Lessons for Leaders: What has 2020 told us about 2021?

In bidding 2020 farewell, the world has been filled with hope that the suffering of 2020 will come to an end as the year came to an end. But it is no secret that the world doesn’t necessarily go through a factory reset on January 1. This is not all bad news though. The turbulent ride that 2020 was has given us certainty about the uncertainty of our present and future! Things are going to remain volatile for a long time.

Now we can stop guessing

Most of the risks that leaders and strategists typically incorporated into extreme future scenarios in the past ended up manifesting one way or the other in 2020. You probably remember when extreme strategic scenarios reflected one or two of the following combinations:

  • A serious global pandemic resulting in major lockdowns and geopolitical disintegration
  • An oil market crash and major global economic downturn and restructuring
  • A breathtaking digital transformation connecting human communities in new ways and threatening personal privacy and security
  • An expedited energy transition supported by breakthroughs in alternative energy and storage technologies
  • The expansion of the virtual workplace, and exponential growth in ecommerce
  • Increasing weather volatility and natural disaster occurrence

Many of these risks are here to stay. And even if the pandemic situation is resolved in the next year, many of its implications are long-lasting if not permanent. Of these, we have identified five themes that appear to be most critical for strategizing for success in 2021 and beyond. Several of these have already been discussed in previous articles over the last couple of years, as noted below.

1. Energy Transitions, ESG, D&I and the Human Race’s Search for Purpose

We clearly are at an interesting stage of development as a race. There is a rising sense of consciousness over how what we do and how do things impact our environments and the lives of other people and creatures. This is especially true for most millennials and Gen Zs who tend to at least partially evaluate employers and product and service providers based on their approach to diversity and inclusion (D&I) and environment, sustainability, and governance (ESG) issues. Employers are also now being increasingly challenged to align jobs and assignments with employee purpose.

By the same token, the investment and regulatory communities are gradually withdrawing support from entities whose operations are believed to simply pollute the environment or reinforce bias and discrimination. There is no going back from this and regardless of how much we may want to argue against it, financial and economic metrics along won’t be sufficient going forward.

As we discussed in a previous article, sustainability-oriented business models will have better chances of winning in the new normal. This, together with the demand shifts described below will continue to accelerate the transition of the energy system away from the domination of fossil fuels. The pace of this transition is still being debated. There is growing conviction among many including oil and gas supermajor that we are already beyond peak oil demand. This is a huge departure from the previous consensus that it wasn’t going to occur until the late 2020s – mid 2030’s.

2. The Expansion of the Virtual Workplace

The technology that supports remote working, team building, and leadership solutions had been here for some time. But the imperatives of social distancing in 2020 drove significant investment in and utilization of digital applications for establishing virtual workplaces. In the middle of the year, major tech companies like Google, Facebook, and Twitter began making announcements that their employees would be allowed to work from home permanently. Leaders have now had experience with the remote workplace concept and developed more appreciation for its positive impacts on efficiency and effectiveness. My earlier article on employee and leadership behaviors in the new normal describes shifts that drive the expansion of the virtual workplace beyond COVID into the next normal.

3. Freelance Work and Small Business Sector Growth

Empowered by technology and challenged by economic downturns, freelancers are finding flexibility and security in establishing multiple sources of income. On the other hand, employers, and especially other freelancers and small businesses are increasingly finding it more cost effective to rely on freelancers. This is especially the case for temporary or intermittent resource and unique skillset needs. In 2019, about 35% of Americans freelanced and it is estimated that 43% were freelancing by the end of 2020. Also, freelancing tends to be favored by younger generations, with 53% of Generation Z (18-22 years) freelancing by 2019. By 2027, some expect that freelancers will make up more than half of the U.S. workforce.

By contrast, the small business sector contracted in 2020 as a result of the COVID health and economic crisis. But the outlook for small business growth in the next few years remains strong with millennials and Gen Zs continuing to show preference for being their own bosses. In addition, barriers to entry are now lower in many industries as the digital transformation is availing new analytic and business networking capabilities that may be much easier for smaller and newer entities to leverage.

4. Major Demand Shifts Driven by the Technologically-Empowered End User

End users are being empowered by technology in a few ways, as I elaborated in an earlier article. These include the growing availability of information about products, services, and providers as well as the easier access to a wider variety of providers. This together with the expansion of the virtual workplace, and the growth of freelancing work and ecommerce are already driving significant shifts in demand for many commodities. Understanding and predicting such demand shifts can be very tricky but is absolutely critical for succeeding in 2021 and beyond. In the energy sector for example, the transformation in end user demand already drove profound shocks in the industry in 2020 as discussed in our article about energy demand transition. When combined with an expedited energy transition, demand shifts can change the landscape for oil and gas players indefinitely.

The airline and hospitality industries had already seen first order impacts from this dynamic in earlier years. Customers not only have access to information about their choices, but also have access to technologies that allow them to connect with family, friends, customers, and business associates without having to travel. Of course, these industries have been even more dramatically impacted throughout the COVID crisis.

5. The Humanization of Human Resources

Having been reinforced by the COVID experience, the overall wellbeing of employees is gaining importance as a driver of talent attraction, retention, and engagement. Pressure is mounting on leaders to demonstrate compassion and trust and approach their people as holistic human being, prioritizing their mental and physical health and family lives. As I discussed in another earlier article, there is near consensus that the leader of the future will only succeed if they consider employee fulfillment and purpose foundational to their people policies and strategies.

Now what?

Many of the events of 2020 were harsh for sure. But we were taught that it would not be impossible to grow and even win in this environment. The uncertainties that continue to materialize so rapidly before us present not only new challenges but also new opportunities. Success now requires new strategies that understand how each of the themes discussed here impact the overall business climate including customers and prospects, competition, and current and prospective employees.

Contact us to learn more about how we partner with executives to revisit their strategies and develop resilient leadership teams for winning during a historical juncture in human history.

What has the April 2020 experiment told us about the energy DEMAND transition?

Last year in September, we wrote an article on the challenge of meeting aggressive environmental goals while ignoring the demand side of the energy equation. Energy transition and climate change policy and investment initiatives had thus far been focused on reducing our reliance on fossil fuels in energy supply to control carbon dioxide (CO2) emissions. But our relentlessly growing consumption of energy across the globe had made meeting aggressive emission reduction targets near impossible. The COVID-induced reduction in energy demand has more than demonstrated the significance of demand in realizing aggressive emission reduction targets. In its early days, COVID19 successfully delivered an energy transitions experiment, proving that these goals are only attainable through transitions in not only energy supply but also energy demand.

A quick analysis of the EIA July 2020 Monthly Energy Review reveals some key insights about the fast arriving transformed future that are critical for energy industry leaders and policymakers to consider when making strategic choices. In April 2020, the U.S. went through a somewhat effective energy transitions experiment. The outcomes have clearly been far from pleasant for the industry. But they offer some important insights about what it takes to for energy transitions and related climate change goals to be met and how they will affect fundamentals for players along the supply chain of the energy industry.

Sustainability and Climate Action Plans that Don’t Address Demand Growth are Just Plans

In April 2020, the U.S. energy industry saw the most meaningful reduction in its monthly carbon dioxide emissions in over five decades. CO2 emissions from energy consumption were about 8% lower than in June 1982- the lowest monthly emission level since January 1973. Many have rushed to thank recent innovations and investments in renewable energy technologies for the acceleration of energy transitions. But renewable energy production in April was actually lower than its monthly average over the last three years. Total primary energy consumption, on the other hand, dropped to levels not seen since September 1989 suggesting that demand contraction was the major driver behind the reduction in emissions.

The Sectoral Transition in Energy Demand is Pacing Up

COVID19 lockdowns, stay-home orders, and social distancing guidelines this year restricted human mobility to levels probably not seen in several decades. Fortunately, the digital transformation had delivered technologies that are making business continuity and social connections still largely possible. We now rely on technology much more expansively to engage socially, run businesses, and buy and sell everything and anything from home. This translated into much larger consumption declines in the transport, industrial, and commercial sectors compared with the electricity and residential sectors.

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In April 2020, the residential and electricity sectors represented a total of 46% of primary energy consumption versus 41% last year. As productivity and performance concerns around remote working and virtual meetings get addressed, it is unlikely that we will ever return to our previous norms of travel by air, sea, or land. The COVID19 experience has inspired leaders to think differently about resource allocation. Many major tech companies have extended their remote working policy until next summer and some announced that employees will now have the choice to work remotely indefinitely. This means that the energy demand transition from the commercial and industrial sectors to the residential sector, and from transport to electricity could continue even post COVID19. This trend could only get multiplied as a result of the transition of consumption from oil to electricity with the proliferation of electric vehicles. As a result, oil consumption may never return to its pre-COVID19 levels which suggests that “peak oil” may already be behind us.

The Role of Natural Gas as a Bridging Fuel Cannot be Ignored

It will take some time before we have fully figured out ways to manage our energy appetite, de-link economic growth and energy demand growth, or further expedite investments and innovation in renewable and storage technologies. The recent blackouts of a struggling electric system in California demonstrate why natural gas generation will still be important at least until sufficient storage capacity is in place to mitigate the intermittency of zero carbon generation and maintain reliable operations.

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In April 2020, when U.S. carbon emissions from energy consumption hit historic lows, natural gas consumption actually rose by 2% compared with April 2019 while consumption of all other sources (including renewable energy) declined. This was driven by the sectoral energy demand shifts described above: transport to electricity, and commercial to residential. Also, new efficient gas-fired electric generation continues to displace coal-fired generation. As a result, our energy consumption mix saw a larger contribution of natural gas compared to 2019 at the expense of petroleum and coal. This trend may not be indicative of the eventual destination of energy transitions but of the path to get there.

And Finally Understanding and Predicting Demand under Different Scenarios is Imperative for Success

It is unfair to argue that anyone could have predicted something of the nature and scale of the COVID19 crisis and its implications on the energy demand transition. But forming alternative views on the demand dynamics expedited by COVID19 was not out of reach, because they had been evolving for some time. Digital technologies had been enabling businesses, employees, and customers in new ways for some time. Sustainability and climate change goals had been getting more aggressive, and investment in related technologies had been pacing up for a couple of decades. And the abundance of cheap natural gas resources in the U.S. has positioned it for its temporary bridging role some time ago.

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As has been evidenced thus far this year, and especially in April, the progress made on energy transitions and the digital transformation increases the energy industry’s vulnerability to demand uncertainties- especially for oil and gas players. There are multiple sub-regional and global dimensions that we haven’t discussed here but will remain highly relevant and volatile. The ability to formulate and embed various energy demand scenarios into top level/big picture decision making will differentiate the winners not only in the long-term, but also in the short and medium terms as experienced this year already.

The April 2020 experiment, while painful from an economic and public health point of view, was a nice joined up energy supply and demand case study on what it takes to achieve aggressive carbon emission reduction goals. And regardless of our position on the science of climate change, as industry leaders we would all benefit from understanding demand transition dynamics and their implications on our business.

Contact us to discuss how we can partner to better understand transformational trends in your industry and strategize for evolving leadership within your organization to ensure winning in disrupted reality.

Transformational Leadership: Top 5 Traits and Top 5 Limiting Mindsets

This decade is already proving to be much more intimidating to the status quo than the previous three or four decades at least. And disruptive forces are challenging leaders in new ways across different industries. In the energy industry for example we are having to navigate three major transformations concurrently: the energy transition, the digital revolution, and diversity and inclusion (D&I). Environment, social, and governance (ESG) are top on the agendas of major industry players globally. Much of this has been expedited by this year’s events, especially the COVID19 outbreak and the growing concern about racial divide issues.

Building our transformational leadership muscle is now a ‘must have’ for those who are looking to pivot their businesses for wining in a disrupted reality. Leaders that had already aligned their overall visions with the digital revolution have been better able to run operations more effectively and efficiently during lock-downs. The resultant relatively safe and stable experiences for employees and customers in turn translated to favorable financial outcomes. Likewise, leaders that had already developed strong D&I brands for their organizations had better chances of avoiding the negative implications of perceptions about their bias on their sales and financials. And, oil and gas industry leaders that had already pushed their energy transitions/ESG visions forward probably felt more optimistic about the future of their organizations in the face of the recent oil price shocks.

But what does it take to excel as a transformational leader? And what traditional mindsets block the realization of transformational visions?

Top Transformational Leader Traits

Throughout my experiences in patterning with transformational leaders, I have observed that those who are able to excel in orchestrating major organizational shifts share five traits:

  1. Influential and engaging. Transformational leaders understand very well that they can’t go it alone. Their success hinges on their ability to engage stakeholders around common visions and well aligned strategic roadmaps. This may require a different balance between command-and-control and collaborative leadership styles compared with what worked in the past. In addition to securing buy-in and commitment to the vision, an effective stakeholder engagement approach establishes a safe environment for feedback solicitation, and innovative idea generation.
  2. Perceptive and insightful. Transformational leaders are insightful observers of events and developments within their businesses, industry sectors, and the wider economy. They tend to be highly talented in connecting the dots, realizing trends and identifying opportunities prior to others. They don’t have to be subject matter experts (SMEs) themselves but they know how to engage SMEs and translate their analyses and opinions into commercially relevant insights and drive results accordingly.
  3. Adaptive visionary. While being visionary is a valuable leadership trait in general, leading through transformations calls for a different type of visionary, the adaptive visionary. The adaptive visionary makes it a habit to check their vision against major internal and external developments as well as the views of experts and thought leaders within and outside their organizations. The highly disruptive nature of our times calls for dynamic rather than static visions and supportive strategies. The adaptive visionary is able to imagine and re-imagine the future under different likely scenarios as soon as early signposts emerge or are brought to their attention.
  4. Commerciallydriven. Many major projects and organizational change efforts end up running above budgets and schedules. I am sure some of us feel that most if not all transformational initiatives miss their deadlines and exceed their budgets. They may also place pressure on the financial performance of the organization’s core business by leaning on its resources. Keeping an eye on the commercial priorities of the core business is top on the transformational leader’s list. In addition, understanding and managing the direct commercial outcomes of the organizational change under different potential constructs of the future is foundational for their success. This includes adopting solid approaches to identify, quantify, and mitigate risks in the short-term let alone the long-term.
  5. Strategic risk taker. Massive transformative disruptions naturally bring new and completely unimaginable risks, some of which are actually hidden opportunities. Winning takes leaders who are not only proficient in identifying and navigating risks but also make some bold strategic choices. They understand that the risk of inaction can be much higher than the risk of action in disrupted world. Strategic risk taking at the top is also important for inspiring a culture of creativity and innovation across the organization.

Regardless of the scale of the disruption and the nature of the journey, my clients and I find ourselves leaning more on these traits as we partner on leading successful transformations. Pivoting into new modes of growth takes a dynamic approach to balancing these five traits, while constantly prioritizing effective stakeholder engagement and teamwork. I hope this is not a surprise!

Top Leadership Mindsets that Block Transformations

Over the last decade, I have had many opportunities to partner with leaders on achieving their ambitions to pivot their businesses into growth in a disrupted industry. This included supporting energy transitions visions, evolving analytics to elevate an organization’s brand along its value chain, and redesigning structures and roles to prepare for major transformations. Throughout my experiences I have identified five legacy leader mindsets that tend to block transformative efforts:

  1. Direct returns-based assessment of new initiatives. In many instances, leaders find themselves working too hard to protect the successes of the past. This mindset only considers the direct revenues of new initiatives and ignores highly likely risks to core business revenues as the wider economy transitions away. It also ignores other opportunity costs associated with unfavorable transformation outcomes for conservative leaders compared to bolder competitors. Being outpaced by competition is one of the easiest ways to to hurt your brand and your core business results.
  2. Deterministic leadership cultures. This is somewhat linked to the first mindset. In an industry that had historically been lucrative like O&G for example, a deterministic mindset that assumes the continuation of past trends could easily become the norm. As major transformations unfold, long-term trends are constantly disrupted. Deterministic mindsets can lead to the handling of disruptions as short-term inconveniences rather than lasting shifts. This can easily result in facing the risks of a transformation without sufficient preparation and missing out on its biggest opportunities.
  3. Traditional competitive assessment. When I ask leaders about the competitors to consider when re-envisioning their future, they mostly list their past competitors. In most of the cases and after a little bit of digging, my clients and I find some big surprises. Traditionally, their competitors were entities that provided similar produce and services to theirs. During major disruptions, most players are transforming their businesses and customer mindsets are changing so rapidly. New competitors emerge, potentially doing very different things but customers could easily be putting them side by side with some traditional offerings for picking a winner. Understanding who competes for your customer’s attention during a major transformation is paramount to success.
  4. Job description orientation. This mindset is common among leaders with a track record in climbing the corporate ladder and typically aspiring for the next move up. During transformations, they struggle with the lack of clarity and their struggles become contagious across their teams . This is a first for us all! And no job description or annual objectives will spell out what it takes to come out on the winning side of the energy transition, digital transformation, D&I transformation, or even the COVID19 disruption. Regardless of the size of your team or business function, leaders could benefit from finding ways to thrive in uncertainty while staying aligned with overall corporate visions and values. Limiting your own imagination and creativity will only limit creativity and innovation within your team.
  5. And the winner is the silo mindset. This is perhaps one of the most common barriers to any organizational change effort. The ‘what’s in it for me or my team’ foundation for decision making and resource investment can therefore be extremely limiting. The transformations reshaping the future of humanity today are all intertwined, inter-disciplinary, cross-sectoral, global in scope and extremely large in scale. Leadership teams will float together or sink together. The desire to stick to traditional product or service definitions, organizational structures, and team boundaries is an implicit decision to struggle throughout the transformation and remain a follower of transformational leaders rather than one of them.

There are other mindsets that tend to block transformational breakthroughs. And like the five most common ones they are mostly related to the human tendency to stick to tried and tested methods. Consistently staying the course has its merits during more stable times. But when we are trying to chart a new path the balance will need to be tilted toward creativity, innovation, flexibility, compassion, and alignment.

Contact us to learn more about how we partner with executives to build their transformational leadership muscle and identify and make the necessary mindset shifts. 

Seeking New Normalcy: Winning Strategies

The new normal continues to take shape as social distancing and other health and safety measures bring transformational shifts to our behaviors, societal values, employment practices, and leadership approaches.  The demarcation between winners and losers in this environment may become clearer than ever. What it takes to be on the winning side could vary by industry, location, and/or profession. In our survey about the new normal, we asked leaders from the energy, health, and coaching industries about their views on what it takes for businesses in their respective sectors to excel in the new normal. Their answers indicate that bigger picture success drivers are similar across the economy. How each of these is interpreted will clearly be different for each organization.

What will take for businesses to be on the winning side in the ‘new normal’?

There was a great deal of consensus among our respondents that winning in the new environment will hinge on realizing and maintaining a tricky balance between flexibility and innovation on one hand and taking responsibility for sustainability on the other.

  • Innovation in employee and client solutions.  As discussed in earlier blogs, the preference for having the flexibility to work remotely and meet virtually when possible is expected to be here to stay. Applying communication and digital technologies creatively to allow employees to do their jobs while adhering to social distancing has already proven to be an important survival and success tool in the new normal.  Innovation in client solutions has also been a major differentiator for grocery stores, other retailers, and restaurants that were quick to upgrade their online shopping and delivery systems. Professional service providers offering research, advisory, consulting, and coaching services have also increased their online activity levels immensely. Even healthcare services are now trying to be creative about going largely virtual where possible. Our respondents feel that continued innovation in leveraging digital technologies to improve employee and client experiences to help establish diversified businesses will be critical for success in the new normal. 
  • A proactive attitude toward change and risk assessment and management. Embracing the constant state of change that comes with the new normal is viewed as a top driver for winning. While predicting the timing and nature of change accurately can be near impossible, winners will typically have established the capability to identify, assess and navigate risks. Being proactive about embracing change and assessing and mitigating risks calls for a great deal of operational and commercial flexibility and nimbleness. Also, while visionary leaders can be naturally gifted in identifying signposts for game changers, every leader can benefit from a mechanism for soliciting such input from visionaries within their organization and wider industry. The leaders we spoke to realize that it could be very complicated to be prepared for winning under many potential future scenarios for how things could evolve in the short, long, and medium term. But they’ve all agreed that otherwise success would be far fetched in an evolving and volatile new normal.
  • Sustainability-oriented business models. Leaders that had considered operating efficiency and emergency preparedness among their top priorities in the last few years, have been better able to ensure business continuity during the COVID19 crisis. Going forward, our respondents believe that taking responsibility for sustainability will require mental, emotional, physical, and financial preparation.  Effective sustainability business models will, therefore, have to encompass all aspects that impact operations including facilities, human capital, skillsets, structures, information technology, and financials. Also, an organizational culture that values continuous efficiency improvement can be  a real differentiator for organizations that prioritize sustainability. In addition to their operational, business continuity, and financial benefits, sustainability business models remain an important tool for realizing ambitious environmental goals.
  • Employee empowerment and engagement. Most of the leaders that responded to our survey agreed that the quality of leadership will be a real differentiator for winners in the post-COVID19 world. Engaging employees in identifying and addressing challenges and preparing for emergencies while ensuring alignment around organizational visions and missions is recommended not only for winning but also for survival. This requires an open exchange of feedback with employees and commitment to the greater good of stakeholders, not just shareholders. This in turn will allow organizations to function with a longer time horizon mindset, beyond maximizing next quarter returns and engender innovation in ensuring nimbleness in the face of volatility.

Interestingly, wining strategies in the new normal do not seem very different from some of the top leadership priorities that we had all been working on during the last few years: innovation, sustainability, employee empowerment and engagement, and a proactive approach to change and risk management. COVID19 and the ensuing economic crisis are now accelerating the attention to these priorities and reinforcing their importance for business continuity and commercial performance. In addition to assessing and managing risks, winning businesses will be those who are able to adopt and leverage these strategies to identify and capitalize on new opportunities in a socially responsible manner. If you think about it, these principles are relevant for establishing a new foundation for growth across the wider society- including public and private organizations across sectors, charities, special interest groups, communities, and even families. As influencers within several of such entities, we each have the responsibility to bring more agility, flexibility, sustainability, and engagement to our environments.

Seeking New Normalcy: Leadership

As discussed in our previous article, much of our recent dialogue with leaders has been about basic questions about socioeconomic shifts that are shaping a transforming new normal in the post-COVID19 world. Answers to these questions define alternative and coinciding scenarios for customer demand,  competitive landscapes, and work dynamics within each, if not all, of the sectors of the economy. Having reviewed major insights from our respondents on the expected shifts to individual behaviors earlier this week, this article summarizes insights from answers to the second question:

In what ways will leaders continue to approach their businesses and employees differently even as we recover from the crisis?

Some respondents were very skeptical that all leaders will actually make long-term transformational shifts in their approach to leadership as we recover from the health and economic crisis. But there was  consensus about some overarching transformational themes that are here to stay beyond the COVID19 crisis.

  • Embracing remote working and virtual teams, and re-imagining the workplace. Remote working has enabled business continuity while adhering to social distancing measures. There is an expectation that leaders will now trust remote working more even beyond the crisis. Mandating physical presence as a condition for employment could become extremely challenging, especially for “at risk” employees, required to stay home if they have health concerns.  Also, ongoing experiences with remote working have already demonstrated the associated benefits of cost savings and access to more diversified pools of resources for building more effective virtual teams. As a result, companies could find themselves having to rethink the workspace to avoid physical proximity, allow telecommuting, leverage virtual teams, and achieve cost savings.
  • Empathy, balancing employee well-being with shareholder value. Leaders are expected to become more empathetic, and shift their emphasis from shareholder value to overall enterprise value enhancement. This will take additional attention to employee financial, emotional, and physical well-being. Even if some leaders don’t choose to be more empathetic, the COVID19 health crisis has made the direct connection between employee well-being and business performance clearer to employers. Employees would now be approached much more holistically as human beings and family members with priorities and demands that affect their contribution.  This could call for evaluating the need to upgrade their health insurance plans, mental health programs, flexible work policies, and compensation schemes. On the flip side, economic pressures are expected to motivate the reassessment and reduction of hiring and overall human resource needs.
  • E-commerce driven recovery and growth. Business leaders predict growth in established as well as emerging e-commerce markets with remote working and social distancing becoming the norm. Many businesses in the online retail and tech sectors have already seen significant growth in 2020. Leaders across sectors are upping their game, where possible, to identify and realize commercial opportunities for their businesses in a socially distanced, increasingly virtual world. Financial recovery and growth is projected to be driven by a continuous shift to e-commerce or products and services that support virtual work and communication and other social distancing measures.

Raising questions about how overall public and private sector leadership priorities and approaches could be transforming is critical for success in the new normal. These changes drive shifts in the competitive landscape, customer demand, and/or policy dynamics for most businesses. As leaders re-envision the future and redirect their organizations accordingly, it would be useful to consider societal values that will prevail in the new normal. The next article in our “Seeking New Normalcy” series will address the question of values.

In leading energy transitions sticking to a low-CARBon diet is about our energy appetite not only our technology choices

Last month, 16-year old Swedish climate change activist, Greta Thunberg, made headlines again with her speech at the Climate Action Summit in New York. At a young age, Greta is demonstrating impressive leadership in holding world leaders responsible for the lack of sufficient action to combat climate change. She felt that they left her and her generation no choice but to quit being kids and take ownership of their future, which is being destroyed by the greed of adults.

Greta was deeply concerned that world leaders were not ready yet to present real solutions or plans to meet the 1.5 degree by 2030 goal, because they were not “mature” enough. She cited an Intergovernmental Panel on Climate Change report setting a “total carbon budget” of 420 gigatons of CO2 in the beginning of 2018. And it’s one we have already missed. This got me thinking…

While brave and admirable, will Greta’s activism be supported by the kind of multi-generational leadership the world needs to meet its climate change goals? Are the rest of us fully informed as to what effective leadership in this space looks like and what compliance actually requires?

As widely understood, the failure to meet carbon emission goals is largely driven by the reliance on fossil fuels to satiate our ever growing hunger for energy. This makes it easy to point at government inaction and the greed of fossil fuel producers and large consumers for limiting our access to an assortment of zero- or low-carbon technologies. Regardless of the extent to which governments and oil, gas, coal and related industries are responsible, environmental activism and related studies seem to be largely focused on one side of the energy equation: supply. The concern has largely been about our energy sources and the insufficient investment in zero or low carbon technologies. Understanding the demand side of our energy equation is obviously trickier. But if climate change activism and leadership across relevant industry sectors and economies are serious about meeting their carbon emission goals, they would benefit from addressing a couple of questions.

How feasible is it for investments in zero or low carbon alternative technology over this coming decade to grow at a pace that would support energy demand growth and displace fossil fuel sources?

Over the last decade global renewable capacity has more than doubled from above 1,100 GW in 2008 to above 2,300 in 2018 GW according to the International Renewable Energy Agency (IRENA). Still, renewable energy supplied about 15% of global energy demand in 2018 according to the EIA. Even if global consumption for energy were to grow by no more than 1%, we will see energy demand growth of 20% in the next 20 years as predicted by the Shell Energy Sky Scenario of 2019. This means that investments need to more than double current levels of renewable capacity only to support demand growth, i.e. limit further increases in rather than reduce CO2 emissions. To effectively displace carbon-emitting fossil fuel sources and reduce our emissions, the world needs to more than triple or quadruple its renewable capacity. The technical, geographic, and financial feasibility of the required fast-paced wholesale transition in the energy supply mix could definitely use some more analysis. To what extent is multi-generational leadership of climate change initiatives ready to drive this analysis?

And a more burning question is do we really believe that our global demand for energy will grow at a drastically slower pace in the next 20 years compared to the last 20 years?

The more we use energy for transportation, industrial activity, electricity, heating, cooking, etc the more CO2 we send to the atmosphere. And it could be that our growing consumption of energy is making it near impossible to meet climate change goals. Climate change science and activism is mostly originating in the developed OECD world and more specifically in the Western Hemisphere. This is where energy demand growth is beginning to slow down in many areas and is expected to remain flat or even decline in the future. In non-OECD, energy demand has grown by over 3% per year on average over the last 20 years. Most of the recent energy consumption outlooks expect energy demand in the developing world to adhere to a growth rate of no more than 1-2% per year over the next 20 years. The need to triple or even quadruple global renewable energy resources in the next 20 years is based on these low to moderate energy demand growth expectations. But is it realistic to expect the developing world in Africa and Asia Pacific for example to curb its appetite for energy to this extent, given all the socio-economic and political change?

Have traditional methods for understanding and forecasting energy demand become obsolete?

Global energy demand is an extremely complicated story that requires hard core data analytics and modeling. Energy demand forecasting models have typically been based on the extrapolation of past behaviors. The relevance of past trends is declining due to major socio-economic and technological transformations, not to mention climate change itself. Any serious demand forecasting exercise will need to address multiple dimensions around these transformations and they affect our appetite for energy, for example:

  • Home to more than one third of global urban population, the developing world is still primarily rural. The rate and nature of economic growth could drive urbanization much faster than historic rates in several of these economies.
  • The anticipated growth in economic activity and urbanization in the developing world simply means the need for automotive mobility will only grow. This will happen in places where economic pressures make it nearly impossible to see any form of meaningful adoption of newer fuel-efficient vehicles, let alone EVs.
  • About 14% of the world’s population (about 1 billion people) is still without access to electricity. Universal access is planned by 2030 in most countries according to the UN. Many uncertainties surround the timing and nature of this access.
  • Complicated decision making processes among individual energy consumers, consumer groups, or policy makers will drive investments in distributed generation, micro-grids, or electric vehicles. Understanding the impact of these decisions on the operation of energy systems and eventual energy demand growth can be even more challenging.
  • An ongoing technological transformation at a pace that is catching us by surprise every second. Digital technology adoption across different sectors can make energy demand growth easily exceed moderate expectations not only in the developing world, but also in the developed world. In the financial sector, a recent analysis by the University of Cambridge estimated that bitcoin-related activity alone consumes more energy than the entire nation of Switzerland!

The real challenge for energy transition leadership: combat climate change but cooperate with others around the table

Clearly, it’s much simpler to understand the investment and operational decisions of hundreds of regulatory bodies or thousands of businesses than it is to understand what these transformations mean for the energy consumption of 7.7 billion individuals. This is why understanding the responsibility of policymakers and energy producing and consuming industries in the success or failure of energy transitions is more straightforward. But the bad news is that if demand does not assume an active role in meeting decarbonization goals, we could see consumption growth at a rate that supply cannot keep up with.

The good news though is that one of the key demand challenges, the digital transformation, can be an enabler. We have the technology that will allow us to better access and understand behavioral, socio-economic, and energy demand dynamics and predict future dynamics. To support Greta and her generation protect their future, responsible multi-generational leadership of global energy transition takes two things:

  • Accepting the analytical challenge of projecting how energy demand will or won’t grow and its implications on carbon emissions; and
  • Setting clear objectives for energy demand growth and consumption profiles that support climate change goals and developing innovative strategies to meet them.

If the world needs to go through a low-carbon diet then having an exciting assortment of zero- and low-carbon technologies in its pantry alone isn’t sufficient. Like any diet, an intentional understanding and management of our energy consumption behavior is a necessity.