Does climate change matter to executives?

Michael Alan Hamlin

Posted on April 2, 2008

They care about the PR benefits…

A recent survey by McKinsey & Company revealed that executives view climate change as an important issue involving both opportunity and risk. About 2,200 respondents from around the world participated in the survey, with almost 30 percent CEOs or other C-level executives. Sixty percent of the respondents said climate change is an important factor to consider in terms of overall strategy.

Almost 70 percent of respondents also said they see climate change “as an important consideration for managing corporate reputation and brands, and over half say it’s important to account for climate change in such varied areas as product development, investment planning, and purchasing and supply management. About one-third of respondents say their companies place more emphasis on climate change than on most other global trends.”

Now, take note: This trend was most prevalent in Asia-Pacific, with 71 percent of respondents agreeing. In China, 68 percent of respondents agreed. Despite the importance with which global executives view climate change, however, most aren’t acting on their feelings in any meaningful way. “Thirty-six percent report that their companies seldom or never consider climate change in corporate strategy.”

And although “60 percent of CEOs around the world say climate change is a somewhat or very important consideration in overall strategy, 44 percent also say that climate change is not a significant item on their agenda.” Most CEOs said their companies take climate change into consideration when developing strategic plans only somewhat well or not at all.

Another interesting finding is that more Asia-Pacific CEOs (34 percent) say their companies frequently or always consider climate change in overall strategy than CEOs in North America (21 percent) and Latin America (25 percent). More Indian CEOs (40 percent) say their companies do so than CEOs anywhere else in the world, including Europe (37 percent). McKinsey speculates that the results reflect the importance of the environment as a public issue in these regions.

Indeed, “among executives of companies that are taking climate change into consideration, the influencing factors cited most often are corporate reputation, media attention to climate change, and customer preferences.” Somewhat surprisingly, “executives in developed Asia-Pacific countries are most likely to cite reputation (62 percent), while executives in Latin America are most likely to cite media attention to climate change.”

Globally, more than half of respondents in all industries – energy, finance, high tech, manufacturing, and business, legal, and professional services – cited the impact of climate change on corporate reputation. Energy executives topped all others, however, with almost 70 percent indicating that issues related to climate change impact corporate reputation. It’s not surprising, therefore, that energy companies are among the most high-profile proponents of corporate social responsibility (CSR) programs designed to address climate change issues. And that they are among these programs’ largest financial supporters.

There is evidence however, that significant pushback is taking place among customers who see climate change-focused CSR initiatives as window dressing. Recent reports in the Harvard Business Review and Financial Times contend that CSR will increasingly be seen as “a public relations sham.” As a result, these initiatives will have a harder time obtaining funding.

FTcolumnist Stefan Stern said recently that because “Customers are generally unconvinced by the hype, in the inevitable life cycle of management fads, CSR is now heading for the exit.” If Stern is right, this means that companies trumpeting their CSR initiatives – including bona fide climate change-related projects – may find that instead of enhancing their reputations, they may be negatively impacting both credibility and reputation. Since the survey findings show little substance behind executive concerns for climate change issues, such a shift may be justified.

Nevertheless, when respondents to the McKinsey survey were asked what impact climate change will have on profits, one-third responded that “if their companies continue to manage the issues associated with climate change as they do today, the effect on profits will be somewhat or very positive. Fully 61 percent expect a somewhat or very positive effect on profits” if they manage these issues very well. Seventy percent of energy executives believe there will be a payoff in return for managing climate change issues well.

The results of the survey ultimately tell us two things: 1) The PR benefits associated with managing climate change issues have probably reached their peak; and, 2) Sustainable financial benefits are likely, if and when climate change issues are managed well. Managing climate change is shifting from a source of competitive advantage, to a requisite for staying in business.

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