Climate Change Forces Chemical Firms to Seek Opportunities and Manage Risk
From the classroom to the boardroom, people are discussing the impact of climate change. How should you manage risk and optimize opportunities?
Consultants' Corner
Jeff Gardner & Fred Cohen/PriceWaterhouseCoopers
FIRST TO capture the attention of academics and political activists alike were the ecological risks associated with Earth's changing climate. Now, business executives are looking at a different set of risks stemming from climate change: the financial and reputational ones. At the same time, they're beginning to consider the enormous opportunities that can emerge.
Anticipating the present and future impact on their businesses, some companies are adding comprehensive climate-change strategies to their overall business strategies.
Moving forward with well-crafted plans designed to help them mitigate financial and reputational risks, pursue emerging opportunities, and ultimately, reap the rewards, they're poised to gain a measure of control over their futures.
TACKLING FINANCIAL RISK
Global leaders are increasingly concerned about the impact that rising energy costs are having - on their business, on their industry, and on the world.
Add to that the additional cost that companies must bear to tighten controls over greenhouse gas (GHG) emissions, and the situation grows more dire. We are witnessing not only the price of energy itself increasing but also the cost of the products and services that rely on that energy.
Some leading companies are taking a broad range of actions to lower their energy consumption and harness skyrocketing costs. Looking inside their companies to harvest the low-hanging fruit, they're turning down the heat and air-conditioning in offices, shutting off lighting systems during nonworking hours, and installing motion sensors and fluorescent lightbulbs.
Moving to the next tier might mean giving employees the latest videoconferencing technology to reduce emissions by curtailing business travel.
At the same time, leading companies are looking to collaborate with stakeholders by considering more advanced approaches such as (1) reducing fuel consumption by turning to ecodesign to limit amounts of material and packaging in order to increase the number of product units that can fit in each truckload, (2) developing innovative waste-recovery and recycling initiatives, (3) improving information technology efficiency, (4) performing product lifecycle assessments and supply chain integrity, and (5) focusing on containing other high-cost aspects of doing business.
In an uncertain, complex business environment, evolving regulations and standards can also be sources of higher costs. It is widely anticipated that companies will need to account for their emissions and comply with regulations that will either cap or tax emissions that exceed a defined allowance.
Savvy executives understand that noncompliance will result in a hit to both their company's bottom line and its reputation. They are using this time to run what-if scenarios to bone up on issues around carbon taxes, cap-and-trade programs, carbon emissions permits, and renewable-energy credits and to consider how these could affect business objectives and performance.
CONFRONTING REPUTATIONAL RISK
Unmanaged climate change risk can quickly tarnish a company's reputation. Today's investors want to know the potential financial costs due to the regulation of GHG emissions. And for customers and employees, it's becoming more and more important that the products they buy and the companies they work for be recognized as sustainable.
In addition, governments, nongovernmental organizations, capital markets, and stakeholders will have their collective eyes on what companies say about the extent and results of their climate-change initiatives.
So how does one get reporting right? While the universe of sustainability reports is still somewhat limited, some best practices are beginning to emerge:
Consultants' Corner
Jeff Gardner & Fred Cohen/PriceWaterhouseCoopers
FIRST TO capture the attention of academics and political activists alike were the ecological risks associated with Earth's changing climate. Now, business executives are looking at a different set of risks stemming from climate change: the financial and reputational ones. At the same time, they're beginning to consider the enormous opportunities that can emerge.
Anticipating the present and future impact on their businesses, some companies are adding comprehensive climate-change strategies to their overall business strategies.
Moving forward with well-crafted plans designed to help them mitigate financial and reputational risks, pursue emerging opportunities, and ultimately, reap the rewards, they're poised to gain a measure of control over their futures.
TACKLING FINANCIAL RISK
Global leaders are increasingly concerned about the impact that rising energy costs are having - on their business, on their industry, and on the world.
Add to that the additional cost that companies must bear to tighten controls over greenhouse gas (GHG) emissions, and the situation grows more dire. We are witnessing not only the price of energy itself increasing but also the cost of the products and services that rely on that energy.
Some leading companies are taking a broad range of actions to lower their energy consumption and harness skyrocketing costs. Looking inside their companies to harvest the low-hanging fruit, they're turning down the heat and air-conditioning in offices, shutting off lighting systems during nonworking hours, and installing motion sensors and fluorescent lightbulbs.
Moving to the next tier might mean giving employees the latest videoconferencing technology to reduce emissions by curtailing business travel.
At the same time, leading companies are looking to collaborate with stakeholders by considering more advanced approaches such as (1) reducing fuel consumption by turning to ecodesign to limit amounts of material and packaging in order to increase the number of product units that can fit in each truckload, (2) developing innovative waste-recovery and recycling initiatives, (3) improving information technology efficiency, (4) performing product lifecycle assessments and supply chain integrity, and (5) focusing on containing other high-cost aspects of doing business.
In an uncertain, complex business environment, evolving regulations and standards can also be sources of higher costs. It is widely anticipated that companies will need to account for their emissions and comply with regulations that will either cap or tax emissions that exceed a defined allowance.
Savvy executives understand that noncompliance will result in a hit to both their company's bottom line and its reputation. They are using this time to run what-if scenarios to bone up on issues around carbon taxes, cap-and-trade programs, carbon emissions permits, and renewable-energy credits and to consider how these could affect business objectives and performance.
CONFRONTING REPUTATIONAL RISK
Unmanaged climate change risk can quickly tarnish a company's reputation. Today's investors want to know the potential financial costs due to the regulation of GHG emissions. And for customers and employees, it's becoming more and more important that the products they buy and the companies they work for be recognized as sustainable.
In addition, governments, nongovernmental organizations, capital markets, and stakeholders will have their collective eyes on what companies say about the extent and results of their climate-change initiatives.
So how does one get reporting right? While the universe of sustainability reports is still somewhat limited, some best practices are beginning to emerge:
- Clear alignment to corporate strategy. Effective CEOs clearly explain why responsible and sustainable development of corporate resources is fundamental to their overall strategy. Their companies' statements highlight challenges, focusing on the impact of legislation, regulation, and other market activities on performance.
- Long-term targets and measurement of performance. Establishing a clear link between long-term strategic priorities and environmental, social, and governance (ESG)-related key performance indicators goes a long way toward addressing the needs of key stakeholders. In the best circumstances, those performance indicators are based on both independent and internal surveys, as well as on other research.
- Transparent reporting against ESG milestones. This is accomplished by using a base-case scenario to determine a company's progress in meeting its ESG goals. ESG reports maintain true apples-to-apples comparisons by using the same assumptions that underpin the base-case scenario.
- Quantification in terms of ESG reporting. Effective reports include net savings from enhanced sustainability efforts and benchmarking analysis, and they use appropriate metrics.
COLLABORATION IS KEY
The best way for companies to find ways to manage and mitigate risk is to foster collaboration with a wide range of internal and external stakeholders.
This powerful endorsement of greater collaboration may stem from early evidence of the impact business networks can have. For example, US-based retailer Wal-Mart has partnered with major suppliers to measure the carbon footprint of its products and reduce waste and energy use through more-efficient packaging.
However, while the benefits are tangible, collaboration is not the entire answer. Companies are also setting their own individual and unique strategies for managing climate change risk - strategies that consider the company's culture and management's vision, and alignment with their business strategies.
A multistep framework designed to help integrate environmental risk management processes with strategic decision making and day-to-day operations can be extremely helpful. Key action steps might include:
- Measuring and monitoring your company's carbon footprint. It's critical to understand your contribution to global emissions - both direct and indirect (through suppliers, partners, and customers).
- Using independent verification to communicate GHG emissions. Stakeholders want to know that all data on emissions and abatement activities are credible.
- Forecasting your GHG emissions growth for benchmarking purposes and setting reduction targets. This provides stakeholders with information to support investment decision making.
- Creating a senior emissions management team led by a senior executive to set the tone and culture from the top. This involves focusing on driving internal and external emissions targets, identifying and leveraging opportunities, and reviewing and revising climate change strategies.
- Monitoring competitors' climate change responses. This includes assessing how competitors' emissions management policies might affect your business, the industry, and the wider business community.
- Monitoring the evolving regulatory environment. As regulation and other external requirements are developing, it is important to monitor the potential impact of the requirements on your organization and strategy.
REAPING THE REWARDS
Of the executives participating in an Economist Intelligence Unit survey, 59% stated that investors and shareholders will increasingly reward those companies with above-average performance on sustainability issues, while 35% expect the adoption of sustainability practices to increase their profitability.
Organizations that have performed the due diligence required to stand behind their sustainability reports could well be positioned to manage risks better than their peers. More and more, companies are discovering that investing in climate change initiatives pays off - both in the near term and down the road.
quoted from: www.ICIS.com
