- IMD Business School
News Stories · Disruption - Business Ethics - Sustainability

Businesses must implement systemic change to survive

June 2020

Ahead of his keynote address 24th June at IMD’s OWP liVe – an innovative virtual learning experience – Peter Bakker outlines the urgency with which businesses must adapt to climate emergency.

NB: This interview with Peter Bakker was conducted on 12th February 2020, before COVID-19 was declared a pandemic by the World Health Organization and augmented with a further update once the pandemic was declared.

Peter Bakker is adamant. “‘Business as usual’ is dead and anyone who continues to operate this way will be out of business by 2030,” he says.

As President and CEO of the World Business Council for Sustainable Development (WBCSD), Bakker is well placed to make such an assertion. WBCSD works across industry sectors and utilizes a science-based approach on climate, biodiversity and social equity. It is at the forefront of the global movement for the sustainable transformation of the systems that govern our lives. Its six programs of work comprise food and nature, cities and mobility, the circular economy, climate and energy, and the social and financial systems.

There is growing consensus among WBCSD’s 200-strong, CEO-led network of global businesses, whose joint revenue represents $8.5 trillion and a workforce of 19 million employees. Business must change quickly in order to adapt to the critical shapers of our era, such as the climate emergency and technological advancement. The reasons for such a comprehensive shift in approach, says Bakker, are self-evident.

“The urgency is here. Nature is screaming in ways it is impossible to deny. Ten years ago, you could think this was far in the future, but this is not something we can do anymore,” warns Bakker. “Extinction Rebellion and Greta Thunberg and the Yellow Vests in France are ever-louder voices and people are scrutinizing business. The license to operate is being tested.”

The COVID-19 pandemic is an immediate case in point, Bakker adds when we speak during the lockdown. In a few short weeks, the crisis has forced not just radical organizational realignments, from home working and comprehensive employee-support measures, but in some cases, the complete repurposing of strategic plans. In WBCSD’s view, the pandemic heightens the need for businesses to reassess their relevance and repurpose supply chains to meet the ongoing challenges that the pandemic may throw up.

Technological advancement is another crucial driver of systemic change. From food waste to urban transport solutions, new startups are disrupting traditional models of business and demanding that once-secure players adapt and transform or face the risk of extinction themselves.

“Take Tesla,” Bakker says. “Its share price has quadrupled in 12 months, and every boardroom in the automotive sector is thinking ‘how the hell do we move to 100 percent electronic vehicles (EV)?’ And also ‘how the hell do we transition from our incumbent model and survive the trough?’ Many industries are now in existential conversations with their boards.”

In both its work with individual organizations and in various sectors, WBCSD aims to effect systemic change in sustainability across supply chains to maximize their impact. It aims to support, businesses to commit to becoming net-zero carbon by 2050 in order to meet the science-based objective of a sub-1.5°C rise in temperatures. Bakker believes that companies who dither will struggle to gain a firm foothold in the sustainability market.

“The worry I have is that we’ll arrive at the tipping points much faster than business leaders are currently ready for,” Bakker says. “Consumer demand can change things dramatically – this is where Greta [Thunberg] and Extinction Rebellion will have an influence,” he points out.

In order to survive and thrive in the new reality, companies must embrace the new paradigm. To do so, Bakker advises they recognize the sector-specific transformation that applies to their product, and set a science-based target to manage their transition to net-zero carbon by 2050 or sooner.

WBCSD also recommends they implement the Taskforce on Climate-Related Financial Disclosures recommendations (TCFD) and is currently seeking to make it a mandatory criteria for all WBCSD members.

TCFD is a framework that enables the consistent reporting of information on the material and financial impacts of climate-related risks and opportunities. Drawn up by the Climate Disclosure Standards Board (CDSB), TCFD is key to enabling capital markets to assess the climatic, social and environmental risks of their investments and decide on where to place their money. As such, it will be an accelerator of the shift towards sustainability.

The final positive step a company can take is to tether the business to net-zero carbon by 2050 from boardroom to shop floor by committing to standardized ESG (Environmental, Social and Governance) disclosures. This will help companies ensure that every strategic scenario is assessed in terms of not just the financial top and bottom lines, but its measurable social and environmental impact as well.

However, it is not simply a case of committing to TCFD and standardized ESG disclosures in order to secure capital at a lower cost. According to Bakker, the consequences of not doing so could prove actively detrimental for a business.

“We are moving rapidly towards a world in which the fiduciary duty of boards will include its environmental and social performance,” insists Bakker. “If you are financially successful but destroying nature in the process, you will lose your license to operate or be exposed to significant regulatory risks,” he warns.

And in the era of COVID-19, the ‘S’ in ‘ESG’ emphasizes the need to put people first. For Bakker the current moment is pivotal for business to demonstrate leadership towards society.

“How business responds to COVID-19 will undoubtedly shape the decade to come,” he says “If we are to truly recover from COVID-19, then it will not be about putting things back together to how they were – we need to build back better and address these deep systemic vulnerabilities that have been allowed to develop over the last decades,” he says.

Bakker will be giving a keynote speech at IMD’s OWP liVe on 24th June 2020. He is enthusiastic about both the audience he will address and the role he will play in his talk.

“My first aim is to be a provocateur. We are still in the phase where businesses can shape the process of systems transformation, but if we do not move rapidly, other parties or externalities like COVID-19 will shape it for us,” he says. “We will be in reactive mode, and I do not know any CEOs who are happy in reactive mode.”

By offering delegates clear examples that show systems transformation is happening now and, in fact, accelerating, Bakker hopes to offer a vision of how businesses can take a proactive position in creating thriving societies and economies.