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How Companies Gain Strategic Advantage by Managing Carbon

To remain competitive in today's marketplace, businesses strive for differentiation. One of the most promising ways for gaining that competitive advantage in recent years has been through a dedicated, company-level focus on sustainability.

We now see corporate America entering into an era of transformation, where businesses are placing serious value on sustainability practices. But this is just the beginning.

The Carbon Disclosure Project (of which my company, PricewaterhouseCoopers serves as the global advisor and writer of the CDP S&P 500 report), found a majority of leading American companies now integrate climate change into their core business strategies.

That is a first in CDP's 10-year history. In fact, there was a doubling of companies reporting climate change policies as an integral part of corporate business strategy, up 30 percentage points from last year. Once seen as a tool to manage corporate risk, sustainability is increasingly becoming an opportunity for growth.

Nearly 90 percent of S&P 500 survey respondents indicated board or senior management oversight of their company's climate change programs, indicating that the issue is viewed as an operational, fiscal and strategic business imperative. More companies understand that sustainability offers significant first-mover advantages.

As my colleague at PwC, Doug Kangos, observed during a webcast we hosted last week, "the S&P 500 2011 CDP leaders use sustainability to differentiate themselves in the same way they approach brand quality, product quality, service quality, market share, and so on."

Once these benefits are recognized, many companies begin to consider how sustainability can be incorporated into the overall business strategy to protect enterprise value and generate strategic advantage. Those companies are reducing costs, mitigating current and future risks and even creating new revenue streams.

This suggests a permanent shift in the view of sustainability as being solely an environmental issue, or "something nice to do," to being a strategic business imperative.

PwC's 2011 Global CEO Survey found that 72 percent of CEOs support "good growth" that is economically, socially and environmentally sustainable. Because more senior level executives are grasping the realities of today's business risks -- including energy and natural resources constraints and costs, regulations impacting the sourcing of conflict minerals, and increasing investor pressures and consumer demands -- businesses understand that being "reactionary" will not drive growth.

Proactive steps to sustain one's business over time will ultimately yield positive returns. In fact, contrary to conventional wisdom, survey respondents cite commercial benefits as significant, with over 60 percent of projects offering payback in three years or less.

The CDP report discloses many examples of leading companies' successful sustainability programs, including:

General Electric: All of GE's industrials businesses conducted emissions reduction projects in 2010. The 238 completed projects range from new technologies, to enhancing the efficiency of existing equipment, to driving employee engagement in energy conservation. As a result, GE saved just over $7 million with an overall payback period of 1.47 years.
Praxair: In 2009, Praxair voluntarily started collecting environmental key performance indicators in productivity projects. One year later, 8 percent of Praxair's projects were tagged "sustainable development" and produced $32 million and 278,000 metric tons of CO2-equivalent in savings.
United Parcel Service: Lastly, UPS uses more than 95,000 ground vehicles, more than 200 aircraft and the services of many other transportation companies. In 2010, routing technology provided savings of 63.5 million miles or 6.3 million gallons of fuel.

The natural evolution for companies to transform and become a truly sustainable business requires embedding sustainability not only at the board level, but across the entire organization.

Although we see a significant increase in CEO level focus throughout the S&P 500, we do not yet see integration across the organization in how decisions are made. Companies have not yet integrated sustainability program evaluations with the organization's assessment of quality, reputation or financial stability.

But there is a reason to be optimistic: There are a growing number of companies leveraging sustainability to optimize their business and lay a foundation for growth. And that growth generates economic activity and prosperity. All the while, customers and employees are watching how well companies manage these challenges, increasingly linking brand loyalty to environmentally and socially responsible business practices.

The greatest value for businesses may be derived through sustainability competitive analysis, reporting and disclosure, revenue enhancement, reputational initiatives, or some combination of these factors.

Photo CC-licensed by rahims.

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