Jan Rotmans: 'Without Faith in Progress, It Will Not Work'

The issue under discussion is the CSRD, which requires big companies, but from 2025 mid-sized companies too, to report on a wide range of ESG indicators, including scope 1, 2, and 3 emissions. Rotmans’ concern is: ‘There is no template, so no one knows exactly what is expected. Should the report be 100 or 500 pages? And at what level of detail? The requirement is to report emissions for scope 1, 2, and 3: not only for the own company, but for the entire supply chain and customers. How do you assess and influence the latter? A battalion of consultants are now making serious money from formulating these questions. In fact, it has become a huge bureaucratic circus, while it is an open question what the likely fate of all those tens of thousands of reports in Brussels will be. They will most probably all be discarded to one big pile anyway.’

Is this law missing its goal because of this bureaucracy?
‘There is a discrepancy between means and end. The aim is not to generate the best reports possible, but for companies to be more conscious of corporate responsibility. Where are they today, where do they want to go and how do they get there? This needs to become part of the organization's culture. The spirit of the law is far more important than the letter. I distinguish roughly four groups. On the one hand, there are companies that are willing and able to get it right, and those that are willing but not yet able. For them, the obligation is mainly a matter of refining, because sustainability is already in their DNA. On the other hand, there are businesses that can but do not want to, and those that are neither able to nor want to. These companies see the obligations as a necessary evil and will tick all the necessary boxes according to the formal rules. For these companies, legislation will ultimately accelerate the necessary transition. In a few years, when those reports have acted as a flywheel, the reporting will be taken less seriously and the reports will become more of a management tool than an end.’

What should leaders do now to be able to look back ten years from now with satisfaction and conclude that they have acted ‘in the spirit of the law’?
‘First, companies need to assess how they have organized sustainability within the organization and how far along on this journey they are. After that, things get trickier. The company now is jointly responsible for the sustainability of the supply chain and customer behavior. This requires a proactive attitude. In the coming years, companies would need to free up the necessary people for the conversation with partners in the chain and with customers about becoming more sustainable together. This will demand diplomacy, as collaboration will need to be more intensive and a range of interests will need to be balanced. This will also need to be done selectively, as you cannot engage with every partner and every customer. Which brings me back to my model of four groups of companies: start with partners in the chain who are willing and able, not with those putting on the brakes. Focus on customers who are themselves already working on sustainability goals. Together, form a 'coalition of the willing and able.’’

What other than legislation is needed to speed up the sustainable transition?
‘Courage and leadership. Significant progress can be achieved by reducing emissions from the top ten polluters – such as Tata, Shell, BP and waste processor AVR. The CEOs of these companies need to feel the pressure of shifting societal norms and be willing to take responsibility. The port of Rotterdam is currently accountable for 17 percent of emissions in the Netherlands. Despite various sustainability projects, 80 to 90 percent of all activities are still linked to oil, gas or coal, as shown by a study by research institute DRIFT, which I founded some years ago. Boudewijn Siemons, CEO of the Port Authority, and I recently called for a smarter and faster approach to the transition around raw materials. We need other energy sources and materials and we must move towards a circular economy. We are still wasting 90 percent of our raw materials and the circular economy constitutes only 7 percent of the real economy globally. Hence our call to action.’

To whom is this call to action addressed?
‘To the big companies at the port itself, but certainly also to politicians. The Netherlands is a small country with a huge energy-intensive industry. We want companies such as Tata Steel to use green hydrogen for cleaner production, but it will require a good ten years and five billion euros to achieve. That is a dilemma for a company which needs to compete in a global market with cheap steel from China and India. Steel companies in France, the UK and Germany currently receive government support to green their operations, because those countries are engaged in industrial policy. The Dutch government is not, and as a result, Tata Steel face the very real risk of eventually collapsing. Without a green industrial policy, we lack direction. Companies should have clarity on which industries the Netherlands want to keep and which industries we want to assist to become sustainable, and which not. If not, we run the risk that companies we would want to remain here, will leave.'

You mentioned the problem around raw materials. Does a national industrial policy, with protectionist measures, not cause countries not to be able, or willing, to export their raw materials to us in a profitable way?
‘That risk exists anyway. In recent years, energy, particularly gas, has been used as a geopolitical weapon. The same is now likely to happen with raw materials. China controls a significant proportion of the supply chain for rare metals, both in China and in Africa and South America. If there is a conflict between America and China, which seems bound to happen, China can decide to stop exporting critical metals. That would shut down half of Europe’s industry. Until now, climate policy was focused on the energy transition, but raw materials are becoming even more critical than energy. We therefore need policy on raw materials that include agreements on strategic reserves, reuse and recycling. This requires huge investments in technology plus financial support. Recycling, now, is not rewarded. Not surprisingly, one plastic recycler after another is going bankrupt. As the costs of pollution and transport are not calculated in, it is cheaper to dump or burn plastic than to recycle it. Because we are still nowhere near effectively recycling solar panels, wind turbines and electric car batteries yet, we are creating huge waste mountains of sustainable products and are at risk of meeting the climate goals in a totally unsustainable way. That cannot be the intention.’

Many products are cheap because they are non-circular. If the price difference is too big, many customers will not choose for the sustainable alternative - while you need the customers.
‘The initial funding is a major hurdle when developing circular products now. You need to find investors who believe in the product and are willing to accept lower returns in the startup phase, in the knowledge that this will change once sufficient scale is achieved. I have been trying for three years now to attract investors to Solarge, a company based in the Dutch town of Weert, which produces recyclable solar panels that are a third more expensive than the non-recyclable ones from China. We identified a handful of potential investors, but they are inhibited by what they perceive as the too high risk. Their concern is that Solarge could be outpaced by recyclable panels from China – because even though the system is patented worldwide, China does not respect any patents. Investors want demonstrable returns, while the company needs to scale up first before it can guarantee any profits. We need that green industrial policy to break out of this chicken-and-egg dead-end. We must support these companies.’

Most CEOs of internationally operating Dutch companies have little to no influence on geopolitical developments. What can they do to reduce their vulnerability?
‘They need to better prepare their companies for the kind of shocks that could impact the production processes or supply chain. Paradoxically, the more efficient all the processes are organized, the more likely it is that a system would not withstand a major disruption. Over the past 20 years, we have experienced five major shocks: 9/11, Fukushima, the 2008 financial crisis, COVID-19, and the energy crisis triggered by the war in Ukraine. In the next 20 years, I foresee five more of these shocks, on average every four to five years. Consider the geopolitical struggle for raw materials, a new COVID variant or hackers taking down the internet for weeks… it seems unlikely, but should such an event happen, the impact will be massive. Many companies fail to account for these risks and repeatedly get surprised. In the battlefield of the aftermath, it is not the biggest or smartest companies that survive, but the most agile and resilient ones. Executive directors need to learn to think in disruptive future scenarios. Imagine if the supply chain comes to a halt… do we have a plan B or C? Do we have enough stock? Are there countries we can turn to for those raw materials?’

What is your view on the role of activist groups? You co-founded Urgenda, which won the climate case against the Dutch government in 2019. It is the opinion of many executives that activist pressure on ESG prevents them from setting highly ambitious targets, for fear of not achieving it and then being judged on it.
‘Urgenda was not founded as an activist group. Our goal has always been to accelerate the sustainable transition of the Netherlands in collaboration with companies, government and civil society organizations. That is why I was not particularly happy about the lawsuit by Milieudefensie against Shell, even though pressure on companies is necessary. On the other hand, I do genuinely want to help companies like Shell make the transition to a more sustainable world. Society’s sentiment tends to portray the big players as bad actors. We need to move away from that attitude. Of course, we need to move faster and smarter, but without the engagement of big companies, the sustainable transition will fail. For example, investing in green hydrogen requires tens of billions. No startup, scale-up, or SME can afford that. Hence, we need one or two of the big oil companies willing to take on this challenge. I do not see BP and Exxon stepping in. Shell, at least, is committed to becoming greener and is involved in the Circular Campus we recently launched in Rotterdam, where students are trained to search for innovative, circular solutions for various climate, biodiversity and water availability issues. We also need the big financial institutions. At Rabobank, for instance, I work on breakthrough projects in 12 sectors. Is it possible to show that agriculture can also be more sustainable and circular? By developing bio-commodities - for example, hemp, bulrush, sunflower, miscanthus grass - can the agricultural sector become the raw material supplier for construction and chemicals? It most certainly is a possibility, and that in the short term. We need to be very practical about it.’

What would your call to action be for activist groups?
‘I try to calm them down and tell them that we also need to be patient. We desperately need NGOs and groups like Extinction Rebellion to keep us focused, but the current polarization is lethal. We need many more connectors and mediators. I have also become more of a connector than I used to be. I kicked for too long. In retrospect, I should rather have tried to reach into the hearts of companies. Perhaps I would have achieved more that way than through a lawsuit. Transitions always emerge from positivity – not from cynicism and negative thinking. To constantly oppose and polarize, consume time and energy, which is untenable at this stage of the transition.’

Europe is often regarded as at the forefront in ESG matters. Do you see it that way?
‘Europe is indeed the moral leader, but within the next 15 years, we will contribute only around 5 percent of global CO2 emissions. The bulk of emissions will then be from developing economies in Southeast Asia, South America and Africa. Europe is gradually becoming marginal. In the eyes of major world powers, we risk becoming somewhat of an open-air museum. In the 19th century, we were the stronghold of innovation; now this is happening in Dubai, Shanghai or South Korea. We should build cathedrals again, here in the Netherlands too. We have always been a nation of grand visions and plans, but over the past 12 years, cabinets have allowed themselves to be led by the pressing issues of the day. They did not get around to vision at all. We now need Delta plans across all sectors: economy, agriculture, water management, nature development, urban planning. This is a magnificent challenge for which, in principle, we have the money, knowledge and expertise. However, without faith in progress, the right leadership and decisiveness, we cannot succeed.’