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.