Overcoming Inertia — Advancing Corporate Leadership in Adaptation

Geoffrey K. Willis is a partner in the Real Estate, Land Use and Natural Resources and Environmental Practice Group with Sheppard Mullin. With years of experience advising the private and public sectors, Willis understands the roadblocks that can keep many corporations from swiftly embracing the adaptation agenda, as well as the incentives that can help business overcome this “inertia.”

Very often, companies I advise come to us when they plan to invest and are looking for three things: certainty, stability and fairness.

Certainty: If you don’t know what your legal or regulatory requirement will be it’s very hard to know how your investments will turn out and what your infrastructure costs will be.

Stability: Will laws and regulations be the same tomorrow, next year or the next ten years? Countries with a history of nationalization or flexible timing of adoption of rules make it very difficult for investing for the long term.

And finally, Fairness: You could have completely concrete and stable laws, but if native companies are not held to those laws and foreign companies are, you don’t have a level playing field and platform for stability of investment.

Enter climate change

In corporate America, unfortunately, you do not have the “buy-in” that the timetable for climate change is real and stable. Why is that?

Management is measured on quarterly profits — that’s how they get bonuses, paid and promoted. They are not necessarily focused on what is going to happen 30 years from now or in the year 2100.

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From left, Claudia McMurray, Senior Counselor at The Prince of Wales’ International Sustainability Unit; Frank Nutter, President at the Reinsurance Association of America; and Dr. Raj Rajan, RD&E Vice President, Global Sustainability Technical Leader at Ecolab; Peter Rawlings, Partner at ERM; and Geoffrey K. Willis, Partner and Specialist at Sheppard Mullin

Looking at a 30-year investment, managers are pressured to be extra certain that these investments will bring both short-term and long-term benefits to the company. If a business leader makes investments that are based upon this timeline and there is any variance in climate projections in any way, a 1-, 2- or 5-year delay, in anything you are predicting, your job is on the line. It is a career-threatening decision to make. That is the inertia that we are trying to overcome when you talk to these companies about investing in adaptation and sustainability.

However, anytime there is risk like this and you have people subject to inertia, you have an incredible opportunity for investment and profitability if you are leading the market and taking advantage of opportunities that others aren’t.

Some companies have made this commitment and I’ve had the fortune of talking to Dan Bena, Senior Director of Sustainable Development at PepsiCo, whose CEO has put considerable forethought toward the future.

Overcoming inertia

How do you overcome this corporate inertia and move the private sector forward?

There are things that can be done that we know about now such as adaptation strategies that also can instantly affect profitability.

In southern California, devastating wildfires wiped out many communities. However, a few emerged unscathed — those that incorporated land-use planning techniques that ensured fire would go around houses, a theory never tested. This could be a good marketing tool for industrial developers who could add value by adopting this adaptation strategy.

Los Angeles fires (8/31/09)Further, a number of cities subject to routine flooding have turned parkland into low-lying retention basins. With little modification to infrastructure, they can make a community safe for investment.

Both thoughtful regulation and investment will increase resilience. As investors drive innovation and product, regulators will have to keep up and make adjustments. While, in the case of the fire regulation in California, it occurred before investment demand.

What can GAIN do? The GAIN Index is incredibly powerful in helping private companies identify the best place to put their money.

The upper right quadrant (Blue Quadrant) of the GAIN Readiness Matrix points out countries primed for investment in adaptation. They need it and are ready to handle it. The GAIN Index itself is incredibly valuable.