Is a Stringent Climate Change Agreement a Pot of Gold?

Entrepreneurship, as we study it, is defined by my colleague Howard Stevenson as "the pursuit of opportunity beyond the resources you currently control." In short, managers manage assets, entrepreneurs manage opportunity. And instead of taking risk, they manage it. Further, opportunity arises out of a change in something called "context," namely the competitive environment, whether it is due to legal, social, regulatory, or other kinds of change. For example, the rise of hackers changed the "context" in which information was communicated, providing an opportunity for entrepreneurs to create an Internet security industry. Let's apply this thinking to the recently reinitiated global conversation about climate change. If one subscribes to precepts of entrepreneurial management, there should be a pot of gold at the end of a climate change agreement rainbow, regardless of how one feels about global warming or its causes.

Carrying the hypothesis one step further, to the extent that climate change agreements change the rules governing national policies and actions (the "context"), they should represent opportunity. In fact, the more stringent the rules, the greater the entrepreneurial opportunity, a lesson from which U.S. automakers could have benefitted years ago. This should be the case at least up to the point at which shorter term costs become greater than industry or society can bear. Anything up to that point would be a net advantage, at least to some industries or nations.

Who would benefit most from stringent guidelines? Presumably, countries that spend the biggest proportion of their gross domestic product on new ideas, those whose stream of patents is greatest, and those in which the atmosphere for entrepreneurs is most favorable (in terms of venture capital financing, a socially positive attitude toward entrepreneurship and the failure that it often entails, and a market for new ideas). If that's the case, countries that should be at the forefront in advocating more stringent rules regarding global warming should be countries like the U.S., China, and Israel. India, on the other hand, is not well positioned to take advantage of the opportunity, as pointed out recently by Vikas Bajaj.

The problem is that one can't be sure whether or not climate change agreements are enforceable. But should that matter as long as people believe in the need for action? That is, in this case, does belief in the need to create the rainbow help insure that the pot of gold is in fact there and is attainable? The question for entrepreneurs, of course, is whether the level of uncertainty argues against starting the journey toward that pot of gold.

How strongly should venture capitalists around the world get behind climate change agreements? Should governments with highly-favorable environments for entrepreneurship, such as the U.S. and China, push even more strongly for stringent rules or guidelines? Should they go so far as to provide venture capital funding (through some form of sovereign fund) to those economies that are short of it? Is a climate change agreement a pot of gold or only the rainbow? Does it matter? What do you think?

 

[This article was provided with permission from Harvard Business School Working Knowledge.]