Business and Environment

Business and Environment is a featured research topic and an initiative at Harvard Business School.
The vital connection between the natural environment and the business world has long been a central focus of our research at HBS – from Richard Vietor’s study of business-government relations in U.S. energy policy in the 1980’s to Michael Porter’s new concept of the relationship between the environment and competition in the 1990’s. Today, our faculty members focus on corporate environmental strategy, operations and reporting; sustainable cities and infrastructure; the role of government and environmental policy; clean energy generation and demand-side energy efficiency; and the effective management of natural resources essential to human prosperity.
  1. Africa's New Generation of Innovators

    Clayton M. Christensen, Efosa Ojomo and Derek van Bever

    With a young, urbanizing population, abundant natural resources, and a growing middle class, Africa seems to have all the ingredients necessary for huge growth. Nevertheless, a number of multinationals have recently left the continent, discouraged by widespread corruption, a lack of infrastructure and ready talent, and an underdeveloped consumer market. Some innovators, however, have succeeded by building franchises to serve poorer consumer segments; tapping the vast opportunity represented by nonconsumption; internalizing risk to build strong, self-sufficient, low-cost enterprises; and integrating operations to avoid corruption. The difference, the authors believe, lies in the choice between “push” and “pull” investment. MNCs seek growth by pushing current products onto emerging middle-class consumers. They retain some large portion of their existing cost structure and operating style, and thus set prices that limit market penetration. The winning strategy diverges from this approach in almost every respect. When innovators develop products that people want to pull into their lives, they create markets that serve as a foundation for sustainable growth and prosperity.

    Keywords: Innovation Strategy; Multinational Firms and Management; Economic Growth; Africa;


    Christensen, Clayton M., Efosa Ojomo, and Derek van Bever. "Africa's New Generation of Innovators." Harvard Business Review 95, no. 1 (January–February 2017): 129–136. View Details
  2. BASF: Co-Creating Innovation (A)

    V. Kasturi Rangan, Emilie Billaud and Vincent Dessain

    In 2016, BASF's Chief Executive Officer and Chief Technology Officer reflected on the co-creation innovation program started almost 18 months ago as part of BASF's 150th anniversary celebration. 500 project ideas had been created, of which 100 had already moved to the company's conventional R&D funnel. 34 had been short-listed for further consideration. At least 10, if not more of these projects would receive "landmark" funding running at an average of 1 million Euro each. Beyond selecting the right projects, how could the CEO and CTO ensure that a complex organization such as BASF would encourage such fresh ideas to be developed and nurtured in the future? Was this experiment something that BASF should do again in the future?

    Keywords: Innovation Strategy; collaborative Innovation and Invention; Innovation and Management; chemicals; sustainability; knowledge sharing; Knowledge Sharing; Innovation Strategy; Innovation and Management; Chemicals; Environmental Sustainability; Collaborative Innovation and Invention; Consumer Products Industry; Europe;


    Rangan, V. Kasturi, Emilie Billaud, and Vincent Dessain. "BASF: Co-Creating Innovation (A)." Harvard Business School Case 517-073, December 2016. View Details
  3. Elon Musk's Big Bets

    David B. Yoffie and Eric Baldwin

    Between late 2014 and late 2016, Tesla and CEO Elon Musk undertook several major, and risky, initiatives that would dramatically expand the scale and scope of Tesla’s business. In late 2014, Tesla began construction on a $5 billion “gigafactory” that would manufacture lithium-ion batteries used in Tesla’s electric vehicles on an unprecedented scale. In early 2015, Tesla announced a new product line of battery packs designed for large-scale energy storage for residential, commercial, and utility-scale installations. In 2016, the company acquired SolarCity, a leading solar energy firm, creating what Musk called “a vertically integrated energy company.” These moves, representing billions of investment and extension into new industries, came at a time when Tesla was still losing money and struggling to scale up production of its electric vehicle lines to meet ambitious delivery targets. Meanwhile, Musk was also CEO of SpaceX, which was, while growing its business of launching satellites and cargo into space for commercial and governmental clients, preparing to take astronauts into space, pioneering the use of reusable rockets, and announcing plans to colonize Mars. Would Musk be able to realize his ambitious goals or was he taking too many risks with his investors’ money?

    Keywords: electric vehicles; batteries; solar power; renewable energy; strategy; Execution; technology; space flight Tesla; SolarCity; SpaceX; Elon Musk; Technology; Risk and Uncertainty; Expansion; Renewable Energy; Investment; Manufacturing Industry; Green Technology Industry; Auto Industry; Aerospace Industry; Battery Industry;


    Yoffie, David B., and Eric Baldwin. "Elon Musk's Big Bets." Harvard Business School Case 717-431, November 2016. View Details
  4. Corporate Sustainability: First Evidence on Materiality

    Mozaffar Khan, George Serafeim and Aaron Yoon

    Using newly available materiality classifications of sustainability topics, we develop a novel dataset by hand-mapping sustainability investments classified as material for each industry into firm-specific sustainability ratings. This allows us to present new evidence on the value implications of sustainability investments. Using both calendar-time portfolio stock return regressions and firm-level panel regressions we find that firms with good ratings on material sustainability issues significantly outperform firms with poor ratings on these issues. In contrast, firms with good ratings on immaterial sustainability issues do not significantly outperform firms with poor ratings on the same issues. These results are confirmed when we analyze future changes in accounting performance. The results have implications for asset managers who have committed to the integration of sustainability factors in their capital allocation decisions.

    Keywords: sustainability; Investments; corporate social responsibility; accounting; corporate reporting; regulation; Corporate Social Responsibility and Impact; Integrated Corporate Reporting; Investment; Corporate Governance;


    Khan, Mozaffar, George Serafeim, and Aaron Yoon. "Corporate Sustainability: First Evidence on Materiality." Accounting Review 91, no. 6 (November 2016). View Details
  5. Alternative Paths of Green Entrepreneurship: The Environmental Legacies of The North Face's Doug Tompkins and Patagonia's Yvon Chouinard

    Geoffrey Jones and Ben Gettinger

    This working paper examines the impact of two entrepreneurs who offered alternative paths to reach their shared goal of a more sustainable world. Yvon Chouinard and Doug Tompkins were respective founders of the prominent outdoor apparel brands Patagonia and The North Face. Chouinard pursued incremental sustainability strategies over decades at his firm. Tompkins, who went on to manage the fashion company Esprit, opted in 1989 to exit business entirely having concluded that capitalism could never be sufficiently sustainable to reverse environmental degradation. He purchased 1.5 million hectares of land in Chile and Argentina that he converted to protected areas and national parks. The Chouinard strategy represented best practice green entrepreneurship, which if widely adopted might markedly reduce the environmental impact of business, but its full execution appeared possible only because Patagonia was a private company. The Tompkins dual strategy of exit from business and application of entrepreneurial skills to conservation resulted in large environmental gains, including sequestering and storing an estimated 80 million tons of carbon. We lack the metrics and methodologies to compare rigorously which offers the better path to sustainability, but a case can be made that the application of entrepreneurial talents to activities beyond for-profit business (of which conservation is one example) might be a more effective strategy.

    Keywords: Corporate Social Responsibility and Impact; Entrepreneurship; Environmental Sustainability; Apparel and Accessories Industry;


    Jones, Geoffrey, and Ben Gettinger. "Alternative Paths of Green Entrepreneurship: The Environmental Legacies of The North Face's Doug Tompkins and Patagonia's Yvon Chouinard." Harvard Business School Working Paper, No. 17-034, October 2016. View Details
  6. Spectio: A Digital Lighting Company

    Rajiv Lal and Sarah McAra

    Spectio Tech, founded in 2005, developed and implemented intelligent LED lighting solutions for the industrial market. Sensors and wireless connectivity embedded in its LED fixtures not only significantly reduced lighting-related energy use—by up to 90% in some cases—but also served as a tool for the Internet of Things (IoT) to expose powerful insights about facility use. Yet in 2016, few of Spectio’s customers were fully embracing the system as an IoT product. Both LED lighting and IoT were rapidly evolving markets, and Spectio had to decide if it should focus on driving down lighting hardware costs to expand its total addressable market or on improving the software controls to enhance the system’s IoT functionality.

    Keywords: Internet of Things; IoT; LED Lighting; technology adoption; technological innovation; start-up; energy efficiency; Technology;


    Lal, Rajiv, and Sarah McAra. "Spectio: A Digital Lighting Company." Harvard Business School Case 517-002, September 2016. (Revised September 2016.) View Details
  7. Joan Bavaria and Multi-Dimensional Capitalism

    Geoffrey Jones and Seema Amble

    The case examines the career of Joan Bavaria, a pioneer of socially responsible investing and founder of Trillium Asset Management and Ceres, the nonprofit organization advocating for sustainability leadership. It describes her personal journey from art student and college dropout to financier and campaigner for corporate sustainability. Trillium grew out of Bavaria's initial work in Boston-based Franklin Research and Development Corporation and became an independent entity in 1982. Bavaria argued that investment houses could use their funds to promote corporate social responsibility and that such investments could be profitable. This was considered extremely unorthodox in the industry at the time. In the wake of the giant oil spill from the tanker Exxon Valdez in Alaska in 1989, Bavaria launched the Ceres Principals aimed to generate standardized corporate reporting on environmental performance. Ceres grew as an organization and launched the Global Reporting Initiative in 1997. The case provides an opportunity to explore the opportunities and challenges of both SRI and corporate environmental reporting.

    Keywords: Integrated Corporate Reporting; Corporate Social Responsibility and Impact; Personal Development and Career;


    Jones, Geoffrey, and Seema Amble. "Joan Bavaria and Multi-Dimensional Capitalism." Harvard Business School Case 317-028, September 2016. View Details
  8. ESG Integration in Investment Management: Myths and Realities

    Sakis Kotsantonis, Christopher Pinney and George Serafeim

    The authors’ aim in this article is to set the record straight on the financial performance of sustainable investing while also correcting a number of other widespread misconceptions about this rapidly growing set of principles and methods. Myth Number 1: Environmental, social, and governance (ESG) programs reduce returns on capital and long-run shareholder value. Reality: Companies committed to ESG are finding competitive advantages in product, labor, and capital markets, and portfolios that have integrated “material” ESG metrics have provided average returns to their investors that are superior to those of conventional portfolios, while exhibiting lower risk. Myth Number 2: ESG is already well integrated into mainstream investment management. Reality: The UNPRI signatories have committed themselves only to adhering to a set of principles for responsible investment, a standard that falls well short of integrating ESG considerations into their investment decisions. Myth Number 3: Companies cannot influence the kind of shareholders that buy their shares, and corporate managers must often sacrifice sustainability goals to meet the quarterly earnings targets of increasingly short-term–oriented investors. Reality: Companies that pursue major sustainability initiatives, and publicize them in integrated reports and other communications with investors, have also generally succeeded in attracting disproportionate numbers of longer-term shareholders. Myth Number 4: ESG data for fundamental analysis is scarce and unreliable. Reality: Thanks to the efforts of reporting and investor organizations such as SASB and Ceres, as well as CDP data providers like Bloomberg and MSCI, much more “value-relevant” ESG data on companies has become available in the past 10 years. Myth Number 5: ESG adds value almost entirely by limiting risks. Reality: Along with lower risk and a lower cost of capital, companies with high ESG scores have also experienced increases in operating efficiency and expansions into new markets. Myth Number 6: Consideration of ESG factors might create a conflict with fiduciary duty for some investors. Reality: Many ESG factors have been shown to have positive correlations with corporate financial performance and value, prompting ERISA in 2015 to reverse its earlier instructions to pension funds about the legitimacy of taking account of “non-financial” considerations when investing in companies.

    Keywords: ESG; sustainability; investment management; finance; corporate social responsibility; Integrated Corporate Reporting; Corporate Social Responsibility and Impact; Investment; Environmental Sustainability; Corporate Governance;


    Kotsantonis, Sakis, Christopher Pinney, and George Serafeim. "ESG Integration in Investment Management: Myths and Realities." Journal of Applied Corporate Finance 28, no. 2 (Spring 2016): 10–16. View Details
  9. Unpacking the Dynamics of Successful Change: Ten Insights from the Private Sector

    Rebecca Henderson

    Book Abstract: The aim of this book is to catalyze global interest in the pursuit of transformational changes in natural resource and environmental management. It is shown that transformational policy reforms involve fundamental shifts in strategy with far-reaching consequences for the structure of industries, the way people behave, and the resources they use. Transformational reforms typically involve a decision to change a suite of institutional arrangements that will result, within a short period of time, in a paradigm shift and the emergence of an approach that will be recognized as being totally different to the arrangements that were previously in place. Transformational change is well established in business and can deliver outstanding results. In the world of policy development, however, many transformational policy reforms flounder. Unlike incremental policy reforms, they are often seen to be politically risky and prone to failure. Using examples of success and failure, coupled with insights from practitioners and academics who have succeeded in getting transformational reforms implemented, this book presents a set of guidelines for excellence in the pursuit of transformational policy reforms. It includes detailed case studies from Australia, China, Europe, New Zealand, Southeast Asia, and the United States.

    Keywords: Change Management; Environmental Sustainability; Policy; Transformation; Australia; New Zealand; China; United States; Europe; Southeast Asia;

  10. The Effect of Target Difficulty on Target Completion: The Case of Reducing Carbon Emissions

    Ioannis Ioannou, Shelley Xin Li and George Serafeim

    Targets are an integral component of management control systems and play a significant role in achieving desirable performance outcomes. We focus on a key environmental performance objective—reduction of carbon emissions—as a setting in which to examine how target difficulty affects the degree of target completion in long-term nonfinancial performance. We use a novel dataset compiled by the Carbon Disclosure Project (CDP) and find that firms setting more difficult targets complete a higher percentage of such targets. We also find that this effect is negatively moderated by the provision of monetary incentives. We corroborate this evidence by showing that target difficulty is more effective for carbon reduction projects requiring more novel knowledge and in high-pollution industries. We discuss limitations and suggest avenues for future research.

    Keywords: sustainability; climate change; target-setting; management accounting; management accounting and control systems; control systems; sustainable development; environment; Goals and Objectives; Weather and Climate Change; Management Systems; Accounting; Environmental Sustainability;


    Ioannou, Ioannis, Shelley Xin Li, and George Serafeim. "The Effect of Target Difficulty on Target Completion: The Case of Reducing Carbon Emissions." Accounting Review 91, no. 5 (September 2016). View Details
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