We often think that climate change is something for the government to worry about – the news is packed full of debate around government response to global warming, whether it’s the climate bill, or how China is outpacing us yet again in carbon markets. But there’s a more immediate risk to companies in the US, something that is much closer to home and independent of whatever the public sentiment happens to be on climate change. For the first time in history, executives and their companies are being held liable for activities that contribute to global warming. It’s not a debate, it’s already happening.
It all started with the SEC Disclosure Requirements in early 2010. Under these new requirements, companies must weigh the impact of climate change when reporting risks to their investors. For the first time, companies need to track, analyze, and report such things as energy use and efficiency, GHG emissions, and other aspects of their business that have until now been a purely political exercise. Not surprisingly, this has far-reaching implications, but an interesting development is the changing nature of executive liability, and who is ultimately responsible for a company’s actions re global warming.
Directors & Officers (D&O) Insurance protects companies from the actions of it’s directors and officers.
Without it, entire corporations would be at risk from the actions of it’s executives. It’s a key part of the corporate structure, and has now entered a grey area due to climate change. Several cases have already been brought about to the Supreme Court as groups target executives and their corporations for their activities that contribute to global warming. What’s interesting is that there is a new issue emerging that is still playing out – when it comes to a company’s impact on climate change, does D&O Insurance cover executives? While companies say “yes”, the insurance industry is saying “no”. We’re talking millions – perhaps billions – in legal liability here, so someone will end up holding the bag. Hot potato.
At the center of this debate is a common inclusion in D&O that excludes “pollution” from coverage. The question is: “do greenhouse gases constitute pollution”? If it does, then executives are not covered by corporate insurance and the company may exposed to the risk of litigation. The EPA issues a recent ruling that GHG is a pollutant, and this sets a precedent that could adversely impact corporations on the wrong side of this debate.
As corporate officers it’s all about protecting the the company and shareholder value, which includes avoiding the risk of litigation at all costs. It appears that – even without any climate legislation in place – the question of executive liability is forcing the issue of climate change in the American corporation today.
This article was originally featured in Forbes Magazine. It has been reposted here with permission.
With the right moves, energy can even become a profit center.
In many organizations, the role of the chief information officer is becoming more strategic. Traditionally it has been restricted to IT strategy under the direction of a wider corporate mandate, a functional “manager of IT managers” position. But today’s CIO is a corporate leader and change agent focused on enhancing the return on investment of information technology, expanding the business impact of IT, and acquiring and managing innovation. This focus on innovation is leading CIOs to more closely manage energy and carbon in the enterprise.
Companies have been managing their energy consumption for years, but only recently has it become a corporate priority. Traditionally energy and its associated business risks, such as carbon emissions, have been an environmental problem, a cost of doing business with a hard link to compliance and regulation, and managed at the facility or site level. But innovative corporations today are starting to look at energy and carbon in a different way, focusing instead on how energy management can help their business and moving the energy discussion from the facility into the boardroom.
Energy management is no longer just a cost center. It can be a profit center if managed correctly, and there is no better executive to take advantage of this than the CIO. Companies around the world are finding that they can reduce energy use by investing in projects that can earn tax incentives, create new lines of business, and in many countries qualify as a tradable asset in financial markets. Examples in the technology sector are common, from server virtualization to building energy systems technologies.
To demonstrate how pervasive this has become, let’s take an example from a decidedly non-technology sector, as far from the lights of Silicon Valley as one can get–the timber sector. Companies in the timber business manage billions of dollars in assets and have, at times, been at odds with what one would call an “environmental mandate.” But many of these companies are transforming a traditional “environmental asset” (energy and carbon) from a cost into profit by turning a waste product into a key source of energy, reducing plant energy requirements by over 25% and saving millions of dollars per year in the process. In doing so, they not only reduce their energy costs but also their waste disposal costs (which are significant). Some even earn tax incentives and qualify for credits (both carbon and energy) worth millions of dollars a year. This creates a profit center where there were previously only costs and risk–all without a climate bill in the Senate, no debate on global warming, no politics–just good business.
The decline of expert opinion: who is really to blame for the state of energy and climate policy today?
There was a time, not so long ago, that if you needed an opinion on something important and complex you would ask and expert. Today, we are urged to second-guess everything, from the expert opinions of our doctor, our boss, mechanic, or our government. Of course, this is healthy – we are not mindless automatons; we are rational, considering various opinions before we create our own. Or so we like to think – I believe there is a value in expert opinion that is getting lost in the current social landscape. If you have a pain in your chest, you consult a doctor, someone who has spent years becoming an expert in matters of human health. If your car isn’t working properly you take it to a mechanic. However when presented with an issue that could alter life on our planet, we have moved away from this kind of reasoning, politicizing the issue to the point where those with direct experience, scientists, and uninformed laypersons are all treated as “experts” on the same plane. If we need answers to climate change, we need to consult experts, not opinions.
One of the things that I often encounter outside the US is a uniform disbelief in America’s highly politicized approach to climate change. In one corner, you have tens of thousands of scientists from around the world, and in the other you have various types of skeptics. Climate legislation is frustratingly slow, despite the clear urgency of the situation – both in environmental and economic terms. While pockets of resistance exist in many places, there now remains no scientific body or international body that maintains a dissenting opinion on human contributions of climate change. Let me say this another way: not one scientific body – anywhere in the world – supports the popular American notion that humans are not contributing to global warming – much less that it doesn’t exist at all. We all believe we are rational people, and rational people consult experts on issues that are large and complex, but we are seeing that rational thinking has little to do with we are approaching this issue. Today, a nobel prize winning PhD and a university dropout talk-show host are somehow treated by our society as intellectual equals. How did we get here?
A big part of the problem is how we communicate in new media. The Internet has been the great equalizer in many ways, but one of the most significant developments of the past twenty years is the lowered barriers to entry for publishing (e.g., the ability to provide your personal opinion to a large audience). Radio shows, talk TV, blogs (including this one) are evidence of this; like all bloggers I simply publish views I feel others are interested in reading. Anybody can. But therein lies the rub – does my ability to write suggest that I know more about any subject than someone else? Certainly not, because the responsibility lies with you – the reader – to determine what is valuable opinion and what is not. If I chose to write about auto mechanics, gardening, or some other subject I know nothing about, then I should not be considered an expert on those issues. However this is not how we treat expert opinion re global warming & climate change – we as a society often treat everyone as an expert. It’s not always easy, but one needs to consider the source before adopting any view through the new media.
We are living in an unprecedented age of content, both good and bad. It’s easy to dismiss views different from our own, just as it is too easy to take on views similar to our own. I make a concerted effort to read everything from the Huffington Post to CNN to Fox to MSNBC to get a rounded view of the news. I often watch and laugh at the Daily Show and Glenn Beck for entirely different reasons. But sometimes this isn’t laughable; lending credibility to those who are not experts can have very damaging consequences. For instance, it’s easy to dismiss the views of CO2isGreen.org, a group who actually purports to believe that if we breathe and exhale CO2, it can’t possibly be a pollutant (this group actually demands more CO2 needs to be emitted into the atmosphere as it is healthy for plants to green the earth). As ridiculous this logic may seem (perhaps they don’t believe in sewage treatment either), this group collects millions in support from the oil and coal industries and regularly lobbies in DC against climate change regulation and launches “educational” campaigns through their sister organization to cast doubt on hard climate science. Now this is serious business.
So who is really to blame for the state of climate change opinion today? Unfortunately it’s us – not the CO2isGreen’s of the world. Organizations like this exist because we as a society often lack diligence in forming our own opinions. This is what I am really asking for, the kind of diligence you would give a medical or technical opinion – you may need to test it (e.g., a second opinion) but you aren’t likely well-quipped to reject it without the appropriate consideration. When it comes to climate change I urge you to read a lot, do your homework, then form an educated opinion on things that matter. We will all be the better for it.
For years I’ve resisted the notion of entrepreneurial “vision”. I’ve never liked the term much, and I’ve found it to proliferate throughout my industry and others. Don’t get me wrong – this kind of vision exists – but it’s extremely rare. We often misattribute vision for hard work, creativity, and drive; key qualities for entrepreneurs, but they’re something short of vision.
If you need to work hard to convince people you have it, you probably don’t. I sat down with two founders recently to discuss their startup and it was clear – as is often the case in these situations – that one was the brains behind the operation, and one was just hanging around. Both were intelligent guys but one was clearly in control of the company and held the vision of what needed to happen. However it was the other one that talked of founder “vision”, what his vision for the company was, etc. This was at a busy coffee shop on Sand Hill Road, and it left me wondering how many times this exact conversation played out in the same location. It’s like so many other qualities in life – if you need to work hard to convince people you have it, you probably don’t.
It can set unrealistic expectations, both high and low. I strongly believe that everyone (entrepreneurs especially) need to be judged on their actions, abilities, and results. Relying too much on “vision” can hamper success in two ways: either letting people off the hook for doing a poor job, or attributing someone’s hard work and drive to it.Malcolm Gladwell wrote about how we misattribute genius in his book, Outliers, and we often extend the same kind of thinking to entrepreneurial vision. Either way, it can set unrealistic expectations on the part of co-workers and investors alike. It can also cause problems when companies need to adapt but can’t because the founder is too focused on his or her vision.
Vision is nothing without timing. It has been said that the iPad is the 18-year culmination of Apple’s vision of mobile computing. However the Newton was less than stellar despite then-Apple-CEO John Sculley’s fanfare when he introduced it in 1992 (Jobs killed the Newton when he returned to Apple). Jobs’ own performance didn’t really hit it’s stride (remember NeXT?) until he became CEO of Pixar prior to returning to Apple in 1996. Timing is everything – both the Newton (reborn as the iPad) and Job’s own abilities as CEO were industry-changing, but out of sync with their markets. Is Jobs a visionary CEO? Definitely. Is the iPad a visionary device? You bet. But nether was compelling in their first iterations. The difference between a bad idea and a visionary one can often be a simple matter of timing.
It can foster a sense of entitlement. This is one of the most destructive forces I’ve seen in startups – the sense of entitlement around “vision”. This doesn’t have to come from the founders, it can come from early architects or engineers who hold the product vision very tightly. So tightly, in fact, that efforts to change and grow the product or business is met with resistance. As the company grows, this can be fatal.
It is often defined after the fact. Think Steve Jobs returning to Apple in ’96. Many feel the the best way to define vision is proof – but it makes vision a priori very difficult to get a handle on. As Clay Shirky rightly points out in Cognitive Surplus, many of today’s successes in technology are due as much to timing and accidents to actual vision. Attributing every raging success to the vision of its architect doesn’t help us in coming to grips with the notion of entrepreneurial vision.
Again, there is such a thing as founder vision — but it takes experience to cultivate, time and context to identify, and entrepreneurial drive to make it real.
Michael is the former CEO of the Global Reporting Initiative, Carbonetworks, and other sustainability organizations. He has been an advisor and CEO in sustainability for almost 20 years, and writes about technology, sustainability, and social innovation.