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.

BSR Kicks Off New Energy Management Collaboration…and Just in Time

I’ve just returned from China where I attended the launch of BSR’s Energy Efficiency Partnership (EEP), a working group of 11 member companies working with 80 of their suppliers on energy management.

Participants discussed the many reasons why this is an important—and urgent—issue for their companies. Starbucks’ Director of Ethical Sourcing Kelly Goodejohn explained in an opening presentation that climate change poses a substantial threat to coffee, the company’s core business, and that energy management is the most direct thing they can do to stop greenhouse gases (GHG).

Felix Ockborn, a member of H&M’s Far East CSR Program Development team, relayed that working with suppliers to mitigate climate change impacts is vital to H&M’s CSR strategy because the issue is important to its customers. He also said that it is a fundamental part of working toward sustainable use of natural resources in H&M’s value chain.

The one issue, however, on everyone’s mind was the recent pressure from the Chinese government to curb energy waste, which resulted in the mandatory closure of more than 2,000 factories and the shutdown of power to companies in major manufacturing provinces like Jiangsu and Anhui. This obviously has a major impact on companies: An auto-components maker reported that it had to slow production, and a cement factory said it would have trouble meeting orders and likely lose work in progress.

The shutdowns are part of China’s efforts to meet its current five-year plan commitment to reduce energy intensity by 20 percent from 2005 levels. All signs indicate that such pressure will increase: The next five-year plan (due out soon) is likely to include even more stringent targets, and last year’s goal to reduce GHG emissions by 40 to 45 percent by 2020 will also warrant additional measures.

EEP member, HP, has been keeping a close eye on these kinds of developments. Ernest Wong, Manager of HP’s Social and Environmental Responsibility Supply Chain program, said it’s important for factory managers to have tools for energy management so that they can understand their exposure and communicate their situation. In turn, explained Wong, it’s important for companies like HP to have a good picture of how suppliers can have better energy-saving plans and use energy management to minimize their carbon footprints.

We have a lot of exciting work to do. From helping executives in the board room understand the impacts of and options for energy efficiency to enabling managers on the shop floor to take action, I look forward to working with EEP to explore how companies can get the most out of energy management and raise awareness about the importance of working with suppliers to conserve energy.

First posted at BSR.

Five Lessons from Walmart’s Supply Chain Work in China

Late in 2008, following Walmart Vice Chairman (now CEO) Mike Duke’s announcement that the company would improve the energy efficiency of its top 200 China-based suppliers by 20 percent by 2012, Walmart enlisted BSR to help launch its first supply chain energy-efficiency efforts in China.

From our post in Walmart’s Shenzhen global procurement headquarters, we started by studying how the successes of Walmart’s U.S.-led Supplier Energy-Efficiency Project could be adapted to China’s unique environment. We then led a launch meeting, trainings, and the development of measurement tools to connect suppliers with energy-service companies.

In its first year, the program recorded an increase in efficiency of more than 5 percent in more than 100 factories, and revealed that suppliers had the capacity to do much more. That success emboldened Walmart to announce it would eliminate 20 million tons of greenhouse gas (GHG) emissions from its supply chain — about 40 percent of the collective annual commitment of the nearly 200 companies (PDF) in the U.S. Environmental Protection Agency’s Climate Leaders program, as of late 2009. That’s progress as far as sustainability is concerned, but it’s also good business sense: Walmart, a relentless cost-saver, sees it as a way to make suppliers leaner, more resilient, and more competitive.It’s time for more companies to follow Walmart’s lead. By expanding energy-efficiency efforts into their supply chains, companies can quickly and substantially decrease supplier costs, substantially reduce greenhouse gasses, produce satisfyingly quantifiable results, and provide a gateway for further sustainability initiatives. There’s never been a better time to start: With the long-awaited GHG Protocol guidance on “Scope 3” GHG accounting scheduled for release in December, an era of more comprehensive supply chain reporting is imminent.

Companies whose supply chains lead to China should start there, because the opportunity is profound. On average, Chinese supplier factories are five times less efficient than factories in the United States, and the country is the No. 1 emitter of GHGs. By cutting energy waste in China, it’s possible to reduce the world’s energy demand by 5 percent.

Fortunately, energy-efficiency investments in China are cost-effective (PDF) compared with similar initiatives in industrialized countries. In spite of this, improved energy efficiency has not taken off in China because the country suffers from an inefficient market. Factory managers and other energy users often don’t have meaningful diagnostics about the price of energy, government subsidies make it cheap to waste energy, energy-management contracts are hard to implement, and people in positions to improve efficiency — building owners, investors, and tenants — often aren’t the ones paying the bills.

The problem is vivid when considering that neighboring Hong Kong, one of the world’s most energy-efficient regions, has a thriving industry of energy-service companies (known as “ESCOs”) that identify energy-saving opportunities and then install and locate funding for energy-saving equipment.

On the bright side, this shows that the challenge for companies is not one of engineering, equipment, or even finance. Instead, it’s about taking pieces of the puzzle that are already there and putting them together. For these reasons, China is one of the best places for companies to start scaling up knowledge about climate-related supply chain risks and opportunities, communicating results to investors, and improving climate performance by leveraging business networks.

The job of international companies in supply chain energy efficiency is to keep China’s specific challenges in mind and build bridges between ESCOs and suppliers. What follows is a series of steps based on our recent experiences working with Walmart that can help companies effectively engage suppliers in China on energy efficiency:

1. Establish Common Ground

Often in China, suppliers see productivity as a distraction from growth (PDF), and by extension they can be skeptical about consulting services and the value of pursuing savings versus top-line sales. Such suppliers may agree to participate in a company’s program but are unlikely to make significant progress over time until their culture rewards enhanced managerial productivity in general. Therefore, companies should begin their engagements on efficiency by surveying suppliers’ views about continuous improvement broadly and then educating them on that subject early and often.

2. Show the Road Map

When it comes to labor compliance, companies like Nike have famously warned (PDF) that demanding conformity on its own is not likely to yield sustained and honest results. On the other hand, sustainability initiatives are likely to take hold only if the specific action requirements include goals, timelines, and rules that are made clear at the outset.

Ensuring that suppliers head in the right direction means showing them clear pathways, with options, in a road map. This was confirmed for us at Walmart’s first launch meeting, where suppliers and ESCOs agreed that Walmart’s 20 percent goal, five-year timeline, and detailed participation guidelines enabled the suppliers to get traction.

Sharing the road map with suppliers is also a good way to make action seem urgent, which is a strong additional motivator. Finally, providing a road map is a good way to encourage suppliers — which may be reticent to make long-term commitments without good prospects for continued business — that the program is meant to drive long-term collaboration.

3. Require Accountability

Just like with sustainability efforts more broadly, suppliers are best positioned for progress when senior management sponsors the initiative, and then teams are instituted to execute objectives with clear roles, responsibilities, and substantial performance consequences. At our Walmart launch meetings, we included both operations managers and senior leaders, and we emphasized to executives the ease and benefits of participation. Another ingredient for accountability is open communication between suppliers and companies. On one level, companies should review suppliers’ progress frequently (ideally quarterly) to ensure continued momentum. On another level, companies should make a help line available to quickly answer suppliers’ questions. Companies should also pay close attention to demonstrated commitments to management systems like named teams and action plans, because these programs can predict whether the supplier will succeed.

4. Build Capability

Next, companies should integrate into their programs efforts to help suppliers understand where and how to focus tactics. This includes teaching factories how to identify low-hanging fruit, and understanding expected inefficiency hotspots and challenges to implementation.

According to surveys we have taken during BSR’s China Training Institute events, operations managers consistently identify training as the top need in successfully starting energy-efficiency programs. Many don’t have a strong energy or efficiency background, in part due to the prevailing focus on growth, so providing insight and resources through trainings, call-in lines, and diagnostic tools are often critical resources.

5. Solve the Problem Itself

A final step is for suppliers to identify and deploy efficiency solutions, such as retrofits with better lighting and cooling systems, by tapping into the ESCO industry. However, many ESCOs aren’t arranging deals in China because the lack of infrastructure makes energy savings difficult to verify, and contracts can be hard to enforce (PDF). Companies can help efficiency projects take hold by making the cost of doing business easier for ESCOs. For example, companies can host forums gathering both ESCOs and suppliers, and inform them of possible opportunities by sharing statistics and needs revealed in the suppliers’ reports.

First posted at GreenBiz.

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.

Postcards from the climate negotiations in Copenhagen

I chose Thunderbird for my MBA largely because I knew that it was ahead of the game on two megatrends: globalization and sustainability. As a student, I found that the school delivered, preparing me for a career to take on these issues and the broad, difficult managerial decision making needed for research and innovation in sustainability consulting.

Since finishing in 2007 and then starting with BSR, I have learned a lot more about how those topics interact. Global management is essential for leading on sustainability because value chains go across cultures, and so engaging suppliers effectively calls for a softer hand than just demanding compliance. Also, starting with a global framework is essential for understanding the world’s myriad regulatory environments and consumer markets, in order to translate what’s coming to your company, and to know where to lead.

This week I am representing BSR at the “COP15” climate negotiations in Copenhagen, and here I find that these themes have never been truer. Ultimately, an effective global climate deal that’s good for business and the world will require a balance between asking the countries which have historically emitted the most greenhouse gases (industrialized countries, led by the U.S.) to change the most, versus those expected to emit a much larger amount in the future (developing countries, led by China). In reality, this is not an objective question, but a highly charged emotional one which raises deeper questions about equity and values, which are in turn based on enormously varied essential assumptions across cultures.

Such vexing cross-cultural problems are also found in the details. Currently, a chief barrier to a global climate deal looks to be China agreeing to its emissions being independently monitored and verified. The country is reticent to leave inspection to outsiders—it says out of principle—yet assurance of environmental effectiveness is needed globally. This need for robust auditing highlights a major challenge that is especially thorny when done across cultures like between the China and the U.S., where there are different tastes for ceremony, relationships, and formality when important issues are at stake.

If you want to do more on sustainability, you are in the right place at Thunderbird. Within its community, you have an opportunity to be at the forefront global management of the most difficult questions we face–and decisions companies address today about how to engage policymakers in order to best incentivize a more profitable and durable future for companies.

Originally published at Thunderbird School of Global Management.