Helping Companies Move from a Jog to a Sprint in the Climate Race

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When it comes to climate change, there are a multitude of drivers for corporate action, and many indicate the need for more of a "sprint" than a "jog." Take, for example, the Millennium Ecosystem Assessment, published in 2005 by 1,300 scientists from 95 countries. This is, essentially, the IPCC report for ecosystems. The report concluded that 60-70 percent of the earth's life support systems, or "regulating services," are being degraded faster than they can recover. If this is the planetary report card, it's not one you'd want to bring home to your parents.

In many instances, services currently provided free-of-charge by natural systems would need to be replaced with human or technological substitutes, often at significant or prohibitive cost. What does this mean for business? Higher costs of raw materials like grains, fuel, fiber, clean water, etc.

At the same time, corporate practitioners must factor in the increasingly unpredictable physical risks to their operations, distribution channels, supply chains and consumer markets due to climate change-induced natural disasters and unseasonable weather. The reinsurance industry, the proverbial canaries in the climate coal mine, are finally crying "Uncle" (see Lloyd's of London "Adapt or Bust" report (pdf)) after experiencing the highest losses since records began. What does this mean for business? Significant increases in insurance rates and loss of coverage in some regions.

Mixed Signals

Policy makers are creating another impetus for jumping into the race. From the global level commitment for a post-2012 agreement to regional cap-and-trade schemes, national-level Production Tax Credits and efficiency standards, state-level building codes, threats of permit revocation, municipal-level commitments and congestion taxes to even outlawing plastic bags -- the dizzying number of new policy proposals may make government affairs or EH&S departments stand to attention but the dizzying diversity of proposals may actually lead to paralysis from uncertainty.

Investors are divided. The majority of mainstream investors continue to focus on quarterly earnings and penalize companies for doing otherwise. A growing cadre of value and institutional investors, however, are sending the opposite signal that companies should account for medium-to-long term climate risk and make material risks transparent to the marketplace. Major investment houses are beginning to dabble in building carbon markets, such as Goldman Sachs, while individual and boutique investment firms bet so heavily on clean tech last year that it jumped to the third largest venture capital category.

Consumers are also sending new but often conflicting signals to business. Eighteen percent of respondents to a worldwide GlobeScan survey (pdf) said industry is working hard on environmental issues while another 22 percent say they are not working at all. In another report (pdf), 54 percent claimed that they would buy greener products but only if others did first. What does one do with that information?