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IS BUSINESS PAYING ATTENTION ?

IS BUSINESS PAYING ATTENTION ?. William B. Ellis Yale School of Forestry and Environmental Studies March 14, 2006. Business has been encouraged for years…. Harvard Business Review (July 2000) Climate change (CC) poses serious risks to “business as usual”

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IS BUSINESS PAYING ATTENTION ?

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  1. IS BUSINESS PAYING ATTENTION? William B. Ellis Yale School of Forestry and Environmental Studies March 14, 2006

  2. Business has been encouraged for years…. Harvard Business Review (July 2000) • Climate change (CC) poses serious risks to “business as usual” • Insurance rates, energy taxes, asset values, regulations • Presents opportunities, as well • Renewable and efficiency technologies, reputation • Toyota good example • Uncertainty no excuse for inaction

  3. Many large companies have responded…. BELC at Pew Center on Climate Change, for example, with over 40 members • Acknowledge CC important issue and set emission-reduction goals • Many have met goals—e. g., BP, Shell, Alcoa, DuPont, AEP, IBM, Toyota, Alcan, PG&E, Rio Tinto, UTC

  4. Many large companies have responded…. Ceres (2003) looked at CC-related actions at corporate-board level of 20 companies • Checklist of 14 governance criteria • Review of CC • Statement on CC in SEC filings • Inventory of GHG emissions • Participation in GHG-trading programs • 7 companies met 10 of 14 criteria

  5. Many large companies have responded…. In many cases, response very public • BP • Cinergy/Duke Energy • GE

  6. Long, long way to go…. Appears that overwhelming majority of companies have said little, done less Why do we care? • Most emissions come from industry and its products • Need industry cooperation, effort • Need commitment, political weight

  7. Why are they holding back? Not convinced about climate change? • Justifiable doubts? • Suspicious of messengers? • Politically encouraged to do so? Uncertain about impacts and timing? Believe market and technology will save the day?

  8. Yale CC Conference surfaced several reasons…. Focus on short-term performance • Quarterly earnings • Immediate crises—e. g., competition • Analysts/fund managers rarely ask Concerns about cost • Low returns on CC investments • Lack of customer demand • Regulatory uncertainty • Unaware of opportunities

  9. More reasons…. Undervaluation of risks • Uncertainty of timing/consequences • CC itself vs. market/legal phenomena • Lack of disclosure requirements • Civil liability, shareholder suits Faith in technology, adaptation Lack of political leadership • Political polarization • Negative political pressures

  10. More reasons…. First-mover risk • NGO search for “greenwash” • Politicians • Antagonized customers

  11. Yale Conference proposals…. Promote and apply eight Principles for Corporate Engagement on CC • Analyze and disclose • Develop response plan • Educate CEOs and board members • Educate customers • Involve suppliers • Engage in policy discussions • Involve investment commitments • Involve insurance companies Create “R&D organization” to assist

  12. Would that do the trick? Key is getting attention of corporate leadership Healthiest outcome: each company confront the CC issue and explicitly analyze it the way it would any large strategic issue

  13. What pressures will make that happen? • Influence of scientific and economic conclusions • Heeding positions, experiences of peers • One or two directors pushing the issue • Requirements for disclosure • Shareholder resolutions • Fears about lawsuits, other litigation • Worries about taxes, laws, regulation Lots for corporate leadership to think about!

  14. Yale/Ceres Sustainable Governance Forum Joint venture under development Convene corporate directors for discussions and information Develop materials and agendas required by interested directors, executives

  15. For further reading…. Ceres: Managing the Risks and Opportunities of Climate Change—A Practical Toolkit for Corporate Leaders (2006) and many others Pew Center: Corporate Greenhouse Gas Reduction Targets (2000) and many others Tim Flannery, The Weather Makers, Atlantic Monthly Press (2005) Dan Esty and Andrew Winston, Green to Gold—How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, to be published in August 2006

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