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Leading Off
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It’s known as the “ratchet mechanism,” and for the next two weeks, you may be hearing a lot about it. As world leaders gather in Glasgow, Scotland, at the 26th meeting of the UN-sponsored climate conference dedicated to reining in climate change, the stage is set for many firsts, including this one: it’s the first time since 2015 that countries are expected to commit to more ambitious actions to halt the steady rise in global temperatures. (Enter ratchet, stage right.) This week, let’s prepare you for this existential drama with the latest thinking on sustainability, a topic that every leader today has no choice but to understand and grapple with.
close up of a plant
Sustainability must be part of your organization’s strategy
Sustainability, the domain of investor relations, public relations, and corporate social responsibility not so long ago, is now a material strategic imperative, whether your business is software, coal mining, or anything in between. But few organizations have the internal structures designed to treat sustainability as the critical business issue that it is. In “Organizing for sustainability success: Where, and how, leaders can start,” the authors parse the ways leaders can guide the redesign of their sustainability programs and why leaders should think differently about them, compared with more traditional business programs.
That’s the more than half of global GDP now generated in countries that have “net zero” mandates to balance the amount of greenhouse gases they produce with those they remove from the atmosphere. “The transition to a net-zero economy has passed an inflection point,” write McKinsey senior partners Daniel Pacthod and Dickon Pinner. Investors will want to know which of their portfolio companies have an effective plan in place for this tectonic shift, poorly understood by many executives, in which costs will not be distributed evenly. For starters, consider the puzzle that companies face in assessing the value quotient of sustainability initiatives.
“There is no company whose business model won’t be profoundly affected by the transition to a net-zero economy.”
So writes Larry Fink, chairman and chief executive at giant fund manager BlackRock in his 2021 letter to CEOs. The world’s other existential crisis, COVID-19, is “such a stark reminder of our fragility,” says Fink, “that it has driven us to confront the global threat of climate change more forcefully and to consider how, like the pandemic, it will alter our lives.” Without question, stakeholders will intensify their demands that organizations examine and disclose the risks and opportunities that climate change represents. Several clear examples of this dynamic are already apparent in cities and across the oil and gas and steel sectors.
circular green hedges
To understand the speed with which the sustainability landscape is changing, listen to Charles Edmond, the president and CEO of Caisse de dépôt et placement du Québec (CDPQ), with worldwide investments of more than $291 billion. “A CEO recently told me that, a year or two ago, ESG [environmental, social, and governance issues] was the last question that would come up in [an investor] meeting, if there was time,” says Edmond. “Now those meetings start with that question.” Edmond sees a “healthy tension” in the policies adopted by capital providers such as CDPQ to govern voting rights in public companies, which include expectations of disclosure on climate-risk issues, among others.
It’s only natural
a tiger
As complex and technical as the analysis of sustainability is, leaders understand that the concept is essential to the stewardship of our planet. Maintaining perspective on climate risks and actions can take many forms. Consider taking a child’s-eye view of a trek into a mangrove forest to understand what science has taught us about the environment, as well as the challenges and trade-offs that leaders face in some of nature’s purest settings. Or step back and consider nature’s beauty and the challenge of valuing and conserving our planet’s natural capital to improve not only our climate but also our economies and our health.
Lead sustainably.
— Edited by Bill Javetski, an executive editor in McKinsey’s New Jersey office
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