01 Dec 2017
The Business Case (Or Not) for Sustainability
Business & Environment Initiative professors Rebecca Henderson and Mike Toffel debate the responsibility and capability of businesses to address climate change and other environmental risksTopics:
Image by John Ritter
Is there a business case to be made for companies to act in environmentally friendly ways?
Rebecca Henderson: If one can imagine that all business in the entire world was run by one person, it’d be pretty straightforward to make a business case for acting against, for instance, climate change, ocean acidification, or depleting the topsoil, because business as a whole is going to suffer from the results of environmental degradation. There is a very strong collective case for business action, but from a show-me-the-money perspective, it depends enormously on the industry you’re in.
Mike Toffel: And there’s a real limitation to thinking that win-win opportunities that provide both financial and environmental gains will get us where we need to go. In some domains—especially where the cause and result of the problem are very proximate in both space and time—it might. If I cause a problem that harms you, my neighbor, now, we might find a way to negotiate so that I don’t harm you as much, and I’d compensate you for the harm I’ve done. But our biggest environmental challenge these days is climate change, which is a global problem whose impacts are felt far afield and not immediately. In that context, it’s much harder to find lots of win-wins.
Are we seeing companies embrace responsibility for addressing environmental issues?
MT: I’ve recently been looking at companies in the United States whose CEOs are stepping into contentious discussions on policy issues. If you look at the topics that they’ve been choosing, it’s been marriage equality, race relations, a whole host of social issues—but hardly anything on climate change. There are a few speaking out on the topic, but I’m waiting for companies beyond the Ben & Jerry’s of the world to make noise about the dire need for US federal policy to address climate change.
RH: When you look at Europe, you see many companies agitating for some kind of carbon regulation and beginning to shift their business models in this direction. If you expect your company to be around for the next 50 to 100 years, you’re becoming increasingly aware that the viability of your business depends on dealing with climate change issues. But in the United States it can be politically risky for a CEO of a major company to take a public position on climate change that could alienate an important fraction of the political establishment.
If government isn’t addressing these issues, can companies take a leadership role?
MT: A lot of companies are trying to figure out what they can do in the absence of regulation. Companies like Microsoft have gone on record claiming to be carbon neutral organizations, because they’re buying offsets such as investing in reforestation projects to counteract the carbon that’s released from the energy that heats, cools, and electrifies their buildings. But what everyone needs to remember is that’s hardly sufficient. And I worry that companies that dedicate their efforts to these types of initiatives feel as if they’re “done.” It’s like someone who thinks climate change is a real problem and buys a Prius and feels as if they’ve done their part and they’re done. The problem is not solved if everyone buys a Prius—it’s much bigger than that. For example, we have to move away from fossil fuels for transportation, heating, and generating electricity.
RH: But small things can increase awareness of the issues and make it increasingly less legitimate not to pay attention. I would be a big fan of every company in the country announcing that they were going to offset not because it would solve the problem, but because if every company did that, there would be a lot of money going into building a carbon-free energy system, and that would make a real difference at scale. So I think there is a way in which these individual actions could potentially snowball and lead up to something.
What will the tipping point be for businesses and big environmental issues such as climate change?
RH: I happen to be married to a political scientist, and so I ask him this all the time: “When will we tip? When will we realize that it’s the greatest moral challenge facing our generation, and that we’re burning down the house and we have to stop? When is it going to happen?” And he looks at me and says, “You know, change is really slow until it’s fast.”
One of the things I do with businesspeople is a very simple scenario analysis: “What are the odds that there’ll be no carbon regulation? What are the odds that customers will never care?” And as soon as I start asking those questions they realize that the world is going to shift, and it might shift in the next 10 years. With that perspective, the business case for addressing climate change gets much, much stronger.