Michael Hiscox is the Clarence Dillon Professor of International Affairs at Harvard University and Founding Director of the Sustainability, Transparency, Accountability Research (STAR) Lab. Between 2015 and 2017, he was the Founding Director of the Behavioural Economics Team (BETA) in Australia’s Department of Prime Minister and Cabinet. He joins Pollination as a Senior Advisor and sat down to discuss his new role and the emerging sustainability challenges that are shaping markets and companies today.
Welcome to Pollination. What will you be doing as a Senior Advisor?
I’ll be working closely with Pollination teams and clients, helping to develop and assess new approaches to sustainability and climate action.
My expertise is in behavioural economics, the study of behavioural change, and impact evaluation. In the past few years, most of my research has been focussed on incorporating behavioural insights into the design of new business initiatives addressing climate action. I’m excited about doing more of this work as part of the Pollination team.
Why is this a good time to be getting involved with the work that Pollination does?
When I think about behavioural economics and my work, so much of it is about better understanding people, why they do the things they do and how they often fail to align their actions with their best intentions.
You can apply behavioural insights just in order to sell something, of course, but you can apply them also to try and help people take action to address some of the big challenges and threats to human lives and livelihoods that they care about. It’s pretty clear that there’s no greater threat to both right now than climate change.
So many of the changes we need to see as we decarbonise are changes to the ways people live, the choices they make and the patterns of behaviour they exhibit.
Some see the global economy as an obstacle to the kind of changes we need. In my work I’ve always seen it as an opportunity space. Large companies can make huge positive impacts when they innovate and adapt to become more sustainable.
Traditionally, many companies and most governments have used (often implicitly) an old-fashioned microeconomic model that assumes consumers and citizens perfectly rational individuals. The idea that human beings weigh up all available information and make a rational decision about what they will do is enticingly simple. It leads to the idea that all we need to do to influence behavioural change is put the right material incentives in place and inform people about them.
Of course, we have come to recognise more clearly over time that this is not how humans work. Research in the field of behavioural economics has highlighted the ways in which people are not like perfectly-rational robots but instead have limited attention and cognitive abilities, get tired and emotional, are prone to a range of biases that affect their judgements and decisions, struggle at times with self-control and are powerfully affected by social norms and context.
Every day we all make a bunch of decisions we later regret or that are not in our long-term interests.
These choices might not be perfectly rational but that does not mean they can’t be understood. They are systematic, patterned behaviours that we can associate with specific psychological drivers. Understanding these drivers is critical for creating the right choice architecture that can assist people in making the behavioural changes we need to tackle the climate crisis. The companies that grasp this and lean into it will be the ones best positioned going forward.
You have been working with companies on sustainability issues for some time. How does this work feed into what you’ll be doing at Pollination?
A lot of the early research I did with company partners looked at support for sustainability measures among consumers. I started down this road in 2006, looking at Fair Trade certification and how consumers were responding to the program and Fair Trade labelling of products. We ran large-scale experiments with a major grocery retailer to understand what would motivate consumers to opt for Fair Trade products over alternatives, assessing the impact of labelling on sales and the price sensitivity of demand for labelled (sustainable) versus unlabelled products.
Later we worked with a major apparel retailer (Gap) to assess whether sustainable production methods of their clothing could be a key selling feature, again testing the sales impact of new messaging to consumers about the sustainability attributes of products. We also worked with an international airline (Qantas) to examine drivers for customer engagement with carbon offsetting and how best to present the offer to customers.
In all of these cases and many more, our work has been about using the tools of behavioural economics to help businesses improve their sustainability game by securing the engagement of conscious consumers and boosting demand for new sustainable products and initiatives. I can see so many applications for these kinds of tools in the advisory work that Pollination is engaged in every day, which is what really attracted me to joining the team.
After that, you spent some time in government, as founding Director of the Behavioural Economics Team within Australia’s Department of Prime Minister and Cabinet. What did you learn there?
In 2015, I was asked to set up the team that is now known as BETA. I took two years’ leave from my job at Harvard and returned to Australia with my young family. We created what is still the largest behavioural insights team in central government anywhere in the world, implemented a large number of trials that measured and demonstrated the impact of behavioural interventions, and increased awareness of behavioural economics among the policy community.
BETA has done some terrific work on sustainability issues, including a study of how energy efficiency labelling can help Australians identify and purchase more energy-efficient appliances. BETA is continuing to make great strides in the sustainability space, and I still act as an academic adviser for them.
You’re also the founder of the Sustainability, Transparency, Accountability (STAR) Research Lab at Harvard. What kind of intent have you seen from the companies you speak with when it comes to being leaders in decarbonisation?
I returned to Harvard in 2017 and set up the STAR Lab, which brings together a group of scholars who are researching new business initiatives aimed at improving accountability and sustainability and generating positive social and environmental impacts.
We help design new products and initiatives, many focused on reducing carbon emissions, and test their effectiveness in carefully designed trials. We have research partnerships with some of the biggest brands in the world, including clothing companies, banks, airlines, energy companies and large food retailers.
What I keep seeing in this work is a huge desire from corporates to get better in this space and demonstrate impact. Most of the CEOs I speak with now understand they cannot afford not to lead on sustainability. But there is still a real expertise gap when it comes to knowing how to go about it. That’s obviously where Pollination comes in and can make a real difference.
What is the biggest challenge you see for companies and investors in setting themselves up for this future?
We are only just starting to get more rigorous in how we measure and track impact in this space. That’s something I am really passionate about. In an academic context we don’t know if something is really working or not until we run rigorous randomised control trials. These trials need to be well designed and run with integrity.
In the corporate world over the past 20 years I’ve seen growing acceptance of the need to change the way business is done and to prioritise initiatives that pursue sustainability. But how often are companies actually delivering on that desire? There can still be a lot of guesswork. Careful testing and impact evaluation is critical.
In the tech sector this is widely accepted. Companies like Google, Amazon and Meta are running experiments all the time to try and optimise their product or test user behaviour and they are very good at tracking and evaluating results from those experiments. In the rest of the business community, and in sustainability specifically, this is still often regarded as an exotic thing that is difficult to set up.
That’s an area we can make a big difference in, going forward.
What’s the biggest opportunity emerging in this space and how can we assist others to grasp it?
One thing that excites me is in all our research to date we keep finding sizeable segments of consumers who want to choose sustainable products and services when they are available and are genuinely willing to pay a premium for such products. This is the engine that can drive transition to a decarbonised world if we can harness it. It’s also inevitably going to create winners and losers at a corporate level.
Companies that can embrace sustainability in holistic ways, building improved standards and practices into their core business models, are positioned to reap the long-term benefits by increasing market share and brand loyalty. Competitors who lag behind on sustainability will find it very difficult to catch up and develop trust among a set of consumers who are looking for brands they feel understand and share their values and aspirations. Being in the last group of businesses to “get it” will be a significant disadvantage. These latecomers will face increasing scrutiny from an investment community that is paying more attention to environmental, social, and governance issues.
At the same time there is growing consumer scepticism about company claims and potential greenwashing and a strong desire for transparent standards and accountability in this area. Being successful is going to require that companies earn and keep trust by investing in new products and services and providing clear evidence of impact to stakeholders who need to know whether they are delivering on what is promised. Companies who are able to do that will be the ones that prosper in this new economy, and I think Pollination, with all of its expertise and experience in this area, is extremely well placed to help.
Something most people probably don’t know about you is…
I grew up in Tamworth, New South Wales. For those that don’t live in Australia that’s kind of like a very small version of Nashville – the country music capital. I love Tamworth and I still get back there when I can, although the little dairy farm we owned when I grew up isn’t there anymore. I’m not much of a dancer, and you won’t see me boot scootin’, but I’m pretty sure I still know how to milk a cow.