Climate Age

Climate related weather events are prominent in the news these days. We are seeing new records in hurricane intensity, river and coastal flooding, wildfire size and duration, the length of drought periods, the number of tornados, hotter-than-ever heat waves, water shortages, and other environmental threats. Science is telling us that these events reflect a warming atmosphere and that what we are witnessing today is just the beginning.  Media accounts often show the impact of these conditions on human suffering but there is a measurable economic cost too. In March of 2021, Forbes published an important article, forecasting that climate change will cost businesses some $1.3 trillion in losses by 2026. The article summarizes a set of studies, such as those of the Carbon Disclosure Project (CDP), that spell out the far-reaching business impacts of climate change to companies and their supply chains. Indeed, physical climate disruptions, particularly to supply chains, will occur due to these emerging climate-generated factors. In business terms, it is predicted that climate change will become a major economic disrupter going forward much in the way that Covid 19 has been since 2020. Climate change is powerful and non-linear. Deloitte also points out that climate change is already turning the insurance industry on its head. They have found that: a majority of insurance regulators expect companies’ climate change risks to significantly increase. This will include “physical risks, liability risks, and transition risks.” They also say that more than half of the insurance regulators they surveyed believe that climate change was likely to have “a high impact or an extremely high impact on coverage availability and underwriting assumptions.”

Deloitte is among the many forecasters saying disruptions will also come from new business opportunities (and opportunity costs) offered by climate change. Some of these opportunities will arise from taking on climate change directly, such as new energy modes, carbon capture and climate mitigation engineering and technologies. Others will come from shifts in investor and consumer preferences as America transitions to electric cars, less meat eating and more sustainably produced goods and services. Other business advisors such as McKinsey and Arther D. Little are making climate threats and opportunities a larger part of their services to clients. All these firms see that the relative stability of the pre-climate change age is drawing to an end. From now on, business leaders will need to be smart, disciplined and agile in understanding and addressing what this more volatile climate future has in store.

This is where climate education and knowledge comes in. An assessment by PwC (PricewaterhouseCoopers) found a curious disconnection regarding business leaders’ knowledge and capacity to handle these disrupters. It found that CEOs are aware of general climate-related risk, but most have not drilled down to how those conditions might specifically affect their businesses. Illustrations might be a CEO of a major resort business failing to plan for how more intense coastal storms could destroy flagship operations, or the head of an agriculture conglomerate failing to see how drier conditions in the West coupled with a diminished mountain snowpack might make irrigation water critically scarce or reduce hydropower availability. PwC also found that CEOs are not doing their best at exploiting the business opportunities that climate change will inevitably present. These will come from seeking more resource efficiency, energy conservation, new products and services and resilience strategies. One is reminded of famous business cases of forecasting failures such as Xerox giving away Windows computer technology or Kodak downplaying digital photography.

Deloitte finds more awareness by CFOs but also notes that most climate actions they are implementing are short term (such as energy conservation) and do not involve longer-term and farther-reaching strategy and projections. In 2020, McKinsey conducted a year-long assessment and found that business and community leaders are generally unprepared for the scale and rapidity of climate-related changes that are coming. Assuming that CEOs and CFOs are willing to step up, where will they find the expertise needed for themselves and their teams?  Where will a climate-literate business and financial leadership workforce come from?

There is some good news here. A significant number of U.S. higher education institutes including business schools, are incubating climate impact assessment and action programs. A majority of business schools will use climate cases in instruction and some may have full scale climate/business courses but relatively few have comprehensive climate education programs. There are intriguing climate and business programs at Yale, Harvard, Columbia, Duke and other schools. These are interdisciplinary and link hard science, social concerns and business strategy. This approach positions them to offer a more solid climate change grounding to their graduates. But there are too few of these more comprehensive efforts. A argument can be made that climate literacy in business schools needs to evolve from mostly extra-curricular to a new level of ultra-curricular.  This would involve improved climate preparation for faculty members and more comprehensive integration of curricula and cases into business schools course subjects such as planning, investing, siting, supply chains, commodities and futures, manufacturing and much more.

Systemic changes would help too. The AACSB, accredits business schools and recommends, in its current accreditation standards, for schools to include a global mindset, societal impact, agility and mission focus.  It also supports the idea that future business leaders will need an understanding of climate change causes, consequences and solutions. The stage is set, but the AACSB has not yet fully developed standards that capture how important and impactful climate change will be to the business education process. This still leaves the critical subject of climate change in business education up to the individual schools and innovators such as those noted above. But the subjects of climate impact and risk are so critical to America’s business future that supportive policy interventions and public funding make perfect sense.  So what can policy makers do?

For starters, the National Higher Education Act already contains an important but unfunded provision: The University Sustainability Program (USP). This legislation is designed to support the establishment of centers of excellence for college and university education on climate and sustainability.  Business schools could be folded into the definition for this program and instead of it being authorized at $10 million per year, it could be increased to 20 times that amount.  It could provide grants to a higher percentage of America’s 800 business schools and could specifically help them to design multidisciplinary climate and business programs. 

The U.S. Congress has also been considering a Climate Change Education Act that would support a grant program at the National Oceanic and Atmospheric Administration (NOAA) for K-12 and higher education on climate sciences and solutions. This Act could be expanded to incorporate business education in a multidisciplinary frame that more thoughtfully ties business education to climate science.

A third and inspiring policy concept comes from Rutgers University professor Robert Kopp who points out that we now may well need Climate Grant Universities in the same way that we needed Land Grant Universities in the Nineteenth Century. Kopp shows that climate change is causing $300 billion per year in damages to natural resource systems and infrastructure and this reality should be receiving much more study and solutions instruction via American higher education. Climate Grant Schools could easily include business schools as part of their interdisciplinary mix.

Financial analysts, consultants, insurers and investors are calling upon American businesses to step up on climate-related risk and manage it with skill and agility. For this to happen we will need American higher education to play a larger role. There are positive signs already at some colleges and universities, but the federal government and state governments have leadership roles to fill here as well. Widespread business education on emerging climate impact and risk is a powerful and critical leveraging opportunity for keeping the American economy strong. We should not assume that climate savvy business leaders will spontaneously emerge in the numbers that will be needed without more thoughtful public funding and policy encouragement.

Photo credit: ThinkingCapAgency.com