Facing up to CEO climate complacency
30th Jan 2015 by Diana Kool GEC
Last week, PwC’s report prompted Jo Confino at The Guardian to point out the worrying lack of interest in climate change among CEOs. Shockingly, the report shows that only 6% of CEOs prioritize reducing the risk of climate change in their corporate strategy, and that CEO trust in key climate fighting tools - like international regulations or public-private collaborations - is at an all-time low. On top of that, the fact that a mere 10% of CEOs registered climate concerns in 2014 led PwC to drop climate from its 2015 survey questionnaire. Hardly welcome news as we enter such a crucial year for international climate change negotiations.
In a response to Confino’s concerns, PwC published a follow-up blog unpacking the findings of the report in more detail. They emphasize that climate engagement across business sectors and between companies is very mixed, and that there is a strong distinction between how a company or its CEO engages with the issue. The survey report shows that CEO concern primarily focuses on very short-term concrete issues such as increased tax burden and (over)regulation, with 78% worried about the latter’s impact on their organisation’s growth prospects. PwC suggests that climate change is potentially pigeonholed as an exclusively long-term issue by most CEOs, despite the immediate risks of inaction, and is therefore not high on their list of priorities.
But this dismissal represents a cognitive error – by CEOs and potentially by PwC as well. The concept of climate change is very abstract to most people, CEOs included, and studies show that we are psychologically primed to ignore its incremental impacts, even as the window for preventative action begins to close. This bias is compounded by the unavoidable uncertainties of climate modelling, meaning that – despite the enormously robust scientific consensus on anthropogenic climate change – there will never be the ‘concrete certainties’ that some CEOs prefer to deal in. PwC, then, might have missed a trick themselves by counting climate as just another potential ‘CEO concern’ with an implied relatively short lag between action and consequence. Arguably, climate is a special case and should be treated as such.
Furthermore, CEOs seem to be underestimating just how far climate change is entangled with many immediate aspects of their businesses. Supply chain risk, energy costs, and raw material prices and availability do not seem to register high concern among CEOs either. This is in stark contrast with the WEF’s own survey, which states that extreme weather events and climate change are likely to have major impacts in these specific areas over the next ten years. Moreover, CEOs need to get beyond the idea that climate action is always bad for business. They would do well to recognize the many market opportunities that climate mitigation and a transition to green economy offers; an unquestionably better business environment than the chronic uncertainty in unprepared, warming world. New climate resilient technologies and business models offer opportunities for better growth, resilience and cost reduction. In many cases they’re not just greener, but better - as we increasingly see with renewable energy’s cost-competitiveness with fossil fuels.
For PwC, it might be better to restore a focus on climate change in their next annual survey, but rather than asking about climate change as an abstract concept, recognize instead its inter-linkage with other topics. For example, CEO concern about overregulation can quite easily be seen through a lens of climate change threat. A credible climate agreement in Paris at the end of the year will have an extensive impact on business, both positive and negative. That CEOs see climate change, insofar as they see it at all, only as a threat demonstrates how the climate change debate has failed to link a stable climate to stable economic growth and the fundamental principles of business risk and value creation.
Leading up to the Paris climate talks, politicians, citizens and NGOs alike are looking at businesses to take immediate action on climate change. As Jo Confino put it: “The truth is that politicians will fail to act decisively on climate issues unless they are confident that enough companies are prepared to support their stand”. An important step forward would definitely be for CEOs, and PwC, to recognize the reasons for concern, whether it’s misplaced concern about overzealous action post-Paris, or genuine worry about an underwhelming climate agreement. And ultimately, it is crucial that CEOs begin to appreciate the real business opportunities in each scenario.
Diana Kool, Green Economy Coalition