In an era of increasing environmental concerns, the corporate march toward a low-carbon economy presents both challenges and a wealth of opportunities. In a recent article, “Ten Questions for a Winning Climate-Transition Business Strategy“, HBS Professor and faculty PI in D^3’s Climate and Sustainability Impact Lab, George Serafeim, describes research emphasizing the need for executives to develop a climate-transition business strategy that addresses five key challenges, which are outlined below. Serafeim also introduces a framework for managing supply and demand for climate solutions, also outlined below, and looks to the future to describe the vast opportunities presented by the low-carbon economy.
Key Insight: Understanding Customer Behaviors
“Unless climate solutions also match customers’ long-standing preferences and behaviors, buyers will steer clear.” [1]
Businesses often assume that an environmentally friendly product will naturally attract consumers. However, history shows that consumer habits and preferences can significantly hinder the adoption of even the most innovative products. For example, one of BMW’s early electric vehicles, the i3, struggled in the market due to its deviation from what customers expected from the brand in terms of design and performance. Companies must align their climate solutions with the real-world preferences and behaviors of their target audience.
Key Insight: Navigating the Time of Transition
“Forecasting the distant future is difficult […] A strategy that’s oriented toward an inaccurate long-term forecast is a strategy for failure.” [2]
The timing of demand for climate solutions is a delicate balancing act. Companies must engage in scenario planning rather than relying on long-term, and often inaccurate, forecasts. Effective scenario planning allows companies to anticipate various future states and adjust their strategies dynamically, keeping pace with market developments and emerging technologies. Serafeim discusses how the Coca-Cola company used climate-informed scenario planning to make strategic decisions about beverage packaging, factoring in various environmental, consumer, and geographical influences to tailor their approach across different markets.
Key Insight: Balancing Emotions and Data in Decision-Making
“Strong emotions […] can also cloud a data-driven and analytically robust approach to strategy development and execution.” [3]
Emotions driven by climate change can lead to rushed or delayed actions in corporate strategies. Grounding your company’s decisions in data helps align the company’s initiatives with realistic environmental impact goals. The Belgian chemical company, Solvay, for example, developed a sustainable portfolio management tool to assess the environmental impact of its products across the supply chain and manufacturing process, enabling employees to make data-driven decisions about product viability based on environmental criteria. Such a tool demonstrates how data-driven approaches can remove the emotional element and foster more nuanced decision-making.
Key Insight: Managing Interdependencies in the Value Chain
“A company’s ability to supply climate solutions will often be governed by […] whether a host of other market players and policymakers also do their part.” [4]
The success of climate solutions often depends on a complex network of relationships and conditions, including government policies, supply chain readiness, and market readiness. Successful companies actively manage these interdependencies by engaging with government bodies, securing efficient supply chains, and establishing strong market partnerships. Serafeim gives the example of KOKO Networks, a Kenyan bioethanol company, which successfully navigated interdependencies by collaborating with government and large energy companies, and by leveraging carbon markets to make its bioethanol-fueled cooking solutions affordable and accessible.
Key Insight: Keeping a Balanced Focus
“The key lesson here is that a firm attempting a transition should ensure that its core business keeps producing profits.” [5]
Companies must not lose sight of their core operations while pursuing new climate initiatives. A balanced focus ensures that the ongoing business can finance the transition to new technologies and practices. This strategy supports sustainability both financially and operationally. AES, a global energy company, is the exemplar here as they prioritized restoring profitability in their core power generation business before expanding their renewable energy operations, which strategically secured the financial stability needed to support the transition to climate solutions.
Key Insight: Aligning Demand and Supply for Climate Solutions
“Companies whose demand and supply are misaligned are in more complicated situations than others.” [6]
Serafeim introduces a framework for assessing a company’s position based on its climate solutions’ demand and supply. This framework identifies four scenarios: high demand and high supply, high demand and low supply, low demand and high supply, and low demand and low supply. He argues that aligning these elements can guide strategic moves, helping companies optimize resource allocation and timing to effectively meet market needs.
Why This Matters
For C-suite executives and business leaders, understanding and integrating these insights into strategic planning is essential. The transition to a low-carbon economy is not just an environmental imperative but a strategic one that offers competitive advantages and long-term sustainability. By navigating these challenges effectively, leaders can position their companies to thrive in a future where business success and environmental sustainability are inextricably linked.
References
[1] George Serafeim, “Ten Questions for a Winning Climate-Transition Business Strategy”, strategy+business (September 9, 2024), https://www.strategy-business.com/article/Ten-questions-for-a-winning-climate-transition-business-strategy.
[2] Serafeim, “Ten Questions for a Winning Climate-Transition Business Strategy”, https://www.strategy-business.com/article/Ten-questions-for-a-winning-climate-transition-business-strategy.
[3] Serafeim, “Ten Questions for a Winning Climate-Transition Business Strategy”, https://www.strategy-business.com/article/Ten-questions-for-a-winning-climate-transition-business-strategy.
[4] Serafeim, “Ten Questions for a Winning Climate-Transition Business Strategy”, https://www.strategy-business.com/article/Ten-questions-for-a-winning-climate-transition-business-strategy.
[5] Serafeim, “Ten Questions for a Winning Climate-Transition Business Strategy”, https://www.strategy-business.com/article/Ten-questions-for-a-winning-climate-transition-business-strategy.
[6] Serafeim, “Ten Questions for a Winning Climate-Transition Business Strategy”, https://www.strategy-business.com/article/Ten-questions-for-a-winning-climate-transition-business-strategy.
Meet the Author
George Serafeim is the Charles M. Williams Professor of Business Administration at Harvard Business School, where he co-leads the Climate and Sustainability Impact Lab in the Digital, Data, and Design Institute. His research and teaching explores growing opportunities in energy transition (such as electric vehicles, heat pumps, off the grid solar energy systems, green hydrogen, renewable energy, and biofuels), materials and product utilization (such as circular models for reuse or recycle, plant based food, and lab grown agriculture), and enabling solutions (such as energy storage, carbon capture and storage, digital and AI driven models, carbon accounting, carbon credits and markets, risk management, and innovative financing).