Daniel Esty

Daniel Esty is the Hillhouse Professor of Environmental Law and Policy at Yale. His research has focused on "next generation" regulation and the relationships between the environment and trade, competitiveness, governance, and development. His most recent book, Green to Gold: How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, explores what executives should know in order to manage the environmental challenges facing society and business. In this interview, Esty describes the interplay of government policy, private sector innovation, and corporate culture in shaping the next wave of sustainability advances.

PwC: What advice would you give an environment czar in the next US administration on how to have the biggest impact on the environment?

DE: The key is innovation. We need to entirely restructure our policy frameworks around incentives for innovation, particularly for new technology development. Innovation succeeds based on the scale of the effort and the diversity of ideas that are being explored. We need to get maximum capital flowing into environmental and energy technologies and ensure that the largest variety of potential opportunities are tested. 

PwC: We don’t usually think of innovation as being something that is managed by the federal government.

DE: The private sector has a much greater ability to bring capital to bear. When the government thinks big, it spends a few billion dollars.  When the private sector sees dynamism in the marketplace and an opportunity for change, hundreds of billions can flow. The investment in "Clean Tech" in 2007 was over $100 billion and will climb even higher in anticipation of a big payday for those who develop energy efficiency and clean energy opportunities.

Governments often bet on lower risk options, with less chance of a breakthrough idea emerging.  Shifting the central model from government-focused research and development to private sector-led efforts is fundamental. 

PwC: So is there a role for government?

DE: One important role for government is in structuring incentives. The best incentives are those that make people pay for the harms they cause, not those that subsidize good deeds. In a system that focuses on paying for harm, anyone who creates a technology or a service that reduces that harm has a big market ready and waiting.

PwC: At the level of the corporation, have you found indicators that accurately predict the success or failure of corporate sustainability initiatives?

DE: Efforts that are launched without top executive buy-in almost always fail. In my research across hundreds of companies for Green to Gold , I found no examples of successful environmental strategies where the CEO wasn’t a driver.

It’s also important to be strategic; companies that are not business-like and analytically rigorous with their environmental initiatives are almost certain to fail.

Finally, execution is critical. A common problem is the “middle management squeeze.” The top executives have bought in to an environmental strategy and the line workers are excited. Meanwhile, the middle managers are being told to grow revenues, cut costs, improve margins and — oh, by the way — be sustainable. The tradeoffs are real, and they’re not given much guidance on how to square the circle. 

PwC: Are you concerned about “greenwashing,” or making claims about being green without the actions or results to back it up?

DE: I anticipate that in a new US administration, you’ll see ramped-up regulatory efforts. But more importantly, there are an enormous number of self-appointed watchdogs that are looking over corporate shoulders every day.  Anyone with a Web site can post information about false claims and create a story that quickly crosses the internet.  Companies are mistaken if they’re simply waiting for the FTC to set guidelines, thinking that those are the only rules they need to follow.