sustainarama – how sustainability will change the world in

Sustainarama How sustainability will change the world in 2050

T H E B I G

What can your company do to shape

a better normal? → P. 22

Anticipateopportunities

Our world is changing –

businesses need to follow suit

→ P. 5

Prioritizesustainability

You can’t predict the future, but you can reduce its complexity → P. 10

Understandalternatives

2 Think:Act | Sustainarama

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1 – PAGE 5 Putting sustainability center stage – The future for

business 2 – PAGE 10 Thinking in alternatives – Four scenarios

for 2050 #1: Planned new world #2: Race for sustainability

#3: Minimum viable master plan #4: Everyone for themselves

3 – PAGE 22 Anticipating opportunities – How to shape a better

normal 4 – PAGE 26 Choosing your path

– Implications for corporate strategy INTERVIEWS:

REBECCA HENDERSONHarvard Business School

P. 8

JENNIFER MORGANGreenpeace International

P. 20

3Sustainarama | Think:Act

GLOBAL WARMING, marine pollution, biodiversity loss, human rights violations, scandals in corporate governance – barely a day goes by without some aspect of sustainability hitting the headlines. Society is standing at a crossroads. Which path it decides to take will impact not only the lives of the present generation but also those of the generations to come.

In recent years, sustainability has found a firm place on the top management agenda. Some businesses have embraced a purpose that goes beyond meeting short-term shareholder targets. Many others continue with "business as usual". Yet there are good reasons for companies to embark on a sustainability journey. Growing public concern has resulted in a tightening of regulations across many regions in areas such as CO2 emissions, closed-loop recycling and gender inequality. The pressure does not stop there, either: Sustainability has long since reached the financial markets, with investors urging businesses to make ambitious commitments.

There is also opportunity in sustainability. Much to the surprise of some observers, Generation Z (people born in the late 1990s and in the 2000s) is turning out to be a generation of activists, spreading their message rapidly through social media. As they enter the workforce in ever greater numbers, their voices have increasing weight when it comes to corporate behavior. They are forcing their employers to develop a new sense of purpose. And as a customer group they are putting their money where their mouths are, choosing sustainable products and services over less sustainable equivalents.

In the past, humanity has often stood at crossroads such as these. History shows that we are capable of changing our behavior. But will the sustainability revolution come fast enough? In this publication we present four scenarios,

Executive Summary

pictures of what the world may look like in 2050. Together, they form a panorama of the range of different possible futures with regard to sustainability – a "sustainarama", as we like to call it. We analyze the different scenarios using the increasingly popular ESG framework, which looks at the three core dimensions of sustainability: environmental, social and corporate governance issues. The implications for businesses differ for each of the scenarios and affect a wide range of areas, from competition to differentiation, from innovation to recruiting.

So much for what the future may look like – what will companies be doing to shape tomorrow's world? In our analysis we divide up the opportunities by ESG dimension and time horizon. Companies can take a wide variety of steps, such as achieving CO2 neutrality, eliminating child and forced labor in their supply chains, ensuring gender diversity within their organizations, linking CEO compensation and staff bonuses to sustainability performance, ensuring full transparency and putting robust whistleblower systems in place. We discuss a selection of these opportunities below.

It is our conviction that any corporate strategy developed over the next five years will also be a sustainability strategy. Sustainability is an issue that is here to stay, and companies that fail to address it in their strategies could be running substantial risks: the risk of damage to their reputation, problems in their supply chains, risks to the environment, and so on. By contrast, businesses that choose to tackle the sustainability question head-on may find that doing so can pay great rewards.

We believe that business needs to act now – and help shape a future that is both livable, equitable and environ-mentally secure.


1 – Putting sustainabilitycenter stage – The futurefor business

THERE CAN BE no doubt that sustainability is one of the most pressing issues currently facing the world. It is an issue that affects every aspect of life, from our day-to-day decisions to the fate of future generations, from the world of politics to the private sector. Sustainability is shaping the way the world is changing – and it will continue to do so in the future.

To fully understand what we mean by sustainability, it is worth looking at how the concept has developed over time. As early as the 1970s, scientists were warning about the environmental effects of global warming. The publication of the report The Limits to Growth in 1972, commissioned by the Club of Rome, marked a significant landmark. But centuries earlier, people were already struggling against what we would now consider another key aspect of sustainability, namely ethnic and gender discrimination.

Today, sustainability has also found a firm place on the corporate strategy agenda. Not least since the Enron scandal in 2001, companies have begun implementing, or at least aspiring to, compliance and ethical standards. Before we move on to the question of how sustainability may shape the next three decades, it is worth asking why this has happened. What is it that is driving companies to make sustainability a key part of their strategy?

SOCIETY IS CHANGINGIncreasingly, it is the general public that is leading the sustainability debate. Whether it is images of polar bears affected by the shrinking ice caps, or islands of plastic waste four times the size of Germany, environmental problems have become a major concern among the public. With the help of social media, these concerns spread across society, reaching more people and at a faster speed than was ever possible in the past. Movements such as #MeToo and

#BlackLivesMatter demonstrate the intensity of feeling in today's society about wrongdoing.

To the surprise of some observers, Generation Z, a demographic previously thought to be indifferent and politically unengaged, are proving to be a generation of activists. Disappointed with traditional political mechanisms, they channel their activism through social media and non-governmental organizations. Experts are forecasting that the number of people supporting NGOs around the globe will grow from 1.4 billion in 2014 to 2.5 billion by 2030.1) With increasing support – and growing funding as a result – NGOs will be demanding an ever greater say in decision-making.

Generation Z are now also entering the workforce. Consequently, companies are having to strengthen their commitment to sustainability, both internally and externally – and make this commitment credible. Generation Z expect their employers to have a social mission, a sense of purpose

Sustainability is shaping the way the world is changing –

and it will continue to do so in the future.

1) Charities Aid Foundation: World Giving Index 2014; November 2014.


and to actively engage with the outside world. They expect a diverse workplace in terms of gender, ethnicity and educational background. A management board made up of "old white men" is no longer capable of attracting the best talent.

THE ROLE OF REGULATION Regulation plays a key part in creating the necessary framework for sustainability. The struggle to introduce relevant legislation has been long and hard, but we are now seeing a tightening of rules across many different regions. Geographical differences are inevitable, of course. In Europe, for example, laws are likely to focus on product lifecycles, CO2 emissions, the circular economy and the share of women in leadership positions going forward. In the United States and China, regulatory frameworks still tend to be less stringent.

Increasing concerns about issues of sustainability are also impacting the financial markets. Investors are expecting more of companies with regard to their sustainability performance and many businesses are responding with strong commitments. BlackRock's recent climate crisis letter to CEOs and announcement of its divestment in companies with sustainability risks is clear evidence of this shift. It is also changing the minds of companies that previously considered sustainability too expensive or a "nice-to-have". Demand is also growing for a comparable, standardized approach to sustainability reporting.

Companies across industries have increased their aspirations with regard to sustainability and begun announcing measurable targets. Commitments to becoming CO2 neutral or CO2 negative and targets for the share of recycled materials ("recyclates") used, the proportion of women in management positions and the transparency and traceability of supply chains are no longer uncommon. Businesses have good reason to raise the bar: Customers increasingly view sustainability as a key purchase criterion.2)

Put simply, they are willing to pay the true cost for products and services. And as if that were not enough, NGOs are also holding companies accountable for their environmental shortcomings – for example, when Greenpeace activists scaled the Shard in London to protest Shell's oil and gas drilling plans in the Arctic in 2013.

A NEW SENSE OF PURPOSEMore and more voices are saying that today's form of capitalism is failing us. The true cost of climate change, social inequality and insufficient governance – the risk that these factors represent – is not reflected in prices, they claim.

Swayed by their arguments or driven by their own sense of commitment, some companies have already abandoned the single-minded, profit-at-all-costs mentality driving business and found a new sense of purpose for their activities. They have redefined their core reason for being, aside from questions of growth and profit, and are focusing on having a positive impact on society and the planet. A good example is US outdoor apparel specialist Patagonia. The company's purpose, encapsulated in its mission statement, is to "Build the best product, cause no unnecessary harm, use business to inspire, and implement solutions to the environmental crisis." This even led to them asking potential customers not to buy their products if they didn't really need them, with their marketing slogan "Don't Buy This Jacket".

THE ESG FRAMEWORKGrowing pressure from society, regulators and investors has led to strong demand for a standardized framework for measuring corporate responsibility. Dozens of such sustainability frameworks exist around the world, such as the United Nations Sustainable Development Goals (SDGs), the UN Global Compact and the ISO standards for environmental protection. These frameworks cover many aspects of sustainability. But they also have some disadvantages, such as being hard to measure and in some cases difficult to translate into key performance indicators (KPIs) for companies.

One framework that does not suffer from these issues is ESG, standing for the three core dimensions of sustainability: environmental, social and corporate governance issues. The ESG framework represents a compromise between the SDGs, which are more thematic, and the ISO standards. It is pitched at the right level to enable businesses to develop strategy, set priorities and manage implementation. The ESG framework has a number of advantages over other approaches: It is holistic, its three pillars covering all aspects of corporate sustainability; it is measurable, as the ESG criteria can be quantified and used for internal target-setting and steering; it is customizable to different industries and individual companies; and it has already achieved critical mass in certain sectors. Thus, it is commonly accepted by the investment world and is the preferred framework of institutions such as the WFE (World Federation of Exchanges) and EFFAS (European Federation of Financial Analysts Societies). A

2) Randi Kronthal-Sacco and Tensie Whelan (New York University/Stern): Sustainable Market Share Index; July 16, 2020.


AWhat is ESG?

SUSTAINABILITY FRAMEWORK USING ENVIRONMENTAL,

SOCIAL AND CORPORATE GOVERNANCE FACTORS

Source: Roland Berger

ENVIRONMENT

E

SOCIAL

S

CORPORATE GOVERNANCE

G

Society & community

Employee welfare

Diversity & opportunities

Energy efficiency

Emissions

Pollution/waste

Innovation/ environmental opportunities

Natural resources & animal welfare

Product liability

Compliance & business ethics

Supply chain governance

Compensation policy

Structure & oversight

Transparency

Human rights


I N T E R V I E WW I T H ...

Rebecca Henderson is the John and Natty McArthur University Professor at Harvard Business School and author of the book Reimagining Capitalism in a World on Fire. We talked to her about why she believes modern capitalism is failing us and what role businesses can play in building a sustainable economy.

What makes you think that companies will live up to their role of fighting the urgent problems facing humanity and the Earth?

Rebecca Henderson: As I suggest in my book, I think that for some firms there's a strong business case for taking action on their own. There's also a strong collective case. The great uncertainty is whether business will recognize the collective case and decide to act on it.

Do you think that they want to play this role?

Rebecca Henderson: For businesses it's all about whether they think they can make money by doing so. There are businesspeople who are definitely very much aware of the problems that the world faces. The question is, can they find a profitable way to be businesspeople and at the same time address these problems? For me, that's first and foremost a question of whether they can find ways to cooperate.

In my book I talk about the International Chamber of Commerce (ICC) and how it demonstrates that having businesses come together to set the rules for international trade is clearly advantageous. But businesses coming together to make sure all palm oil is grown sustainably or that there's no child labor in the supply chain? These are much bigger questions. History suggests that businesses can come together to address these problems, but it's usually in a period of crisis. Right now, I feel that we are in such a period of crisis. But how bad does the crisis have to be before businesspeople decide to really start acting at scale?

Rebecca Henderson, Harvard Business SchoolSeptember 2020

You have written that today's form of capitalism is failing to adequately assess and price in the risk from climate change, social inequality and insufficient governance. How so?

Rebecca Henderson: Prices traditionally reflect the costs and benefits to the individual actor in a marketplace. But in the case of something like climate change, the harm is inflicted on society in general. No single firm has an incentive to internalize that cost. Traditionally, we've looked to governments to price externalities, to regulate scarcity. We have a particular form of capitalism that has been strong on the idea that the only responsibility of the businessperson is to their investors. There are other forms of capitalism that are more wide-ranging, that see firms as responsible to broader society or their employees and customers as well. But if you focus on returns to investors and only look at the short term, as we have done historically, firms have no incentive to pay attention to these bigger problems.

How will the ESG framework evolve over time? Will it enable transformation?

Rebecca Henderson: There are two parts to the trans-formation. One is for the investor community to realize that investing in assets that are hard to quantify financially – things such as employee wellbeing, corporate reputation, environmental profile – may have a material impact on the performance of the firm. Part of the ESG movement is trying to make these non-financial issues more quantifiable. I believe ESG will move towards finding material, auditable, replicable measures for these non-financial assets. The reason investors would want these ESG metrics is so that they can pick the firms that are at the leading edge of these trends, firms that are beginning to manage for the long term and manage with purpose.

The other reason that ESG metrics could potentially be so important is because the financial community as a whole has a very strong interest in addressing problems such as climate change, inequality and institutional degradation. If you are a very long-term asset holder and you're very wealthy, you are effectively forced to hold the entire market. These kinds of asset owners cannot diversify away from the risks that we face. Therefore, in principle, they have strong incentives to try to make the entire system more sustainable. Now, of course, although individual asset owners can be very big, they are still not big enough to move the whole market. Yet by working with other major asset owners and


asset managers they could, in principle, use ESG metrics to really push everyone in that portfolio to move in productive directions.

Another reason is that it's one thing for firms to say, "I have a purpose and I'm going to try to create shared value." But if you can't measure what they're doing, even inside the firm, that's potentially problematic. So, ESG metrics can be useful not only to communicate with investors, but also to communicate with people inside the firm.

Do you think the governance structures within companies – specifically the supervisory and management boards – need to change?

Rebecca Henderson: That's a highly controversial question. Many of my colleagues believe that changing the governance structures of corporations is an essential step towards creating more purpose-driven, long-term companies. I am not convinced. I think that changing investor behavior and beliefs is much more important than changing governance regimes.

I am a great admirer of some of the corporate structures used in Europe, but I don't think they can be applied wholesale to environments such as the United States. They have evolved historically and are partially dependent on things like strong union movements, a very engaged banking structure, and institutions that we don't have in the United States. So, simply turning to CEOs and saying, "Hey, you have responsibility for multiple stakeholders and we won't sue you if you give up a bit of short-term profit," is unlikely to be useful. The thing that pushes most managers to focus on short-term profits is the investors, and the fear of being fired – not the fear of being sued.

Many of our "public goods" problems cannot be solved by companies on their own. What role should government and regulators play?

Rebecca Henderson: Governments are crucial players in healthy societies. Society needs the free market, but it also

needs the government to constrain it and make sure that firms don't set their own rules. Opportunity must be genuinely free and fair. Governments must invest heavily in education and health, and if necessary implement a redistributive tax system, to make sure that externalities are either regulated or properly priced. Otherwise we risk huge quantities of carbon dioxide and mercury and lead particulates being released into the environment without anyone paying for it. You can think of the government as a referee, an entity that looks out for the public. I think government and regulation is absolutely critical – in fact, I think it's so critical that one of the most useful things that businesses can do is push for the development of strong, transparent, democratic institutions.

Businesses globally should also be deeply concerned by the growth of populism that we're seeing across the world. This, I believe, is a threat to the health of the entire capitalist system

and the entire economy, not to mention our societies and our planet. It raises the risk that we will see a sequence of disasters, of which COVID-19 might be the first. Without a strong, legitimate, democratic and accountable government it will be very hard to address these problems.

I am a huge fan of capitalism. I think it's been an incredible source of innovation and prosperity. In fact, I don't think that we can solve the problems we face without it. We need all that energy and competitive drive. But that drive has to be harnessed. Free markets are like tigers: Tigers are fantastic, but you need to keep them on a leash.

Do you think we will be able to resolve these environmental, social and governance problems by 2050? Or will we still be living in a "world on fire"?

Rebecca Henderson: I am not optimistic, but I am hopeful. I fear that in 2050 the world will still be on fire. But whether it is or not depends on our choices over the next ten to 20 years. We can decide to build a just and sustainable world – we have the technology and the resources that we need. But will we decide to do so, collectively?

"Free markets are like tigers:

Tigers are fantastic, but you

need to keep them on a leash."

Rebecca Henderson, Professor at the

Harvard Business School, author of the book

Reimagining Capitalism in a World on Fire

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2 – Thinking in alternatives– Four scenarios for 2050

PREDICTING THE FUTURE is a fool's game: There is an infinite number of possibilities for what could lie ahead. However, we can reduce this complexity by means of scenarios – pictures that help us imagine potential futures and prepare accordingly. Ideally, these scenarios should be slightly exaggerated and provocative in order to stimulate reflection and debate.

We use the scenario-axes technique to develop four such scenarios, plotting key developments along two axes: "driving force" and "intensity of change" (see below). Together, the four scenarios form a panorama of the range of potential futures we might see with regard to sustainability – a "sustainarama", if you like. We set the year 2050 as the time horizon, a span of time long enough for us to construct scenarios that differ substantially from each other. The 30-year timeframe also reflects the current planning horizon of governments and regulatory bodies, and consequently companies.

DRIVING FORCEThe first axis is the "driving force". Who is in the driving seat when it comes to sustainability: society or the regulators? In a society-driven scenario, consumers set the priorities through their purchasing behavior and companies respond appropriately. Regulators play a subsidiary role, creating the framework required for change. By contrast, in a regulator-driven scenario countries (or regional entities) employ a policy-based approach, enforcing strict, detailed regulations. Companies and consumers contribute their ideas but must operate within the legislation laid out by the regulator.

INTENSITY OF CHANGEThe second axis is "intensity of change". What is the mindset behind the drive for sustainability? A desire to "break new ground" will involve rebuilding current systems and

encouraging transformative and disruptive developments. The pace of evolution will be fast, with new values coming quickly to the fore and activities closely coordinated. By contrast, a desire to "turn back the clock" means clinging to old habits, growing consumerism and continued exploitation of the planet. In other words, an egotistical approach on the part of consumers, with only fragmented solutions implemented by government.

Our scenarios are intentionally

provocative! The future is unpredictable,

but we can reduce the complexity by

understanding the canvas of possibilities.


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Four scenarios for 2050

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1 Planned new

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2 Race for

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3 Minimum viable

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4 Everyone for themselves

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Scenario #1:

Planned new world

IN THE "PLANNED NEW WORLD" SCENARIO, regulators are the main driving force and the intensity of change involves breaking new ground. In this scenario, by 2050 regulators have enforced strong policies, plans and laws that society and companies must obey, with non-compliance heavily sanctioned. The system has been disrupted and redefined. Being sustainable is no longer a choice, it is required by law.

In this scenario, major regulators around the globe will have started in the 2020s enforcing changes aimed at achieving climate goals and the United Nation's Sustainable Development Goals (SDGs). The climate catastrophe will have been averted, global warming limited to just 1.5°C and global poverty reduced. We are now living in what could almost be described as a sort of "state communism" with regard to sustainability, with laws covering every aspect of our lives.

On the environmental front, governments and regulatory bodies will have enforced a globally coordinated system to reduce carbon emissions in the early 2020s. Now, in 2050, being CO2 neutral is not enough; the law requires companies to be CO2 negative. Offsetting CO2 emissions is only possible

with clearance from the state. Regulations on the use of natural resources have been refined, with closed-loop recycling now a requirement. The environmental impact of every company is digitally tracked and the company's performance measured against a government-allocated budget for CO2 emissions, water usage and so on. Any attempts at "greenwashing" are punishable with harsh prison sentences.

Major legislation has also been enacted affecting the social dimension. Human rights violations are heavily sanctioned, forcing companies to develop additional policies and pay for independent audits in order to eliminate any risk of potential crimes. Businesses also have to reflect the diversity found in society in terms of gender, ethnicity, sexual orientation, age, and so on, in their workforce.

In terms of governance, firms are now obliged to invest a fixed percentage of their revenue in green technology in order to meet the new sustainability standards and compensate for any damage caused in the past. They are also taxed based on their ESG score.

In this centrally planned and heavily-regulated world, companies devote considerable effort to ensuring compliance

The business world prefers to err on the side of caution when it comes to adhering to new legislation

Strict regulation has driven many players out of the market

Firms have less time to be creative and develop their own sustainability solutions or innovations; instead, these are dictated by government

Competition between companies is weak or non-existent

Players in one sector are not clearly differentiated from each other

Implications for business


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IN THE "RACE FOR SUSTAINABILITY" SCENARIO, the intensity of change is still all about breaking new ground, but society is now the main driving force. Thus, it is society, and not regulators, that has caused disruption, changing values and redesigning systems. The general public has embedded sustainability deep in their lifestyle, forcing companies through purchasing behavior to respond. For businesses, the race for sustainability is on.

This shift in mindset has not happened by chance. In the mid-2020s, droughts in Africa and the south of Europe will have led to territorial conflicts and mass emigration. Combined with increasingly frequent storms and extreme weather events in other regions of the world, this has served as a wake-up call for society. People have realized that if they continue as things are, the planet will be destroyed. Although these events have caused irreparable damage to the world, society has successfully transformed itself and embraced a more sustainable lifestyle.

On the environmental front, consumers early on began demanding that companies meet negative CO2 targets, and these have now become the new normal. The race for more sustainable products has been possible thanks to major leaps in technology in the area of CO2, such as the carbon dioxide catcher. Technology has also paved the way for a "circular economy plus", in which, although not obliged to do so, companies report their natural resource and CO2

footprints, enabling consumers to make sustainable choices. Businesses are also becoming greener on the inside. For example, employees have started using social media apps to blow the whistle on any environmental misbehavior, such as the incorrect treatment of waste.

In terms of social factors, companies will have fully implemented diversity initiatives in this scenario, responding to strong social pressure. They also now find that they need to be diverse in order to attract the best talent, for which competition is fierce. Corporate giving and cause-related marketing has also experienced a revival, and employees actively engage in activities such as beekeeping, planting trees, education, and the like.

As far as governance is concerned, firms are now truly transparent about their supply chains. Any incidents are reported honestly and investigated in full. From a steering perspective, supervisory boards routinely open their doors to NGOs. Some companies go even further, giving "planet artificial intelligence (AI)" a vote on the management board in the name of the planet. Most firms have also linked their CEO pay to sustainability, with performance closely monitored by the outside world. Not infrequently, firms donate any profit above their moderate growth targets to deserving causes. Finally, new capital is only available for companies that have a sustainability score above a certain threshold.

Scenario #2:

Race for sustainability

The race is on for companies to be the most sustainable among their competitors

ESG affects all aspects of companies and their suppliers

Firms invest strongly in R&D and elsewhere in order to stay ahead of the curve in terms of offering customers the most sustainable product

Transparency and liberal regulation, with a focus on sustainability, has created an excellent breeding ground for innovation and progress

The role of companies has changed profoundly: "Giving back to society" is now a key marketing factor and mark of differentiation



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IN THE "MINIMUM VIABLE MASTER PLAN" SCENARIO, the approach to change – or rather lack of change – is one of turning back the clock and the only driving force for sustainability is the regulator. Although regulators have identified the need for change, companies continue to seek out loopholes that allow them to continue business as usual.

No drastic action has been taken by 2050. The changes enforced by governments are small, and neither climate goals nor SDGs have been achieved. The world is plagued by wildfires, overfishing, food scarcity and poverty. Sustainable technology is found in some countries and regions, for example, electric mobility in Europe and the United States, hydrogen-based mobility in Japan, but these are isolated success stories in specific fields. Strategies are fragmented and no global standards exist. Instead, governments have become more nationalistic and egotistical, using any new technology or resources purely for their own benefit.

With regard to the environment, minimum regulations have been enforced, but these hardly repair the damage that has already been done. Companies are required to define

CO2 targets but they are not binding and no sanctions are imposed. As a result, "greenwashing" by companies is widespread. Lobbyists successfully weaken or prevent any regulations that might change this situation. One of the few areas where governments have seen some success is in reducing waste, controlling pollution and better managing natural resources. However, urban waste is still a major problem and the fight for scarce national resources is increasing year by year.

On the social front, regulators have tried to implement diversity, but their efforts have remained at the level of recommendations rather than binding legislation. Globally, human rights violations are on the rise, and companies are only interested in taking action if it costs them nothing.

In the area of governance, although an environmental tax has been introduced, plenty of offshore tax havens exist enabling companies to avoid paying it. In some exceptional cases firms have linked CEO pay to sustainability, but to minimal effect. Sustainability scandals are the new normal.

Scenario #3:

Minimum viable master plan

Companies spend considerable time and money lobbying government and searching for loopholes in the legislation

They are willing to optimize their activities in order to comply with regulations but not to outperform them

Competition for licenses to exploit raw materials is fierce

Firms are not particularly concerned about diversity or fair pay

Companies have to spend a certain amount dealing with the environmental scandals they cause

Globalization is declining in favor of a new nationalism



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FINALLY, IN THE SCENARIO "EVERYONE FOR THEMSELVES", the general attitude is again one of turning back the clock, but what efforts there are in the direction of sustainability are driven by society rather than the regulator. Consumers value sustainability but only if it fits into their lifestyle and does not come at too high a cost. Climate protests have had hardly any impact, and climate goals have been missed. By 2050, large parts of the Americas, Africa, Europe and Asia are no longer habitable due to desertification and extreme weather conditions, and more than a billion climate refugees are on the move. Oceans are overfished, the air is polluted and food is scarce. Yet those parts of society that are not directly impacted are indifferent, choosing to ignore the climate protests, refugee flows and extinction of species.

On the environmental front, there are no CO2 targets in place and climate change is now unstoppable. Companies still largely depend on fossil fuels and nuclear power.

In the social dimension, the few achievements in diversity dating from the 2020s have now been wiped out. "Old white men" rule the world, and society idealizes the image of the 1950s housewife. Human rights have deteriorated over the years and people in developing countries face extreme poverty, harsh working conditions, child labor and war. Companies have a hire-and-fire mentality: After all, there is plenty of talent on the market. Short-term profit is king. Companies still donate, but only to "bread and circuses" – areas such as soccer, golf, tennis or opera.

Supply chain governance activities have stopped, as price is now the key criterion for success. The only major risk that companies face is that of "green terrorism" by activists.

Scenario #4:

Everyone for themselves

Companies optimize short-term profit through minimum compliance with regulation

Unemployment rates are high, creating an employer's market: Firms can easily find skilled staff, a hire-and-fire mentality prevails, wages are low and standards of employee treatment poor

CO2 emissions, pollution and waste are accepted in the name of profit

Firms largely disregard ESG factors

The way of doing business is reminiscent of the 1950 and '60s in Western Europe and the United States

Companies in the security and defense industry have grown strongly, reflecting society's desire to protect itself from the evil "other"



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I N T E R V I E WW I T H ...

Jennifer Morgan is International Executive Director of Greenpeace, the best-known environmental NGO in the world. She has been campaigning against climate change for more than two and a half decades. We asked her what she thinks the world will look like in 2050, what role businesses, governments and NGOs can play, and where her personal motivation comes from.

More and more companies are now integrating sustainability into their corporate strategy. Are we on the right track?

Jennifer Morgan: Unfortunately, no. We have seen that voluntary initiatives, where companies themselves try to integrate sustainability, do not work well. Often, they lack transparency. You just need to look at where the world is right now to know that this approach is not working. Look at biodiversity loss, climate change or emissions, for example. Or deforestation: In 2010, companies at the Consumer Goods Forum committed to ending deforestation in their supply chains by 2020. While some have done more than others, that target is far from being met. Between 2010 and 2020 at least 50 million hectares will have been destroyed, mostly for the production of materials. The integration of sustainability into corporate strategies is a long way from where it ought to be.

If we continue along our current path, what do you think the world will look like in 2050?

Jennifer Morgan: The world will not be a very nice place to live in. According to different projections, we are currently on a pathway to at least 3.2°C warming by 2100. That will

Jennifer Morgan, International Executive Director of GreenpeaceSeptember 2020

have dramatic consequences, such as millions more people on the move. And it is almost always the vulnerable that are impacted the most. We will likely see more displaced people within countries, and more refugees. With four degrees warming, you're looking at 1.8 billion additional people at risk of food insecurity. Water scarcity, extreme weather events – the world will be a very insecure, unstable and, I'm afraid, even more inequitable one than the world we live in now. It will be a world where those who are wealthy are able to get on spaceships and go to the moon, while those who are poor will lack even basic healthcare. Research into the link between actions by companies and climate change is growing. In the future, I believe that companies will be held more liable for the damage that they cause.

If you could wish for anything, what three actions would you want companies to take right now?

Jennifer Morgan: The first would be to completely change their current paradigm, for them to put wellbeing ahead of unlimited growth. Once you put people at the core of your operations, the limits of our planet suddenly become much clearer. This paradigm shift would make a tremendous difference to our planet. It would change the way we work and think, but at the same time would still provide value to shareholders.

The second step would be for companies to drastically reduce their fossil fuel dependency and invest in upstream solutions. Companies need to stop investing in end- of-the-pipe solutions that just transfer the problem somewhere else.

The third thing would be for firms to put transparency and accountability at the core of their business models. Businesses need to become fully transparent about their commitments, across all scopes of their business – scopes 1, 2 and 3. At the moment, companies sometimes pledge to do one thing but then work through business associations to actually undermine any regulation that would move in that direction. Accountability and transparency is a way of empowering consumers who want to create a better planet. It enables healthy relationships between companies, governments and citizens.

Do we need stronger regulation in order to become sustainable? Or will society lead the way?

Jennifer Morgan: There is no doubt in my mind that we are going to need more regulation. Time has run out. We need


to halve global emissions within the next eight years – that's a reduction of seven percent a year – in order to save millions of lives. This is not the responsibility of individuals alone. In conversations I've had with companies, they tell me that they want governments to provide more clarity about the targets and make them legally binding. They want policies that are "long, loud and legal!" That's where innovation and competition come in.

In France, our office has put forward the idea that companies should be required to have binding targets, many of them based on scientific research. A legal framework can be incredibly effective. One suggestion is that payouts to shareholders should depend on binding targets being met. I believe that we're beyond anything else at this point in time.

With political tensions rising in many countries, how do you perceive current regulation and collaboration between governments?

Jennifer Morgan: The atmosphere is what it is: You can't negotiate with it. Countries and companies that develop solutions early on aiming at 100 percent renewable energy and a closed-loop economy will enjoy a massive competitive advantage. That's why you see automotive companies in California trying to stay in line with the regulations and actually suing the Trump administration. The Paris Agreement is moving forward, despite efforts of the Trump Administration to knock if off track. We need a fundamental shift in mindset so that we no longer ask whether we have to do this but when and how. The automotive industry in Germany is a perfect example. People have been saying for years that the industry needs to move out of its "defensive" position, because it will be more expensive in the end. Unfortunately, the industry has held on as long as possible. And now it finds itself at risk. That's not good for Germany, it's not good for the workers, and it's not good for the companies themselves.

How will the role of environmental NGOs such as Greenpeace change in the future? Will we see more collaboration with businesses?

Jennifer Morgan: I think there will be more collaboration between different movements. People fighting for certain causes – be that human rights, racial justice, the environment or workers' rights – often share similar perspectives. They can become stronger by working together. It will be very difficult for NGOs to sit on the Boards of the companies that are responsible for the climate damages occurring around the world.

Right now I see three groups of companies. The first, mainly small and medium-sized enterprises, seems to understand and care. They want to contribute and play a positive role in society. Here you can see, even at a local level, different types of

collaboration happening in a creative way as businesses work together with civil society.

The second group of companies understands the science and the importance of a fundamental change of course, but they're not yet quite sure how to do it. I am convinced that where these companies will be in 2050 will to a large extent determine whether we avoid the highest temperature thresholds or not. If these companies start listening more to society and put smart policies in place, we can still avoid the worst.

The third group are companies that simply follow their vested interests, holding on to what they have and blocking any progress. If the second group of companies join the ranks of the third group, then we really have a problem.

You have campaigned against climate change for more than 25 years. What gives you the energy and hope to continue?

Jennifer Morgan: I am very lucky to work in an organization that works closely with people. Every day I get messages on my desk about the changes that individuals and groups are pushing for. In Poland, for instance, local communities are coming together to stop coal mines being built in their towns. The level of engagement and activity around the world gives me great hope every day, and I often think it doesn't get enough visibility or media attention. There are millions of people out there trying to create a better world. I'm really inspired by them.

"The atmosphere is what it is:

You can't negotiate with it."

Jennifer Morgan, International Executive Director

of Greenpeace

Phot

o: B

as B

eent

jes/

Gre

enpe

ace


3 – Anticipatingopportunities –How to shapea better normal

Source: Roland Berger

Sub-zero emission products

Doubling of donations

Gender quotas

Gender diversity

Voluntelling employees

weekSenior expert program

Diversity of perspectives

Temporary transfers to NGOs

Cause-related marketing across entire product portfolio

Diversity quotas for management

CO2-negative value chain

Self-sufficient production plants

Zero pollution

Zero freshwater consumption

Closed loop

3D printing

Eliminating use of rare earths

Zero waste

Waste blockchain

Circular economy for complex products

Corporate biodiversity

strategy

Corporate environmental tracking apps

Eliminating noise & light pollution

CO2-neutral value chain

CO2 reduction (scopes 1-2)

CO2 reduction in use phase

CO2 reduction in supply chain

LGBTQ+ programs

Design-to-circularity

Green power

Local sourcing

Limiting business

travelEliminating business travel using avatars

CO2

compensationIncreasing recyclates

Environment

BOpportunity horizonSELECTION OF USE CASES FOR CORPORATES TO

DESIGN A FIRM'S SUSTAINABILITY ROADMAP

Diversity quotas for workforce


Short term (2020-25)

Long term (2035-50)

Medium term (2025-35)

Employee sustainability tracking app

Lifetime product liability

Democratic decision-making, including minorities

Bonus systems based on sustainability tracking

Transparency over supply chain incidents

ESG supplier selection

Full supervisory board independence

Enforcing equal & fair pay

"Planet AI" on management board

Mandatory rotation of supervisory board members

External transparency over internal incidentsResponsible

lobbying

External ESG auditing

Business Ethics 2.0

Supply chain traceability via blockchain

Mandatory ESG reporting

Sustainability board with veto rights

Transparency over lobbying

NGO on supervisory board

Employee pay tied to ESG score

Full enforcement of human rights

Job rotation

Eliminating child & forced labor

Sustainability as recruiting criterion

Coherent whistleblower

systemHuman rights in supply chain

Socialto lead us into this world and be successful in the race for sustaina- bi lity. In other words: What are the opportunities for companies to drive sustainability? How can the business world contribute to shaping a "better normal"? And why is it beneficial for companies to act this way?

Besides the areas discussed below, new opportunities for boosting sustainability may materialize along the way as a result of new technology, fresh business models, changes in society and environmental events. Companies would be well advised to develop an effective radar for spotting these options early on. B

HAVING EXPLORED a panorama of different scenarios, it is obvious that the most desirable scenario is the "Race for sustainability". This scenario best allows us to secure a sustainable future shaped by independent players in a social market economy. Driven by consumers, companies act as responsible players in society. Their competition in the race for sustainability

leads to most innovative solutions and a green transformation of the

whole economy. Once we have clarified the goal, the

question arises as to what companies

can actually do

CorporateGovernance

Animal welfare

Diversity quotas for workforce

Explore Roland Berger's sustainability horizon and find detailed explanations

for each use case:

rolandberger.com/sustainability-2050


http://rolandberger.com/sustainability-2050

Environment:

SHORT-TERM OPPORTUNITIES

CO2 reduction in the supply chain (scope 3):Companies reduce emissions across their entire supply chain (Tier 1-n) through close collaboration with their entire supply base. Initiatives can range from creating monetary incentives for reducing CO2 to sharing best practices. CO2 reduction in the supply chain is necessary in order to achieve the United Nations Sustainable Development Goals (SDGs).

Increasing recyclates: Using recycled materials avoids further exploitation of raw materials and is the first step towards creating a circular economy.

Design-to-circularity: Companies' R&D departments of companies identify options for cutting waste and reusing materials, components and products during the development phase.

MEDIUM-TERM OPPORTUNITIES

Eliminating use of rare earths: Rare earth metals are used in many of today's products and applications, from smart phones to wind power. However, they have a significant negative impact on the environment. Research is needed on replacing these elements with materials that have a less negative impact.

Zero waste: Zero waste involves the avoidance of all waste in all areas, including scrap from direct material, waste from office buildings and any waste produced along the value chain.

Waste blockchain: Firms are responsible for making sure that their waste is treated properly, especially if it is hazardous. Concepts for tracking and tracing waste paths can compel them to comply and identify any infringements.

Corporate environmental tracking apps: Companies use a smartphone app to track the environmental

footprint of employees, departments or the entire organization.

LONG-TERM OPPORTUNITIES

CO2-negative value chain: This entails capturing or compensating for more CO2 than is emitted – for example, to compensate retrospectively for all the emissions made by a firm since its foundation.

Sub-zero emission products: These are products that absorb greenhouse gas emissions or other environmental pollutants and have a negative footprint. In some cases, they can even be used to generate energy for the company's own consumption.

Closed loop: A closed loop involves the full application of a circular economy across the entire company and its value chain.

Social:

SHORT-TERM OPPORTUNITIES Eliminating child and forced labor: Processes are implemented and monitoring systems put in place that ensure that neither the company nor its suppliers use child or forced labor.

Animal welfare: Respect for animal welfare is based on the belief that non-human animals are sentient and so consideration should be given to their wellbeing. This can affect how animals are slaughtered for food, how they are used in scientific research, how they are kept (as pets, in zoos, farms, circuses, and so on) and how human activities impact on the welfare and survival of wild species.

Diversity of perspectives: Diversity is expanded beyond gender and sexual orientation to include ethnicity, age, educational background, physical ability, and so on.


Full enforcement of human rights: Firms ensure full adherence to human rights, including within their supply chains. This includes no child labor, freedom of opinion, no discrimination, fair wages, and so on.

Voluntelling employees week: "Voluntelling" in the corporate context means instructing employees to support charity activities inside or outside the firm, for example for a set number of paid days per employee per year.

MEDIUM-TERM OPPORTUNITIES

Cause-related marketing across the entire product portfolio: The company donates a certain share of its products to underprivileged groups. This also includes B2B donations.

Employee pay tied to ESG score: Bonuses are linked to a scorecard for ESG criteria, rewarding CO2-neutral travel, for example.

Temporary transfers to NGOs: Employees can work for NGOs on a temporary basis under a special program.


Lifetime product liability: Companies reduce waste by offering lifetime guarantees on their products, leveraging blockchain technology.

Governance:

SHORT-TERM OPPORTUNITIES

Transparency over lobbying: Companies report publicly, in detail, on any lobbying activities that they carry out, such as making donations and meeting politicians.

Sustainability board with veto rights: A "sustainability board" is established within the organization, with veto rights for major decisions.

Mandatory ESG reporting: Companies are obliged to report publicly on their ESG status and performance in a standardized manner.

ESG supplier selection: Companies select suppliers on the basis of their ESG rating, in particular integrating "knock-out" criteria and thresholds in their selection procedures.

External ESG auditing: Annual auditing of a firm's sustainability achievements by an impartial, external service provider. Results are communicated internally and externally.

MEDIUM-TERM OPPORTUNITIES Transparency over supply chain incidents: Companies communicate publicly about any fraud or other incidents within the supply chain, outlining what actions they are taking to remedy them.

Mandatory rotation of supervisory board members: Setting a maximum tenure for board members ensures that the supervisory function is executed properly.

NGOs on the supervisory board: One seat on the supervisory board is reserved for a representative of an NGO.


"Planet AI" on the management board: Companies give artificial intelligence (AI) a vote in all management decisions. This "planet AI" is programmed to represent the needs of planet Earth.

This overview describes a selection of the use cases. You can view descriptions of the full range of use cases online at

rolandberger.com/sustainability-2050


http://rolandberger.com/sustainability-2050

4 – Choosing your path –Implications for corporatestrategy

THE DRIVE FOR SUSTAINABILITY has fundamental implications for companies' long-term viability and success. Going forward, any strategy process will have to address sustainability. Indeed, we can go even further: Any corporate strategy developed over the next five years will in reality be a sustainability strategy, as this is the one issue that will dominate all future top-level discussions.

The scenarios presented here are deliberately provocative. But one thing is clear: Change of some sort is essential if our future is to be worth living. The question is thus not whether change will happen but how fast it will take place and who will be in the driving seat – society or regulators. Simply continuing along our current path, as represented by the scenarios "Minimum viable master plan" and "Everyone for themselves", will lead us to a future that is far from desirable.

THE ROAD TO SUSTAINABILITYSociety must wake up to the importance and urgency of sustainability. But businesses, too, need to set out on a journey of transformation. A key task for companies is to define their "ambition level" for each of the action fields in their sustainability strategy. Can they become a pioneer in a certain area? Or do they first need to close the gap to their competitors? Ambition levels should be both realistic and honest, to avoid misleading stakeholders. Public scrutiny is constantly growing, and there must be no hint of "greenwashing". Companies' deeds must live up to their words.

Firms can structure their sustainability initiatives in various ways. For example, they can build them around specific functions, such as human resources, production or the supply chain. Alternatively, they can organize them by the objective of the initiative: increased diversity, supply chain transparency, decarbonization, and so on. The right

approach will differ from company to company, depending on the overarching strategy and the company's own organizational setup and internal capacities.

Companies should also consider linking management compensation to sustainability goals and timelines. But although the role of management is essential, it is not the only decisive factor in an organization's journey to sustainability. Employees must also be fully engaged in the process, committed to achieving sustainability in the company and in society as a whole. This is particularly crucial for a successful sustainability strategy.

THE RISKS OF INACTIONWhat if a company fails to take action on sustainability? We believe that passivity on these issues poses a substantial risk to businesses, a risk that will increase exponentially over time. This could take the form of supply chain risks, reputational damage, environmental risk, or risks of other types. Companies that fail to address sustainability in their strategy are playing with fire.

But it's not just about risk. Sustainability also creates great economic opportunity. From driving energy efficiency to increasing recycling, from rethinking business models to discovering new market potential, managers will find that addressing sustainability head-on can pay great rewards.

As sustainability increasingly dominate public debate and motivate consumers in their decisions, we encourage companies to take a look at our "sustainarama", our panorama of sustainability scenarios. Our advice is to be bold, to take a strong stance on sustainability. Business has a vital role to play in ensuring a livable future. Never has the need to act been so urgent – and the potential to create a sustainable future so great.


AUTHORS

HANNAH MAREEN ZUEHLKEPartner+49 160 744 [email protected]

CHRISTIAN BOEHLERPartner+49 160 744 [email protected]

DR. MATTHIAS ERMERPartner+49 160 744 [email protected]

SUPPORTED BY DR. CHRISTIAN KRYSSenior ExpertRoland Berger Institute

We welcome your questions, comments and suggestions

WWW.ROLANDBERGER.COM

Credits and copyright

This publication has been prepared for general guidance only. The reader should not act according to any information provided in this publication without receiving specific professional advice. Roland Berger GmbH shall not be liable for any damages resulting from any use of the information contained in the publication.

© 2020 ROLAND BERGER GMBH. ALL RIGHTS RESERVED.

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http://www.rolandberger.com

https://www.rolandberger.com/en/Insights/Global-Topics/Opera-2030/?country=WLD

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