Peter Bakker has encountered many raised eyebrows in boardrooms over the years – and more than his fair share of derisive putdowns. Such is life for the brave few who, like him, work to convince business leaders of the importance of sustainability.
Fortunately, he’s a resilient sort. It also helps that he has sat on the other side of the table, first as finance chief and then as CEO of logistics giant TNT.
Over the decade that he’s been serving as president and CEO of the World Business Council for Sustainable Development (WBCSD), Bakker has seen a gradual improvement in the private sector’s grasp of the strategic importance of environmental, social and corporate governance (ESG) issues.
“Before, many business leaders were saying: ‘I don’t know why I need to listen to this guy,’” he says. “Now, you see them sitting up and thinking: ‘Shit, I didn’t realise that things were this urgent.”
What’s behind this general improvement in attitude? And how can the council (a not-for-profit body counting nearly 200 global companies as members) help them to start the transformation demanded by the ESG challenges facing their firms?
First, key global events have helped the WBCSD’s cause in recent years. Before the United Nations’ landmark Paris accord in 2015, the questions of whether the world was warming up and, if so, whether anthropogenic CO2 emissions were the main cause, were still being debated. Since then, the climate scientists’ findings have been widely accepted. Moreover, the stark ramifications of global warming for businesses have become far clearer.
Bakker cites the case of German chemicals giant BASF, which had to pause production in the summer of 2018 after a drought lowered water levels in the Rhine so drastically that supply barges were prevented from reaching its riverside manufacturing facilities. The temporary stoppage cost the firm an estimated €250m (£214m).
“You can’t pick up a newspaper these days and avoid reading about climate change or weather impacts,” he says. “These topics are very much on the minds of everyone now – including boards.”
Bakker is not shy of playing the environmental doomsday card when faced with scepticism. Fail to slow global biodiversity loss, he warns, and the world will soon face “massive systemic risks” including famine owing to crop failures, military conflict owing to water scarcity and mass migration owing to desertification.
He adds that social inequality represents a key threat to big business too: if the gap between rich and poor is left to widen, we can expect societal cohesion to weaken and conflict to flare up.
“Large multinationals will be the first to get bricks through their windows, because they’ll be seen as the face of what’s no longer a fair system,” Bakker says.
Is there a growth opportunity in ESG?
While some boards may rationalise such scenarios away, with some arguing that technological advances will solve most problems, the threat posed by market disruptors is harder to dismiss, according to Bakker.
He recalls attending a board meeting for a large automotive company five years ago. For every mention of Mercedes in the discussion, there were eight references to Tesla – “and that was back when the electric car firm was a relative minnow”.
The flipside of disruption, of course, is opportunity. Smart boards are generally quick to see the commercial potential of being first to the market with greener, fairer products and services, Bakker notes.
“If you’re the first to get it right, you’ll have the kind of growth opportunity that you simply never would have had within your incumbent model,” he says.
On the few occasions that his audiences remain unconvinced these days, Bakker takes a more direct route. Like it or not, he tells them, ESG issues aren’t going away and neither is regulatory scrutiny. The need to comply with reporting requirements often proves the clincher to his argument. Six years ago, the G20-backed Financial Stability Board published a report stating that large companies might need to disclose their climate-related risks. Today, that ‘might’ is fast becoming a ‘will’.
The common first response of many boards is to ask how much taking the appropriate action will cost their companies. Bakker will reply that it will be “much less than the cost of inaction”.
Sustainability requires a holistic approach
Once an audience has accepted his arguments, Bakker will deftly change his persona from preacher to adviser. His first move then is to warn against dealing with ESG issues in a piecemeal way.
To this end, he advises boards to make an integrated assessment of all their ESG risks as an initial step. As he points out: “Once you have a handle on these, you can start trying to design solutions. If you address one in isolation, you’ll find that you have many other interdependent risks still around. Only a holistic view makes sense.”
There is no single transformation blueprint that will work for every organisation. Each company has a unique combination of risks and opportunities to address. That said, some basic tenets of future-proofing apply to all enterprises. The WBCSD set these out in its 2021 report Vision 2050: time to transform.
A vital first step is forming a clear idea of what a truly sustainable version of your business and/or industry might look like in the longer term. The next is planning how to achieve that. Here, the council suggests “transformation pathways” for 10 key industries, ranging from energy and transport to healthcare and financial services. In each case, boards are encouraged to look beyond their own four walls and ask themselves two core questions. The first is: what factors are preventing the system in which they operate from being more sustainable? The second is: what levers can their businesses pull to help transform that system?
Take the construction industry, for instance. All too often, the built environment reduces biodiversity, emits a lot of greenhouse gas and harms people’s health. The solutions include planning with regeneration in mind, prioritising people’s health and wellbeing needs at the design stage and making full use of recycled materials and energy-efficient tech.
Bakker cites Nestlé as an effective exponent of visualisation and planning. The Swiss food giant recently published a detailed account of how it will reshape its operations and product portfolio to prepare for the realities of a low-carbon economy.
“Nestle’s climate transition plan not only details precisely how the company is going to decarbonise; it also spells out how people can hold the firm accountable,” he says.
How to get every stakeholder thinking about sustainability
Board members themselves should adopt a new way of thinking, Bakker adds. He suggests that they start working to the “three Rs”: reinvention (prepare yourself to ditch business as usual for a more sustainable, inclusive alternative); regeneration (actively consider how to help the planet and its inhabitants to thrive); and resilience (train yourself to better anticipate and embrace change).
He would also urge senior leadership teams to spread the word and encourage other stakeholders in their businesses to join the ESG effort. Sustainability is too broad and business transformation is too complex to leave to the few, however able and willing they may be. That may well mean retraining employees, reorienting supplier relations and rethinking consumer communications.
Business leaders must clearly “embody the desire to transform”, Bakker argues. “But all functions in the organisation need to be educated on what this transformation means for them. This can’t simply be left to the sustainability team.” Or the board, for that matter.