September 5

It’s time to transform strategic plans to achieve net-zero emissions

Axel Kravatzky

The pandemic coupled with dramatic environmental trends and unsolved social issues could be a turning point in business, innovation and economic growth.

“How often should we change our strategic plan?” That is a question is frequently get asked by board and CEOs – particularly of state-related bodies who often ask for help after 3-5 years when their strategic plan has ‘expired’. The answer is, of course, that all organizations need to respond to changes in context and if these are sufficiently large or different from what was previously thought, the strategy and the plan need to be updated or changed.

The COVID-19 pandemic has challenged all organizations. Many had to overcome tragic human losses, all had to find new ways of operating, and many continue to struggle with short term solutions to critical cash flow problems. Some sectors have experienced a dramatic increase in demand, while organizations in others are being pushed closer and closer to complete ruin because of the policy response to the public health situation.

What is true for all sectors is that betting on a return to a business-as-usual scenario harbours the greatest risk. Force-fitting old solutions to a changing world are not going to produce the results they did in the past. Now there are different challenges that require new, innovative, and profitable solutions. 

The COVID-19 pandemic has both masked and accelerated an even more fundamental shift – a global shift in how people perceive the state of the natural environment. On the one hand, the pandemic is forcing so many emergency measures in both public and organizational life that there is not much space to discuss other topics. On the other hand, the pandemic also uncovered underlying social ills and a large part of the population have been able to personally experience the long-predicted extreme weather events and so global warming as become ‘real’ for most.

What many do not yet realize is that the changes in both nature and major institutions around the world have been so profound that they will require most organizations to fundamentally rethink not only their strategies but their very purpose! Take for instance the “Race to Zero & Race to Resilience” – which is part of the United Nations Framework Convention on Climate Change. 3067 Businesses, 133 Cities, and 173 Investors have joined and thereby committed to achieving net-zero by 2050 (greenhouse gas emissions caused by people are balanced by removals of greenhouse gases over a defined period of time).

In order to be able to achieve net zero in 28 years, they will need to reduce their emissions by half in the coming 8 years. Many of the largest institutional investors have committed to these targets. Throughout the world, institution investors own large proportions of shares traded on stock exchanges. Investors will need to ensure that the companies in their portfolio doing their part. The portfolio companies in turn don’t only need to ensure their inhouse production of goods and services are net-zero, but their entire value chain is net zero. That in turn means that many of the SMEs with whom the portfolio companies do their business will also need to demonstrate a credible, science-based path and action towards net zero. And this is just one of the paths that is currently already in operation and massively picking up speed.

The implication is that organizations will not only need to their update their strategy very soon, but they will also need to pivot in quite dramatic ways or face loss of business. In order to pivot the strategy, an organization needs to be clear on what purpose the strategy is meant to fulfil. And therein lies the problem. Most people and organizations are most comfortable with and competent in ‘doing something’ – the actions involved in producing a service or product. But the purpose of an organization is not the act of production, nor the product or service, nor the profits from successfully selling the product or service. The product or service is the vehicle for achieving a positive effect on wellbeing of people or the planet. Profit is a necessary condition. Without a reasonable return on capital or the entrepreneurial risk, neither will be available in the future and the problems can no longer be solved. Profits are only then sustainably achieved products or services achieve positive effects on wellbeing.

When the ground is shifting and products or services of an organization are no longer creating sustainable benefits and no longer generating wellbeing, or they are producing unacceptable consequences, organizations are forced to ask themselves ‘what are actually trying to achieve? Why? What is our true purpose? What aspect of wellbeing or ecological health are we trying to promote? For whom? What constitutes value in these changed circumstances? Organizations that ask and answer these questions will innovate new solutions to the actual problems of people and they will be richly rewarded if they find efficient and effective solutions that are people buy. Once the answers are as fresh as the problems they are seeking to solve, organizations will become strategic and transform.

This article is part of the "Purpose with Profit" Column and an earlier version was published in the business section of the Newsday (Trinidad & Tobago), in August, 2021.

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