David Wray is no newcomer to dealing with change. He has been advising top companies across the world for over two decades. We spoke to him about how the climate crisis will necessitate wide ranging organisational changes in the coming years.
Your website describes you as a ‘transformation and change management executive’. Would it be fair to say that the climate crisis and its increasing effect on boardrooms will require a lot of individual and institutional change?
Yes, absolutely. It starts by recognising that the leadership required to address climate issues will need to be more strategic, integrated and responsive than we’ve ever been in the past. Let me explain what I mean a little more.
The climate crisis needs a wholesale change in how most businesses operate. A simple example could be business travel. Before the pandemic, travel was defined by the cost envelope (i.e., budget). However, that is morphing towards considering more than budget and instead factoring in the carbon footprint we create with the flight. Is it really necessary, or can we connect in more environmentally friendly ways? This awareness will inevitably lead to less business travel, so executives will need to consider alternatives to traditional face-to-face meetings to build and maintain relationships. This is not to say all business travel will be eliminated, it won’t be (some activities really do need to be in person), but certainly, I expect to see a permanent shift downwards in business travel.
Other examples include rethinking the manufacturing process in terms of energy consumed, water used, or waste created. It may need investments to become more environmentally responsible, investments that may appear to lack a payoff (in the traditional sense). These are the kinds of things that will impact mindsets, strategies, culture and more. The changes for some companies could be quite profound. And we haven’t even touched on the new skill sets required in data analysis, modelling, predictive analytics, and so much more. Most of these are not taught at scale in formal accounting programmes in most countries, so we need to upskill and right-skill finance in other ways and do so quickly. Regulation and assurance of sustainability reporting is coming fast!
You’ve spent decades working in the business world and must have seen numerous transitions/challenges. How would you rate the climate challenge compared to others you’ve seen?
It’s a good question. While climate change is undoubtedly profound, I actually think sustainability as a whole, meaning not just the environment but also the social and governance aspects, is akin to the new industrial revolution.
It will touch every single aspect of the organisation. Sustainability has moved well past tree-hugging and activism – it is now a mainstream conversation.
Regulators are mandating climate matters with the SEC (Securities and Exchange Commission), ISSB (International Sustainability Standards Board) and EFRAG (European Financial Reporting Advisory Group) having draft standards out for public comment. These standards move us from voluntary reporting to mandatory reporting.
Companies currently reporting voluntarily under TCFD (Task Force on Climate-Related Financial Disclosures), for example, might think to themselves – oh I am ready for this, it won’t be such a big change. Actually, that’s not true – the ISSB exposure draft for example stipulates additional requirements such as an organisation’s use of carbon offsets (a contentious issue at the moment), industry-based metrics and an assessment of how an organisation’s targets and scenarios compare with the latest international agreements on climate change.
Sustainability matters will require a better understanding of the business, and the business’ activities that impact biodiversity – this is about risks and, of course, opportunities. For instance, it means understanding your company’s potential over-exploitation of resources, habitat loss or restoration, fragmentation or degradation of ecosystems, pollution, the introduction of exotic species, or contributions to climate change.
This mere snapshot of the changes coming our way makes it clear in my mind that the changes related to climate and other sustainability topics are the most significant I’ve seen in my working career.
Having studied why some individuals succeed and others fail when learning new skills, what core attributes will we see in those businesses that succeed and fail while transitioning to a green economy?
Great question to end on, and something I am really passionate about – people. The skills we will see in successful organisations, beyond the technical skills I just mentioned, are human skills. The ability to communicate, influence, lead and pivot (agility) will be key.
Profound changes can upset a sense of security and comfort in an organisation. We need to help employees through this phase and bring them along on the journey. Embedding technology side by side with people can be unnerving. It may even feel threatening, so we also need to help our teams with this.
Technology needs to augment human decision making. It is a tool rather than a people replacement. The ability to influence is all about helping the business see not just risks (after all, finance and accounting professionals are brilliant at assessing risks) but also identifying opportunities presented by climate or other sustainability matters.
Consider, for example, companies that live and breathe a people-first strategy. For them, implementing and reporting on the S in ESG will be much smoother than those organisations that put profit and growth above all else. Leading our own teams, but also our customers and suppliers on the journey – we need to think about scope 3 emissions (meaning upstream and downstream from the company itself). How we think of product life-cycles will extend beyond our company walls (such as how it is disposed of, recycled or consumed and what impact that has on energy consumption, waste or hazardous materials, for example).
Pivoting will be important to respond to what I expect will be a rapidly changing and evolving societal environment. Regulations will emerge, consumers will ultimately demand more responsible goods and services (and do so by voting with their wallet) and so will suppliers. Organisations that recognise these trends and proactively address them will be the ones that ultimately prove successful in my view.