Two years ago, sustainability topped executives’ agendas. Now it seems to have taken a back seat. With AI advancements, geopolitical uncertainty, and inflation dominating recent boardroom discussions, it’s reasonable to ask, “What happened to sustainability?”
The transition to a more sustainable world is following a familiar change cycle, with swings between hype and reality. A few years ago, we hit the peak of the “hype” phase, characterized by high hopes and frenzied activity, often accelerated by generous policy incentives. But when sky-high expectations are not quickly met, sentiment falls into a “trough of disillusionment” as the transformation proves slower and harder than expected.
This trough is where many sustainability efforts sit at the moment. But as my colleagues at Bain & Company argue in their recent report on sustainability, many efforts are likely to reach the next phase of the cycle, the “plateau of productivity,” sooner than expected.
In that phase, a mix of new technologies, consumer and customer behavior, and smart policy creates opportunity. Advancing technologies boost efficiency and lower costs. Adoption by customers and consumers picks up as costs drop, accelerating growth to a tipping point. At the same time, government policies such as subsidies and regulation provide a bridge of support as companies build knowledge and experience.
Electric vehicle case study
For a sense of how a market can move through this curve, consider the history of the electric vehicle industry in Germany and Norway. As EV manufacturers moved along the technology experience curve over the last six years, battery costs dropped by one-third and are projected to fall another 25% by 2030. Through its policies, Norway has steadily supported EVs, and consumer adoption has grown. In Germany, by contrast, direct subsidies for EV purchases were significantly reduced at the beginning of 2023 and cut altogether at the end of the year. EV sales promptly dropped and remain below 2023 levels. Germany’s government cut support too early, before the cost of technology could reach the point at which the market would be self-sustaining.
Companies and CEOs that stayed the course are now positioned to benefit from the clear business case for electric cars. Globally, nearly one in five cars sold is now electric, according to the International Energy Agency.
Sustainable technologies often reach their tipping point faster than expected. Forecasts for the development of solar and wind capacity, for example, have consistently underestimated market growth. Solar capacity in 2023 was more than three times higher than 2015 forecasts.
For business leaders, technology, customer behavior, and policy should be front and center. Sixty percent of global consumers surveyed by Bain said their climate change concerns have grown in the last two years. US consumers said they would be willing to pay a 10% premium for products with minimal environmental impact. And 36% of B2B buyers said they would leave suppliers that don’t meet their sustainability expectations.
There will be trade-offs, of course, tough choices about where to invest, which technologies to prioritize, and how to align sustainability goals with long-term business resilience. Business leaders navigating these challenges can focus on four key areas to chart a smart path forward.
Explore how global sustainability transitions will shape the future business landscape and industry outlook
Dramatic shifts are underway in our energy supply, our global food system, the financing of sustainability, and materials supply and consumption. These transitions bring risks and opportunities that will play out over horizons far beyond the typical two- to three-year planning period. There will be new profit pools, supply chain disruptions, and scarcity. Political and technological developments, such as AI’s huge energy demand, will create disruption.
To prepare, companies must first envision the future and develop scenarios and future-back strategies that ensure they are ready to make the right choices. This may include quickly securing a reliable supply of raw material, making foundational investments in sustainability, or evaluating the vulnerabilities of a fixed asset base.
Understand your critical sustainability priorities and how fast you must move
Turning ambitious commitments into practical results is hard. Focus on topics that are critical to the business and on which you can make meaningful change. Some companies are rethinking and restating sustainability targets. Even more are asking tough questions. It will be important to stay focused on sustainability and prepare to accelerate in order to gain competitive advantage as scenarios change.
Build a business case for sustainability
High costs and uncertain return on investment are the two biggest roadblocks that sustainability faces. A strong business case for sustainability should focus on cost reductions (more efficient raw materials and energy consumption, for example) and commercial opportunities (such as new customers and price premiums) as well as avoiding downside risks. By first implementing changes with positive ROI, companies can gain the momentum needed to tackle more complex changes.
Partner with external stakeholders
Sustainability issues are complex and systemic. Companies can’t go it alone. They must work up and down their supply chain. Industry coalitions can help signal shared intent and foster precompetitive collaboration. Executives must work to shape policy and build ties with the public and nonprofit sectors.
With a pragmatic, agile approach, sustainability can become a source of innovation, resilience, and long-term value for companies—not just a cost center. Now is the time to build a resilient organization that can lead in the next era of growth.