- 23 Oct 2024
- Climate Rising
BCG Global Chair Rich Lesser: How Businesses Can be “Bold and Pragmatic” on Climate Change
Resources
- Boston Consulting Group (BCG): Climate Change and Sustainability
- CO2 AI by BCG: Boosting Your Bottom Line through Decarbonization
- World Economic Forum: Alliance of CEO Climate Leaders
- World Economic Forum: First Movers Coalition
Host and Guest
Climate Rising Host: Professor Mike Toffel, Faculty Chair, Business & Environment Initiative (LinkedIn)
Guest: Rich Lesser, Global Chair, BCG (LinkedIn)
Transcript
Editor’s Note: The following was prepared by a machine algorithm, and may not perfectly reflect the audio file of the interview.
Mike Toffel:
Rich Lesser, thank you so much for joining us here on Climate Rising.
Rich Lesser:
It's a pleasure, Mike. Really happy to be here.
Mike Toffel:
So it's always especially exciting to welcome back some of our alumni, you were class of 1988, Back to a campus activity. So really excited to hear your story. So you're the global chair of BCG. Can you tell us a little bit about that role and how you got there?
Rich Lesser:
Well, how I got there is pretty straightforward. I've been at BCG 36 years. And for nine of those years, between 13 and 21, I served as our global CEO. And after one serves as the CEO at BCG, you become the global chair. Terrific title, extremely limited role description. So really, that is an opportunity to make a difference for the firm and for the world. It's really a dialogue between the current CEO and the former CEO to say how does the former CEO with that global chair role contribute the most? In my case, I had really started getting into the climate topic in 2018 as I began my third and final term as CEO. And I had said that I would really prioritize it more heavily than I had in my first six years as CEO. And Christoph Schweitzer, the person we elected after me, had decided that he would have a couple moonshots, one in AI and one in climate. And frankly, I'm interested in involved in both. And I, I know we're going to get into the AI and climate intersection a little later. But I, I had said, look, I'd really like to dive in on the climate stuff. It's so hard. It cuts across so many parts of the economy and business and government. And he said, that'd be fantastic.
And so for the last three years since I stepped out of that role, I probably spent a little over half my time on the climate side and then some on AI and then some with just new CEOs and other leaders coming into big roles to try to be helpful and then some on the complexities of the world where I could contribute.
Mike Toffel:
Great. So I'm excited to dive in to hear what you've been learning along the way. But before we do, you said 2018 was when really climate change really rose in your priority list of things to tackle. What was the impetus for that?
Rich Lesser:
The impetus, if one's completely honest, is I had just been elected to my final term. So I had no more elections. I knew I was termed out. But I had some really frustrated partners. particularly in Europe, several of our European partners were just felt like it had been three years since the Paris Accord was signed. The world was doing not nothing but a tiny fraction of what it needed to do. And here was BCG with networks all around the world, unbelievable depth in every sector and every function. And it's not that we weren't working in this space. We'd had a sustainability practice since my predecessor, Hans Paul Berkner, had started it in 2008 or so, but we weren't doing nearly enough given our scale. And at first, when your partners send a video around to all the partners about how screwed up we are, you get a little frustrated.
But then I actually watched the video, and I read all the data that they circulated, and I just concluded that they were right. Like we have so much power as a firm to make a positive difference in the world. And we were already doing it in health and education and economic development. mean, this has been a huge part of BCG, almost my entire tenure, but we weren't doing as much in this topic. And so I stood up in front of my partners in the fall of 2018 and I said, I acknowledged that I had been too slow to realize this and I said that will change and we will prioritize this planet alongside what we do to drive our performance and support our people that this was going to be a real priority.
And then once I said that then it how to make it real and I realized the first person who needed to go on a learning journey was me. Like, you know, it's easy to say the words and it's easy to make big commitments, particularly when you know it'll be your successor that has to live up to all the grand ambitions you stated and I really didn't want to make commitments that would be unfair to whoever came after me. You know, it's a partnership. I didn't know who was going to get elected next. But then so I felt like I really had to educate myself so that everything we signed up to do, we had a real shot. Wouldn't be easy, but we had a real shot to be able to deliver. And we started our climate, our Center for Climate and Sustainability and started building that capacity. we had a lot of work to do.
Mike Toffel:
So where were the areas that the firm really leaned into?
Rich Lesser:
I think you have to separate. We leaned in on three fronts. The first, of course, was to walk the walk. So we started by making a carbon neutral commitment. And I didn't realize how limited a commitment that really was at the at the time. It sounded grand. But then I realized I wasn't that wasn't what we should do. And then we really dug in and said, no, what we really need to commit to is being net zero by 2030. And what we really need to do along with that, because for a company like ours that has to travel to clients, we cannot just you know, sit in our own offices. By definition, we can't reduce our footprint all the way to zero. We have to remove as well as reduce. And if we're going to remove, we have to remove in a really credible way.
So we ended up making big financial commitments that those removals by 2030 would average $80 a ton, which was, I mean, obviously there's been inflation since then. So that number will probably go up. But in 2020, that was quite unusual. People make a statement about climate neutral or net zero, but you had no idea what they were really talking about doing to be able to make that claim. And we tried to put our money where our mouth was to say, was, these were real activities that would have real impact.
So step one was to walk the walk and be credible to ourselves that we were serious. Step two was helping our clients. You know, we work across many sectors of the economy, some higher emitting, some lower emitting, but even the lower emitting ones, like a bank scope one and two is very low, but financial firms are lending and providing equity capital to others throughout the economy that in virtually every sector we worked in and in virtually every functional topic, how you design a product in our marketing and sales practice to how you run an operations or do procurement and our ops practice, we could really support clients around the world. And of course, that's the core of who BCG is and what we do. And we put enormous effort into building our own capabilities to do that.
And then the third was where could we make a difference in the world? Like what are the kind of groups we could lend our muscle to that either couldn't pay at all or would only pay a fraction of our normal fees, but we could team up together and really sort of supercharge what they were trying to do. Whether that was the World Economic Forum, CDP, who tried to help SBTI in some ways over years, a huge investment, probably biggest in the history of the firm around these last three cops in Glasgow, Egypt and Dubai. Like in many, in many ways, we said, you know, if we're going to lean in, we have to contribute to society, not just, you know, support our clients, even though of course, our first responsibility is to help our clients through these journeys.
So those have been the three fronts of work. think including our social impact and climate and sustainability work, we're talking about investing $2 billion of BCG combination of cash and professional time over this decade. So that's like a serious amount of investment. Probably climate is the single biggest part of that, but we do work on nature and of course we do education and health and some of the other topics that I mentioned earlier also.
Mike Toffel:
And now in your role, having transitioned from the CEO role to the global chair role, you're involved in more advisory capacity. And I know that you travel a ton still and you're still engaged with lots of conversations with business and global leaders to talk about what needs to be done, what is being done. What's the tenor of those conversations? What are you learning? What are you contributing?
Rich Lesser:
Well, first, I learned so much to talk to people across sectors about what are the real issues. It's so easy to talk about high level, positive, optimistic way, you know, to leaders. And then you get down to, how much progress are you really making? What's getting in the way? Did the economics work for you? Like, can you make it work? You know, what role is government really playing to make it easier or frankly, to make it harder sometimes?
And so I feel very privileged that I feel like there are relatively few people who work in the climate space who get to have as many authentic conversations across society, business, government, and around the world as I do. And I try to use that learning as best I can to be helpful in the other direction and to really be, you know, not trying to pretend stuff that isn't real, not trying to sugarcoat, but also to show how many things people can do that they may not be thinking they can do, what the economics can work, or the customers will value it and how to make that happen. So now that's at a high level. Let's start with an honest reflection.For until relatively recently, I feel like the global client climate dialogue has centered on 1 .5 degrees.
And by the way, we need to be a 1 .5 degrees. And in terms of reducing the risk of these really bad events that would trigger major changes in the atmosphere or sea level rises or other things, I am a complete believer we want to get to 1 .5 degrees. But I think particularly since the last cop was able to put a more authentic understanding of where we are on the table.
people are realizing just how far off we are. If you look at the actual things already being implemented, we're heading to roughly three degrees, which is better than where we were pre -Paris. So I don't want to minimize that the world's not made any progress. We were probably well north of four degrees when that Paris Accord was signed in 2015. But let's be honest, three degrees is a long way from 1.5. And then if you say, people make commitments that they haven't yet implemented, if they deliver all those commitments, where are we? Then we're probably at 2.4 degrees. So that's better. But it's still not where we need to be. And I'd say reality, the base case view right now is probably we won't make all those commitments deliver in the way that they should. So probably the fairest thing is to say we're probably between two and a half and three degrees right now. And yet, I think people aren't getting their arms around how huge the impacts are on lives, on nature, on health, on economics, global GDP impacts, and on individual businesses. If we really are on a two and a half to three degree pathway, not a one and a half or even a two degree pathway.
So part of what I'm trying to share is first we have to deal with the world as it is and not pretend, we're in a better place. And second, we have to recognize the single best economic investment we can make. Though of course we shouldn't just take on climate because of economics. We should take it on because it's the right thing to do for people all around the world, vulnerable populations, nature and diversity of nature around the world. Like there's so many important reasons to take this on. But if one just took a pure economic, you know, HBS finance class math,
The cheapest investment we make is to mitigate, is to find ways to reduce 80% of the carbon footprint and remove the last 20. I don't think we can remove all 100 and maybe when we get into it, can only reduce 70 % or whatever, but then remove the rest. And that is the best investment we can make. And if we come up short, companies better be prepared for two things.
One, what they need to do in adaptation and resilience, not just for their businesses, but for their workforces, the communities they operate in, those costs are going to be very high. And second, that when people change their minds, because at some point, populations which today don't seem to care that much about, you know, what a company's climate footprint is, young people care, employees care. But you know, when you're selling products, most businesses would say their consumers don't yet care so much that they're ready to pay a premium. When people change their minds, they change their minds quickly. It's not some linear thing over 10 years. So you better be getting your business models ready, not for some slow change in attitudes between now and 2040, but some triggering events. Maybe it'll be around the inability to get insurance, and people can't sell their homes anymore. Maybe it'll be around the devastating heat wave or floods that will really hurt populations enormously. Maybe it'll be other events that occur where things go faster than you think they're gonna go.
And I think many companies, I think there's this natural human tendency to do scenario planning around a relatively narrow range of expected outcomes. And in this space where the impacts can be so dramatic and even unexpected, people have to have much wider scenario planning horizons and preparing themselves for a much more challenging world. So goal one is step up because if we all step up, that's the best thing we can do to help all of us.
And many, many others. Goal two is to do better on adaptation and resilience. Goal three is do a much better job on scenario planning and getting ready for a world where transition risks are much higher than people perceive they're likely to be.
Mike Toffel:
So I'm with you on this whole three steps that you laid out. But let's talk about that first step of step up. There's a few ways to interpret that. The big problem, which I know you know all about, but which you haven't yet articulated, is the principal agent problem or the externality problem in that, of course, societies and the economy as a whole will be better off if we collectively decide to mitigate and to not reach these high temperature scenarios, reach two rather than two and a half, for example. But the problem, of course, is like with time scales, with externalities, like it is more expensive in many cases to step up and companies are not willing to put themselves at a competitive disadvantage for the greater good. Normally, those circumstances translate to the role of the policymaker saying like they're the ones who look as the central planner perspective or the social agent perspective at what is best for everyone and what rules are we going to put in place in a world where we don't have we've been very unsuccessful certainly in the US of having aggressive climate policy over the past decades with a carbon price a carbon tax or cap and trade which would set the rules in motion for stepping up in a profitable way.
Rich Lesser:
Yes.
Mike Toffel:
How are you seeing getting beyond this conundrum?
Rich Lesser:
Right. I'm so glad to hear how you framed it because I know you get the privilege of engaging with lot of HBSers and to talk about it. When I talk about it, I say, let's start with what we need governments to do and then let's talk about how businesses contribute to that. And I have five things on each. Let me just take and I'll go fast, and you can dig in. I think for governments, first, we need more ambition. We're about 600 gigatons off cumulatively, not per year, course, but cumulatively between what people have committed to and where we need to be. Governments need to step up. That is not a one country problem. The U .S. has a challenge. So does China, but so do many, many other parts of the world. Second, exactly to where you're going, we need to raise the price of carbon over time. We don't have to raise it all at once, but because a lot of what you're trying to do is change long -term project planning, capital investments.
So as long as people know the price of carbons is going up, you don't have to do it all tomorrow. And we have to be sensitive to the politics of this personally. I don't think that raising the price of carbon for consumer facing things like gasoline is going to be acceptable in society. I think there it's more about incentives, investing in charging stations. But when it comes to the industrial economy, from the front of the supply chain all the way to the end. Actually it doesn't change end prices that much, much less than people expect to put a rising price of carbon over time into industrial supply chains and to do that. And it has to include imported emissions as well as domestic emissions. Otherwise you create unfair and offshoring of carbon basically, which does no one any good. The third thing is we need to put more investment and financing in the solutions.
And I think that has two buckets. One bucket is advanced technology, which I would actually give IRA in the US quite a lot of credit for. But there's some things in Europe, Japan, other places that are also quite good. We just need to create more incentives to create the next generation of technologies we need because much of the technology today we will ultimately need is still way too high in cost. And we also need financing solutions to be able to support the emerging markets all around the world, lower and middle income countries where capital costs are higher, risks are higher, regulatory certainty is much less. And how do we help solve those issues? The fourth bucket is all the obstacles talk to any company; they talk about permitting issues. China does the permitting stuff well on this dimension. So maybe not any country. But if you talk to US, European countries, many others, you try to get a permit signed, can take forever for stuff that's economic to build. It's not an economics question. You talk about things like cement and steel. Governments are huge purchasers for highways, buildings, all this stuff. And what are the procurement rules they're using to make this decision? They were often written in the 1990s. There are policies that are written that are either outdated or could be updated. And we need governments to do a better job. And then fifth, we need to recognize we may need to take more drastic measures. I mean, the risks are really high and sadly, that probably includes starting to think about geoengineering and solutions like that. But even before you get to that, we didn't ultimately use incentives to get people to change light bulbs. We just said, you got to change light bulbs. And some people still complain about it. Like, wish I could have my incandescent light bulb back. But at some point, there may need to be sharper regulatory policies in place to drive faster than the way we would normally like to do it, which is just change the incentives and let things occur.
Mike Toffel:
Yeah.
Rich Lesser:
So those five buckets, the ambition gap, a price on carbon for at least the industrial economy, better investment in solutions and supporting emerging markets, transition obstacles and being ready for bigger stuff. That's the government agenda. Okay, so then the question is how does business contribute to that?
Mike Toffel:
That's my question. Yeah, exactly.
Rich Lesser:
Now let's go to that. So then I would say one, own your supply chain for most companies. 75 to 95 percent of the footprint in the products they sell are not from their own scope Andthey're from their upstream supply chain, but a minority of companies and in some, depending on how you measure it, a really small minority of companies has really taken ownership of their supply chain and given their suppliers the right information, the right incentives, the right support, the right commitments to be able to help their suppliers go faster.
I think number two is to really think about the world from your customer's point of view who aren't ready necessarily to pay more for a simply more sustainable product, but will pay more for products that bring a basket of features that include sustainability. Think about cold water laundry detergent, the way Tide advertises itself now. Tide isn't saying to people, you're going to save the planet if you use either. They you're going to save your electricity bill. And by the way, your clothes are going to be clean. I think the third is to work together in industry. Labeling is horrible. Try to go to a supermarket and figuring out what's a more sustainable product. It's impossible. So how do we get some common labeling? Work across industries where I spent a lot of time with the first movers coalition, which is about getting customers to make upstream advanced technology commitments. And with Bill Gates group Breakthrough Energy.
Mike Toffel:Rich Lesser:on how to invest in technology and advanced technology and get cross -industry participants. And fifth, partner better with government. Like, be trusted, be honest. My quick line is we need governments to be bold and pragmatic in order to make this happen. Europe is often bold on this topic, but frankly, many would say they're not particularly pragmatic. They're trying to get better, by the way, and I really appreciate some of the recent legislation. But you know, it's a bit bureaucratic. It's hard to access the money. The US is an incredibly pragmatic place, as we all know, but it has often not been sufficiently bold. Who knows how to be bold and pragmatic? It's business leaders, business leaders, you don't grow your business, you don't prepare for the future if you're not bold. And you don't get to have a long term unless you have a short term, which requires being pragmatic. What can you execute? What can you deliver?
Business can be a great partner to government to move this, but it has to earn trust and it has to be seen as putting society's interests really up there and not just working to further its own short-term interests in this. And so that's the conversations I have with governments and that's the one I have with business.
Mike Toffel:
Terrific. Great overview. So when you talk about the U.S. policy environment being pragmatic and less bold on this issue, it seems to me one could argue that that's in part because companies themselves are being pragmatic and not bold. And if their voices in Washington called on Congress or the president to say to basically make the pitch that you just made, which is to say we want to avoid the worst consequences of climate change and therefore we think the rules should be changed to have more ambitious targets. My sense from the folks that I talk to in Washington is they say the vast majority of voices they hear from businesses on climate are those businesses that are going to be hurt by climate policies. And that's concentrated in a few sectors. But they don't hear from the maybe 95 % of others who would perhaps subscribe to the view that you're describing. Is there any effort, I mean, if there's small efforts I'm aware of to try and get CEOs to Washington to encourage bolder policy, are you aware of such efforts in the US or other countries?
Rich Lesser:
I think there's an element of truth to that, but I think there's an element of ducking it. No one has been clear in calling for making it easier to get stuff built fast than the business community. Solve these permitting issues, update your procurement rules to make the right trade-offs. Do pragmatic rulemaking that has the right cost benefit. One of the benefits is addressing climate, but let's get it. Business has been quite good in this.
Mike Toffel:
That's true.
Rich Lesser:
Actually, if you look at the number of businesses, including some of the heavy emitting, some of the oil companies are asking for some form of a price on carbon, realizing you probably can't do gasoline taxes for political reasons. Now, of course, there are businesses that don't want that. And I'm not arguing it's really dangerous. One of the things I learned as CEO of BCG, any time you try to say business thinks this or business think that you are really at risk of enraging a subset of businesses who see it the world is opposite of what you say.
Mike Toffel:
Yeah.
Rich Lesser:
So I always am hesitant to say that there is a single voice of business on many of these topics. But if you just take sort of the center mass of the distribution curve, actually think if you could have a smart form of a price on carbon, as I said, focus it on the industrial economy, phase it in over time, do it in a pragmatic way. I actually think you'd have far more support than people realize. And again, maybe big businesses who live in a global world and are operating in Europe too, would be a little more sophisticated around that than smaller companies that are just thinking quarter to quarter or trying to sort of come through. But there's some incredibly great small business leaders. So I don't want to overstate that. I do agree with you. I think there are voices in the business community that have been highly resistant to this. Frankly, I've had some that don't believe climate change is real. I've had people argue with me, you know, why Florida is getting hotter actually makes it an even better place to live. I don't want to say business leaders are worse than the average. They're probably slightly more scientifically geared than the average American on average ahead and understand this because they get more scientific voices and so forth. But it's a bell curve. I, but what you said, which is the business leaders that understand the kind of things we need to work together on need to step up and have a louder voice, and not just let the loudest voices be dominated by those who have a near-term financial interest to protect the status quo, 100 % agree. And I say that often to business leaders I think are just terrific, but I think maybe could be speaking up a bit more than they do or taking a bit more risk, even if they annoyed some of their peers. It's a hard balancing act because other businesses are often your customers. You may think there's the right thing to do. You don't want your customer mad at you. You're trying to navigate. I understand it. live at some of it myself, but I think that the business world can certainly on all five of those dimensions, including this last one, you know, do more.
Mike Toffel:
Yeah. Well, let's talk one final question in this area, and then I want to dig into the AI and climate change focus areas. So you play a role with the World Economic Forum as the chief advisor of their alliance of CEO climate leaders.
Rich Lesser:Mike Toffel:What is this World Economic Forum Alliance about and what are they trying to achieve through this alliance?
Rich Lesser:
Right, we're about seven or eight years old. The first time I attended a meeting, I think there were less than 15 CEOs in the room, maybe in 2016 or 17. this has been going on. First of all, it's a complete opt-in group. No one is nominated. It's not some award we bestow on people. It has to be CEO. CEO wants to be a part of it, and joining it is around making commitments. It's not just around saying care about climate.
Either you have an SBTI target for some industries where SBTI doesn't have a target, you have something that's roughly equivalent to it, or you're on a pathway to get there, or you've made other meaningful commitments that show a seriousness toward action. The intent was to, original intent was just to create a community of sharing and learning from each other because, 131 companies is great. It's $4 .6 trillion in revenue across the group. So this is not a small group of small companies. These are leading businesses around the world, but they’re still not the majority of companies. And so you're trying to create a community where people can share and learn. Since then, we've added two things. One is we've added a public policy statement. So every year we'll have one coming out very soon.
Mike Toffel:
Yeah.
Rich Lesser:
This year in advance of COP, we put out a statement addressing some of the points I just shared with you. So I won't repeat any of that, but some of the things that we think governments can do, but also how business needs to step up and help. So it's not all on them. We need to do our job. And then third, to track our own progress so that we can show that we're serious and not just talk and to build tools, not just for our community, but for others like a supplier hub that you can use for scope three or things like that. And just to give you the sense of progress, it'll probably be formally discussed even before the podcast comes out. But at climate week next week, we're talking just before climate week, we'll be sharing that our data from 19 through 22 shows a 10 % reduction in scope one, two, and three. That's well ahead of where SBTI said we should be. And we don't have a full set for 2023 yet. We have about 80 % in and that would show another 5%, which would again put us ahead of SBTI curves. And when you look at our quite large community of carbon, we'd be the third largest emitting company if you add our scope one, two and country, third country, if you added our scope one, two and three together, we're well ahead of Europe, China.
Mike Toffel:Rich Lesser:the US, India. So we're making progress, but none of us think it's enough. All of us think we need to get better. We struggle with everything from non -electrical energy to downstream scope three to really putting fully into action our upstream scope three. So none of us are perfect and we're all learning, but I think we are making serious progress, and we want to communicate that. And we also want to help governments figure out how to help us all go faster.
Mike Toffel:
Got it. So it sounds like it's an information sharing forum for the CEO to learn about each other's successes and potentially each other's struggles to figure out how do you solve some of these problems and also an avenue to amplify some of the successes that they're achieving. Is that about right? Are there other things they're doing?
Rich Lesser:
Yes, and to hit the messages for government that really reflect a business view of businesses that are committed to climate change. Because I think governments often treat very skeptically the inputs they get from businesses we discussed earlier, but we think we have earned credibility as a group. And then we want to be very clear about what we need for us to go faster and for other businesses.
Mike Toffel:
Okay, great. So let's dive into, you mentioned some of the priority areas that you had announced in your third term as CEO were both sort of AI and climate change. And I'm interested in your take on some use cases at the intersection. Now, of course, I'll just start by saying, know, lots of information in the press, widely reported about how AI is creating this hyper demand for power. And the big question is, where is that power going to come from?
And there's potentially this kind of rebound effect that even though it does some cool things, it's going to only accelerate climate impacts if we power those data centers using non-renewables or various traditional power sources. So I want to stipulate that. That for sure is something that we know needs to be worked on.
Rich Lesser:
You know, we should talk about that too. Let's start on the other part, but let's come back to that, because it's a real concern. mean, and when you look at how much more power is going to go into running these data centers, it's a big deal. But let's start, as you said, on the other side.
Mike Toffel:
Yeah. So on the benefit side, what are some interesting use cases you're seeing? Both on the mitigation side and, as we mentioned earlier, on the adaptation or resilience side.
Rich Lesser:
So I'll highlight three kinds of examples. think mitigation, look, I think we're gonna find AI has wide ranging implications. Everything from optimization, traffic signals, so that you have people sitting at lights as little as possible, avoid the stops. Actually, you can reduce a ton of emissions in that.
But you can apply that same sort of AI into supply chains, into ships going back empty around the world. And how do you do that? I mean, there will be many, many parts of the global economy where there's just an AI lever around optimizing many the way you optimize a grid, the way Octopus energy, which is both in the UK and the US, you know, the way
They have a deal with consumers, let us control some of your battery in your home. I'm sure I'm not saying this the way Greg Jackson, the CEO would, but basically you let us have some ability to influence when we can draw power out of your own battery in your home or your car. And when we put it in and in return, we give you a better price, but then we can optimize the grid much more, which puts less demand on the energy infrastructure.Mike Toffel:Rich Lesser:I think we're going to see these massive roles for AI and optimization, but it's not just going to be that. one of the things, I'm an old time chemical engineer. So, I think we're going to see AI more and more be just like it can fold proteins. Remember AlphaGo that Google created a few years ago. I think this ability to sort of design catalysts that can allow for much cheaper processes to make fertilizer, for example, but not just that or other chemicals. The way synthetic biology is going to be used in some cases to replace much more intensive carbon intensive natural processes. So whether it's in the science realm or whether it's in the sort of business process network optimization realm, I think we're going to see meaningful impacts. Like it's not going to solve this problem, but I think we'll see step change improvements on some of the scientific fronts. So that's one bucket. I think a second bucket that the one I'm most personally involved in is the whole measurement estimating process. One of the huge issues right now is the lack of good data and reliable ability to make estimates about footprints. And because most big companies rely on many smaller companies who don't have those tools, then you get these really poor, crude, Scope 3 estimates. then when they're that crude, people know how to act on it. When I was still in my old role, we started a team called CO2 AI to make a product to actually measure end -to -end carbon.
Mike Toffel:
Right.
Rich Lesser:
Throughout the supply chain, then we realize we're not really a software company. So we spun it out. It's the only company I'm on the board of right now. It's a small startup AI firm that is all about making better estimates of carbon footprints across supply chains. And they're working with leading companies. It was really built for big corporates who have these very complex operations, whether it's an ingredients manufacturer that wants to be able to estimate how much carbon is in each of like 30 ,000 products that it sells, or it's a big company that's trying to look up through, you know, hundreds of thousands of components in its products, some of which it has great data on and some of which it doesn't, you can use AI to make much better estimates that allows you to be much clearer on where you can take action that can move the needle and where can't you. So I think there's this measurement tracking estimating space that AI has a very important role. And then the third one, which you alluded to is adaptation and resilience.
We used it in both the Philippines and in Lagos to really map at an incredibly micro level, which areas are exposed to flood, which areas are to rising seas, where are storms likely to be worse? What would it cost to protect those areas? If you only have this much money to spend, how do you optimize to be able to protect the most people or the most infrastructure for the least spend?
These are not the kind of problems you give to people with Excel spreadsheets, right? You need better tools to do that. I think Google and the work that we did with Google last year on AI and climate was talking about a wonderful ability to predict floods in areas, know, hours or days before they occurred so you could move people to safety, and they weren't as exposed to risk, and they had built really sophisticated sort of prediction tools. You know, we're not going to be able to protectMike Toffel:Rich Lesser:Particularly if we miss the temperature targets that I was saying at the very beginning, we are not gonna be able to protect all the infrastructure or all the communities to the degree we want. So we better be optimizing how we deploy that investment, and AI can make a big difference in that.
Mike Toffel:
Great, super interesting. And so this work that you're doing, I'm taking it is for both private sector clients, in some cases in government or NGO sector clients and others.
Rich Lesser:
Yes. The answer is yes We did a really fascinating project for Samantha Power and John Kerry. Samantha runs USAID and John Kerry when he was the climate ambassador that we presented with the two of them actually in Dubai last year at COP 28 about how can companies do a better job on addressing adaptation and resilience in a way that benefits both the companies and the communities and has extraordinarily high ROI.
Because it is so much cheaper to, in many cases, prepare and protect than it is to deal with flood damage or storm damage or all these things or communities where the workforce can't work because their homes are destroyed. And so it was called Prepare. It's great report. And we found, I think, 35 leading corporates that could all provide examples of where they had made these investments in adaptation and resilience, often using AI as one of the building blocks of that and in turn been able to provide not just a company benefit, but a community benefit in the places that they operated. So I'd say that's earlier on because most companies haven't yet gotten their arms around the pathways, we're on right now and the amount of risk. But I think companies are quickly realizing that that resilience and adaptation part is rising in relative importance.
Mike Toffel:
Got it. So let me fast forward us to advice. So BCG has been working in this space on climate and on AI and the intersection of climate and AI now for many years. And it's growing, as you mentioned, it's growing in this practice. What advice do you have for those interested in working in this space, whether it be going directly to consulting and other consulting companies are also trying to lean in under different branding.
Rich Lesser:
Yeah, we need all of us working. This is not a one company mission. This is an all hands on deck mission.
Mike Toffel:
Yeah, and they have different take on it. Some are focusing on the measurement issues. Some are focusing more on strategy questions and so on. So the perennial question for folks looking to think about this question when consulting is in the mix, I think, is should I go and work at operating company or in a functional role and then go to consulting? So that I'll be a more attractive candidate consultant and then I can diversify my experience?
If I'm an MBA student or if I'm early in my career, I should jump in there because of the breadth of experience and the breadth of projects and then maybe later on going into operating role. And then there's, of course, people who are on the software side and the actual data scientist pieces and there's others who have different skill sets. I'm sure you get a million people asking you the questions of where are the biggest opportunities? And it's probably a hard question to answer given the global footprint of your scope of knowledge. But what's your take on that?
Rich Lesser:
So let me start by saying the world is investing about $2 trillion a year on addressing climate and it needs to address $4 trillion a year. We're way off. There is room for so many different ways to make a difference. And if someone has a big idea or a passion or something that's really just exciting them, frankly, I'm fine either way. If you think you can go help deal with food waste or designing better molecules to be a catalyst in a process or helping get the grid built in a more efficient way or long duration energy storage embedded. And this is your burning passion, and you want to do it or you just get a great job in that that you think you can make it fantastic.
So like this, we, the world needs so many people to be energized and passionate and this idea that there's only one path or one path is inherently better. It's just not the way I see it. I would say for us, we are a great place for people that fit in two buckets. One is they love this idea of getting a broad exposure to the climate and sustainability space.
and understanding the combination of what it takes to solve the hardest problems and to really drive change. Like that's BCG's thing. We've always been people who solve those problems, and they're obsessively focused on real impact from that work. And the people find that like really grabs them, we're a great place. And the second are people who want to develop a broader understanding of the business landscape, a broader set of perspectives on it. We're working, you know, multiple different ways, and they want climate sustainability to be a meaningful component, maybe the largest component, maybe they're major or maybe a minor, but they want to do it in the concept of being able to see from the general manager's perspective or the heads of marketing perspective or the head of ops perspective, like all the different challenges and how does climate fit into that. And I think because of the nature of the kind of things we do, we're really good for that kind of pursuance. So for me, those two kinds of people.
That doesn't mean they shouldn't look for a specific job in an industry or an entrepreneurial venture. Like look around, would be my advice. I know there are other consulting firms that take this seriously. I love the way BCG does this, but I have no doubt that for some of my people, different firms provide different fits or different opportunities. And by all means, you're a young person at HBS or another business school or just graduated college or whatever, you know, you should look at different vectors to figure out what really grabs you.
Mike Toffel:
Great, great. Well, this has been a wide-ranging, very interesting conversation, Rich. So I really appreciate you spending the time with me and with us on Climate Rising, sharing your story.
Rich Lesser:
Well, can I just also say in conclusion, as an HBS grad and someone who, you know, feels tremendous passion for the school, you're now not the only sort of business school that's really pushing this, but you're for sure one of the leaders as you are in most things. And it matters a lot. And so just wanted to say thank you to you and frankly to the whole school, to the Dean, and others for the efforts you're putting here and the very clear commitment you have to try to both educate the next generation of leaders, but also find ways to make a difference in the near term as well. And that matters a lot.
Mike Toffel:
Great. Thank you so much, Rich. That's really kind of you to say.