A few years ago, Joseph B. Lassiter traveled to San Francisco, Houston, and New York to hold discussions with Harvard alumni on the topic of business and the environment. Each time, he surveyed the audience about the touchy subject of climate change and how society should react to it. And while his presentations had been essentially identical and the audiences at first blush quite similar, the attitudes he encountered were disparate.
"In Northern California, 80 percent of the audience thought climate change was largely man-made and that urgent action to address it was both needed and realistic, while 20 percent believed it was a random fluctuation warranting no urgent action," says Lassiter, the Senator John Heinz Professor of Management Practice in Environmental Management at Harvard Business School. "In Houston, it was the flip-flop, with 20 percent [believing climate change was largely man-made and urgent action was needed]. In New York, while nearly 100 percent thought climate change was man-made, only half believed there was the political will--in the United States or abroad--to take urgent actions that would have a material impact on the problem."
“I don't think this ought to be treated as a religious question. I think it's better seen as a classic managerial question about decision-making under uncertainty”
Let alone how to tackle the problem, it seems we can't even agree on whether climate change is a problem at all. To make things more complicated, our viewpoints are often shaped more by the political climate than by the actual climate.
"The issue has become totally intertwined with political ideology," says Richard H.K. Vietor, the Paul Whiton Chertington Professor of Business Administration at HBS, who has been studying government and energy for more than four decades. "There are many people who believe the government is doing too much, and that the government interferes with economic growth if it enacts and implements policies around climate change; therefore, they choose not to believe in climate change."
Is It Worth The Risk?
Faculty members of Harvard Business School's Business and Environment Initiative (BEI) aim to shift the debate to a practical conversation about business assessment.
"It's striking that anyone frames this question in terms of 'belief,' saying things like, 'I don't believe in climate change,' " says John D. Black Professor and BEI faculty cochair Forest L. Reinhardt. "I don't think this ought to be treated as a religious question. I think it's better seen as a classic managerial question about decision-making under uncertainty."
Indeed, nothing is certain, but scientific predictions are sobering. In May, the ratio of carbon dioxide in the atmosphere topped 400 parts per million. Scientists now believe sea levels could rise three feet by the year 2100. A recent article in the journal Nature Climate Change predicts massive flood losses for the world's 136 largest coastal cities by mid-century, stating that "even if adaptation investments maintain constant flood probability, subsidence and sea-level rise will increase global flood losses to US$60-$63 billion per year in 2050," compared to $6 billion in 2005. To maintain present flood risk, the article continues, "adaptation will need to reduce flood probabilities below present values," adding that failing to do so could lead to losses upwards of $1 trillion annually.
"Most skeptics I have come across are not skeptical of global warming or climate change itself, but argue that we don't have data going far back enough to really be sure that this is man-made," says Associate Professor Ramana Nanda, who studies entrepreneurial financing issues in the clean energy sector. "Depending on the person I speak to, I try to then make the following two arguments:
"First, I point to data that shows a strong correlation between human activity and CO2 levels, using extremely precise readings over the past five decades and data from Antarctic ice cores going back hundreds of thousands of years. The data suggests that CO2 levels began rising after the Industrial Revolution and continue rising till today. Sometimes the pushback I get then is that 'this is still just a correlation.' My second argument is to then ask whether the correlation is persuasive enough to at least want to buy an insurance policy against the possibility that it is actually causal. That is, even if you believe there is an 80 percent chance climate change is not man-made, the dramatic consequences if indeed it is man-made may be worth trying to do something about it."
Take BEI faculty cochair Rebecca Henderson's response to some readers who left naysaying comments in regard to the article Corporate Leaders Need to Step Up on Climate Change , published in Harvard Business School Working Knowledge.
"It seems clear that no one can know exactly what's going to happen--the climate is a hugely complex system, and there's a lot going on," wrote Henderson, the John and Natty McArthur University Professor. "But as businesspeople we should be aware that the vast majority of the world's scientists who study the relevant science from a wide range of perspectives believe that continuing to emit large quantities of CO2 significantly increases the risk of a range of bad outcomes. They may be wrong. But it seems to me foolish to bet that they are certainly wrong."
Nanda advises taking a hint from the reinsurance industry, which runs on risk assessment and which faces financial hits in the wake of any climate-related event. Frank Nutter, president of the Reinsurance Association of America, in his testimony before the Senate Committee on Environment and Public Works hearing on Climate Change: It's Happening Now in July, said reinsurers paid 45 percent of the insured losses from Hurricanes Katrina, Rita, and Wilma in 2005, and they are expected to pay up to 40 percent of the insured losses for Superstorm Sandy. He encouraged governmental action, concluding his presentation with a list of legislative principles or actions for the committee to consider.
Cases In Point
In addition to risk assessment, addressing climate change can be good for business in that it can help build a strong brand, reduce negative publicity, and actually save money. In the HBS classroom, faculty illustrate these points through case studies.
Patagonia, for instance, recently teamed up with The Nature Conservancy and Argentine rancher network Ovis XXI to implement a sustainable sheep-grazing protocol that, beyond protecting the namesake Argentinean portion of Patagonia from overgrazing, included plans to release a new line of sustainable merino wool socks. On a larger scale, Henderson says that Unilever has garnered good press with its plans to use only sustainably sourced agricultural raw materials by 2020 (see her case study, Sustainable Tea at Unilever). And in response to concerns that environmental initiatives are too expensive, she offers the case on the private equity firm KKR. "Through its Green Portfolio Program, KKR achieved $160 million per year in cost savings," she says.
“At the moment both political parties distrust market-based solutions”
In lieu of defining climate change as solely a political issue, businesses may be able to "reduce the risk of really badly designed government regulation," says Henderson. For example, she cites the coalition Business for Innovative Climate & Energy Policy (BICEP), which lobbies US policymakers to pass bipartisan legislation to counter the potential risks of climate change. Coordinated by the nonprofit advocacy group Ceres, BICEP members include eBay, Ben & Jerry's, Gap, Levi Strauss & Co., Nike, and Mars.
They have their work cut out for them.
"At the moment, at least in terms of what I've seen, both political parties distrust market-based solutions," Joe Lassiter says. "They simply want different sets of rules that favor what their particular constituents support."
But beyond politics and business, there's the ironic matter of biology. Climate change, says Lassiter, is one in a long list of issues rubbing up against the stubborn human tendency to think in the short term.
"We've got obesity as a problem, we've got government debt as a problem, we've got carbon as a problem," he says. "All of those things are problems in large part because we so value current consumption over future consumption. As many have observed, we are creatures of the Pleistocene who have evolved to survive in the present, and now suddenly we have to think in terms of a world that's far in the future. And that's tough."