportions. Individual companies whose activities and supply chains result in emissions—and which pay little or no price for them—follow their self-interest through those emissions and other forms of pollution. But when all are driven by self-interest, all become poorer.
Recently, though, a mix of policy, improved technology, public awareness and pressure has started to change the decision dynamics for business leaders. Further, a growing number of companies have come to define addressing climate change and other environmental challenges in terms of more enlightened self-interest. This is partly driven by the realization that the scale, complexity and cost of these challenges require more and better collaboration.
Enlightened, future-fit leaders understand that profitable and enduring businesses with a legitimate license to operate must have social and environmental practices and values not just at their core but also throughout their value chains. Such practices and values thus need to be supported by supply chain partners prepared, able and motivated to play their part.
In our recent survey of 3,000 senior executives at businesses throughout the world and across industries, 68% said sustainability is now an important or very important part of their business strategy. As a result, 50% expect to increase sustainability budgets by over 10% year-on-year in the 2022-2025 period. For the 2025-2030 timeframe, this rises to 63% (see Figure 1). Why? Because two-thirds of businesses expect this investment to deliver positive or very positive financial outcomes.
Base: 295 senior executives per industry Source: Cognizant Research and Oxford Economics Figure 1
All this highlights a deeply encouraging level of awareness not just of climate change as an issue but also of its defining role in the wider business environment. But, again, we must move further and faster. Awareness is one thing; action, quite another—and here businesses are falling well short of what is needed.
Five levers of change
In our view, the road to net zero has five lanes:
Policy sets and, through regulation, polices the rules of the game, ensuring the conditions to mobilize capital and business. With policy stability, capital follows and unlocks opportunities. These arise when businesses make pledges and take concrete steps toward net zero.
This highlights the role and interests of corporate strategy and the need for careful alignment between it and sustainability strategy, organizational KPIs, the design and incentivization of teams, the development of sustainable products and services, and any ESG-related criteria of borrowing and investment.
But, to bear fruit, good strategy must be underpinned by not just competent execution but also by the right data and the right technology.
Continue to page 2 of 2 for the conclusion of this guest blog.