Why climate change risk management must be a part of every B-school curriculum
Hersh Shah and Rushva Parihar
While climate change has been a subject of active discussion for the last few decades, it has remained a relatively abstract concept for businesses and investors. The last three decades in particular have seen a boom in wealth, as more businesses grew into global unicorns, all the while contributing to rising temperatures.
Now, as sea levels rise, hurricanes intensify, and droughts threaten food supplies, businesses are confronting the harsh realities posed by climate change. The physical effects of climate change, as well as the varied government policies trying to mitigate them, are dramatically changing the way we do business, leading to innovations that will spur the development of new products, services, and business models in the future.
While the business scenario is changing rapidly, the curriculum of business schools is not. They are still focusing on traditional models of business growth. It is about time that business school curricula address the serious impact of climate change and its resulting financial implications on businesses. As Dr Charles Donovan, Professor of Practice for Climate Finance at Imperial College Business School, said at a Harvard Business School conference, understanding climate change, the risks involved and the required energy transition are not just nice to know, but are going to form the foundation of investment decisions of today.
As businesses scramble to adhere to the new benchmarks being laid out for them in government directives, that derive from the Paris Agreement, there is a need for the new generation of business leaders who understand the impact of a heating planet and the repercussions this will have on the way businesses run. Many governments around the world are toying with the idea of a carbon tax, for instance, and we need business leaders who have the wisdom and foresight to understand how this will transform the way we look at business and the status quo of operations. This is a gap that business schools around the world need to address and fill.
Climate risks are the new reality that needs to be a part of business education across the world, and can be broadly categorised under two distinct dimensions. First are the physical risks – these involve the business and economic impact of warmer temperatures, more frequent and extreme weather events, and rising sea levels. The second category of climate risks belongs to transition risks which are associated with shifting to a lower-carbon economy. These include technological innovations and changes in consumer sentiment, both of which affect the value of assets and liabilities.
Physical and transition risks are likely to introduce new strategic threats, as new industries move to the fore and others fade. Such a complex scenario will force firms to develop new models and tools.
To effectively impart education on climate change and its impact on business, B-schools can take the following steps:
Redefine growth and performance
Modern capitalism, with a focus on profit and shareholder interest, seems to be fundamentally at odds with sustainability. A central focus on profit places sustainability at second place in terms of priority – a message still perpetuated by business schools. This approach needs to move to a triple bottom line approach, which places sustainability at the core of business progress towards a green future.
We need to re-assess how we define growth. Earlier, the economy transformed drastically overnight when we moved from horses to cars, or from steam to electricity. This requires us to also shift the focus from the salaries and earnings of students to the impact they are making. Thus, it will become more important for schools to focus on producing high-performing, visionary graduates who are also aware of pressing social and environmental issues.
Incorporate climate change risk management into the MBA curriculum
Sustainability has always been a part of MBA curricula, yet it is often taught as separate, or even contradictory, to other management practices. “Ethics, Responsibility, and Sustainability” is often offered as a theme for MBA students, rather than incorporating them into all the areas of the curriculum.
We now need to build sustainability as the core aspect of the B-school curriculum, and incorporate climate change in the way we teach risk (both physical and transitional), finance (to include transitions and investment), marketing (to avoid greenwashing) and strategy. Only then will we be able to raise a generation of business leaders who will help businesses adapt to this changing world.
Teach real-world case studies
It is all well to tick the sustainability checkbox on paper, but what really matters is whether business schools are identifying real problems and making practical efforts to address the effects of climate change.
Many of the world’s challenges can be solved through business. Hence, it is imperative that B-schools expose students to on-site case studies of sustainable business models and be at the forefront of understanding the innovations and changes that must occur to save the environment.
While we are seeing a gradual shift in policy making, we will need to envision and implement much more drastic measures to address the true gravity of the situation. It is important to recognise that our way of functioning has led to the current crisis and, to reverse the damage, we need to reimagine what leadership in the 21st century looks like, giving students a more systemic perspective to act on problems around climate change. It is crucial that business schools, as the first step for many in a business career, view climate change as their responsibility.
As B-schools work towards revamping the curriculum to include climate risks, students and managers can also pursue additional global qualifications from Institute of Risk Management (IRM), alongside their main field of study or professional career, to understand and manage business risks posed by climate change and how to tackle them effectively. MBA graduates should be trained to be risk-intelligent and crisisready leaders of the future, and it is important that they are capable of active thought leadership on the issue.