Driving organisational transformation

Becoming a net zero business

Businesses wishing to achieve a net zero end-goal require significant organisational transformation. To effectively respond to the complexities of climate change and the net zero transition, the fundamental purpose, value, practices and functioning of organisations need to change.

Context, purpose and values

Context

The world has always been unpredictable, but with increasing complexity and interconnectivity, issues like climate change, natural resource depletion and growing inequality have created a progressively more challenging environment in which businesses have to operate. The VUCA concept was introduced to describe the world becoming more volatile, uncertain, complex and ambiguous. While the term originally stems from a military context in the 1980s, it is now used to describe the challenges and impact changing environments have on businesses and society (Schick, Hobson & Ibisch, 2017).

The four elements of a VUCA world are:

  1. Volatility: Volatility occurs when businesses face unexpected or unstable factors and in some cases these may be of unknown duration. For instance, prices of raw materials on which a company depends may fluctuate following extreme weather conditions in parts of their supply chain.
  2. Uncertainty: The measure of uncertainty is the extent to which the future can be predicted. For example, even with the best scientific analysis, it is difficult to fully comprehend how exactly climate change will impact society.
  3. Complexity: Complexity refers to the number of interconnected parts and variables that need to be considered. The greater the interconnection between the parts, the more complex the world. For example, huge multinational companies operating interdependent chains of suppliers and contractors across the world increases complexity.
  4. Ambiguity: Ambiguity is a lack of clarity around how to interpret information or circumstances, usually occurring when information is incomplete, contradictory or inaccurate. For example, digital technology is disrupting global media systems and impacting how citizens perceive scientific data and differentiate between the truth and misinformation.

(Kraaijenbrink, 2018; Bennet & Lemoine, 2014)

Operating in a VUCA context poses risks to business, while simultaneously, challenges like climate change affect the stability and wellbeing of society. “The slow pace and reactive nature of regulation means that society cannot rely solely on governments and policymakers to effectively navigate these challenges” (CISL, 2018:1). Increasingly, public expectations have shifted, and businesses are expected to take responsibility for addressing issues like climate change in their own operations and supply chains (CISL, 2018). The commercial pressures to manage the impacts and dependencies relating to climate change (eg carbon emissions and vulnerable supply chains) are growing. These require more radical innovative strategies to achieve a transition from business as usual towards a more resilient net zero business.

Purpose

Facing systemic challenges from climate change presents an opportunity for companies to align their corporate purpose and strategy with a transition to net zero. Doing so can provide clarity and meaning when navigating complexity, managing risk and capitalising on new opportunities. A company can also attract and motivate stakeholders, empower employees and drive innovation by expressing its positive contribution to society (CISL, 2019). Purpose explains why an organisation does what it does, and helps stakeholders understand the business’s role, actions and priorities as well as the relevance of its products. 

Purpose can also affect how leadership and power is used to lead and direct the company towards a net zero future. Leaders can promote collective efforts that then align that purpose to the practical realities of operations and highlight why actions towards net zero are important (CISL, 2019).

In any context, adapting a company’s strategy to its external environment can identify potential new markets and needs. Because the economic landscape is changing so rapidly and fundamentally as a result of climate change, aligning a company’s purpose and strategy with underlying trends and expectations has become a prerequisite for continued success and even survival.

Value

An important element of organisational transformation is redefining value. When incorporating social and environmental value into a traditional approach, where the focus is on maximising financial value alone, we apply a different set of metrics to define value. This can be applied to current business models and approaches as well as a company’s value chain from supplier to customer by identifying where value is currently being created or destroyed. It is essential to identify how a new net zero strategy could maximise value creation.

Much of this value creation requires a systemic approach. For example, reducing carbon emissions at one stage of the value chain will require cooperation between a range of stakeholders in other organisations, and any action taken will have an impact on other elements in the wider system. As discussed in Module 6, circularity is one “systemic approach to economic development designed to benefit businesses, society, and the environment. In contrast to the “take-make-waste” linear model, a circular economy is regenerative by design and aims to gradually decouple growth from the consumption of finite resources” and carbon emissions (Ellen MacArthur Foundation, n.d.).