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Accounting for Environmental Externalities Is Good for Business and the Planet

This post also appears on Greenbiz.com.

This is Part Four of a five-part blog series, Aligning Profit and Environmental Sustainability. Each installment explores solutions to help businesses overcome barriers that prevent them from integrating environmental sustainability into their everyday operations. Look for these posts every Thursday.

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.

Factoring Sustainability into Financial Decision-Making

This is Part Three of a five-part blog series, Aligning Profit and Environmental Sustainability. Each installment explores solutions to help businesses overcome barriers that prevent them from integrating environmental sustainability into their everyday operations. Look for these posts every Thursday.

This post also appears on Greenbiz.com.

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.

The lack of integration between financial and sustainability-related decision-making is a main barrier to scaling truly impactful corporate environmental sustainability. But as WRI found in its new working paper, Aligning Profit and Environmental Sustainability: Stories from Industry, there are companies who are starting to show us ways of overcoming this challenge.

Finding the Money: How Businesses Can Fund Environmental Sustainability Projects

This post also appears on Greenbiz.com

This is Part Two of a five-part blog series, Aligning Profit and Environmental Sustainability. Each installment explores solutions to help businesses overcome barriers that prevent them from integrating environmental sustainability into their everyday operations. Look for these posts every Thursday for the next four weeks.

As companies tackle environmental sustainability initiatives—such as developing a climate change strategy—early steps involve getting the CEO on board and committing to public goals. But the process doesn’t stop there. In fact, that’s only the beginning. Companies also need to find the money to implement projects and make good on the promised goals—all while delivering financial results.

Finding the Money: A Case Study from Johnson & Johnson

Finding the funds for environmental sustainability initiatives can be a tall order, especially since many companies’ sustainability decisions are made separately from its financial ones. Johnson & Johnson experienced this conundrum firsthand. Back in 2004, the company had a public greenhouse gas reduction target, but was not on track to reach it. Although the emission-reduction projects it identified could save energy and operating costs, managers were having difficulty getting approval for the capital they needed. Core business priorities like new product development were competing with the money the company had earmarked for its sustainability efforts.

Managers, therefore, decided to re-think the way the company allocates internal capital. Johnson & Johnson started putting aside $40 million each year for “win-win” projects—greenhouse gas (GHG)-reduction initiatives that also reduce operating expenses, such as solar photovoltaics. Projects like these sometimes require more upfront capital, but benefit from more predictable returns and lower operating costs than conventional energy systems. The strategy reduces the company’s risk exposure over time and lowers its operating budget.

Fast forward to today and this approach has enabled Johnson & Johnson to reduce its GHG emissions by more than 138,000 metric tons through projects that have an average return of 19 percent. This emissions-reduction is equivalent to the electricity use of approximately 21,000 homes. The company met its initial GHG-reduction target in 2010 and renewed its commitment with a new 20 percent absolute reduction target by 2015.

4 Barriers to Overcome in Achieving Corporate Environmental Sustainability

This post also appears on Greenbiz.com.

This is Part One of a five-part blog series, “Aligning Profit and Environmental Sustainability.” Each installment will offer solutions for businesses to better integrate environmental sustainability into their everyday operations. Look for these posts every Thursday for the next four weeks.

Implementing corporate environmental sustainability strategies is increasingly becoming standard practice. For example, more than 300 of the S&P 500 report their greenhouse gas (GHG) inventories each year to the Carbon Disclosure Project, and companies from the Fortune 100 and S&P Global 100 are investing billions of dollars to reach renewable energy procurement targets. Some companies are going further and taking steps to reduce the environmental impact of their products, services, and supply chains.

Despite this encouraging progress, a confluence of global environmental challenges is putting more pressure on corporate environmental sustainability strategies to get to scale quickly. Not enough global businesses have integrated environmental sustainability into their long-term decision making. And, as it stands today, existing practices are not enough to protect the natural resources that society and businesses depend on.

WRI examines this gap between existing corporate sustainability practices and the environmental protection needed for the 21st century in our new report, Aligning Profit and Environmental Sustainability: Stories from Industry. We interviewed sustainability managers from AkzoNobel, Alcoa, Citi, Greif, Johnson & Johnson, Mars, Natura, and Siemens to better understand why strategies that are good for both business and the planet are not getting to scale.

We identified four barriers in these discussions, as well as ways companies can overcome them:

The New Language of Sustainability: Risk and Resilience

On February 20, WRI President Andrew Steer participated in event with GreenBiz CEO Joel Makower at the annual GreenBiz summit in New York City. This post builds off that discussion.

Sustainability has become a major business buzzword in recent years. For many, though, it’s still viewed as a philanthropic initiative, disconnected from a company’s core goals, or even a burden that competes with other strategic priorities. That must change.

Fortunately, more leaders are recognizing sustainability risks. At the World Economic Forum in Davos last month, leaders in business, government, academia, and civil society named climate change and water supply as two of the top five global risks facing companies today—and with good reason.

Extreme weather and climate impacts are becoming increasingly common and carrying a significant economic toll. According to the insurance group Munich Re, the number of weather-related loss events over the past three decades has quintupled in North America, quadrupled in Asia, and increased in Africa, Europe, and South America. In the United States alone, 11 events crossed the $1 billion mark in losses in 2012. Hurricane Sandy cost U.S. taxpayers more than $60 billion, striking at the heart of a heavily populated business and financial zone. And, drought in the United States is expected to cost 1 percent of the annual GDP, making it one of the most expensive natural disasters in the country’s history.

Likewise, water risks are increasingly on companies’ radars. More than 1.2 billion people are already facing water scarcity. By 2025, two-thirds of the world’s population will likely experience water stress. According to a 2012 report by the Carbon Disclosure Project, the associated costs of water events for some companies reached $200 million, up 38 percent from the previous year.

So, how can companies link these risks to corporate strategy? How can they push the management of sustainability issues into the center of businesses’ strategic decision-making?

Aligning Profit and Environmental Sustainability

Stories from Industry

While powerful forces like population growth, resource scarcity, and economic austerity are creating the need for transformative changes in business practices, the question remains: Why aren’t “win-win” results for companies and the environment getting to scale? This paper explores that...

Asia Pulp & Paper's Anti-Deforestation Pledge: Sign of a Changing Industry?

Asia Pulp & Paper (APP), one of the world’s largest paper companies, announced earlier this month that it will no longer cut down natural forests in Indonesia and will demand similar commitments from its suppliers. The announcement was received with guarded optimism by Greenpeace, Rainforest Action Network, World Wildlife Fund, and other NGOs who have waged a persistent campaign to change APP’s forest policies.

Indeed, APP’s new policy—which includes sourcing all material from plantation-grown trees, ceasing clearing of carbon-rich peatland, and engaging more with local communities—is significant, both for the business world and forest conservation. APP and its suppliers manage more than 2.5 million hectares of land in Indonesia and produce more than 15 million tons of pulp, paper, and packaging globally every year. Strong action by APP could indicate that the industry is heading for a more sustainable future.

The question is whether APP will follow this positive announcement with action. The company does not have a strong track record, having defaulted on past commitments to end deforestation.

But APP has something else going for it this time around. A rapidly evolving world of improving corporate practices and powerful technology could provide the right enabling environment for APP’s commitment—and others like it—to succeed.

Water Risk to Business Is No Small Drip

At the World Economic Forum in Davos two weeks ago, I was struck by how often the issue of water risk was raised by business executives. As the global economic turmoil is receding, many CEOs and global leaders are turning to other threats—and water is high on the list. For the second year in a row, water crises were named among the top four global risks at the WEF.

It’s easy to see why. More than 1.2 billion people already face water scarcity. By 2025, two-thirds of the world population will experience water stress. That’s largely due to population increase and climate change, but also behavior patterns: Water use grew twice as fast as population growth in the 20th century. The “food-water-energy nexus” was one of the top four megatrends to watch in the recently released Global Trends 2030 report by the U.S. National Intelligence Council.

CEOs increasingly recognize that water is essential for their business models and economic growth. Disrupted availability of affordable, clean water leads to business interruptions, increased commodity costs, and reduced earnings. The extreme drought gripping much of the United States is likely to cost up to one percent of GDP, potentially making it the costliest natural disaster in U.S. history.

Big Business and Sustainability: The Missing Links

This piece originally appeared on The Guardian's Sustainable Business website.

As another year begins, big business will continue falling well short of taking the leadership role on the sustainability the world urgently needs. While many chief executives now publicly identify sustainability as a key issue for their companies, walking the talk is proving more elusive.

Successful bosses do not procrastinate. So why are boardrooms dragging their feet as sustainability challenges that have an impact on the private sector mount? As an observer of business trends for two decades, I see two interlinked problems hindering progress: first, corporate failure to embed sustainability into core business strategy, treating it instead as a standalone issue. And second, the lack of tools that allow corporations to make this leap in their day-to-day operations.

5 Reasons India Needs a Green Power Purchasing Group

With more than 400 million of its 1.2 billion citizens without access to electricity, India needs extensive energy development. A new initiative aims to ensure that a significant portion of this new power comes in the form of renewable energy.

The Green Power Market Development Group

Today, WRI and the Confederation of Indian Industries (CII) launched the Green Power Market Development Group (GPMDG) in Bangalore, India. The group will help boost the country’s use of renewable energy like wind and solar power.

The public-private partnership brings together industry, government, and NGOs to build critical support for renewable energy markets in India. For starters, the group will connect potential industrial and commercial renewable energy purchasers with suppliers. A dozen major companies belonging to a variety of sectors—like Infosys, ACC, Cognizant, IBM, WIPRO, and others—have already joined the initiative and have committed to explore options for increasing their use of renewable energy.

The group also aims to make India’s clean energy development more mainstream. Green power buyers and generators in India currently face policy and regulatory barriers—such as high transmission costs and extensive approval processes. Through the GPMDG, the private sector will be able to work constructively with government agencies to instigate the types of renewable energy policies that will spur greater clean energy development.

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