Douglas T. Breeden - Duke University's Fuqua School of Business

going green is good business
Duke Executive Education recently had the
opportunity to speak with Tim Profeta,
director of the Nicholas Institute for
Environmental Policy Solutions, regarding
climate change’s impact on business. The
dialogue in its entirety is available on
Exchange magazine’s Web site . Following
is an excerpt of that conversation.
What is the Nicholas Institute for
Environmental Policy Solutions?
We are the nation’s first bridging
organization for environmental matters
between the world of academia and
the decision makers in government,
corporate, and nonprofit board rooms.
We bring the expertise of our faculty
and researchers to the decision makers—but
what makes us different is we
have a dynamic interchange with the
policymaking process. We help broker
tough decisions, and we bring political
realities and information needs back to
our faculty so they can calibrate their
work to assist the “real world.”
One of the current hot topics is climate
change. How will climate change impact
the bottom line?
There are at least two ways to look at
this. One is on the risk side. There are
the risks of the costs to the economy of
global warming itself, from rising
food prices to the damages wrought
by storms, droughts, heat waves, and
other extreme events. There are also
risks to global corporations who are
constrained by U.S. reluctance from
going full bore into the development
of more efficient technologies and
products—but who will need to sell
those kinds of products on the
changing global market.
The other is the opportunity side.
This is where climate change can be
viewed as a global market signal.
Other economies are going low-carbon
14 exchange
for a number of reasons, either to
skip the building of old energy infrastructure,
or from fear of the impacts
of global warming, or many other
reasons. The way to get the edge in
this century is to develop and deploy
low-carbon solutions faster than your
competitor. That’s where the patents
are going to be, and that’s where the
markets are headed worldwide.
How is climate change impacting
business decisions?
Businesses that think really long
term, like the insurance industry, are
rethinking their policies, like where
they will provide coverage for storm and
flood damage. That industry was alarmed
about five or six years ago, when they
began to see “one hundred-year events”
happening every five years or less.
Other long-term interests, like utility
companies, are agitating for a U.S.
policy decision so they will know how
to invest in new power plants over the
next ten years. A lot of our capital
stock will be with us for a hundred
years, and it is hard to plan without a
clear indication from policymakers of
what the requirements will be.
Are you sensing a shift from government
regulation and policy driving environment
reform to business-led solutions?
It’s a false choice between businessled
and government-led. For example,
on climate change there is a role for
government to play in setting the signal
and shooting the starting gun by
saying “carbon pollution reduction
is now a tradable commodity. Go.”
Even major companies cannot go
totally out on their own with a business
strategy that Wall Street does
not recognize. With the quarterly
profit focus and the amount of
cross-business sharing required to
make this take off, it’s too much of a
risk for individuals.
I think what is different about this
issue is it will ultimately be handled
by our economists, financial firms,
traders, and not as much the environmental
branches of government. This
would be the first time to bring a market
solution to an environmental
problem on such a major scale. And
the scale of it is exactly what will help
businesses then drive the solutions
and profit from them—once the
expectations are clarified.
Given the dramatic business changes
underway in response to climate change,
where do you see companies ten years
from now?
We might see companies innovating
not only in their products, but in their
places of business—their offices and factories.
We might see more telecommuting.
We might see new supply chain growth in
unlikely places. We might see more interaction
with consumers from traditionally
paternalistic industries. For example,
customers could sell energy back to the
utility industry because they’re generating
electricity with their car or from
photovoltaic shingles on their house.
I think if we set the signal with a carbon
price, we will be surprised by the
pace and depth of innovation—just as
no one predicted the transformation of
computers and telecommunications
that happened over the course of a
decade. I remember using a typewriter
in college; I remember my first e-mail—
just within the last fifteen years. I never
imagined a Blackberry or a cell phone
that takes photographs. Imagine what
would happen with energy if we made a
national decision to limit carbon and
try something else.
—Kip Kelly