Companies leading the way

March 28, 2007

Recent months have seen a flurry of announcements on climate change. Two heavyweight pieces of evidence thumped onto decision-makers’ desks. Economist Nicholas Stern’s report said that climate change could shrink the global economy by a fifth and calculated that investing £1 in preventing climate change will save £5-20 in impacts. The Inter-Governmental Panel on Climate Change’s latest assessment effectively ended any debate about whether climate change is happening, and whether human activity is the cause.

The business response has stepped up a gear. Marks & Spencer announced plans to go carbon neutral within five years. And Tesco, one of the top five retailers in the world, promised independently audited, absolute reductions in C02 emissions from its operations and carbon labelling on all products. Meanwhile, a coalition of major US businesses – including Caterpillar, DuPont, General Electric and Lehmann Brothers – called for national action on carbon trading.

These commitments from the corporate world are leaving governments looking rather timid. The big supermarkets are promising cuts over a matter of years that governments say will take them decades.
The bold statements are also putting increasing pressure on the laggards in the business community. All major businesses will need to sort out their position on climate change. And those companies that still deny that it is happening – through extreme short-sightedness or complete bloody-mindedness – will soon become lightning rods for campaigners, concerned citizens and angry investors. Consumer awareness is increasing apace. Campaigning groups such as Oxfam and Christian Aid are joining Friends of the Earth and Greenpeace in the fray.

And they will make the business response to climate change even more of a moral issue. The agenda is moving quickly and I can see significant themes emerging.

Offsetting will be viewed with increasing suspicion. As more and more companies start to go ‘carbon neutral’ they will be expected to change their operations rather than buying their way out of the problem. Leading companies will follow a carbon management hierarchy that first prioritises the avoidance of emissions, their reduction through energy-efficiency, and the substitution of high-carbon energy sources with low or zero-carbon alternatives, before resorting to offset for the smallest possible portion.

New models of business will emerge. Big bucks are going into low carbon. GE is investing $1.5bn in products that offer significant environmental benefits; Richard Branson is putting $3bn into bio-fuels and Lord Browne has committed $8bn to BP’s alternative energy business. The next generation of climate leaders will not just tweak their existing models or bolt on a low-carbon business to the old way of doing things. Instead, they will begin a much more radical rethink of what a low-carbon way of doing things would really look like.

The corporate world will start to talk more clearly to customers. People will want the information necessary to make informed choices. There is a danger of getting things wrong here. Talk of ‘carbon labels’ could make ordinary consumers think this has something to do with coal; while grammes of C02 would leave them even more confused about how you weigh a gas. Spurious climate-friendly labels could also be very damaging. However, this will all shake out over the coming year, and we will see start to see widely accepted and easily understood labels.

Finally, companies will start to think beyond their own traditional sphere of impacts – operations, the supply chain and product use – and look to changing wider societal behaviour. Responsible businesses will turn their innovation and entrepreneurship outwards and become part of finding ways of tackling some of the climate change pinch-points. This may take the form of corporate philanthropy, but there will also be huge new business opportunities. The rewards – both moral and financial – are enormous for those who seize them.

Peter Madden is chief executive of Forum for the Future. Peter has worked as head of policy at the Environment Agency, ministerial advisor at Defra and DETR, director of Green Alliance and head of policy at Christian Aid.