In Anita’s conversation with Yiannis…

1.      I began with a big-picture question:  What does it take to transform a company from being part of the Sustainability “problem,” such as a bigtime emitter of greenhouse gas emissions, to being part of the Sustainability “solution,” such as an innovator that comes up with fundamentally different manufacturing processes so that those emissions are reduced or eliminated?    

Yiannis said that this is an enormous challenge, with multidimensional change required.  We’re going through a period of experimentation.   We see limited timeframes and limited indications of what success might look like.  The issues themselves are changing and evolving.  Sustainability is a disruption, and therefore addressing sustainability is an adaptation challenge.  You may have considered this  up till now to be someone else’s problem.  Now you have to internalize.  This requires a fundamental rethink.   The course focuses on strategy design and execution to accomplish that rethink.

2.      We then turned to the issue of whether there are any good examples out there of successful change.  Fundamentally, this seems like a massive corporate-strategy challenge, because it requires that a company disrupt itself with a whole new business model.  And we know from the disruption literature that internal change at this fundamental level often fails.    Are there examples that you’ve encountered of energy companies or large emitters who have been able to innovate across the entirety of their business – through product redesign, new delivery models, new ways of doing manufacturing – to do this?   

His response:  We’ve tended to focus on performance on economic criteria.  Now, we should be holding companies accountable for financial as well as non-financial outcomes.  We’ve seen Orestad, for example, an energy company, move completely to renewables.   Interface and Mission Zero. Patagonia.  Novo-Nordisk.  Unilever.  Pepsico.  Experiments have been successful.  Companies alone are not going to save or even destroy the world.   This is a system issue.  We need system change and institutional change.  We can only go as fast as the slowest player in the system in accomplishing change.

3.       I asked:  What’s the cultural journey for a company that tries to do this?  Isn’t this a foundational mindset change?  Can we trust the same companies that caused problems – no matter how unintentionally – to solve them?

Yiannis’s reply:  This is is the million dollar question.  The jury is still out.  There can be adaptation as well as a Schumpeterian disruption at the same time.  We see adaptation in the auto industry, for example.   And we see disruption in cement.  It’s a scientific rather than a business challenge in cement so far.   The challenge takes us into core issues in strategy.  In some industries, we have competence-destroying vs. competence-enhancing issues. The most important challenges arise in industries for which we don’t have time for Schumpeterian processes to play out.  The cultural change involves in these settings requires asking question such as:  What’s my responsibility in the system?  What capabilities am I lacking and how do I invest to get there?  Personal responsibility is critical.

We’re hitting the limits of even our academic understanding of what the path looks like to get zero emissions.  You have to backward engineer from the endgame.   You can’t negotiation with science.   I see the companies as enormous coordination devices.  How long will it take for us to build a bridge to a sustainable future?  We have to figure out how to build this bridge even as we stand on the bridge it.  We need leadership.  There has to be accountability for implementation and transparency in execution. We need to be able to distinguish between heroes and greenwashers as failure to execute unfolds.  Why do some companies fail to transition?  Failure can occur as a facet of business processes.  The last thing we want to do is kill is the experimentation appetite on sustainable innovations by expecting every experiment to be a success.  Killing innovation is a massive negative unintended consequence of the greenwashing crisis.   We need to support failed experimenters.  

4.      Citing Yiannis’s recent Forbes articles,  I asked him why the financial markets can't adjust to valuing companies properly as they confront the green transition?  Why aren’t financial markets rewarding the kind of innovation that we need?

The innovation challenge is in understanding the fixed point that we have to hit in five or ten years, and then working backwards from that understanding to its implications for what we must do now.  We have to resolve the problems associated with planetary boundaries.   There are constraints in financial industries that prevent effective valuation of companies that are doing this. Yiannis is worried about the financial industry's structures, incentives, career paths, political-policy responses…  He recommends Stuart Hart’s book called Beyond Shareholder Capitalism, which provides us with a model for appreciating this problem.

Yiannis pointed out that restructuring the way companies are valued is a critical opportunity as we are not in the luxury position of having a lot of time.  We’re either going to get an orderly or disorderly transition.   Look at the flooding around the world and the California fires.  So far it looks like we're in a disorderly framework.

5.        We then turned to the relevance of the broadly held, publicly traded corporation as the right form of organization for addressing these problems.    These kinds of organizations have scale, but can they experiment and innovate in ways while at the same time keeping the lights on and the healthcare system running and our residential heating system alive?

Yiannis affirmed the question:  What is the relevance of the corporate form – especially the publicly traded, widely held companies – to this change?   We are at a point where we need all forms of organizations, he said.   We are in an all-hands-on-deck situation, and have to hope for the best.  We need an evolution that allows for both innovation and rapid scaling up of what works.

Yiannis also raised the possibility that AI might be an important tool for accomplishing this.  Can we use AI and other tech to align companies with human values?  Can we get more creative much faster using new tech? 

He also asked us to consider policy change.  Maybe we should ask:  What is fiduciary duty?   Should we restrict share trading?  Take a step back and look at the system broadly?  A key is to look at these issues historically rather than as political. 

6.  Yiannis got the final word on what makes him optimistic. 

He said that what makes him optimistic is people – especially students --- who are not willing to give up.   Pessimism is the easy way out, he said.  What’s hard is optimism.

I agreed.