As climate change intensifies and temperatures rise, food crises will become the norm rather than the exception. Russia&rsquo;s invasion of Ukraine has shown how disruptions to critical food-producing regions can have severe knock-on effects across the globe, felt most keenly by developing and poorer countries. According to the World Bank, global food prices are on track to rise 23 per cent this year, having already risen 31 per cent in 2021.

&ldquo;The war is only the most recent and visible example of how fragile and interconnected the world&rsquo;s food systems are,&rdquo; says Shalini Unnikrishnan, Global Lead for Societal Impact at the consultancy BCG. &ldquo;It&rsquo;s vital that we don&rsquo;t just get sucked into short-term fixes. We need to find multiple near- and medium-term solutions to improve the resilience of the ways the world produces, stores and distributes food.&rdquo;Together, Russia and Ukraine account for about 12 per cent of the foodstuffs traded&nbsp;around the world, and both are critical exporters of key commodities including wheat (28 per cent of global trade) and sunflower oil (69 per cent). And, as exports from these countries tumble, some other leading exporting countries have announced export bans or licensing restrictions designed to protect their own food stockpiles.<h2>Beyond Ukraine</h2>Many of the inherent weaknesses in the food system that amplify and worsen the effects of individual crises go way beyond the immediate situation in Ukraine. For example, land degradation has already reduced the productivity of 23 per cent of the world&rsquo;s agricultural land, and up to $577bn in annual agricultural production is at risk from pollinator loss. In turn, the food crisis and the vulnerable nature of the food chain underscore why it&rsquo;s critical to step up efforts to decarbonise, to prevent the situation getting worse before we can make it better.

How to do that? &ldquo;To find the right solutions to fix the food system, it&rsquo;s important to reframe the problem as an interconnected series of events, pressures and dynamic uncertainties, and assess how they will play out over several years,&rdquo; says Unnikrishnan.To help with this process, BCG has developed a series of five-to-seven-year scenarios, which offer a useful way to ponder different stretched-but-plausible future states in which stakeholders in the global food system will have to operate.These scenarios ask what the global food system might look like in the medium term, four or five years from now. Will concerted efforts to relieve the current food crisis and stabilise the food system succeed? Or will they fail to provide sufficient food, and the means to grow it, equitably and economically?Such scenarios are a popular tool in fields where decisions that will affect an uncertain future must be made now. They are used, for example, to estimate likely greenhouse gas emissions pathways, depending on assumptions about economic development and improvements in energy efficiency. &ldquo;These scenarios are not predictions,&rdquo; Unnikrishnan stresses. &ldquo;But it&rsquo;s possible to imagine what the world could look like, depending on how certain key factors, and their underlying uncertainties, play out.&rdquo;

<h2>Good and bad</h2>The BCG scenarios, for example, look at how influences such as new technology and reduced meat consumption might affect the state of the world&rsquo;s agriculture.&nbsp;They also try to judge how food systems will be affected by climate impacts and changes to global economics and geopolitics, such as the rise of nationalism.The results range from the pessimistic, in which unrestricted global warming and significant reductions in global trade send food prices spiralling to record highs, to more hopeful, where coordinated and collective action increases demand for more nutritious, environmentally conscious plant-based foods.

There are steps that should be taken irrespective of which scenario ends up being the closest to reality. &ldquo;We need to diversify food production across diets, supply chains and markets, and address the indebtedness, economic inequities and market distortions that have contributed to the current crisis,&rdquo; Unnikrishnan says. &ldquo;We need a coordinated effort across all sectors to rethink and repair our food systems, making them more equitable, more resilient and more responsive in times of great need.&rdquo;

A company&rsquo;s carbon footprint does not end at its back door. As well as the direct greenhouse gas emissions produced by an organisation&rsquo;s operations and fuel use, there is also the carbon pollution from all the associated activities that make up the supply chain. These indirect emissions, referred to as Scope 3, include upstream and downstream transportation and distribution, and can make up to 90 per cent of a company&rsquo;s footprint.Greenhouse gas emissions are categorised into&nbsp;three groups or &ldquo;scopes&rdquo; by the most widely used international accounting tool, the Greenhouse Gas (GHG) Protocol. Scope 1 covers direct emissions from owned or controlled sources. Scope 2 covers indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting company. Scope 3 includes all other indirect emissions that occur in a company&rsquo;s value chain.

&ldquo;Engaging suppliers is essential for companies to meet their greenhouse gas reduction targets. There is an incredible opportunity, especially for consumer-facing companies, to support rapid decarbonisation of supply chains,&rdquo; says Chrissy O&rsquo;Brien, Managing Director and Partner at the consultancy BCG.The impact of such actions can be highly significant in the fight against climate change. That&rsquo;s because just eight value chains &ndash; food, construction, fashion, fast-moving consumer goods, electronics, automotive, professional services and freight &ndash; account for more than half of global emissions. And solutions are already available at little or no cost to consumers to help decarbonise these sectors and to move towards net zero.

<h2>Available and affordable</h2>In collaboration with the World Economic Forum (WEF), BCG recently published a report that showed cost is no reason not to take action to decarbonise global supply chains. It found that reducing the carbon emissions of supply chains to net zero would hardly increase end-consumer costs.&nbsp;Around 40 per cent of all emissions in these supply chains could be abated with readily available and affordable levers, such as circularity and renewable power, with only marginal impact on product costs. Even with zero supply chain emissions, end-consumer costs would go up by 1&ndash;4 per cent at the most in the medium term.But the report adds that decarbonising supply chains is hard.&nbsp;Even leading companies struggle to get the data they need and to set clear targets and standards to which their suppliers must adhere. Engaging an often-fragmented supplier landscape is challenging &ndash; especially when emissions are deeply embedded in the supply chain, or when addressing them might require collective action at the industry level.&ldquo;Companies that act now really have an opportunity to gain competitive advantage as we transition to a low-carbon economy,&rdquo; says O&rsquo;Brien. &ldquo;Most companies will need some help and advice on how to break through the largest barriers as they progress.&rdquo;&nbsp;<h2>Range of options</h2>Moves and strategies to decarbonise supply chains range from low-cost (under &euro;10/t CO2e) actions such as efficiency and renewable power to larger investments (over &euro;100/t CO2e) in longer-term projects, such as switching fuels or carbon capture. Common barriers include a lack of transparency over emissions and a dearth of sector support and useful infrastructure.&nbsp;

The first major problem that companies encounter is often that greenhouse gas accounting is complicated, and it can take time to get more granular supply chain data. &ldquo;The key there is that they don&rsquo;t wait for perfect data. Companies can start by addressing the big categories of impact,&rdquo; O&rsquo;Brien says. For most companies, supplier energy use, and transportation and distribution are big sources of emissions, and they can work to reduce those.&nbsp;Other companies feel they don&rsquo;t have a clear map to achieve a decarbonisation target, which can make them reluctant to set an emissions reduction goal because they don&rsquo;t know how they will get there. O&rsquo;Brien points out that most companies don&rsquo;t have a complete roadmap &ndash; there is often a gap to the target that will need to be addressed through innovation. Specific tactics to unlock innovation may include scenario planning and engaging employees to unlock additional innovations.<h2>Good practice</h2>The BCG/WEF report, called Net-Zero Challenge: The Supply Chain Opportunity, highlights case studies of companies that have taken big strides in the right direction.The brewer Carlsberg, for example, teamed up with the Carbon Trust to develop an advanced supply chain emission calculation model. The model uses supplier-specific emissions data, available for more than half of the emissions. This comes from suppliers&rsquo; individual granular data for the materials they supply to Carlsberg. Where this is not available, Carlsberg looks to develop estimates based on material and location-specific factors.Approximately 85 per cent of Carlsberg&rsquo;s total emissions are not under the company&rsquo;s direct control, so it works with suppliers to encourage a commitment to science-based targets. More than 110 suppliers in Carlsberg&rsquo;s supply chain have already signed up.

&ldquo;Progress has lagged in addressing scope 3 emissions because it is hard and complicated, but we find the biggest barrier to getting started is often complexity and inertia, not economics,&rdquo; says O&rsquo;Brien. &ldquo;We know where and how to get started, and what steps to take. The costs of decarbonisation far less than the cost of inaction.&rdquo;

Net zero commitments have reached exponential velocity. Country pledges cover 90% of the world economy and company SBTi commitments now exceed 3,000 across all industries. Yet, as governments and business prepare to gather in Egypt for the 2022 United Nations Climate Change Conference (COP27), it is becoming increasingly clear that the promises are not yet leading to sufficient reductions in actual GHG emissions. After a 5% drop early in the pandemic, emissions have rebounded and could be poised to increase even further.&nbsp;If society is to achieve the ambition set out in the Paris Agreement to limit global temperature increase to 1.5℃, we need a step change in carbon emissions reductions. Unfortunately, many countries are struggling to translate their commitments into actions, with EU countries firing up coal-fired power stations over fear of gas shortages. That is why the actions of the private sector will be critical. But how can companies accelerate their progress toward net zero?&nbsp;Corporate climate leaders are showing how it can be done. With $3 trillion to $5 trillion in investment annually required over the next 30 years to reach net zero, these companies see an opportunity to seize a first-mover advantage. They are carving out a lead by putting sustainability at the core of their strategy; they are fundamentally reimagining their business model, including pushing into lucrative new green markets; and they know how to mobilize the full organization.&nbsp;Ultimately, their leadership stems from a powerful belief: climate and sustainability actions can become the primary source of competitive advantage.&nbsp;

<h2>Why Put Climate and Sustainability at the Core of Strategy?</h2>There is mounting evidence that sustainability can bring competitive advantage. According to recent research by BCG and the World Economic Forum:&nbsp;

In key sectors, 50% of required emissions reductions to reach net zero will save money or break even

Cost savings

 Sustainability leaders across 10 sectors secured an average weighted cost of capital at roughly 100 basis points less than sector laggards

Cheaper financing

Green products have a compound annual growth rate that is 4 to 25 percentage points higher than non-green products.

Top-Line growth

The growth potential of green products and services in particular is becoming increasingly visible. The first &ldquo;green markets&rdquo;&mdash;from recycled goods to green steel to e-cars to green shipping and many more&mdash;have emerged and are scaling rapidly. Critically, these new markets in many cases are undersupplied. Demand for renewable power and recycled plastics, for example, is outstripping supply. Committed non-fossil steel volumes in Europe are sold out until 2030. And the critical green inputs for many of these new markets are scarce, including lithium and nickel for electrical batteries and balsa for wind turbines.&nbsp;Early movers are seizing these new markets and securing supplies of the necessary green inputs, building the foundation for a durable competitive advantage. And they are doing this in the midst of significant uncertainty, including a shifting regulatory environment. To manage that risk, leading companies have developed a set of options and bets that will position them well regardless of external developments, including the pace of new technology advancement.&nbsp;At the same time, they are reengineering their existing business. They are adjusting their portfolio of products and services to reduce emissions, using AI and digital tools across the full industry value chain. These leaders are pushing aggressively forward with initiatives such as energy efficiency measures and switching to lower-carbon sources of energy or heat&mdash;actions that save both money and carbon. They are then leveraging those cost-savings to fund other remaining portions of the decarbonization journey.

<h2>How Can Companies Make Sustainability A Movement?</h2>Acceleration of climate action demands full mobilization of a company. A company where the procurement function does not incorporate emissions, for example, will have a harder time decarbonizing its supply chain. A financial institution without bankers to support its clients in making low-carbon investment decisions will have a harder time decarbonizing its loans portfolio.&nbsp;Leading companies tackle this enablement challenge head-on. They communicate why the company is changing, explaining the strategy clearly. In doing so, they instill pride in the company&rsquo;s higher purpose: having a positive impact on society. But this is just the beginning. They use the full range of management levers to bring their people along, including integrating ESG KPIs into performance targets for managers and linking them to pay and incentives. They also use innovative, relatively low-cost e-learning formats to train the workforce through a combination of individualized learning, facilitated group discussions, and exams. And they offer more intensive educational opportunities for senior leaders in cooperation with leading universities.Corporate commitments and climate action have significantly increased in recent years. But the hard truth is global emissions are still rising. We need to accelerate the pace of progress now. Leading companies show us how it can be done. Let&rsquo;s follow their lighthouse examples.&nbsp;The future is in our hands!

The impact of climate change is no longer theoretical. We see it everywhere, often in the form of increasingly frequent and severe droughts, floods, fires, and heat waves. These events threaten systems vital for communities around the world, including those related to the economy, food and water security, infrastructure, and natural ecosystems.&nbsp;This is just the beginning. Even if we do manage to limit global temperature increase to 1.5℃, as outlined in the Paris Agreement, sea levels will still rise 0.48 meters by 2100, annual damage from flood losses will top $10 trillion, and total global economic output will be cut by 8%. In the event temperature increase is higher, the toll will be magnified. Regardless of which scenario plays out, the impact will be felt around the planet, in both the developed and developing world. The challenge, however, will be more daunting in developing countries, which will be among the hardest hit and have the fewest resources available to fund the required investments.&nbsp;Yet today, cities, regions, countries, and businesses are generally unprepared. Most countries, for example, have not yet crafted a national adaptation plan; similarly, many companies have not assessed their vulnerabilities or planned to adapt and build resilience.Given the growing urgency, climate adaptation and resilience will be the subject of significant attention at COP27. And there are signs of progress. Some public sector leaders are tackling the thorny challenges surrounding adaptation&mdash;including the need to develop robust adaptation plans customized for local contexts and to overcome financing barriers. And some companies are moving beyond risk and regulatory requirements, scrutinizing their assets and value chains, identifying vulnerabilities, and taking action to build resilience. But we must accelerate our efforts, using the examples set by these leaders as inspiration.&nbsp;<h2>The Hurdles to Smart Adaptation Plans</h2>Creating an adaptation plan that is both effective and implementable is challenging for a few reasons. First, understanding and addressing the impact of climate change is a complex task. Climate change risks&mdash;for example, floods, droughts, or fires &mdash;will be localized, varying across the cities, regions, and countries in question. In addition, those risks are interrelated, creating a complex, and hard-to-predict, dynamic. For example, rising ocean temperatures and changing ocean and wind conditions can increase storms and intensify cyclones&mdash;and that in turn will increase storm surges and extreme flooding events and damage natural coastal ecosystems.This array of risks has varying impacts on people, economies, and ecosystems, including displacement of people from their homes, malnutrition, unemployment, disrupted value chains, and biodiversity loss. Similarly, potential solutions also have differing (sometimes conflicting) impacts. And given that solutions are often very expensive, decision-makers must come up with a plan that offers the optimal combination of potential solutions, maximizes limited resources, and manages the trade-off between impact and cost.Second, there is a tremendous amount of data available on climate change and its impact, but it is typically difficult to create an objective fact base that identifies the biggest impacts on people, economies, and ecosystems and the best areas for action. This is made even more difficult in the public sector, where multiple agencies and ministries have some elements of ownership over adaptation and resilience, making it tough to bring data and initiatives together to design a cohesive plan.Third, adaptation and resilience projects face capital constraints in both the public and private sector. They are typically not seen as bankable projects because, unlike many mitigation technologies or business models, they tend not to offer positive cash flows in the short term.

<h2>The Path Forward&nbsp;</h2>&nbsp;Despite the obstacles, we can take smart action now to prepare for and reduce the effects of climate change. To do so, leaders in the public and private sectors can and should adopt an analytical, evidence-based approach to understanding the impacts of climate change and use that insight to make clear, informed decisions on where to invest.&nbsp;This must start with an assessment of climate risks and their social, economic, and natural impacts. Data and AI can help us cut through the complexity, distilling the interplay of the risks into tangible impact on people, economies, and ecosystems. For example, AI-driven analytics can tell us how many people are at risk of displacement or malnutrition, what the macro-economic impacts are by sector, how many livelihoods and jobs are at risk, and the risk to agricultural yields and biodiversity. That can help identify the right portfolio of actions&mdash;for example, for a coastal community, perhaps a combination of sea wall, relocation of vulnerable communities and assets, mangrove restoration, and other nature-based solutions.Critically, this analytical approach can provide the evidence needed to unlock adaptation capital. By demonstrating the cost of inaction&mdash;for example, the projected loss in GDP, damage to company assets, or the expected negative social impacts&mdash;governments and companies can create the case for optimal investment choices.&nbsp;As we prepare for COP27, government and business leaders are rightly continuing to focus on pushing for drastic emission reductions. However, even in the most optimistic of scenarios, mitigation alone is not enough. As we increasingly feel the impacts of climate change around the globe, it is critical that we adapt and build resilience today.

It is increasingly well understood that CEOs need to lead on climate in order to drive real change throughout their organization. There is no substitute for leadership at the top. What is less appreciated, however, is that putting a net zero strategy into action depends more and more on another individual in the C-suite: the CFO.&nbsp;The need for CFOs to lead on climate reflects a critical reality. Climate change, and efforts by companies to decarbonize, will fundamentally remake balance sheets. Today, many companies have an unrecognized carbon liability. How significant is that liability? For all companies around the world combined, it could total as much as 5% of the global economy according to estimates by BCG senior advisor Robert Eccles and others. At the same time, there are significant opportunities to adopt new climate-related business models or build new markets&mdash;activities that will require investments on the asset side of the balance sheet.&nbsp;To manage both issues, CFOs can lead, embedding climate and carbon into decision-making and processes including those related to capital expenditures and mergers and acquisitions (M&amp;A). In addition, CFOs can use their role in measurement and reporting to create the connection between their company&rsquo;s financial performance and its climate impacts. In doing so, they can help build the narrative around how the company&rsquo;s climate actions create value for shareholders.&nbsp;Without their leadership, it will be difficult for companies to accelerate their progress toward net zero.&nbsp;<h2>How Climate Transforms the Balance Sheet</h2>CFOs must get their arms around the size of their company&rsquo;s climate-related liability, using projections of both company emissions and the price of carbon. For instance, the price per ton of carbon in the EU Emissions Trading System (ETS) was close to &euro;100 earlier this year and BCG expects it to hit more than &euro;200 before the end of the decade. Even if a business is not yet subject to a carbon levy, it should expect that more countries will use some mechanism&mdash;whether an ETS or taxes&mdash;to put a price on carbon over next 5&ndash;10 years.&nbsp;The changes in the asset side of the balance sheet, meanwhile, will stem largely from new climate-related business opportunities. Climate action is creating a myriad of new products and services. Whether it is electric vehicles (EVs) in the auto sector, alternative proteins in consumer packaged goods (CPGs), or green steel in the industrial sector, first movers are seizing the lead in fast-growing new markets. And those that move too cautiously are coming under significant pressure. Case in point: Hedge fund Engine No. 1 successfully pushed for three new directors to be installed on the Exxon Mobile board after arguing that the oil and gas company was not moving quickly enough to implement a low-carbon business strategy.&nbsp;To manage the balance sheet changes, forward-looking CFOs are integrating climate into their company&rsquo;s financial decision-making, including business planning, capital expenditure decision-making, M&amp;A, and product development. For example, the business cases for actions to reduce a company&rsquo;s carbon liability, such as investment in new equipment to reduce emissions from its operations, should reflect the future price of carbon. Meanwhile, the business case for investments in new business models or markets should reflect the potential revenues from those opportunities. Additionally, business cases for all investments should factor in second-order impacts such as lower financing costs for a company and reduced employee churn as a result of a company&rsquo;s overall enhanced climate record.

<h2>Tracking Results and Bringing Investors On Board</h2>The finance function defines how progress and success get measured operationally, including for external reporting and calculation of incentive compensation. In this way, CFOs help their organization understand the link between their company&rsquo;s actions and financial and climate outcomes. This measurement and reporting responsibility also provides the foundation for a company&rsquo;s investment narrative. Global sustainable investment hit $35 trillion in 2020, up 15% in just two years&mdash;evidence that the appetite among investors for companies with a proven climate strategy is expanding rapidly. But investors are looking for evidence of value creation&mdash;not altruism.CFOs need to craft a clear narrative about how their company&rsquo;s climate strategy creates competitive advantage and value. This can include entry into fast-growing markets, securing access to necessary, yet scarce resources (such as lithium), or increased customer loyalty. In addition, they should think through the composition of the current investor base and whether their company&rsquo;s evolving profile will require a shift in that makeup. For example, investors with a clear ESG or climate investment mandate, or impact-oriented private equity funds, may be well positioned to invest in and support companies focused on shareholder-value-oriented net zero transformations.As we move from net zero promises to action, companies need to recognize and manage the significant financial implications of their climate strategies. CFOs will be the linchpin to that effort, managing their company&rsquo;s carbon liability as well as investments in new green assets&mdash;and creating value for shareholders in the process.&nbsp;

Accelerating Action