The sustainability agenda has divided companies into frontrunners and late-adopters

It should really be a no-brainer for today’s executive teams: Customers demand green solutions, your future employees want to work with purpose, your competitors are likely already making huge progress into the green economy, authorities everywhere are preparing for stricter regulation, your suppliers are probably also demanding transparency and climate action, and even the access to capital is now largely tied to sustainability measures. So why are some companies and COO’s still lagging behind on sustainability – or leaving it up to a little team to “do something about it” – while others are unleashing massive forces of innovation and co-creation to secure their place in the green, digital economy?

Well, that question has puzzled me for quite some time – especially since I am having a lot of these conversations with Deloitte’s clients where some people still ask me about the minimum viable capabilities to achieve ESG compliance while others have started to completely transform their business to prepare for future sustainable success.

As we all should know by now, the climate-aligned economy is the economy of the future – and its design is vastly different from today’s. Already, policies and market forces are driving innovations that are cascading across industrial systems and supply chains, opening new avenues for value creation. The pace of change is almost certain to accelerate even further as governments, companies, employees, communities and investors rise to meet the urgency of the climate crisis, aiming to hold global warming to around 1.5 degrees to avoid triggering critical planetary tipping points. All of this points to a collective effort to transform the economy at unprecedented speed and scale.

Claus Stig Pedersen has worked with sustainability for decades. Before joining Deloitte as our Nordic Sustainability Lead, he was Head of Global Sustainability at Novozymes for more than 16 years.

Claus, why do you think we are seeing this massive divide with some Danish and Nordic companies taking the lead on sustainability and others still being very, very hesitant?

Claus Stig Pedersen: “It is a really good questions, and I think it largely comes down to the will to change. Everyone knows that something has to happen to save the planet, many of the green technologies are already available for companies to explore, so if those two factors are present, then ultimately it is a question of leadership commitment. Some executive teams are more focused on short-term earnings – and there might be many good reasons for that – while others are focused on laying the foundation for future success. Some see sustainability as a license to play, others see it as an opportunity to win. Some leaders want to secure immediate financial success, others want to leave a more profound legacy. It is really down to those personal preferences, and it all starts from the top.”

You have said before that sustainability agenda is the most transformative agenda for businesses and societies alike in the 21st century. What did you mean by that?

Claus Stig Pedersen: “The major force of the sustainability movement is that we are now creating an economy where externalities are becoming fully internalised, meaning that the external costs – or benefits – of economic activity are incorporated into the business itself, for example when you are charging polluters with the damage costs of the pollution generated by them. What is transformative is that global consumers, talents, regulators, investors and leading companies all seem to agree on this ‘Nothern star’ of significant climate action, which is also why it is safe to assume that those companies who maximise the socio-economic value of their core business ultimately will the winners of the green economy.”

Sustainability investments and climate action have been around for many years, but especially the last 2-3 years, we have seen massive progress. Why do think that is?

Claus Stig Pedersen: “The simple answer is commitment, and not just any commitment, but commitment from some of the world’s most influential retailers and manufacturers that all operate with a global footprint. When they start to transform their supply chains, the collective impact is colossal, and we are seeing that right now. Then, when you also have regulators starting to turn previously voluntary recommendations such as the TCFD ambitions into regulatory frameworks – and you also have global investors demanding visible action – then you have a global movement. And sure, there are many challenges to solve, including availability and transparency of data, but at the end of the day, it is not the calculator that will make a difference; it is the commitment from those influential companies whose actions set the tone on a global scale.”

Finally, what would be your advice to those COO’s and executives teams who are still seeing sustainability as merely compliance, or who have not made the connection between sustainability and business opportunities?

Claus Stig Pedersen: “First of all, I think you have to go all the way back to the fundamentals of running a business, which is that you only have a business as long as you fulfil a need – and right now, the biggest need in the world on any scale is to find sustainable solutions to reduce our carbon footprint. Secondly, sustainability is not about products; it is about the core competencies of your company, and how those competencies can be used to generate a higher socio-economic value than they do today. And finally, it is about realising that no company is ever successful by staying the same, and that all companies will have to transform to stay relevant in the new economy. Is it always profitable to be a frontrunner? Not necessarily, but it is also not profitable to be overtaken by competitors who are suddenly years ahead because you failed to invest in time. So it is about finding that balance, shifting your focus from products to core competencies, and also realising that if you are not already doing something, now is the time to start, because this train is moving fast, and the last thing you want to do is be stuck at the station.”