Sharpening The Cutting Edge: Corporate Action for a Strong, Low-Carbon Economy

The window of opportunity to effectively respond to climate change is now. Leading scientists warn that global greenhouse gas (GHG) emissions must begin to decline in ten years if we are to avoid the worst impacts of climate change. The United States is at a clear decision point. The scale of the climate challenge, paired with the investments needed to respond to a deep global recession, represent a unique opportunity to shift to a low-carbon economy that can provide a stronger, safer and more sustainable future. As users and producers of goods and services, businesses are central to an effective climate change response.

To be successful in a low-carbon future, companies must become expert in today’s best practice, emerging innovative practice and tomorrow’s “next” practice. This report can help guide corporate actions over the next few years, as companies and policymakers accelerate the pace of responding to climate change. It offers guidance on six key actions:

• DEVELOP COMPREHENSIVE, STRATEGIC CLIMATE CHANGE METRICS. Performance targets that go beyond carbon-only measures will be more useful for measuring and managing an effective corporate response to climate change.
• EXPAND GHG REPORTING. Companies will need to develop efficient, responsive reporting processes to meet growing demands for climate change risk disclosure (financial and physical) from a variety of stakeholders.
• REALIGN CLIMATE CHANGE STRATEGIES TO A LOW-CARBON ECONOMY AND A WARMING WORLD. Strategic partnerships across the value chain will help identify cost-effective GHG emission reductions and minimize exposure to carbon price impacts. Businesses will also need to analyze their entire value chain to assess how they may be exposed to shifting weather patterns and climate risks.
• ANTICIPATE AND MEET NEW MARKET DEMANDS. Tomorrow’s economy will place new value on goods and services that use energy and natural resources more efficiently and reduce GHG emissions. Companies can capture new business opportunities if they position themselves to supply these new markets.
• INFORM AND ADVANCE EFFECTIVE CLIMATE POLICY. Companies will need to be constructive participants in U.S. and international policy dialogues. Corporate insights can help to inform effective climate and energy policies to ensure a safe climate and sound economy.
• MAKE LONG-TERM INVESTMENT DECISIONS THAT FACTOR IN CLIMATE RISKS. All corporate investment decisions will need to evaluate climate change risks and whether investments put the company at an advantage or disadvantage in a low-carbon future. Poor investment decisions can lead to significant future costs if they lock in commitments to high-carbon products or strategies.

Companies that are successful in these areas will help to set the new benchmark for corporate leadership in a low-carbon future. The World Resources Institute has been working with the private sector for more than a decade on developing responses to climate change. Many of our corporate partners are building a solid foundation for long-term action. This has taken time, resources and commitment. Key challenges remain, however.

This report assesses how companies have fared in addressing the “cutting-edge issues” identified in our 2004 report A Climate of Innovation. The experiences of our corporate partners illustrate important progress and barriers.

• VERIFYING AND REGISTERING DATA. GHG registry programs have grown over the last few years with companies seizing the opportunity to verify and register their emissions.Many companies that are not participating still are undergoing the process of third-party verification of data. For most companies, however, data management can be a time-consuming challenge.
• SETTING AND UPDATING PERFORMANCE TARGETS. Setting GHG emission reduction targets has become a fairly common practice among major corporations. GHG targets alone, however, do not fully communicate corporate commitments to action nor do they necessarily focus investments on the critical changes necessary to prepare companies for a low-carbon future.
• IDENTIFYING COST-EFFECTIVE EMISSION REDUCTIONS. New financing models are helping to accelerate clean technology investments, and a growing number of companies are also engaging in emerging supply chain management activities. Fuller engagement of senior financial executives remains a key barrier to increased deployment of low-carbon projects.
• MANAGING INTERNAL COMMUNICATIONS. Simple, clear messaging and engagement of a wide range of employees has proved to be a successful strategy for involving the broader company in climate commitments. Cutting through the barrage of corporate information targeted at employees and successfully diffusing climate change knowledge remains a challenge.
• CAPTURING NEW BUSINESS OPPORTUNITIES. Companies that have explored opportunities to supply low-carbon goods and services have been able to demonstrate financial success in these new markets. Advancing these opportunities will require new business models, increased investment, and policy frameworks that value and reward action to reduce GHG emissions.
• ADAPTING TO MARKET-BASED SOLUTIONS. Policy action to address climate change is likely to include market-based mechanisms, such as a cap-and-trade program or a carbon tax that attaches a cost to GHG emissions.Many companies are preparing for climate policy by engaging in stakeholder processes and building an expert base of policy knowledge. Other companies, however, are relying on limited sources of information or remain unengaged, and risk being unprepared for future climate regulations. Overall, the dynamic policy environment is difficult to navigate, and uncertainties continue to prevent effective longterm corporate planning and investment.

Moving forward, a complex set of transformations will be required to dramatically increase the efficiency of energy use, rapidly accelerate clean energy technology deployment, bridge the technology gap between today’s practices and tomorrow’s clean energy economy, and maximize the efficiency of the transportation system. Each of these transformations represents business risk and opportunity.However, while many companies recognize climate change is a business issue, corporate climate change goals and implementation strategies are not yet sufficient for achieving the scale of necessary GHG emission reductions.We need to forge a new definition of corporate leadership to build on the progress made to date and to adequately meet the scale and urgency of the climate challenge.