On-going climate change provides operational, financial and public relational challenges to businesses across industries. It is critical for executives to understand the risks associated with these challenges and to develop sound strategies to address them. Here, we take a look at some of the most important threats that businesses are facing today within the landscape of global warming. In addition, we suggest ways to turn these risks into opportunities in order to stay competitive in this changing environment.
Threat: CO2 emissions for 2010 were by far the highest in history and regulators will respond to this breaking news with tighter control on the businesses’ carbon emission levels.
Opportunity: Companies can avoid being harmed by carbon taxation and rising energy costs by adapting to a more energy-efficient operation. This can also open up funding streams from carbon cap-and-trade programs.
Threat: Rising global temperature will trigger drastic changes in the weather pattern around the world. Businesses may incur physical damages from natural disasters such as tsunamis and earthquakes.
Opportunity: By investing in climate-proof operations such as purchasing insurance and mapping out emergency protocols, businesses will be able to execute a quicker recovery from natural disasters.
Threat: Scarce resources such as nonrenewable energy will continue to increase in price and companies that rely on it will face heavy burden on their budgets.
Opportunity: Businesses that act early in using alternative sources of energy will be able to gain a sustainable competitive advantage.
Threat: Consumers are becoming more knowledgeable about environmental issues, altering their preferences and decisions on purchasing goods.
Opportunity: The upside to this trend is that there is an emerging market for environmentally friendly products and services. Targeting this market has the potential for high profitability and consumer loyalty.
Today, businesses are operating in an environment where there is pressure from both government regulators and educated consumers. In addition, there are operational and financial challenges that drive up the competitiveness in the market. Successful and sustainable businesses will be those that understand these risks and develop innovative strategies to adapt and mitigate climate change.
At least one member of Congress sees the long-term investment opportunities in businesses taking corporate responsibility seriously. A new bill, the Federal Employees Responsible Investment Act (FERIA), would add a sustainability option to federal employees’ retirement and investment choices. This option would provide an index based on “strict financial criteria, in addition to having strong corporate governance, sustainable environmental policies and practices, solid workplace relations, positive community involvement, safe products, and respect for human rights around the world.” The argument supporting this new option is that with these policies, sustainable businesses offer lower risk without sacrificing company profitability.
These options have been labeled socially responsible and sustainable investments (SRI), and they are, in fact, quite profitable. Most large SRI mutual funds outperform S&P 500 by about 6%. SRI assets have also grown to a remarkable size, encompassing about 11% of investments in US financial markets as of 2007.
In the past, we’ve looked at how consumers want to patronize companies that focus on some kind of social or environmental cause. When you take into account that one third of US states have already adopted these SRI choices for their employees, having this bill passed is a no-brainer.
Recently, the federal government has provided incentives for individuals to go green: for example, the tax rebate for energy efficient appliances or the 30% tax credit on private home installation of solar panels. But given the economy, there have been portions of both federal and state budgets dedicated to helping make businesses greener, too.
For example, the EPA provides rewards to small companies that provide cutting-edge R&D and runs the Energy Star for Small Businesses program, which facilitates remodeling and maximization of energy and cost savings. The federal government also provides tax deductions for energy savings by real estate developers and business owners who invest in smart energy grid equipment.
Additionally, non-profit organizations like Georgia Green Loans and the majority of state energy departments provide loans or grants to allow for the greening of local businesses. So despite some dissenting voices saying that the environment should take a back seat to the economy right now, the government is providing the means for businesses to take care of the earth and their bottom line.
Posted by akeenan | Posted in Carbon Offsets, Financial, News | Posted on 12-05-2010
On April 30th, the Intercontinental Exchange (ICE) announced via press release that “it has agreed on terms to acquire Climate Exchange plc (Climate Exchange or CLE), a leader in the development of traded emissions markets. Climate Exchange operates the European Climate Exchange (ECX), the Chicago Climate Exchange (CCX) and the Chicago Climate Futures Exchange (CCFE).”
Richard Sandor, the Chairman of CLE, said, “a combination with ICE makes strategic sense,” and the current contracts in place that allow ICE to provide electronic trading platforms to some of CLE’s markets demonstrates the opportunity for an easy business transition. The acquisition helps to confirm that carbon – like oil, milk, or steel – is a commodity, to be traded at a universal world price determined by interactions between supply and demand. This reinforcement of the carbon market’s legitimacy also helps to increase carbon’s liquidity, or price stability despite large market transactions.
“The combination of Climate Exchange’s emissions markets and ICE’s futures and OTC energy markets is an important and logical strategic combination for our customers and shareholders, and clearly an exciting opportunity for ICE to grow and further diversify our revenues,” said ICE Chairman and CEO Jeffrey C. Sprecher. “ICE has been a partner with Climate Exchange and Dr. Sandor since 2003, and we have worked together toward the development and expansion of the emissions markets. The leadership that Climate Exchange has shown in establishing market standards in Europe, and increasingly the U.S. and Asia, has driven its success, and we see continued growth opportunities within these nascent markets globally.”
Dr. Richard Sandor was integral in the founding of Verus Carbon Neutral and will remain on our Board of Advisors. Verus looks forward to working with ICE, especially since they are headquartered in Atlanta.
Posted by firstname.lastname@example.org | Posted in Financial | Posted on 03-05-2010
Carbon trading is set to become the world’s largest commodity market. Richard Sandor, chairman and founder of the Chicago Climate Exchange pointed out that “Carbon, when it becomes worldwide, will be unambiguously the largest commodity in the world. The world emits 35 billion tons; it’s priced at $20; that’s $700 billion. Put a 10-20 multiple like you do on futures, [and] you’re talking about $10 trillion at maturity.”
The challenge is that the carbon market is not yet organized like interest rates or oil where there exists one standard. Europe trades under one set of rules while the US has Regional Greenhouse Gas Initiative [RGGI], California Action Climate Reserve, Chicago Climate Exchange members, and potentially others.
In a recent discussion in Atlanta, Richard Sandor equated it to the early seat belt laws. He mentioned how different states had differing legislation on seat belts and the auto industry wanted to work from one standard. This lead to federal legislation. Similarly, regional exchanges would lead to one standard.
We already have seen some international trading under Kyoto. For example, just last week Poland sold €13 million worth of sovereign emissions rights to Japan and Austria bought 1.4 million sovereign emissions rights from Estonia.
Once national standards are set, then international ones are easier ones.
Posted by email@example.com | Posted in Carbon Footprint, Financial, Green | Posted on 05-04-2010
This April, in celebration of the 40th Anniversary of Earth Day, Bank Technology News highlighted some of “America’s Greenest Banks” and named Bank of America among them. The recognition is in response to actions that are part of Bank of America’s (”BoA”) ten-year, $20 billion environmental initiative to support environmentally sustainable business growth and addresses climate change through lending, investing, philanthropy and the creation of new products and services.
Last year, as part of this initiative, BoA began developing their carbon emission trading platform. The bank has undertaken a joint venture with Climate Exchange PLC (the umbrella organization that owns the world’s leading environmental exchanges including the Chicago Climate Exchange). BoA became a member of the Chicago Climate Exchange (CCX), will join the CCX offset committee, and is acquiring a minority investment stake. The bank will provide liquidity on the CCX, ECX (European Climate Exchange) and CCFE (Chicago Climate Futures Exchange), and treat the CLE exchanges as preferred providers. BoA will also develop carbon footprint reduction products and services for retail and institutional customers, and purchase a minimum of 500,000 tons of offsets over a three-year period.
“Helping individuals and corporations understand their carbon footprint, hedge against it and reduce emissions to reach carbon neutrality is of paramount importance in achieving an environmentally sustainable economy.” - Richie Prager, head of global rates, currencies and commodities for Bank of America
Bank of America surpassed its 2009 GHG emissions reduction goal, ahead of schedule, by more than 4% and plans to expand its GHG emission reduction target moving forward. BoA is also taking initiative on internal operations and technology—replacing the current diesel generators at their call center in California with five Bloom Box Fuel Cells and, like Ford Motors, is implementing software to put their computers to sleep when not in use. The bank has invested in software predicted to cut heating and air conditioning costs in half and expects to save $2.5 million in annually from lighting efficiency improvements alone.
Bank of America is moving on all fronts to reduce impact and enable others to do so as well. They are defining new parameters for prioritizing companies they lend to and the types of products they offer—resulting in opening funding channels toward further developing the green technology infrastructure. TD Bank, who was not included in the Bank Technology list, provides another example of a bank doing outstanding work toward their environmental goals. In addition to pursuing platinum LEED status for a new store prototype, TD Bank’s global operations are carbon neutral.
There are many ways that banks can influence the overall GHG emission equation. Timing and a pathway for the flow of resources are key to stabilizing our energy future, and banks stand as traffic lights on the money road. Beyond beginning to aggressively manage building efficiency and internal practices, banking is moving to a whole new level by developing new mechanisms for businesses and consumers to respond to climate change and energy challenges.
Posted by firstname.lastname@example.org | Posted in Energy, Financial | Posted on 31-03-2010
Politics aside, clean technology is booming worldwide. Countries, businesses, and individuals alike are prioritizing action to reduce emissions, decrease impact, and manage emission and energy costs while preparing for an unpredictable energy future and seeking to reduce dependence on foreign oil.
The report Clean Energy Trends 2010, by Clean Edge, notes that clean energy technology has been a driving force of economic recovery. Globally, the market for biofuels, wind power, and solar photovoltaics together totaled $124.8 billion in 2008 and grew 11 percent to $139.1 billion in 2009. The report projects that these three benchmark technologies will grow to $325.9 billion within a decade.
The report also notes that, despite a billion dollar decline in U.S.-based venture capital investments in energy technologies from 2008 to 2009, energy tech grew 1.1% when shown as a percent of total venture capital investments—attaining the largest share ever at 12.5%.
“Despite severe economic conditions, clean-energy markets were able to hold their momentum in 2009 as many regional and federal governments and private corporations focused on clean-energy investments as a way to pull out of the global economic tailspin…From the smart grid and energy efficiency to renewable energy generation and advanced battery storage, clean tech continues to be a major driver of regional job growth, economic recovery, and technological competitiveness.” - Ron Pernick, co-founder and managing director of Clean Edge.
A recent poll of 500 American adults indicated broad support for developing solar plants on federal lands not already designated for parks or nature preserves. Just wondering, if asked, how many of these same respondents might support solar panels on top of existing buildings instead of public lands?
Recent research reported in the American Chemical Society’s magazine Energy & Fuels estimates that world conventional crude oil will actually peak as early as 2014. Whether or not this new estimate (which places the peak nearly a decade earlier than most previous estimates) is accurate, scientists agree that oil is finite. It is evident, amid the current worldwide race toward clean tech, we can and should all come together toward developing these technologies and achieving greater energy independence.
The Regional Greenhouse Gas Initiative (RGGI) is the first mandatory, market-based effort in the United States to reduce greenhouse gas emissions (it was our first blog). The ten states that participate in the initiative (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont) have capped CO2 emissions from the power sector and plan to reduce those emissions 10% by 2018. Admittedly, this is a lower target than international standards.
Each member state has its own CO2 Budget Trading Program. Power plants must comply with the individual state program that governs their facility, but can use a CO2 allowance issued by any participating state to demonstrate that compliance. In this way, the individual state programs come together as a single regional market for CO2 emissions compliance.
Each state also has an established plan to use the proceeds of the regional market to promote energy efficiency, support renewable energy innovation and deployment, reduce greenhouse gas emissions, and help consumers control energy costs. The auction based, cap-and-trade system has generated $582.38 million in proceeds, thus far. In the most recent auction trading of carbon permits rose 42% . Fifty separate entities submitted bids to purchase 2.5 times the available supply of 2009 allowances, and 20 entities submitted bids to purchase 2.3 times the available supply of 2012 allowances. This is a major success for a program that has not really started and may be replaced by a federal cap.
By participating in this market, RGGI states are generating funding to improve energy efficiency and accelerate renewable energy technologies, while creating thousands of jobs. “The RGGI states are investing these proceeds to help reduce energy costs today while building a clean energy economy for the future.” - Francis J. Murray Jr., president and chief executive officer of NYSERDA
This is a major success story. Efficiencies are being funded through a cap and trade system - AHEAD OF ITS IMPLEMENTATION!
RGGI proceeds in Action
- RGGI has helped expand efficiency programs that are expected to create or maintain nearly 4,000 jobs in Massachusetts over three years.
- Programs funded with RGGI proceeds are currently supporting approximately 200 full-time jobs in New Hampshire.
- States are investing in job training programs to provide workers with the skills needed to enter the green workforce.
- Maryland recently invested $750,000 of RGGI CO2 allowance proceeds to provide energy efficiency-related job training to more than 600 contractors in the The Home Energy Retrofit and Weatherization Workforce Training Program.
- New York State is investing proceeds to train hundreds of workers needed to improve the efficiency of homes and businesses to meet the state’s aggressive energy efficiency targets.
“RGGI has provided a roadmap to a clean energy future. With each successful auction, the RGGI states continue to show that cap-and-trade works and can jumpstart a green economy with fewer emissions, lower electric bills and more jobs.” - David Littell, Commissioner of the Maine Department of Environmental Protection
Calpine is going where no power company has gone before by initiating the first power plant that will be more efficient than proposed GHG emission reduction criteria at both the federal level and at those of California cap-and-trade regulations set to go active Jan 1, 2012. Construction is set to begin next year on the 600-megawatt natural gas-fired plant. The Russell City Energy Center, spanning 15-acres, will reside just east of the San Francisco Bay.
With the EPA moving toward GHG regulation from large emitters under the Clean Air Act, and cap-and-trade on the horizon, Calpine is taking the lead by developing in a direction makes them both more ecologically as well as economically sustainable. Calpine is already one of the worlds largest geothermal producers, and by advancing gas-fired power generation that produces GHG emissions at less than 50% that of coal-fired power plants, they are poised to be the company that helps California achieve it’s energy needs for the future and leads the way for power providers nationally.
The Russell City plant will handle base load power demand, but Calpine is promoting use that is supplementary to other cleaner and more renewable technologies as they evolve and roll out. Pacific Gas and Electric Company, the purchaser of the electricity, will have the option of balancing and dispatching from all energy sources and using the gas-fired plant when solar and wind cannot meet demand or are unavailable. Sierra Club chief climate counsel David Bookbinder said “Calpine is leading the way and showing how it’s possible to generate all the electricity that America needs with half the greenhouse gases.” Linda Adams, secretary of the California EPA commended, “We applaud the BAAQMD and Calpine for going beyond existing federal law and being the first in the nation to require an enforceable greenhouse gas limit.”
Despite the turbulent energy environment, it is not surprising that Calpine is being discussed as a top stock pick.
In 2004, Peter Cartwright, founder and CEO of Calpine, earned recognition as a Business Leader of the Year by Scientific American. They noted the companies outstanding environmental record, dramatically lower emissions relative to the rest of the industry, and a stated commitment to cut those emissions even further for all future developments. The company was also recognized for their use of combined-cycle technology that captures energy that is wasted in the single cycle systems that currently predominate.
Then in 2005, they became the first independent power producer to achieve the distinction of Climate Action Leader and voluntarily disclose GHG emission information to the public. In the press release, Neal Pospisil, Calpine’s vice president of safety, health and environment stated: “Being at the forefront of environmental accountability is a priority for Calpine and taking inventory of our carbon emissions profile is one of the first steps in finding new ways to manage our carbon dioxide emissions…Having a third party certifying that inventory further ensures that Calpine’s reporting meets objective, uniform standards.”
Calpines steady efforts and climb to leadership shows that it really pays off to find out where you are and take a good look around so that you can move confidently to where you want to go.
“We’re glad the SEC is stepping up to the plate to protect investors.”
- Ann Stausboll, CEO, California Public Employees Retirement System
On Wednesday The Securities and Exchange Commission said for the first time that companies should inform investors of any risks to its business from climate change. For years, big investors like CalPERS have been asking the SEC to issue guidance telling companies to disclose risks to their financial results posed by climate change. It was a pretty reasonable request, given that cap and trade laws, international restrictions and severe weather could pose a significant business risks for certain companies.
Take Exxon. If the cost of using fossil fuels goes up, their customers become incentivized to use far less of it. This could have a ramification for their business. Similarly, an big increase in storm activity in the North Sea could significantly impact the natural gas production of offshore rigs. Perhaps the company may want to incorporate such things into their long-term strategy. Their investors, understandably, might want KNOW that the company has considered these possibilities and taken the proper steps to mitigate the risks and capitalize on the opportunities. Fiduciary responsibility, anyone?
While some companies have been forthcoming with this kind of information, most have not confronted the issue at all. Investors who wanted to know have had to pass shareholder actions to get companies to tell. Ideally, this should not be the case.
Yesterday came the NUDGE. The SEC said that companies should include the following in their annual reports:
• Impact of Legislation and Regulation: When assessing potential disclosure obligations, a company should consider whether the impact of certain existing laws and regulations regarding climate change is material. In certain circumstances, a company should also evaluate the potential impact of pending legislation and regulation related to this topic.
• Impact of International Accords: A company should consider, and disclose when material, the risks or effects on its business of international accords and treaties relating to climate change.
• Indirect Consequences of Regulation or Business Trends: Legal, technological, political and scientific developments regarding climate change may create new opportunities or risks for companies. For instance, a company may face decreased demand for goods that produce significant greenhouse gas emissions or increased demand for goods that result in lower emissions than competing products. As such, a company should consider, for disclosure purposes, the actual or potential indirect consequences it may face due to climate change related regulatory or business trends.
• Physical Impacts of Climate Change: Companies should also evaluate for disclosure purposes the actual and potential material impacts of environmental matters on their business.
Say no more!