Challenges in Corporate Innovation for Climate Change

1. Challenges in Corporate Innovation for Climate Change PRME/CBS International Conference on Responsible Management Education: Sustainable Leadership in the Era of Climate Change

2. Introducing business and climate change • “Applied Materials in solar strategy” • (Financial Times, 6 September 2006) • “Daimler and RWE in pilot e-car pairing in Germany” • (Financial Times, 6 September 2008) • “BP seeks low-carbon payback” • (Financial Times, 28 February 2008) • “Shell dumps wind, solar and hydro power in favour of biofuels” • (Guardian, 17 March 2009)

3. Climate change and innovation • Much attention for role of business in tackling climate change • Focus on development of a global carbon market • But to what extent is it also driving innovation in firms? • Complexity of innovating for climate change: • High risk of making irreversible green mistakes • Firms face a complex context of continuously changing climate policies in various regions/countries, creating a high level of uncertainty • A low-carbon economy means competitive reconfiguration of the most powerful industries, i.e. those that supply fossil fuels and/or have products that demand massive amounts of fossil fuels

4. Technological Change Sociotechnical System Technology development or deployment Niche development or hybridization Cooperation or competition Complementary Capabilities Aim of presentation • Explore key issues related to innovating for climate change, using different lenses on technological trajectories, markets and capabilities

5. Picking winners: technology development or deployment • Disagreement about technological trajectory to tackle climate change • Major investment in (government-led) R&D programmes and international cooperation in fundamental and applied research • Scaling up technologies based on existing know-how (stabilisation wedges) • Strike balance between technology development and deployment • Due to policy uncertainty timing of R&D investments is difficult • Not investing in R&D now most risky for companies in technologically dynamic environment (time compression diseconomies)

6. Further develop the fuel cell vehicle?

7. Stabilization wedges in the car industry Source: Adapted from Pacala and Socolow (2004)

8. Making the transition: niche development or hybridization • How do companies choose to bring the innovation to the market • Directly develop carbon-free technologies which fit a non-fossil fuel-based scenario focussing on niche markets • Bring innovation to the market as an add-on element to existing products in mainstream markets (transition technologies) Strike balance between niche or mainstream market • Ability to use existing infrastructure and the product and brand reputation facilitates reaching critical mass necessary to serve mainstream markets • Asset mass efficiencies will only materialize if the innovation has a considerable degree of complementarity with the existing asset stock

9. Maybe the business model is more important than the technology itself? • Grid-connected solar power • Off-grid solar power

10. Organizational scope: cooperation or competition • How far will companies go when they need responses from others to achieve a positive outcome • Collaboration for knowledge-seeking and risk-sharing • To what extent will the innovation contribute to their competitive advantage and not to those of others Strike balance between cooperation and competition • If complementary assets are specific, they are affected less by policy uncertainty and buffered from entailing technological change • If complementary assets are generic, companies will need to ensure appropriation of the innovation by cooperation

11. What role can partnerships play? • Just to lobby policymakers? • Or large-scale commercialization • of cleantech?

12. Conclusions • Besides these challenges broader issues need to be taken into account in the discussion on future solutions and approaches to address climate change as well: • Systemic climate solutions that require cooperation between private and public partners, both profit and non-profit appear necessary • Role of consumers in tackling climate change should become clearer as well • Firms should take note of trade-offs between issues; not only climate change matters, but also poverty alleviation and sustainable development more broadly

13. Further information • Pinkse, J. & Kolk, A. (2009) • International Business • and Global Climate Change • London: Routledge • j.m.pinkse@uva.nl