Captains of industry want to know what’s up ahead.

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The company relies on ice bridges to move equipment and materials through the northern regions of Canada. Last winter, however, the ice never thickened enough to allow transport of its heaviest trucks, so Diavik had to pay the additional cost of shipping materials by helicopter.

While a dwindling number of business associations and lobbyists still dispute the science of climate change, an increasing number of businesses themselves are focusing on the undeniable economics of the problem. Diavik is just one of many companies already being forced to adapt to climate change, often at considerable cost — and those costs are forecast to keep on rising. Sectors such as agriculture, fisheries, forestry, health care, insurance, real estate, and tourism are particularly vulnerable. In a twist of irony, so is offshore energy infrastructure, such as oil rigs and pipelines — the very systems that bring us the oil that’s feeding the climate crisis.

While some companies are adapting out of near-term operational necessity, others are acting to mitigate long-term strategic vulnerabilities, and the most forward-thinking are seizing on new business opportunities created by climate change and devising ways to make money from clean energy and efficient technology.

According to Ceres, the number of American companies addressing climate change has risen notably just since 2003. To date, more than 60 corporations with net revenues of roughly $1.5 trillion have voluntarily set reduction targets for their greenhouse-gas emissions, and that number is growing. While there is certainly some public-relations value in professing concern for the environment, voluntary reductions are based on the need to protect and create shareholder value.

Shell finds its operations, and more importantly its products, squarely in the middle of the climate debate. In 2005, Shell’s own operations emitted 105 million metric tons of carbon dioxide equivalent, while downstream combustion of the fossil fuels it produces generated another 763 million metric tons. Together these emissions account for some 3.6 percent of global CO2 emissions from fossil-fuel combustion. To help curb its emissions, the company is now moving away from flaring methane gas in its exploration and refining operations to capturing the gas and either pumping it back underground to enhance well production or feeding it to nearby facilities for power production. When the economics are right, the methane can be converted into liquid natural gas, a major potential growth area for the company. Shell is also expanding into alternative energy, particularly hydrogen.

Duke Energy is concerned about the impact that future climate-change regulation could have on the value of its existing and future energy-producing assets — particularly because new generating facilities have an expected lifespan of 40 or 50 years.

Alcoa sees future climate policies as creating market opportunities for aluminum recycling. Considering that aluminum produced from recycled materials requires only 5 percent of the energy needed to make primary aluminum, and that energy prices will likely continue to rise, the company has pledged that 50 percent of its products, other than raw ingot sold to others, will come from recycled aluminum by 2020. Additionally, as automakers face pressure to improve gas mileage, Alcoa expects a boost in demand for aluminum as a material in lighter-weight vehicles. According to the company, a 10 percent reduction in vehicle weight typically yields a 7 percent reduction in greenhouse-gas emissions.

Similarly, Whirlpool expects to sell more energy-efficient appliances as consumer demand is pushed up by mounting awareness of climate issues and rising energy costs.

DuPont is going so far as to adapt its core business model in response to climate change. It has identified its most promising growth markets in new bio-based materials that employ renewable resources instead of traditional petrochemical feedstocks. In 2006, the company announced a partnership with BP to develop, produce, and market a next generation of bio-fuels. In the next few decades, DuPont hopes that over 60 percent of its business will stem from the use of biology to reduce fossil fuels.

The most ambitious climate strategies involve efforts to develop clean, green technologies. Global investment in wind and solar power reached $11.8 billion and $11.2 billion, respectively, in 2005, up 47 percent and 55 percent from 2004. Announcing a set-aside of $100 million for investments in cleaner energy, transportation, air, and water technologies, venture capitalist John Doerr of Kleiner Perkins Caulfield & Byers said, “This field of greentech could be the largest economic opportunity of the 21st century.” Wall Street stalwarts such as Goldman Sachs, Bank of America, JP Morgan, Chase, and Citigroup are seeing the opportunity as well, adopting guidelines for lending and asset management aimed at promoting clean-energy technologies.

Looming on the horizon is an issue that will bring the strategic aspects of climate change into sharp relief: regulation. In a recent survey of 31 major companies for a report on corporate climate strategies, 90 percent said they believe that government regulation is imminent, and 67 percent believe it will come between 2010 and 2015.

It is not a stretch to see this inevitability. More than 375 mayors representing over 56 million Americans have signed the U.S. Mayors Climate Protection Agreement, which urges “the U.S. Congress to pass the bipartisan greenhouse-gas reduction legislation, which would establish a national emissions trading system.” A growing “patchwork quilt” of state and regional regulation — from California’s ambitious Global Warming Solutions Act to the Northeast’s Regional Greenhouse Gas Initiative — is motivating some corporations to support a national policy. The recent call for federal climate regulation by 10 corporations involved in the U.S. Climate Action Partnership is only the beginning. More companies will follow, catalyzing action that is already taking place on Capitol Hill. At least four major bills calling for mandatory caps on greenhouse-gas emissions have already been proposed in the U.S. Senate this year, and House Speaker Nancy Pelosi has declared that climate change will be a priority on her agenda.

Corporate lobbyists and avowedly pro-business politicians love to talk about the invisible hand of the market, but the fact is that companies know they need rational regulation in order to develop and execute an effective mix of strategies. Prolonged uncertainty of a regulatory void hinders the market.

The debate about whether or not climate change is occurring is over. In a sense, the market shift proves the climate shift. The bean counters are now moving faster than the tree huggers. They’re just waiting for the federal government to catch up and help them write the new rules.

Coke learns that CSR is the real thing.

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First, this decision was not due to any problems with product or pricing. Instead, the university cut the contract because of concerns over environmental issues in India and labor issues in Colombia. Second, and more amazingly, the decision was prompted by one man and the small nonprofit he runs out of his home in Southern California. Amit Srivastava and his India Resource Center have mobilized students on the Ann Arbor campus and elsewhere to petition their administrations to ban Coke from their campuses, and they are succeeding. Third and finally, this unusual form of pressure is leading the company to do something it would never have previously agreed to: open its overseas facilities to independent, transparent, third-party environmental and labor audits.

While the contract has been temporarily reinstated, the future of Coke’s relationship with the university rests on the results of those audits. All eyes are on the outcome of this process, as it sets a precedent for other vendors with the university — and other universities across the country.

The story of Coke and the University of Michigan holds clues to the emerging face of corporate sustainability, one facet of the business environment in the 21st century. And it is not a scenario unique to Coca-Cola. Many other companies, particularly large-branded, multinational ones, are finding themselves in the crosshairs. While many debate the meaning behind the concept of corporate sustainability, this is where the true definition of the issue will be played out — in the marketplace.

The Weight of the Word

What does sustainability mean? While we see the term everywhere, everyone — whether corporations, governments, foundations, individuals, or NGOs — uses it differently. For some, the definition lies in the Brundtland Commission call “to satisfy the needs of present generations without sacrificing the ability of future generations to satisfy their needs.” For others, the definition lies in the triple bottom line: the three E’s of environment, equity, and economics, or the 3 P’s of people, planet, and profits. But these definitions remain cloudy, and have problems in practice.

For instance, what kind of metrics will be used for each of the three legs? The Global Reporting Initiative is one attempt to standardize metrics, but other organizations are developing their own. And how will the three legs be prioritized? For many, the triple bottom line becomes economics with a capital E and environment and equity with small e’s. Finally, how will these three E’s combine to inform a go/no-go decision on strategic investments? Companies live and die on singular metrics like net present value and internal rate of return, but no similar metric for sustainability carries equal weight.

In short, a precise definition of sustainability remains elusive, the term being seen by some as merely an aspiration with limited practical value. Some even suggest it be thrown out, as it seems to mean everything to everyone and therefore nothing at all.

But for Coca-Cola, sustainability is real — and it lies beyond the theoretical discussion just described. It goes to the core of business in the 21st century. Sustainability boils down, in its essence, to business strategy with a long view.

This is not an easy concept to grasp, and one that many quickly dismiss without full understanding. For example, The Economist published a cover story in January 2005 that derided corporate social responsibility (CSR) as a misguided concept driven by people with little knowledge or a downright fear of capitalism. But the article made serious errors in defining the focus of study. Presenting a two-by-two matrix considering social and economic benefits, the article was quick to separate the upper-left quadrant — good for society and good for profits — as “good management.” The other three boxes (good for society, bad for profits; bad for society, good for profits; bad for both society and profits) were labeled as CSR — and therefore, by definition, ill-informed and ill-advised.

This was a gross misrepresentation that missed some important points of corporate strategy. Good management that creates both social and economic benefits is not easy — but the lines between quadrants are also blurry and shifting. Ten years ago, restricting greenhouse gases was not widely considered good for society. Today it is. Last year, the actions of a tiny nonprofit mobilizing college students over foreign environmental and labor issues was not considered relevant to the bottom line of Coca-Cola. Today, the decision of the University of Michigan (and more recent decisions by some Indian states to close Coke plants and ban both Coke and Pepsi products) has moved the issue squarely into the good-management quadrant. As Coke is learning, the skills and strategies for operating within this quadrant are new, undefined, and difficult.

The fact is, sustainable development is rooted in business strategy. Even Milton Friedman, the oft-cited defender of self-interested capitalism, wrote much more than the overused argument that “the social responsibility of business is to increase its profits.” He also wrote, “There is one and only one social responsibility of business: to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game.” Sustainability is merely another way of saying that the rules of the game are changing.

In Good Company

It is time to look beyond sustainability, CSR, and the tired debate over shareholder versus stakeholder value in favor of a more broad-based and emerging understanding of what constitutes good management. To neglect the natural environment or the welfare of your local citizenry is bad management. To neglect your customers, local community, employees, government, or NGOs in today’s world is bad management. In the 21st century, these groups can impose tremendous pressure to affect your company’s reputation, markets, and operations.

Consider the list of companies dealing with this new reality. Construction and mining-equipment giant Caterpillar is being drawn into the Israel/Palestinian conflict as activists hold the company accountable for the Israeli military’s use of Caterpillar bulldozers to demolish Palestinian homes. An Israeli general even announced that one of his army’s best weapons was the Caterpillar D9. More than a PR nightmare, this became a lightning rod for activists trying to force the company to stop selling bulldozers to Israel.

Shell experienced perhaps the most prominent activist pressure of this sort with the Nigerian government’s 1995 crackdown and execution of nine Ogoni Indian activists in defense of the company’s oil fields. To avoid a similar catastrophe, ExxonMobil and other oil companies forged an unusual agreement with the government of Chad to contribute revenues from a major pipeline operation into an account managed by the World Bank, to be put toward schools, clinics, roads, and other basic human needs. While the deal was renegotiated in July after the government reneged, the precedent creates powerful pressure for others to follow.

The list goes on. The mining company Anglo American is establishing clinics around its African operations to treat employees and community members infected with HIV. In a recent issue of The Lancet, the CEO of Heineken argued that companies are not doing enough to stem the tide of HIV/AIDS.

Even in the U.S., calls for sustainability can be heard. In the weeks following Hurricane Katrina, companies found themselves under scrutiny for how they treated their workers and the community. CVS, the country’s largest pharmacy chain, ignored the economic incentives to close its devastated shops and leave. Instead, according to The Boston Globe, it “set up mobile pharmacies; gave away thousands of medications to people without prescriptions or even identification; flew in employees from Florida, Michigan, and Illinois; kept stores open 24 hours a day to meet demand; and set up a hotline to locate and help evacuated employees.”

So as some work out the definition of sustainable development, these companies are dealing with its reality. They are striving for sustainability, even if they don’t call it that.

The reality is that the business environment is changing. New types of pressures and demands are leading to new types of business practices. And this change will only increase. We live in a shrinking world where global sourcing brings corporate interests into ever-increasing contact with peoples and issues around the world. This contact makes vivid the disparities between rich and poor, between developed and developing countries.

Information technology makes it impossible for business activities to remain hidden by geography or contractual arrangements. It also makes it possible for activists to gain the power necessary to mobilize a response to those activities. Raging issues of child labor, forced labor, hazardous work conditions, environmental contamination, public health, access to clean water, and corrupt and oppressive regimes are being forced onto the business radar screen. As companies respond to the pressure to address these issues, they are being forced to define sustainability in practical terms. Issues like transparency, social equity, and environmental protection are joining economic growth in corporate discussions.

But the real question for these corporate strategists is not whether this is happening — it is — but rather, what will be demanded of companies next year, in 10 years, in 50 years, and how to get ahead of it. Real sustainability requires a long view. It requires conscious attention to where the business environment is going, and what is taking it there. Sustainability is not a value projection, it is not CSR, and it is not an aspiration. It is real market pressure. And responding to that pressure means success and good management in the 21st century.