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

 

  1. Case | HBS Case Collection | May 2020

    Soofa: Displaying the Right Path?

    Jeffrey J. Bussgang, Amy Klopfenstein and Amram Migdal

    In November 2019, Sandra Richter, co-founder and CEO of Soofa, a network of advertising-supported digital bulletin boards, must decide between two different fundraising and expansion plans for her company. One plan entails raising $15 million in a Series A round and pursuing an aggressive expansion strategy, while the other represents a more modest $3 million raise to bring the company to operating profitability. Richter had developed the $15 million plan with an executive introduced to her by her venture capital board members with extensive fundraising and startup experience; however, after months of pitching to investors, the aggressive expansion plan had failed to produce a term sheet. Richter must decide whether the rapid expansion is the right course of action for the company as she begins to question whether her business could realistically meet the plan’s projections even if she could secure the financing to fund it. Meanwhile, Soofa’s capital was rapidly dwindling. Richter must raise another round of capital by early 2020, or will be forced to lay off the majority of her staff and close her operations. Should she continue pursuing the aggressive expansion plan, pivot to the more modest plan based on operating profitability, or attempt to pursue both plans simultaneously? And how should she navigate the growing tension on her board given the company’s struggles?

    Keywords: Business Ventures; Business Model; Business Plan; Business Startups; Entrepreneurship; Decision Making; Decisions; Ethics; Geography; Geopolitical Units; Finance; Investment; Markets; Market Entry and Exit; Demand and Consumers; Network Effects; Media; Society; Urban Development; Sustainable Cities; Technology; Hardware; Technology Platform; Strategy; Business Strategy; Expansion; Relationships; Partners and Partnerships; Capital; Venture Capital; Advertising Industry; Technology Industry; Media and Broadcasting Industry; North and Central America; United States; Massachusetts; Cambridge;

    Citation:

    Bussgang, Jeffrey J., Amy Klopfenstein, and Amram Migdal. "Soofa: Displaying the Right Path?" Harvard Business School Case 820-098, May 2020.  View Details
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  2. Article | Financial Analysts Journal | 2020

    Public Sentiment and the Price of Corporate Sustainability

    George Serafeim

    Combining corporate sustainability performance scores based on environmental, social, and governance (ESG) data with big data measuring public sentiment about a company’s sustainability performance, I find that the valuation premium paid for companies with strong sustainability performance has increased over time and that the premium is increasing as a function of positive public sentiment momentum. An ESG factor going long on firms with superior or increasing sustainability performance and negative sentiment momentum and short on firms with inferior or decreasing sustainability performance and positive sentiment momentum delivers significant positive alpha. This low sentiment ESG factor is uncorrelated with other factors, such as value, momentum, size, profitability, and investment. In contrast, the high sentiment ESG factor delivers insignificant alpha and is strongly negatively correlated with the value factor. The evidence suggests that public sentiment influences investor views about the value of corporate sustainability activities and thereby both the price paid for corporate sustainability and the investment returns of portfolios that consider ESG data.

    Keywords: sustainability; ESG; ESG (environmental, social, governance) performance; investment management; investment strategy; big data; Machine learning; environment; Environmental Sustainability; Corporate Governance; Performance; Asset Pricing; Investment; Management; Strategy; Human Capital; Public Opinion; Value;

    Citation:

    Serafeim, George. "Public Sentiment and the Price of Corporate Sustainability." Financial Analysts Journal 76, no. 2 (2020): 26–46.  View Details
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  3. Article | AEA Papers and Proceedings | May 2020

    Tackling Climate Change Requires Organizational Purpose

    Rebecca Henderson and George Serafeim

    Unchecked climate change presents a profound threat to economic growth and political stability but despite widespread public concern about the issue, global emissions of greenhouse gases have not declined. Indeed current “business as usual” predictions imply that average global temperatures will rise by more than 4⁰C by 2100, with potentially catastrophic results. In this paper, we argue that while putting in place an effective regime for pricing GHG emissions is more essential than ever, it is unlikely to be sufficient. It is in this context that we hypothesize that increasing the fraction of commercial firms who are “authentically purpose-driven” might have a very significant effect on the problem of climate change.

    Keywords: corporate purpose; purpose; sustainability; environment; Climate Change; Organizations; Mission and Purpose; Environmental Sustainability; Strategy; Leadership;

    Citation:

    Henderson, Rebecca, and George Serafeim. "Tackling Climate Change Requires Organizational Purpose." AEA Papers and Proceedings 110 (May 2020): 177–180.  View Details
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  4. Case | HBS Case Collection | March 2020 (Revised May 2020)

    Generation Investment Management

    Vikram S. Gandhi and Sarah Mehta

    By January 2020, sustainable investment firm Generation Investment Management (Generation), founded in London in 2004, had grown from a shared vision among seven founders to a 90-person firm managing $27 billion in public and private equity. Throughout its history, Generation had worked towards its mission of seeking to generate superior financial returns by investing in sustainable companies that created long-term value. The case examines Generation’s investment process in general, and in particular with respect to a global manufacturer of agricultural equipment. It also examines some of the strategic decisions and challenges facing the firm.

    Keywords: sustainable investing; Climate Change; Environmental Sustainability; Finance; Equity; Governance; Private Equity; Public Equity; Financial Markets; Investment; Investment Return; Investment Activism; Investment Funds; Investment Portfolio; Institutional Investing; Corporate Social Responsibility and Impact; Financial Services Industry; United Kingdom; England; London;

    Citation:

    Gandhi, Vikram S., and Sarah Mehta. "Generation Investment Management." Harvard Business School Case 820-033, March 2020. (Revised May 2020.)  View Details
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  5. Article | Accounting Horizons | March 2020

    Voluntary, Self-Regulatory, and Mandatory Disclosure of Oil and Gas Company Payments to Foreign Governments

    Paul M. Healy and George Serafeim

    Concerns about high rates of government corruption in resource-rich countries have led transparency advocates to urge oil and gas firms to disclose payments to host governments for natural resources. Transparency, they argue, can increase government accountability and mitigate corruption. However, we find a low frequency of voluntary disclosures of payments by oil and gas firms and negative stock price reactions for affected firms at the announcement of regulations mandating disclosure. This suggests that sample firm managers and their investors perceive that such disclosures generate private costs, despite any public benefits. We document that industry self-regulation has generated information to substitute for the gap in voluntary company disclosure and that such disclosures are accompanied by lower country corruption ratings. This suggests that collective action could be an effective way for companies to manage the private costs of disclosure and respond to public pressure for transparency that could provide public benefits.

    Keywords: oil ＆ gas; corruption; transparency; self-regulation; industry self-regulation; regulation; disclosure; disclosure regulation; Energy Sources; Crime and Corruption; Corporate Disclosure; Governing Rules, Regulations, and Reforms; Energy Industry;

    Citation:

    Healy, Paul M., and George Serafeim. "Voluntary, Self-Regulatory, and Mandatory Disclosure of Oil and Gas Company Payments to Foreign Governments." Accounting Horizons 34, no. 1 (March 2020): 111–129.  View Details
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  6. Working Paper | HBS Working Paper Series | 2020

    Corporate Environmental Impact: Measurement, Data and Information

    David Freiberg, DG Park, George Serafeim and T. Robert Zochowski

    As an organization’s environmental impact has become a more important societal consideration, thereby affecting industry and organizational competitiveness, interest in measuring and analyzing environmental impact has increased. We develop a methodology to derive monetized environmental impact estimates in a comparable way across companies by applying characterization pathways and monetization factors to organization level environmental outputs, including carbon emissions, water use, and other emission types. The median environmental impact as a percentage of an organization’s revenues, referred to as environmental intensity, is close to 2% and above 10% in 11 out of 68 industries, suggesting a significant level of ‘hidden liabilities’ and potential for value erosion if environmental impacts are priced. Close to 60% of the variation in environmental intensity is driven by industry membership, while approximately 30% can be attributed to firm specific factors, with the rest of the variation driven by country and more granular industry classifications. Environmental intensity exhibits significant, yet moderate correlation with various environmental ratings across industries and no correlation within industries. Finally, we find that environmental impact is moderately priced in equity valuation multiples, consistent with investors viewing environmental impacts as financially material and pricing them in some but not all industries.

    Keywords: environment; Impact; measurement; ratings; Environmental Sustainability; Corporate Social Responsibility and Impact; Measurement and Metrics; Valuation;

    Citation:

    Freiberg, David, DG Park, George Serafeim, and T. Robert Zochowski. "Corporate Environmental Impact: Measurement, Data and Information." Harvard Business School Working Paper, No. 20-098, March 2020.  View Details
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  7. Case | HBS Case Collection | February 2020

    Australia: Commodities, Competitiveness, Climate and China

    Richard H.K. Vietor and Laura Alfaro

    For the past few decades, Australia has dealt with the benefits and costs of repeated mining booms—inflation, a housing bubble, a current account deficit and growing dependence on China. Between 1996 and 2007, however, Australia had most of these issues under control and grew at impressive rates, becoming one of the richest of developed countries. Yet competitiveness in its non-mining sectors declined. Since the financial crisis, additional challenges associated with climate change, minerals taxes, migration, fiscal deficits and currency fluctuations have complicated the issues facing both Labor and Liberal administrations, with a very thin majority. Meanwhile, Australia's non-mineral competitiveness continues to recede.

    Keywords: commodities; competitiveness; carbon tax; environment; capital flows; current account; mining; Economy; Problems and Challenges; Australia;

    Citation:

    Vietor, Richard H.K., and Laura Alfaro. "Australia: Commodities, Competitiveness, Climate and China." Harvard Business School Case 720-028, February 2020.  View Details
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  8. Case | HBS Case Collection | February 2020

    Rotoplas: Bringing More and Better Water

    John D. Macomber and Carla Larangeira

    Private companies were being turned to for potable water in the world’s megacities due to impacts of climate change including droughts and flooding. Mexico City had endured several water-related crises, with its population suffering from floods, droughts, water shutoffs and disease. Although some access to piped water services was practically universal for Mexico City residents, services were limited or discontinuous. An accommodation that most households had made was in purchasing and installing a water holding tank on the roof or in the ground, with Rotoplás, a Mexican based water product and services provider, enjoying more than 55% of tank market share in Mexico.

    Rotoplás had ventured into wastewater treatment and recycling in 2016 with the acquisition of Sytesa, a design, construction, financing, operation, and maintenance business for wastewater management for industry and businesses. Market segments included lighter corporate users like shopping malls and heavy users like food processors or mining companies, and maybe “water as a service” would also end up as the place to be to supplement and assist homeowner associations and even municipal governments. However, services revenue was today a tiny fraction of overall cash flow at Rotoplás. The presence of larger competitors like Suez and Veolia and as well as unfavorable pricing and regulations could potentially slow down future growth. Could Rotoplás services be part of the solution to the water crisis in the nation’s capital? Or was the situation too intractable for even this local champion company to tackle? What pricing and regulatory changes might lead to financial and technical solutions for Mexico City’s water crisis?

    Keywords: water supply; water management; Finance; Infrastructure; Urban Development; Business and Government Relations; Latin America; Mexico;

    Citation:

    Macomber, John D., and Carla Larangeira. "Rotoplas: Bringing More and Better Water." Harvard Business School Case 220-064, February 2020.  View Details
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  9. Working Paper | HBS Working Paper Series | 2020

    A Framework for Product Impact-Weighted Accounts

    George Serafeim and Katie Trinh

    While there has been significant progress in the measurement of an organization’s environmental and social impacts from their operations, metrics to evaluate the impact of products once they come to market lag far behind. In this paper we provide a framework for systematic measurement of product impact in monetary terms and delve into the rationale for the framework’s seven elements. We then apply the whole framework to two competitor companies to show the feasibility of measuring product impact and the actionability of the framework. We indicate the value of impact-weighted financial statement analysis with examples of insights enabled by industry-wide product impact measurement. We see our results as a first step, rather than a definitive answer, towards more systematic measurement of product impact in monetary terms that can then be reflected in financial statements with the purpose of creating impact-weighted financial accounts.

    Keywords: social impact; product life cycle; environment; sustainability; measurement; metrics; impact investing; ESG; ESG (environmental, social, governance) performance; ESG reporting; Product; Environmental Sustainability; Measurement and Metrics; Framework; Financial Statements;

    Citation:

    Serafeim, George, and Katie Trinh. "A Framework for Product Impact-Weighted Accounts." Harvard Business School Working Paper, No. 20-076, January 2020. (Revised July 2020.)  View Details
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  10. Case | HBS Case Collection | February 2020 (Revised March 2020)

    Prime Coalition: Catalytic Capital for Climate Innovation

    Ramana Nanda, Benjamin N. Roth and Olivia Hull

    With long development timelines and high risk, new energy technologies were often left to languish in the “valley of death,” unable to raise enough funds to bring a product to market. In 2014, Sarah Kearney founded the nonprofit Prime Coalition to solve this problem. At the beginning, Prime’s role as a financial intermediary involved seeking out the most promising market-based technology solutions to climate change and recruiting foundations or philanthropists to fund them. In 2019, Prime changed course, adopting a portfolio approach with its Prime Impact Fund. By the end of the year, Prime had raised $40 million in philanthropic capital for its new fund. Once the funds were invested in promising energy startups, Prime planned to try its hand at recruiting traditional investors to back the same companies. Could Kearney convince traditional investors that these investments were worth the risks?

    Keywords: Energy Conservation; Renewable Energy; Social Entrepreneurship; Venture Capital; Investment; Innovation and Invention; Technological Innovation; Mission and Purpose; Science-Based Business; Nonprofit Organizations; Social Enterprise; Energy Industry; Technology Industry; Green Technology Industry; United States;

    Citation:

    Nanda, Ramana, Benjamin N. Roth, and Olivia Hull. "Prime Coalition: Catalytic Capital for Climate Innovation." Harvard Business School Case 820-007, February 2020. (Revised March 2020.)  View Details
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Initiatives & Projects

  • Business & Environment

    The Business and Environment Initiative seeks to deepen business leaders' understanding of today’s environmental challenges and to assist them in developing effective solutions.

  • Social Enterprise

    The Social Enterprise Initiative at HBS applies innovative business practices and managerial disciplines to drive sustained, high-impact social change.

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Faculty

HBS Working Knowledge

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re A. Ray Goldberg
The public is losing trust in many institutions involved in putting food on our table, says Ray A. Goldberg, author of the new book Food Citizenship. Here's what needs to be done.
Pic
re B. Jose Alvarez
Up to 40 percent of food grown in the United States for human consumption is wasted. But solutions are starting to come together from retailers, farmers, academics, policy makers, and social service
Government agencies can be "captured" by the very companies or industries they regulate. Looking at how genetically altered food products are approved, Assistant Professor Shon R. Hiatt finds unexpec

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Harvard Business Publishing

Article
by Michael E. Porter and Mark R. Kramer
Case
by Vikram S. Gandhi and Sarah Mehta

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