Making the business case to spend money on corporate sustainability programs can be a hard sell these days, but at least one company believes sustainability is worth the expense.
The case for sustainability requires a “progressive view of the company and recognizing that you can’t, today, just look in front of your nose to this issue,” David Guernsey, senior sustainability manager at United Parcel Service, said during a recent Webcast by PricewaterhouseCoopers. Companies must develop a course of action, or “the market will change and catch up to you if you don’t pay attention,” he said.
UPS does have some strong reasons to think about sustainability. It owns a fleet of 99,869 cars, vans, tractors, and motorcycles, plus the world’s ninth-largest airline with 262 aircraft it owns and another 301 it charters. The 102-year-old UPS is also based in Seattle, and catering to the environmentally conscious crowd who live there doesn’t hurt either.
Fifty-three percent of UPS’ global carbon emissions in 2008 came from its fleet of jet aircraft, Guernsey said, and another 28 percent came from diesel fuel consumption. Smaller amounts came from gasoline, natural gas emissions, and indirect electricity emissions from the 2,900 facilities UPS runs worldwide around the globe.
Guernsey
UPS wants to cut its aircraft emissions by 20 percent by 2020. To help achieve that, Guernsey said, the company began working with the Carbon Disclosure Project in 2003, which tracks greenhouse gas emissions from various businesses and organizations around the world. The CDP, Guernsey said, has become “the de facto measuring stick” for companies that want to benchmark their sustainability efforts. “It’s also an internal measuring stick we can use to plot our progress from year to year.”
For example, the CDP runs the Carbon Disclosure Leadership Index, which ranks companies that respond to a CDP questionnaire and offers insight into how companies integrate climate changes risks in business practices. Guernsey noted that UPS’ score rose from 66 in 2008 to 82 in 2009, which was “definitely driven by our ability to acquire more data.”
Despite hesitancy in Washington, “that’s no excuse for companies to slow down. You really need to get on top of this issue.”
—Liz Logan,
Sustainability Advisory Partner,
PricewaterhouseCoopers
UPS improved its score by getting participation from departments such as finance and operations, and as many others as Guernsey could muster. “You need significant participation across the organization to really have a good score,” he said. Without it, you’re not “doing sustainability right,” he said.
Guernsey also warned that calculating a company’s carbon footprint is not easy. UPS enlisted the help of insurer SGS Corp. for carbon certification and a carbon-offset provider, CarbonNeutral Co., he said.
UPS also launched a new effort in October to give consumers the option of carbon-neutral shipping; while placing an order online, they can include the cost of a carbon offset in the price of shipping their package. The company also implemented a matching program of up to $1 million, Guernsey said, to “double down” on consumers’ carbon reductions.
Getting Involved
Others in the PwC Webcast warned that climate change is an emerging enterprise risk and difficult to understand and manage, but one that is driving more and more senior stakeholders (both inside the company and out) to react. According to a PwC survey of chief executives done earlier this year, 60 percent said they either already have made changes in response to global warming or plan to do so within the next year.
In addition, 44 percent have made changes to shareholder communication and engagement, while another 15 percent said they plan to make changes in the next year.
Logan
“We’re also hearing a lot from CEOs about the need to educate their board and are looking to CFOs and [environmental safety departments] to help them understand what boards need to be focused on, and strong strategies to move forward,” said Liz Logan, sustainability advisory partner at PwC.
CLIMATE CHANGE
Below is an excerpt of the PwC study “Future Proof Plans” about the need to prepare for climate change risks.
The financial crisis is a global, systemic event. Climate
change may prove to be bigger. This risk is not lost on
CEOs. They are moving quickly to understand the
commercial implications of stabilizing global carbon
emissions, but they also want more direction from
government in the form of clear policies.
The majority of CEOs say that their companies are
already adjusting how they manage risk in response to
climate change or are planning to do so in the next 12
months. In other areas, CEOs are also making changes
and are already seeing returns on their investments
through innovation in products and services and through
adjustments in day-to-day operations. Changes to risk
management in response to climate change rank second
behind changes to day-to-day operations in showing
returns already (see figure 2.2.1 on page 20).
These efforts are good business and positive steps for
society, but they fall far short of what is needed to stabilize
the carbon levels in the atmosphere. Markets need an
international framework and agreement on national carbon
emissions targets in order to generate and direct the capital
needed for the massive transformation to a low-carbon,
global economy. Otherwise, the incentives for individual
first-movers will remain unclear, and collective action is
likely to come too slowly to avoid major crises.
Eighty-three percent of CEOs consider it important or critical
for governments to provide a clear and consistent policy
framework on climate change. They value clarity over specific
types of frameworks, such as a Copenhagen protocol or a
global carbon market (see figure 2.2.2). Globally,
only 28% of CEOs feel that their governments have clear and
consistent long-term environmental policies (see figure 2.1.1
on page 16). Japan, Italy, France and Brazil receive the lowest
marks. Fewer than 13% of CEOs in those nations agree
that long-term policies are clear. Korea, on the other hand,
is a notable exception. An astonishing 97% of Korean CEOs
feel that their country’s environmental policies are clear.
Part of the reason may be the government’s announcement
that it is beginning a number of climate-change measures
in 2009, including national emissions targets, a carbon tax
and various green investments.
Thus far the development of standards is a patchwork of
efforts by governments and non-governmental organizations
(NGOs), but governments and businesses should be careful
about allowing standards to be developed by NGOs without
their active involvement. Most CEOs in our survey do not
collaborate with NGOs and do not believe their influence is
increasing. When asked about all the major stakeholder
groups, only 34% of CEOs say they are already collaborating
with NGOs, and just 22% feel that NGOs have increased their
influence over the past three years. In contrast, 61% of CEOs
say that they are already collaborating with government and
regulators and 48% say that government’s influence has
increased (see figure 3.2.1 on page 26). If government,
business and NGOs collaborate more closely, they will ensure
more efficient and less fragmented standards development
around the world, particularly in climate change.
CEOs are looking to governments for leadership on the
international standards necessary to propel global action,
but they recognize their organizations’ responsibility to
create management structures that reward long-term
thinking. Seventy-four percent of CEOs believe that this
is a critical or important element of a solution to climate
change (see figure 2.2.2).
Source
PricewaterhouseCoopers Study: “Future Proof Plans.” (2009).
Logan advised addressing climate change risks first by understanding corporate stakeholders’ perspectives. Chief executives in particular are paying more attention to the risks—and opportunities—from a brand and product development perspective, she said.
Reed
General counsels also have an important responsibility for overall environmental compliance. Companies have many options to reduce their carbon emissions, which all makes for a “very complex compliance environment,” said Don Reed, sustainability advisory director at PwC. Tax directors should also work closely with the finance department, to take advantage of the increasing number of tax incentives and grants that encourage sustainability efforts, Logan said.
Corporate sustainability officers, who have been floating around the C-suite for the last several years, have perhaps experienced the most profound change, rising from a position of “relative obscurity” to one of importance, Reed said. “You have to have a little bit of sympathy for these folks.”
Uncertainty in Congress over climate-change legislation isn’t making the job of sustainability officers any easier. In June, the House narrowly approved a sweeping climate and energy bill. It still faces an uncertain future in the Senate.
“We don’t know what the legislative framework is going to be,” Reed said. “We certainly don’t know about the specifics yet, and we have major uncertainty about the timing.”
Despite hesitancy in Washington, however, “that’s no excuse for companies to slow down. You really need to get on top of this issue,” Logan said. “We believe this is an emerging risks for organizations, and it needs to be treated as one.”
Given that uncertainty, companies would do well to ponder what approach they should take so that they have “no regrets, if the policy takes one form or another, or takes longer to develop than another,” Reed said.
Some companies may already be experiencing climate regulation on a regional level, and as Compliance Week has previously reported, the Environmental Protection Agency is moving forward with its own rules. The agency issued final rules in October that require businesses and utilities to file reports if their greenhouse gas emissions exceed 25,000 metric tons annually (a threshold that excludes most small companies).
“The broad pattern on this is more action in all jurisdictions around the world,” said Reed.
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