HBS Faculty Comment on Environmental Issues for Earth Day — HBS Working Knowledge

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OP-EDHBS Faculty Comment onEnvironmental Issues for EarthDayPublished: April 26, 2011Author: StaffHarvard Business School faculty members construction—to work together to create all innovators today are working hard on theoffer their views on the many business facets of aspects of the urban environment. Also premise that smart cities will perform better"going green." necessary are new systems and processes for environmentally, financially, and socially thanhelping cities operate efficiently and has been the case in most of the world's cities toeffectively, including the use of new date. A pretty smart way, we'd say, ofEarth Day focuses the world's attention on information and communication technologies protecting our environment.the both the dangers and opportunities facing already available but currently rarely used inthe planet. But sustainability and the this capacity. As always, more than half the Benjamin G. Edelman,intersection between business and the challenge is creating and implementing the newAssistant Professor ofenvironment are issues that need to be management processes that make smartaddressed all the time, as cities grow, resources technologies work. In short, the so-called "soft Business Administrationdiminish, and ecosystems are threatened by stuff" presents challenges that will occupy In most cities, the automobile is king of theboth nature and humankind. We asked a group management researchers and practitioners for commute, even ...

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• Publié par: Shean
• Nombre de lectures: 16
• Langue: English

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OP-ED

HBS Faculty Comment on

Environmental Issues for Earth

Day

Published: April 26, 2011

Author:

Staff

Harvard Business School faculty members

offer their views on the many business facets of

"going green."

Earth

Day focuses the world's attention on

the both the dangers and opportunities facing

the

planet.

But

sustainability

and

the

intersection

between

business

and

the

environment

are

issues

that

need

to

be

addressed all the time, as cities grow, resources

diminish, and ecosystems are threatened by

both nature and humankind. We asked a group

of Harvard Business School faculty members to

offer their views on the many facets of "going

green."

Robert G. Eccles, Professor

of Management Practice

Amy

C.

Edmondson,

Novartis

Professor

of

Leadership

and

Management

The world's cities are principal engines of

economic growth and activity, with the largest

600 urban centers accounting for roughly 60

percent of global GDP. The creation of this

economic and social value, however, involves

the

consumption

of

considerable

natural

resources. For example, cities today contain 50

percent of the globe's citizens (a number

projected to grow to 70 percent—some 5.6

billion people—by 2050), but consume 60-80

percent of the world's annual energy usage.

Vast amounts of natural resources are also used

each year in building new cities and expanding

existing ones through real estate development

and construction.

The way cities are built and renovated and

the way they operate is unsustainable from an

environmental perspective. We need to build,

improve, and manage cities in a smarter way.

This calls for smarter design and construction,

which

requires

new,

more

collaborative

processes

that

enable

different

organizations—design,

engineering,

construction—to work together to create all

aspects

of

the

urban

environment.

Also

necessary are new systems and processes for

helping

cities

operate

efficiently

and

effectively,

including

the

use

of

new

information and communication technologies

already available but currently rarely used in

this capacity. As always, more than half the

challenge is creating and implementing the new

management

processes

that

make

smart

technologies work. In short, the so-called "soft

stuff" presents challenges that will occupy

management researchers and practitioners for

decades to come.

Several recent innovations can help make

cities in smarter ways, so that they are built

more quickly, with less waste and overall

impact

on

the

environment

during

the

construction

process.

Environmental

performance will improve in part due to

building

better

buildings.

For

individual

building

projects,

owners,

architects

and

contractors have been experimenting with

integrated project delivery

—a collaborative

process that involves unprecedented teamwork

and shared decision making throughout a design

and building project. A number of companies

are

developing

ecosystem-based

business

models.

A better building

process

, particularly for

reducing waste, requires a modular approach to

construction with extensive prefabrication. This

also makes it possible to embed technology,

such as sensors and actuators, into the very

fabric

of

the

building.

But

the

greatest

contribution

of

technology

is

through

integrating hardware and software so that vast

amounts of data can be captured and analyzed

in order to improve the allocation and use of

natural resources. Working with Microsoft and

Cisco, Living PlanIT is doing this through its

Urban

Operating

SystemTM—a

unified,

distributed, real-time control platform that

converges cloud computing, deep sensing,

simulation, analytics and application services

with the fabric of buildings and infrastructure.

The hope is that a smarter building process

results in smarter buildings, and smarter

buildings

result

in

smarter

cities.

Many

innovators today are working hard on the

premise that smart cities will perform better

environmentally, financially, and socially than

has been the case in most of the world's cities to

date. A pretty smart way, we'd say, of

protecting our environment.

Benjamin

G.

Edelman,

Assistant

Professor

of

Business Administration

In most cities, the automobile is king of the

commute, even though public transit often has

lower direct dollar cost. The prevalence of

private automobiles causes problems that go far

beyond the combustion engine and its massive

carbon footprint. In city centers, underground

parking adds millions of dollars to building

costs. In suburbs, surface parking demands

large gaps between buildings, perpetuating

urban sprawl and making walking infeasible.

Meanwhile, road maintenance saps budgets at

every level of government. Automobile owners

face high costs, too, including insurance,

maintenance, and fuel. And motoring imperils

the lives of drivers and pedestrians alike. Had

anyone suspected that parking lots and roads

would consume up to 70 percent of urban land

while causing more than 30,000 fatalities a

year, cars would have been adopted much less

enthusiastically.

It doesn't have to be this way. Imagine a

system

that

preserves

the

best

of

the

automobile—private

on-demand

service

to

many destinations, no delays for others to get

on or off, and great flexibility for later

expansion. Add the key advantages of public

transit—a dedicated guideway without delays

from other traffic, plus computer control so

passengers can work or relax. There are also

important environmental benefits—no local

emissions, flexible power sources, and reduced

energy consumption thanks to lightweight

vehicles and automated guidance to prevent

unnecessary starts and stops.

All this may sound like a pipe dream, but

engineers and entrepreneurs envision personal

rapid transit (PRT) systems that achieve these

COPYRIGHT 2010 PRESIDENT AND FELLOWS OF HARVARD COLLEGE

1

benefits. Such a system opened this week at

Heathrow

Airport's

Terminal

5,

taking

passengers between the terminal and a parking

lot two miles away. In addition, the city of

Amritsar in India has contracted to install a

system in its urban core, while Suncheon,

Korea, will use similar technology to link parts

of a park and wetland. Further studies abound.

In the long run, well-developed PRT could

replace urban rail—making public transit faster,

cheaper, more pleasant, and more flexible. In

the short run, PRT will improve connections to

public transit. A business park may be two

miles from the nearest train station, but it is

effectively adjacent to that station if PRT

provides an on-demand, non-stop, four-minute

connection from transit platform to building

lobby. Early small projects invite decentralized

innovation and private investment without

far-reaching central planning. For example, a

developer can install PRT to benefit its own

property, thereby establishing initial PRT links

without resorting to public funds.

Despite the high social and environmental

costs of private automobiles, I don't fault those

who rationally choose to commute by car. But if

we can devise a better solution, savvy travelers

will choose accordingly, and Planet Earth will

be the beneficiary.

Rebecca

M.

Henderson,

Senator

John

Heinz

Professor of Environmental

Management

Re-orienting current energy systems toward

a far greater reliance on technologies with low

or no carbon dioxide emissions is an immense

challenge—one that will be hard to meet

without significant innovation. To give us some

sense of whether this can be done, and if so

how, Duke Professor Richard Newell and I

convened a group of scholars just over a year

ago to discuss what we have learned about how

best to accelerate innovation from industries

like IT and pharmaceuticals - sectors in which

the US leads the world and which saw

enormous rates of technical progress over the

last fifty years.

The results of our discussion will be

published by the University of Chicago press on

June 1 in an edited volume entitled

Accelerating

Innovation: Insights from Multiple Sectors

. In

detailed histories of agriculture, chemicals,

semiconductors, computers, the internet and

biopharmaceuticals we asked "what made the

difference? Why did technical progress in this

industry take off?" Comparing notes across

sectors we identified two factors that were not a

surprise to any of us—accelerating market

demand and well managed federal support for

fundamental research. But the third factor—the

thing that appears to have made the difference

in

industry

after

industry—was

indeed

unexpected. Beyond supply and demand, the

theme that emerges most clearly from our

histories is the important role that public policy

has played in fostering vigorous competition

and "markets for technology" in each industry.

Furthermore we noted the centrally important

role that this competition played in accelerating

innovation.

We know that small, entrepreneurial firms

are the source of much of the innovation in the

economy—but our work suggested that in many

industries the emergence of those firms is

greatly facilitated by the right kind of public

policies: well designed intellectual property

regimes; procurement policies that favor new

firms; standards that allow competition by

component

rather

than

by

system

and—sometimes—antitrust

enforcement

that

forces large, well-established firms to share the

market.

I'm firmly convinced that private sector

innovation could transform the energy sector.

But this research leads me to believe that the

right

kind

of

regulatory

framework

and

institutional policies are fundamental to making

it possible.

Shon

R.

Hiatt,

Assistant

Professor

of

Business

Administration

In the US, states and local governments are

able to experiment with policies that can have

positive

impacts

on

innovation

and

entrepreneurship. After experimentation, policy

makers are able to pick and choose among a

variety of policies to implement those that work

best. While some officials proactively search

for superior policies and then make changes, in

many cases laws remain the same, leading some

localities to significantly underperform others.

Take geothermal power, for instance. New

technologies often require the creation of legal

definitions and categories in order to facilitate

resource

attainment,

property

rights,

and

transferability of ownership. When geothermal

power was introduced in the 1960s, the

technology

was

new,

and

states

defined

geothermal resources (the heat of the earth that

is used to make electricity) in various ways.

Some state legislators defined it as heat or

mineral, others as water, and some as both or

neither of the two. Little did policy makers

know that these legal codifications would have

tremendous

impacts

on

the

ability

of

entrepreneurs to obtain ownership rights to the

geothermal resources and found new ventures.

Colorado,

for

example,

has

ambitious

renewable portfolio standards and tax incentives

for geothermal as well as the largest amount of

economically extractable geothermal energy in

the country. Yet largely because of its legal

codification, it does not have an operational

geothermal plant. Over the past 40 years, these

simple technological definitions have become

the greatest impediment for the sector's growth.

While regulatory experiments such as this

can provide us with information on both

successful and unsuccessful policies, a key

issue facing the intersection of business and the

environment is our motivation to recognize

successful policies and then rally to adopt them

quickly. In such a way, greater innovation and

business development won't be far behind.

Rosabeth M. Kanter, Ernest

L. Arbuckle Professor of

Business Administration

Protecting the environment can be fun. It's

also good business. Mother Nature—speaking

through

your

friendly

neighborhood

banker—insists on it.

The fun part revolves around Earth Day

festivals taking place around the world. But the

biggest news isn't the millions of people

partying in parks. It's the millions of dollars that

banks are dedicating to solving environmental

problems, joined by companies that see the gold

in green (to paraphrase the title of Daniel Esty's

book,

Green to Gold

), such as General

Electric's push into wind and solar power.

JPMorgan Chase, Citigroup, and Bank of

America are among those adding environmental

criteria to loan analyses. Venture capitalists like

Kleiner Perkins see the future in green

technology investments.

Environmentalists find the private sector

increasingly receptive to their message (or

pressure). Numerous companies know that

reducing

waste,

recycling,

and

avoiding

pollution makes economic sense. When Home

Depot encouraged two of Chile's biggest

loggers to stop buying land that is being

deforested,

the

company

pleased

environmentally-conscious

consumers

today

and

ensured

a

wood

supply

tomorrow.

WalMart's

efforts

to

disclose

the

carbon

footprints of all suppliers could have an even

bigger impact, reaching as far as manufacturers

in China.

Banks

add

special

clout

to

the

socio-environmental agenda. By offering or

withholding capital, banks rival governments in

their power to shape business behavior across

various industries.

Cynics

wondering

if

this

is

just

window-dressing should consider the case of

Santander Brazil, a top financial group that has

profited

by

becoming

an

environmental

conscience for its country. The group has

influenced customers and suppliers to change

their practices, whether by helping a fish

harvesting operation in the coastal swamps

minimize pollution or encouraging a motorcycle

courier company to reduce emissions and

accidents.

Commercial

customers

can

get

financing to treat effluents, control atmospheric

emissions, or make environmentally-oriented

facility upgrades. Consumers can get loans to

purchase

solar-powered

water

heaters

or

convert cars from gasoline to natural gas.

Working with Friends of the Earth and

Ethos Institute, Santander Brazil remedied its

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own environmental shortfalls, such as outdoor

displays in environmental protection areas or

using an illegal artesian pond to supply water to

some of its offices. This is good business.

Screening customers on their environmental

behavior strengthens the loan portfolio. "A

company that treats its employees well and

maintains a healthy relationship with the

environment has a higher probability of being

economically

sustainable,"

a

Santander

executive observed.

Can money be made while saving the earth?

Can

the

private

sector

accomplish

what

politicians

find

difficult?

Are

financial

incentives as powerful as regulations?

These questions remain. But for now,

financiers and investors can join Kermit the

Frog in having fun being green.

Joseph B. Lassiter, MBA

Class of 1954 Professor of

Management Practice

In 1993, Bill Murray starred in a movie

called

Groundhog Day

, where he woke up each

morning

doomed

to

repeat

the

same

mind-numbing day over and over and over

again. Unfortunately, when it comes to oil, the

American people and the politicians that

represent them are trapped in a Ground Hog

Day movie of their own making.

This year we will import over $350 billion

of crude oil extracted from the soil of foreign

powers, with prices set by an international

cartel, the Organization of Petroleum Exporting

Countries (OPEC). Arguably half of this money

is nothing more than a ransom (a monopoly

profit above competitive prices) that we have

grown (disturbingly) accustomed to paying year

after year. This ransom is $500 per year—year

after year—for every American man, woman,

and child. And we just keep paying it.

In an ideal world, the hidden costs of energy

security and energy's environmental impacts

(including

local

air

pollution,

globally

threatening

carbon

dioxide

emissions,

remediation and catastrophes like the BP oil

spill or the Fukushima nuclear power plant

disaster) would be included directly in the

prices of each of the various energy sources, not

somehow shielded from the eyes of consumers.

In a competitive world, private investment

would flow to those alternative technologies

that

provided

economically

efficient

and

environmentally sound energy sources. But due

to political legacies, these markets fail to

function in nearly every energy sector today,

and nowhere are the costs of these failures

clearer than in the case of oil.

Lacking the domestic political consensus to

have oil bear its true costs and the international

political consensus to break the OPEC cartel,

the US government and the American people

must learn to accept the magnitude of this

problem and its yearly drain on our economy.

To break free, we must urgently fund (and

properly regulate) alternatives that can secure

our independence, going far beyond the $8

billion clean energy program proposed by the

Obama Administration for 2011.

It is time to stop paying a $175 billion

annual ransom to a cartel that robs us of the

resources we need to have the environmentally

sound and economically efficient alternatives

that we value. It is time to repower our own

independence. It doesn't have to be

Groundhog

Day

for us.

John D. Macomber, Senior

Lecturer

of

Business

Administration

For me, two dominant global trends define

the intersection of business and environment.

First, rapid urbanization. The population of

cities will increase by three billion people, more

than doubling, in the next 30 years. These

people are not all moving to New York and

Shanghai; they will live in thousands of newly

created cities. Second, resource productivity.

There is already not enough energy, clean

water, clean air, effective transportation, or

space to put garbage. Rapid urbanization will

only accentuate these shortages.

How should we address the problems in the

confluence of these two trends? One approach

is to expect governments to create more supply

by building water plants, railroads, and power

stations, among other things. But very few

governments today have the financial means or

the political capacity to do this on a huge scale.

A

second

approach

is

to

expect

governments to restrict demand via, say, a

global carbon tax plus international restrictions

on automobile miles-per-gallon. This is an

equally worthy way of doing things, but it's not

realistic to expect this course of action to

coalesce on its own. Many of my colleagues in

finance and engineering want to follow a third

path—the pursuit of high-tech ways to increase

supply—biomass, photovoltaics, carbon capture

and

sequestration,

batteries,

desalination,

magnetic levitation (mag-lev) trains, and super

sensors.

All

are

examples

of

interesting

technology that is challenging, investable,

publishable, intellectual property protectable,

and venture capital fundable. That said, they are

also very expensive and hard to scale and

worse, quite difficult to bring to the urban seven

billion.

The fourth approach is the one we need to

follow, and it's squarely in the domain of

business and environment. The big, high

leverage, scalable opportunity involves our

extending resources, reducing demand, and

making what we have go further. The best way

to get more water and energy and clean air is to

avoid wasting what we have. This is not high

tech or pie in the sky; it's investment,

negotiation, and allocation of costs and benefits.

In short, it's business.

For financiers, entrepreneurial ventures, and

Global 1000 product and service companies

alike,

this

means

organizations

that

are

investing

in

and

marketing

resource

productivity at scale—whether sharing assets or

adding insulation. In the real estate and urban

planning world, this means new cities with

density, verticality, mass transit, and effective

capture and re-use of water, heat, and energy.

For cities, states, provinces, and nations,

infrastructure that uses resources efficiently is

also lower in cost and higher in attractiveness

for

citizens

and

business.

Business

and

environment are more than intersecting vectors;

they are fully aligned in concrete and steel and

water in future cities and in businesses that

stretch the resources we have. That's the future

that I want to see before me.

Arthur

I.

Segel,

Poorvu

Family

Professor

of

Management Practice

With a rising world population and a

scarcity of resources, sustainable development

is no longer a niche market; it's a necessity. The

United States, in particular, lags behind much of

the

world

in

its

efforts

to

incorporate

sustainability on a large scale. Our challenge is

to

rethink

the

way

we

structure

our

communities. We live in a society that was built

around the automobile, which has given us

tremendous

personal

freedom,

but

at

a

tremendous cost. Greenfield developments have

been built farther and farther from our core

cities. America's answer to affordable housing

historically has been the suburbs, away from

employment centers because land is always

cheaper on the fringe. This sprawl requires

expensive infrastructure we cannot afford.

How will we tackle the large-scale changes

necessary

to

reinvent

our

communities?

Physical

infrastructure

needs

a

massive

overhaul. We must give people the opportunity

to be able to walk to stores or their workplaces

again. We need to build new, safe models to

protect our children, our elderly, and our scarce

resources. Over the past few decades, we have

raised our standard of living, but not necessarily

the quality of our lives.

Real estate and the environment should not

be

thought

of

as

incompatible

interests.

Scientists and philosophers have pointed to

human beings' deep, historical connection with

nature.

When

people

are

in

a

natural

environment, they are healthier and happier and

have a greater sense of well being. Why not

incorporate more of this into our buildings? We

can design green roofs. We can use storm water

runoff for toilets and cooling systems. We can

situate buildings to maximize natural light for

interior spaces. We can use louvers, awnings,

window systems and insulation to reduce

heating and cooling costs. Buildings can

incorporate biodegradable building materials.

All supplies used by tenants and landlords alike

can be required to be biodegradable. And we

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can

create

buildings

with

contours

that

complement

the

landscape.

As

Winston

Churchill once said, "We shape our buildings,

and our buildings shape us."

Robert G. Eccles, Professor

of Management Practice

George Serafeim, Assistant

Professor

of

Business

Administration

Companies are caught in an economic

dilemma when it comes to being responsible

stewards of the environment. Society wants

them to be efficient in their use of natural

resources and to do as little damage as possible

to the environment. Shareholders want them to

provide a proper risk-adjusted return on capital

while adhering to laws and regulations that

concern

a

company's

impact

on

the

environment. But what if these laws and

regulations are inadequate (e.g., no tax at

present on carbon emissions)? The company

then confronts the dilemma of taking actions

that may lessen its environmental impact at the

cost of reducing its return to shareholders, at

least in the short term.

A combination of regulatory and market

forces have recently increased the economic

value of environmentalism. Expectations about

raising the cost of environmentally irresponsible

practices through taxes, along with increased

awareness

and

pressure

by

customers,

employees, and civil society, have made the

case that better environmental performance can

lead to better economic performance. One

response on the part of corporations has been

innovation in products and processes. However,

this innovation has typically taken place in a

predictable pattern. In nearly all cases, there is

some "low hanging fruit" in areas such as

greater energy efficiency (to reduce carbon

emissions), recycling (to reduce waste), and

better plumbing (to reduce water usage). Since

these areas are largely about cost reductions, the

economic case is easy to make. But the actual

effort involved is often fairly small, and the

company soon hits the point of diminishing

returns. The good news is that even these small

steps weren't being taken a few years ago, when

general consciousness about the environment

was

lower

than

it

is

today.

Bigger

breakthroughs require bigger thinking, and we

believe this is possible.

Two things must be done to spur innovation

and realize the greatest benefits from it. The

first is that companies must build more rigorous

business

models

showing

the

relationship

between

financial

and

environmental

performance

(e.g.,

lower

costs

or

higher

revenues leading to better margins). They need

to be more precise about how their efforts to

improve environmental performance contribute

to their financial performance and over what

time period. Second, they need to communicate

this externally in an

integrated report

, which

shows the relationship between financial and

environmental

(as

well

as

social

and

governance)

performance.

And

when

the

company has decided that its environmental

performance is more important in the short term

to its financial performance, it should be

explicit

about

this.

True

investors

will

appreciate this, since they know the result is a

more sustainable strategy for the company over

the long term.

In response to these issues, we have created

a new elective course at HBS called "Creating

and Communicating Value: Building Business

Models." It will give students the opportunity to

work with companies to build models showing

the relationship between environmental, social,

and

governance

issues

and

financial

performance—the ingredients that form the

foundation for integrated reporting.

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