Should US Companies Still Care About the Paris Climate Change Agreement?

American President Donald Trump pulled out of the 2015 Paris agreement on climate change just over a year ago. What does that mean for the role of United States companies and business leaders in confronting climate change challenges? Assistant Professor Vincent Pons looks at the historical debate and what the road ahead looks like for the role of business in improving the environment.

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Brian Kenny: The April, 1938 edition of The Quarterly Journal of the Royal Meteorological Society featured research from an unknown amateur scientist named Guy Callendar. A steam engineer by profession, Callendar was interested in atmospheric science and spent his spare time at home in West Sussex collecting and calculating temperature measurements from 147 weather stations around the world. He did all of his calculations by hand. Although the journal article went relatively unnoticed at the time, Callendar's findings have had a sustained impact on climatology for the past 80 years, because his was the first research to link global warming to CO2 emissions.

A 2013 recreation of Callendar's research using modern-day techniques confirmed the accuracy of his original findings. Callendar concluded in the article that the combustion of fossil fuels and the subsequent warming of the earth might actually prove beneficial to mankind by improving agriculture in the north. “In any case,” he wrote, “the return of the deadly glaciers should be delayed indefinitely.”

Today, we'll hear from professor Vincent Pons about his case study entitled, Climate Change: Paris and the Road Ahead. [Editor’s note: The case is not yet available for download.] I'm your host Brian Kenny, and you're listening to Cold Call.

Professor Pons studies questions in political economy and development with the goal of understanding how to make rights and services more accessible to everyone. Vincent thanks for joining me today.

Vincent Pons: Brian, thanks a lot for having me.

Brian Kenny: This topic has been everywhere for a long time now, and the case goes into some of the history of it. But let me ask you to begin by setting it up for us. How does the case start and where do we go?

Vincent Pons: The case starts with the Paris Conference on Climate Change, which took place in 2015. It starts on the very last day of this conference, in which all the delegates that participated in the conference reconvened to discuss the last hurdles. And the case shows how this hurdle was surmounted, and it shows how the room erupts in acclaim when the president of the conference, the French Minister for Foreign Affairs, Laurent Fabius, bangs his gavel and the agreement is adopted.

Brian Kenny: I loved the opening of the case because it settles on one word and one sentence of what probably is an enormous document, and that one word was preventing the United States from signing it.

What prompted you to write this? You're in the Business, Government, and International Economy Unit here at the business school, so this is kind of in your sweet spot.

Vincent Pons: Yes. I mean, this case was prepared for a class called BGIE, Business, Government and the International Economy, and I wanted to it because I think climate change is one of the most important problems, perhaps the most important problem, facing us today. I think all students coming to HBS should think about this issue. And I had another personal motivation to write the case, which is that I realized I knew so little about the problem. So writing this case was an occasion for me to learn about climate change and to learn about the efforts conducted by the international community to address climate change.

Brian Kenny: I alluded to in the intro the fact that somebody had been looking at this as long ago as 1938, and probably before. But when did people really start to talk about climate change in a serious way?

“I think climate change is one of the most important problems, perhaps the most important problem, facing us today”

Vincent Pons: You mentioned Steve Callendar. Actually, there were some scientists that had done work even before that, at the turn of the 20th century. Svante Arrhenius was one of the first to ask whether the increase in temperatures he was observing was correlated with carbon emissions. For a long time, scientists didn't really know whether climate change was happening. In fact, after World War II, there was a period of global cooling. In the 1950s and 60s you had a few popular books predicting the return to a global ice age.

Brian Kenny: And even today, people will say … global warming is a hoax.

Vincent Pons: Climate change science is extremely difficult, and it is hard to make a compelling story, a compelling narrative, something that echoes [in] people's perceptions, and so it took a long time. But eventually a scientific consensus was reached saying climate change was happening and temperatures were, A) increasing; B) the reason was mostly human activity; and, C) the consequences would be mostly negative.

Brian Kenny: You talk a lot in the case about the Kyoto Protocol. Can you describe that a little bit, and why it didn't work?

Vincent Pons: The Kyoto Protocol was achieved as part of 1997 negotiations, and it was a very ambitious agreement. The idea was that all the countries that were part of the Protocol, in particular the developed countries, would take commitments to reduce carbon emissions, and that these commitments would be binding, meaning that if they did not fulfill their pledges, sanctions would be imposed on them. The difficulty with the Protocol was, first, that it only included developed countries. Developing countries did not have to make commitments, and so, the US at some point said, look, that's not a fair agreement because some of the largest emitters are developing countries. And the second thing is that the binding part, which looked so appealing at the start, proved to be difficult to implement.

At some point, Canada, for instance, withdrew from the Protocol because it realized that enforcing the Protocol would become too costly for them. And so you realize what can you do if a country steps out? Are you going to invade a country because they didn't fulfill their pledges? There was not really a mechanism of implementing credible sanctions.

Brian Kenny: You're starting to see the key ingredients of a workable solution would have to involve something that's enforceable, something that's equitable, right, and this is where the case really gets very interesting. You start to see the difference in the way it's approached, from a political standpoint versus from a business standpoint. Talk about how the Paris accord was the sort of catalyst that moved people in that direction.

Vincent Pons: I think first it was the collapse of the Kyoto Protocol, so people realized that you couldn't rely anymore on this Kyoto Protocol to achieve a solution. And the second thing was that scientific facts were accumulating, the evidence was more pressing for countries to come together and try and address the problem. The case features a number of different actors, including the pope, who would encourage countries to come together and take this issue seriously in the name of preserving the planet for future generations.

Brian Kenny: You would think that with that kind of momentum, that certainly this thing would succeed. But then we fast-forward to 2017… the title of the case talks about Trump's pulling out of the Paris accord. Why in the U.S. does this conversation unfold differently than it does in Europe?

Vincent Pons: I see two factors. The first one is that in Europe you see more support for state action, state intervention, state regulation than you see in the US. There's this underlying hypothesis that the state is good, whereas in the US it's rather effacing the market. A second factor is the importance of “Green” parties. The case discusses how the voting systems in France, in Germany, allow for the emergence of Green parties in the 1980s, 1990s, and these Green parties have made climate and the environment … central issues. They have forced other parties to also talk about the issue and propose actions on climate change.

Brian Kenny: The European Union was a key to pull them together, is that right?

Vincent Pons: Yes. What the EU did as part of implementing the Kyoto Protocol among European countries was to adopt what they called an emission trading scheme. The idea was, let's create a market in which companies can exchange rights to pollute. The beauty of this market is that you will end up with the companies that are most efficient at reducing carbon emissions taking the largest burden. So you will end up with the most efficient solution, the least-costly solution, to reduce such a number of carbon emissions. What made this possible is the existence of the European institutions, the supranational institutions, which, some say, forced, or coordinated European states to be part of this emission-trading market.

Brian Kenny: How important was the role of business, thinking about Europe in particular, in driving some of these changes?

Vincent Pons: I see the role of business as twofold. The first is within existing regulation to try and do R&D to decrease the cost of reducing emissions. Technological improvements are extremely important, and sometimes business can actually demand more regulation. The case features a few companies whose business model is to help other companies reduce carbon emissions. These companies have an interest in more binding regulation, and more demanding objectives.

Brian Kenny: It’s good for the brand of any company that can talk about the fact that they're trying to make progress on this front. It's good for attracting millennial workers. Nobody wants to work for a company that's polluting and not taking this seriously.

Vincent Pons: Yes, I think there's increasing pressure on companies to attract millennials who want to have a meaningful job, because there is pressure by other companies that want to have Green solutions, and they also increasingly face pressure from finance, which is I think a very important evolution.

“China has exerted increasing international leadership on the issue”

Brian Kenny: I've had the great fortune to go to China several times, and I feel like every time I go the pollution is worse, and people are routinely walking around with masks — you can just sort of feel it. How did China respond to the Paris accord initially, and what's their role now as we see the deck chairs changing with Trump pulling out of the accord?

Vincent Pons: China has exerted increasing international leadership on the issue. First, I think the Paris agreement would not have existed without China saying, yes, we're going to come to the table. Actually, even before the agreement, they had a mini-agreement with the US, a bilateral agreement, in which they both announced pledges. This coordinated the international community to demand a good agreement. After the agreement, many people thought China would drop out when they saw the US pulling out. Instead, they have decided to move from co-leadership on the issue to solo leadership.

So it's quite interesting. I think one of the reasons [for China taking a leadership role] is the one you mentioned, which is that there's a lot of pressure by the Chinese people on their government to reduce pollution in the cities and make the air more breathable.

Brian Kenny: Do you think China is really committed to doing this, or are they doing it because it's politically expedient, to make the US look bad?

Vincent Pons: No, they look relatively committed on this because the population has really demanded serious action. But I think you're right that there's another component, which is, this is an occasion for China to step up and to show that it can play a better role and more important role internationally on an issue in which their role might be celebrated by partners. You see in the case European commissioners celebrating China's increased efforts on climate change.

Brian Kenny: And so let's go back to President Trump's decision to withdraw. What are the implications of that, and how have business leaders in the US responded?

Vincent Pons: I think that President Trump's decision to withdraw was driven in part by the promulgation of tensions and polarization on the issue between Republicans and Democrats. One reason is that Republicans have seen climate change as a risk, in the sense that addressing climate change would require more federal intervention, which traditionally Republican leaders have opposed. Another reason was the motivation to preserve the coal industry, which is the industry that would indeed suffer from reducing carbon emissions.

The reaction interestingly in the business community has been to say, no, we actually believe in climate science, and though we might as a country withdraw from the agreement, individually our companies …are going to try and fulfill US pledges in the Paris accord. They joined this America's Pledge coalition, signed the “We Are Still In” declaration, and you see many business leaders taking action on this issue.

Brian Kenny: Does that effectively disempower the president from withdrawing? He's withdrawn in word only, but in actions we're still moving forward?

Vincent Pons: Technically, the withdrawal is only possible in 2020 because it takes four years to be able to withdraw after the agreement was signed. And, I think to some extent people are stepping in and saying that the climate policy is not only implemented at the federal level, it's also implemented at the state level, the city level, and, I think, they are disavowing a little bit this decision by Trump.

Interestingly, there was in December a conference in Bonn, in which all the countries were represented to continue the discussions on climate change, and the only country without a pavilion was the United States. Interestingly, this America's Pledge coalition decided to set up their own non-official pavilion. That to some extent is disavowing the federal policy.

“The case asked whether a CEO, for instance, should try to address the environment as one of their main goals, or instead should focus on maximizing shareholder value”

Brian Kenny: We talked earlier that in order for any policy to really be effective, it has to be enforceable. But the Paris accord is non-binding, so how is that any different than the Kyoto Protocol?

Vincent Pons: The non-binding part is the major difference. The idea of the Paris agreement is that countries make unilateral pledges, so each country decides on their role without any other country intervening … and there's no official pressure on these countries in terms of setting up and fulfilling their targets. There is no sanction that is associated with non-respecting the target. So many people have looked at the agreement and said it's a joke.

I think the mechanism, the hope, is that even though there is no formal sanction mechanism, that there can be symbolic pressure exerted by countries on each other, so that they fulfill their targets, move forward, and adopt increasingly ambitious targets. There's this revision mechanism in which countries reconvene every five years, and what's binding is that they have to update other countries about their progress. The hope is that every five years countries can adopt more ambitious targets for the future.

Brian Kenny: You've taught this to MBA students. Any big surprises in their reaction?

Vincent Pons: For many MBA students, the case was also an occasion to learn about a topic that everyone talks about but few actually know about. They felt that the case was important from that point of view. They also found the case allowed them to ask themselves what they would do on the issue as future leaders, and what could be done, what should be done, by economic leaders. The case asked whether a CEO, for instance, should try to address the environment as one of their main goals, or instead should focus on maximizing shareholder value. These are very important, very difficult questions, and, I think the discussion on this was extremely interesting.

Brian Kenny: Vincent, thanks for joining us.

Vincent Pons: Thanks a lot for having me.

Brian Kenny: If you have enjoyed hearing about this Harvard Business School case, subscribe to Cold Call on Apple podcasts, or wherever you listen to podcasts. We post new episodes twice a month, and we'd love to hear your thoughts, so please post your review. I am Brian Kenny, and you've been listening to Cold Call, an official podcast of Harvard Business School.

 Read more

Brian Kenny: The April, 1938 edition of The Quarterly Journal of the Royal Meteorological Society featured research from an unknown amateur scientist named Guy Callendar. A steam engineer by profession, Callendar was interested in atmospheric science and spent his spare time at home in West Sussex collecting and calculating temperature measurements from 147 weather stations around the world. He did all of his calculations by hand. Although the journal article went relatively unnoticed at the time, Callendar's findings have had a sustained impact on climatology for the past 80 years, because his was the first research to link global warming to CO2 emissions.

A 2013 recreation of Callendar's research using modern-day techniques confirmed the accuracy of his original findings. Callendar concluded in the article that the combustion of fossil fuels and the subsequent warming of the earth might actually prove beneficial to mankind by improving agriculture in the north. “In any case,” he wrote, “the return of the deadly glaciers should be delayed indefinitely.”

Today, we'll hear from professor Vincent Pons about his case study entitled, Climate Change: Paris and the Road Ahead. [Editor’s note: The case is not yet available for download.] I'm your host Brian Kenny, and you're listening to Cold Call.

Professor Pons studies questions in political economy and development with the goal of understanding how to make rights and services more accessible to everyone. Vincent thanks for joining me today.

Vincent Pons: Brian, thanks a lot for having me.

Brian Kenny: This topic has been everywhere for a long time now, and the case goes into some of the history of it. But let me ask you to begin by setting it up for us. How does the case start and where do we go?

Vincent Pons: The case starts with the Paris Conference on Climate Change, which took place in 2015. It starts on the very last day of this conference, in which all the delegates that participated in the conference reconvened to discuss the last hurdles. And the case shows how this hurdle was surmounted, and it shows how the room erupts in acclaim when the president of the conference, the French Minister for Foreign Affairs, Laurent Fabius, bangs his gavel and the agreement is adopted.

Brian Kenny: I loved the opening of the case because it settles on one word and one sentence of what probably is an enormous document, and that one word was preventing the United States from signing it.

What prompted you to write this? You're in the Business, Government, and International Economy Unit here at the business school, so this is kind of in your sweet spot.

Vincent Pons: Yes. I mean, this case was prepared for a class called BGIE, Business, Government and the International Economy, and I wanted to it because I think climate change is one of the most important problems, perhaps the most important problem, facing us today. I think all students coming to HBS should think about this issue. And I had another personal motivation to write the case, which is that I realized I knew so little about the problem. So writing this case was an occasion for me to learn about climate change and to learn about the efforts conducted by the international community to address climate change.

Brian Kenny: I alluded to in the intro the fact that somebody had been looking at this as long ago as 1938, and probably before. But when did people really start to talk about climate change in a serious way?

“I think climate change is one of the most important problems, perhaps the most important problem, facing us today”

Vincent Pons: You mentioned Steve Callendar. Actually, there were some scientists that had done work even before that, at the turn of the 20th century. Svante Arrhenius was one of the first to ask whether the increase in temperatures he was observing was correlated with carbon emissions. For a long time, scientists didn't really know whether climate change was happening. In fact, after World War II, there was a period of global cooling. In the 1950s and 60s you had a few popular books predicting the return to a global ice age.

Brian Kenny: And even today, people will say … global warming is a hoax.

Vincent Pons: Climate change science is extremely difficult, and it is hard to make a compelling story, a compelling narrative, something that echoes [in] people's perceptions, and so it took a long time. But eventually a scientific consensus was reached saying climate change was happening and temperatures were, A) increasing; B) the reason was mostly human activity; and, C) the consequences would be mostly negative.

Brian Kenny: You talk a lot in the case about the Kyoto Protocol. Can you describe that a little bit, and why it didn't work?

Vincent Pons: The Kyoto Protocol was achieved as part of 1997 negotiations, and it was a very ambitious agreement. The idea was that all the countries that were part of the Protocol, in particular the developed countries, would take commitments to reduce carbon emissions, and that these commitments would be binding, meaning that if they did not fulfill their pledges, sanctions would be imposed on them. The difficulty with the Protocol was, first, that it only included developed countries. Developing countries did not have to make commitments, and so, the US at some point said, look, that's not a fair agreement because some of the largest emitters are developing countries. And the second thing is that the binding part, which looked so appealing at the start, proved to be difficult to implement.

At some point, Canada, for instance, withdrew from the Protocol because it realized that enforcing the Protocol would become too costly for them. And so you realize what can you do if a country steps out? Are you going to invade a country because they didn't fulfill their pledges? There was not really a mechanism of implementing credible sanctions.

Brian Kenny: You're starting to see the key ingredients of a workable solution would have to involve something that's enforceable, something that's equitable, right, and this is where the case really gets very interesting. You start to see the difference in the way it's approached, from a political standpoint versus from a business standpoint. Talk about how the Paris accord was the sort of catalyst that moved people in that direction.

Vincent Pons: I think first it was the collapse of the Kyoto Protocol, so people realized that you couldn't rely anymore on this Kyoto Protocol to achieve a solution. And the second thing was that scientific facts were accumulating, the evidence was more pressing for countries to come together and try and address the problem. The case features a number of different actors, including the pope, who would encourage countries to come together and take this issue seriously in the name of preserving the planet for future generations.

Brian Kenny: You would think that with that kind of momentum, that certainly this thing would succeed. But then we fast-forward to 2017… the title of the case talks about Trump's pulling out of the Paris accord. Why in the U.S. does this conversation unfold differently than it does in Europe?

Vincent Pons: I see two factors. The first one is that in Europe you see more support for state action, state intervention, state regulation than you see in the US. There's this underlying hypothesis that the state is good, whereas in the US it's rather effacing the market. A second factor is the importance of “Green” parties. The case discusses how the voting systems in France, in Germany, allow for the emergence of Green parties in the 1980s, 1990s, and these Green parties have made climate and the environment … central issues. They have forced other parties to also talk about the issue and propose actions on climate change.

Brian Kenny: The European Union was a key to pull them together, is that right?

Vincent Pons: Yes. What the EU did as part of implementing the Kyoto Protocol among European countries was to adopt what they called an emission trading scheme. The idea was, let's create a market in which companies can exchange rights to pollute. The beauty of this market is that you will end up with the companies that are most efficient at reducing carbon emissions taking the largest burden. So you will end up with the most efficient solution, the least-costly solution, to reduce such a number of carbon emissions. What made this possible is the existence of the European institutions, the supranational institutions, which, some say, forced, or coordinated European states to be part of this emission-trading market.

Brian Kenny: How important was the role of business, thinking about Europe in particular, in driving some of these changes?

Vincent Pons: I see the role of business as twofold. The first is within existing regulation to try and do R&D to decrease the cost of reducing emissions. Technological improvements are extremely important, and sometimes business can actually demand more regulation. The case features a few companies whose business model is to help other companies reduce carbon emissions. These companies have an interest in more binding regulation, and more demanding objectives.

Brian Kenny: It’s good for the brand of any company that can talk about the fact that they're trying to make progress on this front. It's good for attracting millennial workers. Nobody wants to work for a company that's polluting and not taking this seriously.

Vincent Pons: Yes, I think there's increasing pressure on companies to attract millennials who want to have a meaningful job, because there is pressure by other companies that want to have Green solutions, and they also increasingly face pressure from finance, which is I think a very important evolution.

“China has exerted increasing international leadership on the issue”

Brian Kenny: I've had the great fortune to go to China several times, and I feel like every time I go the pollution is worse, and people are routinely walking around with masks — you can just sort of feel it. How did China respond to the Paris accord initially, and what's their role now as we see the deck chairs changing with Trump pulling out of the accord?

Vincent Pons: China has exerted increasing international leadership on the issue. First, I think the Paris agreement would not have existed without China saying, yes, we're going to come to the table. Actually, even before the agreement, they had a mini-agreement with the US, a bilateral agreement, in which they both announced pledges. This coordinated the international community to demand a good agreement. After the agreement, many people thought China would drop out when they saw the US pulling out. Instead, they have decided to move from co-leadership on the issue to solo leadership.

So it's quite interesting. I think one of the reasons [for China taking a leadership role] is the one you mentioned, which is that there's a lot of pressure by the Chinese people on their government to reduce pollution in the cities and make the air more breathable.

Brian Kenny: Do you think China is really committed to doing this, or are they doing it because it's politically expedient, to make the US look bad?

Vincent Pons: No, they look relatively committed on this because the population has really demanded serious action. But I think you're right that there's another component, which is, this is an occasion for China to step up and to show that it can play a better role and more important role internationally on an issue in which their role might be celebrated by partners. You see in the case European commissioners celebrating China's increased efforts on climate change.

Brian Kenny: And so let's go back to President Trump's decision to withdraw. What are the implications of that, and how have business leaders in the US responded?

Vincent Pons: I think that President Trump's decision to withdraw was driven in part by the promulgation of tensions and polarization on the issue between Republicans and Democrats. One reason is that Republicans have seen climate change as a risk, in the sense that addressing climate change would require more federal intervention, which traditionally Republican leaders have opposed. Another reason was the motivation to preserve the coal industry, which is the industry that would indeed suffer from reducing carbon emissions.

The reaction interestingly in the business community has been to say, no, we actually believe in climate science, and though we might as a country withdraw from the agreement, individually our companies …are going to try and fulfill US pledges in the Paris accord. They joined this America's Pledge coalition, signed the “We Are Still In” declaration, and you see many business leaders taking action on this issue.

Brian Kenny: Does that effectively disempower the president from withdrawing? He's withdrawn in word only, but in actions we're still moving forward?

Vincent Pons: Technically, the withdrawal is only possible in 2020 because it takes four years to be able to withdraw after the agreement was signed. And, I think to some extent people are stepping in and saying that the climate policy is not only implemented at the federal level, it's also implemented at the state level, the city level, and, I think, they are disavowing a little bit this decision by Trump.

Interestingly, there was in December a conference in Bonn, in which all the countries were represented to continue the discussions on climate change, and the only country without a pavilion was the United States. Interestingly, this America's Pledge coalition decided to set up their own non-official pavilion. That to some extent is disavowing the federal policy.

“The case asked whether a CEO, for instance, should try to address the environment as one of their main goals, or instead should focus on maximizing shareholder value”

Brian Kenny: We talked earlier that in order for any policy to really be effective, it has to be enforceable. But the Paris accord is non-binding, so how is that any different than the Kyoto Protocol?

Vincent Pons: The non-binding part is the major difference. The idea of the Paris agreement is that countries make unilateral pledges, so each country decides on their role without any other country intervening … and there's no official pressure on these countries in terms of setting up and fulfilling their targets. There is no sanction that is associated with non-respecting the target. So many people have looked at the agreement and said it's a joke.

I think the mechanism, the hope, is that even though there is no formal sanction mechanism, that there can be symbolic pressure exerted by countries on each other, so that they fulfill their targets, move forward, and adopt increasingly ambitious targets. There's this revision mechanism in which countries reconvene every five years, and what's binding is that they have to update other countries about their progress. The hope is that every five years countries can adopt more ambitious targets for the future.

Brian Kenny: You've taught this to MBA students. Any big surprises in their reaction?

Vincent Pons: For many MBA students, the case was also an occasion to learn about a topic that everyone talks about but few actually know about. They felt that the case was important from that point of view. They also found the case allowed them to ask themselves what they would do on the issue as future leaders, and what could be done, what should be done, by economic leaders. The case asked whether a CEO, for instance, should try to address the environment as one of their main goals, or instead should focus on maximizing shareholder value. These are very important, very difficult questions, and, I think the discussion on this was extremely interesting.

Brian Kenny: Vincent, thanks for joining us.

Vincent Pons: Thanks a lot for having me.

Brian Kenny: If you have enjoyed hearing about this Harvard Business School case, subscribe to Cold Call on Apple podcasts, or wherever you listen to podcasts. We post new episodes twice a month, and we'd love to hear your thoughts, so please post your review. I am Brian Kenny, and you've been listening to Cold Call, an official podcast of Harvard Business School.

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