Business and the Environment

Business and the Environment

Business and the Environment
Moderator:
Forest L. Reinhardt, John D. Black Professor, Unit Head, Business, Government, and the
International Economy
Panelists:
James Barry, CEO, NTR PLC


David W. Blood, Managing Partner, Generation Investment Management


James J. McCarthy, Alexander Agassiz Professor of Biological Oceanography, Harvard University

Overview
Shrinking glaciers on all continents.
Rising sea levels of up to two meters, which will have
An environmental crisis exists, almost certainly due to human
devastating impact on coastal cities.
action. Temperatures and sea levels are rising; ice is melting.
If the causes for these problems are not addressed—and
In the United States, climate change is becoming a
fast—the consequences for the planet are likely to be
priority.
disastrous.

The need to reduce greenhouse gas emissions is on the
Governments, business, and consumers must act to address
forefront of the national agenda. Both presidential candi-
climate change. The actions must deal with resource supply
dates supported a CO2 cap-and-trade system and several
issues and renewable energy, as well as with demand
bills have been proposed in Congress to reduce CO2
issues. Ultimately, these actions will lead to a transition from
emissions by 80% by 2050. (The 80% figure is based on
a high-carbon to a low-carbon society, a transition of
calculations by intergovernmental agencies regarding
enormous magnitude that could happen very quickly. This
what is necessary to avoid mid-range climate change
transition will be a journey that will bring attractive investment
scenarios.) Although greater progress may have been
and business opportunities, but won’t be without peril.
achieved by 2012 had the United States ratified the Kyoto
Protocol, the proposed legislation is a positive step in the
right direction.
Context
These experts shared their perspectives on global climate
“If you had told me in 2004 that in 2008 the
change. Professor McCarthy discussed scientific findings;
serious contenders for the presidency would all say we
Mr. Blood provided an investor’s point of view; and Mr. Barry
need to get the nation on an agenda to reduce CO2
provided the perspective of an executive with a portfolio of
emissions by 80% by 2050, I would have laughed.”
environmentally focused businesses.
James J. McCarthy
Key Takeaways
Sustainability will drive business in the next 25 years.
David Blood discussed the impact of climate change on
The earth has experienced significant human-driven
the investment environment, emphasizing the significant
climate change over the past hundred years.
investment opportunities that sustainability will present.
Professor McCarthy outlined scientific evidence for climate

change. Key findings of a recent Intergovernmental Panel
Weighing sustainability as a factor in investment decisions
on Climate Change (IPCC) assessment show temperature
is not “socially responsible investing” and is not a matter of
increases from 1850 to present and rising sea levels. Were
“trading value for values.” It is also not focused solely on
it not for the accumulation of greenhouse gases over the
clean energy or other related businesses. Instead, it is a
past half century, the earth’s temperature today would be
new way of investing which is based on the view that the
similar to that of 1900.
fundamental context for business is changing. Sustain-

ability-focused investing considers sustainability as a
While temperature increase is a result of both natural and
critical part of a company’s long-term business strategy
human factors, the human role cannot be minimized. In
and a factor in a company’s ability to create value.
2007, IPCC stated with 90% confidence that “emissions of

heat trapping gasses from human activities have caused
In defining sustainability as “the explicit recognition that
most of the increase in temperatures since the mid-20th
environmental, social, governance, and long-term
century.” This statement has been echoed by numerous
economic factors affect business,” Mr. Blood highlighted
scientific bodies. Further, the projected temperature of the
its significance in driving revenues, profitability, and
earth in 2100 will be higher than any known temperature in
competitive positioning.
the past 25 to 30 million years, representing uncharted

scientific territory. Results of a warmer earth include:
In considering sustainability-focused investments, it is
important to keep in mind:
Less ice, snow, and frozen ground. This is already
underway. From the late 1970s to 2005, summer Arctic
The ripple effects of climate change. Climate change
Sea ice declined at the rate of 1% a year. But in 2007, it
doesn’t take place in isolation, and it doesn’t just affect
dropped by 20% in one year. Ice is also being rapidly
the environment. Climate change has an impact on
lost in Greenland, which possesses 10% of the earth’s
health, poverty, and demographics. The poor are most
fresh water.
likely to be adversely affected by climate change.

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Business and the Environment

Second- and third-generation impacts. When biofuels
Energy security. Projections show that by 2025 Europe
were introduced, the second- and third-degree impacts
will be completely dependent on Russia for natural gas.
such as the impact on food prices were not considered.

It is important to think through these impacts.
In assessing the changes underway, Mr. Barry offered the
Placing a price on carbon. Creating a price for carbon—
following observations:
forcing the world to internalize its externalities—is the
There is no silver bullet and no standard template. How
most important objective in addressing environmental
countries adapt to these challenges will differ by
challenges. From an economics perspective, it makes
country.
no sense to allocate capital without truly understanding
Cost economics are dynamic. Most renewable energy
its impact both financially and on the long-term health of
investments are capital intensive with high fixed costs
the planet. Financial institutions, regulatory agencies,
and low variable costs.
and research organizations all play a role in building a
low-carbon economy.
There is increasing geopolitical tension. The issues
being faced are complex and require unprecedented
The transition to a low-carbon economy will bring
geopolitical cooperation.
about significant investment opportunities.
Coal and CCS have to be addressed. The amount of
A massive transformation will take place as we transition
carbon thrown into the atmosphere by coal is enormous,
from a high- to a low-carbon world. In Mr. Blood’s view,
and China is building huge numbers of coal power
this transition will surpass any economic event ever
plants. There is not currently a solution, but one is
experienced. As the world realizes what must be done to
urgently needed.
preserve the planet, and as governments, businesses, and
Efficiency of energy use. Efficiency is 40% to 50% of
consumers work to bring about the changes that are
the answer.
necessary, there will be tremendous investment
Don’t ignore water. The limited amount of water is often
opportunities. These opportunities go far beyond just clean
overlooked, and utilities use tremendous amounts of
or alternative energies. One major opportunity is in the
water.
area of “demand destruction” (meaning demand reduction)

which includes making buildings more energy-efficient;
The future holds both promise and peril. The scale of the
buildings currently represent 20% to 25% of CO2
requirements for renewable energy is enormous. Early
emissions.
movers will be rewarded, but incumbents don’t have a natural
“The transition from a high-carbon economy to a
advantage. Also, caution needs to be shown around irrational
exuberance in this area.
low-carbon economy will be the most significant
economic transformation in history. It will be as
significant in scope as the industrial revolution and
Other Important Points
as fast as the technology revolution.”
David W. Blood
Environmental movement. Just as Harvard Business
School was started one hundred years ago, so was the
first environmental movement, by Teddy Roosevelt and
It is a perfect storm: climate change, security of
energy resources, and resource depletion.
Gifford Pinchot.
James Barry, CEO of NTR, a developer and operator in
Pricing carbon. The panelists feel that among the most
renewable energy and sustainable waste management,
important steps that must be taken to move to a low-
explained that tremendous change has occurred globally
carbon world is putting a price on carbon.
in a short time and even more change will occur.
Chinese commitment. Despite the criticism levied on
the Chinese, they are showing some commitment, such
“The scale of change will be unbelievable.”
as removing sulfur. Their ability to clean the air in Beijing
James Barry
for the Olympics shows they have the know-how and
In addition to climate change, other major changes are:
capability. If China wants to make environmental
progress, they can.
Resource depletion. While the supply side of resources
gets most of the attention, the demand side is just as
Eleven countries. The G8 countries plus China, India,
important. Worldwide oil consumption is presently about
and Brazil represent more than 80% of all of the
85 million barrels per day. Of this, 25 million barrels per
environmental issues in the world. It is these countries
day are consumed in the United States and just 2.6
that need to come together to forge solutions.
million barrels per day in China and 1.3 million barrels
Porter article. A recent article by strategy guru Michael
per day in India. As these economies grow, their levels
Porter asserted that sustainability should be part of a
of oil consumption will as well. Anticipated consumption
company’s strategy.
in 2025 is estimated to be 120 billion barrels daily.


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Speaker Biographies


Speaker Biographies

global consulting firm, and in the investment-banking division
Forest L. Reinhardt, MBA 1987, Ph.D. BE 1990
of Morgan Stanley.
(Moderator)

John D. Black Professor, Unit Head, Business, Government,
Barry has a bachelor of commerce degree from University
and the International Economy
College, Cork, and an MBA from HBS. He is 41 and is
Forest Reinhardt is the John D. Black Professor at HBS. He
married with four children.
heads HBS’s Business, Government, and the International

Economy unit, a group of 15 faculty from various academic
David W. Blood, MBA 1985
disciplines who study and teach about the economic,
Managing Partner, Generation Investment Management
political, social, and legal environment of business.

David Blood is the managing partner of Generation
Reinhardt teaches an elective MBA course on energy, which
Investment Management, a London-based fund management
examines the strategies of firms that produce oil and gas,
company dedicated to long-term investment and integrated
generate and distribute electricity, or play other important
sustainability research. Before cofounding Generation, Blood
roles in the delivery of energy services. He also teaches an
served as the co-CEO and CEO of Goldman Sachs Asset
elective MBA course on Business and the Environment. He
Management from 1999 to 2003. His responsibilities included
teaches regularly in the HBS Agribusiness Seminar and other
all aspects of the global business, including portfolio
Executive Education programs. He also recently served as
management, sales and client service, risk management, and
course head for the required MBA course Strategy, which
infrastructure (about 1,600 people and $325 billion in assets
covers topics in industry analysis, competitive advantage,
under management). From 1985 to 1999, he served in
and corporate strategy. He is now the faculty chair of HBS’s
various positions at Goldman Sachs Group Inc., including
European Research Initiative.
head of European asset management, head of international

operations, technology, and finance, treasurer of Goldman
Reinhardt is interested in the relationships between market
Sachs Group LP, and head of global private capital markets.
and nonmarket strategy, the relations between government
Blood was the first recipient of the John L. Weinberg Award
regulation and corporate strategy, the behavior of private and
in 1990, which is given to the professional in the investment-
public organizations that manage natural resources, and
banking division who best typifies Goldman Sachs’s core
the economics of externalities and public goods. He is the
values.
author of Down to Earth: Applying Business Principles to

Environmental Management, published in 2000. Like that
Blood received a BA from Hamilton College and an MBA
book, many of his articles and papers analyze problems of
from HBS. He is a member of the boards of Hamilton
environmental and natural resource management. He has
College, Social Finance, New Forests, and SHINE and a
written numerous classroom cases on these and related
member of the investment committee of the Acumen Fund.
topics, used at Harvard and many other schools in MBA

curricula and in executive programs.

James J. McCarthy
Reinhardt received his Ph.D. in business economics from
Alexander Agassiz Professor of Biological Oceanography,
Harvard University in 1990. He also holds an MBA from HBS,
Harvard University
where he was a Baker Scholar, and a BA cum laude from
James McCarthy is the Alexander Agassiz Professor of
Harvard College.
Biological Oceanography at Harvard University. From

1982 to 2002 he was director of Harvard’s Museum of
James Barry, MBA 1994
Comparative Zoology. He holds faculty appointments in the
CEO, NTR PLC
Department of Organismic and Evolutionary Biology and the
Department of Earth and Planetary Sciences. He was one of
Jim Barry is CEO of NTR PLC, an international
the architects of Harvard’s undergraduate degree program in
environmental and energy company based in Dublin, Ireland.
environmental science and public policy and head tutor for
He was appointed CEO in June 2000, after having served as
degrees in this field of study. He is also the master of
assistant CEO and general manager of development.
Harvard’s Pforzheimer House.


As CEO, Barry is chairman of NTR subsidiaries Wind Capital
McCarthy received his undergraduate degree in biology from
Group (a leading North American wind-farm developer),
Gonzaga University and his Ph.D. from the Scripps Institution
Greenstar (an international recycling operator), Stirling
of Oceanography. His research interests are in the regulation
Energy Systems (an international solar thermal generation
of plankton productivity in the sea and in recent years have
company), and National Toll Roads Ltd. (Ireland’s leading
focused on regions that are strongly affected by seasonal
toll-road operator). He was also chairman of the NTR
and interannual variation in climate. He has written many
subsidiary Airtricity, an international wind-farm developer,
scientific papers and now teaches courses on biological
from its formation in 1999 to its sale in early 2008. Before
oceanography and biogeochemical cycles, marine
joining NTR in 1998, Barry worked at Bain and Company, a
ecosystems, and global change and human health.


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Speaker Biographies


McCarthy has served on national and international planning
committees, advisory panels, and commissions relating to
oceanography, polar science, and the study of climate and
global change for federal agencies, intergovernmental
bodies, and international organizations. From 1986 to 1993,
he served as the first chair of the international committee that
establishes research priorities and oversees implementation
of the International Geosphere-Biosphere Programme. From
1986 to 1989, he served as the founding editor for the
American Geophysical Union’s Global Biogeochemical
Cycles. For the past two decades he has worked as an
author, reviewer, and cochair with the Nobel Peace Prize-
winning Intergovernmental Panel on Climate Change (IPCC).
For the third IPCC assessment, he headed Working Group II,
which had responsibility for assessing impacts of and
vulnerabilities to global climate change. He was also one of
the lead authors on the Arctic Climate Impact Assessment
and a vice chair of the 2007 Northeast Climate Impacts
Assessment.

McCarthy has been elected a fellow of the American
Association for the Advancement of Science (AAAS), a fellow
of the American Academy of Arts and Sciences, and a
foreign member of the Royal Swedish Academy of Sciences.
He is the recipient of the New England Aquarium’s David B.
Stone Award for distinguished service to the environment
and the community. McCarthy is the current president of the
AAAS, the largest scientific association in the United States.


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