Aligning Business with Planetary Boundaries

Eloïc Peyrache

Director General, Dean of HEC Paris

Our researchers delve deeply into pressing issues, providing invaluable insights and analyses. Through our centers on Impact Finance and AI/Data Sciences and our Institute on Sustainability & Organizations (S&O), our faculty offers platforms for industry leaders to engage with cutting-edge research, driving impactful decision-making. Concurrently, entrepreneurs lead the charge in innovation, crafting solutions that have the potential to reshape entire industries. At HEC, we play a pivotal role as the bridge between these realms, fostering collaboration and advancing sustainable practices.

As Europe's leading business school, we acknowledge our responsibility to guide future leaders in navigating the complexities of a world in flux.

Collaboration and ecosystem creation are thus central to our ethos. By forging partnerships with businesses and academic peers, we exponentially increase our impact. Initiatives such as Business Schools for Climate Leadership (BS4CL), the CDL-Paris Climate program, and the Chairs foster dialogue and collaboration, driving collective action toward sustainability objectives. Finally, through our revamped curriculum, we empower students with the knowledge and tools necessary to enact meaningful change.

As we navigate the complexities of the modern world, the urgency for sustainable business practices has never been more pronounced. I extend my gratitude to all HEC faculty and staff for their dedication, as well as to the HEC Foundation’s donors for their invaluable support. Together, through our unwavering commitment to the Think Teach Act philosophy, we will shape a more sustainable and equitable future for generations to come. This special review on planetary boundaries is one more step in this direction.

Daniel Halbheer

Associate Professor of Marketing, holder of the FII Institute Chair on Business models for the Circular Economy, and Academic Director of the Climate & Earth Center of the S&O Institute at HEC Paris

I am not sure when I first came across the 3R mantra of sustainability – Reduce, Reuse, Recycle – but I know it took me some time to realize its potential, in particular in times when we are bumping against planetary boundaries.

Humanity and businesses are facing an interrelated climate-biodiversity crisis, all sorts of pollution, and conflicts over scarce raw materials to power the future. To me, it seems that we are rediscovering that we live on a finite Planet. And that there are interrelated boundaries that define the operating space for economic activity.

There are interrelated boundaries that define the operating space for economic activity.

So, what can we learn from the 3Rs, which are arranged in order of effectiveness? Recycling is a way to “clean up our mess,” both a top priority and a fertile soil for businesses and entrepreneurs alike. Reuse is a powerful way to extend product life cycles and slow down resource extraction, a wide-open laboratory for business model innovation. Reduce means “buy less stuff.” But beyond deconsumption, it can be interpreted as an imperative to design new products and services with a smaller environmental footprint, which has the power to transform supply chains.

This special edition on planetary boundaries provides a snapshot of what is happening within the wider HEC universe to inform businesses, policy makers, as well as current and future leaders to get traction on solutions that improve the bottom line for organizations, the planet, and society. At the same time, this issue honors the path-breaking work that has been done by the Sustainability & Organizations (S&O) Institute at HEC Paris over the last 15 years to put the sustainable transition on the top of the agenda within the school around the Think Teach Act pillars. I hope you will find some inspiration to push the thinking in your everyday actions and beyond.

The planetary boundaries since 2009, as presented by the Stockholm Resilience Center.

 
You can browse the review online!

Scholars at HEC Paris, in our different academic departments, institutes and research centers can make a significant contribution to accelerating the transition.

For example, they can provide invaluable insights into strategies for attracting investment to support the transition towards renewable energy sources. By examining financial mechanisms, risk assessments, and investment incentives, research can facilitate the flow of capital towards sustainable energy projects, thereby accelerating the shift away from fossil fuels.

By the same token, the results of studies on consumer behavior can help policy makers design better regulatory frameworks and incentive schemes that take into account the attitudes and actual behaviors of economic agents and the strategic interplay among actors.

Research in operations and supply chain management can contribute to the transition, too, for instance, by devising models to optimize supply chain operations for the production and distribution of renewable energies or to deploy closed-loop supply chains to foster circularity and reduce waste.

Perhaps the biggest contribution can come from research on Artificial Intelligence (AI) and entrepreneurship. AI plays a transformative role in accelerating the sustainability transition. It optimizes renewable energy integration, enables smart energy management, facilitates demand-side interventions, optimizes infrastructure planning, and accelerates innovation. Startups can replace big businesses in providing solutions to sustainability challenges by driving innovation, developing disruptive technologies, and catalyzing systemic change across industries. By challenging incumbents and introducing disruptive business models that prioritize sustainability and social impact, startups can contribute to the emergence of a more resilient, low-carbon economy, paving the way for a sustainable future.

While a lot of work is dedicated to studying how to accelerate the transition to a more sustainable world, understanding the consequences of such a transition is equally important.

While a lot of work is dedicated to studying how to accelerate the transition to a more sustainable world, understanding the consequences of such a transition is equally important. The energy transition will reshape the competitive landscape across various sectors, posing challenges and opportunities for firms. Management research can evaluate the implications of sustainability initiatives on firm competitiveness, exploring strategies for adaptation, innovation, and market positioning in a low-carbon economy.

Similarly, the energy and environmental transition can pose social and societal challenges, requiring the reskilling of workers and producing asymmetries in the allocation of resources.

In essence, management research serves as a compass guiding private and public strategies for the sustainable transition and evaluating their impacts. Management scholars can illuminate pathways toward a more sustainable future by addressing investment dynamics, optimizing supply chains, assessing competitive impacts, anticipating societal shifts, and informing policy makers.

What is the S&O Institute?

Rodolphe Durand, Founder and Academic Director of the S&O Institute: We bring together more than 60 professors across different disciplines from HEC and other renowned universities, including Columbia, Oxford, and Ivey. These academics study and teach ecological transition, purpose, and inclusion and are affiliated with the three S&O centers—Climate & Earth, Purpose, and Inclusive Economy.

I founded this Institute following the subprime crisis of 2008 because I firmly believe that business school professors bear a responsibility to equip current and future decision-makers with the requisite knowledge and skills to navigate complex global challenges.

However, our mission goes far beyond the traditional academia. Since 2020, the S&O team has been working hand in hand with HEC's Chief Sustainability Officer François Collin (find his interview here, Ed.) and his team to shape the school’s sustainability strategy on the objectives that we have fixed ourselves around the pillars Think, Teach, Act, Campus, and People. In essence, we are the academic linchpin of HEC's sustainability strategy regarding research, pedagogy, and actionable initiatives to drive meaningful change.

How does research conducted within S&O help decision-makers?

Cécile de Lisle, Executive Director of the S&O Institute: Between 2020 and 2022, 38% of the research articles published by HEC researchers have been dedicated to ESG topics. In addition, annual events are organized by the Institute and its centers, such as the S&O Research Day, the Purpose Day, the Inclusive Economy Day, and the Climate Day. They gather international researchers and a wide range of practitioners to exchange insights from their latest research and experiences and to facilitate the translation of research findings into actionable strategies.

Can you give examples of research that reach the private and public spheres?

Rodolphe Durand: I can name a few research studies in business strategy that affect both corporate and public leadership and policies.

On the impact of new ESG law on companies in Europe: As of January 2024, EU regulations on ESG reporting aim to improve transparency and accountability. In early 2021, the European Commission tasked Associate Professor Marieke Huysentruyt to develop those new standards with the European Financial Reporting Advisory Group (EFRAG). They also studied how these standards would affect 50,000 companies and the companies in their value chain in aspects such as recruiting, staffing, information gathering, and management of environmental, social, and governance actions. 

Learn more in the article: “How will new EU ESG reporting standards affect companies?” and in this talk:

On the role of corporate purpose on performance for a higher cause: In a series of research projects with several HEC Paris PhD students across disciplines, we study the impact of corporate purpose on employee engagement using data from hundreds of companies. We find that a well-understood and perceived legitimate purpose correlates with better team coordination (+10%) and trust between members (+15%), ultimately influencing innovation, operations, and overall performance. 

Learn more in the RESKILL Masterclass with Rodolphe Durand on “How Does Purpose Drive Performance?”

On impact investment in disadvantaged urban areas: With my former PhD student Romain Boulongne, now Assistant Professor at the IESE Business School, and Caroline Flammer, Professor at Columbia University, we investigated the effectiveness of impact investing in promoting both business performance and social impact, comparing French banlieues and non-banlieues ventures. We find that investments in banlieue ventures lead to greater improvements in both financial and social aspects, including creating local, quality, and gender-equitable jobs. Hence, impact investors could unlock untapped potential in banlieues, where ventures often face discrimination in traditional loan markets. Based on data from BpiFrance, the article helps understand better the consequences of impact investing for public (like BpiFrance) and private actors.

Find the research here. Learn more soon on Knowledge@HEC. 

On fighting child poverty: In a study conducted with Marieke Huysentruyt and our PhD student Paul Gouvard, we could find what type of tone in emails sent to the poorest families could increase their enrolment in the “Programme Malin” to improve children’s nutrition. In 2022, the CNAF's monthly emailing campaigns were marked by the acceleration of recruitment of the program with the first impacts of informal relays on social networks, resulting in more than 100,000 families registered in the program. In 2023, the program won the “La France s’engage” competition.

Learn more in this article on Knowledge@HEC and on this video:

Are we ready to support businesses to navigate their sustainability and climate challenges? 

Fernando J. Diaz Lopez, Executive Director of the S&O Climate & Earth Center: Businesses today face unprecedented risks associated with climate change and other planetary boundaries, such as shifts in land systems. The IPCC has offered irrefutable evidence of the impacts of increased GHG emissions and associated climate risks. However, the interrelated climate-biodiversity challenge presents a wealth of opportunities for companies transitioning to net-zero emissions and providing resilient goods and services. According to the OECD, the market for “climatech” solutions is around 2.7 trillion dollars, and investment in “cleantech” is rising.

Yet, many ESG-related questions and means to navigate this new business landscape remain unsolved. This is where the S&O Climate and Earth Center plays a pivotal role. Established in 2021, the center hosts a HEC Foundation award-winning Climate & Business Certificate along with four Chairs (FII Institute Chair on Business Models for the Circular Economy, Nexans Chair on Orchestrating Sustainable Business Transformation, Société Générale Chair on Energy & Finance, and CMA CGM Chair on Sustainability and Supply Chain Analytics). Together with our academic director Daniel Halbheer, we’re developing a very ambitious roadmap to position the Center as a European leader in this field. 

Moreover, our school is a founding member of the Business Schools for Climate Leadership (BS4CL) partnership, alongside Cambridge Judge Business School, IE Business School, IESE Business School, IMD, INSEAD, London Business School, and Saïd Business School at Oxford University. This initiative is supporting our future business leaders to bring change in climate action. With our dean Éloïc Peyrache assuming the role of “Liaison Dean" throughout 2024-2025, we have a unique opportunity to further mainstream our climate agenda and showcase the leadership of our partners and HEC alumni. Indeed, the timing could not be better for forging new partnerships with us. Explore also our brand new executive short program: "Reshaping Business for Climate."

How can we, at HEC, accelerate the transition and help companies increase their positive impact?

Maureen Sigliano, Executive Director of the S&O Impact Company LAB: Global companies invest over 1 trillion dollars per year in social and environmental related impact initiatives. Yet the gap between investments and results is growing.

In 2023, Schneider Electric launched the Impact Company Lab within the S&O Institute to experiment and scientifically assess specific questions and create a body of compelling evidence for companies as they define and implement their agendas around impact solutions. For example, a key question is to understand the role of social capital and trust across internal, external, and local ecosystems and markets. This will be critical to understanding the 'voices of the future', building legitimacy and trust in rapidly evolving dynamics, and proactively building new resilience to navigate a just transition.

The HEC Impact Company LAB: Watch the video:

How does the transition translate in terms of teaching?

Cécile de Lisle and Isaline Rohmer, Executive Director and Interim Executive Director of the S&O Institute: Pedagogical innovation is a cornerstone of our work. Our research is infusing more and more HEC programs. The S&O Institute manages 25 in-house programs. We now have three new flagship Certificates, one for each major S&O topic: Climate & Business, Inclusive & Social Business, and Strategy for Impact, all together gathering this year around 80 participants, with over 500 alumni in total. In addition, we host the Energy & Finance Certificate, which was established 15 years ago. Further, we introduced an obligatory “Commitment track” for L3 students as part of the Grande Ecole's curriculum review in 2023.

We also provide funding for research projects, teaching assistant positions, visits from renowned speakers, and student field trips. Moreover, we publish books to make our research flow into the classroom and the economic world's practices. 

One important resource we provide to the faculty is a growing number of case studies. For example, two Colas cases, one by Laurence Lehmann-Ortega and Bertrand Quélin and one by Hélène Löning, respectively, reflect upon solar-panel paved roads and carbon measurement. These cases enrich teaching for students, directly engaging with innovation and the state of the art in the business world.

Today, at the level of the Grande Ecole, 10% of teaching hours cover S&O-related topics, as do 27% and 33% of the MBA and Executive MBA teaching hours, respectively. The curriculum review for the Grande Ecole undertaken in 2023 doubles the teaching hours on sustainability topics to approximately 20%.

Meet the team:

Professor Aflaki, how are you working to make supply chains more sustainable?

I use a multidisciplinary research approach that combines data analytics, operations management, and behavioral science to identify the key leverage points within the supply chain where interventions can have the most significant impact. To do this, I study the incentives and barriers that businesses, policymakers, consumers, and suppliers face when investing in sustainable measures. I also look at how regulatory frameworks can balance sustainability with innovation and growth. Additionally, I examine how consumer behavior can be influenced toward more sustainable choices through information, transparency, and choice architecture redesign.

By leveraging data and analytics, companies can better manage their supply chains, identifying where to improve energy efficiency, invest in renewable energies, and reduce waste.

Our goal is to explore how technology can illuminate the footprint of supply chain activities. By leveraging data and analytics, companies can better monitor and manage their supply chains, identifying areas where improvements can be made in terms of energy efficiency, investment in renewable energies, and waste reduction.

Energy seems to be a central theme in your research…

Absolutely! My research critically examines energy efficiency and the transition to renewables as fundamental components of a sustainable energy shift. Despite the clear economic and environmental benefits of energy-efficient solutions, their adoption rates lag behind their potential. I'm particularly focused on bridging the energy efficiency gap, exploring how data analytics and strategic contracting can encourage the adoption of energy-efficient technologies, moving us closer to net-zero targets. This research, entitled “Performance-Based Contracts for Energy Efficiency Projects,” is funded by donors of the HEC Foundation’s Research Committee, who I would like to thank.

Your research on renewable energy was just published in the Harvard Business Review, and received a lot of attention. What challenges does this sector face, and how does your research overcome them?

In addition to energy efficiency, a sustainable energy transition requires investment in renewable sources of energy. In this research, we focus on the renewable energy sector, particularly offshore wind energy. We investigate the delicate balance between maximizing energy production and mitigating environmental impacts. While it is essential to move towards renewable energy sources, there is a risk of overlooking the long-term environmental consequences, such as waste management and the lifecycle footprint of renewable technologies. Based on the lessons we've learned from past technological rushes, like the e-waste crisis, our research advocates for a more nuanced approach. Our research advocates for a lifecycle approach to renewable technology development, ensuring we don't overlook long-term environmental costs in the rush toward renewables.

In supply chain management, what specific challenges are you focusing on?

Supply chain management is undergoing significant transformation due to the tightening of due diligence regulations worldwide. These rules demand greater accountability and transparency from companies through all supply chain levels, not just with direct suppliers. We examine how the relative bargaining power between suppliers and buyers influences the design of these legislations.

Navigating this shift is complex, as it involves understanding the dense network of global supply chain relationships, which span diverse legal and compliance landscapes.

Yet, this complexity also opens doors for innovation in supply chain management. Digital technologies, particularly data analytics and blockchain, are pivotal in ushering in a new era of transparency and accountability. Blockchain, for example, enables the creation of secure, immutable records, offering unprecedented traceability and verification capabilities across the supply chain.

This is where data analytics and AI can be useful to navigate these supply chain challenges, right?

Indeed! AI and machine learning are game changers, improving supply chain forecasting, risk evaluation, and compliance. These technologies offer insights that can significantly enhance supply chain sustainability, including improved forecasting of disruptions, better evaluation of supplier risks, and enhanced social and environmental compliance. For instance, AI tools can process large datasets to forecast disruptions and highlight ethical concerns with suppliers, which is crucial for enhancing the resilience and sustainability of the supply chain. This would allow companies to have less exposure toward non-compliance penalties enforced by due diligence legislation.

Can you provide a detailed case study where these technologies have been successfully applied?

The use cases are extremely diverse and effective. A cool example of this application is the initiative by CMA CGM, for which I am honored to hold the HEC Chair on Sustainability and Supply Chain Analytics. I am currently in the process of writing a case about their use of predictive analytics to protect marine life. The company utilizes advanced data analysis to predict the migration paths of whales and adjust their shipping routes accordingly. This initiative demonstrates the potential of predictive analytics in reducing environmental impact.

With the rapid advancement of AI, there is growing concern about its ethical and environmental implications. How do you consider these challenges?

As we harness the power of AI, we must be vigilant about the potential unintended consequences, including the environmental impact of powering AI systems and the ethical considerations around data privacy and algorithmic bias. 

My research on investment in renewables advocates for a comprehensive approach that considers their full lifecycle and implications rather than just the immediate benefits. This same approach can be applied to the development and use of AI. It is crucial to consider ethical, environmental, and social impacts from the outset to ensure that our pursuit of technological advancement does not compromise our commitment to sustainability and ethical integrity.

As part of the Hi! PARIS Center, co-founded by HEC, you're at the forefront of research in AI and sustainability. What opportunities does this affiliation provide?

The Hi! PARIS Center is a vibrant hub where academia, industry, and policy intersect, providing a unique platform for interdisciplinary research on the intersection of AI and sustainability. Our collaborative initiatives, such as the Hi!ckathon - a hackathon and several roundtables - we held last December on the impacts and uses of AI in supply chains, demonstrate our commitment to using AI for positive environmental and social outcomes. The center fosters the exchange of ideas and encourages innovations that are technologically advanced yet grounded in sustainability principles. Ultimately, this contributes to a more resilient and efficient global supply chain.

At HEC Paris in September 2023, you began your lecture to the new students by explaining the importance of a long-term vision… Could you elaborate? 

Every day, managers suffer from paradoxical injunctions. They hear about volume vs. value, growth vs. sobriety, and productivity vs. scarcity... So we have developed a new systemic operating model by merging ideas from the traditional Chinese long-term vision and a 10-year plan with a clear purpose: to electrify the future, but only through renewable energies. We entered a permacrisis era where no one can predict the next crisis coming. In such an unpredicted world, short-term business plans are never reliable. What really matters is a long-term vision because you can adapt to perpetual crises while maintaining the long-term vision, the final arrival objective. 

How do you align economic and environmental goals?

We cannot manage a listed company nowadays in the same way we did in the past decades. The world has changed, and the management needs a deep transformation. Obsession over volume and growth is obsolete. Leading a listed company requires us to answer the paradoxical injunction to generate profit and cash flow while reducing the environmental impact and natural resources needed to manufacture our products.

Leading a listed company requires us to answer the paradoxical injunction to generate profit and cash flow while reducing the environmental impact and natural resources needed to manufacture our products.

Hence, each year, we establish not only profitability targets but also carbon reduction quotas. Achieving this dual objective without pursuing growth compels us to design products and seek clients and investors in a way that aligns with our goals. For example, together with our clients, we invest significantly in geophysical aspects to avoid encroaching upon protected areas and their biodiversity. 

Evaluating our impact is essential, but we need to be careful with regulations. Regulation should help to reduce, not increase, complexity. Because complexity has a huge cost. In the EU, ESG encompasses 1,500 labels and 2,000 indicators but often without convergence or correlation. To counter this complexity, we emphasize to our managers that adopting a more systemic, long-term, and holistic approach with fewer indicators and greater simplicity is important.

Your priority in transforming your model has been reducing complexity costs through selecting clients. Can you explain how this approach has resulted in tripling profits? 

The complexity of managing a company has recently increased significantly. Simplifying our operating model has amplified our impact, increased our profitability, and reduced our carbon footprint.

Simplifying our operating model has amplified our impact, increased our profitability, and reduced our carbon footprint.

How? We shortened nearly 30% of product references and withdrew almost 70% of clients from our portfolio. We have strategically chosen clients based on both strategic and environmental criteria, selecting those who maximize profitability and cash flow and align with our values. To facilitate this simplification and prioritization, we also invested in data analytics.

By serving fewer clients and delivering fewer products, we have completely freed our supply chain. Production times have been reduced by 3, and delivery times by 8.

Since 2018, margins have doubled, returns on capital employed have increased from 9 to 21%, and cash flows have multiplied by five. Despite reduced turnover and volume, we have achieved record EBITDA (325 million in 2018, 665 million in 2023), while reducing, in the same period, our carbon employed of almost 40%.

In L'Entretien HEC, you say that Nexans has recycled 20,000 tons of cables, but this represents only 5% of the current supplies you need... How can one accelerate electrification and energy transition?

As a result of the changes just described, Nexans’ environmental footprint, as measured by CO₂ emissions, has decreased by a third since 2019. Additionally, I aim to contribute to carbon neutrality by 2050. Developing circularity through cable recycling is the major challenge for the next 10 years, and it is inevitable. The wastes of today are the markets of tomorrow. 

This is also a choice of our clients in the markets. In addition, all our aluminum cables utilize low-carbon aluminum, and we aim to replicate what has already been achieved in one of our Swedish units across all countries—a product made of 70% recycled material that is 100% recyclable.

How do you engage the staff on the company's purpose? 

I hired sociologists to interview our workers, and from these interviews emerged the employees' values: the significance of heritage and contributing to the energy transition. We also identified and addressed the root causes of absenteeism and management practices that contributed to it. Thus, we are beginning to understand the best practices utilized by top managers.

We have embarked on a complete transformative journey. Because it doesn’t make sense to transform our operating model if, in the meantime, we do not work on collective and individual commitment via a clear purpose.

How do you work with Professor Sebastian Becker, who holds the Nexans Chair?

At Nexans, we have shown how to manage a company with a low ecological footprint while achieving high economic performance and fostering staff engagement, but we need to take it a step further. Therefore, my goal is to share experiences with professors and students from HEC Paris to reflect together and improve the model. Sebastian Becker created a teaching case on Nexans that allows professors in any institution to teach sustainable business transformation.

In essence, we believe that sustainability is achievable if we make long-term decisions, simplify production and supply chain costs, operate within the constraints of natural resources, and cultivate meaning in the workplace. 

The world has changed, and no management book, class, or model has changed. Until HEC Paris decided to open the Chair. I believe it only makes sense if education is part of this systemic approach because the future managers HEC is educating need to be trained with this holistic operating model named E3.

Luc Paugam
Associate Professor in Accounting and Mazars “Purposeful Governance” Chair

Luc Paugam, what are your plans for teaching and research in collaboration with Mazars?

Over the next three years, we will focus on pedagogy and research. On the pedagogy front, we've developed and are launching the "Strategy for Impact" certificate this April 2024. This program, with insights from both academics and seasoned consultants from Mazars, empowers students to craft holistic transformation plans aimed at purpose-driven strategies and governance.

Additionally, in partnership with Maximilien Rouer, Mazars' Partner Sustainability leader, we've worked on a business case on Laboratoires Expansience. This case study allows participants to delve into transforming a business into a regenerative organization, showcasing real-world examples of profound changes such as ceasing the production of certain products, reducing greenhouse gas emissions, and restoring biodiversity. We're disseminating this case study via The Case Centre to make it accessible to HEC and other business schools, serving as a catalyst for companies embarking on similar transitions.

On the research front, I'm collaborating with Maximilien Rouer and Marc Biasibetti, Partner Audit & Sustainability Services at Mazars, on experimental research. Currently, in its first pilot phase with over 250 participants, this experiment aims to understand how the increased availability of Environmental, Social, and Governance (ESG) information, expected with the enforcement of the EU’s Corporate Sustainability Reporting Directive (CSRD), may influence firms' sustainability strategies compared to the limited information available today through ESG ratings.

Maximilien Rouer

Engineer and biologist by training, Maximilien Rouer has been an environmental and climate entrepreneur since 2000 when he founded BeCitizen, a leading consulting firm until 2015 (when Greenflex acquired it). In 2005, he pioneered the concept of an economy that restores biodiversity and the climate (now known as a regenerative economy). Having worked at AXA Climate until recently, he joined Mazars in 2023 to establish sustainability consulting services.

Maximilien Rouer, what projects are you collaborating on with Luc Paugam?

First, numerous pioneering leaders warrant analysis to facilitate broader adoption of their approaches. This is precisely our mission alongside Luc. Leveraging trailblazing companies such as Nexans, Pocheco, and Expanscience, we aim to inspire and facilitate the transition toward regenerative practices. With the Mazars chair, creating and disseminating business cases about leading companies helps achieve this objective. Our goal is to equip tomorrow’s leaders with the necessary tools, empowering them to navigate the challenges of an ever-evolving world. For this mission, I conduct experimental research with Luc.

Second, as the CSRD represents a significant shift in the reporting landscape for companies, potentially steering firms away from solely focusing on financial metrics, our collaboration aims to understand the extent to which this reporting shift will influence corporate behaviors, including investment decisions. The research arm of the chair will be dedicated to exploring this facet.

What are the key differences you've noticed between regenerative business, CSR-focused business, and traditional business practices since joining Mazars in 2023, given your 25 years of experience as a sustainable business consultant? 

Traditionally, businesses have primarily focused on creating financial value. Their financial statements are meticulously measured, and the goal is to maintain positive results. However, this narrow focus often leads to massive environmental harm.

Corporate social responsibility (CSR) introduced an additional objective for businesses: reducing their impact on the environment and society. A socially responsible company aims to do less harm. Achieving a net-zero impact—where businesses no longer harm the environment or people’s well-being—requires cutting negative impacts. But this approach alone falls short.

Consider the historical negative impacts of business activities on natural capital. Here lies the critical distinction between stocks and flows. The flow perspective accounts only for new impacts, while the stock perspective considers cumulative effects over time.

The concept of a regenerative economy was once known as the positive economy. I introduced this idea in 2005, envisioning an economy with a positive environmental impact¹. A positive company maintains its traditional financial profitability objective while actively contributing to five environmental dimensions: energy, climate, biodiversity, resources (including water, soil, and raw materials), and health. Although the terminology has evolved—now emphasizing regenerative business — the fundamental goal remains unchanged: align business models with planetary boundaries. Businesses must not only reduce negative environmental flows but also create positive ones to erase their negative environmental stocks.

Let’s explore two examples: climate change and biodiversity. In the case of climate change, an average company following a business-as-usual approach emits greenhouse gases (GHGs)². These emissions constitute its net negative GHG flow, contributing to the atmospheric stock of GHGs and exacerbating climate change. In contrast, a company with a regenerative business model would cut its GHG emissions and actively absorb some of the GHGs from the atmosphere.

In terms of biodiversity, the same company destroys natural ecosystems³. Every square meter of land artificialized by its activities represents a negative net flow of biodiversity. This flow diminishes the planet's overall stock of biodiversity, causing Earth’s sixth mass extinction event. In contrast, a regenerative business model goes beyond merely ceasing to harm biodiversity—it actively restores natural ecosystems through its operations.

By exclusively focusing on flows, the CSR dynamic merely mitigates harm without addressing historical stock reduction. Consider climate change: in 2022, annual flows (annual GHG emissions) reached approximately 40 billion tons of CO₂ (double the amount in 1970). However, when we examine the stocks, we see that the atmosphere contained 600 billion tons of CO₂ before the Industrial Revolution. By 2022, the cumulative CO₂ released by human activities through fossil fuel combustion was roughly equivalent (~600 billion tons added). This surge in CO₂ concentration elevated atmospheric levels from 280 parts per million⁴ (ppm) to 421 ppm. Notably, the stable climate that allowed civilizations to flourish was based on a 280-ppm level for 15,000 years. Despite this increase, we have only witnessed a fraction of its effects due to the oceans’ thermal inertia, which tempers the rise in temperature. Without the oceans, our planet would be uninhabitable for humans and most mammals.

The regenerative company must address both flows and stocks.

The regenerative company must address both flows and stocks. In the context of climate change, this means halting the negative flow of GHGs into the atmosphere while actively reabsorbing the 600 billion tons of GHGs emitted since the Industrial Revolution.

From an environmental standpoint, net negative impacts have persisted since the Industrial Revolution. Interestingly, in France, consecutive net negative financial results are illegal for three years in a row.

Given the unpredictable impact of climate change and its disruption of ecosystems, transitioning to a regenerative economy becomes an urgent imperative.

What is missing to align profits and planetary boundaries? 

Just to be clear: if legislators and business leaders fully understood the critical state that our planet has already reached in 2024, they would reshape the legislative framework to foster a regenerative economy. For instance, in Europe, alongside the commendable CSRD, which mandates standardized reporting of social and environmental impacts, a “Corporate Regenerative Business Directive” (CRBD) would enforce positive environmental outcomes for companies backed by robust coercive measures. Under this CRBD, non-compliant companies would be barred from trading within the 27-member bloc, supported by mechanisms like the Carbon Border Adjustment Mechanism (CBAM), all aimed at safeguarding the competitiveness of European companies.

On the contrary, the current situation represents a dual failure. On the one hand, there are unconsciously incompetent leaders who fail to grasp the critical vulnerability of our economy⁵. On the other hand, the legislative framework lacks the capacity to safeguard the common good—the very viability of life on Earth.

Yet, even without an incentive-based legislative framework, enlightened leaders have the power to reverse environmental degradation. The successful implementation of a regenerative strategy hinges entirely on their values and determination.

These visionary leaders do exist. They are diligently preparing their companies for what is to come. Their journey begins with a comprehensive diagnosis of their company’s vulnerabilities and potential. This diagnostic process scrutinizes aspects such as governance, organization, business models, supply chains, products, services, and geographical footprint. Armed with this diagnosis, the manager can take action, akin to a patient recovering after a favorable medical diagnosis.

These visionary leaders do exist. They are diligently preparing their companies for what is to come.

However, these visionary leaders remain a rare breed. Their defining trait lies in their recognition that the Anthropocene⁶ (or Capitalocene) is not an irreversible fate; transformation is possible, contingent upon a fundamental shift in companies’ business models. These leaders advocate transitioning from resource- and energy-consuming models to ones that actively regenerate these vital resources.

These forward-thinking companies adeptly reorient their business models to achieve a positive net impact. They contribute to energy production, biodiversity enhancement, resource replenishment (including water, soil, and biomass), and even public health (through initiatives like water and soil decontamination). Remarkably, they achieve these outcomes while maintaining financial profitability.

To achieve this level of performance, companies must engage with living organisms—leveraging photosynthesis, the sole process capable of converting sunlight into matter and energy. These companies fall into two categories: those directly linked to living organisms (such as agriculture or forestry) and those indirectly connected (whose activities support photosynthesis and natural cycles, often through their sectoral value chain).

On one hand, the restoration of life is a process that entirely relies on human investments. In the case of a planted forest, it involves choosing the right tree species, distributing seedlings, selecting planting locations, and determining the planting method. The chance of survival of these plants without human intervention is low.

On the other hand, regeneration of life is a process that solely depends on humans for its nesting. Continuing with the example of a forest, humans would ensure that natural regeneration is feasible by introducing a diverse mix of tree seeds. This process promotes synergies among individuals and enhances overall resilience.

The challenge lies in establishing conditions for self-sustaining photosynthesis and natural cycles—creating matter and energy from the sun. Essentially, the company’s strategy should kickstart the restoration of these processes by allocating small-scale financing to enable the living world to reclaim its role in driving regeneration activities. In essence, companies become enablers, fostering an environment where living organisms can thrive, and that will ultimately allow them to reap the rewards of their resilience. A regenerative business strategy champions the strength of living systems, capable of great resilience, provided we cease their destruction.

And how do you make sure that these new ways of leading business activities don’t have long-term externalities, such as in business as usual?

In a world detached from the living ecosystem, companies following a business-as-usual approach operate within silos and adhere to linear thinking. Unfortunately, this approach lacks systemic vision. Solving a problem in one silo often spawns new challenges in adjacent ones, leading to the adage that ‘today’s solutions become tomorrow’s problems.’ To break free from this cycle, we must draw inspiration from the fundamental principles of life, honed over hundreds of millions of years. I explored these principles during my tenure at AXA Climate when we co-built the Butterfly training program.

Refocusing on living organisms allows us to recreate conditions akin to homeostasis. Here are some of these guiding principles:

• Perpetual Sub-Optimality: Living organisms operate below peak efficiency. Take photosynthesis, for instance, where the conversion efficiency from received energy to transformed energy remains less than 1%. Paradoxically, this sub-optimality ensures the stability of carbon cycles. If efficiency were higher, rapid and violent carbon fluctuations would ensue, leading to alternating periods of overproduction and total collapse of life.
• Cultivating Diversity: Living systems thrive on diversity. To withstand variations in sunlight and rainfall, the capacity to transform resources must be distributed across different organisms. Biodiversity fosters resilience.
• Zero Waste: Unlike our linear models, living organisms don’t generate waste. Outputs serve as input elsewhere, creating a circular flow of materials.
• Decentralization: Living systems do not have a central command. Instead, they operate through decentralized interactions, allowing adaptation and resilience to emerge organically.
• Interdependent Growth: Growth in living organisms is interwoven. It’s not about relentless expansion but harmonious development within ecological limits.

By embracing these principles, we can shift from a destructive trajectory to one that nurtures life and sustains our planet. A company’s business model structured around indicators derived from fundamental life principles can prevent these innovative business approaches from becoming tomorrow’s challenges.

One significant obstacle lies in financing the transition from our degraded and dysfunctional ecosystems to functional ones.

However, one significant obstacle lies in financing the transition from our degraded and dysfunctional ecosystems to functional ones. Restoring ecosystem services induces costs (resembling a J curve), and this process takes time. During this transition, old models cease to function effectively while new models are still in their infancy.

Consider agriculture an example: The prevailing model relies on genetically weakened plants grown in inert soil, supported by synthetic fertilizers and pesticides. Unfortunately, conventional agriculture yields negative energy, climate impact, resource use, and public health outcomes. Yet, agriculture inherently possesses the potential for positive results. Soils are degraded, seeds struggle to survive without human intervention, and climate change exacerbates the situation. Additionally, farmers need to acquire new skills. Transitioning from this system to a regenerative agricultural approach will require time. For instance, in France, it takes an average of eight years to regenerate soil using conservation farming methods. But who will finance these years of necessary low agricultural yields until the soil rejuvenates and can sustain crops? The challenge lies in external risks and primarily in financing this transformative journey.

Here’s an idea: In 2008, European financial institutions swiftly released 1,000 billion euros through Long-Term Refinancing Operations (LTROs)⁷ to address the financial crisis. Why not employ a similar approach to fund the J curve of transitioning from one economic model to another?

What are the difficulties in getting businesses to apply your strategies?

As I mentioned above, there are no regulations or laws pushing companies to become regenerative in the medium term and no GDP-like indicators that would measure resource regeneration. This keeps companies stuck in a rut of volumetric growth.

Consequently, when faced with a choice between revenue growth—recognized and valued by all—and the company's resilience, the decision almost invariably leans toward growth. Christopher Guérin, CEO of Nexans, articulates this better than I can, having courageously pulled out from this rut. (Read Christopher Guérin's interview on Knowledge@HEC here).

Choosing a regenerative strategy to safeguard a company against emerging physical or transitional risks remains remarkably visionary, especially within a context that often prioritizes resource exploitation.

Choosing a regenerative strategy to safeguard a company against emerging physical or transitional risks remains remarkably visionary, especially within a context that often prioritizes resource exploitation—without bearing the full consequences of such actions. This situation echoes the well-known adage: 'privatizing profits and socializing losses.'

Why do so few businesses fail to heed the scientific warning and obvious climate change and move towards a new business and life paradigm?

Businesses today grapple with a fundamental dilemma: their core purpose still revolves around profit generation, yet they also bear a fiduciary responsibility to address the risks posed by climate change. Consequently, they strive to fulfill their profit objectives while minimizing costs associated with physical or transitional risks. However, cost-cutting alone does not necessarily drive a shift in their business model; in fact, it often leads to the opposite outcome.

For true transformation, executives must recognize the gravity of risks posed by planetary boundaries—not only on society at large but specifically on their own companies. Failing to do so risks a case of the blind leading the blind.

This awareness must permeate executive ranks and boardrooms. Only then can a company fully appreciate scientific warnings and actively pursue business model transformation. Unfortunately, a historical lack of expertise among executives and boards persists. While schools are gradually incorporating climate change education, economic theories still predominantly rely on the assumption of unlimited planetary resources.

Furthermore, ongoing education carries a high access cost. Personally, I estimate that executives need between 30 and 300 hours to comprehend the urgency of our situation, depending on their scientific background. Though non-productive by traditional standards, these hours are essential for grasping the extent of the risk, as underscored by scientists.

But how can busy executives find time for this crucial learning? The challenge is formidable, especially considering the cognitive bias introduced by the Dunning-Kruger effect, which fosters overconfidence among those with limited knowledge. 

Moreover, in an environment where unsettling news often faces rejection (akin to the fate of Cassandra), the path forward remains complex. Nobody wants to listen to Cassandra; everyone prefers to ignore the uncomfortable truths they bring. This phenomenon has been described as a “schism of reality” by German philosopher Oskar Negt, inspired for example by the denial of the rise of Nazism by the Weimar Republic until it was too late, or as “doublethink” by George Orwell in his book "1984," where people learn to accept two conflicting beliefs as truth simultaneously. This intellectual stance allows pretending until reality catches up with the individual. And it always does.

Psychologically, not knowing serves as a protective mechanism. According to the British psychoanalyst Sally Weintrobe, unconscious defense mechanisms, created to defend against anxiety, distort external reality, thus protecting our internal representation of our world. Distortions exist as (poor) solutions to a reality that “has become too obvious to be ignored…” 

Lastly, the normative pressure exerted by a consumption-centered society causes us to ignore the consequences of mass consumption and hinders meaningful change.

¹Maximilien Rouer, « Du bâtiment positif à l’Économie Positive », La Tribune, Dec 2005, and Maximilien Rouer, Anne Gouyon, Réparer la planète – La révolution de l’Économie Positive, JC Lattès éd., 2007.

²Through energy consumption linked to the extraction or production of raw materials, industrial transformation, transport, storage, etc.

³Through constructing buildings or infrastructures that replace natural ecosystems, distributing toxic molecules that poison living organisms, etc.

⁴Number of CO₂ molecules per million air molecules.

⁵Burning fossil fuels results in the rapid release of CO₂ into the atmosphere — a carbon dioxide that had been sequestered by plants over hundreds of millions of years. Few realize that throughout Earth’s 4.5-billion-year history, the average global temperature reached levels inhospitable to mammalian life. For instance, sediment records indicate that 2.7 billion years ago, the climate was stifling, with oceans at temperatures of 80 °C (176 °F), fuelled by an atmosphere rich in CO₂ and methane.

⁶The Anthropocene is a new geological epoch characterised by the ascendancy of human beings as the primary force of change on Earth, surpassing geophysical forces.

⁷Long-Term Refinancing Operations (LTROs) involve the European Central Bank granting long-term loans (typically three years) to commercial banks. These operations, considered unconventional monetary policies due to their significant scale, serve to infuse liquidity into the financial system.

Research on CSRD: How Will New European ESG Reporting Standards Affect Companies? by HEC professor Marieke Huysentruyt.

(In French): « Non, les normes ne sont pas neutres » : la tribune de Luc Paugam, Maximilien Rouer et Hervé Stolowy.

Ferdinand Petra, you created the “Impact Finance Investment Banking” Academy program with Rothschild & Co in 2023. How do you collaborate with Rothschild & Co’s investment bankers and asset managers?

Several Rothschild & Co bankers and asset managers, including Géraldine Gouges, Mathieu Claro, Noémie Villeroy, Arnaud Joubert, Thibaut Pollet, and Emmanuelle Aubertel, shared their best practices during the various classes of this 3-week program. The content of the Academy is designed so that Master students get to learn from both practice and theory. They discover the concrete application of ESG issues in finance through hands-on workshops, role-playing, and discussions with industry experts. They gain a nuanced understanding of investment banking and the challenges of ESG integration in business and finance. This development responds to strong expectations!

Jessica Jeffers, what does your research bring to sustainable finance?

Research plays a long-term role. Researchers explore a question in depth and develop a global vision. This allows us to identify dysfunctions as well as good practices. I study the potential impact of sustainable investment and private financing.

Géraldine Gouges, what are you bringing to and gaining from this collaboration?

First of all, it is an opportunity to share our knowledge and business vision on how environmental, social, and governance issues are becoming more important for the strategic decisions of companies and our own investment choices. We aim to present practical and concrete approaches for the use of ESG criteria in finance and help students develop a critical view of these topics.

We want to contribute to training future generations of leaders and encourage them to take these issues into account in their roles.

We want to contribute to training future generations of leaders and encourage them to take these issues into account in their roles. Finally, we can create connections and opportunities for collaboration with researchers and students from HEC, benefiting from their theoretical and empirical insights on the topics of sustainable finance. Research work and interactions with students offer a fresh perspective, and discussing empirical research is an opportunity to enhance our frameworks of analysis.

HEC transforms its curriculum to include environmental and societal advancements 

HEC Paris has carried out a transformative overhaul of its pre-experience Grande Ecole programs to focus on ecological transition and societal challenges. To change the curriculum, core courses and electives, Yann Algan spent 18 months mobilizing the school’s entire ecosystem consulting industry leaders, public figures, experts, and student representatives.

This transformation follows two decades of pioneering sustainability initiatives, starting with the Sustainability & Social Innovation (SASI) Master, first-ever Master in sustainability in a French business school. Following these efforts, the Sustainability & Organizations (S&O) Institute has launched 25 in-house programs since its creation in 2009. They all aim at promoting sustainable business practices.

And in 2023, S&O introduced a “Commitment track” for first-year students, pushing forward the Grande Ecole's curriculum review. This initiative propels students on a transformative journey, beginning with a three-day seminar on purpose and sustainability in Chamonix, generously supported since 2020 by donations from the Joly Family Chair on Purposeful Leadership and numerous individual contributors. Then, students engage in a 30-hour mission with a humanitarian NGO, followed by an internship in a conventional company, all the while undertaking a "Planetary Boundaries" course which culminates in a dissertation. The objective is to provide students with direct exposure to social and environmental issues while helping them reflect on the purpose of work and corporate missions.

Learn more about the Commitment track in this filmed interview of Yann Algan (in French): 

François Gemenne wants to mainstream sustainability at HEC with the “Planetary Boundaries” course and the SASI Master

Central to this transformation is the expanded "Planetary Boundaries" course, created three years ago and now led by François Gemenne, an authority on climate change and co-author of the IPCC. In this course, extended to 30 hours, HEC faculty and guest lecturers teach how to integrate planetary boundaries into economic activities while addressing social and political issues such as inequality and migration.

Gemenne is convinced that a low-carbon economy will dominate the 21st century. Taking over as the head of the SASI Master, Gemenne shares in an interview that at the Master’s creation, companies saw sustainability issues as a niche topic. Today, sustainability has become mainstream, and companies failing to adopt sustainable practices risk seeing their profits plummet. The SASI Master’s aim is threefold: to teach how to integrate sustainability into business models, to empower students to drive transformation within companies or by starting their own ventures, and to provide them with technical skills designed for real change. 

Watch the full interview of François Gemenne: 

A continuous transformation process

This advancement is faculty driven. At HEC Paris, the faculty primarily consists of two mutually reinforcing groups: 125 Tenure Track Faculty and 42 Education Track Faculty. While both groups excel in teaching and promoting pedagogical innovation across all programs, Tenure Track Faculty push the boundaries of knowledge by developing ground-breaking fundamental research, along with 56 Ph.D. students under their supervision. Education Track Faculty contribute to the production of applied knowledge in practitioner-oriented outlets. Both groups often draw on their own research to design and deliver their courses, providing new and unique perspectives to their students. 

ESG considerations are often integrated into teaching. These initiatives have led to a significant increase in ESG-focused courses from 10% to more than 20% across the Grande Ecole programs and disciplines. For example, in Accounting and Management Control, Luc Paugam integrates his research on ESG accounting into his new courses. Similarly, Hélène Löning started a Sustainability track in the Accounting, Finance & Management Grande Ecole MSc in 2018 and now offers a fully dedicated course on Environmental Accounting in various programs.

In Operations Management, Sam Aflaki and Julien Grand-Clément (fellow of the Hi! PARIS Center) revised their courses to teach sustainable supply chains with the help of cutting-edge data analytics techniques.

Daniel Halbheer, professor of Marketing, and Igor Shishlov, Climate Economics and Policy expert, launched the Climate & Business Certificate to prepare students for navigating the complexities of climate change and decarbonization from a business and societal perspective. Before these new courses, Jean-Michel Gauthier, energy and geopolitics expert, pioneered lectures on the link between businesses and climate policies in the HEC Summer School and the Energy & Finance Certificate.

In Economics, Brian Hill and Stefania Minardi have introduced a course on the Economics of Climate Change, while Ai Ting Goh has introduced a Transforming Business for Sustainability specialization for the Executive MBA. In the MBA full-time program, the Sustainable & Disruptive Innovation specialization by Jeremy Ghez has become one of the most popular among students.

Executive Education also has seen significant developments, with flagship programs like the Change & Sustainability Major of the Global Executive Master in Management (GEMM), and the Sustainable Transition Management Certificate, aiming to help executives transform their organization to create economic, social and environmental value while respecting our planetary boundaries.

As part of the GEMM, the Lead Campus Certificate, created in 2019 by HEC Paris, the University Mohamed VI and the University of Cape Town, and directed by Bénédicte Faivre-Tavignot and Christelle Bitouzet, focuses on the key areas of leadership and general management in the dynamic context of the African continent.

For several years, Christelle Bitouzet has directed an innovative and popular two-day course on CSR in which simulation plays a role: her Master and Executive students play CEOs who must handle accusations from civil society and journalists (acted out by HEC staff members) regarding environmental and social harm.

Professors also create hands-on experiences through cases and partnerships with practitioners. Hélène Musikas and Laurence Lehman-Ortega have pioneered case studies on sustainable development and circularity at HEC. All the business cases that were created in 2023 were focused on ESG topics. These include cases developed in collaboration with the organizations that sponsor chairs at HEC. To cite just a few, Sebastian Becker developed a teaching case on the Nexans’ business transformation and its innovative steering approach, while Jessica Jeffers and Ferdinand Petra each teach courses on ESG integration in business and finance, with the intervention of finance industry experts from Rothschild & Co.

These courses are complemented by initiatives where students engage in conferences with scientific personalities, such as Emma Aziza, Philippe Bihouix, and Arthur Keller, and in the HEC Talks series with industry leaders, such as Alan Jope, Christopher Guérin, and Emmanuel Faber, explaining their strategies and challenges. They also interview thought leaders—Mohammed Yunus, Ether Duflo and Mathieu Ricard, to name but a few—on their philosophy and global outlooks.

In summary, HEC Paris is fostering a dynamic ecosystem where faculty research, innovative teaching methods, and real-world engagements converge to address pressing societal and environmental challenges while preparing students for impactful leadership roles.

François Collin, can you explain your role in the school’s transition to sustainability?

My role as the CSO is to stimulate and coordinate HEC Paris’ sustainable environmental and social transformation. It's a job that involves change management, with an approach that, in the end, is quite similar to what I have done throughout my international career. We know the path we are taking, but we don’t know where the finishing line is: each step forward we make, we see two more steps we are determined to take. The most important aspect of my role is to actively involve all the staff at the school and the HEC community at large and to work with all parties on their sustainability roadmap, from the Dean and the Executive Committee to all departments and student and alumni representatives. It goes without saying that I work hand-in-hand with our colleagues in the Sustainability & Organizations (S&O) Institute, who are incorporating this mission into the academic body for research and education and are undertaking ambitious fundraising work. We also have our own specific assignments in the Sustainability Team, like any CSR department has: compliance, certification labels and CSR reporting, the carbon audit and net-zero pathway, internal and external communication when you have to speak with one voice, and relations with stakeholders.

The most important aspect of this role is actively involving all school staff and the HEC community at large and working with all parties on their sustainability roadmap.

What is HEC’s transition roadmap?

Our sustainability strategy, “Transition,” has been carefully debated and co-designed with multiple stakeholders since 2020. The priorities for the year ahead are discussed every year in the Executive Committee based on proposals from each member. The strategic plan and the key achievements in 2022-2023 can be consulted here (in French).

The objectives are organized on the school’s Think, Teach, Act, Campus, and People pillars and the cross-functional axis of decarbonization. This means that HEC 's Climate Plan forms a sub-section of the Transition strategy. And, to have the complete picture of the school's responsible impact policy, you also need to factor in the DEI (Diversity, Equity, and Inclusion) roadmap, which is delivered under the aegis of our Chief Diversity Officer, Marcelle Laliberté. 

In a recent article in the Harvard Business Review, ESG experts Robert G. Eccles and Alison Taylor explained that the role of the CSO is shifting dramatically, from "acting like stealth PR executives" to a more strategic role in the C-suite. To implement HEC’s strategic roadmap, how do you coordinate with the different internal and external stakeholders?

Indeed, the main role of a CSO is to engage his/her institution in a strategic roadmap and, just as importantly, to make sure it is implemented. In our case, it means nurturing the dialogue with all circles, through representatives of the Sustainability Team or the S&O Institute: with the school’s various management teams; faculty and staff; donors and corporate partners; the three student sustainability associations (ESP'R, Net Positive, and the MBA Sustainability Club); and, for alumni, with the HEC Transition Club, which operates internationally. The staff, HR, and Communication teams play a key role in events and training programs such as the Climate Fresk, the “2Tonnes” workshop, and the “Planetary Boundaries” session. This year, we are also relaunching the Sustainable Campus Committee, which includes staff, faculty, and student representatives so that it can put forward proposals and deliver projects using the Sustainability Fund. 

How do you manage and balance the different expectations of the stakeholders, including student activists? 

The most important thing is to listen to them and keep the dialogue open, respecting the views of everyone: Change comes from the rich array of suggestions that people put forward. You have to be very careful not to pigeonhole anybody. Who are activists? Protesters or trailblazers? The HEC Grande Ecole curriculum reform that has been conducted over the past year echoes demands by the Ecological Awakening student manifesto published back in 2018: sustainability and all the major challenges facing society are now the cornerstones of the new curriculum. The policy on oil and gas companies that the student association ESP'R has been advocating for is similar to the September 15, 2023 opinion piece by 300 scientists addressed to the French government. It calls for a moratorium on hydrocarbons. What if today's student activists become tomorrow’s speakers at the HEC graduation ceremonies’ two decades from now? 

How do you allocate resources to address those demands?

I don't hold the keys to the safe for allocating resources! What’s most important is to align the school's strategy so that its budget can support the goal of sustainability. When Yann Algan, our Associate Dean of Pre-experience Programs, directs the reform of the Grande Ecole curriculum, it mobilizes all resources and all staff. When Deputy Director General Eric Ponsonnet, Real Estate Director Cristina Hay and the Deputy General Management team prepare for renovating and developing the Green Campus, we’re talking about a major investment. And, when it comes to supporting academic breakthroughs, the teams from the HEC Foundation, HEC Corporate Partnerships, the S&O Institute, and now the Impact Finance Center enjoy a significant response amongst donors. When they witness a determined effort and a collective will, the resources soon follow.

The Sustainability Team:
François Collin, Chief Sustainability Officer
Carole Decamps, Climate & Sustainability Project Director
Marine Franchino, Decarbonization Project Manager

(Podcast in French) Comment engager toutes les parties prenantes d’une école au service d’une vision collective pour la transition écologique ?

Filmed interview in French: 

Valentine Japiot (H.23) and Max Pernaton (H.25), two members of HEC Transition, the alumni club dedicated to the ecological transition, rang similar alarm bells, calling for a radical transformation of the system at HEC's Climate Day 2023. Quentin Oulie (H.25), currently interning at “Fermes d'avenir,” which coordinates sustainable farms, co-organized a three-week course on agroecology at HEC for students to think about the challenges facing the agricultural world. The list could go on and on. Those engaged are making their demands heard, and they are ready to take on responsibilities to make things happen. We met four students from different HEC programs, engaged or not in the transition.

What do you think is the role of a business school like HEC in the transition towards sustainable business?

Hale De Vera, MBA candidate, VP for Knowledge of HEC's Sustainability Club: The main role that business schools have is to help students become the next leaders. In a world that is becoming increasingly hotter (at a very alarming pace!), there's a bigger expectation for business schools to plant the seeds and act as catalysts of change among their students to ensure that they hone competent yet socially and environmentally aware students. This can be done by fostering within the classrooms a culture of corporate responsibility, ethical decision-making, and environmental awareness among its students, thereby encouraging them to consider social and environmental impacts in their future business endeavors. May it be in the form of adding ESG-related cases or topics in broader business topics such as strategy and finance, concrete steps such as this should be enforced by business schools. 

Behishta Nazir, SASI student. After fleeing Afghanistan in 2021, she became one of the first HEC Imagine Fellow scholars*: Training and educating future managers, executives, and employees, I believe it is the role of business schools to educate sustainability and sustainable business practices. Climate change, biodiversity loss, human rights issues, and other issues require immediate action from many ecosystem actors. It is the responsibility of the school to properly educate future managers and decision-makers in the business sector. Furthermore, a school like HEC has an even greater responsibility to inspire and lead other educational institutions and industry players in its capacity as a leader in the field.

Madhavi Bharatham, former Program manager at Amazon, MBA candidate, and President of the HEC Paris MBA Council: Schools like HEC hold a special responsibility in carving leaders to achieve sustainable standards. Many impactful business leaders are born from these institutions, making it extremely important for them to present the values of sustainability from the very foundation. HEC is a hub of modern commerce; it's crucial for it to grasp the rapid, dynamic changes that align with climate shifts, socio-economic impacts, and more.

Many impactful business leaders are born from these institutions, making it extremely important for them to present the values of sustainability from the very foundation.

The business world has been in a transitional phase for over a decade now, but it's the leaders' responsibility to expedite this transition. They must acquire the skill of acceleration from esteemed business schools like HEC. This holds immense urgency, and there's absolutely no time for a pilot phase.

L., Grande Ecole student: Business schools such as HEC have the responsibility to train future leaders who will shape tomorrow's climate standards.

Business schools such as HEC have the responsibility to train future leaders who will shape tomorrow's climate standards.

Therefore, it is essential to instill critical thinking and decision-making skills that consider environmental impacts in students. Not only by raising awareness about the importance of environmental action, which is already extensively done, but also by actively teaching students how to integrate responsible practices within businesses and society, and presenting new business opportunities or possible jobs.

What do you think of the curriculum review that occurred at HEC Paris?

Hale De Vera: Twenty years ago, I would say that HEC was ahead of its time with the creation of the SASI Master. Veering away from traditional business courses is no easy feat, especially if professors and curriculums are hardwired into teaching orthodox thinking. Now that they've been able to carve out sustainability-focused programs (and specialization in the case of MBA), I think this is a good step in ensuring that HEC graduates are holistic and inclusive in their approach toward solving business problems.

Behishta Nazir: As a student of SASI, I believe what we study as part of this program at HEC is great and groundbreaking. I wouldn’t say it is enough, however. We need to do more, to fight harder, and to take more responsibility. But I think it is very important that we speak about all these different topics (from Climate Change and environmental issues to Human Rights, Peace, and Development) in a business school that inspires and enables us (the students) to create a change and to put sustainability and responsible business practices back into the core of the business.

Madhavi Bharatham: From my perspective, there is much room for improvement, not particularly in the structure but in the content. And I understand the reason behind the vagueness we have today as it is still in its experimental phase. I believe the levers of sustainable business need to be experienced more at practical, on-hand levels. For example, the capstone projects are proposals that students present to the audience, and a lot of rigorous research analysis and study goes into proposing them. However, unless and until the execution begins, nobody would know whether it's a success or not. Having courses that take you outside your classroom doors and plunge you out into the world with real-life experiences is important. This is a unique curriculum; it is a mix of both statistics from the past and probabilities of the future. It is aimed at a business model that generates revenue and ethically and morally sustainable employment.

L.: This holistic approach ensures that all students benefit from an updated and forward-thinking curriculum, equipping them with the mindsets needed to contribute positively to society. However, in class, there's often a feeling that the environmental aspect is always there to be checked off to consistently remind us of the importance of considering environmental issues in all decision-making.

This holistic approach ensures that all students benefit from an updated and forward-thinking curriculum, equipping them with the mindsets needed to contribute positively to society.

I believe there's still room for improvement regarding the rigidity of the fieldwork and associative engagement formats, which sometimes seem imposed rather than genuinely integrated into personal reflection. Nonetheless, it's clear that HEC is making efforts in this regard and is off to a great start.

What should be improved at the school to best train the students?

Hale De Vera: I would say that an increased collaboration among industry experts should be done better by HEC. When I was doing my specialization in Sustainable and Disruptive Innovation as part of the MBA program, we would have guests in our class and hear actual stories from various industry leaders in different fields (L'Oreal, Startup founders, Google, Ralph Lauren, etc.). This experience was very useful for us in understanding how it unfolds in real life. Of course, we're all aware of climate change, and of course, we know that we have a role to play in fixing this, but what's more challenging is identifying the HOW. How can we, as future business leaders, act on this challenge? In the interactions I had with companies, it was encouraging (and very informational!) to hear the concrete steps that they're undertaking to transition to a more sustainable business model. Maybe by embedding these interactions in core subjects (finance, strategy, marketing, operations, etc.), we get to see the whole picture of how students can make an impact, whichever role and industry they end up being a part of.

Increased collaboration among industry experts should be done better by HEC.
 

Behishta Nazir: In my opinion, we need greater representation of international students, specifically from developing countries, in the school. We need to reach them and enable them to leverage the knowledge, expertise, and skills they gain from these great programs in their home countries. We need to train and invest in future leaders of Africa, the Middle East, and Asia. The school has this incredible opportunity to bring together people from different backgrounds, countries, and experiences to create dialogue and inspire action. More representation of the Global South, in my opinion, will also contribute to a better understanding of the various dynamics present in those nations as well as the global, as opposed to just European, context of the social and environmental crisis and issues they face.*

Madhavi Bharatham: By making the students believe that sustainable business is not an option but a requirement. There needs to be metrics in place for all students to measure how much impact they are making, and it needs to be both audible and visible. Our canteen lights, classrooms, projectors, etc. are often on all night. Make changes to the energy wastage and make these changes loud. These noises are small but will create a bigger impact. Students need to see that HEC does not just preach; they act too, and it’s time we prove them with examples starting from basics.** Maybe begin with making a "2tonnes" simulation (on carbon footprint) mandatory for everyone on campus.***

There appears to be an underestimation of students' understanding of the urgency surrounding climate issues.

L.: There appears to be an underestimation of students' understanding of the urgency surrounding climate issues, leading to repetitive speeches on how the planet is affected. This redundancy often fosters disengagement amongst students, particularly when the presentation of tangible solutions is lacking. I feel like there's a need for courses to offer more concrete and technical content rather than solely focusing on numbers and facts about climate change.

The circular business model and product design in a nutshell

The distinctive feature of the circular business model is that it goes beyond the point of sale and allows a firm to tap into a new source of revenue from recycling end-of-life products. Offering a better recyclable product increases the valuation of the product in the eyes of the consumers by making disposal for recycling relatively more attractive than trash disposal.

When choosing the recyclability of its product, a firm considers the profits from sales and recycling, net of the cost to set up the reverse supply to recover end-of-life products. Intuitively, a firm should increase recyclability until the incremental increase in unit cost accounting for the value of the recovered resources is equal to the incremental value created for consumers.

Eco-awakening pushes firms to offer better recyclable products but may increase the corporate waste footprint

Recent eco-awakening* of consumers forces firms to offer better recyclable products. At the same time, consumers who care more strongly about recyclability are more likely to return the product for recycling. Stronger concerns about recyclability therefore reduce the expected waste footprint of a product.

The corporate waste footprint is obtained by multiplying the waste footprint per unit of product by sales. If sales expand only modestly or decrease due to deconsumption, eco-awakening necessarily reduces the corporate waste footprint. Instead, if sales expand strongly due to greener product design, the corporate waste footprint increases, a rebound effect.

Circularity is a co-creation between the firm and consumers, and circularity will not work in a throw-away society.

Hence, to reach a zero corporate waste footprint, the firm must offer a fully recyclable product and all buyers must return the product for recycling. This shows that circularity is a co-creation between the firm and consumers, and that circularity will not work in a throw-away society.

When should a business go circular?

Under a linear business model, the firm offers a non-recyclable product because recyclability is costly but has no impact on sales. Going circular allows the firm to charge a green premium for recyclable products. Consequently, a firm should adopt a circular model if the profit increase from the change in product recyclability and pricing exceeds the cost of setting up the reverse supply chain. In the absence of a rebound effect, going circular not only increases profit but also improves the bottom line for the planet.

*See the reports by the Economist Intelligence Unit (2021) and the FII Report 2023.

Why public-private partnerships are critical

The success of Public-Private Partnerships (PPPs) relies on three mechanisms: contractual, institutional, and regular collaboration between private companies and public authorities. These partnerships aim to create social and economic value by integrating non-market dimensions into organizational logic. Here are three key factors to take into account for a smooth partnership:

1. Governance and Civil Society: Good governance involves organizing the relationship (financing, operating, monitoring) between public bodies, private companies, and civil society to set up a multi-partner collaboration. Incorporating civil society in decision-making processes, particularly regarding access to services and facilities, is crucial to ensure equitable distribution and inclusive scope.
2. Social Objectives and Market Mechanisms: PPPs address inequalities and social objectives beyond infrastructures, such as access to healthcare and education. They combine private financing with public contributions to achieve social impact, illustrating a mix of profitability and social responsibility.
3. Legislative Support for PPPs: Some countries have passed specific laws encouraging PPPs and protecting all partners involved. However, overly rigid frameworks can hinder negotiation flexibility, impacting the effectiveness of partnerships.

Examples of successful public-private collaborations are illustrated by the case of the Tirupur water supply and sanitation scheme in India. It has developed a partnership with the Tamil Nadu State authorities, the Textile exporters association, and the local population. Then there is the National Kidney and Transplant Institute (NKTI) in the Philippines, which established a partnership with private companies to lease medical equipment and enhance healthcare services.

Sustainable cities: public-private collaborations for urban sustainability

Successful smart and sustainable city initiatives require a strong vision, partnerships with companies, and active collaboration involving various stakeholders. They need technological solutions (soft mobility, energy grids, neutral housing…) to efficiently address health, education, and governance challenges.

Cities like Barcelona, Toronto, Singapore, Copenhagen, Vienna, and Amsterdam exhibit unique qualities in tackling climate change and urban growth while prioritizing citizen participation and sustainability. Our e-book describing the sustainable program implemented by these six cities maps out these successful initiatives. Several examples, including the partnership between Siemens AG and Vienna’s City Council, demonstrate how public-private collaborations drive urban development projects and sustainable initiatives.

While further research on such partnerships is needed to analyze their effectiveness as benchmarks for cities worldwide, it is essential that city executives and company leaders prioritize collaboration among stakeholders to address concerns over surveillance, technology prioritization, and short-term strategies. They also need to address societal challenges, foster sustainable development, and promote collaborative governance models for urban environments.
 

Corporate dissonance: when actions contradict values

A company that appears to “walk the talk” on climate change by committing to reduce its greenhouse emissions may actually be lobbying against greater regulation of such emissions. A pharma company may publicly support patients’ access to affordable medicines yet simultaneously fund a trade association defeating lower price initiatives. Even a progressive company may publicly support LGBTQ+ issues, while at the same time funding a political candidate opposing gay rights.

Unveiling corporate hypocrisy: impact on progress and trust

The misalignment between corporate lobbying with companies’ stated commitments to purpose, values, or stakeholders is one – possibly the – major factor underpinning the lack of progress on numerous critical issues ranging from the failure to act on the climate emergency to offshore tax evasion. Regardless of whether it is due to a lack of oversight, siloed organizations, or the involvement of trade associations, this phenomenon pushes down citizen’s perceived trust in government and slows down sustainable development.

Despite the scale of its negative impact on public policy, corporate political conduct largely escapes not only public authorities – whose lobbying regulations remain underdeveloped and under-encompassing –but also voluntary ESG frameworks and mandatory sustainability requirements (e.g., Corporate Sustainability Reporting Directive (CSRD)). Amid growing private scrutiny driven by investors, some incipient forms of voluntary corporate political reporting, such as sustainability frameworks (e.g. Global Reporting Initiative (GRI) standard 415), and ESG ratings (Moody’s, S&P, Dow&Jones, etc.) encourage companies to share information beyond legally mandated disclosures.

Mapping ESG initiatives for more transparency and accountability

The Good Lobby Tracker - which I designed with the support of the HEC Foundation and run through a Porticus grant - represents the first efforts at gathering and analyzing the quantity and quality of ESG political data generated by these initiatives. All these initiatives offer a set of best practices capable of normatively determining what ‘responsible’ corporate political conduct is and entails. They ask companies whether they disclose their political donations, the list of their trade associations, or the policy positions they advocate for with governments.

Therefore, if companies intend to remain legitimate participants of the political process, they must become not only more transparent and accountable in their political engagement but also more sustainable in the way and direction they exercise it. This calls for embedding corporate political conduct into corporate sustainability by mandating greater political disclosure and alignment of corporate political conduct with global sustainable development. This could represent the most systemic intervention today. As political engagement and lobbying are now set within the EU's CSRD, the extension of sustainability-inspired obligations towards the realm of corporate political conduct appears not only plausible but also urgently needed. This new generation of legal requirements may redefine both the role and practice of corporate political power, ahead of and beyond the 2030 SDG Agenda.

TotalEnergies, an oil and gas giant with a questionable history of sustainable efforts, has an immaculate record when it comes to sustainability reporting. It is compliant with seven international standard setting bodies. Is TotalEnergies a pillar of sustainability to be revered by others? Or is its sustainable legitimacy questionable? 

Today, a company seen as sustainable can attract considerable investor interest. Increasingly, investors, shareholders and other company stakeholders turn to sustainability reporting as a way of understanding more about the success of a company.

Sustainability reporting means disclosing how a company integrates factors related to the ESG, and what it does to improve it.

And what is sustainability reporting? In essence, it is a way of disclosing how a company integrates factors related to the Environment, Social, and Governance (ESG), and reporting what it does to improve its impact on those dimensions. As a measure of business success, it goes beyond the clear-cut standards of traditional financial reporting. Given the absence of standardized definitions for what constitutes "sustainable," the potential influence of varying political motivations across different regions, and the involvement of multiple entities in setting standards, an important question arises: "Can sustainability reporting be harmonized?"

Harmonization – or convergence – of standards

In 2005, Europe adopted the International Financial Reporting Standards (IFRS) which was a major factor in establishing the worldwide legitimacy of IFRS we observe today. This led to convergence on a unified set of financial reporting standards and the overall harmonization of financial reporting.

However, when it comes to sustainability reporting, it seems that standard-setting may not be as straightforward. We set out to investigate the hurdles that are getting in the way of sustainability convergence.

The four hurdles

1. Sustainability definitions

There is a large degree of heterogeneity in the definitions of sustainability concepts. But if we do not agree on what we are standardizing – how can we converge?

Across the standard-setting organizations, definitions vary widely to include different concepts such as corporate social responsibility (CSR) and ESG. The definitions of factors contributing to these concepts also vary, for example some may view nuclear power as a green investment, others may not. In addition, we also see that there is evolution in the definitions of “sustainable” in different regions over time. 

2. An unprecedented number of standard-setting organizations

We found that there is an enormous number of organizations – 17 – involved in sustainability reporting around the world. They comprise not-for-profit organizations, business consortiums, charities, and United Nations initiatives. Needless to say, getting 17 organizations to agree on factors and definitions and implement them is far more difficult than getting three organizations to converge on standards. 

3. Differing requirements

There is a diversity of reporting requirements across the major standard-setting organizations. 

At the international level, the IFRS Foundation has created the ISSB (International Sustainability Standards Board). In Europe, the European Sustainability Reporting Standards (ESRS) are set by the Sustainability Reporting Board (SRB), a committee within European Financial Reporting Advisory Group (EFRAG). Listed firms in the US follows the requirements of the Securities and Exchange Commission, which initiated discussions about climate-related financial disclosures. The reporting requirements are not standardized across these bodies, and companies adopt different ways of reporting due to the diversity in reporting requirements.

4. Diversity in objectives

There is diversity in the objectives of the standard-setting organizations. 

The organizations have different overall objectives and appear to disagree on what the focus of sustainability reporting should be. Specifically, Europe adopts a “double materiality” approach, focusing on the financial and societal impact of sustainability. In contrast, the ISSB (or the SEC) approach is that of “single materiality,” meaning that it focuses only on the financial impact of sustainability matters.

Is there a convergent future?

In summary, the hurdles to global convergence of sustainability reporting are substantial and multifarious. They involve opinions, social factors, and political motivations and it is hard to see any form of harmonization in the near future. However, one exception may be carbon emissions disclosure, with convergence in the greenhouse gas emission protocol being adopted by most organizations. 

In the present situation, companies like TotalEnergies can pick and choose from a menu of standards, enabling them greenwashing.

In the present situation, companies like TotalEnergies can pick and choose from a menu of standards. Due to the lack of convergence, they can take advantage of sustainability reporting to enable greenwashing. And without a standardized approach, this will doubtless continue.

Despite convergence for sustainability reporting looking bleak, there is a move towards making sustainability reporting compulsory in some regions.

There is a move towards making sustainability reporting compulsory in some regions.

South Africa was one of the first countries to make integrated reporting compulsory for all companies on the stock market. Now, Europe has issued a draft on European Sustainability Reporting Standards (ESRSs), under which companies will need to publish separate sustainability statements as part of their management reports from 1 January 2024. As a result, we are likely to see some convergence of reporting within Europe, but whether this spreads to a global set of standards remains to be seen. 

***

Learn about the role of ESG with this RESKILL Masterclass and its written summary with Hélène Löning: "Can ESG Save Life on Earth? Key Lessons".

Learn more on: "How Will New European ESG Reporting Standards Affect Companies?” with Marieke Huysentruyt.
 

How did you develop your company around sustainable innovation?

Fabien Koutchekian, CEO at Genomines: In our case, we matched our skill sets to our solution rather than building them from scratch. Genomines took a bottom-up approach. My co-founder Dali and I first mapped all the problems we cared about (this is a good "passion check" for future entrepreneurs). We chose our problem and solution—decarbonizing the mining industry via phytoextraction—because it had great founder-market fit, among many other reasons. Dali has a Ph.D. in plant biotechnology, and I am a mining engineer. This combination laid the groundwork for our nickel phytoextraction technology.

As phytoextraction is a very young industry, we target top talent with adjacent skill sets (plant biotechnology, mineral processing) and train them in our field. We're proud of the great technical team we have built (15 international researchers, 100+ years of experience).

Richard Barre, CSO at Pixstart: Our scientific skills come from the co-founders and their more than 25 years of experience. This is especially the case of our scientific director, Lydwine Gross, who holds a Ph.D. in mathematics and physical sciences applied to remote sensing. This field involves transforming sensor data into physical and biological information. Our exclusive expertise in the biophysical realm, complemented by mathematical models, allows us to develop advanced AI algorithms. Lydwine is supported by a team of PhD experts in complementary scientific fields such as environmental biology and biogeochemistry.

What challenges do you face in developing a business that is both profitable and considering the planetary boundaries?

FK: In the entrepreneurial world, investors can demand quick returns. The challenge is to prove that our long-term sustainability goals are crucial for our success.

The challenge is to prove that our long-term sustainability goals are crucial for our success.

The key to overcoming this challenge lies in effectively aligning our business and sustainability goals, and we actively filter our investors & partners for value alignment. For example, our lead investor Lowercarbon Capital is a fantastic climate tech fund and partner. Lowercarbon understands the unique challenges of climate tech startups and invests patient capital, supporting our sustainability-driven mission. 

At an early stage, the lack of data is a barrier to making the best decisions and aligning economic and sustainable outcomes. To solve this, we're conducting an early Life Cycle Assessment to build a holistic understanding of the ESG impact of our value chain. By making sustainability a fundamental component of our business, we're building an advantage in asymmetric information over our competitors.

RB: It's interesting to note the common perception of challenges as a contradiction between environment and profitability. At Pixstart, we see these two aspects as inherently linked. Optimizing resource use directly translates to increased profitability through cost reduction. This is why we minimize the use of computer resources by optimizing our algorithms, thereby reducing production costs. 

We promote to our clients that our satellite monitoring solutions, by reusing existing satellites, offer a significant economic and environmental advantage over alternatives such as aerial surveillance or limited-lifespan IoT devices. 

Hence, economic profitability naturally follows by integrating environmental profitability from the start.

What about the social and inclusive aspects of your business?

FK: Incorporating social and inclusive elements into our business is at the core of what we do, and focus on the social benefits we can bring to the communities around us. For instance, we're conducting a Sustainable Return on Investment (S-ROI) to understand the social value we add and look for ways to enhance it. The S-ROI is a robust data point from which to focus our strategy on the greatest socially inclusive aspects of our business.

Working closely with NGOs is another core part of our strategy to ensure we contribute positively to local communities. For instance, ACTED, one of our NGO partners, is helping us to launch a phytoremediation campaign in the Philippines, supporting our business growth while providing local economic and talent development.

RB: The question of social inclusion was never posed as an obstacle. Our recruitment criteria are based on skills, interpersonal qualities, and the ability to integrate into a team. Despite the tendency for male overrepresentation in the scientific and digital fields, Pixstart is distinguished by a team of five men and seven women, likely influenced by a mixed-gender leadership.

How do you make sure that your innovation will not bring unwanted consequences, contrary to past businesses?

FK: To mitigate unintended consequences of our innovation, we've implemented a comprehensive eco-design approach from the outset, focusing on minimizing environmental and social risks. Early on, we initiated in-depth studies, including Life Cycle Assessments (LCAs) and Social Return on Investment (SROI) analyses. These studies, intended for future publication, reflect our commitment to transparency and our proactive stance on environmental and social issues. By engaging with stakeholders and the broader community openly, we aim to ensure our technology is not only safe but also positively contributes to societal and environmental well-being.

To mitigate unintended consequences of our innovation, we've implemented a comprehensive eco-design approach from the outset.
 

RB: It is crucial to consider the potential impact of our innovations upfront. We regularly assess the use of the information generated to ensure it aligns with our values. In case of doubt, the discussion is brought to the executive committee, and a unanimous decision is required to proceed. This approach has led us to give up on three significant opportunities without any regrets, ensuring a diversity of perspectives and limiting long-term risks.

Finally, we have oriented the company's value on environmental issues and resource security. 

What do you recommend to other entrepreneurs?

FK: Be bold and creative. Don't be afraid to be different and explore new areas for the best chances of success. Sometimes, the craziest ideas lead to the biggest impacts. Even if many ideas don't work out, just one successful one can make a real difference.

RB: Stay true to your values and don't just follow the crowd. As an entrepreneur, you are an innovator, creating what does not yet exist. Your journey will be unique and should draw inspiration from your surroundings, including friends, family, and other supportive entrepreneurs who will help you question yourself.

Stay true to your values and don't just follow the crowd. As an entrepreneur, you are an innovator, creating what does not yet exist.

Maintain a balanced social life and do not try imitating personalities like Elon Musk, who probably never asked himself the previous question.

A word from the Innovation & Entrepreneurship Institute (IEI):

“Genomines and Pixstart are part of HEC’s Incubator program, hosted at Station F. They benefit from an ecosystem that, in 2023, witnessed a transformative journey. Our Center evolved into the HEC Paris Innovation and Entrepreneurship Institute. Driven by cutting-edge research, transformative education, and practical expertise from "Makers" and "Doers," our clusters metamorphosized into specialized Centers for Deep Tech, Incubation, and Social Entrepreneurship. These three distinct centers (the Deep Tech Center, Social Entrepreneurship Center, and Incubator Center) encompass seven programs to target different populations and needs. Our mission is to lead an innovative and entrepreneurial ecosystem for talents and corporate transformations, accelerating enduring and positive impact across business and society.”

- Inge Kerkloh-Devif, Senior Executive Director of the IEI at HEC Paris.

To mitigate global warming with catastrophic consequences, it is crucial to reduce carbon dioxide emissions significantly. But right now, governments and companies are in a bind when it comes to figuring how to accomplish that.

One reason is that while reducing one's emissions is good for all, it is individually costly: reducing emissions is a positive externality. And it’s a challenge to get companies to provide positive externalities, since it brings down their profits. They’re not necessarily going to do it without government pressure, whether it’s immediate or something that’s anticipated down the road.

You might think that the government could simply fix everything by putting hard caps on companies’ carbon output. In reality, though, government power tends to be limited by political pressures and concerns about how regulations will affect the economy.

Additionally, while government regulators have the ability to measure companies’ carbon emissions, that’s just the end result. It’s tougher for them to monitor the investments in green technologies necessary to achieve emissions reduction because it takes time for those investments to lead to innovations that cut carbon output. It’s unlikely that public-sector intervention will fully substitute for insufficient action by private companies. At the same time, it can’t be taken for granted that private sector initiatives will be enough without a degree of government involvement.

This is a serious dilemma because, as we write in our paper, there’s a real risk of insufficient investment in green technologies, which would mean that we won’t curb excessive CO₂ emissions.

Is there a way for the private and public sectors to interact so that the necessary investments will be made in green technologies to reduce carbon emissions? We developed an analytical model to answer that question and found that there is indeed a way out of this quandary.

A Self-Fulfilling Prophecy

Governments are pragmatic. What they do in the long term depends upon what will be realistic at some point in the future. But what will be realistic in the future, in turn, depends upon the choices that companies make now.

Companies are also pragmatic. Anticipation is a big part of decisions on investments in technology. Waiting for the other part (the government or the company) to do the first step is sort of a chicken-and-egg situation.

Our analysis shows that when it comes to making decisions about investing in carbon-reducing innovations, companies’ expectations of what the future will be like actually help make it a reality. Here’s how that works. If companies anticipate that caps will be imposed in the future, they will invest now in green technologies so that they are prepared and ahead of the curve when that day comes. What happens, though, is that some companies’ decision to invest in green technology changes the future for everybody, even for other businesses that didn’t make the same sort of commitment. That’s because the investments have positive spillover effects, lowering the aggregate cost of technology for emission reductions.

And when green technology becomes cheaper, the government is more likely to impose emissions caps because regulators can do it without imposing that much economic hardship on companies.

Governments need companies to invest in green technologies to make regulation possible

Now consider a second scenario, in which companies expect that government, for whatever reasons, won’t impose emissions caps. As a result, the companies decide not to invest in green technology. 

That puts the government in a difficult situation, because if it imposes emissions caps and it’s too difficult and/or expensive for companies to comply, that could cause jobs to be lost and share prices to plunge on the stock market. Many economists agree that the government will have to impose tough regulations at some point. It’s just that they can’t do it too fast because it could be damaging to the economy.

For things to work, we need companies to invest early in green technologies and, at the same time, for the government to impose emissions caps

For things to work, we need companies to invest early in green technologies and, at the same time, for the government to impose emissions caps. Neither party must go it alone. Instead, the situation requires what we describe in the paper as “equilibrium complementarity,” in which the private and public sector actions have a synergistic effect.

A single investment fund could tip the balance

The study also found that a single player can have a disproportionately large influence on the outcome. A single large investment fund on the scale of BlackRock or Vanguard, or a coalition of investors committed to Environmental, Social, and Governance (ESG) values, could do it. If that big player engages with companies to foster investment in green technology, that could end up tilting the equilibrium toward emissions caps.

It’s important to mention again, though, that in the model we developed, there’s no irrationality. Often, people assume that with ESG, there’s a preference for green companies or that the market isn’t pricing climate risk correctly. Therefore, investing in green companies can make money or improve risk management and risk-averse returns. However, we’re using very standard preferences—companies that try to maximize their proceeds and investors who try to maximize profit. So basically, the baseline model is very simple and rational. We also are factoring in a political economy with a constraint, which is that 10 years from now, governments will only apply laws or regulations that are reasonable in terms of costs to the economy.

How to use the model

The model developed for this study is very generic and conceptual, and it applies to any industry where innovative technological processes for carbon reduction will need to be created through research and development, as opposed to just buying technology that’s out there and implementing it. One important takeaway from the study is that anticipation of regulation is probably the key element in deciding what is rational or not rational for a company to do. Companies need to investigate and think seriously about the plausible path for future regulation and the potential risk of going one way or another.

Every day, thousands of companies interact with employees, suppliers, and customers around the world. But their activities can indirectly affect other people, too—people who have not been consulted nor have agreed to anything—sometimes in negative ways. These so-called negative externalities of economic activity include contributing to global warming via Greenhouse gas emissions.

Negative externalities generated by corporations are a recurrent theme in policy debates. The traditional economic prescription for this problem has been regulation. One example is cap and trade schemes that allow companies to pollute a certain amount during a fixed period or sell their allowance to another firm. Another is taxing activities that generate CO₂ emissions. However, establishing processes can be cumbersome and slow, and even when in place, they often deliver variable results.

Curbing poor environmental performance via targeted financing

Investors who want to do something about reducing the negative impact of economic activity can choose to put their money into funds that use ESG criteria to determine which companies they want to invest in. 

These ESG investment funds take the environmental performance of companies into account. Companies can attain higher ESG scores by generating lower CO₂ emissions. Many high-scoring ‘green’ companies have operating procedures that enable them to slash their emissions.

If we want to see further emission cuts – a stated policy goal of the European Union – we need to consider how ESG-based investment schemes work and where they fail. At first glance, a reasonable approach for an investor concerned with environmental issues might seem to be to invest only in ecologically responsible companies with a low carbon footprint.

What are the intentions of the funds and investors?

It is important to recognize here that a presumed socially responsible investment fund is primarily concerned with raising money from its investors like any other investment fund. Such funds charge fees and make a profit. They are not, strictly speaking, in the business of lowering CO₂ emissions.

Whereas all investors care about the financial performance of their portfolios, some may also want to 'do the right thing' for the environment or society.

Individual investors also have their own concerns and motivations. Whereas all investors care about the financial performance of their portfolios, some may also want to 'do the right thing' for the environment or society. In particular, so-called value-alignment investors may be concerned with their money not being used by firms that have negative externalities. They may be less concerned with or simply unaware of the actual impact of their actions on reducing such externalities.

Can ESG investing drive down CO₂ emissions?

ESG investment funds investing only in green companies will attract value-alignment investors. These funds will continue to be invested only in green companies because that is what said investors want them to do. All parties are happy, but our research shows that their actions may have little or no impact on CO₂ emissions. 

Why? Green companies are already green, and putting more money into them will rarely make them greener. Therefore, the impact of investing in companies that, for example, are already emitting very little CO₂ is not particularly effective. Brown companies, on the other hand, will just be owned by other investors and will keep polluting as usual.

There can be exceptions to this effect. For example, one can imagine a case where the amount of money available to be invested in green sectors is larger than the total amount of money needed by those sectors, whereas the remainder of the capital in the economy is not enough to finance all brown sector companies. Thus, having invested in all the existing green companies, a sufficiently large fund would still have money left over to invest in the creation of new green companies. The green sectors will increase in size whereas fewer brown firms will be financed. Whereas this could reduce CO₂ emissions, it would have a perverse effect on financial returns. More green companies will be in competition, and their profitability will fall.

On the contrary, profitability grows for brown companies as their number falls. Thus, funds composed of green sector firms will offer poorer financial performance than those offered by more standard funds. As a consequence, only a small amount of capital would flow to ESG funds, which will not reach the critical size necessary to impact emissions. 

A less intuitive solution to boosting ESG investment impact

Surprisingly, we have shown that an alternative approach is to put money into brown companies. The key, however, is to do so with certain conditions attached, demanding that brown companies reduce their emissions to receive the funding. According to our research, this strategy is generally more effective at reducing CO₂ emissions than investing the same amount of money in companies that are already green. 

Investment capital, it turns out, is a powerful form of leverage for influencing and modifying the behavior of brown companies.

However, this approach has its own weaknesses. First, the ESG fund cannot attract capital from value-aligned investors by investing in brown companies. Second, there may be circumstances under which this approach is not feasible. For example, in a sector where available capital is abundant for investment, brown companies may find sufficient funding from investors who are not concerned about environmental performance. More responsible investors will have little or no direct leverage in such cases.

Extending leverage down the supply chain

One of our key findings involves the situation described above, where a polluting sector has plenty of cash. Here, brown companies that can easily get money without having to comply with environmental demands may nevertheless have companies among their customers operating in cash-constrained sectors. These industrial customers will need capital. Then, an ESG fund can have an impact by investing in such industrial customers, requiring them to commit to only having polluting sector suppliers’ firms who reduce their emissions. The brown companies are now compelled to go green, not because they need the investment cash, but because they will lose their customers if they do not.

Our research shows that conscientious investors can successfully pressure brown companies by targeting links in the supply chain that receive less investment.

A supply chain is made up of discreet links, each representing a company or companies in a separate sector or sub-sector. Our research shows that by targeting links in the chain that receive less investment, conscientious investors can successfully apply pressure on brown companies elsewhere in that chain from a distance.

Thus, investing in green sectors while requiring recipients of capital to select their brown suppliers among the least polluting ones might be the best way to attract value-aligned investors' capital, reduce emissions, and do this without sacrificing too much financial returns.

Takeaway: We consider the pecuniary and non-pecuniary performance of three investment strategies for socially responsible funds: exclusion, Scope 1 investing, and Scope 3 investing. 

Exclusion: Excluding polluting sectors from the fund’s portfolio has an impact only if the fund size is large enough. The impact is achieved with a low-footprint portfolio but comes at the cost of a substantial deterioration of the fund's financial performance.

Scope 1: Even a small fund can have an impact if the polluting sector is subject to capital market frictions by investing only in firms that commit to reducing their emissions. The impact comes with minimal deterioration of the fund's financial performance but is achieved with a high-footprint portfolio.  

Scope 3: By investing in clean sector firms that commit to only having polluting sector suppliers firms that reduce their emissions, even a small fund can have an impact if the clean sector is subject to capital market frictions. The impact is achieved with a low-footprint portfolio and comes with minimal deterioration of the fund's financial performance.
 

Both Scope 1 and Scope 3 strategies can have an impact with minimal deterioration in financial performance, but each has its pros and cons.

In summary, we propose that ESG funds should prioritize investing where competition for funding is high. By imposing restrictions on suppliers and customers, they can influence companies that are not directly financed with responsible capital.

Karen Degouve (H.94) is Head of Sustainable Finance at the French Banking Federation (FBF). Prior at Natixis for more than 15 years, she held key roles in climate finance and impact investment. Her responsibilities included developing sustainable financial products and managing transversal initiatives, including the flagship Green Weighting Factor to support the origination of green financing. She also managed for 7 years the European Carbon Fund, a pioneer climate investment fund dedicated to clean energy and infrastructure projects reducing greenhouse gas emissions. Before joining Natixis, Karen worked in project finance for the Middle East and Africa energy sector and earlier in emerging capital markets.

Can you explain your role as the Head of Sustainable Finance at the French Banking Federation?

My role is to coordinate the work of French banking groups to collectively develop sustainable finance, covering climate action, transition, and adaptation, nature-related issues, environmental, social, and governance (ESG) risks, sustainability reporting, as well as coordinating advocacy and engage with public authorities and stakeholders on all existing and emerging sustainable finance regulation. I also represent French banks on sustainable finance issues with relevant national, European, and international initiatives and bodies, including at events like climate and biodiversity UN conferences (COP). In addition to my work at the federation, since 2021, I have been co-leading the implementation work of the industry-led and UN-convened Net Zero Banking Alliance (NZBA), which brings together over 140 banks worldwide committed to aligning their lending and investment portfolios with net-zero carbon emissions by 2050.

What challenges do you face in developing a profitable business that does not transgress planetary boundaries?  

Since the Industrial Revolution, our global economy has developed with the belief that growth, exclusively measured by the rate of change in GDP, was not bounded by any limitation. As a result, economic growth has historically been tied to increasing greenhouse gas emissions and the unlimited use of natural resources, hence triggering global warming and nature's degradation beyond tipping points. Now, thanks to environmental science, we have collectively come to understand that the double crisis of nature loss and climate change threatens not only economic growth but even long-term human survival. If we want to survive in the long run, we must engage in radical and far-reaching changes in order to decouple economic growth from carbon emissions and negative impacts on nature and ultimately maintain growth within the limit of planetary boundaries. This includes changing consumption habits, developing a circular economy, switching from fossil fuels to low-carbon energy sources, shifting away from manufacturing to less carbon-intensive service-based industries, developing low-carbon infrastructures... Those changes must be engaged urgently, they require both massive investments and strong public policies. We collectively know that now, but despite this belated awareness, moving away from the economic model that has prevailed for the past 200 years remains challenging.

At a company level, developing a sustainable business activity involves navigating several challenges. Companies must reconcile profitability with the imperative to minimize environmental impact, but transitioning to sustainable practices often requires significant upfront investments which can be prohibitive, especially for small and medium-sized enterprises without access to substantial capital. Developing or adopting new technologies that are both sustainable and effective can be a significant hurdle, as the pace of technological innovation may not always match the urgency of sustainability goals. Ensuring sustainability across value chains is also a significant challenge: companies must ensure their suppliers adhere to sustainable practices, which can be difficult to monitor and enforce, especially in global supply chains with varying standards and regulations. As demand for sustainable resources grows, securing supply can be difficult. On the demand side, while consumer demand for sustainable products is growing, not all consumers are willing to pay a premium for such products. Building demand for sustainable options can be a slow and challenging process, especially in a competitive market where competitors may offer lower prices by not internalizing environmental costs.

Navigating the evolving regulatory landscape for sustainability is also a key challenge: new policies, standards, and regulations are being developed, especially in Europe, which can complicate long-term planning and require adaptations from companies to remain compliant. This is particularly true in the EU regarding sustainability reporting: with the Corporate Sustainability Reporting Directive (CSRD) coming into force next year, companies must increasingly navigate the complexities to provide transparent and credible accounts of their sustainability efforts. Finally, shifting towards more sustainable models often requires leadership, employee engagement, and a significant change management effort in order to achieve the necessary cultural and organizational changes. Those are the main challenges I see companies facing in developing more sustainable business models.

I am convinced that financial institutions—banks in particular—have an essential role in supporting businesses in financing the transition to a more sustainable and resilient global economy.

I am convinced that financial institutions - banks in particular - have an essential role in supporting businesses to overcome those challenges and, more generally, financing the transition to a more sustainable and resilient global economy. Financial institutions also face challenges of their own to reconcile long-term sustainability objectives (including net zero by 2050 commitments) with short-term profitability expectations from the market, but they are nevertheless increasingly incorporating environmental and social considerations in their risk management and decision-making processes, evaluating the sustainability impact of their activities alongside traditional financial metrics. This is particularly true in the EU where sustainable finance regulation is essential to the Green Deal.

How do you make sure that the sustainable businesses you are supporting will not bring unwanted consequences, like businesses as usual? 

Ensuring sustainable businesses do not bring unwanted consequences requires conducting comprehensive environmental and social impact assessments (ESIAs) before supporting any company, project, or asset. These assessments are intended to identify and develop strategies to mitigate potential negative impacts. Continuous monitoring and evaluation of the business operations are crucial to identify and address any adverse effects when they emerge. Engaging with stakeholders, including local communities, environmental groups, and experts, can provide valuable insights and feedback to help avoid or minimize negative impacts. Adopting a holistic approach that considers the interconnections between environmental and social factors is also essential.

Major banks have used a risk management framework known as the Equator Principles over the past 20 years to determine, assess, and manage environmental and social risk in project finance. It primarily intends to provide a minimum standard for due diligence to support responsible risk decision-making. The global banking sector developed it as a voluntary standard based on preexisting environmental and social policy frameworks established by the International Finance Corporation. Today, banks that apply this voluntary standard cover most international project finance debt in emerging and developed markets. 

In 2020, EU regulators introduced the Do No Significant Harm (DNSH) principle as a cornerstone of the EU’s new sustainable finance framework. Regulations such as the Sustainable Finance Disclosure Regulation (SFDR), the taxonomy for sustainable activities, and the Benchmarks Regulation all refer to it with different nuances. It is intended to prevent investment processes that would focus on a particular environmental or social objective from significantly harming other such objectives. This is particularly important as increasing net zero targets means that financial institutions tend to focus on the carbon footprint of companies, sometimes at the expense of other important environmental and social data sets such as water, waste, biodiversity, or social impacts. DNSH will help ensure that companies doing well on one environmental aspect meet a minimum baseline standard across others. Similarly, EU regulators have introduced the principle of Minimum Social Safeguards in several regulations, including the Taxonomy. Consequently, EU financial institutions have developed ESG assessment tools, but in practice, however, determining how to apply these principles remains complex for investors to date.

What do you recommend to the new graduates from business schools? 

I would like to remind new graduates that there is indisputable scientific evidence that 6 of the 9 planetary boundaries have now been transgressed, meaning the environment may not be able to self-regulate anymore, and that they are the last generation that can do something about it. Urgent action is needed from all governments, companies, and individuals. Young graduates can act at all three levels, particularly from within the organizations they decide to join after leaving business school. They can (re)align business with planetary boundaries by advocating for sustainable practices that prioritize long-term environmental stewardship over short-term gains within companies. They can leverage their knowledge to drive change at all levels: be responsible consumers, adopt green technologies, push for sustainable supply chains, influence their organization’s strategy, actively advocate public decision-makers… They are tomorrow’s leaders, so they should lead by example in their professional and personal lives. In summary, I recommend they take action everywhere, all at once!

What do you recommend to the investors, whether they are citizens, institutions, or corporations? 

Investors should only support economic activities that are viable in the long term, environmentally sustainable, and socially responsible. I am convinced that investors who fail to include environmental and social considerations in their decision-making process will lose value in the long run. So even if they do not care about contributing to the transition towards a more sustainable and resilient economy for ethical reasons, they should simply do it because it is financially wise. I strongly encourage all investors to require full transparency from their financial advisers, particularly retail investors who historically have failed to do so. In the EU, the Sustainable Finance Disclosure Regulation was introduced three years ago to improve transparency in the market for sustainable investment products, prevent greenwashing, and increase transparency around sustainability claims made by financial advisors.

It was a great step forward, but unfortunately, to date, retail investors have not fully benefitted from this increased transparency due to a complex implementation, the lack of clear definitions of what “sustainable investment” actually means, data issues, and the lack of customer understanding. The regulation is expected to be improved in the coming years, but in the meantime, it is essential that retail investors also take action. Be curious, ask questions about investment processes, exclusions, if and how impacts are measured, if and how ESG-related risks are identified and mitigated, if planetary boundaries are taken into account. It is investors’ demand that drives change, so the more investors ask for sustainability, the more asset managers will invest responsively, and the more distributors will select responsible products over those that are not.

At HEC Paris, new research on impact investing shows that investing in brown companies can be more impactful than investing in green companies. Based on your experience, can you relate to those strategies?

(Find the research in Finance by Stefano Lovo and Augustin Landier explained on Knowledge@HEC here.)

I believe both investing in "brown" companies (those with significant negative environmental impacts) and investing in "green" companies (those focused on environmental sustainability) can have an impact on environmental sustainability or financial returns, and both should be done.

Green companies often operate at the forefront of sustainability, offering innovative solutions to environmental challenges. Investment can accelerate their growth, scalability, and the development of new technologies. It can also send signals to the market about investor priorities, therefore encouraging more companies to adopt sustainable practices.

By investing in brown companies, such as those operating in carbon-intensive sectors, investors can push for strategic changes by engaging with management on sustainability issues through direct dialogue and shareholder resolutions (including say-on-climate). Investments can also be made conditional on clear commitments to sustainability targets, such as reducing carbon emissions, investing in clean technologies, or improving environmental, social, and governance practices. Brown industries often require significant capital to shift towards greener operations. By providing transition finance, investors support these companies in adopting sustainable technologies and practices, which can substantially reduce environmental impacts.

My past experience in managing an impact fund (at a time when it was not yet called an "impact fund") makes me believe a fund’s investment strategy entirely depends on the objective pursued by investors: if the goal is to support the transition, then investing in companies with the highest negative environmental impact today, but with ambitious transition plans to transform their activity over time, can be highly impactful.

However, investing exclusively in green activities may be more aligned if investors’ objective is to support innovation and have an immediate positive environmental contribution. Ultimately, a balanced approach that leverages both the potential for transformation in brown companies while supporting the growth and innovation of green companies could be a strategic way to maximize environmental impact. 

In my previous role at Natixis, I managed a transformational initiative called the Green Weighting Factor for the corporate and investment bank. It included a comprehensive evaluation of the past, present, and future environmental impact of each company being financed, and the rating resulting from that evaluation, which took the form of a color on a 7-level scale from brown to green, was used to inform credit decisions. It has always been obvious that financing the development of green companies and the transition of brown ones were both extremely useful strategies for reaching sustainability targets.

Another recent research unveils three investment options to foster the adoption of renewable energy in Europe. Can you share your reactions to those findings? 

(Find the research in Operations Management by Andrea Masini and Sam Aflaki explained on Knowledge@HEC here.)

I definitely agree that European member states should implement a multifaceted approach to renewable energy policy and investment to finance both short-term and secure long-term market growth. Actually, this multifaceted approach should cover all low-carbon sources of power generation, including nuclear, in addition to renewables, as there is a need for substantial electrification across sectors to reduce direct demand for fossil fuels.

Government support for low-carbon energy in Europe must address both supply and demand. This involves developing demand-pull incentives for households and enterprises, as well as policies to both stimulate technology innovation and create resilient at-scale supply chains for technologies that are already available and mature. Economic stimulation directed towards the supply side should cover both power generation and the energy grid infrastructure to support the integration of renewables.

Another piece of research highlights that the disparity of ESG disclosure standards allows polluting companies like TotalEnergies to pick and choose from a menu of standards, enabling them to greenwash. How do you face this ESG uncertainty when identifying companies to support/invest in? 

(Find the research in Accounting by Hervé Stolowy and Luc Paugam explained on Knowledge@HEC here.)

Yes, to date the lack of standardized ESG disclosure standards has occasionally led to greenwashing. Some companies may use this disparity to present their environmental performance more favorably than it actually is, misleading stakeholders about their true environmental impact. This inconsistency in reporting standards makes it challenging for investors and consumers to compare companies’ sustainability practices accurately and can undermine efforts to promote genuine environmental responsibility.

Despite the lack of convergence, reporting standards, by increasing transparency, are a major lever for accelerating the ecological and social transition on a global scale.

But by increasing transparency, reporting standards are also a major lever for accelerating the ecological and social transition on a global scale. I strongly believe that regulations such as the EU's Corporate Sustainability Reporting Directive (CSRD) and its 12 standards will drastically reinforce the robustness and comparability of companies’ sustainability reporting over time and, therefore, better guide European economies on the rails of transition. With CSRD, each company will report on the consequences of environmental and social upheavals on its financial performance (financial materiality) but also its positive or negative impacts on the environment and people, as well as its dependencies on the environment (impact materiality). Companies will need to report not only on their own activities but also on their entire upstream and downstream value chain. The 12 standards developed to date cover all ESG topics: climate, pollution, water, biodiversity and ecosystems, circular economy, internal workforce, value chain workers, affected communities, consumers, and end users, as well as ethics and good business practices. This will be extremely useful for financial institutions to drive both sustainable investment and transition finance. 

Once again, the EU was a pioneer on the sustainability front. But it cannot win this battle alone, and interoperability between the EU sustainability reporting standards and international ones is key. Hopefully, cooperation between the EU and international standard setters such as the IFRS should enable change. I believe that the simple materiality advocated by IFRS - requiring companies to report only on the consequences of environmental and social upheavals on their financial performance - no longer has a future. Last week, China's three main financial centers, Shanghai, Shenzen, and Beijing stock exchanges, have published guidelines requiring large listed companies to disclose their sustainability data. Their ESG reporting standard, like CSRD in Europe, is based on the double materiality (financial and social impact) principle.

Quentin Rouyer (H.19), Founder and CEO of Alternative Café, a fair-trade coffee importer and distributor

Alternative Café imports and distributes coffees directly from its producers, mostly through its online shop. We promote a new model where coffees are grown, roasted, and packaged in their country of origin. We also organize a yearly international coffee competition in Spain, the World Coffee Challenge, to award the world’s finest coffees, provided they are roasted in their country.

How is your business plan beneficial, or at least not detrimental, to the planet?

The coffee industry has much to improve. By promoting “roasting at origin” as a new standard for coffee, we aim to accelerate the virtuous circle that has started to take place in various producing countries.

Indeed, most coffee growers are stuck in the green coffee trade, where there is little value to make and quantity at the lowest cost possible is all that matters. But when coffee growers start roasting and tasting their own coffee, they see their work differently, learn a lot more about coffee, and are directly incentivized to improve the way they grow it. 

By selling roasted coffee, by developing their own brands, they not only start to actually make a living, but they also gain resources to invest in better agricultural practices. And as they grow, they can hire more people and boost the local economy.

By promoting “roasting at origin” as a new standard for coffee, we aim to accelerate the virtuous circle that has started to take place in various producing countries.

This is not only relevant when exporting coffee through our company but also by serving their local markets: even today, you can find coffees roasted in France, Italy, or Switzerland in supermarkets of producing countries because our popular brands would reimport green coffee after roasting it. This practice may seem preferable but is actually a social and ecological nonsense.

The local markets can become very competitive and push for higher quality to stand out. The importance of quality makes them pay workers better, especially pickers who are no longer interchangeable. It also makes them build better ecosystems because water management, abundant wildlife and agroforestry, and natural and honey methods are key to crafting outstanding coffee. This allows local actors to develop and grow, innovate, and bring science to the service of collective benefits and sustainability.

Also, we only sell coffee in whole beans, primarily because quality coffees deserve to be ground at the last moment before brewing (coffee flavors are very volatile, if your coffee is pre-ground or in pods/capsules, it’s already lost most of its taste and freshness), but the positive effect of that is we are keeping coffee environment friendly. Pods and capsules require material and energy to make and recycle, which are unnecessary to make a cup of coffee, and detrimental to the planet.

Then, it may seem like a small drop in the ocean, but bringing quality coffee to the consumer helps change consumption habits since coffee can be drunk (and is more enjoyable) without sugar or milk. It is both healthier and requires less environmental resources.

What challenges do you face when developing a business that is both profitable and not transgressing planetary boundaries?

By committing to giving the right value to coffee producers and incentivizing good practices at origin, we are hands down the coffee company with the lowest margins. Note that roasted coffee is taxed when entering the UE, whereas green coffee is not; this import tax affects the margin even more. 

Also, because French consumers' willingness to pay for better or ethical coffee is still low (a problem of lack of coffee education and purchasing power), it is very hard to price these coffees where they should be, making it hard to offer retailers the margins they are used to for coffee. Another challenge is that many governments have not realized the opportunity and do not support it, sometimes even making it almost impossible to export roasted coffee (Ethiopia). 

On the environmental side, the impact at the origin is immensely positive, but of course, you can always improve. There is still one point for us to tackle, which is more concrete and visible to consumers and retailers than all the immense good at origin. As a young company, we can only order relatively small quantities of products at a time (under 100kg). Producers’ most affordable option for shipping this type of quantity is through the main carriers, and they mostly will use air transportation.

-> If more coffee companies started to adopt this model or at least were willing to work alongside people like us instead of bringing us down, we could scale shipments and use more environment-friendly transportation.

-> If more transportation companies made shipping smaller quantities of products possible and affordable in environmentally friendly ways, it would solve the problem.

What about the social and inclusive aspects of your business?

“Roasting at origin” is the most impactful change the coffee industry has seen. Growing coffee and preparing the beans for roasting represent 99% of the work and are all done at the origin. Yet the value that goes back to origin is less than 10% of the final value, with the coffee growers getting in average 3-5% (and even less in coffee capsules). The added value of coffee is created at roasting because this is when it becomes consumer-ready. This explains why, despite the constant increase in coffee's consumer price and the growing demand for coffee, the coffee business remains extractive and exploitative.

As introduced earlier, roasting at the origin creates a virtuous circle by letting them generate the added value of coffee. The value that goes back to producers ranges between 40 and 55% of the final price depending on taxes and transportation costs. This creates jobs locally, the need for quality incentivizes paying people better so they do the job correctly, and externalities help develop local economies. It makes coffee a lever for development. Universities and various agronomy schools develop programs for coffee growers to learn more knowledge and get higher education. As countries become proud of their coffee, coffee culture grows, and more coffee shops open in the cities, creating jobs and opportunities.

(Note that in various countries, coffee is grown in remote regions that do not benefit from classic economic circuits, are the places where native communities live in extreme poverty, are places where opium and other dangerous cultivations can replace coffee when it does not allow to make a living.)

How do you make sure that your innovation will not bring unwanted consequences, contrary to business as usual?

This is a very good question. It is hard to imagine unwanted consequences right now because there is still so much work to do, and the impact is highly positive. But I have seen how current coffee businesses have turned very good concepts into shadows of themselves. This is the case of the “Fairtrade” and “specialty coffee” movements. Both were imagined and put in place with goodwill and ambitions for a brighter future. For various reasons, they both failed at their objective, becoming a marketing tool for brands while minimizing the problems in the public’s eyes, which assumes these initiatives work.

I think there are two ways through which we can make sure this does not happen with what we are doing:

• Staying firm on the independence of the local people we work with. It is very tempting for companies to buy farms at origin; this is something that we have seen with both giant organizations (like Starbucks) and small organizations (like L’Arbre à Café). Once you realize the work at origin is the most important, and that people appreciate that coffee must be made from seed to cup, roasted at origin, as a company with a roasting culture, instead of giving up the bean to cup to those who work from seed to bean, you are tempted to take control of the work from seed to bean. This could lead to a new form of colonization of producing countries, where you could label your coffee as “roasted at origin” while building a new exploitation model where the local economy would not necessarily flourish through coffee.

• Pushing for geographic indication protection. Right now, roasters and brands can use the information they receive from coffee traders. They can use the name of the farms the green beans are from, they can use the name of the terroir, the region, the country. There is a world where we bring people to realize the importance of the origin, and more and more terroirs become appreciated for their uniqueness and get a premium (this is something that is currently a problem in specific terroirs from developed countries, like Kona in Hawai or La Réunion in France); while value does not come back to the terroir because the consumer cannot really identify the difference between the coffee that has been 100% made in the terroir bringing the added value to the origin, and the coffee that sold green without the added value.

What do you recommend to other entrepreneurs?

My main recommendation is not to be afraid to do things differently than the current businesses. You may seem crazy, but this is how you can bring about real change.

When I learned about the European coffee industry and went to meet industry leaders at fairs and events, the last thing that would come to their mind would be to do what I was doing. For them, coffee growers should remain farmers, and our coffee companies must buy green coffee and roast it. This is the unquestionable “given.” They all talk and genuinely care about social conditions at origin, about the effects of coffee on the environment, and spend a lot of resources to try to make things better; when the main reason these problems exist and persist is because of that “given.” The industry needs to reinvent itself, probably wind down or accept giving producing countries the main role.

The industry needs to reinvent itself, probably wind down or accept giving producing countries the main role.

In every domain, there are fundamental things to question and challenge. It takes open-mindedness, a willingness to “fight” against the current, or at least a capacity to “survive” for years before the model works and becomes profitable. The most innovative ideas might not get any “quick wins”, might not convince investors at the beginning, but they are always worth the try when they are driven by good motives. The ability to pivot and adapt is key rather than giving up.
 
 

Vagner first achieved notoriety by exposing fraudulent accounting at his former employer, commodities trader Noble Group. In that sense, he is what we call a whistleblower. He went on to become an often-quoted source in financial publications as director of Iceberg Research, which blends investigative reporting with investing. Iceberg probes companies listed on the world’s stock exchanges, and if it discovers what it thinks is fraud, it will publish its findings. It also will take out a short position on the company’s stock, meaning that it will make money if the share price goes down. (Here is a 2020 study co-authored by two HEC Paris researchers on the effectiveness of Iceberg and other activist short-selling firms.)

Vagner has a strong track record for spotting companies who have made suspect claims. In 2021, for example, Iceberg issued a report about Hyzon, a U.S. hydrogen vehicle maker, that expressed skepticism about its sales projections. Two years later, the company paid $25 million to settle a U.S. Securities and Exchange Commission lawsuit that alleged, among other things, that the company had misled investors about its business relationships to give a false impression that significant sales transactions were imminent.

In an interview, Vagner told Knowledge@HEC how a short-seller can play an important role in keeping green business honest and why so many of the firms that Iceberg scrutinizes are companies that make claims about their products’ environmental benefits. 

Would you explain more about Iceberg Research? And what is the importance of your role in the markets? 

We are “activist short sellers,” meaning we publish on listed companies that have fraudulent or misleading representations. We are also a traditional long/short fund. Activists are a rare critical voice in capital markets. If you look at all the people who do research, such as investment bank analysts, they have an incentive to write positive things about the company. Some investors may think auditors are independent and dependable. But the company pays them, and if they challenge their client too much, they will be replaced by a more friendly competitor. Then you have the journalists, who are mostly neutral. They want to investigate those companies, but they can only focus on the big ones because it’s very expensive to do research for months. That means that the smaller and medium-sized companies don’t get as much attention. 

We’re also looking to have an impact on the stock price. You don’t want to publish something where you think the stock price will only go down by 10 percent. It’s not big news. You want a minimum of 30 to 35 percent. 

Critics might accuse a short-seller of being biased because there’s an incentive to bring down a company’s share price. 

We have an incentive to be right. If I come up with a weak report, you may get a drop in the stock price for a few minutes. But then after people realize that it’s weak, they might say, "I’m going to go out and buy that stock and make some money." So you end up having a damaging effect on your own position. We have a very thorough checking process before publishing. Sometimes we don’t publish at all because we think there’s a small chance we might get it wrong. We prefer to be conservative.

We have an incentive to be right.

Do you often go after companies that make unjustified claims that they are helping to fight climate change?

My job is not to directly expose companies that claim to address climate change. It's just that the percentage of frauds happens to be higher than average among these companies.

Do you have any theories on why that might be so? 

Fraudsters target these industries for various reasons. One is supply and demand. These industries are perceived as "hot" by investors, creating a demand for stocks. Another reason is they’ve only just sprung up. If the company is new, there is no requirement to present substantial financial statements. Selling a PowerPoint presentation is easier than creating a real business. Finally, some investors attracted to climate change solutions may be more naive than average, and companies exploit this vulnerability. Repeating ad nauseam that the company's mission is to save the planet doesn't necessarily make the company trustworthy. In fact, it often signals the opposite.

If companies are claiming to address climate change but turn out not to actually have a positive climate impact, what sort of harm does that cause? 

The companies we expose fail to address climate change, but they are also financial failures because their product does not work or is inferior. Their only achievement is to enrich management. And it does take away capital for other companies that have real and cost-effective climate solutions. 

Of all the companies you’re scrutinized at Iceberg Research, how many promised a climate benefit but didn’t not deliver it?

Recently, at least half of them.

How do you spot companies that you choose to scrutinize, and how do you go about studying them?

I’ll give you the example of Lilium (a German developer of an all-electric aircraft). We started to look at this company because there was some criticism about their technology in the German professional press. We looked at the founders and what they had achieved. We asked an aeronautics engineer to review the concept. (Iceberg’s 2022 report on the company expressed skepticism about its battery technology and the aircrafts’ ability to stay aloft for more than brief tests, among other issues. This led to an investor lawsuit and a sharp fall in its stock, Ed.)

Do you have any advice for investors?  

Something basic: if you see a green tech company being overly promotional, and delivering little or nothing, then definitely stay away.

Sylvia Metayer (H.86) was Sodexo’s Chief Growth Officer from 2019 to 2022. She is a founding member of SoTogether, the Group’s women network, and Executive sponsor of Pride, its LGBT network. Sylvia sits on the Boards of Aéroports de Paris, Keolis, Page Group, and Animalcare. She is also a member of the International Strategic Advisory at HEC. Find Sylvia Metayer’s article in the Harvard Business Review France (in French): "L’innovation, un levier de croissance mais surtout un enjeu humain."

Pascal Stefani (H.88) spent 25 years working in private equity, mainly at Advent International. He’s now a philanthropist and Business Angel in environment, education, and inclusion. He is involved with Ashoka, a pioneer network of social entrepreneurs, an investor, and a Board member of social enterprises, including Label Vie, LiveMore, and Wu&Cie. Hence, he is trying to help social enterprises scale up and bring systemic changes.

Karine Rougé (H.04) is CEO of Veolia North America’s Municipal Water services, managing one of the world's biggest municipal water distribution services. Previously, she was a director for First Sentier Investors, a leading global infrastructure investor, and worked for Suez for 11 years. 

In your opinion, what is the role of business in the transition to the ecological and social paradigm?

Sylvia Metayer: Businesses have a key role to play in this transition: they have scale, they have means, they are a key interface between consumers and supply chains, and they unite geographies. And they very often have active employees who want them to stand for a better world. 

Pascal Stefani: In my opinion, business is a key element of the ecological and social transition. Depending on their transformation, businesses could accelerate the transition or make it impossible. The transition will fail if the business stays mainly driven by profit-making, growth, and short-term returns.

Businesses are a key driver of both the problem and the solution.

Karine Rougé: Businesses are one of the largest forms of human organizations. As such, they are a key driver of both the problem and the solution. The current paradigm of for-profit businesses is relatively new in its construct when we look at the history of organizations. It is by no means set in stone, and I am convinced that we are seeing the emergence of a new paradigm where performance will be multifaceted and not only financial. Our current situation poses an existential threat to organizations as they are, they are forced to take that into account for their own survival. 

What types of actors do you think play the most important part in this new paradigm?

Sylvia Metayer: No one is more important than the other: if we start to assign importance, we run the risk of waiting on one another to do something. We must all act in a coordinated and informed way.

The transition also requires a dramatic change from investors to balance impacts with financial returns.

Pascal Stefani: The new paradigm requires ALL types of actors. Of course, privates are key but they will not change fast enough without the pressure from citizens (as customers and employees) and without changes in regulations and public policies (also driven by citizens votes). The transition also requires a dramatic change from investors to balance impacts with financial returns. Social entrepreneurs are also key actors as they bring environmental and social innovations to business. 

Karine Rougé: I see these actors as various types of coalitions of individuals with different means of action. Private actors have capital and ability to invest, public actors have that ability to a lesser extent but can form policy. Investors and citizens are influencers of the organizations in which they have a stake. So, I think everybody can play an equal role, but with different tools and time horizons. 

What is the role of purpose or meaning at work in elaborating a business that is respectful of the environment and people?

Sylvia Metayer: We spend so much of our time at work that if there is no purpose or meaning to it – then really, what is the point? Lack of meaning at work leads to disengagement and flight of talent which, in turn, means business failure. The difficulty is to align individual purpose and meaning with corporate purpose and meaning. If they are authentic, environmental and social stands taken by corporations can connect everyone and resonate. Who can say they do not want a better quality of life in the future for themselves and future generations?

Pascal Stefani: Being aware that already 6 planetary boundaries out of 9 are transgressed with consequences for human life and social justice, it’s high time to change for a regenerative economy. This could not be done without purpose and a long-term view. Without a purpose, why should we change and sometimes give up business lines or practices? Without a common purpose, how could we implement change with all stakeholders?

How could we implement change with all stakeholders without a common purpose?

Karine Rougé: It is very human to strive for a purpose broader than oneself. Whether it is spiritual, religious, or community-based... I think there always has been purpose in work, before companies started putting efforts in writing them explicitly: for some it was the sense to contribute to a broader effort for humanity, for others it could be their contribution to the efforts of their team. The difference now is that more and more leaders have understood the need to pay attention to something other than financial performance. It was as if we were trying to counteract the 1980s and the Reagan of Milton Friedman. 

That commitment from leaders and institutions should help create more trust in the authenticity of the company's purpose. I can say that for myself, when I joined Veolia, it was a key decision driver to sense a lot of commitment to the purpose at very different levels of the organization, from the CEO to field workers. And in my day to day, it serves as a real compass. Often, we ask ourselves, “Is it the right thing to do?” And in this question, the underlying idea is whether we are aligned with our purpose as a company. 

How has purpose helped or driven you to act in the companies you have been committed to?

Sylvia Metayer: Very early on, I acted on the fact that I wanted to work in a company that was “good” – this was before purpose was a buzzword. I summed it up by saying I wanted work I wouldn’t be ashamed of in front of my children. And so I have always worked for such companies and frankly walked out when they weren’t true to their purpose. I guess I was taken aback my first day at Sodexo working on the frontline when someone told me, “I do this work so my children don’t ever have to do it,” because it was the negative of my own wishes. I then understood that I had to go from working in a “good” purposeful company to being an agent of change and good for others. As a leader, I had to embody the purpose of the company, not just benefit from it, and ensure the purpose was alive and thriving.

As a leader, I had to embody the purpose of the company, not just benefit from it, and ensure the purpose was alive and thriving.

Pascal Stefani: I really started my personal path looking for purpose in my job in 2011. I wanted to better align who I was, my values, and my job. I started working on myself (être soi) and working pro bono for social entrepreneurs, getting more familiar with environmental and social issues. In 2016, I quit my job in finance to work fully with social entrepreneurs and help them bring social and environmental innovations to our economy and society. 

Karine Rougé: As the US's leading water and wastewater operator, serving 20 million Americans, we have a great field of action. While renewable energy isn’t necessarily asked for by our customers (remember that gas is very cheap here…), we are investing in biogas production from biosolids and microgrids to improve the energy efficiency of our plants. That’s by no means easy, but everybody is excited to do it because it is aligned with our commitment to the environment and our social commitments, as ultimately, this will lower costs for communities. 

What difficulties do you see when it comes to embodying purpose in a company?

Karine Rougé: It is easier and faster to lose trust than to gain it. One decision by a manager in the company that isn’t aligned and trust can be lost for this group of people. There are also conflicting objectives. In my biogas example, sometimes we have to decide not to do it because it would be too costly for us and erode value for our shareholders, who remain an important type of stakeholders. There is no perfect decision-making process around such a question, but the ability to build a dialogue around it is key. 

Pascal Stefani: Companies have been managed with a view to making profit and only profit. Transitioning to the new paradigm is challenging because of skepticism, fear of change, and uncertainty about a new model. Getting alignment and changing mindsets are difficult. This requires a change in culture, practice, and organization. Of course, leaders need to be formed and trained for purposeful leadership, but also middle management.

And you, what role can you play to ensure that private actors, public actors, or citizens play a lasting positive role?

Sylvia Metayer: By first ensuring that in everything I do, I myself am playing a lasting positive role. This informs all my dealings quite naturally, as well as my choices of activities.

Pascal Stefani: I’m trying to help social enterprises scale up and bring about systemic changes. This requires building bridges between social business and business and finance for a larger impact. It also requires changing laws and regulations. I’ve been doing that mainly in environment, inclusion, and education. 

Karine Rougé: I lead a private business dealing with municipalities. We like to say that we are a B2C2B organization, as many of our topics are pushed by citizens to their elected officials. So I will say that education is essential, especially for a topic as little known by citizens as water. 

Why do you donate to research and education on purpose?

Sylvia Metayer: Education is the biggest lever for change, and access to education is the biggest lever for inclusion. Research is what will funnel innovation for change, and all this requires means and funds.

Pascal Stefani: I started donating to the HEC Foundation a long time ago with the goal of giving back. I was specifically interested in the Chance Equality program. I was immediately convinced when Hubert Joly created the Purposeful Leadership Chair with HEC. As a leading Business School and Grande Ecole, HEC has to train new leaders capable of tackling the new paradigm.

In topics like purpose, it is easy to see this as a communication exercise, while I believe this is a whole new education for leaders that is required.

Karine Rougé: I believe there is value in understanding better how organizations, their management, and their governance should evolve to meet the requirements. In topics like purpose, it is easy to see this as a communication exercise, while I believe this is a whole new education for leaders that is required.

What initiative(s) at HEC do you find the most inspiring and impactful so far?

Sylvia Metayer: The scholarships program, the companionship initiative¹, the Impact Company LABs “data initiative”², and all the DE&I initiatives.

I'm grateful that HEC has decided to invest in research and teaching, as both are necessary to form new leaders and search for business alternatives.

Pascal Stefani: I’m grateful that HEC has decided to invest in research and teaching, as both are necessary to form new leaders and search for business alternatives. I strongly believe that we need to act now without waiting for a new generation of leaders at the heads of companies. So, I’m glad that HEC is already working with corporations and start-ups to implement changes that will impact the new generation.

Karine Rougé: I think the school is doing a wonderful job weaving purpose leadership into its core curriculum, starting with much more attention to developing students in their entirety and not only their left brains. The focus on a different set of skills, empathy, listening, and intuition, to complement the ones that HEC students already have, is a very important differentiator.

*Hubert Joly, former Best Buy chairperson and CEO and now a senior lecturer at Harvard Business School, created the Joly Family Purposeful Leadership Chair in 2018, along with HEC Paris and the HEC Foundation. Joly has been recognized by Thinkers50, and acknowledged as one of the top 30 CEOs globally by Barron's. Rodolphe Durand, Professor of Strategy and founder of the S&O Institute, is its academic director, and Cécile de Lisle, its executive director. The chair allows several professors and Ph.D. students to investigate how meaning at work affects performance while addressing environmental and social issues. Learn more in this HEC Talks’ summary.

¹The Companionship Program is an initiative of the Purpose Center in collaboration with HEC Alumni (120 students and alumni are involved in 2024).

²The goal of the “data initiative” of the Impact Company LAB is to generate novel evidence of what sorts of sustainability-related business practices actually work, and the ones that don’t work. There, researchers leverage underutilized existing databases and create new databases.