Climate Action Demands Strategy, Not Just Measurement
By Simon Glynn and Mike Peirce
 // . //  Insights //  Climate Action Demands Strategy, Not Just Measurement

This article first appeared in World Economic Forum.

In preparation for Climate Week NYC this year, Oliver Wyman and international non-profit Climate Group interviewed 30 corporate climate professionals across the world to learn what is holding them back from greater progress, and how they are breaking through the barriers they find. The stories we heard range from exhilaration to frustration, and the pattern is clear.

In the stories of exhilaration, climate professionals and their companies have a clear strategy for the role they want to play in the climate transition. They see Scope 3 not as a measurement challenge, but as an opportunity to have an impact bigger than themselves. Of course, they have metrics and targets, but these are a means to pursue the strategy – not an end in themselves. They measure progress towards their strategic goals, not only in terms of emissions.

In the stories of frustration, the task of reporting is often overwhelming the task of transition. In theory, the metrics should provide the impetus for change. In practice, without an agreed strategy, the changes needed can be too fundamental for this incentive mechanism to work, shifting the organization’s focus to near-term, incremental efforts that won’t achieve what is required.

Leading with how you will contribute to the transition, rather than with emissions outcomes, is essential for orchestrating the big shifts required and directing the actions needed. This is no different from the commercial agenda for the business. You can achieve incremental growth by setting individual departments financial targets and budgets, but a business transformation requires more strategic direction. In climate, we sometimes expect incremental management tools to yield transformational outcomes. Yet in our survey of more than a hundred professionals globally, 40% said they thought the climate transition would be transformative for their business.

Conventionally, you might set a performance indicator in terms of the outcome you want to achieve, and let the business find the actions to take in order to achieve it. In climate, this can turn out to be a recipe for perverse incentives. One tech company we interviewed, for example, is currently not paying out the climate incentives in its senior leadership’s compensation plan, because the success of its program has increased the company’s total direct emissions – in the course of avoiding a greater quantity of emissions by its customers, which are beneficial for the world but not measured in the plan. This happens because the standardized measure of “Scope 3” emissions includes customers’ emissions through the use of your product, e.g. from the electricity used at home during a Zoom call – but not the emissions avoided by customers using Zoom vs. traveling by car. Another company is finding it hard to meet its targets, and that the pressure is driving short-term priorities to meet the numbers rather than investment in what they now feel would have most impact.

Ingka, the largest IKEA retailer, is one company working the logic differently, using a dedicated “climate measurements development team” to align metrics with “the impact of actions,” rather than focusing only on the projected footprint. The insight here is that you often cannot measure Scope 3 emissions (and more indirect influences on avoided emissions, sometimes dubbed Scope 4) robustly enough in advance to set meaningful targets, but you know what actions you want to incentivize, and you can set the appropriate detailed emissions metrics over time as more is learned. For similar reasons, renewable energy provider Ørsted introduced management incentives on climate only once it had made the cultural shift that shaped what the business was trying to do, when the incentives would reinforce the strategic direction rather than substitute for it.

Now is the time to resolve this tension, because now is the time when many organizations are making a shift: Instead of the climate agenda being the responsibility of specialist sustainability teams, it is being embedded across organizations as part of business as usual, across the organization. This is a smart move to unite climate and business agendas – a common theme in the companies we talked to – and achieve change at scale. But it creates an urgent need to make sure that what you embed in the organization is a strong, purposeful drive that can deliver transformation, not just a culture of technocratic compliance. Such a drive is not only suited to the scale of the task, but will also energize the business. A narrative of relentless reduction and squeeze will inspire people across the organization less than a positive, inspirational vision for their business.

The importance of strategy may seem obvious. But in many organizations, climate action has been a response to pressure from investors. (In our survey, 39% said the most pressure came from investors, compared with 24% saying business customers, 14% employees, 9% consumers and 8% policymakers.) This pressure, and where it is dealt with organizationally, has sometimes favored a focus on emissions metrics and disclosures ahead of the strategy to tackle the transition.

The 2020s are supposed to be our Decade of Delivery, when we need to halve global emissions in order to stay on track with the 1.5˚C ambition. We can’t afford for the Decade of Delivery to be just the Decade of Disclosure.