Why Solar Should Care About Sustainability

Solar power is a poster child of sustainability, at least from the standpoint of energy users. It provides a clean alternative to GHG-emitting fossil fuels and runs indefinitely on free energy from the sun. What more, then, is there to the sustainability of solar energy?

Plenty, and the industry’s largest gathering, Intersolar, which I attended in San Francisco this week, offers a glimpse into why.

The event is an exhibition of more than 800 companies selling their wares—everything from wafer etchers, adhesives, and gauges to gears, filters, and fire alarms. They sell the equipment that makes equipment, and the equipment that makes that equipment. And they are the purveyors of exciting items like plasma applicators, robots, and lasers.

As for the attendees, it’s all black suits and ties, and the discussions are on engineering specs and market trends. It feels more like a summit for making deals, rather than achieving some vision of “ecotopia.”

While there is nothing wrong with all of this, it does bring to light an important truth: The parts that make up the whole of the solar industry are little different than those of any other. And while environmental conservation may be a side effect, the efforts, by and large, are about capitalism.

Thus, as manufacturers, solar companies may cause damaging environmental impacts from their use of water, gasses, chemicals, minerals, and nanomaterials. As designers of large, long-lived physical goods, they are seen as part of a great network of potential e-waste, with end-of-life responsibilities that extend beyond the law. And as global businesses that seek low-cost employees and supplies, the emerging markets that offer so much promise are rife with potential social challenges such as protecting human rights.

If the solar industry is to create the most value for its investors, customers, and communities—all of whom have growing concerns about sustainability and greater means for comparing companies and industries to one another—it has to make sense of all of this. The good news is that others have taken the lead. The information communications and technology (ICT) industry, for example, has started complying with best practices for responsible policy advocacy and working with their suppliers to improve labor conditions and environmental impacts. Since solar companies have similar production processes and supply chains, they can build off of the foundation that the ICT industry has already established.

Yet solar is different: It makes a promise, however implicit, to offer a clean alternative to fossil fuels. This expectation makes the industry a target, and if solar companies can’t objectively demonstrate better overall performance, they risk having their credibility undermined and their technologies devalued.

Some quick parting advice for solar companies new to managing sustainability: Consult the Global Reporting Initiative to understand the full breadth of key issues. Know who your stakeholders are, and identify and synthesize their concerns. Make sustainability a C-level concern, so when decisions are made about maximizing the all-important parameter of per-watt productivity, sustainability opportunities and risks are appropriately considered. And finally, attend this year’s BSR Conference, and join me at the panel, ”The CSR Blueprint for Renewable Energy.”

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.

A Sneak Peek at the New Rules for Supply Chain Footprinting

The art and science of carbon footprinting is about to take a step forward: The long-awaited launch of guidance for managing network and product lifecycle impacts is just around the corner.

If that’s news to you — and you have anything to do with managing a business with a significant supply chain — here’s your chance to get up to speed.

First, a little background. Carbon footprinting took off in 2001, when the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD) established the GHG Protocol Corporate Standard. This standard outlined a practical way to quantify the greenhouse gas (GHG) emissions produced from materials and energy use in business operations.

It did this by offering an accounting framework with three GHG emissions “scopes:” Scope 1 is a sum of emissions from fuel, refrigerants, industrial gases, and other materials combusted or used at sites the company owns or controls; Scope 2 adds up emissions linked to electricity used by those facilities; and Scope 3 encompasses all other emissions in the business value chain.

Measurement of the “internal,” or “operational,” emissions of scopes 1 and 2 has always been straightforward, and thus those standards have been rapidly adopted. Today, a significant majority of the Global 500 companies report on operational emissions.

Scope 3, however, has incited many debates over interpretation. Originally referring to emissions from supply chains, including products, waste, distribution, and travel, Scope 3 outlined a much larger and more complex set of issues than those that characterize emissions from internal operations.

While Scope 3 has always been recognized as important, and indeed reporting has been growing, companies have been clamoring for more detailed guidance. Many companies have focused on addressing more easily measured Scope 3 activities, such as business travel and employee commuting. Also, business networks, such as the Clean Cargo Working Group and the Electronics Industry Citizenship Coalition, have begun developing shared approaches for issues very focused on their industries.

But there has not been a common language for measuring Scope 3 impacts in detail across industries. That’s about to change.

By summer 2011, WRI and WBCSD will finalize the Scope 3 standard and the related Product standard. This will be the result of a three-year project involving more than 1,500 diverse stakeholders from governments, research institutions, businesses, and civil society, all contributing to various discussions and drafts. BSR and many of its member companies have been represented in a technical working group.

Unofficially, this has been even longer in the making. A year after the 2001 launch of the first edition of the Corporate standard, a working group explored ways to flesh out Scope 3 with lifecycle assessment tools, finding that significant time and effort would be needed to produce an effective framework.

What led us to this final chapter? Brian Glazebrook, a senior manager of social responsibility at Cisco Systems who has been involved with Scope 3 efforts from the start, says that lifecycle and supply chain information is becoming more commoditized and therefore less expensive, while at the same time there is more demand for transparency. We have crossed a threshold that is making Scope 3 management undeniably more attractive to companies, and the case to do more will only become stronger.

Following are highlights of a recent discussion I had with Pankaj Bhatia (pictured below), director of the GHG Protocol at WRI, offering a preview of what’s to come.

Ryan Schuchard: Pankaj, how will the Scope 3 standard help companies?

Pankaj Bhatia: It will enable them to develop an organized understanding of the impacts, risks, opportunities, and considerations from energy and other sources of GHG emissions throughout business networks and relationships. As a comprehensive accounting and reporting framework, it will facilitate identifying GHG reduction opportunities, setting reduction targets, and tracking performance in value chains. In turn, it will provide a sophisticated framework for reporting to the Carbon Disclosure Project and the Securities and Exchange Commission, in annual CSR reports, and for other GHG transparency programs and B2B initiatives. It also may lead companies to develop stronger relationships with suppliers by reducing waste and improving efficiency through GHG management in their supply chains.

RS: What kinds of companies should utilize it?

PB: The Scope 3 standard is written for companies of all sizes in all economic sectors. It is especially applicable to three types of companies: (1) those with significant emissions in their upstream or downstream activities, (2) those that would like to engage and inform their stakeholders about their value chain emissions and performance, and (3) those wanting to identify business risks and opportunities in their value chain and develop strategies to minimize risks and leverage opportunities.

RS: Is it a full “standard” — in the way the GHG Protocol Corporate Standard is a standard?

PB: Yes. A GHG Protocol publication qualifies as a standard if it provides verifiable accounting and reporting requirements. The standard uses the term “shall” (e.g., “Companies shall account for and report all Scope 3 emissions and disclose and justify any exclusions.”) to indicate what is required for a GHG inventory to be in conformance with the Scope 3 standard.

Companies may use the inventory information to identify, prioritize, and guide innovative emissions reduction activities within and across Scope 3 activities. For example, a company whose largest source of value-chain emissions is contracted logistics may choose to optimize these operations through changes to product packaging to increase the volume per shipment, or by increasing the number of low-carbon logistics providers. Additionally, companies may utilize this information to change their procurement practices or improve product design or product efficiency, resulting in reduced energy use.

RS: Will there be any completely new ideas?

PB: Yes. Scope 3 emissions are now categorized into 15 distinct, mutually exclusive categories that avoid double counting. These categories are intended to provide companies with a systematic framework to organize, understand, and report on the diversity of Scope 3 activities within a corporate value chain.

Also, there is more guidance on characterizing confidence in data. This guidance was requested by stakeholders, since Scope 3 emissions data may be relatively less accurate and precise than Scope 1 and Scope 2 emissions data. Additionally, the Scope 3 standard allows for a range of data collection and calculation approaches, with a varying range of data quality. Scope 3 data may include reliance on value chain partners to provide data, broader use of secondary data, and broader use of assumptions and modeling (such as for downstream emissions categories, such as the use of sold products by consumers).

Higher uncertainty for Scope 3 calculations is acceptable as long as the data quality of the inventory is sufficient to support the company’s goals and the information needs of key stakeholders such as investors, while providing transparency on limitations of the Scope 3 data to avoid potential misuses. Companies are therefore required to provide a description of the accuracy and completeness of reported Scope 3 emissions data and a description of the methods and data sources used to calculate the inventory. The standard provides descriptions of accuracy and completeness, guidance on describing data quality, and guidance on uncertainty. The standard doesn’t require companies to provide a quantitative confidence level or confidence interval associated with the reported emissions data — though this is optional.

RS: Will the standard provide a good tool to compare companies against each other?

PB: No and yes. First, it is important to understand the limits. Companies’ selection of one or more Scope 3 categories and their choice of whether to base measurement on operational control or financial investment is based on considerations that aren’t easily comparable across companies, like corporate vision and business risk. That means even companies that seem like peers may not prioritize the same things, so it would not be meaningful to uniformly prescribe what should “count.” Also, within categories, the level of data quality and control will vary with the level of vertical integration and the public data infrastructure where sites are located.

What it will enable is comparison of the level of depth that companies measure and report on. This will help to clarify that a larger footprint doesn’t necessarily mean a company is worse off, but rather, that it might be examining its networks in more detail. Also, while the standard won’t provide a robust way to directly compare GHG performance between companies, it will let a company measure performance against its own baseline, which potentially could be compared between companies.

As companies take up this type of reporting, there will be opportunities to develop more specific norms and benchmarking for better comparability among more specific situations. In many ways, that’s what this standard provides—a platform that creates unified language across industries for going deeper on comparisons of key applications through development of sector-specific rules.

RS: What kind of data will companies need to gather to measure Scope 3?

PB: The standard asks that companies select data that is most representative in terms of technology, time, and geography; most complete; and most precise. We have categorized data needed to calculate Scope 3 emissions into two types: primary data and secondary data. Primary data means specific data provided by suppliers or other companies in the value chain related to the reporting company’s activities, including primary activity data, and emissions data that is calculated using primary activity data (e.g., primary activity data combined with a secondary emission factor). Primary data does not include financial data (e.g., spend) used to calculate emissions.

Secondary data refers to industry-average data (such as from published databases, government statistics, literature studies, and industry associations), financial data, proxy data, and other generic data. Primary data and secondary data each have advantages. For example, primary data best enables performance tracking of individual value chain partners and supply chain GHG management, while secondary data can be a useful tool for efficiently prioritizing investments in primary data collection and for tracking emissions from minor sources.

Choosing the appropriate type of data depends on the company’s business goals. The standard asks companies to make sure that the data quality of the Scope 3 inventory is sufficient to ensure that the inventory is relevant — both internally and for a company’s stakeholders — and that it supports effective decision making.

Companies may find that for a given activity, secondary data is of higher quality than the available primary data. In this case, if the company’s primary goal is to maximize the data quality of the Scope 3 inventory to improve decision making where accuracy is important, it should select secondary data. If the company’s primary goal is to set reduction targets and track performance from specific operations within the value chain, or to engage suppliers, the company should select primary data.

RS: What does the Scope 3 standard have to do with the Product standard?

PB: While the Scope 3 standard covers measurement and accounting to characterize the many broad types of corporate networks and relationships, the Product standard focuses on a view of the whole lifecycle of individual products. These two standards, which have been developed in parallel, share many features in common: accounting principles, approach to data allocation, approach to data collection, and treatment of confidence. A key difference is that a Scope 3 inventory is structured by organization-wide business activities, such as leased operations and employee travel, while a Product inventory is organized by key stages in the lifecycle of a product, like processing and recycling. These two different tool sets reflect two different needs: on the one hand, characterizing products’ lifecycles, especially from the view of the customer; on the other, examining the administration of organizational interrelationships and networks, something investors in particular are concerned about.

Watch for the release of the final Scope 3 and Product text next spring, and contact Ryan if you have questions.

First posted at GreenBiz.

Making Customers Behave: Download from the Behavior, Energy, & Climate Change Conference

I just returned from the sold-out Behavior, Energy, and Climate Change Conference, a three-day event examining ways to understand decision making on climate and energy. Here are a few ideas I took away:
There’s opportunity in teaching climate awareness. Gallup’s Anita Pugliese and George

Mason University’s (GMU) Ed Maibach and Connie Roser-Renouf all pointed to two related items on climate awareness. First, awareness is surprisingly low across the globe. Only 16 percent of citizens in China understand climate change is real, human-caused, and a threat, while only half in many African and Middle Eastern countries have even heard of it. Second, literacy is actually declining in Europe and North America.  The good news is that consumers are open to being engaged on the subject, so businesses may find an opportunity to build relationships through educating on climate issues, particularly in rural areas, where awareness is lowest.

Effective communication requires segmenting and targeting. Reaching people on climate and energy requires identifying the motivation for the discussion and parsing out who to engage and how. For example, if the aim is to discuss climate change broadly, said Tami Buhr of Opinion Dynamics Corporation, research the audience, especially political persuasions. Then, focus on their leverage point (e.g. for those with mixed feelings on climate, show why it’s a threat; for doubters, explain why we know what we know). Tailor it to include issues like foreign oil dependence, health, environment, and saving money—but only what they’ll be receptive to. Similarly, if the aim is inspire specific energy choices, says Jodi Stablein of PG&E, people take on many different personifications, only some of which will be moved by climate change. So say only what’s necessary.

“Behavioral economics” holds the keys. Many well-intended message are surprisingly counterproductive. OPOWER’s Robert Cialdini explained that a common—and destructive—mistake is to frame sustainability problems as “regrettably frequent,” which makes undesirable activities seem normal and can actually increase unwanted behavior. Better, appeal to people’s sense of stewardship by showing what positive actions have already been taken, then ask the audience to do their part.  Also, suggested GMU research, address two protests (“I’m not an activist” and “It wouldn’t make a difference”) before they arise. Then, work to identify, train, and activate opinion leaders who are likely to take action and inspire others.

What do you think—what’s most useful to you about behavior with climate and energy? 

First posted at BSR.

FTC’s New Anti-Greenwashing, Good-for-Business Green Guides

The U.S. Federal Trade Commission (FTC) has released its long-awaited draft guidance on environmental marketing. The so-called “Green Guides” tell companies how to prevent misleading customers—and avoid FTC actions against them.
Why now? The FTC says consumers are confused about environmental claims such as “sustainable” or “offset,” which lack consistent rules for usage. In response, the FTC’s proposed guidance does three things:
  1. Requires claims to be substantiated. Companies should communicate on specific issues for which they provide competent and reliable scientific evidence and avoid ambiguous umbrella terms like “green” or “eco-friendly.”
  2. Prescribes action on targeted issues. While the FTC leaves methodology mostly to companies, it advises on a few issues where deception is rife and solutions are particularly obvious. For example, the guides say that if companies generate renewable energy onsite and then sell their environmental attributes separately, they shouldn’t also say that they use that renewable energy themselves. Categories of specific advice include: certifications and seals, degradability, compostability, ozone-safe/ozone-friendly, recyclability, free-of/non-toxic, renewable materials, renewable energy, and carbon offsets. See the FTC’s cheat sheet.
  3. Defines where to tread carefully. The FTC acknowledges that some issues are difficult to provide blanket guidance on. For example, life-cycle assessments and ecolabeling are complex and require context, while the determination of carbon offset quality may be better handled by agencies with more expertise. In cases where the FTC “lacks sufficient information on which to base guidance,” it promises to analyze claims on a case-by-case basis.
What does this direction mean for business? I asked three individuals. Kevin Myette, director of product integrity at outdoor retailer REI, told me: “Guidance on green marketing claims has been extremely loose for years, and as a result, industry and marketers have operated virtually unchecked for too long. The FTC’s action to further define the rules is not a bad thing as they are only asking for the truth.”
Stanford Graduate School of Business Professor Erica Plambeck was similarly hopeful. She told me that the guidance “will increase incentives for retailers like Walmart to invest in the measurement of environmental performance and to provide detailed information about environmental performance to consumers. Transparency will lead to improvement.”
Finally, Dara O’Rourke, founder of the Good Guide—a product-rating initiative—said that more FTC involvement isn’t only good for consumers, but also for business. That’s because “the more there is transparency, the more the leading firms will do well in the marketplace. It’s a win for smart, thoughtful, progressive companies. This is basic ‘Econ 101’.”

What to do next: In the near term, leave any suggestions you have for finalizing the Green Guides below (with your name and affiliation) or contact me, and we’ll aggregate and submit your suggestions to the FTC before the comment period closes on December 10.

First posted at BSR.


3 Surefire Steps to Bring Climate Transparency to Your Supply Chain

With the release of guidance on supply chain reporting by the Greenhouse Gas Protocol just around the corner, companies will soon have more clarity on how to manage “Scope 3” emissions. 

At the same time, companies such as HP and others in BSR’s Energy Efficiency Partnership are working with a growing number of suppliers on climate change. As a result of these developments, minimum expectations for climate reporting on the supply chain are rising.

Now is the time for your company to embrace transparency, if it hasn’t done so already. It will help investors and partners, who increasingly see transparency as an indicator of a company’s competence, perceive your business as trustworthy. It will make outstanding achievements more credible, and it may even soften potential criticism, which is valuable in an environment where just about everyone, from journalists to employees, is inclined to write, blog, and tweet about your business.

But such transparency doesn’t come easily.

For one, almost every interest group, from consumers to investors to governments, has different information requirements, making reporting on climate impacts less about creating a single, comprehensive document and more about sharing granular information. The differences are growing. Consumers, for example, are using the Good Guide to screen for criteria that are most important to them, in effect creating their own “personal” certification.

Another challenge is the increasing demand for more specific information about companies’ suppliers — and their suppliers — when there is a lack of standards on what should be reported, when, and how.

A third challenge is the sheer expense of transparency, which takes substantial time and effort to effectively monitor and communicate.

To overcome these hurdles to transparency, we recommend a practical, three-part approach that involves monitoring your impacts, translating that data into actionable information, and promoting governance standards that catalyze progress.

1. Monitor in Order to Measure

Satisfying demands for granular information about climate impacts requires good measurement. Fortunately, most greenhouse gas (GHG) impacts boil down to energy, which is easy to measure.

Unfortunately, many suppliers whose impacts you want to report don’t have the monitoring equipment that’s needed to do so. It is unusual for suppliers in many countries, especially China — which matters most for many companies — to manage their energy use at all, both because they perceive it as a way to keep overhead low and because they don’t see other suppliers doing it.

Therefore, working with suppliers to install portable energy meters can be one of the most cost-effective ways to get more data. 

The basic versions of these monitors are available for less than US$10; more sophisticated options offer remote sensing and allow the uploading of data for analysis with software elsewhere. Over the course of a few months, companies can use a handful of meters to triangulate the most energy-intensive processes and pieces of equipment, and in doing so, show suppliers how they can take control.

In 2008, Nike was one of the first companies to report using remote energy meters (PDF). Today, Walmart is working with EDF to install energy meters in China, and BSR has recommended using energy meters to the 80 China-based suppliers who attended the recent launch of our Energy Efficiency Partnership.

In addition to enhancing transparency efforts, monitors open up new doors to companies in search of finance options. One of the main things holding up loans for the many energy-saving projects in China is verifiability. Monitors can potentially provide this assurance and therefore help companies in their efforts to gain finance from capital markets or private investors.

2. Count What Matters Most

Gathering granular data of the type provided by energy meters is useful in responding to the varying demands of different stakeholders, but it also creates a challenge in itself, often overloading you with information. To zero in on the important issues about your company’s climate impacts, it’s necessary to prioritize.

There are two ways to do this: Invest in intelligence tools that will help you glean more from the data, and use the right proxies to indicate how successful your company will be in meeting its quantitative targets.

Let’s look at intelligence tools first: Companies should consider how they can go beyond spreadsheets — the traditional mechanism for tracking GHG information — to using tools such as climate software packages (PDF) to glean more from data.

These tools complement energy metering equipment by allowing you to compare energy use at different points in time and on different time scales, which can help you identify cost-reduction opportunities and situations requiring maintenance. They also contextualize the energy meter information by putting it in terms of production output volume or other indicators your company is already managing. This helps embed analytics into existing business processes and continuous improvement initiatives.

Using proxies can also help you focus on the most important information. When starting energy management, it can be challenging in the short run to find a pattern in the most obvious and easily measurable data — energy actually used. That’s because things like weather and business variability make it difficult to see improvements in energy efficiency through electricity bills. However, you can use proxies as good predictors of success. These include, for example, whether a supplier has developed an energy action plan, what kind of target (say, to achieve 30 percent energy reduction) it has committed to, and how many energy meters it has installed.

Similarly, shortcuts are available with verification. For BSR’s work with Walmart, we designed a tiered approach to gathering data about suppliers’ energy impacts that included requests for narrative descriptions of energy projects and the names of team members working on energy efficiency. Those types of questions are easier to verify than accounting numbers themselves, and company representatives can use the information gathered to look for physical evidence of these things when they conduct supplier site visits.

3. Promote Action with Better Governance

Even when you have done your diligence to gather granular data and translate it into actionable information, one of the biggest barriers to progress in transparency remains: a lack of governance standards used by your peers. These shared systems are needed both to give stakeholders confidence in claims, and to create more clarity on where companies should focus their action.

What follows are some areas that are likely to present development needs for some time to come: 

Technical standards on how measurements are made: Even with more requirements, such as the Environmental Protection Agency’s mandatory reporting rule (PDF) and the U.S. Securities and Exchange Commission’s (SEC) interpretive guidance (PDF), many conventions are undefined, such as how to characterize progress on energy management, how to cost-effectively verify such results, and how to convert many local energy sources to GHG impacts. (See sidebar below for a more descriptive list.)

How Corporate Energy Managers Can Champion Better Technical Standards
One of the key challenges to improving business transparency on climate change is the development of technical standards that are shared across industries. Company energy managers have the opportunity to encourage the development of these standards, which are lacking in the following areas: 

•  Conversion factors: In much of the world, there is a lack of common measures for deriving GHG from energy sources. For example, in China, the government has published energy-carbon conversion factors for its seven grids, but there’s not yet an accepted standard for more local applications. A leadership opportunity exists for business to create open platforms that house much more specific and trustworthy conversion factors.

•  Supplier energy performance factors: In all but the most energy-intensive industries, there are few performance standards for energy use with suppliers in countries such as China. Managers can look for ways to identify and disseminate information about thresholds (e.g. best, average, minimum acceptability) with energy consumption and the type of equipment being used.

•  Management progress: There is a lack of agreement about how companies can state they have reduced or improved energy use for a group of diverse suppliers. Issues that need resolution include defining the scope and drivers of energy to account for changes to energy owed to operational changes, to describe how energy use is expressed (absolute or in terms of revenues or material inputs), and to determine rules for sampling (what minimum time period is allowed).

•  Cost-effective verification: There are few generally accepted alternatives to traditional energy audit processes like the International Performance Measurement and Verification Protocol, which are very expensive. Companies have the opportunity to work with stakeholders to create a system with sufficient accountability, while still being practical enough to apply to large sets of suppliers.

Shared systems: The process of interacting with suppliers and other partners to obtain information takes a commitment of people and resources. Suppliers and partners, in turn, are under pressure to respond to greater numbers and types of requests, meaning they have less time for your company’s request.A pioneer industry group, the Electronic Industry Citizenship Coalition (EICC), was formed in part to develop a central repository for suppliers to report into and buyers to read from, significantly cutting down on administrative expenses. This and other kinds of “cloud computing” solutions offer important opportunities for sharing information.

Communication among diverse stakeholders: The development of new governance requires participation by a range of stakeholders, including technical experts, civil society representatives, and industry peers. In addition to observations being made and analysis done, subjective issues matter.

These issues include the types of people who want the climate information (e.g. whether they are customers or project financiers), what action the measurement is meant to encourage (e.g. energy management decisions or something else), and how much “uncertainty” is tolerated and how it is accounted for (e.g. what disclaimers are used for making estimations).

With this in mind, companies that want to improve the impact and recognition of climate transparency should join existing programs or groups such as the EICC. If such groups are not available, consider starting a new one with industry peers by sharing metrics, publishing useful internal studies, and sharing insights about the efficacy (or lack thereof) of a certain key performance indicator. Companies can also suggest that their existing working groups and associations facilitate standards.

In summary, more climate transparency will be good for business. It can improve credibility, win trust, and make discussions about climate change more meaningful. While the solutions provided here will take work, they are likely to lead to better incentives to find efficiencies and lower costs, and ultimate progress on climate change.

First posted at Greenbiz.

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.