I recently had a frustrating experience. It all started during a casual conversation with one of my mother’s friends. After hearing a bit about my role as CFO of the World Resources Institute, my mother’s friend informed me that she regularly contributes to charities. In fact, she stated proudly, she only donates to organizations with “low overhead”-- that is, to groups that spend the lion’s share of their funding on program expenses and only a small amount on fundraising and administrative costs. I couldn’t help but shake my head--not only because I disagreed with her, but because it’s a sentiment we hear all too often in the non-profit world.
Activist and fundraiser Dan Pallotta articulated this problem well in his March TED Talk, “The way we think about charity is dead wrong.” Pallotta explained that there are separate rulebooks for for-profit and non-profit companies in the United States. For-profits are judged on their growth and the quality of their products—which have the cost of necessary infrastructure or overhead baked into the cost of each product. Non-profits are evaluated on how little they invest in infrastructure rather than the quality of their work.
At WRI--and at all non-profits, for that matter--scrimping on essential infrastructure is short-sighted. This practice negatively impacts our work, our growth, and ultimately, our ability to change the world.
An effective corporate climate change strategy requires a detailed understanding of a company’s greenhouse gas (GHG) emissions. Until recently, most companies have focused on measuring emissions from their own operations and electricity consumption, using the GHG Protocol’s Scope 1 and Scope 2 framework. But what about all of the emissions a company is responsible for outside of its own walls—from the goods it purchases to the disposal of the products it sells?
The GHG Protocol Scope 3 Standard, released in late 2011, is the only internationally accepted method for companies to account for these types of value chain emissions. Building on this standard, GHG Protocol has now released a new companion guide that makes it even easier for businesses to complete their scope 3 inventories. The guidance is freely available for download via the GHG Protocol website.
How Can Businesses Use the New Guidance?
Assessing GHG emissions across the entire value chain can be complex. For companies just beginning to assess their scope 3 emissions, it can be difficult to know where to start. This calculation guidance is designed to reduce those barriers by providing detailed, technical guidance on all the relevant calculation methods. It provides information not contained in the Scope 3 Standard, such as:
The way companies report on their financial status has changed little since corporate accounting standards were first created 80 years ago. Yet the world they operate in, and the risks and opportunities they face, have changed almost beyond recognition.
Global population has soared from two to seven billion, with human and manufactured capital now in abundance. Natural capital, on the other hand, has become scarcer and more precious. Once-plentiful forests, food, water, wetlands, minerals and metals are in short supply, creating supply chain and operational risks.
Today, a global coalition of regulators, investors, companies, and accounting organizations launched a new integrated reporting framework in six major cities, which aims to address this gap. The draft framework from the International Integrated Reporting Council (IIRC), based on input from 85 pilot companies and more than 50 investors, represents a much-needed milestone in the evolution of corporate reporting.
Over the past month, we’ve discussed some of the key barriers that prevent companies from truly integrating sustainability considerations into their long-term strategies. Countless companies across the world struggle with these obstacles, such as: capital budgeting processes that fail to account for sustainability initiatives’ benefits; financial teams whose goals don’t align with those of the sustainability teams; and uncertainty about how to implement metrics that properly account for external environmental costs.
A handful of companies, however, are starting to identify effective ways to break these barriers down. Johnson & Johnson now allocates $40 million a year to a special fund that directs capital to greenhouse gas reduction projects, helping to lighten its environmental footprint while proving these projects generate good returns. AkzoNobel and Alcoa have elevated the role of the Chief Sustainability Officer in capital budgeting decisions to ensure the company is spending money to achieve financial and environmental results. And Natura is accounting for the environmental impacts of its suppliers and including those costs in its supplier selection process.
David Roberts at Grist, the online environmental news organization, commented on Twitter last week that “people talk about ‘externalities’ like they are just bad vibes or something. But that money is real money. Those costs are real costs.” How real is that money? Dr. Pavan Sukhdev, author of The Economics of Ecosystems and Biodiversity and Corporation 2020, claims that these “externalities”—or costs to society from carbon emissions, water use, pollutants, and other byproducts of business activities—are more than $2 trillion.
Putting a financial value on these environmental costs can help businesses make better informed decisions about how they manage their environmental risk. Not all companies recognize this—and even fewer actually know how to value these externalities correctly. But a few corporations are starting to show us the way.
The private sector is a crucial partner in advancing sustainable development, and bilateral aid agencies are grappling with ways to learn from and leverage the activities of companies and markets. As the worlds of business and of aid increasingly intersect—and as development budgets are reined in even as demands on them grow—the pressure is to do more in partnership with the private sector. The real challenge, though, is to do better.
This was the headline message from a recent roundtable discussion with representatives from nine bilateral donor agencies and invitees from the private sector, co-organized by WRI and the International Institute for Environment and Development (IIED) in London (see notes from the roundtable).
Both sides desire a strengthened relationship. Donor agencies see the private sector as an indispensable partner for improving the effectiveness and efficiency of aid. Agencies are looking for important sources of ideas, technology, and financing to scale up development solutions.
One example is the Africa Enterprise Challenge Fund (AECF), which is funded by the Australian, British, Danish, Dutch, and Swedish aid agencies. AECF is improving livelihoods of poor people in rural Africa by supporting innovation and new business models to help small-scale farmers adapt to climate change and promote investment in the generation of low-cost, clean, renewable energy.
Private sector actors seek clearer policy signals and more consistent support from donor agencies, particularly in understanding and navigating local politics. They also seek opportunities to develop new products and new markets, benefiting from the “de-risking” role that the public sector can play.
We know less about one of world's most pressing challenges today than we did 10 years ago. It's no secret that water - or the lack thereof - will be one of the defining issues of the 21st century. And yet, the United Nations World Water Report, in 2009, stated that when it comes to water, "less is known with each passing decade."
The World Economic Forum recently named the water supply crises as one of the top risks facing the planet - edging out issues like terrorism and systemic financial failure. Water risks permeate almost every aspect of global society. We got a taste last year with crops scorched by drought, shipping lanes threatened and energy plants shut down by low water levels, and coastlines devastated by flooding. Exacerbated by climate change and population growth, such crises will become more common and costly. Yet, the world largely lacks the data we need to monitor, understand, and respond to these water challenges. We are flying blind when it comes to global water issues.
Today marks the 20th anniversary of the first World Water Day, an international celebration designed to draw attention to the importance of freshwater resources. However, for a large and growing proportion of the world’s population, every day is a World Water Day. Difficult, complex water challenges including drought, groundwater depletion, pollution, and clean drinking water availability are growing in urgency and seriousness all around the world. Some even argue that we should boycott World Water Day – that our water problems are too serious to try and confine to a single day.
Although it’s true that we must keep water in mind during the other 364 days of the year, World Water Day can be useful. It helps raise awareness and serves as an annual reminder of the water problems we must collectively solve. Plus, picking a single theme – this year’s is cooperation – helps break down a very complex topic into more accessible, comprehensible pieces.
In keeping with the theme of helping make complex issues more approachable and understandable, WRI is marking this year’s World Water Day by launching the first in a new series of videos we’re calling “What’s the Big Idea?” These brief videos will feature WRI staff members explaining some of the complex, global challenges we are working to understand and solve. Our first “What’s the Big Idea?” video explains the concept of water risk and the array of challenges it poses. We also highlight a potential solution: WRI’s Aqueduct mapping tool, which helps companies, investors, governments, and others better understand and manage their water risks.
A large, multi-national company likely spends hundreds of millions of dollars every year on new projects. How these projects are designed, constructed, and operated clearly impacts costs in the short-term, but also poses huge implications for a company’s “sustainability footprint” in the long-term.
A major challenge is that most corporate sustainability experts within a business are not involved in capital budget requests at the outset. A company’s financial leaders make investment decisions with upfront costs and projected revenues in the front of their minds. They are far less likely to take into account a project’s potential environmental risks and benefits. Not coordinating financial and sustainability decisions can lead to projects that are cost-efficient to build today, but may not hold up to sustainability pressures over their lifetime. For example, a company might invest in a factory that is inexpensive to build, but then realize that it’s in a location that locks them into buying only fossil fuel-based energy sources.
Water scarcity is one of the defining issues of the 21st century. In its Global Risks 2013 report, the World Economic Forum identified water supply crises as one of the highest impact and most likely risks facing the planet.
In January 2010, the U.S. Securities and Exchange Commission issued new guidance clarifying that publicly-traded companies need to disclose financially material impacts related to climate change. Material impacts may range from compliance costs related to emissions regulation, to the physical impacts of changing weather patterns on operations.
The SEC ruling creates more incentives for capital to flow to sustainable businesses, while also improving awareness of the importance of climate change among the financial community. Companies are expected to improve GHG emissions accounting and reporting - an important stepping stone to managing and reducing corporate carbon footprints. WRI plans to continue engagement with the SEC, companies, and other advocates to help develop more specific rules, methodologies, and guidance relating to environmental disclosure.
For the past decade, WRI’s Markets and Enterprise Program (MEP) has been working to analyze material impacts of climate change on companies. MEP’s publication, Coming Clean, was one of the first reports identifying the need for improved corporate disclosure and providing specific recommendations for the SEC that were grounded in detailed financial analysis. Since then, WRI has worked closely with the investment community, as well as businesses, to foster support for better financial analysis and climate change-related reporting.
Meanwhile, WRI’s GHG Protocol team has worked over the last six years to build the foundation, constituency and the accounting infrastructure for companies to engage in corporate emissions disclosure and prepare for exactly this type of requirement. The GHG Protocol’s Corporate Accounting and Reporting Standard in particular is an important precursor to the SEC requirements. The SEC guidance refers to three business programs – the Carbon Disclosure Project, The Climate Registry, and the Global Reporting Initiative - that illustrate increasing corporate disclosure of climate change impacts and risks. All three of the programs’ greenhouse gas emissions reporting components are based on the GHG Protocol’s Corporate Standard.
Since 2007, both the Markets and Enterprise Program and the GHG Protocol Team have also been working through an international collaborative effort – the Climate Disclosure Standards Board (CDSB), which includes the Carbon Disclosure Project (CDP), The Climate Registry (TCR), CERES, and the World Economic Forum (WEF) to inform and guide SEC and other national financial accounting regulatory boards to address the issue of climate change reporting in the financial statements.
Brazil’s economy has been booming. During the past decade, it grew from the ninth to the sixth-largest in the world. While this growth has brought many socioeconomic benefits, it’s come with a downside: significant environmental impacts. Brazil has the highest rate of deforestation worldwide, while pollution threatens the country’s drinking water supply. Despite a decrease in national greenhouse gas emissions of late, agriculture emissions and energy demand are still rising.
While manufacturing is a critical part of the U.S. economy, it’s struggled over the last several years—both financially and environmentally. Overall U.S. manufacturing employment has dropped by more than one-third since 2000. Meanwhile, U.S. industry—of which manufacturing is the largest component—still uses more energy than any other sector and serves as the largest source of U.S. and global greenhouse gas emissions.
The good news is that energy efficiency can help U.S. manufacturing increase profits, protect jobs, and lead the development of a low-carbon economy. The Midwest’s pulp and paper industry is a case in point: New WRI analysis finds that the pulp and paper sector—the third-largest energy user in U.S. manufacturing—could cost-effectively reduce its energy use in the Midwest by 25 percent through use of existing technologies. These improvements could save hundreds of thousands of jobs, lower costs, and help the United States achieve its goal of reducing emissions by 17 percent by 2020. As the White House moves to cut carbon dioxide pollution in America, energy efficiency improvements in Midwest pulp and paper mills are a tangible example of the win-win-win emissions-reduction opportunities in U.S. industry.
Labeled the “queen of the forest” for its size and beauty, the Brazil nut tree plays an important social and environmental role in the Amazon. During the annual harvest, from November to March, when both its seeds and nuts are collected, the tree also provides a critical supplementary source of income for communities across the region.
While other natural resource management activities risk increasing deforestation in the Amazon, nut harvesting is not harmful to nature, since it depends on the forest’s continued existence. Local company Ouro Verde was created with this in mind, selling Brazil nut products marketed as sustainable, including extra virgin nut oil, nut butter and granulate. Ouro Verde created 47 jobs, and many more new business opportunities in the Amazon region, placing an economic value on the rainforest for local communities. About 1.3 million hectares of rain forest are sustainably managed by Ouro Verde supplier partners.
Ouro Verde is a shining example of the type of company WRI’s New Ventures project was created to support. Founded in 1999, New Ventures identifies, mentors, and provides promising small- and medium-sized enterprises (SMEs) with access to investment. New Ventures supports companies in six rapidly growing emerging markets – Brazil, China, Colombia, India, Indonesia, and Mexico – where the environment and development decisions being made today will impact the entire world. To date, we have facilitated more than $225 million in investment and worked with 346 innovative enterprises.
In 2010, SMEs supported by New Ventures reduced CO2 by 135,021 tons, the equivalent of removing over 112,000 cars from the road for one year. In addition, 1,490,448 hectares of land – an area larger than Connecticut - was placed under sustainable management by New Ventures companies or was conserved by sustainable land use companies in the New Ventures portfolio.
Managing carbon is not just good for the environment. It’s also a way for business to save money, cut risks, and create new business opportunities.
The Greenhouse Gas Protocol (GHGP), created by WRI and the World Business Council for Sustainable Development (WBCSD), is the leading international standard for companies to measure their carbon emissions so they can manage, report on, and reduce them.
In 2011, the GHG Protocol launched two new standards in response to demand from both the market and stakeholders for greenhouse gas emissions information across a company or product’s value chain. The Corporate Value Chain Standard can help a company identify which parts of its value chain it should target to reduce emissions. The Product Life Cycle Standard may be used to develop new low-carbon product lines that can give companies a competitive edge or pinpoint climate-related risks in a product’s life cycle.
The new standards took three years to develop. Close to 2,500 partners worldwide participated and 60 companies from 17 countries road-tested the standards. Even before their release, two major initiatives – The Sustainability Consortium and the Consumer Goods Forum – committed to use the standards. Their endorsement is a breakthrough and a clear signal that the new standards will be widely adopted by companies globally. The Consumer Goods Forum, for example, represents over 400 companies and retailers with a combined three trillion dollars in sales.
By enabling corporations to reduce their use of carbon, the new GHGP standards can play a role in significant global GHG emission reductions.
Supply chains are a major contributor to the environmental footprint of multinational companies, particularly in their use of water. By working with suppliers to decrease water-related risk, large companies can help reduce pressure on the world’s over-stretched water resources.
In July 2012, global food service retailer McDonald’s added a question to the Environmental Scorecard it distributes to its top suppliers. The addition requested that suppliers determine the water stress associated with their facilities’ locations. WRI played a pivotal role in this landmark initiative, providing the Aqueduct water risk mapping tool, which McDonald’s asked its suppliers to use when calculating their water footprints.
Measuring Water Risks
McDonald’s distributes an annual Environmental Scorecard Questionnaire to its top suppliers. The suppliers asked to respond to the water risk question include providers of beef, poultry, pork, potatoes, bakery products, and toys. Incorporating this question into the Environmental Scorecard was an important step in advancing McDonald’s dialogue with its suppliers beyond efficiency to include water risk and overall water stewardship.
The 2012 Environmental Scorecard directed suppliers to, “Use the WRI Aqueduct Tool to determine the water stress of the facility’s location and provide the water stress [level] of the facility’s location.” McDonald’s also urged its top suppliers to use the data they acquire from using Aqueduct to update their environmental management processes to take water risk into account. By the end of September 2012, all 353 of the facilities asked to complete the Aqueduct water risk assessment had done so.
This McDonald’s initiative provides an important precedent for evaluating water-related risk among agricultural producers, who account for 70 percent of water use worldwide.
Making Change Happen: WRI’s Role
WRI’s Aqueduct tool, developed by our Markets & Enterprise Program, allows companies and other organizations to access information on water risks in a given region or area. Our global database uses 12 indicators of water quantity, water quality, and regulatory and reputational issues to calculate water risk around the world.
The practical, straightforward, user-friendly nature of our Aqueduct tool made it possible for McDonald’s to begin assessing water risk across its vast global supply chain. Suppliers survey the data available for their facility’s location, and then choose from a drop-down option that indicates whether overall water risk is low, medium, or high. The Coca-Cola Company, a supporter of the Aqueduct project, vouched for the usefulness and credibility of the maps to McDonald’s, one of its largest customers.
McDonald’s high profile endorsement of the Aqueduct tool and data will help WRI scale our work with companies to address water scarcity challenges worldwide.
This post was co-authored with Carita Chan, an intern with WRI's forests initiative.
As the crisis of tropical deforestation reaches a new level of urgency due to forest fires raging in Indonesia, an important question is how can the world satisfy the growing demand for forest products while still preserving forest ecosystems? This week, some of the world’s largest companies will join U.S. and Indonesian government officials in Jakarta at the Tropical Forest Alliance 2020 (TFA 2020) meeting to discuss this issue.
The meeting comes three years after the Consumer Goods Forum (CGF), a group of the world’s 400 largest consumer goods companies from 70 countries, announced their commitment to source only deforestation-free commodities in their supply chains and help achieve net-zero deforestation by 2020. The TFA 2020, a public-private partnership established in 2012 at the Rio+20 Summit, aims to provide concrete guidance on how to implement the forum’s pledge.