#5 Warming Up: How businesses should respond to climate change with Jonatan Pinkse

In Warming Up: How Businesses Should Respond to Climate Change, Professor Jonatan Pinkse discusses the challenges in green transition and the culture war at our doorstep. 

Why are some businesses reluctant to come aboard the green transition? Why is ESG facing pushback? How is the push for green transition helping the rise of the political right? 

Pinkse, professor of sustainable business at King's Business School (London), presents the business case for sustainability and explains why it is weaker now and why businesses are tip-toeing on sustainability today despite ESG becoming mainstream.

System transformation calls for focusing on people, not just technology. Pinkse shares his research on developing a workforce for the green transition and illustrates, with everyday examples, the challenges of reskilling. 

Be it sustainability or differences in academic life, Pinkse favors a pragmatic approach that recognizes hard realities and avoids disappointment from utopian ideas.

Links:
Jonatan Pinkse's research papers: https://scholar.google.nl/citations?user=7NNAku4AAAAJ&hl=nl
Book Recommendation: https://www.penguin.com.au/books/material-world-9780753559178 

If you want to follow this podcast, please subscribe to the Business and Society with Senthil Nathan on Apple and Spotify. We welcome your comments and suggestions at bspwithsn@gmail.com.

Chapters

• 1:25 Economic growth and environment
• 1:57 How can businesses help societies cope with climate change?
• 3:17 ESG Investments
• 5:08 What's the business case of sustainability?
• 8:05 Are businesses taking adequate climate mitigation measures?
• 10:57 Ethics of carbon offsets
• 13:48 What are the key challenges in achieving net zero?
• 14:37 All-stakeholders-win approach
• 18:13 Developing workforce for the green economy
• 22:50 Workforce, Green transition and Societal Impact
• 25:53 Politicisation of Net Zero
• 27:08 Managing differences of opinion
• 28:56 What are one or two key skills required for business leaders implementing green transition?
• 29:53 Book recommendation

Transcript

Senthil

00:05

I'm Senthil Nathan, Chief Executive of Fairtrade Australia, New Zealand. Welcome to my Business and Society podcast, where we discuss the role of business and society with influential thinkers. The world is trying to sail through an energy transition by reducing emissions. Key players in this green transition are businesses. Unless they move towards sustainability, targets like net zero emissions, which have been globally agreed upon, cannot be achieved. Some businesses are yet to come on board, and even those engaged actively in the green transition struggle on different fronts, be it finance, technology or talent. 

00:47

Joining me today to discuss business and climate change is Jonatan Pinkse. He's a professor of sustainable business and the director of the Centre for Sustainable Business at King's Business School at King's College London. He has authored more than 60 scholarly and practitioner articles. In 2020, he was included in the prestigious, highly cited researchers list and in 2023 in Stanford University's list of world's top two-percent scientists. Professor Jonatan Pinkse, thanks so much for joining me today. 

Jonatan Pinkse

Thank you for asking me. 

Senthil

Let's first get the big question out of the way. Is the prevailing consumption-led growth model sustainable, particularly when even mild economic growth has some impact on the environment? 

Jonatan Pinkse

01:40

That is a big question indeed. I would say many would say no. Indeed, the way we're currently consuming is not really in line with what the planet can really carry and also many societies suffer because of our huge consumption rates, especially in the industrialized world. 

Senthil

01:57

In this context, how can businesses help societies cope with climate change? Because every business wants to grow. I have never seen a business that says, look, this year we want to reduce our growth by minus 10% or so. 

Jonatan Pinkse

02:10

It's a very complex question. 

02:12

I work in a business school, so we've been teaching this to our students that growth is one of the key drivers of any business, of any economy as well. 

02:21

So, if we want to do something about climate change, we need to somehow make it fit with what companies are trying to achieve. So, if it means that you have to sacrifice huge profits, you'll make losses for a very long time. That's probably not the way to go. But what is the way to go is far more difficult to figure out, because you do need a major transformation of many industries that we rely upon, and we don't really know how to do such a major, what is called a system transformation, while not kind of making certain losses at certain points in time, because if you want to invest in low carbon technologies, that means a large initial investment which will pay off in the future. But how long is that future going to be? And are our investors then patient enough basically to say, oh, it's fine that I invest in something that we only see the results of in 10 years? That is what makes it so difficult to achieve it. 

Senthil

03:17

You talked about investors. I was reading some statistics yesterday that the investment in ESG funds has been declining. Is this a trend you see globally? Why is it so? 

Jonatan Pinkse

03:30

ESG has become part of this culture war against woke capitalism. Especially in the United States, the term ESG has become a little bit toxic. I think there are two reasons for this. The one is ESG has actually become very popular, almost kind of part of the mainstream. So, it is actually starting to have an effect on investor behavior, on firm behavior. So, people that were maybe not in favor of it at first didn't worry about this movement because it was small. But now it has become big, and when it becomes big, then people start fighting it. So, this is what you then see comes big, then people start fighting it. So, this is what you then see. 

04:08

But the other backlash has come from the promise that investing in ESG will also lead to higher financial returns. And let's say, there are thousands of studies on this. Some say yes, some say no, it all depends. But people started believing like okay, if I do this, I'm going to make more money, and then, since that is not always the case, are disappointed and that is then the backlash against it, like, okay, you promised me something when I would invest in it, and I don't see the results. So, because of that, this whole movement around ESG is maybe more difficult, but I would say there are huge differences between countries. In Europe the term is still being used widely, while in the US they will look at climate finance, just not use the term ESG, for example. So, the underlying issues are still part of the debate, but the specific type of language used well it's more difficult in certain parts of the world, I would say. 

Senthil

05:08

But, professor, what's the business case of sustainability? Is there a business case for sustainability? If so, what is the relationship between a firm's climate initiatives and financial performance or productivity? 

Jonatan Pinkse

05:22

So, for many parts of sustainability there is a business case. The main source of greenhouse gas emissions are carbon emissions from combustion fossil fuels. Co2 goes up in the air. So, reducing CO2 emissions means reducing our energy use, means reducing energy costs. So that is a clear business case, and you see that as well that companies that have tried to improve their energy efficiency have done well. The same thing you see with waste reducing waste, processing waste is costly, so if you reduce your waste you don't have to make those costs. 

05:58

So, for many parts of especially more environmental sustainability there is a business case. But you see also that certain quick wins have been made and it becomes more difficult over time. So, the marginal returns are becoming smaller and because of that the business case that was quite obvious maybe 10, 20 years ago becomes a little bit less obvious. You have to make fairly big investments to have improvements in your energy efficiency that are maybe not that spectacular compared to what you could have done, what you achieved back in the day. The other side of the story is very much other parts of sustainability. 

06:37

We talk a lot about climate change, but we also have nature biodiversity, and there the business case is far more difficult because very often doing something about biodiversity means not doing something that might make you money. So, if you are a mining company and you want to mine, but you're not allowed to do that because you have an open pit mine and you want to basically create a huge hole in the ground that is destroying local nature, by not being allowed to do that, you forgo profitable investment opportunities. So, for them it would be like well, this is not a business case, this is a problem. And this is also where you see that mining companies have a difficult relationship with sustainability over time. So, companies are trying to do it more. 

07:24

There are more and more companies are also making claims that they want to be nature positive, but then the question is very much how do you translate that? What are the actual initiatives that you take, and can you then, for such projects, develop a business case? And this is where I know from industry insiders that it is difficult. So, companies are not necessarily willing to be very open what they're doing about biodiversity, for the simple reason that they don't yet fully know how this actually will translate into what they can and cannot do. And, yeah, most companies will be fairly risk averse to them. It's like we're not going to be very loud about something where we don't yet know how to do this. 

Senthil

08:05

But in general, are businesses taking adequate climate mitigation measures? I'm keen to understand what stops businesses from taking climate action, because climate is affecting almost every part of the society. 

Jonatan Pinkse

08:19

I would say that most businesses the majority are taking climate action. It's just not yet sufficient to stop the trends of increased greenhouse gas emissions in the atmosphere. So, you could argue it's not effective climate action, and there are so many reasons for this. It depends a little bit on the industry, but basically, we depend on fossil fuels for so many parts of what we do in society. We look mostly at our energy generation and there we see, especially for electricity, that improvements have been made. Solar panels, wind power they have gone mainstream. At the same time, the kind of money that companies can make with those kind of energy technologies is not as much as what you can still make with oil and gas. So, this is one of the first reasons. If you can have higher returns with sticking with the old technology based on fossil fuels, versus lower returns with the new technologies, a very large portion of companies will say well, we will invest a little bit in the new technologies to keep the option open if it grows, and then we know exactly what we can do. 

09:23

But we will not go all the way. Because we are part of a society, an economy, shareholders, you name it. We all basically depend on the returns of oil and gas firms. No matter what people tell you, if you have a pension fund, you're part of a pension fund. You're probably helping the oil and gas industry further develop. But we also use fossil fuels for many materials. It's part of everything. It's also part of how we make fertilizers. So, the agricultural industry fully depends on natural gas to produce ammonia. 

09:54

So it is very, very difficult to go without fossil fuels. Because of that it's not a simple question of, okay, business is not doing enough. Many will not be doing enough, but for many there's not an easy solution either. It's really quite hard to imagine what the future will look like if we do not depend in any way on fossil fuels. And then you get big scenarios like should we go for hydrogen? Should we go for full electrification of our society? And all these scenarios are really decades, a lot of hype cycles going on. Hydrogen always comes and goes. Nuclear a little bit similar. There's then the belief oh, nuclear will save us. Well, we've heard that many times. And then we figure out every time that it's really expensive to build nuclear power plants. So, it's basically very, very difficult for many companies to make the radical transformation. At the same time, I believe that companies could and should do more to do that. They're also a bit risk averse in this space. 

Senthil

10:57

Interesting. You talked about oil and gas companies and the importance of it and running our economy, our everyday lives, this hard to abate sectors. Offsets has been one of the solutions for them, but lately that's coming into a lot of criticism. I'm keen to hear your thoughts on the ethics of offsets or carbon credits. 

Jonatan Pinkse

11:17

Yeah, I mean, this is an old debate, actually. Offsets always pop up, and then there are journalists that are trying to figure out what actually happens with the money. What are they investing in? And then they find out that either the money disappears, or it is in areas they're protecting forests that would be there anyway, would be protected. So basically, it's a concept of additionality. Are you adding anything? 

11:41

And this is where, almost every time there's some kind of in-depth study in this topic, you'll see that it is a disappointment. The money is not going where it should be going, or it is not having the effect that it should be having. Now they are really going for a relabelling. Then they call it nature-based solutions, which is basically offsets, but it just has a different name, and because of that, people partly believe in it, partly don't, and it goes up and down, and I developed my PhD thesis in 2006, quite some time ago already, and on the day that I had my PhD viva, actually, there were major issues around the carbon market for this same reason. Financial Times’ journalists that found out that, yeah, a lot of the projects weren't real. So then in this case it was called the Clean Development Mechanism. It was part of the United Nations Kyoto Protocol and then that price of these carbon credits dropped tremendously, but it never really destroyed that market. 

12:38

It keeps coming back for the simple reason as I outlined before it is the only kind of strategy for companies to move towards this idea of net zero, because you have difficulty coming to the zero really fast, so you need to work on the net, and the only way to work on the net is through offsets, so you need to remove carbon somehow from the atmosphere. How do you do that? So, this is why they will keep investing in it, because otherwise they would have to become zero carbon instead of net zero, and that is very, very difficult, because then you need to go without fossil fuels across the board, and that is a very, very difficult thing to do as I explained. So, this is why you still see that they keep coming back to, we somehow need to get into offsets and then they can make them better with standards. But still there are huge, huge doubts about… Is this, then, the ultimate solution? It probably isn't. I still think it might have some kind of function as part of a bigger portfolio of all kinds of options to reduce our carbon emissions. 

Senthil

13:48

Interesting. Let's keep this hard to abate sectors aside. Businesses in general… What are the key challenges in achieving net zero? 

Jonatan Pinkse

13:56

It was really nicely summed up by someone I interviewed in the construction sector recently and it wasn't very hopeful. It's like, why are people not adopting these greener technologies? And the interviewer basically answered people don't really like change. So many companies have what we call routines. They have their ways of doing business, the way of operating. They're used to that. So, by going net zero, you're basically asking them to stop a lot of activities that they're used to, that they're good at, they make money with it, and that really leads to a very strong response of I don't want to go there. 

Senthil

14:37

I want to move to the stakeholders bit. In a co-authored paper titled Moving Beyond the Business Case, you argued for shifting the broader all-stakeholders-win approach. While many feel stakeholder-inclusive approach is a powerful idea, some scholars, such as Judy Samuelson of Aspen Institute, argue that the term stakeholder is too generic and hard to grasp as a starting point for real change. What are your thoughts on this? 

Jonatan Pinkse

15:05

I do not fully disagree with the comment that stakeholder is maybe a bit too broad. It is the typical term we use where we don't know who else should be involved, and we just call them stakeholders. Why do we still use the term? Our main argument is that you need to go beyond shareholders, and that can include many different kinds of actors that have a stake in a company, and what we first focus on is more, for example, the internal stakeholders, like employees, but also suppliers, customers, so those that are involved in the actual running of a company. They're very often called the primary stakeholders, but we also call for more thinking about what is your relation as a business with your surrounding environment, the natural environment, but also the communities you live in and those kind of stakeholders. Nature… does nature have a voice? No, nature doesn't have a voice by itself, but of course, there are many social activists that represent the voice of nature, and I must say that voice is really strong nowadays, also in a fairly recalcitrant manner. There's a lot of activism going on that leads to societal disruption that people don't necessarily like. But this idea that you need to start thinking about. Okay, what is the impact of my sustainability initiatives beyond? Whether my shareholders like it or not, is a very old idea, of course, but still too often doesn't happen. 

16:31

This idea that you set up a company just to make profits is very narrow thinking, and I don't think there will be many founders of businesses that say, yeah, I just did this because I wanted to make a lot of profits really fast. This is not how founders of companies talk. They want to do something; they want to create some kind of value for society. They come up with a new service, new product that they're really enthusiastic about and they hope that it changes people's lives. And I know that it is part of the marketing rhetoric, but I must say many people really also believe that that they are trying to make a change with what they're doing. 

17:02

So, there is always a broader thinking, and I'm just always a bit surprised somehow that the moment we start talking about sustainability, we go back to some kind of old-fashioned economics textbook, as if the only goal of business is to make money, and it's like… I don't think that is the case at all and I don't think it is for most companies. So, it is a bit narrow-minded, but it is always easier to criticize the narrow-mindedness of the current thinking than coming up with an alternative and if I'm very honest with this article, here we struggle too. In writing it, we were quite convinced in how we wanted to criticize the current business case. 

17:43

There are many authors on that paper. There was a lot of debate going on and what should be the alternative, and this is then our compromise, and I do believe it can be better and it's just the first general idea, but it is very much about thinking more about the impact of a business beyond just financial impact for shareholders. Really think about how we're going to do this together with others. So, this idea that many should be involved is the simple message that we wanted to bring across. 

Senthil

18:13

I want to talk a little about your recent column on a nature journal, which is about workforce. How are businesses faring on developing a workforce with skills for the green transition? 

Jonatan Pinkse

18:23

They are struggling. Let’s put it like that but that is based on my own research where I tried to in-depth interviews with two sectors. One I already mentioned was the construction industry. Construction industry has a huge skills problem now across the board, at least in the UK, but also many other countries. There's just a shortage of people that want to work in the construction industry, let alone those that have skills to work with new technologies to, for example, install a heat pump. So, give a little anecdote I recently had a problem with my gas boiler in my house.

19:00

That was delivered in 2017, not a very long time ago. That gas boiler already stopped working now, so there were some issues there. So, I have the gas person coming, the maintenance guy, and he basically tells me I need to replace my gas boiler. So, I then tell him that I want to go for an air source heat pump. Let's say we were no longer friends after that little statement of mine. He kind of went on a rant what was wrong with the heat pump, and on and on and on all kinds of reasons why I should not be doing that. I'm doing it nevertheless, I'm still in the process. But I think their main mistake was, instead of saying this is all bad, their company should just have this as part of their portfolio, that they would say, hey, we actually have those skills as well. We can also supply you with a heat pump, no problem. They're far more expensive. So, I'm quite sure that they make more money on the heat pump than on the gas boiler. But that wasn't part of the mindset, because the skills in that company were based around natural gas, not around the whole how to run a heat pump, which is more based on electricity, and how it works with all the radiators in the house. So, this is actually a missed opportunity. So, there I saw, from talking more and more to people in the industry, that there was really a struggle already to have skilled workers, let alone those with the right skills. And that goes back to the educational system, that when people do an apprenticeship, they know how to install a gas boiler, not necessarily how to install a heat pump. So, they have to basically learn that while they're on the job, after they finish their education. Well, it should, of course, become part of it, but that is really on the more people doing the jobs, working with the technologies. But of course, it also goes to a higher level in companies, in the management level. 

20:59

What do people really know about sustainability? And there, as I referred to previously, biodiversity is one of those topics where people don't really know, and I have to admit it's really difficult. It's ecosystems, but it also goes to species. It goes to genes and the whole discussion is quite different. How does it work? Can I replace nature like for like? Is that possible? So that kind of sustainability knowledge is missing still in quite a few companies higher up.

21:33

But at the same time, I spoke recently to a sustainability manager of a big electricity company, and they told me the opposite a little bit. 

21:39

They said well, the problem is that many people who do have the sustainability skills, we hire them and they lack the business skills. 

21:46

Going back to our earlier part of the conversation, we need to always think about how we sell things to our customers, but also even just to management internally. You always somehow have to make a business case, otherwise it will not become a viable product in any kind of company, and too often people that then really push for sustainability in companies tend to forget the business side of things. So, in the end, the skills problem is not like oh, you just need to know how a heat pump works. It's very much… It's not only how a heat pump works, but also what does it do to the economic bottom line of the whole functioning of the company? What kind of financing do you need? How do you convince people that this is actually a good product to buy instead of telling them that they shouldn't be doing this and so forth? So, this is where the skills come into play and, being very complex, you're asking people in companies to learn about all kinds of new technologies, ideas, functioning of nature that they don't have and can't easily source. 

Senthil

22:50

How big the impact of this transition on the current workforce exposed to hard to abate sectors such as oil or cement or any other sector. It seems like it needs a massive reskilling of the current workforce. That's a big societal shift we are talking about. 

Jonatan Pinkse

23:06

It is, and it is not always the best of news for people working, for example, in steel companies. Here in the UK, we have a big debate about Port Talbot in Wales. They are trying to change the steel plant into an electric arc furnace. So basically, you're no longer using the coke oven, which uses coal, but you use a process of electrification. There they use scrap metal instead of iron ore to produce steel. 

23:33

Technically it seems on paper at least that such new factories are more productive. You need fewer people to run the same kind of production level. So, from a productivity standpoint it is good news. It is bad news for the current people working in the existing steel plant. So, I think I’m not sure how many people they are thinking to lay off but that is in the thousands. So, this is then the major problem because you see that announcements of a steel company going green which should be good news, instead gets into the newspapers of they are not thinking about their people… they are letting go off their people and that then becomes the political issue and then people will say, “see, greening costs jobs.” It will also create new jobs, maybe of a higher quality meaning that they are better paid jobs and this is not what people see in the short term. They just see the loss of current jobs. And this is why such a transition is so difficult. 

24:28

And that's the main point I tried to make in the Nature Sustainability article that if you're not thinking about what will greening my company do to the existing workforce, you will get a lot of resistance and it will become part of big political debates where people say this is not where we want to go. You need to somehow find a way to reskill, upskill existing people. But how do you do that? That is costly. Are they still open to being upskilled? Because it sounds great on paper. Let's upskill and reskill people. I don't know if you like to be upskilled, but it sounds kind of negative when you're the person that needs to be upskilled.

25:07

That's also what we found by doing our interviews that it was hurting people's pride a little bit. They say I'm very good at certain kind of parts of my job, I'm highly skilled. What I can do, no one else can do. And now you're telling me that all my skills are worth nothing anymore in the next 10 years and I need to learn something else. That's just a message that people really like to hear, and I think, understandably so. But the alternative how to solve this is not easy. So that is part of the transition that I think we don't look at enough. We tend to focus a lot on the future of technologies and that the technologies are doing this and that and isn't it great. But people are also part of the equation, and we need to look at who they are, how they can become part of that. 

Senthil

25:53

You also gave a small hint on nature sustainability, about imminent social unrest if you're not managing this transition carefully, will it create a political unrest or a culture war about the need for net zero? 

Jonatan Pinkse

26:08

I think that's already there in the US. Part of the Trump campaign is about this that all the initiatives of President Biden with his Inflation Reduction Act to basically green the economy. He's going against that, and he really basically tries to talk to those people who feel left behind because of such changes to renewables, so he's playing that card already. Here in the UK, Nigel Farage with his Reform UK party this is one of the topics he talks about. Net zero should be scrapped. Myself, I'm from the Netherlands. We had a right-wing populist winning the elections. Guess what? The message is not like net zero is the way to go. It's quite the opposite. So, it has become part of a culture war, which is tragic in a way, because people that will be affected most by climate change are the same people that might now be spoken to by these right-wing populists. 

Senthil

27:08

We are moving to the last section. We call it as how I did it. We ask a standard set of questions to all our guests to learn from their experience and career. Would you give some advice on managing differences of opinion setbacks? You're a world-renowned scholar and you often get counter views. How do you manage those differences of opinion? 

Jonatan Pinkse

27:30

So, I always position myself as being an academic and try to figure out how things work, and then I can explain things and maybe take my fairly pragmatic stance of okay, this is, then the positive side and this is the negative side. Of course, by studying this topic, I want the economy to become greener. I do have kind of an ideological viewpoint, but I'm not necessarily imposing that on my audience when I work with students of okay, you should be doing this, you should be doing that. I'm more of the position of okay, I present what it involves, what might be the issues, how you can think about overcoming those. 

28:08

That people start seeing it more as a journey where they say, okay, oh, that's actually reasonable, because what I've seen too much, especially in the sustainability field, is kind of almost creating a utopia of what it should be, uh, and then being disappointed that you're not getting there, uh, and it's like, yeah, but you created some kind of beautiful picture at… Utopias are, by definition, not what we're going to achieve. So, to try and be a little bit more realistic I think can help, but that sometimes also does lead to maybe slight disappointment that people feel that they say, oh, you're too negative. I think I want to be more of an optimist. It's like, yeah, well, it's great to be an optimist, but also look at some of the facts. It's not that easy. 

Senthil

28:56

What are one or two key skills required for business leaders implementing green transition? 

Jonatan Pinkse

29:03

One of the key skills is really to start looking beyond the standard toolkit that we've always been using to make our decisions. Yes, financial decision making is important. Making is important, but instead of immediately saying, oh, I don't see how we can have quick returns with this, let's not go there to step back. What does an investment mean? It means it takes some time, the benefits will accrue in different kinds of ways over time, and to be a little bit more open-minded about that, so that in business thinking you start not immediately dismissing everything, because this is very often what is the problem? That we too often immediately say this won't work, this cannot be done, and so forth, instead of well, let's play with this for a while. What if we do this? What will happen? 

Senthil

29:53

One book you recommend to our listeners. 

Jonatan Pinkse

29:56

I thought about that, and I just read a book called Material World by Ed Conway, and the author here explains how we basically depend on six materials sand, iron, salt, copper,  oil and lithium in ways that we don't really realize. I think the author does a very good job in showing how difficult it is on the materials level to make this transition, and that we should not only be looking at the CO2 emissions but really need to go much deeper into okay, what do we depend on then? Where do these materials come from, how do we mine them, how do we process them, what are the impacts there? And that you don't boil down sustainability as if it's only CO2 emissions, but that that's actually a whole range of all kinds of different connected issues, and so I thought for me, it was quite an eye opener. 

Senthil

30:49

Great Professor Jonatan Pinkse, it's an absolute pleasure talking to you today. Thanks so much for joining us and taking your time and giving your valuable perspectives. Thank you, it was my pleasure. If you like this conversation, please subscribe to the Business Society podcast on your favorite podcasting platform. As always, we welcome your comments and suggestions at bspwithsn@gmail.com. 

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