Sustainable transformation: why climate change and the digital agenda are more closely linked than everClimate change looks set to be the biggest driver of organisational change over the coming decades, but Fergus Navaratnam-Blair of Source Global Research argues that this change will feel, for most businesses, like a natural extension of—not a break with—their digital transformation stories
Those of us who care deeply about climate issues had a right to feel optimistic at the outset of 2020; it felt as if we had reached a critical turning point, and that the sustainability agenda was now front and centre in the minds of business leaders across a wide variety of sectors. Even though COVID-19 may have temporarily forced organisations to prioritise their own survival over that of the planet, there are already signs that, in the long run, the pandemic will only serve to amplify the pressure on CEOs to treat climate change as the existential risk it is.
In some markets, that pressure will come from the state. But even in countries where policymakers have been slow to act, businesses are finding their climate action plans coming under increased scrutiny from their employees, their customers, and their investors. Earlier this year, for example, BlackRock announced that they planned to make sustainability “integral to their portfolio construction”, and that, going forward, they would require businesses they were invested in to treat climate reporting with the same degree of rigour they treat financial reporting with.
But even though business leaders now appreciate the need to take climate change seriously, many remain uncertain of how to best integrate climate concerns into their existing corporate strategies. And it’s easy to see why. For most of the last decade, CEOs watched as industries were disrupted virtually overnight by nimbler, tech-driven competitors; everyone wanted to know what their industry’s Uber or Airbnb would look like. Consequently, most organisations poured their energy into digital transformation, to allow them to better compete against this new breed of rivals.
Now those same decision-makers are being told by analysts, consultants, and the business press that it is climate risk, not digital disruption, that poses the true existential threat to their organisations. And so they find themselves in the position of having to make hard decisions about how to prioritise these two seemingly competing agendas.
So, is there a possibility that climate change will dethrone digital transformation as the primary agenda driving the decisions of the modern C-suite? Not exactly. In fact, it’s becoming increasingly clear that this way of looking at these issues—as two competing sets of priorities—is simply out of step with the way the market is moving. Instead, the story of the next few years is likely to be one of convergence; the digital agenda and the climate agenda will become increasingly intertwined, to the point where the two really ought to be treated as two sides of the same coin.
These two agendas will exist in something of a symbiotic relationship; digitisation will allow companies to meet their decarbonisation targets, while the pressures of climate change will help create the business case for accelerated investment into digital transformation. In October of this year, for example, we at Source Global Research published a report, based on a survey of 150 senior US executives, exploring how various organisations intend to use professional services firms to help them mitigate their exposure to climate risk and achieve their decarbonisation targets. When those executives were asked what specific steps their businesses could take that would make the greatest contribution towards those objectives, the most popular answer — by quite some margin — was “finding innovative ways to incorporate green technology into our operations”.
How can organisations meet their customers’ sustainability demands?
When you probe more deeply into the role that people see for green technology in helping decarbonise their organisations, you find that there is a growing awareness that tackling climate change will not require major scientific breakthroughs. The real challenge, at this point, comes in commercialising the technology that already exists—in scaling it up and deploying it in a way that creates, rather than destroys, stakeholder value. In other words, businesses are going to be faced with the same set of problems they had to solve when they were first trying to “do digital”.
But that isn’t the only area where organisations can apply thinking developed during their digital transformation journeys to help them respond to the pressures of climate change. In the aforementioned study, 51% of executives said that their ability to invest in climate action has been constrained by difficulties in measuring their organisation’s carbon footprint and exposure to climate risk—making this challenge, more than any other single factor, the consensus choice for the most important barrier standing in the way of organisations realising their sustainability ambitions.
There is a growing realisation, in other words, that the climate challenge is, fundamentally, a data challenge. And these questions of data democratisation sit right at the heart of the digital agenda. Businesses have spent much of the last decade working to give stakeholders faster and more direct access to financial data, customer data, workforce data, and so on. Now they are realising that they need to apply the same approach to climate data. Once again, it appears that climate action demands not a shifting of resources away from digital transformation, but a recontextualisation and repurposing of digital methodologies.
The upshot of this is that the businesses that respond most effectively to the pressures of climate change will be those whose leaders fully internalise this relationship between the digital agenda and the climate agenda. And it also has implications for the type of service providers that organisations will end up turning to for support on their decarbonisation journeys; consulting firms that already have strong reputations as digital leaders will find themselves better equipped than their competitors to stake a claim to the growing market for sustainability services.
Climate change looks set to be the biggest driver of organisational change over the coming decades. But this change will feel, for most businesses, like a natural extension of — not a break with — their digital transformation stories. The sooner CEOs realise that, the more time they’ll have to ensure their organisation can carve out a place for itself in a low-carbon economy.