As the wildfires in California and other recent calamities show, climate change has become an emergency in many countries and regions. Still, corporate strategy executives often give it relatively low priority. Why is this so, and what can be done to change it, asks Rafael Ramirez, a professor of practice at the University of Oxford, in this opinion piece. He is the director of the Oxford Scenarios Programme and academic director of the Oxford Networked Strategy Lab.
In January this year, Pacific Gas and Electric declared bankruptcy as sparks from its equipment were found to be the cause of wildfires, and it cannot afford to cover the liabilities which this entails. In October, it cut service to more than a million Californians, again because of wildfires. Commentators have called for the State of California to take over the company. In April the U.S. Air Force requested $5 billion to repair two airbases in Florida and Nebraska hit by a hurricane and flooding. Climate change enhances the severity and frequency of such events, and is now a big issue, economically and politically.
It is not as if this is a new phenomenon; it has been around for all of my life. When I was born, atmospheric CO2 parts per million in the earth’s atmosphere were 23% lower than they are today. The stock of carbon, which has built up since, will have severe consequences for companies and society — and indeed, life — up to at least 2050, even if magically the emission of carbon dioxide were reduced to zero overnight. Some 300 million people risk flooding by 2050.
In mid-February 2019, I got an email from a private association of several dozen senior corporate strategy vice presidents which reported that in a survey they carried out, 41 respondents placed sustainability and ESG eleventh out of the 12 priorities they could choose from. Only one respondent put it as their first priority; and only seven put it among the top five.
How is it that corporate strategists are not taking as a high priority what has become a ‘climate emergency’ in many cities, regions, and countries and universities? To their credit, the association invited me to speak with about a dozen members on this matter. I here report what I learned on what may be required to move climate change higher up the to-do list of corporate strategists.
Agenda for Climate Change
Many different actors are setting the agenda for climate change action — not the vast company strategists. They include the military, which considers climate change a national security challenge. They also include religions, which sometimes influence pension funds and other investors – for example, the coalition of investors, led by the Church of England Pension Board and Swedish pension fund AP7, has written to 55 European corporations about their possibly hypocritical approach to climate lobbying. Regulators are also setting the pace by which firms abide to climate imperatives; and if they do not, litigators might well do so. Of course, for years scientists — such as those in the Inter-Governmental Panel on Climate Change — have raised the issue and its urgency; as have environmentalists such as Greenpeace, and others in civil society. The media, too, has relayed, explored, and communicated climate change, whether it is through films such as those by David Attenborough or Al Gore, or through in-depth exposes on rising sea levels.
Reacting to outside forces as interpreted by others is not the best way to strategize, and this, too, applies to climate change. As a colleague working on labour standards conveyed:
“I was just talking with someone from an NGO that pressures firms around labour standards in their supply chain. The managers didn’t have any sense of what to prioritize because they were under-resourced and couldn’t think for themselves. So they just reacted to the NGOs, trying to do what they could to score highly on external rankings. This might work in the short run, but it closes the door to innovation and experimentation. And when NGOs change their mind, that leaves the firm scrambling. Might a bit more attention allow firms to be less reactive and create more robust strategies?”
Inside the Corporation
So, what is the situation within companies? Here, too, functions and departments other than strategists often set the agenda for the executive team on what to do about the climate. These include risk managers and their suppliers; and lawyers and the concerns they raise about uninsured (and increasingly, uninsurable) risks and liabilities, such as those that drove Pacific Gas and Electric into Chapter 11. Human Resources departments will need to determine the policy they take when employees join climate strikes, The Financial Times reported in July 2019. And many corporations now have CSR and sustainability units, but in many cases, Finance or Investor Relations trump their calls for action. Or sometimes – here we come – the responsibility rests with Strategy.
“Many different actors are setting the agenda for climate change action — not the vast company strategists.”
So Where Is Strategy?
Strategists do seem to make a difference in matters concerning climate change when working in cities such as Rotterdam or New York, so the issue of why corporate strategists are not driving the agenda may not be strategy itself, but its role in the company, and indeed, in business education.
In the Academy of Management Conference held in Boston in August, David Collis reported that strategy was the least well-evaluated course in the Harvard MBA. Moreover, strategy is no longer a required course in the Stanford MBA. Might this be because concentrating on competitive strategy is not what strategy as taught in business schools ought to be dedicated to? When Alliance Bernstein, a U.S. fund manager, sent its executives to learn about climate to Columbia University, it was not the business school they attended.
Here are some reasons why strategists in corporations may not be driving their climate change agendas — and the corresponding initiatives they might undertake to redress the situation.
What Corporate Strategists Should Do
Maybe corporate strategists work on time horizons that are too short; that is what The Economist suggested in August 2019:
“A rise (in sea levels) which seems precipitous to Earth scientists remains well beyond the planning horizons of most businesses: even utilities rarely take a century-long perspective.”
If so, maybe corporate HQ’s ought to merge their sustainability and strategy functions.
Maybe corporate strategists are too insular, cut off from other functions and counterparts. The ‘opening’ of strategy, which Oxford professor Richard Whittington reports is on the rise, may not be opening as quickly as it should. If so, more stakeholders need to be invited into strategizing than is the case today.
“Maybe corporate strategists are too insular, cut off from other functions and counterparts.”
Perhaps strategists are failing to convene a sufficiently courageous set of strategic conversations? If so, they might find it wise to test their portfolios for 2, 3, 5 centigrade contexts (which may come far sooner than expected). Or maybe they could assess how their companies will deal with flooded coastlines and/or lack of water in the basins where they (or their suppliers or customers or partners) operate.
In 2008, Nordqvist and Melin suggested that individual “strategic planning champions” succeed if they master three related roles, in addition to the obvious two of strategic thinker and analytic planner: that of (a) “social craft-person” (i.e., being able to read politics and tensions to obtain results), of (b) “artful interpreter” (i.e., adapting practices to fit local specific cultural and professional situations), and of (c) “known stranger” (i.e., balancing closeness and distance to other actors involved in strategic planning).
If so, to engage with climate, strategists would be expected to:
- Broaden the tensions they bring in – bringing in more diverse and more difficult tensions into the strategic conversation, strategizing with other corporate functions, and not for or against them;
- Widen the set of practices they deploy in strategizing, including scenario planning to get sustainability and strategy to disagree with each other constructively; and
- Work on the context of, and not only on, their company’s options – actively seeking to engage and even bring in what economists have hitherto considered externalities, to avoid the common goods upon which they depend becoming tragically extinct. Here they may have to get collaborative strategy to frame competitive strategy– or avoid doing so at their peril.
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2 Comments So Far
Anumakonda Jagadeesh
Excellent.
Business action on climate change includes a range of activities relating to global warming, and to influencing political decisions on global-warming-related regulation, such as the Kyoto Protocol. Major multinationals have played and to some extent continue to play a significant role in the politics of global warming, especially in the United States, through lobbying of government and funding of global warming deniers. Business also plays a key role in the mitigation of global warming, through decisions to invest in researching and implementing new energy technologies and energy efficiency measures
In 1989 in the US, the petroleum and automotive industries and the National Association of Manufacturers created the Global Climate Coalition (GCC) to oppose mandatory actions to address global warming. In 1997, when the US Senate overwhelmingly passed a resolution against ratifying the Kyoto Protocol, the industry funded a $13 million industry advertising blitz in the run-up to the vote.[1]
In 1998 The New York Times published an American Petroleum Institute (API) memo outlining a strategy aiming to make “recognition of uncertainty … part of the ‘conventional wisdom.'” The memo has been compared to a late 1960s memo by tobacco company Brown and Williamson, which observed: “Doubt is our product since it is the best means of competing with the ‘body of fact’ that exists in the mind of the general public. It is also the means of establishing a controversy.” Those involved in the memo included Jeffrey Salmon, then executive director of the George C. Marshall Institute, Steven Milloy, a prominent denialist commentator, and the Competitive Enterprise Institute’s Myron Ebell. In June 2005 a former API lawyer, Philip Cooney, resigned his White House post after accusations of politically motivated tampering with scientific reports.
In 2002 the GCC considered its work in the US against regulation on global warming to have been so successful that it “deactivated” itself, although the loss of some leading members may also have been a factor.
At the same time, since 1989 many previously denialist petroleum and automobile industry corporations have changed their position as the political and scientific consensus has grown, with the creation of the Kyoto Protocol and the publication of the International Panel on Climate Change’s Second and Third Assessment Reports. These corporations include major petroleum companies like Royal Dutch Shell, Texaco, and BP, as well as automobile manufacturers like Ford, General Motors, and DaimlerChrysler. Some of these have joined with the Center for Climate and Energy Solutions (formerly the Pew Center on Global Climate Change), a non-profit organization aiming to support efforts to address global climate change.
Since 2000, the Carbon Disclosure Project has been working with major corporations and investors to disclose the emissions of the largest companies. By 2007, the CDP published the emissions data for 2400 of the largest corporations in the world, and represented major institutional investors with $41 trillion combined assets under management. The pressure from these investors had had some success in working with companies to reduce emissions.
The World Business Council for Sustainable Development, a CEO-led association of some 200 multinational companies, has called on governments to agree on a global targets, and suggests that it is necessary to cut emissions by 60-80 percent from current levels by 2050.
In 2017, after the election of Donald Trump, backing was shown in the business community for the Paris Agreement, which became effective November 4, 2016.
A central organization in climate denial was the Global Climate Coalition (1989–2002), a group of mainly United States businesses opposing immediate action to reduce greenhouse gas emissions. The coalition funded deniers with scientific credentials to be public spokespeople, provided industry a voice on climate change, and fought the Kyoto Protocol. The New York Times reported that “even as the coalition worked to sway opinion [towards denial], its own scientific and technical experts were advising that the science backing the role of greenhouse gases in global warming could not be refuted.”
In the year 2000, the rate of corporate members leaving accelerated when they became the target of a national divestiture campaign run by John Passacantando and Phil Radford with the organization Ozone Action. According to The New York Times, when Ford Motor Company was the first company to leave the coalition, it was “the latest sign of divisions within heavy industry over how to respond to global warming.”[12][13] After that, between December 1999 and early March 2000, the GCC was deserted by Daimler-Chrysler, Texaco, the Southern Company and General Motors.
The organization closed in 2002, or in their own words, ‘deactivated’.
Businesses take action on climate change for several reasons. Action improves corporate image and better aligns corporate actions with the environmental interests of owners, employees, suppliers, and customers. Action also occurs to reduce costs, increase return on investments, and to reduce dependency on uncontrollable costs.
For many companies, looking at more efficient energy use can pay off in the medium to long term; unfortunately, shareholders need to be satisfied in the short term, so regulatory intervention is often required, to encourage prudent conservation measures. However, as carbon intensity starts to show up on balance books through organizations such as the Carbon Disclosure Project, voluntary action is starting to take place.
Recently there has been a spate of companies acting to improve their energy efficiency. Possibly the most prominent of these companies is Wal-Mart. Wal-Mart, the largest retailer in the US, has announced specific environmental goals to reduce energy use in its stores and pressure its 60,000 suppliers in its worldwide supply chain to follow its lead. On energy efficiency, Wal-Mart wants to increase the fuel efficiency of its truck fleet by 25% over the next three years and double it within ten years, moving from 6.5 mpg. This seems an attainable goal, and by 2020, it is expected to save the company $494 million a year. The company also wants to build a store that is at least 25% more energy efficient within four years.
In August 2002, the largest gathering of ministers in the history of the world met at the World Summit on Sustainable Development in Johannesburg. The global environmental community discussed the role of renewables and energy efficiency in lowering carbon emissions, mitigating poverty reduction (energy access) and improving energy security. One result from WSSD was the formation of to carry forward the international dialogue on sustainable energy and its role in the energy mix.
Partnerships formed include the Renewable Energy and Energy Efficiency Partnership, the Global Village Energy Partnership, the Johannesburg Renewable Energy Coalition (JREC), and the Global Network on Energy for Sustainable Development.
Renewable energies and renewable energy technologies have many advantages over their fossil fuel counterparts. These advantages include the absence of local pollution such as particulates, sulphur oxides (SOX’s) and nitrous oxides (NOX’s). For the business community, the economic advantages are also becoming clearer. Numerous studies have shown that the working environment has a significant effect on workforce morale. Renewable energy solutions are a part of this, wind turbines in particular being seen by many as a potent symbol of a new modernity, where environmental considerations are taken seriously. A workforce seeing a forward-looking and responsible company is more likely to feel good about working for such a company. A happier workforce is a more productive workforce.
More directly, the high petroleum (oil) and gas prices of 2005 have only added to the attraction of renewable energy sources. Although most renewable energies are more expensive at current fuel prices, the difference is narrowing, and uncertainty in oil and gas markets is a factor worth considering for highly energy-intensive businesses.
Another factor affecting the uptake of renewable energies in Europe is the EU Energy Trading Scheme (ETS or EUTS). Many large businesses are fined for increases in emissions, but can sell any “excess” reductions they make.
Companies with high-profile renewable energy portfolios include an aluminium smelter (Alcan), a cement company (Lafarge), and a microchip manufacturer (Intel). Many examples of corporate leadership in this area can be found on the website of The Climate Group, an independent organization set up for promoting such action by business and government.
The principle of carbon offset is fairly simple: a business decides that it doesn’t want to contribute further to global warming, and it has already made efforts to reduce its carbon (dioxide) emissions, so it decides to pay someone else to further reduce its net emissions by planting trees or by taking up low-carbon technologies. Every unit of carbon that is absorbed by trees—or not emitted due to funding of renewable energy deployment—offsets the emissions from fossil fuel use. In many cases, funding of renewable energy, energy efficiency, or tree planting—particularly in developing nations—can be a relatively cheap way of making an event, project, or business “carbon neutral”. Many carbon offset providers—some as inexpensive as $0.10 per ton of carbon dioxide—are referenced in the Carbon Offset article of this encyclopedia(Wikipedia).
Many businesses are now looking to carbon offset all their work. An example of a business going carbon neutral is FIFA: their 2006 World Cup Final will be carbon neutral. FIFA estimate they are offsetting one hundred thousand tons of carbon dioxide created by the event, largely as a result of people travelling there. Other carbon neutral companies include the bank HSBC, the consumer staples manufacturer Annie’s Homegrown, world leading society publisher Blackwell Publishing, and the publishing house New Society Publishers. The Guardian newspaper also offsets its carbon emissions resulting from international air travel.
Dr.A.Jagadeesh Nellore(AP),India
Jim Bozin
1. Anyone that hasn’t at least studied thermodynamics should be prevented from discussing climate change.
2. Nowhere do we see anyone tying population to sustainability, and that’s rub. Things can only be sustainable at a certain consumptive level. The math is unmistakable. Take out more than is put in, and there’s negative accumulation. And you have to understand thermo to understand the consequences of that. The trajectory of increased population and increased consumption has consequences.
3. On another feed, I just read China has record crude oil imports. So whom are we kidding? There’s 10-20 times the annual investment in oil than renewables. So I doubt that will change by beating one gums or publishing. Investments stay until they are paid out or overtaken by more competitive technology. I’ve challenged this before, but “climate change” people seem content to argue more for their position than affect change.
4. CA, the advanced “model” environmental state for decades, has lost their way with misguided policies. They’re just experiencing the fruit, bitter as it is, of those policies. Nature is cruel, but effective.