Martin Reeves
Mihnea Moldoveanu
Adam Job
David Young
Simon BeckRarely in business history have CEOs had more significant opportunities to capture advantages, reset industries, and anchor their legacies than at this moment in the global race to sustainability. These opportunities span industries and regions, and they extend beyond current net-zero ambitions and environmental, social, and governance (ESG) targets. CEOs should formulate strategies that create and capture long-term competitive advantage from the transition to net zero and sustainability.
This is a race—one that has already begun and is quickly accelerating. Capital markets have seen tremendous growth in ESG-related assets under management, and they are projected to rise from $35 trillion in 2021 to $50 trillion globally by 2025. Sustainability-linked loans and financing exceeded $1.6 trillion in 2021, up by a factor of three since 2019. [1] Saijel Kishan, “ESG by the Numbers: Sustainable Investing Set Records in 2021,” Bloomberg, February 3, 2022. Banks are starting to engage their business customers to drive down financed emissions. And governments are seeking to drive sustainability through green public-procurement initiatives, which will provide an estimated $6 trillion boost to global GDP and create 3 million net new jobs by 2050.[2] “Green Public Procurement: Catalysing the Net-Zero Economy,” World Economic Forum, January 2022. In addition, the number of companies committed to science-based targets more than doubled in 2021, and their most common goal is in line with keeping the global temperature rise to less than 1.5°C.
And yet, most companies are still making their way to the starting line of the race to sustainability and have not addressed it in a strategic manner. This isn’t surprising: when confronted with long-term endeavors, many CEOs struggle to balance the imperative of meeting quarterly expectations with the need to grapple with the many uncertainties of transforming their businesses. When it comes to sustainability, more than a few CEOs are attempting to walk this line by pointing to ambitious net-zero statements and ESG targets as evidence that their companies are front-runners in the race to sustainability. These are good moves, but they are quickly becoming de rigueur for well-managed companies, and they are insufficient to seize competitive advantage.
If public commitments and ESG targets are no longer considered evidence of being a front-runner, what is?
