Below, a good summary in the latest Economist of why corporations have
increasingly turned their attention to the environment. The report cites (a)
the rising cost and insecurity of conventional oil and gas supplies which
"may be the main reason.many firms have recently become interested in
alternative energy sources" (b) opportunities to profit by investing in new
technologies aimed at consumers and industry, and by reducing their own
consumption now and in anticipation of trading advantages as carbons
emission markets become more widespread; (c) the need to at least appear
appear environmentally sensitive, especially major polluters like BP who are
more vulnerable to public opinion ("greenwash"); and (d) the impulse to get
in on the ground floor to shape policy and influence the composition of
regulatory agencies who will administer stricter legislative controls which
the corporations regard as inevitable ("regulatory capture").
"Carbon Down, Profits Up" - the succinct title of a recent study by the
Climate Group, an international business-government agency promoting
corporate self-regulation - estimates that companies which have undertaken
to reduce their emissions have so far reaped more than $11 billion in
savings. "It is", says one bank executive, "a major business opportunity for
us, not a hobby or corporate social responsibility."
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Companies and climate change
Can business be cool?
Jun 8th 2006 | LONDON AND NEW YORK
From The Economist print edition
Why a growing number of firms are taking global warming seriously
RUPERT MURDOCH is no green activist. But in Pebble Beach later this summer,
the annual gathering of executives of Mr Murdoch's News Corporation-which
last year led to a dramatic shift in the media conglomerate's attitude to
the internet-will be addressed by several leading environmentalists,
including a vice-president turned climate-change movie star. Last month
BSkyB, a British satellite-television company chaired by Mr Murdoch and run
by his son, James, declared itself "carbon-neutral", having taken various
steps to cut or offset its discharges of carbon into the atmosphere.
The army of corporate greens is growing fast. Late last year HSBC became the
first big bank to announce that it was carbon-neutral, joining other
financial institutions, including Swiss Re, a reinsurer, and Goldman Sachs,
an investment bank, in waging war on climate-warming gases (of which carbon
dioxide is the main culprit). Last year General Electric (GE), an industrial
powerhouse, launched its "Ecomagination" strategy, aiming to cut its output
of greenhouse gases and to invest heavily in clean (ie, carbon-free)
technologies. In October Wal-Mart announced a series of environmental
schemes, including doubling the fuel-efficiency of its fleet of vehicles
within a decade. Tesco and Sainsbury, two of Britain's biggest retailers,
are competing fiercely to be the greenest. And on June 7th some leading
British bosses lobbied Tony Blair for a more ambitious policy on climate
change, even if that involves harsher regulation.
The greening of business is by no means universal, however. Money from Exxon
Mobil, Ford and General Motors helped pay for television advertisements
aired recently in America by the Competitive Enterprise Institute, with the
daft slogan "Carbon dioxide: they call it pollution; we call it life".
Besides, environmentalist critics say, some firms are engaged in superficial
"greenwash" to boost the image of essentially climate-hurting businesses.
Take BP, the most prominent corporate advocate of action on climate change,
with its "Beyond Petroleum" ad campaign, high-profile investments in green
energy, and even a "carbon calculator" on its website that helps consumers
measure their personal "carbon footprint", or overall emissions of carbon.
Yet, critics complain, BP's recent record profits are largely thanks to
sales of huge amounts of carbon-packed oil and gas.
On the other hand, some free-market thinkers see the support of firms for
regulation of carbon as the latest attempt at "regulatory capture", by those
who stand to profit from new rules. Max Schulz of the Manhattan Institute, a
conservative think tank, notes darkly that "Enron was into pushing the idea
of climate change, because it was good for its business".
Others argue that climate change has no more place in corporate boardrooms
than do discussions of other partisan political issues, such as Darfur or
gay marriage. That criticism, at least, is surely wrong. Most of the
corporate converts say they are acting not out of some vague sense of social
responsibility, or even personal angst, but because climate change creates
real business risks and opportunities-from regulatory compliance to insuring
clients on flood plains. And although these concerns vary hugely from one
company to the next, few firms can be sure of remaining unaffected.
The most obvious risk is of rising energy costs. Indeed, the recent high
price of oil and natural gas, allied to fears over the security of energy
supplies from the Middle East and Russia-neither of which have anything to
do with climate change-may be the main reason why many firms have recently
become interested in alternative energy sources. But at the same time, a
growing number of bosses-whatever their personal views about the scientific
evidence of climate change-now think that the public has become convinced
that global warming is for real. Hurricane Katrina was particularly
important in changing opinion in America. Many businessmen have concluded
that this new public mood will result, sooner or later, in government action
to control carbon emissions-most likely, using some sort of carbon tax or
Kyoto-like system of tradable caps on firms' carbon emissions.
A carbon-trading system is already in place in the European Union. But even
in America, some influential businesses are exerting pressure on the
government to control carbon emissions. One motive is to help firms facing
decisions that will depend for their long-term profitability on what carbon
regime, if any, is in place. "Some asset-intensive industries are making
investments now that have a 30- to 50-year horizon," says Travis Engen, who
recently stepped down as boss of Alcan, a big aluminium firm. "As CEO, I
wanted to make damn sure my investments were good for the future, not just
today"-which, for him, meant evaluating investments assuming that his firm
would soon have to pay to emit carbon.
Indeed, some expect President Bush to start thinking more about climate
change after November's mid-term elections, especially now that he has
appointed a keen environmentalist as treasury secretary-Hank Paulson, who as
boss of Goldman Sachs was the force behind the investment bank's greener
stance. "American businesses are starting to realise that something is going
to happen on carbon," says Jim Rogers, chief executive of Duke Energy, one
of the country's biggest power producers, who reckons legislation is quite
likely to pass in Congress by 2009.
As firms try to do something about climate change, the typical first step is
to improve their energy efficiency, by both reducing consumption and also
shifting the mix of sources from hydrocarbons towards cleaner alternatives.
Given high oil prices, those that have already done so have found energy
efficiency to be surprisingly good for profits.
"Carbon Down, Profits Up", a report by the Climate Group, an organisation
founded in 2004 by various firms and governments, listed 74 companies from
18 industries in 11 countries that are committed to cutting greenhouse-gas
emissions. So far, this has brought them combined savings of $11.6 billion,
claims the report. Four firms-Bayer, British Telecom, DuPont and Norske
Canada-account for $4 billion of this between them.
Many companies, including BP, also see the chance to make money from
providing things that help reduce global warming-from clean coal-fired
power-stations, to wind farms, to mortgages with better rates for homes that
are carbon-neutral. GE plans to double its revenues from 17 clean-technology
businesses to $20 billion by 2010. HSBC's decision to become carbon-neutral
is part of a plan to develop a carbon-finance business, both for retail
consumers and corporate clients. "We believe it is a major business
opportunity for us, not a hobby or corporate social responsibility," says
Francis Sullivan of HSBC. And even as car firms lobby against regulating
carbon, they are investing heavily in cleaner hybrid cars.
Going carbon-neutral-in which a firm cuts its carbon output as much as
possible and then offsets any left over by paying to reduce emissions
elsewhere-is particularly attractive to firms that sell directly to the
public and reckon that their customers want them to take climate change
seriously. Since these sorts of firms are often not great carbon-emitters in
the first place, "carbon neutrality" can be fairly painless. "Trusted
consumer-facing brands can be the missing link, helping millions of people
to aspire to lower-carbon lifestyles and begin to tackle an issue that feels
overwhelming," intones BSkyB's James Murdoch, optimistically.
A recent study by the Carbon Trust, a British quango, reckoned that, for
industries such as airlines, up to 50% of brand value may be at risk if
firms fail to take action on climate change. This figure is challenged by
many in the industry who point to the low take-up of British Airways'
service enabling passengers to offset their flight's carbon emissions. And
there's the rub. A growing number of companies-urged on by shareholders who
see greenery as a sign that managers are thinking long-term-are ready to do
something about climate change. It remains to be seen whether their
customers are willing to pay the price.
