Cutting emissions to raise profits
As the epidemic of accounting scandals continues to spread and the term Corporate Responsibility rings with the oppressive severity of an 11th Commandment, it’s nice to catch a little glimpse of the brighter side: A growing number of U.S. companies have been making voluntary pledges to reform their internal operations in order to cut the greenhouse gas emissions that fuel global warming. And surprisingly — or maybe not so surprisingly — the trend has less to do with greenwashing, reputation-polishing, or do-gooder ambitions than with the far more authentic corporate drive to improve the bottom line.
These corporate climate initiatives trace their roots back to the unprecedented environmental and economic circumstances of the 1990s, when global trade doubled from $4 to $8 trillion in the staggeringly short span of 10 years, and the world came to terms, for the first time, with global warming. As deliberations over the Kyoto Protocol intensified and multinational corporations extended their tentacles every which way, some chief executive octopi realized that expanding their businesses in a resource-efficient way not only reduced greenhouse emissions, but cut costs.
“It’s good old-fashioned enlightened self-interest,” says Mike Radcliffe, director of sustainability at the global consulting behemoth KPMG. Radcliffe is adept at trotting out the necessary biz-speak in praise of the trend: “It’s a win-win-win scenario: Climate-friendly business practices can help solve the global warming crisis, boost [companies’] reputations, and, more to the point, improve their profits.”
Reduce emissions and boost profits? It may sound dubious, but take the example of L’Oreal, the world’s largest cosmetics manufacturer. Between 1990 and 2000, the company increased production by 60 percent but decreased greenhouse emissions by 44 percent. L’Oreal Engineering Director Ken Kraly attributes those results in large part to “value-added” energy conservation programs. A high-efficiency lighting installation in one L’Oreal facility, for example, cost $180,000; the resulting electricity savings in the first year were $160,000 — nearly a one-year payback, and equivalent savings were generated every year thereafter. In addition to re-gasketing air dampers, tightening steam traps, insulating boilers, and other such negligibly sexy conservation measures, Kraly implemented a large-scale recycling program to reduce waste incineration from 1,000 tons per year in 1990 to under 300 tons in 2000 (despite the spike in production levels). The result was a $500,000 savings in waste removal costs and a whopping 72 percent reduction of greenhouse gas emissions related to incineration.
The Kindest Cuts
The L’Oreal example does seem unmistakably win-win — but just how widespread is such behavior, and how far-reaching is its impact? “The trend in corporate climate initiatives is kicking into high gear,” says Joe Romm, author of Cool Companies: How the Best Businesses Boost Profits and Productivity by Cutting Greenhouse Gas Emissions. Romm attributes the trend to intensifying symptoms of global warming and the increasing affordability of efficient energy technologies. “The fact is that almost any company in America could find a way to meet Kyoto regulations with a four- to five-year payback, meaning that within four to five years, their efficiency upgrades will have paid for themselves in energy savings. After that, those savings start becoming profits.”
Romm, who served as assistant secretary of energy efficiency and renewable energy under President Clinton, is more recently the founder of www.coolcompanies.org, which tracks info on climate-friendly corporations, and director of the Center for Energy & Climate Solutions. In partnership with World Wildlife Fund, CECS cofounded Climate Savers, a business initiative launched in May 2000 with Johnson & Johnson and IBM as its flagship companies. The former pledged to meet the Kyoto requirements by reducing global warming gases 7 percent below 1990 levels by the year 2010, while IBM promised total CO2 reductions of 4 percent by 2004. Other brand-name program members now include Polaroid, which pledged reductions of 20 percent by 2005; Nike, which pledged 13 percent by 2005; and LaFarge, the world’s largest concrete manufacturer, which pledged reductions of 10 percent by 2010 (no small feat, given that the company has emissions double those of Switzerland). As far as Climate Savers is concerned, the movement in climate-friendly corporations is nothing if not results-oriented.
Climate Savers is one of many initiatives dedicated to encouraging corporate climate action programs; others include the Pew Center on Global Climate Change’s Business Environmental Leadership Council, whose 28 members range from Maytag and Whirlpool to Boeing and Lockheed Martin. The energy industry has its own comparable organization, the Business Council for Sustainable Energy, which includes Keyspan, Honeywell, and GE. And the Coalition for Environmentally Responsible Economies has convinced 72 companies — from Ben & Jerry’s to General Motors — to endorse its “10-point code of environmental conduct,” which includes “continual progress toward eliminating the release of any substance that may cause environmental damage.”
Easy Does It
It’s hard to tell what practical impact most of these councils have, because, with the exception of Climate Savers, their members aren’t expected to pledge specific reduction goals. Such pledges entail an enormous amount of technical drudgework; it can take months, if not years, for some big companies to get even a baseline reading of their total emissions. Every step of their production cycles must be analyzed in terms of carbon output; same goes for the transportation of all materials, products, and employees. Nonetheless, more and more companies are seeing such a laborious task as an inevitability, and are accepting the World Resources Institute’s Greenhouse Gas Protocol Initiative as the gold standard by which to calculate baselines.
“It’s not that all of these companies are jumping up and down for climate reform,” says Rebecca Eaton, program director at World Wildlife Fund. “It’s not so warm and fuzzy. We have to go in there and convince their engineers, their finance guys. It’s all about number-crunching, streamlining operations, saving money. Frankly, they’re not too interested in what the panda can do for their reputation.”
Eaton says this highly pragmatic and technical kind of activism aims to debunk the myth that environmental and corporate interests are fundamentally opposed. Of course, there’s a limit to how much debunking can be done, because there’s a good deal of truth to the myth; even if every company in the world were meeting Kyoto goals, they’d still be spewing vast amounts of carbon into the atmosphere.
Moreover, while most companies are happy to nibble the low-hanging fruit of quick-fix, cost-cutting conservation measures in their factories and office buildings, few are willing to go for more intensive reforms that would lessen the environmental impact of the products they sell. Car companies, for example, have been notoriously resistant to fuel efficiency regulations. Take General Motors, which reduced energy use in its U.S. factories 20 percent between 1995 and 2002 (a step the company predicts will save it $32 million in energy costs this year). Sounds good — but average carbon emissions from their new cars, pickup trucks, sport utility vehicles, and minivans rose significantly during the same period. And although the Coalition for Environmentally Responsible Economies went to great lengths to negotiate with the auto giant on fuel-efficiency regulations, GM was on the frontlines of the successful campaign to defeat a proposed increase in Corporate Average Fuel Efficiency standards last spring.
Still, optimists argue, internal operations are a good place to begin the shift toward climate-friendly corporate strategies. As the public becomes more vigilant and better informed, the logic goes, companies like GM will eventually be forced to extend their climate-sensitive policies past internal operations and to the products themselves.
One example of a company with an environmentally damaging product but increasingly eco-friendly internal practices is the oil giant British Petroleum. The company pledged to cut greenhouse emissions 10 percent below 1990 levels by 2010, a target it met last October, eight years ahead of schedule. Royal Dutch/Shell promised in 2000 to cut emissions 25 percent by 2002, and has already overshot its goal. Kodak has pledged to cut CO2 emissions from its power plants 20 percent by 2004. DuPont pledged to reduce its greenhouse emissions 65 percent from 1990 levels by 2010.
Ironically, it’s the heavy-industry corporations that stand to reap the biggest long-term savings from emissions reductions. Companies like LaFarge and BP, which use enormous amounts of energy for drilling, mixing, and refining, have to consider major investments like multi-million dollar electricity generators and cogeneration systems to power their operations. “The more energy-efficient machines are simply a better investment,” says Lord John Browne, CEO of BP. “They use less fuel to produce the same output.”
An apparel company like Nike, on the other hand, has far less energy-intensive operations and out-sources the manufacturing of most of its merchandise, which means it has fewer and less obvious opportunities for cutting emissions. To reach its goal, Nike is looking to cut back in other areas of operation, such as business-travel-related emissions, which it plans to reduce 13 percent below 1998 levels by the end of 2005. To that end, the company developed a plan with its contracted carrier, Delta, to track all the miles traveled by Nike employees, and then buy credits to offset those emissions through programs that improve the energy efficiency of the utilities and public school systems in Oregon, where Nike is headquartered. And because most of Nike’s products are shipped on freight steamships, the company’s sustainability director, Jim Goddard, is working with the Clean Cargo Coalition to encourage improvements in steamship fuel efficiency.
Carbon credits will of course be particularly advantageous for clean companies once emissions regulations exist on the federal level and a carbon-trading market is officially established — in other words, once President Bush is out of office. (Already, a small group of industries is voluntarily buying and selling credits on the Chicago Climate Exchange, though a full-scale carbon market clearly won’t happen without federal regulations.) It’s no coincidence that the leaders of the climate-saving trend are the large multinational companies that operate in a broad array of countries, many of which are Kyoto signatories.
“They simply have to maintain their social license to participate in a global arena that’s becoming increasingly sensitive to these issues, even if America is not,” says Radcliff. “And they are bracing for the inevitability of more rigorous regulations down the line.” If companies are proactive rather than reactive, they’ll take less of a financial blow when push comes to shove. According to a newly released KPMG survey, 45 percent of the Fortune global top 250 companies are now issuing environmental, social, or sustainability reports in addition to their financial reports, compared to 35 percent in 1999. “I’d be surprised,” says Radcliff, “if by 2005 most if not all [of the Fortune 250] companies hadn’t caught on.”