Sustainable Leadership: Creating a Climate for Change with Rebecca Henderson and Spencer Glendon


On this week’s episode of World Reimagined, host Gautam Mukunda spoke with two guests who are at the forefront of climate change research: Harvard University professor Rebecca Henderson and senior fellow at Woodwell Climate Research Center Spencer Glendon. Listen to hear their discussion about what is at stake with climate change and the global economy.

Economic growth demands a stable climate. So, what happens when that stability starts to erode? What becomes of our economy when it is too hot to go outside for six months of the year? Or, when the coastal cities of the world are no longer inhabitable? What does this mean for business?

Climate change is a systemic risk to the global economy.

However, it is a collective risk and, if we take collective action across industries and around the world, we can mitigate the worst effects of climate change. However, we must act quickly.

In this episode, Host Gautam Mukunda speaks with Rebecca Henderson, one of 25 University Professors at Harvard and the author of Reimagining Capitalism in a World on Fire, and Spencer Glendon, an economist and senior fellow at Woodwell Climate Research Center, about saving the planet, the future of capitalism, advocating for good regulation and better government, and the idea of investing in the future without financial return.

If we decided we wanted to address climate change we couldn’t fix it, but we could absolutely ameliorate the worst effects before it’s too late. It’s not a technical problem. The problem is political will. The problem is persuading people that this is real, that it’s going to happen, [and] that it’s going to have immediate effects. If we can do that, then I am quite sure that we can address it.
Rebecca Henderson
Climate change is a systemic risk to the entire economy and the entire financial system. You cannot diversify away from it. The pursuit of alpha in the face of this kind of risk is bizarre if you have financial holdings of any size or grandchildren.
Rebecca Henderson

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Guest Information for Sustainable Leadership: Creating a Climate for Change:

Rebecca Henderson is one of 25 University Professors at Harvard, a research fellow at the National Bureau of Economic Research, and a fellow of both the British Academy and of the American Academy of Arts and Sciences. Her research explores the degree to which the private sector can play a major role in building a more sustainable economy. Rebecca sits on the boards of Idexx Laboratories and of CERES. Her most recent publication is Reimagining Capitalism in a World on Fire, which was shortlisted for the FT/McKinsey 2020 Business Book of the Year Award.

Spencer Glendon is working to make the consequences of climate change more vivid, intuitive, and useful. Collaborating with scientists, designers, technologists, and other concerned generalists like him, he founded the forthcoming initiative, Probable Futures, which will soon make local and global projections of heat, drought, wildfire, and other variables available, for free, to anyone in the world. Spencer is a pro bono consultant to many institutions and is a Senior Fellow at the Woodwell Climate Research Center. He has worked in Michigan, Chicago, Germany, Russia, China, and Boston. For many years he conducted and directed research at Wellington Management. He holds a BS in Industrial Engineering and a Ph.D. in Economics.

Books Referenced in World Reimagined Episode 12:

Reimagining Capitalism in a World On Fire, by Rebecca Henderson

Fixing the Game: Bubbles, Crashes, and What Capitalism Can Learn from the NFL, by Roger L. Martin

All We Can Save: Truth, Courage, and Solutions for the Climate Crisis, Edited by Ayana Elizabeth Johnson and Katharine K. Wilkinson

Radical Hope: Ethics in the Face of Cultural Devastation, by Jonathan Lear

Episode Transcript:

Gautam Mukunda (00:00):

For all of history, the hidden foundation of economic growth has been a stable climate, and the world is getting hotter.

Speaker 2 (00:06):

10, nine [inaudible 00:00:10]

Speaker 3 (00:16):

The reality can no longer be ignored.

Speaker 4 (00:18):

We stand today at the threshold of a great event.

Speaker 3 (00:19):

That we live in an interdependent world.

Speaker 2 (00:22):

Two, one.

Speaker 5 (00:28):

World Reimagined with Gautam Mukunda, a leadership podcast for a changing world.

Speaker 6 (00:33):

I want there to be peace everywhere.

Speaker 7 (00:37):

We look for integrity, we look for intelligence, and we look for energy.

Speaker 8 (00:41):

Every country, including the United States, is going to get impacted.

Speaker 5 (00:45):

An original podcast from Nasdaq.

Speaker 9 (00:48):

Are we brave enough and wise enough to grasp this opportunity?

Spencer Glendon (00:52):

The modern business person in the United States, globally, but especially in the United States, has little concept of the foundation on which their notion of capitalism sits. Very late in my career, after 20 years in finance, I've discovered that a stable climate has only existed on this planet, and especially one that was agreeable to humans for about 12,000 years.

Gautam Mukunda (01:23):

My first guest is Dr. Spencer Glendon, an economist and senior fellow at Woodwell Climate Research Institute. He was formerly director of Investment Research at Wellington, Management, an investment management firm with more than a trillion dollars in assets. Spencer has dedicated the rest of his life to making sure that we understand that the implications of climate change are orders of magnitude larger than almost anyone knows.

Spencer Glendon (01:46):

Now, that's a long time, we don't have any 12,000 year investors here or are CEOs here, but, it happens to be the case that understanding that the climate stabilized for the first time at a comfortable level in about 10,000 BC, explains essentially why Nasdaq exists, which is to say, when the climate stabilized, it led to the first massive change in how humans lived, which was that they settled, they got to stop being nomads. If we stay in place, well, then we develop agriculture. Now we have savings, and if we have savings, we start having capital, and we start building institutions.

Spencer Glendon (02:25):

So, a stable climate was the catalyst and actually the precondition for anything we think of as civilization. Now, there are probably many merits to nomadic life, but nomads don't have capital markets, they don't have stock exchanges, they don't have libraries, because they don't stay in place. So, staying in place is the foundation of civilization, and that staying in place is only made possible by a stable climate. So if you move forward now to the present era, we have a set of people running businesses, people running institutions, and just people living in this world who assume that that stable climate is a perpetual feature.

Spencer Glendon (03:07):

What I would say is that, the foundation of civilization is a stable climate, on top of that are institutions like communities, nations, and government. On top of that, there's physical infrastructure like roads, buildings, and bridges, and on top of all of that are still more systems that are basically like norms and habits and even things like educational systems, and on top of all of that is corporations. So, corporations exist in the space that may feel to them like a free market, but it actually has this really long, deep foundation that if the foundation is rocked, bad things will happen.

Gautam Mukunda (03:48):

We're also joined by Dr. Rebecca Henderson. Harvard's highest honor is to name someone a university professor, there are only 25, and their work is judged to be of such importance that it transcends fields and schools. Rebecca is only the second university professor in the history of Harvard Business School. Her current research explores how the private sector can help build a more sustainable economy, and her new book, Reimagining Capitalism in a World on Fire was shortlisted for the Financial Times, McKinsey 2020 Business Book of the Year. If there was a Nobel Prize in management, the only question is, how many Rebecca would have? I asked her if it was even possible to reimagine capitalism to deal with a problem on a scale of climate change.

Rebecca Henderson (04:32):

It is definitely possible. It's not clear that it's probable but we can absolutely address these issues. We have the technology and the resources. If we decided we wanted to address climate change, we wouldn't fix it, but we could absolutely ameliorate the worst effects before it's too late. It's not a technical problem, the problem is political will, the problem is persuading people that this is real, that it's going to happen, that it's going to have immediate effects. If we can do that, then I am quite sure that we can address it.

Gautam Mukunda (05:14):

So, I think Americans have never dealt with wealth destruction in the way that say every country in Asia and every country in Europe has because of war. I'm not sure we have a frame for that. So I remember when Spencer first walked me through this chain of how wealth is going to be destroyed in the United States because of climate change, and I think it'd be really helpful to get that in, and also to get your response to it. Because that has stuck with me in a way few things ever had.

Spencer Glendon (05:38):

No individual in Florida roughly should own their own home as a meaningful form of their own personal savings, because that wealth will go away. So Florida is a peninsula that is entirely made up of porous limestone. It's essentially old coral reefs. As a result of that, you have a number of features of Florida, not only is it very low lying, but also it has a bunch of infrastructure problems. So, here's what's going to happen in Florida, and whether it happens tomorrow or it happens over the next 10 years, maybe 20 years, I'm not sure, but I think it will happen quickly.

Spencer Glendon (06:19):

So, the way it works is this, what first goes is not insurance. You see insurance is renewed annually, and insurance companies can withstand various losses, and they are actually risk-aware institutions generally. But what first goes actually is new buyers. The reason new buyers go away is because the new buyer needs to make a 30 year commitment or an even longer commitment. So, when people start looking at buying in Tampa or buying in St. Petersburg or buying anywhere along the coast, and especially in middle class and working class, Florida, when they look at these coastal places and say, "Do I want to have the need?"

Spencer Glendon (07:03):

For many families in the United States, the principal way they accumulate wealth is by paying down a mortgage, and winding up with equity is they have to sell that home. So, this is a case where if I buy a home tomorrow in Florida, I have the expectation of selling it in 30 years, and gaining the capital gains from that. To your point Gautam, there's really never been a nationwide systemic loss of capital in this way. But there actually are really clear examples of this happening in cities. So, I happen to have grown up around one of them outside of Detroit, and Detroit, what happened was, it was the fastest growing in many ways most prosperous city in the United States until it stopped being so. Once people started moving out, it became chaotic very quickly.

Spencer Glendon (07:53):

This is what will happen in Florida. I think it will first start with banks, banks will stop lending for 30 years in Florida. Well, now you're in a market that no longer has 30 year debt, that makes it different than everywhere in the United States. When that happens, prices will fall and people will be in a rush to start selling their properties and get out. Now the second piece of this is that Florida has no income tax, and so Florida relies more than most states on real estate for its internal finances. So, internal finances will get worse. But now we get to the limestone. So the problem with physics is that, it actually tells you some hard things, one of which is that as the ocean gets higher, it gets heavier, and that heavy ocean pushes on this porous limestone such that the water infiltrates the land.

Spencer Glendon (08:48):

So if you've been in flooded Miami, you'll notice it doesn't flood from coming over the beach, it floods from the sewers. So what will start to happen is that, as Jeb Bush once told me, it'll be hard to flush toilets in Florida, because everyone will need a way to flush their toilet which goes out into the ocean at heavier, harder pushing ocean and they will need fresh water from aquifers that are getting strained. Now, why is this a problem? Because at the exact time when property prices are going down, municipal budgets will have to go up to deal with this increase in cost.

Spencer Glendon (09:24):

So, when I look at estimates, the Florida will lose two or three or five or 10% of GDP, I laugh because, and not happily ... I scoff would probably be a better way to put it, because what will happen is the undermining of the long term dream of Florida which depends on new people moving in all the time. So, the value of Florida property is predicated, and this is built into the municipal budgets of every Florida city, of more and more people coming, you turn that around, you have both increasing maintenance costs and decreasing tax revenue at a time when you have falling property prices and expectations, it is a financial catastrophe. The insurance market never needed to change for that to happen. All that had to change was, people said, "30 years is too long to put money in Florida."

Gautam Mukunda (10:13):

So Rebecca, I know you've said that not only is this going to happen, but one of the issues with it is that investors can't diversify away from it. So I'd love to get you to, I guess, respond to that, but also give me a sense of how are people going to react to this problem?

Rebecca Henderson (10:25):

Sure. So, I want to say but wait, it's worse than Spencer said. Let me tell you why it's worse than he said. I'm reminded of that great old phrase, how do firms go bankrupt slowly, and then all at once. Right? Because as things are getting worse, we're going to get all kinds of denial kicking in. At the moment, for example, I happen to have worked with a bank in Florida, where I know that the people writing mortgages have actively refused to incorporate the probability of climate change into their calculations, because doing so would make it harder and more expensive to write the mortgages and would affect their short term bonuses.

Rebecca Henderson (11:14):

So, we know that this is going to happen, but we're ignoring it, and we will only ... I fear start to move when things get so bad that we are on the edge of cascading chains of failure. So what does this mean for business? This means climate change is a systemic risk to the entire economy and the entire financial system, you cannot diversify away from it. The pursuit of alpha in the face of this kind of risk is bizarre if you have financial holdings of any size or grandchildren. The good news, of course, if I can be hopeful just for a moment, is that all of us face this risk, it's a collective action problem, and the cost of fixing it is relatively small.

Rebecca Henderson (12:08):

So, there are some things we will not be able to reverse, there'll be parts of Miami, we will lose whatever we do, because the [inaudible 00:12:16] is baked in. But if we were to move now, and Spencer, I'd be curious what you say on this, I've seen estimates suggest two or 3% of GDP, a lot less than we spend on the military, for example, certainly worldwide would enable us to begin to turn things around. I'm always torn as to whether to talk about the potential for cataclysmic breakdown, which I completely agree is very real. My experience has been that people tend to tune out, they tend to go into despair, it seems too big.

Rebecca Henderson (12:54):

So I think it's really important to couple your account with the idea that this is absolutely solvable, and it doesn't mean the end of our economy, in fact, it might generate real jobs and real growth down the line and not doing it will generate huge costs.

Gautam Mukunda (13:11):

Here's why it's so hard to deal with systemic risk. Because systemic risk is everyone's problem, because everyone depends on the system, it's easy to pretend that it's no one's because no one can fix it alone. It gets even worse when the pain from system failures will only be felt sometime in the future. Suppose you're the CEO of a big company, you know that climate change is real, you know it's important, and you're feeling the effects now. But the worst ones, the ones that will threaten the survival of the system, maybe even of civilization, those are still coming down the pike, maybe they're a couple of decades away.

Gautam Mukunda (13:50):

What's the average tenure of a Fortune 500 CEO? It's about 10 years. So you'll have to hope that the markets reward you for decisions that won't pay off for a really long time, probably long after you've retired. But that's a problem too, because as CEOs constantly complain, and as described by Roger Martin, the Dean of the Rotman School of Management in his book, Fixing the Game, markets tend to be really focused on the short term. This isn't just about climate change, although maybe its worst impacts are felt there, research by Graham Harvey and Rajgopal shows, for example, that 78% of CFOs would actually harm their company's long term interests in order to hit Wall Street's short term expectations of smooth quarterly earnings.

Gautam Mukunda (14:37):

There's a reason that Jeff Bezos republishes his first letter to shareholders every year, in which he explains that Amazon will be run for the long term, and if that isn't what investors want, then they should invest with someone else. So if business is going to have to do its part to help prevent catastrophic climate change, it's going to have to start thinking about the long term again, and it's going to have to grasp the scale of the challenge to realize that there is no business issue as important as making sure that this is still a world we can and want to live in. I asked my guests if the business community is beginning to process the extent and scale of climate change as a problem.

Spencer Glendon (15:16):

I would say the answer to that is yes, so long as you really emphasize begin, and I think there are a couple things that Rebecca said that are really important.

Rebecca Henderson (15:28):

I would really double down on that, begin is the operative word.

Spencer Glendon (15:35):

I've helped a number of prominent CEOs do some work internally and publicly to start to do this, and invariably, they're terrified that they're going to get pushback when they say anything about this topic. What happened in every instance is they're delighted and totally surprised that there is no pushback. So I do think that there are many beginnings now.

Rebecca Henderson (16:03):

When firms start acting, so often they find not only that there is no pushback, but that actually, there's financial return, you have the evidence that reducing your energy use significantly can give you rates of return of 15, or 17%, is really quite compelling. I mean, KKR, I understand whenever they buy a new company, they put in a team to cut water and energy use, because it's so profitable. Walmart took a billion dollars to the bottom line by rejiggering the efficiency of their trucking fleet. I mean, there's a lot of money to be made in this space. Horrible generalization, but most companies can cut their energy use by about 40% on an NPV positive basis.

Spencer Glendon (16:49):

I want to go back to something important, Rebecca said, which is this idea of political will, is a really hard thing for business people to think about until you give them the right context. That is, where I think a lot of conversation needs to happen is what is the domain of the corporation, and that domain is extremely important. I not only don't think it's impossible for capitalism to survive, I think it's actually in some sense, imperative. The reason is, we don't have any time to develop a whole new system, there is not some time to develop a fantastic new system that could somehow be better than capitalism even if you're a critic.

Rebecca Henderson (17:32):

Can I pull apart a couple of points that Spencer has made that I think are really important? The first is it's not as if the choice facing business is address climate change or business as usual, that's not the choice. If we don't tackle climate change, there will be very severe costs. Those costs will be borne by everyone, but the private sector will certainly see them. It's kind of crude, but it's going to be hard to make money in a world in which the great coastal cities are underwater, and hundreds of millions of people are migrating North because the harvests have failed, and one in which our political institutions are in free fall because we haven't addressed these issues, and we're looking at populist government that is no friend to capitalism at all.

Rebecca Henderson (18:20):

So, I think it's ... yes, there's a huge case to move because we're talking about the future of the human race, but this is going to affect your company quite quickly. The energy companies and the food companies or the construction companies, it's already happening, they can see the effects of climate change.

Spencer Glendon (18:39):

One of the things I try to tell leaders is, amazingly, you still have the opportunity to be a leader. Even though you've waited so long, you still have the opportunity to be a leader, that leadership actually won't be as reputational and costly as you think. Right now is the best deal you're going to get regulatory wise for advocating for regulation, and that's effectively what I try to help people understand, is they should be advocating for climate friendly regulation, because the regulation they could get now is still very market centric, but the longer they wait, the less market friendly the regulations are likely to be.

Spencer Glendon (19:19):

I would argue that we've waited so long to put any price on carbon that the price on carbon is approaching being wishful thinking, because if we wait much longer, it will just become illegal. It will get more brutal regulation if the participants in markets don't ask for smarter regulation. I think there are helpful mindsets that are missing in especially American businesses, we've overvalued the idea of growth and disruption and undervalued maintenance and efficiency, and the returns on maintenance and efficiency are far more predictable. You have much more control over them and yet they're amazingly ignored.

Spencer Glendon (20:01):

So, there is so much to gain from all kinds of just getting rid of waste that American culture find troublesome. The professor John Sturman has this point, that only in America do we think of maintenance as fixing broken things, as opposed to maintaining things so they don't break. That difference is a really huge difference, and it really is the case that in America, maintenance is fix broken things. In other cultures that are much more efficient, there's this notion of, "Well, you maintain them so that they never break." The returns on that are so much higher.

Rebecca Henderson (20:44):

You've helped me to see something I hadn't seen before, which is, in too many ways, American business people take that mindset to the climate. There's a model in the back of their heads that, "Well, if the climate really breaks, we'll fix it." If the problem gets sufficiently bad, we will come up with a fix, as opposed to, "No, let's keep it running, now let's pay attention to what we have now." That is absolutely true on the factory floor, but I think it might also be true on the large and I hadn't made that connection.

Spencer Glendon (21:16):

That's exactly right. The sciences understand the idea that the systems are closed, everything has to add up. In business, nothing has to add up, everything can go to infinity and infinity is fine. I would push even further on what you just said, Rebecca, which is that the model is actually explicitly a model, the model used for even figuring out the costs of climate change, they assume, openly, that we'll be so rich in the future, that we'll be able to compensate for the loss of this system, that there will be a fungibility between things.

Spencer Glendon (21:53):

My view is that, that fungibility probably exists between sneakers and hats. It definitely exists between coffee cups and tea cups. But I don't think it exists between the climate and anything else. So you have this idea that there will be a prosperity ex post that allows you to buy the substitute for climate. Well, I would say two things. One is the energy intensity of that is beyond measure, and the other is, it's a terrible way to live, it is Mad Max, or it is living indoors all the time. But also, it's extraordinarily expensive.

Spencer Glendon (22:28):

So we have this cheap system, and the way I like to describe it is, we lived in a house that needed no maintenance. So we stopped thinking about the idea of maintenance, we've now abused the house enough that it's a troublesome house, it needs to be maintained, but it is maintainable. We need to up our maintenance budget for the planet, but it is now maintainable. But if we wait too long, we'll just be homeless, we will be nomads again, and that is poverty.

Rebecca Henderson (22:55):

You've reminded me of the first time I read a paper suggesting, "We didn't really need to worry about climate change, because agriculture after all, food was only 2% of the American economy. That's hardly anything." I thought, but there are thresholds and limits, and having no food is a serious problem. But yes, it's our way of thinking about the world, particularly if we're economists or business people, is geared to this sort of everything is fungible, everything's going to grow. I think it's proving to be difficult to see that there are limits.

Gautam Mukunda (23:32):

Economic growth really does solve a lot of problems, but Spencer and Rebecca clearly reject the idea that it can solve this one. Let's think through why economic growth won't be enough. First, saying we'll be richer in the future and can pay to deal with the effects of climate change then, makes a crucial assumption, that economic growth will continue. It's easy to say, well, it always has. But for all of history, people have, as Spencer reminds us, operated in a narrow band of optimal climate.

Gautam Mukunda (24:04):

If you look at the rich cities in the world, other than Phoenix and Hong Kong, both special circumstances, they all exist in very temperate climates. As the world gets warmer, fewer and fewer cities will have the benefit of those comfortable temperatures. What does economic growth look like when it is too hot to go outside six months of the year, when it's that hot in countries too poor to afford air conditioning? If we do decide to air condition a few billion more people, what will that do to the climate? Layer on top of that, heat waves, and intense storms, and flooding, and new diseases, and refugee flows involving hundreds of millions of people fleeing countries where it is just too hot to live?

Gautam Mukunda (24:51):

Are you still that sure that economic growth is going to pay for everything? For that matter, how much would someone have to pay you to make up for a world where is too hot to go outside, too polluted? How much would they have to pay you to live in a world where even if you can afford enough food, hundreds of millions, or even billions of people cannot. Even if you believed that economic growth in the face of that is a certainty, it can't solve those problems. That's a depressing prospect. I mean, I feel pretty shaken hearing about it, and for me, this is just one podcast episode. Spencer deals with it all day, every day. I asked him how, he stays hopeful.

Spencer Glendon (25:39):

I am too close to the science to be as sanguine about stopping because we now know that permafrost is thawing in ways that create a feedback loops. So, the way I put this is back to my house metaphor. If we act quickly, we will still live in a maintainable house. But we've already signed ourselves up for a permanent maintenance program. But that permanent maintenance program is exactly as you say, Rebecca, it's not that much money. You highlighted the idea of alpha, this notion that, "Well, if you just beat the market, you're better off." Well, A, for some institutions, that's not possible, because they are the market, they own so much of the market.

Spencer Glendon (26:20):

But I think that, B, if beta is going down terribly alpha is not much solace. See, I think that there is just so much emphasis on some notion of opportunity costs, how much is too much to spend on this? Which I find truly, to use your word, bizarre. Is that the idea that we could spend a meaningful portion of GDP over a few years in a way that would massively reduce risk and increase the chances of a good civilization, essentially, in perpetuity, the notion of how much should that cost, I'm open to the idea that there should be a debate. But the idea that it should be anywhere near zero seems like so foolish to me that I trouble getting my head around it.

Rebecca Henderson (27:10):

Well, let's be careful with, I think, the necessary quibble here, which is for those of us in the rich world, it does seem eccentric to not spend the money to ensure we have a roof on our house, particularly since it's not a large bill. I do think there are complicated issues around countries that are still trying to electrify their grids, where people are still living very close to the threshold for human maintenance. I myself think we should be making massive transfers of wealth to places like India or in Africa, to put them on to a clean energy path. But again, that's not always the easiest to sell.

Spencer Glendon (27:51):

There are a couple of spaces in the capital markets that I think are really missing. This should, I hope, resonate with your audience. The first is paying for things, investing in things that you hope have a zero return, which is to say investing in things that give you security in the future. So that the entire portfolio has a high return, you pay for some things that have low return. One way to frame this using the experience of COVID is, we could have all bought some COVID insurance that might have compensated us, if we had owned it, it wouldn't have been very useful.

Spencer Glendon (28:30):

What would have been useful was actually preparedness, and this difference between owning a financial instrument that might pay off under certain circumstances versus being prepared for bad things, and avoiding them is a big difference, but it's hard in modern finance for people to see a space for, how do we invest in things that won't pay us back, but they increase the returns of everything else? I think that's a narrow and financially specific way to say exactly what you were saying, Rebecca, which is that ...

Spencer Glendon (29:02):

I've seen this happen in private with prominent business leaders as they realize, "Oh, we need to figure out a way to transfer capital to the places that have the most risk, to the places that have the most uncertainty about their pathway, and to places where the vulnerability of broader institutions might be manifest." If we did that, then I could go back to doing my job. I could focus on what I think of as my domain. But these areas that are outside of the domain are going to violate the space that most of these executives currently think of as their domain.

Rebecca Henderson (29:41):

That brings us back to the single most valuable thing business people could do is push for a sensible global regulatory regime to accelerate the transition to clean energy and a zero carbon society. I mean, then they can go back to, as you say, doing what they were doing, but sometimes that's hard to sell. How is your experience? Do business people find that an intuitive idea? How do you think we can accelerate?

Spencer Glendon (30:08):

You know the answer to that. No, that's a hard idea. You work in a business school, business schools have, in many ways, called out people who are interested in politics, and government. I think that we're in a real low point, and people understanding what role government plays in life is actually probably a little bit better now, because of COVID. But I can tell you that some of the very wisest, and most successful investors in the world have reached out to me and said, "We need to act because I love being involved in markets." What will happen in this case is the government will expand every bit if this gets worse.

Spencer Glendon (30:47):

I do think that's a possible way for people who are business people and focused on business, and think of it as their domain, to understand to the extent that business doesn't advocate for better government now, they will live in a world with much more government later.

Rebecca Henderson (31:07):

Could I make that tangible just from my own recent experience? I've been talking to a lot of younger groups, talking about the importance of reimagining capitalism and addressing these major problems, and I have been struck by the number of very smart young people who've said to me, "Why should we not just throw the whole system out? This has been about rich people taking all the money for themselves at our expense, climate is the problem of our generation, and you have done nothing." I mean, that is so much anger. So I just want to make this idea real, that I think the risk of massive government intervention and kind of real overreaction is very real.

Spencer Glendon (31:51):

I totally agree. If you choose a deal now, if you advocate for good regulation now, you can maintain a system that you presently benefit from, but if this system doesn't provide basic safety for the world, it will not be trusted, and it shouldn't be.

Rebecca Henderson (32:11):

I think that our society, and particularly our business world has acted as if there are no second order consequences, there are no externalities, all I need to do is maximize my own efficiency and my own profitability right here. That's generated three major externalities. One is the environmental climate externality, massive, completely the most important, I agree with you on that, Spencer. But the other is a steady degradation of our societies, of our human capital, of our social capital. That is fed into, and you raise this in your own work, the assumption that institutions don't really matter, or that they will endure, or someone else will take care of them.

Rebecca Henderson (32:55):

I don't think we'll fix climate change until and unless we also make progress on those other two problems, because I think they're linked. People need to feel that they're taken care of, that they have a future, that they have a voice, and then taking care of the planet is an integral part of that.

Spencer Glendon (33:12):

I think that's right. I think that's a great framework.

Rebecca Henderson (33:16):

That's a great framework. But Gautam, you're talking about it in the future, let's think about what happened this winter. When did we see business people begin to stand up and say, "Oh, maybe the democracy is really important." When arguably, the democracy is broke, when a significant number of Representatives voted against the certification of the election.

Spencer Glendon (33:39):

So, what's happening, and what's going to keep happening is that the climate will move outside of those tolerances. As it does so, it will be incredibly costly to fix. That's both a literal description of climate change and a metaphor, which is that when the violation happens, the system breaks, and that system breaking was engineered, was designed, was chosen, and the engineers know this. If you look at concrete in the United States, the grade of concrete used in roads changes with latitude, because there's hot weather concrete and somewhat hot weather concrete and cool weather concrete.

Spencer Glendon (34:22):

The problem is now, all of that concrete is roughly in the wrong place. Because it's hotter and different than it was before, and so you have these cases where people are putting asphalt that was the right grade 30 years ago, in a place where it now deteriorates very fast, where the power systems are the wrong power systems, and it goes all the way from road up. These tolerances are going to be discovered not just in the physical system, but in the social systems that are built around them.

Gautam Mukunda (34:55):

To me then, this is to get back to the political dime, right, it feels to me, like the only interest group in the United States that has both the power and the potential foresight to get the political system to respond in ways that could deal with both the crisis of democracy and the crisis of climate, which probably can't be addressed without addressing the climate of democracy, is the business community, not because they're particularly well suited to it, because I'm not sure there's anyone else.

Spencer Glendon (35:22):

A different framing of it is, without the business community, it's hopeless, that they are so powerful, that even if they aren't the very best, they're essential. We are at a time when there's been enormous consolidation in the United States, and so the idea that businesses are small and atomistic, and that they can't see the externalities is less and less true. So you have very large institutions now that should internalize these problems and have enormous political power. So if we lived in a Jeffersonian democracy, where everybody was a Yeoman farmer, that would be hard to do, but we happen to live in an economy that's got so much consolidation, that power actually is concentrated. For those institutions, to act as if they don't have power is literally nonsensical.

Gautam Mukunda (36:17):

The concentration of business has complicated effects. We always say that competition spurs innovation. Right? It can, for sure. But the transistor, cell phones, lasers, solar cells, communication satellites, those are quintessential innovations, as described by Smith and Alexander in their book, Fumbling the Future, they all came from Bell Labs back when AT&T was the ultimate monopoly. How did that happen? Well, as we talked about in a previous episode, in a competitive market, basic research doesn't get nearly as much investment as it deserves. Why? Think about the laser, every fiber optic cable, every DVD player, they all require lasers, the laser changed the world.

Gautam Mukunda (37:08):

But have you ever heard of an AT&T branded DVD player? Most of the profits from technologies based on the laser, didn't go back to AT&T, basic scientific research benefits everyone, not just the company that paid for it, since no individual company can capture all the benefits. It's not worth it for any one company to pay all the costs. But as the great economist Joseph Schumpeter pointed out, if you're a monopoly, you don't have competitors, you can internalize all those benefits, and it can become worth it for you to invest in basic research. That's what AT&T did, and they invented the modern world.

Gautam Mukunda (37:50):

So is concentration good? No. It has lots of disadvantages, including higher prices for consumers. Often monopolies decide not to invest in new technology, because why bother when no one's pushing you. But the effects of concentration are complex, and sometimes, monopolies and oligopolies are motivated to act for the common good, if for no other reason than because they're so big [inaudible 00:38:16] the common good, and their self interest can overlap. And since they are only one or a few companies, they can coordinate much more easily than many small ones could.

Rebecca Henderson (38:26):

My sense is that they are moving, Spencer, the very largest asset managers and asset owners have come to see that climate change is immensely dangerous. This is my interpretation of, for example, the letters that Larry Fink keeps sending. Do you think we're going to see real movement on this front?

Spencer Glendon (38:48):

I guess so. I'm happy for those movements, and I'm happy for Larry's letters, because they are in the right direction. We have an enormous agency problem, that there is no formal way to aggregate power in corporations. So they have power and then hide behind the fact that they are beholden to others. You've written about this, Rebecca, this notion that you are beholden to shareholders, yet the shareholders are abstract. The shareholders aren't even literal real people [inaudible 00:39:23] of market price. I think that expecting asset managers or finance to lead, it's important, but I think it's difficult because they have a timidity that comes from being afraid that they'll lose their customers and that they've made a promise to their customers to do something very small.

Spencer Glendon (39:43):

Modern portfolio theory is a really big problem for climate action, because modern portfolio theory encourages people to own everything and encourages them to do so with essentially no or low conviction. And so you wind up dispersing ownership and dispersing potential for influence across huge numbers of organizations and huge numbers of people in a way that makes voice very hard. I actually think that banking is more important because banking actually provides long term financing. They actually hold loans to duration, and then I think that actually regular industry that makes commitments over time, that can't liquidate its portfolios that is not in liquid capital markets to internalize things, I think, is extremely important.

Spencer Glendon (40:35):

So, I do think all this is starting, I'm much more hopeful, I'm no more optimistic, but I'm much more hopeful than I was because things are starting, and because the people who have moved first have not been pilloried, they've been celebrated, and they found the next move easier.

Gautam Mukunda (40:52):

So, what I'm imagining is, the CEOs of major American corporations, non financial corporations, declaring they will not make capital investments in areas that are at significant climate risk.

Spencer Glendon (41:05):

I think that's right, and what I would say differently about that is that they will stop making investments in assets that are likely to have a zero terminal value, and that's not just climate risk.

Gautam Mukunda (41:19):

If you listen to what Spencer is telling us about what climate change is really going to mean, you know we can go on this way. The transition can be easy, or it can be hard, but in the foreseeable future, we are going to stop burning oil and gas. Asset management companies can help us make that transition, it is actually in their interest to do so. Which made me wonder, who else can we rely on to help us make the change? Who should we be leaning on to take the first steps?

Rebecca Henderson (41:47):

I think the key is collective action inside industries, that individual companies can step forward. But if you're in a business where people can thrive by in your words, pushing the system to the edge, you need to ensure that everyone's playing by the same rules. So, we can see this as firms try and stop deforestation initially, an individual firm would make a commitment to buying only deforestation free beef, or soy or palm oil, but if all my competitors keep right on buying the bad stuff, it's very, very hard to continue that course.

Rebecca Henderson (42:26):

So I think, trying to trigger and support collective action across industries, so everyone can focus on the long term and everyone can focus on what's good for the industry as a whole, and to Spencer's point, I think we need banks as enforcers of that collective action. So that banks are saying, "If you don't go low carbon, if I don't see the transition, if you don't meet your milestones, I'm not going to fund you."

Gautam Mukunda (42:53):

So, what helps you think about this.

Rebecca Henderson (42:56):

So I find two things helpful. The first is a regular meditation practice. I find it is very easy to despair. Even though I know intellectually, despair is not warranted, that we absolutely have the technology. As Spencer said, these are relatively minor changes, and we are certainly rich enough to be able to afford them. But I do have a temptation to despair. So I find a regular meditation practices really helpful. The other thing that keeps me hopeful, is the young people I have, the great privilege of working with, because they don't have the option, do we act or do we not act? That question is okay. What we can do, and when, and how fast? So I am sure we will solve this problem. The question is, how much of a house will we have a left when we've stabilized it, but I'm sure we will do so.

Spencer Glendon (44:00):

So, what makes me hopeful may sound a little perverse, but there are two things, they're related. The first is the notion that the way we're living now is so super awesome, that it would be a tragedy to change just doesn't strike me as true. There's quite a lot of unhappiness in the world, there's quite a lot of stuff that makes people pretty miserable and insecure, and this isn't what anybody thought it would turn out to be. So the notion that this is the best of all possible worlds, makes me hopeful that changing is at least even odds likely to be better in some way.

Spencer Glendon (44:40):

So, I'm hopeful that we'll discover that changing our behavior is rewarding pretty quickly, and the corollary to that is that there is real sadness about the fact that we will not get back the climate we had, and processing that is going to take a very long time and be a societal effort and an individual effort. But the prospects that we could still live in a pretty great planet are high because really all other planets are awful, and so we have the prospect to likely live better than we do now which isn't necessarily terrific and we'd still live on the best planet around and those are pretty good deal to me and so those are my sources of hope.

Gautam Mukunda (45:27):

Well, that's great, thank you. So, in our remaining time the last two questions I get for everybody, what is one book or books that you would recommend for all of our listeners? Rebecca, do you want go first?

Rebecca Henderson (45:37):

Sure. I want to recommend a book called All We Can Save: Truth, Courage, and Solutions for the Climate Crisis by Ayana Johnson and Katharine Wilkinson. It's a collection of essays, poems reflections technical pieces, all by climate activists of different kinds. Lawyers, business people, people doing community organizing, poets, musicians, and it's a wonderful source of ideas and a great source of hope.

Gautam Mukunda (46:10):

And Spencer?

Spencer Glendon (46:11):

I would recommend a book called Radical Hope by Jonathan Lear who's a philosopher at University of Chicago, and it is about leadership. It is in particular about the leader of a native tribe whose name was Plenty Coups or Plenty Coup, I'm not sure about the pronunciation but about how did he lead his tribe when he knew the future would be different than the past and it's a great meditation on an investigation on how to lead and contemplate the future ... how to lead into a future that you know is different than the past. I can't recommend it highly enough.

Gautam Mukunda (46:56):

Then the second question I always want to get in, someone you know well, you could exchange emails. Who you found most impressive, and why?

Spencer Glendon (47:03):

I'll go first. One of the people who's actually closest to me in my life, my friend [Carl Long 00:47:09] Carl's easy to admire for obvious reasons, and my reason to admire him could also be obvious in that I'm the recipient of a live liver donor transplant which really means that Carl volunteered to have half of his liver cut out of him and put into me to save my life, but what i admire about Carl is that he grew up in pretty tough circumstances and could have had a very different disposition towards the world but more than anyone else I know when he encounters a new thing or a new person his bias is to expected hope for it to be cool, to be interesting, to be worthwhile, to be great. He is excited by new things and new people as initial set of conditions. I think that's just a great way to encounter the world and I've tried to be more like that, and it's a source of great admiration.

Gautam Mukunda (48:10):

Goodness, and Rebecca?

Rebecca Henderson (48:15):

I think one of the people I respect most is a woman called Mindy Lubber who is the CEO of a nonprofit called Ceres, truth in advertising I'm on the board, it's a nonprofit devoted to the idea that coalition's of investors and companies could really make a difference in the world, and she founded this more than 20 years ago when the idea was like, "Seriously." She has built it into an organization that has a 20 plus million dollar budget and many people that work for her, and she has never lost, as far as I can tell, the passion to do something in the world, the sense that of course what she's doing can't change everything but hey you have to do absolutely what you can do.

Rebecca Henderson (49:10):

She's never lost ... I mean, she is herself. She's completely authentic, she's always looking for new ideas, she's always open, she is on all kinds of lists, 100 most powerful women in finance blah blah blah. It never seems to matter at all to her, all that she cares about is doing what she can and supporting others to do what they can to address this incredibly difficult moment in our planner. Mindy lubber is my hero today.

Gautam Mukunda (49:44):

It was really important to me to end our first season with this conversation. We're facing many challenges but none of them loom as large as climate change, none of them comes close, and climate change is the problem that brings together everything we've talked about this first season. Solving climate change is going to take insight, skill and courage. It's going to take great leadership. This show has a mission to help everyone who listens be not just a good leader, but a great one. Good leadership is competent, but great leadership is about having the insight to know what the right thing to do is, the skill to implement that choice and the courage to do it even when it's unpopular or hard.

Gautam Mukunda (50:29):

Stopping climate change isn't an expense, it's an investment. There is no trade off between economic growth and sustainability. There is no choice between a rich world and a livable one, because there is no such thing as a rich, unlivable world. There is no economic growth, no capitalism in a world where climate change proceeds unchecked. Growth and a healthy environment are not adversaries, they are partners. In the long run, you cannot have one without the other. We must not be hypnotized by hard choices. Our world needs both, and that is possible if we all do our part.

Gautam Mukunda (51:15):

Every episode of this season, and every episode we will do in the seasons to come is dedicated to helping all of us become the great leaders we can be, to become the great leaders we need to be, to build a world that's more free, more fair, more equal, and more just, a world that's more hopeful, a world reimagined. How are you thinking about climate change? What are you doing to stop it? Let me know at or hit me up @gmukunda on Twitter. Thanks for listening, and stay tuned for season two, coming soon.

Speaker 5 (52:01):

World Reimagined with Gautam Mukunda, a leadership podcast for a changing world, an original podcast from Nasdaq. Visit the World Reimagined website at

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