Good News or Bad News?
I am having a hard time determining if the findings of a new McKinsey study on how companies are viewing climate change represent good news or bad news. On the positive side we see that 60% of companies regard climate change as strategically important, yet over 33% of the responding firms state that they “seldom or never” consider climate change when developing their strategies.
Here are some of the highlights from the study:
• Fully 60 percent of global executives surveyed by The McKinsey Quarterly regard climate change as strategically important, and a majority consider it important to product development, investment planning, and brand management.
• Fewer companies, however, act on these opinions. More than one-third of executives say their companies seldom or never consider climate change when developing overall strategy.
• Nonetheless, executives express optimism about the business prospects of addressing climate change. Sixty-one percent expect the issues associated with climate change to boost profits—if managed well.
• Despite the uncertainties around regulation, a remarkable 82 percent of executives expect some form of climate change regulation in their companies’ home country within five years.
I suppose the comforting aspect of the study is that final bullet point – the “future state” view. If 82% of executives expect some form of regulation that means they will act to get out ahead of those regulations. If there is one thing large companies dislike it is being regulated, and in most cases they will do what it takes to avoid doing things the “government’s way.” This bodes well and I expect it means we will see significant activity as companies put real stakes in the ground in the form of energy and emissions management and GHG reduction programs. This, in turn, is good news for a whole host of firms that will support this sea-change, ranging from environmental consultancies to technology firms to alternative energy startups.
I guess the big question is this: how fast can the government show credible intent and progress on the legislative side? It is this intent that will accelerate corporate efforts to keep ahead of the regs, and that will accelerate investment and innovation. Hopefully our remaining three Presidential candidates all understand this and will put this at the top of their agendas.
Expecting companies to reduce emissions in anticipation of government-led action is expecting too much. Corporate experience with environmental regulation teaches that being ahead is to risk not getting “credit” for early action.
1Too often the emission baseline for new regulations starts from the date of the new regulation, meaning the new regs do not give credit for those early, “enlightened” reductions. While setting a baseline to an earlier date would recognize the englightened, it could also make attainment of a reduction target more difficult for the “less enlightened” that have experienced post-baseline growth.
It seems that in most cases the “englightened” act because it is economically advantageous to do so. For example, in the area of energy efficinecy acting early provides savings that exceed the costs, or adopting a new, lower greenhouse-gas-emitting process also increases throughput. In these and similar actions, it is the return on capital that governs the decision to act, rather than a desire to do good.
But, this doesn’t mean that investments in energy efficiency or cleaner processes are not prompted by wanting to do good. It’s just that expenditures for emission reductions, if not legally forced, also carry risks of shareholder “revolts” without the usual economic justification.
I agree with Charles I don´t think companies will started action before the regulations. But in some cases if companies start acting now apart from helping the planet they will be saving money.
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