The Climate Needs Aggressive CEO Leadership

 
 
History will judge CEOs not just on their stewardship of firm growth, but also on whether they effectively used their clout to address one of the greatest societal challenges of our time, say Michael Toffel and Auden Schendler.
 
 
by Michael Toffel & Auden Schendler

Corporations are facing great uncertainty. For the world to avoid the worst impacts of climate change, the United States eventually will have to put a price on carbon dioxide emissions, as has been done by Europe, parts of Canada, and California. To plan for the future, corporations need guidance on that potential pricing structure. At the same time, US businesses now wield more and more political power to influence such policy, thanks in part to Supreme Court rulings like Citizens United that enable them to spend unlimited sums on political campaigns.

Is it possible that together, these two trends might work together to solve climate change? We believe they can, but it's going to take something unprecedented in the battle to enact climate policy: aggressive CEO leadership.

 

The Business of Climate Change

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The Business of Climate Change

What role should business leaders play in trying to affect climate change? Harvard Business School faculty share their thoughts.

 

The desire for certainty about the future price of carbon is not new, and it's not unique to small or green-leaning businesses. Duke Energy argues that renewable and clean energy policies give "utilities and non-utility energy providers with the certainty necessary to make investments." In 2009, Duke joined a business coalition called USCAP (United States Climate Action Partnership) to encourage Congress to pass laws limiting greenhouse gas emissions. Should Duke Energy build any more coal-fired power plants? How much should they invest to reduce pipeline leaks of natural gas, given how the cost of those emissions could rise substantially if carbon were priced? From a financial perspective, answering these big and expensive questions requires knowing how to price carbon in forecasting models, and that requires anticipating US climate policy.

Henry Paulson, former CEO of Goldman Sachs and Treasury Secretary under President George H.W. Bush, recently argued in favor of a national policy that would put a price on carbon and stressed that our failure to do so represents "a very radical risk." IKEA Group's Chief Sustainability Officer Steve Howard recently said that "There's strong support for a meaningful price on carbon. And we all want a policy framework that creates sufficient certainty that unlocks investment and innovation. " If anything, that argument is getting louder and more strident. Some corporations are already using their Citizens United supercharged political power to strongly oppose progressive climate policy.

“The problem is that these companies have been relatively quiet, and are generally outgunned by fossil fuel money”

But there are also large, powerful, respected, and influential corporations that support addressing climate change—a message arguably more appealing to Americans than the opposition's message of predicted economic disaster. Instead, they offer a business case that also happens to protect children, the environment, and public health. The problem is that these companies have been relatively quiet, and are generally outgunned by fossil fuel money. How might they turn the tables?

We believe CEOs in particular need to speak up forcefully and publicly on the need for aggressive government climate policy. The fact of the matter is that they have not done this here. Coke's CEO, Muhtar Kent, for example, made strong statements at the United Nations climate change summit in Cancun in 2010, but has not been nearly as vocal in the US. In this country, corporate climate spokespeople are almost always lower-level executives, who simply don't carry the same weight in the eyes of the citizenry or politicians.

CEOs are well-positioned to educate the public and policymakers that climate policy is critical for stable long-term economic growth. Much more than political figures, Americans see CEOs as rock stars. They could play an especially valuable role if they choose to debunk the opposition's claims that regulating greenhouse gases will lead to economic catastrophe. Those very same arguments have been made time and again when environmental regulations have been proposed. As the Economist and Bloomberg View recently noted, the automobile, mining, and electric industries predicted dire economic consequences from the 1970 Clean Air Act-including the end of the automobile and "irreparable damage" to the America economy. Yet history has shown that industry responses often hugely overestimate the costs and underestimate the public benefits. CEOs, not NGOs, are the most credible voice to refute these claims.

CEOs powerfully voicing the need for climate actions would provide a much-needed counterweight to special interests that have not been shy about ensuring the status quo, which allows carbon emitters to avoid bearing the cost of their pollution by foisting it on the public. A groundswell of CEO voices favoring a price on carbon would also provide critical political cover to politicians who believe in forcing carbon polluters to pay in the name of restoring free market capitalism. And yet, the number of businesses remaining silent or actively opposing climate change policy far outnumbers those supporting it. Given this situation, breaking the logjam in climate change policy requires not just any voice from business, but rather the voices of the most powerful and visible businesspeople-CEOs.

Scientists have reached consensus about the consequences of climate change at the same time that corporations have achieved unprecedented political power. No longer can CEOs claim substantial doubt or lack of influence. As a result, history will judge CEOs not just on their stewardship of firm growth, but also on whether they used the enormous political power newly entrusted in corporations to address one of the greatest societal challenges of our time.

As Americans march in the streets before the UN Conference, and as the global climate approaches tipping points beyond which lies unchartered territory, an enormous opportunity to exercise political leadership awaits. The question is: Which CEOs will take it?

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About the Author

Michael Toffel is an associate professor at Harvard Business School, where he specializes in business and environment issues. Auden Schendler is vice president of sustainability at Aspen Skiing Company, author of Getting Green Done, and a board member of Protect Our Winters.

This article was first published on Grist.org under the title Corporate Sustainability is Not Sustainable.

Michael Toffel is an associate professor at Harvard Business School, where he specializes in business and environment issues. Auden Schendler is vice president of sustainability at Aspen Skiing Company, author of Getting Green Done, and a board member of Protect Our Winters.

This article was first published on Grist.org under the title Corporate Sustainability is Not Sustainable.

    • N.R.Jothi Narayanan
    • HSE CONSULTANT(oil/gas/chemical), Palakkad-678001, INDIA
    About four decades decades ago, the safety regulations and procedures in any industrial organization has been a part and parcel of the process and functioning as a branch under the department of either quality control or as an organ of " work inspection". The increasing number of serious incidents of high potential in nature and accidents with high number of causalities in the developed countries made the "Industrial Safety " to function as a separate entity to prevent incidents and accidents.
    Later, the company's incident & accident statistics has been brought under the direct responsibility of the General Manager of the company in order to gain the response and recognition from all sections of the employees in the organization.
    Now the safety of the employee combining with health and environment popularly known as HSE or SHE has been directly functioning under the CEO of most of the multinational companies.
    Every employee in a reputed multinational company is proud of his contribution to achieve the HSE target of the company and his award on promotion of the HSE.
    The Business of the Climate Change under the CEO of a company is indeed a welcome move since the subject largely covered under the discipline of Environment.
    • Harlan Bentzinger
    • retired
    Why doesn't someone suggest a tax on water vapor emissions?

    Water vapor is one of the components of burning fossil fuels. Water vapor is much better at holding heat than CO2. Watch the thermometer drop on a clear low humidity night.

    Also, why doesn't someone suggest a tax on all parking lots, roads and buildings? All of these cover the land, kill out all vegetation and prevent water from entering the ground. The killing of vegetation changes the conversion of solar power to vegetation to heat. Try walking across a blacktop parking lot and a grass lawn on a sunny July day.
    • John Murphy
    • Director, JJ Murphy Pty Ltd
    Articles such as these are very disappointing.

    They assume the problem is fully understood and move directly to solutions (inputs).

    That is no way to conduct a business analysis, or any analysis for that matter - even a cursory one.

    Without direct reference to Climate Science, any analysis must first address the following questions:

    How reliable are these models on which these catastrophes are based? For example have they been able to predict current conditions?

    What about the relationship between input and output - how much cooling do we get for the dollar - and how certain is that?

    Could it all be done without India and China, and if so, how much de-carbonisation would be necessary in the rest of the world?

    Lastly, just to make sure the whole thing is grounded and we are not being mislead from the beginning - what about that quote that "97% of climate scientists agree etc." - doesn't that sound like something from North Korea? Anyway, how reliable is it, and if it isn't reliable - what does that mean?

    There are many available credible resources to help answer these questions.