Climate change is real — as in actual, factual, and tangible. And it’s really expensive. This is the clear message from “Risky Business,” a new report issued by former U.S. treasury Secretaries such as Robert Rubin and Hank Paulson and other bigwigs like Michael Bloomberg.
Their report is just one of many drumbeats for action on climate — drumbeats that have gotten much louder in recent weeks. Four former EPA chiefs, all Republicans, went to Congress to ask their party peers to take action, for example. And Hank Paulson, George W. Bush’s Treasury Secretary, recently wrote an op-ed called “The Coming Climate Crash” as a prelude to the Risky Business report. He likened the growing climate crisis to the fiscal crisis of 2008, a mess he had to deal with firsthand. This Republican and former Goldman Sachs exec actually called for a tax on carbon. Let that sink in for a moment.
The story coming from these unusual messengers is not subtle about how expensive climate change is and will continue to be. We’re taking out an “interest-only loan,” the report says, with cumulative interest that will burden future generations. In a neat metaphor, “Risky Business” calculates that there’s a 1 in 20 chance — equal to the chances of “an American developing colon cancer” — that more than $730 billion of coastal assets will be at high risk in the coming years. And whole swaths of the country will face extreme heat — months of days above 95 degrees, which could seriously impact agricultural and labor productivity (imagine construction and other outdoor work in dangerous heat).
These long-term numbers are just for scale and to, well, scare us into action. But the real message of the report is that there are serious economic impacts today. Extreme weather from climate change is, they say, “already costing local economies billions of dollars.”
So finally, real bipartisan pressure and consensus are building. What does that mean for business?
First, questioning whether climate change is even happening is moving fast to the far fringe. The discussion is shifting, thankfully, from if we should tackle it to how — as one CEO I work with said recently, “I know this is a problem… I just don’t know what to do about it.” Over the coming months and years, it will become even less acceptable — to employees, customers, and investors — for business people to stick their heads in the increasingly hot sand on this issue. Investors in particular are starting to notice the massive risk to business and acting accordingly — see Barclays’ downgrading the bonds of U.S. utilities because of growing competition from solar and distributed energy generation. Business leaders who want to take action and show their investors and customers that they “get it” should step forward now.
Second, there will be more regulation on carbon around the world. The recent coal rules the Obama administration issued are just the beginning. (The 30% reduction from utilities demanded by 2030 is not even particularly aggressive. Ten states have already hit the goal.) It’s not just the U.S. — the day after Obama’s announcement, China said it would cap CO2 emissions starting in 2016.
Third, and most important, business needs to change how it operates fundamentally. When you dig past all the political wrangling and theater around climate change, you reach a very serious challenge. Asking government to act, as many new voices are doing, is a great start. But we need business to lead in the areas it excels at — driving deep, heretical innovation in products, services, and business models; connecting with and inspiring customers to change their behavior; allocating capital to the best ideas, and much more.
But we’re going to have to redefine “business as usual,” a shift I’ve called the big pivot. Companies will need to think about the longer term — at least more than a quarter at a time — if they want to plan for multi-year and multi-decade risks and opportunities. They’ll need to set goals based on science and make investment decisions with a broader sense of return on investment than they normally use, to include benefits like risk reduction, business resilience, relevance in society, and attracting and retaining the best talent. And we’re going to see new, unusual partnerships across normal party and competitive lines. All of these pivots are underway, but they need to move much faster.
Luckily, we have most of the solutions we need now. Renewable energy is reaching scale quickly and companies are coming together along value chains to work on big challenges — for example, Coca-Cola, Pepsi, Unilever, and others have been working for years on changing technologies for refrigerating drinks, something that relies on high global warming HFC gases today.
But even if the options for building low-carbon lifestyles and businesses are growing, transformation can be hard. Who knows what gets people over a hump to see the need for real change. Hearing from unlikely sources, like Treasury Secretaries, might do the trick. Certainly the growing economic costs are getting clearer. It’s time for business leaders to make climate action a — if not the — core priority for business.
(This post first appeared on the Harvard Business Review blog network.)
(Andrew’s new book, The Big Pivot, is out! Get your copy here. Sign up for Andrew Winston’s blog, via RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston)
