Not as Simple as It Sounds
![Not as Simple as It Sounds Not as Simple as It Sounds](/sites/default/files/styles/max_325x325/public/forum/35-1toc1.png?itok=A4MgKr5r)
The notion of businesses tackling climate change on their own, for financial reasons or for the public good, is fraught with assumptions that prove false on examination. But companies could still play a much more active role in transitioning to a low-carbon future.
Mark C. Trexler, Ph.D., directs the Climatographers, and is the lead developer of the Climate Web, a comprehensive knowledge management solution for climate risks and risk management.
It’s been almost 30 years since climate change became a topic of widespread public interest. While it’s easy to find evidence of progress on key indicators (most obvious being falling renewable energy costs), the best available forecasts suggest we’re still headed for between 2 and 5 degrees Celsius of climate change this century. Not good.
Given that the world’s policymakers seem unable to implement the policies and measures needed to avoid dangerous climate change, observers looking for climate progress are casting about for alternatives to top-down public policy processes. Expanded efforts from cities, businesses, and even individuals are all on the table as alternatives to top-down policy. I’ll focus here on the hypothesis that the business community can and will voluntarily “step up” to significantly reduce future climate change.
In 1988, Applied Energy Services (now just AES) was an independent power producer building small coal-fired power plants around the United States. CEO Roger Sant, already concerned about climate change, set out with the help of the World Resources Institute in Washington, D.C., to find a way to make those coal plants more climate friendly. At WRI’s recommendation, AES funded a carbon offset project for each of its U.S. plants. This effort signaled U.S. business’s entry into tackling climate change.
Where is the “business and climate change” conversation today, almost 30 years later? It has certainly expanded in scope. In the lead-up to the Paris Agreement in 2015, for example, and in the aftermath of President Trump’s recent announcement that the United States will withdraw from that accord, business leaders have increasingly voiced a willingness to step in and step up on climate change.
But can voluntary action by the business community bring about an alternative climate future? Characterizing the idea as “political myth,” academics Christopher Wright and Daniel Nyberg have argued that corporate decisionmaking timeframes and incentives are inherently biased against tackling a societal problem like climate change. But the momentum behind the “business stepping up” story is strong and growing, so the question remains as to how we could evaluate its prospects. We can start by recognizing that it’s not a matter of what kinds of statements business leaders are willing to make and sign, it’s a matter of what they really see as their role when it comes to climate change, and the problem-solving tools at their disposal. The business community as a whole has pursued many initiatives that one can categorize as responding to climate change. However, we can summarize the bulk of corporate efforts in several discrete areas, as follows.
Companies started voluntarily tracking their greenhouse gas footprints more than 20 years ago. Footprinting has become a key component of demonstrating a company’s climate credentials. Footprints have become more comprehensive and detailed over the past 20 years; that trend may continue, given consulting firm WSP Parsons Brinckerhoff’s recent suggestion that “many businesses are failing to adequately account for the significant daily and seasonal fluctuations in energy-related carbon emissions.” However, complicated GHG footprint calculations per se won’t lead to an alternative climate future; that requires dramatic emissions reductions.
GHG emissions reductions commitments have become almost de rigueur in demonstrating a company’s corporate climate credentials. Some companies express commitments in absolute tonnage terms; others use intensity-based measurements such as tons of CO2 emitted per dollar of sales. Some focus on “direct” and internal emissions reductions, while others go after indirect reductions and carbon offsets. Companies recently have been increasingly encouraged by the NGO community to commit to “science-based targets” which, if universally implemented, would substitute for missing global climate change policy and limit climate change to the 2 degrees Celsius target of the Paris Agreement.
Vanderbilt University Professor Michael Vandenbergh has suggested that business initiatives could reduce global emissions by 1 billion tons of CO2 equivalent per year between now and 2025. While impressive, that is not a particularly large number in the context of the emissions reductions required to avoid dangerous climate change. Current emissions reductions are probably just a fraction of that number.
Some companies have lowered their GHG footprints dramatically. These outcomes have most often been associated with opportunities to reduce GHGs like nitrous oxide and sulfur hexafluoride, which have very high global warming potentials. When it comes to carbon dioxide, the dominant GHG, energy-efficiency-based reductions have been popular. Energy efficiency often pays for itself in reduced energy costs.
Carbon offsets and green energy procurement have also been popular among many companies. However, both of these activities have been criticized by many observers as often being little more than greenwashing. There is some validity to the criticism; carbon offsets often have not been “additional,” and therefore have not resulted in real reductions. Green energy procurement has to date been dominated by the purchase of Renewable Energy Certificates, but there is no evidence that voluntary REC purchases have led to the generation of more renewable energy, a necessary element of any climate change benefit. On the positive side, the growing tendency of companies to directly contract for power from new renewable energy projects may make green energy procurement more climatemeaningful.
Even under the best of circumstances, detecting voluntary corporate emissions reductions against the backdrop of national and global emissions statistics is difficult if not impossible. Even in aggregate, the scale of voluntary emissions reductions is no match for global emissions statistics, or the level of reductions required to shift climate change outcomes. Moreover, voluntarily reported reductions are prone to double-counting, and claimed reductions may have simply shifted from one company’s footprint to another’s. Intensity-based targets are even trickier; companies can achieve their emissions targets even while their absolute GHG emissions increase. Science-based targets have the strongest conceptual link to shifting climate change outcomes, but only a small fraction of companies are likely to ever adopt such aggressive goals.
There remains no standardized metric for carrying out or disclosing climate risk assessments, a growing component of corporate climate response portfolios. Efforts such as those that the Task Force on Climate-Related Financial Disclosures and other organizations are pursuing could develop such metrics, but climate risk is slippery. Different companies even in the same sector can plausibly arrive at very different climate risk conclusions — to some extent, risk is in the eye of the beholder. And like footprinting, climate risk assessment and disclosure per se generally don’t lead to significant emissions reductions, or alternative climate change outcomes.
In the absence of critically needed societal carbon pricing, more companies are implementing internal prices as part of their climate response portfolios. Internal carbon pricing can raise funds to pay for energy efficiency or carbon offsets, can hedge against the risk of future societal carbon pricing, or can express support for a societal carbon price. It’s difficult, however, to link internal carbon pricing to climate change outcomes. Much like science-based targets, if all companies internalized sufficiently high carbon prices, emissions would fall dramatically. But the literature suggests that pricing of $100 to $300 per ton of CO2 equivalent would be necessary, and few companies could do that without putting themselves at significant competitive disadvantage.
Experts generally agree that it is hard to envision a scenario in which we avoid dangerous climate change without implementing a wide diversity of public policies. As part of corporate climate response portfolios today, however, we rarely see corporate climate policy advocacy going beyond vague “calls for action.” Influence-Map, an organization that scores corporate climate policy advocacy, gives out very few A grades. To influence future climate outcomes, companies could play a much more active role in advocating for policies and measures that would create a business decisionmaking environment conducive to substantially reduced emissions and an accelerated low-carbon transition.
Finally, there are other ways in which companies can engage on climate change. Demonstrating low-carbon technologies that don’t yet make business sense, promoting customer and employee climate literacy and action, and encouraging behavior change and shifts towards a circular economy can all contribute to climate change mitigation objectives. But again, it is difficult to scale such efforts to the point of having significant influence on climate change outcomes.
The bottom line is that many companies are engaged in a wide range of initiatives with the goal of lessening their climate footprints, and in some cases advocating for stronger policy action. But there is little evidence that such efforts are influencing climate change outcomes. Is that changing? Could it change in the future? A lot depends on how companies see their role in mitigating climate change.
Assessing potential changes in business’s response to climate change is complicated, since we don’t know what industry decisionmakers actually think about global warming. There are plenty of anecdotes. But no one has ever tried to survey business decisionmakers in the way, for example, the Yale Project on Climate Communications surveys the American public to track the “Six Americas.” The Six Americas reflects the distribution of public views on climate change, from individuals alarmed at one end of the distribution, to individuals dismissive at the other.
An analogous distribution of thinking about climate change must exist for corporate decisionmakers, not in their individual capacities (which is covered by Yale’s Six Americas work), but in their capacities as business decisionmakers. Do they see climate change as a business issue worth their attention? If so, is it an “optional” corporate social responsibility issue or a “material” business risk management issue? What constitutes a prudent business response to climate change in the absence of regulatory mandates? How should societal and shareholder interests be balanced?
Let’s hypothesize the existence of Six Business Americas and their decisionmakers who affect corporate climate policies. At one end of the distribution are energy-sector Business America 1 decisionmakers who may see climate policy as a business risk in its own right. Business America 2 decisionmakers simply haven’t thought much about climate change in a business context. Business America 3 decisionmakers approach climate change through a conventional CSR frame, while Business America 4 decisionmakers approach climate change through a conventional risk-management frame. Business America 5 decisionmakers would welcome efforts to accelerate a low-carbon transition because their companies would benefit. Finally, Business America 6 officials see their companies as being on the front lines of societal efforts to tackle climate change.
There are, of course, overlaps with this hypothetical set of decisionmakers across the six Business Americas. GHG footprints are being reported across all six, and companies in several Business Americas are establishing emissions targets and disclosing climate risks. Companies in several of the Business Americas (even Business America 1) have signed expressions of support for government action on climate change, including carbon pricing. But interpreting those statements can be tricky. Corporate decisionmakers signing calls for carbon pricing are almost certainly not envisioning the up to $300 per ton that the low carbon transition literature suggests is necessary.
And then there’s the possibility that decisionmakers are simply covering all their bases. As one Business America 1 CEO noted quietly after giving a speech supporting the need for climate policy: “I can say whatever I want because it will never happen.” And as an analysis by the Union of Concerned Scientists has pointed out, it’s not uncommon for companies to advocate for climate-related actions while their trade associations are doing just the opposite.
Only Business America 6 decisionmakers are likely to make policy advocacy and other highvisibility climate initiatives a high priority. Business America 6 companies recognize that company-specific initiatives are a far cry from sector or economy-wide policies and measures when it comes to influencing future climate change. They see climate change not as just a corporate social responsibility issue, and not even as just a business risk management issue, but as a critical societal challenge that can only be tackled with all hands on deck.
Based on 25 years of working with companies on climate change, I would hypothesize the following distribution of decisionmakers across the Six Business Americas.
Business America 1 (climate policy as risk) is modest in size but is the most politically powerful. Business America 2 (not engaged) is very large beyond the bounds of Fortune 100 and S&P 500 companies. Business America 3 (CSR frame) is also a large group, and has dominated the business climate response for most of the last 30 years. Business America 4 (risk frame) is small but growing as the business risks of climate change become more obvious. Business America 5 (climate policy as opportunity) is sizable but not necessarily politically active. Business America 6 (business stepping up) is small but increasingly vocal.
Note that I’ve framed the Business Americas in decisionmaker rather than company terms; individual companies often include decisionmakers representing multiple Business Americas. A company’s climate response portfolio will depend on which Business America dominates the internal conversation.
If my hypothesized distribution of decisionmakers across the Six Business Americas has any relationship to the real world, it makes all the more clear the challenge of “business stepping up” to avoid dangerous climate change.
The numbers just don’t work, especially when it comes to the key topic of climate policy advocacy, the purview primarily of a relatively small Business America 6.
Maybe decisionmakers are shifting from one Business America to another, and perhaps the rate of such shifts can be accelerated. Recent press coverage of the business and climate change conversation might seem to suggest that Business America 6 has somehow become the dominant strain, or close to it. But I have seen nothing other than anecdotes to support such a conclusion, and it would be a difficult shift to explain for at least two reasons.
First, perceiving and responding to climate risks is psychologically challenging. Business decisionmakers are not exempt from that reality. When scientists focus on climate impacts during the period 2050–2100, it is easy to dismiss climate change as a “future problem.” When the media characterizes climate change as highly uncertain, the motivation to act wanes. When climate change is presented as either impossible to solve, or conversely as easy to solve, it drops several notches in our psychic priority list. These are all common framings of the climate change problem.
It’s also the case that consideration of climate risk as a mainstream business issue can be seen as very recent. Yes, business leaders like AES’s Roger Sant were concerned about climate change decades ago. But when Mercer Consulting’s 2011 report “Climate Change Scenarios — Implications for Strategic Asset Allocation” informed business leaders and investors that climate policy risk should be considered real and potentially material, it was widely characterized as pathbreaking in its characterization of business climate risk. Even then, Mercer characterized climate risk as policy risk, suggesting that significant climate change was still decades away. It was just a few years later, however, that Mercer Consulting’s “Investing in a Time of Climate Change” (2015) informed business decisionmakers that climate change had arrived decades early and that climate risks should now be seen as potentially business-material. Given this timeline it should hardly come as a surprise that most companies are still coming up to speed on the potential implications of climate change for their operations and business models.
That may help explain why Business Americas 4 (risk frame) and 6 (business stepping up) are still relatively small in size. Another explanation is the difficulty decisionmakers face in shifting from one Business America to another. The CEO of a major electric utility in Business America 3 told me that he didn’t think climate policy would ever negatively affect electric utilities. If it were to happen, however, it wouldn’t be a problem for him individually because all utilities and utility executives would be in the same boat. As a result, he is comfortable staying in Business America 3. A renewable energy leader in Business America 5 noted that his company is doing fine without playing “the climate card,” and that “taking sides” on a topic as politically polarized as climate change might do his company more harm than good. The sustainability lead at a Fortune 100 company, proud of the company’s cutting-edge mitigation technology investments and many other climate initiatives, noted when asked about the role of climate change in the company’s policy advocacy efforts, “That’s outside the scope of those of us working on climate change and sustainability.”
Business America 6 decisionmakers often report a personal experience or epiphany that moved them into that column. This is perhaps best represented by carpet supplier Interface founder Ray Anderson’s recollection of his “spear to the chest moment” upon reading Paul Hawken’s The Ecology of Commerce. We’re likely to see more such epiphanies, but we’re also likely to see Business Americas 4 and 6 grow at the expense of the other Business Americas as the mass of business riskrelevant information works its way through corporate enterprise risk and scenario planning processes. More business decisionmakers will come to see unconstrained climate change as incompatible with business risk management objectives. They will see business adaptation efforts as insufficient in the face of dangerous climate change, and will recognize that the only way to really limit climate-relevant business risks is to limit climate change. In combination that will lead to a growing policy advocacy role for business, and significant growth in Business America 6.
The business community is critical to tackling climate change, but not because it’s going to succeed on its own. Many other communities have to be involved as well, including states, local governments, cities, and religious leaders. Business by itself is not in a position to “step up” quickly in ways likely to significantly influence climate change outcomes. Companies could materially influence climate policy conversations, but this probably won’t happen in time to make a big difference to what the United States does under the Paris Agreement, or to prevent the planet from crossing the threshold of dangerous climate change at 2 degrees C. But that doesn’t detract from the importance of the effort, given that we’re currently on track for 3-5 degrees. To that end, it is critical to improve our understanding of the Business Americas and of how to help shift decisionmakers to the Business America 6 model. TEF
LEAD FEATURE ❧ The notion of businesses tackling climate change on their own, for financial reasons or for the public good, is fraught with assumptions that prove false on examination. But companies could still play a much more active role in transitioning to a low-carbon future.