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(originally published by Booz & Company)


When Addressing Climate Change Is Good Business

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The Pew Center offers several recommendations for a climate strategy. If some of these measures seem familiar, there’s a reason: The steps to achieving environmental consciousness are the same types of actions companies have taken over the years to raise their long-term value.

Here is a brief overview:

1. Conduct an emissions profile assessment. Analyzing GHG emissions is not an easy task. Most companies measure direct and indirect emissions but vary in their choice of emissions. Duke Energy, for instance, measures only direct emissions from facilities it owns and operates. Other companies measure emissions generated by the use of their products: Ninety-three percent of Whirlpool’s GHG profile comes from the use of its home-appliance products. Financial-services firms and other companies, including IBM and Interface, a carpet manufacturer, focus on factors such as business travel, commuting, and material transport. The task for multinational, energy-intensive corporations is even more complex.

2. Gauge risks and opportunities. Executives must consider how carbon constraints can affect operations and sales, in both negative and positive ways. Companies usually first focus on risk management: Cinergy developed new technologies to reduce emissions from its coal-fired electric generating units and then merged with Duke Energy to add nuclear capacity. Swiss Re factors climate change into its risk modeling.

At the same time, smart companies are identifying business opportunities and connecting GHG reductions to core business strategies. Alcoa has pledged that 50 percent of its products will come from recycled aluminum by 2020 — a significant cost-saving move, because recycled aluminum requires only 5 percent of the energy required to produce primary aluminum. DuPont, meanwhile, has made fundamental shifts, away from businesses that are heavily reliant on fossil fuels — by selling its Dacron and Nylon divisions — and focusing on high-growth businesses making bio-based materials. This change is evidenced by DuPont’s acquisition of Pioneer Hi-Bred International, a seed company specializing in biotechnology and genetic engineering. “The real challenge is beyond our own footprint. It is in the market opportunities,” says Linda Fisher, vice president and chief sustainability officer for DuPont.

3. Evaluate options for technological solutions. “Companies that are just starting to reduce GHGs usually have a variety of ‘low-hanging fruit’ that can lower their emissions profiles,” says Andrew Hoffman of the Erb Institute. Swiss Re, for instance, began by turning down heating and cooling in its offices and turning off lighting systems during nonworking hours. Short-distance trips for internal meetings have been curtailed and replaced with telephone and videoconferences. “If you’ve never focused on energy efficiency before, achieving a 30 percent reduction is simple,” says Andreas Schlaepfer, head of internal environmental management at Swiss Re.

Other companies achieve dramatic GHG reductions through a single initiative. Shell has significantly reduced GHGs by capturing methane gas rather than flaring it in the field and at refineries. “The gas is pumped back underground, to enhance well production, or fed into facilities for power production,” says Hoffman. GHG reductions can also be made outside the company, by contributing funds to reduce emissions elsewhere, a system that can be more efficient and less costly than focusing solely on on-site reductions. Swiss Re plans to achieve 85 percent of its reduction target through off-system investments in the World Bank Community Development Carbon Fund, a program in which private companies fund small-scale projects, such as reforestation and micro-hydro projects, that reduce GHGs in developing nations.

4. Set goals and targets. Companies have made a wide range of commitments to reduce GHG emissions, differing in timing, objectives, baseline year, and emissions covered. The Pew Center’s study identified three overarching drivers: cost savings, social responsibility, and reputation. Companies typically differentiate between GHG-reduction targets, which sometimes carry upfront costs, and energy efficiency targets, which many companies consider proprietary business strategies.

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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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