“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.
Ray Anderson has been a part of the Georgia business community for 52 years. He founded Interface Carpet in 1973, and operated for about 20 years before going through a personal transformation that caused him to take massive efforts to change the fundamentals of the way Interface functions. For over a decade he has worked passionately and intelligently to internalize waste and costs that were previously considered externalities-and has realized the profitability of a better way of doing business.
In the summer of 1994, he began hearing from customers who were asking what he was doing about the environment. When asked about his environmental vision, he realized at that time, he didn’t have one. Then he read Paul Hawkin’s The Ecology of Commerce in which Hawkins examines business and industry’s power to either lead humanity into, or away from, the abyss of continued destruction of the planet. The reading struck him deeply and resulted in a complete change of his mindset and paradigm. He dug deep and reached far to every place he could touch, and began setting an example of a new paradigm of business.
He believes that business should only take from the earth only what can be replaced easily and naturally and is working to dispel the notion that resources taken from the Earth are free to take and waste. Stating that if business cannot be sustainable it should not be done. Calling himself a recovering plunderer, he created a stir when he said in 1999 that, “someday people like me will end up in jail.” His point was to emphasizes that the take-make-waste way that most industries run (in other words digging up the Earth and turning it to waste and pollution) is actually theft-a crime-and that theft of our children’s future should be realized as the outcome of current plundering practices.
Now deftly pushing aside the notion that environmentalism is impractical to the bottom line, he calls false the choice between the environment and profitability as he proudly notes that the transformation has more than paid for itself while saving the company a lot of money in less raw material extraction, increased efficiencies, and decreased waste. He announced that net GHG emissions have decreased 82% while sales increased 2/3 and profits doubled so the 82% absolute reduction translates to a 90% reduction in GHG intensity relative to sales. They have also decreased fossil fuel usage 60% per unit of production due to efficiencies and renewables. Water usage down is down 75% internationally, and they have diverted 74,000 tonns of used carpet from landfills.< >< ><–>
It seems like a requirement these days that any reputable corporation needs to be measuring their carbon footprint and incorporating sustainability into their business practices. However, it is often difficult to distinguish between companies whose commitment is sincere and those that are just jumping on the bandwagon for show. Often, corporate sustainability reports on company websites are full of romantic language that sounds impressive, but how can you pinpoint the “greenwashers?”
To determine the actual extent of a company’s commitment to sustainability, one must sift through the tales of self-less environmental endeavors and examine the reality of its environmental efforts in all its operations. Today, almost all companies have sustainability directors and often shiny new departments dedicated to monitoring and improving the business’s impact on the earth, but many still do not fully report the figures that indicate significant change is in progress.
Yet, through careful research and the help of third party reporting as from the Carbon Disclosure Project, it is possible to learn the actuality of a company’s commitment to sustainability. Using such information, I recently examined data on greenhouse gas (GHG) emissions from some of the firms of the S & P 500. The companies who do report on emissions at all (already more dedicated than some) have at least an estimate of their total GHG emissions are and goals for future reductions. Somewhat encouragingly, many corporations have already reduced emissions over the past five or ten years and continue to raise the bar for the future (although noting how far in the future is an important point).
Fewer companies acknowledge all the many sources of their emissions and report figures for those sources individually. Companies that do so, in my opinion, show a greater commitment to meaningful action and have taken the first step in reducing their carbon footprint from every angle. For example, for many of the largest corporations in the country, employee business travel constitutes only a small percentage of the total carbon footprint. However, those willing to track (and perhaps even address) this seemingly negligible carbon source seem to be more dedicated to the cause than those who do not.
Some companies, such as International Paper, report on their total global emissions and confront the challenge of greenwashing by referring to it directly. International Paper estimates its emissions from employee business travel, but acknowledges that depending on whom you ask, estimates for a flight between New York and Los Angeles may differ by up to 25 percent (IP Sustainability Update, 2010).
Others, such as Bank of America, report on known emission statistics from employee business travel and break it down according to specific source. Bank of America even acknowledges its shortcomings, proclaiming “We will report on broader metrics and targets as appropriate and as we become better able to quantify, analyze and report on them across the Bank’s global operational footprint” (Carbon Disclosure Project, 2009).
While reporting GHG emissions is not conclusive evidence of an environmentally conscientious company, it is not a bad place to begin an investigation. There are many ways in which to improve one’s environmental impact, and businesses do not often hesitate on informing the public of how they are doing so. However, transparency in reporting the ways in which you still need to improve and providing clear information on all sources of emissions is a good sign that a company has a noteworthy commitment to its environmental claims.
It is now six minutes to midnight. As total annihilation from nuclear war fades to the background and climate change takes center stage as the primary threat to our existence, the Bulletin of Atomic Scientists offered this symbolic gesture of hope. They have turned back the Doomsday Clock one minute, primarily because countries are cooperating to reduce their nuclear arsenals, as well as making unprecedented efforts to reduce greenhouse gas emissions globally. Noting that one key to this “new era of cooperation” is the changed US orientation toward international affairs, they also noted a shift in world opinion that nuclear weapons are no longer a useful tool for conflict resolution. Phew…
Satellite imagery of Earth, long used to collect information about activities on Earth’s surface, is being made available as a key tool to help communities understand and plan for climate change. Much like some utilities are sharing bigger-picture information to help consumers make better decisions about energy use, both the CIA and NASA each recently announced programs that expand sharing of existing satellite imagery and data to help climate scientists and decision-makers quantify climate influencing activities, measure effects, predict outcomes, and take action. The imagery and data collected by these satellites is incomparable to any other research tool, and the sharing of it should move us quickly toward better analysis around some of our most vital climate questions.
NASA’s Terra EOS spacecraft has been collecting satellite information of Earth’s vital signs since February of 2000. Currently, NASA is using data collected from the Terra satellite to assist California with their required emissions inventory report–conducted annually by the California Energy Commission and California’s Air Resources Board–and is working to help develop a carbon budget for California. NASA intends to use the California model to work toward developing a national carbon budget.
The CIA and the Pentagon’s growing involvement in climate science shows that climate change is no longer solely an environmental concern, it is a national security concern–from severe weather, to starvation, to war–and the potential impacts are staggering. The increased cooperation and growing awareness indicated by the opening of previously closed doors, despite the 11th hour feel, is exactly what we need to have any hope of understanding and meeting our climate challenges.
Smart meters that directly monitor electricity usage trends are being rolled out in massive numbers globally, and there is much discussion about the environmental benefit of assuring that this detailed information is made quickly available to those who are actually using the energy. A smart meter, combined with an on-line interface for the consumer to analyze their moment-to-moment usage, provides instant feedback on energy use—allowing the user to make more informed choices about their energy use habits, choice of appliances, and efficiency measures to reduce both energy cost and consumption.
Google.org and their partners are some of the leading advocates for developing and maintaining the infrastructure to provide this transparency globally. They have invited energy partners as well as device partners to work with them to deploy that infrastructure, and provided the Google Power Meter—a free, on-line program that works with enabled smart meters to provide detailed and immediate feedback on energy consumption.
Georgia Power is currently rolling out its own Smart Meter. They list feedback via an on-line interface as a future capacity. Of those utilities that are currently providing a smart meter along with some interface for accessing the information, some are partnering with Google, while others have set up their own programs. If you are not within the range of a Google partner and your company does not provide the information, there is a meter that you can purchase that is compatible with the free Google Smart Meter program…but they are currently on back-order.
One of the three key elements in the Google Call to Action on Consumer Energy Information, posted December 15th in preparation for the Copenhagen Summit, calls for the inclusion of carbon intensity information (source and content) of the electricity that is being used. Even if you track your energy usage and drive an electric hybrid, the true barrier to emission reduction is at the source. A recent study noted that coal-fired power plants produce 2/3 of U.S. fossil fuel electricity and emit more than 80% of fossil fuel-related GHGs.
Though Southern Company has recently put the project on holdbecause of uncertainty around EPA’s air pollution regulations–Georgia Power, in addition to taking action on installing smart meters, is among those working to convert a coal-fired plant to biomass. Wouldn’t it be amazing to not only take an active part in managing your energy cost and footprint, but to also witness the decreased carbon intensity of the energy you use as the whole infrastructure changes?
There’s a lot of talk of electricity prices going up if cap-and-trade legislation is passed as Utilities will most likely be the most affected early on. States that that have the majority of their power coming from hydroelectric will not be affected much. Not only do they avoid the use of fossil fuels but they also have cheap power. (We do not advocate hydroelectric as it generates methane from the back up of organic matter and disrupts fish migration.) Three states stand out: Idaho, Washington and Oregon. Idaho has the lowest retail price for electricity in country at .0507 cents a kWh, and the highest percentage of hydro at 78.6%. Washington and Oregon are .0637 cents (73.7% hydro) and .0702 cents (61% hydro), respectively. Oddly enough these states will need to heavily subsidize low-carbon energy production to make it worthwhile.
The states that will benefit the most from renewable energy investment have relatively high energy prices and burn a lot of coal. In other words, solar or wind power projects will generate more carbon offsets and will get more money for the power generated. Delaware and Maryland, for example, get 65.9% and 59.2% of their power from coal and their kWh price is slightly over 11 cents. Ohio is in the same boat with 85.8% of their power coming from coal and a rate of almost 8 cents a kWh.
If you’d like a copy of a spreadsheet with a comparison of all the states’ energy sources and prices send me an email: email@example.com.
We have seen the t-shirts that say “Green is the New Black.” The inference is that Green is a style; a fad that will go away. In a way, we have seen a lot of this attitude as we meet new people in the industry. The problem is that they are looking for the next big thing. I met with a friend recently who has been involved with “Green” for at least ten years. She’s branching out on her own and launching a new environmental venture. When asked what she would call it, she was definitive in saying “Green” will NOT be in the name.
We had lunch with another client who has been in the environmental arena for 30 years. She was both knowledgeable and open. Her lament was with those who have just showed up and don’t understand sustainability. She is clearly happy that more people are aware and interested in the environment. She was also very receptive to new market entrants who want to help move forward the agenda. Where the problem lies is with those who see this as only a money making proposal - folks that don’t care about the environment.
We have seen our share of people whose first question is: “How do we make money from being green?” That’s kind of like asking, “How can I help make a big Green bubble?”
A few weeks ago we met with a client who said the definition of “Green” is doing the same function using fewer resources than before. When going Green means increased productivity then you know you’ve got long-term success and not a fad.
Bottom line, you have to define the resources you’re using so a reduction plan can be in place. In other words, measure the CO2e you create and reduce it. Depending on your business it can be handled by a basic Scope 1 and 2 carbon audit or in other cases a more complex Life Cycle Assessment.
Too often I speak with people who have a skewed view about Carbon Markets. First, I hear about the price being too low and/or too volatile. Second, I hear about the fact that Wall Street will get rich based on trading of Carbon Dioxide Offsets/Permits.
In answer to the first issue, CO2e is a commodity, much like soybeans, oil and copper. So, its price rises and falls based on supply and demand. It is not surprising that legislation is a major driver of price as well. In 2009, the price dropped as economic activity fell and thereby less CO2e was created.
A recent discussion with a respected energy attorney focused on the fact that CO2e markets are based on regulation. The lawyer was stating that we are trading air that without contractual obligations these commodities wouldn¹t exist. This is similar to interest rate trading. It does not make it less of a market. In fact, on some level it makes it easier to trade, as delivery is notional like derivatives.
Carbon will be trade-able across the globe. The price will be transparent and, like most commodities, volatile. I never hear people complain that oil should not be traded, but it went from $20 a barrel to $120 a barrel over two years. Then, it went to $50 a barrel last year and is now $85 a barrel. Does this mean that we shouldn’t trade it? Very strange.
Further, 2009 saw an increase in volume traded. Carbon credit volume was $136 billion last year, compared with $126 billion for 2008. Volume increased 70% to 8.2 billion tonnes. This tells me the market is growing and will continue to be important.
In relation to Wall Street’s participation, that is the point of markets; markets need market makers. Markets are important for transparency, price setting and efficiencies. It is throwing the baby out with the bath water to say markets are “bad” because Wall Street firms will make money off of it.
The point is carbon offset markets are significant, growing and important. Please understand that this is not a fad but a tipping point.
“Beware of Cap and Trade Bills!” warns the Heritage Foundation. It “would put the nation on a path of serious economic harm.” Alan Oxley, the Chairman of World Growth declares, “The cap and trade system at the heart both the House and Senate bills would saddle Americans with severe economic consequences.” It will, in the words of the unfortunately imitable Whole Foods CEO, John Mackey, “raise taxes and increase regulation, and, in turn, lower our standard of living and lead to an increase in poverty.” Cap and Trade is just too expensive! TOO expensive!!
Not so fast . . .
According to a December 2009 EPA study, the proposed House greenhouse gas cap-and-trade legislation does not seem to be a large economic burden. Yes, we said it - the change to make Carbon Emissions an expense will NOT have a large effect on the economy!
The report points out that energy expenditures “account for less than 2 percent of the value of U.S. manufacturing output”. That is not surprising when you think of the nature of manufacturing in the United States. Many of our manufactured products are higher-end products, not commodities (see this article from the San Francisco Chronicle).
The EPA report further identifies the energy intensive industries that WILL be most affected: chemicals, paper, nonmetallic minerals (e.g., cement and glass), or primary metals (e.g., aluminum and steel) sectors, and the processing sub sectors of a few mineral industries. These “energy-intensive trade-exposed industries account for 12 percent of total manufacturing output and 6 percent of manufacturing employment (half a percent of total U.S. non-farm employment), but almost half of manufacturing greenhouse gas emissions.”
Well, so far so good. The overall US economy is much larger than its Carbon Intensive Components. It would survive and thrive regardless of Carbon Constraints.
But, what about these Carbon Intensive industries? Won’t they be hit hard?
The answer seems to be, “Not really.”
The EPA report assumed a $20 per metric ton price for CO2e in its cost calculations. which is a very realistic number given the experience of the European Carbon Exchange. At this level,, the average increase in production costs in the carbon intensive industries “would range from less than 0.5 percent to slightly more than 2.5 percent”.
Hmmm, a 2% increase in the cost of manufactured goods or inundated cities, millions of climate refugees and a world without polar bears (or thousands of our other furred and feathered friends). I call that a bargain.
So the economy will not be significantly hurt. The environment will be better off!