Of the many issues billed as the defining challenges of our times, climate change is among those having the strongest claim. The science is as settled as any in the modern canon: Credible climate scientists are near-unanimous in concluding that human activity is changing the earth’s climate in ways that threaten the natural environment and civilization itself.
Given the stakes, every actor has a responsibility to do what they can to check climate change and adapt to a changed planet, a fact more companies are embracing as they look to embed a broader sense of purpose in their activities. Companies’ stakeholders, from consumers and employees to lenders and communities, are increasingly demanding action. The regulatory environment is likely to grow only more stringent going forward. The climate-related risks to operations and supply chains and facilities and workers compound as we experience record heat and unprecedented flooding.
Most fundamentally, unchecked climate change can jeopardize enterprises’ stock of social and natural capital. Going forward, a company’s societal “license to operate” will likely be contingent, in part, on it being a responsible steward of the earth.
Being a good steward and averting a disaster of our own making requires us to rethink many of the orthodoxies we have long taken for granted. Encouragingly, the COVID-19 pandemic has illustrated, in dramatic fashion, that many of the constraints we thought were binding—about how and where and when work gets done, and to what ends—were far more malleable than we believed. And we increasingly see a business community ready to act quickly to mitigate, adapt to, and create new value amid climate change, with bold initiatives being announced seemingly weekly.
Takeaways from these examples aren’t necessarily obvious, though. What should your company do? It’s easy to argue that we need to devote all available resources and energies to mitigating the climate crisis—after all, “There is no wealth on a dead planet,” as one climate protestor observed. At the same time—and to be just as hyperbolic—what good is saving the planet if everyone dies in the process? Finding a realistic and effective response in the infinite yet bounded space between “everything” and “nothing” remains a challenge for the business community. We do not lack for resources, tools, or cleverness. What is missing is a set of new decision-making paradigms suited to such an unprecedented challenge.
And so, for those leaders prepared to act but struggling to determine how best to proceed, we suggest a new way of thinking about how business can address climate change.
Climate change and the business community
This article accepts the scientific consensus of anthropogenic climate change. In short, the release of greenhouse gases (GHG) into the atmosphere due to the burning of fossil fuels has led to a rapid (in geologic terms) increase in average surface temperatures. We are already locked into a warmer climate, and absent rapid reductions in the emission of carbon dioxide, methane, and other heat-trapping gases, we will see further warming. Increasing flooding, food shortages, extreme heat, wildfires, and other developments are already proving calamitous for millions of people worldwide. Businesses are hardly immune to this pain: A group of nearly 7,000 companies reporting to the Climate Disclosure Project estimated they faced nearly US$1 trillion in climate change-related risks, many of which they assessed were highly likely to occur—and would affect them in the next several years. And a diverse group of stakeholders—from consumers and employees to financiers and activists—is increasingly pressuring businesses to act.
As the causes and consequences of global warming have grown clearer and pressure from a variety of sources has increased, businesses have begun responding across three (not mutually exclusive) dimensions: mitigation, adaptation, and value creation.
By Michael Raynor & Derek Pankratz