The year 2017 has been a long, strange trip. The definition of sustainability in business evolved quickly — the topic in executive suites now covers a wide range of issues that address how a company navigates environmental and social challenges. From carbon footprint to taking a stand on human rights or immigration, companies need a position and strategy on all of this and more.
We saw big leaps both backward and forward this year, some of which weren’t especially surprising. In my year-end wrap up for 2016, for instance, I predicted that “the context for sustainable business in 2017 may center on the competition between two stories, the election of Donald Trump and significant action on climate change.” That’s pretty much what happened. Trump pulled the U.S. out of the Paris climate accord, the hard-won global agreement to tackle the greatest threat to humanity and the economy, becoming the only country in the world on the sidelines.
But the Newtonian equal-and-opposite reaction from business, states, and cities was nothing short of amazing. Their pushback on policy decisions is my #1 story of 2017. Here’s more on that, plus nine additional developments business leaders need to pay attention to.
Climate, Clean Tech, and the Environment
1. U.S. leaders from the public and private sectors rejected Trump’s decision on the Paris accord and committed to climate action.
On the day of the president’s announcement about the Paris climate accord, 25 multinationals — including Apple, Facebook, Google, HPE, Ingersoll Rand, Intel, Microsoft, PG&E, Tiffany, and Unilever — ran a full page ad in the Wall Street Journal asking Trump to stay committed to the agreement. By that weekend, dozens of big companies declared, We Are Still In. This public statement includes thousands of signatories — not just companies, but states, cities, and universities.
On the governmental side, the states of California, Washington, New York, and others representing a third of the U.S. population and GDP announced the formation of the U.S. Climate Alliance. California Governor Jerry Brown emerged as the de facto climate leader for the United States, holding his own meetings in China and headlining a delegation to the global climate talks in Bonn. A growing list of 385 local leaders have joined the U.S. Climate Mayors pact as well. A group of high -profile business leaders offered their thoughts on the sustainability agenda right here at HBR (I am also an adviser to that effort). In total, the message to the rest of the world has been clear: “sub-national” support for climate action is very strong in the United States.
2. The deadly costs of climate change became even more obvious.
This year, the science got clearer about the connection between extreme weather and human-caused climate change. And that extreme weather was horrifying. Record-setting storms, floods, and drought-driven fires wreaked havoc around the world. Flooding in South Asia killed more than 1,200 people. Asia also experienced shocking heat, including a day in Pakistan that hit nearly 130 degrees Fahrenheit. Hurricane Harvey hit Houston hard (the before-and-after flooding pictures are mind-boggling), and the national weather service added colors to flood maps to reflect the record 30 inches of rain that fell. Hurricane Irma demolished Caribbean islands, and Hurricane Maria created an economic and humanitarian disaster in Puerto Rico. As of this writing, months after the storm, a third of the island is still without power, and 10% of these U.S. citizens have no water. On the U.S. mainland, unprecedented wildfires ripped through Napa and central California, as well as Los Angeles County.
These extreme weather events are primarily human tragedies, but they’re economic and business disasters as well. When entire regions are under water or lose power for months, it’s not good for local and national economies. In fact, the economic cost of extreme weather is vast and rising. In the 1980s, 27 weather events cost the U.S. more than $1 billion each (in today’s dollars). A little more than halfway through the current decade, we’ve already experienced 89 billion-dollar events, and they’re much, much larger. Hurricane Sandy in 2012 and the big trio of Hurricanes Harvey, Irma, and Maria this year are all $50 billion to $100 billion storms.
3. The Trump administration started dismantling environmental protections.
In the U.S., the new administration’s policy goes beyond pulling out of Paris. We’re seeing an all-out assault on our air, water, climate, and land. The EPA head, Scott Pruitt, spent years suing the agency and essentially intends on dismantling it. Pruitt and Trump, with assists from Interior Secretary Ryan Zinke and Energy Secretary Rick Perry, are working to, for example:
- Eliminate the Clean Power Plan (one of President Obama’s main efforts to rein in power plant carbon pollution).
- Reduce restrictions on some dangerous chemicals and pesticides.
- Get rid of rules that limit natural gas leaks.
- Slash the size of national monuments in what The New York Times called “the largest rollback of federal land protection in the nation’s history.” (One company, Patagonia, took an aggressive public stand against these moves.)
- Prop up coal and nuclear power against all economics and market forces.
Bi-partisan groups of former energy commissioners and EPA heads have spoken out against every move. And while many companies may hope to save money in the short run with fewer regulatory hurdles, it’s also clear that an unhealthier environment is not great for businesses, its customers, its communities, or its employees in the long term.
4. Investors woke up about climate risk and benefits of sustainability.
I know, I know, Wall Street only cares about short-term earnings performance. And yet there’s something brewing among big institutional players, the economy’s risk assessors, and even some Wall Street types. For example, Larry Fink, the CEO of BlackRock (with $6 trillion in assets under its management) asked business leaders to focus on “long-term value creation” in his third annual letter to S&P 500 CEOs. BlackRock also said its “engagement priorities” for talking to CEOs would include climate risk and boardroom diversity.
Shareholder resolutions on climate disclosure and strategies succeeded for the first time at Occidental Petroleum and ExxonMobil as well. Fund giant Vanguard, which led the charge at Exxon, also declared climate risk and gender diversity “defining themes” of its investment strategy. Institutional investors continued to drive climate action also, with hundreds signing a statement of support for the Paris agreement. And Norway’s $1 trillion Wealth Fund is forcing banks to disclose the carbon footprint of loans and will divest from fossil fuels. In late-breaking news, the World Bank will stop financing upstream oil and gas projects after 2019.
Finally, a few big developing stories could create long-term ripples. First, the Financial Stability Board (FSB) Task Force on Climate-related Financial Disclosures (or TCFD), issued a critical set of guidelines for investors and insurers to understand climate risks. On the heels of TCFD, a group of 225 global investors with $26 trillion under management launched “Climate Action 100+” to “engage” with large emitters on their management and disclosure of climate risks. And in fascinatings new on the debt financing front, Moody’s told cities to address climate risks or face downgrades on their bonds. Could shifting rates on company debt be far behind?
5. China accelerated its clean tech advantage.
On the fifth day of 2017, China announced it would spend $360 billion on renewable energy by 2020. The rest of the year brought even more leadership: China cancelled 103 coal plants, committed to cut coal by 30%, made big moves in electric vehicles (see #9, below), erected the world’s largest land-based and floating solar farms (becoming the world’s largest solar producer in the process), and – in one of the most fun stories of the year — built a solar farm in the shape of a giant panda just for the heck of it. Essentially, in 2017, China took over the role of global climate leader and then, to top it off, committed nearly a trillion dollars in infrastructure spending to connect China to the rest of the world.
6. Clean tech continued its relentless march (and coal continued to die).
As a whole, the economics of every major green technology got radically better. (Morgan Stanley predicted an “inflection point” in 2020, when renewables become the cheapest energy source globally.) But to focus on two intertwined areas, look at what happened with electric vehicles (EVs) and battery storage.
On the former, some large economies, including France, India, Britain, Norway, and China, committed to ban diesel and gas vehicles. Automakers moved quickly as well, with GM and Ford announcing major investments in EVs and Volvo phasing out conventional engines starting as soon as 2019. A group of multinationals with big logistics operations launched EV100, an initiative to speed up the switch to EVs. One big city, Shenzhen, China, moved its entire bus fleet to EV. In total, EV sales were up 63% globally.
The economics of batteries (needed for EVs and, critically, the grid so we can store clean energy) continued to get much better—50% cheaper since 2014. Tesla built grid-scale storage for Southern California and quickly erected the world’s largest lithium ion battery storage in Australia. The end result is going to be the end of coal, bolstered by commitments from states like Michigan to go coal-free—and the entire EU, which will build no new coal plants after 2020.
The Role of Business in Society
7. Famous CEOs took moral stands.
One group of business leaders faced a tough decision this year: stay in the president’s CEO advisory councils or protest his policies by pulling out. A few, like Tesla’s Elon Musk and Disney’s Robert Iger, left in the spring after the Paris climate decision. But most stayed on — that is, until the Charlottesville, Virginia white nationalist marches. When the president said there were “some very fine people” among the white supremacists, the CEO Advisory Councils disbanded quickly, with the leaders of Pepsi, IBM, GM, BCG, Merck, 3M, and others walking away (a few wanted to stay, but the momentum was clear).
One CEO in particular, Apple’s Tim Cook (who was not formally on the councils) denounced the “moral equivalence” of white supremacists and human rights protesters, but he also went on to say something more important about business: “We have a moral responsibility to help grow the economy, to help grow jobs, to contribute to this country and to other countries that we do business in.” In essence, Cook made a blended argument for sustainability that isn’t about philanthropy and the polar bears, but about the core business and its role in society. And yet, Apple had its own challenges. Proving that no company’s actions are black and white, the world discovered that Apple has stashed a quarter of a trillion dollars in cash outside the U.S. to avoid taxes. Yes, it’s legal, but is it right? Given Cook’s own argument, it’s an uncomfortable disconnect.
8. Companies went to court.
This year large companies dove into legal battles on social hot-button issues to an unusual degree. Tech companies big and small filed an “amicus brief” to fight the president’s first executive order on immigration (biotech firms spoke out as well). Fifty big companies asked a New York federal appeals court to fight discrimination based on sexual orientation. Companies also lobbied for pro-environmental and social policies. Companies went local as well, with seven big guns — Procter & Gamble, Walmart, Unilever, General Mills, Target, General Motors, and Nestle — pushing the state of Missouri to pass a bill to make it easier for them to buy renewable energy.
9. The super bowl of sustainability advertising was… the actual Super Bowl.
A surprising number of big brands used the most expensive, most viewed advertising time in the world to do something different this year: Instead of pitching products the old-fashioned way, focusing on how great it tastes or will make you feel, they chose to say something about an important aspect of social sustainability. And they took risky stands, in often not-so-veiled ways, against the policies of the new U.S. president.
Budweiser’s ad told the story of their founder and proudly pointed out his immigrant status. Little-known 84 Lumber went viral with a five-minute video about the journey of a family from central America. Coca-Cola focused on diversity and inclusion with its multi-lingual ad. And Audi’s ad “Daughter” lamented the lack of pay equity for women (though Audi then took heat for its own record on pay and women in leadership, showing that sustainability-focused ads can be risky).
10. Unilever fights off a hostile takeover bid.
Unilever is the consensus corporate leader on managing sustainability for business and societal value. That’s why I consider the attempted takeover of Unilever by Kraft Heinz and 3G Capital an important sustainability story.
It is unlikely that a firm like 3G would continue supporting the sustainability strategy at the heart of Unilever, even though the strategy has been wildly successful (the company’s market cap was at an all-time high — and then went up another 20% after the takeover attempt). As Unilever’s CEO, Paul Polman told the Financial Times, it was “clearly a clash between a long-term, sustainable business model for multiple stakeholders and a model that is entirely focused on shareholder primacy.” Everyone interested in seeing companies lead the charge to a thriving world breathed a sigh of relief. (Full disclosure: I’ve been an advisor to Unilever North America, but I had zero involvement on this issue.)
So what’s next?
It’s risky to say anything definitive about the future. But I do believe that some mega-trends have too much inertia for any one stakeholder to completely disrupt. So some light predictions for 2018:
- The climate will continue to get more volatile. Any remaining business leaders who don’t understand climate as a systemic risk and opportunity will have to get on board.
- Millennials and Gen Z will continue to push for purpose and meaning in work and life.
- AI, big data, blockchain, and other tech will change how we understand companies, products, and services, leading even more to embrace “clean labels” (like Walmart, Target, and Panera did this year).
- To meet ever-rising expectations, and drive business value, companies will set more and more aggressive sustainability goals.
- Clean tech will be under attack by the U.S. administration, but it will continue to prevail globally.
- Finally, the #metoo movement against sexual harassment, which is sweeping through politics and media, will hit big business. We may see some senior Fortune 500 execs fall.
Onward to 2018. Have a happy, healthy, and sustainable New Year!
This article originally appeared in the Harvard Business Review on December 22, 2017.