New research by Bernard Sinclair-Desgagné studies how a firm should use its human resource management toolbox – which includes incentive compensation, performance appraisal, employee empowerment, organisational structure, outsourcing and training – to adjust to climate policies and risks.
In a 2017 report sponsored by the International Bank for Reconstruction and Development and the World Bank, a group of economists led by Nicholas Stern, former chief economist of the World Bank and head of the landmark Stern Review on the Economics of Climate Change, and Joseph Stiglitz, former chief economist of the World Bank and Nobel Prize laureate 2001, stressed that, to be effective, climate policy must not only address market failures, but also government and organisational failures.
Market failures have traditionally been the main focus of environmental policy. Indeed, as long as market prices remain poor indicators of the cost greenhouse gases inflict on present and future generations, the ‘tragedy of the commons’ logic will not fail to set in, making people unlikely to collectively decrease their emissions sufficiently.
Pricing carbon consumption at the right level, however, relies on governments’ strong and lasting commitment to, and competent implementation of, tax schemes, tradable permits, R&D subsidies, and other policies. But in many countries, governments often fail in this respect, as they, for instance, give in to special interests. Remedies to overcome government failures have to do with information provision, democratic processes and the quality of institutions.
To cash in fully on efforts to fix markets’ and governments’ shortcomings, though, these efforts must go hand in hand with aiding business organisations cope with the challenges of climate change. Quoting Stiglitz: ‘Most production in modern economies occurs within organisations, and this production is regulated only to a limited extent by prices.’
In line with this remark, this research studies how a firm should use its human resource management toolbox – which includes incentive compensation, performance appraisal, employee empowerment, organisational structure, outsourcing and training – to adjust to climate policies and risks.
Some first prescriptions concern business executives, who must often give priority to short-term financial results. Certainly, performance appraisals of, and rewards for, environmental achievements should now go up as governments and consumers become more demanding in this regard.
Also, the growing practice of delegating environmental management to external services and technology suppliers is subject to an important caveat: this might lead an executive to pay too little attention to long-term climate risks.
Another set of prescriptions has to do with managers and engineers in charge of compliance with environmental laws and regulations. On top of having to deal with climate policies, these employees are expected to address as well a number of issues pertaining to solid waste, water consumption and effluents, contaminated sites, noise and light pollution, industrial hazards, and so on.
Here, the firm should not only link incentive pay and performance appraisal to the benefits associated with taking government’s climate policy into account, it should alleviate these employees from the threat of personal legal liability.
A third set of prescriptions, finally, regards a specialised climate risk manager who would typically mull over spending resources on adaptation (preparing for climate perturbations) or mitigation (seeking to decrease the probability of catastrophic impacts, mainly through reducing greenhouse gases emissions).
Given the current evolution of science, technology and public policy, the provision of some general training on climate change management might be essential to handle this assignment. This analysis reveals that this will drive the manager to pay equal attention to the two alternatives. This might or might not be in the firm’s best interest, though. At this point, further research is called for, which would further consider the overall impact of career development processes in this context.
ENDS
Bernard Sinclair-Desgagné
Skema Business School – Université Côte d’Azur
60 Fedor Dostoïevsky Street
06902 Sophia Antipolis
France
e-mail: bsd@skema.ed