HANNAH BATES: Welcome to HBR On Strategy, case studies and conversations with the world’s top business and management experts, hand-selected to help you unlock new ways of doing business.
Climate change is causing severe weather, dangerously elevated temperatures, and water shortages around the world. Meanwhile, firms companies are struggling to reduce their carbon emissions WHILE adapting their operations to these new conditions.
To address both challenges at once, Harvard Business School professors Forest Reinhardt [“rine-heart”] and Michael Toffel [rhymes with “awful”] have proposed an unconventional path forward: borrowing the climate change strategies from the U.S. Navy.
They argue that the private sector can learn A LOT from the Navy’s approach to the world’s changing climate.
In this episode, you’ll learn how to balance mitigation activities in the shorter term with long-term investments that will help your organization adapt to future changes.
You’ll also learn how climate change could SHIFT demand in your markets AND affect your supply chains.
This episode originally aired on HBR IdeaCast in August 2017. Here it is.
SARAH GREEN CARMICHAEL: Welcome to the HBR IdeaCast from Harvard Business Review. I’m Sarah Green Carmichael.
When you think about companies managing the world’s warming temperatures, you might picture Patagonia’s environmental campaigns or Starbucks’ pest-resistant coffee plants. But our guests today say businesses looking to mitigate and adapt to climate change should really be following the example of an organization fighting it at sea level.
The U.S. Navy is raising its bases, using early storm warning systems, and increasingly powering its missions with the sun, instead of fossil fuels.
Harvard Business School professors Forest Reinhardt and Michael Toffel say there’s a lot businesses can learn from the Navy’s forward-looking approach. They’re the authors of “Managing Climate Change: Lessons from the U.S. Navy,” in the July-August 2017 issue of Harvard Business Review. And they’re here with us now.
So why is the U.S. Navy thinking about climate change?
FOREST REINHARDT: Because it’s taking place. So most firms in the United States at least when they think about climate change have been thinking mostly about mitigation. That is, they’ve been thinking about reducing their own carbon footprint, reducing the amount of emissions for which they’re responsible. And that’s important. But mitigation is no longer a substitute for adaptation. We have to think of them as complements.
SARAH GREEN CARMICHAEL: What’s really the difference there?
MICHAEL TOFFEL: So mitigation are activities that reduce an organization’s impact on climate change; whereas adaptation takes for granted that activities are occurring and what investments do we need to do to adapt to the changes that are ensuing.
FOREST REINHARDT: Organizations, whether they’re firms or the U.S. military, have not only to be thinking about their carbon footprints but also the changes in their own physical environments which are already taking place as a result of the build-up of our carbon dioxide and other ways gases in the atmosphere.
SARAH GREEN CARMICHAEL: You argue in the article that climate change will actually increase demand for the Navy’s services. It’s sort of an economic way of putting it. Why is climate change going to do that?
FOREST REINHARDT: Well for two reasons, at least. One is that the Navy is our primary waterborne military force. And as the planet warms, the amount of water is going to increase. That is, the area near the poles, which until quite recently has been closed to marine traffic for much if not all of the year, is going to be increasingly open as the ice melts. You think the last time the Western world really encountered a new ocean was in the early part of the 1500s, and the same kinds of opportunities and conflicts are going to exist in the Arctic.
A second reason is that climate change is potentially destabilizing to societies, especially societies which are not particularly rich and not particularly well governed. And as those societies become increasingly stressed by things like drought and storm severity, the kinds of behaviors that call the military into action are going to become more frequent, whether those are wars or internal conflicts or just need for humanitarian assistance.
MICHAEL TOFFEL: And this is why the military refers to climate change as a threat multiplier. Many have made the connection between the breakdown of societies in the Middle East, in particular in Syria, for example, to be attributed to changing rainwater and other precipitation patterns. So you see these problems right now behind the growth of ISIS. You see these problems also with the migration into Europe and Europe’s struggle with what to do with these migrants. These are examples of issues that climate scientists suggest are only going to get worse in the coming decades.
SARAH GREEN CARMICHAEL: When you were conducting the research for this article, did you get a sense of the U.S. Navy being on the cutting edge of this, or are they just part of a larger international effort that’s all happening at the same time?
FOREST REINHARDT: Officials in the Navy with whom we spoke are worried about the Russians lead in readiness for an open Arctic. More generally, however, militaries are alike in the sense that they—none of them can be romantic about the world that we live in and the world that we are creating. So they all have to live in this fact-based world. They all have to do as much research as they can to figure out what the world is going to look like in mid-century because we and other militaries right now are building the assets with which we will fight the wars of mid-century, if they exist.
SARAH GREEN CARMICHAEL: When you guys think about where we could be in 30 or 60 years, with Arctic sea lanes potentially opening up, what you see potentially happening there? What would the Navy like to see the U.S. Navy like to see happen there?
MICHAEL TOFFEL: Well one thing to remember is that we actually have a lot of experience in the Arctic. It’s just that experience is underwater. So we have for a long time been sending submarines up there to patrol and to figure out how much pressure is needed. They’ve been measuring sea ice there because one of the reasons is they need to figure out how much pressure is required to launch missiles through the ice in order to potentially target enemies. So they’ve been studying this issue. They’ve been there for a long time.
But what’s different, as Forest mentioned, is the navigability, piece which requires a whole different set of infrastructure. So that requires bases; that requires icebreakers, most of which the U.S. does not yet have in place. And there’s a big discussion now—increasing discussion in Congress—even about why is it that the Russians have upwards of 50 icebreakers and we have something like two that are serviceable for arctic conditions.
SARAH GREEN CARMICHAEL: Do either of you have a sense of how accurate the forecast this point on global warming have been?
FOREST REINHARDT: So directionally the forecasts have been correct. There’s a lot of uncertainty about the climate system. There’s a lot that we don’t understand. We do, however, extremely well understand the basic physics that’s been known for a century. And while we don’t know what next week’s weather is going to be out in Montana, and we don’t know how fast exactly the Arctic sea ice will diminish, we do know that on average, in the long term, the climate in Montana will be hotter and drier, and Arctic sea ice will diminish. And the Navy, historically, like the Army and the Air Force and the Marines, have been in the business of ensuring the rest of us against long-term threats, even if the probability of the threat being realized is far, far less than one. And that’s what we pay them for. That’s what we want them to do. And that’s what we should want them to do here.
SARAH GREEN CARMICHAEL: You guys conducted a lot of the research for this under Barack Obama, a president who was very accepting of the science on climate change, who signs the Paris climate agreement. The current commander-in-chief has said in many different ways on many different occasions that he does not accept the scientific consensus on climate change. Do you think it’s a challenge for the Navy to be—I mean, euphemistically we could call it managing up. You know did they have a problem when their boss essentially says, this isn’t a priority; it’s not happening.
MICHAEL TOFFEL: Well I think the way that the Navy has been going about their work with respect to climate change has been fact based. It’s been based on the best science, and it’s really at the end of the day all about force readiness. So which is which has widespread support across the political spectrum. So when you think about addressing climate change from a force readiness perspective, it’s really not a political issue. It is not cast in political language. When we were in the Pentagon interviewing some of the senior folks responsible for these various programs, no one mentioned the president. It just really wasn’t part of the conversation at all. They took their mandate to be, as Forest mentioned earlier, about providing the protection for the United States in ways that their expertise guides them.
SARAH GREEN CARMICHAEL: How does the Navy’s approach compare to the approaches you guys have seen in for-profit companies. I mean on the one hand the Navy has a kind of long-term planning that maybe is not present in a lot of corporations obsessed with quarterly earnings calls and things like that. So I understand there would be differences. But does anything kind of jump out to you?
MICHAEL TOFFEL: Well one difference that actually looks like a similarity but is actually motivated by something different is a lot of companies, as Forest mentioned earlier, are thinking about mitigating their impact on climate change by shifting, for example, to renewable energy to supply their factory to their warehouses or their offices. So they’re often doing that from a sense of trying to promote public goodwill or to be resonant with desires of their employees or their top managers who want to have a green edge to their company.
The Navy also is investing in massive amounts of solar to power their bases. But it’s not motivated so much by those effects that I just mentioned the private sector is trying to claim. It’s really about, in their case, about mission readiness and the resilience of their bases. They want to be sure that as climate change occurs with more intensive storms that that’s not going to knock out the power grids that supply their bases. So they’re investing in some of these power sources because of their distributed nature—the fact that they can produce power on site and not have to rely on long distance generating lines. So similar behaviors but for very different motives.
SARAH GREEN CARMICHAEL: What do you want corporate leaders to take away from what the Navy is doing? Are there ways in which the Navy example would make it easier for a corporate leader to kind of see how their own company could prepare?
FOREST REINHARDT: Yeah I would say there are two big things at least. One is that I mentioned that most companies’ climate-change policies have been primarily geared toward mitigation, but that’s not going to be enough. They need to think about how they’re going to adapt to this new world as well. And at the same time many of the companies have resorted to this no-regrets rhetoric. They say, well, of course we’re doing the right things; we’re doing things that are going to pay for themselves anyway. And that’s great, and they should be doing that of course, but maybe they need to be doing some other things as well. Because if you’re if you’re only making investments that will pay for themselves no matter what the state of the world turns out to be, then you are not taking advantage of opportunities to make strategic bets which under the existing understanding of the science are likely to pay off.
MICHAEL TOFFEL: So I would say what I would want firms to take away from what we’ve learned from the Navy is to think about climate change not only from a mitigation and adaptation perspective, as Forest mentioned, but also to cast a lens, to ask the question, How will this affect our strategy? How will it affect the demand for our products and services? Will it shift the markets where we’re expecting demand? And then on supply side is, How will it affect our operations, and how will it affect our supply chain?
The other question is the question of mitigation and adaptation. The rhetoric has long been we have to do mitigation to avoid adaptation, and maybe at one point had we mitigated quickly enough that might have been the case. But the reality is we haven’t. And so now we have to be balancing mitigation and adaptation. It’s not an either or it’s really both. And so companies need to be thinking about that within their own organizations. But I would argue that companies need to be thinking about this from a policy perspective as well. They I think need to think about, What opinion am I going to have on the policy-making process? Am I going to sit out? Or am I going to try and use some of the power that the system currently affords them to make a legacy statement on trying to fix this problem in the institutions that are running capitalism right now, which is allowing carbon to be a free good, even though it’s increasingly creating harm and expected to create more harm as the century unfolds?
SARAH GREEN CARMICHAEL: Mike, is there a company that you think is doing really well at preparing for climate change or mitigating their carbon footprint.
MICHAEL TOFFEL: I can’t point to an organization. That often comes up: the question of what is the state of the organization. And if you ask a thousand people, you’ll get 5,000 answers. People just have not really figured out what that means. But my definition of that is quite simple in a way. It’s one that uses renewable resources and that doesn’t impose pollution faster than nature can absorb. So there’s a resource, like, what it brings in and what it puts out. And I am still searching for ideas, and maybe some listeners have some suggestions of particular companies that fit that definition. So it’s a broader problem than climate.
There are and climate companies have been trying to offset the amount of carbon that they put out into the atmosphere by reforestation projects or trying to reduce deforestation or by investing in trying to cap carbon emissions elsewhere. So there are a host of companies that are coming out describing their activities as carbon neutral by doing these alternative projects. There’s probably not enough projects in the world to enable everyone to act that way, which is why it’s necessary to green the grid and to change the power at the source.
SARAH GREEN CARMICHAEL: Are we getting to a point where you have to really make hard tradeoffs— do things that are more expensive—even if we might you know lose money on it?
FOREST REINHARDT: It would be surprising if win-wins were so common that we could have everything that we wanted at the same time. That’s not the way we normally think about the world, and it’s not I think realistic to think that that would be the case here. The idea that the environment can be free if only we think about it more sensibly is almost certainly untrue, and we need to confront those costs when we need to acknowledge that living in the world that we aspire to create for our children is going to take investment. It’s going to take investment in other kinds of physical infrastructure. Far from the sea coast it’s going to take investment in education. It’s going to take investment in information technology infrastructure, and it’s going to take investment in creating buffers against the military as the effects of climate change.
SARAH GREEN CARMICHAEL: What if companies just decide to do nothing. I mean is that a bet in itself.
FOREST REINHARDT: Of course it is. To decide not to make a bet is itself to make a bet. We all have skin in this game. We cannot avoid it, unless we go to the moon.
SARAH GREEN CARMICHAEL: Forest, what would you say to an executive who says, “It’s fine for the U.S. Navy to be involved in mitigating and adapting to climate change. You know they don’t really have to make financial tradeoffs the way my company does. You know they have a massive budget. It’s just it’s just a totally different thing. My company just cannot do that.” What would you say to that?
FOREST REINHARDT: At one level, the idea that firms can learn from the Navy seems crazy. They’re so different from one another. I mean, the Navy is a government, and most firms are private. The Navy’s primary product, if you can call it that, is lethal force delivered anywhere in the world at short notice to compel people to do stuff they don’t want to do. There is no legitimate firm that does that at the same time.
The fundamental similarity between the leaders of the Navy and the other people in the Navy and leaders and other people in firms is that they actually have to live in the world. They don’t have the luxury of being ideologues. There are a few people in the political arena who have that luxury, but most of us have to live in the world we as we find it, and we have to prepare for the world that we think we are creating. And we do that with our best understanding of the science. We’re not all scientists. Our understanding the science is incomplete and imperfect, but we need to continue to try to educate ourselves and try to learn more about it and understand what the evidence is that would make us want to change our behavior. Because if we can’t answer that question, then we’re automatons, not people.
SARAH GREEN CARMICHAEL: When you were studying the Navy, what was your favorite example of something they were doing work that gave you hope for the future.
MICHAEL TOFFEL: It was not exactly an example, but the fact that they were science based and really attentive to that and not a not caught up in this bizarre questioning of science and conspiratorial theories—that they were confronting the science; they invested in science; they used science from other federal agencies and are making decisions based on TBD. Yes, there’s uncertainty, but that doesn’t stop them. And it’s an approach that, I think, rational managers that we try and train at Harvard Business School also take and managers around the world take. They take in information and make decisions based on information, and that information at its core is based on facts and science and projections, right?
FOREST REINHARDT: So more than any one particular example, I was heartened by the energy and diligence and passion that the people we talked to bring to their jobs. They are focused every day, not just in their time at work or at sea but all the time, about how to make us safer and how to make the military a more effective organization at doing the very difficult things it has to do in an extremely difficult and challenging environment. And I hope and trust that all of those people that we met and literally millions of others that we didn’t meet will continue to bring that kind of energy and diligence and zeal to their jobs. It’s an extraordinary thing.
And if I were to talk about one lesson that firms might take from this Navy example, it would be to try similarly to empower their employees to bring that kind of passion and diligence and intelligence to their work.
SARAH GREEN CARMICHAEL: Thank you both so much for the article and for coming in today to talk about it.
FOREST REINHARDT: It’s been a great pleasure.
MICHAEL TOFFEL: Thank you for having us.
SARAH GREEN CARMICHAEL: That’s Forest Reinhardt and Michael Toffel. They both teach at Harvard Business School. And they’re co-authors of the new HBR article “Managing Climate Change: Lessons from the U.S. Navy.” You can read it at HBR.org.
Thanks for listening to the HBR IdeaCast. I’m Sarah Green Carmichael.
HANNAH BATES: You just heard Harvard Business School professors Forest Reinhardt [“rine-heart”] and Michael Toffel [rhymes with “awful”] – in conversation with Sarah Green Carmichael on HBR IdeaCast.
We’ll be back next Wednesday with another hand-picked conversation about business strategy from Harvard Business Review. If you found this episode helpful, share it with your friends and colleagues, and follow our show on Apple Podcasts, Spotify, or wherever you get your podcasts. While you’re there, be sure to leave us a review.
And when you’re ready for more podcasts, articles, case studies, books, and videos with the world’s top business and management experts, find it all at HBR dot org.
This episode was produced by Anne Saini and me, Hannah Bates. Ian Fox is our editor. And special thanks to Maureen Hoch, Nicole Smith, Erica Truxler, Ramsey Khabbaz, Anne Bartholomew, and you – our listener.
See you next week.
