Tuesday, July 27, 2004

What Can We Agree On?
Regular readers know that I am fairly well persuaded that climate change is real, even if I'm still skeptical about some of the predictions concerning its outcomes.  But I also recognize that in the business world today there is nothing like consensus about the science behind climate change, or global warming, at least not in this country.  That's why I think articles like this one from Sunday's NY Times business section are so important.  It frames climate change as a business risk, not as a scientific debate, and I think that is precisely the right attitude for business to have, for several reasons.

First, as I used to tell the top management of my old company, nothing that an energy company can say about climate change (at least on the side of the skeptics) will be credible with the public.  Energy companies have too much of a vested interest, and I doubt that many non-energy companies would have much more credibility on the subject.  It's better to be seen as part of the solution than part of the problem.

Some might see that advice as unprincipled or cynical, but look at it this way: if the proponents, who seem to have a much larger fraction of mainstream scientists behind them, are right and things turn out badly, being on the wrong side of the issue might be catastrophic--and I'm not just talking about a few dollars of shareholder value here.  On the other hand, the risk of doing too much, too soon, is real, but it is like buying an insurance policy that might later turn out to have been unnecessary.

The other reason for adopting a risk framework, rather than treating it as an issue, relates to how companies solve problems.  It's natural to feel overwhelmed and out of one's depth when facing what could be the largest global environmental issue in the history of civilization.  It's important that governments and scientists view climate change that way, but that approach isn't conducive to sound business thinking.  On the other hand, dealing with it as a business risk, as Mr. Hakim's article argues that Ford, GM and other auto makers must, changes it into something that business is used to managing with the sophisticated tools at its disposal.

If we can all agree that climate change is a legitimate business risk, without having to line up on one side or the other of science that we may never be certain of in our lifetimes, then we are going to do a much better job of protecting shareholders' equity.  If you want to find companies that have made that leap, against the conventional wisdom, go talk to utilities, particularly those with a lot of coal-fired power generation. 

No comments: