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.

Featured Works

Article | Journal of Marketing | July 2015
BYOB: How Bringing Your Own Shopping Bags Leads to Treating Yourself, and the Environment
Uma R. Karmarkar and Bryan Bollinger
As concerns about pollution and climate change have become more central in public discourse, shopping with reusable grocery bags has been strongly promoted as environmentally and socially conscious. In parallel, firms have joined policy makers in using a variety of initiatives to reduce the use of plastic bags. However, little is known about how these initiatives might alter consumers' in-store behavior. Using scanner panel data from a single California location of a major grocery chain, and completely controlling for consumer heterogeneity, we demonstrate that bringing your own bags simultaneously increases purchases of environmentally friendly as well as indulgent (hedonic) items. We use experimental methods to further demonstrate causality and to consider the effects of potential moderators. These findings have implications for decisions related to product pricing, placement and assortment, store layout, and the choice of strategies to increase the use of reusable bags.
Keywords: grocery shopping; reusable bags; licensing; priming; goals; hedonic; Marketing Strategy; Consumer Behavior; Environmental Sustainability; Retail Industry;

Citation:
Karmarkar, Uma R., and Bryan Bollinger. "BYOB: How Bringing Your Own Shopping Bags Leads to Treating Yourself, and the Environment." Journal of Marketing 79, no. 4 (July 2015): 1–15. View Details
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Article | Journal of Applied Corporate Finance
Integrated Reporting and Investor Clientele
George Serafeim
In this paper, I examine the relation between Integrated Reporting (IR) and the composition of a firm's investor base. I hypothesize and find that firms that practice IR have a more long-term oriented investor base with more dedicated and fewer transient investors. This result is more pronounced for firms with high growth opportunities, not controlled by a family, operating in 'sin' industries, and exhibiting commitment to IR. I find that the results are robust to the inclusion of firm fixed effects, controls for the quantity of sustainability disclosure, and alternative ways of measuring IR. Moreover, I show that investor activism on environmental or social issues or a large number of concerns about a firm's environmental or social impact leads a firm to practice more IR and that this investor or crisis-induced IR affects the composition of a firm's investor base. Finally, firms that report more information about the different forms of capital or follow more closely the guiding principles as described in the IR Framework of the IIRC exhibit a more long-term oriented investor base.
Keywords: integrated reporting; sustainability reporting; long-term investing; Short-termism; corporate governance; accounting; Integrated Corporate Reporting; Environmental Sustainability; Investment; Corporate Governance;

Citation:
Serafeim, George. "Integrated Reporting and Investor Clientele." Journal of Applied Corporate Finance 27, no. 2 (Spring 2015): 34–51. View Details
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Article | Harvard Business Review (website) | April 14, 2015
The Type of Socially Responsible Investments That Make Firms More Profitable
George Serafeim
Keywords: sustainability; corporate social responsibility; corporate sustainability; Investing; investment; investment management; Corporate Social Responsibility and Impact; Profit; Investment; Environmental Sustainability;

Citation:
Serafeim, George. "The Type of Socially Responsible Investments That Make Firms More Profitable." Harvard Business Review (website) (April 14, 2015). View Details
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Article | Journal of Political Economy
Transition to Clean Technology
Daron Acemoglu, Ufuk Akcigit, Douglas Hanley and William R. Kerr
We develop a microeconomic model of endogenous growth where clean and dirty technologies compete in production and innovation, in the sense that research can be directed to either clean or dirty technologies. If dirty technologies are more advanced to start with, the potential transition to clean technology can be difficult both because clean research must climb several rungs to catch up with dirty technology and because this gap discourages research effort directed towards clean technologies. Carbon taxes and research subsidies may nonetheless encourage production and innovation in clean technologies, though the transition will typically be slow. We characterize certain general properties of the transition path from dirty to clean technology. We then estimate the model using a combination of regression analysis on the relationship between R&D and patents, and simulated method of moments using microdata on employment, production, R&D, firm growth, entry and exit from the US energy sector. The model's quantitative implications match a range of moments not targeted in the estimation quite well. We then characterize the optimal policy path implied by the model and our estimates. Optimal policy makes heavy use of research subsidies as well as carbon taxes. We use the model to evaluate the welfare consequences of a range of alternative policies.
Keywords: Technological Innovation; Entrepreneurship; Environmental Sustainability; Green Technology Industry;

Citation:
Acemoglu, Daron, Ufuk Akcigit, Douglas Hanley, and William R. Kerr. "Transition to Clean Technology." Special Issue on Climate Change and the Economy. Journal of Political Economy 124, no. 2 (February 2016): 52–104. View Details
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Book | 2015
Leading Sustainable Change: An Organizational Perspective
Rebecca Henderson, Ranjay Gulati and Michael Tushman
The business case for acting sustainably is becoming increasingly compelling—reducing our global footprint to sustainable levels is the defining issue of our times, and it is one that can only be addressed with the active participation of the private sector. However, persuading well-established organizations to act in new ways is never easy. This book is designed to support business leaders and organizational scholars who are grappling with this challenge by pulling together leading-edge insights from some of the world's best researchers as to how organizational change in general—and sustainable change in particular—can be most effectively managed. The book begins by laying out the economic case for change, while subsequent chapters describe how leaders at firms such as Du Pont, IBM, and Cemex have transformed their organizations, exploring issues such as the role of the senior team and the ways in which firms shift their identities, build innovative cultures and processes, and begin to change the world around them. Business leaders will find the book a source of both powerful examples and immediately actionable ideas, while scholars will be deeply intrigued by the insights that emerge from the cross cutting exploration of one of the toughest challenges our society has ever faced.
Keywords: environmental sustainability;

Citation:
Henderson, Rebecca, Ranjay Gulati and Michael Tushman, eds. Leading Sustainable Change: An Organizational Perspective. Oxford University Press, 2015. View Details
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Case | HBS Case Collection | September 2014 (Revised November 2017)
Sustainability at IKEA Group
V. Kasturi Rangan, Michael W. Toffel, Vincent Dessain and Jerome Lenhardt
By 2014, IKEA Group was the largest home furnishing company, with EUR28.5 billion of sales, and planned to reach EUR50 billion by 2020, mainly from emerging markets. At the same time, IKEA Group had adopted in 2012 a new sustainability strategy that focused the company's efforts on its entire value chain from its raw materials sourcing to the lifestyle of its end consumers. The plan especially centered on wood, which represented 60% of IKEA Group's total procurement in volume and constituted a key lever for the company to increase its positive impact on sustainability. IKEA Group Management therefore had to decide how to manage its portfolio of wood sustainability initiatives, especially in the context of the company's aggressive growth plan.
Keywords: furnishing; sustainability; supply chain; wood; Customer Value and Value Chain; Supply Chain Management; Environmental Sustainability; Growth and Development Strategy; Consumer Products Industry;

Citation:
Rangan, V. Kasturi, Michael W. Toffel, Vincent Dessain, and Jerome Lenhardt. "Sustainability at IKEA Group." Harvard Business School Case 515-033, September 2014. (Revised November 2017.) View Details
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Recent Publications

Case | HBS Case Collection | July 2019
Acelerex
John R. Wells and Benjamin Weinstock
In early 2019, Randell Johnson, Founder and Chief Executive of Acelerex, was reflecting on the company’s first year of rapid growth and the challenges of scaling the business that lay ahead. Acelerex was riding the waves of change taking place in electrical power grids as battery storage was introduced and more renewable energy was integrated into the systems. These changes opened up opportunities for a whole range of software and support services. Headquartered in Boston, Massachusetts, at the Cambridge Innovation Center (CIC), Acelerex was leveraging technologies, such as big data and grid analytics, Artificial Intelligence (AI) forecasting tools, cloud computing, real time control systems, energy storage testing software, monitoring, and blockchain smart contracts, to provide consulting expertise and software-as-a-service (SaaS) products to a diverse group of stakeholders, including state and municipal policymakers, regulators, grid developers, utilities, and investors. Demand for Acelerex’s services had outstripped supply, and, within a year, the company had grown to 14 professionals, with advanced degrees in multiple technical domains. Moreover, the company had made a profit in its first year, had achieved proof of concept and minimum viable products for all of its targeted services, and made sales along all business lines. But, cash flow had been a constant challenge because of slow-paying clients and rising fixed costs, while talent development had proved a “headache.” Acelerex was Johnson’s first start-up after 25 years of experience working with major firms and research institutions across all segments of the power sector, including generation, transmission, distribution, consumption, and storage. Having doubled in size for four quarters, he had set himself the challenge of doubling in size again, but he was going to take a year to do it. He was confident there was enough business in the USA to support this rate of expansion and that he could hire the team to deliver it, but was uncertain whether he should raise funds to resolve the cash flow pressure. He was also being asked to do more and more work in China, India, and Africa; did this make sense? And to add to his list of opportunities, he had been asked to provide similar services to transport, natural gas, and water networks. As the company’s website claimed, it was “an era of many options” for Acelerex. After a year of 7-day weeks and 150 nights away from home, Johnson considered his next steps.

Citation:
Wells, John R., and Benjamin Weinstock. "Acelerex." Harvard Business School Case 720-360, July 2019. View Details
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Article | Bloomberg Opinion
People Make It So Hard to Ditch Plastic Straws
Scott Duke Kominers
Rarely has a minor consumer product received more vilification than the plastic straw. As a symbol of human wastefulness and our careless disregard for the environment, straws are the near-perfect villain. You use a plastic straw once and toss it, but it stays with us forever, sitting in a landfill, floating in the sea or harming wildlife. That's why some local governments like that of New York City have stopped allowing them, along with other single-use plastics. This seems like a perfectly reasonable thing to do, even though plastic straws comprise only a small part of the total volume of plastic disposed of each year.
Keywords: Environmental Sustainability; Governing Rules, Regulations, and Reforms; Consumer Behavior;

Citation:
Kominers, Scott Duke. "People Make It So Hard to Ditch Plastic Straws." Bloomberg Opinion (July 15, 2019). View Details
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Article | Management Science | July 2019
Market Reaction to Mandatory Nonfinancial Disclosure
Jody Grewal, Edward J. Riedl and George Serafeim
We examine the equity market reaction to events associated with the passage of a directive in the European Union (EU) mandating increased nonfinancial disclosure. These disclosures relate to firms’ environmental, social, and governance (ESG) performance and would be applicable to firms listed on EU exchanges or with significant operations in the EU. We predict and find (i) an on average negative market reaction, (ii) a less negative market reaction for firms having higher pre-directive nonfinancial performance, and (iii) a less negative reaction for firms having higher pre-directive nonfinancial disclosure levels. Results are accentuated for firms having the most material ESG issues, as well as investors anticipating proprietary and political costs as a result of the mandated disclosures. Overall, the results are consistent with the equity market perceiving that this disclosure regulation of nonfinancial information would lead to net costs (benefits) for firms with weak (strong) nonfinancial performance and disclosure.
Keywords: nonfinancial information; nonfinancial performance; ESG; ＂ESG (environmental, social, governance) performance; investor behavior; disclosure; disclosure regulation; regulation; sustainability; Corporate performance; Information; Corporate Disclosure; Governing Rules, Regulations, and Reforms; Performance; Environmental Sustainability; Corporate Governance; Outcome or Result;

Citation:
Grewal, Jody, Edward J. Riedl, and George Serafeim. "Market Reaction to Mandatory Nonfinancial Disclosure." Management Science 65, no. 7 (July 2019): 3061–3084. View Details
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Editorial | Barron's
3 Ways Investors Can Pressure Companies to Take Sustainability Seriously
Mindy Lubber and George Serafeim
Keywords: sustainability; activism; ESG; shareholder activism; investor behavior; climate change; environment; diversity; corporate governance; corporate accountability;

Citation:
Lubber, Mindy, and George Serafeim. "3 Ways Investors Can Pressure Companies to Take Sustainability Seriously." Barron's (June 23, 2019). View Details
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Case | HBS Case Collection | May 2019
Rio Tinto: Decommoditizing Aluminum
David Fubini and Jonathon McCarthy
Rio Tinto, a global mining company, sought to decommoditize its aluminum products by differentiating some production lines as a lower-carbon branded product. In order to create a market for this product, Rio Tinto needed the support of the global aluminum industry. Together, major aluminum companies could create a coherent messaging effort that emphasized the industry’s new environmental efforts, without reminding buyers about the environmental concerns about traditional mining. The case asks how Rio Tinto could best position their lower-carbon aluminum, and asks if the investment to differentiate a new environmentally friendly product is worth the cost and risk.
Keywords: mining; commodity prices; carbon regulation; aluminum; Rio Tinto; Apple; environmental and social sustainability; ESG; sustainability; Product Positioning; Mission and Purpose; Environmental Sustainability; Business Strategy; Metals and Minerals; Mining Industry; Australia; Canada;

Citation:
Fubini, David, and Jonathon McCarthy. "Rio Tinto: Decommoditizing Aluminum." Harvard Business School Case 419-044, May 2019. View Details
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Case | HBS Case Collection | May 2019
Elon Musk's Big Bets Update, 2019
David B. Yoffie and Daniel Fisher
This short case provides an update to Elon Musk's strategy and tactical moves with Tesla, Solar City, and SpaceX from 2016-2019.
Keywords: electric vehicles; batteries; solar power; Execution; space flight; Tesla; SolarCity; SpaceX; Elon Musk; Technology; Risk and Uncertainty; Expansion; Renewable Energy; Strategy; Investment; Manufacturing Industry; Green Technology Industry; Auto Industry; Aerospace Industry; Battery Industry;

Citation:
Yoffie, David B., and Daniel Fisher. "Elon Musk's Big Bets Update, 2019." Harvard Business School Case 719-512, May 2019. View Details
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Working Paper | HBS Working Paper Series | 2019
How Transparency into Internal and External Responsibility Initiatives Influences Consumer Choice: Evidence from the Field and Lab
Ryan W. Buell and Basak Kalkanci
Amid growing calls for transparency and social and environmental responsibility, companies are employing different strategies to improve consumer perceptions of their brands. Some pursue internal initiatives that reduce their negative social or environmental impacts through responsible operations practices (such as paying a living wage to workers or engaging in environmentally sustainable manufacturing). Others pursue external responsibility initiatives (such as philanthropy or cause-related marketing). Through three experiments, conducted in the field and lab, we compare how transparency into these internal and external initiatives affects customer perceptions and sales, and explore the psychological processes linking transparency to sales. The results provide converging evidence that transparency into a company’s internal responsibility practices can be at least as motivating of consumer sales as transparency into its external responsibility initiatives, incrementally increasing a consumer’s probability of purchase by 13.6% and 45.8% across our two field experiments, conducted in social and environmental domains, respectively. We further investigate the perceptual effects of transparency into internal and external responsibility initiatives and find that the underlying psychological mechanisms linking both types of transparency to consumer purchase intentions are highly consistent. Transparency into internal and external initiatives increases perceived altruism, cause sincerity, corporate ability, trust, favorability, and consumers’ beliefs that the company is an attractive employer, which in turn drives sales. Taken together, our results suggest that it may be in the interest of both business and society for managers to prioritize internal responsible operations initiatives, to achieve both top and bottom line benefits, while mitigating social and environmental harms.
Keywords: Sustainable Operations; corporate social responsibility; operational transparency; Corporate Social Responsibility and Impact; Environmental Sustainability; Consumer Behavior; Perception;

Citation:
Buell, Ryan W., and Basak Kalkanci. "How Transparency into Internal and External Responsibility Initiatives Influences Consumer Choice: Evidence from the Field and Lab." Harvard Business School Working Paper, No. 19-115, May 2019. View Details
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Article | Journal of Applied Corporate Finance
Four Things No One Will Tell You About ESG Data
Sakis Kotsantonis and George Serafeim
As the ESG finance field and the use of ESG data in investment decision-making continue to grow, the authors seek to shed light on several important aspects of ESG measurement and data. This article is intended to provide a useful guide for the rapidly rising number of people entering the field. The authors focus on the following:
The sheer variety, and inconsistency, of the data and measures as well as how companies report them. Listing more than 20 different ways companies report their employee health and safety data, the authors show how such inconsistencies lead to significantly different results when looking at the same group of companies.
“Benchmarking,” or how data providers define companies' peer groups, can be crucial in determining the performance ranking of a company. The lack of transparency among data providers about peer group components and observed ranges for ESG metrics creates market-wide inconsistencies and undermines their reliability.
The differences in the imputation methods used by ESG researchers and analysts to deal with vast “data gaps” that span ranges of companies and time periods for different ESG metrics can cause large “disagreements” among providers, with different gap-filling approaches leading to big discrepancies. The disagreements among ESG data providers are large and actually increase with the quantity of publicly available information. Citing a recent study showing that companies that provide more ESG disclosure tend to have more variation in their ESG ratings, the authors interpret this finding as clear evidence of the need for “a clearer understanding of what different ESG metrics might tell us and how they might best be institutionalized for assessing corporate performance.”
What can be done to address these problems with ESG data? Companies should “take control of the ESG data narrative” by proactively shaping disclosure instead of being overwhelmed by survey requests. To that end, companies should “customize” their metrics to some extent, while at the same time seek to self-regulate by reaching agreement with industry peers on a “reasonable baseline” of standardized ESG metrics designed to achieve comparability. Investors are urged to push for more meaningful ESG disclosure by narrowing the demand for ESG data into somewhat more standardized, but still manageable, metrics. Stock exchanges should consider issuing—and perhaps even mandating—guidelines for ESG disclosures designed in collaboration with companies, investors, and regulators. And data providers should come to agreement on best practices and become as transparent as possible about their methodologies and the reliability of their data.
Keywords: ESG; ＂ESG (environmental, social, governance) performance; ESG reporting; Data Analytics; sustainability; sustainability reporting; CSR; transparency; investment management; socially responsible investing; sustainable finance; sustainable development; climate change; inclusion; inclusive growth; Corporate Social Responsibility and Impact; Corporate Accountability; Investment; Management; Weather and Climate Change; Corporate Governance; Diversity; Integrated Corporate Reporting;

Citation:
Kotsantonis, Sakis, and George Serafeim. "Four Things No One Will Tell You About ESG Data." Journal of Applied Corporate Finance 31, no. 2 (Spring 2019): 50–58. View Details
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Case | HBS Case Collection | March 2019
The Sustainability Accounting Standards Board (Abridged)
Julie Battilana and Michael Norris
In 2014, as the Sustainability Accounting Standards Board (SASB) has just brought former New York City Mayor Michael Bloomberg on as chairman of the board, Jean Rogers, founder and CEO, struggles with how best to ensure the nonprofit’s financial sustainability while pushing for broad acceptance of its nonfinancial accounting metrics.
Keywords: sustainability; sustainability reporting; reporting; Environmental Sustainability; Accounting; Accounting Industry; United States;

Citation:
Battilana, Julie, and Michael Norris. "The Sustainability Accounting Standards Board (Abridged)." Harvard Business School Case 419-058, March 2019. View Details
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Case | HBS Case Collection | March 2019
The DivaCup: Navigating Distribution and Growth
Ayelet Israeli
When the mother-daughter founders of DivaCup set out with a mission to disrupt the menstrual care industry with an innovative product form, they initially struggled to gain legitimacy and convince retailers to carry their unique product. Fifteen years later, the product was available online and in more than 35,000 retail stores worldwide, and the company was struggling with omnichannel distribution challenges and frequent violations of their pricing policy due to intense competition among channel partners. International distribution and the prevalence of gray market sellers were causing large price dispersions across markets, which was harming the brand further. In October 2018, the entry of a formidable competitor, P&G (owner of menstrual care brands Tampax and Always), into the niche product segment causes the CEO and her team to consider the best plan to reposition and differentiate its product to broaden its appeal to users of other product forms, while maintaining its market leadership in the menstrual cup segment. This challenge is made more difficult due to prevalent miseducation about menstrual care and menstrual cups in particular.
Keywords: female; female ceo; Female Entrepreneur; female protagonist; health ＆ wellness; healthcare; price policies; minimum advertised price; differentiation; positioning; Growth; Health; Health Care and Treatment; Price; Disruption; Distribution; Distribution Channels; Competitive Strategy; Competition; Growth Management; Mission and Purpose; Product Development; Product Marketing; Product Launch; Product Positioning; Advertising; Business Startups; Internet; Entrepreneurship; Social Entrepreneurship; Social Issues; Social Enterprise; Retail Industry; Medical Devices and Supplies Industry; Manufacturing Industry; Health Industry; Green Technology Industry; Education Industry; Distribution Industry; Consumer Products Industry; Canada; United States; United Kingdom;

Citation:
Israeli, Ayelet. "The DivaCup: Navigating Distribution and Growth." Harvard Business School Case 519-055, March 2019. View Details
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