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

Working Paper | HBS Working Paper Series | 2018
Southern Responses to Gold Certification: Cooperate, Compete, Reject, Revise
Kristin Sippl
Southern responses to Northern-led certification programs are understandable and largely predictable if the ideas, interests, and power of key actors are accurately assessed. When alignment and power are high, Northern programs will likely succeed. When they are low, they will likely fail. When they are at medium levels, Southern actors will likely launch competing programs and producer participation might be low but will likely skew South. This paper presents a case study of Southern responses to Northern certification of artisanal and small-scale gold mining (ASGM), which are emblematic of the latter, medium-level state. It details four key Southern responses: cooperation, competition, low uptake levels, and program revision via supplementation. The Southern-led Alliance for Responsible Mining first cooperated with Fairtrade International, then built enough capacity to compete with it. Miners’ and programs’ interests aligned on income and deforestation, but diverged on chemicals and legality, leading to low uptake. The Alliance responded by launching a second sustainability standard called the CRAFT Code in 2018. Whereas certification rewards the use of best mining practices, the CRAFT Code rewards avoidance of the worst. By focusing on conflict and relaxing their stance on legality, mercury use, price floors, and the use of third-party audits, the Alliance created a program that aligns with the majority of actors’ interests and is likely to experience broad uptake but limited effects.
Keywords: gold; mining; Environmental Sustainability; Standards; Programs; Governance Compliance; Competition; Adaptation; Mining Industry;

Citation:
Sippl, Kristin. "Southern Responses to Gold Certification: Cooperate, Compete, Reject, Revise." Harvard Business School Working Paper, No. 19-055, November 2018. (Under review.) View Details
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Case | HBS Case Collection | October 2018
Rio Tinto vs. the Securities and Exchange Commission
Aiyesha Dey, Krishna G. Palepu and Sarah Gulick
Keywords: coal mining; SEC enforcement; FCPA; mining; fraud; acquisition; Financial Reporting; Mergers and Acquisitions; Non-Renewable Energy; Ethics; Financial Management; Investment; Corporate Governance; Laws and Statutes; Lawsuits and Litigation; Risk Management; Risk and Uncertainty; Energy Industry; Mining Industry; Financial Services Industry; Mozambique; United States; Australia; England;

Citation:
Dey, Aiyesha, Krishna G. Palepu, and Sarah Gulick. "Rio Tinto vs. the Securities and Exchange Commission." Harvard Business School Case 119-046, October 2018. View Details
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Working Paper | HBS Working Paper Series | 2018
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; asset pricing; investment management; investment strategy; big data; Machine learning; environment; human capital; corporate governance; Environmental Sustainability; Corporate Governance; Performance; Public Opinion; Asset Pricing; Investment; Strategy; Value;

Citation:
Serafeim, George. "Public Sentiment and the Price of Corporate Sustainability." Harvard Business School Working Paper, No. 19-044, October 2018. View Details
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Book | 2018
Varieties of Green Business: Industries, Nations and Time
G. Jones
Published at a time of ever-increasing warnings that the pace of climate change and other environmental changes risk making the Earth unsustainable within our own lifetimes, this book looks at the past of green business to identify lessons for the future. It provides rich new evidence and insights on green business as it examines its variation between industries and nations over time. It shows the deep historical origins of endeavors to create for-profit businesses that were more responsible and sustainable as well as how these strategies have faced constraints, trade-offs, and challenges of legitimacy. The industries covered range from sustainable finance and solar energy to organic food and wine, ecotourism, and outdoor clothing. Strategies pursued range from incremental shifts towards sustainability to abandoning for-profit business entirely and re-wilding and conserving millions of acres of lands in Latin America. The book's distinctiveness lies in the use of original empirical data and the willingness to engage with both successful and unsuccessful cases. The wide geographical coverage includes not only the United States and Europe but also less studied settings, including Chile, Costa Rica, New Zealand, and Japan. The book serves as a warning against facile beliefs in the potential of win/win solutions as business tries to reduce its environmental impact or even save the planet. The lesson of history is that making business sustainable is a hard journey, littered with system-wide roadblocks, but it is a journey that is possible and one that is urgently needed.
Keywords: Green Business; sustainability; business history; eco-tourism; organic wine; organic food; waste management; sustainable finance; Ethics; Finance; History; Entrepreneurship; Accommodations Industry; Agriculture and Agribusiness Industry; Banking Industry; Energy Industry; Food and Beverage Industry; Green Technology Industry; Tourism Industry; Europe; Asia; Latin America; North and Central America; New Zealand;

Citation:
Jones, G. Varieties of Green Business: Industries, Nations and Time. Northamption, MA: Edward Elgar Publishing, 2018. View Details
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Working Paper | 2018
Financing the Response to Climate Change: The Pricing and Ownership of U.S. Green Bonds
Malcolm Baker, Daniel Bergstresser, George Serafeim and Jeffrey Wurgler
We study green bonds, which are bonds whose proceeds are used for environmentally sensitive purposes. After an overview of the U.S. corporate and municipal green bonds markets, we study pricing and ownership patterns using a simple framework that incorporates assets with nonpecuniary utility. As predicted, we find that green municipal bonds are issued at a premium to otherwise similar ordinary bonds. We also confirm that green bonds, particularly small or essentially riskless ones, are more closely held than ordinary bonds. These pricing and ownership effects are strongest for bonds that are externally certified as green.

Citation:
Baker, Malcolm, Daniel Bergstresser, George Serafeim, and Jeffrey Wurgler. "Financing the Response to Climate Change: The Pricing and Ownership of U.S. Green Bonds." NBER Working Paper Series, No. 25194, October 2018. View Details
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Working Paper | HBS Working Paper Series | 2018
Golden Opportunity? Voluntary Sustainability Standards for Artisanal and Small-scale Gold Mining and the United Nations Sustainable Development Goals
Kristin Sippl
While much is known about transnational climate governance, less is known about transnationalism's contributions to the realization of the United Nations Sustainable Development Goals (SDGs). This paper helps balance the literature via comparative analysis of the potential contributions of two voluntary sustainability certification programs for artisanal and small-scale gold mining (ASGM): Fairtrade International and the Alliance for Responsible Mining. Assessment of four necessary conditions for SDG contributions (goal alignment, rule strength, uptake patterns, indirect effects) suggest weak contributions to date. First, only the weakest versions of standards are being adopted, and only by miners above the poverty line prior to certification. Second, adoption levels are low, and rates of decertification almost as high as certification. Third, awareness raising among consumers and partnerships with public actors are equally weak. Yet programs do align well with the SDGs and have potential. To improve, programs should consider uniting, becoming more “producer-friendly,” and consider the role within ASGM governance systems they are best suited to play (which may be none at all). Findings contribute to debates on the merits of increasing governance fragmentation and the role of political consumption in global problem solving. The ASGM case provides lessons about the diffusion of certification to new sectors, with the aim of guiding global resources towards their most efficient and effective ends.
Keywords: sustainability standards; gold; certification; eco-labeling; international law; luxury; extractive industries; Environmental Sustainability; Standards; Adoption; Governance; Global Range; Luxury; Mining Industry;

Citation:
Sippl, Kristin. "Golden Opportunity? Voluntary Sustainability Standards for Artisanal and Small-scale Gold Mining and the United Nations Sustainable Development Goals." Harvard Business School Working Paper, No. 19-024, September 2018. (Revise and Resubmit.) View Details
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Working Paper | HBS Working Paper Series | 2018
Ratcheting, Competition, and the Diffusion of Technological Change: The Case of Televisions Under an Energy Efficiency Program
Tomomichi Amano and Hiroshi Ohashi
In differentiated goods markets with societal implications, quality standards are commonly implemented to avoid the under-provision of innovation. Firms have clear incentives to engage in strategic behavior because policymakers use market outcomes as a benchmark in designing regulation. This study examines a unique energy efficiency standard for television sets, under which future minimum efficiency standards are explicitly a function of current product offerings. The setting illustrates firms' dual incentives at work: A firm better differentiates products under a looser standard but may want to induce a tighter standard if it can benefit from raising rivals' costs. These incentives drive firms to ratchet quality. We develop a structural model of product entry that illustrates how the regulator's standard setting rule affects a firm's product quality decision. Counterfactual simulations illustrate that ratcheting down was prevalent in this market and that incentives to ratchet up did not exist. The results suggest that in many commonly regulated markets in which firms share similar cost structures, firms are likely to experience incentives to ratchet down and delay the introduction of innovative products. The study highlights the importance of understanding supply side incentives, such as ratcheting, in designing and assessing policy.
Keywords: product differentiation; energy efficiency standards; ratcheting; diffusion of innovation; Technological Innovation; Competition; Quality; Governing Rules, Regulations, and Reforms; Policy;

Citation:
Amano, Tomomichi, and Hiroshi Ohashi. "Ratcheting, Competition, and the Diffusion of Technological Change: The Case of Televisions Under an Energy Efficiency Program." Harvard Business School Working Paper, No. 19-021, September 2018. View Details
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Working Paper | 2018
Ethical Hedonism? How Consumers' Prosocial Behavior Varies Along the Utilitarian-Hedonic Product Spectrum: Evidence from a Survey Experiment
Kristin Sippl
The marketing literature classifies products along a spectrum from utilitarian (e.g. rice) to hedonic (e.g. cannabis), and additionally using terms such as “luxury” and “illicit.” Research in business ethics has proposed a counter-intuitive mismatch between ethics and luxury, which has not yet been rigorously tested. This paper fills that gap by using a representative sample of roughly 2,000 consumers to conduct a survey experiment exploring consumers’ (potentially) divergent prosocial behavior in the face of varying product types. The findings will help activists, business leaders, and governments make efficient, effective decisions regarding their approach to the sustainability challenges posed by the luxury sector.
Keywords: Ethics; Luxury; Consumer Behavior; Environmental Sustainability;

Citation:
Sippl, Kristin. "Ethical Hedonism? How Consumers' Prosocial Behavior Varies Along the Utilitarian-Hedonic Product Spectrum: Evidence from a Survey Experiment." Working Paper, September 2018. (Work in Progress.) View Details
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Article | Financial Analysts Journal | Third Quarter 2018
Why and How Investors Use ESG Information: Evidence from a Global Survey
Amir Amel-Zadeh and George Serafeim
Using survey data from a sample of senior investment professionals from mainstream (i.e., not SRI funds) investment organizations, we provide insights into why and how investors use reported environmental, social, and governance (ESG) information. Relevance to investment performance is the most frequent motivation for use of ESG data followed by client demand and product strategy, bringing change in companies as well as ethical considerations. Important impediments to the use of ESG information are the lack of reporting standards and as a result, lack of comparability, reliability, quantifiability, and timeliness. Among the different ESG investment styles, negative screening is perceived as the least investment beneficial while full integration into stock valuation and engagement are considered more beneficial, but they are all practiced with equal frequency. Current practices of different ESG styles, especially screening, are driven by product and ethical considerations. In contrast, integration is driven by relevance to investment performance. Future practices of ESG styles are driven by relevance to investment performance, bringing change in companies and concerns about data reliability.
Keywords: ESG; ＂ESG (environmental, social, governance) performance; sustainability; investment; investment management; investment strategy; metrics; standard setting; accounting standards; finance; Investment; Information; Environmental Sustainability; Governance; Performance Effectiveness; Strategy;

Citation:
Amel-Zadeh, Amir, and George Serafeim. "Why and How Investors Use ESG Information: Evidence from a Global Survey." Financial Analysts Journal 74, no. 3 (Third Quarter 2018): 87–103. View Details
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Case | HBS Case Collection | August 2018
Christine Lagarde (C): Managing the IMF
Julie Battilana and Carin-Isabel Knoop
This case covers the career of Christine Lagarde from 2011 to 2018 as she takes the helm of a troubled multilateral organization during a time of deepening economic turmoil. As the first female leader of the International Monetary Fund (IMF), and as a non-economist, she overcomes early challenges to gain her footing with the multiple constituencies she must serve. She also focuses the IMF on “macro-critical” issues including gender, socioeconomic inequality, and climate change. In 2016, she is reelected to serve another term as Managing Director and considers how to ensure that the IMF remains relevant. For coverage of her childhood to 2005, see “Christine Lagarde (A): A French Prime Minister Calls” (HBS No. 419-017). For coverage of her career from 2005 to 2011, see “Christine Lagarde (B): Being a Public Servant” (HBS No. 419-018). For comprehensive coverage of her evolution and career, see “Christine Lagarde” (HBS No. 419-016).
Keywords: Personal Development and Career; Power and Influence; Change Management; Global Range; Gender; Equality and Inequality; Weather and Climate Change;

Citation:
Battilana, Julie, and Carin-Isabel Knoop. "Christine Lagarde (C): Managing the IMF." Harvard Business School Case 419-019, August 2018. View Details
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