This article is adapted from Andrew Winston's book, The Big Pivot: Radically Practical Strategies for a Hotter, Scarcer, and More Open World.
Imagine a ship filling up with water. Time is running short, and everyone needs to help bail. But how fast should we work? We could ask people in the boat how much they think they can scoop out in the next hour, and then suggest they stretch a bit. But shouldn’t we first calculate how much water we must bail to keep afloat, and then divvy up the task? It’s the only practical path, right? Anything short of that would be suicide.
Setting bottom-up goals makes some sense, but only if the targets have no larger ramifications or connections to the real world. Think about what happens when a company can only survive if it hits certain goals. Consider chip makers Intel and AMD, for decades trying to reach innovation targets driven by Moore’s Law (doubling the number of transistors on a chip every two years) just to keep their products relevant in the marketplace. These two competitors couldn’t use a bottom-up approach.
When it comes to the planet’s ability to support us, and in particular the carbon reduction we have to achieve, few entities - companies and countries alike - are working backward from what we have to do. Instead, most organizations are planning forward from what they think they can do. So how fast do we have to bail?
Let’s recall the simple, stark math. To hold the planet’s warming to 2 degrees Celsius (3.6 degrees Fahrenheit), we must emit no more than 565 billion tons of carbon globally (and the most recent scenarios suggest far less). According to PwC, we have to bring down the global economy’s carbon intensity (how much carbon it takes to generate a dollar of GDP) by an average of 6 percent annually until 2100. And since climate change is cumulative, the earlier the better.
A growing number of large companies have set goals in line with what the science is telling us. Let’s look at how they’ve approached the challenge.
The Diageo Example
In late 2012, I was speaking to Roberta Barbieri, the global project manager for environmental sustainability for spirits giant Diageo. As we talked about how to set aggressive goals on carbon emissions, she casually mentioned that Diageo’s North American division—a group with $5.6 billion in sales and 14 production and manufacturing facilities—had already cut emissions by 80 percent.
The first thing I said was, “Excuse me?!” followed quickly by, “When can I come and talk to you?”
It started in 2008, when top Diageo execs decided to set some big goals. Before committing themselves, they ran the numbers on what it might cost to go entirely carbon-free. The back-of-the-envelope calculation was daunting (hundreds of millions of dollars) and included the building of bioenergy plants to power some of the company’s largest distilleries. The executives settled on a still-aggressive goal of 50 percent, made it public, and, remarkably, crossed their fingers.
Environmental exec Richard Dunne took responsibility for meeting the target in North America. He suspected that building an expensive bioenergy plant was not the only way to get there. His team implemented a rigorous process of collecting ideas for emissions cuts and estimating the costs. Then they sorted the results, ranking ideas by net gain on environmental improvement and then by financial investment, grouping the ideas into three expense buckets: (1) low or no cost, the no-brainers; (2) some increase in operating expense; and (3) significant capital expenditures (like the bioenergy plant).
Diageo’s leaders initially thought that only major capital projects would reduce emissions significantly. But Dunne’s process revealed a surprising number of no-brainers. As a result, Diageo North America cut emissions 50 percent by 2012, mainly using ideas from the low-cost group of initiatives. The projects ranged from easy efforts—like lighting retrofits, boiler upgrades, and installing variable-speed mechanical drives—to larger, but still economical, changes such as switching from oil to natural gas and cutting back from two boilers to one in a small distillery.
But Diageo’s example, along with other leadership stories, provides some guideposts on how to make big goals happen.
Executing Big, Science-Based Goals
Setting and achieving radical efficiency goals can be easier than it sounds. After all, Diageo made it happen pretty fast. But it takes focus and trust in the best science available. Here are a few guidelines.
Understand the Science and Global Goals When They’re Clear
On carbon, the IPCC continues to lay out recommended goals, and scientists like Jim Hansen and Michael Mann help convey these goals to the public. An 80 percent reduction by 2050 (from 1990 emissions) is the latest minimum goal as of this writing. On a range of biophysical concerns, the Stockholm Resilience Center is doing fantastic work on our global system boundaries. And on social issues, the UN Millennium Development Goals are a combination of scientific and moral imperatives, all grounded in real social and ecological limits.
Assume the Scientific Recommendations Will Become Less Flexible
The effects of climate change are moving faster, not slower than expected, so the 80 percent goal may soon be considered insufficient. In one year, PwC’s Low Carbon Economy report went from recommending a 5 percent annual carbon intensity improvement to 6 percent—a sizable difference when the world is only reducing intensity at the rate of 0.7 percent today. Or on other issues, water is not becoming more available in dry regions. And when was the last time we saw a chemical of concern get the “all clear” from scientists? No, much more likely is a widening uneasiness resulting in ever-stricter regulations.
Collaborate with Others When the Science Isn’t Crystal Clear (But Is Indicative)
For example, EMC developed its action plan on phthalates, the controversial chemical appearing in plastics and electronics, “based on recommendations from consortia such as … the EPA Partnership on Alternatives to Certain Phthalates.”
Understand Where Context Matters
Are we talking about water? If so, then setting a goal for a global organization may be useless. Water will be a critical issue in drier regions, and less so in others. And what matters is how everyone in an area uses water, not just your company, so the metrics and goals need to cover the whole watershed. How about carbon? In this case, global science is the guideline. As context-based metrics champions continue advocating for change in how we measure environmental and social performance, keep an eye on the influencers that they’re targeting, including the Global Reporting Initiative, the Global Initiative for Sustainability Ratings, and other standards-setting bodies. All have incorporated or will be adding more context-based thinking over time.
Set the Goal from the Top
This may be the hardest part—harder even than making the cuts. But it’s not much more complicated than this. Diageo’s executives set the 50 percent global reduction target because they “wanted to do something big.”
If your peers aren’t setting the big, science-based goals, it’s an opportunity; if they are, better get going. (The searchable database I’m providing at PivotGoals.com should help you get started.)
Generate a Lot of Ideas
Use employee engagement tools to ask the people closest to operations. Then use open innovation to ask customers, suppliers, stakeholders, NGOs, and everyone else for good ideas.
Go for Scale and Quick Payback
It may seem obvious, but this was the secret of Diageo’s success. Sorting all the ideas by largest carbon impact first and then by ROI hits both targets. And it’s an important step for building buy-in since the quick return on the early projects will convince people in the organization to go further. In a study of 260 large emitters by the CDP (formerly Carbon Disclosure Project), carbon reduction efforts yielded an average ROI of 33 percent, with less than three years to payback.
Use Available Tools to Create Your Targets
EMC went for something a bit more complicated than Diageo’s Excel spreadsheet and worked with Autodesk’s Corporate Finance Approach to Climate-stabilizing Targets (C-FACT) tool. C-FACT, much like McKinsey and PwC’s work, “calculates the annual percentage reduction in intensity required to achieve an absolute goal.”16 Basically, it helps companies create their own glide path as Ford did. See appendix B for more on tools and how to think about what your company’s targets should be.
Believe That Massive, Radical Reductions Are Not Only Possible, But Also Profitable
This last point is critical. The opportunity is vast: according to the International Energy Agency, “four-fifths of the potential [of eco-efficiency and carbon and energy reductions] in the building sector and half in industry still remains untapped.”
A few final, critical points here. First, don’t be a fast follower. This is about being bold. We have to bail a lot of proverbial water, and we can’t afford to be timid. And best of all, big goals drive big performance. The CDP study of large emitters discovered that “companies that set absolute emissions reduction targets achieved reductions double the rate of those without targets with 10 percent higher firm-wide profitability.”
Second, we need to set goals not just for our own operations, but for the full value chain (like BT’s approach). And third, we have to be honest about whether we’re really heading in the right direction, especially if we’re setting what seem like solid, but ultimately ineffective, goals. Mike Brown, CEO of the South African bank Nedbank Group, says that if you know you need to go north, “then heading south, even more slowly than the rest of the pack, is still heading south.” Our north star here has to be science. Brown continues: “The hard limits imposed by planetary boundaries define not only the direction of travel, but also the required rate of progress.”
To make the Big Pivot, we must create value through radical efficiency, reduced risk, heretical innovation, and stronger brands. That’s the direction we should go. But it is only through science that we know how fast we must go.
Andrew Winston is a globally recognized business strategist, author and founder of Winston Eco-Strategies. His latest book, The Big Pivot: Radically Practical Strategies for a Hotter, Scarcer, and More Open World, helps business leaders navigate and profit from the world’s biggest challenges. Follow Andrew on Twitter @AndrewWinston.
Reprinted by permission of Harvard Business Review Press. Adapted from The Big Pivot: Radically Practical Strategies for a Hotter, Scarcer, and More Open World. Copyright 2014 Andrew S. Winston. All rights reserved.
