The Next Big Climate Questions for Corporations

The strength of tomorrow’s low-carbon economy depends on the innovation of business today.

With each passing day we are seeing a greater need and a greater opportunity for corporate climate action. There has been tremendous progress and major companies operating across the globe are recognizing the business case for addressing climate change. But what comes next? How can companies make sure they are doing enough, both to address climate change and to gain a true competitive advantage in the transition to a low-carbon economy?

WRI’s 2004 report A Climate of Innovation embodied the emerging consensus of many Fortune 500 companies that there is a strong business case for addressing climate risks and seizing new opportunities. Ever since, companies have been learning important lessons about how to adapt and succeed in the face of climate challenges. A recent survey shows that businesses are more aware of the carbon dioxide (CO2) and other greenhouse gas (GHG) pollution they emit into the atmosphere. As a result, they are also now more alert to important business risks that arise from that pollution, and the rewards for making reductions.

Progress to Date

A recent WRI report, Sharpening the Cutting Edge, provides an update on progress, highlights remaining challenges, and offers several important questions for companies to consider as they plan for tomorrow. The report draws on the experiences of several major companies, including General Electric, Staples, TOTO, Johnson & Johnson, United Technologies, Caterpillar, United Parcel Service, Johnson Controls, PPG Industries, and Coca-Cola.

Sharpening the Cutting Edge finds that businesses have come far, learning how to measure and reduce their GHG emissions, set performance targets, identify cost-effective GHG reductions and take advantage of emerging low-carbon products and markets.

For example, setting GHG goals and reporting on performance has become best practice. In fact a majority of the Global 500 companies have set emission reduction targets. Companies are also having success with new clean technologies, high-performance buildings, and innovative low-carbon business models. Today, corporate leaders are even standing up to demand policy action so that they have the certainty to plan for and succeed in a strong, low-carbon economy.

Looking Ahead: Best Practice to “Next Practice”

Current success stories show not only what is possible, but what more is needed. Sharpening the Cutting Edge points to the fact that today’s best practice is not sufficient to reach the critical near- and long-term emission reduction requirements. Businesses will play a central role in accelerating the response to climate change and achieving emissions reductions on a much larger scale.

Building investments, for instance, present one of several emerging questions for companies trying to understand what comes next. How can companies expand from today’s best practice (a handful of showcase green buildings) to green their entire facility portfolio? To borrow a phrase from WRI board member C.K. Prahalad, businesses must get beyond best practices and pioneer "next practices" to find the answer.

Corporate Next Practices

Companies should answer the following questions to succeed in tomorrow’s economy:

• What GHG reduction strategies will lead to a low-carbon future? Businesses should be prepared for how a low-carbon economy will affect their operations. Companies will need to understand and align their planning with the emissions targets proposed in policy, and (even more importantly) those suggested by science.

• Who will supply tomorrow’s low-carbon markets? Basic demands for goods and services will shift as we minimize heat-trapping pollutants and adapt to a warming world. Successful companies will be ready to capitalize on the shift in market dynamics, seize opportunities to serve new needs, provide new products, and advance and adopt new technologies.

• How will carbon risks be factored into long-term business decisions? Future corporate investments—whether in new facilities, new products, or power contracts—will need to account for important climate change risks and whether assets might become carbon liabilities. Factors that should be influencing decisions today include physical, financial, regulatory, competitive, and reputational risks.

• How will GHG data management expand to identify and capture supply chain opportunities? A company without direct GHG emissions will not necessarily be a passive participant in the transition to a low-carbon economy. A carbon price will send a price signal throughout a company’s value chain. Proactive companies are already trying to understand the life-cycle GHG emissions associated with their products, those of their suppliers and consumers, and the decisions they must make to reduce carbon in their supply chains. The GHG Protocol’s product and supply chain guidance will help companies tackle what will be an important business performance metric.

Companies will need to answer these and other questions, creating a new wave of innovation that will enable us to meet crucial emissions targets. Businesses at the cutting edge can lead the effort, as they have in the past. The strength of our global economy depends on it.