Today we launch the fourth part of our knowledge partnership with CNBC, on sustainability, as senior partner Dickon Pinner discusses the importance of making economic and environmental resiliency core to the COVID-19 recovery. Our research shows that a low-carbon recovery could not only significantly reduce emissions, but also create more jobs and economic growth.
As Dickon explains, the next decade is decisive for climate action: Warmer temperatures over the next ten years will bring greater risk of physical and economic hazards. And after 2030, the pace of warming depends on human actions, requiring a collaborative response to reach net zero emissions by 2050.
We spoke to Dickon, who leads our global Sustainability practice, about the extent of climate change’s risks, how organizations can transform to become more sustainable, and why a green post-pandemic recovery is critical on the path to the next normal.
1. Why is a green recovery critical on the path to the next normal?
Confronting climate change was critical even before COVID-19. Now, as we work to protect lives and livelihoods from both the public-health and economic crisis as a result of the outbreak, investments in climate-resilient infrastructure and the transition to a lower-carbon future can drive the post-pandemic recovery by providing significant near-term job creation and increasing economic and environmental resiliency for the long term.
Research has shown that climate change can actually contribute to pandemics. For example, rising temperatures can create favorable conditions for the spread of certain infectious, mosquito-borne diseases, such as malaria and dengue fever. Addressing climate change now can help us become more resilient for the future.
2. In the CNBC video, you share that a utility player could save $1 billion over 20 years by investing in climate resilience. Given this potential economic impact, why is change still so hard?
For new players, I’m not sure change is so hard. We’ve seen that capital markets are wide open for investment in green businesses in a way that they’ve never been before: Interest rates are at historical lows, technology costs have fallen, and financial regulators are beginning to nudge investors, so the risk-reward equation is beginning to shift. These new companies won’t likely struggle to attract capital, but talent—and getting the right people and capabilities in place.
For incumbents, there can be an inertia from doing things a certain way. A number of things have to be reallocated to change: Leaders have to move capital away from day-to-day business to something new, free up people to manage and implement that new approach, and have a shift in mindset in the way they assess climate-related risks. Organizations frequently don’t have these capabilities in place—and moving large capital from one area of the business to another can be confusing for shareholders—so it’s a difficult challenge.
3. How, then, do you counsel CEOs to act to prevent the risk climate change poses not only to their businesses—but society at large?
It’s so important that companies have a complete and granular understanding of how their own businesses are shaping climate change. Without that, leaders are likely over-exposed to the risks, such as physical climate threats to their infrastructure or falling demand for their products, and underexposed to opportunities around approaches, like building resiliency in their operations, investing in innovation, or reducing emissions.
Climate change is already having socioeconomic impacts in some specific regions. Our research has shown how disruptions will impact workability, livability, assets, infrastructure services, food systems, and natural capital. It all relies on a stable climate, which we do not have.
That’s why courageous leadership is needed like never before—and that’s across industry, regulation, tech, and capital. We’ll need the creativity and dynamism of business to be an engine for innovation and delivery. We’ll need finance to mobilize capital, reward productivity, and price risk. And we’ll need thoughtful regulation to direct market forces and solve equity issues.
4. In which industries can a more sustainable approach to business have the most impact?
Perhaps the unsurprising answer is: all of them. The entire global economy needs to transition to avoid the most serious effects of climate change in the future. To give an example, agriculture may become the “new Oil & Gas.” As the world’s eyes turn to the inefficiencies in the food and land use industries, agriculture will become increasingly recognized as one of the big untapped decarbonization and negative emissions levers. I also think that insurance markets will grow and change significantly. The world is overexposed to the risk of climate change, and underinsured, driving innovations like parametric pricing, insurance-linked securities, and public-private partnerships to manage their exposure.
5. What are some of the ways we’re working with clients that you’re most excited about?
We recently worked with a global retailer to do a physical assessment of its nearly 10,000 stores. We looked at the physical climate risks to the company’s assets, but also the commodities and supply chains feeding those assets. We uncovered that the main source of vulnerability were actually the people and materials flowing into and out of its stores—and that the way to address that risk was to diversify its supply chain and invest in new technology that would be more resistant to the risks we identified.
Elsewhere, we’re working with a leading alternative protein startup that’s focused on changing dietary behavior. We’re helping the company with its international expansion strategy so that it can scale its impact globally.
6. You’re a physicist by training. Why did you want to lead McKinsey’s sustainability work?
I was a bit of an anomaly going into a career in science, having grown up in a family of musicians and actors. It was nice coming back to a house where no one really knew what I did.
I spent my early career at the firm almost exclusively in the semiconductor industry, working around the world doing a lot of capital productivity operations improvement work. A little over ten years ago, cleantech was beginning to really take off, specifically solar panels—technology that happens to be largely based on semiconductors.
Climate change is one of the biggest risks we face globally—from the urgency of managing the physical and economic risks to the opportunity sustainability holds for every sector, there is tremendous work to do that will require tremendous cooperation from governments, regulators, companies, and other organizations. Because our firm works across industries, functions, and geographies, we’re uniquely positioned to have impact and help move the needle. It’s a privilege—and also an obligation. When Kevin Sneader talks about creating change that matters, I can think of no better work that fits that theme.