November 28, 2016
Sustainable Business Will Move Ahead With or Without Trump’s Support
[I wrote this for HBR a couple weeks ago. It's me at my most optimistic...or at least me seeing the world through a lens of mega-trends, big shifts that nobody, not even the President of the United States, can stop. Of course a president that's hostile to action on climate and the clean economy can do a lot of damage and slow progress in the U.S....but it's big world. I welcome your thoughts.]
If we take the incoming president of the United States at his word, things look dire for the cause of sustainability. Donald Trump and many of his advisers appear hostile to action on climate change and to progress on many social issues that companies have already embraced, such as diversity and LGBT rights. Even if Trump himself stays ambivalent on some of these issues, Republican leaders have much clearer aims, including extensive plans to slash environmental protections.
Will the seismic shift in U.S. political leadership have a chilling effect on corporate action around environmental and social issues? The short answer is no. Companies will continue to pursue sustainability in the United States because the macro forces driving the movement remain strong. The big trends didn’t disappear on election day and, more important, they do not depend on the U.S. government. Let’s unpack what’s really been propelling most companies forward, which comes down to five megatrends.
The Economics of Clean Tech
In short, Trump cannot stop all momentum on the clean economy. The economics are too good. The cost to build and produce solar and wind power, for example, has dropped 60%–80% since 2010, making it cheaper than grid electricity in most states. And, most critical, this economic reality holds even without subsidies. Of course, government aid is helping accelerate the transition, but given the economic boost that clean energy provides to many states, support for wind and solar looks relatively safe in Congress. GOP Senator Chuck Grassley said that if Trump tries to eliminate the wind tax credit, the president-elect will “do it over my dead body.”
A Changing Climate
I’m not talking about the politics of and governmental action on climate change, such as the Paris Accord, carbon trading schemes, or efficiency standards. I mean actual extreme weather and climate change. These things are not theoretical and are costing business and society today. When Kellogg’s CEO, John Bryant, spoke at the Paris meeting, in December 2015, he told the assembled executives and diplomats that addressing climate change was “mission critical” for the company. (I was onstage with him and heard it very clearly.) One of his reasons why is what he described as a “fragile supply chain,” wherein weather shocks can damage grain production — a nice way of saying we don’t know if we can grow enough food. Across other sectors, unprecedented floods and storms around the world have done many billions of dollars of damage to factories, distribution centers, and local economies.
More companies are recognizing climate’s systemic risks. A week before the election, the CEO of General Mills, Ken Powell, spoke about his commitment to acting on climate. He put it in simple, CEO-friendly terms: “I am accountable for enterprise risk,” he said, “and clearly there’s a strong scientific consensus that climate is a risk.” For these reasons and more, hundreds of U.S. CEOs signed a letter to the president-elect that urged him to stay the course on global climate action and building the clean economy.
The Demands of Millennials
They are, after all, the largest generation on the planet and will make up 50% of the global workforce by 2020. On average, they hold some starkly different views about business than their predecessors did. A global survey of these 20- and 30-somethings earlier this year showed that 87% believe “the success of a business should be measured in terms of more than just its financial performance.” A Morgan Stanley survey confirmed that Millennials, and particularly those who are active investors, are three times as likely to seek employment with a company that cares about social and environmental issues. The jury is still out on whether this group will shop differently as it gets richer and deeper into adulthood, but every company I work with is feeling pressure from younger workers. In their role as employees, Millennials clearly want sustainability.
Radical Transparency and Social Media
We’re all growing accustomed to finding any information we want at any time. This includes wanting to know what’s in everything we buy, how it was made, who made it, and so on. The food and consumer products sectors are feeling this megatrend most acutely. The “clean label” movement is shaking up these industries, forcing companies to reduce ingredients and use fewer processed and artificial inputs. As General Mills’ Powell said, consumer expectations “have never been higher.”
Turbocharging this trend is social media, with which people can gather, spread stories, and generally make a company miserable if it doesn’t have its act together. In essence, as one CEO of a consumer-facing Fortune 50 company told me, customers can destroy your brand on Twitter (I’m paraphrasing only slightly). As he put it, products can’t just taste or look good — they have to tell a story and prove that they’re “responsibly sourced, manufactured, and distributed.” This shift in expectations is driving companies to understand their supply chains better, which then translates into pressure on those companies to aggressively manage their environmental and social issues.
Global Commitment and Competitive Pressure
Multinationals operate in many countries where governments publicly support strong action on climate — and 193 countries in the world signed the Paris Accord. It’s hard to say what will happen to that agreement, but even uncertainty about the commitment of the United States likely will not sink it. All of the signatories are meeting right now at the UN climate change conference in Morocco, and they’re making it clear that they are powering on. China sent a message publicly that climate change is no hoax, and France’s President Sarkozy mused about imposing import tariffs on countries that don’t “respect the rules” on carbon reduction. In essence, companies that don’t continue the sustainability journey are going to fall behind and become uncompetitive in global markets.
On top of all these megatrends is incredible innovation, making solutions to our challenges cheaper and more accessible. But even without those technological shifts, the five megatrends here create an overwhelming case to continue the sustainability journey. The bottom line is, as always, the bottom line. The business case for sustainability has been proved over and over again. The companies managing their environmental and social issues and helping their customers navigate these issues are creating business value in multiple ways: They’re saving money, driving innovation, attracting talent, and building the brand. None of that has changed, and there’s still tremendous value to unlock. Sustainability has never been solely about government pressure anyway — it’s just good for business.
All of this optimism aside, it would be naïve to think that the president of the United States can’t affect the course of progress toward a clean, sustainable world. And while we can’t know exactly what the next administration will do, that it will not be driving sustainability is a safe assumption. So business has a critical role now more than ever to make up for the headwinds that a hostile administration can generate.
Businesses will need to ensure the stability of the basic underpinnings of a thriving economy and society — that is, clean air and water, a stable climate, abundant and renewable natural resources, an educated and engaged pool of talent, robust global and local markets filled with people with enough wealth to buy your products, and much more.
If the new administration does not protect or enhance those pillars of a strong economy, or even actively undermines them, then business must take action, make up for the slack, and render federal action irrelevant. If government is derelict in its duties, business has to lead.