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