Simple Tools for Effective Climate Reporting

With the fiscal year drawing to a close for many companies, it’s writing season for corporate social responsibility (CSR) reports.

As usual, reports provide a medium for communicating to investors who want to see companies creating value, customers who want to know which companies and products are leaders versus laggards, and watchdogs looking for inconsistencies.

In 2010, these groups will be particularly interested in how companies report on climate. This is due to several developments:

  • Last year’s treaty negotiations in Copenhagen, which prompted major economies to start their own, independent negotiating process (additional to the consensus-oriented UN framework), and resulted in the understanding that there is much more work to be done
  • The recent U.S. Supreme Court decision to allow spending on political campaigns
  • The Carbon Disclosure Project’s (CDP) increased emphasis on climate policy efforts in its 2010 Investor Questionnaire (PDF, due May 31), which asks companies to detail their climate policy efforts (question 9.10), as well as how those efforts fit into overall company strategy (question 9.1)

To date, however, companies have lacked direction on how to report on climate policy engagement. BSR’s new report, “Communicating on Climate Policy Engagement: A Guide to Sustainability Reporting,” (PDF) provides some of the first guidance available for companies.

12 Top Reporting Themes
• Acknowledgment of climate change as a problem and importance of climate policy for business 

• Advancement of industry standards through working groups

• Advocacy to national-level policymakers for climate legislation

• Demonstration of how the industry — especially ICT and finance — are poised to be solutions providers

• Disavowal of support for trade bodies that pursue inconsistent or regressive objectives

• Joining of coalitions and signatory initiatives

• Launching of carbon market or other quasi-government institutions

• Leadership of voter-education initiatives

• Participation in U.S. Environmental Protection Agency (EPA) and other government partnership programs

• Publicity of unintended consequences or re-framing issues

• Sponsorship or provision of research

• Testimony to national or state law-making bodies or filing court amicus briefs

What follows is an overview of what companies are reporting on today, what we recommend that companies focus on going forward, and how companies can approach reporting on climate policy engagement.

What Companies Are Saying Today

To learn what companies today are saying about their approach to climate policy, we recently conducted an assessment of more than 150 companies’ sustainability reports and related materials such as their websites, their responses to the CDP questionnaire, and their submissions to the United Nations Global Compact Communication on Progress.

We found that most large companies report one or more of the following:

1. Public policy is a main pillar of their climate approach, largely because climate change may not be solved without it.

2. Climate change is a main focus area of public policy efforts, in part because it is one of the single greatest issues of this generation.

3. Climate policy is a strategic issue, in that it is both likely to happen and likely to disrupt fundamental business drivers—for better and worse.

What to Cover

In general, managers should include three themes in their climate reporting:

  • Greenhouse gas (GHG) impacts: First, companies should report on their impact on climate change in terms of GHG emissions and efforts to reduce them. This is probably the longest-standing climate reporting topic, and it is more important than ever as increasing attention is focused on the impacts of the world’s largest companies. Companies should report on absolute and intensity figures using the Greenhouse Gas Protocol, and try to include impacts from their supply chain and other networks. One emerging best practice is to report figures in terms of the company’s share of planetary climate boundaries, as do British Telecom and Autodesk.
  • Risks and opportunities: Second, companies should communicate the business risks and opportunities created by climate change, such as the effects spurred by new regulations and/or changing physical environments. This area has followed closely behind development of reporting on GHG impacts, and is now not only expected by investors, but required in new guidance issued by the U.S. Securities and Exchange Commission. Risk and opportunity reporting should include the impact of legislation and regulation, international accords, indirect consequences of regulation or business trends (such as risks driven from legal, technological, political, and scientific developments), and the relevant physical impacts of climate change.
  • Climate policy engagement: Third, companies should report on climate policy engagement. Companies are expected to show what they are doing to address climate change, and many stakeholders see policy engagement as one of the most direct ways to do it. According to this view, effective climate policy is an important instrument for creating business value, and companies can build trust with stakeholders by leading more meaningful discourse.
This means companies should communicate about all policy efforts, including those that go beyond traditional lobbying, such as: 

1.    Calling policymakers to action by promoting specific legislation or endorsing the key objectives and parameters contained in them, as Johnson & Johnson has done in its 2008 sustainability report

2.    Informing policymakers through the provision of research and other technical insights on how specific policies could be most effectively implemented, as in IBM’s 2009 CDP response

3.    Enabling policy solutions by shaping the inputs to decision-making, such as by enhancing the state of knowledge among voting constituents, as Aspen Skiing Company is doing through its “Save Snow” website

4.    Setting the stage by advancing standard approaches to measurement and other processes that enable more meaningful dialogue about issues, as groups such as the Clean Cargo Working Group and the Electronic Industry Citizenship Coalition have done

An Effective Approach

Company managers preparing the climate-related sections of their reports should detail the governance around how climate policy engagement decisions are made, the strategy describing the broad outline of their companies’ objectives and approach, and their companies’ activities aimed at addressing climate change.

We also advise that leading reporters take the following approaches:

Be explicit. Use clear statements of position and objectives to focus the message. For example, Dow Chemical Company says that it will be “fearlessly accountable” in the pursuit of climate change solutions. This clarifies the company’s aims for stakeholders, who are, in turn, more likely to appreciate the commitment and support company efforts. Vale, one of the world’s largest mining companies, takes a different approach in its document, “Corporate Guidelines on Climate Changes and Carbon,” which acknowledges the scientific evidence of climate change and provides provisional guidelines subject to change based on the state of science.

Be the first to the punch. Aim to be straightforward about the company’s climate policy involvement. Head off potentially difficult questions by taking the time to answer them in advance. For example, let’s say a company is well known for lobbying — perhaps it’s on the Center for Public Integrity’s top 100 list or is prominently involved in a major trade association. That firm should be as detailed as possible about what it is doing and why. According to a recent study, this is especially important for companies in industries such as media, information and communications technology (ICT), oil and gas, transportation, pharmaceuticals and biotechnology, and mining and extractives, which tend to be heavily involved in policy engagement because governments either play a strong role in shaping their markets’ structure or substantially regulate them.

Use diverse reporting channels.
Climate policy engagement is a public affair, but company managers shouldn’t count on the public seeing the message if it’s only in one place. Some companies with compelling ideas and initiative aren’t saying much about their efforts, and others aren’t communicating very widely. Still others mention work in their CDP reports or websites, but omit it from their sustainability report. At the very least, companies should communicate a comprehensive and consistent message through their own websites and sustainability reports, and through the CDP. They should also consider reaching key audiences through customized channels as needed.

It’s also important to remember that communications happen not only through formal reporting, but through events such as trade association committees or government advisory groups. At such gatherings, the messenger is part of the message, so it is crucial that representatives know all the key points and have the authority to speak those messages on behalf of their company. As Matthew Bateson of World Wildlife Fund told us, “Having the wrong people at meetings is a barrier. If they are unable to listen, to contribute, and to be constructive — that won’t work.” So, when opportunities to collaborate or speak arise where climate policy efforts might be addressed, aim to send senior and prepared leaders.

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.

What Happened at COP15

As BSR predicted, COP15 came down to hard bargaining between the United States and China, and the event materialized as much less of an end to climate policy than as a beginning. This turned out to be an understatement: no binding commitment was reached, and it is increasingly clear that an effective agreement will take much more than simply another meeting.

In terms of progress, views are mixed. Some have called it a complete failure. That is because leaders have been working on the issue for two decades and have had two years since Bali, where they agreed to develop firm action plans. Yet, at Copenhagen, nothing concrete or enforceable was produced; rather, negotiators simply agreed to have more talks, a result which the UN “took note” of—that is, acknowledged symbolically weakly.

Also, the process leading to that point was rather undiplomatic. A deal (the Copenhagen Accord) was rammed through by a few countries—notably the United States and China—without real involvement by the G77 or the EU in crafting it. This subverted the regular UN process while passing over details on critical issues like forestry and carbon markets.

On the other hand, there weren’t any surprises. In the time leading up to Copenhagen, it became clear that such a complex undertaking would require more than one event. That is due in part to the fact that U.S. President Obama cannot act unilaterally on behalf of his government, no matter how ambitious he may be.

The fact that there were no real walkouts or other disasters, and that a foundational political agreement was developed, shows that there was real progress forward. Moreover, Copenhagen proved that climate change has not only become a mainstream agenda item, but that it has become one of the most important political movements in history, with more than 100 heads of state involved (at Kyoto, there was only one there, and it represented the hosts).

On balance, it is disappointing that Copenhagen did not produce more needed clarity and predictability to encourage companies to invest in low-carbon energy, agriculture, and emissions markets. But perhaps there will be a method to this madness. There is still time to act, and we have the ability to ratchet up commitments once it is understood how these commitments contribute to jobs and investment opportunities. Also, for better or for worse, it appears that Copenhagen will spawn negotiations and forums among smaller numbers of large countries (such as the G-20), to expedite progress. This will likely increase opportunities for businesses to contribute in progressive ways.

As for next steps, Al Gore—someone who arguably has more insight into these negotiations than anybody—offers two things: First, why not keep up the momentum and hold COP16 in Mexico City in July 2010 rather than November? Second, says Gore, “The key to success remains as it has always been: to convince people one by one, person by person, family by family, community by community, of the need for the present generation to accept and understand the obligation we have for the future of humanity, to take the steps necessary in our time to safeguard their future.” Gore is referring to grassroots communication. Keep that in mind as the U.S. Senate debates American legislation—which will be key to building (or losing support for) multilateral commitments—this winter.

Originally published at BSR.

Here’s a Plan B

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

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

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

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

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

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

Corporate Climate Leadership at Copenhagen

On my third day at COP15, I presented at the International Emissions Trading Association panel, “Corporate Climate Leadership,” where I said that companies should consider three leadership activities:

1. Reach out to your key suppliers and ask them to improve their carbon efficiency. This will most likely mean focusing on energy, which drives two-thirds or more of greenhouse gas emissions globally and is an easy way for you to catalyze relatively large-scale change while saving money for your partners (and possibly your company).

2. Engage on policy. While supply chain energy efficiency presents an opportunity for scale, such change tends to be incremental, not transformative. That’s because with energy, price makes the market. Switching current systems to low-carbon alternatives that allow us to reduce global warming to 2°C or less will likely require policy that gives companies the price signal and durable investment certainty needed to invest. Companies that want to lead on climate should focus on advancing, informing, and enabling climate policy—in particular by influencing the fence-sitting U.S. senators and their constituents on climate legislation.

3. Go beyond climate to address planetary boundaries (of which climate is one of many) and ecosystem services. Climate is part of a broader sustainability picture, and it provides a platform for approaching resource efficiency, policy engagement, and other activities in these areas. Indeed, climate is critically important, but it is also interconnected with freshwater, biodiversity, agriculture, and other key issues and impacts.

Following my presentation, there was a lively debate about the relative importance of education, breakthroughs, and “coolness” in solving climate change.

Originally published at BSR.

Information, Please! The Knowledge Crux at Copenhagen

I spent half of my first day at COP15 in line, mostly outside, in the cold. But I was one of the lucky ones to eventually emerge inside the Bella convention center. Others waited for six hours or more only to be turned away at the door (if they even made it that far).

I don’t know whether I’ll make it back in on Friday, when I’m scheduled to present at the China Climate Registry panel. Word has it that the 15,000-person occupancy for the 35,000-plus who are registered will shrink by the day until virtually no one but government delegates is allowed in at the end of the week. We’re all bewildered. After all, we’re all on the invite list.

The problem is information. We could have used some pretty simple advice about what to expect as we planned our meetings at the event.

It occurs to me that information (in particular, the dearth of information) has become something of a theme with the climate negotiations.

On one hand, there is “Climategate.” In this case, U.S. policy crafters have been forced to defend themselves as news pundits and others have taken snatches stolen from private emails among scientists to put science itself on trial in the court of public opinion. In reality, nothing has yet come to light that implicates climate science in any fundamental way. Nonetheless, the fact that climate experts spent valuable political time and energy defending the validity of this information points to a continued gap between scientists and the public on opinions about climate science.

The issue of information—or rather how information is verified—is also one of the chief sticking points governing whether China will sign on to a climate treaty. The country is reticent to have outsiders monitor and verify its greenhouse gas emissions, yet assurance of climate effectiveness is needed globally. This need for robust auditing highlights a challenge that is especially thorny when done across cultures like China and the United States.

Business managers who live or die based on the effectiveness of global communication might think these problems are easily solved. A message to you: Your help is needed. Without business helping to communicate the best available information we have about climate science and showing the way for solutions that work on the ground in countries like China, climate policy will be slow in coming, and we may not achieve results that effectively unleash investment capital. And without such results, real progress on climate change is unlikely.

Originally posted at BSR.

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.

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.

Why Climate Change Will Matter to Every Company

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

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

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

It’s About Owned Operations

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

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

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

It’s About Supply Chains

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

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

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

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

It’s About Customers and Consumers

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

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

It’s About Industry Dynamics

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

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

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

First posted at GreenBiz.

A Business Guide to Managing U.S.-China Climate Relations

Earlier this year, we noted several factors that are key to staying on the critical path to an effective climate treaty: The U.S. must enact serious climate legislation, both China and the U.S. would have to ratchet up their respective commitments, and the U.S. Senate needs to ratify the international treaty produced by negotiations in Copenhagen this December.

There is movement forward. On June 26, the U.S. House of Representatives approved the American Clean Energy and Security Act, the nation’s first-ever cap-and-trade bill that is also known as Waxman-Markey. China and the U.S. have held numerous climate policy talks, and the U.S. has exerted more leadership in U.N. negotiations than it has in more than a decade. At the recent G8 summit, U.S. President Barack Obama and Chinese President Hu Jintao joined other heads of major economies in agreeing that they should not allow the world to warm more than 2 degrees Celsius.

Yet China still has not committed to specific emissions cuts and targets, a step not only essential to the fight against global warming, but one that will also influence whether the U.S. Senate passes Waxman-Markey. Whatever happens in the Senate, it is clear that climate will remain a dominant trade theme between China and the U.S., the world’s No. 1 and No. 2 greenhouse gas emitters. For business, this means that a new policy landscape on emissions will take shape, with potential impacts on regulatory regimes in both countries as well as transnational issues, such as supply chain emissions.

The following guide offers insight into what you can do to ensure that your company is positioned for success in this rapidly changing climate.

Anticipate: Understand the Emerging Landscape

Upcoming legislation has the potential to reshape the way U.S. businesses use energy resources, both at home and abroad. Two key issues will determine whether China and the U.S. move toward meaningful cooperation on climate issues in the near future. The first is whether China accepts emissions-reductions targets; the second is whether the U.S. Senate passes a Waxman-Markey bill that China does not perceive as overly restricting Chinese imports.

China’s current climate programs are limited to the promotion of energy efficiency, and the country’s leadership shows little sign of moving toward carbon-dioxide emissions caps, despite pressure from the U.S. On the U.S. side, domestic manufacturing lobbyists are creating pressure for an eventual cap-and-trade law to contain measures to protect the U.S. from inaction by China. Watch these relationships as the bill goes through markup by July 31 and through committee by September 18, in preparation for a fall vote.

If Waxman-Markey passes, the Senate likely will vote in December on a global climate treaty brought back from Copenhagen by chief U.S. climate negotiator Todd Stern. To secure ratification, perceived leadership by China will be even more important. According to Sen. John Kerry, D-Mass., the 60 votes required for cap-and-trade are within reach, but the 67 votes needed to ratify a treaty will be nearly impossible without more significant commitments than China has signaled so far.

China — which has consistently positioned itself as a developing economy that cannot afford to cut emissions — even as it pushes other countries to make sharp cuts — knows that as the largest global emitter, no climate treaty will work without it. And while negotiators undoubtedly will continue to take a tough line in the build-up to Copenhagen, there already have been signals that a deal can be reached. After his June trip to Beijing, Stern said he expects China to commit to stabilization of long-term emissions around 450 parts per million, as well as a target year for peak emissions.

To stay apprised of possible new commitments by China, follow China’s evolving 2011 to 2015 five-year plan, watch ongoing meetings this summer between Stern and China’s climate change envoy, Xie Zhenhua, and pay attention to whether coalitions of industrialized and developing nations are able to agree on reduction targets as the G-20 meeting in the U.S. approaches.

A thornier issue is how the two countries will manage emissions in value chains that cross their borders. In March, China’s head climate negotiator, Li Gao, famously asserted that the U.S. should take responsibility for emissions that happen in China due to the significant volume of goods produced in China for the U.S. market. Then in June, when the U.S. House of Representatives added mandatory carbon import tariffs for countries like China to Waxman-Markey, China’s Vice Foreign Minister He Yafei firmly stated that his country opposed that possibility. President Obama has said he prefers to avoid such measures, but others have pointed out that tariffs could strengthen the U.S. negotiating position as the Senate tries to develop a politically feasible bill.

Assess: Know Where Your Company Stands

Regardless what happens in the near-term with U.S. legislation, bilateral relations with China, and the Copenhagen negotiations, companies should assess how their markets, operations and supply chains will be impacted by potential new policies and regulations, which may include price and market mechanisms, financial incentives, and technical requirements.

All signs indicate that over the long-term, climate change and related policy responses will push prices up for carbon-derived energy. The key question for global companies is whether climate policy will evolve in a smooth and comprehensive way, or whether pockets of local opposition will spark balkanized schemes. The former scenario is most conducive to efficiency and low-transaction costs, the latter more likely to lead to gaming and continued erosion of public trust. So, when considering your company’s exposure, think not only about the direct cost of carbon, but also overall market stability and the risks of an uncertain policy regime.

A related issue is the establishment of border measures, which are aimed at addressing cross-border emissions or “leakage,” while applying even trade pressures to both sides. If border measures are passed through Waxman-Markey or other legislation, don’t count on a trade war, but do expect the World Trade Organization (WTO) to permit them. The WTO is likely to treat cap-and-trade the same way it treats value-added taxes, with border taxes allowed if they reduce distortions. When assessing your exposure, make sure you are aware of where your supply chains cross borders, especially those associated with energy-intensive production.

Act: Take Informed, Decisive Action

It is in the interest of business to promote strong climate policy, both to insure against potentially disastrous long-term consequences and to support innovation and entrepreneurship. An informed analysis should include a full picture of potential policy impacts, including the costs of inaction. Economists agree that, in net present value terms, the costs of ignoring climate change are much worse than those expected to arise from mitigation efforts, such as short-term spikes in energy prices (which will be temporary as companies invest in low-carbon alternatives). Also, be wary of analyses that use overly simplistic calculations of policy costs to assess climate policy. If and when you do decide to influence Waxman-Markey’s undecided senators (PDF), you may be most influential if joining forces with existing groups, such as U.S. Climate Action Partnership or Business for Innovative Climate and Energy Policy — or by working with BSR and other players in the field to create other kinds of momentum.

Waxman-Markey in the U.S. Senate: Will It Pass?
Passing the Waxman-Markey bill through the U.S. Senate requires 60 votes, and as of early July, there were 45 supporters and 23 undecided voters, mostly industrial state Democrats and Republicans. Winning over the 15 voters needed to reach 60 will be no small task, and there are a number of perspectives on what it will take.According to U.S. climate expert Joseph Romm, the key is portraying the bill as the single most important vote that senators, who see themselves as historic figures, will ever cast. New York Times columnist Thomas Friedman says the solution is threefold: Obama must hit the speech trail, young people must organize public events, and ultimately Republicans must understand that conservation and conservatism are related.

In more practical terms, it will also help if flexibility is built into the bill, as was done to aid its passage in the U.S. House of Representatives. In addition, issues that go beyond cap-and-trade, such as nuclear energy and the potential impacts on agriculture, may need to be addressed.

In the end, the Senate is likely to be a more challenging environment for this bill than the House because rural voices, which so far have been un-supportive of cap-and-trade, are amplified. Also, given the highly partisan nature of the dialogue and rhetoric so far, Republicans may be wary of lending their support.

On the other hand, says Sen. Jeff Bingaman (D-N.M.), most senators are at least persuaded that the science is clear and requires a policy response. The political analysis website the Daily Kos has published a preliminary vote-by-vote assessment that predicts failure, so the one sure thing is that the next few months will be a difficult test of the political skills of Senate leaders and President Obama.

Companies with operations in China should take the time to share with employees, partners, and other members of the business community why climate change is material to your business, and the importance of the U.S. and China making joint commitments. You can help take a lead in transparency by supporting and joining a regional or national climate registry (PDF). Finally, given the upward price pressure of carbon-based energy, consider collaborative opportunities to work with facilities and suppliers to increase energy and carbon efficiency.

Increased awareness of the direction climate policy is headed in both the U.S. and China is beneficial for business planning, as changes in energy subsidies or incentives and cross-border emissions regulation all carry significant financial implications. Understanding the international dialogue and positioning by each side will help you predict upcoming regulatory shifts in both countries, and will create the opportunity for informed action to influence policy. As Waxman-Markey winds its way through the Senate en route to the White House, don’t lose sight of the effects this bill may have for your business far beyond U.S. borders.


First posted at GreenBiz.

Waxman-Markey and the Business Case for Strong Climate Policy

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

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

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

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

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

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

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

First posted at BSR.