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Climate Change

Carrots and sticks needed to speed up the green business transformation

20 June 2022 • by Kamiar Mohaddes, Knut Haanaes, Marya L. Besharov in Videos

Government incentives to promote green technology and collaboration between startups and established companies will help accelerate the transformation to net zero, experts said in the latest Business Schools for Climate Leadership webinar....

Government incentives to promote green technology and collaboration between startups and established companies will help accelerate the transformation to net zero, experts said in the latest Business Schools for Climate Leadership webinar.

Greater collaboration between governments, businesses and other stakeholders will be essential to tackle climate change, said professors from IMD, Cambridge Judge Business School and Oxford Saïd Business School. 

The professors were speaking as part of a joint webinar on The latest IPCC report and climate leadership: The risks and opportunities – the third in a series hosted by Business Schools for Climate Leadership (BS4CL), a unique partnership between eight of Europe’s leading business schools designed to help present and future leaders combat climate change. 

The need for innovation 

In the first part of the webinar, Kamiar Mohaddes, Associate Professor in Economics and Policy at Cambridge Judge Business School, explained the link between climate change and economic activity. As far back as the early 20th Century, a micro study by Yale Professor Ellsworth Huntington found that productivity at a tobacco factory in Tampa, Florida declined as temperatures both rose and fell below the levels to which workers had become accustomed.  

With the IPCC report 2022 warning that the world is set to see an average rise in temperatures of 1.5 degrees Celsius above pre-industrial levels in the next decades, this will have a “massive impact” on economic activity, said Mohaddes. 

Climate change is not just an issue for poor and hot countries, it will also affect rich and cold countries,” he said, adding the consequences for productivity would be felt beyond agriculture in industries as wide-ranging as mining, manufacturing, retail and transportation as illustrated by his recent work with colleagues from the International Monetary Fund, Cambridge, University of Southern California, and National Taiwan University. 

The problem will be particularly acute for advanced economies which are already grappling with slower increases in productivity, he said. One solution to drive economic growth and reduce carbon emissions will be for governments to encourage R&D in technologies to mitigate and adapt to climate change. For example, government subsidies in Europe over the last ten years or so have led to massive expansion of wind and solar energy, prompting real innovation and a drop in the price of renewable energy. He argued this is a good example showing that green investments can improve the environment and the economy at the same time. 

The need for incentives 

Knut Haanaes, Professor of Strategy and Lundin Sustainability Chair at IMD, then examined how government can work with companies to speed up the green transformation. 

“Business needs carrots and sticks, otherwise we will not see the needed acceleration,” he said. 

While a lot of focus has been put on the strategic transformation required to combat climate change, Haanaes said he believed more attention should be given to the leadership aspect of climate change. “How do we lead and show courage? And make change happen at the same time?” 

He cited the example of three companies that had taken measures to transform: Denmark’s Maersk is moving towards net-zero shipping, Royal DSM has made commitments to make food systems more sustainable, and Nestlé is adapting to more discerning consumer tastes. 

Organizations should ask themselves the following four questions: 

  • How can we speed up change and transformation? 
  • How can we address the changes in a just way? 
  • How can companies move to a circular economy? 
  • How to make business work together and collaborate more broadly to create stronger impact? 

The need for collaboration 

Building on this, Marya Besharov, Professor of Organisations and Impact at Oxford Saïd Business School, discussed the leadership practices required for firms to make climate action a core part of their business strategy and to effectively collaborate with government and other key stakeholders. 

Companies are facing both internal organizational challenges and external systemic challenges when it comes to addressing climate change, she said. “The challenge for leaders is about managing what often seem to be competing demands between profit and sustainability.” 

Besharov advocated a three-pronged approach. Firstly, firms should think about adopting a “both/and mindset” by considering how they can achieve business success through sustainability. Secondly regulators and companies need to strengthen the so-called “guardrails” to ensure that the goals, metrics and incentives around sustainability are as tough as those around finance and profit. Thirdly, established firms need to cultivate the ability to learn, experiment and fail to come up with new solutions, she said. 

Companies will also have to work out how to collaborate with diverse stakeholders ranging from activists such as Extinction Rebellion to investors and fund managers, NGOs, and government agencies. “All have a role to play. Some are highlighting the problem, some are operationalizing ways of addressing the problem and some are orchestrating and connecting across sectors”, said Besharov. 

To foster catalytic collaboration, companies, governments, and NGOs will need to create a shared narrative and vision for the future that motivates individuals and firms to shift behavior. They will also have to create trust between organizations and communities that differ in the power, perspective, and resources that they bring to sustainability efforts, such as those working across different industries or in the global north versus global south. Finally, there will need to be increasing accountability, particularly for businesses that exert substantial influence on the natural world and those with the resources to harness opportunities. 

Mohaddes cited the example of Norway as a country where collaboration between the government and business has led to emission reductions. By taxing combustion engines and rewarding those owning electric vehicles, all-electric vehicles now make up 86.1% of all cars in the country 

Haanaes called for more incentives to help startups, particularly those in emerging markets, achieve scale. He advised startups to seek partnerships with bigger, established companies to help scale their technologies. 

Finally, the professors addressed the need to transfer technological know-how and capital to emerging economies to ensure that the transition is fair. The bottom line is that mobilising climate finance and providing low-income countries with access to technology is a win-win for both the advanced and the developing economies, and will help accelerate a transition to net zero globally, said Mohaddes. 

“We need global incentives not just local.” 

BS4CL was launched in October 2021 and is made up of the following founding members: Cambridge Judge Business School, HEC Paris, IE Business School, IESE Business School, INSEAD, International Institute for Management Development and Oxford Saïd Business School. . Since then, it has been providing insights and assistance to businesses, through its unique toolkit and webinar series. The toolkit has provided leaders with the materials to assess their readiness to act and tackle this planetary emergency, while the first series of webinars helped businesses understand how environmental pledges and targets can be met and made. This second series aims to further accelerate action to tackle climate change, identifying business needs ahead of COP27.  

Authors

Kamiar Mohaddes

Associate Professor in Economics & Policy at the Judge Business School at the University of Cambridge

Kamiar Mohaddes is an Associate Professor in Economics & Policy at Judge Business School at the University of Cambridge, and a Fellow in Economics at King’s College, Cambridge where he co-directs the King’s Entrepreneurship Lab. He is also an Economic Research Forum (ERF) Research Fellow, and currently serves as its Thematic Co-Leader for the macroeconomics theme.

Knut Hanaaes - IMD Professor

Knut Haanaes

Lundin Chair Professor of Sustainability at IMD

Knut Haanaes is a former Dean of the Global Leadership Institute at the World Economic Forum. At IMD he teaches in many of the key programs including the MBA, EMBA, and other executive programs. He is Program Co-Director of the new Leading Sustainable Business Transformation program and the Driving Sustainability from the Boardroom program. His research interests are related to strategy, digital transformation, and sustainability.

Marya L. Besharov

Professor of Organisations and Impact at Oxford Saïd Business School

Marya is Professor of Organizations and Impact at Oxford Saïd Business School and the inaugural Academic Director for the Skoll Centre for Social Entrepreneurship, a diverse, equitable, and inclusive learning community of academics, practitioners, and students from around the world. The Skoll Centre pioneers global learning in social entrepreneurship, systems change, and knowledge equity through world-class education programs, action-centered research, and catalytic collaborations.

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