Integrating Climate Change with Core Business Activities

Jonatan Pinkse & Ans Kolk

University of Amsterdam Business School

The Netherlands

Introducing business and climate change

• Initial business responses merely political: – At first most large firms opposed policy initiatives to cut

greenhouse gas emissions, but since the inception of the 1997 Kyoto Protocol increasingly more firms are in favor

• Gradual emergence of market responses:– Firms are starting to develop ‘climate-friendly’

technologies– Firms start to engage in emissions trading and other

Kyoto mechanisms

• Aim of our paper:– Analyze to what extent firms integrate climate

change with their core business activities

Integration of climate change

• Commonly business response understood in terms of mitigation: reducing greenhouse gas emissions, e.g. improving energy efficiency– Usually only minor changes in the production

process

• But, do firms also choose for integration of their concern for climate change into their mainstream business activities?

• And, to what extent does climate change motivate firms to modify their core business activities?

A dynamic capabilities framework

• Dynamic capabilities: competence to renew existing capabilities to maintain a fit with changing environment

• Whether firms appear to integrate climate change with their core business depends on:– Nature of climate-induced dynamic capabilities

• Green or conventional?– Origin of climate-induced dynamic capabilities

• Geographic spread: global, regional, domestic?– Spillover effects throughout value chain

• Aimed at upstream (suppliers) and/or downstream (sales) activities

Data & Method

• Analysis of Carbon Disclosure Project (CDP) 2004 questionnaire data of Global 500 firms

• 218 multinationals publicly responded to CDP

• Using content analysis with inductive coding, the data were scrutinized for activities that: – Form a response to the climate change issue– Fundamentally change current business

practices– Are likely to have a significant impact on firm

competitiveness

Findings (1)

• Firms follow distinctive pathways towards:– Technological (conventional) capabilities

• Towards similar technologies (automotive)• Towards different technologies (oil & gas)

– Organizational (green) capabilities• Exploitation of existing capabilities (utilities, finance)• New capabilities (emissions trading; in some cases only)

• Activities undertaken by multinationals from all three regions of the Triad – US/EU/Japan (regulation not decisive)

• Much cooperation for technological development: particularly with firms and research institutes in home country

Findings (2)

• Organizational capabilities potentially more location-bound than technological capabilities– E.g. emissions trading only where such systems

exist and firms/sectors are included– Technology usually incorporated in products so

better transferable

• More opportunities in downstream activities, but

• Worldwide marketing of technology-based products problematic– E.g. when an infrastructure is required (case of

marketable hydrogen car)

Conclusions

• Integration still limited, some first steps for the long run in a few industries only

• A strategic reorientation towards sustainability still utopia

• But, quite some firms are developing different kinds of technological and/or organizational capabilities, mostly green sometimes conventional

• In doing so, multinationals mainly rely on existing capabilities in making incremental changes