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Market News

 May 23, 2007
U.K. Consumers Place a Premium on Sustainability

 London, UK (GLOBE-Net) -- Most businesses do not have a greenhouse gas reduction policy in place, and are reacting to climate change concerns to protect their reputations rather than seeking out potential opportunities, says a new report from the Economist Intelligence Unit. Although previous studies have shown that awareness of the business risks and opportunities posed by climate change is increasing, this latest survey underscores that for many firms there is a long way to go. The report identifies government action as the key driver for action in this regard.

The report - A change in the climate: Is business going green? - is based on a survey of 634 executives worldwide, split between a number of industries and regions. Forty-two percent were 'C-Level' executives, including 152 CEOs. Most of the companies had revenue between US$500m and US$1bn.

According to the survey, less than 10% of executives said their organizations monitor their overall carbon footprint and just 18% have carbon reduction plans in place. Although these numbers appear ready to rise rapidly, nearly one-half of firms have no intention of implementing carbon-reduction plans within the next three years, notes the Economist.

Accordingly, the report authors conclude that much of the corporate response to climate change is likely to be made over the remainder of this decade, as a model for business action has yet to be established. Those companies that have taken the first steps, measuring their energy consumption and perhaps making some tentative cuts, are still in a relative minority, they add.

On a positive note, one in five executives polled for the report say that their companies already have a director who is specifically responsible for the firm's environmental impact. By 2010, one-third polled say they will have such a person.

However, the authors assert that any progress made by business to cut the impact of carbon emissions will be governed primarily by how rapidly governments can implement appropriate legislation that creates incentives for change. Government regulation is identified as "the single largest factor in shaping how companies address carbon issues", and companies indicated they want a clear regulatory framework. Without this, corporate efforts will suffer from uncertainty about what is expected or required. A market-based system to price carbon, such as a well-run carbon trading scheme, is likely to be the most effective arrangement, according to survey respondents.

An interesting perspective provided by the survey concerned executives' motivations for climate change action. Few companies are seen to be exploiting business opportunities, while the majority are reacting to reputational risk. Niche markets exist that exploit carbon concerns, but the major factor identified as motivating business is reputational. Shifts in consumer behaviour, environmental campaigns and investor demands, are currently doing only a little to drive change in this area, says the report.

Tod Arbogast, director for sustainable business at Dell, a US PC maker, is quoted as saying that "customers have consideration for companies that lead" on carbon issues. Neil Campbell, CEO of Walkers Crisps, a division of Pepsi, is also quoted as believing that "doing the right thing will have some sort of competitive advantage".

For those firms that are taking action, the costs are relatively low. Surveyed businesses engaged in carbon reduction are spending only about 0.6% of their operating expenses in this area. By 2010, more than half (55%) of these executives expect these efforts to either impose no costs on their business, or else result in a net positive impact, mostly through savings on energy bills and increased sales for enhanced brands. Just 10% think it will have an overall negative impact on costs, with the balance unsure.

Early actors are getting a jump on what is perceived as a steep learning curve for carbon reduction. Projections about cuts have to be balanced against the lack of experience and difficulties involved in establishing best practices in such a fast-changing field. According to the Economist, expectations about carbon offsetting, and even some basic unanswered questions about who is primarily responsible for what carbon, suggest a lot of effort will be required before large numbers of companies are able to pursue rigorous, effective policies.

Read the full report from the Economist Intelligence Unit here (PDF).

Shifting from reputation protection to seeking opportunities

For those companies that are 'ahead of the curve', one feature that has been consistently identified in surveys is a shift from considering climate change and greenhouse gas emissions as being primarily a risk to a company's reputation to being a source of potential business opportunities.

Of the Canadian firms that responded to the fourth request of the Carbon Disclosure Project (CDP4), 77 percent indicated that climate change represented a matter of commercial risk, while sixty-three percent identified business opportunities related to climate change. Some firms expressly indicated that emissions management will be a competitive issue in the future and noted that firms with progressive policies in this area will have a competitive advantage, particularly in emissions-intensive sectors.

However, in terms of planning, only 36 percent of responding companies indicated they had a greenhouse gas reduction plan, and only one-fifth had established formal reduction targets with timelines.

In a recent survey by Hill & Knowlton, nearly two-thirds of respondents (62% in Canada) said their firm has not yet identified an energy strategy, even though energy prices and supply changes represent the major climate change-related risks and opportunities faced by businesses.

When asked whether there was an emerging need to name a 'Chief Energy Officer' to implement a firm's energy strategy, more than three quarters (77%) agreed. In Canada, 34% of those polled said they 'agree a lot' with the need for a Chief Energy Officer, while 50% said they 'agree a little'.

As indicated by the Economist, the major factor delaying corporate action may be a lack of clear government regulation. Companies want to know how much they will be expected to cut emissions and what sort of costs and benefits will be realized.

However, the firms that have taken early steps to evaluate energy use and emissions, invest in projects to achieve reductions, and participate in the carbon trading market, will be better positioned to take advantage of regulations when they are introduced, as they recently have been in Canada.



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