Article

Sustainable Growth Pathway: Aligning with Macro, Accomplishing in Micro

Posted May 23, 2022 | Sustainability | Leadership | Amplify
Sustain path

AMPLIFY  VOL. 1, NO. 5
  
ABSTRACT

Himanshu Shekhar suggests a framework of “aligning with macro and accomplishing in micro” for controlled and sustainable future growth. Many businesses operate on the assumption that resources like clean air, water, and predictable weather are freely provided by nature. However, the planetary boundaries framework vividly shows that natural systems are limited in their capacity to provide these natural resources and ecosystem services. The combined impact of business activity is exceeding the limits on many of these systems. Businesses must update their assumptions about what nature provides “for free” and act to address growing scarcity concerns.

 

For a long time, businesses assumed they’d be able to operate within a stable society under a stable global climate with predicable weather and free natural resources like clean air, water, and soil. Today’s changing climate challenges those assumptions.

Humanity is overconsuming Earth’s resources and transgressing important planetary boundaries.1 As businesses extract and consume resources to produce goods and services, they cross lines that could lead to runaway climate change and biogeochemical-cycle disruption to the point of threatening our existence.

To ensure Earth’s survival, businesses must shift their focus from assumption of abundance to assumption of limits within interconnected systems. This shift does not necessarily mean no growth — businesses can reorient their processes to work within a new, more inter­connected, limited-resource system. Such reorientation could provide growth opportunities in solutions that limit resource consumption such as circular economy, alternative materials and processes, ecosystem services, natural resource management, and so forth.

Immediate action is needed. Some forward-thinking companies have made commitments to lower their carbon emissions, but too many are waiting and watching, considering incremental actions and looking for direction from other players.2

There are two reasons for this half-baked approach. First, businesses are under pressure from society to better manage their resource consumption. Some sectors are expected to go further, exceeding regulatory mandates and reporting on their actions to improve the environment. Second, businesses are seeing climate-related issues such as extreme weather events and supply chain disruptions impact their performance.

Addressing these two problems simultaneously is difficult. This article looks at the climate change phenomenon and its impacts on survival and growth from a pro-climate decision-maker’s perspective. We suggest a framework designed to help companies achieve growth and adapt to the evolving business environment while addressing climate change issues.

4 Lenses

Businesses are being forced to respond simultaneously to climate change at the macro (external) level and the micro (internal) level. At the macro level, we have global discourse, including international treaties like the 2015 Paris Agreement. The macro level also includes changes to the overall business environment as the effects of climate change become more apparent. In the near future, businesses not acting on climate are likely to face legitimacy issues and competitive challenges. Businesses can address these concerns with operational efficiencies and transparent disclosures, by investing in and adopting climate-friendly technologies and processes, and by developing and offering green products.

The micro level revolves around a business’s location, supply chain, natural resources, practices, and proc­esses. Companies may experience process disruptions, issues stemming from extreme weather events, resource conflicts with the local community, and the need to implement macro-level targets. Possible actions include adapting to future climate changes, building more resilient supply chains, creating local solutions, solving communities’ climate-related problems, and helping to prevent the local ecosystem from collapsing.

There are four main lenses through which businesses should view their macro and micro climate-related goals: climate science, climate governance, business stakeholders, and community stakeholders (see Figure 1).

Figure 1. How the four lenses play out in macro and micro environments
Figure 1. How the four lenses play out in macro and micro environments
 

1. Climate Science

Climate science provides our current understanding of climate change and its potential impact on our existential resource assumptions. It’s also our basis for acting to minimize such changes. Planetary boundaries identify global natural resource cycles and their limits, but a complete understanding of those limits and their interdependence is still developing.3 The climate change phenomenon is complex and interdependent on other physical and biological systems. The current science has good models for predicting global-scale climate-related phenomena (macro), but local projections (micro) must be further developed if we are to generate effective local area interventions.4

2. Climate Governance

Climate governance provides a way to better under­stand limited resource allocation and management among various stakeholders. At a macro level, climate governance targets businesses to reduce their impact on resources and cut emissions. International agreements and national governments’ regulatory and institutional regimes set guidelines for business operations to limit externalities. Since the challenge is global and inter­dependent, international agreements are critical to overarching governance and response. At a national level, governments must balance the needs of their economy with the collective good.

The 2015 Paris Agreement was a testament to the potential for global action to be converted into national goals. Climate activists and nongovernmental organiz­ations (NGOs) also push governments to regulate businesses strictly. These regulations may evolve to become mandatory with greater inputs from climate science, adversely impacting noncompliant companies.

At the local level, regulation implementation and natural resources constraints become very important.5 In some cases, natural resource conflicts within the community impact business sustainability and require better local governance.

3. Business Stakeholders

A firm’s operations, resource requirements, associated emissions, and available technologies to reduce climate impact are a product of its industry and location. At a macro level, the role of a company’s industry peers in driving emission reduction is critical. Customers who demand greener products are also key.

Suppliers and neighboring businesses comprise the firm’s micro environment. They understand the local impact and share the local responsibility. Supply chain partners are crucial in making businesses more resilient to climate impact, as we saw when automakers had to stop manufacturing certain models during the pandemic due to a shortage of chips and other electronic parts.

4. Community Stakeholders

These stakeholders care about, or are impacted by, the natural environment; they may or may not be transactionally related to the business. They ask ques­tions about the business’s impact on climate change and planetary boundaries and (sometimes) on themselves. At a micro level, these stakeholders are concerned with the area’s shared natural resources and any local customs that help sustain them.

Constraints on Actions

Climate change presents novel business risks, and multiple factors may constrain business actions, including:

  • Interdependencies. The biggest challenge businesses face in taking climate action is the interdependencies between systems. When solutions benefit some while harming overall, they are referred to as maladapta­tions.6 For example, air-conditioning to cool a build­ing increases the temperature and emissions in the surrounding area. Similarly, some solutions reduce the impact on one planetary boundary while increasing others. For example, efforts to reduce carbon emissions through rapid forestation in arid regions may alter the land-use pattern. The interdependencies of Earth’s climate necessitate clear scientific understanding and thoughtful solutions. Often, system complexities prevent us from taking long-term steps because the ripple effects from interdependencies were not initially apparent.

  • Currently available technologies. Technologies that address climate change are still evolving, and many are costly to implement. Some, like renewable energy and electric mobility, may become more efficient as they mature. Immediate investment by businesses in these technologies may lock in investments and lead to lower efficiency compared to future technologies.

  • Limits to resources. Clearly, businesses do not have unlimited amounts of capital or managerial time and climate-related initiatives must compete with others for those resources.

Potential Assistance

Businesses are vital to countering climate change, so policy makers and other stakeholders must provide assistance to proactive businesses if they expect this to happen without shrinking the economy. Examples of assistance include:

  • Legitimacy. The acceptance of a company or industry's standard business practices and operating procedures by its employees, stakeholders, and the general public is known as a social license to operate.7 Businesses can earn (or continue) this license by engaging in problems like climate change. At the macro level, this legitimacy can help businesses gain access to resources and capital. At the micro level, it helps businesses earn support from key stakeholders such as employees and the community.

  • Implementation support. Climate change science can be challenging to understand and integrate into business operations and processes. Organizations such as CDP, Greenhouse Gas (GHG) Protocol, Global Reporting Initiative (GRI), Ceres, and the We Mean Business Coalition can help bridge this gap with initiatives like Science Based Targets.8 They can also help businesses with initiatives such as climate-related disclosures, target framing, and campaigns to spread awareness.

  • Market mechanisms. Governments and regulators promote market-based mechanisms (like carbon trade) that enable proactive firms to invest in cutting-edge technologies and increase revenues.

  • Traditional knowledge. Communities generally have proven mechanisms to manage local natural resources that science may not have explored. These initiatives help explain the local environment and can be an asset in designing micro-level interventions, helping both the community and its businesses. For example, in India, a watershed development program run by ITC (a conglomerate that began as Imperial Tobacco Company) mobilizes farmers to form water user groups aimed at capturing water for irrigation and improved soil fertility. By making farms less dependent on the yearly monsoon, farmers can grow more than one crop per year.

  • Risk management. Climate change causes changes in resource availability, which can increase risk. Manufacturers and companies that develop natural resources are usually the hardest hit, but service-based companies can be impacted by extreme events like floods and pandemics. There’s also a risk of climate activists targeting businesses and interrupting business routines. Identifying the potential for these risks can help businesses better manage them.

Aligning with Macro

There are many opportunities for businesses to align with the macro environment. Let’s look at the opportunities for each lens (see Figure 2):

  • Embrace climate science. Science suggests ways for businesses to reduce resource consumption. For example, science-based targets provide industry-specific pathways to reducing impact. Companies should embrace the best-available science and implement available solutions, but they should be ready to switch to better solutions if the opportunity arises. Business leaders should also understand the dependencies and potential opportunities from climate science and new technologies. They should avoid investing in business segments that the new climate-sensitive system may challenge.

  • Follow climate governance. Governments commit to national goals regarding climate change and resources. Businesses can and should align to these to the extent possible, including following international institutions’ measurement and tracking parameters. They should also consider leveraging existing assis­tance in the form of generic green technologies, monitoring and reporting systems, market mech­anisms, and capital supported by government and nongovernment entities. For example, companies in the RE100 alliance commit to using 100% renewable energy in their operations.9

  • Work with business stakeholders. In this business environment, all parties benefit when companies work with industry peers to create common stan­dards and practices. Groups such as the Cement Sustainability Initiative, which traverses national boundaries, can help industries create and roll out measures to help businesses adapt to new climate scenarios.10 Similarly, businesses can work with consumers to create products and services that are environmentally benign yet provide equivalent or improved satisfaction to customers.

  • Communicate with community stakeholders. NGOs and other interested parties track the extent to which businesses are fulfilling their commitments to the environment. Businesses can align themselves through frequent communication and transparent disclosures using institutionally determined standards.

Figure 2. Aligning with the macro environment
Figure 2. Aligning with the macro environment
 

Aligning with the macro environment provides a view of the changing system that incorporates limits, shows emerging business opportunities, and supports the resources necessary for future growth.

Accomplishing in Micro

There are a number of challenges for business in the micro climate change scenario, yet this is where critical progress toward adapting to climate change must occur. Large multinationals may have distinct requirements for each branch, factory, supply chain, and/or raw material site. The idiosyncratic nature of micro factors makes it essential for companies to conduct careful assessments and use their limited resources wisely.11 Let’s look at how each lens relates to climate-related actions at the micro level (see Figure 3):

  • Support climate science. Regional and local climate models are still evolving, but businesses need solid local connections for success. Companies can start by investing in local climate science, seeking to better understand the local environment and its natural resource flows. They can also invest in research to develop supply chain contingencies to mitigate climate change issues.

  • Get involved with climate governance. At the micro level, climate governance is about getting all stakeholders on board. Companies can use scientific research and local resource governance under­standing to design local frameworks aligned to the macro level but beneficial to the local environment.

  • Collaborate with business stakeholders. Local climate impacts are (and will continue to be) based more on geography than business relations. Com­panies should talk with neighboring businesses about pooling resources and with supply chain partners about reducing resource/product vulnerabilities.

  • Engage with community stakeholders. Businesses share local resources like clean water and air with their communities, so engagement in these areas is the most critical tool at the micro level. The local community’s traditional knowledge should be used to better understand resource interdependencies and externalities. Businesses should respect local requirements and involve the community in accomplishing climate resilience for both the community and its businesses.

Accomplishing in the micro environment makes firms more resilient in the face of climate change while safeguarding growth.

Figure 3. Accomplishing in the micro environment
Figure 3. Accomplishing in the micro environment
 

Conclusion

Climate action is imperative. The current business focus is on carbon emissions, and energy sector greening is the first step. But our increased encroachment on planetary boundaries calls for a new system: a deeper understanding of the climate-stability assumption and efforts to grow within limits. The “aligning with macro and accomplishing in micro” framework is one way to approach the challenge.

References

1Steffen, Will, et al. “Sustainability. Planetary Boundaries: Guiding Human Development on a Changing Planet.” Science, Vol. 347, No. 6223, 13 February 2015.

2DeMendonca, Taryn, and Yan Zhou. “When Companies Improve the Sustainability of the Natural Environment: A Study of Large US Companies.” Business Strategy and the Environment, Vol. 29, No. 3, March 2020.

3Steffen et al. (see 1).

4Clift, Roland, et al. “The Challenges of Applying Planetary Boundaries as a Basis for Strategic Decision-Making in Companies with Global Supply Chains.” Sustainability, Vol. 9, No. 2, 15 February 2017.

5Goswami, Subhojit. “How Is Coke-Pepsi Boycott in Tamil Nadu Linked to Concern Over Groundwater Depletion?” Down to Earth, 3 March 2017.

6Maladaptation.” Wikipedia, accessed May 2022.

7Demuijnck, Geert, and Björn Fasterling. “The Social License to Operate.” Journal of Business Ethics, Vol. 136, No. 15, January 2016.

8Science Based Targets website, 2022.

9RE100 Climate Group website, 2022.

10Cement Sustainability Initiative.” World Business Council for Sustainable Development (WBCSD), 2022.

11Williams, Amanda, Gail Whiteman, and Steve Kennedy. “Cross-Scale Systemic Resilience: Implications for Organization Studies.” Business & Society, Vol. 60, No. 1, 1 January 2021.

About The Author
Himanshu Shekhar
Himanshu Shekhar is a PhD candidate at Indian Institute of Management Bangalore, India. His research interests focus on understanding corporate decision making on sustainability and climate change. Prior to academia, Mr. Shekhar spent about 10 years working in software, sustainable finance, carbon management, and public policy. Over the years, he has developed corporate strategies on renewable energy, energy efficiency, sustainability, and… Read More