The Opportunities of Climate Change Innovation

What is your research focus, and how did you come to create this new climate change program together?

Mike Toffel (MT): My research is about operations and supply chains as they relate to climate change, the environment more broadly, and working conditions in supply chains. I'm the faculty chair of the HBS Business and Environment Initiative, which has 25-30 faculty working on various aspects of business and the environment. I also helped launch and currently run the HBS Climate Rising podcast, which is all about business and climate change.

George Serafeim (GS): I teach an MBA course called Risks, Opportunities and Investments in an Era of Climate Change. Mike and I have overlapping research interests in climate change topics such as decarbonization, operations, measurement, and performance. But we come at these challenges from different perspectives, which makes for a great partnership.

MT: We're teaming together on research in the new Digital, Data, and Design (D Cubed) Institute at Harvard and created a Climate and Sustainability Impact Lab with some colleagues. We're also working on a net-zero targets research project with colleagues across the university. For some time, the two of us have been talking about creating an Executive Education program on these topics. We're very excited to have launched the Unlocking Growth with Climate Change Innovation program, which will explore emerging business opportunities as the economy is being transformed to address climate change.

What are some of the climate-related issues impacting the business environment?

GS: A fundamental transformation of the economy is being driven by a few megatrends. Fifteen or so years ago, only a small percentage of greenhouse gas emissions was being priced in the markets. Now it's about 23-25% globally. If you manage a business, this has fundamental implications for you because it affects the cost structure of your products and your operations.

We are also beginning to see import taxes for carbon-intensive products. For example, the European Union has a new regulation, the Carbon Border Adjustment Mechanism, which requires companies to pay import taxes for products that have a higher carbon profile. This has dramatic implications for cement companies and steel companies, for example.

What other changes are creating challenges for business leaders?

MT: Rapid technological development, regulatory policy changes, and changing demands from investors and customers are all significant drivers of change. In China, Europe, the U.S, we're seeing the phasing out of the internal combustion engine, which has a huge impact on vehicle manufacturers and on the energy sector. New policies are going to transform major markets like transportation. Shipping is undergoing a major revolution, particularly as the industry works to identify the next generation of low-carbon or carbon-free fuels.

We're also seeing an increase in government subsidies in some of these sectors. The U.S. has massive new subsidies for manufacturing and climate technologies that are bringing manufacturing back and driving new technologies. We're seeing energy technologies, policies, and markets develop rapidly around the world, including—again, in China, Europe, and the U.S. More and more companies are setting net-zero targets, which means they are working to reduce their emissions as much as they can cost-effectively, and then will be buying carbon credits to offset the rest.

What are the goals of this Executive Education program?

GS: The program focuses on business opportunity, with a global perspective. Participants will explore how to create a new business or lead change in an existing business that is being affected by climate transformation.

In particular, we'll help companies address the challenge of transitioning their current operating model and business model in an era when climate change is becoming a competitive driver. Participants will consider how they can create new products and services to satisfy emerging needs. For example, many companies are now asking the question, "How can I create new products and services that might be able to help my customers lower their carbon emissions?" This program will help executives create offerings that are cost-competitive, affordable, and attractive to customers. We’ll also help executives understand their own climate impact and reduce that impact while ensuring the company stays competitive.

The program addresses both strategy and execution. We will examine how you can analyze the changes that are happening—either from an opportunity perspective or a response perspective; formulate new strategies; align incentives and behaviors inside the organization to execute strategy and drive performance; communicate those changes to internal and external stakeholders, including investors; and build alignment outside the organization.

What kind of services opportunities are emerging due to greater focus on climate change?

GS: Innovative companies are finding new ways to help other companies reduce their climate impact. An example is software as a service (SaaS) offerings that use sensors, digital technologies and artificial intelligence to monitor and optimize energy use, or to more efficiently separate materials to make recycling more cost effective. Another example might be services that allow customers to reuse products, increasing product utilization and reducing the need for manufacturing new products with virgin materials.

Who should consider attending this program?

GS: We designed the program for companies in which climate change-driven transformations are central to the business. It’s not about small changes happening on the periphery; it’s about changes that are the business. The questions for decision-makers include: What do you do about these changes? What do you double-down on? Where do you diversify? How do you enable a company with thousands of employees to successfully navigate the organizational transformations that will be needed?

Climate impacts and opportunities are emerging in many sectors, but these impacts are most pressing for companies in energy generation and distribution, chemicals, mining, hardware, appliances, electrical and electronic equipment, food and agriculture, and transportation.

What roles or backgrounds should participants have?

MT: We don't assume that participants will have any background in climate science or sustainability. While sustainability executives are certainly welcome, the program is really designed for general managers, business unit heads, product managers, and so on—senior executives who have decision-making authority inside their companies and oversee P&L. These people are directly facing the challenges we're describing—challenges in bringing products and services to market. The program will also be valuable for board members and entrepreneurs. We think the program will also be helpful for private equity executives working with portfolio companies that are going through these transitions.

Does the program welcome teams?

MT: We designed the program to be flexible in this regard. We encourage executives to come on their own or to attend with some colleagues. We will provide opportunities for group work, so teams can work together on issues their company is facing. The interdisciplinary nature of the program makes it appropriate for executives with different backgrounds, so a cross-functional team of 2-5 executives would derive a great deal of benefit.

What topics will you cover?

GS: We have a diverse teaching team that addresses climate change innovation from many different perspectives—technology, operations management, supply chains, organizational change, governance, strategic roadmaps, finance and accounting, the geopolitical environment, alliances, and more. All of these disciplines contribute to addressing the question of how general managers can manage risks that are coming from new technological developments, new regulatory developments, or new market-related preferences and changes—and how managers can uncover and take advantage of opportunities to create new products and services that satisfy emerging demands from our customers. 

What do you expect executives will be able to do after completing this program?

GS: Executives will be better able to foster innovation that enables the company to be more competitive. They will also be better able to lead the change essential to creating more agile, strategically aligned organizations that can effectively execute a new direction. Through the program, we're delivering new skills and information that is essential to competing in today's rapidly changing landscape.