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The Visionary CEO’s Guide to Sustainability

Net Promoter®, NPS®, NPS Prism®, and the NPS-related emoticons are registered trademarks, and Net Promoter Scoresm, NPSxsm, and Net Promoter

Systemsm are service marks of Bain & Company, Inc., NICE Systems, Inc., and Fred Reichheld.

This work is based on secondary market research, analysis of inancial information available or provided to Bain & Company and a range of

interviews with industry participants. Bain & Company has not independently veriied any such information provided or available to Bain

and makes no representation or warranty, express or implied, that such information is accurate or complete. Projected market and inancial

information, analyses and conclusions contained herein are based on the information described above and on Bain & Company’s judgment,

and should not be construed as deinitive forecasts or guarantees of future performance or results. The information and analysis herein does

not constitute advice of any kind, is not intended to be used for investment purposes, and neither Bain & Company nor any of its subsidiaries

or their respective oicers, directors, shareholders, employees or agents accept any responsibility or liability with respect to the use of

or reliance on any information or analysis contained in this document. This work is copyright Bain & Company and may not be published,

transmitted, broadcast, copied, reproduced or reprinted in whole or in part without the explicit written permission of Bain & Company.

Acknowledgments

For their contributions to this report, the leadership team of Bain & Company’s Global Sustainability &

Responsibility practice would like to thank the following people: Colin Armstrong, Nick Baker, Mads

Balsig, Andy Bankert, Stephen Bertrand, Jan Budde, Michelle Carroll, Christina Cerezo, Rick Clerx,

Carlos Cruz, Katrina Cuthell, Francesco D’Angelo, Prashant Das, Diego Depetris, Joey DeRosa, Magali

Deryckere, Simone Doms, Katherine Duceman, Emily Emmett, Adam Frey, Raina Gandhi, Sheena Garg,

Ludovica Gianni, Christian Graf, Ishita Gupta, Jim Harris, Molly Hart, Andrea Isabella, Krystle Jiang,

Austin Kim, Michael Kochan, Sune Kok, Ekaterina Kuznetcova, Sophie Ladousse, Adele Lam, Rafael

Lam, Ethan Lampert, Xue Lee, Emily Leinbach, Natalia Lejarraga, Ariel Lerner, Livia Luzzatto, Clark

Meng, Milica Milic, Martha Moreau, Ludovica Mottura, Christina Mueller, Dayle Nel, Tiziano Paci,

Onaizah Panhwar, Adam Papania, Tracy Parker, Leslie Peng, Tanja Pick, Andrew Pontti, Dani Rosen,

Joe Scalise, Lisa Schold, Jason Scuglik, Gabriele Sessa, Deeksha Sharma, Tamar Sifri, Dane Smith,

Alice Song, Ingo Stein, Khushboo Sultan, Tiiram Sunderland, Himadri Suri, Joe Tan, Sonal Tripathy,

Clementien Valk-Fabels, Tarah Walker, Katie Ware, and Selina Zhuang. Thanks as well to Nanette Byrnes,

David Diamond, Paul Judge, and the Editorial team.

The Visionary CEO’s Guide to Sustainability

Contents

The Questions Every CEO Needs to Ask About Sustainability...................3

Levers of Change: Technology, Behavior, Policy..............................8

Selling Sustainability Means Decoding Consumers ...........................9

Does a Purpose Help Brands Grow? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

Lower Costs, Faster Adoption: Closing the Sustainable Innovation Gap .........21

The Future Is Circular: How Companies Can Prepare to Grow .................26

Leading with Vision: Harnessing the Climate Policy Response .................31

Sector Perspectives ....................................................39

Building Resilience in Your Business Strategy: Four Imperatives for Leaders .....40

The Energy Transition’s Other Big Puzzle: Making the Math Work...............46

Can Food and Agriculture Companies Raise Their Game? ....................53

Fires, Floods, and Loans: How Banks Can Deal with Increasing Climate Risks ....60

Making It Happen ......................................................67

Building a Data-Based Stakeholder Strategy................................68

Operations and Supply Chain Decarbonization:

Lower Emissions, Higher Performance.....................................71

Making Business Do Better for Everyone ...................................78

Organizing for Sustainability.............................................86

A Talent Strategy for Sustainability: Skills Matter, but Mindset Is Everything......91

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TheVisionaryCEO’sGuidetoSustainabilityAcknowledgmentsFortheircontributionstothisreport,theleadershipteamofBain&Company’sGlobalSustainability&Responsibilitypracticewouldliketothankthefollowingpeople:ColinArmstrong,NickBaker,MadsBalsig,AndyBankert,StephenBertrand,JanBudde,MichelleCarroll,ChristinaCerezo,RickClerx,CarlosCruz,KatrinaCuthell,FrancescoD’Angelo,PrashantDas,DiegoDepetris,JoeyDeRosa,MagaliDeryckere,SimoneDoms,KatherineDuceman,EmilyEmmett,AdamFrey,RainaGandhi,SheenaGarg,LudovicaGianni,ChristianGraf,IshitaGupta,JimHarris,MollyHart,AndreaIsabella,KrystleJiang,AustinKim,MichaelKochan,SuneKok,EkaterinaKuznetcova,SophieLadousse,AdeleLam,RafaelLam,EthanLampert,XueLee,EmilyLeinbach,NataliaLejarraga,ArielLerner,LiviaLuzzatto,ClarkMeng,MilicaMilic,MarthaMoreau,LudovicaMottura,ChristinaMueller,DayleNel,TizianoPaci,OnaizahPanhwar,AdamPapania,TracyParker,LesliePeng,TanjaPick,AndrewPontti,DaniRosen,JoeScalise,LisaSchold,JasonScuglik,GabrieleSessa,DeekshaSharma,TamarSifri,DaneSmith,AliceSong,IngoStein,KhushbooSultan,TiiramSunderland,HimadriSuri,JoeTan,SonalTripathy,ClementienValk-Fabels,TarahWalker,KatieWare,andSelinaZhuang.ThanksaswelltoNanetteByrnes,DavidDiamond,PaulJudge,andtheEditorialteam.Thisworkisbasedonsecondarymarketresearch,analysisoffinancialinformationavailableorprovidedtoBain&Companyandarangeofinterviewswithindustryparticipants.Bain&CompanyhasnotindependentlyverifiedanysuchinformationprovidedoravailabletoBainandmakesnorepresentationorwarranty,expressorimplied,thatsuchinformationisaccurateorcomplete.Projectedmarketandfinancialinformation,analysesandconclusionscontainedhereinarebasedontheinformationdescribedaboveandonBain&Company’sjudgment,andshouldnotbeconstruedasdefinitiveforecastsorguaranteesoffutureperformanceorresults.Theinformationandanalysishereindoesnotconstituteadviceofanykind,isnotintendedtobeusedforinvestmentpurposes,andneitherBain&Companynoranyofitssubsidiariesortheirrespectiveofficers,directors,shareholders,employeesoragentsacceptanyresponsibilityorliabilitywithrespecttotheuseoforrelianceonanyinformationoranalysiscontainedinthisdocument.ThisworkiscopyrightBain&Companyandmaynotbepublished,transmitted,broadcast,copied,reproducedorreprintedinwholeorinpartwithouttheexplicitwrittenpermissionofBain&Company.NetPromoter®,NPS®,NPSPrism®,andtheNPS-relatedemoticonsareregisteredtrademarks,andNetPromoterScoresm,NPSxsm,andNetPromoterSystemsmareservicemarksofBain&Company,Inc.,NICESystems,Inc.,andFredReichheld.Copyright©2023Bain&Company,Inc.Allrightsreserved.TheVisionaryCEO’sGuidetoSustainabilityContentsTheQuestionsEveryCEONeedstoAskAboutSustainability..................3LeversofChange:Technology,Behavior,Policy.............................8SellingSustainabilityMeansDecodingConsumers...........................9DoesaPurposeHelpBrandsGrow?.......................................15LowerCosts,FasterAdoption:ClosingtheSustainableInnovationGap..........21TheFutureIsCircular:HowCompaniesCanPreparetoGrow.................26LeadingwithVision:HarnessingtheClimatePolicyResponse.................31SectorPerspectives...................................................39BuildingResilienceinYourBusinessStrategy:FourImperativesforLeaders....40TheEnergyTransition’sOtherBigPuzzle:MakingtheMathWork..............46CanFoodandAgricultureCompaniesRaiseTheirGame?....................53Fires,Floods,andLoans:HowBanksCanDealwithIncreasingClimateRisks....60MakingItHappen.....................................................67BuildingaData-BasedStakeholderStrategy...............................68OperationsandSupplyChainDecarbonization:LowerEmissions,HigherPerformance.....................................71MakingBusinessDoBetterforEveryone...................................78OrganizingforSustainability............................................86ATalentStrategyforSustainability:SkillsMatter,butMindsetIsEverything.....911TheVisionaryCEO’sGuidetoSustainabilityFromourglobalteamSustainabilityisabouttakingcareoffuturegenerationswhileensuringeconomicprogresstoday.Achievingitwillrequireunprecedentedchange.Wedon’tyethaveallthetechnologiesrequired,weknowhowharditistochangebehavioratscale,andweneedtonavigatearegulatoryenvironmentthat’softendifficulttounderstand.Wedon’tclaimitwillbeeasyorwillcomewithouttrade-offs,butthisreportoffersasetofideas,strategies,andtoolsanchoredinpracticalrealitythatwebelievecanhelpleadersmaketangibleprogresstodayandtomorrowonthisvitallyimportantchallenge.FrançoisFaelliJohnBlasbergJean-CharlesvanKaranSinghJulieCoffmanVikkiTamGlobalSustainabilityAmericasPracticedenBrandenAPACPracticeLeader,GlobalDEILeader,GlobalSocialImpactPracticeLeader,BrusselsLeader,BostonEMEAPracticeLeader,NewDelhiChicagoPracticeLeader,BrusselsNewYorkJennyDavis-PeccoudTorstenLichtenauJoshHinkelSashaDuchnowskiBrianMurphyNielsKoggersbolPracticeFounder,Carbon&Climate,Circularity,DallasFoodSystems,ChicagoEnergy&NaturalAdvancedAmsterdamChicagoResources,PerthManufacturing&Services,CopenhagenMarcLinoCamilleGoossensHarryMorrisonMarioHäuptliCateHightGrantDougansPrivateEquity,LondonFinancialServices,ParisConsumerProducts,Retail&Luxury,ZurichEnergyTransition,EnergyTransition,LondonWashingtonWashingtonDavidKnipeAlasdairRobbieKatherineDixonDaleHardcastleDebraMcCoyMarthaMoreauResilience,LondonTransitionRisks,LondonPolicy&Regulation,CarbonMarkets,SustainableInvesting,Water,ParisParisSingaporeSanFranciscoHernanSaenzAbhijitPrabhuEuanMurrayKarthikVenkataramanLeahJohnsMattiasKarlssonPerformanceSupplyChain&LifeCycleAssessment,Social,WashingtonConsumer,LisbonCommercialExcellence,Improvement&Operations,BostonLondonStockholmCircularity,Dallas2TheQuestionsEveryCEONeedstoAskAboutSustainabilityOnaverage,fewerthan40%ofcompaniesacrosssectorsareontracktomeettheirvarioussustainabilitycommitments,butit’spossibletonavigatethechallengingtrade-offswithvisionandpragmatism.ByFrançoisFaelliandTorstenLichtenauItwasalreadyclearthatclimatechangeisreal,butit’sgottenalotmorerealoverthepastfewmonths.FromCanadatoGreece,fromIndiatoTexas,citizens,farmers,tourists,and,ofcourse,executivesarewitnessingtheclimatecrisisupclose.Climatechangewillcreatediscontinuityfortworeasons:first,becausewewillhavetoadapttonewenvironmentalandsocialrealities,andsecond,becausewewillhavetochangeandinvesttopreventfurthercrises.Thescienceisveryclear.Itwilltakeacombinationofnewtechnologies,newpolicies,andnewbehaviorstoaddressthenegativeconsequencesthattheexponentialgrowthachievedbyhumanshashadontheplanetandsociety.Thisisevidentforgreenhousegasesaswellasforotheraspectsofsustainability,frombiodiversitytowaterandhumanrightstoracialequity.Ifthescienceisunambiguous,theimplicationsforsocietyingeneralandtheroleofcorporationsinparticulararestillbeingdebated,andfortherightreasons.Thisisnotjustaboutthemoneythatwillhavetobeinvestedtofundthegreentransition—$4.6trillionannuallyby2030toreachnetzeroby2050,theInternationalEnergyAgencyestimates.SincetheUnitedNationsdefinedsustainabilityin1987,ithasbeenclearthatreachingitsSustainableDevelopmentGoalswillrequireacarefulbalancebetweensecuringtherightfutureforthenextgenerationsandprotectingthewell-beingofcurrentones.InancientGreek,thewordpoliticsreferredtomanagingthecity,andassustainabilitychallengestouchmoreandmoreofus,politicaldebateiseverywhere.Forcorporateleaders,theemerginganswersvary3TheVisionaryCEO’sGuidetoSustainabilityconsiderablydependingongeographyandindustry.EuropeispursuinganambitiouspolicyagendabutraisingquestionsaboutEuropeancompetitivenessvs.other,morecautiouseconomies.Whilesomeindustrieshavelineofsightintothingslikeaffordablenewgreentechnologiesandthepathtomorehumanesupplychains,othersseemstuckinanunsolvablepriceandregulatoryconundrum.Wehavetalkedtothousandsofexecutivesaroundtheworld.Theygetit.Theyknowtheyhavearoletoplayandthatthepublicexpectsthemtolead.Buttheyareworried.First,becausetheyarepresentedwithtoomanysimplisticanswerstowhattheyknowisanincrediblydifficultbalancingact.Immediatelystoppingtheuseoffossilfuels?Well,todaytheyareessentialtomosthumanactivityandareliterallyfuelingthedevelopmentofneweconomies.Focusonshort-termprofits?Butemployeesandcommunitiesexpectchange,andcompaniestodayaretrustedtotakeontheirshareofenvironmentalandsocialchallenges.Bytheway,executivesarepeopletoo,andmanyseethisastheirlegacy.Thesecondthingworryingexecutivesisthegrowinggapbetweentheirpubliccommitmentsanddeliveryonthem.Mostlargecorporationsthathavecommittedtoreducinggreenhousegasemissionsarefallingbehind.Some75%ofbusinessleaderssurveyedbyBainbelievetheyhavenoteffectivelyembeddedsustainabilityintotheirbusiness.Bainresearchhasalsofoundthatfewerthan40%ofmajorcompaniesacrosssectorsaretrackingtotheirsustainabilitygoals,includingthoserelatedtowateruse,wastereduction,andpreservationofbiodiversity.Goalsthataretopofmindforcorporateboardsandtopmanagement,andinspirationaltoemployees,areprovingdifficultfortheP&Lownerswhomustreconcileimmediateprofitdeliverywiththeseenvironmentalandsocialcommitments.Feeling“taxedandtold,”theyareincreasinglyallergictosimplisticpicturesofthesustainabilityrevolutionasalandofopportunityandhigherreturns.Whattodoaboutallofthis?Makingthesetrade-offscallsforamixofvisionandpragmatism.Thoughnoonehasalltheanswers,itisnotjustpossiblebutessentialtoact.TheIntergovernmentalPanelonClimateChange(IPCC),theUNbodyassessingthesciencerelatedtoclimatechange,estimatesthatcurrentpolicies,infrastructure,andtechnologywouldallowfora40–70%reductioningreenhousegasesby2050,withcertainchangestoourlifestylesandbehaviorstobebuiltonwithgreaterfar-reachingchangeinordertoachievetheworld’sclimategoals.It’shardtodistillafullreport,onethatwehopeoffersusefultoolsandpointsofview,intoadvicesuitedtoanyexecutiveinanycompany.Still,thereareseveralthingswethinkleaderscan—andshould—dotoday:1.Inyournextmeetingaboutyour5-to10-yearstrategy,askthethreecriticalquestionsbelow.2.Pushforan“and”agenda:technologyandbehaviorsandpolicy.3.ListentoP&Lownersandworktotranslatetheirstrugglesintoteam-sizedchallenges.4TheVisionaryCEO’sGuidetoSustainabilityWhatgooddowebringtotheworld,andwhatisourpurposeasacompany?Whatcostwillhumanityhavetopayforustogrow?Whatwillgetinourway,andwhatwillwerunshortof?Threequestions:purpose,externalities,andshortagesThere’safamousquote,often(andprobablywrongly)attributedtoAlbertEinstein,thatoneshouldspendmostofone’stimerefiningthequestionratherthanworkingontheanswer.Wehavesympathyforthechallenge.Herearethethreebestquestionsforexecutivestoaskduringtheirnextstrategiccycle:•Whatgooddowebringtotheworld,andwhatisourpurposeasacompany?Itisincrediblyusefultoanchorlong-termplansontheunique,positiveimpactacompanyhasonconsumersandcustomers,employees,andcommunities.Adebateoversustainabilitycannotjustbedefensiveandputteamsontheirbackfoot.Itshouldalsobeaboutprideandimpact.•Whatcostwillhumanityhavetopayforustogrow?Thisquestionmightcomeacrossasgloomy,butitiscritical.Externalities—theunpricedcostsofbusinessactivities—areincreasinglymeasured,andtheywillgetpricedeventually.Weneedtobecomemuchbetteratunderstandingwhatthosecostsareandhowwecanmitigateorcompensateforthem.•Whatwillgetinourway,andwhatwillwerunshortof?Weareenteringaperiodofscarcity,shortages,andphysicalrisks.Ourplansneedtoidentifytherisksthatclimagechangewillcreate.Theyalsoneedtoidentifytherawmaterialsorthecapabilitieswewillbeshorton,fromwatertocobalt,nursestoprogrammers,shipstoaffordableenergy.Threelevers:technology,policy,andbehaviorTheIPCC2023SynthesisReportmakesclearthatitwilltakeacombinationoftechnology,policy,andbehaviorchangetofaceoursustainabilitychallenges.•Rediscoverthetechnologyexperiencecurve.Manyexecutivestodaywronglycomparethecostofalong-establishedbrowntechnology,whichiswaydowntheexperiencecurve,withthecostofaverynewgreentechnology.Companiesneedtoremembertheycandrivefastdowntheexperiencecurve(E-curve),becomeamarketmaker,andevencreatecompetitiveadvantagesthroughsustainableinnovation.5TheVisionaryCEO’sGuidetoSustainability•Formany,policyandcollaborationarenewlevers.Notallgreentechnologieswillbeaffordablewithouttherightregulatoryenvironment.Everynewstrategyshouldincludeapointofviewonhowtobuildtherightregulatoryframeworkandhowtoworkprecompetitivelyasanindustrytocreateit.•Consumerbehavioriseminentlyactionable.Toomanyexecutiveteamsconsiderconsumerbehaviortobefixedandworrythatpeoplewillnotpayforsustainableoffers.Ourdatashowsthisisatleastpartiallywrong.ThemajorityofglobalconsumersrecentlysurveyedbyBainexpecttospendmoreonsustainableproductsinthenextthreeyears,andsomeconsumersarealreadydoingso.Bain’s2023ConsumerLabESGSurveyfoundconsumersarewillingtopayapremiumof12%onaverageforminimizedenvironmentalimpact,andthemostconcernedconsumerswillpaysignificantlymoredependingontheproduct.Thissentimentisgrowing,and,inourre-search,consumersreportthatdirectexposuretoclimateeventshascausedconcerntorise.Makingsustainabilityateam-sizedchallengeThereisawaytohelpP&Lownerswhofeeltaxedandtold:Discussthetrade-offstheyfaceandalignyourteamsonhowtosolvethem.Ultimately,thekeyistotranslatebroadESGcommitmentsintoteam-sizedchallengesthatcanbecomenewroutinesornewinnovations.Thisisveryeasytowriteandverydifficulttodo,butbytappingthecreativeenergyofyourpeople,itispossibletomakerealprogresstowardamoresustainablefuture.6LeversofChange:Technology,Behavior,PolicySellingSustainabilityMeansDecodingConsumers..........................9DoesaPurposeHelpBrandsGrow?......................................15LowerCosts,FasterAdoption:ClosingtheSustainableInnovationGap..........21TheFutureIsCircular:HowCompaniesCanPreparetoGrowinaChangingWorld............................................26LeadingwithVision:HarnessingtheClimatePolicyResponse.................31LeversofChange:Technology,Behavior,PolicySellingSustainabilityMeansDecodingConsumersWeaskedmorethan23,000globalconsumerswhattheyreallywant.Whatwefoundwillsurpriseyou.ByFrançoisFaelli,JohnBlasberg,LeahJohns,andZaraLightowlerAtaGlanceNewresearchbyBain’sGlobalConsumerLabhashelpedusunderstandconsumers’viewsonsustainabilityandhowtheyareinfluencingbuyingbehavior.Companiessellingsustainabilityneedtoacknowledgeandaddressafragmentedconsumerbase—notassumethatdeveloped-marketoryoungerconsumersaremoreconcernedabouttheenvironment,forexample.Differentconsumersegmentsdefinesustainabilitydifferently,andmanymakechoicesbasedonmisconceptions.Companiestendtofocusontechnologyadoptionwhendevisingstrategicplans,butregulationsandconsumerbehavioraremovingjustasquicklyandhaveasbiganimpact.Tounderstandtheimportantimplicationsofclimatechangeonconsumerbehavior,wesurveyedmorethan23,000globalconsumersaboutabroadsetofsustainabilityissues.Weaskedthemwhattheycareaboutnow,whattheyknow,andwhattheybuy(anddon’tbuy).Wefollowedthatupwithextensiveconjointanalysisandethnographicresearch,speakingdirectlytohundredsofconsumers.9TheVisionaryCEO’sGuidetoSustainabilityThecounterintuitivefindingsarerelevantforconsumer-facingbusinessesasdiverseasbrands,retailers,andairlines,aswellasforbusiness-to-businesscompaniesineverythingfromindustrialstochemicalstopackaging,whosecustomersultimatelyselltoconsumers.Acrossmarketsandconsumersegments,ourresearchrevealeddramatic—andunexpected—variationsinconsumers’behaviorandrelationshiptosustainability,andhowtheirviewsarerewritingtherulesforcompanies.WhatwefoundWorldwide,64%ofconsumersreportedhighlevelsofconcernaboutsustainability(seeFigure1).Andthatsentimentisincreasing.Themajorityoftheseconsumerstoldusthattheirworrieshaveintensifiedoverthepasttwoyearsandthattheirconcernwasfirstpromptedbyextremeweather.Ourresearchfoundthat79%ofconsumersinfast-growingmarketslikeChina,India,andIndonesiaareconcernedaboutenvironmentalsustainability,comparedwith55%indevelopedmarketsliketheUSandEurope(seeFigure2).Figure1:Globally,64%ofconsumersarehighlyconcernedaboutsustainability,andtheirworriesaremountingPercentageofconsumerswhoareveryorextremelyconcernedaboutenvironmentalsustainability64%53%81%61%67%GlobalUSBrazilEuropeAsia-PacificPercentageofconsumerswhoseclimatechangeconcernshaveintensifiedoverthelast2years60%49%63%57%66%GlobalUSBrazilEuropeAsia-PacificSource:BainConsumerLabESGSurvey,June2023(n=23,374),includingUS,Brazil(reweightedbyincomeandregion),Europe(France,Germany,Italy,Netherlands,UK),andAsia-Pacific(China,India,Indonesia,Japan)10TheVisionaryCEO’sGuidetoSustainabilityFigure2:Consumersinfast-growingmarketsaremoreconcernedaboutsustainabilitythanthoseindevelopedmarketsPercentageofconsumerswhoareveryorextremelyconcernedaboutenvironmentalsustainability85%81%78%73%72%64%63%56%56%54%53%31%OverallIndiaBrazilIndonesiaChinaItalyFranceUKNetherlandsGermanyUSJapanSource:BainConsumerLabESGSurvey,June2023(n=23,374)Manycompanieshavelongviewedyoungerconsumersasmorefocusedonsustainabilitythantheiroldercounterparts,buttherealityisnotasclear-cut.Forexample,72%ofGenZconsumersand68%ofboomersgloballyareveryorextremelyconcernedabouttheenvironment,butincountriesasdiverseasIndia,France,andJapan,boomersaremoreconcerned.IntheUS,96%ofconsumersagreethattheclimateischanging.Amongthoseconcernedabouttheenvironment,85%ofself-describedliberalvotersareveryorextremelyconcernedaboutclimatechange,comparedwith39%ofconservativevoters.Yetconservativesworryaboutspecificissuessuchaswater,biodiversityloss,andairpollutionrelativelymorethanliberals,whoworrymoreaboutclimatechange(seeFigure3).Asthoseconcernsgrow,consumersarelookingtomakeenvironmentallysoundchoicesandarewillingtopaymoreforsustainableproducts.Yet,theyoftenrunintobarriers.Forexample,consumersintheUSarewillingtopayanaveragepremiumof11%forproductswithaminimizedenvironmentalimpact(seeFigure4).However,28%istheaveragepremiumforproductsmarketedassustainableintheUS.Inoursurvey,50%ofconsumerssaidsustainabilityisoneoftheirtopfourkeypurchasecriteriawhenshopping.Yettheymaybemakingdecisionsbasedonmisconceptions—significantlyloweringthenumberoftrulysustainablepurchases.Whenaskedtodeterminewhichoftwogivenproductsgeneratedhighercarbonemissions,consumerswerewrongordidn’tknowabout75%ofthetime.11TheVisionaryCEO’sGuidetoSustainabilityFigure3:AmongthoseconcernedabouttheenvironmentintheUS,liberalsaremoreworriedaboutclimatechange;forconservatives,naturalresourcesandbiodiversityaremoreimportantPercentageofconsumerswhoaremostconcernedabout…48%LiberalModerateConservativeAverage37%34%29%20%23%19%19%21%19%19%16%ClimatechangeWaterandnaturalLossofbiodiversityresourcesupplyanddeforestation13%14%11%11%11%9%7%4%4%3%4%6%AirpollutionWaterqualityOtherSource:BainConsumerLabESGSurvey,June2023(n=2,031)Figure4:Consumersreportthatthey’rewillingtopaymoreforsustainableproductsConsumers’reportedincrementalwillingnesstopayforsustainableproducts20%19%16%15%15%12%11%10%9%9%8%6%OverallIndiaIndonesiaBrazilChinaNetherlandsUSFranceGermanyItalyUKJapanSource:BainConsumerLabESGSurvey,June2023(n=23,374)12TheVisionaryCEO’sGuidetoSustainabilityInadditiontosuch“unknownunknowns,”consumersadoptdifferentdefinitionsofsustainability.Globally,48%ofconsumersconsiderhowproductsareusedwhenthinkingaboutsustainability.Theseconsumersaremoreconcernedabouthowaproductcanbereused,itsdurability,andhowitwillminimizewaste.Incontrast,mostcompaniessellsustainablegoodsbasedonfactorssuchashowtheyaremade,theirnaturalingredients,andthefarmingpracticesdeployed.Thesefactorscausemanyconsumerstoconflate“sustainable”with“premium.”Oneresultofthisdisconnect:Almosthalfofalldeveloped-marketconsumersbelievethatlivingsustainablyistooexpensive.Bycomparison,roughly35%ofconsumersinfast-growingmarketsbelievethatitis.Culturalnormsandfinancialrealitiesplayabigroleinconsumerbehaviors.Infast-growingmarkets,individualscanbecomemoresustainablebygoingwiththegrainofsociety—bybuyingatlocalshops,generatinglesswaste,andeatingatraditionallyplant-heavydiet,forexample.Indevelopedmarkets,embracingasustainablelifestylemeansgoingagainstthegrainofaconsumptionculturebyavoidingexcessivepurchasingaswellasreadilyavailableandaffordableconveniences.Consumerbehaviorcanchangemorequicklythanmanycompaniesanticipate,withexternalfactorssuchasgovernmentregulationheavilyinfluencingthemarket.Chinabeganofferingfinancialincentivesonelectricvehiclesin2009;now19%ofChineseconsumersreportdrivinganelectriccar,comparedwith8%ofconsumersglobally.InEngland,theuseofsingle-usesupermarketplasticbagshasfallen98%sincethegovernmentbeganrequiringretailerstochargeforthemin2015.WhatthismeansforcompaniesThemomentumbehindsustainabilityanddynamicshiftsinconsumerbehaviorhaveprofoundimplicationsforanycompany.Weseefourcriticalareasoffocus.Deviseafuture-proofandflexiblestrategy.It’sundeniablethatwhat’simportanttoconsumersischangingfasterthancompaniescankeepup.Fewcompaniesplanbeyondthetypical3-yearstrategicplanningwindow,andeventhosethatdolookout5to10yearstendtofocusonexpectationsfortechnologyadoption.Theseplansfailtofullyconsidertwootherfactorsthatmovejustasrapidlyandwithasbiganimpact:regulationsandconsumerbehavior.Acknowledgeafragmentedconsumerbase.Anotherlessonfromourresearchpointstotheneedtodeaverageconsumers.Traditionalassumptionsaboutconsumersandsustainabilitynolongerapply.Forexample,it’swrongtoassignmoreimportancetodevelopedmarketsandtoyoungerconsumers,ortoassumethatallconsumerstakethesameapproachtosustainabilityordefineitthesameway.Companiesneedtoinnovateproductsanddesignpropositionsthatappealtodifferentsegments—localmarkets,consumerswithdifferentdefinitionsofsustainability,andconsumerswitharangeofpurchasingmotivations.Onlythemostpassionateconsumersmakesustainabilitytheirsolepurchasingcriterion.Mostbasetheirchoicesonacombinationoffactors,frompricetoconveniencetohowaproductwillfitintotheirlifestyle.Thechallengeforcompaniesistostrategicallyalignsustainabilitywiththekeypurchasecriteriaofthecategory.13TheVisionaryCEO’sGuidetoSustainabilityAndwhensellingsustainabilitytofrugalconsumers,companiesneedtothinkofwaystomaintaintouchpointswhileofferingthemproductsthatlastlongerorcanbereused(inotherwords,sellingthemlessoftheproduct).Insteadofsimplysellingagreenerversionofaproductatapremium,companiesneedtotakecareoftherestoftheequation,factoringincircularity,lifestyle,andeconomics.Testandlearntodeterminewhatworks—andrepeat.Insuchafluidenvironment,companiescanleanaggressivelyonmarketingexperimentation,usingdigitaltoolstoquicklytestthesustainabilitymessagesthatresonatewithdifferentsegmentsandadaptaccordingly.It’sawaytohelpconsumersgainenoughclaritytomakedecisionsthatareconsistentwiththeirvalues.Forcompanies,experimentationrevealsnewdataandinsightsatadeep,specificlevel,complementingtraditionalmarketingresearch.Leadersinmarketingexperimentationoftencanproveordisproveahypothesiswithinweeks.Onceestablishedatscale,arobustexperimentationcapabilitycanenhancemarketing-mixoreconometricmodelingandbringteamsclosertotheircustomers.It’sarecipeforbothhighermarketingROIandstrongersalesgrowth(seetheBainBrief“CanMarketingExperimentationBecomeYourSuperpower?”).Getoutinfrontofregulations.Aswe’veseenthroughouttheworld,governmentpolicyinevitablybecomesahugecontributortochangingconsumerbehavior.CountriesasdiverseasJapanandLithuaniaoffersolarrebates.Nofewerthan85jurisdictionsaroundtheworldhaveimplementedaformofsugartax.Acrossallindustries,companiesneedtobeattheforefrontofhelpingtoshapetheregulationsaffectingtheirbusiness.Asglobalwarmingprogresses,governmentinterventionwillgrowbolder.Acompany’sabilitytoanticipatepolicyshiftsandbuildfuture-proofportfolioswillhelpdeterminewhetheritcanoutpacecompetitors.14LeversofChange:Technology,Behavior,PolicyDoesaPurposeHelpBrandsGrow?There’sadistinctpathtodifferentiatingabrandbydeliveringhigher-orderElementsofValue®.ByEricAlmquist,KellyEdwards,PhilipDowling,andAshleyKingAtaGlanceBrandpurposeandenvironmental,social,andcorporategovernance(ESG)considerationsarenowkeypurchasingcriteriaformorethanhalfofconsumersglobally,accordingtoourrecentsurvey.TheElementsofValue®providesadata-drivenwayforcompaniestounderstandthetypesandamountofvaluethatconsumersexperienceintheirbrands,andhowthatcompareswithotherbrands.OurcontinuingresearchhasledustoaddsevenESG-relatedElementsofValue;brandsthatscoredthehighestonthoseelementsachievedfivetimestherevenuegrowthofthosethatscoredthelowest.Tosuccessfullydifferentiate,brandswillnotonlyembedsustainabilityvaluesintotheircurrentproductsandactions;they’llalsomakethosevaluespartoftheircoremarketingefforts.Theyearwas2004,andUnilever’sDovebrandmadeanunlikelymove.Iterectedaseriesofbillboardsreplacingprofessionalmodelswithregularwomen.Thegoalofthepioneeringcampaign:tomakewomenfeelcomfortableintheirownskinandtocreateaworldwherebeautyisasourceofconfidence15TheVisionaryCEO’sGuidetoSustainabilityandnotanxiety.Thecampaignwasextendedacrossmedia,withresultsthatwereasdramaticasthemarketingapproachitself.WhilethebodycaresubcategoryintheUSgrewbyanaverage2.8%from2004to2009,Dove’srevenuesgrewmorethanthreetimesthat—anaverageof8.7%—andconsumergoodscompaniesincategoriesasdiverseashouseholdcleanersandyogurtcaughtaglimpseofafutureinwhichinclusivity,aswellastheotherhigher-orderconsiderations,roseasgrowingfactorsforconsumers.Justhowvitalisabrand’spurposetoconsumers?Environmental,social,andcorporategovernance(ESG)concernisnolongerademandfromanicheminority;ithasbecomeatop-threekeypurchasingcriterionformorethanhalfofconsumersglobally,accordingtoourrecentsurveyofnearly200,000consumersinfourcountriesandnineconsumercategories.Anothersignificantfindingwithbigimplicationsforconsumergoodscompaniesisthatconsumersarepersonally“divesting”frombrandswithpoordiversity,equity,andinclusion(DEI)andsocialtrackrecords.Forexample,33%oftheGenerationZconsumerswesurveyed(ages18to24)intheUSsaythey’dboycottabrandwithbadlaborpractices.Tounderstandwhatunderpinsaconsumer’sperceptionofvalue,in2015weidentified30fundamentaltypesofvalueintheirmostessentialanddiscreteforms.TheseElementsofValue®fallintofourcategories:functional,emotional,lifechanging,andglobalimpact(seetheHarvardBusinessReviewarticle“TheElementsofValue.”)TheElementsofValuepyramidprovidesadata-drivenwayforcompaniestounderstandthetypesandamountofvaluethatconsumersexperienceinthebrandstheybuy,andhowthatcompareswithotherbrands.EOVisfocusedonbranddifferentiation,whereasotherbrandmetricslikebrandawarenessandbrandpoweraddressbrandsalience.Focusingonbothiscriticaltosuperiorbrandgrowth.SinceintroducingtheElementsofValue,we’vecontinuedtomonitorconsumerbehaviorandadaptthoseelementswherenecessary.Asconsumerattitudestowardproductsandservicesshiftedfrom“Whatdoesitdo?”to“Howdoesitmakemefeel?”“Howdoesitchangemylife?”and“Howdoesitchangetheworld?”companiesneededtoevolvewiththembyalsodeliveringhigher-purposeelementssuchas“ethical,”“caresfortheEarth,”or“inclusive.”BainhasrespondedtothisshiftbyperiodicallyupdatingtheElementsofValue(seeFigure1).Usingadvancedstatisticalmethods,we’vereplacedseveralelementsfromourpyramidinrecentyears,whileidentifyingandaddingsevenuniqueandimportantsustainability-relatedvalues.Theupdateprovidescompanieswithaneffectivemethodfortrackingtheirabilitytodeliveronthevaluesthatarebecomingincreasinglyimportanttoconsumers.Ourcontinuingresearchdemonstratesthatthepositivelinkbetweendeliveringelementsandbusinessoutcomesholds.Mostbrandsmeetthethresholdforsuchfunctionalneedsas“quality”and“sensoryappeal,”attributesthatareessentiallytablestakesformostcategories(althoughtablestakesvarysomewhatbycategoryandcountry).Themoreelementsthatabranddelivers,thebetteritsrevenuegrowth,householdpenetration,andrepurchaserates.Thatoutperformancemultiplieswhencompaniesearnelevatedscoresonhigher-ordervalues.16TheVisionaryCEO’sGuidetoSustainabilityFigure1:BrandsthatdifferentiateonESGElementsofValue®outperformonrevenuegrowthGlobalimpactESGelementsLifechangingEmotionalEthicalHumaneCaresforCaresfortheEarthpeopleInclusiveAffiliationandMotivation5xRevenuegrowthfrombrandsbelongingscoringhighestonESGElementsofValueIndulgenceReducesNostalgiaAttractiveDesign/3xRevenuegrowthfromincumbentanxietyaestheticsbrandsscoringhighestonESGElementsofValueHealthandTherapeuticFun/PremiumEndorsedAuthenticitywellnessvalueentertainmentFunctionalReducesSimplifiesQualityNaturalSavestimeCustomizablewasteReducesReducesSensorySimpleformulation/Superioringredients/EasytofindVarietyeffortcostappealcompositionmaterials©2023Bain&Company,Inc.Notes:High-scoringbrandsareinthetop10percentileofrespondentsratingthebrand8+onESGElementsofValue,comparedwithbrandsinthebottom10percentile;excludesbrandswithaverageannualrevenuegrowthrateshigherthan80%year-over-year;ElementsofValue®isaregisteredtrademarkofBain&Company,Inc.Sources:BainGlobalElementsofValueinCPSurvey,November2022(n=178,000);datainclude174totalbrands,140incumbents;revenuegrowthratesfromNielsen;Euromonitor;GlobalDataAcrossallbrands,thosethatscoredthehighestonthesevensustainabilityelementsachievedfivetimestherevenuegrowthofthosethatscoredthelowest,accordingtoourresearch.Whenwelookedonlyatincumbents,therevenuegrowthwasthreetimesbetterthancompetitorsscoringthelowestonsustainabilityelements.InChina,L’Occitaneoutdeliversontheseelements,andin2019to2021achievedthreetimestherevenuegrowthofacompetitorthatfocusedontablestakeselements.InGermany,Lindtoutperformsonmostemotionalelementsandearnedmorethantwicetheaveragerevenuegrowthvs.similarchocolatebrandssoldintheGermanmarket.Themessageisclear:There’sasizableopportunityforconsumergoodscompaniestocaptureconsumerinterestinhigher-purposetypesofvalue.Tosuccessfullydifferentiate,brandswillnotonlyembedsustainabilityvaluesinthecoreoftheirproduct,theiractions,andcategorygrowth/innovationmodel;they’llalsofollowadistinctpathtomakethosevaluespartoftheircoremarketingefforts.Fouractionscanguidecompaniesalongthatpath.Getthetablestakesright.Again,toreapthebenefitsofdifferentiationonElementsofValue,abrandmustdelivertablestakeselements.Therequirementsdifferaccordingtotheproductcategory.Forexample,itcouldmean“sensoryappeal”incarbonatedsoftdrinksor“quality”inbodylotions.Also,dependingonabrand’svalueproposition,itcouldalsomeandeliveringonmorefunctionalelementssuchas“reducescost”or“reducesrisk”before“inclusive”or“humane.”17TheVisionaryCEO’sGuidetoSustainabilityFindtherightopportunitiesfordifferentiation.Afterunderstandinganddeliveringthetablestakeselements,brandscandeterminehowtodifferentiatetheirproductsfromthecompetitionacrossESGandotherelements.Thelevelofcompetitioninhigher-orderElementsofValuediffersbycategoriesandgeographies,andtheopportunitytodifferentiatedependsonthedegreeofsustainabilityalreadyembeddedinbrandsinthecategoryandmarket(seeFigure2).WhileDovepavedthewayinbodycare,itwasn’tlongbeforecompetitorsjoinedinwithinclusivity-focusedmessaging.Asaresult,bodycareisconsideredanadvancedcategoryasfaraspurposeisconcerned.Thesameistrueforyogurt.Bycomparison,beer,softdrinks,andchocolatesarenascentcategoriesforembeddinghigher-orderelements.Assuch,theyofferopportunitiesforbrandstobecomeanearlyleaderanddisruptthecategory.Unlockgrowththroughactionsandmessagingtargetedtospecificconsumersegments.Differentconsumersegmentsperceivedifferentvaluesfromthesamebrands.Theshifttowarddigitalmediathathasdrasticallyalteredthebrandmarketerrole—andprovidedaccesstotheproliferationofvaluableconsumerdata—hasopenedvastgrowthopportunitiesforcompaniestodialupdifferentelementsofthebrandwithdifferentsegments.Figure2:There’sahighcorrelationbetweenESGandgrowth;nascentcategoriesoffermoreopportunitytodifferentiateRelationshipbetweendeliveryofESG-relatedElementsofValue®andrevenueAAGR,bystatusofESGdeliveryinsubcategoryESGinvestmentismorenascentInsurgentsleadthewayonESGIncumbentsandinsurgentsare0.8growingthroughESG2SuccessofESGhasbeenproven0.61EvolvinglandscapepresentsBodycareandkeyESGEOVshaveemerged;opportunitytobeanearlyleaderopportunitytoparticipate3DeliveringoncertainESGanddisruptthecategoryEOVsisindustrystandard,butstillopportunitytodifferentiate0.4YogurtSportsapparel0.2ChocolateColorSoftcosmeticsdrinksCoffeeBeerLaundry0.0IncreasinguseofESGNotes:Numbersintheleftcolumnrepresentthecorrelation(R²)betweenESGuseandrevenuegrowth;<0.1isconsideredweak,0.1–0.3asgood/moderate,and>0.3asstrong;datacomesfromChina,Germany,theUS,andMexico;averageannualgrowthrate(AAGR)forrevenueaveragesgrowthacrossyears;ElementsofValue®isaregisteredtrademarkofBain&Company,Inc.Source:BainGlobalElementsofValueinCPSurvey,November2022(n=178,000)18TheVisionaryCEO’sGuidetoSustainabilityManyinsurgentbrandsarealreadysuccessfullyunlockingvalueforspecificconsumersegmentsthroughactionsandmessaging.Forexample,insteadofrelyingonamassmessagetoallconsumersegments,insurgentsoftdrinkbrandZeviahasidentifiedspecificsegmentsthatwouldrespondmostfavorablytoitsmessagingandtargeteditseffortstothosegroups.Asaresult,itoutperformswith“health-minded”consumerscomparedwithmanyincumbentbrands,whichcontinuetotakeabroad-brushapproachtomarketing.Forinsurgents,thetasknowisreachingmoremassconsumersegmentswhilenotlosingtheirinsurgentdifferentiationbydilutingthebrandforthemasses.Ontheotherhand,incumbentsneedtostrikeadifferentbalancebytailoringmessagingforgrowthsegmentswhilebeingconsciousnottostretchthebrandtoofaracrossmultiplesegments.Butforinsurgentsandincumbentsalike,thepurpose-relatedbrandstrategycannotbejustaboutcommunicationsandmessaging.Withoutactionsbehindit,consumerswillrespondnegativelybyrejectingthebrand.Forexample,ourstudyof4,000USconsumersfoundthat35%ofbabyboomers(overage60)wouldavoidabrandpurchasebecauseofthebrand’snegativetreatmentofemployees,and30%ofGenerationZwouldrejectabrandbecauseofthecompany’sinabilitytoshareitsDEItrackrecord.Experimentatscale.Inahyperfragmentedandcompetitiveconsumerenvironment,experimentationisthekeytobuildingoutandactivatingapurpose-focusedbrandstrategy(seetheBainBrief“CanMarketingExperimentationBecomeYourSuperpower?”).Experimentationenablesbrandstodeterminethedimensionsthatspeaktotheirconsumers—whetherthey’remoreconcernedwithwaterissuesorsocialequity,forexample.Brandscanuseexperimentationtosystematicallynarrowdownalternatives,includingsustainabilityactions(e.g.,engaginginpartnershipswithnonprofitsvs.producingmoreenvironmentallyfriendlyproductsorpackaging),coremessages(e.g.,educationalvs.inspirationalvs.calltoaction),wording,andphotographs.Theanswerwilldictatetherightmessagingandcreative35%30%ofbabyboomerswouldofGenerationZwouldavoidabrandpurchaserejectabrandbecauseofbecauseofthebrand’sthecompany’sinabilitynegativetreatmenttoshareitsDEItrackofemployeesrecord19TheVisionaryCEO’sGuidetoSustainabilityresourcesfortherightaudience.Bymeasuringbrandandsalesuplift,experimentationalsoallowscompaniestounderstandobserved(vs.stated)consumerbehavior,providingdatatodeterminethevalueofinvestinginESGmarketingtopropelbrandgrowth.Afoodcompanyusedexperimentationtorebootthegrowthofitscoreproduct,analternativespreadthatwaswidelyperceivedasunnaturalandunhealthy.Thecompanyrelauncheditsbrandas100%plant-based,positioningitasbeingbetterforbothhealthandtheenvironmentthanotherdairysubstitutes.Thecompanyalsoswitchedfrompalmoiltootherplant-basedalternatives,redesignedpackagingtobemoreenvironmentallyfriendly,andfocusedinvestmentondeliveringdifferentialvaluetoconsumersbasedontwoElementsofValue:“CaresforEarth”and“Healthandwellness.”Italsoinvestedtocreateacommunityofengagedproponentsofplant-basedfood.Aspartoftheeffort,thecompanyexperimentedtofindthehighest-impactsustainabilityaudiences,brandelements,andthemes.InExperiment1,itusedexistingcreativetoidentifydifferentaudiencesandestablisharealisticbaseline.InExperiment2,thecompanydevelopedandtesteddifferentcreativeswithmodernizedbrandelements.AndinExperiment3,ittestedwinningcreativesfromExperiment2indifferentchannels.Eachvariablebuiltonthepriorexperimentstohonethecampaignsbeforescalingthem.Theexperimentationsetthestageforadramaticreversalinperformance.Thecompanyturneda−3%to−6%netsalescontractioninto3%salesgrowth.Yet,asourrefinementoftheElementsofValuesuggests,consumertastesandneedscontinuallychange,andcompaniesneedtobepreparedtoshifttheirstrategyasthosechangesoccur—anddoitbeforethecompetition.Earlymoversonhigher-orderElementsofValuecanoutperform,accordingtoourresearch,butbrandsmustcontinuetodifferentiatetosustaintheirgrowth.Toseehowcompaniessuccessfullykeepraisingthebar,considerthethoughtfulmovestakenbyLululemon.Theapparelretaileroriginallywasknownforitsexclusive,well-designed,andhighlyfunctionalclothing,buthasevolvedtofocusoninclusivity(itssizesnowrangeupto20),affiliationandbelonging(theretaileroffersonlineandin-storefitnessclasses),andmotivation(inspirationalmessagingonshoppingbagsandin-storedécor).ThisstrategyofcontinuallyuppingitsgamehashelpedLululemoncapturemarketsharefromitsUScompetitors.From2016to2021,thecompanyincreaseditsshareofthesportsapparelmarketby1.5percentagepointsatthosecompetitors’expense.So,brandswithaclearviewondeliveringadifferentiatedhigher-purposeconsumervaluecanunlocksubstantialgrowthanddisruptanentirecategory.Thisgrowth,inturn,canfundacompany’ssustainabilityagenda,creatingavirtuouscycleforabroadersustainabilitytransformation.Yetbrandscan’tkeepstill.They’llneedtocontinouslyexperimentwithwaystostayinlockstepwithwhatconsumersvalue.Andthey’llneedtodoitbeforecompetitorscatchup.20LeversofChange:Technology,Behavior,PolicyLowerCosts,FasterAdoption:ClosingtheSustainableInnovationGapHowleadingcompaniesproducegreensolutionsatthelowestcostpossibletopropeladoptionandbuildcompetitiveadvantage.ByPietdePaepe,JelleDhaen,andJennyLundqvistInmostindustries,leadershippositionshavebeenstagnantfordecades,witharound80%ofprofitstypicallycapturedbyoneortwoplayers.Companiesmakeincrementalmovesforincrementalgains,butopportunitiestoleapfrogcompetitorsorrewritethefuturearefewandfarbetween.Thenewfocusonsustainabilityshattersthatstatusquo.Nomattertheircompetitivepositiontoday,themovesthatindustrialB2Bcompaniesmakeinthenexttwotothreeyearswilldeterminetheirmarketpositionforthenextdecadeandbeyond.Evenso,greeninvestmentshavebecomeasourceofstrifeinboardroomsaroundtheworld.Stakeholdersarepushingtoachievesustainabilitycommitments,butwhenorganizationscrunchthenumbers,executivesdon’tfeelthere’sasolidbusinesscase.Theinvestmentingreensolutionsseemstoolarge,tooriskytopursue.Theissueisthatmostexecutivestakeastaticview,consideringtoday’scoststructuresandscale.Theyplanacautious,followerapproachthattracksmarketpricesandexpandsvolumeasthemarketgrows,makingafast,profitabletransitionnearlyimpossible.Winners,ontheotherhand,producegreensolutionsatthelowestcostpossibletopropeladoptionandbuildacompetitiveadvantage.Theyunderstandthatasubstantialearlyinvestmentandquickscalingarecriticaltosuccess.Theyburncash,yes.Butthesemarket-makingincumbentsalsocreateanewprofitpoolwheretheyaretheleader.It’schallenging,tobesure.Butiftheydon’ttaketheriskfirst,animbleinsurgentwill.21TheVisionaryCEO’sGuidetoSustainabilityThekeyistounderstandwhereyouareintermsofyourexperienceinbringingdowncost(theE-curve)andwhereyourcustomersareintermsofadoption(theS-curve)(seeFigure1).Bridgingthosetwocurveswouldseemtoposeaconundrum:Youcan’treduceyourcostsuntilyouhavealotofcustomers,butyoucan’twinalotofcustomersuntilyourcostscomedown.Wecanshowyouhowtoclosethatgap.Here’sourguideonhowfirstmoverscanassesstheirspecificlocationsontheE-andS-curves,closethegap,andbackboldideaswithboldinvestmentsandexecution,toguaranteetheriskpaysoff.TwopathsforwardCompaniesscalingagreensolutiontypicallyfitoneoftwoarchetypes(seeFigure2).Whileeithercanbeapathtomarketleadership,eachrequiresaslightlydifferentpaceandapproach.Firmsinthefirstarchetypefindthattheirgreensubstituteislowercost,atscale,thantheincumbentproduct.There’shighpotentialforfirstmoveradvantage—infact,ifyoumovetooslowlyorpricetoohigh,youcouldlosethebusiness.Inthisscenario,pioneersadoptpreemptivepricingtomovedowntheE-curveasfastaspossible,acceleratingcustomeradoption.TheirgreenalternativesoftenhavealmostidenticalcharacteristicsFigure1:WinnersproactivelymanagetheS-andE-curvestoacceleratethegreentransitionAdoptioncurve(S-curve)Experiencecurve(E-curve)PredictswhatisrequiredtodrivecustomerManagescostcurvetoaccelerateadoptionadoptionbysegmentandpenetrationPenetrationrateRealprice/costTimeLearningrate:X%AccumulatedexperienceSource:Bain&Company22TheVisionaryCEO’sGuidetoSustainabilityFigure2:TherearetwoarchetypalexperiencecurvesforgreensolutionsGreensubstituteislowercost,atscale,Greensubstituteisnotlowercost,atscale,thanexistingproductthanexistingproductRealprice/costRealprice/costLearningrate:X%Learningrate:Y%AccumulatedexperienceAccumulatedexperiencePriceofgreenalternativePricerangeoflegacyproductSource:Bain&Companyandperformancetoexistingproducts.AsB2Bbuyersusuallymakerationalpurchasedecisions,offeringtrialsofgreensubstitutestoshowcasesimilaritiescanhelpboostadoption.Thesefirstmoversarequicklyrewardedwithscaleandcostadvantage,aswellaspotentialsubsidiesasregulationschange.Agreensolutionwon’talwaysbethelower-costsolution—butit’sstillworthpursuing,giventhedirectionofmostindustries.Firmsinthesecondarchetypewillhavenochoicebuttoturntogreensubstitutesasenvironmental,social,andgovernance(ESG)regulations,suchascarbontaxation,increasetheircosts.Inthiscase,leadingcompaniesfocusonamorevalue-basedpricingstrategy,targetingthosewillingtopaymoreforgreenalternativesfirst.Thesecompaniesunderstandthatmovingtoofastcouldhurttheircurrentbusiness,sotheytakeaslowerapproachtoinvestinginandscalingthenewbusiness,oftenfocusingonjustoneproductoraselectsegmentoftheproductportfolio.Asaresult,companiesinthesecondarchetypecaptureamoremoderatefirst-moveradvantage.TheE-andS-curveinterlockTodeterminetherightpaceandlevelofinvestment,winningcompaniesteardowntheorganizationalsilosthathavehistoricallyseparatedcommercialteamsfromoperationalandprocurementteams.TheyconnecttheE-andS-curvesinfoursteps.23TheVisionaryCEO’sGuidetoSustainabilityStep1:GreensolutioninnovationCompaniescanstartbybrainstormingpotentialgreensubstitutesfortheircurrentproductportfolio.Leaderscanprioritizetheoptionsbasedonthegreatestpotentialtoscale,thebiggestimpactinachievingsustainabilitygoals,andthelevelofdisruptiontocurrentoperations.Questionstogetstarted:•Whatarethepotentialgreensubstitutes—fortodayandforadecarbonizedworld?•Whichhavethegreatestpotentialtoscale?Whichwillbesthelpusachieveoursustainabilitygoals?•Howmuchwouldeachgreensubstitutedisruptourcurrentoperations?•Whichshouldweprioritizeforourassessment?Step2:E-curveanalysisFuturemarketleaderswilldevelopE-curvesforexistingsolutions,basedonhistoricalindustrypricing,relevantcosts,andexpectedfuturemovesfromscaleandregulation.Theydothesameforpotentialgreensubstitutes,consideringtheirtechnologycapabilitiesandanticipatedfuturescaleandexperience.WiththeseE-curves,companiescanpinpointif,andwhen,theirgreensubstitutewillbecomecheaperthantheincumbentsolution.Questionstogetstarted:•WhatdoestheE-curvelooklikeforourselectedgreensubstitute?Whatisourleveloftechnologicalreadiness?HowaredecarbonizationregulationsandtaxesaffectingtheE-curve?•Whichindustryplayers,ifany,arealreadytransitioning?•Whicharchetypedoesourgreensubstitutemostcloselyfit?•Canwebringdowncostswithoperationalperformanceimprovementsorproductinnovation?Step3:S-curveanalysisFollowinganassessmentofcurrentgreensubstituteadoptionbyend-market,leadingcompaniesdeterminewhichcustomersegmentsareprimedforgreensolutionadoptionbasedon:•thecustomer’sbenefitfromavoidingcarboncost;•theimportanceofsustainabilitycommitmentstoinvestorsandstakeholders;•thevaluetotheendconsumer;24TheVisionaryCEO’sGuidetoSustainability•forecastedsupply-demanddynamics;and•potentialchangestotheregulatoryenvironmentandinvestorcommitments.Whendeterminingtheexpectedadoptioncurve,thesecompaniesfirstfocusoncustomersegmentsthatstandtobenefitmost—andarewillingtopay.Theyalsoforecastandmonitoradoptionacrossdifferentsegmentsovertime.Questionstogetstarted:•WhereareourcustomersontheS-curve?Whatisthelevelofpenetrationforgreensubstitutes?•Whataretherelevantcustomersegments?Whichcustomersbenefitmostfromagreensolution?•Howdoesthisdifferbyregionorapplication?Whataretheeffectsofregulation,liketaxationorsubsidies?•Whatarethegreatestbarrierstoadoption?Step4:ValuecreationplanArmedwithaclearunderstandingofwheretheystandontheE-andS-curvesandwhattheyneedtodotobridgethegap,leadingcompaniesthendevelopadynamicstrategythatdelineatesshort-,medium-,andlong-termactions.Theyidentifyno-regretmoves(suchaspartnerships),bigbets(suchasscaleacquisitions),andsignposts(suchasregulatorychanges);mapresourceallocationandinvestmentovertime;anddedicateateamtoevaluatingperformanceoutsideofthestrategicplanningcycle.Questionstogetstarted:•Whatistheroadmaptobecomingamarketmaker?Doweneedpreemptivepricing?•Whatno-regretmovescanwetakenow?Whatbigbetsshouldweconsider?•Whatarethesignpoststomonitorandadjustourstrategyovertime?•Whatarethefinancialimplicationsforcapexandresourceallocation?Whatarethefinancialincentives?•Howcanweevaluateourperformanceandfollowthroughonthetransformation?25LeversofChange:Technology,Behavior,PolicyTheFutureIsCircular:HowCompaniesCanPreparetoGrowinaChangingWorldBydecouplingeconomicgrowthfromresourceconsumption,circularmodelsoffercompaniestheirbestshotatcontinued,long-termgrowth.ByTessaBysong,JennyDavis-Peccoud,JoshuaHinkel,HernanSaenz,andYelenaAgeyeva-FurmanAtaGlanceBy2030,executivesexpecttheshareofrevenuefromcircularproductsandservicestohavegrown30%from2021levels,accordingtoBainresearch.Mostofthelargecompanieswestudiedhavemadespecific,measurablecircularitycommitments,butfewarerethinkingtheirfullbusinessmodel.Doingsorequiresenvisioningwhatthefuturewilllooklike—including,critically,howprofitswillbemade.Takingfivespecificactionstoday,CEOscanacceleratetheirplansforamoreefficient,resilient,andprofitablecircularfuture.26TheVisionaryCEO’sGuidetoSustainabilityTothrivelongterminaworldinwhichhumansannuallyconsume1.75timesthenaturalresourcestheearthcanregeneratein12months,businessesmustdecouplegrowthfromresourceextraction.Inadditiontoimprovingenvironmentalsustainability,circularityofferscompaniesinmostindustriesawaytogaincompetitiveadvantageatsignificantscaleandthriveinafutureinwhichprofitswillbemadedifferently.Circularpracticeslikerecoveringresources,extendingthelifeofproducts,andpromotingasharingeconomyoffervaluablebenefits,includinggreaterbusinessresilience,moreefficientuseofresources,andrevenuegrowthfromnewcustomers,services,andinnovation.Manybusinessleadersrecognizethis.InasurveyconductedbyBain&CompanyandtheWorldEconomicForuminOctober2022,35%ofexecutivesrankedcircularityasoneoftheirorganization’shighestpriorities,thethirdhighesttallyafter“optimizesupplychainperformance”and“operatesustainably.”AndinaBainsurvey,executivesreportedthattheyanticipate30%growthinshareofrevenuefromcircularitybetween2021and2030.Evenso,mostorganizationsoperatetodaywithabusinessmodelbuiltforalinearworld.Thesemodelswon’tthriveinacirculareconomy.Tounlockcircularity’struevalue,executivesmusttransformtwothings:theirmaterialmodel—howtheysourceanduseresources—andtheirbusinessmodel—howtheygeneraterevenueandprofits(seeFigure1).Figure1:Tobuildsustainabilityandlong-termeconomicvalue,companiesmustsimultaneouslyredesignthewaytheyusematerialsandhowtheyconstructtheirbusinessmodelCurrentfocusofmostcompaniesAdditionalfocusrequiredRegenerateReduceRecoveryAnything-as-a-servicesservicemodelsReuseandrepurposeTransformTransformmaterialmodelsbusinessmodelsRecycleRepairEnablingCircularservicesmarketplacesRemanufactureandrefurbishSource:Bain&Company27TheVisionaryCEO’sGuidetoSustainabilityInsurgentslikeBackMarket,arefurbisheddevicemarketplace,andtheluxuryresellerTheRealRealarealreadydoingthat—disruptingindustrieswithnewwaysofoperatingandearningrevenue.Bainresearchhasfoundthat45%ofexecutivesexpectthesetypesofnewentrantstochangetheirindustry,andconcernaboutthethreatfrominsurgentsishighestamongthoseincumbentcompaniesthathavedonethemostplanningforthecirculartransition.Of380largeglobalcompaniesstudiedin10industries,55%havemadespecific,measurablecircularitycommitments,accordingtoBainresearch.Butfewhaverethoughttheirbusinessmodel.Incumbentsareacting,too.Of380largeglobalcompaniesstudiedin10differentindustries,55%havemadespecific,measurablecircularitycommitments,accordingtoBainresearch.Theseoftenfocusonrecycledinputsandwastereduction.Fewhavebeguntoreallyrethinktheirfullbusinessmodel,however,andthat’swheremuchofcircularity’spotentialpayoffoftenlies.Companiescanbegintocomprehensivelybuildforacircularworldbytakingtwoimportantsteps:1.DefinethecircularambitionFromtoday’slinearwaysofoperating,circularitylooksverycostly.Andthevalueitwilladdisoftenunderestimated.Toovercomethat,companiesmustenvisionwhatthefuturewilllooklike:wheremoneywillbespent,howprofitswillbeearned,andwhichtypesofcompanieswillearnthem.Thisincludesimagininghowcirculartransformationswillreshapeinteractionwithcustomers,suppliers,andthebroaderecosystem,andalsohowcircularitymodelscanhelptacklepressingoperatingissueslikescarceanddiminishingresources,supplychaindisruptions,regulation,andincreasingenvironmentaldamage.Formostcompanies,thistransitionislikelytoevolveoverthenextdecade,orpotentiallylonger.Consideratruckingcompanythatisinthemidstofamultiyearredesignofitsbusinessforaprofitablecircularfuture.Triggeredbythreethings—thetechnologybreakthroughsthathavefueledthegrowthoflow-emittingelectricandautonomousvehicles,usage-basedbusinessmodels,andthefightforrecycledandscarceinputs—thecompanyisplanningforthepossibilitythat,inthefuture,customerswillbuyaccesstotruckingbasedonusageratherthanowningtheirowntrucks.Atthesametime,thecompanyisincorporatingcircularityintohowitcompetesintoday’smarket-place,designingitstrucksandcomponentstobemoremodularandupgradable,andtherebylongerlived.Thisalsomakescomponentseasiertorecoverattheendofavehicle’susefullifeforusein28TheVisionaryCEO’sGuidetoSustainabilityremanufacturing.Becausereuseextendscomponentlifetime,itisonewaytoreduceScope3emissions.Supportingsustainable,circular,cost-competitiveinputsandboostinguptimealsoreducesemissions.Andalltheseeffortsreducetotaloperatingexpenses.Inthisway,thinkingaboutitscircularambitionishelpingthistruckingcompanypositionitselftodefenditsbusinessandnavigatepotentialregulatorychanges.2.PlanfutureprofitsAsnewbusinessmodelschangehowcompaniesearnrevenueandthemoreefficientuseofresourcesreducescosts,thewayprofitsaremadewillevolveaswell.That’swhyit’simportantforeverycompanytounderstand:1)whereandhowitcanmakemoneyinacircularworld,2)thestagesatwhichitsindustryandmarketarelikelytoreachalevelofadoptionandmaturitythatjustifiesinvestmentinthatmodel,and3)howthatfutureshouldinfluencenewproductsandservicesbeingcreatedtoday.Innovativetechnology,evolvingregulations,consumerandcustomerdemand,supplychainvolatility,andmaterialscarcityareamongthefactorsthatwillinfluencethoseanswers.Theywon’talwaysbeperfectlypredictable,andexecutivesmaynotknowalltheanswers,buttheycanandshouldidentifythesignpoststheyneedtowatchoutfor,thesignalsthatcanindicateanaccelerationintheshifttocircularity,suchasdecliningunitproductioncostsorthedevelopmentofsupportinginfrastructure.Considerhowtheincreasingscarcityofmaterialslikelithiumandrareearthmetalsneededforelectricvehicle(EV)batterieswillshiftaportionofcarindustryprofitstowardcompaniescollecting,sorting,andrecyclingEVbatteries.Whileit’shardtopredictexactlyhowthiswillplayout,manufacturerswithaccesstoend-of-lifebatteriesandrecyclingcapabilitieswillhaveastrongstrategicadvantageinthefuture.Tounderstandwherecompaniescanmakemoney,it’scriticaltounderstandhowmarketstructureswilltransitioninthefutureandwhichsegmentsofthevaluechainwillhaveadisproportionatedegreeofinfluenceoncriticalflowsofneededresources.Recognizingthatthelevelofinfluenceandcontrolinitsindustrywillshifttowardthoseparticipantswhofacilitatethereverseflowofusedmaterialsandproducts,achemicalcompanyisdevelopingaplasticsrecyclingstrategytocommercializerecycledmaterialsandgainaccesstoscarcefeedstockofpostconsumerpackaging,includingPETandrecycledaluminum.Thiswillbeakeystrategicadvantageinthefuturewhenthesematerialsbecomeevenmorescarce.Oncecriticalmarkettransitionsareidentified,companiesmustdevelopstrategiestoaccess,shift,andinfluencethem,bothaloneandthroughanecosystemofpartnersandotherparticipants.29TheVisionaryCEO’sGuidetoSustainabilityActionstotakenowCEOsplanningforamoreefficient,resilient,andprofitablecircularfuturebenefitfromtakingcertainactionsnow:•Identifystrategicopportunitiesforwhichcircularitycancreateandacceleratevalue:newcustomers,newsourcesofrevenueandmonetizationmodels,supplychainresilience,sustainability,andaccesstoscarcesupply,amongothers.•Determinehowcircularityislikelytoevolveinyourindustry(adoptioncurves),thesignalsorsignpoststowatchforsignsofincreasedmomentumincustomeradoption,andhowproductioncostwillcomedownovertime(experiencecurves).•Definethematerialandbusinessmodelsthatwillhelppositionthecompanyformaximumcompetitiveadvantage.•Anticipatetransitioningofmarketstructuresandresultingdistributionofinfluenceandcontrolacrossthevaluechainandinvesttoinfluenceandsecuretheflowofcriticalresources.•Mapoutandstartbuildingthebroaderecosystempartnershipsrequiredtoscaleyourcircularsolutions.TheauthorswouldliketowarmlythankSimoneDoms,apracticedirectorinBain’sSustainability&ResponsibilitypracticeinMunich,forherextensivecontributionstothischapter.30LeversofChange:Technology,Behavior,PolicyLeadingwithVision:HarnessingtheClimatePolicyResponseAsglobalwarmingprogresses,governmentinterventionwillgrowbolderandacompany’sabilitytounderstandandnavigatepolicyuncertaintymorecritical.ByKatherineDixon,CateHight,YangLiu,andGrantDougansAtaGlanceTheabilitytoinfluencepolicy—and,inturn,customerchoicesandsupplychaindynamics—willbeoneofthedifferentiatingcorporatecapabilitiesoftheenergytransition.Threepolicyscenariosillustratehowgovernmentswillreshapemarketdynamicsoverthecomingdecade.Ashumanity—withastill-growingpopulationandappetiteforenergy—teststhelimitsofourplanetaryboundaries,thepressureongovernmentstoactisintensifying.Progresshasbeenmadeinthetransitionawayfromfossilfuelsoverthepasttwodecades.Cleantechnologiesaretakingoffacrossmanypartsoftheglobaleconomy.Solarsetsnewrecordsfordeploymenteachyear,withrenewablesprojectedbytheInternationalEnergyAgencytoaccountfor90%ofnewelectricitygenerationcapacitygloballybetween2022and2027.Electricvehiclesalesreachnewhighseachyear,andheatpumpsareonanexponentialgrowthcurveinmanymarkets.Meanwhile,climatecommitmentsfromcountriesandcompanieshaveproliferated,reinforcingthepoliticalconsensusaroundachievingtheParisgoals.Some90%ofglobalGDPisnowcoveredbynet-zerotargets.31TheVisionaryCEO’sGuidetoSustainabilityThepolicyimperativeStill,theworldisalongwayfroma1.5-degreefuture:Cleanenergyisgrowing,butsoisfossilfuelconsumption.Toreachnetzerobymidcentury,itwon’tbeenoughjusttokeepaddingtothesupplyofrenewableenergy.Achievingnetzerorequiresthetotaltransformationoftheenergysystemthatunderpinsoureconomies—includingthetransitionofthe80%ofenergydemandthatisnotcurrentlyelectrified.Butwhilewehaveseenhowfastthetransitioncangowhentheinterestsofbusinessandgovernmentalign,economicincentivesandthelong-terminterestsofhumanityinastableclimateareofteninconflict.Publiclylistedcompaniesrepresentingaboutone-thirdoftheglobaleconomyhavesetorcommittedtoscience-basedclimatetargets.Fewwillmeetthem,absentwiderchangesinthemarketenvironment.Take,forexample,ahypotheticallargeconsumergoodsretailer.Itcouldmeetits2030goalsincrementallybyadoptingsustainablepackaging,optimizingsupplychains,andinvestinginenergy-efficientprocesses.But,whenthechiefsustainabilityofficerlooksfurtherout,thetransitionfeelsbeyondthecompany’scontrol;itsabilitytomeetthoseclimatecommitmentswilldependontheavailabilityoflow-carbonfreightservicesandmanufacturingtechnologies,nottomentionthebuilding,heat,andpowersectors.Formanycompanies,thepathtonetzeroexistsintheorybutnotinpractice.Solutionstotransitionshipping,aviation,andsteelarewellunderstood.Butdeployingthematscaledependsonbunkeringinfrastructureandlow-carbonvessels,thescalingofhydrogenorsyntheticfueltechnologies,andthereplacementorretrofittingofsteelplants.Inallofthesecases,thetransitionwilllikelyinvolvereplacingeconomicallyefficienttechnologieswithlessefficientones,makingthebusinesscasealltheharderforcompetitiveindustriesingloballyintegratedmarkets.Wehaveatermforwheneconomicincentivesdonotpriceindamagingoutcomesforsociety,suchasextremeclimatechange:It’scalledmarketfailure.Butdespitethesystemicnatureofthetransitionchallenge,thepressureattheenterpriselevelisintensifying.Manyinvestorgroups,consumers,andgovernmentsaredemandingtransparency,ambitioustargets,andtangibleactionstowardcarbonreduction.Thoseinthehighest-emittingsectors,andparticularlytheenergysector,canfeelthispressuremostacutely.Executivesfromavarietyofindustrieshavebeguntocallformoregovernmentintervention.Cleantechnologiesonlyscaleupwhentheymakemoney.Itisthegenerationoffreecashflowsthatcreatesthepotentialforavirtuouscircleofreinvestment.Incontrast,managersthatcommittodrivingthetransitioninoppositiontocommercialrealitiesriskerodingcompanyvalue.Pouringmoneyintoalow-carbonproductioncapacitywithnopathwaytoprofitabilityisnotasolidstrategyforscalinglow-carbonsolutions.32TheVisionaryCEO’sGuidetoSustainabilityAcknowledgingmarketfailuredoesn’tmeangivingup.Societyneedsbusinessleaderstotakerisks,driveinnovation,andtransformtheirindustries.Butinthecaseofclimate,governmentsalsoneedthemtogetmuchlouderandmorepreciseaboutwhat’snecessaryforindividualsectorstoacceleratethetransition.Therewiringofourenergysystemwillonlybepossiblewithmorerapidscalingofcleantechnologyadoptionacrossbothenergydemandandsupplysectors.Allofthatwillrequirepolicy.UpskillingonpolicyAsthephysical,political,andeconomicimpactsofglobalwarmingbecomemorereal,governmentinterventionislikelytobecomebolderandmorewideranging.Doneright,theseactionswillacceleratedevelopmentanddiffusionofclean-energytechnologiesacrossallsectorsoftheglobaleconomy—as,insomeinstances,theinvisiblehandofthemarketisbeingreplacedbythestrongarmofthestate.Thisinevitablepolicyresponsewillplayoutindifferentwaysindifferentplaces,shapedbythepoliticalsystemsandnationalinterestsofthemajorpowers.•InChina,astrongstatesystemwillprovidesignificantdirectsupportforstrategicnationalindustries,incentivizingandenablingtherapiddevelopmentanddeploymentofclean-energytechnologies.•Fiscalincentivesfromtheworld’slenderoflastresort—intheformoftaxbreaksforcleantechnologiesandjobs—havecreatedamagneticpullforgreencapitaltowardUSindustries.•Europeanpolicyisalsoshifting.Fortwodecades,thecontinentdrovethedecouplingofemissionsfromgrowththroughregulationandpricing.Butwiththelow-hangingfruitpicked,nofiscalunion,andfragmentedpolitics,thecontinentfacestoughchoices—andthelevelplayingfieldisgivingwaytoincreasingnationalstateaid,challengingtheintegrityofthesinglemarket.Againstthisbackdrop,allcompanieswillneedtoanticipatedisruptivechange.Transitionpolicy—drivenbyclimatebutincreasinglyalsobysecurityandaffordability—isbecomingconflatedwithtradeandindustrialpolicy,asgovernmentsnavigateamorecomplexforeignpolicyenvironmentandracetocapturetechnologicaladvantageinaworldwithconstrainedresourcesandsupply-sideshocks(seeFigure1).Forcompanies,resistingprogressisalwaysariskystrategy.Andwhenitcomestotheenergysystem,theunderlyingdynamicsoftransitionmakechangeinevitable.Thoseabletostayaheadofthecurvebyenablingtheircustomersandsupplierstoovercometransitionbarrierswillsecurethegreatestcommercialadvantage.Theabilitytounderstandandnavigatepolicyuncertaintywillbedifferentiating.Policy-drivenmarketswillbringexceptionalmarginsforthosewithforesight,asothermarketparticipantsfailtoanticipatenewsourcesofgreendemand.Policywillfacilitateorimpedeglobalsupplychains.Andtherewillbestrandedassetsandcapabilitieswhenregulationsoutpaceexpectations.Therearefivetypesofpoliciesthatcorporationswillneedtoengageon(seeFigure2).33TheVisionaryCEO’sGuidetoSustainabilityFigure1:BigpolicyuncertaintieswillshapeinvestmentandtheenergytransitionPoliciestotransitionenergydemandCarbonpricingolicyInduSubsidiesforclean-energyinvestmentsTransitionpStrategicstrialpolicycomplexityCarbonimporttaxesResponsetoenergysecurityTradepolicyClimateclubsandinternationalpolicycoordinationOnshoringand“friendshoring”policySource:Bain&CompanyFigure2:ThepoliciestransformingtheenergysystemreflectthefivewaysgovernmentscanshapemarketsPricingPricingSubsidiesSubsidiesMeasuresthatincreasethecostMeasuresthatdecreasethecostofhigher-carbontechnologiesoflower-carbontechnologiesExample:CarbontaxExample:TaxcreditsStandardsettingStandardDisclosureDisclosuresettingMeasuresthatobligatetheMeasurestoincreasedeploymentoflower-carbonDirectcorporateaccountabilitytechnologiesorpreventfundingthedeploymentofhigher-Example:TCFD(TaskForcecarbontechnologiesonClimate-RelatedFinancialDisclosures)Example:FuelstandardsDirectfundingDirectgovernmentfinancingoflow-carbontechnologydevelopment,infrastructure,orskillsExample:DirectinvestmentsinrenewablesSource:Bain&Company34TheVisionaryCEO’sGuidetoSustainabilityThreepolicyscenariosInserviceoftransitiontradeandindustrialpolicyobjectives,governmentsarealreadyinterveninginwaysthatwilldisruptmanysectors,asthesethreeexamplesillustrate.Electrictrucks…butelectrictruckmandateswouldTransitionpolicycanflipunderlyingcostdynamics…begame-changingCaliforniacleanfleetsandcleanCalifornia2025electrictruckpoliciestrucksregulationsShareofnewtrucksbytypeBasecasefortwoGreenhouseCredits/FueltaxPowerNewTCOClass8trucksgaspricingincentivesandpolicy11%regulation89%TotalElectricLow-NOxHVIPDieseltax,Powerpricecostoftruckpolicyincentivescapanduncertaintyownership$1.3Mtrade,(TCO)EmissionsLow-carbonfuelpriceDieselstandardsfuelstandardincreasetruckincentive$1.0MCharginginfrastructuresubsidyRelative$300K–$70K$230K–TCOof$300Kdiesel$104K2025203020352040–$300K–$272KCumulativeTCOimpactofpoliciesInternalcombustionengineElectricNotes:TCOincludesvehiclecost,fuelcost,fueleconomy,andinfrastructurecost;HVIPistheHybridandZero-EmissionTruckandBusVoucherIncentiveProjectSources:CaliforniaAirResourcesBoard;ICF;NCST;RMI;CaliforniaHVIP;BainanalysisAviationFuel…bringingforwardthepointatwhichwiderCurrentpolicyisexpectedtocreateguaranteedmarketsunlockdemandintheEUforsustainableaviationfuel(SAF)…EUSAFdemand(Mtoe)LevelizedcostofSAF(€/tonne)223,000Costparity18SAFfrome-fuels142,000101,000Jetfuelaftercarbontaxes/penalties60203020402050202520302035204025%32%52%02022MandatedSAFshareofallaviationfuelNote:MtoeismilliontonnesofoilequivalentSources:EUregulations;DNV;IRENA;IEA;WorldEnergy;Eurostat;SkyNRG;EASA;Euractiv;Bainanalysis35TheVisionaryCEO’sGuidetoSustainabilityGreensteelTheCarbonBorderAdjustmentMechanism(CBAM)willmakeblastfurnace-producedsteeluncompetitiveintheEU,creatingnewdynamicsintheglobalsteelindustry2023:PercentageofEUimportsofblastfurnacesteel2030:EstimatedcostofexportingsteeltoEU,byproductionmethod($/ton,excludingshippingcost)10%1,3601,2001,0209301,0008707757500%6%1%IndiaChinaAustraliaChileBlastfurnacesteelGreenDRIsteelCBAMcostorequivalentNotes:CBAMisatariffoncarbon-intensiveproductsimportedbytheEU;costsincludeimporttariffandexportduty;forAustralia,assumeddomesticcarbonpriceof$75/ton;forothercountries,CBAMcostof$112/ton;DRIisdirectreducedironSources:IEA;EuropeanSteelAssociation;analystreports;BainanalysisThrivinginaworldinwhichpolicyisdecisiveAllcompanieswillneedtonavigatethistransition.Thosethatleadwilloperatewithvision,purpose,andpragmatism.Notonlywilltheymanageuncertainties,ensuringthattheirbusinessstrategyiscredibleunderarangeofpolicyscenarios,buttheywillharnessthenewopportunitiespresentedbypolicy.Thosethattrulythrivewillnotjustreact.Theywillunderstandhowpolicyisinfluencingthedynamicsofinnovationandtechnologytotransformtheirindustry.Theywillanticipatehowmarketsarebeingshaped,created,anddestroyedbygovernmentsandinvestinnew,low-carbonbusinessmodelsandsupplychainsaheadofdemand.Theywillworkwithgovernmentstoleverageindustrialstrategytoovercometransitionbarriersastheyinvestinearly-stagetechnology.Theywillcaptureexceptionalmarginsbygettingaheadofpolicy-drivensourcesofdemand,thenenjoyacostadvantageastechnologydiffusesthroughglobalmarkets.36TheVisionaryCEO’sGuidetoSustainabilityAndtheircorporateaffairsteamswillbedeeplyexpertinthecriticalgeographiesandsectorsinwhichfuturevalueiscreated,buildingalliancesacrossvaluechainsandinfluencingtherulesofthegame.Thisabilitytoinfluencepolicy,andthereforecustomerchoicesandsupplychaindynamics,willbeoneofthetrulydifferentiatingcapabilitiesduringthetransitiontoanet-zeroenergysystem.Becauseinaworldinwhichpolicyisdecisive,managementteamsthatproactivelyshapetheirmarketenvironment’spolicyandstakeholderlandscapewillnotonlybuildstrongerbusinessesthatarebetterabletomanagerisks;theywillalsohelppushforwardthechangesourglobaleconomyrequires.37SectorPerspectivesBuildingResilienceinYourBusinessStrategy:FourImperativesforLeaders....40TheEnergyTransition’sOtherBigPuzzle:MakingtheMathWork..............46CanFoodandAgricultureCompaniesRaiseTheirGame?....................53Fires,Floods,andLoans:HowBanksCanDealwithIncreasingClimateRisks....60SectorPerspectivesBuildingResilienceinYourBusinessStrategy:FourImperativesforLeadersTraditionalapproachestoresiliencedon’trisetotoday’schallenges.ByDavidKnipe,DuniganO’Keeffe,EricBeranger-Fenouillet,andAadarshBaijalAtaGlanceTraditionalapproachestoresiliencefocusonnear-termrisks,exposingcompaniestothethreatsoflong-termchallenges.Theseblindspotscanleaveexecutivesoverconfidentabouttheircompanies’resilience,whenmosthaveyettobetested.Leaderstakeabroadapproachthatincludesstrategic,operational,andsupplychainresilience,inadditiontomanagingtheenvironmentalriskstophysicalassets.Wehearalotabouttheneedforresiliencethesedays,butthisisactuallynothingnew.Businesseshavelongfacedtwotypesofdisruption.Thefirstisunpredictablebutnotunprecedentedmajorevents,thingslikeCovid-19ortheFukushimadisaster.Thesecondisknowndisruptionslikeclimatechange,whichplayoutoverlongperiodsoftimeandbringwiththemadditionaluncertainties,suchashowtheworldwillachievenetzero,whichtechnologieswillwinandlose,andwhichnewbusinesseswillgrowandwhichwilldecline.40TheVisionaryCEO’sGuidetoSustainabilityBusinessesmustberesilientinthefaceofbothsortsofdisruptioniftheyaretothriveamiduncertainty.Today,cultivatingresilienceshouldbetopofmindforCEOs,executiveteams,andboardsastheyleadthroughoneofthemostvolatileanduncertainperiodstheworldhasseenforsometime.Resilienceislikelytobeoneofthemostcriticalstrategicdifferentiatorsofanycompany’ssuccessmovingforward.Buttraditionalcorporateapproachestoresiliencedon’trisetotoday’schallenges.Theyfocustoomuchonnear-termrisks,withoutfullyrecognizingthepotentialimpactsupanddownthevaluechain,wellbeyondindividualcompanyboundaries.Theyusuallymakeverylimiteduseofadvancedpredictivetools,whichcouldhelpidentifysomeofthoserisks.Andtheyfailtoconnectriskstotheorganization’slong-termstrategicgoalsandeconomicmodel.Thesenarrowapproachescanleaveblindspotsandcreateafalsesenseofsecurity.Bainrecentlyaskedexecutivesintheenergyandnaturalresourcesectorabouttheirconfidenceinnavigatingfivetypesofthreats,spanningfromthephysicaleffectsofclimatechangethroughtotechnologicalvulnerabilities,inputshortages,andbottlenecks(seeFigure1).Confidenceacrosstheboardappearssurprisinglyhigh,especiallyasmanyofthesethreatscontinuetoescalate.Figure1:NearlyallexecutivessaidtheywereveryorsomewhatconfidentintheirabilitytomanagethephysicaleffectsofclimatechangeVeryconfidentSomewhatconfidentNotatallconfidentPhysicaleffectsofclimatechangeFinancialinstabilityGeopoliticalrealignmentTechnologicalvulnerabilityInputshortagesandbottlenecks20406080100%0Source:BainENRTransitionSurvey2023(n=608)41TheVisionaryCEO’sGuidetoSustainabilityThesehighnumberscouldreflectanoverconfidencethat’snotentirelyjustifiedbythelimitedinvestmentsmostfirmsaremakinginresilience.Peopleoftenfailtoaccuratelyassessthemagnitudeandlikelihoodofrareevents,suchasthephysicaleffectsofclimatechange,sincemosthavenotexperiencedthemfirsthand.Leadingcompaniestakeacomprehensiveapproachthatincludesstrategic,operational,andsupplychainresilience,inadditiontomanagingtheenvironmentalriskstophysicalassets.StrategicresilienceAllstrategyisformedamidsomelevelofuncertainty,potentiallyhandicappingafirminseveralways.Overconfidencecanleadtocorporatemyopia;under-confidencecanleavefirmsinparalysis.Eitherscenariocanstallactionuntilit’stoolatetopreventabadoutcome.“Existingassetsarevulnerabletotheinstabilitiesultimatelycausedbyclimatechangeandshortageofresources.”Vicepresident,newenergycompany,EuropeIt’srarethatthelosersinatransformingindustryarereallyblindsidedbychange.Moreoften,theyfailtosetastrategicdirectionthatcanadapttoshiftingconditions.Leadingfirmsstartwithaviewofthefuture:Whatwillcustomersneed30yearsout?Thisapproachcanhelpcompaniessetalong-termvision,freefromtheconstraintsofcurrentpracticesandportfolios.Successfulteamsthenplanfortheirlong-termreferencecase,whilecontinuouslymonitoringtheenvironmentandcorrectingcourseasnecessaryalongtheway.Evenamongcompaniesthatinvestinlong-termscenarioplanning,fewconsiderthe“cornerscenarios”—eventsthatarepossiblebutmuchlesslikely,likeunexpectedpolicyshocksorlosingaccesstocapitalmarkets.Plannersoftenshelvethesescenariosbecausetheydon’twanttoinvesttimedevelopingdetailedplansforconditionsthatareunlikelytooccur.Butignoringhigh-riskscenariosis,increasingly,ashortsightedstrategy.Stresstestingacompany’scapabilitieshasneverbeenmoreessential,andit’soneofthewaysthatplannerscanlocatetheextremecorners,inordertounderstandtheimplicationsandpotentialopportunitiesoflow-probability,high-riskscenarios.42TheVisionaryCEO’sGuidetoSustainabilityOperationalresilienceReducingScope1and2emissionshelpsensurelong-termcommercialviabilityinseveralways.First,itpositionsacompanytobeclosertocomplianceasregulationsorcarbontaxesincrease.Closelyrelated,ithelpspreserveanasset’ssociallicensetooperate,makingitlesssusceptibletobeingtargetedasasignificantcarbonemitter.Itcanalsoextendtheworkinglifespanoftheasset,givenupdatesthatrenewoperationalcapability.Reducingemissionssignalsallofthesebenefitstoinvestorswhoareconsideringthelong-termviabilityofbusinesses,especiallyinrapidlychangingsectors.Inadditiontoensuringresilienceforoperations,companiesalsohavetoensurethattheirdecarbon-izationprogramsareresilientandcanadapttochangingconditions.Inthiscontext,resiliencemeanstheabilitytoperseverenotonlythroughextremeweathereventsbutalsoeconomicdownturns,changesintechnology,andotherunpredictablebarriers.Somecompaniesaremovingquicklytogainfront-runnerstatuswhileothersaretakingawait-and-seeapproach,aimingtotakeadvantageofmoreefficienttechnologiesandeconomiesofscale.“Userneedsarechanging,andthisneedstobetakenintoconsiderationduringinnovation.ESGisaclearuserneed,soithastobeembeddedinstrategywhiledrivinginnovationandcustomeracquisition.Intermsoffunding,thisisalsobecomingamust.”CEO,manufacturingcompany,TurkeySupplychainresilienceOncethepurviewoftheCOOandpurchasingfunctions,supplychainresiliencehasrisentothehighestlevelsofthecorporateagendaoverthepastfewyears.Thepandemic,asemiconductorshortage,andwarinUkraineareamongthecrisesthathaveexposedvulnerablesupplychains.Qualityandpricearestilltablestakes,butincreasinglysupplychainexecutivesareinvestingtoimproveflexibilityandresilience(seeFigure2).Supplychainresiliencemeansdifferentthingsindifferentsectors,butingeneralit’stheabilitytoproactivelyminimizerisk,absorbinevitableshocks,andquicklyrecoverfromsetbackstolessentheimpactonoperations.Takingaholisticviewoftheentirechaincanhelpcompaniesidentifythe43TheVisionaryCEO’sGuidetoSustainabilityFigure2:FlexibilityandresiliencearebecomingmoreimportanttosupplychainexecutivesSupplychaininvestmentgoals,lastthreeyearsvs.nextthreeyears(percentageofrespondentswhoselectedeachgoalasatop-threeprimaryobjective)50%50%40%39%30%33%21%23%21%24%12%11%12%15%IncreaseIncreaseReducecostIncreaseEmbeddigitalSustainabilityNewproducts/flexibilityresiliencespeedandtechservicesLastthreeyearsNextthreeyearsSource:BainSupplyChainIndustryResilienceSurvey,September2022(n=275)mostimportantriskstothebusinessandthenassessthelikelihoodofeach.Comparingstrengthstocompetitors’canhelpcompaniesfindopportunitiestodifferentiatewhilemitigatingtheirimpactsontheenvironment.PhysicalresilienceManycompaniesarealreadyexperiencingtheeffectsofclimatechangeontheiroperations.Forexample,in2022,AppleandIntelsufferedaweeklongshutdownofsomeproductionfacilitiesinSichuan,China,whereadroughtstalledmultiplehydropowerplants.Butmanybusinessesunderestimatethelikelihoodofphysicalclimateriskeventsandtheirexposuretothem,relyingonanarrowsetofrisk-transfertools(forexample,insuranceorfinancialhedges)ratherthanabroadersetofstrategicandoperationalleversforbuildingresilience.PowerutilitySouthernCaliforniaEdison,forexample,hasbeenworkingformorethanadecadetomanagetheeffectsofclimatechangeonitspowergridandgenerationassets,whichincludemorefrequentwildfiresanddroughtsthatjeopardizetheviabilityofhydroelectricpower.Toaddresstheserisks,SCEembarkedonadetailedassessmentofclimateriskstoitsassets,operations,andservicesacrossits50,000-square-mileservicearea.TheresultshelpedSCEreprioritizecapital44TheVisionaryCEO’sGuidetoSustainabilityinvestmentsfornewinfrastructurethatcanwithstandmoreintensefloodingandstorms,extremetemperatures,andmoreseverewildfires.SCEsaysitinvestsabout$5billioneachyeartomaintainandimproveitsgrid,andthatbytheendof2021ithadreducedwildfireriskbyabout70%comparedwithpre-2018expectations.“Thehumanbeingonlyreactswhentheproblemisatthedoorandhehasnootherchoice.Thegiantthreatofclimatechangeisnotsotangible,becauseitoccursslowly,overlongperiodsoftime.”Globalheadofsustainability,digitalfinancecompany,SpainAmoreproactiveapproachtoresiliencestartswithasystemiclookacrosstheentirevaluechain,usinganalyticaltoolstoestimateriskstodayandinthefuture.Companiescanthenfocusonpracticalactionstoadapttotheserisksandmakedecisionsaboutwhichassetsorfacilitiestoprotectandwhatstrategicchangesmaybenecessarytosurviveandthrive.Thechangesmayincluderevisingcapitalplanningprocesses,restructuringornearshoringthesupplychain,oradvocatingfornewpolicysolutions.45SectorPerspectivesTheEnergyTransition’sOtherBigPuzzle:MakingtheMathWorkStronginvestmentreturnsarewithinreachforcompaniesthatfocusonthefundamentalsandaren’tafraidtogetcreative.ByGrantDougans,AndersBruhn,DaltonMaine,ValeriaSterpos,FrancescoCigala,andShazrulAsariAtaGlanceTheenergytransitionwouldgenerateatleast$55billioninnewearningseachyeariftheworldapproachedtheannualinvestmentlevelrequiredfornetzero.Unlockingthetrillionsofcapitaldollarsavailableremainsdifficult;manycompaniesstruggletochartclearpathwaystoinvestmentreturnsontheirlow-carbonprojects.Leadingcompaniesareusingpolicy,commercialcapabilities,creativefinancing,costdiscipline,andotherstrategiestomakethemathworkfortheirlow-carboninvestments.Deliveringontheenergytransition’sambitionscomesdowntoeconomics:Howcantheworldmakethe$4.6trillionannualinvestmentrequiredfornetzeropencilout?AsinvestorsandotherstakeholdersformglobalcoalitionssuchastheGlasgowFinancialAllianceforNetZero(GFANZ),there’snoquestionthattherearetrillionsofcapitalinvestmentdollarsworld-widelookingforahomeinlow-carbonenergysystems.Capitalseeksreturns.Iflow-carboncapitalinvestmentsapproachedtheannual$4.6trillionthattheInternationalEnergyAgency(IEA)estimates46TheVisionaryCEO’sGuidetoSustainabilityisrequiredby2030toachievenet-zerocarbonemissionsby2050,theenergytransitionwouldgenerateanew$55billionearningspooleachyear—alow-endestimateifoneassumesanaverage20%equityweightingforprojectsanda6%returnonthatequity.That’sthegenerationalupsidethatsomanycompaniesarepursuingaroundtheworldastheyworktoscaleuptheirnewenergy-relatedbusinesses.Despitetheopportunity,lessthan$2trillionperyearisbeingdeployedintocleanenergyworldwideacrosstheprivateandpublicsectors,accordingtoIEAdata.InBain’s2023surveyofmorethan600energyandnaturalresource(ENR)executives,respondentsconfirmedthattheyexpecttoallocateonlyabout25%oftotalcapitaltonewlow-carbongrowthareas.Thisislargelyunchangedfromlastyear’ssurveyandconsistentwiththecapitalallocationdatasourcedthroughBain’sanalysisof125ofthetopenergyandnaturalresourcecompaniesbymarketcapitalizationineachsector.What’smore,accordingtothatsamedata,almosthalfoftheenormouscashwindfallthosecompaniesreceivedoverthelasttwoyearswasreturnedtoshareholdersratherthanreinvestedintonewlow-carbonprojects.What’sgoingon?Althoughthechallengesaremultifacetedandcomplex,ENRexecutivessaidinour2023surveythatthemostformidableconstraintonscalinguplow-carbonsystemsisn’taccesstocapitalorevensupplychainchallenges—it’ssecuringsufficientreturnsoninvestmentandcustomerwillingnesstopayhigherpricestocoverthatcapital,oncedeployed(seeFigure1).Putanotherway,Figure1:Executivessaythegreatestobstaclestoscalinglow-carbonbusinessesarecustomers’unwillingnesstopayhigherpricesandthedifficultyofensuringadequatereturnsoninvestmentShareofexecutiveswhoconsidereachfactortobeaverysignificantroadblocktoscalingtheirlow-carbongrowthbusinesses60%40200GovernmentLackofLackofSupplychainLackofLackofboldCulturalpolicyandorganizationalexperience/constraintscash/capitalambition/resistanceROI/customerregulationstalentinnewwithinthewillingnesscapabilitysupportfromcompanytopayforscalingbusinesscompanyatspeedareasleadershipSource:BainENRTransitionSurvey2023(n=608)47TheVisionaryCEO’sGuidetoSustainabilitymostcompanieshaveampleaccesstocapitalmarkets.It’scustomerrevenuethey’rehuntinginordertogrowthesebusinessesbyanorderofmagnitudeincomingyears.Untilthatproblemissolved,the$4.6trillionglobalinvestmentgoalwillremainoutofreach.UnderstandingthemathofcapitalformationTheenergyandnaturalresourceindustriesareexceptionallycapitalintensive,astheirexecutivesandinvestorsknowalltoowell.Formanylow-carbonprojects,thelargestinputcostiscapital.Putsimply,foranyprojecttobebuilt,capitalprovidersmustfirstaskandanswerthequestions,“whowillpay?forhowlong?”and“isthatenough?”Mostcapitalallocatorswillbehesitanttoinvestbeforethereareclearsignalsthatdemandwillbethereandreturnswillfollow.Togiveaclearerpictureofthemathsurroundingcapitalformation,asimpleruleofthumbisthatforevery$1billionincapitalinvestedinalow-carbonproject,roughly$60millioninrevenuemustbecollectedtocoverreturnsonequity,debtservicingcosts,andtaxes,assumingalow-riskassetwitha5%costofcapital.Thatassetmustalsobedepreciated,increasingtherevenuerequiredtoabout$108millionperyear,assuminga20-yearusefullife.Ifriskincreases,andwithitcostofcapital,therevenuethatmustbecollectedfromcustomersgrowsfurther:Forevery500basispointsincreaseinthecostofcapital,theannualrevenuerequirementincreasesbyalmost$55million(seeFigure2).So,ascentralbanksincreaseinterestrates,theeffectivecostofanygivenlow-carbonFigure2:Atleast$108millioninannualrevenueisrequiredtoform$1billionincapitalforalow-riskassetAnnualrevenuerequired($M)(capitalonly,excludingoperations)300+54+54270+54216TaxEquityreturns200Costofdebt162108100Depreciation010%15%20%5%WeightedaveragecostofcapitalNotes:Calculationsassume75/25debt-equityprojectsplitwith600basispointsspreadbetweendebtandequityreturns,a20-yearstraight-linedepreciationschedule,anda25%averagecorporatetaxrate;valuesareroundedSource:Bainanalysis48TheVisionaryCEO’sGuidetoSustainabilityprojectincreasesaswell.Ata10%averagecostofcapital,every$1billionincapitaldeployedrequiresabout$160millioninrevenuefromcustomerseachyear.Furthermore,allofthesecostscomebeforeoperatingandfuelexpenses.Thetroubleisthatalthoughconsumersareconcernedaboutclimatechange,datasuggeststhattheymaynotbewillingtopayhigherbillstohelpcombatit.RecentBainsurveysfoundthatlessthanhalfofUSandEUconsumersarewillingtopayevenasmallincreaseintheirresidentialelectricbillorfuelpricetoreduceemissions.Instead,theypreferraisingtaxesonwealthyhouseholds,suggestingthatconsumersbelievegovernmentshouldintervenetobringdownpricesofnewtechnologies(seeFigure3).Forlow-carbonprojectsservingbusinesscustomers,suchassustainableaviationfuel(SAF)orchemicals,generatingrevenuerequiresfindingacounterpartywillingtopayapremiumabovethecostoflegacyproductsandtoprovidelonger-termrevenuecertainty.Butaswediscussinourbriefaboutanet-zeropathforcommercialaviation,theSAFpremiumcanbesignificant.Furtherbarrierstocapitalformationandattractivereturnscanemergebasedonanindividualcompany’sfinancialmodelandinvestorvalueproposition.Acrossenergyandnaturalresourcesectors,differentcompanieshavedifferentinvestorvaluepropositions,withdifferentimpliedbalancesFigure3:Mostconsumersaren’twillingtopayhigherpricesforreducinggreenhousegasemissionsPercentageofrespondentsEuropeUS2%monthlyincreaseinresidentialelectricbills10%monthlyincreaseinresidentialelectricbills50%monthlyincreaseinresidentialelectricbillsIncreasingthefueldutyby10centsperunitofgasolineIncreasingthefueldutyby25centsperunitofgasolineRaisingtaxesonwealthyhouseholds20406080100%020406080100%0SupportOpposeNote:UnitforEUrespondentsisliterandforUSrespondentsisgallonSources:BainUSConsumerPulseSurvey,poweredbyDynata,February2023(n=2,496);BainEMEAConsumerPulseSurvey,poweredbyDynata,Wave7,February2023(n=12,585)49TheVisionaryCEO’sGuidetoSustainabilityofgrowth,risk,andreturn.Utilitiesinvestorsgenerallyseeklow-risk,comparativelylower-return,assetdeployment—abusinessmodelakintoabankfinancingmortgages.Bycontrast,oilandgasinvestorsunderstandthattheirsector’sstocksaresubjecttolargeswingsinreturnsasenergypricesmove.They’recomfortablewiththataddedriskbecauseit’sworthittothemtopursuehigherreturns(alongwithdividendpayments),withpotentiallyfastorlumpypaybackperiodsbasedoncommoditycycles.Autilityinvestorwouldlikelybeuncomfortableifaskedtofinanceaperfectlyeconomicbutrisky(high-return)project,whichiswhyUSutilitieshavecontinuedtoshednon-regulatedassetsoverthelastdecade.Therewouldbesimilarchallengeswhenaskinganoilandgasinvestortofinancerenewablesprojectswithlowerriskandlowerreturnoncapexthantheexistingbaseportfolio.Bothtypesofprojectsmaybeperfectlyviable,butdifferentinvestorswouldvaluethoserisk/returnprofilesdifferently.Tactically,acompany’scapitalallocationandapprovalsprocedurescanalsoposeachallenge.Existingcapitalallocationprocessesmaynotbesetuptoeffectivelyhandlelow-carbonprojects’novel(fromthestandpointofthelegacycompany)risk/returnprofiles.Somethingassimpleashowaproject’scapitalcommitteetemplateissetup—andthedifferencesinthattemplate’sunderlyingassumptionscomparedwithatypicalproject—canmakeprojectapprovalsdifficulttosecure.Atleadingcompanies,managementteamsworkwithabroadrangeofstakeholderstousepolicytocarveoutdemandandassociatedrevenues.PracticalsolutionsforexecutivesInourexperienceworkingwithenergyandnaturalresourcecompaniesworldwide,focusingononeormoreofthestrategiesbelowcanbolsterthecaseforcapitalallocationsandincreaseaproject’sreturnoninvestment.Opennewmarketsviapolicy.Inmanycases,puremarketeconomicswillbeinsufficienttocreatelow-carbonrevenueatthenecessaryscaleorpace.Policies—includingsubsidies,taxes,anddemand-sideregulationsrequiringindustriestousethesenewenergies—willberequired.Atleadingcompanies,managementteamsworkwithabroadrangeofstakeholderstousepolicytocarveoutdemandandassociatedrevenues.Thosethatproactivelyshapepolicyandstakeholderlandscapeswillgenerateoutsizereturnsandbettermanagerisks,whilehelpingsecurecorporatedecarbonizationcommitments.Policy’sfinancialupsideforenergycompaniescanbestartling.USagri-techcompanyGreenPlainsissimultaneouslyacceleratingitsdecarbonizationplanswhilegeneratingshareholderreturns.It’s50TheVisionaryCEO’sGuidetoSustainabilitymakingoptimaluseoftaxcreditsofferedbytheUSInflationReductionAct(IRA)forcarboncapture,utilization,andsequestration(CCUS)andcarbonintensityreduction,aswellascarboncreditsofferedbyvariousNorthAmericangovernments.Asaresult,thecompanyintendstomorethanhalvethecarbonintensityofitsethanolproductionplatformwhiledeliveringaconservativelyestimatedannualizedprofitincreaseof$200millionto$280millioninEBITDAby2027overanestimated1billiongallonsofethanolproduction.ThisisoneofmanyrecentexamplesintheUnitedStatesfollowingtheIRA’spassage.Neste,abiofuelsproducerbasedinFinland,hashadanactivepresenceinclimateconversationsduringcrucialpolicy-shapingmoments.Thecompanyprovidesinsightsandanalysison,forexample,emissionreductiontargetsandrenewabletransportationfuelsthroughpublicconsultationsanddirectengagementwithgovernmentofficialsandpoliticians.Nestealsoparticipatesinindustryassociationsthatoftenhaveaninstrumentalroleininforminggovernmentpolicy.Buildcommercialmusclesandmindsets.Leadingcompaniesalsofocusondevelopingpocketsofcustomerswhoarewillingtocommittotheirlow-carbonproductorservice,oftenleveraginggovernmentincentives.Thisrequiresadeepcustomer-facingcommercialcapabilitythatformanytraditionalenergyandresourcecompaniesisanewmuscle.Examiningpotentialcustomers’environmentalactivitiesandcommitmentscansignalwhetherthosecustomersmightbewillingtopayagreenpremium.Onerenewableenergycompanydevelopingacleanhydrogenprojectstartedwithalistofthousandsofpotentialcustomersinitsmostattractivesegmentsandnarroweditdowntothe40mostlikelycustomers.Thatallowedittofocusitssaleseffortsontargetedconversationsthatresultedinanofftakeagreementthatmadetheprojecteconomicallyviable.Inthebiochemicalssector,GenomaticafoundanearlypartnerinLululemontobringtomarketplant-basednylonthatdoesn’trelyonpetrochemicals.(Formoreexamplesofcommercialexcellenceintheenergyandnaturalresourcetransition,seetheBainBriefs“UnlockingHydrogenProjectswithaCustomer-CentricApproach”and“FindingtheSustainableAdvantageinChemicals.”)Inanotherexample,utilitiesareincreasinglyconsideringhowtoreframebillstocustomers.Forexample,oneutilityiscontemplatingaddingtoeachcustomerbilltheeffectivegasolinesavingsassociatedwithcharginganelectricvehicle(EV)athome.EVchargingdrivesupelectricitybills,buttakinga“totalenergywallet”viewandtalkingwithcustomersabouttherelatedgasolinesavingscanhelpconsumersmorewillinglyaccepthigherutilityprices.Thiswouldbenaturaltomanyotherindustries,butforutilities,itrepresentsanewmindset.Keepcostsdown.Atraditionalapproachtomakingthemathworkcanalsobecrucialinlow-carbontechnologiesandmarkets:Becomealow-cost,scaleleader.Businessesthatgrowlargeenoughcanreceiveadvantagedaccesstokeycomponentsatthelowestcosts,therebyfreeinguproomforgrowth.Forcompanieslikeutilities,whichcollectrevenuefromcustomersonanaveragechargebasis,eliminatingcostscanhelpfundlow-carboninvestments.51TheVisionaryCEO’sGuidetoSustainabilityAllthingsbeingequal,giventheamountofglobalcapitalchasinglow-carbonopportunities,low-costcapitalshouldbeavailableforanyfeasibleproject.Findcreativefinancingsolutionsandreducethecostofcapital.Allthingsbeingequal,giventheamountofglobalcapitalchasinglow-carbonopportunities,low-costcapitalshouldbeavailableforanyfeasibleproject.Butcompaniesoftenoverlookcreativebalancesheetoptionstomaximizereturnsfortheirshareholdersandsecurebetterinfrastructurefinancing.Toooften,companiesassumealllow-carbonprojectsshouldbefinancedbythecorporatebalancesheet,whereinvestorsmaynotappropriatelyvaluetherisk/returnprofileoftheproposedinvestment.Creativefinancingsolutionscanbridgethegap.Intheoffshorewindindustry,forexample,complexfarm-downschemesareawell-establishedpracticetolowertheproject’seffectivecostofcapitalandgeneratereturnsforthedeveloper.Leadingcompaniesseriouslyconsideralternatives,suchastakingadevelopmentfeeandtransferringtheassettoanotheradvantagedsourceofcapital,loweringoverallprojectcosts.Takingamoreactiveapproachtopursuingpartnershipswithinvestorscouldalsoprovevaluable.Forexample,oilandgascompaniescouldcoinvestwithinfrastructurefundsonlower-risk,lower-returnprojects;withdevelopmentbanksforprojectsinemergingmarkets;orwithprivatecapitalinvestorswillingtotakeonriskier,longer-termprojects.StartwiththesoundstrategyTherearemanysuccessfullow-carbonbusinessesalreadyincreasingrevenueandgeneratingstrongreturns.Eachyear,renewablesdeploymentisgrowing,with2022seeingarecordnetadditionofmorethan250gigawattsofwindandsolarcapacity.Thatsaid,foreverycompanyachievingleadingreturnsandgrowth,thereisanotherstruggling,asoursurveyresultsshow.Developingaclearstrategythatdirectlyaddressesthefundamentalsofreturngenerationinlow-carbonmarketsiscritical.Withover$150trillionininvestorcapitalcommittedtowardnet-zerotargetsbyGFANZalone,being“justanotherproviderofcapital”isn’tarecipeforattractivereturns.Energyandnaturalresourcecompanieshaverealcompetitiveadvantagesagainstpure-playcapitalproviders,buttheyneedtherightcapabilitiestoexploitthoseadvantagesandgeneratereturns.Policy,commercialcapabilities,creativefinancing,andcostdisciplineareastartinglistoftoolsforsupportingcapitalformation;thereareothers.Whiletheglobalpictureoftheenergytransitioniscomplex,companiesthatareproactive,bold,andfocusedonthefundamentalsofreturngenerationwillbeabletoovercomeoneofthemostcommonchallengestoscalingalow-carbonbusiness.They’llalsohelpmovetheworldclosertoits$4.6trilliongoal,oneprojectatatime.52SectorPerspectivesCanFoodandAgricultureCompaniesRaiseTheirGame?Astheyaddresshealthconsequencesandenvironmentalissues,winningcompanieswillfindopportunities.ByJohnBlasberg,AndrewKeech,VikkiTam,andSashaDuchnowskiAtaGlanceAgribusiness,foodcompanies,andretailersacrosstheglobalfoodsystemhaveanurgentneedtoraisetheirambitionsonsustainabilityandhealth.Inaddressingthemountingchallenges,companiescanbuildmorefuture-proofandcompetitivebusinesses.Successrequirescompaniestoelevatetheirambitions,reinventportfolios,acceleratetheagriculturaltransformation,andchangetheirorganizationstodeliveronthenewimperative.Theglobalfoodsystemisanimpressivehumanaccomplishment.Overthepastfivedecades,itsvastproductivitygainshavegreatlyimprovedfoodsecurityandsubstantiallyreducedtheshareofincomethatpeopleneedtospendforfood.Thefoodsystemhasbecomesoproductivethatitisnowalsohelpingtoaddressotherglobalissues,suchasenergysupply,throughthegrowinguseofbiofuels.But,likevirtuallyallotherindustries,foodandagribusinesscompaniesfacemountingdemands,fromtacklingthelong-termhealthconsequencesoffoodproductstofixinganoutsizedcontribution53TheVisionaryCEO’sGuidetoSustainabilitytoglobalclimateandnaturechallenges.Today,agricultureconsumes70%oftheworld’sfreshwater,andthefoodsystemmorebroadlycontributesoverone-thirdofallgreenhousegasemissionsandisattheheartofthe20%ofannualdeathsattributedtopoordiet.Asaresult,agricultureproducers,consumerproductscompanies,retailers,andothersthatmakeuptheglobalfoodsystemareonthevergeofcomingunderthesamehigh-levelscrutinyexperiencedbyoilandgascompanies.ElevatingtheambitionWiththisbackdrop,foodandagriculturecompanieshaveanurgentneedtoraisetheirambitionsonsustainabilityandhealthtobuildmorefuture-proofandcompetitivebusinesses.There’salotatstakeforcompaniesthatfailtotaketheaggressivestepsrequired.Latecomerswillfacerisingcoststoaddresscarbonrequirementsfortheirvaluechains,forexample.Incumbentconsumergoodscompanieswillcontinuetocedegrowthtoinsurgentsthataredoingabetterjobofservingconsumers’risingdemandsforhealthierfood.Companiesacrossthefoodchainwillfindthemselveslosingoutamidthescarcesupplyoflimitedrawmaterialsthatmeetenvironmentalstandards.They’realreadylagginginthewarfortoptalent.Atellingfact:NoagribusinessorfoodproducerwasnamedintheFortune100BestCompaniestoWorkForlistin2023.Byouranalysis,foodcompaniesthatseizetheinitiativecanbenefitfromapotential15%five-yearrevenueupliftcomparedwitha43%revenuedeclineforcompaniesthatfallbehindbasedonascenarioofincreasinglyaggressiveregulation.Actingnowallowscompaniestoturnrisksintoopportunities—newproducts,categories,andmarkets,orincreasedshareofgrowth.Byouranalysis,foodcompaniesthatseizetheinitiativecanbenefitfromapotential15%five-yearrevenueupliftcomparedwitha43%revenuedeclineforcompaniesthatfallbehindbasedonascenarioofincreasinglyaggressiveregulation.Bychangingproductandingredientportfolios,aswellaswhereandhowfoodsareproduced,largefoodandagriculturecompaniescanshiftthefoodsystemtowardhealthierandmorenutritiousfood—andhealthierpopulations—whiletippingtheenvironmentalimpactfromnegativetoanetpositive.Anintegratedfoodsystemsambition,oncedefined,willhavestrategicimplicationsforagricultureandfoodbusinessesinthreeparticularlycriticalareas:productportfolio,agriculturalsustainability,andwaysofworking.Hereareexamplesofwinningapproachesineachofthoseareas.54TheVisionaryCEO’sGuidetoSustainabilityReinventingtheportfolioProductportfolioreinventionwillbeacriticalelementoffoodsystemtransformationforupstreamanddownstreamcompaniesalike.Asanexampleofthescaleoftheissuesathand,onestudydeterminedthatamong50,000foodproductsintheUS,73%ismadeupofultraprocessedfoods.1Suchfoodsarelinkedtoawiderangeofhealthissues,andreducedconsumptionisrecommendedinnationaldietaryguidelinesinplacesasdiverseasCanadaandBrazil.Theneedtotransformportfoliosisnotlimitedtodownstreamplayers.Forexample,agriculturalinputportfoliosmayneedtoaddseedsthatsupportmorediversecrops,orequipmentandinputstosupportmoresustainablefarmingpractices—inadditiontosupportingreducedfertilizerandchemicalvolumesthroughmorepreciseapplication.Facingmountingpressuretoofferhealthierandmoresustainablegoods,companiescanreevaluatetheirportfoliostrategytodeterminetheproductmixthatwillbesthelpthemmeetthosenewdemandswithoutdismantlingacorethathasdelivereddecadesofprofitablegrowth.Thatmeansidentifyingandexitingtheunfixablepartsoftheportfolioandspendingmoretimeandenergyonthebrandsandproductsthathavethefundamentalsthatwillallowthemtosatisfyconsumers’needsfordelicious,healthy,andsustainablefoods.Whenitcomestoshiftingfoodproductportfoliostowardbetterhealth,acommonrefrainfromfoodcompanyexecutivesisthattheindulgentsegmentsofconsumergoodscategoriesaregrowingfasterthanthe“betterforyou”segments.Indeed,intheUS,consumptionofultraprocessedfoodsincreasedfrom53.5%in2001to57%in2018,andtheconsumptionofwholefoodsdeclinedoverthesameperiod.However,manyleadersarenotacceptingthatsuchashiftisaneither/ordecision,andthewinnersofthefuturewilllikelyhavemorebalancedportfoliosthanmostfoodcompaniestoday.Theywillofferproductsthatreducetrade-offsforconsumers,introducingonesthatcanbedelicious,healthy,53.5%57%USconsumptionofUSconsumptionofultraprocessedfoodsultraprocessedfoodsin2001in201855TheVisionaryCEO’sGuidetoSustainabilityandaffordable.PepsiCotookastepinthisdirectionwhenitstartedgraduallyloweringtheamountsofsodium,saturatedfat,andsugarinitssnacksandbeverages,withplanstobringthemevenlower—andtodoitwithoutconsumersnoticing.Thecompanyalreadyhasreachedits2025targetofproducing75%ofitsfoodportfoliovolumewith1.1gramsorlessofsaturatedfatper100calories.Italsoisadvancingonitstargetsforreducingsodiumandaddedsugars.Thisshifttowardhealthierportfolioswillgetabigpushfromsugarandsalttaxesintroduced,aswellasfromnewlyrequiredhealthlabelingonpackages.Considerthataround85jurisdictionsaroundtheworldhaveimplementedaformofsugartax.Alsoatplay:afloodofventurefinancing—roughly$13billion—wasinvestedintosustainablefoodsystemstechnologyandinnovationgloballyin2021.(Bycomparison,thetotalR&Dbudgetforthetop10globalfoodcompanieswasroughly$4billion.)Thismagnitudeofventurefundingtosolvetheproblemsofhealthandsustainabilityshowstheseissuesarealreadyamajorfocusamongprivateinvestors.Now,thequestioniswhetherfoodcompanieswillgetaheadofthisimperativeorbedisruptedbyit.Inadditiontoaggressivelyreducingsaltandsugarcontentinitsproducts,NestléhasturnedtoM&Atotransformitsportfolio.Intheyears2017–22theworld’slargestfoodcompanymademorethan20acquisitionsandsold10businessunits.Duringthatperiod,totalshareholderreturnrosebyanannual9.5%.Nestléalsohascommittedsubstantiallymorefundstosustainabilityefforts,morethan$1billionannually,twiceasmuchasthenextcompetitor.Agriculturalproductioncontributestwo-thirdsofScope3emissions,whichcouldbesubstantiallyreducedthroughmoresustainablefarmingpractices,suchasregenerativeagricultureforcrops.AcceleratingagriculturaltransformationAlmostallfoodandagriculturecompaniesarewaybehindintheirScope3emissionsreduction.Agriculturalproductioncontributestwo-thirdsofthoseemissions,whichcouldbesubstantiallyreducedthroughmoresustainablefarmingpractices,suchasregenerativeagricultureforcrops(seeFigure1).Butadoptionofthesepracticesislow,anduntilcompaniescansolvethescalingproblem,theywillfailtoachievetheirScope3commitments.Mostimportant,theywillfailtorealizetheopportunitythatexistsforagriculturetoreduceitsownclimateimpactandbeapositivecontributoronthepathtonetzeroandinotherareassuchaswaterandbiodiversity.Reducingthefoodsupplycarbonfootprintrequiresengagementacrossthefoodvaluechain—everyonefrominputandequipmentproviders,tofarmers,tocommoditytradersandprocessors,56TheVisionaryCEO’sGuidetoSustainabilityFigure1:AddressingScope3emissionsthroughregenerativeagricultureisapowerfulopportunitytodeliveronGHGcommitmentsAgriculturemakesupmajorityofScope3emissionsinfoodPercentageofemissionsScope3emissions,bycategory(2020,percentage)About92%offood,beverage,PackagingandagricultureemissionsareScope3100%LogisticswasteOtherScope3FoodAgriculturalproduction(60%–65%)Scope2Scope1Food,beverage,agricultureNotes:BreakdownofScope3emissionsdatagatheredfromcompanyESGreportslookingat2020totalemissionsandthenaweightedaverageofsourceacross10companies;otherincludesdownstreamemissions;GHGstandsforgreenhousegasesSources:Companyreportedemissions(2020);Bainanalysistoingredientandfoodcompanies—andwithabroaderecosystemofstakeholderssuchasgovernments,financialservicesproviders,investors,andgrowerorganizations.Asfarbackasthe1980s,soilhealthwasagrowingconcernformanystakeholdersintheCanadianfoodsystemwhowantedtogenerateacceptanceforconservationtillage,aregenerativeagriculturepractice.Afterlocalfarmassociationsspreadawarenessandprovidedtechnicalexpertise,equipmentcompaniesmarketednewequipment,prototypedbyentrepreneuriallocalfarmers,thatmadeconservationtillagecompatiblewithmechanicalseeding.Meanwhile,thefederalgovernmentofferedgrantstoreduceupfrontcostsofnewequipment.Asaresultofcoordinatedecosystemaction,adoptionofconservationtillagepracticesinCanadaarenowatalmost80%,substantiallyfurtheraheadthanotherdevelopedmarkets.Successcallsforaparadigmshiftforupstreamanddownstreamcompanies:puttinggrowersatthecenter,surroundedbytherightconditionsformakingchanges.Werefertotheseasthe4Asofadoption.Awareness:Farmersmustknowaboutclimate-smartandnature-positivepracticesandtechnologies—andhaveaccesstothetechnicalexpertiseandsupportneededtoimplementthem.Advantage:Farmersmusthaveconfidencethatadoptingnewpracticesandtechnologieswilldeliveranattractiverateofreturn,bothnowandintothefuture.57TheVisionaryCEO’sGuidetoSustainabilityAccess:Therightinputs,tools,equipment,andmethodsmustbeavailabletofarmers,whenandwhereneeded.Affordability:Upfrontcostsforfarmersmustbereasonable,withaffordablefinancingavailabletosupportinitialinvestments.Collaborationbetweenplayersacrosstheecosystemisessentialtoestablishingthese4Aconditionsforfarmers,particularlyforcreatingtheeconomiccaseforchangetogrowers(AdvantageandAffordability),whichouranalysisshowsisthebiggestbarriertochange.Thisrequiresinvolvementofplayersinsidethevaluechainaswellasthoseoutsideit,suchasfinancialservicesproviders.TheSoilandWaterOutcomesFundisonesuchinnovative,precompetitivepartnershipmodel,whichbringstogetheractorsacrossthevaluechain(includingNutrien,Cargill,PepsiCo,Target,andReHarvestPartners,afinancialservicesprovider)andtheIowaSoybeanAssociation.SWOFaidsfarmers’transitiontoregenerativeagriculturethroughpaymentsforcarbonandwateroutcomes.WhilepartnershipmodelslikeSWOFareencouraging,stillmoreinvestmentisneeded.Mostregenerativepracticesarenotwidelyadopted,andmanyhaveyettobeadoptedoneven10%oftheroughly230millionacresofsoy,corn,andwheatplantedannuallyintheUS.FoodsystemheroeswillneedtopartnerwithbrandsandR&Dfunctionstocollaborateonhowtoaddresssustainabilitychallengesinwaysthatdeliverdeliciousandaffordableproductsforconsumers.ChangingtheorganizationJustasimportantaswhatneedstobedoneishowcompaniesmobilizetheirenterprisestoprogressonthesepriorities.Forexample,itrequirescross-functionalcollaborationinnewlyestablishedforumstofactortheimpactonsustainabilityorhealthinfundingdecisions.Thefoodsystemsimperativewillgiverisetoanewsetofheroes.Infoodretailers,itwillbethemerchandisers.Inconsumergoodscompanies,itwillbesupplychainandprocurementteams.TheywillbetheonesdrivingScope3decarbonization.Buttheywon’tbeabletodoitalone.TheywillneedtopartnerwithbrandsandR&Dfunctionstocollaborateonhowtoaddresssustainabilitychallengesinwaysthatdeliverdeliciousandaffordableproductsforconsumers.58TheVisionaryCEO’sGuidetoSustainabilityAswithanysuccessfulchangetowaysofworking,thisonestartswithmanagementalignmentandcommitment.Asanexample,GeneralMills’GlobalImpactGovernanceCommittee,whichincludesthecompany’sCEO,CFO,andgrouppresident,NorthAmericaRetail,amongothers,hasadoptedandsignedaformalcharterthatarticulatesitsownershipoverthisenterprisemission.Itisnotasteeringcommitteesittinginjudgmentofothers’efforts.Instead,ithastakenontheresponsibilityofseeingGeneralMills’missionthrough.Inaglobalfoodsystemfacinghugechanges,winningcompanieswillbethosewithunwaveringsupportfromthetop—andwithleaderswillingtomakethetoughtrade-offdecisionsthatinevitablywillberequired.GettingstartedCompaniescanbeginthisjourneyintothefuturebyaskingandansweringaseriesoffundamentalquestions.•Howarewecontributing—bothpositivelyandnegatively—tothehealthandenvironmentalfootprintofthefoodsystem?•Howmightenvironmental,health,consumer,technology,andregulatorydynamics/developmentsaffectthefoodindustryoverthenext10years?•Whatwilltheagri-foodcompanyofthefuture—andourcompany—needtolooklikein10years?•Howdowescaleourregenerativeagricultureandportfolioreinventionpriorities?•Howcanwebettermobilizeourentireorganization?1.DataisbasedontheNOVAclassificationoffoods,whichdefinesultraprocessedfoodsasready-to-eat,industriallyformulatedproductsthataremademostlyorentirelyfromsubstancesderivedfromfoodsandadditives,withfew,ifany,ediblepartsofplantsoranimalsthathavebeentakenstraightfromnatureorthathavebeenminimallymodified/preserved.59SectorPerspectivesFires,Floods,andLoans:HowBanksCanDealwithIncreasingClimateRisksClimate-relatedperilsareontherise—boththreateningbanks’loanportfoliosandofferingnewbusinessopportunities.ByCamilleGoossens,RoccoD’Acunto,GhizleneAzira,andAudeSchonbachlerAtaGlanceWildfires,droughts,andotherclimate-relatedperilsthreatenbanks’loanportfolios,yetmanyhaveonlyageneralsenseoftheirvulnerabilities.Weexpectrealestateassets’exposuretophysicalrisktoriseoverthenextcoupleofdecades,likelyreducingthevalueofcollateralanddamagingbanks’mortgagebusinessprofitability.Banksthattaketherightstepssooncouldimprovetheirfinancialstability,customerretention,andcompliancewithemergingregulatorystandards.Measuringphysicalriskrequiresnewtools,capabilities,forecastinghorizons,anddata—allofwhichhavebeenchallengingtosourceandembed.Asifbanksdon’thaveenoughtoworryaboutwithhighinflationandtherecentturmoilaroundliquidityandlong-termassets,now,anotherriskloomsincreasinglylarge—namely,thedestructivepowerofthenaturalworld.Highwinds,floods,andotherhazardsposesignificantthreatstorealestateassetsandmorebroadlytotheproductivityofbusinesseswithinbanks’portfolios.Tobetterunderstandtherisksandtrendsaccompanyingtheseperils,Bain&CompanyanalyzeddataprovidedthroughauniquestrategicpartnershipwithclimateriskanalyticsfirmJupiterIntelligence.60TheVisionaryCEO’sGuidetoSustainabilityBankshavebeguntounderstandtheirclimaterisks,inpartbecauseregulatorsarestartingtoprobethevulnerabilitiesofportfolios’riskthroughclimatestress-testing.Butfewbankshaveholisticallyquantifiedtheirphysicalrisksbybusinessorindustryusingforward-lookingdataandscenario-basedmodeling,asopposedtohistoricaldata.Evenfewerhavetakenstepstomitigatetherisks.Giventhecontinuedhousingandcommercialdevelopmentinharm’sway,banksneedtogetmorerigorousaboutaddressingclimate-relatedphysicalrisks.PerfectstormsSincethemiddleofthelastcentury,climate-relatedperilshavebeengrowingworldwideinnumberandintensity,theWorldMeteorologicalOrganizationreports,apatternconsistentwithrisingcarbondioxideemissionsandtemperatures.Humansettlementandeconomicactivity,meanwhile,continuetoexpandalongseacoastsandothervulnerableareas.Financialregulatorsgloballyhavetakennoticeandincreasinglyaskformoreaccountabilityonphysicalriskmeasurement.TheEuropeanBankingAuthority,forinstance,nowrequiresbankstocarryoutscenarioanalysesonhowsuchriskscouldaffecttheloanportfolio.Yetbanksareonlynowstartingtoincorporatephysicalriskintotheirbusinessmodels.Bainanalyzedthetop50banksglobally(bytotalassets)thatcurrentlyadheretotheFinancialStabilityBoard’sTaskForceonClimate-RelatedFinancialDisclosure.BainfoundthatinEurope,only18%ofthosebankshavebeguntointegratephysicalrisksintotheirbusinessstrategy.SizingtheexposureThedataandtoolsavailabletohelpmeasureandunderstandtheextentofvariousphysicalperilsandtheireconomiccostshavebecomemorereliable.Financiallossesrangefromcropfailuretodamagedinfrastructuretobusinessandemploymentinterruption.BainusedJupiterIntelligence’sdatatoassesstheextentofphysicalriskexposureovera30-yearhorizoninanycountry,downtoindividualpropertiesinaneighborhood.Jupitermeasuresphysicalriskacrosseightperils:flood,precipitation,wind,heat,wildfire,hail,drought,andcold.Basedonascorethatsynthesizesthoseperils,Jupiterassignsariskintensitytotheregion.Considerhowmuchterritoryfallsinthehigh-riskcategory—namely,aterritorywhereanextremeeventsuchasahurricaneorfloodhasahighprobabilityofoccurrence.Asanexample,Jupitercategorized43%oftheUS,63%ofAustralia,and31%ofIndonesiaashighrisk.Forallcountriesassessed,physicalriskincreasesovertime(seeFigure1).InGermany,33%oftheterritoryisexposedtohighphysicalrisktoday,alevelexpectedtodoubleby2050.InBrazil,theextentofhigh-riskterritorywilllikelytripleby2050,to74%.Insum,physicalrisksarealreadywidespreadandwillgrowworse.Physicalriskaffectsbanksmainlyintwoways.First,itdamagescollateral,suchasahouseorfactory,andreducesitsvalue.Second,itimpairsandmayleadtotheinsolvencyofcounterpartiesbecause61TheVisionaryCEO’sGuidetoSustainabilityFigure1:PhysicalrisksareexpectedtoincreaseineverycountryPercentageoflandsubjecttoriskofphysicalperilsUS43%Germany33%Italy40%Today45%38%Australia50%Today68%62%20302030205031%63%38%65%Indonesia97%73%205065%Brazil25%37%74%LowMediumHighNote:Perilsincludedareflood,precipitation,wind,heat,andwildfireSource:JupiterIntelligenceofalossofproductionandcreditworthiness.Forexample,cropfailurescausedbydroughtorfloodingcouldexposeanagribusinesstolossesthatmakeitdifficulttorepayaloan.Ofcourse,anysinglenaturalhazardwillhaveadifferentdegreeofimpactoneachcountryorindustryinabank’sportfolio.Bankswillalsowanttoassessdifferentoutcomesofanevent,whetherthosearephysicaldamages,risingenergycosts,orbusinessinterruptions.ExposureofamortgageportfolioToillustratethepotentialeffectsofclimateeventsonthebankingsector,Bainanalyzedasamplemortgageportfolioof10,000assetsinItaly,usingJupiterdata.WeassessedthecurrentandexpectedfuturephysicalriskexposuresforalleightperilsacrossUNclimatepanelscenariosthatrangefromcarbondioxideemissionscutseverelytoreachnetzeroafter2050(SharedSocioeconomicPathway1-2.6,SSP1-2.6)toemissionsthathoveraroundcurrentlevelsbeforestartingtofallmidcentury(SSP2-4.5)toemissionsthatroughlydoubleby2050(SSP5-8.5).AcrossItalyasawhole,40%ofthesesamplelocationsarealreadyhighlyexposedtoatleastonenaturalhazardtoday,alevelexpectedtoriseto62%by2050,whichhighlightstheneedforacomprehensivephysicalriskdataset.Theassessmentrevealshowquicklyamortgageportfoliocanbecomeexposedtohighlevelsofriskrelatedtoonehazard—inthiscase,fire,takingintoaccountfactorssuchasfuelavailabilityandlocal62TheVisionaryCEO’sGuidetoSustainabilityfiresuppression(seeFigure2).Whentheeffectsarecombinedwiththoseoffloodanddroughtrisksonoursampleportfolio,ouranalysisshowsthatdamagescouldbeashighas10to15percentagepointsofthevalueofcollateral,andpotentiallymuchhigherforassetsinveryhigh-riskareas.Thedamagecouldthenworsenalreadyerodedmarginsviaa7-to10-percentage-pointreductionintheprofitabilityofnewlyoriginatedmortgagesovera10-yearperiod.Themagnitudeofthishittoprofitsraisesthestakesforbankstoclearlyunderstandhowphysicalriskscanaffecttheirportfolios.DevelopingasoundstrategyThistypeofanalysisisessentialfordevelopingasoundstrategythatcombinesmitigationmeasureswithopportunitiesfornewbusiness.Defensivetactics.Theanalysisfirstinformsdecisionsonhowtomitigaterisksthroughdefensivetacticssuchas:•imposingloan-to-valuecaps;•shiftingthemixofcustomersegments;Figure2:InItaly,twicethenumberofassetswillbeexposedtohighriskandthreetimesmoreassetsexposedtoveryhighriskoffireby2050Percentageoftotalportfolioof10,000assetsexposedtofireriskToday20502.2%7.0%18.5%34.7%Source:BainanalysisofJupiterIntelligencedataHighriskVeryhighrisk63TheVisionaryCEO’sGuidetoSustainability•reducingthecostofriskthroughcreditprotectioninsurance;and•adjustingpricesonhighlyexposedareas.Defensivetacticscouldbeworth5.5percentagepointsinnetoperatingincometothemortgageportfolioofabank.Offensivetactics.Beyondthedefensivestanceofmitigatingrisks,bankscantakeamoreoffensivepostureby,forinstance:•raisingdiscountlevelsonlow-riskassets;•pushingforcreditprotectioninsurance;and•standaloneclimateriskprotectioninsurance.Offensivemovescouldaddanadditional5.3percentagepointsinnetoperatingincome.Newofferings.Bankscanalsocreateacompetitiveadvantagebydevelopingnewfinancingproductsandadvisingclientstohelpthemmakethetransition.Newrisk-relatedbusinessopportunitiescouldincludethefollowing:•fosteringandfinancingadoptionofclimateadaptationsolutions;•promotingpublic-privatepartnershipfinancingincitiesandtowns;and•offeringassessmentofthephysicalriskresiliencyofcorporateassetsandfacilities.Thissetofnewbusinessmovescouldfurtheradd10percentagepointstonetoperatingincome.Insum,combiningmitigationmeasureswithvaluecreationmovescouldyielda15-to20-percentage-point(ormore)increaseinnetoperatingincomein2030.Moreover,takinglimitedornoactionwillhavemoresevereconsequencesovertime(seeFigure3).BecomingafirstmoverorfastfollowerIt’shightimeforbankstointegratephysicalriskintorisk,credit,andstrategicplanningprocesses.Thisentailsupdatingcreditratingassessmentandpoliciesaswellascollateralanalysistoreflectphysicalrisk,adaptingclientonboardingtocapturekeyrisk-relatedinformation,andincorporatingtherisksintocustomersegmentationtoensureaconsistenttreatmentofphysicalriskacrossthebank.Ashiftinstrategytoincorporatetherealitiesofphysicalriskwillrequirebankstocontinuouslyexperimentandanticipatemarketresponses,adaptingtheirbusinessmodelasnecessary.Butanytacticwillhavereputationalandregulatoryimplicationsthatneedtobeconsideredalongwiththeeconomiceffects.64TheVisionaryCEO’sGuidetoSustainabilityFigure3:Asphysicalrisksincrease,banksshouldadoptamixofdefensiveandoffensivetacticswhilealsopursuingnewbusinessopportunitiesPercentagepointchangeinnetoperatingincomeofasamplemortgageportfolioovera10-yearperiod10.1112.4100%91.55.597.05.3102.2─8.5NetNoactionNetPlayNetPlayNetPlayNetoperatingoperatingdefenseoperatingoffenseoperatingtowinoperatingincomeincomeincomeincomeincome(afternoUnderwriting,(afterplayPricingand(afterplay(afterplaypricing,anddefense)standaloneoffense)action)Consumerinsurancetowin)PriceIndexAdaptationfinanceandadvisoryservicesacrossthebankNote:BartotalsareroundedSource:BainanalysisofJupiterIntelligencedataAbankcanstartbyassessingitsportfoliotomeasureperil-specificexposureandidentifythehotspotsmostrelevanttothespecificassetclassandindustryassessed.Basedonthemixofperilsinaportfolio,thebankcanidentifyaninitialsetofmitigationtacticsinlinewithmarketconditions,regulatoryconstraints,andthebank’soverallstrategy.Dependingonitsambitions,itcouldthenalsoidentifyopeningsfornewperil-relatedproductsandservicesthatcreatevaluewhilestrengtheningclientsandcommunitiesagainstclimate-changeeffects.Physicalriskrepresentsamajorthreat,tobesure,butalsoauniqueopportunityforinnovationinthebankingsector.Ambitiousbanksthatmovesoontotaketherightstepscouldimprovetheirfinancialstabilityandperceptionamongcustomersandregulators.Evenifabankdoesnothavetheappetiteorcapabilitiestobeafirstmoverinthisregard,itpaystostartplanningnow,asit’simpossibletobecomeafastfollowerwithoutearlypreparation.65MakingItHappenBuildingaData-BasedStakeholderStrategy................................68OperationsandSupplyChainDecarbonization:LowerEmissions,HigherPerformance.....................................71MakingBusinessDoBetterforEveryone...................................78OrganizingforSustainability.............................................86ATalentStrategyforSustainability:SkillsMatter,butMindsetIsEverything......91MakingItHappenBuildingaData-BasedStakeholderStrategyHowtodesign,measure,andimplementastrategythatcreatesvalueforyourcompany’sdiversestakeholders.ByDarrellRigby,ZachFirst,andFrançoisFaelliAtaGlanceCompaniesareusingincreasinglyaccessibleandrigorousdatatogeneratevalueforkeystakeholders.Thosethatcreatethemostvaluestudyandutilizeoutsideperspectives,addproprietaryinternaldata,understandstakeholderinterdependencies,andthenbuildastrongsystemtosustaintheirstakeholderstrategy.Mostpeoplewillreadilyagreethatthefirstresponsibilityofbusinessleadersistogrowthelong-termvalueoftheircompanies.Thendebatebegins:Whatisvalue,andhowshoulditbemeasuredandmanaged?Isacompany’svaluemaximizedbybeingshareholder-centric,customer-centric,employee-centric,orsome-other-stakeholder-centric?Inacomplexsystemwhereeverystakeholderinfluencesotherstakeholders’outcomes—highlyengagedemployeesimprovecustomersatisfactionandgrowth,andsoon—isitsafetoneglectanystakeholder?Adecade’sworthofdatashowsusthatthecompaniesthatcreatethegreatesttotalvalueacrossalldimensionsofperformancedon’tsacrificeshareholdervalue.Forexample,overthepastdecadethe100companiesincludedintheS&P/DruckerInstituteCorporateEffectivenessIndex,thosethatare68TheVisionaryCEO’sGuidetoSustainabilitybestatcreatingvaluethrough“excellenceinemployeeengagementanddevelopment,customersatisfaction,socialresponsibility,innovation,andhigh-qualityearnings,”deliveredtotalshareholderreturnsmorethan200basispointshigherperyear,onaverage,thanthoseofthebroaderS&P500.Increasinglyaccessibleandrigorous,datanowgroundsoncetheoreticaldiscussionsofstakeholdervalue,helpingcompaniescraftandimplementeffectivegrowthstrategiesbyilluminatingthecomplexinterdependenciesamongstakeholders,helpingcreatemutualbenefits,and,inturn,increasingthenetvaluegeneratedcollectivelyfortheirconstituents.Athree-stepprocessforbuildingasuccessfulstakeholderstrategyCompaniescanmosteffectivelyharnessthisdatatobuildstrongstakeholderstrategiesbytakingthreesteps:1.ExploreoutsideperspectivesThereisnowaplethoraoforganizationsthattrackthetotalstakeholdervaluethatcompaniesproduceandthevaluethattheygenerateforindividualstakeholdergroups.IndependentratingagenciessuchastheDruckerInstitute,JustCapital,andtheEmbankmentProjectforInclusiveCapitalismoffersophisticatedanalysesofthecomplexrelationshipsamongstakeholderinterests.2.Movebeyondthird-partyrankingsTheseoutsideorganizationsassignthesameweighttoallstakeholdersofallcompaniesandrelyonlyonpubliclyavailabledata.Sinceonesizedoesnotfitall,youneedtobolstersuchexternaldatawithinsiderinsightsandgainanunderstandingoftheinterdependenciesamongyourcompany’sparticularmixofstakeholders.Armedwiththatinformation,developaclearstakeholderstrategy.Clarifythepurposeofyourcompany,establishcriteriaforevaluatingprogresstowardachievingit,setprioritiesamongstakeholders,anddevelopactionplansthatrecognizethecomplexinterdependenciesamongthem.Thestrategyshouldaimtocreatemutualbenefitsforallstakeholdersandincreasethenetvalueofthecollectivesystem.Yourstakeholderprioritiesshouldreinforceyourstrategicstrengths.ConsiderCostco,forexample,whosecofounderandformerCEO,JimSinegal,facedconstantpressuretoreducevalueforhiscustomersandemployeesandtransfermoretoshareholders.Herefused,famouslyexplainingthecompany’sstrategytoTheMotleyFoolthisway:“We’vegotessentiallyfourthingstodoinourbusiness:Wehavetoobeythelaw,we’vegottotakecareofourcustomers,takecareofourpeople,andrespectoursuppliers.Wethinkifwedothosefourthings,prettymuchinthatorder,thatwe’regoingtodowhatwehavetodointhelongterm,whichistorewardourshareholders.Wethinkit’spossibletorewardthemwithoutpayingattentiontothosefourthingsintheshortterm,butifyoudon’tpayattentiontotheminthelongterm,wethinkyoustubyourtoesomewherealongtheline.”ThatprioritizationisexplicitlyspelledoutinCostco’scodeofethicsonitswebsitetothisday.VirginGroup’s69TheVisionaryCEO’sGuidetoSustainabilityfounder,RichardBranson,sharedadifferentpointofviewwithInc.magazine:“Ifyoucanputstafffirst,yourcustomersecond,andshareholdersthird,effectively,intheendtheshareholdersdowell,thecustomersdobetter,and[you]yourselfarehappy.”ThelessonisnotthateverycompanyshouldbelikeCostcoorVirginbutratherthatthereisnosingle“right”stakeholderstrategy.3.SustainthenewstrategyNowthatyourcompanyhasdevelopedastakeholderstrategy,herearesomeactionsleaderscantaketonurtureit.BuildaculturethatembracesthestakeholderstrategyEducatetheboardandperhapschangeitsmakeupsoitbetterrepresentsdifferentstakeholdergroups.Considerchangingmetricsandrewardsformanagers.DesignneworganizationalstructuresandprocessesEstablishasmallcenterofexcellencetohelpguidethestakeholderstrategyandtrackresults.Launchcross-functionalagileteamstopursuewaystogeneratemutualbenefitsfordifferentstakeholdergroups.Forexample,engagetechnologyexpertstoimproveproductsforcustomerswhilealsoreducingtediousordangeroustasksforemployees.Possiblenewprocessesincluderequiringbusinessunitstobegintheirquarterlybusinessreviewswithdescriptionsoftheirvaluecreationtrendsandtargets;mandatingthatinvestmentproposalsincludeprojectionsoftheimpactondifferentstakeholdergroups;developingbetterwaystocollectfeedbackaboutstakeholders’needs,satisfaction,andfrustrations;andchangingthecommunicationstrategytoattracttherightstakeholdersegments.Executivesarefindingthatstakeholderstrategiesareneitheraltruisticnorunrealisticallycomplex.Theycanbedesignedandimplementedinwaysthatincreasevalueforallstakeholders,includingshareholders.Evenhardcoreprofitmaximizersaremigratingtowardstakeholderstrategies.BritishretailerNext,forexample,ispursuingajointgoal:maximizingshareholdervaluewhilealsoincreasingvalueforitsnon-financialstakeholders.Somecallthisanenlightenedshareholderstrategy,butastakeholderstrategybyanyothernameisstillapurposefulstepintherightdirection.Andeachstepbuildsgreaterevidenceandconfidencethatstakeholderstrategiesaren’tsimplyworthyaspirations;theymakesolidbusinesssense.70MakingItHappenOperationsandSupplyChainDecarbonization:LowerEmissions,HigherPerformanceByintegratingsustainabilityintooperations,companiescanmeettheirincreasinglyambitiousemissionstargetswhilemitigatingcostsandboostingresilience.ByTorstenLichtenau,AbhijitPrabhu,AnnaFritzMånsson,MattiaBernardi,andGerryMattiosAtaGlanceToachieveambitiousdecarbonizationtargets,companiesmusttreatemissionswiththesameoperationalimportanceasimprovingefficiencyandreducingcosts.OfcompaniesthathavesetatargettoreduceupstreamScope3emissions,60%donothaveadedicatedstrategytodeliver,ourresearchshows,butthosethatdocanbuildthisintoacompetitiveadvantage.Wehaveidentifiedfouractionsleadingcompaniestakethatcontributetodecarbonizationsuccess,practicesanycompanycanbenefitfromemulating.Decarbonizationisurgent.Countriesrepresenting90%oftheworld’sGDPhavecommittedtocuttinggreenhousegasemissionstoasclosetozeroaspossible,andinvestors,customers,regulators,andemployeesareallfocusedoncarbon.Companiesacrossindustriesaresettingambitiousgoals71TheVisionaryCEO’sGuidetoSustainabilityforreducingvarioustypesofcarbonemissions(seeFigure1).AsofOctober2023,morethan6,000companiesrepresentingcloseto50differentsectorshadsetorcommittedtosettingScienceBasedTargetsforemissionsreduction.That’supfromfewerthan500companiesin2018.Eachcompanyandindustryfacesitsownuniquedecarbonizationchallengesandopportunities,butit’sfairtosaythatorganizationsacrosstheboardarestrugglingtomeettheirincreasinglyambitioustargets.ABain&CompanyanalysisofCDPdatafindsthatmorethan20%ofcompaniesarenotontracktoreachtheirreductiontargetsfortheScope1emissionsgeneratedbyassetstheyownandoperateortheScope2emissionsgeneratedbypurchasedelectricityandfuel.MorethanathirdmaynotmeettheirplannedreductionofupstreamScope3supplieremissions(seeFigure2).DecarbonizationiscriticaltooperationalexcellenceToimprovethosenumbers,companiesmustembedreductionoftheircarbonfootprintintotheiroperatingmodelandtreatitwiththesameimportanceasimprovingefficiencyandreducingcosts.Productionefficiency,cost,andcarbonemissionscanbeseenasthreecornersofa“triangleofoptimization,”eachrequiringequalandparallelattention.Whenwellharmonized,theycanbenefitoneanother.ThisapproachisparticularlytrueforScope1and2emissions,whichoftencanbereducedwhilealsoloweringcosts.Figure1:AguidetoemissiontypesScope1DefinitionLevelofcompanycontrolDirectemissionsgeneratedbyassetsownedHigh,thoughcostcanbeprohibitiveinindustriesoroperatedbythecompanythatareassetandenergyintensiveScope2IndirectemissionsgeneratedbyenergypurchasedHigh/medium;companycanchooselower-carbonforcompanyoperationsenergysupply,butonlywhenavailableUpstreamIndirectemissionsgeneratedinthemakingLow/medium;requirespartneringwithsupplierstoScope3ofinputsforacompany’sproductorservicechangeothers’operationsDownstreamIndirectemissionsgeneratedinthedistribution,Low;requiresinfluencingcustomerstoScope3use,anddisposalofacompany’sproductorservicechangebehaviorAddressedinthisarticleNotaddressedinthisarticleSource:Bain&Company72TheVisionaryCEO’sGuidetoSustainabilityFigure2:MorethanoneinfivecompaniesarenotontracktomeettheirScope1and2decarbonizationtargets,andmorethanone-thirdarelaggingtheirupstreamScope3goalsShareofcompaniesontracktoachievenear-termtargetsScope1+2UpstreamScope31,907639WellbehindWellbehind34%65%(<80%ofgoal)Ontrackorahead22%Ontrackorahead2%(100%+ofgoal)Slightlybehind76%(80%+ofgoal)1%SlightlybehindNotes:Percentageofachievedreductionfrombaseyeartoreportingyearcomparedtotarget;analysiscoversnear-termtargets(2030orsooner)Sources:CDP,2022;BainanalysisApapermanufacturerwasabletodojustthat:Bydefiningandprioritizing70-odddecarbonizationinitiativesacross10differentsites,itiscurrentlyontracktoreduceemissionsbymorethan20%by2025whileachieving€10millionto€15millioninenergysavings.Inmanyindustries,executiveslinkdecarbonizationeffortswithenergytransitionandenergyefficiencyasawaytoreducetheirexposuretovolatileenergycosts.MostcompaniesstarttheirdecarbonizationeffortswithScope1and2emissionsbecausetheyareclosertotheirowncontrol.Thatdoesn’tmeantheyareeasytoaddress,however.Theseeffortsrequirenewthinkingaboutenergyconsumption,sourcing,andproduction,alongwiththeabilitytoorchestrateextraordinarilycomplexchange.WhenaglobalsemiconductormanufacturerlaunchedacomprehensiveplantoreducegreenhousegasemissionsandshiftitsenergysourcestoaddressScope1and2emissions,managementquicklyidentifiedmorethan600initiatives.Managingsuchanexpansivepipelineisacomplexchallenge.Toprioritize,managementpinpointedthosewiththehighestCO2eimpactthatwereeasiesttoimplementandfocusedonunderstandingtheircost—amodeltheyhavenowstandardizedacrossthecompany.Lotsofworkwasdoneonthegroundtodeterminetherightenergysourcesforeachplantandtoensuregoalswereachievableandoptimizedforbothenergyefficiencyandthesourcingofrenewableenergy.Earlyresultshavebeenstrong:areductionofScope1and2emissionsthat’sroughly10%higherthanplanandanotablyhigher-than-expecteduseofrenewableenergy.73TheVisionaryCEO’sGuidetoSustainabilityLikethissemiconductormaker,manycompaniesareabletoachievetheirScope1and2ambitionsinthefirstfewyearsbymakingtheiroperationsmoreefficientandreducingtheirenergyuse.It’swhentheygetbeyondthosefirstsuccessesandfaceexternalexpectationsofasteadyannualrateofemissionsreductionthattheystarttoreallystruggle.DecarbonizationrequiresmorethanmasteringthehandfuloftechnicaloperationalleversthatwillmakeanimmediatedentinScope1and2emissions.UpstreamScope3emissions:formany,thebiggestopportunityandthebiggestchallengeUpstreamScope3accountsforthelargestshareofemissionsinmanysectors,responsibleformorethan50%ofallemissionsinapparel,foodandbeverage,chemicals,andretail,forexample,accordingtoCDPdata.Thismaybewhy,whilethenumberofcompaniessettingtargetsacrossallscopesstronglyincreasedinrecentyears,themostsignificantgrowthhascomeinScope3emissions.Morethan4in10companiesnowtargetScope3improvement.Meetingthosetargetsoftenrequiresnewskillsandbehaviors,someofwhichmaybeunfamiliartoengineersfocusedonoptimizingperformanceandprocurementexpertschargedwithnegotiatingthebestterms,sometimesadversarially.Theseincludepartneringwithsuppliersandotherparticipantsinthevaluechain,identifyingandselectinggreenersuppliers,replacingvirginmaterials,anddesigningproductswithalowercarbonfootprint.Addingtothechallengeisthefactthat,inmanycategories,sustainablesupplyislimited,leavingcompaniestwooptions:investtosecureaccesstothatsupplyandpossiblybuyafewyears’headstartoncompetitors,oracceptthatachievingtheiremissionsreductiongoalsmaytakelongerthanhoped.60%ofcompaniesthatsetanupstreamScope3targetdonothaveastrategytodeliveronthatgoal74TheVisionaryCEO’sGuidetoSustainabilityAswithScope1and2,awell-developedupstreamScope3plancanhelpmitigatecostwhenintegratedintoacompany’sbroadersupplychainstrategy,includingacombinationofproductdevelopmentoptimizedforcostandproductdevelopmentoptimizedforsustainability.AccordingtoBainresearch,approximately60%ofcompaniesthatsetanupstreamScope3targetdonothaveadedicatedstrategyorplantodeliveronthatgoal.Thosethatdocanbuildthisintoacom-petitiveadvantage.FourlessonsfromsuccessfulsupplychaindecarbonizationeffortsAstheyplantheirstrategytogettonetzero,executivesshouldconsiderthesefourlessonsfromleadingcompanies.Whencalculatingbaselineemissions,bepragmatic;don’twaitforperfection.Establishingabaselineforyouroperationalemissionscanbechallenging,especiallyfortheupstreamScope3emissionsthatcompaniesdonotdirectlycontrol.Whileanaccuratebaselineenablesmoreprecisegoalsetting,don’tprioritizeperfectionoveraction.It’smostimportantthatanalyticaleffortstounderstandexistingcarbonemissionsservethecompany’sactionplanbyhighlightinginterventionswiththehighestpotentialtohelpmeetgoals.Bysystemizingcarbonbaseliningandaccounting—withsoftwaretools,forexample—andhowdataisexchangedwithsuppliers,companiescanbuildalevelofinsightintotheiremissionsthatwillonlygetmorepreciseovertime.Collaborateinternallyandexternally.Achievingdecarbonizationgoalscan’tbetheresponsibilityofoneinternalfunction.Procurementshouldn’tbetheonlydepartmentthinkingaboutsuppliers’upstreamScope3emissions,norshouldaplantmanagerbeexpectedtomanageScope1and2emissionsreductionallalone.Companieswillonlyhittheirdecarbonizationgoalswhentheentireorganization,fromtheC-suitetothefrontline,ineverybusinessunit,iscommittedtoandeducatedonthemission.Buildingthatcommitmentoftenrequiresaligningincentivesacrossfunctionsandrolesaroundcommondecarbonizationgoals.Aspartners,companiesandtheirsupplierscanworktogethertounderstandwheretheyeachwishtobepositionedonthevaluechain.Gettingtheremayrequirenewapproaches.Thinkbeyondtheboundariesofyourorganizationtotheecosystemofpartnersyou’llneedtorealizeyourdecarbonizationambitions.Aspartners,companiesandtheirsupplierscanworktogethertounderstandwheretheyeachwishtobepositionedonthevaluechain.Gettingtheremayrequirenew75TheVisionaryCEO’sGuidetoSustainabilityapproaches,likeinvestingtohelpsupplierslowertheiremissionsorbuildingaconsortiumofpeerstostandardizenew,lower-carbonrequirements.That’stheapproachtakenbythe100-plusconsumerproductscompaniesthatmakeupTheSustainabilityConsortium,whichisworkingonwaystomakesupplychainsmoretransparent,identifyingareasofenvironmentalimpact,mappingsupplychainsandtheirrisks,andfacilitatingcollectivesustainabilityinnovation.Useallleversatyourdisposalandputinplacethetoolsnecessaryforthemtowork.Oncetargetsareset,identifyallleversthatcouldhelpyoumeetthem.Forexample,youmayneedtoswitchsuppliersorredesignaproduct.Manyfirmsfocusonthelow-hangingfruitthatwillquicklyreducecarbonemissions,butcompaniesshouldthinkabouttheiroveralldecarbonizationjourney,includinginitiativesthatwilltakemoretime,innovation,ordevelopment.Enablersarealsoimportant.Thesearethetools—likeinternalcarbonpricing;newwaysofinteractingwith,evaluating,andrewardingsuppliers;andcapabilitybuilding—thatwillmakeitpossibletopulltheleversthatloweremissions.Thoughitmaysoundobvious,it’simportanttoprioritizeinitiativesbasedontheirpotentialtoreducecarbon,reducecosts,andincreaseresilience.Manycompaniesmissthisstep.Andsincemanydecarbonizationinitiativescannotbeimplementedautonomously,suppliersandcustomersshouldbeengagedinevaluatingtheirfeasibility,priority,andpotentialtoeitherlowercostsorincreaserevenue(seeFigure3).Figure3:ReducingupstreamScope3emissionsrequiresactiononmultiplefrontsHelpsuppliersreduce•Setcarbonemissionsrequirementsforyoursupplierstheircarbonfootprint•Designincentivestoencouragesupplierdecarbonization•Sharebestpracticesonpowersources,rawmaterials,by-products,waste,etc.Selectandsteerorders•Collaboratethroughpartnershipsandinvestmentinjointreductiontogreenersuppliers•AllocatevolumetothemostCO2-efficientexistingandnewsuppliersDesignproductswith•Optimizethebalancebetweenin-andoutsourcingreducedcarbonfootprint•OptimizelogisticssuchasorderfrequencyandmodeoftransportEngagethevaluechain•Shifttogreeneralternativerawmaterialssuchasrecycledplasticandgreensteelthroughpartnershipsand•Shifttoalternativerawmaterials(e.g.,fromsteeltocarbonfiber)otherstructuralmoves•Designwithcarboninmind(e.g.,reducerawmaterialperunitbydecreasingweightordesignforimprovedrecyclability)•Partneracrossthevaluechain(e.g.,oncircularmodelssuchasrecyclinginitiatives)•Broadenindustrypartnerships(e.g.,bringingallsupplierstogethertosetjointstandards)•Configureyourvaluechain(e.g.,integratevertically)Source:Bain&Company76TheVisionaryCEO’sGuidetoSustainabilityNear-termstepssuchasmanagingsupplierscanoffervaluablecarbonreductions,butit’softenlonger-termeffortsthatpresentthegreatestopportunities.Intheautomotiveindustry,forexample,designinglow-carbonalternativesformetals,alternativerawmaterials,andlow-carbonproductscanreduceupstreamScope3carbonemissionsbyapproximately40%to60%ormore,butsucheffortsmaytakeyears.Tospeedthatup,manufacturersarecollaboratingwith,investingalongside,andguaranteeingtobuysupplyfromsteelmakersproducingCO2-reducedgreensteel.Activelylooktocreatevalueforyourcompanyandcustomersthroughdecarbonization.Whiletheremaybealegacyperceptionthatreducingcarbonemissionswillincreasecostsanddecreaseeconomiccompetitiveness,manyinitiativescanlowercostsandhelpincreaserevenue.Forexample,reducingScope2emissionsbyoptimizingbuildingoperationslikeHVACandlightingsavesmoney,savingsthatcanbepassedontocustomersorusedtofundotherdecarbonizationinitiatives.Similarly,companiesmaybeabletoboostrevenuebychargingagreenpremiumorbuildnewbusinesseswithdifferentmodelsthatcreatevalueforthefirm.Thinkingaboutyourcustomers’prioritiescanhelpguidedecarbonizationeffortsandincreasethelikelihoodofachievingcarbonreductiongoalsandreapingrewardsfromalow-carbonsupplychain.FivequestionsforexecutivestoasktodayTounderstandhowcloseyourcompanyistomakingdecarbonizationacoreoperationalcapabilityandasourceofcompetitiveadvantage,it’svaluabletoaskfivequestions:1.Whatismycompany’semissionstrajectory,andhowdoesthatcomparetothetargetswe’veset?2.Hasmyteamspenttimeontheshopfloor(oritsequivalent)tounderstandwhererenewableenergyandenergyefficiencycouldbeused?3.Doourprocurementandengineeringteamsconsidercarbonequallyimportanttocostandefficiencyintheirtalkswithsuppliersandwhendesigningproducts?4.Haveweaddeddecarbonizationtoourmanagementdashboard,soweseeitalongsideourfinancialperformanceandoperationalefforts?5.Haveweinvestedinbuildingthecapabilitiesweneedinourteam,anddowehavetraininginplaceforourpeopletodeveloptheskillsthatwillhelpusreachourdecarbonizationgoals?77MakingItHappenMakingBusinessDoBetterforEveryoneCompaniescanrespondtosocialissuesinwaysthataregoodforbothbusinessandsociety.ByKarthikVenkataraman,CassyReichert,AndreaArroyo,andJennyDavis-PeccoudAtaGlanceBusinessesarefacingmanynewsocietalexpectationsandstakeholderdemands,andbusinessleadersincreasinglyrecognizetheurgencyofsocialissues.Thesenewexpectationsanddemandscreaterealrisksforcompaniesbutalsopresentopportunitiesfornewavenuesofvaluecreationthatdelivereconomicallysustainablebusinessresultswhilealsoaddressingimportantsocialconcerns.Leadingcompaniesareapplyingasociallenstouncoverwaysofstrengtheningtheirbusinesseswhilecreatingvalueforemployees,customers,suppliers,localcommunities,andsocietyatlarge.Learningtoseethebusinessthroughasociallensmeansevaluatingcompanyperformanceacrossstakeholderstodiscovernewopportunitiesforvaluecreation.Attitudesandexpectationsabouttheroleofbusinessinsocietyarechangingdramatically.Theimpactofbusinessontheenvironment(andtheconsequencesofthatimpactforhumanity)areissuesofvitalimportancetomanycorporateconstituencies.Today,however,manymorepurelysocialconcernsarecomingstronglytothefore.78TheVisionaryCEO’sGuidetoSustainabilityAmongemployees,newpatternsofworkingandthegrowingpresenceofautomationandAIarecreatinginsecurityandanxiety,evenaslabormarketsaresometimesempoweringworkerstomakenewdemands.Moreandmorecustomers(particularlymillennialsandmembersofGenZ)nowmakedecisionsaboutwhatproductstobuyornottobuybasedoncompanies’performancenotonlyonenvironmentalissuesbutalsoonsocialones—suchaslaborstandards;humanrights;diversity,equity,andinclusion(DEI);health;andproductsafety.Andthepublicatlargeincreasinglybelievesthatbusinessesneedtodomoretoaddresssocialissues.Businessleadershaveclearlygottenthemessagefromthesecorporatestakeholders.InaBainsurveyaskingglobalCEOswhattheyseeastheprimaryroleoftheirbusinesses,60%saideither“balancingtheneedsofallstakeholders”orcreating“positiveoutcomesforsociety.”Andmorethan85%ofthesebusinessleaderscalledsocialissuesurgentconcernsfortheircompanies(seeFigure1).Thereasonsforthissenseofurgencyarenothardtounderstand.Companiesfaceseriousreputationalandotherrisksiftheyviolatethenewsocietalexpectationsforbusiness(nottomentionlawsandregulationsgoverningcorporatebehavior).Butfearofadverseconsequencesisfarfromtheonlyreasonforcompaniestopayincreasedattentiontothesocialcomponentofenvironmental,social,andcorporategovernanceefforts.Forasmanyleadingcompaniesarediscovering,applyingasocialFigure1:BusinessleadersincreasinglyrecognizetheurgencybehindsocialissuesWhatdoyouseeastheprimaryroleofHowurgentaresocialissuesforyouryourbusiness?businesstoday?Percentageofrespondents7%Environment-friendlybusiness8%Enrichcustomerlives9%Greatplacetowork15%Maximizeimmediateshareholdervalue21%PositiveoutcomeforsocietyMoreofexecutivesbelievethatthan85%socialissuesareurgenttoday39%BalanceneedsofallstakeholdersSource:Bain‘SinESG’Survey2022(N=300)79TheVisionaryCEO’sGuidetoSustainabilitylenstoabusinesscanopenupnewopportunitiesforvaluecreation—deliveringreal,economicallysustainablebusinessresultswhilecreatingsubstantialbenefitsforemployees,customers,suppliers,localcommunities,andsocietyatlarge.ThebusinesscaseforsocialTofocusforamomentonjustonegroupofstakeholdersandhowtheyarechangingexpectationsforcompaniesonsocialissues:Customersallovertheworldaremakingitclearthattheycareaboutthesocialramificationsoftheirbrandandproductchoices.Whilesuchconcernsarenotentirelynew,theyhavebecomequitewide-ranging(seeFigure2).Mostbusinessleadersarewellawareoftherisksofviolatingthenewsocialexpectationsforbusiness.Certainly,theydonotwanttofindtheirbrandsandcompaniesattackedonsocialmediaornamedinthepressindamagingcontexts.AndintheEU,inparticular,companiesnowfaceriskfromnewregulatorystandardsonissuessuchashumanrightsintheirextendedsupplychains.Butaswefoundinsurveyingnearly300seniorexecutives,companiesthathavetakentheleadinaddressingsocialissuesreportthatdoingsodrivesbetterbusinessoutcomesinavarietyofways(seeFigure3).Figure2:Consumersareincreasinglyinterestedinthesocialdimensionsoftheproductsandservicesthattheypurchase67%ofconsumersareatleastsomewhat50%ofconsumersgloballysaytheyaremorelikelytomakerepeatpurchasesfromlikelytobuyabrandthatcommitstoabrandtheybelieveiscommittedtocombatingracismdiversityandinclusion52%ofconsumersgloballysaytheyare82%ofconsumersinEurope,theMiddleEast,morelikelytobuyabrandthatandAfricaarelikelytorecommendacommitstohumanrightsbrandafterlearningthatitsupportsasocialcause33%ofGenZintheUSsaythey86%ofconsumersinLatinAmericasaywouldboycottabrandwithitisveryimportantthatcompaniesbadlaborpracticescontributetoimprovingsocietySources:TopDesignFirms2020;EdelmanTrustBarometerSpecialReport2021;BainUSSustainabilityConsumerFactBase;BainConsumerProductsElementsofValue®June2021(UK,France,Netherlands;N=nearly8,000);SherlockCommunications–BusinessCorporateSocialResponsibilityReportinLatinAmerica202180TheVisionaryCEO’sGuidetoSustainabilityFigure3:CompaniessaysocialperformancedrivesbetterbusinessoutcomesinseveralwaysPercentageofbusinessesthatoutperformonbusinessoutcomescomparedwiththeirindustrypeers(basedonself-assessment)Interpretation:68%ofcompaniesleadingonsocialalsooutperformedtheirpeersintermsofcustomerattraction78%74%68%64%60%47%41%38%37%49%RevenuegrowthEBITgrowthCustomerattractionAbilitytoraisecapitalTalentattractionLeadingsocialplayersLaggingsocialplayersNotes:Twooutcomesarenotshownhere(riskmitigationandabilitytobuildresilientsupplychains);leadingsocialplayersreportedthatmorethan75%oftheircorporatesocialgoalswereachieved;laggingsocialplayersreportedthatlessthan50%oftheircorporatesocialgoalswereachievedSource:Bain‘SinESG’Survey2022(N=300)Thequestion,ofcourse,ishowexactlytotransformactiononsocialissuesintoeconomicallysustainablebusinessperformance.Toputitanotherway,howcancompaniesdiscoverwheremightliethepreviouslyunrealizedopportunitiesforvaluecreationthroughanincreasedfocusonsocial?Applyingasociallenstoyourbusiness:FourareasofopportunityAsnotedabove,thecategorysocialcontainsawiderangeofissuesonwhichcompaniestodaymaybeexpectedtorespond.Theissuesforaparticularcompanythatwillhavepotentialforcreatingvalueforparticularstakeholderswillvarybyorganizationandbusinesscontext.Anycompany,however,canbeginuncoveringtheopportunitiesbyapplyingasociallenstoitsrelationshipwithfourcriticalgroupsofstakeholders—namely,localcommunities,customers,employees,andsuppliers—andidentifyingactionsthatbothaddresssocialissuesforthesestakeholdersanddeliverresultsforthebusiness.Whatfollowsareexamplesofsuchactions,andofcompaniesthathavetakenthemwithimpressiveresults.Improvingsocialandeconomicconditionsinlocalcommunities:Communitieswherecompaniesoperateareincreasinglycriticalstakeholdersforbusiness.Somecompaniesarelookingatthesestakeholdersthroughasociallensanddiscoveringhowtomateriallyimproveconditionsintheircommunitiesinwaysthatboostbusinessperformance.81TheVisionaryCEO’sGuidetoSustainability•HealthinsurerHumana’sBoldGoalinitiativeaimstobuildasustainablesystemofworkingwithpartnerstohelpaddressthesocialdeterminantsofhealthinlocalcommunities.BoldGoalcurrentlytargets20communitiesforreductioninthenumberofunhealthydaysthatresidentsexperience,addressingsocialdeterminantsofhealthsuchasfoodinsecurity.AspartofBoldGoal,HumanahaspartneredwithWalgreensHealthcareClinicsincertainareastoscreenpatientsforfoodinsecurityandofferresourcessuchashealthyfoodkitsandhelpwithfederalassistanceapplications.Onaverage,residentsofBoldGoalcommunitiesexperiencefewerunhealthydaysthanthoseinnon–BoldGoalcommunities.Fewerunhealthydaysforcommunitymembersmeanlowerhospitalizationrates(increasingcostsavingspotentialforHumanaoverthelongterm),andsolutionsfocusedonsocialdeterminantsofhealthhelpimprovecommunitiesalongother,morepurelysocialdimensions.•In2019,RogerHochschild,theCEOofDiscoverFinancialServices,whichisheadquarteredinthesuburbsofChicago,madethecontrariandecisiontolocateanewcallcenterinalow-income,majority-BlackneighborhoodonChicago’sSouthSide.HochschildfiguredthatChatham,atraditionallymiddle-classneighborhoodthathadbeenravagedbywhiteflightanddivestmentinthepost–WorldWarIIera,wasaplacewhereaninfusionofnewjobscouldmakeanenormousdifferenceforanentirecommunity.Today,thecallcenternotonlyemploysmorethan500people(roughly90%ofwhomareBlack,withthecompanyaimingtohave80%ofemployeesbepeoplewholivewithinfivemilesofthesite)atastartingwageof$18perhourbutalsohousesacommunitycenterfortheneighborhood.Withinitsfirstyearofoperations,theChathamcallcenterexceededcustomersatisfactiongoals,performingatanindustry-leadinglevel,andithadthehighestemployeeretentionratesofallDiscoverFinancialcustomercarecentersacrosstheUS.Applyingasociallenstocustomersandmarketscanrevealopportunitiestocreatevalueforwholenewcustomersegments,includinginunderservedmarkets.Identifyingnewsourcesofcustomervalue:Applyingasociallenstocustomersandmarketscanrevealopportunitiestocreatevalueforwholenewcustomersegments,includinginunderservedmarkets.Manynewpurpose-driveninsurgentbrandsaretappingintothisparticularopportunityinnichemarkets,butestablishedplayersarealsodoingsowithlargecustomersegments.•Infinancialservices,customerswhopaythehighestfeesareoftenthoseleastabletoaffordthem.Aspartofitsplanto“democratizeaccesstofinancialservices,”PayPalfoundawaytobothaddressasocialinjusticeandattractnewcustomers.Afterdecidingnottochargeamonthlyfeeorrequireaminimumtransactionamount,PayPal,inthefiveyearsafterits2015IPO,sawitsnumberof82TheVisionaryCEO’sGuidetoSustainabilityactiveuseraccountsgrowfrom179millionto377million,whileaverageannualtransactionsperuserincreasedfrom27.5to40.9.Meanwhile,PayPal’ssmalltomediumbusinesslendingdivision,whichreliesnotoncreditscoresbutonaproprietaryalgorithmtolookatamerchant’shistoryonPayPaltodeterminewhethertoissuealoan,reachedmorethan$10billioninloanstomorethan225,000smallbusinessesin2019.•Inretail,BodegaAurrerá,knownforofferingthelowestpricespossibletocustomers,targetslow-incomeconsumersinMexico.Establishedasachainin1970andlateracquiredbyWalmart,BodegaAurreráhasmultipleformatsthathelpitservebothsmallrurallocationsaswellaslower-incomeurbanareas.BodegaAurrerástoreshavebeenWalmartMexico’smainvehicleforgrowth,accountingformorethan90%ofnewstoreopeningssince2006.Thecompany’sbrandsymbol—MamáLucha,acartooncharacterwhobattleshighprices—iswidelyrecognizedinthemarket.BodegaAurrerárankedasthethirdmostvaluablebrandinMexicoin2023,witha$6.2billionbrandvalue,behindonlyTelcel(telecommunications)andCoronabeer.70%ofemployeesarelikelytochangejobsforacompanyknowntoinvestinemployeelearninganddevelopment,makinginvestmentinupskillingorreskillingawayforbusinessestocreatenewopportunitiesforlower-skilled,lower-paidworkerswhilefuture-proofingtheirowntalentpools.Investingincurrentandfutureworkforces:Giventhechallengescompaniesnowfaceinattractingandretainingtherighttalent,businessesneedtoshiftfrombeingtalenttakerstotalentmakers.Andmakingthisshiftcangohandinhandwithpursuingasocialagendafortalent.Consider,forexample,that70%ofemployeesarelikelytochangejobsforacompanyknowntoinvestinemployeelearninganddevelopment,makinginvestmentinupskillingorreskillingawayforbusinessestocreatenewopportunitiesforlower-skilled,lower-paidworkerswhilefuture-proofingtheirowntalentpools.Thisisanespeciallyacuteissueforenergycompaniesfacingtheimplicationsofajusttransitiontogreenenergyfortheiremployees.•Enel,thesecond-largestpowercompanyintheworldbyrevenue,isreskillingandredeployingworkersincoal-firedpowerplants.Forty-fivepercentofEnelemployeeswholeftcoal-firedplantsin2022attendedupskillingandreskillingprograms(about90hoursperemployee)andhavebeenredeployed.ReskillingemployeesispartofEnel’spubliccommitmenttomakingthetransitiontoagreenereconomy“asequitableandinclusiveaspossible…[by]creatingopportunitiesfordecentworkandensuringthatnooneisleftbehind.”83TheVisionaryCEO’sGuidetoSustainabilityOthercompaniesareapplyingatalentmakerlenstoaddressacutetalentneedswhilealsopursuingDEIgoals.•Totacklethepilotshortageintheairlineindustry,UnitedAirlineslauncheditsownpilotacademy,theUnitedAviateAcademy,in2022,withagoaloftraining5,000newpilotsby2030(partofalong-termpilotrecruitmentstrategyofaddingatleast10,000pilotsbytheendof2029).Theflightdeckintheairlineindustryhashistoricallybeenawhitemalepreserve,butintheacademy’sfirstclass,80%ofstudentsarewomenorfromunderrepresentedracialorethnicgroups.Besidesbeingsubjecttoincreasedstakeholderscrutinyonissuessuchastradepracticesandhumanrights,supplychainsnowfaceoperationaldisruptionsfromavarietyoffactors.Enhancingsupplychainresiliencebybuildingsociallyresponsiblesupplierrelationships:Besidesbeingsubjecttoincreasedstakeholderscrutinyonissuessuchastradepracticesandhumanrights,supplychainsnowfaceoperationaldisruptionsfromavarietyoffactors,includingtherecentpandemic,war,politicalunrest,andglobalandregionaleconomicshifts.Byexaminingtheirsupplychainsthroughasociallens,companiescanworkeffectivelywithsupplierstoensurefairandequitablepracticeswhilealsomakingtheirend-to-endsupplychainsmoreresilient.•Peet’s“LasHermanas”coffeeisnamedforanall-women’scooperativethatgrowsandmillsitsowncoffeeinthehighlandsofNicaragua.TomeetPeet’sstandards,thewomenofLasHermanasinvestheavilyintrainingandeducation,operatingtheirowncupping(qualitycontrol)labtomonitorallaspectsofproductionandcupquality.AsaresultofPeet’syearlypurchases,theseproducershavebeenabletosecureloansandobtainadditionallow-interest,pre-harvestfinancing,helpingthecooperativetoprogressfromsubsistencefarmingtoeconomicsustainability.Meanwhile,Peet’shasdifferentiateditselfinthemarketplacewithseveralenvironmentalcertificationsaswellasadirecttradeprograminwhichitcollaborateswiththefarmersfromwhomitbuysoncommunityprojectsintheirlocalareas.•Olam,theSingapore-listedfoodandagribusinesscompany,sourcesfrommanysmallholdersacrossmultiplesupplychainsandgeographieswhoseincomefromcropandlivestockproductioncanfailtocoverbasicfamilyneeds.OneofOlam’smanyinitiativestohelpsuchfarmersincreasetheirincomesfromfarmingisOlamDirect,asmartphoneappthatenablesfarmerstoselldirectlytoOlam.Thefarmersgetbetterpricesaswellasaccesstodigitalcontentontopicssuchasweatherforecastingandplantingstrategies,pestalerts,andongoingtrainingtoimproveproductivityandsustainability.Morethan90,000farmersacross12countriesareregisteredusersofOlamDirect.84TheVisionaryCEO’sGuidetoSustainabilityGettingstartedLearningtoapplyasociallenstoacompany’smanyactivitiesandstakeholders,notjusttoavoidrisksbuttouncovernewopportunitiesforvaluecreation,canseemdaunting.Itrequirestakingagenuinelyfreshlookbothinsideandoutsidetheorganizationtodeterminewhereacompanymayhavehadblindspotsandthinkingcreativelyaboutsocialissuesintermsnotjustofobligationsbutofopportunities.Theimportantthing,however,istostartsomewhere,keepinginmindthatattendingtosocialconcernsinvolvingonegroupofstakeholderscanhavebeneficialspillovereffectswithothers—forexample,aswhenupskillingemployeesinchangingindustrieshelpskeepjobsincommunitiesthatdependonthem.Toassesswhereyouarestartingfrom,wehavecompiledachecklistofquestionsthatbusinessleaderscanaskregardingthefourgroupsofstakeholdersonwhichwehavemainlyfocused.•Community:Dothecommunitieswedobusinessinseeusasapositiveforce?Ifourbusinessdoubled(orifitdisappeared),howwouldthesecommunitiesassessthegains(orloss)?•Customers:Whodoesnothaveeasyaccesstoourproductsorservices?Howmightweexpandourofferingstoattractnew,oftenoverlookedcustomergroupswitheconomicallyviablevaluepropositions?•Employees:Whatcanwedotobecomeatalentmakervs.atalenttakertocreateopportunitiesforemployeeswhiledevelopingthepipelineweneedforlong-termbusinessgrowth?•Suppliers:Howequippedaremysupplierstomeetnewcriteriaforsociallyresponsiblepractices?AmIdoingmyparttoinfluencetheirpracticesandbuildresilienceinmysupplychain?•Allstakeholders:Doourcommunities,customers,employees,andsuppliersseeusthewayweseeourselves?Wouldtheysaywearelivinguptoourdeclaredpurposeandvalues?Nomatterwherethesequestionstakeyou,theycansetyouonapathtonewandbetteroutcomesforyourcompany,yourstakeholders,andsocietyasawhole.85MakingItHappenOrganizingforSustainabilityMostcompaniesarewaybehindontheirsustainabilitygoals.Focusingonfourthingscanaccelerateprogress.BySarahElk,GrégoireSchaub,SanjayDhiri,andJunyaIshikawaAtaGlanceInaBainsurvey,mostexecutivesreporthavingaboldsustainabilityambitionwithcleartargets,butalmostnonefeeltheyareontracktoachievethem.Basedonmorethan300conversationswithexecutivesandourworkwithscoresofcompaniesintransition,organizationsthataresucceedingatsustainabilitydofourthingsconsistently.Companieshaveambitioussustainabilitytargetstheyarestrugglingtomeet.Inourrecentglobalsurveyoflarge-companyexecutives,67%reporthavingaboldsustainabilityambitionwithcleartargetsacrossenvironmental,social,andgovernanceaims,butonly3%feeltheyareontracktoachievethem.Oneconsistentreason:Companieshavenotmobilizedthecoreoftheirbusinesstorealizethesesustainabilityambitions.Instead,sustainabilitytargetsaresetwithoutinputfromthebusinessunitstaskedwithleadingchange.Asaresult,thebusinessesdon’tfeeltheyowntheproblem,leavingpromisingideaswitheringfromlackofsupportandslowingprogressoverall.Aminorityofleaders—fewerthan25%—believesustainabilityiswellintegratedintotheirbusinesstoday,ourresearchfound.It’snotsurprisingthat36%reportbeingfarbelowtheirexpectedlevelofprogressontheseissues.86TheVisionaryCEO’sGuidetoSustainabilityWiththerightfocus,however,companiescanconstructtheoperatingmodelneededtoadvanceamoresustainablefuture.Thisstartswithembracinganewmindset.Today,manycompaniestreatsustainabilityonlyasaconstraint,somethingtheyhavetodo.Theycan’texpecttoachievetheirambitionsiftheydon’tseethatsustainabilityisanopportunitytocreatevalueaswell.Basedonmorethan300conversationswithexecutivesonthistopicandourexperienceworkingwithscoresofcompaniesintransition,organizationsthataresucceedingatsustainabilitydofourthingsworthemulating.Companiesneedtotranslatetheirsustainabilityambitionsintoconcrete,discretegoalsmappedtospecificbusinessoperations.1.BreakdownambitionsintoaportfolioofbusinessoutcomesCompaniesneedtotranslatetheirsustainabilityambitionsintoconcrete,discretegoalsmappedtospecificbusinessoperations.Thisinvolveshavingchallengingconversationsandbeingopentosettingmultiyeargoals,evenwhenthesolutionorhowitwillberealizedisnotyetclear.Testingstrategiestoachievetheseoutcomes,andlearningfromthosetests,istheonlywaytoreachyourtrueobjective.CEODougMcMillondescribesWalmart’sambitionasgoing“beyondsustainabilitytobecomearegenerativecompanydedicatedtoplacingnatureandhumanityatthecenterofourbusinesspractices.”Togetthere,Walmartengagesinchallengingdialoguesaboutbusinessoutcomes,consideringthefullimplicationsofcarbonreductionforrefrigeration,forexample,orwhatitmeansforthetransportofgoodstostoresandinthelastmiletocustomerhomes,andwhatmovingtowardzerowastewillmeanforoperations.TheapproachhashelpedWalmartreduceoravoidmorethan750millionmetrictonsofemissionssince2017.ChemicalsandmaterialscompanySolvayhassimilarlyfocuseditssustainabilityambitionon“climate,resources,andbetterlife”andtranslatedthatintoaroadmapofbusinessoutcomes.Theseincludeboostingenergyefficiencyandprocesselectrification,increasinggreenpowersuppliesacrossplants,reducingpressureonsites’biodiversity,loweringwaterintake,andmore.Asaformerglobalbusinessunitpresident,thecompany’schiefsustainabilityofficer,PascalChalvonDemersay,bringsabusinesslenstosustainability.Bysystematicallydeterminingtheenvironmentalimpactofallproductsandweavingsustainabilitygoalsthroughouttheorganization,Solvayhasreduceditsdirectemissionsby19%anditsbiodiversitypressureby28%since2018.87TheVisionaryCEO’sGuidetoSustainability2.SeekoutopportunitiesthatbenefitmultiplestakeholdersIt’simportantthateveryoneworkingonnewsustainabilityopportunitiesconsidertheirbroadestpotentialvaluetoavarietyofstakeholders.Aplethoraofindependentratingagenciesnowtrackthevaluecompaniesgenerateforindividualstakeholdergroupsandthecomplexrelationshipsamongthem—datacompaniescanusetodesignastrategythatdeliversmutualbenefitsforall.(Formoreonthis,see“BuildingaData-BasedStakeholderStrategy”inthisreport.)Inmanysituations,improvingsustainabilitywillrequiretrade-offsamongstakeholders.Inthefieldofclimatepolicy,frameworksandprotocolsthatwillhelpstakeholdersshareknowledgeandanalyzethosetrade-offsarebeingdeveloped.Effortsaremostlikelytobenefitmultiplestakeholderswhenthathasbeenagoalfromthestart.Walmart’ssustainabilityteamandbusinessleadersregularlybrainstormhowitseffortscanhelpmultiplestakeholders.Whentheythoughtaboutbuildingelectricvehicleinfrastructuretoreduceemissionsinthetransportofgoodsfromstoresandfulfillmentcenterstohomes,theyalsoconsideredthevaluethatcouldbringtoconsumers,associates,andcommunities.InApril,theretailer,whichhasstorefrontswithin10milesof90%ofAmericans,announceditwouldbebuildingalow-costEVfast-chargingnetworkatlocationscoasttocoast,easingconcernsaboutaccesstorechargingandloweringtransportationcosts,whilecreatinganotheropportunityforcustomerstoshop—inthiscase,whilerecharging.Companiesacceleratingtowardtheirsustainabilityambitionsdedicateteamstoreimagineandthentestpotentialnewsolutions.3.DedicateteamstodevelopnewsolutionsWhilesomesustainabilityactivitiescanbedelegatedandcascadeddirectlytotheleadersandteamsalreadyrunningthebusiness,othersrequireamorefundamentalchangetothebusiness.Forthese,thetraditionaltaskforceofpeopleworkingpart-timeonaprojectbasisissimplyinsufficient.Companiesacceleratingtowardtheirsustainabilityambitionsdedicateteamstoreimagineandthentestpotentialnewsolutions.Importantly,theymatchtheteamtothework.Dependingonthetypeofgoal,anew,dedicatedmulti-disciplinaryteammightneedtobelaunched,oritmightbegiventoanexistingteam(seeFigure1).Ineithercase,theteammustbededicatedtothetaskinordertoefficientlydevelopqualitysolutions.88TheVisionaryCEO’sGuidetoSustainabilityFigure1:MatchthesustainabilitygoaltotherightteamRunthebusinessChangethebusinessExistingteam,Existingteam,Existingteam,Newteam,addedprioritydesignconstraintnewmissionnewmissionAssignthegoaltotheGiveaspecificnewRefocusanexistingteamFormadedicatedappropriateoperationsteam,requirementtotheonanewoutcomemultidisciplinaryteamconveyingitspriorityteamalreadybuildingtotackleabig,thesolutionorcapabilitycomplicatedgoalExample:AprocurementExample:AteaminchargeExample:AnexistingteamExample:Acompanyformsteamworkstoreduceoflast-miledeliveryneedsisrepurposedtoworkonaanewteamtodesignsuppliercarbonimpacttoensuretheirsolutionsnewsustainabilitymissionandmanageitstransitiongeneratezerowastetoelectricvehiclesSource:Bain&Company4.BuildasystemtoacceleratescalinggoodsolutionsAtanygiventime,Walmarthashundredsoftestsrunning.Feedbackloopsprovidenearreal-timeidentificationofdefectsbyassociatesandcustomers.Solutionsthathavebeenscaledandarebeingoptimizedarediscussedinrun-the-businessoperationsmeetings,whilethoseintestingarediscussedinbiweeklytransformationmeetings.Ifteamsneedhelpbetweenmeetings,mechanismsexisttoremoveroadblocksandgetthemtheresourcestheyneedtomoveasfastaspossible.Withsustainabilityoutcomesbuiltintotheteams,sustainabilitygoalsbenefitnaturallyfromthiswell-tunedinnovationengine.Theabilitytoscaletheirbestnewideas,whetheronsustainabilityoranyothertopic,isahallmarkofflexibleorganizations.Thisrequires:•Aunitofscaling.Thismightbeastore,acustomersegment,aproduct,orasalesterritory.Itmightbetwounits,fiveunits,ortheentirecompany.•Adefinedreleasecycle.Howoftencancustomers,employees,suppliers,orotherstakeholdersexpecttoreceivechanges?Threetimesayear?Four?89TheVisionaryCEO’sGuidetoSustainability•Feedbackloops.Whenchangeisrepeatable,goodcommunicationhelpsaddressdefectsrapidly.•Transparentroadmaps.Peoplewanttoknowwhatmightcomenext.ImpactByadoptingthesepractices,companiesensurethatsustainabilityisn’tsomethingbeingdoneonthesidebutistrulypartofthebusiness.Solvay’sbusinessleadersseesustainabilityasawayofmitigatingriskanddrivinglastingvaluecreation,sotheybuildthebusinesscaseforchangeonthatbasis.Whentheyevaluatethebusinessvalueofanyeffort,theydosowithacarbonpriceof100eurospermetrictonincorporated.Theyalsoscreenforwateruse,wastevalorization,andotherESGadjustmentswhenconsideringallcapitalexpendituresandM&Adecisions.Performanceonsustainabilityimpacts15%oftheyearlybonusofallmanagers.Thisisallpartofagrowthstrategymadepossiblebythecompany’soperatingmodel,whichincludesfoursustainableplatforms:renewablematerialsandbiotechnology,batteries,greenhydrogen,andthermoplasticcomposites.Tounderstandhowwelltheircompanyispositionedtoday,CEOscanstartbyaskingtheirteamsafewhigh-gainquestions:•Doourmiddlemanagersownspecificsustainabilitygoals?•Havewededicatedcertainteamstosustainabilityinnovation,todevelopingnewsolutions?•Doouremployeesraisesustainabilityideasthatcouldbecomenewsourcesofvalue?•Howcouldarepeatablemodelforscalingchangeaccelerateourpathtosustainability?90MakingItHappenATalentStrategyforSustainability:SkillsMatter,butMindsetIsEverythingTotacklenewproblemsandopportunities,companieswillneedtonotonlyhelpemployeesdevelopnewskillsbutalsofocusonlearningandcollaboration.BySarahElk,JulieCoffman,TracyThurkow,andJohnHazanAtaGlanceAddressingsustainability’schallengeswillrequireacombinationofsmartupskillingandcultivatingalearningmindset.InaBainsurvey,63%ofrespondentssaiddifferentskillsandbehaviorswillbeneededfortheiremployertomeetitsESGambition,butonly45%ofnonmanagerssaidtheyhavetherightreskillingopportunitiestoenableinternalmobility.Byaskingthemselvesashortseriesofquestions,CEOscanlearniftheyexhibitthefivekeybehaviorsofexceptionalsustainabilityleaders.MartinBrudermüller,CEOofchemicalscompanyBASF,perfectlycapturedthechallengeorganizationsfaceastheylooktoacceleratetheirsustainabilitytransformation.“Peopleliketokeeprepeatingwhattheyknowhowtodoandwhathasproventowork.That’swhatmakesitsodifficulttoacceleratethepace,”BrudermüllerhastoldBain.“Weneedashiftinmentality,notonlyinourorganizationbutinourwholeecosystem,insupplychainsandpartnercompanies.”91TheVisionaryCEO’sGuidetoSustainabilityAstheworldrecognizestheurgencyofsustainability,andasenvironmentalandsocialconsiderationsbecomeadrivingforcebehindbusinesstransformation—alongsideartificialintelligence,globalsupplychaindisruption,andotherfactors—asimultaneousshiftisunderwayinthetalentlandscape.Theskillsindividualsneedarechanging.Thisincludesboththehardskillsrequiredbysustainability-focusedoperations(byelectrification,forexample,orchemicalrecycling)andthesofterskillsalmosteverycompanywillneed(inareaslikeinclusionandcomplexstakeholderengagement).“Ifyouwantsustainability,youneedpeopleallacrosstheorgani-zationtoshareandlivebythesevalues.Thiscollectivedynamicisthekeytosuccess.”—CEO,consumergoodscompany,NetherlandsBuildingaskills-basedapproachtotalentmanagementbeginstocreateaworkforcefitforasustainableenterprise.Butthetruegamechangerisshiftingthemindsetthatindividualsandorganizationshavetowardtheirtalentandeachother.Companiesworkingtowardasustainablefuturemustembraceanopportunitymindset,prudentrisk-taking,andcollaborationwithinandbeyondtheorganization’swalls.NewskillsforsustainabilityTheinstinctofmanyCEOsistoprioritizeexternalhiringtoaddressallskillgaps,includingsustainabilityskillgaps.InanAugust2023Bain&Companysurveyofmorethan4,700peopleinninemajoreconomies,63%ofrespondentsfeltthatdifferentskillsandbehaviorswouldberequiredfortheircompanytoexecuteonitsESGambitionorstrategy.Yetonly45%ofnonmanagerssaidtheiremployeroffersthereskillingandupskillingopportunitiesthatwouldenableinternalmobility.AnotherBainsurveyfoundthatamajorityofbusinessleaders—some75%—believetheyhavenotembeddedsustainabilitywellintotheirbusiness.Therearetimeswhenhiringnew,experiencedtalentwillbenecessarytoaddressthat,buttoincreaseworkforceflexibilityandcapabilityovertime,turningpeopleoversimplycannotbetheprimaryapproach.Themagnitudeoftheskillschangeistoogreatandtoobroad-based,andthecompetitionforscarcetalenttoogreat.Beyondanindividualcorporation,stableemploymentbringsvaluableeconomicandsocietalbenefits,contributingtoeconomicgrowth,supportingfamilies,andstrengtheningcommunities.92TheVisionaryCEO’sGuidetoSustainability63%45%ofrespondentsagreeofnonmanagersbelievetheircompany’sESGtheircompanyoffersinternal-mobility-strategyrequiresenhancingreskillingdifferentskillsandandupskillingbehaviorsAtalentsystemthatcaneffectivelydevelopkeyhardandsoftsustainabilityskillsis:•Builtonadeepunderstandingofthepeoplealreadyinthebuilding.NewtechnologyandAIforskillsinferencingandskillsmanagementcanbeembeddedthoughtfullyintalentmanagementtoensurepeoplearen’tdefinedonlybytheircurrentroleorbywhatsomeoneremembersaboutthem.•Focusedonreskilling.Byinvestingtoupskillanddevelopexistingemployees,programslikeIBM’sNew-Collarinitiativesendaclearmessagetoemployeesthatthecompanyvaluestheircontributionsandiskeentosupporttheircareergrowth.Theseprogramsalsoensurecompaniesretaintheabilitytotapintothedeepexpertiseanduniquecredibilityoflong-tenuredemployeestoleadchange.•Flexibleandinclusive.Sustainabilityskillsareevolvingquickly,andpredictingfutureneedsisnexttoimpossible.Companiesthatcanshiftresourcesacrosspoolsofworkortapintoflexibletalentsourcescanbettermanagedemandvariabilityandmorereadilyaccessskillsoutsidetheircoreexpertise.Whenmanagedethically,flexibilitycanprovideemploymentopportunitiesandenhancedlivelihoodsforthosewhomightnotfitintotraditionalemploymentcategories,suchasparentswhoneedflexiblehours,peoplewithdisabilities,orthoselivinginareaswithfewertraditionaljobopportunities.Anemphasisonbuildinganinclusiveworkenvironmentcanhelppeoplefromallbackgroundsfeelastrongersenseofbelonging,allowingthemtoperformatthetopoftheircapabilities.Long-establishedapproachestotalentplanning—aheadcountforecastbydivisionandfunctionwithsomegrowthallotment—nolongersuffice.Businessesmustshifttobeingtalentmakersasopposedtotalenttakers,andaninclusive,skills-basedapproachisrequiredtomakethathappen.93TheVisionaryCEO’sGuidetoSustainabilityThemindsetimperativeAnswerswon’tbefoundintextbooks,fromgurus,orfrombenchmarks;theywillemergefrominnovation,fromtestingandlearning,andfrompoolingknowledge,experience,andexpertiseinwayswecan’ttotallyplanfor.It’snolongerenoughtocounton“knowing”whattodo;wehavetoleaninto“learning”whattodo.Makingthisshiftistheessenceofthemindsetimperative.AtBain,wearecommittedtocultivatingagrowthmindsetinourteam,andthatiswhywehavepartneredwith12world-classuniversitiesacrosstheglobe,includingMIT,HECParis,andMelbourneBusinessSchool,toupskillouremployeesonESG.Todate,ourconsultantshavecompletedover17,000hoursofESGtrainingthroughtheprogram,whichhasdeepenedtheircapabilitieswhilealsoreinforcingtheimportanceoflearningandcollaboration.“YouremployeescareaboutESG/sustainability,anditisbecomingmorecriticalforretentionandengagement.”—CEO,hospitalitycompany,USHistorically,leadershavebeenmostcomfortabledelegatingtoandempoweringpeopletheytrustarethemostcapable,oftendefinedbydomainexpertise.Haveatrickysupplychainsustainabilityproblem?Getthebestsupplychainexpertonit.Butwithskillsetschangingasfastastheyare,domainexpertisehasashorterhalf-life.Inadditiontopeoplewhoknowsupplychains,weneedpeoplewhoembraceinnovationandaregreatlearners.Someleaderstrytomanagesustainabilityinthesamewaytheyoverseebusinessasusual,anditdoesn’twork.Infact,it’smorelikelytostifleinnovation,alongwiththecriticaltrustandcollaborationneededinsidetheorganizationandacrossthevaluechain.Buildingstronger,skills-basedtalentmanagementwillhelpacompanyremaincompetitive,butit’snotsufficienttoacceleratetheinnovationandcollaborationsustainabilityrequires;leadersmustbelievetheirteamsarecapableofmore,andtheymustactivelycommunicateanddemonstratethattrusttotheirteams.Leadersshould,first,placebetsonpeoplewhoarewillingandcapableoflearningandthenremoveriskfromthelearningprocessbyreallyembracingtestingandlearning(andfailing)atspeed,clearingroadblocks,celebratingprogressoverperfection,andstoppingprojectsclearlywhenneeded.TheCEOofalarge,multinationalconsumerproductscompanywasgivingoutinnovationawards.Aftertheofficialprogramconcluded,theCEOwentuptotheleaderoftheteamthatwontheflagshipinnovationawardtolearnmoreabouthisexperience.Theteamleaderelaboratedatlengthaboutthe94TheVisionaryCEO’sGuidetoSustainabilitymultitudeofroadblocksthathadgotteninthewayandtheunwaveringlevelofpersonaldeterminationittooktosucceed.Inessence,theteamleadersaidthatinnovationhappeneddespitetheculture,notbecauseofit.Thisstoryofinnovationadversityisnotunique.Leadersmustcreatebetterconditionsandshapecultureforsustainabilitytosucceed.Beyondlaunchingteamswithclearmissionsandsharedgoals,leadersneedtoshifttheirownmindsetsandbehaviors.Theymustgetfundamentallycomfortablewithnotknowingandexcitedbywhattheorganizationislearningandhowthat’sbeingused.Thisshiftshowtheyengagewithpeopleandhowtheyspendtheirtime.BecomingagreatemployerDespitealmosteveryCEOsayingtheyhaveatalentproblem,fewcompanieshavedefinedwhatitmeanstobeagreatemployer.Inourrecentsurvey,44%ofrespondentssaiditiseasiertofindabetteropportunityoutsideoftheircompanythaninit.Thetimehascometoredefinewhatitmeanstobeagreatemployer.CEOsneedtobelieveinthepotentialoftheirpeople,givethemopportunity,andenableinnovation.Companiesthatwaitfortherighttalenttoarriveinordertomakeprogressonsustainabilityriskmakingnone.44%ofrespondentsbelieveitwouldbeeasiertofindabetterjoboutsidetheircompanythanapplyinternally95TheVisionaryCEO’sGuidetoSustainabilityAreyoudisplayingthesefivecriticalbehaviorsofsustainabilityleaders?1.Authenticrelationships.Tocreatetrustandsupportrisk-taking,leadersmustinvesttimeupfrontindeeplyunderstandingwhatmattersbothtoemployeesandtoecosystempartners.Strongrelationshipsandinclusiveleadershippracticesmakeitpossibletochallengeideasandpushthinking.Theyarethefoundationfordevelopingnewsolutions.Question:Forthemostimportantchangeyouareleading,howdeeplyconnectedareyoutotheteamdevelopingthesolution?Andtotheleaderswhoscaleitinoperations?2.Curiosity.Seekingnewinformationandbeingopentotryingnewsolutionsisacoreaspectofallinnovation,sustainabilityincluded.Leaderswhodisplaythistraitdon’tassumetheyhavetheanswers;theycollaborativelydevelophypothesesandthentestthem.Question:Whatnewsolutionsareyoutestingrightnow?3.Persuadability.Togainspeed,leadersmustbewillingtochangetheirmindwhenpresentedwithnewinformation.Thevastmajorityofdecisionscanbeeasilychangedwithoutsignificantconsequences,sothere’slittledownsideinmakingdecisionsquickly,butleadersmustbeopentochangingtheirmindwhentheyarewrong.Question:Whenwasthelasttimethat,givennewinformation,youopenlychangedyourpositioninfrontofyourteam?4.Delegation.Evenwhenitfeelsabitrisky,leadersmustbeabletodelegatetotheiroperationaldirectreports,freeingthemselvestoworkonhardproblemsandremoveroadblocksforteamsdevisingnewsolutions.Leaderswhodothiswelldon’twaitforpeopletobeready;theymakethemreadybygivingthemopportunity.Theytrustthem.Question:Inyourlastbusinessreview,salesmeeting,orotheroperationalmilestone,couldsomeoneonyourteamhavetakenabiggerrole?Doyouhaveyoursuccessorready?Areyouspendingenoughtimeonchangingyourbusinessvs.runningit?5.Enterprise-first.Leadersfocusedonacceleratingtowardbiggoalstreatresourcesasanenterpriseassetevenwhenithurtstheirownteams.AleadermayloseanA-levelplayeroroperatingbudgettoahigherpriorityyetremainresilientandpositive.Thisfeelsleastriskywhenworkingforaloyalemployer,andcompaniesthatarefilledwiththesetypesofleadersbenefitfromthewayresourcesmovingquicklytotheirbestuseunleashesprogress.Question:Thelasttimesomeonewantedtomovearesourcefromyourteam,howdidyourespond?96Boldideas.Boldteams.Extraordinaryresults.Bain&Companyisaglobalconsultancythathelpstheworld’smostambitiouschangemakersdefinethefuture.Across65citiesin40countries,weworkalongsideourclientsasoneteamwithasharedambitiontoachieveextraordinaryresults,outperformthecompetition,andredefineindustries.Wecomplementourtailored,integratedexpertisewithavibrantecosystemofdigitalinnovatorstodeliverbetter,faster,andmoreenduringoutcomes.Our10-yearcommitmenttoinvestmorethan$1billioninprobonoservicesbringsourtalent,expertise,andinsighttoorganizationstacklingtoday’surgentchallengesineducation,racialequity,socialjustice,economicdevelopment,andtheenvironment.WeearnedaplatinumratingfromEcoVadis,theleadingplatformforenvironmental,social,andethicalperformanceratingsforglobalsupplychains,puttingusinthetop1%ofallcompanies.Sinceourfoundingin1973,wehavemeasuredoursuccessbythesuccessofourclients,andweproudlymaintainthehighestlevelofclientadvocacyintheindustry.Formoreinformation,visitwww.bain.com

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