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(originally published by Booz & Company)


When Addressing Climate Change Is Good Business

Targets vary across units. DuPont, for example, expects the output of its titanium technologies division to double between 1990 and 2010. The goal is for the division increase energy use during this period by only 40 percent — a large task, because energy constitutes a significant percentage of the selling price of titanium dioxide. Other, less energy-intensive units will have even higher targets. So far, the titanium technologies unit is achieving its aim. “Inspirational goals call an organization to act beyond conventional boundaries,” says Craig Heinrich, leader of the global energy team for titanium technologies. “An easy goal fails to challenge the creative potential of the organization.”

5. Engage the organization. Employee buy-in is important. “The best technology only gets you so far,” says Vince Van Son, manager of environmental finance and business development for Alcoa. “Employees will devise innovative ways to achieve clearly stated goals when they understand the linkage with the company’s vision and value.” Alcoa, which formed its corporate climate change strategy team in 1997, has been a leader, reducing its direct GHG emissions to 25 percent below 1990 levels and garnering accolades as one of the top green companies in the world. Companies encourage employees in a variety of ways: Google, for instance, offers employees a subsidy to buy hybrid cars.

Senior leadership is crucial: “On a scale of one to 10, senior support is 11,” says Pat Atkins, Alcoa’s director of energy innovation. Some CEOs, like the members of USCAP, have put their reputations on the line by publicly taking the lead in environmental sustainability. Work inside the corporation is equally important: Alcoa’s Paul O’Neill, an industrial engineer turned economist and CEO and, later, Treasury Secretary under President George W. Bush, challenged company engineers to minimize the number of anode effects in operations — a check routinely used in the smelting process that produced high levels of perfluorocarbon gases, which is one of six focal GHGs. Although resistant at first, the engineers ultimately developed advanced cell control algorithms that have reduced emissions by more than 75 percent since 1990.

6. Formulate policy strategy. Companies are jockeying to shape legislation, at the state, national, and international levels. Although the electricity industry’s Washington trade group rejects any GHG cap, its chairman, Duke Energy’s Rogers, is an outspoken proponent of mandatory global-warming constraints. “The greatest risk we face is ‘stroke of the pen’ risk, the risk that a regulator or congressman signing a law can change the value of our assets overnight,” he says. To assure Duke’s place in the national policy debate, the company has instituted voluntary GHG-emission reductions.

In 2003, Alcoa executives testified on behalf of the McCain–Lieberman Climate Stewardship Act. The reason: Alcoa, which supports cap-and-trade systems in which regulatory limits are imposed if all gases are included, advocates legislation that takes into account actions by companies that precede legislation, and wants a 1990 baseline for determining allocations.

7. Manage external relations. Companies measure the costs of climate-related strategies in three ways: absolute, normalized, and financial return. Roughly 40 percent of the companies surveyed participate in voluntary external carbon trading programs such as the Chicago Climate Exchange (CCX). Executives at Baxter International, a supplier of medical devices and a founding member of CCX, explain that involvement in CCX will help the company withstand scrutiny of future emissions verification and trading programs, and in the meantime has attracted favorable press for its members.

“External outreach to NGOs, suppliers, customers, investors, regulators, even competitors, is critical to success,” says Andrew Hoffman of the Erb Institute. NGOs such as Environmental Defense, the World Resources Institute, and the Pew Center can promote technical research and advance public awareness. They “add legitimacy,” says DuPont’s Linda Fisher. They can also be partners, even at the beginning of the process. Environmental Defense, which helped Cinergy determine its voluntary baseline, serves ex officio as a member of Duke Energy’s GHG management committee, which oversees the allocation of $21 million.

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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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