Rebecca Henderson: I heard over and over again, "Yes, we want to do this. Yes, it's important, but you know, I'm constrained by what my investors want." So, I became convinced that investors were hugely important in helping the real economy to move in this direction.

David Abel: I'm David Abel and this is Climate Rising, a podcast from Harvard Business School. Today we'll look at how some groups are trying to persuade shareholders, CEOs, and their boards to use their influence to address climate change. We'll start with one Boston area nonprofit that has been at the vanguard of this effort. For years, the group known as Series has been pressing the business community to take climate change seriously. If sought to prod investors and corporate boards to recognize how a warming planet will affect their bottom lines, but have such campaigns been effective? Why hasn't our national debate seemed to budge much? Joining us to discuss their efforts to get more fortune 500 companies to act on climate change are Mindy Lubber, President and CEO of Ceres, and Rebecca Henderson, a member of Ceres’ board and a Professor of General management and Strategy at Harvard Business School. I started by asking Mindy Lubber, who has also served in government, about her work, and why organizations like Ceres are needed.

Mindy Lubber: I spent 25 to 30 years or so, before coming to Ceres. I'm trying to move issues like climate change, water, air pollution, and I did it in many ways; as an advocate, as a lawyer and litigator, I ran an environmental investment firm called Green Century Capital Management. I ran the Governor's Office of Communications with Mike Dukakis to try and articulate these issues. The key thing when I left the Clinton administration, when I left being the Regional Administrator for New England, was that the issues were still dominant. They weren't moving quickly enough in terms of solutions and, that we probably couldn't get to the solutions without the private sector; not only involved and not only at the other end of an enforcement case, but moving forward expeditiously on their own. You can't deal with climate change or water shortages merely by lots of lawsuits. I was happy to think about going back to the law. You can change laws, and that's certainly a big part of it, but you've got to change capital markets and the big players; largest companies, they've got the most resources, they've got the most employees, they touch the most people, and the world's largest investors.

David Abel: Rebecca Henderson, can you tell us why you decided to take a position on the board after all of the amazing things that you do, and what's unique about this group?

Rebecca Henderson: So I've been working in the area of climate for about 15 years, mostly working with what we could loosely call the real economy firms that make things or sell things, and trying to persuade them to take a position on climate, to invest in renewable energies themselves and to advocate for sensible carbon policy. I heard over and over again "Yes, we want to do this. Yes, it's important, but you know, I'm constrained by what my investors want." So I became convinced that investors were hugely important in helping the real economy to move in this direction. So when Mindy asked me to join the board, I jumped on it, because I think that the mission of Series is absolutely vital, and without the financial sector taking a role in pushing the sensible comp, pushing firms to behave well, and sensible cotton policy, we won't make the progress we need.

David Abel: Mindy Lubber, tell us about some of Ceres’ programs, such as the Investor Network on Climate Risk and Sustainability, Climate Action 100, and Clean Trillion. What are some of the accomplishments of these programs, and can you share any failures or shortcomings of these or other initiatives?

Mindy Lubber: Sure. You asked before what is the mission of Ceres, and that it's part of the answer to this question to integrate sustainability into capital markets. Now that's just a bunch of words. What does it mean in reality? We do four things. We work directly with companies, often large, the largest companies in the country in the world to integrate sustainability at the board level. We both define good governance for corporations. We do training of corporate board members around the country to look at sustainability issues as real financial risk issues that boards need to be dealing with. We try and integrate sustainability into everything a large company does into their strategy, into their operations, and into what they expect from their supply chain. Finally, we ask those companies to also support public policy that addresses climate change. Now I'll say as it relates to this piece of our work, or others that I'm going to mention in a minute, we've made enormous progress; I can talk about some successes, but I'll talk about failures as well. We are not there. We are not in a position to get to a 1.5 degree world, which the Paris agreement says we have to get to without increasing the scale and the scope of what companies and investors are doing by a long shot. But to finish the answer of what do we do, we work directly with large companies. We work directly with large investors. We work with about 350 investors whose assets total 30 trillion dollars; it's a lot of zeros, and I can't tell you how many. But to weigh in on climate; to change where they invest their money, to change what companies they put in their portfolios, and for them to stand up with us in the halls of Congress and state legislatures, and to support climate policy. It's a financial matter, not a trendy environmental issue, but if we don't address climate trade, we will see 10% taken off the top of our economy. It will and can be greater than the subprime meltdown.

David Abel: That actually was a figure that was introduced in the National Climate Assessment last year; that if we continue on the same trajectory, we will see billions of dollars in losses to the national GDP, right?

Mindy Lubber: It's tens of billions and hundreds of billions. If we just look at one year storm damage, last fall, when Houston, Puerto Rico, and parts of Florida were hit with storm damage it cost 200 billion dollars in liabilities. Insurance companies had to pay that, some companies went out of business, and human beings and communities were devastated. That's one tiny piece of our calendar. It's going on every day, everywhere. So we're talking about real money, and to look at climate as an environmental issue or some scientific issue that ought to be debated versus the future of our planet and our communities and the future of our economy, to look at it any other way is not looking at it with a straight forward lens on science.

David Abel: I was actually down in Puerto Rico immediately after Maria, it was intense, and it still has not recovered. Just to see American citizens without water having to go and put PVC pipes into holes in gutters and mountains to get water, it was intense. Rebecca Henderson, what are you trying to do at Series, and do you ever worry that the mission feels in some ways a futile in that it could be giving cover to large companies that want to show for public relations purposes that they care about the issue, rather than actually taking genuine action?

Rebecca Henderson: It feels like two questions. To answer your question, what do I do at Ceres? Whatever Mindy wants me to. So I try and be helpful in thinking through the mission of the organization. To your second question…

David Abel: But wait. Tell us a little bit more about what you actually do.

Rebecca Henderson: Oh, I'm on the nominations committee, and I'm on the corporate committee. So I work with the company and identifying corporations that might want to become part of Ceres’ program. One of the questions we ask is exactly the question you asked me, which is, "Is this company just joining up for the PR, or are they really serious about wanting to make a difference?" So that's something I play a small role in talking through. I like to think that a good board is continually pushing an organization on where the high leverage points are. One of the issues is that the need is enormous. You asked me, "Do I worry this might be futile?" I worry we might not succeed, because we have to turn around an enormous ship. The entire energy economy is so large. So that's my principle worries; we're not doing enough fast enough, and using our resources as well as we could. So that's always the question I'm asking, "How can we do the best possible job." To your question about whether I'm afraid that it's a real risk that the companies that work with us are really just trying to cover themselves, I'm not hugely worried about that. Taking a strong position on climate has a political risk in today's day and age, so any company that's going to commit to really greening their operations, reducing their emissions, to setting concrete targets, and to tracking progress against those targets, that's an unlikely way just to pump up your PR position. That's going to take real work and real energy. So no, I worry about firms making general gestures in the direction of corporate responsibility, but you work out fairly quickly when you're working with a company, whether that's what they're about, or whether they're serious.

David Abel: How do you actually distinguish between a company that is taking it seriously and really acting versus engaging in lip service?

Rebecca Henderson: So you should ask Mindy this question too because she thinks very deeply about it. My own response is you can tell when a company is taking it seriously because it's expensive. They're taking time, they're making investments. It's not the easy thing to do. If you visit a company and spend some time with them, and ask "What are you doing concretely?" It becomes fairly clear quite quickly whether they're serious about making progress.

Mindy Lubber: So my quick answer to exactly what Rebecca said is you ask companies to set goals and make them public. There is no large company that wants to put their integrity and reputation on the line, and say, "We're a climate leader. We're going to reduce our emissions by 100% by 2030, or 2040, and by 2020, we're going to reduce them by something less, but a clear number.", or a company that says "We're moving to 100% renewables by 2025." Those things are trackable. You could monitor them. There are companies that don't always meet their goals, but they should and understand they need to have an explanation for it if they don't meet them. But I would say, when companies put major goals out there with the support of their leadership team, they're putting their integrity on the line. Companies believe in their integrity, and I don't think they're going to do it if they have no interest in actually accomplishing those goals. We're seeing it at Excel Energy, a utility company that we never thought would do very much is one of the 10 largest electric utility companies; they committed to zero carbon emissions by 2050. Apple, 100% renewable energy by 2020. Maersk, the largest shipping company in the world, said they will have net zero emissions by 2050. So look, you got to trust but verify; I do trust when a company goes through the process. The analytical rigor of coming up with goals, and they have their CEO sign off on it, and it's a public goal, that's a good start. Now, not all companies are going to do that, but when they do do that, it's usually a good sign.

David Abel: And let's talk about the companies that don't do that. Mindy Lubber, Some of your members such as GM and Ford have spoken quite a bit in recent years about the need to change their ways, such as going electric or autonomous and do more to protect the environment, but they've also supported the Trump administration's efforts to roll back emissions regulations that would increase the miles per gallon requirements for their vehicles. What do you say to those members? Should you eject them from the group? How do you deal with their apparent hypocrisy?

Mindy Lubber: David, it's a great question and it is absolutely true. I'll start with a broader explanation, and without defense talk about the specifics of GM and Ford, meaning I don't feel defensive, but it's an issue. It's a real problem. Every one of the companies we work with are complicated institutions. PepsiCo that sets goals on water, on diversity, on supply chain, on climate is great on that. And then some charge them with the obesity crisis, and I don't mean to pick them out. Every company is complicated and none of them are consistent, except for perhaps Ben and Jerry's and Patagonia. I just haven't found them, we're looking. But Ford and GM are making some missteps. There's no doubt they're moving forward on their electric vehicles. There's no doubt that they're doing more on to zero waste companies, so all of the resources are not put in the waste stream.

Mindy Lubber: There's no doubt that they're doing some things, but their trade association, the Auto Alliance, that is fighting to roll back cafe standards that the Trump administration put forth is not acceptable, and we're pushing them hard to change the position to mitigate it. Ford is working a bit harder in California where there's also an effort to roll back California standards, which are allowed to be higher than the federal government and we're going to keep pushing and I'm sure at the end of the day we may have to go to the board and have a discussion about what companies stay in and what don't. It is not a comfortable position to be in, but as long as we feel like we're making progress and we're pushing them and pushing hard, we're comfortable doing that, at some point we call the question.

David Abel: So it's possible that they could be ejected.

Mindy Lubber: We don't use the word ejected, but it is possible that yes, that companies that are entirely inconsistent with what our mission is probably have better places to spend their resources.

David Abel: Do you sense that there's an internal debate raging in these companies and what would possess them to take this action as just purely a bottom line sort of thing?

Mindy Lubber: Well, I will tell you what the company said. They say that they were not necessarily looking to entirely roll back cafe standards, it came as a surprise from the administration, and whether that's right or not, they haven't opposed the administration, so they need to be responsible for what their trade association says. There's very definitely internal debates. They are trying to move more products into the electric vehicle category rather than combustion engines. I think they realize, and we'd like to believe that by 2035 combustion engines won't be on the road. If we don't change the transportation sector substantially, they're now the highest emitting sector. We don't get to the Paris agreement and where we need to get.

David Abel: Transportation emissions account for about 40% of all carbon emissions in the United States now.

Mindy Lubber: Correct. To think about this though, on the brighter side, and then I'll come back to GM and Ford, I'm certainly not averse to talking about them. On the brighter side, it used to be not long ago that I would've sat here and said, electric utility companies and coal plants were the number one largest emitting sector. They're not because we've been able to turn back the tide on coal plants with 40% of them moving backwards. Meaning winding down rather than new plants being built, certainly in the United States, so we are making progress.

David Abel: Yeah, and that's certainly also a part of the regulations set up by the previous administration, the clean power plan set by the Obama administration, which sought to reduce coal. Rebecca Henderson, your research has looked at whether it's possible to persuade companies to take action on climate change and how to do that. What are some of your takeaways to those questions?

Rebecca Henderson: My experience has been that persuading companies to take action on climate change means persuading them to think in a more nuanced way about the future. Many organizations have an official future. The thing that they sort of hope is going to work out and usually the official future looks exactly like the current moment, but if you could persuade a firm to step back and say, for example, what are the odds we'll have some form of carbon regulation or that your consumers will start to care what kind of power you're using? What are the odds that renewable power will actually be cheaper than the fossil fuel power you're relying on? If you can begin to get them to have that conversation, what are the odds that climate change will disrupt your supply chain if you leave it unaddressed? If you can persuade them to have the conversation and to really think about how the future will be different, then it becomes clear very quickly that they need to take a position with respect to climate change.

Rebecca Henderson: Because in many sectors the risks of climate change are high, and there's a good reason to believe that the price of fossil fuels will increase or that it will become unacceptable to use them. So if you could help a firm think in terms of different scenarios as to how the future might unfold, then the need to cover your bases to make sure you're at least putting a bet against the fact that climate change might be real and have an immediate impact on your business becomes very evident.

David Abel: Why do you think that it's so hard given that we're seeing evidence, as Mindy was suggesting, all around us. We see that the temperatures are getting warmer every year just about, and we see that storms are becoming more powerful, and we see natural disasters getting worse. Why is it that companies might have a harder time recognizing that in some ways this could be a big problem for their future?

Rebecca Henderson: So I was the Kodak Professor of Management at MIT for 20 years. I'm a specialist in why firms have trouble recognizing that the world is changing. Sometimes I think that that's my expertise. I know more than almost anyone about how hard it is to get large organizations to do new things. Everybody is busy. Everybody thinks it's not directly relevant to their business. Everybody thinks someone will come up with a solution. Large organizations are hugely complicated. They break problems into very small pieces and everyone is focusing on their tiny piece. Climate change is a sort of huge existential risk, so easy to avoid thinking about. So you need to help the organization step back, take a deep breath and understand the risk that's there. But most of us in our daily life just assume tomorrow's going to be like today. Yes, we know things are changing, but we don't want to think about it. The other variant of that is there's something that I sometimes call techno optimism out there. Are you familiar with techno optimism? So again, I was a professor at MIT for 20 years, so I met a lot of techno optimists and the techno optimists’ perspective goes something like, well, look at what your cell phone can do, so humans can solve any problem, we can fix the climate problem. If it gets sufficiently bad, we will fix it. So this is a fundamental misunderstanding of the nature of climate change, that it's a sort of gradually accumulating problem. It's rather like saying, well, I don't need to go to the gym for 20 years and if it really turns out that I should have gone, I'll go really intensively for a year and I'll be fine. No, but again, people don't think ... Going to the gym is a lovely example. Everybody knows they should go to the gym and if they don't, their health is going to significantly degrade later. But do you go to the gym every day? Do I go to the gym every day? It's always easy to put it off and to find 20 years later that you wish you'd made a difference. So we need the same kind of interventions you need with health and nutrition. We need to take care of the planet. You need to take care of your business, you need to focus on the long term. But that requires discipline and target setting and follow through, which is exactly why I think series can be so helpful.

David Abel: But I guess the question is, the way you put it, it makes it sound rational. It's that climate change is the ultimate example of the challenge of thinking in the long term. And I guess my question is, is it just this challenge that we have as a society of planning for 50 years in advance or is there, there's so much evidence now more than maybe 15-20 years ago, that we are experiencing a crisis and that this is a legitimate problem and that science is now pretty much in controvertible. Mindy Lubber, when you look at people and haw or companies hem and haw about this, is it more that they're just finding some reason to avoid action or they're just looking at their bottom line and is it short term thinking?

Mindy Lubber: Well, you certainly have hit a mark in that much of our financial world is built on short term-ism. People are compensated based on their returns for a year, for a quarter, for two quarters. Investing in and seeing the results from climate change mitigation is going to take more than three quarters of a year or a year. And that is a problem. Money managers invest in companies that could do great tomorrow. They're not necessarily looking at, hmm, that's an insurance company. The insurance company may have five years in a row of billions of dollars of payouts that they weren't planning for. That's not good for an insurance company. But we are built on a very clear set of short term goals and we've got to move away from that and that is not easy. As Rebecca just said, we're asking companies to do things very differently than they have. Take a systems approach, not compensate people on what they did over the last three months, but change compensation systems, which we're talking to boards about to look at what are the long term goals and are companies meeting them. How do you tie a CEO's compensation to a sustainability metric, not just to what are the profits for the past year? How would you do that? That seems like a very complicated metric. Like what are some examples of how you might factor in sustainability and emissions reductions to a CEO's salary?

Mindy Lubber: Right. Well you certainly can and there are a few companies that are starting to deal with that. One is set goals, as we talked about. So if a CEO says over the next three years, we're going to move to 75% renewables, tie their compensation to doing that, or to a hundred percent renewables. Science based targets, we as companies to look at what is the science of climate as it relates to their industry and to set very clear science based targets. Pick one of those metrics. We're not suggesting that the entire compensation package of a CEO would be based on climate change, but one metric that is a very real metric as it relates to the strength in the bottom line of the company. An important part of this… the strength and the bottom line of the company. I mean, an important part of this message is that it used to be this was a debatable issue. Now the science is clear. It used to be a cute environmental issue. Now companies, investors, policy makers know this is real. They're not necessarily acting quickly enough, but they do understand it's real. We have moved from companies rolling their eyes when we asked to talk about climate change as in that's a nice environmental issue too. It is a financial issue. It's our job to build this into the financial body of work being done out there. So climate risk is seen the same as inflation risk or trade risk or currency risk, not just as an environmental issue. Almost every sector of our economy, agriculture, apparel, food and beverage, almost every sector I could think of will be negatively harmed in the extreme as climate change continues to get worse. And so allowing them to integrate those metrics is quite important and let people do what they're paid to do. So building it into compensation certainly is one way to do that.

Rebecca Henderson: Could I jump in here with another dimension of the issue? I think another reason that many people are reluctant to act or aren't acting is because this is a collective problem. If I do the right thing, but other people do not, it's not going to help. This is a classic problem where we all need to act together in order to solve climate change and we don't have much practice in acting together against these kinds of long term issues. In fact, I think one of the many important things that Ceres is doing, but perhaps the most important is making very public who is acting and who's not, is trying to build coalitions so that people can look each other in the eye across the table and say, "Well, I'll take the hit. I'll do the work, if you'll do the work." That's super important because unless we build that kind of collective sense, it's going to be very hard to solve the problem.

David Abel: And Rebecca Henderson, looking at this from an international perspective, how do you persuade companies here that it's worth their time and money to act on this when their counterparts, their competition in places like China, Russia, India might not face similar pressures and might not be acting in a similar way.

Rebecca Henderson: It's interesting you should say that because as you look out across the world, the regime that's probably doing most of the focus on climate change right now is China. I mean the Chinese economy is big enough and the effects of climate change on China are large enough that the Chinese government can see it coming like a freight train and in fact is trying to move. And yes, they're still continuing to build coal plants, but they are also almost single handedly responsible for the dramatic drop in the cost of solar energy that's occurred over the last 10 years. So I think there's an element of being too Western centric to say that this is just a Western issue and others aren't going to move. You clearly have the same collective action problem. So you clearly want all the automobile makers to move towards electric and autonomous, but the Chinese automobile makers are moving much faster than the U.S. automakers as I understand. When I meet executives in the food business from Asia or from Africa or Latin America, they are often much more aware of the impact of climate change on their business and feel significantly more fragile. So I'm not saying for a moment this is easy, but it's nothing like as simple as we're doing the right thing and nobody else is. This is, I think, a global problem that we're all trying to solve simultaneously with varying levels of success, but almost everyone is trying.

David Abel: China's a complicated case obviously, and we have seen advances there, but we've also seen the perpetuation of coal more than anywhere else and those coal plants are still continuing to be built. And that's obviously a big contribution to the global emissions issues. Mindy Lubber, have you faced more pushback from your members and other companies since the Trump administration took power? Are more of them taking cues from the administration?

Mindy Lubber: I am surprised but I'm going to tell you it's the opposite and I'm not sure what I anticipated. We certainly over the first 60 days of the administration called all of our members and said, "How does this affect you, your positioning?" And some of them were going to take a wait and see approach for a short period of time, others not so much. What I'm seeing is many corporate and financial leaders stepping into the breach. They understand that this is not only an issue that literally will change the future of our planet and our kids' lives, but the future of our economy and many of them are stepping in and stepping up and talking about the need to act on climate. Think about last ... this past year's world economic forum, every major financial economic leader, seven out of 10 of the issues on the world economic forums, global threats document that often frames the discussions in Davos or about climate change. Almost every session talked something about the sustainable development goals, climate, water, poverty, food availability. It is a different day and companies are not moving backwards. In many ways they're moving forwards and stepping into the breach.

David Abel: And yet our climate is continuing to warm, emissions are rising each year globally. We seem to be far from the goals set by the Paris climate accord. At the current rate and trajectory of these emissions increases, do you see any other signs of hope? I mean, without any changes it looks like now, fair to say, that we are on a path to the average temperatures of the planet rising to four degrees Celsius, which would be catastrophic. What other signs of hope do you see as someone who's at the forefront of trying to get folks to take action?

Mindy Lubber: So the first thing I'll say is four degrees, as you say, is catastrophic and cannot happen. And my hope is that as we're seeing more and more of the world wake up and willing to act, that grows exponentially and it must. For all of us adults, if a truck were coming at our kids, we would jump in front of it. This truck is coming and coming fast and we've got to jump in front of it. A number of things need to happen beyond just saying scale and scope, do more and do broader. As Rebecca was saying, there is the issue of expecting some players to act and other players being unwilling to act. We're going to need policy changes. It will not happen company by company by company. It can't. It can't happen quickly enough. We're starting to see policy changes around the world in different places moving more quickly than others. While yes, we have an administration in Washington that saying climate is not the imperative and the priority that we need.

David Abel: They're actually calling it a hoax and dismissing it.

Mindy Lubber: They are calling it a hoax and that is just so unacceptable. But we're seeing state legislatures passing bills every day about higher standards for how much renewable energy they should have in their state because they know four out of five of every new jobs in the United States has been renewables and not fossil fuels. We're seeing cities pass ordinances, we're seeing other countries act. It is changing. In a different administration I'm sure we'll see substantial change at the federal level. We will need policy. We're excited by the fact that three weeks from now we'll have 60 or so companies with us in Washington talking with Democrats and Republicans alike. This should not be a partisan issue and they're major businesses from around the globe talking about the need for policy. Might not happen in this administration and Washington probably won't, but needs to happen after and in the meantime we're moving states unlike any other time we've seen.

David Abel: Rebecca Henderson. Do you see any other signs of hope? More specifically, do you envision any possibility of the right and left coalescing around specific policies that could really make a difference and if so, what might those be?

Rebecca Henderson: I'm hopeful because when I first began teaching on this issue, I had 28 students in the room. Now we have nearly 300 and I've been asked to take over one of the first year course and to make sure that this issue is front and center of every student who comes to Harvard or to the Harvard business school. I'm optimistic because young people are seeing this as an existential threat to their future. Motions like the school strikes that we're seeing. My students used to think of it as something kind of interestingly academic. Now, many of them are furious because one way thinking about climate change is that the people like us made out like bandits. We burnt the fossil fuels and we benefited from the wealth and warmth and security that that gave us, but we put the security of our children in enormous doubt. We set that truck running towards our kids and the kids are getting really angry. And I think that's very helpful because as Mindy says, I mean, who do we care about more than our children? We do not. And so I think it's possible we'll see a significant worldwide political movement. Many of the students I work with hate the partisan divide. I mean my own son who is 24 says, "I can't believe we're fighting each other about something so fundamental and so basic to our future security." And when you look at the numbers of young Republicans who think that climate change is an issue and might be willing to back policy on it, it's going up quite significantly. So I'm hopeful we'll see smart ... Climate is one of these issues where we know what the right policy is. We know we can design something that really supports business, will trigger innovation, will help grow the economy and deal with the problem. I mean, we have other problems, which is very hard to get left and right consensus. On climate, we should be able to fix. I think we will.

David Abel: And make the air easier to breathe.

Rebecca Henderson: Yes, indeed.

David Abel: Thank you both for joining us. Mindy Lubber is president and CEO of Ceres. Rebecca Henderson is a professor of general management and strategy at Harvard Business School. Thank you.

Mindy Lubber: Thank you, Dave.

Rebecca Henderson: Thank you very much.

David Abel: Thanks for joining us. I'm your host, David Abel. This is Climate Rising, a podcast produced by the Business and Environment Initiative at Harvard Business School. You can subscribe on Apple podcasts or wherever you listen and please leave us a review. We appreciate the feedback.