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How Business Can Respond to the Grim Predictions for Climate Change

March 6, 2007 by Girling Ph D

Robert Girling,Ph.D.
Professor of Business Strategy
Sonoma State University

The world is waiting to see how business responds to the release of the Intergovernmental Panel on Climate Change's report Climate Change 2007.

Will big business led by big oil and the automotive industries continue to down play what is now an unequivocal call to change the way we live? Or will the fledgling efforts of a few business leaders such as General Electric's Jeffrey Imhoff and Duke Power's Paul Anderson hold sway?

The fact is that more companies are coming to understand that continued prosperity vitally depends on how we treat the environment. As a result companies ranging from global companies like Agilent to smaller local companies like Oliver's Markets are pursuing a wide range of “green” business initiatives aimed at reducing fossil fuel consumption. While much of the movement during the past year has come as a result of skyrocketing oil prices and related energy and transportation costs the moral imperative of the UN Report will add impetus and push more companies to seek to show that they are doing something.

The presence of Hank Paulson former CEO of Goldman Sachs and Chairman of the Board of the Nature Conservancy as US Secretary of the Treasury may spur some action by a reluctant administration.

Meanwhile, the world’s financial markets are demanding that businesses pay attention not only to the financial bottom line, or profit, but take into account impacts on communities and the environment as well. Insurance companies, who have to pick up the tab for environmental disasters such as Hurricane Katrina and the Exxon Valdez oil spill, have moved to the forefront of those demanding sustainable solutions.

The insurance industry last year ramped up its efforts to fully understand and address the risks associated with climate change as well as the inherent opportunities. Joel Makower reports that "The U.S. association of state insurance commissioners launched a task force to examine how climate change may affect the availability and affordability of insurance. A few companies began to introduce innovative products and services, such as carbon emissions credit guarantees, or rate credits and other incentives for commercial building owners who re-build damaged properties to LEED-certified standards. A Japanese insurer, Tokio Marine & Nichido Life, took it upon itself to reforest more than 7,500 acres of mangroves in Asia to minimize losses from rising cyclone-related risks." Makower

As Todd Thomson, CEO of Citigroup Global Wealth Management puts it “many corporations are going green because they’ve recognized the gigantic profit opportunities in doing so—and the competitive danger of lagging behind.”

Consumers are exhibiting a growing concerned about the environmental impact of the products they use. HSBC Bank estimates that more than 20% of the total population in the US and the United Kingdom prefer to buy “green” products while in Germany the figure is 50% and in Japan 68%.

Just what can businesses do to become sustainable?

Perhaps the first thing to do is to estimate your carbon footprint. "Start with the basics: Your offices and how you get to and from them each day.

If you're a small or mid-sized organization, energy use and transportation probably represent a good chunk of your impacts. There are simple online calculators, like the one offered by the U.K. group Climate Care, which can give you an instant measure -- though gathering all of the information needed for even this simple calculator likely won't be instant. (Keep in mind that many of these free calculators' creators want to sell you climate offsets, which allow you to "neutralize" your emissions by purchasing renewable-energy credits and other things.)

Next, take a look at the rest of your operations -- what you buy, sell, and make. To calculate the climate impacts, you'll need to find carbon or greenhouse-gas emissions data for these things. This is where you'll need some outside help from consultants or other experts."

Why bother at all? A well-designed emissions inventory can serve several business goals, including helping your company improve its efficiencies, reduce costs, and get public recognition for taking action to reduce or eliminate your climate impacts. Addressing climate change may also affect your company if it is part of a larger supply chain. Some small businesses serve larger organizations and companies that must calculate and manage both direct and indirect greenhouse-gas emissions. Many major corporations now seek suppliers with a demonstrated commitment to minimizing their climate impacts, as this impact adds indirectly to their own.

In seeking to reduce your company's environmental impact there are two main strategies: Sustainable design and sustainable operations.

Sustainable design involves designing the negatives out of a product and the positives in. The negatives are hazardous and toxic materials, excessive waste byproducts, and non-renewable components. The call for producers, not just the government or the general public to be responsible for addressing the problem of waste generation is increasing. Producers are being called upon to design products that produce less waste, use fewer resources and contain more recycled and less toxic components. The European Union’s Directive on Waste Electrical and Electronic Equipment requires producers, importers and distributors to arrange take-back and recycling or waste electrical equipment. A similar resolution was introduced for approval by the San Francisco Board of Supervisors.

In addition within a year, European nations will begin implementing the EU's "directive on eco-design of energy" using products which sets energy conservation standards for everyday household items such as washing machines, and refrigerators as well as commercial equipment and components.

DuPont is redesigning many of its products to take advantage of a range of new business opportunities. DuPont’s CEO Chad Halliday stated that "For us, sustainability is not just our corporate mission; it is also a business imperative for success in the 21st century." DuPont currently supplies eight of the nine major products that go into solar panels and the company also is engaged in biofuels, fuel cells, green building products, low-VOC coatings, air and water filtration, building insulation, bio-based plastics, as well as several other green products.

San Francisco based New Leaf Paper uses recycled paper to provide the most environmentally sound paper that meets the needs of business. The global engineering firm CH2M Hill built its business on advising clients how to seek sustainable solutions. The $3.8 billion company which is based in Colorado engineered an effective way to dispose of excess recycled water from Santa Rosa by converting it to “green” electricity to replenish The Geysers geothermal system making it the world’s only geothermal system to use recycled water to replenish its steam field. Boeing has found that the competitive advantage of its $150 million, 250 passenger Dreamliner jet, which uses 20% less fuel than competitive models generated a jump in sales from 56 in 2004 to 235 in 2005.

Santa Rosa based Indigenous Designs protects consumers by replacing toxic, non-sustainable synthetics with organic natural fibers and dyes. Over half of their product comes from knitting co-ops and non-government organizations in Ecuador, Peru, and India under fair trade arrangements where they pay wages up to three times the norm providing higher incomes so that poor people will not be forced to emigrate to survive.

Sustainable operations involve seeking ways to "green" any and all operation aspects of a company's operations from energy use, and transportation and shipping of goods, to selection of suppliers.

One outstanding example of a company that reviewed and restructured its operations is Interface, a producer of industrial carpeting. In 1994, Ray Anderson CEO set the company on a course to become a truly sustainable and restorative company. A shift in company strategy was imitated by engineers who questioned the sustainability of the company's business model. "…In 1994 some of the people in Interface Research Corporation, our research arm, in response to customers who were beginning to ask what we were doing for the environment--questions for which we did not have adequate answers--decided to organize a task force of representatives from all our businesses around the world." p. 39 (Ray C. Anderson, Mid-course Correction; Chelsea Green Publishing Company, 1998) Anderson challenged the research group to come up with an environmental policy and mission: to reach sustainability and to become a restorative enterprise. What came out of this was a new strategic business model based on reduce; reuse, reclaim, recycle, redesign, adopt best practices, and challenge the suppliers to do the same. Interface initiated Evergreen Service Contracts, which replaces purchase of flooring with leasing; Interface retains ownership of the carpet tiles, maintains them and selectively replaces and recycles worn out tiles.

Even Wal-Mart is moving in a green direction. The company is working with the Environmental Defense Fund, which has set up an office in Wal-Mart's headquarters and Eaton, a manufacturer of power and drive trains for commercial trucks to back the development of a new generation of hybrid truck engines to improve the efficiency of its fleet of over 7,000 trucks. And Wal-Mart recently pressured a supplier of Kid Connection toys to reduce its packaging enabling the company to ship 497 fewer containers a year at a saving of $2.4 million.

The Factor 10 Institute has been created to provide practical support for achieving significant advances in resource productivity in the production and consumption sectors through:
• The design of eco-efficient logistic systems, processes, and services;
• The development of dematerialized products, services, buildings, and
infrastructures with high resource productivity;
• Appropriate marketing strategies, maintenance, recycling and disposal of
goods;
• Enhancing consumer information on the environmental quality of products
and services;
• The creation and performance of research and development plans;
• Offering seminars for firms, politicians and other interested people,
giving practical advice for implementing the Factor 10 and the MIPS-concepts at home, in the public domain, in firms, and in governments;
• Small scale seminars for political and business leaders to identify
long-term sustainable economic options;
• Forging coalitions among international initiatives for practical
approaches toward sustainability, such as The Natural Step, Sweden, the Zero Emission Forum, Japan, The Environmental Footprint, USA, and the Dutch Sustainable Technology Program.

In order to assist North Bay businesses to increase profitability and develop new opportunities, Sonoma State University’s School of Business and Economics and New College of California’s Green MBA program have teamed up to host the Second Annual Sustainable Enterprise Conference 2007, to be held at Sonoma Mountain Village. The two day conference, will provide an opportunity for business leaders to learn about tools they could use to be environmentally friendly and economically viable. The conference is scheduled for May 4 and 5 at Sonoma Mountain Village.

Registration is available on the web site www.sec2007.com .

Prof. Robert Girling is a member of the faculty of the School of Business and Economics at Sonoma State University where he has taught since 1976. He has consulted in 20 different countries and recently served as a consultant to the Caribbean Development Bank on sustainable development strategies for Dominica. His paper “Green Business: International Dimensions” was featured at the Association for Global Business meeting. In 2005 he was selected as a Fulbright Senior Scholar. He is an organizer of the Sustainable Enterprise Conference which provides tools for sustainability for businesses and communities. Professor Girling holds a Ph.D. from Stanford University.

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