In early 2020, climate change and sustainability were widely acknowledged as the world’s biggest challenge, and boardrooms across the globe were making a response to their priority. But in the blink of an eye, the crisis upended the world’s operating assumptions. The sheer scale of the crisis that engulfed the planet has necessitated urgent and unprecedented action from everyone: governments, corporations, households, and individuals.
For many businesses, everything else dropped by the wayside as leaders scrambled to protect their workers and their profit margins. In 2021, that focus has shifted to repositioning themselves for the recovery period, which often includes a whole different take on how companies function on a day-to-day basis and how they offer their services to customers. What comes as a surprise, then, is that our latest survey shows leaders in the industrial sector in particular have managed to navigate the pandemic without sacrificing their climate commitment.
“Our latest survey shows leaders in the industrial sector in particular have managed to navigate the pandemic without sacrificing their climate commitment.”
Despite an unprecedented drop in demand across the board, leaders remain staunchly committed to environmental, social, and corporate governance (ESG) initiatives. This is just one of the findings of Stanton Chase’s recent survey of industrial leaders, who revealed that securing the best talent will be a crucial key to a successful transition to the post-pandemic economy. And as leaders look to formulate what exactly their companies will look like in this new era, they are turning to tech and human capital as the way forward.
The post-pandemic period will be decisive for fending off climate change and boosting sustainability. As organizations and whole industries rethink their entire operating procedures and outlook, there are valuable lessons to be learned from the crisis that better equip the business world to tackle climate change.
It is our hope that these findings will be of interest to you and that this will be the beginning of an important dialogue about how Stanton Chase can help your firm realize its climate action goals. Please contact your nearest Stanton Chase office at www.stantonchase.com.
Read on for more insights.
To fully gauge the significance of a leader’s response to climate change, we first wanted to gauge the extent to which companies suffered as a result of the COVID-19 crisis. As we learned through the Stanton Chase CFO survey titled “Trial By Fire: How CFOs Are Stepping Up Amid The Crisis,” at the end of 2020, the impact was predominantly negative. In this current survey, more than two-thirds (68%) of industrial leaders reported experiencing slight or strong negative effects from the pandemic.
Those organizations that were more negatively affected by the pandemic and anti-pandemic measures were more likely to drop their focus on previous priorities in favor of an emergency response. However, climate change and sustainability appear to be an exception.
At the start of the pandemic, in March 2020, we reported on how industry insiders were experiencing major disruptions with supply chains as the major impact of the emerging crisis. However, more than a year later, industrial leaders report that the biggest issue (65%) they’ve faced has been a drop in demand for products and services.
“Industrial leaders report that the biggest issue they’ve faced has been a drop in demand for products and services.”
The second most prevalent area that was affected was human resources and the organization of work (40%) as leaders quickly shifted to remote work and continued to fine-tune the effectiveness of processes carried out remotely. This was followed closely by the related area of operations, manufacturing, and production, which is directly impacted by how and where employees are able to work.
In this year’s survey, over a third (36%) of leaders still cited disruptions in the supply chain as one of the biggest issues they’ve faced over the past year.
Despite so much of companies’ attention and resources being redirected toward crisis management, their commitment to sustainability and battling climate change did not waver. In fact, almost 40% of industrial leaders said that their company’s commitment to climate change action has actually strengthened during the pandemic period, while 56% reporting their climate priority remaining the same as in early 2020. Only 5% of respondents said their company’s commitment to climate action had weakened.
“Almost 40% of industrial leaders said that their company’s commitment to climate change action has actually strengthened during the pandemic period.”
This is extremely positive news going into the post-recovery period of the pandemic. For companies to be just as committed – and in many cases even more so — than before demonstrates the willingness of leaders to keep this important issue as a key priority, one that has a trickle-down effect to all other aspects of how organizations conduct their business.
While it is encouraging to learn that so many leaders remain strongly committed to their organizations making a stand for climate action, industrial organizations are not dedicating an impactful amount of their current annual capital expenditure to environmental initiatives.
Indeed, considering that some estimates say as much as $100-$150 trillion will be needed over the next three decades in order to transition to a low carbon economy, companies have an imperative to make climate action a priority in their budgets as well as in their mission. That’s a goal of least $3-5 trillion of investment each year, which represents an increase of up to eight times the current levels.
Currently, almost half (45%) of respondents said that their companies spend 10% or less of their CAPEX on climate change and sustainability programs. Only 11% reported dedicating more than 30% of their CAPEX to climate action. Worryingly, almost a third (29%) said they do not know what percentage of capital expenditure goes toward climate change and sustainability programs.
“Almost a third said they do not know what percentage of capital expenditure goes toward climate change and sustainability programs.”
For leaders and their companies to truly make a lasting difference to mitigating climate change and creating a sustainable future for generations to come, now is the time that they must translate that priority into concrete investments into systems and initiatives – many of which will end up greatly benefiting the company in the medium to long term.
A temporary dip in investment over the period of the pandemic would perhaps be understandable given the amount of extraordinary expenses that have cropped up since the start of the crisis. However, only 9% reported a decrease in climate-dedicated CAPEX over the past 15 months.
In positive news, nearly a quarter (24%) said that their investment in climate action increased over the pandemic period, which reflects the new awareness of how closely interrelated the two crises’ responses can – and should – be.
Businesses across every sector, and especially industry, have been hard-hit by the COVID-19 pandemic. Facing a drop in demand and disruption to supply chains are just a few of the headaches facing leaders today as they look to get the gears going again in recovery. We asked industrial leaders what issues keep them up at night, and two-thirds (63%) said they are worried about their ability to hire the best talent for this crucial transition period. An equal number cited financial results, reflecting the ongoing problems with supply and demand.
“The need to streamline emergency measures into a practical and achievable yet competitive framework is top of mind for many leaders.”
More than half (55%) said they are concerned about keeping up with technological developments now that so many employees are working from home and so many processes are conducted remotely and online. The need to streamline those emergency measures into a practical and achievable yet competitive framework is top of mind for many leaders. 29% said they are anxious about how to keep up with the heightened competition as companies worldwide rethink and renew their practices, and 34% cited the increased pace of business as an issue that keeps them awake at night.
One-fifth (22%) said they worry about their organization’s climate change impact and initiatives.
The results of our latest global industrial survey confirm that industrial leaders are ready to take up the fight. Almost everyone we talked to (95%) agreed that now is the time to take action on climate change, with 50% saying strong and swift action is needed.
While many companies are still in fight-or-flight mode in response to the pandemic, many others are finding themselves surrounded by a host of new opportunities that are there for the taking. Industry 4.0 represents a chance for leaders to bring their companies up to speed on the latest technological innovations and to perhaps experiment with some new technological advances that prior to the pandemic would not have been justified. Similarly, the level of economic rethink that organizations have had to undergo represents a massive opportunity to reconceptualize a business from the ground up: out with the old, in with the new.
“Most managers are choosing technology – and human capital — as the means of protecting them from similar catastrophes in the future.”
When assessing how they want to invest going forward, most managers are choosing technology – and human capital — as the means of protecting them from similar catastrophes in the future. A majority 72% said they plan to invest in IT and digitalization in the post-recovery period, while 69% are willing to invest in organization and their people as a means of shoring up their business.
Almost half (45%) cited the importance of business continuity and risk management, which highlights the immediate need for succession planning. Others plan to safeguard their operations, manufacturing, and production, whereas a third (33%) view boosting marketing and sales as a way to successfully cope with a crisis.
As leaders take stock of the opportunities that the crisis has afforded, they compared what their top three challenges are in regard to human capital now versus at the start of 2020. The biggest difference can be seen in the area of diversity, which saw a 17% leap. Fostering diversity and inclusion in industrial organizations has long been a challenge, but the prevalence of the issue has brought it to the forefront for many leaders, for whom DE&I initiatives are now a priority.
Likewise, leaders reported an increased emphasis on people development, which was up 10% year-on-year. The pandemic has made companies more aware of their employees, their wellbeing, and professional development.
“The pandemic has made companies more aware of their employees, their wellbeing, and professional development.”
Several challenges remained almost unchanged over the period. Our respondents cited an ongoing struggle with a lack of management skills among leadership and an overall talent shortage.
However, in some areas, leaders reported an improvement. The perceived lack of entrepreneurship and creative thinking dropped 13% since early 2020, and leaders noted 13% less of a dearth in leadership, vision, and creative thinking. One of the few silver linings of the COVID-19 crisis and reconceptualizing business from scratch in many ways has been the chance for individuals to think outside the box and contribute strategically and creatively in an unprecedented manner.
On a further positive note, industrial leaders are managing to keep a competitive edge despite the challenges afforded by the crisis. Most of our respondents said that they believe they are keeping up with (44%) or surpassing (28%) their competitors when it comes to their company’s initiatives to tackle climate change. Almost one in five (16%) admitted they are actually doing much more than their market peers.
Interestingly, climate change is predominantly viewed as an opportunity rather than a threat to organizations. In fact, a majority of leaders (89%) from within the industrial sector view climate change and sustainability as a chance to not only become more environmentally friendly but also to increase efficiency, boost growth, and encourage innovation.
Almost one-fifth (19%) of respondents reported in 2020 that they saw no business opportunities stemming from climate issues, whereas this year that number was only 12%. Likewise, 41% of industrial leaders currently perceive specific opportunities related to climate change and sustainability while in 2020 only 35% of respondents felt this way.
The COVID-19 has changed many elements of how companies operate, not only internally but also on a market scale. There’s been a shift in what consumers, employees, and entire markets are looking from a company’s products and services – namely streamlined processes that utilize the latest in technological advancements.
Because of the relative freedom that comes with operating online and remotely, for those that have this possibility, companies find that their target market has expanded. Some of those that previously targeted a local audience, for example, may now be able to cater to a national or even international market.
“Climate change represents a host of opportunities for leaders who are willing to think outside the box.”
Likewise, climate change represents a host of opportunities for leaders who are willing to think outside the box. More than half (57%) of our respondents reported that incorporating climate initiatives opens up access to new markets, and 54% said they see the opportunity to improve their products through better innovation. They also cited stronger brand awareness (35%) and increased confidence of investors (30%) as potential benefits of prioritizing climate change and sustainability at their organization.
The pandemic period has provided many companies with the chance to restructure their organization toward improved efficiency, innovation, and growth. It’s been a time for rethinking methods from the corporate mission all the way down to the everyday workflow of employees.
Since leaders have resonantly confirmed that they are now making climate action a priority, we asked them in which concrete areas they plan to implement specific actions to combat climate change and foster sustainability. A majority of industrial leaders (56%) said they plan to make changes to their supply chain that will reflect environmentally friendly initiatives, and nearly half (48%) said they will focus on the areas of IT and digitalization. Almost a third (28%) listed marketing and sales, while one in five (19%) said they said human resources as the best place to start taking further climate action.
There is a general consensus among many industrial leaders over the need to acquire talent that will better help the company meet its goals of combatting climate change and fostering sustainability. Indeed, the pandemic period served to only strengthen the resolve of our respondents, who say that hiring the right people is one of the most pressing issues as they transition to the post-recovery period.
“The wish list of skills for potential talent has expanded to include a variety of flexible abilities that reflect the changes – and changed priorities – that companies have undergone.”
Companies are creating new roles that are dedicated to climate issues and an organizational response to climate change, and the wish list of skills for potential talent has expanded to include a variety of flexible abilities that reflect the changes – and changed priorities – that companies have undergone since early 2020.
Specifically, skills in change management (71%), cross-functional management (50%), and technology (32%) are the most in demand at the moment for industrial organizations. Personal skills like motivation and high ethical values each ranked highly, as well, with a quarter of respondents (24%) saying these are important.
Some companies are taking the step of creating new positions that are specifically dedicated to climate change and related topics, such as Sustainability Officer, Circular Economy Officer, and others. Almost a third (30%) said they are using the opportunities at present to create new roles that will help them achieve their climate action goals. 67%, however, reported that they are not creating any new positions but are rather utilizing or expanding the purview of existing roles.
The events of 2020-2021 have taught the world much about the fragility of corporate ecosystems. And now that the business world is emerging from the crisis and rethinking much from the ground up, it’s time for many to reposition and reprioritize so that there is a clear focus on battling climate change and fostering sustainability at all levels.
Industrial leaders are well-equipped to take immediate action. Their commitment to climate action did not waver during the crisis, and most are utilizing the current structure of their organization to implement real and lasting change to mitigate the negative effects of climate change on our planet.
Our respondents view this challenge as an opportunity: to embrace new methods and markets, to innovate systems and services, and to grow their work force with talent that is equipped with flexible management skills and cutting-edge technical know-how.
Rethinking their operations to reflect climate initiatives is not a burden for companies. Rather, it is a chance to ensure that we all – the individual, the organization, the world – are doing our utmost to protect the planet, and that luckily goes hand-in-hand with appealing to savvy customers.
Jan Duniec is a Partner at the Warsaw office of Stanton Chase and is the Global Practice Leader for the industrial sector.
Flemming Riber is a Managing Partner at the Stanton Chase Copenhagen office and Global ESG Practice Leader.