How Ford, Adidas are making climate change work in their favor
<p>Addressing long-term climate change risks offers companies a profitable path forward.</p>
Last year was marked by tumultuous weather in the United States. It was the country’s hottest year on record, the wildfire season was the second-largest since the 1960s, a massive drought in the Midwest sent food prices soaring and Hurricane Sandy all but devastated towns along the East Coast. Globally, temperatures too soared, and Arctic sea ice melted quicker than ever recorded.
Scientists say these extreme weather patterns can largely be attributed to one thing: humans. And unless we drastically curb our greenhouse gas emissions, they say, the situation will only worsen.
Much of the responsibility rests with the corporate sector. In the U.S., companies accounted for nearly 70 percent of greenhouse gas emissions, according to figures cited during a recent GreenBiz webcast titled Business in the Age of Climate Change. The webcast, which streamed from the North American International Auto Show (NAIAS) in Detroit, looked at how companies can best tackle climate change.
The clock is ticking. According to the Intergovernmental Panel on Climate Change (IPCC), companies need to reduce their carbon emissions by 80 percent by 2050 to blunt the impact of climate change. That means the U.S. corporate sector would need to cut its emissions by more than 3 percent annually by 2020, which amounts to roughly 1.2 billion tons of carbon emissions, said Matthew Banks, senior program officer of climate change at the World Wildlife Fund (WWF), during the webcast. If companies don’t start acting now, it will soon be too late, he said.
“The window is closing very quickly to combat this problem,” Banks said. “We won’t be able to catch up if we don’t do it now.”
But many companies still believe going green is expensive, which simply isn’t true, said Banks. Since 1999 the WWF has spearheaded an initiative called Climate Savers, which helps mobilize companies to cut their carbon emissions. Many of the companies involved, which include Coca-Cola, Sony and HP, have reported a higher return on investment for sustainability projects than their average portfolio investments across other business units, said Banks.
“It makes incredibly good business sense,” he said. “There is a significant amount of savings to be harvested.”
Author and green business expert Andrew Winston told the webcast audience that companies should move away from the notion that being sustainable costs money. Rather, the key is for businesses to make sustainability their driving goal, and integrate it into their core mission.
“We have to pivot and think of it as profitable and an incredible opportunity to create value,” Winston said. “Innovation needs to get much deeper. Change needs to get much deeper.”
Image of melting Artic ice cap provided by Wyatt Rivard via Shutterstock.
Up until now, companies have focused on quarterly profits to the exclusion of everything else, he said. But now, as it becomes clear that climate change poses a very real threat, many businesses are changing how they do things, some at a fundamental level. For example, every two years the apparel industry uses as much water as the entire Mediterranean Sea just to dye clothing, Winston said. Instead of looking to reduce its water use, sportswear company Adidas found a way to dye its clothing using no water at all. Winston praised the company’s innovative approach.
Adidas asked itself, “Why do we even need water?” Winston said. “That’s the kind of question we need to ask in our processes.”
Winston also suggested a renewed focus on developing quality products that last a long time. Apparel company Patagonia, for instance, launched the Common Threads Initiative, which actively encourages consumers not to buy products they don’t need.
“We make useful gear that lasts a long time, you don’t buy what you don’t need,” says the initiative’s slogan.
It’s about “challenging capitalism,” Winston said. Companies need to follow Patagonia’s lead and ask, “what if we pitched customers on using less of our product?” he said.
Ford is an example of a company that has made sustainability a core part of its strategy, said John Viera, global director of sustainability and environmental matter at Ford, during the webcast. He said Ford recognized that as a big name company, it had a responsibility to put sustainability first.
“Climate change is real, man has an impact on addressing climate change, and we as a company need to do something about it,” he said.
Viera said the challenge has been convincing employees of the importance of becoming more sustainable. To get their cooperation, Viera emphasized the financial benefits to cutting emissions.
“The economic piece is really important,” he said. “You have to create the business case when addressing climate change.”
Ford’s biggest environmental impact comes from the carbon emissions emitted from its car tailpipes. When looking at how best to reduce its emissions, the company looks at four different approaches:
- What is the competition doing?
- What is the consumer asking for?
- How are governments regulating us?
- What do scientists say needs to be done to mitigate the effects of climate change?
The first three issues don’t offer long-term answers, and therefore aren’t particularly helpful when setting emissions targets, Viera said. The last element of science is the only realm that offers the most certainty about the future, he said. Ford therefore based its climate strategy on what the science says, which is about reaching a level that stabilizes the effects of climate change.
“That long-term target based on stabilization allowed [Ford] to put together product plans for 5 years from now, 10 years from now, 30 years from now,” he said.
By knowing what its emissions targets are at different points in the future, the company is able to look at what mix of vehicles it needs to sell at different points to meet those targets. For example, the company decided that for the medium term, between 2012 and 2020, it needed to produce more electric vehicles.
But the biggest improvement Ford has made regarding climate change isn’t, in fact, developing more electric vehicles, as might be expected. Rather, the company improved its internal combustion engine, which allows its cars with a small engine to have the power of a larger engine. So a six-cylinder engine will have the power of an eight-cylinder engine, a four-cylinder the power of a six-cylinder, and so on. The technology is very affordable, said Viera, which makes it possible for Ford to implement it across millions of cars.
“If I only sell a small percentage of electrified vehicles, or if I sell millions of this technology, I actually have a bigger impact doing [the latter],” he said. The improved engine has the “short-term biggest impact,” he said.
Ultimately, it’s about finding a way to make sustainability profitable, said Viera.
“[Our strategy] works so well because it made great business sense,” Viera said. “If I could have the most efficient fuel products, and that’s also going to improve my business case, then everybody in the company is going to be completely aligned with the strategy.”