Which companies are going to thrive in a carbon-constrained future? It’s a critical question that the capital markets are currently ill-equipped to answer. Citigroup Investment Research, in partnership with WRI’s Capital Markets Research Team, looked at the risks and opportunities that climate change is creating for business. The findings were distributed to Citigroup’s real client base, including the largest investment and mutual funds in the world. When Citigroup, the world’s largest financial services company, says there are opportunities to make money solving climate change problems, investors will listen and other financial institutions will be inspired to follow. This is an example of the power of market-based strategies to steer business investment and innovation toward solutions to environmental and development challenges.
To maintain its economic growth and provide for its massive population, China must reconcile two powerful, converging trends: energy demand and resource scarcity. One prime example of this tension is the country’s coal use and water supply.
WRI’s New Ventures project identifies, mentors, and provides small and medium-sized enterprises (SMEs) with access to investment. New Ventures operates in five of the world’s most vibrant emerging economies – Brazil, China, India, Indonesia, and Mexico – where current business and development trends will impact the entire world. In 2007, New Ventures Mexico launched an independent institution – Centro de Negocios Sustentables. With a $400,000 grant from Mexico’s Ministry of Economics, the Center, the first of its kind in Mexico, provides sustainable SMEs with a wide range of services from business acceleration and incubation to market access through the Green Pages. Since its founding, New Ventures has provided comprehensive support to over 150 entrepreneurs and facilitated $38 million in investments for sustainable companies.
WRI’s New Ventures project identifies, mentors, and provides small and
medium-sized enterprises (SMEs) with access to investment. New Ventures
operates in six of the world’s most vibrant emerging economies – Brazil, China,
Colombia, India, Indonesia, and Mexico – where the environment and
development decisions being made today will impact the entire world, and
where the private sector, particularly SMEs, is driving economic growth.
This year, the full New Ventures portfolio grew to 180 enterprises and facilitated
the transfer of $158 million from angel investors, banks, green funds, venture
capital funds, and development banks to SMEs that are protecting the
environment and delivering economic growth.
One shining example is Beijing Shenwu, a manufacturer of energy efficient
industrial furnaces that uses a new recycled combustion air technology to reduce
energy consumption by as much as 60% and decrease CO2 emissions
by at least 30%. Deployment of the system in the Chinese steel industry has
reduced that country’s annual industrial energy consumption by the equivalent
of 2.09 million tons of coal, thus cutting CO2 emissions by over 11.72 million
metric tons a year. It is a critical feat given that China and the U.S. are the
world’s top greenhouse gas emitters.
The Asian Development Bank was established in 1966 to help its forty eight
developing member countries reduce poverty and improve the
quality of life of their citizens. In 2009, the Bank launched a new
program of technical assistance to encourage the growth of small- and
medium-enterprises (SMEs) in India and Indonesia that provide
environmental and social benefits.
Ella Delio works in WRI’s New Ventures project, which
promotes business solutions that align the need for sound
financial returns with environmental and social goals. She and
her team were the Bank’s primary advisors in developing the new
program. “SMEs,” Delio explains, “are the engines of equitable
economic growth in emerging market nations. Accounting for an
average of 34% of the GDP and employing in excess of 60% of
the labor force, SMEs are great sources of innovation and often
provide strong linkages to poor communities. They have the
capacity to transform the economic development paradigm by
delivering business models that are pro-poor and pro-environment.”
Brazil’s economy has been booming. During the past decade, it grew from the ninth to the sixth-largest in the world. While this growth has brought many socioeconomic benefits, it’s come with a downside: significant environmental impacts. Brazil has the highest rate of deforestation worldwide, while pollution threatens the country’s drinking water supply. Despite a decrease in national greenhouse gas emissions of late, agriculture emissions and energy demand are still rising.
Sustainably-focused small and medium enterprises (SMEs) manufacture and market environmentally friendly products and serve low-income communities. Not only do they create jobs and spur economic growth, but they also provide models for the businesses of the future, those that will thrive in a low-carbon, resource constrained world. The Global Impact Investing Rating System (GIIRS), used by investors worldwide to evaluate SME’s in developing countries, has adopted environmental criteria, thus raising the visibility of environmentally-focused businesses in emerging markets.
GIIRS is a standardized rating system that generates an easily digestible single value for scoring an emerging market SME and/or impact investment fund. Investment funds obtain a calculated GIIRS score based on the ratings of the portfolio of companies they invest in and the operations of the fund manager. GIIRS is crucial to the growth of the impact investing industry as it makes impact measurement accessible much like the Lipper or Morningstar ratings did for the mutual fund industry.
WRI’s New Ventures team persuaded the GIIRS managers to embed key environmental metrics into the ratings system in part through its position as the environmental expert on the GIIRS emerging markets standards advisory committee. By August 2010 eleven leading emerging market fund managers agreed to use the GIIRS rating system in their investment decision-making.
Collectively, they have raised around US$1 billion to invest in high impact GIIRS-rated enterprises. These GIIRS “Pioneer Funds” will be pilot testing GIIRS with their portfolio companies throughout the developing world. Additionally, it has been adopted as the standard all companies and funds must reach to participate in the socially responsible angel network Investor’s Circle.
Labeled the “queen of the forest” for its size and beauty, the Brazil nut tree plays an important social and environmental role in the Amazon. During the annual harvest, from November to March, when both its seeds and nuts are collected, the tree also provides a critical supplementary source of income for communities across the region.
While other natural resource management activities risk increasing deforestation in the Amazon, nut harvesting is not harmful to nature, since it depends on the forest’s continued existence. Local company Ouro Verde was created with this in mind, selling Brazil nut products marketed as sustainable, including extra virgin nut oil, nut butter and granulate. Ouro Verde created 47 jobs, and many more new business opportunities in the Amazon region, placing an economic value on the rainforest for local communities. About 1.3 million hectares of rain forest are sustainably managed by Ouro Verde supplier partners.
Ouro Verde is a shining example of the type of company WRI’s New Ventures project was created to support. Founded in 1999, New Ventures identifies, mentors, and provides promising small- and medium-sized enterprises (SMEs) with access to investment. New Ventures supports companies in six rapidly growing emerging markets – Brazil, China, Colombia, India, Indonesia, and Mexico – where the environment and development decisions being made today will impact the entire world. To date, we have facilitated more than $225 million in investment and worked with 346 innovative enterprises.
In 2010, SMEs supported by New Ventures reduced CO2 by 135,021 tons, the equivalent of removing over 112,000 cars from the road for one year. In addition, 1,490,448 hectares of land – an area larger than Connecticut - was placed under sustainable management by New Ventures companies or was conserved by sustainable land use companies in the New Ventures portfolio.
Supply chains are a major contributor to the environmental footprint of multinational companies, particularly in their use of water. By working with suppliers to decrease water-related risk, large companies can help reduce pressure on the world’s over-stretched water resources.
In July 2012, global food service retailer McDonald’s added a question to the Environmental Scorecard it distributes to its top suppliers. The addition requested that suppliers determine the water stress associated with their facilities’ locations. WRI played a pivotal role in this landmark initiative, providing the Aqueduct water risk mapping tool, which McDonald’s asked its suppliers to use when calculating their water footprints.
Measuring Water Risks
McDonald’s distributes an annual Environmental Scorecard Questionnaire to its top suppliers. The suppliers asked to respond to the water risk question include providers of beef, poultry, pork, potatoes, bakery products, and toys. Incorporating this question into the Environmental Scorecard was an important step in advancing McDonald’s dialogue with its suppliers beyond efficiency to include water risk and overall water stewardship.
The 2012 Environmental Scorecard directed suppliers to, “Use the WRI Aqueduct Tool to determine the water stress of the facility’s location and provide the water stress [level] of the facility’s location.” McDonald’s also urged its top suppliers to use the data they acquire from using Aqueduct to update their environmental management processes to take water risk into account. By the end of September 2012, all 353 of the facilities asked to complete the Aqueduct water risk assessment had done so.
This McDonald’s initiative provides an important precedent for evaluating water-related risk among agricultural producers, who account for 70 percent of water use worldwide.
Making Change Happen: WRI’s Role
WRI’s Aqueduct tool, developed by our Markets & Enterprise Program, allows companies and other organizations to access information on water risks in a given region or area. Our global database uses 12 indicators of water quantity, water quality, and regulatory and reputational issues to calculate water risk around the world.
The practical, straightforward, user-friendly nature of our Aqueduct tool made it possible for McDonald’s to begin assessing water risk across its vast global supply chain. Suppliers survey the data available for their facility’s location, and then choose from a drop-down option that indicates whether overall water risk is low, medium, or high. The Coca-Cola Company, a supporter of the Aqueduct project, vouched for the usefulness and credibility of the maps to McDonald’s, one of its largest customers.
McDonald’s high profile endorsement of the Aqueduct tool and data will help WRI scale our work with companies to address water scarcity challenges worldwide.
Through the Greenhouse Gas Protocol (GHGP) World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD) work with businesses to develop standards and tools that help companies measure, manage, report and reduce their carbon emissions.
