Helping Business Adapt to Climate Change

As climate change sets in, its impacts — increasing severity of storms and weather disasters, receding snow and rivers, advancing deserts, and more frequent landslides and floods — will test companies’ ability to effectively deliver high-quality products and services.

In response, BSR is launching a series of briefs to illustrate how these changes will affect each industry and what current adaptation practices look like, beginning with an examination of the food, beverage, and agriculture sector (PDF).

Some effects of climate change will be familiar, such as crop failures and ensuing price shocks, but over the next several years, they will happen with more frequency and with even higher insurance costs. Beyond direct business impacts, companies will also need to understand how climate change will affect their most vulnerable stakeholders — the poor, citizens of developing countries, and women — who will face increasing risks due to drought, disease vectors, and the perils of migration.

The good news is that many resources on business adaptation to climate change are already available (see end of article). McKinsey & Company developed a cost curve for adaptation (PDF), for example, which highlights different adaptation options and shows that investment paybacks can be short. Also, companies do not need to choose between adapting to climate change and helping to mitigate it; the distinction between these two is rarely clear and we should do both together.

There are also tools that translate state-of-the-art climate monitoring, prediction, and imagery into practical information to help companies improve their relevant governance and decision-making processes. These tools include: the Climate Administration Knowledge Exchange (CAKE), Google Earth Engine, the International Research Institute for Climate and Society, the National Oceanic and Atmospheric Administration’s Climate Prediction Center, and weADAPT. Companies can also take advantage of new market opportunities by providing solutions to enable effective adaptation.

There are several obstacles to climate adaptation, even for those most committed to proactive and responsible responses. First, the language of adaptation does not resonate well beyond specialists, so communicating on the topic is difficult. As Carmel McQuaid, Climate Change Manager at Marks & Spencer, recently told us, it’s usually more effective to engage stakeholders by communicating on the topics that matter most to them. For example, retailers would be most concerned with their ability to continue to sell high-quality products, such as coffee. For companies that thrive on innovation, positioning adaptation as part of the portfolio of trends affecting the industry is usually more effective than treating it as a standalone topic.

Another obstacle is the complexity and uncertainty of the climate. This goes for today’s weather, let alone the future of the climate more broadly, as evidenced by the fact that we are not well-equipped to handle disasters such as the recent floods in Pakistan and Australia. The fact is that we do not know how to properly prepare for disasters even when they are expected. This is partially due to the cognitive difficulty of coping with low-probability, high-impact consequences, and it is also a result of markets and organizations that don’t encourage or reward proactive preparation.

Third, our first reactions may not serve us well. Companies are at risk of taking seemingly sensible actions that may lead to adverse effects elsewhere or on others. Such “maladaptation” (PDF) can take many forms, such as combating heat by turning up the air conditioning (which would produce more greenhouse gas emissions), using desalinization technologies that pollute marine environments, raising prices or otherwise excluding vulnerable customers that depend on insurance or other essential services, or giving customers more resources without the incentives to conserve.

This is partly a result of focusing on the specific, current problem at hand while not taking into account the broader repercussions. It is also a result of failing to identify where weather risk and other familiar issues have climate change dimensions.

Identifying the Hotspots

Over the past year, we’ve been following the topic of adaptation through discussions with BSR member companies, leading and participating in workshops and forums, including the U.N. climate talks in Cancun, and examining business responses to the Carbon Disclosure Project on climate risks and opportunities.

In doing so, we’ve found that while climate change impacts are ubiquitous, there are some approaches companies can use to identify and focus on vulnerable “hotspots” in their operations, supply chains, and key markets. Hotspots emerge both as physical locations and features of the company.

In terms of location, companies with operations in Asia, Africa, and Latin America face some of the greatest risks due to the extreme water loss or flooding predicted for those regions. In addition, these areas suffer from a general lack of resources to respond to problems.

In all parts of the world, coasts, flood plains, and ecological boundary zones, including mountains and islands, are vulnerable. In many cases, cities (PDF), as well as settlements where subsistence is marginally viable, are especially risk-prone. Companies should consider how their direct operations and key partners and markets are situated in relation to these physical areas.

As for companies themselves, a key vulnerability is a dependence on natural conditions to foster crops, snow, and other climate-sensitive inputs, which are likely to migrate and, on average, degrade. In general, long-lived and fixed assets, such as mines, as well as extended supply chains and distribution routes, tend to be more exposed to physical disruption.

Finally, lack of transparency is a problem: A combination of weather events and climate-related political actions are increasingly likely to disrupt energy availability and general operations of suppliers and other partners. While companies may be able to take steps to mitigate their vulnerability, they will have a hard time doing so if they are unable to make informed judgments about their partners’ key issues, options, and systems for making decisions.

When companies look ahead, here are some issues that they should tune into:

Communicating about climate risks and opportunities: Investors expect companies to report on physical, regulatory, and other risks and opportunities of climate change through the Carbon Disclosure Project. The U.S. Securities and Exchange Commission has also made informed reporting on climate risks a requirement. Also, working with distressed communities to cope with climate change is an increasingly material issue for annual sustainability reporting.

Meet needs responsibly: The private sector is being called upon to drive an effective response to climate change, ranging from delivering hydration and other growing basic needs, applying finance and information and communications technology to build more resilient infrastructure, and solving the potential problems of maladaptation.

To do so, businesses need to foster connections and discussions that help deliver sustainable solutions to society under dynamic and uncertain conditions.

Create climate-resilient local benefits: Many sources of risk for companies are likely to be found far away from their headquarters and centered in local communities where, for example, vulnerabilities to floods, windstorms, and droughts are growing. These communities need help with local investments to developing disaster-response systems and continuity plans. Companies should look for ways to help their community partners achieve triple-win impacts by reducing the effects of disasters, adapting to climate change, and safeguarding development gains.

Each month through July, we will produce discussion briefs for specific industry sectors on what they are and should be doing about climate adaptation. Each brief will include basic tools and references. As we produce this series, we’ll be holding discussions with BSR members and inviting feedback. We’ll also store our resources and other tools at www.bsr.org/adaptation.

Further Information

Climate change adaptation can be defined as “adjustments in ecological, social, or economic systems in response to actual or expected climatic stimuli and their effects or impacts,” including “changes in processes, practices, and structures to moderate potential damages or to benefit from opportunities associated with climate change.” For more information and a list of suggested reading, visit www.bsr.org/adaptation.

First posted at GreenBiz.

Why Russia is the Land of Opportunity for Climate Action

Managers who want to lead on climate and energy should be looking carefully at Russia, where President Dmitry Medvedev has decreed a 40 percent reduction in energy intensity over the next decade.

The potential for scale is immense: Russia is one of the most inefficient countries in the world, the third-highest emitter of greenhouse gases (GHG) — both by traditional measures and in terms of exports for consumption — and its per capita emissions are on a path for the top spot by 2030. Yet Russia receives far less attention than its GHG-emitting peers, such as China and tropical rainforest countries.

Why is it overlooked? There are several reasons: Russia’s list of sustainability challenges, from nuclear waste to governance, is long, so climate change gets lost in the shuffle. Commentators focus on Russia’s struggling economy, asking things like whether “BRIC” really needs an “R,” signaling that attention is better paid where business is growing more predictably. Furthermore, non-Russians are perplexed about operating in what seems like too foreign a place — one that is European, Asian, and most of all, its own category altogether — and so give it wide berth.

Nonetheless, there are growing reasons for companies invested in Russia to proactively manage and reduce energy use in operations, by suppliers, and for customers.

The first is that Russia’s climate challenge is one that business is uniquely, and profitably, good at solving: audacious inefficiency, stemming from outdated equipment and obsolete management practices. Russia is the most energy-intensive (PDF) of the world’s 10 largest countries. Few, regardless of size, score higher, and many that do are Russia’s neighbors. Cost-effective efficiency measures could cut Russia’s energy use by as much as 45 percent (PDF), with prime opportunities in industry and manufacturing. One study has identified 60 measures representing more than $200 million in investments that can be made profitably.

Second, the government is showing increased willingness to incentivize action. In 2008, Medvedev signed presidential decree No. 889, a commitment to cut energy intensity by 40 percent by 2020. Last year he committed Russia to growing its renewables portfolio from less than 1 percent to 4.5 percent in that period. Medvedev then developed Russia’s first executive climate doctrine and began calling for action on climate change — a reversal of Vladimir Putin’s stance, symbolized by Putin’s infamous quip that climate change would be beneficial because it would mean fewer fur coats.

Now an innovation center is under development near Skolkovo, where companies such as Google and Intel are setting up research and development centers, similar to special business zones in China. In sum, there has been a change in the terms of debate in Russia, with climate change being taken more seriously by the government and productivity now a priority.

Another reason is that the drama of climate change is clearly unfolding in Russia, and so people are starting to appreciate the benefits of managing energy for sustainability. This summer, the hottest in 130 years, led to 27,000 wildfires and burning bogs, sending global wheat prices through the roof. Meanwhile, global warming is melting the arctic, where the government is leading a high-profile exploration, turning the most iconic imagery of climate change into a point of local news. Climate change is increasingly seen as real and important, making conversations more natural.

A fourth reason is Russia’s natural assets. The world’s most geographically expansive country, Russia is a storehouse of some of the world’s most significant natural assets and threats, from the greatest reserves of fossil fuels and forests to vast volumes of methane ominously locked up in tundra. If environmental markets are able to take hold in Russia — though it will be some time before the prerequisite monitoring and verification frameworks are instituted — business will have an opportunity to benefit from effective resource management on a vast scale. Heading in that direction in July, the government endorsed 15 clean-energy projects to start making use of its carbon credits.

Finally, Russia holds the key to a bigger puzzle: its 15-plus neighbors with similar ecological impacts and business environments, including burgeoning Ukraine and Kazakhstan. Succeeding in Russia also means opening possibilities for the whole region, which connects the markets of China, Europe, and the Middle East.

While these trends are encouraging, companies interested in managing climate and energy matters in Russia still must confront significant issues. Following are three key challenges that companies are likely to face and suggestions for addressing each of them.

Challenge #1: Low Awareness

Despite Medvedev’s efforts and the impact of this summer’s wildfires, there is still little social momentum for action on climate change in Russia. Many people still think that global warming will help this cold country. There is also generally a low appreciation of the impacts, risks, and opportunities that climate change creates for business. The Carbon Disclosure Project (CDP), reflecting on 2009 reports from Russia’s top 50 companies, found that climate change is often misunderstood (PDF) in the country as a purely environmental, rather than strategic, topic.

Solution: In working with Russian partners new to the subject, emphasize the links between climate action, energy management and modernization, a political priority likely to draw more government resources. Medvedev has said that his country’s subpar economic influence is due partly to the fact that “energy efficiency and productivity of most of our businesses remain shamefully low.” He has made becoming “a leading country measured by the efficiency of production, transportation, and use of energy” the first of his five pillars of modernization.

With that in mind, connect with partners on the ways that energy hits the bottom line and discuss opportunities to modernize. This can lead to discussion of how action on climate change can create other benefits, from carbon credits to attracting more international investors.

Challenge #2: Governance Obstacles

A second challenge is that energy waste in Russia is rooted in systemic, sometimes dysfunctional governance, and companies will typically find government difficult to engage because if is needed on larger projects.

For example, IKEA was recently stymied by Lenenergo, the electricity utility, in simply hooking up to the grid, and has thus tabled new investments in Russia. This is a problem not only for companies, but the government itself, since it is unlikely to effectively address climate change without policies that instill confidence and encourage investments.

Governance obstacles also come in the form of entrenched non-transparency in companies. After China and Hong Kong, Russia has the largest share of Global 500 companies that don’t disclose to the CDP. Of the mere six firms among Russia’s top 50 that did respond to the CDP last year, only two reported emissions or energy reduction goals. Low transparency is a substantial constraint, since measurement and governance are considered cornerstones of effective climate and energy management.

Solution: Focus in the near term on capacity building rather than precise data disclosure. Given BSR’s experience in China, there should be substantial opportunities to help companies identify energy-saving opportunities and train energy managers, and to assist them with developing action plans and understanding their economic decisions.

Although these activities don’t address transparency directly, they can build trust with suppliers and create results that they will want to be transparent about. Even if you don’t start with a discussion about disclosure, companies that succeed on climate and energy management will have an incentive to communicate their results over time. For those that are ready, show how the process of disclosure can lead to learning about risks and opportunities and create a basis for management. For projects connected with government contracts, encourage standardized, effective processes on how the government will decide tenders by doing an integrity pact with bidding peers.

Challenge #3: Slow Going in the Policy Realm

Although Medvedev appears serious about leading his government toward modernization, he is the first to admit that progress will be gradual. Ultimately, the challenge of modernization is to cultivate, unleash, enable, and protect the innovative potential of the Russian people — and that will take time.

On climate in particular, there is no unifying policy, and the government does not appear motivated to curb emissions soon. The country’s climate negotiator, Alexander Bedritsky, says Russia should be judged on progress since 1990, like other countries. The problem with that, however, is that emissions plummeted with the economy in the 90s, and when it bottomed out in 1998, emissions were far below the 1990 level. Russia’s current proposal (PDF) to reduce emissions by around 20 percent from 1990 actually means letting them rise today until they are fully 20 percent higher than their low point. Therefore, even if energy intensity decreases under Medvedev’s plan, total energy use and GHG emissions are likely to rise.

Solution: Focus on voluntary business actions that generate tangible savings in the near term. Improvements in energy efficiency offer direct and virtually immediate cash savings, give companies a better view of their processes, and enjoy support by the government. In the context of other CSR issues, this is a relatively straightforward starting point. In doing so, watch other organizations that are invested in energy modernization, such as the World Bank, the European Bank for Reconstruction and Development, and the International Finance Corporation, which may be able to offer signals and even more direct support.

To summarize, Russia holds vast potential for business action on climate change and should start to become a higher priority in managers’ minds. Doing sustainability work there is difficult because of low awareness, governance obstacles, and slow going in the policy realm.

Yet these challenges are surmountable, and conditions are increasingly favorable for climate and energy management. Companies have opportunities to start on practical initiatives that can make big impacts now, growing their efforts as policy and consumer behavior evolve.

First posted at GreenBiz.

Understanding the Benefits of CSR

This week, I spoke on the panel “ROI and the Triple Bottom Line: Can Companies Do Well by Doing Good?,” the first webinar in a series by Social Media Today. I shared thoughts on how to understand the benefits of CSR, and here’s what I covered.

First, the basics: What is CSR? CSR is the integration of environmental, social, and good governance practices into everything that business does, and the recognition of material aspects of nonfinancial issues that are integral to overall strategy and operations. These two ideas came from BSR President and CEO Aron Cramer and UN Global Compact Executive Director Georg Kell at the recent public debate on CSR. This definition is useful given the varying semantics out there: ESG, people-planet-profit, corporate citizenship, triple-bottom line. A recent paper found at least 37 different CSR definitions.

With that in mind, it’s important to understand the “constructs” of CSR in order to recognize its benefits:

  • Activities: Corporate responsibility activities can lead to concrete and even quick returns on investment. There are specific activities or projects—for example, efforts to reduce greenhouse gas emissions through energy efficiency—that can save a sizeable percentage of energy costs. Such returns can be found everywhere, from conserving water to using better materials. BSR’s factory-based women’s health initiative, HERproject, has also showed that people-related initiatives can lead to real, measurable benefits.
  • Systems: More generally, organization-wide management systems that embrace corporate responsibility often lead to better decision making, and ultimately a more economically efficient organization. Such systems include increasing transparency (e.g. through CSR and climate reporting); better governance (e.g. ensuring that the board has a sufficiently sophisticated view of risks and opportunities, and that incentives throughout the organization are mutually reinforcing); and systematic discourse with external stakeholders. Like with other company systems, such as marketing or HR, the direct results of better systems may be intangible, since it is more about creating a new platform for making investments than the return itself.
  • Vision: Finally, there is the broad potential of aligning society and business, which is found in optimistic sentiments like, “Our goals are to make money, make it ethically, and make a difference,” (GE’s corporate citizenship website) as well as its criticisms, such as Milton Friedman’s manifesto and Aneel Karnani’s recent case against CSR. Such statements of vision offer some of the most colorful discussions on CSR, though they are more inspirational than concrete in appraising impact one way or the other. One thing that is firm, however, is that CSR—as defined by Cramer and Kell above—is part of a long-term trend whereby companies that effectively manage greater accountability and complexity are likely to succeed.

That fact that CSR offers so many different types of benefits is one reason that it is stronger now than before the recession, and, as BSR recently found, why companies are planning to increase CSR budgets next year. As this important conversation about the benefits of CSR evolves, I look forward to continuing the discussion.

First posted at BSR.

How Businesses Can Plan for the Unpredictability of Climate Change

With managers across industries under pressure to develop sophisticated views about how climate change will impact their companies, it might seem natural to look to the insurance industry for guidance on how to act and communicate about risks and opportunities.

After all, with climate change threatening to increase the severity of humanitarian crises, economic disruptions, and weather-related disasters — which, in the last half century, have cost more than a trillion dollars and killed more than 800,000 people (PDF) — the insurance sector is being called on (PDF) to play a special role in helping society to adapt to climate change.

Unfortunately, even the insurance industry lacks the coveted crystal ball that would preview exactly how climate change will impact us. That’s partly because prediction works by projecting future events based on past experiences, such as showing what the average distribution of the next thousand hurricanes in the Gulf of Mexico might look like. Climate change variables can be factored in, but what to include and how much to adjust them remains largely guesswork.

Even if we had the parameters to guarantee more statistical accuracy, we would still be at the mercy of what matters most: low-probability, high-consequence events that happen once in a generation, such as this summer’s heat wave in Russia and floods in Pakistan. Such outliers are hard to pinpoint in advance, yet these are precisely what the Intergovernmental Panel on Climate Change (IPCC) says business should be most worried about.

As a result, while climate science provides evidence of general trends, we are still a long way from being able to predict specific climate events. In lieu of precise predictions, a key to effectively managing the physical effects of climate change is preparedness, which can be achieved through developing literacy, identifying plausible impacts, evaluating priorities, and building resilience.

Practical Frameworks for Climate Change Preparation
•  U.K.-based Acclimatise’s three themes for senior executives (PDF): The group’s 10 questions cover risks, opportunities, responses. 

•  Alberta Sustainable Resource Development’s four-part framework (PDF): Scope and prepare, assess vulnerability, assess risk, and identify options — and integrate these into strategic management.

•  Economics of Climate Adaptation Working Group’s five-part framework (PDF): Identify risk, calculate expected loss, build response portfolio, implement, and measure.

•  Pew Center on Global Climate Change’s three questions (PDF): Is climate important to business risk? Is there an immediate threat, or are long-term assets, investments, or decisions being locked into place? Is a high value at stake if a wrong decision is made?

•  Risk Management Solutions’ four-module natural hazards model (PDF): Define hazard phenomena, assess hazard level, quantify physical impact, and measure monetary loss.

Developing Literacy

For business, developing literacy means understanding the mechanics by which climate change is likely to affect your company, and how to manage uncertainty.

In that sense, while climate change is expected to produce negative effects overall, there will also be important new societal needs related to climate change’s direct effects on water, food, health, ecosystems, and coastal areas that businesses can focus on. These impacts can be thought of as both risks (your workforce becoming increasingly susceptible to disease) and opportunities (the chance to develop and distribute health-improving solutions).

Future climate impacts are a function of three things:

1. Impacts from today’s climate, which may pose real risks, such as windstorms or floods, even if they haven’t materialized
2. The potential effects of climate change, which could multiply those threats
3. Development paths that put more people and assets in harm’s way

To develop expectations about total future impacts, business can use various techniques for characterizing the future, such as scenarios, storylines, analogues, qualitative projections, sensitivity analysis, and artificial experiments such as thought exercises. These all offer different tools. For example, analogues use past events to anticipate how communities will respond in the future, and storylines create narratives about how the company might logically evolve in response to climate-related economic trends.

Identifying Impacts

Given the most plausible physical effects of climate change mentioned above, which impact virtually all industries and regions, the next step is to identify where and how they might affect the company the most.

The answer depends on a range of geographic, market, and sociopolitical factors. As a starting point, the IPCC suggests that the most intense business impacts are likely to result from extreme weather, especially in coastal and flood-plain regions, in areas where subsistence is at the margin of viability, and near boundaries between major ecological zones.

With respect to business operations, impacts are most likely when there is dependence on longer-lived capital assets, (such as energy), fixed resources (such as mining), extended supply chains (such as retail and distribution), and climate-sensitive resources (including agricultural and forest products, water demands, tourism, and risk financing).

Finally, impacts are most likely in sociopolitical environments where substantial key stakeholder groups are based in poor communities, especially in areas of high urbanization. (For more details, review the IPCC’s report on “Impacts, Adaptation, and Vulnerability.”)

Evaluate Priorities

Once a set of potential impacts has been identified, they can be used to evaluate the relative areas of concern. One way to structure this assessment is to evaluate the following conditions independently: the intensity of likely climate change hazards, your company’s and its stakeholders’ vulnerability to those hazards, and the values at stake, both financial and human.

You can combine these to form probabilistic values for each potential impact, and then compare these impacts against each other to provide a picture of the most important expected effects across the organization.

Such a study is accessible to most companies. For example, a combination of desktop research, interviews with experts, and a facilitated discussion with management could provide a good estimate of the conditions mentioned above. This, in turn, can form an appropriate initial assessment for coverage in an annual report or in your company’s reporting to the CDP in May. To make the conclusions actionable, aim less for an abstract list of calculations and more for judgments that yield a rank-order priority set.

Build Resilience

A final step in preparing for climate change is to build resilience, which involves two steps. The first is to make “if-then” decisions. For instance, if energy prices quadruple, a drought occurs near a water-intensive plant, or a key ingredient is listed as endangered, what would your company do? This assessment should include both traditional disaster planning as well as defining contingencies for sudden changes in market needs or necessary supplies.

By extension, this is the time to consider how your company should react to plausible changes that could impact the whole enterprise, such as breakthroughs in energy information technology or aggressive climate policies in China’s next five-year plan.

Of course, this should also include a review schedule: what to watch for, and when. In sum, managers should be ready for anything, or at least what’s plausible.

The second step is taking proactive measures now, or if not now, then timed with and integrated into new capital investments. These measures include ensuring that new buildings and infrastructure meet codes to withstand extreme events; improving land-use planning, such as by limiting development in at-risk areas; and preserving wetlands, forests, and other natural ecosystems that provide cost-effective natural protection against storms and erosion.

When investing in these measures, combine adaptation with mitigation efforts wherever possible, such as by building green, and be wary of paths that are increasingly energy and water intensive because such resources will likely be under increasing strain.

It’s also important to pay special attention to people in poor communities and developing countries, as they are likely to be most affected by climate change, and therefore have growing needs for companies to fulfill.

First posted at GreenBiz.

Going for the Cold: What the Vancouver Games Can Teach Us About Adaptation to Global Warming

When the winter Olympics kicked off virtually snowless last week, the record heat was due not only to El Niño, said Tim Gayda, vice president of the Vancouver Organizing Committee, but to “something else that nobody understands at this point.”

Though his hesitation to mention climate change raised eyebrows, pointing fingers at the cause doesn’t matter as much as how this snow slump is being dealt with. If what scientists are saying is true—that the 30 remaining glaciers at Glacier National Park and diminishing snow cover in Colorado and Utah are likely to be gone soon—this winter Games may be a dress rehearsal for warmer and wetter events to come.

The Vancouver Olympics have shown us that we can adapt to warmer and more erratic weather events, but there are caveats.

Some resiliency is built in—for example, snowmaking machines can pipe in water, then freeze and spray it around. But only up to a point. Even with the best technology, snowmaking works only when temperatures are well under freezing, the air is dry, and there is a solid base of snow. And even then, it makes only a coat. So scaling up efforts to make snow is only possible within a narrow band, meaning that planning is difficult if climate change runs away uncontrolled, making adaptation and mitigation tightly linked.

Another big challenge with adapting to variability and change is the incremental cost, which can be high and steepen quickly. The most advanced snowmaking machines cost upward of US$30,000 each just to install, and it takes 250 of them to blanket even a small peak like Vermont’s Mt. Snow. When snowmaking proved insufficient at the Olympics, equipment-moving Sikorsky S-64 helicopters were brought in to carry snow from higher-elevation mountains. Those machines are extraordinarily expensive to operate, and few and far between. Compare that to snow falling from the sky for free. The upshot? It’s much cheaper to prevent climate change than to try to “cure” it.

In the end, companies must plan to adapt to climate change to some extent because, at this point, some climate change is inevitable. But our currently programmed responses can be resource- and pollution-intensive, leading to a vicious cycle. Snowmaking can take 160,000 gallons of water to make just a foot of snow for one acre. And the impacts of flying in extra snow are just as high: My own back-of-the-napkin calculation shows that the helicopters used for snow rescue in Vancouver emit 100 pounds of carbon-dioxide per mile (assuming a 4,992-liter fuel capacity, 370-kilometer range, and aviation gasoline with an emissions coefficient of 18.355 pounds of carbon-dioxide per gallon).

In summary, the Vancouver Olympics show us that businesses will—and has already begun to—build more resiliency into planning, strategies, and overall expectations about climate variability and climate-led environmental change. But as we do, it is important to keep in mind that adaptation can exert more strain on the global climate system. And perhaps it makes more sense to prioritize and demand responsible, sustainability-supportive solutions.

First posted at BSR.

10 Climate Trends That Will Shape Business in 2010

As 2010 begins, there are looming questions about climate change action: Will the political agreement made in Copenhagen in 2009 be developed by the next “COP” meeting to include detailed targets and rules? Will those targets and rules be binding?

What will happen with the U.S. Senate’s vote on cap-and-trade? Will U.S. public opinion about climate change — which has a major impact on how the Senate votes — ever begin to converge with science?

There’s no doubt that the year’s most interesting stories could turn out to be “black swans” that we can’t currently foresee. But even amid the uncertainty, there are some clear trends that will significantly shape the business-climate landscape.

1. A Better Dashboard

Carbon transparency isn’t easy — it takes science, infrastructure, and group decisions about standards to allow for more accurate information. We have started moving in that direction. Web-based information services provide illustrations: country commitments needed for climate stabilization, indications of where we are now, and the critical path of individual U.S. policymakers.

Meanwhile, more attention is being paid to real-time atmospheric greenhouse gas (GHG) concentrations, remote sensing technology that tracks atmospheric GHGs, and a new climate registry for China. As these data tools become more available, business leaders should begin to see — and report on — a clearer picture of their company’s real climate impacts.

2. Enhanced Attention to Products

There are signs that more consumers will demand product footprinting — that is, a holistic, lifecycle picture of the climate impacts of products and services ranging from an ounce of gold to a T-shirt or car. Fortunately, a new wave of standards is coming. The gold-standard corporate accounting tool, the Greenhouse Gas Protocol, aims to issue guidance on footprinting for products and supply chains late in the year, and groups like the Outdoor Industry Association and the Electronics Industry Citizenship Coalition plan to publish consensus-based standards for their industries in the near future.

3. More Efforts to Build Supplier Capacity to Address Emissions

With more attention on products comes an appreciation of product footprinting’s limitations. Many layers of standards are still needed, from the micro methods of locating carbon particles to time-consuming macro approaches defining common objectives through group consensus. Accurate footprinting that avoids greenwashing requires statistical context, especially related to variance and confidence levels, that companies often think stakeholders don’t want to digest.

Progressive companies such as Hewlett Packard, Ikea, Intel, and Wal-Mart are therefore pursuing partnerships with suppliers for carbon and energy efficiency, and they are focusing their public communications on the qualitative efforts to build supplier capacity–as opposed to pure quantitative measurements, which can imply more precision than really exists.

4. Improved Literacy About the Climate Impacts of Business

The bulk of companies’ climate management falls short of directly confronting the full scale of effort required to address climate change. That’s partly because organizational emissions accounting tends to treat progress as change from the past, as opposed to movement toward a common, objective planetary goal. But companies are becoming more aware of the need to be goal oriented. Firms such as Autodesk and BT have begun bridging this gap by illustrating that there is a common end–which is measured in atmospheric parts per million of emissions–and that company metrics can be mapped to their share of their countries’ national and international policy objectives toward them.

5. More Meaningful Policy Engagement

Related to the previous item, more companies realize that pushing for the enactment of clear and durable rules to incentivize low-carbon investment is one of the most direct things they can do to stabilize the climate. Therefore, more companies are engaging earlier — and in more creative ways — in their climate “journey.” There is growing realization that you don’t have to “reduce first” before getting involved.

There is also a general awakening to the fact that strong climate policy is good for jobs and business. Already, more than 1,000 global companies representing $11 trillion in market capitalization and 20 million jobs (PDF) agree that strong climate policy is good for business. There has never been a better time to get involved, especially in the United States, where the Senate is expected to vote on domestic legislation by Easter. Effective corporate action can help fence-sitting senators (PDF) gain the support they need by educating the public in their districts about the importance of strong climate policy.

6. Higher Stakeholder Expectations

As climate management enters the mainstream, stakeholders expect companies to do more, and watchdogs will find new soft spots. Companies should be prepared for new stakeholder tactics, such as the profiling of individual executive officers, who are perceived as having the greatest impact on company positions, and heightened policy advocacy efforts. The media’s role in promoting public climate literacy will continue to rank as an important part of stakeholder expectations. Currently, the U.S. public, which plays an important role in the critical path to a global framework, has far less confidence about the importance of acting on climate than scientists do, and the media can help educate them.

7. Increased Power of Networks

Economists see energy efficiency as a solution to 40 percent or more of climate mitigation, and with the technology and finance already available globally, companies can play a significant role in accelerating progress. While the price makes the energy market, and policy helps to set the price, companies like Walmart have shown that creating expectations for performance improvement, while providing tools and training, can help suppliers and partners clear the economic hurdles they need to get started. After this initial “push,” experience shows that suppliers take further steps on their own. As more companies take on supply chain carbon management, watch for lessons on how to do it effectively.

8.    More Climate Connections

Energy efficiency, which constitutes the core of many companies’ climate programs, offers a platform for broader resource-efficiency efforts. We expect to see many companies expand their programs this year to address water. Given that this is the “Year of Biodiversity,” we can also expect more movement related to forestry and agriculture. The nexus between climate change and human rights is also likely to become a hot topic, building on momentum developed during the run-up to Copenhagen.

Finally, watch for the climate vulnerability of mountain regions to gain attention, due to increased environmental instability, disruption of natural water storage and distribution systems, and stress on ecosystem services in regions near human populations.

9. Greater Focus on Adaptation

Climate management has already broadened to include adaptation, and this will receive increasing attention in 2010. This is already evident in company reporting, as evidenced by responses to the Carbon Disclosure Project (see answers to questions 2 and 5 about physical risks and opportunities). Companies are addressing many adaptation-related issues, including insurance, health, migration, human rights, and food and agriculture. It is important to note that adaptation efforts can–and must–also support mitigation, as in the case of resource efficiency.

10. More Political Venues Up for Grabs

The Copenhagen Accord (PDF) was produced only during the last few hours at COP15, as part of a last-ditch “friends of chair” effort involving around 25 countries. This nontraditional process proved to be an effective way to move swiftly in getting broad support, yet still failed to achieve consensus in the general assembly, with a small handful of nations vetoing due to a few apparently intractable disputes. In consideration, there are growing calls for additional forums beyond the regular United Nations Framework Convention on Climate Change process, to offer more responsive action in developing the global climate agreement needed.

Most notably, attention is on the G-20 countries, a group that comprises the vast majority of emitters and has shown that it can move efficiently, even while avoiding the troublesome distinction between developed and developing nations. Country associations are also changing. For example, instead of “BRIC” (Brazil, Russia, India, and China), we are more often hearing about BASIC (BRIC minus Russia plus South Africa) and BICI (BRIC minus Russia plus Indonesia). The point is, before Copenhagen, most thought updating Kyoto meant developing a global treaty through the formal U.N. structures. Now there is growing appreciation of the opportunity for complementary efforts, and new countries are coming to the fore in multilateral engagement.

In 2010, business leaders will be considering their best next steps after Copenhagen. At the same time, as BSR President and CEO Aron Cramer has written, while an overall framework agreement is important, we need to look beyond forums like Copenhagen for real results on climate — and that means looking to business. Business is important for two reasons: By engaging in policy, business can help increase the likelihood that policymakers will develop a strong framework. And by innovating and committing to progress, business will help a treaty achieve desired results.

At BSR, we will be tracking the opportunities related to these trends and working with business to focus on innovation, efficiency, mobilization, and collaboration for low-carbon prosperity. For more information about how your company can contribute, contact me at rschuchard@bsr.org.

First posted at GreenBiz.

Here’s a Plan B

Our global climate agenda may need a Plan B, but if we are to choose the right one, some popular misconceptions need to be clarified.

Fossil fuels are not cheap. Utility bills and per-gallon prices are just the tip of the iceberg of our energy costs. Governments pay hundreds of billions of dollars every year in subsidies, with the United States alone spending over US$72 billion since 2002. According to one account by the Natural Resources Defense Council, if you factor in the whole picture, including indirect support, subsidies are in the trillions.

Renewables are cheap, and will only get cheaper. When consumers pay more for oil and gas, their renewable alternatives become viable. But there is a twist. Fossil fuels are finite, so they get more expensive as sources dwindle. Renewables, on the other hand, are unlimited, and actually get cheaper to produce as more is produced. Moving onto the latter economies-of-scale track is not a cost or a burden so much as it is an investment, and if carbon polices are clear and predictable, the breakeven point will be quick. We could power the planet with 100 percent renewable energy by 2030.

The poor lose first. Accounts as varied as the IPCC, Six Degrees, Maplecroft’s climate risk map, and testimonies at Copenhagen by Tuvalu and the Republic of Maldives make it clear that developing countries face the most urgent and severe vulnerability to climate change. On top of already being prone to dangers such as desertification, droughts, disease, and sea-level rise, they have fewer facilities than their wealthier counterparts to insulate themselves against harmful effects. And as negotiations at COP15 demonstrated, they often have the least recourse in international forums.

What then of Plan B? Our task should be to seize this moment in order to usher in policy frameworks that are clear and predicable for enabling multi-decade capital investments in low-carbon technology. At least, according to the World Wildlife Fund, that’s what over 1,000 companies representing US$11 trillion in market capitalization and 20 million jobs think. Our Plan B should be to grab this terrific opportunity of having the world’s attention on climate and call on the United States and other national policymakers to enact a global framework which enables companies to invest and unleashes the potential of a clean-energy economy now.

First posted as a response to The Wall Street Journal Op-Ed, “Time for a Plan B,” by Nigel Lawson on 12/21/09, and then at BSR’s The Business of a Better World.

Mountains: The Bellwethers of Climate Change

Today is International Mountain Day. And in flat Denmark, the role of mountains is getting more attention as part of the international climate negotiations. Some prominent mountain-oriented activities at COP 15 include:

  • Bhutan’s campaign to raise awareness about the increasing frequency of glacial lake outburst floods, the alpine equivalent of tsunamis that occur when natural ice dams give way
  • A presentation by Al Gore and a group of Nordic country officials on data showing that snow and ice are changing much faster than anticipated globally
  • A discussion hosted by the UN Food and Agriculture Organization on climate changes’ impact on the world’s mountain regions, especially related to political commitments and opportunities for adaptation
  • World-champion skier Alison Gannett’s completion of a 250-mile, self-supported walking journey, with skis on her back, to discuss what climate change means for skiing

Why do mountains matter? Consider these likely consequences, described in the book Six Degrees: With 3°C of warming, the U.S. Rockies will be virtually snowless. At 4°C, the Alps will lose their ice and look more like the Atlas Mountains of Morocco. At 5°C, at least 90 percent of California’s winter snowpack will disappear, and there will probably be significant migration to northern countries like Canada and Russia.

As the storage tanks of our ice and water, mountains distribute water in rivers to farms and communities, even while providing ecosystem services such as pollination and erosion control from wild plants, across broad regions. If snowpack is significantly reduced, these services will probably be severely diminished.

With climate change, mountains could become dangerous rather than life sustaining. As they unfreeze, once firm building materials like rock and ice give way, resulting in slides and floods. As weather becomes more erratic, snow falls less evenly and temperatures are more extreme, increasing the chances of destructive avalanches. While these natural tipping points are already present and observed regularly in natural annual cycles, evidence points to greater frequency and severity with climate change.

As host to a disproportionate share of the world’s marginalized people, mountains also reflect one of the potential human impacts of climate change. This is easy to see in the great ranges of the Himalaya, Karakoram, Pamir, Tien Shan, and Caucuses, which serve as natural border areas. In these regions, sociopolitical stability is already in a delicate balance, and communities can be particularly vulnerable.

Like low-lying islands and the arctic, mountains are the canaries in the coalmine. But they are more than symbolic. For companies that follow their supply chains far enough, they almost certainly hit mountain regions. This highlights the importance of maximizing the resilience of your company and its partners to climate-induced environmental change, while at the same time doing what you can to stop climate change from worsening.

First posted at  BSR.

Why Climate Change Will Matter to Every Company

BSR has recently fielded inquiries from a range of member companies asking how climate change is relevant to their business.

The timing of these questions is obvious: With prospective climate change legislation and policy discussions in the United States and elsewhere, intensive international negotiations culminating later this year, and ongoing stakeholder interest, companies are scrambling to develop or boost their climate change strategies, assess their internal and supply chain emissions, and examine the potential risks and opportunities throughout their operations, value chain, and industry.

For energy companies and heavy manufacturers, it has long been clear that climate change regulation would have a significant impact on business. And while some representatives from other industries still insist climate change is not relevant for them, the best available research indicates it is material for virtually every company, both in the traditional accounting sense and the sustainability context, which incorporates wider stakeholder concerns. Unlike issues such as animal welfare or toxic waste that may be irrelevant to some firms, climate change is never off the playing field for any company.

It’s About Owned Operations

For companies that generate large quantities of greenhouse gases or purchase large amounts of energy, climate change regulation is clearly a significant issue that is likely to affect future costs. As recent negotiations in the U.S. Congress have shown, however, climate change regulation is not just about greenhouse gas emissions and energy use. It has significant implications for international trade, agriculture, transportation, and other areas.

In addition, physical risks and opportunities presented by climate change are already becoming manifest. Companies need to think about how a changing climate affects things such as heating and cooling needs, water availability, and emergency preparedness for catastrophic weather. An extended drought in Australia, for instance, has forced the food company Heinz to curtail production of tomato paste there, and to consider shifting other production out of the country. Meanwhile, nations and industries have begun to discuss the possibilities presented by expanded shipping through the Northwest Passage.

Taking action in a company’s owned operations can also lay the foundation for business opportunities and reputation building through engagement with peers, suppliers, and customers. Although the retail industry is responsible for only a small amount of greenhouse gas emissions, for example, some retailers such as Walmart and Tesco have been applauded for addressing climate change throughout their value chains — efforts that are founded in part on efficiency and renewable energy programs in their own stores.

It’s About Supply Chains

For many companies, the most important climate change risks and opportunities may lie outside of their owned operations. As a 2008 McKinsey study noted, between 40 and 60 percent of manufacturers’ carbon footprints often lie in their supply chains. BSR has worked closely with food-processing companies and retailers whose supply chain emissions are more than three times larger than those represented by their own facilities and purchased energy. It’s important for companies to realize that climate change regulation may have significant implications for supply chain costs in carbon- and energy-intensive industries.

Greenhouse gas emissions and physical climate change impacts also have significant implications for logistics and transportation choices in the supply chain. Companies that have “Just-in-time” inventory systems may rely heavily on air transport for rapid shipment of goods to keep inventories low. However, air transport — which contributes more than 3 percent of global greenhouse gas emissions — has a much larger climate change impact than trucking, rail, or ocean cargo shipping. Increasingly, aviation is brought up as an area for regulation. In effect, climate change is a material issue for companies that have intricate supply chains or otherwise rely heavily on air travel and transport.

Climate change will also have significant physical impacts on supply chains. At BSR, we have seen more companies focus on this area, including Kraft, which is addressing growing climate and other risks to high-value tropical crops like coffee and cocoa by working with organizations such as the Rainforest Alliance and the Bill and Melinda Gates Foundation to support its suppliers and encourage sustainable production.

The supply chain also presents climate-change-related opportunities. The confectionary company Cadbury, for example, is working closely with dairy suppliers to reduce greenhouse gas emissions. Such actions benefit companies like Cadbury by strengthening the firm’s supply chain understanding and relationships and by improving its reputation for addressing climate change. It’s also possible that these efforts will provide financial benefits if the company is able to obtain carbon credits for use or sale.

It’s About Customers and Consumers

In addition to “upstream” supply chains, climate change has growing implications for companies through their “downstream” customers and consumers. Nearly a decade ago, Ford Motor Co. was one of the first large companies to publicly address this issue through its corporate citizenship reports. Information technology companies like IBM and Cisco are touting the benefits of lower climate change impacts from their energy-saving products, while apparel companies such as Levi Strauss and Co. have begun using garment labels, promotions, and store staff to encourage customers to adopt reduced-energy washing practices.

Companies whose products generate substantial greenhouse gases during use aren’t the only ones for whom consumer climate change issues should be important. There are growing efforts to encourage consumers to select products with a smaller total greenhouse gas footprint (such as peanut butter rather than lunch meat), while physical climate change itself may shift customer preferences and needs. Farmers may begin planting more heat- and drought-tolerant crops, for example, while the spread of dengue fever and other diseases (PDF) is likely to significantly affect pharmaceuticals markets. Companies that understand and are prepared to meet these trends will have a competitive advantage over those that don’t.

It’s About Industry Dynamics

Physical climate change and related regulation will also lead to long-term changes in industry structures. Climate-related regulation, market incentives and other factors may encourage new competitors to enter an industry, as we see in the auto and energy fields, while climate change reporting and compliance requirements may increase barriers to entering other industries.

It’s clear that climate change is one of the largest and most persistent sustainability megatrends of this generation — and for many companies, the pinch points are obvious. For others, climate issues are more subtle, affecting the company indirectly through the vulnerabilities of its partners. And for others still, climate change may affect the company in such broad but low-intensity ways that is hard to know where to begin.

In any case, although some companies may not identify climate change as the most pressing issue they face today, these examples should demonstrate that the breadth and magnitude of the likely physical and regulatory impacts — from owned operations and industry dynamics to supply chains and customers — mean the issue is relevant for virtually all companies. It presents a wide range of risks, as well as new opportunities to reduce costs, differentiate products, and work with suppliers and consumers.

First posted at GreenBiz.

Waxman-Markey and the Business Case for Strong Climate Policy

In light of the disappointing outcomes at the recent G8 negotiations on climate, many now see the U.S. Senate’s forthcoming deliberations over America’s first-ever cap-and-trade law (the American Clean Energy and Security Act, or Waxman-Markey), as the next big step on the road to Copenhagen.

Strong, networked national policies such as the U.S. bill are required to stem climate change, which has the potential for unprecedented global consequences. The next (and some say last) chance to do this will be in Copenhagen this December, where the world will try to negotiate the next climate treaty. As I have written recently, passage of U.S. legislation like Waxman-Markey will be a critical ingredient on the road to Copenhagen, signaling that the world’s largest economy is ready to take action.

Why should global companies support this legislation—or any other climate policy, for that matter?

* For most companies, the biggest cost of climate policy is not the legislation itself, but uncertainty. Bringing about policies now clarifies where and how carbon will be priced, opening the door to investment.

* Business-friendly policy terms—that is to say, rules that are durable and allow the efficient movement of capital—are options today. But policies can have many manifestations, and there is reason to believe that delaying concrete policies will to lead to less systemic approaches with less certain futures, degrading investment conditions.

* Inherently, climate policy aims to promote more efficient markets by supporting more transparent prices, active marketplaces, and consumer choices, while cutting subsidies that we unintentionally pay to polluters. The fundamental proposition is better business conditions for all.

Regardless what you support, it is becoming just as important to develop an informed picture of the costs and benefits of action—and inaction—of policies, as it is to understand the ins and outs of your operations (and to employ strategies that link the two).

First posted at BSR.

The Nexus of Climate Change and Human Rights

Though climate change and human rights are important corporate responsibility issues on their own terms, they are increasingly interrelated. 

As our global climate destabilizes, there will be an increase in water stress, food scarcity, the prevalence and intensity of diseases, and the loss of homelands and jobs around the world. In turn, climate change is likely to affect several rights enshrined in the Universal Declaration of Human Rights (UDHR), such as the right to life and security, the right to food, and the right to health.

Meanwhile, efforts to mitigate climate change are creating new human rights problems. In particular, industrializing countries like China are concerned that regulation may unjustly hamper their economic rights by preventing them from growing. (Indeed, finding common ground on this issue is largely what developing a post-Kyoto global treaty depends on.)

Another challenge is that most mitigation scenarios rely on using global finance to lead carbon-reduction activities in communities where the cost of doing so is fairly low. However, this has had unintended human rights consequences for vulnerable populations in those communities. For example, there are forestry protection projects in Uganda designed to earn carbon credits, yet those same activities — aimed at reducing climate change — also impact local people who feel they are being kicked off their land.

In spite of these interdependencies, the relationship between climate change and human rights has only recently been acknowledged but receives scant attention. One reason is that the human rights community needs to broaden its focus from specific, visible impacts on human rights to likelihoods caused by climate change over time. Another challenge is that business approaches to managing climate change have tended to focus on quantifiable risk as opposed to more holistic appraisals.

As governments and advocates come to grips with how climate change and human rights are inextricably linked, managers looking to get ahead of the curve would do well to think of the connections between the two.

Three key issues are emerging for companies:

1.    Energy is the problem — and an opportunity. Energy is responsible for nearly two-thirds of global greenhouse gas emissions and more than 95 percent of emissions for typical companies, so moving to low-carbon energy is crucial for stopping climate change. Energy is also the key to helping the 1.6 billion people without regular access to the grid realize their economic rights as they attempt to adapt. In this respect, companies that enable a transition to affordable, clean energy will enjoy commercial success and help advance the communities in which they operate.

2.    Mitigation and adaptation require significant trade-offs. Climate change means more competition for fewer resources. The future will favor those who are already well off, while affecting the disadvantaged the most. Mitigation and adaptation, therefore, require hard decisions about land use, access to natural resources, and opportunities for economic development. This is true everywhere, but the issues are most evident in Asia, which holds the world’s largest population base.

3.    Scrutiny of companies is increasing. As legal specialists like Climate Justice and the Climate Law Institute emerge, there is growing support for creating a legal liability for the impacts climate change has on human rights. Meanwhile, watchdog organizations such as the Carbon Disclosure Project, Corpwatch, the Climate Lobby Database, and Oil Change are boosting efforts to publish public lists of companies that emit heavily or lobby against emissions regulation.

Climate Change as a Human Rights Issue

The effects of climate change are cumulative, and, so far, those effects have been relatively slow and incremental. Human rights managers who want to get ahead should complement their localized, site-specific approaches with broad, long-term frameworks that take into account how climate change will impact business-relevant human rights issues. Based on this, risk mitigation strategies may deliver both climate and human rights benefits. More importantly, by taking an integrated look at these two challenges, human rights managers may help spark innovative approaches to accessible technologies, such as small-scale irrigation, drought-tolerant seeds, medicines, and weather-related insurance.

These managers can also educate their colleagues about the importance of incorporating climate change into their work. Pfizer and GlaxoSmithKline have begun doing this by publicly communicating their views on how their companies help alleviate human problems caused by climate change. Managers might begin by dispelling common myths, like the sentiment that climate change is narrowly an “environmental” problem.

Human Rights as a Climate Change Issue

On the flip side of this coin, managers who are responsible for their company’s climate change impacts also need to consider human rights.

More Reading on Climate Change and Human Rights
Climate Change and Human Rights: A Rough Guide (PDF) A report by the International Council on Human Rights Policy on the relationship between climate change and human rights, and the policy implications of that link. 

Climate Wrongs and Human Rights: Putting People at the Heart of Climate Change Policy (PDF) An Oxfam briefing paper that focuses on putting people at the center of climate change policy.

Integrating Human Rights into Energy and Environmental Programming (PDF) A reference paper on integrating human rights into energy and environmental programming.

Background Paper: Human Rights and Climate Change A background paper from the Australian Human Rights Commission.

Climate Change, Human Rights, and Indigenous Peoples (PDF) A submission to the United Nations high commissioner on human rights by the International Indian Treaty Council.

Forests, Climate Change, and Human Rights: Managing Risk and Trade-offs (PDF) A paper from the Center for International Forestry Research.

Climate Change 2007 Synthesis Report A report by the Intergovernmental Panel on Climate Change.

Climate Change and Human Health A World Health Organization report on some social impacts of climate change.

These individuals, often finance and energy managers, are generally charged with making direct investments that can impact the human rights of communities in areas where these investments take place, such as buying or selling of carbon market instruments, recommending sites for new facilities, procuring energy and water, carrying out remediation activities, and engaging suppliers.

For instance, if a project involves establishing a new plant that will stress the local community’s water resources, over time this may impact the community’s right to food, safe water, and health — especially if the community’s water resources are already suffering from climate change-related drought.

Finally, managers should beware of adaptation’s pitfalls — namely, growing instability in communities where people feel they are disenfranchised — while prioritizing the development of strong foundations for a world of climate instability.

To address these challenges, climate change managers can use quantitative analysis to represent the longer-term trends of climate change while doing qualitative research via community engagement to determine potential human rights issues.

The Nexus of Climate Change and Human Rights as a Strategy Issue

The climate change-human rights link presents enterprise-level risks and opportunities that require attention by those setting company strategy: senior executives and boards. Lengthening time horizons and broadening measuring tools for decision-making are key.

Senior-level executives have an opportunity to help their company address climate change and human rights by promoting quantitative data analysis with qualitative, holistic thinking. At the same time, they should promote aligned, consistent actions throughout the company, particularly among their marketing, public relations, and government affairs teams.

Companies that do this will be ahead of the game — and ultimately more efficient, with lower risk profiles as climate change unfolds and companies are held to higher account for human rights.

First published by BSR.

What New Climate Change Policies Will Mean for Your Business

To read about policy developments taking place this year, see “Looking for Signs Along the Road to Copenhagen.” Listen to advice from Ryan on positioning your business at “Reading the Tea Leaves of Evolving Climate Change Policy.”]

As global leaders prepare to negotiate an updated version of the Kyoto Treaty at the U.N. Climate Change Conference in Copenhagen in December, the big question is whether China and the United States will join the 183 countries that have already signed on. If that happens, we’ll be on our way to a serious global effort to stabilize the climate.

What would this mean for your company? An agreement that includes China and the U.S. — the world’s No. 1 and No.2 emitters — will commit all signatory countries to broad reductions in domestic emissions. Beyond outlining general principles for international cooperation, however, the treaty likely will leave it up to countries to figure out how to do so. Therefore, an evolved global agreement will help speed up and synchronize country-level efforts, but national governments will continue at the helm of climate policy design.

Through that lens, consider the following ways in which policy will impact individual companies, starting with the most direct effects.

1. The Price of Carbon

From global to local, the essence of climate policy is putting a price on carbon emissions, which means either direct regulation by taxes or what’s known as “cap-and-trade” — a requirement for companies to buy tradable permits when they exceed a certain threshold of emissions. Generally, when experts talk about the “regulatory risk” of climate change, they’re referring to direct exposure to just such a price, and this is rightly considered one the most immediate and tangible climate-related risks.

The onset of a carbon price affects companies directly in two main ways. First, for those paying, there is a per-unit price, which, in recent years, has ranged between $1 to more than $50 per ton of carbon in voluntary carbon offset markets and regulatory schemes like the European Union Emissions Trading Scheme (ETS). The Economist suggests that range may move and narrow to between $38 and $63 in the future.

The second direct impact on companies is the uncertainty over what the price will be, and who will have to pay it. This may be more profound than the price impact itself, which is why companies in the U.S. Climate Action Partnership are asking for a system of regulation. Since most emissions come from fossil fuels, regulation is closely related to the supply and the cost of energy. And because corporate energy expenses are so substantial — many companies spend more on energy than they do on taxes — an increasing number of firms see regulation as a good deal, as long as the government clarifies it soon.

2. “Supporting” Policies

In addition to direct regulation, there are various supporting policies. One main type is standards, which include transportation sector fuel economy specifications and efficiency requirements for energy-using products in the information and communications technology (ICT) industry. Standards typically set out requirements for end products, but as international sectoral approaches take shape, standards increasingly will cover production processes as well.

Another main type of supporting policy is technology incentives, which include funding for R&D, the removal of barriers to enter new industries (particularly energy), and financial incentives such as tax credits to encourage companies to generate renewable energy on site.

While the three instruments mentioned so far tend to constrain emissions, there is also a widespread movement to develop “market mechanisms” that create positive incentives by taking advantage of the commodity aspect of carbon. For instance, since a ton of carbon emissions is a ton anywhere, it’s possible to use the market to promote activities being done at the lowest-cost locations — where investments in activities that reduce carbon emissions are cheaper. With market mechanisms, companies can buy reductions when it is cheaper than “making” them. Examples of markets include the U.S. Regional Greenhouse Gas Initiative and United Nations’ Clean Development Mechanism.

Despite the promise of environmental finance-based market systems, two big questions loom: whether and how carbon instruments can be “imported” from elsewhere, and whether forestry-related carbon instruments should be allowed at all.

3. All Policy is Climate Policy

Policies that reduce carbon emissions are not always named as “climate” policies. Case in point: Transportation accounts for a third of emissions in the U.S., so climate will be a significant topic when the U.S. transportation bill comes up for its six-year reauthorization in September. Also, with 20 percent of global emissions caused by forestry and land-use change, and with the food and agriculture sector looking for rewards for good behavior, climate considerations are also likely to come into play in agricultural policy.

In addition, climate issues are becoming ubiquitous in policies that address economic and social issues. For example, the growing risk of international legal and border disputes, the greater likelihood of damaging weather events, and the increasing vulnerability of energy security all mean climate change is a key security policy issue (PDF). It’s no coincidence that the first carbon tax bill — America’s Energy Security Trust Fund Act, which was introduced in the House earlier this month — has “security” in its name. Climate relations are also ground zero for trade issues. Realizing there is a legal basis (PDF) for using trade measures to enforce environmental initiatives, the U.S. and China are debating who is ultimately responsible for cross-border emissions. In other words, climate policy is trade policy.

4. Society as the Policy Authority

Ultimately, policy is part of a general contract between business and society, and social groups may start to hold companies accountable via direct pressure. These actions, according to a recent Harvard paper (PDF), can range from events targeting single companies to strikes and riots deriving from social instability exacerbated by climate change.

To stay ahead of this risk, companies should conduct broad policy assessments of sociopolitical situations, using resources like the Economist Intelligence Unit, the International Country Risk Guide, Business Environment Risk Intelligence, and S. J. Rundt & Associates.

5. Everyone is Affected

According to the Peterson Institute and World Resources Institute, the most vulnerable industries are those that have high energy intensity of production, low potential for efficiency improvement, little ability to switch to low-carbon energy sources, and high elasticity of demand. These include, in particular, energy utilities and heavy manufacturing sectors.

This analysis, like many, focuses on policies that likely will have a direct impact on a relatively small number of players — for example, the U.S. Environmental Protection Agency’s proposed reporting rule covers 85 to 90 percent of domestic emissions by focusing on just 13,000 facilities. Nonetheless, all of the policies mentioned so far may reverberate to impact the fundamental conditions on which all businesses depend. For instance, a carbon tax impacting the price of carbon-intensive energy could lead to reduced availability of carbon-intensive inputs such as steel. Such a tax could also lower demand for products that create higher emissions during their use.

These types of policies could also influence competitive dynamics. For example, incentives for renewables might lower entry barriers for ICT companies in the energy sector, while feed-in tariffs might enable consumer products companies to develop better cost positions over rivals. Also, with investor groups like the Carbon Disclosure Project demanding more information about companies’ self-appraisals of policy risk, those firms that are willing and able to disclose more have increasingly preferential access to capital.

Putting it in Perspective

By no means are the effects of climate policy all negative. The economy as a whole stands to benefit from comprehensive climate policy. Without it, a wide scale of human rights, health, disease, and energy problems will likely result.

But more pragmatically, for most climate policy risks, there is also opportunity. Companies that generate and rely on low-carbon energy are set to prosper, as are those that can exploit technological breakthroughs in resource efficiency and materials. Those firms generating new forms of energy — in particular, renewables — will participate in a massively growing market. Companies in industries that address adaptation problems, such as pharmaceuticals and biotechnology, stand to gain. In the end, as the world’s climate policies are developed and strengthened, there will be important roles for companies from almost every industry.

First posted at Greenbiz.

Looking for Signs Along the Road to Copenhagen

The path to a new international climate change treaty is filled with potential twists and turns that will impact how businesses operate in a carbon-constrained economy.

United Nations climate negotiations are planned in Bonn later this month, a U.S. House of Representatives climate bill is expected by May, a U.S. Environmental Protection Agency Greenhouse Gas Reporting Rule is due to be published by June, and an additional climate bill from the U.S. Senate is possible at any moment.

Each of these theaters of emerging climate policy has the potential to impact business in several ways, including raising the cost of energy, imposing new production process requirements, and changing competitive dynamics all around.

We’re taking this opportunity to look at which developments businesses should monitor over the next several months on the road to the U.N. Climate Change Conference in Copenhagen in December. In the second part of this series we’ll explore how climate policy is likely to affect the business community, and how companies can engage in the discussion and help shape future climate policy.

1. Sealing Leaks: Negotiations for an International Treaty

If advocates have their way in Copenhagen this December, negotiators will close the deal on a global treaty for greenhouse (GHG) gas emissions. Such a treaty, which is essential (PDF) for combating the critical problem of “leakage” (when sources of emissions migrate to the places of least regulation), would outline common but differentiated responsibilities—holding all countries responsible to protect the global climate, but taking into account their different historical contributions and relative capacity to act in requiring commitments.

In practice, such an agreement would require developed countries to make significant reductions to their aggregate, absolute, point-source emissions, and would require developing countries to reduce their intensity of emissions and abide by new sector-specific standards. It would also aim to promote innovation by creating positive incentives for low-carbon energy and activities all around.

Key Climate Policy Events in 2009
Feb. 26: Western Climate Policy Forum  (Denver, Colo.)
March 10-12: Research Congress on Climate Change 2009 (Copenhagen, Denmark)
March 11: Midwest Climate Policy Forum (Columbus, Ohio)
March 29-April 8: U.N. Climate Change Conference  (Bonn, Germany)
May 24-26: World Business Summit on Climate Change (Copenhagen, Denmark)
June 1-12: U.N. Climate Change Conference (Bonn, Germany)
July 8-10: G8 Summit (La Maddallena, Italy)
Aug. 31–Sept. 4: WMO World Climate Conference (Geneva, Switzerland)
Sept. 28–Oct. 9: U.N. Climate Change Conference (Bangkok, Thailand)
Dec. 3-6: Copenhagen Climate Exchange (Copenhagen, Denmark)
Dec. 7-18: U.N. Climate Change Conference (Copenhagen, Denmark)
Dec. 15-17: Copenhagen Climate Conference for Mayors (Copenhagen, Denmark)

What this means for business:
A global treaty will establish parameters that shape domestic legislation, as well as border measures enforceable (PDF) under the World Trade Organization — creating many layers of price and risk for companies that use, produce, or manage value chains that rely on carbon-intensive energy.

Specifically, the treaty is expected to outline regulations and incentives related to not only reducing emissions, but adaptation, technology transfer, finance and international development, a global carbon market, and deforestation.

In spite of these concrete subjects, the Copenhagen meeting itself (known as “COP 15”) is largely symbolic. The real action will take place at the various United Nations Framework Convention on Climate Change (UNFCCC) meetings leading up to Copenhagen (see sidebar), and also afterward.

As the Economist has pointed out, Kyoto, Copenhagen’s 2001 predecessor, was a “bust up.” The actual deal wasn’t completed until another meeting the following year. Thus, Copenhagen is just one stop — albeit one with a big agenda — along a road of continuous negotiations.

What to watch:
A key area to watch is interactions between country coalitions.

The most influential is the relationship between developed and developing countries—what the UNFCCC calls “Annex 1” and “non-Annex 1” countries—which has reached a stalemate over who should act first.

Other coalitions, known as “party groupings,” include the Alliance of Small Island States, the Least Developed Countries, the European Union, the Umbrella Group and Environmental Integrity Group, OPEC, CACAM, the League of Arab States, and the Agence Intergouvernementale de la Francophonie.

To stay close to the global negotiations related to Copenhagen this year and onward, follow the UNFCC press headlines, COP 15 News, UN News Centre, Earth Negotiations Bulletin, Climate Action Network, and Third World Network.

2. Critical Path: The United States Senate

In order for a treaty to work, the U.S. must ratify it — and for the first time, this is possible. U.S. President Obama wants to reduce emissions by 80 percent by 2050, is committed to vigorous diplomatic engagement, and has called on Congress to enact a market-based cap. More generally, there is growing evidence that clean energy is not at odds with jobs, and consensus among economists (PDF) that now is the time to act.

Nonetheless, ratification requires a two-thirds vote by Congress, where politics, not policy, rules. This will take two steps.

First, explains Al Gore, who failed to get the U.S. to sign the Kyoto Treaty in 1997, the Senate needs a clear picture of how the U.S. will actually meet its targets, which will almost certainly depend on both the Senate and the House approving a centralized cap-and-trade system. Second, in addition to the 60 Senators needed to support regulation, a full 67 are required to ratify the international treaty. The critical path, therefore, is winning over “brown state” Senators, who are concerned about unemployment.

What this means for business:
Centralized emissions regulation is likely to happen during this Congress and maybe even this year. But ratifying the treaty, while possible, is not likely to happen in time for the Copenhagen meeting in December. Elliot Diringer of Pew Center on Global Climate Change and Joseph Romm of Climate Progress fall generally in this camp. Others expect a treaty, albeit a watered down version.

As an optimistic way forward, Senate Majority Leader Harry Reid is planning to strategically sequence legislation in 2009, beginning first with a renewable energy bill, before introducing a measure to improve grid transmission. Once those foundations are laid, he will tackle a cap-and-trade.

What to watch:
As Congress negotiates the details of international competition, technology, cost containment, and offsets, energy and climate bills will develop in both the House and the Senate. Watch for markup on a climate bill by Memorial Day in the House, where 55 of 126 fence-sitters — which include fiscally conservative “blue dog Democrats” — need wooing to achieve a 163-vote majority. In the Senate, Reid aims to hold a floor debate on a climate bill by the end of the summer, when Senate supporters will need to win over 13 of the 21 senators now undecided. 

If and when discussion turns to ratification, the collection of moderate Democrats from the Midwest, the Rust Belt, and the West (known as the “Gang of 15”) will be critical to achieving support from the additional seven senators that are needed. Given the rocky economy, the central issue will be whether a commitment represents an investment or a cost, especially for U.S. manufacturing.

Watch how opinion leaders like the 17 players most influential to cap-and-trade affect the discourse, as well as influential climate change skeptics such as Senators Joe Barton and James Inhofe, in part with the help of contrarian scientists.

3. Game Theory: The U.S.-China Axis of EmissionsBut the real theater to watch, says Jonathan Lash, director of the World Resources Institute, is the interaction between the United States and China — the No. 1 and No. 2 greenhouse has producers that emit more than 40 percent of the global total — which Lash refers to as the “axis of emissions.”

“If the U.S. and China find agreement, the world will move,” according to Lash. Romm, of ClimateProgress, goes further, saying that Obama’s entire presidency and the fate of the planet depend on it.

Getting the 67 U.S. Senate votes needed to ratify a treaty, says Romm, will not happen without binding commitments by China to cap emissions by 2020. In response, Obama is taking negotiations with China seriously. Secretary of State Hillary Rodham Clinton visited China as part of her first diplomatic mission last month, which included a two-day stop in Beijing devoted to climate. She was accompanies by  new climate change envoy Todd Stern, who believes “nothing is more important for dealing with (climate) than a U.S.-China partnership.”

So far, however, China firmly opposes binding commitments, resists the need to act in advance of the U.S., and instead calls on developed countries like the U.S. to provide financial support and a transfer of technologies. Chinese leadership has taken this stance because it believes the country should be as unrestricted in industrializing as the U.S. was under the Industrial Revolution. Clinton’s retort? Everybody knows better today.

Regardless of this debate, much of China’s emissions come from manufacturing goods headed to the West, and deciding whose emissions are whose and what constitutes progress is far from settled.

What this means for business:
Diplomats will look for every opportunity to build common ground, and reports by the Pew Center, the Asia Society (PDF), and Brookings Institution provide roadmaps. One big opportunity is for the two governments to share investments in R&D: China wants help with technology and finance but most cleantech in the United States is owned by private companies and the U.S. Congress is unlikely to make major appropriations.

Among investments, two technologies are wildcards: carbon capture-enabled coal and nuclear. Although evidence shows that they should be the low-carbon energy choices of last resort, coal is enticing because each country has such huge deposits, and public attitudes in the face of climate change are evolving more favorably towards nuclear.

What to watch:
For both the U.S. and China to commit to an international climate treaty, the U.S. will need to lead the way with binding commitments and each country must show successive signs of good faith.

If it happens, it’s most likely that China will sign “process-oriented” commitments, such as adopting emissions-per-GDP (or “intensity”) targets, renewable energy requirements, sector-specific emissions limits, plant- and building-efficiency standards, and possibly carbon taxes.

After that, U.S. Congress might approve a cap-and-trade scheme in anticipation that China would follow. A key event to watch is the April meeting in London between U.S. President Obama and Chinese President Hu Jintao.

There, the leaders intend to reveal more about their “strategic dialogue,” which Clinton’s visit initiated.

First posted at GreenBiz.

Climate Change Lessons from the Slopes

A recent study presented at last month’s American Geophysical Union conference holds chilling news for the $2 billion U.S. ski industry: Climate change might end skiing in Aspen and Park City by 2100.

It stands to reason that if the snow pack dries up, the ski industry could, too. But the study from Mark Williams and Brian Lazar could be a harbinger of things to come for other consumer-facing industries as well. As one of the first industries to face climate change head-on, skiing provides three key lessons for other sectors.

Learn the Terrain: Know and Promote the Facts

Climate change myths abound. On a recent Google search for “climate change facts,” five out of the first 11 hits led me to websites that downplay or contradict the science. Media watchdog groups substantiate my findings: According to Media Matters, recent content by CNN, the Wall Street Journal, Fox News, and other mainstream papers and broadcast outlets have contained inaccurate and flawed information about climate change.

In light of this misinformation, consumer-facing industries have a responsibility to get their facts straight and share them with their customers. According to the best assembly of experts on the subject — the UN’s Intergovernmental Panel on Climate Change — here’s what we know: The climate is destabilizing, this destabilization is driven by greenhouse gas emissions, and humans are directly responsible for causing those emissions (see sidebar).

With this gap between public knowledge and the scientific facts, one of the most powerful things companies can do about climate change is use their communication channels to set the record straight. In the ski industry, outdoor apparel manufacturer Patagonia, which has an extensive “environmentalism” section on its website, has been doing this for years. By demonstrating a deep-rooted commitment to environmental stability, Patagonia has enjoyed the commercial benefits of long-term customer loyalty, and the ethical benefits of being on the right side of science.

There is a business opportunity for virtually every company to use their existing communications efforts to give their employees and customers a compass for climate change, which is shaping up to be one of history’s greatest social threats. Since people need accurate information to make good decisions, this is, for many consumer-facing businesses, the easiest and most important thing they can do.

Go Out of Bounds: Look Outside Your Company’s Operations

In many ways, it’s logical to focus efforts on reducing emissions from your company’s internal operations: Internal emissions are the easiest to measure and control, the effort yields useful information about costs and risks, and committing to operational reductions is important for  credibility.

But as the ski industry has demonstrated, there are important opportunities to look outside the scope of your company’s boundaries and consider ways you can help reduce emissions on a broader scale.

The Scientific Consensus on Climate Change
There is much debate about the details of climate change, and future-looking analyses in general bring uncertainty. Yet we confidently manage risk in all aspects of life — climate change should be no different — and the world’s most informed experts agree on the most fundamental issues that we need to understand in order to act: The climate is destabilizing, this destabilization is driven by greenhouse gas emissions (GHGs), and those GHGs are directly caused by humans. 

These are the findings of “Climate Change 2007: The Physical Science,” the most comprehensive review ever undertaken on climate science. The review, dubbed “AR4,” was conducted by the United Nations Intergovernmental Panel on Climate Change (IPCC), the world’s leading scientific body on climate. Peer-reviewed science stands in agreement: According to the last published review of scholarly literature, conducted by Naomi Oreskes in 2004, in more than 900 scholarly articles, not one disputed this consensus view. Furthermore, no major world scientific academies contradict these basic findings.

If your company does decide to pursue a climate strategy of learning and promoting the facts, looking outside internal operations for opportunities to reduce emissions, and planning for both adaptation and abatement, start with the following links for more essential information about climate science:

– Global Warming Myths and Facts (Environmental Defense Fund)
– Global Warming Fast Facts (National Geographic)
– Global Warming 101 (Union of Concerned Scientists)
– Fast Facts about Climate Change (The Nature Conservatory)
– 10 Facts on Climate Change and Health (World Health Organization)
– Global Warming Facts and Figures (Pew Center on Global Climate Change)
– Global Warming Frequently Asked Questions (National Oceanic and Atmospheric Administration)
– Facts and Trends to 2050: Energy and Climate Change (pdf) (World Business Council for Sustainable Development)
– Frequently Asked Questions (pdf) (Intergovernmental Panel on Climate Change)
– Climate Change: A Guide for the Perplexed (New Scientist)

For example, the energy bar company Clif Bar has supported the formation of the collaborative initiative Keep Winter Cool, which aims to raise public understanding of global warming. In an effort to take responsibility for their customers’ drives to the mountain, California’s Kirkwood ski resort partnered with SnowBomb, a resort information and discount portal, to develop user-friendly rideshare schemes. Enabling conservation-oriented consumer behavior is one of the most important steps companies can take to combat climate change.

At the same time, a company’s operations have less influence on the customer than the customer’s experience with the company’s products, which generally takes place among an ecosystem of complimentary goods and services from other companies — in the case of skiing, that includes the drive, lodging, gear, and more. Consumer-facing companies therefore have a great opportunity to meet the customer where they use their products, particularly by partnering with other companies that are operating in the same environment.

While the previous examples are customer-focused, you can extend the influence of your company by using whatever assets have the most reach. For instance, Colorado’s Aspen Skiing Company, which is influential in its community, has directed its resources to partner with utilities to deploy new community solar arrays. The company also has lobbied for policy change by filing federal amicus briefs and testifying before Congress about the expected effects of global warming on the ski industry.

These early initiatives by the ski industry are just the beginning; there’s a whole wilderness of opportunity for other industries to develop climate change solutions by venturing beyond the boundaries of their own operations.

Proceed with Caution: Abate, Abate, Abate

In climate change, we talk about adaptation — preparing for change — while committing to abatement — doing our best to prevent things from getting worse. There is a multi-decade lag between emissions and their effects on the climate, so we are almost certainly locked in to at least 2 degrees Celsius of warming. Some adaptation to climate change will be necessary. For the ski industry, making more snow and employing new business strategies will be the keys to survival for many resorts. Other companies will make similar plans for adaptation. At the same time, it’s critical for companies to maintain an unwavering focus on reducing emissions.

There are three reasons for this. First, adaptation is perilous. According to most predictions, climate change could easily push currently stable ecosystems across boundaries. For instance, as the climate warms over time, the thawing of ice and tundra could release huge amounts of additional emissions. Yet, no matter what the pace, climate change effects are irreversible. So while technological solutions like snowmaking may provide a quick fix to the narrow interests of some, they won’t replenish the breadth of lost ecosystems and their natural services in general.

Second, adaptation is a classic “win-lose” game, where people and companies will compete for fewer resources (especially water) and defend the most fertile real estate, while more energy will be needed to resettle and distribute goods and services. Such a process is inherently disruptive, brings about sociopolitical instability, and is likely to leave the vulnerable behind.

The last reason companies need to focus on abatement, not just adaptation, is that every incremental rise in average global temperatures is more menacing than the previous one. It is not about whether climate change will occur, but to what extent, so every abatement effort counts.

While skiing is one of the first industries forced to deal with climate change so directly and comprehensively, consumer-facing companies in other industries will face the same challenges soon enough. These lessons from the slopes will help all businesses build a stable and predictable future.

First posted at GreenBiz.