Helping Business Adapt to Climate Change

As climate change sets in, its impacts — increasing severity of storms and weather disasters, receding snow and rivers, advancing deserts, and more frequent landslides and floods — will test companies’ ability to effectively deliver high-quality products and services.

In response, BSR is launching a series of briefs to illustrate how these changes will affect each industry and what current adaptation practices look like, beginning with an examination of the food, beverage, and agriculture sector (PDF).

Some effects of climate change will be familiar, such as crop failures and ensuing price shocks, but over the next several years, they will happen with more frequency and with even higher insurance costs. Beyond direct business impacts, companies will also need to understand how climate change will affect their most vulnerable stakeholders — the poor, citizens of developing countries, and women — who will face increasing risks due to drought, disease vectors, and the perils of migration.

The good news is that many resources on business adaptation to climate change are already available (see end of article). McKinsey & Company developed a cost curve for adaptation (PDF), for example, which highlights different adaptation options and shows that investment paybacks can be short. Also, companies do not need to choose between adapting to climate change and helping to mitigate it; the distinction between these two is rarely clear and we should do both together.

There are also tools that translate state-of-the-art climate monitoring, prediction, and imagery into practical information to help companies improve their relevant governance and decision-making processes. These tools include: the Climate Administration Knowledge Exchange (CAKE), Google Earth Engine, the International Research Institute for Climate and Society, the National Oceanic and Atmospheric Administration’s Climate Prediction Center, and weADAPT. Companies can also take advantage of new market opportunities by providing solutions to enable effective adaptation.

There are several obstacles to climate adaptation, even for those most committed to proactive and responsible responses. First, the language of adaptation does not resonate well beyond specialists, so communicating on the topic is difficult. As Carmel McQuaid, Climate Change Manager at Marks & Spencer, recently told us, it’s usually more effective to engage stakeholders by communicating on the topics that matter most to them. For example, retailers would be most concerned with their ability to continue to sell high-quality products, such as coffee. For companies that thrive on innovation, positioning adaptation as part of the portfolio of trends affecting the industry is usually more effective than treating it as a standalone topic.

Another obstacle is the complexity and uncertainty of the climate. This goes for today’s weather, let alone the future of the climate more broadly, as evidenced by the fact that we are not well-equipped to handle disasters such as the recent floods in Pakistan and Australia. The fact is that we do not know how to properly prepare for disasters even when they are expected. This is partially due to the cognitive difficulty of coping with low-probability, high-impact consequences, and it is also a result of markets and organizations that don’t encourage or reward proactive preparation.

Third, our first reactions may not serve us well. Companies are at risk of taking seemingly sensible actions that may lead to adverse effects elsewhere or on others. Such “maladaptation” (PDF) can take many forms, such as combating heat by turning up the air conditioning (which would produce more greenhouse gas emissions), using desalinization technologies that pollute marine environments, raising prices or otherwise excluding vulnerable customers that depend on insurance or other essential services, or giving customers more resources without the incentives to conserve.

This is partly a result of focusing on the specific, current problem at hand while not taking into account the broader repercussions. It is also a result of failing to identify where weather risk and other familiar issues have climate change dimensions.

Identifying the Hotspots

Over the past year, we’ve been following the topic of adaptation through discussions with BSR member companies, leading and participating in workshops and forums, including the U.N. climate talks in Cancun, and examining business responses to the Carbon Disclosure Project on climate risks and opportunities.

In doing so, we’ve found that while climate change impacts are ubiquitous, there are some approaches companies can use to identify and focus on vulnerable “hotspots” in their operations, supply chains, and key markets. Hotspots emerge both as physical locations and features of the company.

In terms of location, companies with operations in Asia, Africa, and Latin America face some of the greatest risks due to the extreme water loss or flooding predicted for those regions. In addition, these areas suffer from a general lack of resources to respond to problems.

In all parts of the world, coasts, flood plains, and ecological boundary zones, including mountains and islands, are vulnerable. In many cases, cities (PDF), as well as settlements where subsistence is marginally viable, are especially risk-prone. Companies should consider how their direct operations and key partners and markets are situated in relation to these physical areas.

As for companies themselves, a key vulnerability is a dependence on natural conditions to foster crops, snow, and other climate-sensitive inputs, which are likely to migrate and, on average, degrade. In general, long-lived and fixed assets, such as mines, as well as extended supply chains and distribution routes, tend to be more exposed to physical disruption.

Finally, lack of transparency is a problem: A combination of weather events and climate-related political actions are increasingly likely to disrupt energy availability and general operations of suppliers and other partners. While companies may be able to take steps to mitigate their vulnerability, they will have a hard time doing so if they are unable to make informed judgments about their partners’ key issues, options, and systems for making decisions.

When companies look ahead, here are some issues that they should tune into:

Communicating about climate risks and opportunities: Investors expect companies to report on physical, regulatory, and other risks and opportunities of climate change through the Carbon Disclosure Project. The U.S. Securities and Exchange Commission has also made informed reporting on climate risks a requirement. Also, working with distressed communities to cope with climate change is an increasingly material issue for annual sustainability reporting.

Meet needs responsibly: The private sector is being called upon to drive an effective response to climate change, ranging from delivering hydration and other growing basic needs, applying finance and information and communications technology to build more resilient infrastructure, and solving the potential problems of maladaptation.

To do so, businesses need to foster connections and discussions that help deliver sustainable solutions to society under dynamic and uncertain conditions.

Create climate-resilient local benefits: Many sources of risk for companies are likely to be found far away from their headquarters and centered in local communities where, for example, vulnerabilities to floods, windstorms, and droughts are growing. These communities need help with local investments to developing disaster-response systems and continuity plans. Companies should look for ways to help their community partners achieve triple-win impacts by reducing the effects of disasters, adapting to climate change, and safeguarding development gains.

Each month through July, we will produce discussion briefs for specific industry sectors on what they are and should be doing about climate adaptation. Each brief will include basic tools and references. As we produce this series, we’ll be holding discussions with BSR members and inviting feedback. We’ll also store our resources and other tools at www.bsr.org/adaptation.

Further Information

Climate change adaptation can be defined as “adjustments in ecological, social, or economic systems in response to actual or expected climatic stimuli and their effects or impacts,” including “changes in processes, practices, and structures to moderate potential damages or to benefit from opportunities associated with climate change.” For more information and a list of suggested reading, visit www.bsr.org/adaptation.

First posted at GreenBiz.

A Sneak Peek at the New Rules for Supply Chain Footprinting

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

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

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

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

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

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

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

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

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

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

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

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

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

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

RS: What kinds of companies should utilize it?

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

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

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

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

RS: Will there be any completely new ideas?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

First posted at GreenBiz.

3 Surefire Steps to Bring Climate Transparency to Your Supply Chain

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

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

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

But such transparency doesn’t come easily.

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

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

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

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

1. Monitor in Order to Measure

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

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

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

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

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

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

2. Count What Matters Most

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

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

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

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

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

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

3. Promote Action with Better Governance

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

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

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

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

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

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

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

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

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

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

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

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

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

First posted at Greenbiz.

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.