CLIMATE CHANGE

A Closer Look at Business Education NOVEMBER 2006 ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ : CLIMATE CHANGE INTRODUCTION: Today’s MBA students will soon find themselves in a business-world marked by pressing environmental concerns: impending water scarcity, high energy costs, and, of course, global warming. Companies that try to stay ahead of the curve on climate change, such as Toyota, DuPont, and GE, seem to be able to transform the issue from one of risk management to top-line growth and business opportunity.1 Within the past decade climate change has moved from the environmental to the financial realm, as far as business is concerned. Firms must juggle many climate change-related issues, including the prospect of future regulation, insurance liabilities, investor pressure, and consumer relations. Climate change is even becoming a human resources issue. Interestingly, BP found that employee satisfaction rises when the company demonstrates effort on the climate change front.2 Some business schools have taken notice of these changes and have either introduced elective courses addressing climate change or included sessions on the topic in their ethics, international business, or social responsibility of business courses. Just as a few forward-looking companies are strategically tackling this issue before it becomes a resounding worry, so too are just a few business schools’ students exposed to this matter in the classroom before starting their careers. Time will tell if these students’ progressive education will set them apart in profit-making ability, too. THE BOTTOM LINE: ■ The challenges of managerial policy development and implementation regarding climate change, let alone the complexity of future regulatory compliance, require specialized knowledge only moderately addressed in business education today. Overall, very few MBA programs include climate changes issues or similar environmental threats in core Finance or Operations courses. While early case studies focused on a corporate moral responsibility for addressing climate change, coursework at leading institutions now also identifies a profit motive. ■ ■ A FACULTY POINT OF VIEW: Dr. Thomas Brewer is an Associate Professor at Georgetown University’s McDonough School of Business and Associate Fellow at the Centre for European Policy Studies in Brussels. Among his areas of specialization are the nexus between international trade and climate change as well as the issues of political economics behind U.S. responses to climate change issues. Dr. Brewer graciously accepted the Aspen Institute’s invitation to speak about climate change and business school education. For an interesting explanation of this occurrence, hear Dr. Andrew Hoffman at the University of Michigan discuss his recent book Getting Ahead of the Curve: Corporate Strategies that Address Climate Change in the audio clip available at: . 2 Mindy Lubber, President of Ceres, mentioned this fact at her recent lecture at the Yale School of Forestry & Environmental Studies, “Why Climate Change Belongs on the Front Burner in the Business World”. A video of this lecture can be seen at: . 1 A Closer Look at Business Education _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ On student interest in climate change: “If you want to have courses in certain topics, the key is on the demand side. First, is there a perception that employers want people that know something about this issue? Second, do students themselves want to know more about the issue? There has definitely been some increased receptivity from students, but not much understanding on their part that the labor market has changed and there are desirable jobs available to them in this area. Once they find out that their dream employer is serious about climate change, they will be too.” On addressing climate change in business education: “ I suspect that climate change will be increasingly addressed in two types of courses: international business and social responsibility/ethics classes. One other interesting possibility would be if a few finance people really got interested in emissions trading, this could then end up in finance courses and would, in a way, legitimize climate change as a business school topic in a different way from the work being done by ethics and international business professors.” [Editor’s note: For an example of this type of innovative course design, see Jako Volschenk’s Environmental Finance course syllabus (University of Stellenbosch) in the “notable teaching materials” section below.] NOTABLE COURSEWORK: The following course descriptions are drawn exclusively from Beyond Grey Pinstripes, a research survey conducted biennially by the Aspen Institute. ■ The University of Michigan, Competitive Environmental Strategy (Elective Course) “This course deals with environmental issues from a strategic perspective. It focuses on how environmental pressures (e. g., sustainable development) and environmental problems (e. g., global warming, air pollution, waste disposal), impact corporate mission, competitive strategy, technology choices, product development decisions, and production processes. Basic concepts of ecology and environmental science are discussed and contrasted to those associated with the traditional economic paradigm.” MIT, Global Climate Change: Economics, Science, and Policy (Elective Course) “Introduces scientific, economic, and ecological issues underlying the threat of global climate change, and the institutions engaged in negotiating an international response. Develops an integrated approach to analysis of climate change processes, and assessment of proposed policy measures, drawing on research and model development within the MIT Joint Program on the Science and Policy of Global Change.” Portland State University, Environmental Sustainability (Elective Course) “Learn about natural ecosystems, including equilibrium and disequilibrium concepts, processes of natural ecosystem change and controls on biodiversity; human influences on ecosystems, including climate change, land use change, resource extraction and species diversity loss; influences of ecosystem change on human communities, and human valuations and perceptions of ecosystem goods and services.” Columbia University, Finance and Sustainability (Elective Course) “The primary objective of financial professionals is to provide a valuable service that earns a profit for the practitioner. Fortunately the same financial services that generate a profit can simultaneously be used to create sustainable value for society. In recent years, for-profit financial services have been used to improve the environment, reduce poverty, increase corporate governance, and develop social entrepreneurs. The core financial skills that are necessary to create these social changes are identical to the financial skills required to earn a profit in more traditional financial services, but the application of those skills is a new and challenging opportunity. This course will explore the theories ■ ■ ■ -2- A Closer Look ■ at Business Education _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ and practical applications, which financial professionals can leverage to simultaneously earn a profit and have a positive impact on society.” The University of North Carolina at Chapel Hill, Financial Analysis and Integrating Sustainability (Elective Course) “This course educates students on the global issues facing financial institutions as they evaluate and quantify how environmental and sustainability issues affect the financial performance of their corporate clients and their investments. These issues will have a direct impact on risk exposure and the quality of their individual credit, investment and underwriting activities. By the end of the course, each student will understand the issues and be able to apply various approaches to risk management in quantifying and measuring how environmental issues and performance affect financial performance.” Yale University, Energy Economics and the Environment (Elective Course) “This course examines energy issues as they pertain to the environment. The course begins with an overview of energy markets and an introduction to the economics of extracting nonrenewable resources. In the second section, the class looks into the environmental implications associated with energy and methods regulators use to correct for these market failures. In particular, we examine the economics of air pollution and climate change. The next part of the course covers investment in renewables. We discuss what regulations have been used to encourage investment and examine their effectiveness. The final section includes lectures on the economics of transportation (e.g., CAFE standards), and of energy conservation (e.g., DSM programs). In each section, lectures will cover the economics behind a particular energy issue and then will be followed by a class discussion about related case studies or articles.” The University of Nottingham, Managerial Economics and Business Policy (Core Course) “This module provides students with critical understanding of key concepts and models for the economic analysis of business activity in order to generate insight into the operation of the market economy. Social impacts are explicitly addressed when considering the nature of the firm and its objectives. The course also discusses the nature of externalities, the causes of market failure, and the implications for government intervention and voluntary engagement in social and environmental programmes by firms. An important element of the course is the application of economic theory to practice, and one of the main cases used in teaching centres on the economic arguments for and against government intervention to address global warming through the Kyoto protocol.” For additional courses on related subjects, search 1,672 descriptions at Beyond Grey Pinstripes. ■ ■ NOTABLE TEACHING MATERIALS: Materials referenced are meant to represent the diversity of related teaching resources available at Caseplace.org. All are offered for free download to registered faculty members. ■ Should Business Influence the Science and Politics of Global Environmental Change? The Oil Industry and Climate Change (A, B) (INSEAD) Case (A) presents three strategic options considered by a fictitious international oil and gas corporation to address the issue of climate change: 'fight against action', 'wait and see', and 'dynamic proactive'. Case (B) presents the climate change strategies of three multinational corporations ExxonMobil, BP Amoco, and TotalFinaElf. Teaching objectives include: (1) assess critical business strategies on global environmental risks and underlying ethical dilemmas; (2) acknowledge influence of business on scientific and political dimensions of society, and ethical responsibility as an inherent dimension of business global strategy; and (3) reflect on ethical management of this influence. CASE STUDY: -3- A Closer Look ■ at Business Education _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ CASE STUDY: Anatomy of a Corporate Campaign: Rainforest Action Network and Citigroup (Stanford Graduate School of Business) Citigroup, the world's largest project finance bank, provided financing for extractive projects such as mining, logging, and oil exploration. Some of these projects took place in developing countries and in rainforests and other endangered ecosystems. In 2000, the Rainforest Action Network (RAN) launched its Global Finance Campaign with Citigroup as the target. The goal was to convince Citigroup, and eventually all lenders, to stop financing destructive activities in endangered ecosystems. SYLLABUS: ■ Jako Volschenk’s Environmental Finance course, University of Stellenbosch This course aims to empower professionals to incorporate the impact of environmental finance into their decision-making. The course will be most relevant to professionals at managerial or technical level in the electricity, oil, mining, investment, insurance, environmental and public sectors. Market Failures, prepared by Dr. Neva Goodwin Some managers believe that they need not concern themselves with social and environmental issues because markets can be trusted to enforce efficiency and make businesses serve the social good. While economists point out that markets often lead to beneficial results, economists also know that such results only occur if certain assumptions hold. Consideration of any of a number of real world factors greatly complicates the story. Each of the following is a factor that can lead to “market failure”—a situation in which the outcomes generated by markets are inefficient or even directly socially harmful: public goods; externalities; transaction costs; market power; problems of information; problems of expectations; consideration of human needs and equity. This Teaching Module contains 25 cases and 42 references, illustrating the issues these raise for managers and some of the potential solutions. ■ TEACHING MODULE: ONGOING QUESTIONS: ■ ■ ■ Businesses are dealing with a plethora of varying regional regulations on climate change; how are strategy courses addressing the implications of such regulation? Is climate change being presented simply as an interesting social issue, or is it being viewed as a topical way to approach management skills? Are short-term market incentives at odds with long-term strategic issues, like climate change? RESOURCES: BeyondGreyPinstripes.org – World’s biggest MBA database, including detailed records on 1,672 courses, 1,730 extracurriculars, and 216 research articles at 128 schools on six continents. CasePlace.org – A free and practical on-line resource for up-to-date case studies, syllabi, and innovative teaching materials on business and sustainability. Created for the educators who will shape our next generation of business leaders! _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ A Closer Look is now a monthly series of briefing papers on topical issues in MBA education, based on the research and programs of the Aspen Institute. The Aspen Institute Business and Society Program works with senior corporate executives and MBA educators to prepare business leaders who will effectively manage the financial, social, and environmental impacts of the private sector. Contact Justin.Goldbach@aspeninstitute.org to order reprints or to offer feedback. -4-