How some companies are rapidly adapting to the energy transition

This is the first installment of our six-part Metamorphosis series, in which we look at corporations that have reinvented themselves in order to seize opportunities in the energy transition. In this opening essay, writer Naomi Back looks at the opportunities and pitfalls for companies that seek to make a dramatic transformation.

In January 2005, the British weekly The Economist ran a themed issue titled “The Good Company.” It was devoted to the question of corporate social responsibility, an ethos in rapid ascension at the time, which the lead editorial lamented as profoundly misguided. The illustration on the magazine’s cover was of an office building adorned with angels’ wings; on the building’s long shadow, the wings had transformed into satanic horns.

It’s a question as old as the corporation itself: to what extent companies should be responsible to the societies they operate in, and how to balance those interests against the more foundational drive for profit. With globalization and a rapidly warming climate, the question is existential. While most companies have undertaken visible efforts to improve their environmental, social and governance (ESG) performance, stories of actual transformation are surprisingly rare.

Better than backward-looking glossy reports are forward-looking plans.
– Laura Draucker, Senior Director of Corporate Climate Action, Ceres

In an oft-cited 1995 paper, John Kotter, professor of leadership at the Harvard Business School, concluded that most attempts at corporate transformation fail. A subsequent study, also published in the Harvard Business Review, found that only 28 of the 128 global companies that attempted transformation between 2016 and 2020 actually accomplished it. This makes those success stories particularly interesting.

Genuine transformation is rare – and rewarding

When it comes to green transformations, U.S. carpet manufacturer Interface, established in 1973, is often referenced as a pioneer. Its founder, Ray Anderson, was quick to corner the U.S. and ultimately global market in carpet tiles: a vastly more popular alternative to broadlooms in the dawning era of open-concept offices.

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But two decades in, with Interface already a billion-dollar operation, Anderson had an environmental epiphany. He subjected his company to a radical course correction in which all virgin materials were to be replaced by recycled products – an unprecedented move at the time, particularly in the world of construction. Under this new regime, Interface doubled its sales and profits.

But strong leadership alone is no guarantee of success. In her book The Evolution of a Corporate Idealist: When Girl Meets Oil, Christine Bader documents her nine-year tenure at BP, and the contradiction between then-CEO John Browne’s vision for the company – environmentally friendlier and respectful of the communities it operated in – and the realities on the ground.

Laura Draucker, senior director at Ceres, a Boston-based non-profit that advocates for sustainability leadership, works with companies to develop transition plans. She says the impetus to boost a company’s sustainability performance generally comes from investors concerned about risk assessments – in other words, that inaction will affect the bottom line.

It’s a legitimate fear, with new directives like the Corporate Sustainability Reporting Directive forcing companies to report much more extensively on their ESG performance – and risk penalties and reputational damage if they do not.

But Draucker says the further step – convincing corporate leaders that sustainability should be not just a matter of compliance but a core element of the overall business strategy – is much trickier.

“Better than backward-looking glossy reports are forward-looking plans,” she says, adding that this full embrace requires a longer time horizon and continuity of vision.

She cites consumer goods giant Unilever – the company behind brands like Ben & Jerry’s ice cream and Dove beauty products – as an example of how quickly scales can tip. Once considered a model of ethical corporate behaviour, Unilever staged a sudden turnaround in April 2024, announcing that it was watering down its commitments to reduce plastic use and to pay its suppliers a living wage. In justifying the move, then CEO Hein Schumacher said that public interest in environmental and social issues are “cyclical” and that climate concerns had been overtaken by the more pressing reality of war.

Ownership is a decisive factor in corporate responsibility

According to Dirk Matten, professor at York University’s Schulich School of Business, the most decisive factor in a company’s commitment to sustainability is its ownership.

Family-owned companies that have committed to ethical business practices from the outset typically remain steadfast. The majority owner of Tata Motors, to which Land Rover and Jaguar belong, is an Indian family-owned foundation that invests much of its profits in that country’s welfare state. Community engagement is core to the company’s DNA.

Likewise, large institutional investors can wield huge influence, as demonstrated by The People’s Pension fund’s recent decision to pull US$36 billion out of State Street after the U.S. asset manager announced it was walking back on its ESG commitments. Corporate metamorphosis is rooted in intention, and it has to run deep.

Naomi Buck is a Toronto-based writer.