With each month clocking record-breaking temperatures across the planet, this Earth Day reflected the renewed urgency of regulators and businesses to find climate-change solutions.
The US Securities and Exchange Commission recently adopted new rules that will mandate many companies to disclose more about their environmental impact. And the European Union has set ambitious targets for companies to measurably slash their greenhouse gas emissions.
Business leaders now must decide how to measure—and tackle—their companies’ contributions toward a warming world and how they will manage the consequences. HBS faculty offer their views on what methods and actions firms can turn to some 54 years after the first Earth Day in 1970.
Robert Kaplan: Measure better for a net zero trajectory
Despite annual Earth Day celebrations since 1970, a multitude of climate conferences, and a plethora of NGOs, environmental standard-setters, and regulators, little progress has been made to reduce the quantity of greenhouse gasses emitted each year.
A big problem has been the lack of consensus about how to measure and hold organizations accountable for their emissions. As we often say when describing the “balanced scorecard,” “if you don’t measure it, you can’t manage it.”
Many corporations now measure and report the Scope 1 emissions from their owned assets. But these are only a small percentage, typically less than 20 percent, of the emissions under their control. The remaining controllable emissions are embedded in the products and services they purchase from their suppliers.
In a 2021 Harvard Business Review paper, Karthik Ramanna, a colleague at Oxford University, and I introduced the E-liability (“E” for environmental) carbon accounting method to enable greenhouse gas emissions information to be attached to products as they move down supply chains. Since publication, we have been validating the approach in projects with companies that produce tires, cement, steel, electrical transformers, agricultural products, building materials, and liquified natural gas (LNG), among others.
More than just a reporting mechanism, E-liability carbon accounting informs corporations, educational and health systems, and government agencies about the tangible benefits from environmentally sensitive product design, supplier and energy sourcing, logistics, and operations improvement decisions.
For example, my HBS colleague Shirley Lu and I wrote a case about how Harvard University will lower its emissions profile by sourcing a low-carbon cement substitute for new building projects (described in this podcast).
The E-liability method is based on fundamental accounting principles, which enable E-liability data to be assured to the same standard as financial statements. Audit information can be transmitted downstream, privately and securely, with blockchain and tokenization technologies. Accuracy and auditability are essential should standard setters and regulators mandate corporate reporting of controllable emissions, or government authorities levy carbon taxes.
I hope that future Earth Days can celebrate how organizations, empowered with better measurement of their greenhouse gas emissions, decarbonized their operations and supply chains, and put the world on a trajectory to net zero.
Robert S. Kaplan is a Senior Fellow and Marvin Bower Professor of Leadership Development, Emeritus, at HBS.
Shirley Lu: Create an ecosystem of environmental institutions
To manage environmental performance, we need to measure it. But measurement is only the starting point. To hold companies accountable for their environmental performance, we need an ecosystem of complementary institutions.
Without environmental reporting standards and mandates, and enforcement institutions to validate the credibility of the information disclosed, monitoring agencies cannot confirm whether companies’ emission reduction targets or environmental commitments are trustworthy.
Financial accounting serves as one analogy. Accounting standards, such as US Generally Accepted Accounting Principles and International Financial Reporting Standards, ensure that we measure and communicate financial performance in a comparable way. Auditors and regulators such as the SEC enforce such standards to ensure that we can trust the company’s reported financial numbers.
As a result, information analysts, such as financial analysts and credit rating agencies, can form evaluations based on the disclosed data that investors can rely on to make informed decisions.
Similarly, to enable stakeholders to make informed decisions about corporate environmental performance, we need reporting standards, enforcement agencies, and information analysts. Recently, as a major step towards comparable environmental measurement, the SEC passed a climate change disclosure rule.
This is an exciting step toward greater comparability of environmental information. Even more exciting, the rule could lower the information processing costs of understanding a company’s environmental impact, potentially becoming a catalyst for the development of an ecosystem of complementary institutions that can facilitate the disciplining of corporate environmental performance.
Shirley Lu is an assistant professor in the Accounting and Management Unit at HBS.
Rosabeth Moss Kanter: Cities can lead on climate action
The year 2023 was the hottest on world record, accompanied by extreme natural disasters. The consequences are significant for cities and surrounding regions, with their large, concentrated populations. What can civic leaders in business and government do to accelerate solutions?
My recent research in US metropolitan areas has identified key “change enablers”—social, cultural, organizational, and institutional factors that help leaders garner support to act faster.
Institutional alignment: Common theme, shared narrative. When officials across jurisdictions tell the same story, it is easier to get action. That’s not just partisan political alignment; it’s also a matter of rallying points for businesses and community organizations, who spread unifying themes and shared understanding of the goals. Even in places surrounded by areas full of climate skeptics, alignment can be created by focusing on iconic local assets. Saving Utah’s Great Salt Lake is a common goal across political divides that supports Salt Lake City’s climate action.
A common theme can derive from location uniqueness. Pittsburgh’s climate tech incubator helps its transition from coal mining; Columbus’s agriculture tech innovation hub addresses agricultural emissions in rural Ohio’s farms. Blue Frontier, a pioneering efficient air conditioning startup, began in hot, humid South Florida. As of October 2023, the Greater Miami region is the only federally designated Climate Resilience Tech Hub, a theme that can encourage more tech startups like Blue Frontier.
Trust: Belief in a shared fate. Solutions are deployed with less friction when there is an understanding that any group’s outcomes require attention to other groups’ needs. That’s easier to build in places where there is less demographic segregation and regular interactions across racial and social divides, putting “climate justice” for previously neglected groups in the conversation. It can also be fostered by leaders who listen.
The lion’s share of greenhouse gas emissions come from energy, buildings, and transportation, which are costly and contentious to change. The $4 billion project to develop Vineyard Wind, the first commercial-sized offshore wind farm in North America, was beset by delays and community concerns—marine mammals, Native American ancestral sites, birds and airplanes, visibility and views, beach displacement at landfall, fishing industry livelihoods, union jobs, and more—adding $100 million in costs.
But because leaders attended dozens of community meetings with stakeholders at the table, the first turbines started spinning in January 2024 and will eventually supply clean energy to 400,000 Massachusetts homes.
Issue salience: Top of mind. Climate change is not an everyday issue—until there’s a crisis. The challenge is to communicate about possibilities in a way that informs and reassures the public. Let the public understand the solutions around them.
In Seattle, Amazon helped name the renovated hockey facility the “Climate Pledge Arena.” The world’s first arena to win net-zero carbon certification, it includes a public transportation subsidy in ticket prices. Who could miss Seattle’s climate solutions agenda—and see the fun in it?
Across the continent, Cambridge, Massachusetts, reminds the public about climate action with sidewalk signs declaring that the newly planted trees they see are making the city greener and healthier. Cambridge also uses classic ways to keep issues salient, such as reporting building emission metrics.
Infrastructure for collaboration: Connectors. Because climate action is more effective when many sectors combine forces, it is important to form coalitions that involve key stakeholders quickly and smoothly. This is easier when there are people and organizations to serve as connectors convening leaders from many groups. Milwaukee’s cross-sector Water Council connects companies making beer or pipes and valves with aquaculture entrepreneurs and community leaders. This helped the city become one of three United Nations’ global water hubs, the first graduate program in Freshwater Sciences, and water-focused climate solutions.
Climate solutions stem from human factors as well as technology. Leaders who care about their neighborhoods and the world can act faster and more effectively when armed with tools for building constituencies for change.
Rosabeth Moss Kanter is the Ernest L. Arbuckle Professor of Business Administration at HBS.
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Illustration created with images from Adobe Stock/Sarawut and AdobeStock/trekandphoto.
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