Climate Change and Paris Accords — is there a Silver Lining?

With the U.S. pulling out of the Paris cli­mate change accords, there has been much con­cern for many U.S. com­pa­nies, espe­cial­ly those that have been lead­ers in their sus­tain­abil­i­ty efforts and green ini­tia­tives. But is there a sil­ver lin­ing for these leaders?

A first thing to remem­ber: the Paris agree­ment was always a vol­un­tary agree­ment, with­out any enforce­ment mech­a­nisms. It is one thing for a coun­try to sign onto this glob­al agree­ment and try to use it for encour­ag­ing indus­try lag­gards, but unless fed­er­al and state enforce­ments went hand-hand, real enforce­ment – and incen­tives – were not in place. With today’s U.S. Admin­is­tra­tion also slash­ing fed­er­al cli­mate change, envi­ron­men­tal and ener­gy reg­u­la­tions, the onus now lies with states and cities and cre­ates a messy play­ing field for most companies.

The irony of this sit­u­a­tion is that many cor­po­rate sus­tain­abil­i­ty lead­ers, such as Gen­er­al Elec­tric (GE), DuPont or Inger­soll Rand, can con­tin­ue lead­ing with sus­tain­abil­i­ty ini­tia­tives and out­pac­ing their com­pe­ti­tion. Why? Two impor­tant rea­sons. First, these com­pa­nies are glob­al and are find­ing increas­ing green reg­u­la­tions in many coun­tries, espe­cial­ly in Europe. This alone is forc­ing these com­pa­nies to stay with and hope­ful­ly ahead of the com­pe­ti­tion. A sec­ond rea­son is that in states like Cal­i­for­nia (CA) where the state and local gov­ern­ments are con­tin­u­ing to pur­sue green reg­u­la­tions, these com­pa­nies, unlike many of their com­peti­tors, can increas­ing­ly pur­sue and work with state and local reg­u­la­tors to help craft key leg­is­la­tion. With oth­er U.S. states over time like­ly to fol­low CA’s lead with reg­u­la­tions as cli­mate changes increase and force oth­er states’ actions, these lead­ers will like­ly be in a bet­ter posi­tion vis-à-vis most com­peti­tors since their reg­u­la­to­ry posi­tion­ing will con­tin­ue to lead their respec­tive industries.

Anoth­er impor­tant issue is reduced costs and longer-term gains in strate­gic advan­tage. Hav­ing worked with all three cor­po­rate lead­ers and exec­u­tive teams, I have found the costs of tran­si­tion­ing to green­er solu­tions and approach­es, such as renew­able ener­gy, chang­ing prod­ucts and ser­vices, and con­vinc­ing cus­tomers to shift is often high in the begin­ning, but reduce over time. Even if the U.S. were to go back to fed­er­al and glob­al cli­mate change agree­ments and reg­u­la­tions in 2020, cur­rent cor­po­rate lead­ers would have an attrac­tive lead of 3+ years of absorbed cost dif­fer­en­tials, tech­nol­o­gy tran­si­tions and enhance­ments, and refined new cus­tomer offer­ings. This cre­ates built-in strate­gic and com­pet­i­tive advan­tages that are very dif­fi­cult to over­come for most competitors.

The final sil­ver lin­ing? Inno­va­tion. Com­pa­nies that push the green bound­aries of what’s pos­si­ble, both for exist­ing and new prod­ucts and ser­vices, will only help cur­rent lead­ers. Many com­men­ta­tors point to the increased jobs from renew­able ener­gy when com­pared to the over­all ener­gy indus­try sec­tor (https://www.forbes.com/sites/darden/2017/06/07/trumps-anti-climate-stance-will-obstruct-green-innovation/#53eb06ab4cb5). In the area of a more cir­cu­lar econ­o­my, we may be at a stage where enough of the crit­i­cal pieces are in place at local and state lev­els to more rapid­ly scale green efforts (https://www.greenbiz.com/article/heres-why-2017-will-be-year-circular-economy-revolution), which will only spur more inno­va­tion. I helped intro­duce the con­cept of a cir­cu­lar green man­u­fac­tur­ing loop for com­pa­nies as a strate­gic advan­tage in 1989, when I cre­at­ed Boston Con­sult­ing Group’s (BCG) envi­ron­men­tal prac­tice area, so it’s excit­ing to see the scal­ing effects economy-wide.

But most are miss­ing an impor­tant broad­er point with inno­va­tion: with today’s more rapid dig­i­tal tech­nol­o­gy advances, such as Big Data and pre­dic­tive ana­lyt­ics, those com­pa­nies that con­tin­ue to green inno­vate will see increas­ing com­pet­i­tive advan­tages. Dig­i­tal tech­nol­o­gy will sig­nif­i­cant­ly change an industry’s play­ing field over time to allow more dif­fer­en­ti­a­tion – only enlarg­ing today’s gaps with competitors.

In the best of worlds, com­pa­nies would be encour­aged to be green with con­sis­tent glob­al, fed­er­al and state reg­u­la­tions. Com­pa­nies could more eas­i­ly adapt with glob­al man­u­fac­tur­ing plat­forms and more tra­di­tion­al com­pet­i­tive dimen­sions would apply. But with the cur­rent U.S. Admin­is­tra­tion poli­cies and approach­es, we’re see­ing a messy play­ing field and chess­board of reg­u­la­tions and incen­tives. The good news for green lead­ers? A messy chess­board also has many com­pet­i­tive advan­tages if you’re smart, think strate­gi­cal­ly and be will­ing to innovate.

2017-07-04T20:18:48+00:00 June 5th, 2017|0 Comments

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