Business Stewardship for Climate Change

The time for Business is to act now…

The recent COP outcomes have once again outlined the importance of “Business” and its role in bringing about tangible social and environmental change. Recently, Christiana Figures, Executive Secretary – UNFCCC summed up COP progress as, “Moving steady in the right direction….. But alarmingly slow”. She also acknowledged that, “The UN is the venue for global decision making, but not the driver for domestic decisions... And domestic or internal country interests in resource sustainability, energy stability and competitiveness are powerful drivers for sustained action on climate change”. What she probably means is that, it’s the time for businesses to provide the lead. Over the last few years, negotiators from 200+ nations have been battling with more or less similar issues – with the developing countries demanding technology transfer and climate aid, while developed nations vouch for better governance, measurement and incentivization of results. Currently, as the intergovernmental machinery works over time to put in place a valiant successor agreement to the Kyoto Protocol, aggressive pre-compliance action from the private sector is most likely to drive the climate regime going forward.

Business stewardship has already set a powerful precedent, with the Montreal Protocol instrumental in protecting the ozone layer (by phasing out ozone depleting substances) and successfully transforming the USD 1 trillion CFC Industry . Montreal Protocol took shape after 500 producers and users of CFC led by Dow and DuPont issued statements in support of international regulations. On the other hand, UNFCCC which limps on the tacit support of 200 nations – has not been able to realize and leverage the potential of the private sector on the similar lines. Critical learning’s from the past reinstate the influence of business to shape global agreements that work, considering it was “business” that led the ozone depleting substance issue based upon science , and worked with the UN process to formalize rules rewarding its leadership. Business has capital, innovation capability and management abilities to do the same for climate change and related risks. To do this, the motto, “If you cannot measure, you cannot manage” still holds good. Businesses are therefore looking forward to a unanimous, global industry led voluntary GHG program to build upon and institutionalize capabilities, standardize comparison metrics and ultimately push climate stewardship. Regional and National pilots need to be developed as a precursor platform, before any formal industry led GHG program can be institutionalized across large section of the world, as the regional performance on resource optimization, energy efficiency and sustainable development would be the key factor determining successful linkages .

Inclusive carbon management benefits – from a business perspective
Globally, businesses have realized long term value in measuring and reporting of carbon footprints. Senior management of leading companies has strong sense of potential climate change related impacts on their bottom line, as well as continued business operations. This can be demonstrated by the fact, almost 6000 of the world’s largest companies reported their GHG emissions and energy use in a standardized manner , in 2011. These companies are the ones who have taken cues from the market and rather – set aside regulatory uncertainties. Trends in the domestic scenario are picking up too, with 60-100 Indian companies taking up voluntary disclosure of GHG emissions and energy use last year. Benefits for businesses that proactively engage in carbon reduction and offsets are well known and exhaustively documented. However, some of the salient ones are listed herein for the sake of completeness;
 
Reduced Costs

• Reducing exposure to increasing conventional energy costs (especially coal, diesel and gas – pertaining to Indian Industries)
• Driving efficient resource usage, and materials management – by integrating within standardized business processes. Improvising process efficiencies by identifying hotspots.
• Optimizing supply chain efficiencies by carrying out life cycle assessments

Risk Mitigation

• Continued and sustained business operations with the long term view on fuel and energy mix
• Staying clear of regulatory and compliance requirements (PAT scheme, RPO etc in the case of India)
• Independent third party recognition of climate change and carbon management activities undertaken, towards increasing stakeholder (mainly regulatory, NGO, consumer) confidence and mitigate/manage any non-perceived risks
• Quantified evidences and verifiable trail to score high on procurement questionnaires and environmental impact reduction claims. (for Indian SMEs aiming to supply EU and US consumer goods/Supermarket chains etc)

Market Opportunities

• Point of differentiation - Product Positioning, Green Certifications, Green Labeling (Star ratings by Bureau of Energy Efficiency etc)
• Developing downstream customer loyalty, by offering environment friendly products and services, with lower life-cycle impact.

Sustainable Leadership

• Enhanced Corporate Reputation and Positioning
• Employee Engagement and Retention,
• Building Carbon Management and Sustainability into core innovation frameworks for all future product and services development.

As mentioned earlier, measuring and mapping of GHG emissions helps identify the hot spots - and facilitate reduction in overall operational costs, through opportunities that would not have been identified otherwise. An example can be cited of a large super market chain , present across many regions in the country. The super market chain proceeded to measure and map, the carbon footprint on a sample basis for about 9 products. Comprehensive analysis across the value chain, revealed a startling fact for one of its popular in-house branded products, potato chips. The company used to purchase potatoes on weight basis, and didn’t realize that the suppliers used to stock the potatoes (that were to be delivered) in humidification chambers. Potatoes being hygroscopic, absorbed significant amount of moisture at the supplier’s end subsequent to which, there was extensive drying required at the super market’s processing facility. Both stages required energy, and thus were carbon hot-spots. A simple solution emerged, which was to change the procurement methodology – not on the basis of weight, but starch content (with sample analysis on random batches delivered). Gradually the suppliers realized that with the upgraded sourcing methodology, there was no incentive for investing energy on humidification chambers and thus by-passed the step. The potatoes that, now arrived at the super market facility were ready for further processing, only after a round of sun-drying. Mapping out GHG emissions and energy usage across the value chain, helped the organization not only save the energy spent on mechanized drying, but also a significant amount of money by a marginal change in procurement process.

Similarly, one of the largest automotive manufacturers in the country  – after mapping out the carbon footprint across the major part of its value chain; successfully managed to influence their OEM suppliers on improvising their transportation methodology and thereby facilitating reduced impact on the environment, and optimizing the freight costs. This resulted in overall reduced procurement and material costs for the multi-utility vehicle manufacturer. Another Fortune 500 company, one of the largest oil and gas majors  in the country carried out internal assessment of GHG emissions, only to realize that transportation of gas, via pipeline was the most profitable and environment friendly option in the long run. This revelation helped overturn initial perception on the high upfront capital costs required for commissioning a multipurpose gas transportation pipeline, and that transportation by road/rail was cheaper.

Rising up to the Changing Business Environment…
Apart from the inherent benefits on profitability, mapping out GHG emissions also provide organizations, a much needed support considering the changing business environment. Like other countries, India is also faced with the challenge of sustaining its rapid growth – while dealing with the threat of climate chance. With an economy closely tied to its natural resource basis, enterprises in India are concerned about the ongoing changes in regulations, which may increase operational costs . They perceive international agreements, national commitments, populist policies and stakeholder pressure to cause significant impact on their businesses. Large industrial sectors and heavy consumers of energy including aviation and telecommunications have already been mandated to map, and report their carbon emissions atleast annually . Also, majority of enterprises are concerned on the long term future of their existing business models in the light of physical risks posed by climate change. For example, Petroleum companies could be impacted the most, by heavy rains and cyclones in coastal areas, which may cause either reduction or disruption in production capacity. Rising sea levels could also impact coastal facilities like refineries, ports, terminals and so on, as floods and storm surges could become more frequent.

Despite the skepticism, most of the Indian companies realize that new regulations and changing business practices also provide them with newer opportunities. Eight national missions form the core of India’s National Action Plan ; representing a multi-pronged, long term and integrated framework supporting the national response on climate change. The current business environment is accordingly expected to change rapidly with the focus on solar energy , energy efficiency  and sustainable habitats  amongst other initiatives. Market based mechanisms are being introduced, especially in the area of renewables, and energy efficiency to enhance business case and incentivize tangible actions. Coming off the blocks early by manufacturing sustainable products – can enable leader companies to charge premium over their competitors. Also, such steps can result in greater capital availability with banks preferring to finance companies with a strong outlook on sustainability.

Measuring for Impact – Mainstreaming Energy & GHG Emissions Reporting.
While the business case of mapping out energy usage and GHG emissions is firmly established in the changing business environment – there is a key requirement to have a collaborative approach towards managing GHG Emissions. As seen in other geographies, standardized  and common platform facility can serve multiple benefits across regional, national and international objectives. The key requirement for a standardized, unanimous and industry led program cannot be understated – with currently more than 20+ reporting guidelines/verification protocols being followed. A standardized comparison metric would facilitate corporates to leverage their environmental leadership across various domains, facilitate increased interest from investors and financing community, create a common ground for stakeholder impact assessment as well as support easier implementation of regulatory policy. The India GHG Program, therefore led by WRI India, TERI and CII aims to

Build Institutional Capabilities by

• Providing tools and technical assistance for building carbon inventories,
• Identifying reduction opportunities,
• Establishing forward looking goals
• Tracking progress

Co-create a Credible National Model on Emissions Accounting, using consistent standards and comparison metrics to facilitate

• Streamlined interest from investors/financial community
• Common ground for stakeholder impact assessment
• Feed into policy and regulatory frameworks

Co-create a Multi-Stakeholder Engagement Platform by

• Convening leaders across Governments, Business, NGOs, Industry Groups, Consumer Groups, Multi-lateral organizations etc. towards aligning diverse goals on a common discussion floor
• Establish a web-based module for sharing best practices, learning’s and facilitate networking of climate stewards on an ongoing real time basis.
• Assimilating a core working group to closely identify and work with the issues, concerning reporting, managing and mitigating GHG emissions/Energy Use.
• Facilitating virtual meeting, learning workshops and interactive development of case studies by bi-monthly dialogues between signatories to the program.
• Facilitate productive dialogue between Industry and policy makers, by bringing out white papers and regulatory recommendations

Incentivize Climate Stewardship by

• Felicitating leading organizations by instituting Climate Action Awards
• Recognizing outstanding sectoral contributions by co-creating (or co-branding) methodologies and tools, highlighting best practices of leading companies