Fighting Climate Change Requires a New Capitalism

April 30, 2020
view of earth from space.

Tackling one of the biggest crises of our time—climate change—requires leaders to embrace a new vision of business, argues Rebecca Henderson

Harvard Business School Working Knowledge

By Danielle Kost, Harvard Business School Working Knowledge Senior Editor

Rebecca Henderson spent her young adult years living two lives.

At work, she preached the risks of resisting change to MBA students at the Massachusetts Institute of Technology, drawing on lessons she learned while watching factories close as a management consultant. But at home, she found comfort in the seeming permanence of nature and trees, whose leafy branches provided solace to her as a child.

"I kept my job and my passions in separate boxes," writes Henderson, who joined Harvard Business School in 2009 and is now the John and Natty McArthur University Professor at Harvard University. "Work was lucrative and fun and often hugely interesting, but it was something I did before returning to real life."

Business was ever-changing, but nature was constant. It wasn't until in the mid-2000s, at her brother's urging, that she started to read about the science of climate change—and the part that business has played in accelerating it. The revelation shook her world view.

After debating whether to quit her job at MIT, Henderson started seeking out like-minded leaders who shared her concerns. Her experiences and the research that came out of them culminate in her new book, Reimagining Capitalism in a World on Fire, a deeply personal exploration of capitalism's role in addressing climate change.

Danielle Kost: What inspired you to discuss climate change in such personal terms?

Rebecca Henderson: There are two reasons. One is, if we just keep thinking about climate change as a purely rational, "does it suit me right now?" calculation, we won't move with the speed or the courage that we need.

And the other reason is, that's how I experience it. It's just crazy that we're not acting on this. It's as if we're all stuck playing an elaborate game and we all play our part without really thinking about the fact that the game is very destructive. We need to wake up to that, to take it personally and make the investments required to change it.

Kost: Your book challenges one of the most firmly ingrained philosophies in business, the goal of delivering shareholder value above all else. Why do you think this concept is outdated and damaging?

Henderson: In the '70s, when the conversation about shareholder value first began, and in the '80s, when it really took off, it was fine for business to just focus on making money. We had a very cohesive society and a strong government.

But right now, we have a political system that's incredibly partisan. It's very difficult to get anything done. And we have a government that is, as a result of years of attack on the very idea of government, fundamentally very weak. You can really see that in the current COVID-19 emergency, both in the slowness of the federal government's response, and in its decision not to step up as a central buyer of things like personal protective equipment (PPE). States are bidding against each other for medical equipment, which seems extraordinary.

There are moments when you really need government. Controlling climate pollution is one example. Without the right kinds of rules, firms run the risk of causing more damage from the the carbon dioxide they emit than the value they create.

It's not that we don't have to generate decent returns for investors—of course we do. That's super important. It's the idea that the only thing that matters is increasing returns to investors. That's crazy.

Kost: You argue that when companies address climate change, they're also addressing other social problems, whether it's income equality or food insecurity. Could you discuss that linkage?

Henderson: If I'm living paycheck to paycheck, I'm not going to be a big fan of some pointy headed professor deciding to spend a great deal of money on solar panels. What are solar panels to me?

Until people feel secure and believe they can take care of their families and they're going to have a shot at a good job, it's going to be tough to persuade people to really invest at the kind of scale we need to transition to a carbon free economy.

So, just pragmatically, we need to address inequality if we're going to make progress on climate change. Moreover, I believe—and I think many business people agree—that it's fundamentally unfair that more and more people are finding it hard to participate in the modern economy, and that we're leaving so much human potential and human growth on the table.

Kost: How do you think COVID-19 will affect the way companies think about sustainability?

Henderson: It's really interesting. Firms are talking far more about sustainability and their employees and the importance of loyalty and good jobs now than they were heading into the 2008 crash. It's distinctly different.

So, I think COVID might have a couple of effects. First, we need to be realistic. It's possible that we'll come out of this pandemic significantly poorer and less willing to invest in the long term. I hope that's not true, but I think it's a real possibility.

But it's also the case that the pandemic is illustrating how quickly we can change when we need to. There's been an aspect of the climate change conversation that is, "Yeah, it's just too hard. It's too complicated. We're busy, you know, we just can't do it."

And now we see that when we want to, we can do amazing things, and I have no doubt that we will roll out amazing testing infrastructure and that we'll work our way through this pandemic. I hope that sense of possibility will translate to action against climate change.

Kost: What do you hope that an executive reading your book will do with your insights?

Henderson: For people who already started on this journey, I hope the book will give them a sense of why what they're doing is so important, how every individual effort inside every firm has the potential to add up to systemic change, and an understanding of the pathways through which business can help to play a major role in solving our problems.

For people for whom this is all new, I hope this book will encourage them to turn to their colleagues or their employees or their children and say, "I've heard that we could make some money by tackling some of these problems." Every single firm where people have asked that question, they have found money lying on the floor.

Book Excerpt

Reimagining Capitalism in a World on Fire

By Rebecca Henderson

Pebbles in an Avalanche of Change

"What can I do?" is the question I am asked most often and certainly the most important one. It's easy to fall into the trap of thinking that only heroes (and heroines!) can change the world.

When we tell the story of the civil rights movement, we talk about Martin Luther King and Rosa Parks. When we talk about the New Deal, we talk about Franklin D. Roosevelt. When historians fifty years from now write the history of how we solved global warming, drastically reduced inequality, and remade our institutions, they will focus on a few key events—perhaps in the winter that three superstorms hit the East Coast of the United States, making fixing global warming a completely bipartisan priority, or in the summer that the harvests failed across Africa, sending millions of people north to Europe, making it clear that everyone on the planet had to be given the tools they need to feed themselves. Perhaps they will tell the story of the CEO who led the coalition that helped negotiate a global labor agreement, or of the Chinese and US presidents who sat down together to make a global wealth tax feasible, or of the leaders of the social movement that made it politically impossible not to solve climate change.

But this focus reflects the structure of our minds and the nature of modern communication, not the way in which change actually happens. We use stories to make sense of the noisy, messy, complicated reality of the world, and stories need central characters— single individuals we can identify with and root for.

The real world doesn't actually work that way. Effective leaders ride the wave of change they find bubbling up around them. Martin Luther King did not create the civil rights movement. It grew from decades of work by thousands of African Americans and their allies, each doing the dangerous and difficult work of standing up for change. Rosa Parks was not a lone heroine who simply decided to stay in her seat one evening. She was a deeply committed civil rights worker whose decision that night was taken in close collaboration with a network of experienced female activists. Nelson Mandela did not single-handedly end apartheid in South Africa. He built on fifty years of struggle in which thousands of people participated and hundreds died.

Remember Erik Osmundsen, the CEO who took a corrupt waste collection company and made it a leader in recycling? Whenever he visits my class, he begins by saying that it's not about him. Instead, he insists, it's about the team of people he works with, the people willing to do the actual work—the often dull, day-to-day work— of cleaning up the waste industry. The media tell us that change is dramatic, driven by individuals, and accomplished in minutes. But real change happens one meeting at a time.

Remember Michael Leijnse—a relatively low-level employee whose name rarely surfaced in the press—but who, by spearheading sustainable tea at Lipton, showed that it was both possible and profitable, and in doing so, gave his CEO a reason to believe that he could halve Unilever's environmental footprint while increasing its sales.

When Sophia Mendelsohn started at JetBlue, her job was to design a recycling program. But she took the trouble to meet with everyone she could, seeking to understand how focusing on sustainability could help the company as a whole and trying to ensure that everything she did solved a problem for one of her colleagues. Within a few years she was able to spearhead a major shift in how the company measured and managed itself.

Greta Thunberg was a fifteen-year-old schoolgirl when she began protesting climate change outside the Swedish Parliament. If it's really a climate emergency, she said, why aren't we doing anything? A year later an estimated 1.6 million students from 125 countries left school to join a global climate strike. I know of one multinational company that completely transformed its sustainability strategy because its employees were finding it too embarrassing to defend the company's actions to their children.

You are vital, and there is lots that you can do.