The Strategic Imperative of Dual-Mission Cost Reduction and Decarbonization
In today’s business landscape, more and more companies are focused on reducing both carbon emissions and costs simultaneously. This dual mission is not just a strategic choice but a necessity driven by rising costs and increasing regulatory pressure, such as from Europe’s Carbon Border Adjustment Mechanism (CBAM) and European Trading Scheme (ETS, now extended under ETS2), and new disclosure standards taking effect in Australia and Japan.
Yet to date, only a minority of companies have even attempted to achieve both missions in a systematic way. Fewer still have succeeded. The companies that have managed to fulfill their dual mission, in sectors ranging from automotive and energy to chemicals and life sciences, have used a range of approaches to do so.
The Dual-Mission Methodology
Some started with a focus on cost, viewing carbon abatement as a complementary goal. This approach can often be especially helpful when early cost savings are needed for reinvestment into sustainability initiatives. Others—particularly in sectors facing the most stringent regulatory changes—emphasized carbon abatement. In these cases, cost neutrality (or even reduction) became an added benefit of their sustainability-focused transformations.
Despite the very different starting points, however, our analysis of dual-mission transformations finds a common set of five critical enablers. Leaders who pay attention to governance changes, internal capability building, supply chain restructuring, clear performance measurement and steering, and the careful development of “lighthouse” projects to build excitement can set their organizations up for “missions accomplished.”
Dual Mission—Multiple Benefits
Some organizations consider dual-mission programs because they believe that traditional, one-dimensional cost-cutting has reached a point of diminishing returns, particularly given that the focus is so often on short-term wins that fade within a few budget cycles. Over the longer term, mitigating climate and other environmental harms may represent even greater cost savings and a more inspiring effort for employees, customers, and other stakeholders.
Refilling the Innovation Pipeline
Introducing a carbon lens to cost-reduction programs provides a crucial shift in perspective that can open up a wealth of new opportunities for creative problem-solving that also reduces waste. For one global automotive manufacturer, for example, adding a carbon lens to cost optimization spurred creativity in finding novel material substitutes, reexamining volume assumptions, and revamping parts replacement practices—strategies that traditional cost-cutting initiatives rarely triggered.
As the methodology took hold and employees contributed more and more innovative ideas, the carbon-focused effort not only achieved its sustainability targets but also doubled the savings achieved in previous efforts.
Engaging Employees Across Generations
Research from McKinsey has found that more than half of employees are at least somewhat disengaged, with a potential cost of more than $200 million per year for the median-size S&P 500 company. But adding a carbon lens to organizational initiatives can foster a greater sense of purpose and motivation across the workforce.
As part of an overall dual-mission program, a heavy-equipment manufacturer instituted workshops focused on carbon reduction. Within just six months, the workshops generated almost 1,000 cost-and-carbon initiatives for an estimated cost savings of $100 million and CO2 reduction of 40,000 metric tons using carbon-reduction-focused workshops. Participants expressed that the sessions were both meaningful and purpose-driven, describing them as “new and fun.” This positive sentiment can extend across the organization, from leadership to working teams, creating a collective desire to participate in the program.
When companies tailor their communications to highlight the positive effects and purpose-driven nature of carbon initiatives, they can generate significant enthusiasm, particularly among commercial teams. One leading industrial organization adopted a dual-mission approach to decarbonization that encouraged participation from everyone, from the CEO down to buyers and R&D leads. The shared interest in and enthusiasm for sustainability helped to overcome typical obstacles, such as time constraints and competing priorities, that often hinder widespread engagement.
The company’s chief procurement officer commented that it was the first time he had seen real cross-hierarchy excitement about a cost program. “Everyone is rallying around the carbon angle, wanting to contribute their ideas.”
These efforts can also have a critical long-term effect on talent attraction, retention, and stability, particularly among Gen Z workers. Across eight of the world’s largest economies, labor markets are tighter than they have been for more than two decades. Gen Z could come to the rescue—but Gen Z workers are more likely than any other generation to list “meaningful work” as a top factor for taking, keeping, or leaving a job. A sustainability focus can help attract Gen Z members who otherwise might be harder to convince to work in manufacturing.
Five Essential Enablers
Revamped Governance
To ensure that both cost- and carbon-reduction targets are given equal priority, it is essential to embed a carbon lens in an organization’s governance structures from the outset, starting with agreed-upon ambition levels for both cost and carbon reduction. Involving representatives from the entire product development and procurement function—not just the sustainability team—gives all stakeholders a shared sense of ownership and engagement over targets that they help optimize.
Equally important is to make sure that the team can operate efficiently and effectively. Leaders at one luxury-automotive company imposed strict norms for the cross-functional teams reviewing each module of the company’s manufacturing operations. Comprising cost engineers, procurement managers, and sustainability experts, the teams met according to a frequent meeting cadence, with senior executives providing active oversight to enforce timelines and break logjams. This governance structure resulted in a vigorous and prompt decision-making process, which facilitated early buy-in and clear alignment on the dual-mission goals.
Once the cross-functional team structure is in place, it should rethink crucial material choices. By thoroughly understanding the cost and carbon implications and effectively managing the change process, organizations can overcome resistance and reluctance. The luxury automaker’s program identified interventions to deliver a 10 percent cost reduction across the value chain and a 20 percent reduction in CO2 emissions.
Stronger Green Capabilities
To successfully navigate the complexities of carbon management, organizations need to build a robust set of capabilities for understanding, quantifying, and managing carbon over the long term.
The North American equipment manufacturer mentioned earlier developed a comprehensive carbon awareness curriculum that covered the basics of carbon, its impact on the environment, and the importance of carbon reduction. Later sessions included hands-on workshops where employees learned to use carbon footprinting tools and techniques to assess the environmental impact of their operations and supply chain. By giving employees the skills needed to identify and prioritize carbon reduction opportunities, the company developed a workforce that was better informed and motivated to contribute to the company’s sustainability goals while fostering a data-driven approach to sustainability.
A Renewed Supply Chain
The most immediate impact from a dual-mission effort is on a company’s supply base, affecting both the procurement and supply chain functions.
Adding Emissions to Procurement Negotiations. Traditional procurement processes often focus solely on cost and quality, which can limit the scope of improvements and the depth of supplier engagement. Introducing a carbon lens into procurement negotiations can provide a new way to rethink supplier relationships. By evaluating suppliers based on their carbon performance, companies can not only drive sustainability across their supply base but also foster a collaborative partnership focused on shared goals and create transparency as required by regulatory developments. The buyer reduces its carbon costs; the supplier reduces its emissions—a factor that could increase its competitiveness in tight markets.
The North American equipment manufacturer found that incorporating carbon performance into cost negotiations transformed a traditionally adversarial relationship with a challenging supplier into a strategic partnership. Instead of viewing each other as negotiators on opposite sides of the table, refocusing on emission reduction gave the companies a common objective. This shift in perspective led to the supplier accepting a 5 percent increase in shipping costs to source more sustainable materials, recognizing the long-term value in pioneering the sustainability space and strengthening their partnership with the client.
Reducing Materials’ Carbon Emissions. As important as procurement wins are, they won’t be enough for most companies to meet their Scope 3 emission targets—which cover the entire supply chain. Yet the complexity and limited visibility of supply chains make it difficult to execute carbon reduction initiatives effectively. Additionally, understanding the appropriate emission factors for various materials can be time-consuming and challenging, especially given varying levels of maturity and accuracy in carbon-emissions models for different materials.
A tier 1 automotive supplier, for example, calculated that about 50 percent of its Scope 3 target could be addressed only in collaboration with suppliers. The process started with an intensive effort to collect detailed, supplier-specific sustainability data, including electric energy consumption, renewable-energy sourcing, current greenhouse gas (GHG) baseline, life cycle assessment results for purchased products, and decarbonization initiatives. New AI tools translated the data into current and projected GHG emissions, allowing for a new sourcing strategy that differentiated suppliers based on their carbon footprint and decarbonization maturity.
Next, the company conducted capability building workshops with suppliers and its own team to gather primary insights, align decarbonization journeys, and create joint plans. As a result, the company has now embedded sustainability into all of the principal steps of the sourcing process, ensuring a comprehensive approach to emissions reduction.
Clearer Performance Measurement and Steering
Leaders and managers can’t effectively oversee and reduce carbon emissions unless they know what they’re managing toward. They must set clear, organization-wide carbon targets that are aligned across all departments.
Building a comprehensive carbon baseline requires significant time and effort. An important first step is to accurately categorize products and services within the company’s procurement database to ensure that the baseline reflects the true carbon impact of the organization’s operations.
One high-emitting company with a particularly complex decarbonization pathway found that with a strategic combination of three factors—emissions targets broken down to the product level, full transparency on CO2 primary data from suppliers, and the introduction of an internal carbon price to manage trade-offs—it could identify more than 75 decarbonization levers. Fully implemented, the levers would let the company meet up to 40 percent of its Scope 3 emissions reductions.
Excite and Engage Using ‘Lighthouses’
Publicizing projects that have successfully applied dual-mission principles can serve as a catalyst for transformation. These projects not only highlight the tangible benefits of integrating sustainability into business operations but also provide a road map for others to follow. By sharing these success stories, organizations can inspire their teams and stakeholders to adopt similar practices.
One electric-vehicle manufacturer launched both internal and external communication campaigns announcing a dual-mission program that aimed to halve its carbon emissions from the materials it uses. Externally, the campaign strengthened the company’s brand positioning as a leader in sustainability. Internally, the campaign showcased the impact of working differently with suppliers, disseminating a successful approach that could be replicated in the future.
Lighthouses can be especially effective in reigniting enthusiasm once an early project starts to wind down. To solidify its gains, the North American equipment manufacturer launched a lighthouse project focused on integrating sustainability into product design, supported by a targeted capability program in sustainability design and supplier negotiation. The result was a second round of sustainable innovation that yielded additional new products and processes and further scaled new skills across the organization.
FAQ
What are the benefits of a dual-mission cost reduction and decarbonization strategy?
By integrating these objectives, companies can navigate the complex regulatory landscape, reduce operational costs, and enhance their sustainability position. The benefits include cost savings, carbon emission reductions, innovation opportunities, employee engagement, and talent attraction.
How can companies successfully implement a dual-mission strategy?
Companies can implement a dual-mission strategy by focusing on governance changes, internal capability building, supply chain restructuring, clear performance measurement and steering, and the development of lighthouse projects. Engaging employees across generations and aligning organizational goals with carbon reduction targets are also key success factors.
Conclusion
The dual mission of cost reduction and decarbonization is not just a strategic imperative but a competitive advantage. By integrating these objectives, companies can navigate the complex regulatory landscape, reduce operational costs, and enhance their sustainability position. The time to act is now, as the benefits of a dual-mission program are clear, and the risks of inaction are significant. Leading companies are already reaping the rewards, and those that follow will position themselves for long-term success in a rapidly changing world.
