of the CEOs I most respect, Michael Hawker who runs the very successful
Australian insurance giant IAG, describes the essence of business
success as having the edgethe ability to make
the right judgment calls on uncertainty.
Environmental issues provide a myriad of these kinds of business
uncertainties and, therefore, many opportunities for applying the
edge. Yet in an interesting twist, the end state in each case
is generally far more predictable than most other business challengeslargely
because the outcomes are driven not by technology or other market
developments, but by the science of ecological impact and the predictable
societal responses to them. So while the end state may be predictable,
the essence of the business challenge is in the timing of response.
Take climate change for example. The end state is very clear. The
climate is changing and will change more, the world will not stand
by and do nothing, and so dramatic reductions in CO2 emissions will
be made. (Business certainty is not the same as scientific
certaintyit is an assumption for business planning purposes.)
Another business certainty is that things will not stay as they
are. Therefore, not taking some kind of preparatory action or hedge
strategies would be a failure of fiduciary duty. But the business
certainty ends there. Questions of timing of different actions and
the way society will get to the end state are far from clear.
There are key issues business needs to consider: Will the market
shift before a significant crisis occurs? Will the change be driven
by competitive pressure or national regulation? Will there be global
governance like Kyoto? What are the key technologies that will succeed?
Will there be a public backlash in response to climate events? Will
there be successful litigation?
Making these calls and the timing of them will be commercial life
and death for some companies. Move too early and you risk wasting
investment dollars and distracting the business from more immediate
priorities. Move too late and you risk losing technological advantage,
cultural preparedness and damage to your brand as a laggard. If
the shift is discontinuous, as I believe is likely, then acting
too late could be fatal.
I have spent 30 years working on social issues20 years campaigning
in NGOs and, for the last decade, helping large companies predict
and respond to social issues that impact markets. A passionate advocate
of action on climate change, I have long predicted that the issue
would at some point take hold with the mass publicwith dramatic
implications for regulation and markets. I think we are now reaching
the critical mass of circumstances that indicate take-off. Theres
no science as to when issues take hold, so this is more of an intuitive
judgment. The key indicators?
First, the science has reached as near as consensus as were
likely to achieve while predicting the future. The evidence is clear
that were in trouble and its getting worse.
Second, the failure of Kyoto means there is a huge vacuum with no
action framework and indeed little action. Such vacuums have two
impacts: they create business uncertainty and nervousness and they
generally get filled. With the failure of Kyoto leaving no global
policy framework, the obvious opportunity for focus is the global
market. The irony of this is fascinating, with a possible outcome
being that those CEOs that spent a decade destroying Kyoto, like
ExxonMobils Lee Raymond, are likely to be the victims of their
own success. After all, market change is far scarier for business
than the steady process of regulation.
Third, mainstream culture is picking up the issue with the release
of movies like The Day After Tomorrow and with increasing
talk about the climate being different than it used to be.
Finally, and perhaps most significantly, is action by major players
in some key sectors. Examples include Honda and Toyota having released
hybrid electric vehicles and Ford now about to release the first
hybrid SUV. Others include financial markets studying climate risk
exposure, such as the recent Carbon Disclosure Project, and the
insurance industry starting to get very nervous at the increasing
unpredictability, and therefore higher risk and insurance cost,
of climate events.
If the issue does hit in a major public way, the market may start
to do its job. The joy of markets is that they are fast and global
so if the momentum builds, the process that follows will leave alternative
processes of social change for dead. While Kyoto took 15 years to
fail to do the job, the market may well take just five years to
succeed. In the mean time, you may want to review your stock portfolio
for exposure to slow responders.
Paul Gilding (email@example.com)
is the founder and CEO of Ecos Corporation, which provides strategic
advice to corporations on how to create value through sustainability.