As the wildfires in California and other recent calamities show, climate change has become an emergency in many countries and regions. Still, corporate strategy executives often give it relatively low priority. Why is this so, and what can be done to change it, asks Rafael Ramirez, a professor of practice at the University of Oxford, in this opinion piece. He is the director of the Oxford Scenarios Programme and academic director of the Oxford Networked Strategy Lab.
In January this year, Pacific Gas and Electric declared bankruptcy as sparks from its equipment were found to be the cause of wildfires, and it cannot afford to cover the liabilities which this entails. In October, it cut service to more than a million Californians, again because of wildfires. Commentators have called for the State of California to take over the company. In April the U.S. Air Force requested $5 billion to repair two airbases in Florida and Nebraska hit by a hurricane and flooding. Climate change enhances the severity and frequency of such events, and is now a big issue, economically and politically.
It is not as if this is a new phenomenon; it has been around for all of my life. When I was born, atmospheric CO2 parts per million in the earth’s atmosphere were 23% lower than they are today. The stock of carbon, which has built up since, will have severe consequences for companies and society — and indeed, life — up to at least 2050, even if magically the emission of carbon dioxide were reduced to zero overnight. Some 300 million people risk flooding by 2050.
In mid-February 2019, I got an email from a private association of several dozen senior corporate strategy vice presidents which reported that in a survey they carried out, 41 respondents placed sustainability and ESG eleventh out of the 12 priorities they could choose from. Only one respondent put it as their first priority; and only seven put it among the top five.
How is it that corporate strategists are not taking as a high priority what has become a ‘climate emergency’ in many cities, regions, and countries and universities? To their credit, the association invited me to speak with about a dozen members on this matter. I here report what I learned on what may be required to move climate change higher up the to-do list of corporate strategists.
Agenda for Climate Change
Many different actors are setting the agenda for climate change action — not the vast company strategists. They include the military, which considers climate change a national security challenge. They also include religions, which sometimes influence pension funds and other investors – for example, the coalition of investors, led by the Church of England Pension Board and Swedish pension fund AP7, has written to 55 European corporations about their possibly hypocritical approach to climate lobbying. Regulators are also setting the pace by which firms abide to climate imperatives; and if they do not, litigators might well do so. Of course, for years scientists — such as those in the Inter-Governmental Panel on Climate Change — have raised the issue and its urgency; as have environmentalists such as Greenpeace, and others in civil society. The media, too, has relayed, explored, and communicated climate change, whether it is through films such as those by David Attenborough or Al Gore, or through in-depth exposes on rising sea levels.
Reacting to outside forces as interpreted by others is not the best way to strategize, and this, too, applies to climate change. As a colleague working on labour standards conveyed:
“I was just talking with someone from an NGO that pressures firms around labour standards in their supply chain. The managers didn’t have any sense of what to prioritize because they were under-resourced and couldn’t think for themselves. So they just reacted to the NGOs, trying to do what they could to score highly on external rankings. This might work in the short run, but it closes the door to innovation and experimentation. And when NGOs change their mind, that leaves the firm scrambling. Might a bit more attention allow firms to be less reactive and create more robust strategies?”
Inside the Corporation
So, what is the situation within companies? Here, too, functions and departments other than strategists often set the agenda for the executive team on what to do about the climate. These include risk managers and their suppliers; and lawyers and the concerns they raise about uninsured (and increasingly, uninsurable) risks and liabilities, such as those that drove Pacific Gas and Electric into Chapter 11. Human Resources departments will need to determine the policy they take when employees join climate strikes, The Financial Times reported in July 2019. And many corporations now have CSR and sustainability units, but in many cases, Finance or Investor Relations trump their calls for action. Or sometimes – here we come – the responsibility rests with Strategy.
“Many different actors are setting the agenda for climate change action — not the vast company strategists.”
So Where Is Strategy?
Strategists do seem to make a difference in matters concerning climate change when working in cities such as Rotterdam or New York, so the issue of why corporate strategists are not driving the agenda may not be strategy itself, but its role in the company, and indeed, in business education.
In the Academy of Management Conference held in Boston in August, David Collis reported that strategy was the least well-evaluated course in the Harvard MBA. Moreover, strategy is no longer a required course in the Stanford MBA. Might this be because concentrating on competitive strategy is not what strategy as taught in business schools ought to be dedicated to? When Alliance Bernstein, a U.S. fund manager, sent its executives to learn about climate to Columbia University, it was not the business school they attended.
Here are some reasons why strategists in corporations may not be driving their climate change agendas — and the corresponding initiatives they might undertake to redress the situation.
What Corporate Strategists Should Do
Maybe corporate strategists work on time horizons that are too short; that is what The Economist suggested in August 2019:
“A rise (in sea levels) which seems precipitous to Earth scientists remains well beyond the planning horizons of most businesses: even utilities rarely take a century-long perspective.”
If so, maybe corporate HQ’s ought to merge their sustainability and strategy functions.
Maybe corporate strategists are too insular, cut off from other functions and counterparts. The ‘opening’ of strategy, which Oxford professor Richard Whittington reports is on the rise, may not be opening as quickly as it should. If so, more stakeholders need to be invited into strategizing than is the case today.
“Maybe corporate strategists are too insular, cut off from other functions and counterparts.”
Perhaps strategists are failing to convene a sufficiently courageous set of strategic conversations? If so, they might find it wise to test their portfolios for 2, 3, 5 centigrade contexts (which may come far sooner than expected). Or maybe they could assess how their companies will deal with flooded coastlines and/or lack of water in the basins where they (or their suppliers or customers or partners) operate.
In 2008, Nordqvist and Melin suggested that individual “strategic planning champions” succeed if they master three related roles, in addition to the obvious two of strategic thinker and analytic planner: that of (a) “social craft-person” (i.e., being able to read politics and tensions to obtain results), of (b) “artful interpreter” (i.e., adapting practices to fit local specific cultural and professional situations), and of (c) “known stranger” (i.e., balancing closeness and distance to other actors involved in strategic planning).
If so, to engage with climate, strategists would be expected to:
Broaden the tensions they bring in – bringing in more diverse and more difficult tensions into the strategic conversation, strategizing with other corporate functions, and not for or against them;
Widen the set of practices they deploy in strategizing, including scenario planning to get sustainability and strategy to disagree with each other constructively; and
Work on the context of, and not only on, their company’s options – actively seeking to engage and even bring in what economists have hitherto considered externalities, to avoid the common goods upon which they depend becoming tragically extinct. Here they may have to get collaborative strategy to frame competitive strategy– or avoid doing so at their peril.