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Skip to main contentThe problem: Firms are coming under more pressure from stakeholders to show credible and executable plans to eliminate greenhouse gases.
Why it matters: Decarbonization efforts aren’t keeping pace with climate-related risks.
The solution: Align and incentivize the board, management, and talent to build sustainability into manufacturing processes and business models together.
It wasn’t a stroke of genius. Quite the opposite, in fact. It was a solution so practical and obvious as to be overlooked. But it took a frontline worker on the ground every day to think of it.
That’s how David Benattar, the chief sustainability officer of New Zealand’s largest retailer, The Warehouse Group, describes the company’s partnership with Tech-Collect NZ to launch free e-waste collection services at some of its stores. The group includes Noel Leeming, the country’s leading retailer for technology and appliances, and Warehouse Stationary stores. Why not make it easier for them to bring in their old phones, laptops, tablets, and other electronics for recycling?
Given The Warehouse Group’s massive scale in New Zealand, joining forces with the Tech-Collect NZ has made a significant difference in both the company and the country’s sustainability efforts. The Warehouse Group has pledged to reach net-zero carbon emissions in its operations by 2040, and reduce its scope 3 emissions by 80% in the same period. New Zealand as a country has committed to net zero by 2050. Reuse and recycling of products and materials can make a significant contribution to net-zero —the Ellen MacArthur Foundation estimates it can help reduce emissions by 45%—by avoiding the extraction, production and transportation emissions associated with virgin materials.
The program, first trialed in partnership with The Warehouse Group in 2021, has expanded to 28 Noel Leeming and five Warehouse Stationary stores across New Zealand, collecting and recycling more than 183 tonnes of e-waste. “For leaders, sustainability can be conceptual,” says Benattar. “It’s the people on the ground that are making it tangible.”
But for many companies, the transition from theory to reality isn’t happening fast enough—not just for our planet, but also for employees, customers, investors, regulators, and other stakeholders. Mark Lancelott, a Korn Ferry senior client partner specializing in sustainability solutions, says it’s no longer enough for companies to announce when they hope to reach net-zero carbon emissions, which is when greenhouses gases emitted are offset by those taken out of the atmosphere. “The days of setting a date and getting kudos are over,” he says. “Now the emphasis is on implementation and showing that your plan is credible and executable.”
It’s a complex question that involves a host of financial, operational, legal, reputational, and human considerations. The totality of it can sometimes be overwhelming, says Lancelott. At the same time, however, if you look at the progress happening across industries, it adds up, too. “Getting to net zero is about fundamentally changing manufacturing process and business models,” says Lancelott. There is a commercial case for action, he says, for firms that can find the competitive advantage from inherently sustainable products and services. But there is an upfront cost to innovate and transform as well. Instead of the chess analogy leaders love to use when talking about strategic planning, he says it’s more like poker, where you make bets and take chances, some of which you’ll win and some you’ll lose. “For that, you need leaders and talent with a different mindset,” he says, “and that’s the biggest challenge companies face in getting to net-zero.”
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One of the most difficult paradoxes for leaders to wrap their heads around is that reaching net zero is a short-term problem in need of long-term solutions. Most leaders are accustomed to thinking the inverse, says James Cameron, an independent advisor and consultant on climate and sustainability topics.
Case in point: Scope 3 emissions. There are three basic components to carbon emissions. The first component consists of emissions directly made by the company, while the second is made up of emissions the company uses but doesn’t control. It is relatively easy for companies to devise solutions for these categories—they can switch to electric vehicles, use more efficient fuel, or buy heat and electricity from different or renewable sources.
But the third component, or Scope 3 as it is called in the industry, is where it gets tricky. Scope 3 emissions come from sources that a company is indirectly responsible for, such as those that come from suppliers along its supply chain. Typically, these emissions not only account for a majority of a company’s total carbon footprint, but also are the most challenging to reduce. Obstacles include the lack of standardized carbon accounting practices, the need for collaboration across multiple stakeholder groups along the supply chain, and access to capital for operational and procurement upgrades. “Reducing Scope 3 emissions is a long-term transformation that needs to happen quickly,” says Cameron. “The problem for firms is knowing where the edges of your obligations are.”
Nico Van Dam, a senior client partner in the organization strategy practice in EMEA for Korn Ferry, says boards can also play a key role by helping firms rethink the role of chief sustainability officer. He says instead of having isolated sustainability functions or relying on the CSO to build a strategy around operations, firms are instead moving to a matrixed structure where the CSO, business leaders, and CFO build net-zero commitments into plans together.
That’s where the board comes into play, says Olivier Dubray, Korn Ferry’s ESG Sustainability & DEI solutions leader in France. While boards shouldn’t be drawing up emissions reduction plans, Dubray says they need to start asking some pointed questions about how leaders plan to get to net zero and if the organization has the talent to get them there. “It’s the board’s job to help leaders strike a balance between short-term business objectives and long-term sustainability goals,” says Dubray.
The problem is that many boards don’t have directors with the skills and expertise to effectively guide their leaders on climate issues. According to a recent Korn Ferry survey of board directors, only 47% consider themselves to be climate literate. “Climate wasn’t a big agenda item for most directors throughout their careers,” notes Pia Heidenmark Cook, the former chief sustainability officer at Ikea and current director on several corporate boards across the US and Europe.
But as sustainability moves to the forefront of investors’ and consumers’ agendas, directors are being called out more and more for neglecting their fiduciary duties. There’s been an uptick in climate-related litigation against directors in recent years, including cases where directors were sued personally instead of as part of the firm for neglecting their fiduciary duties by not taking action on climate. “If you sit on a board now, the risks of legal and reputational risks related to climate are much greater,” says Cook.
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From a board and leadership perspective, the pressure to accelerate net zero initiatives are colliding headfirst with the pressure to take a bigger role on talent and cultural issues. The confluence of those three forces is what makes now an ideal—and critical—period in the transition to sustainable practices. Cook, who speaks regularly on sustainability topics, says boards can provide value by guiding leaders on how to build net zero commitments into business strategy and plans. It’s not as simple as it seems, though. “Short-termism keeps pushing the problem to the future,” she says, “so firms now have to deal with a huge backlog of issues.”
Tying compensation to net-zero commitments is the most obvious and effective method to accelerate climate goals, which is why nearly three-quarters of S&P 500 companies link a portion of executive compensation to ESG metrics. “The focus is on creating a financial roadmap that allocates long-term goals to specific years,” says Cook. More boards are using key performance indicators to highlight whether the firm is making progress. Part of that involves holding management accountable for detailing the organization’s current carbon footprint and, importantly, both how and what it will be reduced to annually and over 5-, 10-, and 15-year increments based on the company’s business strategy. The timing element is strategic—it considers the short tenure of CEOs by chunking up long-term goals into bite-sized pieces to incentivize action along a continuum, says Van Dam.
Van Dam says boards can also play a key role by helping firms rethink the role of chief sustainability officer. He says instead of having isolated sustainability functions or relying on the CSO to build a strategy around operations, firms are instead moving to a matrixed structure where the CSO, business leader, and CFO build net-zero commitments into plans together. “That’s a big shift in mindset,” says Van Dam.
Another mindset shift is that boards are incorporating climate knowledge, particularly around disclosure and regulatory frameworks, into succession and transition planning. Cameron says the requirement shows boards understand “the parameters for corporate decision-making have changed,” and elevating climate traits and knowledge alongside financial and operational skills underscores “the beginning of the demand at the very top of organizations to find leaders who value climate issues in a practical and philosophical sense.”
On the frontlines, the challenge is the opposite—employees understand eliminating greenhouse gases on a visceral level, but they need leaders to bring them into strategy and empower them to be a part of the execution. There’s no shortage of research showing how purpose-driven organizations have higher retention scores and better financial performance than their peers. Korn Ferry research shows that 54% of millennials consider themselves climate activists, and 65% of Gen Z would consider changing careers for a sustainability-focused role. Getting those employees engaged is how firms can continue performing financially on their way to transforming sustainability. Or, as Benattar puts it, “Initiative after initiative, chapter after chapter, is how you build sustainability.”
For more information, contact Mark Lancelott at mark.lancelott@kornferry.com, Olivier Dubray at olivier.dubray@kornferry.com, Nico Van Dam at nico.van.dam@kornferry.com and Enrique Lindeberg at enrique.lindeberg@kornferry.com.
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