The Most Powerful—Yet Often Overlooked—Tool To Fight Climate Change

Posted on 11/27/19 3:51 PM

Recently, the Harvard-Yale football game was delayed after students and alumni took to the field to protest climate change. Among other things, the students were calling for both schools to divest their endowments from fossil fuel holdings.

This action, one of an increasing number led by students and others concerned with the future of our planet, elevates awareness of the cause. In addition, it is true that institutional investors like college endowments and pension funds have, in the past, been able to affect change on a range of issues. When it comes to climate, however, the devil is in the details.

One of the biggest challenges is that, until very recently, institutional investors lacked access to tools for untangling and interpreting an extremely complex issue—climate impacts—amid complex webs of holdings. And while work on attribution continues and litigation is winding its way through courts, it is not always clear which companies, groups or governments will lead in promulgating solutions; in other words, those who played an outsized role begetting climate change may be in the strongest positions to lead change.

Hence the complex science that is climate risk assessment, and the need for sophisticated modeling tools. Such tools should both transparently model risk as well as map paths to resilience, and thus enable investors to make more informed decisions. Financial risk assessment is key to helping businesses, communities and governments mitigate and adapt to climate change.

The Role of Education

That said, sophisticated financial modeling tools are only a part of the solution. One of the most important tools in the fight against climate change will be education. We envision a generation of workers who are educated, not just about the facts of climate change, but about specific actions they can take to reduce and respond to it. Students in every discipline—from arts to politics—will play a role in affecting change, but one constituency is a particular focus of this article: MBAs.

Companies recognize that they have a responsibility to their shareholders, customers, and employees to understand and manage climate risk. Climate risk management is a rapidly emerging multi-disciplinary, cross-functional capability that is on the precipice of becoming not optional.

Who will lead this work? Today’s MBAs who will be tomorrow’s business leaders. However, Google “What are business schools doing to teach climate change?” and the results are not as comprehensive as one might hope.

One of the main reasons for this is very likely, again, the dearth of tools that to date, have been available to properly assess risk and climate impacts. What gets measured gets managed, but without the ability to measure, one cannot teach the future generation who will be the managers. The Climate Service intends to play a key role in providing the next generation of business leaders with access to the tools they need, and we will share more detail as it emerges. But for now, there is reason to hope, as a number of business schools are turning their attention to this issue.

The Business and Investment Implications of Climate Change

Recently we attended a panel discussion titled “The Business and Investment Implications of Climate Change,” hosted by Duke’s Fuqua School of Business Center for Energy, Development and the Global Environment (EDGE), in partnership with the Center for Sustainable Enterprise at UNC’s Kenan-Flagler Business School.

Though the speakers represented a wide variety of positions and industries—investment (Lee Coker of Fourth Factor Advisors), manufacturing (Holly Emerson of Ingersoll Rand), consumer products (Chelsea Thoumsin of Counter Culture Coffee) and retail (Joby Carlson of Walmart Inc.)—all agreed on one major point: Climate change will impact every industry, every company and every corporate position in years to come.

Many professionals in, for example, supply chain, are already grappling with the impacts of climate change, especially in certain industries. Coffee is an example of a finicky commodity. It is difficult to grow, does well only at a certain latitude and altitude and is very susceptible to weather changes. Finding quality, reliable sources of this and other commodities becomes more challenging as weather patterns change.

"While tough to quantify exactly, I would estimate that already 10-15% of my time in my job is spent on direct and indirect issues relating to climate - whether planning around a delayed or early season, or dealing with quality issues because of environmental shifts,” says Chelsea Thoumsin, Coffee Buyer at Counter Culture Coffee.

These supply chain issues impact the way that organizations contract with farmers (both Walmart and Counter Culture are adjusting contract terms as well as ensuring transparency to support farmers who are facing more uncertainty than ever). They also impact volume projections, and as projections become harder to make, every role is impacted, from operations to finance to marketing and beyond.

Investors and insurers are taking note and are assessing the risk of investing in certain companies and industries, according to Lee Coker of Fourth Factor Advisors. Some industries and areas will feel the bite sooner than others.

On whether insurers will walk away from certain communities… “This is already happening in some places in California. The risk of climate impacts is so great, that certain areas have become uninsurable,” said Coker.

On the positive side, the panelists noted that the pace of change has accelerated. They agreed that companies are reaching a new level of rigor when it comes to addressing climate change, and investors are rapidly elevating their expectations for climate risk assessment.

“We have to address climate change by making bold commitments and taking action. This is how we can help change the world for today and future generations,” said Holly Emerson of Ingersoll Rand.

Encouraging, also, was the audience of business students. They were clearly engaged and asking pointed questions.

Students as Consumers

While sustainability has been a topic in business schools for almost 20 years, the topic of climate change and its business impacts is not one that has made it into the mainstream curriculum in most business schools yet, according to EDGE Managing Director Katie Kross.

The reasons for this are manifold. Schools are structured to primarily teach hard skills like marketing, strategy, and finance; without tools and strategies to effectively project risk, visualize impacts and manage outcomes, hard skills are difficult to teach. A dearth of policy toward climate change also makes tackling the subject tangibly difficult. In addition, business has only recently begun to feel the effects of climate change, so demand for training in this area is still nascent, albeit growing.

“Many of our students care about climate change personally, but to date there have not been enough case studies, risk models, or other business tools to help them make connections to the ways in which climate change will affect their business decision-making in the future,” says Kross.

Undoubtedly more needs to be done to teach the next generation of business leaders how to deal with the most important issue of our time. Kross and others are working on the problem; one recent development has been the launch of the ClimateCAP Summit, an annual event organized by business schools include Duke, UVA, Wharton, Harvard, Stanford, Yale, MIT, London, Michigan, Cornell, UNC, and more.

The pace of progress will depend upon many factors including employer demand, curriculum, and rankings (most major business school rankings are determined by factors like post-graduation salary prospects and faculty publishing, not sustainability). One major driver of change, according to Kross, has been the students themselves:

“The effects of climate change are already happening, and companies realize they must adapt or be left behind; it is a matter of competitive advantage. Similarly, a growing number of students realize climate change will impact their careers, whether they end up in investment banking, consumer goods, or another field.”

“Students want to work for companies that share their values; they want to work for companies who are on top of the issue and won’t be left behind. If you are an MBA student, why would you focus on doing things the old way when you could be part of the solution?”

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