Developing an Effective Carbon Strategy

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Business
leaders are inundated with conflicting reports on climate change. With
so much information and so little historical context, executives have
been left to blindly navigate through this new "carbon-constrained"
world in hopes of understanding how their own business will be
affected. In some cases, the decisions made, or avoided, could be the
most significant of their tenure.

Organizations of all sizes are engaged in developing coherent
business strategies but are getting caught up in sorting through the
science, propaganda, and greenwashing inherent in the climate change
problem. Needless to say, this is not the ideal environment for making
sound, strategic business decisions.

Many executives in North America have a basic understanding of
carbon markets. Implementations of previous cap-and-trade systems have
led many businesspeople to believe that a compliance market will be
implemented here: It is simply a question of when.

Unfortunately, most companies are limited in both their knowledge
and resources for addressing this impending reality. They are further
confounded by not knowing who in the organization should do what, or
what they should be doing. Many executives say they are waiting to see
what the regulations will look like but in reality, they don't have a
coherent strategy in place.

For top executives, all problems are disguised opportunities. In
order to steer a company away from the pitfalls of a carbon market,
leaders need to develop and implement effective strategies. These five
steps can serve as a basis for developing such a strategy:

1. Get Control Over the Greenhouse Gas (GHG) Inventory

Companies must have an accessible and auditable carbon inventory.
The good news is that historical emissions data likely exists somewhere
in the organization. The bad news is that the data may be old,
inaccurate or inaccessible.

When examining an inventory, ask the following questions:

• Is the inventory recent, accurate and auditable?
• Are there tools in place to analyze the data at the business level?
• Can it be shared and reported to all of the organization's key stakeholders?

The
ubiquitous spreadsheet has been employed judiciously for creating
emissions inventories and has served its purpose well for organizations
that need to simply record air emissions. Using spreadsheets to manage
multiple emission points, however, can in many cases lead to the much
larger problem of unmanaged data growth propagating and compounding
errors.

Spreadsheets are simply tables of data and require understanding
and human knowledge to make them useful -- knowledge that often leaves
when employees depart. Today's executives are asking for the business
implications of this spreadsheet data, not the data itself. This is an
extremely important distinction that can directly affect corporate
mandates around regulatory compliance, best practices, and ultimately,
the company's financial health.

2. Understand Your Position

Elite organizations are adept at analyzing and managing the risks
and opportunities for their business operations. Very few, however,
realize their carbon-related implications. Most executives are quick to
recognize the "Stroke of the Pen" risk -- the threat that new
legislation will change their business environment on emissions. Few
recognize other equally serious risks or the opportunities posed by
emissions reduction plans that may be different even across business
units within their own organization.

Taking the lead in a new market can become a significant
competitive advantage. The basis of the cap-and-trade system is to make
organizations competitively reduce their emissions, yet few are taking
the lead.

By acting now companies can realize a significant competitive
advantage, enhance their corporate image, increase their perceived
company valuation and access to capital, expose new business
opportunities, and discover unrealized assets in a trading environment.
These are just some ways companies can take problems and turn them into
tangible opportunities that can benefit them financially.

3. Establish a Financial Perspective

Emissions trading is based on market mechanisms. As a result,
carbon emissions are no longer merely a by-product of production but
can have a direct impact on the bottom line of an organization. As such
they must be:

• Monitored and accounted for
• Inventoried and forecasted
• Planned and managed
• Valued against some financial baseline

The
key to success in this market is not compliance but rather performance,
and learning how to leverage emission assets while mitigating
liabilities.

Anything that affects a company's revenue and profitability must be
reflected on the balance sheet, but until now carbon emissions have
been absent. Companies need to put a price tag on their emissions,
measure their output versus a cap or target over a time-line that
extends into the future, and then use this to develop a strategy.

Familiar tools from other lines of business can be used to do this.
Engage the financial experts from within the organization to create a
carbon balance sheet and other financial tools to see how a properly
managed (and monetized) emissions inventory can influence the company's
financial performance.

4. Build a Strategy

The key to developing a carbon strategy is to look forward and move
from compliance to performance-based standards. Explore all of the
options available to the organization before buying into the first
mitigation strategy offered. Compliance-based carbon credits may prove
to be a good financial choice, but will not be a panacea to your
company's carbon problems. Search your organization for potential
unrealized assets that may mitigate your carbon risk. Both in advance
of and following mandated targets, explore the options of
pre-compliance offsets, energy efficiency improvements and
partnerships. Finally, use the human resources you have in your company
to find new ways to lower your carbon footprint and be competitive.

5. Execute and Evaluate

With the multitude of options an organization faces, it can be
difficult to avoid 'analysis paralysis' when it comes to acting on an
emissions strategy. Executives should ensure that once a strategy has
been developed, the company has the resources available to execute and
monitor the progress of the strategy. Many companies in North America
and around the world have begun to create new positions specifically
suited to strategic analysis and execution of an emission strategy.

Companies need to find a better way to track their emissions
position. Some Fortune 500 companies have built their own emission
monitoring and trading platforms but these can be costly to maintain.
When shopping for a solution, look for software that can grow as needs
grow and focus on strategy as well as compliance.

Window of Opportunity

Across all sectors, companies have shown an interest and
willingness to participate in the carbon market. Many have put together
quality greenhouse gas inventories to meet proposed regulatory
compliance needs. Unfortunately, rather than developing a coherent
proactive emissions strategy, executives find themselves being
reactive. As with any strategy, leaping before you look can be an
expensive and risky proposition, and too often these organizations will
jump straight into the carbon credit market, buy an unverified offset,
or implement a well-meaning but ill-advised reduction project without
fully understanding their own position.

It is important to examine a corporate carbon footprint the way an
institutional investor would manage a stock portfolio -- by
understanding what they have, their risks, and what makes the best
financial sense now and into the future. Remember, there is presently a
window of opportunity where the competition views the emission market
as a mandatory compliance game rather than a strategic opportunity.

There is a clear competitive advantage available to companies that
realize this opportunity -- the key will be to act while the window is
still open.

Stephen Mooney is co-founder of Carbonetworks,
a software platform that helps companies create effective carbon
emissions strategies that reduce costs and capitalize on emerging
global markets. He is also responsible for the company's global growth
and strategic business development initiatives.

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