Geopolitical tensions undermining climate change action

Increased geopolitical tensions are undermining common efforts to combat climate change, according to Rich Lesser, CEO of the Boston Consulting Group. In an exclusive interview via email with Kathimerini, Lesser notes that, despite these tensions, there will be progress at the UN Climate Change Conference (COP26). He hails the leading role being played by Europe in dealing with the climate crisis and highlights the Greek master plan for the decarbonization of the energy supply as a good example of green transition creating new opportunities for growth. The chief executive of BCG also delves into how work will be different after the pandemic and what we learned about the virtues and vices of global capitalism from the unprecedented project to vaccinate the world against Covid-19, and explains why antagonism between the US and China will not prevent cooperation where necessary.

We are two weeks away from COP26. How optimistic are you about the alignment of the big three economies (EU, US, China) on a net-zero target? How pressing is it that China, the US and others follow Europe’s lead and establish stringent, legally mandatory intermediate targets for emissions cuts?

I think we’re going to make progress, but the geopolitical backdrop is so challenging, I worry we won’t get as far as we would like in COP26. But I do think there will be progress, among other areas in the role of business in accelerating the progress towards a net-zero economy. Some of the legally binding commitments that we were expecting from some governments may take a bit longer than we would like.

What Europe is doing to set the standards for a transition to net zero is outstanding. There are many specific issues to work through, so I do hope those will continue to be addressed in a very thoughtful way – engaging with the business community on how to do this in the most productive way for the European and global economy. But I hope other parts of the world will look at Europe’s leadership on this and seek to move in similar directions, recognizing the specific elements will need to be customized for each country.

As gas prices soar, panic is setting in among Europe’s governments and there is already a backlash about the EU Commission’s Fit-for-55 proposal (55% emissions cuts by 2030 compared to 1990). How hard will it be to convince the public to make the economic sacrifices needed to achieve the green transition goals?

This is a real concern, but it’s very important to see the true economics in the move to net zero, which are quite encouraging. Achieving end-to-end decarbonization for most major sectors can be done with a much smaller impact on end-consumer prices overall, because high-emissions raw input materials often make up only a small portion of the final price. In a recent study we worked on with the World Economic Forum, we found that decarbonizing the eight major supply chains that drive more than 50% of global emissions, would lead to price increases for consumers no greater than 1-4% in the medium term. And in the early years, a large share of these emissions could be abated with readily available and affordable levers.

For example, decarbonizing the automotive value chain would only increase costs by 2% relative to the price of the car, and OEMs [original equipment manufacturers] can achieve up to 60% emissions reductions through their supply chains with currently available levers, costing them less than €10 per ton of CO2-equivalent.

To achieve these levels of emissions reductions, there needs to be collaboration across sectors at a large scale. Some companies are leading the race in the runup to COP26, and we need many more to come on board. For leaders and CEOs, this means taking more holistic responsibility for their supply chains, making them more transparent and measurable end-to-end, being able to track their sustainability performance, and intervening when necessary. There will be increasingly many opportunities for sustainability transformations to occur, as more and more companies invest, experiment, and offer solutions; but it takes bold decisions from leaders to leverage these opportunities.

Government action and context-setting will be critical to set the world on a net-zero path. The burden lies with governments to ensure that the political and societal environment is such as to facilitate businesses’ steering towards sustainability; and to enable an ecosystem of companies who can work together with sustainability as a common goal.

In Greece, for example, we can look at the decarbonization master plan, where I am proud to say that we have also been involved as BCG: the government is taking significant steps to proceed with the decarbonization of the country, but at the same time it is creating an entire portfolio of opportunities that will help businesses also grow in the changing environment. This is how I believe effective governmental support can facilitate the reaction to the climate crisis.

You grew up in Pittsburgh, a city particularly hard-hit by developments in the global economy in the 1970s which was then able to successfully reinvent itself. What lessons does its success hold for regions and countries that have to adjust to the permanent revolution of digital technology?

Pittsburgh, when I was growing up, was going through an economic transition. The city was facing the steel mills’ shutdown, leading to thousands of jobs being lost and a big part of the city’s workforce needing to take a new direction. I came away from this experience with two main observations: the need to look deeply to leverage your strengths and the imperative of massive investment in human capital.

On the first point about leveraging strength, in the case of Pittsburgh, while the steel mills were closing, the city had enormous strengths in healthcare, materials science, education systems, and corporate headquarters. And those elements became core to its rebirth in the years that followed.

On the second point, the city did a good, but not great, job in positioning itself to make the most of its strengths. It did leverage its universities and strong colleges to help people prepare for a new economy. But, frankly, it didn’t do enough for some workers, like those in the steel mills, to develop the skills to compete in a new economy. And, as a result, many of those workers left the city, rather than finding new opportunities in Pittsburgh. This is an important lesson for the years ahead, when investing to train all workers to thrive in a more technology-centered digital environment will be of critical importance.

What has the global race to produce and distribute the vaccines taught us about the virtues and the vices of global capitalism?

Vaccines will be our only way out of the pandemic; they are safe, and they are incredibly effective even against the Delta variant. I personally see no alternative for the long-term management of the virus, especially as it becomes endemic.

The vaccine development story highlights the power of innovation in a capitalist economy. Twenty-four months ago, it would have been inconceivable to believe that we would have vaccines developed and produced on this timeline and at this scale. As a result, we will save millions of lives and get our economies restarted must faster than they would have otherwise. The race to production shows the virtues of the globally connected economy; the major breakthroughs were achieved through international collaboration, and addressing challenges in research, manufacturing and distribution.

However, we do have to bear in mind that the rollout is still lagging severely in several parts of the world. This challenge can only be met via effective collaboration between businesses and governments. The pandemic has underlined how interdependent our world is. Battling the pandemic, but also tackling climate changes, as well as building resilient supply chains to supply the products and services we rely on, will require international cooperation.

As the competition between China and the US heats up, and Europe seeks to lessen its dependency on Asian imports, how do you see globalization evolving? Are we moving toward two systems, with little interaction with each other, like in the Cold War? Or is the interdependence too great, leading the logic of the most efficient supply chain to reassert itself?

Geopolitical tensions and bilateral US-China tariffs that already had firms thinking about their supply chains, were put into closer focus by disruptions we saw during the pandemic. We see two forces at play in the future of globalization – political dynamics and technological development.

On political dynamics, we see the world moving to more of a multipolar environment. While shifting power dynamics almost always cause some tensions, this time is different in that there are significant differences in economic and political systems – something we did not see when the US supplanted the UK as the world’s leading power 100 years ago. We are also seeing levels of trade protectionism and economic nationalism unlike anything since the 1930s, which is worrying.

On technological advancement: The speed at which the “New Industrial Revolution” is advancing is much faster than earlier technologies proliferated (steam, electric power, computers). This advancement will be largely unstoppable by any political force. It will bring the world closer together and help consumers, businesses and governments everywhere. BCG has a phrase, “Digital Integration in a Divided World,” which we think describes this phenomenon well.

We do anticipate a more complex international environment, both politically and economically, than we’ve experienced over the past three decades, but we believe there will continue to be global trade and cooperation in certain areas, especially on climate action between the US, China, Europe, and between governments and businesses.

Post-pandemic life

How will work be different after the pandemic?

Since the beginning of the pandemic, we have used the term “new reality” to describe the post-pandemic world, rather than “new normal,” which has been much more commonly used. We won’t – and should not expect to – return to a slightly adjusted version of pre-pandemic life.

We need to look at many aspects of the new reality. Firstly, about the nature of the workplace: One of the biggest challenges that companies face today is how to bring people back to the office. Companies are debating whether to employ vaccination or testing mandates, how exactly to enforce in-person collaboration once again – and they are doing all this amidst great emotional exhaustion and pressure on the workforce. The truth is that people do need to go back to the office; in-person interactions cannot be substituted and anyone who has returned after months of remote working can testify to that. However, people have experienced the alternative, and they realize the desirability of the flexibility that comes with working remotely. The challenge lies with the leaders to find the right balance: between business productivity needs, employee needs but also employee expectations.

The second aspect of the new reality is the rapid acceleration of digital. What was already on a high growth trajectory has now become ubiquitous. Companies are still in learning mode about how to embed new technologies in the workspace. For example, a large survey we conducted last year in Australia demonstrated that employers were largely focused on practical improvement through digital collaboration tools, while employees were looking for more affiliation activities.