This is an excerpt from the book “A Concise Business Guide to Climate Change: What Managers, Executives, and Students Need to Know,” written by Gunnar Trumbull, Harvard Business Review Press, August 2025.
Climate change is a big problem. It will require ingenuity and large allocations of capital to address. That means the climate transition also poses significant risk. Incumbent firms are torn between two options. On the one hand, they can make early investments in technologies and products that will point the way forward in decarbonizing their sector. This puts them out front, where both risks and rewards associated with new products and markets may be high. On the other hand, firms may wait for competitors in their sector to test the decarbonization waters. But this path creates risks as well, as competitors build a lead in technologies that may fundamentally transform sectoral competition. A strategy of climate catch-up poses its own challenges, and firms that delay risk losing their competitive edge.
Navigating the green transition will require that we shepherd scarce resources. Regions with the most abundant renewable sources will become targets for new investments. Manufacturers are already flocking to secure power purchase agreements from low-carbon hydro sources in northern Scandinavia and northeast Brazil. Where solar and wind are especially strong and reliable—West Texas, Morocco, Chile, the Gobi Desert—new green industrial hubs are quickly emerging. Batteries to power new electric vehicle fleets will put strains on natural resources but also create enormous opportunities for minerals mining and processing. Similarly, clean energy companies are scouring the world for workers who have the skills they will require to support the transition, creating opportunities for those with relevant skills.
Yet the most valuable and potentially scarcest resource through this transition is likely to be effective and thoughtful leadership. Sector by sector, we face the kind of transformation that will challenge the mettle and vision of our global managerial class.
Given the broad-based nature of the transition we are facing, the range of roles in which these leaders operate is unusually broad. Within firms, climate leadership is no longer solely the responsibility of sustainability officers. Functional areas ranging from finance, accounting, and marketing to product development are all now on the front line of corporate decarbonization efforts. In many cases, corporate boards of directors are making critical decisions around decarbonization that may be far from their traditional areas of competency.
Investors are also increasingly being challenged to balance the social purpose of climate response against the returns to institutional pools of capital such as pension funds—and to justify publicly the decisions they are making. Even major nongovernmental organizations such as the are increasingly interacting directly with firms to monitor and support their decarbonization efforts.
Our approach to climate change is also now global in scope. In the new multipolar world of climate response, green innovations and technologies can be found virtually everywhere.
The business leaders who are driving this change have an infectious optimism.
Chinese firms lead the world in some of the key renewable energy technologies, including batteries, photovoltaic panels, and electric vehicles. US entrepreneurs are at the cutting edge of new technologies to support geothermal and fusion generation. Europe has been a leader in decarbonization, setting some of the most aggressive emissions standards in the world, along with a carbon border tax that will mean that many suppliers that sell in Europe will increasingly have to meet Europe’s standards. India is pursuing a green industrial policy that it hopes will ensure energy independence and make it a leader in low-carbon global supply chains. Leaders from all of these geographies—and more—are being called on to tackle the challenges of climate change.
I am convinced that firms that act decisively and thoughtfully to decarbonize will reap vast rewards. For many sectors, they are staring down a generational opportunity to restructure competition. Sectoral leadership is up for grabs. New generations of industrial wealth will be created. One powerful reason for firms to move quickly to tackle decarbonization is to ensure that they are in the game. By building leadership skills early, they can be thoughtful about the risks and opportunities that present themselves through this transition.
In my research and teaching on climate change, I interact with a lot of students and business leaders who are despairing of our ability to respond adequately to the challenge. They worry about weak or ineffective government policies, and the entrenched economic interests that perpetuate them. I don’t, however, share this pessimism.
The source of my optimism comes from the business leaders who are at the forefront of solving the problem. Our response to climate change will depend critically on firms’ operational changes. Governments can design incentives that make it more attractive for companies to reduce carbon emissions, but ultimately it is companies and their leadership that will take the key decisions that will solve this problem. And the business leaders who are driving this change have an infectious optimism. While they acknowledge that the challenges we face are daunting, they also clearly relish the opportunities that come with tackling challenging goals.
One source of their excitement, I think, is that they see potentially huge benefits in a society based on renewable energy. For all of their advantages, oil and coal are far too expensive to support economic development in poor countries. In fact, governments in most poor countries provide generous gasoline subsidies in order to bring this critical input within financial reach of average citizens. Yet, within a generation, abundant and cheap renewable energy could transform those economies.
Technological advances in solar, wind, and battery storage have the potential to drive economic dynamism in regions that were left behind during the first, fossil-fuel-driven industrialization. These new energy sources also tend to be nonpolluting and relatively robust to environmental and political disruption. Widespread adoption of renewable energy sources could even begin to rebalance geopolitical dependencies that have long been rooted in the vagaries of where fossil fuels have been abundant. Such possibilities raise the prospect that a new green economy might provide a pathway to rectify historical injustices perpetrated during the age of coal- and oil-driven industrialization. This historical context emphasizes the importance of social justice in our response to climate change.
Traditionally marginalized groups—Indigenous peoples of the Arctic, or poor fishing communities of coastal Bangladesh—are also frequently those that are most vulnerable to changing climate conditions. As our economies transition away from fossil fuels, other groups will become vulnerable. Coal miners who were already economically marginalized, for example, now face a threat to their very livelihoods. These realities imply that our response to climate change is inexorably linked to dimensions of societal justice. As one South African executive explained to me about the green transition in his country, “Without a just transition, there will be no climate transition.” The project to decarbonize our economies bears with it both the challenge and the opportunity of addressing profound existing societal ills.
Firms that have set out on a journey to eliminate their carbon emissions have commonly found that the necessary reforms also help to make their businesses more efficient.
The potential for broad societal benefits from decarbonization is mirrored by the potential benefits to individual companies. Firms that have set out on a journey to eliminate their carbon emissions have commonly found that the necessary reforms also help to make their businesses more efficient. , for example, estimates that it can reduce its greenhouse gas emissions by half at zero net cost, since many of the operational reforms will ultimately pay for themselves. Climate entrepreneurs are even more optimistic. They see endless opportunity that will arise through the energy transition. As one leader in a green energy startup explained to me, “If we do things that are hard enough, the profits will follow.”
While these optimistic scenarios will not play out for every company, what is clear is that adding climate as a management goal has helped leaders to think more broadly and creatively about their processes and products. And it is telling that the leaders who are closest to the problem—those who are on the front lines of response—are also the ones who are most optimistic about solving the problem. Humans tend to turn away from problems that seem too big, too daunting. We need to resist this impulse. My hope is that a better understanding of climate change, of its human and physical causes, will empower our leaders to confront the challenge and find beneficial and profitable paths forward.
Reprinted by permission of Harvard Business Review Press. Excerpted from A Concise Business Guide to Climate Change: What Managers, Executives, and Students Need to Know by Gunnar Trumbull. Copyright 2025 Gunnar Trumbull. All rights reserved.
