Integrating Climate Management into Long-Term Business Planning
The earth’s atmosphere now contains more carbon dioxide (CO2) than it has at any time during the last several hundred millennia — leading to impacts on coral reefs, arctic ice and other important habitats around the globe. There is growing evidence that significant global warming on planet earth is now underway: The Intergovernmental Panel on Climate Change predicts that global average temperatures will rise between 1.4 to 5.8 degrees centigrade over this century, depending on the amount of fossil fuels we burn and the sensitivity of the climate system. Climate change is arguably our most pervasive environmental problem, with the potential for major harm to habitats, biodiversity, food systems, economies and human life. The business community is a critical part of the solution to global warming, and many companies are finding it makes good business sense to reduce emissions of heat-trapping gases.
Companies are at a unique time for considering global warming issues in long-term business planning strategies. Most multinational companies have significant holdings in parts of the world that are establishing carbon constraints, renewable energy portfolio standards (regional or national targets for a percent of the electric generation to come from clean renewable sources), and/or emissions trading systems that essentially place a value on greenhouse gases (GHG), the most prevalent of which is CO2.
More than 100 nations, including Canada, Japan, and the European Union states, have already ratified the Kyoto Protocol. And Russia has signaled its intent to ratify, which will bring the protocol into force. With binding targets for GHG emissions reductions, the Kyoto Protocol will point the world’s economy towards less dependence on fossil fuels and fewer CO2 emissions. The EU already has a renewable portfolio standard in place (22% by 2010) and an Emissions Trading Directive that will start functioning in 2005, placing a value on global warming gases.
While the U.S. has not ratified the Kyoto Protocol or established a national framework for reducing greenhouse gas emissions, there are a number of efforts underway to regulate or cap CO2 emissions within the country. Some of the policies and measure being implemented include a state-based movement to regulate CO2 and invest in less polluting renewable energy that reduces dependence on fossil fuels. The state efforts range from mandatory caps on CO2 emissions from the utility sector, as seen in New Hampshire and Massachusetts; renewable portfolio standards in at least thirteen states; and regulation of CO2 emissions from automobiles, such as the California Clean Car legislation.
Adding to the business uncertainty surrounding possible U.S. regulatory scenarios for CO2 emissions, 2002 was a banner year in the number of GHG-related shareholder resolutions filed against companies. In the past year, close to 30 CO2-related shareholder resolutions were filed against companies in the oil and gas, automotive, appliance, and electric utility sectors, requesting the companies disclose the financial risk of its CO2 emissions and an assessment of the economic benefit of reducing the company’s emissions.
Many business leaders with corporate headquarters or facilities in the U.S. are trying to figure out how to react to this uncertainty about CO2 regulation. It is very difficult to make investment decisions in the midst of significant uncertainty on the global warming issue. Since there is no national climate change reduction framework in the U.S. to provide greater certainty to business leaders at this time, companies can move on their own to develop infrastructure for identifying and reducing sources of emissions.
A number of companies have already established comprehensive climate management strategies that consider the role and potential value of global warming gases when making investment decisions, inform electricity and energy use decisions, increase investments in on-site and cleaner power purchases, drive decisions towards other emissions-reducing strategies, and move the company towards establishing specific emission reduction targets
There are cost-effective and practical ways to reduce greenhouse gas emissions at the source, by increasing energy efficiency, investing in renewable energy, considering on-site power generation, and employing other emissions-reducing strategies. Taken now, these actions will help position the company as an innovative environmental leader, prepare the business to be competitive in a carbon-constrained global economy, protect the company from price fluctuations of fossil fuels, reduce corporate carbon exposure and risk, provide cost savings due to increased efficiency, and help the company to capitalize on the growing market for renewable power.
Once a company has determined that it does want to develop a strategy for reducing its greenhouse gas emissions, it may find the following steps helpful as a blueprint for action:
- Measuring the company’s impact on global warming by tracking emissions over time
- Setting a meaningful performance improvement goal with a greenhouse gas reduction target
- Using an internal carbon a dollar value in investment decisionmaking
- Identifying and reducing sources GHG
- Using more renewable/sustainable fuels/power
- Sharing and learning new best practices through external networks
- Partnering with an external organization to gain credibility, ideas, and access to environmental trends
- Obtaining independent verification
- Communicating progress in a transparent manner
Some leadership companies have followed a number of these steps in developing corporate greenhouse gas emissions reductions strategies. Companies like Johnson & Johnson, IBM, Lafarge (the largest cement manufacturer in the world), Dupont, Nike, SC Johnson, and The Collins Companies have all established comprehensive climate management strategies. Some of the companies are working in partnership with an external organization or government agency, including World Wildlife Fund’s Climate Savers Program, the U.S. Environmental Protection Agency, or the Pew Center for Global Climate Change.