When Peter Tufano, who recently returned to Harvard Business School (HBS) as a professor and senior advisor to the Harvard Salata Institute for Climate and Sustainability, graduated from HBS in 1984, HBS Professor Mike Porter competition strategy was the talk in the hall.

Competition is still the essence of business today, Tufano said, but his ongoing research into business alliances for the past two years finds that these groups are helping to set standards, create markets and set the pace for the low-carbon future.

Through these emerging alliances, global companies, banks, insurers and investors are responding to climate change. They are aggregating demand, coordinating requirements to facilitate finance, sharing best practices and promoting transparency because it benefits their bottom line, Tufano and business leaders said during HBS’s “Accelerating Climate Solutions” conference on May 10.

View Video

“It’s like-minded people who have a shared problem, trying to figure it out together,” said Mindy Lubber, CEO of Ceres, the sustainability nonprofit working with about 700 businesses to tackle climate change.

Lubber has worked with dozens of industry groups in different sectors that look at varied approaches to bring them into alignment, creating clarity across an industry or supply chain that can produce market impact. Using carbon accounting as an example where trade associations and industry groups work together, she said, “We are making more progress than just working with each accounting firm individually.”

And speed is of the essence.

“The climate emergency we face is so dire, and the timeframes so short, given the carbon burden that we put on this planet, that we have to act fairly fast,” Tufano said. “How do we become stronger together in a way that still allows for competition?”

Better client engagement through common requirements

Across the financial sector, institutions have found clients that have been frustrated by conflicting requirements.

“When you're engaging companies in which you either invest, lend or underwrite, you don't want the insurance guys asking for one thing from the company and the banks asking another thing,” said Curtis Revenel, senior advisor at Glasgow Financial Alliance for Net Zero (GFANZ), which is a network of more than 550 financial institutions across 50 countries working to accelerate the transition to net-zero greenhouse gas emissions by 2050. The organization is committed to the Paris Agreement goal of limiting global warming to no more than 1.5˚C.

“It just overwhelms the company and gives them no steer clear on where to go,” said Revenel.

Blending competition and collaboration supports good policy

GFANZ is among the climate alliances among businesses and investors that have emerged in recent years, many of them with hundreds of international members.

In many cases, these alliances work with their members to create standard carbon disclosure mechanisms that align with the goals of the Paris agreement. The Task Force on Climate-Related Financial Disclosure (TCFD) for instance, helped to develop disclosure standards, critical information on the issue for business, as well as processes to consider risks and opportunities around climate change.

As a result, “common-sense disclosures (that are) financially material to climate have become widely adopted,” Revenel said. “I think it’s generally agreed within the finance community that climate risk is financial risk.”

These alliances had a lot to say about new rules for climate disclosures, and many of their members are already cleaning up their acts. The Securities and Exchange Commission (SEC) proposed new rules for climate disclosure in 2022. The 507-page proposal had an unprecedented 16,411 comments, Lubber noted.

“We ask the investors and companies to weigh in where they can on policies and practices,” she said. “They do, and I think we have shown collectively that these issues matter as much to private sector players as to nonprofits and advocates.”

Carbon emissions are responsible for more than 80 percent of greenhouse gas (GHG) emissions, and businesses are figuring out their carbon footprints and how to reduce them. Many are already complying with disclosures even though the SEC rule is not yet law.

Devising best practices around carbon reduction

With or without disclosure requirements, companies are seeking to learn from each other. Another alliance is the Climate Group North America, which is a network of 500 large companies that are working together and sharing best practices to reduce carbon emissions.

One way they’re doing this is by moving towards converting their vehicle fleets by 2035 to 100% EVs, said Angela Barranco, the group’s executive director. The group started small, but quickly grew as more companies understood the power that comes with collaboration.

“You get the first five that are very committed, who then bring on the next 10,” Barranco said. “All of a sudden, you make this case: ‘Join us, the water’s warm over here.’”

Climate collaboration can also lead to legal challenges

Some U.S. lawmakers and policymakers, however, argue that the emerging financial industry consensus around risks associated with environmental, social, and governance (ESG) is anti-competitive.

In early May, Alabama Attorney General Steve Marshall told the House Oversight Committee that climate alliances “threaten consumers by limiting output, raising prices, risking retirement funds, and creating anti-competitive conduct.”

At the HBS climate summit, Lubber acknowledged the political pushback.

“There are 25 attorneys general who are making this case and it’s regrettable,” Lubber said. “It defies common sense…it’s heartbreaking, if not democracy breaking.”

Members of climate alliances are increasingly wary of the accusation that they are anti-competitive. Tufano, Lubber and others argue that the benefits of the collective development of standards is paving the way for smart regulation, but until regulation catches up, they will have to carefully manage their relationships in some geographies.