Environmental Sustainability →
- 21 Oct 2011
- Working Paper Summaries
Market Interest in Nonfinancial Information
During the past two decades, there have been many ideas for improving business reporting of nonfinancial information such as on a company's environmental, social, and governance (ESG) performance. Using data from Bloomberg, authors Robert G. Eccles, Michael P. Krzus, and George Serafeim provide insights into market interest in nonfinancial information at a level of granularity not available until now. They identify exactly what information is of greatest interest, contrasting both the global and U.S. market across the full spectrum of ESG information and for each component of ESG, as well as Carbon Disclosure Project metrics. They also show variation in interest across asset classes and firm types, and present preliminary explanations for these differences. Key concepts include: From a practitioner perspective, these data can be used to benchmark one's own information use according to asset class and firm type. Practitioners can assess whether any differences represent competitive strengths or weaknesses in the information they are using in their decisions. Companies can use these findings to create more sophisticated communication strategies tailored to the information needs of market participants across asset classes and firm types. At the aggregate market level, interest in environmental and governance information is greater than interest in social information. Equity investors exhibit a higher interest in nonfinancial information compared to fixed income investors. Sell-side firms (broker-dealers) are primarily interested in greenhouse gas emissions data. In contrast, buy-side firms (hedge funds, insurance firms, pension funds, and money managers) are interested in a broad range of environmental, social, and governance information. The efforts of practitioners and researchers can improve the dissemination and use of nonfinancial information, thereby enabling companies to create more sustainable strategies for a more sustainable society. Closed for comment; 0 Comments.
- 19 Oct 2011
- Research & Ideas
Designing Cities for a Sustainable Future
The city of the past is likely not the city of the future—climate change is bringing an end to the traditional model. Harvard Business School faculty are thinking along with government leaders and business practitioners about how to create sustainable places to live and work. From HBS Alumni Bulletin. Open for comment; 0 Comments.
- 18 Oct 2011
- Working Paper Summaries
Historical Trajectories and Corporate Competences in Wind Energy
Analyzing developments in the wind turbine business over more than a century, Geoffrey Jones and Loubna Bouamane argue that public policy has been a key variable in the spread of wind energy since the 1980s, but that public policy was more of a problem than a facilitator in the earlier history of the industry. Geography has mattered to some extent, also: Both in the United States and Denmark, the existence of rural areas not supplied by electricity provided the initial stimulus to entrepreneurs and innovators. Building firm-level capabilities has been essential in an industry which has been both technically difficult and vulnerable to policy shifts. Key concepts include: Firms from Denmark have been unusually prominent throughout the history of the wind energy business. The basis of the competitive Danish industry was laid without support or even encouragement from its government. US-based firms have also been regularly found among the leading wind energy companies. But their relative importance varied considerably over time, has rarely reflected the overall importance of the U.S. market, and has involved a changing cast of actual firms. German and Spanish, and more recently Indian and Chinese firms, have emerged to become amongst the largest turbine manufacturers in the industry. The most striking change over the last decade has been in the competitive landscape. Engineering powerhouses, such as GE and Siemens, and wholly or partly state-owned Chinese firms with low-cost bases, are now prominent actors in this industry. Closed for comment; 0 Comments.
- 07 Oct 2011
- Working Paper Summaries
What Environmental Ratings Miss
Environmental ratings of companies are based on "green" management efforts and the environmental performance of their operations. In this paper, Michael Toffel and Auden Schendler argue that these ratings neglect companies' actions that seek to influence environmental policy, which can have a much broader impact than their internal efforts. As a result, sustainability ratings risk seriously misleading consumers and investors, and can even enable "greenwashing" by allowing corporations to game the system, gaining high rankings for greening their operations despite advocating for less stringent environmental policy. Toffel and Schendler argue that environmental ratings should factor in political contributions, CEO advocacy work, and engagement with non-governmental organizations, among other actions. This would erode the environmental ratings of companies advocating weaker environmental policy, and bolster the ratings of those advocating more stringent environmental policy. Key concepts include: Most major corporate environmental ratings and rankings focus on operational impacts such as pollution levels and regulatory compliance, but fail to incorporate political activities that influence environmental regulation. It is corporate political actions—like lobbying or campaign funding—that can have a vastly greater influence on environmental protection, and arguably represent the greatest impact a company can have on protecting (or harming) the environment. Exclusive focus on operational greening efforts and performance neglects the far greater need for climate regulation to achieve the dramatic overall reductions of greenhouse gas emissions called for by climate science. Closed for comment; 0 Comments.
- 03 Oct 2011
- Research & Ideas
Transforming Manufacturing Waste into Profit
Every manufacturing process leaves waste, but Assistant Professor Deishin Lee believes much of this left-behind material can be put to productive—and profitable—use. Key concepts include: The concept of "by-product synergy" consists of taking the waste stream from one production process and using it to make a new product. Productively using waste instead of trashing it can cut costs by reducing disposal fees and opening up additional revenue streams through by-product sales. The greatest returns are realized when a company widens its scope to think strategically to consider waste processing as a joint-production process. In some cases, maximizing profit might mean, paradoxically, creating more waste. Closed for comment; 0 Comments.
- 12 Sep 2011
- Research & Ideas
The Untold Story of ‘Green’ Entrepreneurs
The history of entrepreneurs in green industries is largely unwritten, a fact that Harvard Business School business historian Geoffrey Jones is trying to remedy. In a new paper, Jones explores the edge-of-society pioneers who created the wind turbine industry. Key concepts include: The research looks at entrepreneurs in the fields of organic food, sustainable agriculture, natural cosmetics, the built environment, ecotourism, and waste recycling. The history of green entrepreneurship is largely untold, ignored by both business and environmental historians. Many still think that there were few environmental concerns or green businesses until the last decade. Closed for comment; 0 Comments.
- 19 Aug 2011
- Working Paper Summaries
The Globalization of Corporate Environmental Disclosure: Accountability or Greenwashing?
Between 2005 and 2008, the world saw a dramatic increase in corporate environmental reporting. Yet this transition toward greater transparency and accountability has occurred unevenly across countries and industries. Findings by professors Christopher Marquis and Michael W. Toffel provide the first systematic evidence of how the global environmental movement affects corporations' environmental management practices. Firms' use of symbolic compliance strategies, for instance, is affected by specific corporate characteristics and by institutional context. This study contributes to a larger body of research on the effects of global social movements and environmental reporting. Key concepts include: Marquis and Toffel study more than 4,600 large publicly traded companies headquartered in 46 countries. They first examine the extent to which environmental pressures from governments and civil society influence corporate environmental transparency. Greater environmental disclosure was exhibited by companies headquartered in countries whose governments are better connected to the global environmental movement via international environmental institutions, and whose citizens are more connected to globalization and are afforded greater civil liberties and political rights. They also identify factors associated with greenwashing, where corporations selectively disclose benign environmental impacts to create an impression of transparency and accountability, while masking their true environmental performance. Visible companies' tendency to selectively disclose was tempered when headquartered in countries whose governments were better connected to the global environmental movement, and whose citizens are more connected to global society and are afforded greater civil liberties and political rights. Closed for comment; 0 Comments.
- 22 Jul 2011
- Working Paper Summaries
Corporate Social Responsibility and Access to Finance
Corporate social responsibility may benefit society, but does it benefit the corporation? Indeed it does, according to a new study that shows how CSR can make it easier for firms to secure financing for new projects. Research was conducted by George Serafeim and Beiting Cheng of Harvard Business School and Ioannis Ioannou of the London Business School. Key concepts include: The better a firm's CSR performance, the fewer capital restraints it will face. Better CSR performance is the result of improved stakeholder engagement, which in turn reduces the likelihood of opportunistic behavior and pushes managers to adopt a long-form strategy. This introduces a more efficient form of contracting with key constituents. Firms with good CSR performance are likely to report their CSR activities, thus increasing their overall transparency. Higher levels of transparency ease the fears of potential investors, making them more likely to invest. Closed for comment; 0 Comments.
- 08 Jun 2011
- Lessons from the Classroom
Twenty-first Century Skill: Trading Carbon Credits
As cap and trade becomes an increasingly popular mechanism for governments to cut corporate pollution, students at Harvard Business School use a simulation to learn how it works. An interview with professor Peter Coles. Key concepts include: The simulation provides a classroom experience for students to see the impact of different design principles in the cap-and-trade mechanism. Open for comment; 0 Comments.
- 23 May 2011
- Op-Ed
Leading and Lagging Countries in Contributing to a Sustainable Society
To determine the extent to which corporate and investor behavior is changing to contribute to a more sustainable society, researchers Robert Eccles and George Serafeim analyzed data involving over 2,000 companies in 23 countries. One result: a ranking of countries based on the degree to which their companies integrate environmental and social discussions and metrics in their financial disclosures. Closed for comment; 0 Comments.
- 23 May 2011
- Research & Ideas
Corporate Sustainability Reporting: It’s Effective
In a growing trend, countries have begun requiring companies to report their environmental, social, and governance performance. George Serafeim of HBS and Ioannis Ioannou of London Business School set out to find whether this reporting actually induces companies to improve their nonfinancial performance and contribute toward a sustainable society. Key concepts include: In the past 10 years, corporate investors have shown an increasing interest in the social responsibility of the companies whose stocks they pick. The researchers compared 16 countries that required sustainability reporting with a sample of 42 countries that didn't. Using several measures, they found that the social responsibility of business leaders and managerial credibility increased in those countries with reporting mandates. The data provide the first concrete evidence that mandating social responsibility reporting actually makes a positive difference. Closed for comment; 0 Comments.
- 17 May 2011
- Working Paper Summaries
The Consequences of Mandatory Corporate Sustainability Reporting
The number of firms reporting sustainability information has grown significantly in the past decade, both due to voluntary actions and to mandates from several national governments and stock exchange authorities. In this paper, London Business School's Ioannis Ioannou and Harvard Business School's George Serafeim investigate whether mandatory sustainability reporting has any effect on a company's tendency to engage in socially responsible management practices. Key concepts include: The researchers show that mandatory sustainability reporting effectively promotes socially responsible managerial practices. Overall, supervision of managers by boards of directors improves, bribery and corruption decreases, and credibility of managers in society increases. In companies where sustainability reporting is a requirement, employee training becomes a higher priority, and corporate boards supervise management more effectively. These positive results are more pronounced in countries that have stronger law enforcement, countries where assurance of sustainability data is more frequent, and countries that are generally more developed. Closed for comment; 0 Comments.
- 26 Apr 2011
- Op-Ed
HBS Faculty Comment on Environmental Issues for Earth Day
Harvard Business School faculty members offer their views on the many business facets of "going green." Open for comment; 0 Comments.
- 08 Apr 2011
- Research & Ideas
Will the Japan Disaster Remake the Landscape for Green Energy in Asia?
Entrepreneurs at the recent Asia Business Conference at Harvard Business School said the disaster in Japan could accelerate the move toward "green" energy sources in Asia, opening opportunities. Closed for comment; 0 Comments.
- 14 Mar 2011
- Research & Ideas
Water, Electricity, and Transportation: Preparing for the Population Boom
By 2050, the world's cities will have to support 3 billion more inhabitants, mostly in developing countries, with crucial investments needed in three areas: water, energy, and transportation. Several of the planet's top city planning and environmental business experts gathered at Harvard Business School earlier this month to discuss available options. Closed for comment; 0 Comments.
- 09 Feb 2011
- Working Paper Summaries
Sustainable Cities: Oxymoron or the Shape of the Future?
Among the issues looming large in the twenty-first century is a rapid rise in the number of people living in cities and a rapidly growing awareness of our threat to the Earth's environment. In response to both, a number of major corporations and various government bodies have teamed up to explore the idea of "ecocities" —urban communities ideally designed around the idea of environmental sustainability. This paper explores the idea by looking at several ecocities in progress in China, Abu Dhabi, South Korea, Finland, and Portugal. Research by professors Robert G. Eccles and Amy C. Edmondson, doctoral candidate Tiona Zuzul, and HBS research assistant Annissa Alusi. Key concepts include: About 90 percent of urban growth worldwide occurs in developing countries, which are projected to triple their existing base of urban areas between 2000 and 2030. The World Bank plans to team up with government, NGO, and private-sector organizations to help the development of nascent-stage ecocities. The ecocities in progress rely heavily on "smart infrastructure," or the use of centralized computer systems to manage urban systems such as the electric grid and city bus traffic patterns. Both Cisco Systems and IBM are heavily involved in the technological aspects of these initiatives. Financing is a huge challenge for ecocities, which typically require investment capital upwards of $35 billion. So far, the projects have relied on both public- and private-sector involvement, and all eight of the profiled ecocities are planning on eventual real-estate revenue to help offset the cost of development, although the degree to which they do varies according to the economic model of the project. Open for comment; 0 Comments.
- 15 Dec 2010
- Working Paper Summaries
Cognitive Barriers to Environmental Action: Problems and Solutions
Researchers have long studied the cognitive barriers that cloud our thinking and decision-making. In a recent book chapter, HBS doctoral student Lisa L. Shu and professor Max H. Bazerman look at three barriers that can prevent clear decision-making, specifically on environmental issues. They also propose ways in which these biases could be put to advantage in promoting sound environmental policy and practice. Key concepts include: There are three cognitive barriers impeding sound individual decision making that have particular relevance to behaviors impacting the environment: people discount the future to a greater degree than can be rationally defended; positive illusions lead us to conclude that energy problems do not exist or are not severe enough to merit action; we interpret events in a self-serving manner, a tendency that causes us to expect others to do more than we do to solve energy problems. These biases can be used advantageously in directing humanity toward better judgment. For example: Because people tend to steer away from choosing and accept the default, companies should make presets on refrigerators, computer displays, and air conditioners environmentally friendly. Key questions remain on the research frontier from the behavioral decision-making perspective. It would be helpful to learn which behaviors leading to energy conservation are easiest to change. Although the behavioral decision-making perspective and the neoclassical economics perspective recommend very different solutions for the same problems, the two academic approaches do not have to be in opposition. Rather, the behavioral approach can actually be used to supercharge the incentive-compatible recommendations of the neoclassical approach. Closed for comment; 0 Comments.
- 19 Nov 2010
- Research & Ideas
The Landscape of Integrated Reporting: An E-Book
An e-book written by participants of a recent HBS workshop on integrated reporting is now available. HBS Dean Nitin Nohria offers a forward. Closed for comment; 0 Comments.
- 20 Oct 2010
- Research & Ideas
HBS Workshop Encourages Corporate Reporting on Environmental and Social Sustainability
The concept of integrated reporting could help mend the lack of trust between business and the public, Harvard Business School Dean Nitin Nohria tells attendees at a seminal workshop. Closed for comment; 0 Comments.
The Impact of Corporate Sustainability on Organizational Process and Performance
Robert G. Eccles, Ioannis Ioannou, and George Serafeim compared a matched sample of 180 companies, 90 of which they classify as High Sustainability firms and 90 as Low Sustainability firms, in order to examine issues of governance, culture, and performance. Findings for an 18-year period show that High Sustainability firms dramatically outperformed the Low Sustainability ones in terms of both stock market and accounting measures. However, the results suggest that this outperformance occurs only in the long term. Managers and investors who are hoping to gain a competitive advantage in the short term are unlikely to succeed by embedding sustainability in their organization's strategy. Overall, the authors argue that High Sustainability company policies reflect the underlying culture of the organization, where environmental and social performance, in addition to financial performance, are important, but these policies also forge a strong culture by making explicit the values and beliefs that underlie the mission of the organization. Key concepts include: Organizations voluntarily adopting environmental and social policies represent a fundamentally distinct type of modern corporation, characterized by a governance structure that takes into account the environmental and social performance of the company, in addition to financial performance, a long-term approach towards maximizing inter-temporal profits, and an active stakeholder management process. Societal concern about sustainability, at both the level of the firm and society as a whole, has been growing from almost nothing in the early 1990s to rapidly increasing awareness in the early 2000s, to being a dominant theme today. The High Sustainability firms in this study pay attention to their relationships with stakeholders—such as employees, customers, and NGOs representing civil society—through active processes of engagement. The Low Sustainability firms, by contrast, correspond to the traditional model of corporate profit maximization in which social and environmental issues are predominantly regarded as externalities created by firm actions which only need to be addressed if required to do so by law and regulation. The group of firms with a strong sustainability culture is significantly more likely to assign responsibility to its board of directors for sustainability and to form a separate board committee for sustainability. Moreover, High Sustainability companies are more likely to make executive compensation a function of environmental, social, and external perception (e.g., customer satisfaction) metrics. Closed for comment; 0 Comments.