By Ryan Schuchard, Raj Sapru, Emma Stewart and Rory Sullivan Companies that want to be true leaders in reducing greenhouse gas emissions must green their supply chains and influence climate policy. Some are already doing so

By Ryan Schuchard, Raj Sapru, Emma Stewart and Rory Sullivan


Companies that want to be true leaders in reducing greenhouse gas emissions must green their supply chains and influence climate policy. Some are already doing so

Many large companies now take voluntary action to manage their greenhouse gas emissions, but attention is focused on emissions associated with energy consumption, which fall under the organisation’s direct control.

This focus overlooks the wider role that companies could play in reducing their overall footprints (ie including emissions from their products and supply chains) and enabling and encouraging governments, other firms and individuals to take action on reducing greenhouse gas emissions across the board.

In this essay, we set out proposals on moving beyond current conceptions of good practice, and identify areas where companies that have a basic climate change management structure (clear policies, clear management accountabilities, an understanding of climate-change-related risks and opportunities, performance tracking and reporting) may focus their efforts to maximise their contribution to reducing global greenhouse gas emissions.

Best practice or leadership on climate change requires that companies take action in three areas:

  • initiating paradigm shifts in the way that climate change is managed, through focusing attention on how they can deliver (or contribute to the delivery of) emissions reductions at scale;
  • developing climate-friendly value chains to internalise the most significant negative impacts, including “embedded” and “product use” emissions; or
  • shaping external systems by engaging policymakers, individuals and other organisations to multiply positive externalities.

Climate change best practice action areas (adapted from Schuchard et al (2007))

Initiating management paradigm shifts

There are three basic approaches to initiating management paradigm shifts: rethinking basic assumptions about business processes, building strong governance structures and engaging employees as contributors.

Rethinking business processes

Today’s business environment requires companies to rethink their most basic assumptions about how products are made, what energy to use, and what opportunities exist for creating net energy-positive processes. In broad terms this requires that they think about harnessing new processes, using clean energy, and generating clean power from renewable energy sources.

Nike, for example, has removed sulphur hexafluoride (SF6) – one of the most harmful greenhouse gases – from the process it uses to fill air pockets in its shoes. Unilever has switched its freezer technologies from HFCs, another potent greenhouse gas, to natural gas. And Vodafone is working with suppliers to design better network cooling systems.

Many companies have taken steps to increase their use of clean energy: Xcel Energy has acquired 775 megawatts of new wind power in Colorado, making it one of the US’s largest utility purchasers of wind energy, Marks & Spencer fuels its trucks with a minimum of 50% biodiesel, and Tyson Foods, the world’s largest chicken producer, has established Tyson Renewable Energy to turn its annual one million tonnes of animal fat by-products into biofuels.

Governance

Most large European companies now have senior management representatives with responsibility for climate change (whether as a standalone issue or as part of a wider environmental management remit). For example, HP’s executive council oversees a supply chain board, which all company businesses support with a procurement management process defining supply chain social and environmental responsibility buying criteria.

Bayer has an executive corporate sustainability board on climate change and a working group on renewable raw materials. And International Paper’s board public policy and environmental committee reviews all of the organisation’s climate change and related policies.

Effective climate change governance requires that directors and senior managers are engaged with the climate change debate and use their influence to ensure that climate change is integrated into how the company runs its business.

It also requires that directors and senior managers ensure that corporate objectives and strategy are aligned with the organisation’s climate change commitments through setting climate-change-related objectives within the organisation. For example, GE has a company-wide campaign to create expectations for individual business lines to set reduction targets. Johnson & Johnson uses an “environmental dashboard”, for which greenhouse gas emissions are one metric that each employee’s performance is assessed on.

Proper alignment requires that companies ensure that climate change commitments apply across all of their activities, not just their direct emissions. Perhaps the most obvious example is in the financial services sector where many UK and European companies have made commitments to carbon neutrality in relation to emissions from their energy consumption and business travel.

The reality is that for these companies, their primary impact on emissions is through their lending portfolios and other activities. Yet, despite a number having policies requiring some sort of assessment of the climate-change-related risks associated with their investments, no major financial institution has made commitments to reducing the greenhouse gas emissions profile of its lending portfolio.

The other important strand of governance is communication with stakeholders and the public. Reporting is not just about current and future emissions but also involves communicating the company’s views on climate change and related issues. A number of companies have started to issue reports that set out their views and canvass specific dimensions of the climate change debate.

Examples include Vattenfall’s Curbing Climate Change and Climate Map 2030 reports, which propose policy frameworks for a low greenhouse gas emitting economy, McKinsey & Company’s Climate Change Special Initiative, which provides information on cost curves for greenhouse gas emission reductions, and Ford’s 2005 report, The Business Impact of Climate Change, which outlines the challenges faced by the company as a result of climate change.

These types of reports are important for two reasons. First, one of the most important obstacles to government action on climate change is the concern that business’s interests will be damaged or, more precisely, the perception that companies will inflict political damage if their interests are not completely protected at all times. Therefore, having companies express support for government action on climate change is vitally important to helping overcome this obstacle.

Second, they help to address the information asymmetries that continue to militate against effective policy action on climate change. Through providing information on cost curves and on the likely business responses to specific regulatory instruments, they allow policymakers to design and implement policy that is more effective and more efficient than would otherwise be the case.

Engaging employees

Companies are in a unique position to empower employees and make them feel as though, through their everyday work or their choice of employer, they are making a contribution to addressing climate change. Some organisations have tried to institutionalise a culture of conservation and innovation by involving employees with climate change outcomes. For example, Wal-Mart is using “personal sustainability projects” to educate staff and drive cultural change towards sustainability; Prospero Recruitment has reduced waste by 90% through simple practices such as switching off IT hardware when not in use, installing energy efficient light bulbs, slightly turning down heat and recycling waste; and Google uses discussion forums and emails to facilitate employee car-pooling.

Employee involvement may also be strengthened through broadening participation in the company’s climate change and energy-related decision-making processes. This can be done in many different ways. 3M uses a company-wide system called Pollution Prevention Pays (3P) that encourages employees at all levels to rethink products and processes to eliminate waste.

Alcoa has, since 1998, had an internal greenhouse gas information system that tracks emissions data for its worldwide operations. And Cadbury, which recently announced a plan to cut its emissions by 50%, intends to encourage green activism among employees by giving them more authority to develop a culture of environmental consciousness.

Finally, organisations can provide incentives to employees who take action to reduce their greenhouse gas emissions or minimise their environmental impacts. Timberland provides $3,000 to employees to subsidise fuel-efficient hybrid cars. Alza pays its employees $1 a day when they bike or walk to work or use car pools. And Hyperion, as part of its Drive Clean to Drive Change employee programme, offers $5,000 to 200 employees a year for the purchase of cars that average 45 miles per gallon or better.

Climate-friendly value chains

Reducing embedded emissions

Supply change management has changed dramatically over the past 10 years, with many companies (in particular in the retail sector) now having tens of thousands suppliers. An increasing number of companies are starting to reap benefits by reducing their “embedded” emissions (ie those emissions that occur upstream of their processes and products) through changing procurement criteria, rationalising logistics systems and encouraging suppliers to become part of a climate-friendly value chain.

One way of delivering reductions in embedded emissions is to analyse and possibly change materials specifications to give preference to lower greenhouse gas emitting options. For example, UK crisps maker Walkers recently found that by buying potatoes on the basis of low water content, rather than by weight, suppliers reduced their energy inputs, transportation become more fuel efficient, and there were fewer costs associated with post-purchase drying.

Another strategy could be to give preference to low-emissions suppliers through ranking suppliers on their climate-change performance. Unilever, for example, gives preference to suppliers with lower emissions. Or companies can work to help existing suppliers improve performance. For example, after BSkyB hosted supplier workshops on environmental performance, 10 of its suppliers followed its example by making a commitment to becoming carbon-neutral.

Companies can seek to reduce product miles through optimising routes, localising sourcing and using more efficient distribution technologies. Timberland, along with several other companies including Ikea and Maersk, is promoting industry-wide tools and methodologies for shippers to collaborate with carriers in tracking and reducing carbon emissions, through BSR’s Clean Cargo Working Group. Marks & Spencer is seeking to reduce its food miles by doubling regional food sourcing and working with growers to extend British growing seasons through new varieties and growing techniques. And Nike has committed to reducing its inbound logistics-related emissions by 30% from a 2003 baseline by 2020.

Designing low-emissions products and services

Companies are increasingly tapping in-house research and development teams or collaborating with their suppliers to move beyond “recycling, reusing and reducing” to “redesigning and re-imagining” how their products might be used. GE launched its Ecomagination project in 2005, an initiative that involved the company investing in climate change friendly technologies, with the objective of reaching $20 billion in annual sales by 2010. In addition, the company will double its investments in clean technologies – including wind turbines, high-efficiency gas turbines and hybrid diesel-electric locomotives – to $1.5bn a year by 2010.

Other companies following a similar path include Procter & Gamble, which has doubled detergent concentrations in order to shrink the volume of packaging by 22% and thereby reduced the energy needed for manufacturing, transportation and landfill waste, and Unilever, which has reformulated its soaps and clothing for lower temperature washing.

Companies can also use their access to customers and link their products to environmental restoration. BSkyB, for instance, provides its customers with automatic standby devices for set-top boxes, a measure that has reduced annual greenhouse gas emissions by 32,000 tonnes.

Customer education

Despite the rising profile of climate change, customers are confused about what they should do, discouraged by inadequate product information and “green premiums”, and sceptical of claims made by business. Until recently, customers have been given little objective information on which to base their buying decisions. This is changing, with a growing number of companies working to educate their customers on the climate change impacts of their choices.

There are a series of programmes to label products with information about embedded and product use emissions, including Timberland’s Green Index tags to communicate embedded emissions and other impacts to customers, Marks & Spencer’s symbols depicting aircraft on food products that it flies, and Tesco’s proposals to label products with greenhouse gas emissions information.

Companies can also offer product metering and other data to provide real-time energy use feedback. For example, PG&E, in partnership with Wellington Energy, is providing smart meters, which customers can use to manage their energy usage, and Easyway Insurance Brokers is providing customers with optional smart meters to measure fuel efficiency for their cars.

Finally, companies can provide buyers with information that can be used for choosing products and optimising usage efficiency. Shell has developed a Fuel Stretch campaign to help customers understand how to make fuel go further and Unilever’s Washright programme encourages consumers to wash at lower temperatures and to use full washes.

Shaping external systems

Shaping external systems involves three broad areas of action, namely advancing dialogue on policy, co-creating opportunities with other organisations and encouraging climate-friendly behaviour among individuals.

Advancing dialogue on policy

We cannot rely on markets alone to deliver the cuts in greenhouse gas emissions necessary to minimise the likelihood of catastrophic climate change. To ensure that companies reduce their greenhouse gas emissions, governments need to establish a long-term policy framework that provides incentives and certainty for business planning. Stronger and clearer public policy is also critical to strengthening investor confidence in areas such as renewable energy, where companies’ business models are dependent on the existence of a supportive long-term policy environment.

Companies have a responsibility to support government action directed at delivering reductions in greenhouse gas emissions, even if such action entails increased costs for individual companies. This is not a pipe dream. For example, the Institutional Investors Group on Climate Change has emphasised the importance of governments specifying long-term policy goals, as a prerequisite for companies to make economically efficient investment decisions that incorporate climate change factors. The rationale is that investors’ interests are threatened by the potential for climate change to severely impact on economies as well as individual companies. Many institutional investors – asset managers and pension funds – now accept that public policy engagement is entirely consistent with their responsibilities to maximise returns.

Proactive engagement with public policy is not confined to investors. Companies are increasingly supporting public policy measures directed at reducing greenhouse gas emissions. Collective initiatives such as the Climate Group and the Corporate Leaders Group on Climate Change involve the signatories or participants expressing support for emission-reduction targets of the order of 60% to 80% by 2050.

Individual firms are also calling for policy action on climate change. Examples include BP’s statement in 1997, when it became the first major oil company to state that precautionary action on global warming was justified; Duke Energy’s advocacy for regulation that will price carbon now because it makes sense to reduce “stroke-of-the-pen risk” (ie the risk that policymakers could sign carbon pricing into law and cancel the value of assets overnight); and Ford’s statement: “It is in the interest of society and business to reduce the uncertainty and increase the predictability of policy frameworks and market conditions around the issue of climate change”.

Co-creating opportunities with organisations

An increasing number of companies are partnering other organisations to reduce emissions through advancing voluntary market-based solutions. Perhaps the most important example has been the support provided by companies to the Chicago Climate Exchange, presently North America’s only legally binding greenhouse gas emissions allowance trading system.

Informational networks have an important role to play as well. Vodafone has commissioned the Earth Calling report, a study informing the public of the environmental impacts of the mobile telecommunications industry, and Intel has shared best practice with other companies at the Arriving at Strategic Policy Positions on Climate Change working group (an initiative led by Business for Social Responsibility).

Finally, companies can develop operational partnerships including industry and cross-sector partnerships and investments. For example, HSBC has developed the $100m Climate Partnership, a five-year alliance between the Climate Group, Earthwatch Institute, Smithsonian Tropical Research Institute and WWF, which aims to create cleaner, greener major cities, enable “climate champions”, conduct the largest-ever field experiment on the long-term effects of climate change, and protect the world’s major river systems

Encouraging climate-friendly behaviour among individuals

Some companies are using their strengths to encourage climate-friendly behaviour among individuals. There are various ways this can be done. Companies can use their expertise to facilitate dialogue, including providing real and virtual venues and leading discussions. For example, Yahoo’s Green web portal (http://green.yahoo.com/18seconds/) and News Corporation’s MySpace channel OurPlanet inform users about climate change.

Companies may also be able to address the “value action” gap through providing choices that are consistent with customers’ ethical values. B&Q, for instance, has extended its product lines to include home micro-generation technology, home solar panels and wind turbines.

Finally, companies can appeal to individuals to adopt new actions and lifestyles. For example, BSkyB is communicating to mainstream customers on its Join the Bigger Picture website and MTV’s Switch campaign seeks to motivate more climate change-friendly attitudes among young people.

More to do

Best practice represents a dramatic change in emphasis for many companies, moving away from the relatively comfortable issues of direct emissions and energy consumption to much more difficult areas such as embedded emissions (those occurring upstream in the production of goods and services that the company buys) and product use emissions (those that occur downstream as a result of consumers using the company’s products). This will, potentially, require companies to develop new competencies. It also requires different mindsets and attitudes; for example, the scope of the company’s corporate responsibility initiatives may need to be completely redrawn.

Great care is required to ensure that the solution is not worse than the problem, or that the rush to take action does not create a series of unintended consequences. For example, lack of consumer awareness is a recognised barrier to individual action on climate change, and product labelling has a potentially important role to play in overcoming this barrier. Yet, we are concerned that the current trend for each retailer or company to develop its own labels and performance measures may actually perpetuate this barrier.

While the fact that a retailer has developed its own labels may enable customers to differentiate between the climate change impacts of that retailers’ products, it does not necessarily allow for meaningful comparisons to be drawn between different retailers’ products. We therefore emphasise that real leadership may – perhaps paradoxically – entail being “part of a pack” where all of the key actors work together to find a common, credible solution to this type of problem.

In conclusion, there is much that business can do to contribute to reducing greenhouse gas emissions. Our view is that all initiatives need to be judged on a single test: their contribution to reducing global greenhouse gas emissions. If their effect is not to enable, facilitate or deliver significant greenhouse gas emissions reductions, companies need to rethink their strategies. We have moved beyond a point where good news stories, greenwashing or green branding are appropriate responses to the threat of climate change.

We would therefore like to reiterate three key points. First, reducing emissions intensity may not result in total emissions being reduced. We are of the view that companies that are serious about responding to climate change will commit to reducing their total greenhouse gas emissions.

Second, the objective of climate change governance is not just to manage risks to the business; it is about how the company reduces its own emissions and maximises the contribution it makes to reducing emissions elsewhere.

Third, companies need to be wary of sinking resources into trivial actions. For example, while we recognise the importance of employee engagement, we are concerned that most employee engagement programmes are simply a substitute for action by the company.

We realise that companies face practical barriers to action, However, we do not consider the best practice actions set out here as being beyond the ability of companies to deliver. What is required from our business leaders is the moral courage to embrace this agenda and drive change throughout their organisations.

Ryan Schuchard and Raj Sapru work for Business for Social Responsibility’s environment group. Emma Stewart was formerly director of research & development at BSR, and is now at Autodesk. Rory Sullivan is head of responsible investment at Insight Investment.

This essay draws heavily on the Business for Social Responsibility report Beyond Neutrality: Moving Your Company towards Climate Leadership (2007), and an updated version of this report published in Rory Sullivan (editor) (2008), Corporate Responses to Climate Change (Greenleaf Publishing, 2008).

Note that this is longer than the version that appeared in the print magazine.



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