The 26ThThe annual United Nations Climate Change Conference of the Parties (also known as COP26) concluded with a hard-fought pactThis called on governments and businesses to accelerate their efforts to address climate change.
The event was followed by August reportThe Intergovernmental Panel on Climate Change (IGPCC) not only confirmed the fact that climate change is rapidly increasing, but also signaled a responsibility to change course.
We asked Harvard Business School faculty members who are associated with the Business & Environment InitiativeWhat role should business leaders play in addressing climate change and what business opportunities might arise from efforts to adapt and mitigate it. These were their words:
Lauren Cohen: Fund environmental innovation
The IPCC climate report has two key findings.
1. There are considerable “unknown unknowns” in the future of climate change, and that these unknown unknowns may in fact represent the largest drivers of both climate change, and optimal solutions to address it.
2. And that governments alone—along with ultimately unenforceable pledges by those governments—will be insufficient to solve these challenges, necessitating an even larger role for private markets than first thought.
Combining both of these findings will allow us to create a flexible system which can adapt and allocate capital quickly as new unknowns emerge and take prominence. Flexible ex-ante incentives combined with ex-post mechanisms to quickly reallocate resources will be the best way to achieve this. A bedrock for all solutions, from public capital funding to private capital funding, should be sequential, staged-round financing in environmental innovation.
Lauren CohenIs The L.E. Simmons Professor in the Finance & Entrepreneurial Management Units.
Boris Vallée: Make decarbonization profitable
When I think of business leaders and the climate crisis that we face, two words spring to my mind: responsibility. Businesses have been a major source of carbon emissions and, perhaps even more important, they have advocated for high-carbon intensive behaviors and actions. There is also evidence that business leaders are actively concealing important research and lobbying to undermine regulatory efforts. They also attempt to influence the scientific consensus on the climate impact of human actions.
The business world has a huge responsibility in this situation.
Businesses can make a significant impact on the current situation. However, capitalism is a powerful engine that can work with agility. If enough effort is put into aligning profit/decarbonization, business leaders will be able drive large scale impacts while creating a wealth of profitable business opportunities. This alignment is becoming more apparent among investors and business leaders. But we need to turbocharge it if you want to avoid the worst.
Boris ValléeTorstein Hagen Associate Professor of Finance Administration.
John MacomberCombine forces to increase impact
COP26 in Glasgow made it clear that global political leaders won’t be able coordinate a large-scale response to climate change and economic pressures. Therefore, society will need to make choices at every level and in almost every location—from homeowner to business to investor to government—about what to protect, when to plan for rebound and recovery, and what assets—and individuals—to not protect in the face of river flooding, wildfire, storm surge, and drought.
Business leaders, capital providers included, can be a great resource. Conserve shared value so that we the people aren’t AllIn the years ahead, chaos will cause great harm. This requires careful benefit-cost analysis. It considers a future where exposures may be uncertain and not evenly distributed.
The best investors, operators and innovators will evaluate the probabilities of perils as they develop over time. They will evaluate the value of cobenefits in public and environmental health as they filter their opportunities for construction, finance and engineering.
The most competitive cities and districts will find ways for multiple sources of capital to come together, region by region, in order to coordinate long-term responses. This will result in measurably better outcomes for whole communities than can be achieved by distributing investments in scattered pockets with resilience. The laggards will, however, see their value destroyed and fall behind.
John Macomber (@cleantechcities) is a senior lecturer and co-author of Healthy Buildings: How Indoor Spaces Drive Performance and Productivity.
This moment is unique and business leaders have two roles. The first is reduce greenhouse gas emissions through their operations and their supply chains as quickly as possible. It’s increasingly clear that many firms can cut their emissions by as much as 50 percent relatively quickly and see a strong return on capital as they do so.
Trane Technologies, for example, has committed to taking a gigaton of carbon out of their customers’ operations by upgrading their HVAC equipment—and is confident that everyone will make money in the process.
The second is to encourage effective climate regulation. Decarbonizing the world’s economy requires rebuilding not only the entire electric power industry, but also transportation, infrastructure, construction and agriculture. Action by individual firms can take us a long way, but we won’t solve the problem of climate change without building real partnerships between the public and private sector to ensure that everyone has the skills—and the incentives!—to reduce their emissions. Climate change is a threat for the economy as a whole. Businesses can be a leader by insisting on politicians taking action now to secure our future.
Rebecca Henderson (@RebeccaReCap) is the John and Natty McArthur University Professor and author of Reimagining Capitalism in a World on Fire.
While it is vital to many, we must not ignore the urgent needs of large parts of humanity. The world needs plenty of clean, reliable, geopolitically stable, affordable energy NOW to rehabilitate and rebuild the stagnant industries in the developed countries and to alleviate the suffering in the developing nations. It is necessary to find a political path that connects the present with the promise of the future. This must address the urgent concerns of those whose voices are often ignored or downplayed in the quest for a net zero future.
Joseph LassiterRetired, Senator John Heinz Professor in Management Practice in Environmental Management.
Shawn ColeBolster impact investing
Business leaders must embrace changing capital markets and communicate with investors how they plan to navigate the future climate transition. Asset managers and asset owners are showing more willingness to work together to create meaningful change.
This was evident most recently when Engine No. Engine No. 1, an impact investing firm with a very small stake in ExxonMobil (less then $50 million), won a proxy battle to place three new directors onto the board of the once-largest corporation in the world. They couldn’t have succeeded without the support of BlackRock, State Street, and Vanguard.
Disclosure is important and will remain so. However, businesses must drastically reduce their carbon footprint in order to avoid the worst effects of climate changes. Attractive terms will be offered to capital-hungry companies that have compelling strategies.
Shawn ColeJohn G. McLean Professor Business Administration in the Finance Unit.
Max Bazerman: Lead with moral conviction
Moral leaders are required to accept science and recognize their role in climate change. Moral leaders must consider other factors than profit maximization. Other factors should include the rights for future generations. Moral leaders are required to think about how they can influence not only their behavior but that of others.
Max Bazerman (@BazermanMax) is the Jesse Isidor Straus Professor of Business Administration and author of Better, Not Perfect: A Realist’s Guide to Maximum Sustainable Goodness.
We need to use science, technology, community relationships, and innovation to save the planet. Since 2015, I have been conducting research on and developing curriculum materials for innovative approaches to addressing the global climate change crisis. This includes sustainable energy technology innovation and partnership system development approaches. One of my earliest cases was the launch of Hyperloop Transportation Technologies using a partnership ecosystem that included scientists, government agencies, and entrepreneurs.
More recently, I completed a case on the launch of a Conservation Innovation Center through a partnership ecosystem led by nonprofit conservation firms (including the Chesapeake Conservancy and the Lincoln Land Trust), technology companies (including Microsoft’s and the Environmental Systems Research Institute’s AI for Earth initiative), government agencies (including the Department of Agriculture and Forest Services and the US Department of the Interior), prominent nongovernmental organizations (including The Nature Conservancy and the National Parks Conservation), and the World Bank.
Another recent case examines the launch of Powerley, a new technology start-up that was launched as a partnership between DTE—an electric utility in Michigan—and Vectorform—a digital innovation consultancy and software platform provider. The Powerley case deals with how to create a platform to link the “voice of the consumer” to data from smart grids and other smart home/smart city data sources. These cases show that innovation and partnerships are essential to solving the climate crisis.
Lynda ApplegateEmerita is the Baker Foundation Professor, and the Sarofim Rock Professor of Business Administration.
Lynn Schenk is director of the HBS Business & Environment Initiative and Dina GerdemanWorking Knowledge’s senior editor. [Image: iStockphoto/AsiaVision]