Natural Environment →
- 22 Nov 2011
- Working Paper Summaries
Carbon Tariffs: Impacts on Technology Choice, Regional Competitiveness, and Global Emissions
Under current emissions regulation such as the European Union Emissions Trading Scheme (EU-ETS) and the Regional Greenhouse Gas Initiative (RGGI) in the Northeast US, imports entering the region fall outside the regulatory regime and incur no carbon costs. As a result, imports can compete within the carbon-regulated region with a new-found advantage, potentially altering the competitive balance between emissions-regulated and -unregulated firms. While implementing carbon tariffs—border adjustments— may appear to be a straightforward solution to this asymmetry, the potential for such a measure to be interpreted as a trade barrier, and thereby initiate a reciprocal tariff, has thus far stymied debate on the issue. This paper explores the impact of such border adjustments on firms' technology choice, regional competitiveness, and global emissions. The analysis shows that border adjustments (or lack thereof) play a vital role in determining firms' technology and production choices, both of which are fundamental operations management decisions that ultimately determine economic and environmental performance. Results have implications for each of the primary stakeholders: regulators making the policy decision regarding border adjustments; firms interested in understanding their competitiveness and location strategies under a border adjustment; and technology producers interested in assessing the potential impact of border adjustments on demand for cleaner technologies. Key concepts include: Border adjustments means tariffs on the carbon content of imported goods that would incur carbon costs if produced domestically. Emissions regulation in effect today is not currently supported by border adjustment mechanisms. This allows goods produced offshore to compete within the emissions-regulated market without incurring the carbon costs associated with local production. Emissions regulation without border adjustment limits the legislation's ability to impact global emissions. The border adjustment policy decision and firms' technology choices interact to fundamentally determine the nature of regional competitiveness, the risk of carbon leakage, and the potential for carbon regulation to achieve a reduction in global emissions. This paper raises important implications related to the role and feasibility of border adjustments in mitigating leakage effects that can result from current, uncoordinated emissions abatement efforts. While technology choice plays a minor role without a border adjustment, it fundamentally defines the nature of competitiveness when border adjustments are implemented. Closed for comment; 0 Comments.
- 15 Nov 2011
- Working Paper Summaries
Engaging Supply Chains in Climate Change
Managing a company's risks and opportunities associated with climate change—including its physical and regulatory implications—requires focusing not only on internal operations, but also on supply chains, especially since greenhouse gas (GHG) emissions in supply chains typically exceed those from a company's own operations. But this requires obtaining climate change information from suppliers, which some are reluctant to share. In this paper, Chonnikarn (Fern) Jira and Michael W. Toffel examine proprietary data from the Carbon Disclosure Project's Supply Chain Project, a collaboration of multinational corporations asking their key suppliers to share information about their GHG emissions and their vulnerabilities and opportunities associated with climate change. Jira and Toffel find evidence that a supplier is more likely to share this information when it faces several buyers requesting the information, when its buyers appear committed to actually using this information, and when the supplier is in a relatively competitive industry and is thus particularly vulnerable to being replaced by its rivals. These findings can help managers better predict which suppliers will be more willing to share climate change information, and which might require more incentives or pressure to share this information. Key concepts include: The research identifies several factors that predict which of a company's suppliers will be more willing to share information about their vulnerabilities and opportunities associated with climate change, as well as their greenhouse gas (GHG) emissions levels and trends. Buyers are more likely to be successful in their efforts to obtain climate change information from their suppliers when this information is incorporated in supplier scorecards and other formal mechanisms, and when they collaborate with other buyers to convince suppliers that the request represents a trend rather than an idiosyncrasy. Suppliers receiving requests to share climate change information by several buyers are more likely to share it not just with their buyers but also to disclose it publicly. When buyers seek climate change information from suppliers to incorporate it in supplier scorecards, suppliers are more likely to share this information just with their buyers, but not disclose it publicly. To encourage suppliers in competitive industries to share greenhouse gas (GHG) emissions data, buyers may need to convince suppliers that the information requested would not be shared with their competitors. Closed for comment; 0 Comments.
- 14 Nov 2011
- Working Paper Summaries
The Impact of Corporate Sustainability on Organizational Process and Performance
Robert G. Eccles, Ioannis Ioannou, and George Serafeim compared a matched sample of 180 companies, 90 of which they classify as High Sustainability firms and 90 as Low Sustainability firms, in order to examine issues of governance, culture, and performance. Findings for an 18-year period show that High Sustainability firms dramatically outperformed the Low Sustainability ones in terms of both stock market and accounting measures. However, the results suggest that this outperformance occurs only in the long term. Managers and investors who are hoping to gain a competitive advantage in the short term are unlikely to succeed by embedding sustainability in their organization's strategy. Overall, the authors argue that High Sustainability company policies reflect the underlying culture of the organization, where environmental and social performance, in addition to financial performance, are important, but these policies also forge a strong culture by making explicit the values and beliefs that underlie the mission of the organization. Key concepts include: Organizations voluntarily adopting environmental and social policies represent a fundamentally distinct type of modern corporation, characterized by a governance structure that takes into account the environmental and social performance of the company, in addition to financial performance, a long-term approach towards maximizing inter-temporal profits, and an active stakeholder management process. Societal concern about sustainability, at both the level of the firm and society as a whole, has been growing from almost nothing in the early 1990s to rapidly increasing awareness in the early 2000s, to being a dominant theme today. The High Sustainability firms in this study pay attention to their relationships with stakeholders—such as employees, customers, and NGOs representing civil society—through active processes of engagement. The Low Sustainability firms, by contrast, correspond to the traditional model of corporate profit maximization in which social and environmental issues are predominantly regarded as externalities created by firm actions which only need to be addressed if required to do so by law and regulation. The group of firms with a strong sustainability culture is significantly more likely to assign responsibility to its board of directors for sustainability and to form a separate board committee for sustainability. Moreover, High Sustainability companies are more likely to make executive compensation a function of environmental, social, and external perception (e.g., customer satisfaction) metrics. Closed for comment; 0 Comments.
- 21 Oct 2011
- Working Paper Summaries
Market Interest in Nonfinancial Information
During the past two decades, there have been many ideas for improving business reporting of nonfinancial information such as on a company's environmental, social, and governance (ESG) performance. Using data from Bloomberg, authors Robert G. Eccles, Michael P. Krzus, and George Serafeim provide insights into market interest in nonfinancial information at a level of granularity not available until now. They identify exactly what information is of greatest interest, contrasting both the global and U.S. market across the full spectrum of ESG information and for each component of ESG, as well as Carbon Disclosure Project metrics. They also show variation in interest across asset classes and firm types, and present preliminary explanations for these differences. Key concepts include: From a practitioner perspective, these data can be used to benchmark one's own information use according to asset class and firm type. Practitioners can assess whether any differences represent competitive strengths or weaknesses in the information they are using in their decisions. Companies can use these findings to create more sophisticated communication strategies tailored to the information needs of market participants across asset classes and firm types. At the aggregate market level, interest in environmental and governance information is greater than interest in social information. Equity investors exhibit a higher interest in nonfinancial information compared to fixed income investors. Sell-side firms (broker-dealers) are primarily interested in greenhouse gas emissions data. In contrast, buy-side firms (hedge funds, insurance firms, pension funds, and money managers) are interested in a broad range of environmental, social, and governance information. The efforts of practitioners and researchers can improve the dissemination and use of nonfinancial information, thereby enabling companies to create more sustainable strategies for a more sustainable society. Closed for comment; 0 Comments.
- 19 Oct 2011
- Research & Ideas
Designing Cities for a Sustainable Future
The city of the past is likely not the city of the future—climate change is bringing an end to the traditional model. Harvard Business School faculty are thinking along with government leaders and business practitioners about how to create sustainable places to live and work. From HBS Alumni Bulletin. Open for comment; 0 Comments.
- 18 Oct 2011
- Working Paper Summaries
Historical Trajectories and Corporate Competences in Wind Energy
Analyzing developments in the wind turbine business over more than a century, Geoffrey Jones and Loubna Bouamane argue that public policy has been a key variable in the spread of wind energy since the 1980s, but that public policy was more of a problem than a facilitator in the earlier history of the industry. Geography has mattered to some extent, also: Both in the United States and Denmark, the existence of rural areas not supplied by electricity provided the initial stimulus to entrepreneurs and innovators. Building firm-level capabilities has been essential in an industry which has been both technically difficult and vulnerable to policy shifts. Key concepts include: Firms from Denmark have been unusually prominent throughout the history of the wind energy business. The basis of the competitive Danish industry was laid without support or even encouragement from its government. US-based firms have also been regularly found among the leading wind energy companies. But their relative importance varied considerably over time, has rarely reflected the overall importance of the U.S. market, and has involved a changing cast of actual firms. German and Spanish, and more recently Indian and Chinese firms, have emerged to become amongst the largest turbine manufacturers in the industry. The most striking change over the last decade has been in the competitive landscape. Engineering powerhouses, such as GE and Siemens, and wholly or partly state-owned Chinese firms with low-cost bases, are now prominent actors in this industry. Closed for comment; 0 Comments.
- 07 Oct 2011
- Working Paper Summaries
What Environmental Ratings Miss
Environmental ratings of companies are based on "green" management efforts and the environmental performance of their operations. In this paper, Michael Toffel and Auden Schendler argue that these ratings neglect companies' actions that seek to influence environmental policy, which can have a much broader impact than their internal efforts. As a result, sustainability ratings risk seriously misleading consumers and investors, and can even enable "greenwashing" by allowing corporations to game the system, gaining high rankings for greening their operations despite advocating for less stringent environmental policy. Toffel and Schendler argue that environmental ratings should factor in political contributions, CEO advocacy work, and engagement with non-governmental organizations, among other actions. This would erode the environmental ratings of companies advocating weaker environmental policy, and bolster the ratings of those advocating more stringent environmental policy. Key concepts include: Most major corporate environmental ratings and rankings focus on operational impacts such as pollution levels and regulatory compliance, but fail to incorporate political activities that influence environmental regulation. It is corporate political actions—like lobbying or campaign funding—that can have a vastly greater influence on environmental protection, and arguably represent the greatest impact a company can have on protecting (or harming) the environment. Exclusive focus on operational greening efforts and performance neglects the far greater need for climate regulation to achieve the dramatic overall reductions of greenhouse gas emissions called for by climate science. Closed for comment; 0 Comments.
- 03 Oct 2011
- Research & Ideas
Transforming Manufacturing Waste into Profit
Every manufacturing process leaves waste, but Assistant Professor Deishin Lee believes much of this left-behind material can be put to productive—and profitable—use. Key concepts include: The concept of "by-product synergy" consists of taking the waste stream from one production process and using it to make a new product. Productively using waste instead of trashing it can cut costs by reducing disposal fees and opening up additional revenue streams through by-product sales. The greatest returns are realized when a company widens its scope to think strategically to consider waste processing as a joint-production process. In some cases, maximizing profit might mean, paradoxically, creating more waste. Closed for comment; 0 Comments.
- 12 Sep 2011
- Research & Ideas
The Untold Story of ‘Green’ Entrepreneurs
The history of entrepreneurs in green industries is largely unwritten, a fact that Harvard Business School business historian Geoffrey Jones is trying to remedy. In a new paper, Jones explores the edge-of-society pioneers who created the wind turbine industry. Key concepts include: The research looks at entrepreneurs in the fields of organic food, sustainable agriculture, natural cosmetics, the built environment, ecotourism, and waste recycling. The history of green entrepreneurship is largely untold, ignored by both business and environmental historians. Many still think that there were few environmental concerns or green businesses until the last decade. Closed for comment; 0 Comments.
- 19 Aug 2011
- Working Paper Summaries
The Globalization of Corporate Environmental Disclosure: Accountability or Greenwashing?
Between 2005 and 2008, the world saw a dramatic increase in corporate environmental reporting. Yet this transition toward greater transparency and accountability has occurred unevenly across countries and industries. Findings by professors Christopher Marquis and Michael W. Toffel provide the first systematic evidence of how the global environmental movement affects corporations' environmental management practices. Firms' use of symbolic compliance strategies, for instance, is affected by specific corporate characteristics and by institutional context. This study contributes to a larger body of research on the effects of global social movements and environmental reporting. Key concepts include: Marquis and Toffel study more than 4,600 large publicly traded companies headquartered in 46 countries. They first examine the extent to which environmental pressures from governments and civil society influence corporate environmental transparency. Greater environmental disclosure was exhibited by companies headquartered in countries whose governments are better connected to the global environmental movement via international environmental institutions, and whose citizens are more connected to globalization and are afforded greater civil liberties and political rights. They also identify factors associated with greenwashing, where corporations selectively disclose benign environmental impacts to create an impression of transparency and accountability, while masking their true environmental performance. Visible companies' tendency to selectively disclose was tempered when headquartered in countries whose governments were better connected to the global environmental movement, and whose citizens are more connected to global society and are afforded greater civil liberties and political rights. Closed for comment; 0 Comments.
- 22 Jul 2011
- Working Paper Summaries
Corporate Social Responsibility and Access to Finance
Corporate social responsibility may benefit society, but does it benefit the corporation? Indeed it does, according to a new study that shows how CSR can make it easier for firms to secure financing for new projects. Research was conducted by George Serafeim and Beiting Cheng of Harvard Business School and Ioannis Ioannou of the London Business School. Key concepts include: The better a firm's CSR performance, the fewer capital restraints it will face. Better CSR performance is the result of improved stakeholder engagement, which in turn reduces the likelihood of opportunistic behavior and pushes managers to adopt a long-form strategy. This introduces a more efficient form of contracting with key constituents. Firms with good CSR performance are likely to report their CSR activities, thus increasing their overall transparency. Higher levels of transparency ease the fears of potential investors, making them more likely to invest. Closed for comment; 0 Comments.
- 08 Jun 2011
- Lessons from the Classroom
Twenty-first Century Skill: Trading Carbon Credits
As cap and trade becomes an increasingly popular mechanism for governments to cut corporate pollution, students at Harvard Business School use a simulation to learn how it works. An interview with professor Peter Coles. Key concepts include: The simulation provides a classroom experience for students to see the impact of different design principles in the cap-and-trade mechanism. Open for comment; 0 Comments.
- 23 May 2011
- Op-Ed
Leading and Lagging Countries in Contributing to a Sustainable Society
To determine the extent to which corporate and investor behavior is changing to contribute to a more sustainable society, researchers Robert Eccles and George Serafeim analyzed data involving over 2,000 companies in 23 countries. One result: a ranking of countries based on the degree to which their companies integrate environmental and social discussions and metrics in their financial disclosures. Closed for comment; 0 Comments.
- 23 May 2011
- Research & Ideas
Corporate Sustainability Reporting: It’s Effective
In a growing trend, countries have begun requiring companies to report their environmental, social, and governance performance. George Serafeim of HBS and Ioannis Ioannou of London Business School set out to find whether this reporting actually induces companies to improve their nonfinancial performance and contribute toward a sustainable society. Key concepts include: In the past 10 years, corporate investors have shown an increasing interest in the social responsibility of the companies whose stocks they pick. The researchers compared 16 countries that required sustainability reporting with a sample of 42 countries that didn't. Using several measures, they found that the social responsibility of business leaders and managerial credibility increased in those countries with reporting mandates. The data provide the first concrete evidence that mandating social responsibility reporting actually makes a positive difference. Closed for comment; 0 Comments.
- 17 May 2011
- Working Paper Summaries
The Consequences of Mandatory Corporate Sustainability Reporting
The number of firms reporting sustainability information has grown significantly in the past decade, both due to voluntary actions and to mandates from several national governments and stock exchange authorities. In this paper, London Business School's Ioannis Ioannou and Harvard Business School's George Serafeim investigate whether mandatory sustainability reporting has any effect on a company's tendency to engage in socially responsible management practices. Key concepts include: The researchers show that mandatory sustainability reporting effectively promotes socially responsible managerial practices. Overall, supervision of managers by boards of directors improves, bribery and corruption decreases, and credibility of managers in society increases. In companies where sustainability reporting is a requirement, employee training becomes a higher priority, and corporate boards supervise management more effectively. These positive results are more pronounced in countries that have stronger law enforcement, countries where assurance of sustainability data is more frequent, and countries that are generally more developed. Closed for comment; 0 Comments.
- 26 Apr 2011
- Op-Ed
HBS Faculty Comment on Environmental Issues for Earth Day
Harvard Business School faculty members offer their views on the many business facets of "going green." Open for comment; 0 Comments.
- 08 Apr 2011
- Research & Ideas
Will the Japan Disaster Remake the Landscape for Green Energy in Asia?
Entrepreneurs at the recent Asia Business Conference at Harvard Business School said the disaster in Japan could accelerate the move toward "green" energy sources in Asia, opening opportunities. Closed for comment; 0 Comments.
- 14 Mar 2011
- Research & Ideas
Water, Electricity, and Transportation: Preparing for the Population Boom
By 2050, the world's cities will have to support 3 billion more inhabitants, mostly in developing countries, with crucial investments needed in three areas: water, energy, and transportation. Several of the planet's top city planning and environmental business experts gathered at Harvard Business School earlier this month to discuss available options. Closed for comment; 0 Comments.
- 09 Feb 2011
- Working Paper Summaries
Sustainable Cities: Oxymoron or the Shape of the Future?
Among the issues looming large in the twenty-first century is a rapid rise in the number of people living in cities and a rapidly growing awareness of our threat to the Earth's environment. In response to both, a number of major corporations and various government bodies have teamed up to explore the idea of "ecocities" —urban communities ideally designed around the idea of environmental sustainability. This paper explores the idea by looking at several ecocities in progress in China, Abu Dhabi, South Korea, Finland, and Portugal. Research by professors Robert G. Eccles and Amy C. Edmondson, doctoral candidate Tiona Zuzul, and HBS research assistant Annissa Alusi. Key concepts include: About 90 percent of urban growth worldwide occurs in developing countries, which are projected to triple their existing base of urban areas between 2000 and 2030. The World Bank plans to team up with government, NGO, and private-sector organizations to help the development of nascent-stage ecocities. The ecocities in progress rely heavily on "smart infrastructure," or the use of centralized computer systems to manage urban systems such as the electric grid and city bus traffic patterns. Both Cisco Systems and IBM are heavily involved in the technological aspects of these initiatives. Financing is a huge challenge for ecocities, which typically require investment capital upwards of $35 billion. So far, the projects have relied on both public- and private-sector involvement, and all eight of the profiled ecocities are planning on eventual real-estate revenue to help offset the cost of development, although the degree to which they do varies according to the economic model of the project. Open for comment; 0 Comments.
Where Green Corporate Ratings Fail
Many companies receiving high marks in environmental sustainability are hurting the planet in other ways, write professor Michael Toffel and executive Auden Schendler. Here's where green rankings fall short. Open for comment; 0 Comments.