How Should a Corporation Think of Global Warming?

With global warming having become Topic No. 1 of so many discussions, to me the big question is the degree to which behavioral changes are produced on three separate levels:

1. The individual level — where change seems well underway, but probably won’t amount to all that much without major institutional/structural changes.

2. The governmental level — where change will be talked and talked about, and even enacted, but if the past is any teacher, such changes will not necessarily be hugely efficient or even sensible.

3. The corporate level — where change will be produced as a result of both individual pressure (consumers clamoring for green products and procedures) and the governmental level (with new regulations).

The changes at level No. 3 will be a good indicator of just how well markets work. How will firms balance the extra costs of green behavior with the demands of consumers and government?

Jack and Suzy Welch, writing in their BusinessWeek column, give a really interesting answer to a question on this subject. They were asked by a reader how they felt about the realities of global warming, and what firms should do about it. Here, in part, is their reply:

We believe that, whether the impact of global warming ends up being mild or severe, companies have to adopt a “here it comes” mind-set and mount a well-reasoned plan. Any other response would be bad business.

Our reasoning is hardly original. It’s the same as Pascal’s Wager. Back in 1670, basically using game theory, the French philosopher argued that it was a better bet to believe in God because the expected value of believing is always greater than the expected value of not believing.

The same goes for global warming. If you accept it as reality, adapting your strategy and practices, your plants will use less energy and emit fewer effluents. Your packaging will be more biodegradable, and your new products will be able to capture any markets created by severe weather effects. Yes, global warming may not be as damaging as some predict, and you might have invested more than you needed, but it’s just as Pascal said: Given all the possible outcomes, the upside of being ready and prepared for a “fearsome event” surely beats the alternative.

The perfect analogy is globalization. Thirty years ago, rumbling began about the coming world marketplace where costs would migrate to the lowest bidder. Some companies put on blinders and insisted that their quality would prevent competition from the likes of Mexican and Asian factories. Eventually, of course, many of these companies got religion and changed their practices. But years of progress, profits, and jobs were lost in their delay.

Only time will tell if global warming will be minor or catastrophic; if it can be mitigated or will destroy the planet. … But one thing is certain. Companies shouldn’t wait to find out.