Henry M. Paulson, Jr. served under President George W. Bush as the 74th Secretary of the Treasury from June 2006 until January 2009. Before coming to Treasury, Paulson was Chairman and Chief Executive Officer of Goldman Sachs since the firm's initial public offering in 1999.
He joined Goldman Sachs Chicago Office in 1974 and rose through the ranks holding several positions including, Managing Partner of the firm's Chicago office, Co-head of the firm's investment Banking Division, President and Chief Operating Officer, and Co-Senior partner.
Prior to joining Goldman Sachs, Paulson was a member of the White House Domestic Council, serving as Staff Assistant to the President from 1972 to 1973, and as Staff Assistant to the Assistant Secretary of Defense at the Pentagon from 1970 to 1972.
Paulson graduated from Dartmouth in 1968, where he majored in English, was a member of Phi Beta Kappa, and an All Ivy, All East football player. He received an M.B.A. from Harvard in 1970.
The Future Economy Project: Q&A with Henry M. Paulson Jr.
Henry M. Paulson Jr. is the Chairman of the Paulson Institute, whose mission is to strength the U.S.-China relationship and advance sustainable economic growth in both countries. He served as U.S. secretary of the treasury from 2006 to 2009 and is a former chairman and CEO of Goldman Sachs. This interview has been edited for length and clarity.
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Paulson talked with HBR about his company’s sustainability efforts as part of The Future Economy Project, an HBR initiative that shares real-world lessons on sustainability leadership for all.
HBR: Why is sustainable growth something you care about?
PAULSON: I grew up on a farm northwest of Chicago and have always had a strong connection to the land. One of the pivotal moments for me every summer was when my family canoed for two weeks in the Boundary Waters on the U.S.-Canadian border. I fished, picked blueberries, saw bears and beavers and otters, and became a lifetime lover of nature and the outdoors.
My interest in financial markets and economic policy came later, but for me the two have always been at least somewhat connected. In the late 1990s, when I was chairman and CEO of Goldman Sachs, and focused increasingly on our business in China, I agreed to cochair The Nature Conservancy’s Asia-Pacific Council. I found that my experience working on market reforms in China was very useful in thinking through how the country could pursue a healthy economy as well as a healthy environment. In fact, I’ve always felt strongly that a healthy environment is good for business; it’s far cheaper to prevent environmental damage than to clean it up afterward.
When I left the U.S. Treasury, I took some time to think about how I would spend my time and where I could make a difference. I concluded that I wanted to work on things where I had a unique ability to make a contribution, and that led me to form the Paulson Institute, which brings together my focus on the environment, China, and the economy.
What has made a difference in how you’ve thought about these issues? What has influenced you?
There have been a lot of people who have inspired me along the way.
I had a great seventh-grade teacher who made a major impression on me; to this day I can remember what he taught me about counting the needles on pine trees, about checking to see if they’re twisted or straight in order to identify the tree species.
My wife, Wendy, has been a tremendous inspiration and partner on this journey. We share a commitment to conservation, which has been a big part of our life together. Wendy became a life member of The Nature Conservancy when we were just starting out as a married couple. I couldn’t believe she’d spent so much money on the membership, because we sure couldn’t afford it. But it turned out to be one of the critical points in our conservation journey.
Later, John Whitehead, a fellow Goldman Sachs partner and former deputy secretary of state, was a pivotal influence in my life. He was also very involved in The Nature Conservancy, and he was a real model for what it means to devote yourself to a cause.
But really it was my dad who taught me my most important life lesson: Real happiness comes from striving to do things that aren’t easy and then succeeding in doing them. He was probably the most inspiring figure in my life. It was from him that I learned to appreciate being outdoors — even though sometimes it was because he was making me push wheelbarrows full of bricks or stack hay in our barn. He taught me about different birds and trees, and was the force behind our annual canoe trips as well as pack trips we’d take in the Rocky Mountains.
From which stakeholders have you received the most resistance to your sustainability agenda? How have you worked to bring them on board?
I’ll answer your second question first and talk about the importance of bringing stakeholders on board. It’s something I have learned in my years in business and in government, that the most effective professionals can work with multiple stakeholders, understand the true nature of a problem, and devise solutions, including compromises at key points.
In the world of climate change, which has become so polarized in the U.S., this is even more important. It’s why I don’t spend that much of my time talking to environmental audiences that are already on board with the idea of climate change as an existential crisis. I’m much more interested in getting into a real discussion with companies that are initially resistant to climate policy because they see carbon pricing or regulation as a threat to their business, or with policy makers who are on the fence.
It’s been my experience that there really aren’t a lot of true “climate deniers” out there who are unwilling to engage in serious discussion of the real economic risks of climate change. I more frequently encounter people who acknowledge the risks over the long term but are worried about what climate policy may do to their supply chains, business models, and profits over the short term. We found the Risky Business Project a particularly good way to move these conversations “from denial to discussion,” as my friend Greg Page, the former CEO of Cargill, likes to say. Talking about climate risk as a concrete business risk with real costs made it much easier to talk about solutions to reduce that risk.
That said, I’m still amazed at the strong feelings on both sides of the climate debate. I’ve never seen any reaction to anything I’ve said or written that was as extreme as the reaction to my 2014 New York Times op-ed calling for a carbon tax. People come up to me and either tell me it’s the best thing I’ve ever written or it was a huge political mistake to speak out at all. We clearly have a way to go before we can engage in reasonable public debate on this issue in the U.S. In China it’s different: It’s a country run by engineers and scientists who absolutely understand the nature of the problem, so you don’t need to start by convincing them about the need to act. There, the question is how to balance addressing climate change while growing an industrial economy at a pace and size unlike anything we’ve seen before.
Voluntary carbon reductions are unlikely to achieve the scale needed to solve climate change — we also need policy. Beyond operationalizing sustainability, what obligation do businesses have to lobby for action and to engage in civil society more generally?
If there’s one thing I’ve learned in all my years as a conservationist, it’s that nature needs advocates. That’s equally true when it comes to climate change, which has a time-scale problem. Since the impacts from our current carbon emissions won’t be felt for some decades into the future, it’s very hard for someone running a business to factor those impacts into today’s decisions unless they’re planning a multi-decade investment like a new manufacturing facility or power plant. Because many of today’s most influential companies haven’t even been around for that long — Facebook is only a little over 10 years old and Google is not yet 20 — the time horizons of climate action don’t always make sense for them.
So government and policy have a clear role to play. But getting businesses to push for that policy can be difficult, since most lobbyists with 20 minutes on a congressional member’s calendar will use it to push today’s most pressing issues — a specific tax cut, a certain rule change — rather than to talk about climate change, which currently doesn’t even have a bill on the table in the U.S.
I continue to think the best way to move companies toward meaningful policy engagement is by making climate change more of a core business issue. Along with fellow former Treasury secretaries Robert Rubin and George Shultz, I’ve been publicly supportive of mandatory climate risk disclosure by companies, because I think investors and the public deserve to know how companies are evaluating and managing climate risk. That kind of disclosure will lead to corporate analysis of operations, and ideally to actions to reduce climate risk, which in turn can focus business leaders on important issues such as energy efficiency and renewable energy access, where policy is crucial. As more and more countries price carbon, we may see more companies putting internal carbon prices in place to better prepare for these policy frameworks, which in turn may make them more likely to push for consistent global pricing at some point.
Business absolutely has a critical role to play here, and good business leaders must move beyond short-term thinking to focus on long-term risks and returns. They can’t do that without a stable and consistent policy environment, so it’s incumbent on them to start asking for one.
You work with many business leaders who are active on sustainability issues. Which companies strike you as doing an exemplary job operationalizing sustainability across their organization, and why?
As you say, I’m involved with groups of CEOs and am fortunate to have a lot of opportunities to talk to them not only about their public positions on climate change but also about their internal operations. I’ve been impressed with how some companies tackle sustainability through their entire operations, not just as a brand or reputational issue. Honeywell is a good example: It has a focus on energy efficiency that runs through every division of the company and is incorporated into monthly division reports and metrics so that each person at the company has fully internalized energy saving as a key metric of success. Walmart is another example — the company’s Project Gigaton sets carbon reduction goals across the entire supply chain, which of course is huge for Walmart.
During my work on the Risky Business Project, I got to know the work that Greg Page did as CEO of Cargill very well. I have been amazed by the extent to which Cargill and other agricultural companies have internalized the science of climate change and are looking at adaptation measures across their regions and suppliers. I suppose it makes sense that a company reliant on the weather and the land would be a leader on climate change, but we don’t usually think of the big agriculture companies as environmental leaders. It’s an area where the perception and the reality are different and an example of why we have to open our minds to working with a much broader range of companies when it comes to climate leadership.
The Risky Business Report attempted to be a wake-up call to American executives about the underappreciated risks of climate change. Have they internalized the message? What evidence have you found to be most compelling for skeptical CEOs? What has changed since you wrote the report, for better or worse?
Our goal with the Risky Business Project was to take a business-based approach to evaluating climate risk and to provide granular and actionable information about the real economic risks that face American companies and regions if we continue on our current emissions path. My fellow cochairs, Mike Bloomberg and Tom Steyer, and I all have deep experience in business and financial markets, and we organized the project to really speak to those audiences.
The report got a lot of public attention, and I’m grateful for that. But the real work in some ways happened after the media attention died down. Along with the other cochairs and members of our Risk Committee, I participated in conversations with rating agencies, the SEC, insurance companies, utilities, and regional business groups who wanted to understand in more detail exactly how physical climate impacts might affect their operations and were looking for help in reducing those risks. I can tell you that even for those sectors we think of as most hostile to climate policy, I found nothing but receptive audiences when I started out with the idea that climate risk should be evaluated like any other business risk.
I’m happy to say that our discussions, along with very good work from other organizations on climate risk issues, has led to a small but growing set of investors starting to demand climate risk disclosure and to push for risk mitigation in their own portfolios, as well as in a number of companies and utilities putting out public analysis of their own climate risk management strategies.
A lot has changed since the 2015 report, mostly in that we’ve seen more-severe impacts than even we imagined. The report has received a lot of new press since the U.S. hurricanes in September, because we did so much analysis of potential storm surge damage along the Eastern Seaboard and Gulf Coast. We estimated that rising seas would likely swallow between $5.6 and $14.8 billion of coastal Florida property by 2030. Using historical hurricane data, we estimated that rising sea levels would likely cost Texas $3.9 billion per year by 2050, but the most recent cost estimate of the damage to Texas from Hurricane Harvey is $180 billion.
I’d expect that we’ll see increasingly more-severe impacts across the U.S. and the world going forward. We’re going to have to start dealing seriously with adaptation at the same time as we try to reduce carbon emissions and mitigate these risks.
One of the goals of the Paulson Institute is to spur Chinese-American cooperation at the CEO level around key issues such as climate change. What lessons have you learned so far from this effort? What works, what doesn’t?
To get things done on big issues like conservation and climate change, it takes business, government, and NGOs working together. And, in my judgment, when you look at CEOs of global companies today, they are often ahead of government on environmental and conservation issues. I see potential for that to be even more true when it comes to climate change, which is very local in terms of impacts but very global in terms of policy solutions. Multinationals work, and have a lot of influence, at both those levels.
U.S.-China cooperation on climate issues is particularly important given that these are the two largest emitters and two largest economies in the world. China is forging ahead with climate policies, including creating a carbon market that, when it actually gets up and running, will affect most global companies in one way or another. That’s of acute interest to American CEOs even if our own government isn’t taking similar action. What we’re trying to do on the CEO council is to provide a place to share information about these policy efforts, as well as to give companies the opportunity to talk about what they’ve done internally or through public-private partnerships to adjust to, or get ahead of, climate policy. It’s really a peer-to-peer environment for sharing ideas and information, and it can lead to exciting collaboration as these companies see common interests.
Our U.S.-China CEO council tends to attract corporate sustainability leaders, and these companies are making impressive strides on energy efficiency, renewable energy, and emission reduction. But without a doubt, companies around the globe still have a long way to go. The kind of global environmentally responsible mentality we believe in at the Paulson Institute needs to be more deeply infused into core business decision-making processes. That said, at the end of the day it’s clear we need policy frameworks in order to get where we need to be on the environment. That’s something China is providing through its five-year plans, and I’ve been struck by how useful those frameworks are for providing business with a general sense of policy direction and emphasis in China.
Recently, Senator John McCain said he couldn’t understand his party’s intransigence on climate. What could get the American GOP more on board?
Climate change has become an incredibly polarizing issue in the U.S. media and in public debates, but in my experience it’s much less so in quiet conversations. Similar to what I found in the business community, I have yet to meet many true “climate deniers” in the Republican party. What I’ve seen more often is smart individuals representing districts that depend on carbon-intensive industries of one kind or another, and they are concerned about how climate policy might affect the economic future of those districts. Unfortunately, we’re in an environment where it’s easy to avoid discussion of real policy solutions, including those that could work for carbon-intensive industries, by saying “I’m not a scientist” or “I don’t believe in climate change.”
My view is that we need to bring business along with us on the potential solutions so that it’s less scary for policy makers to talk about them. That’s a long game, and it’s not going to happen at the speed necessary to really tackle the urgent issue of climate change. But it’s worth doing.
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