Leadership
Research:
Big Companies Increasing Climate Change Efforts While Suppliers Lag

Experts see a world facing greater risks this year than last, according to the World Economic Forum’s Global Risks 2013, its latest annual assessment of global risk, and they rank environmental risks among the likeliest to manifest over the next 10 years. The study asked 1,000 experts from industry, government, academia and civil society to rate the likelihood and the impact of 50 different risks, evenly divided among five categories: economic, environmental, geopolitical, societal and technological. Of the five most likely risks, the top two are economic: severe income disparity and chronic fiscal imbalances. The third, rising greenhouse gas emissions, is environmental. And the fourth and fifth — water supply crises and mismanagement of population aging — are classified as societal.

Two of these risks — chronic fiscal imbalances and water supply crises — are also among the five risks ranked as having the highest impact should they occur. The others are major systemic failure (economic), food shortage crises (societal) and diffusion of weapons of mass destruction (geopolitical). The risk of water supply crises can also be thought of as an environmental risk since scientists often link it to climate change, which in turn is a consequence of rising greenhouse gas emissions. Food shortage crises will often have environmental roots as well, as the consequence of water supply crises.

It may not surprise you that experts view economic and environmental risks as among the most likely and the most powerful risks we face over the next 10 years. There are vivid examples of economic and environmental crises in the news every day, after all. So the prominence of these risks may be due in part to recency bias — the tendency to think that trends from the recent past will continue into the future. It is surely a good sign to find some consensus among the experts about the risks we are facing. However, addressing these risks presents risks of its own. There may be unforeseen consequences of trying to mitigate climate change, for instance. The experts believe the risk of this is significantly greater than it was last year. Economic regulation may also have unforeseen negative consequences — greater consequences, the experts say, than they thought last year. In a conundrum par excellence, the risks of inaction are high but so are the risks of action. In this challenging environment, the World Economic Forum has tasked itself with “building a trusted network of risk experts to help global leaders map, mitigate, monitor and enhance resilience to global risks.” There is little hopeful in this report other than the reassurance that these issues are getting attention from deep thinkers and senior leaders.

It is worth noting that the ten-year horizon that is the focus of this study is well beyond the planning horizon of most companies in most industries. To tackle the risks we face, business and government need to take a long-term view, despite the many pressures to focus on the short term.

Other Studies Featured This Month

Green Product Perceptions Not Indicative of Performance

Remember when green products didn’t work as well as conventional products? If you follow sustainability and the consumer products industry you might think those days are behind us. But most consumers don’t see it that way, at least according to a group of three studies described in a recent issue of the Journal of Marketing (nicely summarized by the Network for Business Sustainability). The studies looked at how consumers used hand sanitizer, mouthwash and glass cleaner. In each case, the studies found that consumers used more of the product if they thought it was green than if they thought it was conventional — even though the identical product was used. The mouthwash and window cleaner studies, which included a survey of the participants, found that consumers tended to rate a product as less effective if they thought it was green — presumably why they used more of it. What’s more, consumers whose responses on the survey identified them as environmentally conscious were even more likely than others to consider the green products less effective and to use greater quantities of them. Green products may lose their environmental advantage if consumers use more of them than conventional alternatives to do a given job. What can marketers do with these unfortunate results? Boost perceptions of effectiveness. The glass cleaner study found that an endorsement by Consumer Reports improved perceptions of the product and eliminated the discrepancy in usage between green and regular products.

Marketers of green products must be prepared to counter a lingering reputation problem caused by earlier generations of truly ineffective green products. Credible endorsements — helpful in many product marketing situations — may be essential for green products.

The latest Carbon Disclosure Project supply chain report shows growing corporate awareness of the business risks of climate change and increasing corporate action to address it. In a survey of large companies and their suppliers, a third of respondents said they are already feeling the impact of drought and precipitation extremes on their business. Altogether, 70 percent identify a “current or future risk related to climate change with a potential to significantly affect business or revenue.” The survey reveals a gap in sustainability performance between the large companies that are members of the CDP Supply Chain program and their suppliers, however: 92 percent of members report having a target for emissions reductions compared with only 38 percent of suppliers. And while nearly 70 percent of CDP Supply Chain members report making investments in emissions reductions in 2012, up from just 39 in 2011, only about a quarter of suppliers say they’ve invested in emissions reductions. The report stresses the importance of supplier engagement, good performance data and sound processes and policies for eliciting better performance from suppliers over time.

In our report Sustainability in the Supply Chain, Green Research identified 10 supply chain sustainability best practices, including setting goals, educating suppliers and leveraging standards where they exist to collect supply chain data. Clearly, big companies have more to do to bring their suppliers along, including establishing contracts to require suppliers to adhere to certain sustainability performance standards, something only a third of CDP Supply Chain members currently do.