From ambition to action. The success of the energy transition depends on collaboration and partnership

Some 86 per cent of companies worldwide declare they have adopted a comprehensive sustainability strategy. In practice, however, only 35 per cent have implemented it. So why is there such a huge gap between theory and practice? Half of the companies surveyed indicate that they lack the tools and knowledge to meet their commitments and ambitions. However, these are not all the challenges that are out there. The aspect of collaboration and partnership also plays an important role because the transformation process, like any strategic change, is a team game.

All hands on deck

There is no Planet B. The energy transition is a necessary step and our shared responsibility for our future. However, transformation, provided it is done in a thoughtful way, is not only a responsibility. It can also bring significant benefits to countries, businesses and consumers.\

While the green transition is usually discussed in the context of nature, it is important to remember that ongoing climate change, including rising average global temperatures, melting glaciers and rising sea and ocean levels or more frequent periods of extreme weather, has far-reaching consequences for entire societies and economies. There are many examples to prove this. To escape drought and other natural disasters, the population of the south will migrate uncontrollably to western and northern countries, exacerbating the problem of illegal migration. In addition, the environment will suffer from a decline in biodiversity and the process of restoring fauna, flora and suitable conditions for agriculture may take decades.

Such a complex problem therefore requires a multidisciplinary approach. The path towards a green, sustainable future cannot be travelled alone. Rather, it is a joint effort, like a relay race, which requires bringing together different knowledge disciplines, sectors and stakeholders, Both at the global level and at the level of individual organisations.
 

Transformation means change

In addition to technological innovation, energy transformation requires a rethinking of business models, customer engagement and regulatory compliance. Looking at the energy transition process from a managerial point of view, it can be seen as a complex change management process that requires a strategic approach, resource mobilisation, effective communication and stakeholder engagement.

A prerequisite for a successful green transformation is to broaden horizons, foster interdisciplinary collaboration and build robust networks of stakeholders who are committed to a common goal. This, of course, requires the mobilisation of resources, including capital, technology and talent. Managers must be able to effectively communicate the goals, plans and benefits of the energy transition, while taking into account the views and concerns of different stakeholder groups, including employees, customers, investors and local communities.

Finally, it is also important to build a culture of change that promotes innovation, flexibility and employee engagement, which is a key element in the successful management of the energy transition process. Companies need to foster an environment that encourages experimentation, learning from mistakes and continuous improvement. This process can be likened to breaking down silos and building connections between different domains or areas of the business. Without this, transformation plans will remain mere declarations on paper.

On the other hand, energy transformation is not only a challenge but also an opportunity for companies to improve efficiency, innovation, as well as reputation among customers and business partners.
 

From black to green

A well-known example of a company that has used energy transformation to improve its efficiency, innovation and reputation is Ørsted, based in Denmark.

Once heavily dependent on fossil fuels, the company has transformed itself into a global leader in offshore wind energy. At the beginning of this century, Ørsted was one of Europe's largest fossil fuel-based energy producers, with a growing oil and gas business. However, in the late 2000s, climate regulations in Denmark and the EU started to become more restrictive. The completion of a new coal-fired power station in northern Germany was abandoned due to fierce opposition from local communities. This was a sign of major changes on the horizon. In 2009, DONG's management decided to take a bold step. Seeing that the world was moving in a new direction, rather than trying to swim against the tide, the company decided to prepare for a world where green investments would lead the way. DONG's “85/15” initiative was to switch from 85% fossil fuels to 85% green energy.

This was not just a technological and business change. It was a holistic process that involved strategic planning, innovation and extensive collaboration across various disciplines. Working with technology experts, policy makers, financial institutions and local communities, Ørsted developed a comprehensive approach to its renewable energy goals. The transformation of the business model was also accompanied by a rebranding. In the following years, the company was renamed Ørsted, in honour of Danish scientist Hans Christian Ørsted, and quickly became a global leader in wind energy.

Of course, the company also has had to face some challenges related to the transformation. At the end of last year, industry media reported that the company had withdrawn from two offshore wind projects on the US east coast (Ocean Wind 1 and Ocean Wind 2), reportedly mainly due to supply chain problems, leading to delays and making the projects unprofitable.

Despite these difficulties, in early 2024 the company was ranked number one in the Corporate Knights 2024 Global 100 Most Sustainable Corporations in the World ranking for the fifth time, and its example of transformation serves as an inspiration to other companies around the world.
 

Take a look beyond your own front door

In relation to the aforementioned issue of supply chain management, it is worth highlighting its importance in pursuing the goals of the green transformation. We need to look at our organisation globally and go beyond our own front door, because it is just as important to know what is happening within the company as it is to be aware of the whole value chain.

Nowadays, companies need to be aware of where and how they source their components or raw materials. They need to be confident that the entire supply chain meets their own (and their customers') sustainability standards, as well as any standards required by regulators. They must also be able to take action when standards fall short, finding alternative sources or influencing a change in the behaviour of their suppliers.

In Europe, the EU's Corporate Sustainability Due Diligence Directive (CSDD) will bring about a major change in this respect. According to the final text approved by the EU on 15 March, only the largest companies and groups, with more than 1,000 employees and revenues of more than EUR 450 million, will be directly covered by the directive. At first glance, it may seem that most companies operating in the EU will not be affected by it. However, it is worth changing perspective and putting oneself in the shoes of a supply chain actor who will be required to provide human rights and environmental due diligence information to its customers.

The QIMA survey conducted in the first half of 2023 shows that the increasing focus on ESG issues has a knock-on effect even beyond those directly affected by the legislation: almost half (46%) of respondents said they give more weight to supplier compliance in their sourcing decisions, even if they are not legally obliged to do so (compared to 65% of companies covered by ESG legislation). As stakeholders in global supply chains are increasingly aware of the importance of ESG issues, it is a good time for brands to take action and work with their suppliers to increase transparency and sustainability.
 

The basis for successful transformation: the 3Ps of the triple bottom line

Instead of presenting a summary, I would like to mention the 3Ps triple bottom line. In 1994, John Elkington argued in the California Management Review that globalisation and increased consumption bring new challenges (opportunities but also threats) to companies and, for them to function and grow, they need to change the way they do business. He used three factors, all starting with the letter P (planet, people, profit), as a measure to assess these aspects. According to the TBL model, companies are responsible for operating in a way that creates value for shareholders and other stakeholders such as employees, customers and the environment. By integrating social and environmental factors into business decision-making, companies can create sustainable value in the long term.

Of course, in the initial stage, transformation often involves some investment, but in the long term it is likely to yield higher returns, both financially and in terms of improved reputation, which translates into customer loyalty, investor trust and community. This principle provides a very useful tool for assessing the impact of the energy transition on various aspects of the company's operations. This can be seen in the example of Ørsted, mentioned earlier, which has carried out an energy transformation in line with the 3 P's, benefiting communities, the environment and the company alike.

By changing the way it measures success and using external evaluation indicators, the company is preparing for the future, which is likely to be increasingly shaped by climate change and generations who care deeply about sustainability, ethics and inclusivity aspects.
 

The article was published on 30 April 2024 in the supplement “Poradnik Ekonomiczny. Przedsiębiorcy radzą przedsiębiorcom” to “Rzeczpospolita” daily, issue no. 101 (12862).

Data sources:

1. IBM, Sustainability as a transformation catalyst;
2. A birds-eye view of a successful transition: Ørsted A/S.