This Is How To Make An Impact Toward 2030
'In 2030 CO2 neutral...', 'in 2050 fully circular....'. Most organizations in the Netherlands now have their sustainability targets in black and white. The goal is clear, but the journey towards it up to now is not without struggle. As we previously wrote in an article for Mgmt. Scope (see: From Incremental Steps to Impactful Change), on average the pace is too slow and progress too limited. In the article, we named several obstacles that cause stagnation in the process.
This stagnation is not surprising: the sustainability file and all the laws and regulations surrounding it are simply enormously complex - we are all too aware of that. Yet there is little time to lose. After all, the year 2030 is only 6.5 years away, and in accordance with the climate agreement, at least 55 percent CO2 reduction must be achieved by that year to be climate neutral by 2050 at the latest. It is therefore high time to think in terms of solutions. How can we meet the sustainability deadlines? What can we do specifically to significantly reduce scope 1, 2 and 3 emissions - or direct emissions, indirect emissions from purchased energy and indirect emissions in the value chain?
- Directors' move
Looking at the clock, one thing at least is certain: the sustainability challenge can no longer be passed on to the next leadership team. Current directors - some of whom will surely still be there by 2030 - will have to make the impactful decisions now. The sustainability issue requires personal leadership. In addition to vision and ambition, it requires the will and courage to act and make tough decisions. The leading role in the sustainability dossier is therefore reserved for the CEO himself. As the COO of Corbion, Jacqueline van Lemmen, rightly points out in our recent interview (see also: COO Jacqueline van Lemmen Knows That Operations Is Where It Happens): if a CEO does not put his or her full weight behind the stated sustainability targets, the mission is in anyway hopeless.
The CEO will have to ensure that clearly stated targets are translated into actions and a clear roadmap. Every investment decision will have to be tested against these targets and roadmap. The CEO will always have to monitor whether the small steps taken throughout the organization are leading to the final goal sufficiently. This requires thorough reporting and decision-making based on facts. The active inclusion of stakeholders, such as shareholders, will also have to be actively managed. Of course, the CEO does not have to do it all alone. For some specific members of the exco, we see great opportunities - more on this later.
- Think integrally
Real impact can only be made when acting integrally: end-to-end, from portfolio to supplier and from raw material to final product. This requires, first, insight into the entire chain. That insight must go beyond the main suppliers, just as downstream it must be known what ultimately happens to the product. A data-driven way of working is therefore a must, so that it becomes clear where the opportunities and risks are in the end-to-end value chain. At the same time, executives must realize that data by itself does not solve the problem. Data helps prioritize and focus and measure progress. But setting up integrated teams, jointly developing ideas and presenting decisions, is even more important. The teams will have to make clear choices from those demonstrated strengths and weaknesses. In the ideal sequence, they will first determine what the future portfolio will look like. Which products fit directly into the sustainable portfolio of the future, for which part sustainable alternatives must be found (for example, in the materials used) and which part will have to be discarded (in time) because it gets in the way of the sustainability targets.
Next, translation to operations, factories, purchasing, and logistics is obvious. There will be business units that can be made perfectly future proof with modifications or innovations. Examples include electrification of production and logistics, reducing the distance from raw material to factory to user, and adapting processes to sustainable variants of raw materials. In addition, there will be parts of the company that no longer fit the sustainable future and will have to be parted with.
- Shift attention to scope 3
The biggest impact, the most sustainability gains, can be made within scope 3, or indirect emissions in the value chain. Scope 3 takes up more than 80 percent of total emissions at many companies. The Greenhouse Gas Protocol, the international standard for greenhouse gas emissions, distinguishes 15 different categories within scope 3, with many manufacturing companies primarily talking about categories 1 (raw materials and purchased services), 11 (use of products) and 12 (end-of-life processing of products). For companies with a lot of downstream scope 3 (which is directly related to product design and product portfolio), the approach is primarily internal to the organizations themselves. Organizations with an emphasis on upstream scope 3 (which has to do with activities at the beginning of the supply chain) will instead have to work with suppliers in the chain.
- Procurement as an execution force
Fortunately, the supply base is not so much part of the problem as part of the solution. Suppliers (of suppliers) usually also have sustainability ambitions. However, it is not always a given that these ambitions are sufficient or can be implemented quickly enough. 'Purchasing' or 'procurement' is therefore going to play an increasingly important role. Indeed, it is our firm belief that the chief procurement officer (CPO) and his or her procurement organization can become the primary execution body. The CPO is the designated person to meet the sustainability ambitions of organizations. This is because he or she has the contacts with the suppliers that significantly affect scope 3 emissions. Finding alternatives to suppliers that contribute to achieving the goals is an important procurement task. Incidentally, it is a very complex task. Adjusting the chain is difficult, time-consuming, and costly. The CPO will have to talk to parties in the chain who may not be waiting at all for a complex set of requirements from sometimes only one of the customers. They too will want some form of certainty. In such cases, it can help to seek cooperation and work with colleagues from other companies. They presumably face the same challenges in their supply chains. If necessary, government guarantees can be sought.
The CPO can also have a major impact on scope 2 emissions because procurement is responsible for an organization's energy contracts. The same is true for scope 1 when procurement has responsibility for contracting large capital expenditures.
So, with a structured review of the procurement function, a lot of gains can be made. The CPOs that successfully meet this challenge will help shape their company's sustainability strategy in the coming years. An equally important role is played by the chief operating officer (coo). He or she can play a decisive role in making the operation strategically sustainable. The coo thus also has an important influence on a sustainable supply chain.
The Boardroom's turn
As mentioned, the clock is ticking. We are already living in 2023 and the year 2030, much talked about in annual reports, is closer than it seems. In the 6.5 years remaining, much work remains to be done. The file is complex, but time does not stop. Today's Boardroom is in charge more than ever and will soon be judged more than ever on the results achieved. It is up to directors to take the first, impactful step today.
Article by Remko de Bruijn and Pim Rossen. De Bruijn and Rossen are senior partner and principal, respectively, at Kearney. Published in Management Scope 05 2023.