Executive
Executive
Perspectives
Perspectives

Now Is the Time to Build Advantage
and Resilience ThroughSustainability
February 2023

Introduction to this document

As planetary boundaries are exceeded, new regulations,innovations, and behaviors are quickly changing the rules of
the game for industry. Sustainability is therefore
increasingly a source of competitive advantage and acondition for financial resilience.
There will be winners and losers as profit pools andcompetitive positions shift. Business models will need tochange, and in many sectors first movers will be able tosecure critical, but scarce, resources and talent.

In this BCG Executive
Perspectives edition, we
address how to become awinner by embracing
sustainability now

Now is the best time to act. The current macroeconomic
environment is accelerating rather than slowing regulatorychange, while at the same time creating a short-term
window where the cost of action is lower.
2

Copyright © 2023 by Boston Consulting Group. All rights reserved.

Sustainability aims to unlock long-term value forbusinesses and people by taking into consideration natural,social, and economic environments. Operating sustainably
has become a priority given the growing global challenges
in these areas.

Executive Summary | Now is the time to build advantage and resiliencethrough sustainability

How companies
are becoming
sustainability
leaders

How to getstartedFurther, the current downturn is creating a short-term opportunity to take advantage of lower asset prices andgreater availability of talent
Many companies are creating significant shareholder value by acting boldly and taking advantage of the shifting
profit pools driven by climate and sustainability. Specifically, they are:• Unlocking new profit pools and an expanding sustainable market through strategic product pivoting• Taking a holistic approach for top-line and bottom-line enhancement through sustainability transformation• Define shareholder value for decarbonization, realizing with new offerings, governance structure, etc.
Key learnings from sustainability leaders inspire BCGs recommendations for your journey. BCG is thesustainability leader in our own sector, with leading edge capabilities and a proven track record. Our approach helps ourclients integrate their business with their sustainability agenda, bringing a laser focus on value capture
In addition to our market leading sustainability transformation and tech & AI capabilities, we have recently
acquired Quantis to offer our clients an even broader range of technical expertise3

Copyright © 2023 by Boston Consulting Group. All rights reserved.

Now is thetime to act

Climate change and nature loss have reached a critical point, sparking unprecedented policy action and technologicalinnovation. Even as the economy faces headwinds, the climate-related regulatory response is accelerating, changing
the old risk and opportunity calculations

BCG Executive
Perspectives
Now is the time to act
How companies are becoming
sustainability leaders
How to get started

4

Copyright © 2023 by Boston Consulting Group. All rights reserved.

AGENDAClimate change and biodiversity loss have reached a critical point
Climate change is accelerating…

…while nature continues to decline
The global living planet index tracks changes inabundance of species populations°C 2.0

Years
1970
0

Index value (1970 = 0)
1.0

1980

1985

1990

2005

2010

2015

)

-30
-40
-50

0.0

-60
-70

-0.5
-1.0

2000

-10
-20

0.5

1995

-80
-90
1

500

1000

1500
Years

Source: IPCC AR6, WWF/ZSL 2022

1850 2020

Index value (1970 = 0)
Freshwater

GlobalTerrestrial

Marine5

Copyright © 2023 by Boston Consulting Group. All rights reserved.

1.5

1975

Infrastructure Investment & Jobs Act (IIJA)
and Inflation Reduction Act (IRA)The Carbon Border Adjustment
Mechanism (CBAM)

Allocates ~$480B federal funding to climate-related
infrastructure projects & clean energy production,& promoting environmental justice in communities

Imposes a carbon tax on EU imports, incentivizing
overseas producers to lower their emissions toremain competitive with EU peers

US govt procurement & SBTi alignment

Asset Management Associationof China (AMAC)

Mandates that all major federal contractors musthave validated SBTi within 2 years; federal
procurement amounts to ~$630B per year

Draft regulations that will require mutual funds
and ETFs to have +60% of their assets in defined
green investment and be eligible to be sold asgreen product, potentially implemented in 2023

REPowerEU

New UN treaty on plastic pollution

Grants ~€210B in investments to increase energy
efficiency, diversify energy suppliers, and accelerate
the rollout of renewables

Aims to forge a legally binding agreement to
reduce plastic pollution by 2024, likely mandating
recycling and reusable products

Source: IRA; Tax foundation, EU REPowerEU, Science Based Targets initiative (SBTi), Reuters, BCG Analysis

6

Copyright © 2022 by Boston Consulting Group. All rights reserved.

Regulatory response is accelerating, even as the economy slows downCurrent downturn is creating a short-term opportunity: lower asset prices
and greater availability of talentUnique opportunity to secure
experienced, scarce talent

Share prices drop disproportionately forselect companies relative to market

Large sustainability players are
significantly reducing workforce

Examples:Examples:•EV manufacturer share price fell 50% in thepast 6 months•

Wind power business laid off 20% of US
workforce in onshore power group•

Alternative protein food company's shareprice tumbled by 60% in past 6 months•

Vertical farming firm cut 50% of workforce•

Carbon management software company
closed, laying off 200 employees•

Refurbished tech startup cut 13% ofworkforce•

Battery manufacturer's share price declined
by 30% in the past year

VC funding shrank by $100B in Q3'22, andhas fell for three quarters in a row, leaving
companies looking for additional funding
Note: EV = electric vehicle
Sources: S&P1000, IMB, Mondo, Trading Economics, Bloomberg, IFP•

UK Lithium batteries manufacturer folds,
releasing ~250 employees into workforce

Price drop for scarcecommodities
Lithium price (CYN/T)
600,000
575,000
550,000
525,000
500,000
475,000
450,000
425,000
Mar

May

Jul

Sep

Nov 2023

7

Copyright © 2023 by Boston Consulting Group. All rights reserved.

Decrease in share price ofpotential target companies

BCG Executive
Perspectives
Now is the time to act
How companies are becoming
sustainability leaders
How to get started

8

Copyright © 2023 by Boston Consulting Group. All rights reserved.

AGENDAIndustrial
machinery
playerLink sustainability with business success - Unlock new profit pools andan expanding sustainable market through strategic product pivoting

Food service
distributor

All in to win – Take a holistic approach for top-line and bottom-line
enhancement through a sustainability transformation

ChemicalplayerEnsure value delivery to shareholders – Define shareholder value fordecarbonization, realizing with new offerings, governance structure, etc.

Source: BCG analysis

9

Copyright © 2023 by Boston Consulting Group. All rights reserved.

Leading companies leverage sustainability to create shareholder valueIndustrial machinery player is integrating sustainability outcomes intobusiness success, further driving their advantaged market position
This major global industrial machinery player has defined how its customers' climate
and sustainability outcomes is linked with its own business goals, breaking thetrade-off that many others face as now success in one equals success in the other.

What actions did they take?

Company is uniquely
positioned to drive bothprofitability and sustainability
impact with customers throughthe same technology offerings

Embedding climate & sustainability objectives
into entirety of the business, including

Therefore, linked
sustainability goals andbusiness goals together:
Supporting its customers to be
more efficient, profitable while
also becoming more sustainable• Product: Creating products that reduce
input usage via precision tech solutions,developing alternative power solutions for its
product portfolio, integrating circularity
principles into product development, etc.
• Op Model: Including sustainability goals &metrics into key op. processes across BUs,
evaluating sustainable customer outcome
objectives• Investment: Defining the sequence ofinvestments that drives preferred outcomes inmost efficient way for the business; leveraged M&A
to quickly build up capabilities

Source: Company reports; Analysts reports; News reports; BCG analysis

What are early signs of impact?

Established new 2030 ambitions – metrics
that join business and C&S goals~20%

Increase in sustainably engaged
customers in 2022

~30%

Operational GHG
reduction since 201710

Copyright © 2023 by Boston Consulting Group. All rights reserved.

What was the motivation?

Major food service distributor, Sysco, is undertaking sustainability
transformation to lead the industry and gain competitive advantage
This global company has undertaken a holistic end-to-end transformation
to become the leader in sustainability in food service distribution

What actions did they take?

Agriculture, forestry & land use
accounts for ~18% of global
GHG emissions

Taking a value creation lens to create sustainableadvantage and embedding sustainability at thecore of strategy across the business; e.g:Company is uniquely
positioned to drive impact withthousands of supplier & customer
relationships
Sustainability-marketed products
are growing ~3x faster thanconventionally-marketed products

•
•

•

•
•

Commitment: Announced SBTi commitments1
Product: Exploring next-gen indoor farming
solutions to bring local, fresh, and sustainableproduce to more customers
Operations: Electrifying fleet, transitioning to
renewables, pioneering load-fill optimisation
technologies, reducing waste, etc.
Supply chain: Engaging with suppliers to set
emission reduction goals
Innovation: Launching Recipe for Sustainability
program with universities2 to drive next wave ofsustainable innovation

What are early signs of impact?

78m

Pounds of CO2 saved throughefficient inbound shipping in 2022

2800+

EV trucks committed to bepurchased by 2030

~30%

Of suppliers committed toreducing emissions

1. Reduce its Scope 1 and 2 emissions by 27.5% by 2030 from a CY2019 base year; work with suppliers to set science-based targets by 2026
2. Including Arizona State University and Pennsylvania State University Note: SBTi = Science-Based Targets initiatives, GHG= greenhouse gas, EV = electric vehicles
Source: Company reports; Analysts reports; News reports; NYU Sustainable Market Share Index Report; BCG analysis

11

Copyright © 2023 by Boston Consulting Group. All rights reserved.

What was the motivation?

Global chemical leader launched climate transformation to reduce emissions
risk and unlock new value creation opportunities
Company was a top 100 global emitter, but also an industry leader in climate ambition –linking climate to strategic and operational decision-making

What actions did they take?

Company's high-emitting
footprint createdsignificant tail risk in theface of investor pressure andmounting regulation (e.g.,
ETS, CBAM)

It undertook climate transformation to drive to net
zero while delivering value to shareholders:Company highly focused onvalue for shareholders, but
unsure how investing todecarbonize fit their value
creation story
Company cautious to makelarge investments, whilepeers actively moving into
climate-linked value pools• Strategy & IR: Defined shareholder value fordecarbonization and associated approach forstrategic decision-making & investor comms.
• Governance: Set up governance structure toaccelerate operational decision-making• Emission reduction: Including asset turnover,
low-carbon technology deployment, renewable
PPA1 s, and supplier management plans, etc.
• New offering: Defined plans to create value fromlow-carbon products & solutions, and ventures
into new climate-linked value pools

1. Power Purchase Agreement Source: Company official website; Company reports; BCG analysis

What are early signs of impact?

Broke down 2050 vision into a concrete planwith near-, mid- and long-term elements
Enabled successful investor day narrativearound value creation + decarbonization

>700
MW

Additional access to renewable
power
12

Copyright © 2023 by Boston Consulting Group. All rights reserved.

What was the motivation?

1

Develop a clear perspective on how climate change andenvironmental degradation are impacting your value chain2

Understand fully how these trends are changing the profit
pools in your industry

3

Act boldly to future proof your strategy, grow tech capabilities &seize the opportunities created by the sustainability revolution

4

Scan and utilize M&A opportunities to drive a step-change inyour sustainability offering

5

Craft a compelling investor communications strategy onsustainability, linked to your overall investment thesis

13

Copyright © 2023 by Boston Consulting Group. All rights reserved.

Key learnings from sustainability leaders

BCG Executive
Perspectives
Now is the time to act
How companies are becoming
sustainability leaders
How to get started

14

Copyright © 2023 by Boston Consulting Group. All rights reserved.

AGENDA

Holistic transformation lens, integrating
sustainability ambition and business agenda
Laser focus on value capture and sustainability at
scale, making the business case work

BCG’s uniqueapproachaccelerates yoursustainability
journeyInnovation in business model, value chain, portfolio forsustainability and business performance
Widened aperture to reimagine functions andprocesses and break sustainability compromisesCompelling narrative translated across stakeholders(employees to investors)
15

BCG drives sustainability impact engaging across 5 key levers

Directly
Drive
ChangeKNOWN & PROFITABLE SOLUTIONSHarnessing the power of theprivate sector to unlock
sustainability value via
profitable, scalable solutions
5

3

EnableChangeSource: BCG Analysis

DIRECTING CAPITAL
Increasing the flow of capital
to investments with an ESG/
sustainability lens, and to
fund the climate transition

2

KNOWN & NOT PROFITABLE
SOLUTIONSEngaging public & social
sectors to define anddeliver on sustainability
goals

CATALYZINGINNOVATION

Fostering new, high-impact
sustainability solutions &ventures

4

ECOSYSTEM& CONTEXT SHAPING
Driving standards &governance, enabling
ecosystems to mobilize &scale sustainability impact

16

Copyright © 2023 by Boston Consulting Group. All rights reserved.

1

BCG's capabilities, including Quantis and BCGX's digital tools,
accelerate client sustainability journeys & drive impact

Quantis,now part of BCG, brings
climate diagnostics,
science-based target
setting, strategy
implementation &proprietary tools

CO2 AI
identifies key levers to
support end-to-end
emissionsmanagement

Climate Impact AI
assesses business impactof transition risks on value
chains & identify optimal
adaptation strategies

Green venturesbuilds and scales green
tech solutions &businesses

17Connect with our Sustainability and Resilience leadershipteams with any questions
Central Resilience Team

Hubertus Meinecke

Ryoji Kimura

Dimitri Caudrelier

Alexander Roos

Jesper Nielsen

Jessica Apotheker

Yvonne Zhou

Daniel Feldkamp

Global Leader – Climate & Sustainability
Meinecke.Hubertus@bcg.com
Hamburg

Chief Executive Officer – Quantis
dimitri.caudrelier@quantis-intl.com
FranceManaging Director & Senior Partner
Nielsen.Jesper@bcg.com
LondonManaging Director & Senior Partner
Zhou.Yvonne@BCG.com
BeijingGlobal Leader – Corporate Finance & Strategy
Kimura.Ryoji@bcg.com
Tokyo

Global Co-Leader – Center for CFO Excellence
Roos.Alexander@bcg.com
BerlinManaging Director & Partner
Apotheker.Jessica@bcg.com
ParisManaging Director & Partner
Feldkamp.Daniel@bcg.com
MunichClick here for our latest publications in the CEO's Dilemma Executive Perspectives series and additional resilience insights

18

Copyright © 2023 by Boston Consulting Group. All rights reserved.

Sustainability

The services and materials provided by Boston Consulting Group (BCG) are subject to BCG's Standard Terms(a copy of which is available upon request) or such other agreement as may have been previously executed by BCG.
BCG does not provide legal, accounting, or tax advice. The Client is responsible for obtaining independent advice
concerning these matters. This advice may affect the guidance given by BCG. Further, BCG has made no undertaking
to update these materials after the date hereof, notwithstanding that such information may become outdated
or inaccurate.

BCG does not provide fairness opinions or valuations of market transactions, and these materials should not be relied onor construed as such. Further, the financial evaluations, projected market and financial information, and conclusions
contained in these materials are based upon standard valuation methodologies, are not definitive forecasts, and are notguaranteed by BCG. BCG has used public and/or confidential data and assumptions provided to BCG by the Client.
BCG has not independently verified the data and assumptions used in these analyses. Changes in the underlying data or
operating assumptions will clearly impact the analyses and conclusions.

Copyright © 2022 by Boston Consulting Group. All rights reserved.

Disclaimer

The materials contained in this presentation are designed for the sole use by the board of directors or senior managementof the Client and solely for the limited purposes described in the presentation. The materials shall not be copied or given
to any person or entity other than the Client (“Third Party”) without the prior written consent of BCG. These materials
serve only as the focus for discussion; they are incomplete without the accompanying oral commentary and may not be
relied on as a stand-alone document. Further, Third Parties may not, and it is unreasonable for any Third Party to, rely onthese materials for any purpose whatsoever. To the fullest extent permitted by law (and except to the extent otherwise
agreed in a signed writing by BCG), BCG shall have no liability whatsoever to any Third Party, and any Third Party hereby
waives any rights and claims it may have at any time against BCG with regard to the services, this presentation, or othermaterials, including the accuracy or completeness thereof. Receipt and review of this document shall be deemed
agreement with and consideration for the foregoing.

Executive
Perspectives