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.