Session 3:

Climate Change, Energy, & Business

Professor Marieke Huysentruyt

4th of March, 2024
Course Overview

1. Sustainable development & business

Foundation work – discuss some of the (problematic) assumptions Macro-level

2. Potential solutions: What works & what doesn’t? Why?

i. Business response to climate change & migration [taking systemic approach]
ii. Business response to decarbonization [partnership, market approach] Firm-level //
iii. Business response to growing inequalities [value-chain approach] Value-chain //
iv. Business response to demands for DEI [addressing stigma and biases] micro-level

3. Reinventing sustainable business in the 21st Century

Theory of change Eco-systemic level

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Copyright 2024. Marieke Huysentruyt. All rights reserved.
 AGENDA OF TODAY
1. DISCUSS KEY STATISTICS
2. PUBLIC POLICY FRAMEWORK
3. BUSINESS POLICY FRAMEWORK

Copyright 2024. Marieke Huysentruyt. All rights reserved.

 Energy and climate change are inextricably linked

DIFFERENCES BY COUNTRY
Carbon
dioxide
equivalent Transport is much larger
tonnes contributor than global average

Most emissions come from

agriculture and land use change

The chart looks at total greenhouse gas

emissions – this includes other gases such as
methane, nitrous oxide, and smaller trace gases
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Important cross-country differences in breakdown GHG emissions by sector
Europe vs Africa vs India

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Global breakdown for CO2 is similar as for GHG
Direct agricultural emissions (if we exclude land use change and forestry) are not shown

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Global energy production & use accounts for 75% of greenhouse gas emissions
No single solution, the urgency is now

August 2023: Heat waves were

experienced in southern Europe,
southern US, and Japan

The most promising path to deep decarbonization involves

decarbonizing the electricity sector and then electrifying as
much as we can – from transportation to buildings to industrial
processes 7
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Energy sector is changing faster than many people think
Roadmap to net zero by 2050
Momentum coming from:
• Increasingly strong economic
case for clean energy
• Energy security imperatives
• Jobs and industrial
opportunities

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Source: International Energy Agency
Renewable power makes up 2/3 of global capacity additions
Other technologies like carbon capture and storage much earlier stage of dev

Source: Brookings Institute, 2020 10

Stretch targets, narrowing window of opportunity
to enable climate resilient development
Montréal Protocol (1987) – Kigali Amendment in
2016
United Nations Framework Convention on Climate
Most Important Climate Agreements

Change (1992) -1st global treaty (197 countries)

Kyoto Protocol (2005-2012) - market
mechanisms & monitoring mechanisms
(developed countries)
Doha Amendment (2013-2020) –
second commitment period of Kyoto
protocol
Paris Agreement (2016-):
Its overarching goal is to hold “the
increase in the global average
temperature to well below 2°C above
pre-industrial levels” and pursue efforts
“to limit the temperature increase to
1.5°C above pre-industrial levels.” (all
countries) Source: IPCC Synthesis report Climate Change 2023
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Risks and opportunities from a transition to a low carbon economy:
Country-level public policy framework
(1) (2) (3)

1. Reduce energy use through 1. Investments in

improved efficiency (optimize) energy efficiency
2. Shift energy demand to electricity 2. Hydropower
3. Investment in non-
and away from combustion of hydro renewables
fossil fuels (electrify) 4. Growing wealth and
economic
3. Shift entirely to zero-carbon modernization
technologies to generate correlate with
electrification of the
electricity (decarbonize) energy sector
5. Building
electrification has
been significant;
transportation has
Needed in all the major lagged
energy-using sectors – 6. Direct
buildings, transportation, commitments to
clean, efficient
and industry – as well as in energy and
decarbonization
the power industry
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Pricing externalities
Carbon pricing mechanism

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Public policies designed to limit environmental damage
Price-based, quantity-based or both
There are 2 types of abatement policies:

1. Price-based policies use taxes and subsidies to affect prices

– Aim to internalize the external effects of individual choices
2. Quantity-based policies use bans, caps, and regulations
Cap and trade creates a market for emissions:

• Government sets a limit (cap) on pollution and creates enough permits to meet this cap.
• Governments allocate permits (e.g., via auction), and firms buy/sell permits amongst
themselves.
• Cap and trade is a combined (quantity- and price-based) policy.

Source: Tirole, J. (2017). Economics for the common good. In Economics for
the Common Good. Princeton University Press.
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Price- and quantity-based policy: EU Emissions Trading Scheme

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Risks and opportunities from the transition to a low carbon economy:
A business analysis framework

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 Climate Driven Business Risks
Physical and transition risks For example:
Physical risks (acute vs chronic) can result in cost .. Reduced productivity
increases or loss of revenue due to the changes in .. Disruption of operations
climate trends and acute climate events

Regulatory risk can lead to cost increases or .. Litigation or fines

disruptions caused by restrictions and .. Production costs increases due to carbon tax
requirements due to compliance challenges with
Transition risks

existing or new laws.

Liability risk can create costs and liabilities .. Litigation arising from harm inflicted by emissions

Market risks encompass changes in supply, .. Consumer reactions to organized movements

demand, and public sentiment .. Boycotts for specific high carbon products
Technology risks often involve technological
.. Green innovations that make existing technology obsolete
innovations that threaten a firm’s
competitiveness Source: Serafeim (2022). Risks and opportunities from the transition to a low
carbon economy: a business analysis framework. Harvard Business School 19
Case of Interface
A company with authentic corporate purpose?
TODAY: A global manufacturer of
commercial flooring with an integrated
collection of carpet tiles and resilient
flooring, including luxury vinyl tiles (LVT)
and nora brand rubber flooring – Textile
Industry – $ 1.2 billion (USD) revenues –
> 4k employees

Founded in 1974…

…In the Summer of 1994: Turnaround

“Mission Zero”

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https://www.youtube.com/watch?v=OUG4JXE6K4A
Mission Zero
7 Fronts of Mission Zero by 2020

Operate the petroleum-intensive

company in such a way as to take from
the earth only what can be renewed by
the earth –naturally and rapidly- not
another fresh drop of oil- and do no
harm to the biosphere

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Inspirations to Interface’s Sustainability Journey
Biomimicry, biophilic design, inclusive business
Biomimicry:
Mimicking and
integrating
Biophilic design:
processes from
Enhancing spaces
nature to enhance
through designing
business
direct contact with
nature in a space

Inclusive business: Creating

employment for people in
low-income countries and at
the same time positive
environmental and
socioeconomic impact
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Life Cycle Analysis (LCA) of carpet tiles
Product, service and business model innovations
Product innovations
TacTiles: Glueless small squares
Poly Vinyl Butral: Recycled material used for pre-coat
Conscient: carpet tile with bio-based yarn

Service innovations
Circular Economy Recycling program (Re-Entry)
Net-Works in the Philippines

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Own assessment of progress:
Greenwashing?

By 2018, Interface sold its carpets in over 100 countries

What do you make of this?

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Interface: Carbon neutral as a company?

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Carbon Exposure: Scope 1 refers to direct emissions that are owned
Scope 1, 2 and 3 emissions or controlled by a company
Scope 2 refers to indirect emissions from the
generation of purchased electricity, steam,
heating and cooling
Scope 3 refers to all other indirect emissions up
and downstream in the value chain

Source : École Centrale de Nantes

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Assessing a company’s commitment to fight the climate crisis

1. What is Interface doing in terms of

reporting: strategy, implementation,
measurement?
• Sustainability reports
• Science-based targets
• Carbon Disclosure project

2. Internal carbon pricing?

(see next slide)

3. Innovations?
• New products, services, processes
• New business models
• New practice platforms

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Importance of external evaluators

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Corporate carbon pricing:
3 approaches (not mutually exclusive)

• Carbon fee:
Assigns a monetary value to emissions that result from normal business activity. Proceeds stay in the
company, typically used for projects that help meet company’s GHG reduction goals

• Shadow pricing:
Not an actual fee but a theoretical price on carbon or a shadow price as a risk asssessment tool to
evaluate investments, test assumptions, and guide business strategy

• Implicit carbon pricing:

Marginal abatement costs of the measures and initiatives implemented by a company to reduce GHG
emissions, including the cost of complying with regulations. It can help to understand a company’s
footprint, improve internal communication and evaluate the economic cost of a regulation of a company

Source: Ahluwalia, M. B. (2017). The business of pricing carbon, 1-21.

https://refresh-stg-c2es.pantheonsite.io/wp-content/uploads/2017/09/business-pricing-carbon.pdf
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Many thanks -

I welcome your comments, thoughts or suggestions

Marieke Huysentruyt
Associate Professor in Strategy and Business Policy
Academic Director of the Inclusive Economy Center
Academic Director of the Impact Company Lab
[email protected]

mariekehuysentruyt.com

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