The business of climate change: A call for innovation

Whether or not you believe the science on climate change is irrelevant, says Andrew J. Hoffman, a University of Michigan professor of sustainable enterprise. Whatever you think, it's long past the time to open your eyes to the business implications. Author of "Climate Change: What's Your Business Strategy?", Hoffman visited Arizona State University recently as part of the Wrigley Lecture Series on Sustainability, co-hosted by the W. P. Carey School of Business and the National Center of Excellence on SMART Innovations.

From Andrew J. Hoffman's perspective, climate change is both a threat and an opportunity. "In periods of great flux and uncertainty, the people who love [change] are going to find opportunities," says Hoffman, a University of Michigan professor of sustainable enterprise.

Author of "Climate Change: What's Your Business Strategy?", Hoffman visited Arizona State University recently as part of the Wrigley Lecture Series on Sustainability, co-hosted by the W. P. Carey School of Business and the National Center of Excellence on SMART Innovations.

"You can be completely agnostic about the science of climate change and still see the business implications for how it will change the market for goods and services," says Hoffman, who describes the issue of climate change as a market shift. "In any market shift there are winners and losers, and companies right now need to be thinking: 'What does it mean for your competitive position?'"

Hoffman advises companies to find a way to fit their climate change strategy into their overall business strategy. "I hear a lot of companies say, 'We're reducing greenhouse gas emissions because it's the right thing to do.' If you hear that, you should say 'That's all well and good, but what's the business case?'" Social responsibility, unfortunately, goes out the window in times of financial crisis, he indicated.

Hoffman believes it is a mistake for companies to approach climate change as a risk management problem. He suggests, instead, that it should be seen as an opportunity for innovation and smart business choices. As with the shift from typewriters to computers or from the Walkman to iPods, the best business strategy is innovation.

According to Hoffman's research, companies that have voluntarily reduced their greenhouse gas emissions have done so for competitive reasons: to increase profits, preempt government regulations, and enhance their corporate reputations.

They recognize that consumers and investors are increasingly seeking environmentally conscious products and services, that governments are already putting a price on carbon emissions, and that energy costs are likely to rise. Strategic timing and level of commitment are two critical elements affecting a company's climate change business strategy. "It's not a question of 'whether,' says Hoffman, "but 'when' for many companies."

His answer: "The time is now." Once the timing decision has been made, then the question is: How far do you jump? "It's like a wave," says Hoffman. "You want to be on the crest of that wave, not getting too far down in the trough, but not falling too far back. You really need to be attuned to the market signals that are out there and move with them."

Hoffman describes how a company can incorporate a more conscious approach to climate change by following an eight-step process."Climate change cannot be an add-on" says Hoffman, "it must be integrated into a company's overall strategy to be successful." A more detailed account of the eight-step process can be found in his book.

Designed to be read on a short two hour flight, "Climate Change: What's Your Business Strategy?'" takes a CEO through the steps necessary to successfully move with this market shift. Ultimately, companies facing climate change will need to seize their opportunity to thrive. "Change is coming," Hoffman says. "That's where it gets fun."

Bottom Line:

Hoffman prescribes an eight-step process to integrate the challenge of climate change into your business strategy in his book, "Climate Change: What's Your Business Strategy?" Here's the short story:

1. Assess Emissions Profile: Where does your company currently stand in regards to emissions? How are the emissions being measured? Does the system of measurement take into account both direct and indirect emissions?
2. Gauge Risks and Opportunities: See where other companies have fallen short and where others have gotten ahead. In which areas can your company afford to take risks? What opportunities can be found to push the company forward?
3. Evaluate Action Options: Search for low hanging fruit. Lowering emissions might be easier than it sounds. Look for simple ways to reduce impact.
4. Set Goals and Targets: By how much can the company reduce its impact? Are the goals flexible enough to accommodate unforeseen events? Can different areas of the company set different goals to create a more comprehensive overall target? What is a reasonable time frame in which these goals can be realized?
5. Develop Financial Mechanisms: Costs are measured using three dimensions; absolute costs, normalized costs and financial return measures. Can your company's financial approach to climate change be a competitive advantage?
6. Engage the Organization: Leadership is crucial. It may take time to have everyone on board with the focus of climate change strategy, but the ultimate goal is to have this focus internalized by the entire organization.
7. Formulate Policy Strategy: Governmental changes in policy concerning climate change are coming within the foreseeable future. What can your company do to influence this policy development?
8. Engage External Relations: Once your company has taken steps to implement climate change strategy and has set the foundation for their own internal focus, can collaboration with other groups help to maximize the effects of your company's efforts?

Story by Jessica Lagreid; photos by Vince Palermo/ASU