Business Response to Climate Change 

By Cyrille Jegu and David Sutton

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Business response to climate change varies greatly. Some businesses don’t even acknowledge the existence of climate change and therefore the necessity to do anything about it. Others acknowledge it, but do nothing about it either because they don’t really take it seriously, they are focused on short-term issues, they wait for someone else (usually their government) to tell them what to do or because they don’t know what to do about it. Few others have understood the potential threat to their business and are starting to do something about it in a piece-meal fashion. Even fewer organizations still, have fully grasped the potential threats posed by climate change, as well as the opportunities to change the way they do business and are working towards a symbiotic business model; one that respects the laws of nature and contributes to the growth of society and the health of the environment. These organizations do not wait for government regulations. They do not wait for markets to be in place, they lead and create new markets for themselves, they grow but not at the expense of society or the environment. 

 

Climate change: a symptom of a system in crisis 

It is difficult for businesses to assess their preparedness when the climate change debate is really focused on Green House Gases (GHG) and little else. Climate change is only the symptom of deep-rooted systemic issues. Dealing with climate change seriously, strategically and systematically means looking at the roots of the issues, not just the symptoms. The complexity of the problem makes it difficult indeed to grasp the magnitude of the changes required to address the problems at their cores.  However, businesses can and should take a systemic approach to resolving the issues at their roots, solving several inter-related issues at once. Only a handful of approaches can deal with such complexity, the Framework for Strategic Sustainable Development developed by The Natural Step is one with a degree of proven success.

To address the problems of today, of which climate change is one of many along with deforestation, toxic wastes, air, water, land and food pollution, loss of biodiversity, etc… (which, by the way, are all connected) a systemic approach is essential. Businesses therefore need to understand the system within which they operate. The environment and society are not issues for business; they are the context within which businesses operate. In business language, if you consider who provides the ‘real’ capital (natural and human), it means that business is a wholly owned subsidiary of society, which is itself a wholly owned subsidiary of the environment, not the other way round. By reframing the context, the necessity to follow natural laws within their limits, and to re-evaluate the purpose of business in society, becomes compelling.  

Everything is connected. Hundreds of millions of people have no access to drinkable water, they wake up everyday not knowing whether they will have enough to get through the day, let alone tomorrow. At the same time, industrialized nations are consuming resources at a staggering rate. Some chose to get a gym membership for $2 a day, others have to live with less than $2 a day. How can we be content when the excess of some seem limitless while the fundamental needs of others are not satisfied?

How can we deal with climate change and environmental degradation if we don’t tackle poverty, malnutrition, easily curable infectious diseases, corruption, crime, access to education and health-care, etc… How can we look after our planet, if we cannot look after each other? 

We have a chance to solve the current climate crisis if, for a while at least, we look at what is wrong with the current economic and social systems. Ervin Lazlo clearly makes the point by saying that “…the whole system is structurally unsustainable… it has to be transformed. It can’t be patched up.”  Everything is connected and yet we keep looking at each symptom/problem in isolation.  

 

While the responses required to address these crises might be complex and difficult, an understanding of their root causes is quite clear.  The simple fact is that much, if not most human activity (industrial and otherwise) is at odds with the fundamental operations of the natural systems that support us, and all our activities.

 

There is a set of laws that business needn’t wait to be written to influence their enterprises, they are the Laws of Nature.  There is virtually universal agreement on the parameters set by our Earth’s natural life-support systems. 

All systems on earth are ultimately powered by the energy of the sun.  A constant input of solar energy drives all life’s processes as well as the global physical forces that maintain the land, oceans and atmosphere that harbor life.

With respect to matter, the earth is a closed system.  There is a finite amount of physical resources at our disposal.

Living systems sustain themselves by accessing the constant flow of incoming solar energy and circulating the material resources they need through grand closed looped cycles of use and reuse.

These are the systemic parameters within which all sustainable practices must ultimately exist.

Based on the false assumptions of unlimited natural resources to draw from, unlimited ecosystem services to support us and unlimited places to put our wastes, human society has evolved linear economic systems that takes natural resources, makes products and then disposes of them as waste when they are no longer useful to us.  Sooner or later, in a finite world, this one-way industrial process must end.  There is a limit to resources available as well as the capacity for the earth’s life-support systems to absorb the impact.  The myriad of environmental problems we are experiencing today are a manifestation of reaching these limits. 

Global warming and consequent climatic changes are a clear result of global imbalances (on the land, in the atmosphere and oceans) created by human industrial processes. The ever-accelerating burning of fossil fuels, deforestation and the secondary effects of increasing ocean acidity, melting ice and permafrost have created a crisis of epoch proportions.  At the very least, an immediate business response needs to be the systematic reduction of green house gases emissions from its operations.   They need to focus on the efficiency of their energy use, the capture of resultant emissions and the replacement of fossil fuel resources with renewable non-emitting energy resources.

Responsible but not Accountable, yet! 

Business, and its addictions to fossil fuel, to short term gains, to market dominance, amongst other less than constructive attributes, is very much responsible for the climate crisis we are currently facing and our children and grand-children will face. But are they held accountable? How many businesses, and their leaders, have been held accountable for the environmental and human degradation they have caused while doing business and making money for their shareholders? Was anyone put in jail for disregarding environmental legislation?  

When I was studying economics in a business school several years ago, I was given an exercise to calculate the viability of an investment for pollution control equipment considering the potential fine. I guess if a jail term had been included in the equation in case of non-compliance, it would have been a much easier problem to answer. My guess is that Union Carbide made that kind of calculation for their factory in Bhopal. We know too well the consequences for the local population, and the lack of consequences for those responsible. 

In 1999, Ray Anderson, Founder and CEO of Interface Inc., said during an interview: “one day people like me will go to jail”. This remark generated a shock wave in the business community. He went on to say: “ if stealing is a crime, stealing our children’s future must be a crime too”.  The concept of limited liability is certainly very helpful for companies, their leaders and shareholders. 

We know the effect that human activities (industrial or otherwise) have on the climate. The Environmental, Social, Financial, and Moral crises we are currently experiencing call for drastic actions, while negotiations take place in Copenhagen.  Business can choose to be part of the problem and wait for regulators to tell them how much they are ‘allowed’ to pollute OR business can choose to be part of the solutions, be proactive in not just reducing its negative impact on the environment and society, but actually having a positive impact.  

A couple of months ago, I was asked at a CSR conference to define a sustainable business, here is what I said: “A sustainable business is one that contributes to the fulfillment of human needs, and does so profitably within the limits and capacity of the environment (natural and social) within which it operates.” 

Long gone are the days of the first corporations in America where communities had the power to give, but also to withdraw, a license to operate to any company operating under their jurisdiction. It is time to re-think the institutions upon which we have built our destructive civilization over the past 200 or so years. Time to rethink our governance structure so business is held accountable and our accounting systems so we count the right things.  Time to re-evaluate our taxation system so we don’t Tax the Value Added but the Value (resources) Thrown Away. 

It is time to consider the climate crisis as an opportunity to re-invent our civilization, and business has a fundamental role to play in this necessary revolution. 
 

 

 

 

 

 

 

Are Businesses Leaders or Followers? 

Today some businesses are so large they are bigger, in term of revenue and impact on the planet and climate, than some countries and although they have no direct representation in Copenhagen, they strongly influence the direction that many governments take.

Business and its leaders often complain about ever increasing and constraining regulation, always arguing for leaving market forces to take their course.  In this time of many crises, market forces have proven to be the problem rather than the solution. Whilst I agree that too much regulation tends to hinder innovation and entrepreneurship, I also believe that too little of it leads to where we are now. I am not suggesting that there isn’t enough regulation; I am saying that the current regulation is misguided.  Regulations based on arbitrary rules don’t work; this has been proven time and time again. Principles based regulation, with the adequate accountability and deterrents would be a much more effective way to ensure responsible behaviours are observed.  

Today many businesses are against a carbon tax. The stigma that surrounds the word ‘tax’ makes that position quite understandable, especially if it is in addition to the existing taxes. But what is the alternative? A Cap and Trade Carbon Market? I invite you to take a look at the following short video http://www.storyofstuff.com/capandtrade/.  It is not the usual academic piece of research but it certainly makes a point. Good or bad is for you to decide.  

Some companies however, have decided not to wait for a hypothetical treaty, new regulations or taxes or anything else for that matter. They just decided to do it, to change the drivers of their business:

·     Shared values not just value of shares;

·     Be market disruptive instead of nature destructive;

·     Follow the laws of nature instead of systematically breaking them;

·     Create, innovate, re-invent instead of destroy, monopolise and lobby for status quo;

·     Borrow, use, return instead of take, make, waste;

·     Fulfill the needs of many instead of the greed of a few;

·     Human & natural capital growth not just turnover growth;

·     Etc…

 

These businesses are as competitive as any other businesses, and they tend to perform better too, but what set them apart is not only what they do but also how they do it. The opportunities for these businesses are endless.

The aforementioned Ray Anderson of Interface Inc. did not wait for International Conventions to be formed, fees and taxes (and jail terms) to be levied or incentives to be developed; he made a moral commitment to take another path in his business.  He decided to harvest the innovation and ultimate profitability of taking a path towards sustainability. (see Mid-Course Correction: Toward a Sustainable Enterprise: The Interface Model, Ray C. Anderson, Chelsea Green Publishing, 1998). 

Interface is into its thirteenth year of pursuing its ‘Mission ø’, where it has pledged to eliminate any negative impact it will have on the environment by the year 2020.  Since 1996, it has reduced the water intake to produce their carpet by 80%.  It has reduced the amount of waste sent to landfill by 70% in the same period.  Through improved efficiencies and renewable energy use it has reduced its energy use by 45% and greenhouse gas emissions by 71%.  In addition to this, they have instituted a carbon offset program to compensate for all of their air travel – three trees are planted for each ton of carbon dioxide generated in their air travel – Since 1997, Interface has sponsored the planting of more than 62,000 trees.

Interface is committed by 2020 to operate all manufacturing, sales and office facilities with renewable fuels and electricity.  Their facilities in North America and Europe operate now with 100% renewable electricity.

It is a happy consequence that Interface has enhanced its profitability and competitive edge by doing what it has done.  But it is important to note that that is not why Ray Anderson did it.  He did it because his conscience compelled him to, because of the moral obligation he felt for leaving a better world for his and everybody else’s grandchildren.

The size of the problem equals the size of the opportunity 

In order to try and dampen the effects of climate change, the scientific community seems to agree that green house gases emissions have to be reduced by 80% by 2050. I personally think that we’ve got to do it before that, and I also believe we can do it before 2050 if we put our minds to it.

 

Business being responsible for a large portion of the emissions today, needs to launch a significant effort and dramatic shift away from current fossil fuel dependency. But above all there needs to be a paradigm shift in the way business views and treats waste. If Business was counting the true cost of waste, and shareholders could actually see it on the balance sheets, they would be much more focused on reducing or even eliminating it.  But what is waste? William McDonough and Michael Braungart have defined waste as ‘food’. For Ray Anderson’s Interface Inc, waste is “everything that does not add value to the customer”.  Interface has saved over US$400 million through reducing its waste and avoided cost since they started their journey 13 years ago. These millions could have gone straight to the bottom line, but it was and is still use to pay for the other investments made by the company towards its ‘Mission ø’ goals, which will generate yet bigger returns for the environment, society, the company itself and its shareholders.

 

As Amory Lovins of the Rocky Mountains Institute said of Interface, “If they can do it, it must be possible! If they can do it (being a oil intensive business), anybody can do it! And if anybody can do it, everybody should do it!”  This is reinforced by what Al Gore is fond of saying, “ We have the means to change, all we need is the will.” While William McDonough more forcefully highlights our collective responsibility by saying: “Negligence begins tomorrow, because now we know what to do.”  We think negligence started some time ago.

While Interface and others are doing a remarkable job they are only addressing the needs of a few. There are an estimated 4.5 billion people (and growing) who, today do not have their basic fundamental needs fulfilled and are most likely to suffer from the effects of climate change. Already, it is estimated that there are 25 millions Climate refugees, and this number is unlikely to go down anytime soon.

 

While these needy billions may represent the largest untapped market in the world, they have little, if any purchasing power and are thusly completely un-served by business and a consumer economy.  Bjørn Lomborg reminds us of the fact that “Environmental concern is still very much a First World concern. Most of the world is still pretty worried about the fact that their kids can die from easily curable infectious diseases.” This has to change. The need for supply of clean water, sanitation, affordable medicine, clean power, education, food, communication, etc… opens mind blowing opportunities to do well while doing good, that is to say, while doing differently.

Peter Senge, in his book, “The Necessary Revolution,” asks us to consider, “What would a way of thinking, a way of living, and ultimately an economic system look like that worked based on the principles of the larger natural world? And how do we create such a way of living in our organizations and societies, one step at a time?”

The impending global consequences of Climate Change require that we begin to think about this new way of living, a new purpose for business and different way of doing business.  It is businesses like Interface and others like it that are showing us the way, and it is organizations like The Natural Step, the Rocky Mountain Institute and Natural Logic that are telling businesses how. Bit one question remains…

 

Will we have enough leaders in time?