Consultants find climate crisis is good for business

Stressing a heavy emphasis on ‘carbon offsets’, new technologies and limited reduction in fossil fuel extraction, the modelling for this report had been prepared not by the government’s major scientific body, the CSIRO, but by the world’s most expensive and elite management consulting firm, McKinsey & Co.

Despite costing the Australian taxpayer over AUD$6 million, the modelling, as critics quickly noted, contained dubious assumptions, ignored the cost of future climate impacts and notably failed to outline how net-zero carbon emissions would actually be achieved by mid-century.

Nevertheless, the choice of McKinsey as the experts modelling these scenarios seemed to fit with a government keen to continue the expansion of the fossil fuel sector.

McKinsey, after all, had worked for 43 of the 100 largest carbon polluters in the world including ExxonMobil, Gazprom, Shell, BP and Saudi Aramco.

It wasn’t always like this.

In Australia, as the political ‘climate wars’ raged during the 2010s, and prime ministers rose and fell on the back of various climate policies, many large corporations were already anticipating the regulatory, reputational, market and physical risks that climate change would inevitably bring to bear on their operations and were establishing sustainability functions in response.

Yet, throughout this period, the management consulting industry, which prided itself as being at the forefront in predicting future business risks and opportunities, seemed remarkably quiet on an issue which scientists and policy analysts had long recognised posed an existential threat to the future of our societies and indeed a large proportion of life on the planet.

Sure, on the back of the Stern Review in the UK in 2006, McKinsey had developed a greenhouse gas abatement cost curve which had been promoted in different countries, and boutique sustainability consultancies had emerged to work with corporate clients on report writing.

However, climate change, and environmental sustainability more generally, was seen as something of a niche area for management consultants and certainly not a core driver of consulting revenue.

If there was a point when this changed, it was when Mark Carney as head of the Bank of England gave a speech at insurance giant Lloyd’s of London in 2015 and highlighted the threat that climate change posed for stranded carbon assets.

Soon after the Financial Stability Board published recommendations for the disclosure of climate risk in corporate financial reporting and major institutional investors like BlackRock, HSBC and the Norwegian Sovereign Wealth Fund announced plans to reduce their exposure to fossil fuel stocks and focus on ‘green’ investment opportunities.

Suddenly, climate change had arrived in the halls of finance and the major consulting firms started to pay attention.

While management consultancies like to present themselves as management fashion setters, research suggests that if anything they tend to follow the demand preferences of their corporate and government clients. 

Following the 2015 UN Paris Climate Agreement, in which 195 of the world’s governments committed to take action to avoid warming the planet more than 1.5 degrees Celsius above pre-industrial levels, the question has been how that might actually be achieved.

While the traditional policies of emissions regulation through carbon pricing and taxes have been seen as too politically contentious, in the intervening years the policy answer has been for government and increasingly, large corporations, to commit to achieving ‘net-zero’ carbon emissions by mid-century.

Here then has been a ready source of demand for advice into which the world’s large consulting firms have now entered. 

What started as a trickle of sustainability consulting suddenly transformed into a flood and in the last several years, management consulting has found its climate mojo.

The ‘Big Four’ accounting majors (Ernst & Young, Deloitte, KPMG and PricewaterhouseCoopers) quickly snapped up smaller boutique sustainability consultancies to establish their own climate and sustainability practices and bullishly announced multi-billion investments in environmental, social and governance (ESG) capabilities.

In 2021, Boston Consulting Group established its own Center for Climate and Sustainability and the firm was announced as the ‘Consultancy Partner’ for the 26th Conference of the Parties of the United Nations Framework Convention on Climate Change (UNFCCC) in Glasgow that year.

Not to be outdone, shortly afterwards the most venerable of the blue-chip consulting firms, McKinsey & Co, launched its own new practice, titled McKinsey Sustainability and its regular publications were now filled with advice and reports on the urgency of climate change and how different industries could seize the opportunities of the new climate economy.

However, as evangelists for the neoliberal economic order, global management consultancies face a dilemma in advising governments about how to tackle the climate crisis.

Any meaningful response to global warming actually requires the rapid cessation of fossil fuel energy and an industrial-scale shift to renewable energy sources; no mean feat in a world still reliant for over 80 percent of its energy needs from coal, oil and gas.

Moreover, any consulting advice to governments or business needs to square with their clients’ commitment to the continued expansion of economic growth, the maximisation of shareholder value, while at the same time appearing to provide some appearance of future emissions mitigation. 

Not surprisingly, much of the net-zero policy advice falls on the net-side of the equation with a heavy emphasis on carbon off-sets (paying others to plant forests or at least promise not to cut forests down), the expansion of costly technologies of carbon capture and storage (CCS), and investment in, as yet, unproven carbon removal via direct air capture.

Missing here is the inconvenient truth that the world’s carbon budget to avoid dangerous climate change has now run out, and that even the International Energy Agency now argues that there can be no new oil, coal or gas development if the world is to have any hope of achieving net-zero emissions by 2050.

Yet, a perusal of McKinsey Quarterly, or indeed any of the other major consultancy publications, reveals a surprisingly upbeat story for the fossil fuel sector in the short to medium term.

Yes, a decline in coal as an energy source but oil and gas are still seen as stable investments over the next decade. There’s also a rosy future for renewables as well as hydrogen, bio-feedstocks and carbon capture and storage.

As an elite government and corporate adviser, it pays not to talk down potential future clients and markets.

Much of the big consulting assignments are not just in the corporate sector but increasingly working for governments.

This shift to public-sector consulting has a long history, with major consultancies like McKinsey, BCG, Accenture and the Big Four having provided advice and implementing changes in public sector settings such as health, education, social services and utilities for many decades.

As the philosophy of new public management has spread around the world, so the ‘politicised expertise’ of management consultancies has been used by governments to justify the neoliberal retreat of the state from the provision of public services.

It has also led to some disastrous policy outcomes, such as McKinsey’s work in advising governments in developing economies on the REDD+ program aimed at reducing rainforest deforestation, which paradoxically resulted in policies increasing deforestation.

A major problem in advising governments and the public sector more generally is that unlike the established public service bureaucracy, which at least in the Westminster system maintains a level of independence and an ability to provide advice to government ‘without fear of favour’, management consultancies are profit-seeking commercial businesses.

Their survival depends upon winning and maintaining client relationships such that an on-going line of business contracts is maintained.

As critics have noted, the large consultancies work across multiple industries and from project to project.

Despite claiming they internally manage potential conflicts of interest through systems of ‘Chinese walls’, numerous corporate scandals from Enron to more recent times show these conflicts appear a feature of the business.

Indeed, when it comes to climate change, it’s not as if the consulting firms’ own employees haven’t noted the ethical and moral dilemmas of advising on emissions reduction while at the same time maintaining very profitable on-going relationships with the key producers of the climate crisis. 

Some years ago, when researchers interviewed a partner in one large consultancy that worked for major coal mining companies, he noted that while many of his younger consultants were quite passionate about climate change and did research in their own time, ‘That’s nice, but if a client doesn’t want to hear it, they’re not allowed to say it!’.

While these tensions are often hidden from public view, in 2021 in the lead-up to COP26 in Glasgow, 1,000 of McKinsey’s own employees signed an open letter expressing outrage at the firm’s continued engagement with the likes of BP, ExxonMobil, Gazprom and Saudi Aramco.

The signatories observed that the ‘climate crisis is the defining issue of our generation’, and urged McKinsey to publicly disclose the aggregate amount of carbon pollution produced by its clients and warned: ‘Our positive impact in other realms will mean nothing if we do not act as our clients alter the Earth irrevocably’. 

While the company’s partners responded by claiming McKinsey should be seen as helping the planet transition to a net-zero future, its staff pointed out that much of the consultancy’s work actually focuses on improving the efficiency of fossil fuel extraction and enhancing corporate profitability.

In the words of one departing employee: “Having looked at the actual hours billed to the world’s largest polluters, it is very hard to argue today that McKinsey is the ‘greatest private-sector catalyst for decarbonisation’ … It may well be the exact opposite.”

Management consulting is an industry which has evolved historically in tandem with the emergence of industrial capitalism and management as a professional class.

Far from the image it likes to portray as a provider of independent expertise and advice, consultancy is itself a global business driven by the profit motive and the need to maintain on-going commercial relationships with its corporate clients. 

The fact that governments worldwide now turn to management consultants rather than their own public servants as the preferred source of policy and technical advice is an indicator of how thoroughly neoliberalism has denuded and corrupted the state and the collective interests of civil society. 

Climate change is now the most urgent and threatening issue facing the future of human society.

It says something about the parlous state of our democratic institutions that even on an issue of such critical importance, this too is now being handed over to the partisan whims of an already all-powerful corporate class. 

Christopher Wright is Professor of Organisational Studies at the University of Sydney Business School and a key researcher at the Sydney Environment Institute. His research explores societal and corporate responses to climate change. His most recent book on this topic is Organising Responses to Climate Change: The Politics of Mitigation, Adaptation and Suffering (Cambridge University Press, 2022).

Originally published under Creative Commons by 360info™.