Stop Teaching Students to Equate GHG Emissions Reductions with Business Risk Management

button shows three levels of risk management

There is a fascinating business and climate change resource at Harvard Business School’s Digital Initiative website. In November 2016, Business School students faced an interesting assignment. Although few details are provided, they had to select a company whose business model was likely to be affected by climate change, describe that impact, and discuss what the company should do about it.

There are more than 900 posts on the site. The result is a uniquely broad overview of potential business impacts of climate change. Student posts were limited to fewer than 800 words, and certainly not all posts are particularly insightful; but the posts reflect thousands of hours of research and writing.

This collection does not exist anywhere other than on the Digital Initiative site, so chances are you’ll never see these posts unless you physically scroll through them at the Harvard website. There is no method to how they are organized. That’s why we’ve collected a couple hundred of the posts here in the Climate Web, partially to support a Climate Web BETA feature listing hundreds of climate change impacts in one place as part of an effort to explore the idea of decision-making “actionable knowledge.”

I’m not going to focus on the company-specific aspects of the posts. Instead, I will make some observations about general themes. What’s most notable is the stunningly narrow frame through which students almost universally approached the task of assessing and responding to business climate risks. I can’t claim to have read every post word for word, so it’s certainly possible I missed some posts that don’t fit with the observations I provide below — but not many.

Observation 1: Carbon Footprints                                            

Almost every post focuses on a company’s carbon footprint and the importance of emissions reductions as being at the core of a company’s climate change risk management strategy. There is no discussion of the assumptions underlying any equating of emissions reductions as representing either corporate social responsibility or risk management:

  • Will a company’s emissions reductions have any impact on the physical risks that climate change poses to that company? The short answer is no.
  • Will voluntary emissions reductions in aggregate have a significant impact on the physical risks climate change poses to individual companies? The short answer is “almost certainly not.”
  • Will a company’s emissions reductions, or reduced emissions intensity, significantly reduce the company’s potential financial and policy risks, e.g. through future carbon pricing? The short answer is “possibly,” but it’s a context-specific question. As at least one post noted, companies could just as easily create problems for themselves by reducing emissions too early, only to face draconian emission reduction mandates later based on the company’s reduced emissions as a baseline.
  • Do carbon footprints and emissions reductions statistics tell investors much about companies’ climate risk profiles? Although it may sound heretical, the short answer is no. The long answer is again context-specific. It has to account for the business sector, for what other companies in that sector are doing, for what is assumed about the magnitude of a future carbon price (or other policies and measures), and the ability of the company and sector to pass a future carbon price through to consumers.

Just to be clear, I am not suggesting that companies should not track their carbon footprints or undertake to reduce emissions. I worked on the first carbon footprints and corporate emissions reduction strategies more than 25 years ago, and I know that we tend to only pay attention to what we measure. Footprint analysis and emissions reductions are increasingly integral to the social contract between companies and society, so they can’t be ignored.

That is a far cry, however, from suggesting that emissions reductions are key to business risk management. While there is a clear causal relationship between aggregate societal emissions of greenhouse gases and societal climate risks, that relationship is much more ambiguous at the level of individual company emissions and climate risks.

Observation 2: Role of Climate Policy

While some posts talk about how climate policies and measures may create their own business impacts that companies will have to address, there is virtually no discussion of:

  • The necessary role of public policies in successfully tackling climate change.
  • The role companies can play in promoting climate policies.
  • Including the opportunities companies have through customers and employees to inform the public about climate risks and the need for public policies.

Observation 3: Systemic Risk

There is no discussion in the posts of growing concerns over systemic financial risks associated with climate change. The expanding climate systemic risk literature suggests that companies are not able to significantly hedge against systemic climate risks, and that the only way to significantly reduce those systemic risks is to limit climate change. This, in turn, requires public policy.

Observation 4: Adaptation Limits

Most posts discuss how companies already are adapting to (or are planning to adapt) to the impacts of climate change. But there is virtually no discussion of the limits to adaptation efforts. Anything much beyond 2oC of average global temperature change will generate dramatic climate change impacts, and perhaps equally draconian policy responses, leading to the collapse of many of the business models discussed in the posts. Unfortunately, we’re on track for much more than 2oC.

Where Are We With Carbon Accounting?

I helped launch the field of carbon of carbon accounting more than 25 years ago. I am increasingly struck by how it has evolved over that time. A lot of carbon accounting today is equivalent to trying to calculate on the 15th of April, 1912, how much water each passenger would have to bail to refloat the Titanic — mathematically interesting, perhaps, but not particularly relevant. The Titanic’s passengers were never going to save the ship by bailing, and companies today are not going to manage their climate risks by relying on carbon footprint analysis and voluntary emissions reduction strategies. We should stop teaching students that they can.

I applaud the effort of the students who helped produce the collection of 900+ posts. I wonder, however, how they ended up looking at the business and climate change conversation so narrowly. It suggests a failure in helping students to think seriously about the complex interplays between business and climate change. Climate risk educators and communicators clearly need to do better.

 

Leave me your comment below…what do you think about my observations or the students’ posts? I would be interested to hear what people think!

Reposted from Dr. Trexler’s post on LinkedIn.

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