How Will Companies Respond to the Risk of Climate Change?

Looking at the devastating pictures and stories coming from Australia’s bushfires in these early days of a new decade, the effects that climate change is having on the planet are readily apparent — as is the devastation countries will continue to face without major course correction. While warnings about the effects of climate change have been sounded for decades, the last year has seen increasing pressure on companies and investors to enact real climate policies.

We may now be entering a watershed moment, as BlackRock’s CEO Larry Fink wrote earlier this month in his annual letter to CEOs that, “Climate change has become a defining factor in companies’ long-term prospects,” and that his company, the world’s largest asset manager, would be “exiting investments that present a high sustainability-related risk.”

For this month’s poll we surveyed our experts on the following statement:

In the wake of recent climate-related disasters and related events, such as the bankruptcy of PG&E, corporations are now planning for the increased operational risks and potential liabilities caused by climate change.

RAW RESPONSES
WEIGHTED BY CONFIDENCE

Raw Responses

Responses weighted by panelists’ level of confidence

Panelist Vote Confidence Comments Profile & Vote History
Holden, Richard

Richard Holden

University of New South Wales
Agree 9 “It is clear that there has been a marked upward shift in concern about corporate liability for climate-related events due to, e.g., shareholder class-action lawsuits. What exactly caused that shift is less clear to me, but it will be an important part of law and corporate governance going forward.” Profile / Vote History
Tadelis, Steve

Steve Tadelis

University of California, Berkeley
Disagree 4 “By no means do I have any expertise here, but from most of my knowledge vis-a-vis planning, these are the type of contingencies that I suspect most corporations to designate as too far removed from near-term concerns, and hence, they will likely neglect these issues.” Profile / Vote History
Gans, Joshua

Joshua Gans

University of Toronto
Agree 8 “Regardless of politics, no profit-oriented business is going to take real risks.” Profile / Vote History
McGahan, Anita

Anita McGahan

University of Toronto
Disagree 8 “Many companies are buying insurance and developing contingency plans, such as building partnerships for supporting the transfer of operations under emergency conditions. Yet the risks and liabilities associated with climate change are too great for almost any company to address fully through these techniques. Innovation for prevention and risk mitigation at scale is required.” Profile / Vote History
Florida, Richard

Richard Florida

University of Toronto
Strongly Agree 9 “Leading investment firms, like BlackRock, are already planning for climate change, saying they will not take on and [will] exit investments that further damage the climate or pose substantial climate-related risks. This sends a powerful signal. There is also the perception of being a bad corporate citizen, which can irrevocably damage image and brands. Not all corporations will do so, but many will.” Profile / Vote History
Hochberg, Yael

Yael Hochberg

Rice University
Strongly Agree 7 Profile / Vote History
Brynjolfsson, Erik

Erik Brynjolfsson

MIT
Agree 8 “Most smart corporations are certainly planning for the increased risks of climate change. Are they planning enough? Most certainly are not.” Profile / Vote History
Agarwal, Rajshree

Rajshree Agarwal

University of Maryland
Disagree 9 “Climate change-related warnings and environmental disasters have been around for more than 50 years with significant debate on if and what impact it has on economics and society. In light of this history, it is questionable whether one can make blanket statements on all corporations increasing attention to operational risks and liabilities based on one or two firms‘ fates.” Profile / Vote History
McAfee, R. Preston

R. Preston McAfee

Economist
Strongly Agree 9 “Most corporations were examining the effects of climate change on their operations and future five years ago. Any that weren‘t would have started by now.” Profile / Vote History
Eisenhardt, Kathleen

Kathleen Eisenhardt

Stanford University
Strongly Agree 8 “Executives with whom I work are all concerned about climate change and consider planning for it as a critical risk.” Profile / Vote History
Busse, Meghan

Meghan Busse

Northwestern University
Agree 8 “Companies are considering not only increased operational risks and potential liabilities, but also more fundamental changes to their strategies. However, this is not universal. There is a lot of variation among companies in how substantially they have responded to climate-related changes to their current and future business environments.” Profile / Vote History
Levinthal, Daniel

Daniel Levinthal

University of Pennsylvania
Agree 7 “Clearly the answer here varies by industry and sector — but that is more an issue of degree than whether or not climatic changes are on the radar of executive teams for their implications for operational risk of specific events and longer-term strategic considerations regarding the viability of certain sites, shifts in demand patterns, and need for carbon-light processes.” Profile / Vote History
Roberts, John

John Roberts

Stanford University
Neither Agree nor Disagree 4 Profile / Vote History
Henderson, Rebecca

Rebecca Henderson

Harvard University
Strongly Agree 10 “BlackRock‘s statement today underlines just how central climate change is becoming to the assessment of investor risk. Whether this changes behavior is, of course, another question.” Profile / Vote History
Van Reenen, John

John Van Reenen

MIT
Agree 7 Profile / Vote History
Lyon, Tom

Tom Lyon

University of Michigan
Strongly Agree 10 “BlackRock, the world‘s largest asset manager, stated in its annual letter to CEOs that it is putting climate change front and center in its investing strategy going forward. CDP (formerly the Climate Disclosure Project) represents over 800 institutional investors with over $100 trillion in assets. Any companies that are not planning for climate risk at this point have their heads in the sand.” Profile / Vote History
Moser, Petra

Petra Moser

New York University
Neither Agree nor Disagree 5 “If PG&E is any guide for planning ahead, our future is dark and grim.” Profile / Vote History
Arora, Ashish

Ashish Arora

Duke University
Neither Agree nor Disagree 5 Profile / Vote History
Nalebuff, Barry

Barry Nalebuff

Yale University
Agree 7 “Some companies are doing this type of planning, while others are not.” Profile / Vote History
Stern, Scott

Scott Stern

MIT
Agree 8 “It is clear some firms are starting to plan and that this number is growing rapidly, but many corporates — particularly in emerging economies — are still ‘head in the sand.‘ At the end of the day, global emissions keep rising (even if emissions per unit of GDP is falling).” Profile / Vote History
Simcoe, Timothy

Timothy Simcoe

Boston University
Agree 8 “I think large corporations are working on this. They feel pressure from various stakeholders, including some of their larger shareholders like BlackRock. I have no confidence that smaller firms on the competitive fringe are planning for risks created by climate change. And even the largest firms can do little about risk to shared infrastructure.” Profile / Vote History
Rosenkopf, Lori

Lori Rosenkopf

University of Pennsylvania
Agree 8 “Many corporations have been doing scenario planning for quite some time, and disaster scenarios can be a part of this activity. Heightened salience of climate issues will only increase the diffusion of these and other risk management practices.” Profile / Vote History
Sadun, Raffaella

Raffaella Sadun

Harvard Business School
Disagree 5 “I suspect that the majority of organizations (or people, for that matter) are still far from fully understanding what’s needed to protect themselves from extreme events. But the real issue is [what] we will collectively do to prevent these events in the first place.” Profile / Vote History
Greenstein, Shane

Shane Greenstein

Harvard University
Disagree 7 “Climate change alters risks in many unpredictable ways — coastal flooding, travel interruption, logistic complications. Some of the risks are difficult to insure against without public coordination and investment — remember the floods of New Orleans?” Profile / Vote History