In the rapidly evolving landscape of climate change regulatory development in the U.S., many companies have completed the first step of preparing a greenhouse gas (GHG) emissions inventory to assess the magnitude of their potential risk and prepare for mandatory reporting requirements. These initial GHG inventories range in complexity from a rough “order of magnitude” estimate to verified annual submittals to a state or voluntary registry. In the quickly changing landscape of state, regional, and federal regulatory requirements, many companies find themselves asking what the next step should be in their corporate climate change strategy. Some potential next steps, followed by a discussion of each, include:
- Evaluate areas of exposure, risk, or opportunity related to climate change
- Consider setting reduction goals and targets based on the inventory data
- Integrate energy/fuel management with carbon management
- Influence policy discussions and corporate reputation
Refining the GHG Inventory
Companies that have prepared a cursory GHG inventory should consider refining the inventory to meet the requirements of the U.S. Environmental Protection Agency’s (EPA’s) proposed mandatory GHG reporting rule, if they will likely be required to report. Companies may also consider refining the inventory to meet the quality standards of a voluntary registry necessary for third party verification, even if they are not planning to immediately join. This will ensure that the organization has an inventory that will suffice for the most stringent potential reporting requirements and provide the organization confidence in public reporting. In particular, The Climate Registry (TCR) has emerged as the preeminent GHG registry in North America, and it has developed detailed quantification, reporting, and verification methodologies in the TCR general reporting, general verification, and sector-specific protocols that are very useful in this effort. Refining the initial GHG inventory can help companies prepare for mandatory GHG reporting; accurately gauge their emissions profile; evaluate exposure, risks, and opportunities; and consider reduction or intensity goals.
Companies that have prepared a more extensive GHG inventory can still find value in refining their GHG emissions inventory. Most reporting protocols provide for multiple levels or tiers of accuracy in calculating each emissions source category; as GHG emissions evolve as a traded commodity, more accuracy will likely be required. Thus, companies can look for opportunities to collect better data (e.g., from stack tests or based on supplier fuel specifications) and to improve data tracking and management. Environmental management information systems (EMIS) are a natural fit for GHG data management since a well-conceived EMIS can improve accuracy, streamline reporting and data gathering across corporate divisions and regulatory jurisdictions, allow for transparency, and provide a platform for goal setting and monitoring.
Evaluating Areas of Exposure, Risk, or Opportunity
In and of itself, a high-quality GHG inventory will not reveal a company’s exposure, risks, and potential opportunities for operating in a carbon-constrained economy; thus, a comprehensive evaluation should be performed. Benchmarking performance against the competition, as well as the best performers in the broader economy, can identify risks and opportunities and generate ideas for the organization on how to best confront the climate challenge. Operating in a future carbon-constrained economy will affect companies differently, some positively and some negatively. While energy costs and security will affect organizations broadly, issues such as consumer response and demand, raw material availability, transportation patterns, cost of insurance, risk management, and corporate reputation will vary in importance among organizations. Those impacts can influence the current bottom line, as well as investment decisions for the near and long-term.
A carbon-constrained economy will also likely present opportunities for many companies. Companies that quickly introduce new and modified products and services to respond to the new dynamic will likely achieve competitive advantage. Companies with “leaner” operations will be better prepared to respond and re-tool. And, companies who can create emissions reductions through technology solutions may have many financial opportunities in the growing carbon markets.
Once exposure, risks, and opportunities are identified, the corporate decision makers must be advised and involved in determining the appropriate corporate response. The most successful examples of preparing and implementing a corporate climate strategy involve a commitment on the part of the entire organization, starting with the CEO.
Setting GHG Reduction Goals and Targets
To respond to risk or opportunity effectively, many companies set goals and targets to implement their corporate strategy. In the case of climate change, companies are motivated by potential cost savings from efficiency gains, social responsibility concerns, reputation enhancement, and reduced carbon allowance costs under a future cap-and-trade program. While setting a GHG emission reduction target is common, many companies simultaneously establish other sustainability goals such as sourcing renewable energy, reducing material usage, reducing waste, and managing the supply and delivery chains. Wal-Mart, for example, has set an ambitious goal of eventually using all renewable energy and producing zero waste.
An appropriate GHG emission reduction target must be carefully crafted to align with the overall objectives of your corporate strategy. For many companies, a simple actual reduction goal is appropriate. For large and diffused organizations, however, the reduction goal may need to be apportioned to different divisions or geographic regions. Lastly, for companies that may rapidly expand in a carbon-constrained economy (e.g., a photovoltaic cell manufacturer), a GHG intensity goal may be appropriate – lbs CO2/unit of production. “Carbon neutral,” meaning offsetting one’s GHG emissions such that the net emissions are zero or below, has become a buzzword. For corporate responsibility and reputation purposes, some companies may determine it is an appropriate goal and aim to achieve it either through internal reductions or by securing external carbon reductions.
Integrating Energy/Fuel Management with Carbon Management
Energy/fuel management and carbon management are inextricably linked and should be managed together. For any GHG emission reduction goal to be successful, reducing energy and fuel consumption must be considered. Most companies can find significant cost savings when they focus on energy efficiency; these cost savings often can be used to offset capital investment or fund elements of the corporate climate change strategy. Most companies would agree that evaluating operational and behavioral changes should be completed before considering capital projects, as many organizations have not fully extracted basic energy reductions from their operations and improvements may be found. With a dedicated strategy, companies often find that the “low-hanging fruit” of energy efficiency grows back on the vine and serves as a gateway to bigger savings from other energy efficiency projects. Many companies report millions of dollars in savings from energy efficiency, and financial officers believe efficiency investments hold some of the lowest risk and largest potential for return. More importantly, internal investment in energy reduction and efficiency projects have more long-term value to many organizations than investment in third party reduction projects (through carbon project development).
Influencing Policy Discussions and Corporate Reputation
Climate change is considered the preeminent environmental issue in contemporary times. Our local, national, and global policy approaches are either developing or rapidly evolving. Rarely have companies had such an opportunity to have a significant influence on policies that will have wide-ranging impacts. Therefore, proactive companies are using their climate change strategies to influence policy development to ensure their interests are protected. For example, many companies invest resources to ensure that early actions and technologies to reduce GHG emissions are properly credited and accounted for in policy proposals. Moreover, organizations should take the opportunity to educate policy makers on the unique aspects of their industry sectors and how their organization will be affected by climate change policies. Advocacy to improve the understanding of policy makers is often money well spent.
For some, improving corporate reputation through a climate change strategy can be as important, and in some cases more important than affecting policy, especially for entities that are consumer-focused. Non-governmental organizations (NGOs), employees, shareholders, media, and the general public are increasingly scrutinizing companies’ climate change strategies and rapidly communicating any perceived dissonance in corporate climate change strategy to the community through the Internet and other social networking venues. A positive company “climate image” can yield competitive advantage, public accolades, shareholder returns, and brand loyalty. However, if there is only “image” behind the company without the backing of action and successes, the organization will be adversely impacted and will be held accountable by the public.
There are common steps that organizations can take after preparing an initial GHG inventory, although the overall climate change strategy is unique to each entity. An effective corporate climate change strategy must constantly evolve as the regulatory landscape continues to change, from small perturbations to seismic shifts. With a robust inventory, a well defined strategy, and a systemic review approach, companies can be well-positioned to understand and respond to changes as they occur and to maximize potential opportunities related to those changes.