Climate Change Capitalism

Companies are realizing that they must adapt to the reality of climate change.

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Several leading energy companies and public utilities have quietly accepted the reality of climate change. They acknowledge that carbon will be taxed or a price added to it to discourage fossil fuel use and encourage renewable energy sources. In their long-term strategies, they now assume that the cost of carbon will rise significantly.

Last week, a non-profit research organization called CDP, (formerly the Carbon Disclosure Project ), reported the carbon pricing outlook of 29 major U.S. corporations. These companies include many leaders in the energy and utility industry. Many of them have denied the existence of climate change and actively opposed all efforts to address it. The companies include:

[See a collection of political cartoons on energy policy.]

It's big news whenever a huge and successful corporation acknowledges that the external environment has changed and the company needs to remake itself or perish. It's rare. Most big companies become prisoners of the world-view that made them successful.

This trap of mindset was first profiled in a landmark Harvard Business Review article – "Marketing Myopia" – which nearly every MBA student encounters at some point. There, author Theodore Levitt pointed out that most companies identify themselves in terms of the technology and processes they have mastered rather than the services they truly provide. Railroad companies like Penn Central saw themselves in the railroad business rather than the transportation business, so they never bothered to invest in commercial aviation. Computing companies like Digital Equipment saw themselves as in the hardware business rather than the information services business and missed the turn to personal computing. And Kodak thought the future would always come in Little Yellow Boxes, right up to the very end. They never realized they were in the memories business rather than the film business. When the internet hit, the same type of blindness brought down more category leaders. Remember Encyclopedia Britannica?

It's hard for a company like Exxon Mobile to embrace the reality that it is truly in the energy business rather than the oil business. This shift means planning for a future in which oil will account for less than half its revenues and profits. It means figuring out a way to make money – huge amounts of money – from renewable sources and other energy-related services such as power storage and energy-saving innovations. It means writing off stranded assets that are no longer productive in the changed world. It means leaving behind strategic advantages that have been acquired with great difficulty and expense over the years, such as the know-how of deep water oil extraction or the political skill to install pliant regimes in key oil-exporting nations.

[See a collection of political cartoons on the economy.]

But the change can be managed. We've seen it done by a few leaders in other industries. While most of the mainframe and minicomputer companies crashed and burned, IBM transformed itself from a mainframe company to a software and services company. Great things happen when urgent necessity is met with entrepreneurship and innovation.

Let's applaud the recognition by leading energy and utility companies that the world has changed. Once they embrace the change they will bring to bear their full resources and cleverness to figure out how to make money from it. And once they are confident they can make money in the changed world, they can stop dragging their heels. Just as Wal-Mart led the way in making compact fluorescent bulbs cheap, reliable and easy on the eyes, the innovators among energy and utility companies can take up the challenge of deploying renewable sources at global scale. That is how capitalism is supposed to work. Now, perhaps, we can get on with it.

David Brodwin is a cofounder and board member of American Sustainable Business Council. Follow him on Twitter at @davidbrodwin.

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