Are managers particularly concerned about the impacts of climate change on their businesses? If we believe the results of a recent MIT Sloan and BCG survey, the answer is no. But it may not be that dire.
First the sobering survey results: Only 27% of respondents agreed strongly that climate change is a risk to their business — which is frightening when you think about what that says about companies’ level of readiness for the significant changes that are upon us already (extreme weather, disruptions to operations and supply chains, and the changing expectations of customers and employees). Additionally, only 11% ranked climate change as a very significant issue.
In a good overview of these survey results published in the MIT Sloan Management Review, editor Nina Kruschwitz voices a legitimate concern that their findings don’t jibe with other reports lately, in particular an article in The New York Times titled, “Industry Awakens to the Threat of Climate Change.” That story focuses on how the World Economic Forum, and some specific companies like Coca-Cola and Nike, are taking the issue seriously.
Although the two stories seem at odds, they may be describing versions of the same reality. Part of the disconnect stems from what’s said by company leaders versus what a broad selection of managers think. A growing number of companies are publicly declaring support for strong climate policy — Apple just signed onto the Climate Declaration, joining Nike and many others. But within the ranks of these leading companies, I’m sure there are wide-ranging views, from supportive to skeptical or even hostile.
But the bigger gap is likely a perception of what “climate change” means to survey respondents. Many may think of the issue narrowly as rising temperatures, or as something their companies should manage only for philanthropic, good-for-the-planet reasons.
What Nike and Coca-Cola leadership get is that the climate issue is a systemic problem, not easily defined in one single way, and it directly and profoundly affects their business. Water availability, for example, is in the process of shifting, sometimes dramatically, which means more water and rains in some areas, and much less in others. Extreme weather brings unpredictable dangers for physical assets or massive disruptions to supply chains (like auto and hard drive companies found out with floods in Thailand in 2011).
Most survey respondents probably miss these systemic issues. And very few would consider the much softer elements of risk and value around climate change — like whether employees and customers believe the company is doing enough on the issue.
Nonetheless, companies’ understanding of climate change is in fact shifting subtly as moreunderstand the problem as one of risk to be managed — not a scientific or political debate about absolute certainty, but a conversation about possible futures. When risk officers and smart business leaders look at climate this way, they can have productive conversations about how to build more resilient enterprises.
So the real issue of concern that the survey uncovers is not a lack of belief in climate change per se, but a gap in readiness for volatility: Only 9% of respondents thought their organizations were really prepared.
On the one hand, there may not be too much to worry about in this finding. The same perception gap about defining climate change may make managers blind to how much their companies are already doing to reduce carbon and energy use, and thus reduce one element of risk — reliance on volatilely priced fuels. A fleet efficiency project, which many would just call good business with a good payback, is a carbon and climate action. So are a lighting retrofit, a boiler overhaul, innovation to reduce energy use of your products, and much more.
That said, the respondents might be right in the larger sense that companies are unprepared for systemic and longer-term challenges. In my experience, most companies are risk-averse and like to fashion themselves as great “fast followers.” But Kruschwitz makes an important point: “Being a fast follower on climate change…may be more complex and require longer lead times than most companies are anticipating.” That’s exactly right. You can’t re-arrange supply chains to avoid droughts or storm risk quickly, or flood-protect or move your facilities on the fly.
Companies are in general bad at thinking long-term and preparing for multiple contingencies (it goes against being lean and maximizing short-term earnings). I believe we need fundamentally new modes of operating that create more resilient enterprises, or what I’m calling “the big pivot” in my forthcoming book.
Companies will, among other things, need to fight the short-termism that plagues business, set goals based on science to drastically cut carbon fast enough, innovate in heretical new ways, and collaborate with friends and enemies alike.
So does it matter much if your company’s managers think about “climate change” as a problem in and of itself? In a sense, no, since there is so much a company can do without everyone agreeing on that issue. But the companies that do get it will be able to set their sights and goals differently, and rally passionate employees to really change how they operate. Those more engaged organizations will be more innovative and have a leg up in a hotter, scarcer world.
(This post first appeared on the Harvard Business Review blog network.)
(Sign up for Andrew Winston’s blog, via RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston)
