Last year alone, 10 climate-related disasters displaced millions of people with damages exceeding $3B. The time to act is now. Goizueta’s Wes Longhofer and Danni Dong join to discuss the role of business and innovation in a climate-smart world.  

The past eight years have been the warmest on record, with sea levels are rising twice as fast as they were three decades ago. Often, when we think of innovation we think too narrowly - new technologies, products, or services. However, in tackling a problem as pervasive and complex as climate change, our approach in the business world needs to be broader, more holistic. We’ll talk today about the three pillars of business innovation in a climate-smart world:

Wesley Longhofer is an associate professor of organization and management and the Executive Academic Director of Goizueta’s Business & Society Institute. His work on climate change has been funded by the National Science Foundation and featured in the Washington Post and Nature. His most recent co-authored book, Super Polluters: Targeting the World’s Largest Sites of Climate Disrupting Emissions, was published by Columbia University Press in 2020. Wes is also a member of the recently launched Emory Climate Research Initiative. 

Danni Dong is a dual degree graduate student at Emory pursuing her MBA and MSPH at Goizueta Business School and Rollins School of Public Health. Danni is a passionate activist working to tackle climate challenge through public private partnerships. She has worked with several governmental agencies including the Atlanta Housing Authority, Environmental Protection Agency, and Centers for Disease Control and Prevention. Danni recently attended the United Nations Climate Conference in Egypt as a student ambassador with Emory Climate Talks. 

This episode of the Goizueta Effect podcast was co-created in partnership with Goizueta MBA students and ClimateCAP delegates including Danni Dong, Nikhil Mathur, Jimmy John, and Peter Danis.  A delegation of 11 MBA students from Goizueta Business School recently attended the ClimateCAP Global Summit. Along with hundreds of leading students and professionals from across the nation, they explored the enormous influence and responsibility business leaders hold in driving toward a climate-smart world. Want more insights? Check out #GoizuetaClimateSmart.   

What is the Circular Economy? 

The concept of a circular economy came about as an alternative to the traditional “take-make-waste” model. The circular economy involves designing products and systems that are efficient, durable, and easy to repair, refurbish, or recycle.  

 

Companies like Patagonia and FairPhone have successfully implemented circular strategies, incorporating buyback programs, refurbished goods, and modular products that can be partially upgraded to lengthen their useful life. These strategies not only benefit the planet, but also create customer loyalty and competitive advantage.  

 

First It Was Shareholder vs. Stakeholder Capitalism. Now There Are “Multi-Stakeholders”? 

A newer way of thinking has come about recently, focusing on the importance of the multi-stakeholder approach in business. Central to this concept is considering the interests of all parties affected by a company's actions, including employees, customers, suppliers, communities, and the environment. Communities are demanding that companies create more value for society than they extract, and the environment is also considered a stakeholder due to the impact of climate change on businesses.  

 

By considering multi-stakeholders, the true cost of climate change is clearer. From recent flooding in Pakistan to the longest recorded drought in Eastern Africa, it is apparent that the environment is a key stakeholder that needs to be considered. Natural disasters triggered by climate change have resulted in $3 trillion worth of economic losses between 2010 and 2020. Companies must take a multi-stakeholder approach to mitigate these risks and account for the impact of their operations.  

 

How Can Innovation Combat Climate Change? 

Green hydrogen is a promising alternative fuel option for companies looking to reduce their carbon footprint. Companies like Siemens Energy and NextEra Energy are investing heavily in green hydrogen technologies to reach zero emissions without offsets. Widespread adoption of green hydrogen is seen as necessary to compete with natural gas. 

 

Likewise, how we move goods around the planet is an area that can be reconsidered to benefit the planet. Following the pandemic and the realization of fragile supply chains, there is now a shift in the US to reign in supply chains and bring them nearshore or even back onshore. This prompted the passage of the CHIPS Act which focuses on semiconductor manufacturing, but also spurred other industries to consider bringing operations closer to home. Such a shift from offshoring to onshoring could significantly decrease emissions from maritime and aviation shipping, which together currently accounts for more than 20% of global emissions. 

 

What Role Does the Government Play? 

The government is a key player in addressing the climate crisis. The government provides a regulatory mechanism to enforce climate disclosures and spur private investment through setting ambitious policy goals.  

 

The Inflation Reduction Act (IRA) was cited as an example of such policy, providing $370 billion in investments to address the climate crisis through new projects and initiatives, including clean energy tax credits, block grants for environmental justice, and boosting domestic manufacturing of solar panels, wind turbines, and batteries. This is aligned with the “mission economy” concept by economist Mariana Mazzucato, in which the government sets ambitious policy goals to coordinate public and private partnerships. 

 

From a reporting standpoint, both the SEC and the EU are considering new ESG reporting requirements. The proposed SEC rule would require publicly traded companies to disclose their carbon emissions and how climate risks are affecting their businesses, while the Corporate Sustainability Reporting Directive would require EU companies (and any US company with EU business) to report on a broader range of ESG topics.  

 

How Does Social Justice Overlap with Climate? 

Climate justice refers to solutions that address the disproportionate costs that vulnerable populations face due to climate change. This includes recognizing how climate change impacts inequities tied to gender, race, class, nation, and ethnicity and ensuring that any low-carbon economy is inclusive. The framework for climate justice in business includes embedding human rights in the supply chain, sharing the burdens and benefits from an energy transition fairly, being transparent and accountable in climate commitments, co-designing climate solutions with an inclusion lens, and investing in developing climate-smart education and skills in the entire supply chain. 

 

Patagonia in particular has directly funded organizations working on climate justice, democracy, biodiversity, and the environmental challenges impacting indigenous communities. They have also advocated for policy changes and produced films that call attention to indigenous environmental struggles around the world. Additionally, its founder, Yvon Choiunard, gave away all non-voting stock in the $3 billion company to a collective that will use all non-reinvested profits to fight climate change.  

 

Beyond technological improvements and reduction of greenhouse gases, it is importance to recognize that renewable energy solutions may bring their own costs, such as disruptions to indigenous communities. Businesses need to adopt a justice perspective that includes empathy for the real pain that climate change has caused for many communities around the world. 

 

One emerging framework is the “people-centered approach” to corporate sustainability. In this framework, carbon is just one part of the story. It’s important to consider the health impacts of climate change and air pollution, particularly PM2.5, which is responsible for chronic asthma and cancer.  

 

Corporate sustainability is not just about decarbonization; business leaders must consider how their actions impact people on a systemic level when addressing social justice concerns. Healthy populations are the cornerstone of thriving economies. 

 

Can Innovation Save Us? 

When it comes to addressing the climate crisis, technological innovation is often touted as a key solution. But is it really as straightforward as just developing and scaling up new technologies? What are the limitations and risks associated with relying on technological breakthroughs? Since the beginning of human existence, innovation and our ability to adapt have been critical components of our survival and progress. However, as we face the urgent challenge of climate change, it is becoming increasingly clear that innovation alone may not be enough to address the scale of this problem.  

 

Take Electric vehicles. When first introduced, electric vehicles (EVs) were touted as the golden ticket to zero emissions in the transportation sector. The reality is more complicated. Putting aside the environmental impact of mining rare earth materials, electric vehicles require more electricity to manufacture. And of course, they rely on electricity to run, but where is that electricity coming from? Fossil fuels still account for 60% of the electricity generated in the US. Many life cycle analyses have shown that EVs are only a greener alternative to internal combustion vehicles if the vehicle is produced and driven in an area that offers clean electricity. That’s to say, the effectiveness of green technology hinges upon a decarbonized grid.  

Currently, 73% of global Greenhouse gas emissions come from the energy sector, which also means there is enormous potential for change. Scaling existing technology around solar, wind, and hydropower, while simultaneously phasing out coal fired powerplants is key. Widespread rollout of real-time dynamic pricing for electricity is also a way to encourage low-carbon behavior while reducing operating costs. With the traditional block pricing, prices remain constant irrespective of demand. Real time pricing encourages people to use power when renewable energy is available and conserve when it’s not. Utility companies could potentially see improvements in efficiency due to a decrease in the required capacity to fulfill demand. 

Doesn’t All This Investment in Sustainability Hinder Growth?  

There is a common misconception that sustainable business practices hinder growth, but evidence shows it can actually drive growth. From a bottom-line standpoint too, sustainable practices often involve implementing energy-efficient processes, leading to cost reductions and more profit.  

 

Companies with strong sustainability performance can attract more investment and secure better financing terms, allowing them to access cheap capital while growing their environmental, social, and governance (ESG) offerings. Take the examples of Walmart's Project Gigaton, which led to almost $1 billion in annual cost savings, and Alphabet's $5.75 billion sustainability bond issuance with record low coupon rates. 

 

A recent McKinsey report estimates that climate-oriented equity transactions in private markets increased more than 2.5 times from 2019 to 2022, to about $196 billion, whereas the overall private-market equity market declined by 24% over the same period. In addition, a 2015 review of more than 2,000 empirical studies of ESG and financial performance found that the vast majority had a positive relationship. Green business can be good business.  

 

What Role Do Business Schools Play in Innovation and Transition? 

It’s important for business schools to embed a deeper understanding of climate science and climate awareness into their curriculum. This involves going beyond simply offering a class in climate science to reimagining business education itself to address climate change.  

 

Initiatives like Business Schools for Climate Leadership introduce concepts like circular economies, carbon markets, carbon reporting, and climate strategy into the existing core curriculum. Additionally, Longhofer argues that the climate crisis could be a moonshot for business schools to address declining enrollments and changes in the market, while also resolving long-standing tensions about the purpose of business. 

 

What Do Employers Need to Know About Climate-Focused MBAs? 

Climate change is becoming increasingly important for business students and the business world, and employers need to be ready.  

 

While some students believe in dismantling the system, most are willing to create systemic change from within. Employers are changing too, and companies need to be transparent in their climate commitments to engage new talent in setting and meeting those commitments.  

 

Some employers have already embraced it. The CEO of BCG recently made a public statement calling for climate activists to join the firm, and Longhofer recalls that he’s lost count of the number of alums who have reached out in the past two years because they are put on ESG-related projects much sooner than they anticipated.  

 

Especially because of the new reporting requirements, ESG is here to stay. Employers need to take notice.