Real Climate Leadership and The Rules of Policy Engagement

As negotiators gather in Copenhagen next month to discuss a global climate policy framework, there has never been a better time for companies to influence policy instruments that could dramatically affect the future of climate change.

Business’ management of greenhouse gas (GHG) emissions is already improving. According to the Carbon Disclosure Project (PDF), more than 70 percent of the world’s 500 largest companies are now reporting their GHG emissions, and similar efforts are spreading rapidly, especially in the BRIC countries and throughout Asia.

Meanwhile, global emissions are continuing at a pace to surpass the 2 degrees Celsius threshold of climate change caused by a 350- to 450-parts-per-million concentration level. Even if we enact the most aggressive legislation proposed today, the concentration of GHG emissions would continue to rise rapidly, according to calculations from the Massachusetts Institute of Technology’s C-ROADS simulator. Meanwhile, there are questions about whether countries such as the U.S. and China — which together account for nearly 50 percent of global emissions — will be able to garner political support for basic commitments.

Under current regulatory frameworks, there is virtually no economic cost for producing GHG emissions, and it is increasingly clear that reversing the current path of climate change will require policies that put a price on carbon. By stimulating innovation in processes and products that would encourage a low-carbon economy and effectively align economic and environmental interests, this would address the single largest impediment to the significant expansion of fossil fuel alternatives.

Enacting such policies can happen only with the support of the private sector. Hundreds of companies ranging across industries and geographies — from British Telecom to Aspen Skiing Company to Levi Strauss to Shell — now consider climate policy engagement a key part of their efforts. These pioneers are demonstrating that there are many levers for informing and advancing effective climate policy.

Here are some examples and ideas to consider:

Direct and indirect engagement: Aspen has helped advance climate policy directly by submitting an amicus brief (PDF) to the U.S. Supreme Court, which led to a ruling that requires the U.S. Environmental Protection Agency (EPA) to regulate GHGs. Direct action — which includes advocacy like this as well as lobbying for specific laws — is the most obvious option for climate policy engagement. There are also important opportunities to engage indirectly, such as by empowering the public to advance policy through education, and giving them more of a voice with policymakers. Marks & Spencer, for example, is inviting stakeholders to add their views by uploading patches to a virtual “quilt” that will be presented to negotiators at Copenhagen.

Input via multiple policy cycle stages: The previous examples emphasize input into policy formulation, but companies can also affect policy at other stages. For example, Hewlett Packard and Intel are co-leading an initiative of the Electronic Industry Citizenship Coalition to develop a standard industry approach to measuring GHG emissions in supply chains. This effort aims to inform policymakers about how companies can share information at the operations level across borders. This will play a part in framing potential policy options. Once policy has been formulated, companies can engage in implementation in various ways. For example, the EPA offers 30-plus business partnership programs (PDF), to which companies such as Dell have subscribed, that offer feedback for further policy development.

Individual and collaborative action:
Timberland (PDF), Vale (PDF), and China Light & Power (PDF) are making individual appeals for robust climate policy, but they are also working collectively. Timberland, for example, is a member of the Business for Innovative Climate & Energy Policy (see sidebar for a list of coalitions). Other companies are focused on influencing the direction of existing business groups. PG&E and a host of others, for example, have left the U.S. Chamber of Commerce in protest of the organization’s position on climate legislation.

As these examples illustrate, climate policy engagement means more than simply taking a position; engagement must also include deliberate actions that inform and advance specific outcomes. This is difficult, however, because it is often unclear what the ideal policy outcome is. Indeed, companies and stakeholders are affected differently by different points of legislation.

So what should companies subscribe to? It’s safe to say that we should heed the calls of scientists to stabilize the climate. Business needs stable conditions to enable investment. It is also clear that these two issues are interdependent. Carbon-reducing investments are required for climate stabilization, without which there will continue to be persistent calls for more aggressive policies, which in turn will destabilize market expectations. And so on.

Companies should therefore call for legislation that peaks greenhouse gas emissions in the near term — ideally before 2020 — and that includes specific, robust accountability mechanisms. It also means asking for clear and durable rules that create the incentives for companies to invest in low-carbon energy and other GHG-reducing projects now.

Some companies have yet to join the policy debate due to the perception that their first step on climate issues should be to reduce their own emissions. However, engagement on policy can actually be undertaken concurrently, and may even enable more effective and efficient emission reductions.

What follows are five recommendations for engaging in climate policy based on the research BSR has conducted for a series of reports on climate policy engagement that will be published in early 2010:

1.    Start where you are. For most companies, managing climate policy proactively may seem like a brand new arena. But many of those same companies are already engaged in related activities, such as education and awareness building. Companies have pursued these activities because the public is often unclear that there is such robust scientific consensus about climate change, and public attitudes can have a strong impact on the success of legislation. Take stock of your existing efforts and capabilities, and use those successes to build the case internally for greater commitments.

2.    Follow emerging performance indicators related to climate policy. These include the Carbon Disclosure Project’s Investor Questionnaire (see question 28.1) and the Center for Political Accountability, as well as frameworks like Climate Counts. If you see room for improvement, communicate with these groups about the type of policy they should be encouraging.

3.    Focus your efforts. Identify your strongest levers for credibly influencing climate policy. The suggestions above provide a framework for considering your options.

4.    Pay attention to your company’s process. Policy outcomes are important, but so is the credibility and effectiveness of your company’s internal process. When it comes to managing operational emissions, the outcomes garner the most attention. With climate policy engagement, however, the quality of your approach is a chief success driver, because standards are emergent.

5.    Act now — and stay involved. The rules are currently being defined, and policy action is urgently needed to both mitigate climate change and reduce the uncertainty of market conditions. At the same time, key upcoming events, such as the Copenhagen climate change summit and the prospective U.S. Senate vote on emissions regulation, represent beginnings more than ends, because they will start a long process of standards development, international harmonization, and financial and technological innovation.

Given the fundamental changes that new climate policy will drive for energy, agriculture, and other markets, companies should develop more robust intelligence functions for anticipating and reacting to opportunities, and treat policy engagement as a continuous process.

First posted at GreenBiz.

Three Ways Climate Action Offers a Business Advantage

Building on BSR’s article last month on why climate change matters for every company, managers should be aware of some important, and very specific, opportunities for creating business value while promoting climate stability.

First, the good news: It’s not mechanically hard to manage greenhouse gases (GHG), the key ingredient to climate change. There’s a saying that “a ton of carbon is a ton” everywhere, which, for climate purposes, is true. And given that roughly two-thirds of global emissions are tied to energy in networks that are already regulated, finding your company’s GHG hotspots is no great feat.

Now for the hard part — responding to the actual problem. Averting climate change requires the will to deal with a decade-plus lag between activity and reward, which our current business and political institutions do not seem very well equipped to handle. It also requires a coordinated global effort in order to avoid “leakage,” ensuring that emissions really disappear rather than migrate from one place to another. This has proven to be a great challenge, as country coalitions including the U.S. and China, which comprise approximately half of global emissions, work to find common ground that has so far been elusive.

Even with a growing number of experts, advocates, and average citizens committed to addressing climate change, there remain conspicuous gaps — in public knowledge, in action, and in results. For example, while scientists agree that global climate change is a genuine, systemic threat, many legislators in the U.S. are quibbling about short-term price hikes in their districts — which does not bode well as the rest of the world prepares for a global climate treaty.

These gaps may represent serious potholes on the way to climate stability — but they are also gaping opportunities for smart companies willing to help bridge these divides.

The Gap Between Science and Knowledge

Here’s the bad (but not surprising) news: The public thinks there is still debate about climate science. According to an important recent study (PDF), more than 95 percent of Earth scientists who specialize in climate say the Earth is warming and that human activity is to blame. In contrast, approximately half of all Americans think scientists have yet to settle the matter.

This gap is profoundly consequential because, despite what the truth may be, the life force of decisions for lawmaking politicians and business managers is public opinion.

On the bright side, this gap gives companies a chance to improve the public’s environmental literacy, and develop goodwill, credibility, and loyalty by doing so.

So what is a company to do? Start by considering some of the traits of this disparity, such as the knowledge divide. Most climate-related science is updated in scholarly journals, which are expensive, inaccessible, and not targeted to the public. Misinformation, on the other hand, is cheap and easy to access, and mass media — its conflict-hungry carrier — often treats science as a matter of opinion, and therefore gives disproportionate coverage to extreme views.

Here’s where business comes in: Take a look at how your organization might be causing misinformation and then stop it at the source, especially in your media outreach and branding. A related opportunity is to find ways to share accurate science through your communications efforts.

As BSR has reported in the past, Patagonia brings an educational approach to communicating issues, especially through its website, which teaches consumers about the lifecycle impacts of products. You can also educate your industry, as the apparel company H&M has done by sponsoring a recent BSR-led lifecycle study on carbon dioxide emitted during the manufacture of garments.

The Gap Between Knowledge and Action

We have learned from Princeton University researchers Stephen Pacala and Robert Socolow — and many others — that the world has no shortage of technology or financial resources to solve climate change. Furthermore, the popular McKinsey report, “A Cost Curve for Greenhouse Gas Reduction,” reveals that many solutions to eliminate emissions result in a net-zero cost.

So what’s the delay? One reason is malfunctioning markets. For example, energy service companies perched in border areas like Hong Kong are ready to enter China, the world’s biggest energy-efficiency market, but they are blocked by prohibitive transaction costs and project risks due to persistent, entrenched market barriers.

But companies can address challenges like these themselves, and in doing so create value all around. For instance, as part of a recent collaboration with BSR, Walmart launched a supplier energy-efficiency program that created a marketplace pairing more than 30 energy-service companies with more than 300 factory representatives, in turn making both shopping and selling easier.

There is another dimension. Walmart is providing training, practical tools, and encouraging messages to its suppliers to promote energy efficiency. The company’s aim is to improve the energy efficiency of 200 Walmart suppliers by 20 percent. This alone is significant, but experience shows that once managers begin to find efficiency gains, they are even more likely to identify and reduce waste, which could create a ripple effect throughout the company and among the company’s partners.

Theoretical models such as Pacala and Socolow’s studies also fail to account for the internal hurdles that can prevent action. These tend to be situational and include obstacles related to timing, momentum, politics, unfamiliar cultural environments, and human psychology. The lesson here is that starting a new climate change program is no small feat, and should be seen as a major accomplishment and milestone.

In our experience, you can build early momentum by using qualitative and quantitative data to capture quick “wins” that demonstrate the value of making further commitments.

The Gap Between Action and Results

At the World Business Summit on Climate Change in Copenhagen last May, one participant remarked, “It doesn’t matter how fast you are moving if you are going in the wrong direction.” Unfortunately, with climate change, the reverse is also true: We have the mechanics and are gazing in the right direction, but we are moving too slowly. According to the C-Roads simulator, an MIT-developed software modeling tool, even if the most progressive proposed legislation around the world is enacted, we would still have a long way to go to achieve stabilization targets. Recent findings by Carbon Disclosure Project support this conclusion.

According to conventional wisdom, companies concerned about climate change should focus on reducing emissions from internal operations, management of which is closely tied to their control or ownership. Yet if the goal is to stop climate change, we must make a collective effort to outpace emissions, which continue to grow despite reduction efforts to date. Unfortunately, few companies view it as their job to solve this problem. As a result, the bar is even higher: Instead of reducing emissions by 80 percent from our 1990 baseline, we need to reduce them by 83 percent from 2005.

The problem, says Chris Tuppen, chief sustainability officer at BT, is that we are measuring the wrong thing. While climate business metrics measure carbon dioxide emissions compared to the company’s past performance, the metric for the collective goal of solving climate change is carbon dioxide parts per million in the atmosphere with agreed-upon peak dates. That metric is measured by physical science.

Tuppen suggests we change our business metrics: Rather than tracking individual reductions, we should measure what we, collectively, have left to achieve. That thinking led BT to pioneer the CSI Index, which associates the company’s emissions with those of the global economy, thereby linking company efforts with national targets, which are based on climate stability.

Undoubtedly, it will be challenging to bring these technical standards to scale, but Tuppen’s idea to start with the ultimate goal in mind is a necessary step. His approach is rooted in Peter Senge’s “systems thinking” and Harvard Business School’s recommendation that sustainability efforts start from the future.

When we start to think more broadly about business progress, it’s easy to see more options for action. Auden Schendler, Aspen Skiing Company’s executive director of sustainability, says business can have the biggest impact by influencing policy, because climate change is, at its core, a market failure. Without robust climate policies, individual efforts, however “directly” related to operations, will be limited.

Looking at the big picture, influencing policymakers — whose numbers are relatively few — is not only likely to make a bigger impact, it’s also more manageable than tracking billions of disparate emissions sources. According to Schendler, Aspen has engaged in policy through national advertising, lobbying Congress individually and through coalitions such as Business for Innovative Climate & Energy Policy, leveraging industry trade groups to send letters, and speaking publicly. Schendler himself contributed by writing the book “Getting Green Done.”

It is natural when planning and reporting to follow the crowds, but there are opportunities for climate leadership when you look for the gaps in public knowledge, action, and results. Taking them seriously will do wonders for your credibility, and potentially lead to new kinds of business growth.

Originally Published at Greebiz.

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.

Five Reasons You Should Consider Generating Your Own Green Energy

Over the past six months, oil prices have plunged more than 50 percent, renewable energy company asset values have taken an even bigger dive, and financial institutions have collapsed completely, leading to a worldwide credit crunch.

Is this really the best time for your company to be thinking about generating renewable energy onsite?

Before answering, consider these forecasts by the International Energy Administration (IEA) in its recent World Energy Outlook 2008:

—   Energy is going to get more expensive, with oil reaching $200 per barrel by 2030.
—   Carbon-intensive energy, which comprises well over half of the energy in the United States, is going to get much more expensive-in part due to a cap on carbon that could reach $180 per ton.
—   The price and supply of fossil fuels will continue to be volatile.

In that context, it’s clear: Companies can’t afford not to think about investing in renewable energy, especially those with high energy-to-raw-material cost ratios, such as firms in agriculture, food processing, metal refining, paper manufacturing, and chemicals.

What follows are five key reasons why you should consider generating renewable energy onsite to power up your business.

Renewable Energy is Beating the Grid

In some regions, the cost of generating onsite renewable energy is already beating electricity bought from the grid. This “grid parity” is currently happening in places like California, Hawaii and Japan, where electricity costs are high and renewable resources are abundant. By 2012, Australia and Italy will likely achieve grid parity, and by 2015 much more of the United States will as well.

Threatened Supply and Hungry Demand Build the Case for Self-Production

Oil production is expanding to regions with increasingly unstable governments and crippling poverty, such as Iran, Russia, and Qatar, which together hold 56 percent of known new oil reserves.

On the demand side, the world is hungrier than ever: Even with the extremely high per-capita oil needs of OECD countries, fully 80 percent of projected new demand is coming from China, India, and the Middle East, while 1.6 billion people around the world still go without any electricity. As for logistics, the bulk of oil moves through international waters where there is growing banditry, such as the $100 million oil tanker heist by Somali pirates that is still unresolved. The result: The fossil fuel supply chain poses tremendous uncertainty on both price and physical delivery.

Carbon Legislation is Pushing Up Costs

Carbon cap-and-trade regulations, in some form or another, are descending on economies around the world. Already underway for several years, the European Union Emission Trading Scheme charges European heavy emitters $21.39 for every ton of carbon above their cap. In October, the U.S. inaugurated its first cap-and-trade program, the Regional Greenhouse Gas Initiative (RGGI), which regulates utilities in the Northeast with a cost of $3.07 per ton. Regulation is just around the corner for other parts of the U.S., as well as for China and Canada. The IEA, an energy policy advisor to 28 member countries, predicts that by 2030, the average carbon prices will climb to $90 or even $180 per ton.

In addition to cap-and-trade regulations, low-carbon product standards and border tax adjustments also will put pressure on supply chains and buyer demand. All this means that carbon-intensive energy is a growing liability, whether at your own operations, upstream with suppliers, or downstream with the use of the products you sell.

Incentives for Onsite Renewables Production are Rising

“Feed-in tariffs,” which require utilities to connect small, onsite renewable projects to the grid and pay their generators for surplus energy generated, are gaining traction. Countries such as Germany and Spain have adopted such policies successfully, and others like the U.S. (in California) and China are in the midst of implementing and scaling them up.

Creative Finance Options Abound

There are numerous ways to gather the resources to make onsite projects happen. Thanks to the grid, energy service companies can provide some or all of the financing needed. The grid also enables creative partnerships. For example, in partnership with Xcel Energy, Colorado’s Aspen Skiing Company recently financed $1.1 million for a 147-kilowatt solar energy array. Of the energy produced, a third goes to a local school, and two-thirds is sold back to the grid, with profits given to Aspen Skiing Company.

There is a good chance you will find financing for onsite renewable energy projects by exploring partnerships with foundations or exploring funding available in carbon markets for carbon-offsets projects.

With the energy crisis likely to outlast the current economic crisis, investing in onsite renewable energy generation can insulate your company from the shocks, scarcity, and rising prices of energy. And with recent political discussions about a “New Green Deal” and a climate change “Manhattan Project,” it’s even possible that governments will add to or reconfigure the $300 billion in energy subsidies around the world.

So, in response to the question we started with: Is this really the best time for your company to be thinking about generating renewable energy onsite?

Yes, now more than ever.

First posted at Greenbiz.