Navigating systems transformation

To capitalise on—and catalyse—the urgent systems-level changes we need requires business leaders to adopt a different approach to tackling the climate crisis. We must collectively break free from linear, business-as-usual mindsets, where tomorrow looks nearly identical to yesterday. To do so, corporate leaders must understand systems thinking and systems transformation.

This is the first in a series of reports from Deloitte and RMI laying out a new approach for corporate climate action in an era of rapid disruption. It is a creation of Deloitte’s Sustainable Systems Initiative, launched to catalyse systems change through activations in the marketplace and collaborations with leading companies, non-governmental organisations (NGOs), academic institutions and government agencies.

The world is on the cusp of a fundamental reconfiguration of our economy. Explore how systems thinking can help organisations design a corporate climate strategy that drives change and positions them for long-term value creation.

Why business leaders should explore a different approach to corporate climate strategy

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°C to avoid triggering critical planetary tipping points. All of this points to a collective effort to transform the economy at unprecedented speed and scale.

This transition offers tremendous business opportunity—and risk. Deloitte analysis suggests that rapid global decarbonisation could yield an economic dividend of US$43 trillion by 2070 compared to a world of unchecked climate change. Which companies are likely to be best positioned to create and capture this new value? Those that challenge the existing systems underlying their industries.

As the shift to a climate-aligned economy unfolds at pace, there is a window for companies to both accelerate the transition and position themselves for long-term advantage. Responding with incremental or compartmentalised initiatives—too often the norm—could lead to missed business opportunities, investment in stranded assets, or even the failure of the enterprise.

Source 1: Deloitte, Turning Point; Source 2: 2070 report

What is systems transformation?

It is critical for business leaders to identify when systems change is happening and understand how to respond, especially when forces such as climate change are disrupting the economy on many levels simultaneously. To do so, leaders should ground themselves in the “what” and “why” of systems transformation.

Systems are sets of interconnected elements that are organised such that the elements work together to achieve an objective. Whether a value chain, a forest, or a human body, each system interacts with others and the sociotechnical and socioeconomic systems responsible for the bulk of planet-warming emissions—energy, transport, industrials, food and land use—are part of a larger system of systems. For companies, example elements could include their client base, suppliers and assets.

In this context, an innovation is a change to the system and can be technology-based (e.g., electric vehicles), idea-based (e.g., smoking bans), or a combination of both (e.g., social media). To scale, innovations often need to break some existing trade-off between price and one or more dimensions of performance—for instance, speed, durability, or emissions.

A reinforcing feedback loop is the process through which the impact of a small change can be amplified, making change elsewhere more likely. Reinforcing feedback loops may include learning curves, economies of scale, technological reinforcement, or social diffusion and help drive the adoption of innovations. Because the private sector often plays a key role in creating and boosting these feedback loops, a central component of systems-aligned emergence strategy is recognising which of these reinforcing feedback processes are in play and understanding how companies can work to accelerate them.

If feedback loops take hold, they can create a “runaway” effect, marked by a tipping point. Innovations that reach scale typically follow an S-curve pattern of adoption: slow at first, then rapidly rising, before flattening out again as they reach market saturation

Source: RMI, “Harnessing the power of S-curves,” October 28, 2022

Harnessing the power of systems transformation

The transition to a climate-aligned economy won’t just happen. Facing severe climate disruption with worse to come, global actors are deliberately and proactively—albeit disparately—working to reconfigure the energy, transport, industrial and food systems. Companies have the power to drive virtuous, reinforcing feedback loops to help make this happen. Often this requires collaboration across the value chain.

All transitions can be harnessed, as they follow the same pattern of shifting dynamics in five phases. Barriers and system dynamics to accelerate the transition to a climate-aligned economy are often predictable, manageable and solvable through each of these phases. As transitions unfold, stakeholders with a solid understanding of innovations and their related phases can develop targeted strategies to stay ahead and take advantage of rapidly changing conditions.

Source: RMI analysis

Accelerating systems transformation

In times of systems-level disruption, recognising and capitalising on the opportunities presented by these fundamental shifts demands a different approach to strategy. An emergence strategy takes a systems view, with a focus on how a company can accelerate change through engagement of other key system actors, especially those up and down the value chain.

A corporate emergence strategy often involves these key considerations:

1. Frame corporate strategy based on transformational change versus incremental change.
2. Recognise when and where systems transformation may be occurring or could emerge.
3. Diagnose phases of systems transformation and tune strategy accordingly.
4. Engage a wide range of stakeholders to shape system-level outcomes.
5. Adopt a beginner’s mindset, open to continuously learning and adapting to changing environments.

Climate change and the global response to it, are altering the business landscape everywhere. Everyone has a role to play and by taking meaningful action today—investing at the speed and scale that is necessary—business leaders can thrive in the economy of the future.

Future reports will explore these topics further, examining how companies can craft a tailored emergence strategy and the ways transformation is playing out in the energy, food, mobility and industrial systems. We stand ready to help businesses at this critical moment as they work to make this happen.