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(originally published by Booz & Company)


When Addressing Climate Change Is Good Business

Smart companies are working to reduce their role in global warming now to get ahead of regulators and gain a competitive edge.

Debate around the economics of global warming — who will pay the bill and who will profit — is heating up. Government leaders have already proposed broad efforts to limit the effects of greenhouse gases. In the U.S., California and several northeast and mid-Atlantic states have their own plans to cap emissions, and several proposals are awaiting action in Congress. European Commission Chief José Manuel Barroso has called for a “post-industrial revolution” that would slash greenhouse gas (GHG) emissions by 20 percent by 2020, with 20 percent of all energy coming from renewable power and 10 percent of vehicle fuel from biofuels. “This is a major wake-up call for American companies to formulate their own strategies,” says Truman Semans, director for markets and business strategy for the Pew Center on Global Climate Change.

Recognizing that it is better to lead in this matter than to be pushed, some executives are publicly addressing global warming. In January, CEOs and chairmen from 10 of the largest corporations in the U.S. — including General Electric, DuPont, Alcoa, BP America, Duke Energy, and Caterpillar — gathered with the heads of four major nonprofits to urge Congress to pass legislation that, among other things, would spur the growth of green technologies and create a mandatory “cap and trade” program limiting GHGs. The group, the U.S. Climate Action Partnership (USCAP), stressed that by proactively dealing with the issue, companies can earn a voice in planning policy and thus avoid “stroke of the pen” risks, in which new government rules can undermine a company’s value overnight. “If you’re not at the table when these negotiations are going on,” James Rogers, Duke Energy’s chief, told the Wall Street Journal, “you’re going to be on the menu.”

A Plan for Change
Familiar corporate assumptions about corporate environmental responsibility and sustainability are now giving way to an emerging consensus about the means and methods for reducing carbon emissions. Consider, for example, a recent report from the Pew Center on Global Climate Change. A survival guide to the carbon-constrained marketplace, “Getting Ahead of the Curve: Corporate Strategies That Address Climate Change” examines the experiences and best practices of 31 large corporations, along with input from the Business Environmental Leadership Council (BELC), whose 42 members represent $2.4 trillion in market capitalization and more than 3.3 million employees.

“These companies recognize the importance of reducing their carbon footprint before there is governmental regulation — just as good drivers start putting on the brakes before they come to the stop sign,” notes Andrew Hoffman, author of the report and Holcim Professor of Sustainable Enterprise at the University of Michigan’s Erb Institute for Global Sustainable Enterprise.

This isn’t just about corporate responsibility. Ninety-three percent of the executives questioned say formulating strategies to deal with climate change is an important part of their fiduciary responsibilities. Some even argue that the Sarbanes-Oxley Act comes into play: To protect investors, corporate leaders need to disclose how their company’s GHG emissions might affect earnings now and in the future. For similar reasons, interest is also growing in the investment community. Richard Fuld Jr., chairman and CEO of Lehman Brothers and a member of USCAP, stressed the need for “a coordinated set of global solutions.”

Goals and methods for taking action are as different as the companies involved. Swiss Re, the world’s largest reinsurer, with a carbon footprint of just less than 50,000 metric tons, intends to become carbon neutral by 2013 (a carbon footprint is the aggregate of GHG emissions produced directly by operations and indirectly upstream and down). The reason: Climate change is starting to have a major impact on Swiss Re, its partners, and its clients. And so, on the one hand, although Swiss Re’s efforts are merely a “rounding error” compared with those of other companies, Chris Walker, managing director and head of sustainability business development, argues: “We need to do this if we are going to be seen as credible.” Shell, on the other hand, with a carbon footprint of 868 million metric tons (greater than that of the entire United Kingdom), recognized in the 1990s that it was at the heart of the debate over climate change and set out to diversify its energy portfolio — and at the same time manage its carbon footprint — before federal regulations were put in place.

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  1. Jeffrey Ball, “In Climate Controversy, Industry Cedes Ground,” Wall Street Journal, January 23, 2007: Related to the release of the Pew report, the WSJ reviews companies pushing for a mandatory emissions limit and examines the battle brewing between Big Oil and Detroit. Click here (subscription required).
  2. Daniel Gabaldon, Tom Hansson, Eric Spiegel, and Joseph Van den Berg, “The Next Wave of Generation Investment,” Booz Allen Hamilton white paper, May 2006: In the course of analyzing how utilities can most effectively invest in new generation capacity, the authors highlight how the industry should get in front of GHG regulation rather than waiting for the ax to fall. PDF download.
  3. Andrew Hoffman, “Getting Ahead of the Curve: Corporate Strategies That Address Climate Change,” Pew Center on Global Climate Change, October 2006: This survival guide to the carbon-constrained marketplace examines the experiences and best practices of 31 large corporations. It includes 12 in-depth case studies. Click here.
  4. Michael Margolick and Doug Russell, “Corporate Greenhouse Gas Reduction Targets,” Pew Center on Global Climate Change, November 2001: Report on the ways companies have set targets to reduce GHG emissions and their success at achieving their goals in climate change. PDF Download.
  5. Swiss Re, “Becoming Greenhouse Neutral”: How the insurer plans to achieve its goal. Click here.
  6. U.S. Climate Action Partnership, “A Call for Action,” January 22, 2007: The heads of 10 corporations and four nonprofits make recommendations for legislation to “slow, stop, and reverse the growth of greenhouse gas emissions.” PDF Download.
  7. Whirlpool Corporation, “Environmental Stewardship Helps Consumers, Communities, and Our Global Business”: How the appliance maker has worked to lower GHG emissions. Click here. 
  8. World Resources Institute/World Business Council for Sustainable Development, "Corporate Accounting and Reporting Standard”: This revised edition of the Corporate Standard helps companies identify, calculate, and report GHG emissions. Published in 2001, it has become the international standard for creating a corporate GHG inventory. Click here.
  9. Web site: works with businesses, nonprofits, congregations, and event planners to reduce carbon dioxide emissions through offsets, through which companies help pay to reduce emissions in another location. The group provides a carbon calculator that estimates companies’ carbon footprints. Click here.
  10. Chicago Climate Exchange Web site: North America’s first voluntary GHG reduction and trading system. Click here.
  11. Duke Energy Web site: How the utility is working to reduce GHG emissions. Click here.
  12. Erb Institute for Global Sustainable Enterprise at the University of Michigan Web site: Organization offering professional education, public outreach, and scientific scholarship supportive of the transition to sustainability. Click here.
  13. Natural Resources Defense Council Web site: In-depth examination of global-warming policy and its ramifications. Click here. 
  14. Pew Center on Global Climate Change Web site: Includes the report on corporate best practices. Click here.
  15. Shell’s Environment and Society Web site: How one energy giant is dealing with the GHG problem. Click here.
  16. U.S. Climate Action Partnership Web site: Consortium of businesses and environmental organizations working together to address global warming. Click here.
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