The rise and rise of carbon as a strategic priority
Despite political disappointments and recession, proactive carbon management is still the smart option, argues Paul Dickinson, chief executive officer of the Carbon Disclosure Project
In the aftermath of the global recession, as the gloom continues to linger over the economy, and regulatory disappointments are still fresh, it is no surprise many have asked whether companies would abandon their carbon management commitments.
But despite recession and policy uncertainty, commercial opportunity has driven a positive shift in the private sector. Rather than wait for regulation, companies are seeking out climate-related opportunities.
Thousands of organisations around the world report their greenhouse gas emissions and climate change strategies annually through the Carbon Disclosure Project (CDP). Of the world’s largest 500 companies (the FTSE Global 500) that report to the CDP, over 80% are identifying significant opportunities in the climate field.
Climate change is often viewed as a business risk. Its sceptics say that the cost of reducing emissions will be too big for business to bear. But there are huge commercial opportunities in helping to solve climate change challenges. Perhaps that is why this year companies are identifying more opportunities from climate change than risks.
A big opportunity comes in the form of energy efficiency. This is a particular focus for companies in 2010, driven by pressure on costs in the downturn and concern energy prices may keep rising. Investments here reduce emissions but also offer a low-cost option with a fast payback.
Opportunities also come in the form of new products and services. This year, a third of companies reporting from the Global 500 are developing products and services to help customers cut emissions.
Business innovation will deliver the solutions to climate change and hold the key to a successful low-carbon economy. High-intensity sectors are playing a major role. The utilities sector stands out as one of the highest performing sectors in the Global 500 and will play a key role in transforming the way power is generated. Some are already investing heavily in renewables and carbon capture and storage. There are also opportunities for them to create new revenue streams by providing the infrastructure and power for electric cars.
Many factors drive companies to address climate change and manage carbon – energy costs, the rising cost of carbon, brand reputation and energy supply risks are just a few. Customers are increasingly looking to work with companies that have strong climate change credentials, driven in part by consumers starting to make buying decisions with environmental concerns in mind.
Action in this area is also being led by leading firms striving ahead publicly on carbon management in their markets and value chains. This raises the bar for the minimum acceptable action on carbon management, forcing competitors to respond.
But do companies consider carbon management strategically important? This year’s results suggest they do: almost half of those companies reporting from the Global 500 are embedding climate change and carbon management into their group business strategy. In addition, 85% of reporting companies have board-level or other executive-level responsibility for climate change.
Companies are demonstrating to CDP that carbon continues to move into the mainstream of business consciousness. This is good news, because the path to success in the management of greenhouse gas is to embed a carbon strategy throughout the business.
A report produced recently for CDP by UK analyst firm Verdantix, The carbon management strategic priority, identified how carbon’s strategic importance is expected to grow over the next ten years.
The impacts of those areas driving greater carbon management such as energy costs and brand reputation are felt right across a company. For example: energy costs impact finance; the inclusion of carbon management in customers’ procurement criteria affects sales, marketing and supply chain departments; and the expectations of new graduates demand strong communication between corporate social responsibility and human resources departments.
Firms expect the cumulative impact of the factors driving carbon management to continue to increase and reverberate across business, making the issue a long-term priority.
No time to lose
The importance of a strategic approach will depend on how material climate change is to the business. There is little doubt it will impact company profitability more significantly in sectors such as insurance, aviation and power production than in a sector such as media. However, a strong carbon strategy will drive the value of the business.
Despite the fact we are moving in the right direction, there is no time for complacency. Just a fifth of the Global 500 companies reporting to CDP have achieved significant emissions reductions in the past year. Carbon management is a journey and while there may be some quick wins, progress does not come overnight. The sooner a company takes action, the faster it will reach its destination.
Climate change represents the first ever predictable industrial revolution. To grasp these opportunities the corporate world needs good information that gives critical insight into how their businesses can reduce energy, minimise waste and lower fuel use as well as find potential new revenue streams.
It is the quality and availability of information that enables the market to identify which companies are winning and which are losing from climate change. The leaders will reap cost savings, competitive advantage and revenue rewards.
Biography: Paul Dickinson is chief executive of the Carbon Disclosure Project. The project gathers greenhouse gas emissions and climate change information from thousands of companies around the world and puts it at the heart of business, investment and policy decisions. See www.cdproject.net