Despite decades of diplomacy and debate, the climate crisis has only worsened. According to recent findings by the United Nations’ Intergovernmental Panel on Climate Change, the world is warming toward an irreversible rise in global temperatures in the next decade, leading to crop failures, loss of livelihood and culture, and ultimately the mass displacement of vulnerable populations. While governments and policymakers have sparred on the best ways to avert disaster, business leaders are facing more pressure than ever to make strong stands and take tangible action toward solutions — now.
“There is still a tendency to think of an environmental bottom line as a ‘nice-to-have’ versus a ‘must-have,’ and as something that is dispensable in an economic downturn,” says Dr. Deborah Brosnan, Founder and President at environmental consulting firm Deborah Brosnan & Associates. “But leaders should recognize that an environmental bottom-line is often good for business and profit.”
Leaders often underestimate their company’s environmental risks, and when a regulatory or stakeholder problem arises, it’s often much more costly to implement a rapid solution. Rather, proactive leaders who see environmentalism as a competitive advantage or embed the environment into their company values are better positioned to protect their stakeholders — and the planet.
Tracking environmental, social, and corporate governance (ESG) factors has become increasingly standard across the corporate world, and has been a growing trend in finance, as more investors look to ethically assess target companies. According to research by Deloitte, 57% of executives had implemented an ESG working group in 2022, with 42% planning to follow suit — a huge jump from the 21% who had implemented it by 2021.
Leaders can start by honestly assessing where they sit in the intersection between the E, S, and G, and identify where they have the most risk — and opportunity — when it comes to their environmental impact. If they haven’t already, companies can complete a greenhouse gas emissions inventory such as the Greenhouse Gas Protocol to gather baseline data. They can then set carbon reduction targets and tactics to reach those goals.
“Each company's tactics will be different depending upon its operations, supply chain, and greenhouse gas emission inventory,” says Dr. Nancy Landrum, a professor of sustainable business at Munich Business School. But buying carbon offsets isn’t going to cut it anymore. Consumers and investors are increasingly wary of “greenwashing,” like when oil companies highlight their work in carbon capture, but the amount of carbon they produce far exceeds any emission reduction.
Instead, leaders need to be doing the hard work of improving materials, reconfiguring supply chains, and redesigning products. “Over the long-term, it is these tactics that will set companies apart and reveal authentic work to address the climate crisis,” says Dr. Landrum.
One way of doing this is to rethink linear production and sales cycles in favor of circular economies. “We're accustomed to aiming for the lowest price point, and driving growth through sales of more units,” says Sandra Goldmark, Director of Campus Sustainability and Climate Action at Barnard College. In a circular business model, businesses would prioritize longevity, repair, and even modular upgrades for their products, to keep them lasting longer and out of landfills.
“It’s a chance to grow your business without being forced to always, just sell more,” says Goldmark. “It’s a diversified business model that is more resilient, less susceptible to shocks like supply chain problems, and more sustainable.” While strategies would vary across industries, she suggests leaders explore circular economy case studies and models already being implemented by similar businesses.
Adopting a climate policy will no longer be seen as optional in coming years. Last year, the Securities and Exchange Commission (SEC) proposed a sweeping climate disclosure rule, which would require large public companies to report more thorough carbon emissions, even accounting for those from their supply chains and customers (formally called Scope 3 emissions).
While corporate lawsuits are expected to scale down the scope of the rule before it’s finalized, leaders can stay ahead of regulatory frameworks by investing in future-looking teams who have the appropriate skills to track, measure, and report on environmental impact. Too often, C-Suite executives turn to the same set of people with finance and market skills to try and reach the best environmental bottom-line, but the skillset to measure and understand environmental impact tends to be far different.
“When the C-Suite executive or the board doesn’t get there, they blame the outcome on challenges of the environment instead of recognizing that they didn’t assemble the right team,” says Dr. Brosnan. Instead, leaders should be recruiting from a more diverse talent pool, one that centers indigenous and other underrepresented voices around the table.
The environment isn’t going anywhere when it comes to doing business — in fact, it offers no shortage of growth opportunities. The Inflation Reduction Act of 2022 promised $369 billion in support of renewable energy and climate change, and smart leaders are making moves toward investing in renewable resources and other areas that might benefit from the tax credits.
Business leaders have always had to strike a balance between fiduciary responsibility, a responsibility to stakeholders, and the ethics of environmentalism, but climate change has rightly renewed that debate. “Philosophically, no matter what sector you work in, we are all people sharing one world,” says Dr. Brosnan. “We all depend on a healthy planet for survival.”
