Helping Companies Move from a Jog to a Sprint in the Climate Race
Helping Companies Move from a Jog to a Sprint in the Climate Race
When it comes to climate change, there are a multitude of drivers for corporate action, and many indicate the need for more of a "sprint" than a "jog." Take, for example, the Millennium Ecosystem Assessment, published in 2005 by 1,300 scientists from 95 countries. This is, essentially, the IPCC report for ecosystems. The report concluded that 60-70 percent of the earth's life support systems, or "regulating services," are being degraded faster than they can recover. If this is the planetary report card, it's not one you'd want to bring home to your parents.
In many instances, services currently provided free-of-charge by natural systems would need to be replaced with human or technological substitutes, often at significant or prohibitive cost. What does this mean for business? Higher costs of raw materials like grains, fuel, fiber, clean water, etc.
At the same time, corporate practitioners must factor in the increasingly unpredictable physical risks to their operations, distribution channels, supply chains and consumer markets due to climate change-induced natural disasters and unseasonable weather. The reinsurance industry, the proverbial canaries in the climate coal mine, are finally crying "Uncle" (see Lloyd's of London "Adapt or Bust" report (pdf) after experiencing thehighest losses since records began. What does this mean for business? Significant increases in insurance rates and loss of coverage in some regions.
Policy makers are creating another impetus for jumping into the race. From the global level commitment for a post-2012 agreement to regional cap-and-trade schemes, national-level Production Tax Credits and efficiency standards, state-level building codes, threats of permit revocation, municipal-level commitments and congestion taxes to even outlawing plastic bags -- the dizzying number of new policy proposals may make government affairs or EH&S departments stand to attention but the dizzying diversity of proposals may actually lead to paralysis from uncertainty.
Investors are divided. The majority of mainstream investors continue to focus on quarterly earnings and penalize companies for doing otherwise. A growing cadre of value and institutional investors, however, are sending the opposite signal that companies should account for medium-to-long term climate risk and make material risks transparent to the marketplace. Major investment houses are beginning to dabble in building carbon markets, such as Goldman Sachs, while individual and boutique investment firms bet so heavily on clean tech last year that it jumped to the third largest venture capital category.
Consumers are also sending new but often conflicting signals to business. Eighteen percent of respondents to a worldwide GlobeScan survey (pdf) said industry is working hard on environmental issues while another 22 percent say they are not working at all. In another report (pdf), 54 percent claimed that they would buy greener products but only if others did first. What does one do with that information?
Lastly, 62 percent of customers in Wal-Mart's Live Better Index study claimed they would buy greener products if there were no price premium but there was no consensus among respondents as to whether greener products in fact cost more. Mass confusion abounds. The only clear signal to emerge from the market research "noise" is the fact that the majority of consumers are relying on companies to make it easier for customers to buy low impact products. And by "easier," they don't mean a product covered in incomparable and unverifiable eco-labels.
Two Major Hurdles
Given all of these drivers, the way I see it, there are two major hurdles to helping practitioners move their companies from a "jog to a sprint." First, there is a maze of options that have emerged to "help" companies navigate the drivers and mixed signals discussed above. While most are well-meaning and many are high-quality, the proliferation over the past few years means that corporate practitioners must spend hundreds of precious hours sorting through programs to determine which are legitimate, overlapping or even duplicative.
One can choose to:
- Set certain corporate targets through a government program like Climate Leaders
- Join platforms for sector-specific or commodity-specific dialogue like the Sustainable Palm Oil Roundtable
- Commit to legally binding targets and begin trading carbon credits on the Chicago Climate Exchange
- Catalog one's footprint via state-level registries, such as the California Climate Action Registry
- Apply for third-party NGO certifications, such as the Climate Neutral Network
- Endorse relevant sets of principles, such as the U.N. Global Compact
- Join other companies in a call to action for policy makers through U.S. CAP
- Adopt standards for climate-friendlier products, such as LEED or Energy Star
- Engage with investor groups demanding disclosure, such as the Investor Network on Climate Risk
- Adopt global standards for Scope 1, 2 and 3 emissions, such as the GHG Protocol or nascent PAS2050
- Respond to influential corporate guidelines, such as Wal-Mart's 25 percent product efficiency increase target for 2011
That alone is enough to keep you up at night.
The other major hurdle is the fact that no matter how influential the corporate sector is, or becomes, it will never be positioned to grapple with major geopolitical concerns relating to "climate equity" and "climate protectionism." The first refers to the fact that, historically speaking, increases in GDP have always correlated closely with increases in GHG emissions per capita. There's no getting around it. If you are an MP in India or a party leader in China, it's understandable that you want to raise your country's GDP. If one looks as the numbers, it's also understandable that India and China claim they cannot do so without some liberty to increase GHG emissions.
The flip side of this quandary is the desire by industrialized countries to prevent GHG "leakage" from developing countries to undermine a global response. As such, proposals for emission allowances for import of carbon-intensive goods (referred to as "carbon equalization programs" or "border tax adjustments") have arisen in both the European Union (via Climate Action and Renewable Energy Package) and the U.S. (via Warner-Lieberman). This attempt at evening the playing field, to many, smacks of protectionism against less developed countries that lack capital for new energy sources or more efficient technologies.
Seeing the Finish Line
So how do we enable and equip corporate practitioners to manage mixed signals, navigate a bewildering array of options for action, and weigh in on geopolitical impasses far beyond their sphere of influence?
Well, despite the complexity of the hurdles delineated here, we can be thankful for the simplicity of the actual finish line. Rarely in an economic transition or an environmental system is the objective so fully articulated and supported with scientific consensus: 80 percent global reductions by 2050. Period.
Just as when a company sets a stretch target, everyone huddles up, divides up the tasks based upon their core competency and reports back on their contribution to the whole, so can those in the field of sustainable business do a better job of rationalizing and harmonizing our efforts. Rather than carve out another niche program, help to provide quality control and improve upon the existing throng. Rather than grumble about regulatory uncertainty and geopolitical quagmires, help the corporate sector spawn constructive dialogue with policy makers. Grab a "wedge" and stay focused on the finish line.
Emma Stewart, Ph.D., is director of environmental research and development for Business for Social Responsibility.