Climate Change Series: Corporate Responsibility

Introduction

Historically, corporations have tended to view global climate change and greenhouse gas emissions as environmental issues that don't affect their bottom line, and therefore don't affect how they do business.

That's changing as business leaders become increasingly aware of the ways in which climate change threatens the profitability and value of their companies — and of the global economy in which they operate.

Three prominent members of the business community — Mindy Lubber of Ceres, Mark Buckley of Staples, and Lee Kane of Whole Foods Market — weigh in.

Mindy Lubber is president and a founding board member of Ceres, an internationally recognized nonprofit that mobilizes business leadership for a sustainable world. Lubber also directs the Ceres Investor Network on Climate Risk (INCR).

Dealing effectively with climate change requires engaging our capital markets — both corporations and their investors — on the economic imperative of sustainable global growth. I think we're poised to do just that in the next few years, as the costs and risks associated with climate change become increasingly clear to business leaders and shareholders.

In 2011, losses for U.S. property and casualty insurers exceeded $34 billion. That summer's drought in Texas annihilated cotton crops and wreaked havoc on shareholder values for Gap Inc. and Levi Strauss & Co. Hurricane Sandy, which ravaged coastal areas in much of the Northeast in October 2012, will cost several billions dollars in insured losses and another $50 billion in governmental aid.

The challenge for companies is to integrate environmental sustainability into every aspect of their operations.

In the early 1990s, Ceres pioneered the Global Reporting Initiative (GRI), a set of frameworks and reports voluntarily adopted by over 4,600 multinational corporations. The GRI enables greater organizational transparency about economic, environmental, social and governance performance. It's a business school truism that "what gets measured, gets managed." The reports drive transparency about the links among a company's economic, environmental and social bottom lines, and help set standards and identify best practices.

The challenge for companies is to integrate environmental sustainability into every aspect of their operations. Some of the best companies now link employee compensation to achieving corporate environmental goals — reducing carbon emissions, eliminating wasteful packaging, using water more efficiently — just as they have historically linked employee compensation to profitability.

Businesses increasingly are setting concrete, measurable sustainability goals for their products, facilities and suppliers. The immediate benefits are efficiency that add to the company's profitability and competitiveness, improved employee morale and recruitment, and better customer relations.

Investors in capital markets seek to maximize returns and minimize risks on their investments. The Ceres Investor Network on Climate Risk (INCR) supports 100 institutional investors with assets totaling $11 trillion by identifying the financial opportunities and risks associated with climate change and by tackling the policy and governance issues that impede investor progress toward more sustainable capital markets.

Governmental regulators can play an important role in helping capital markets deal with climate change. For example, the Securities and Exchange Commission (SEC) now regards climate change as a "material risk" to publicly traded companies and is requiring additional disclosure of those risks on a company's annual filings. That's not because tree-hugging hippies have taken over the SEC; it's because SEC regulators recognize the serious nature of the economic risk climate change presents to publicly-traded corporations. The recognition that climate change poses a material risk to businesses is also why sustainability accounting is now the fastest growing line of business for the major accounting firms.

We live in an increasingly prosperous and populated world. That prosperity is a good thing, but it means we've got to move forward quickly with building a new, clean energy, low emissions system that can power that economic growth in a sustainable way. Integrating the costs and benefits of environmental sustainability into our capital markets is critical to making that transition.

Mark Buckley is vice president of environmental affairs for Staples, the world's largest office products company.

Staples has 88,000 employees in 26 countries with an interdependent supply chain that reaches over 100 countries, and we're all on a learning journey towards doing business in more environmentally sustainable ways. For the first few years of our existence, Staples viewed environmental sustainability primarily as a matter of compliance with existing environmental laws and regulations. Basically, like most companies, we wanted to make sure we obeyed the law and didn't go to jail.

In 2002, we moved towards greater transparency with our stakeholders about the environmental impact of our business practices. This started in-house as we began measuring our waste streams and energy use. It was an important step, but it was seen as peripheral to the company's primary mission.

We think there's a competitive advantage in being "first to market" with new, cost-effective, more environmentally sustainable products, practices and services.

Over the next few years we steadily integrated sustainability into every aspect of Staples' operations, beginning with understanding our carbon footprint. We developed a fully integrated energy and carbon plan, starting with our nearly 3,000 retail and non-retail facilities worldwide. We put energy efficiency language in all our leases and invested in energy efficiency in our older buildings. Just this month we converted 100 percent of Staples' electric consumption in the United States to renewable energy sources.

We now generate about 15 megawatt hours of solar power from rooftop installations on over 40 buildings across the country. Not only is there a positive carbon benefit for us, but we also have a built-in long term solar hedge against rising energy costs. We don't just do this because it's good for the planet; we're also creating market forces that fundamentally change the way we think about doing business, and that allow us to remain profitable and growing.

Since 2005, we've reduced the energy intensity per square foot of our buildings by 30 percent; improved the overall fuel economy of our truck fleet by 30 percent; and improved our carbon efficiency by 35 percent. Not only is that good for the environment, it makes us more efficient and saves us a lot of money.

All that is important, of course, but since only 7 percent of our total carbon footprint is generated within the four walls of Staples, Inc., what do we do about the other 93 percent embedded in the products, packaging and shipping policies of our suppliers?

We're now working with our suppliers to find ways for them to operate in more environmentally sustainable ways too. It's win/win/win/win situation: It cuts their costs, it cuts our costs, it cuts the impact on the environment, and it benefits our customers.

These collaborations give us the opportunity to create new models of doing business that fundamentally change markets, and change the rules of the game. From Staples' perspective, we think there's a competitive advantage in being "first to market" with new, cost-effective, more environmentally sustainable products, practices and services.

Lee Kane is North Atlantic regional eco czar and regional forager for Whole Foods Market, the world's leading natural and organic grocer.

At Whole Foods Market, our "green mission" is in our corporate DNA. With more than 340 stores, we're a small player in the national retail grocery market, so we try to be pragmatic and leverage our influence as much as we can.

We start by being as transparent as possible about the environmental impacts of our business. We provide our customers with lots of information about where the food they're buying comes from and how it was produced.

We are still learning how to reduce our carbon footprint. In 2008, we made a corporate decision to install monitoring devices in all our locations to measure the use of energy, and to track water usage and other resources. In 2010, based on what we learned, we set a fairly aggressive goal — which we're on target to meet — of reducing our energy usage per square foot by 25 percent by 2015.

Climate change is an existential threat to our civilization and our humanity, and there's no single or simple solution to the problem. The corporate community needs work collaboratively to meet the challenges we face.

All of our new buildings are built to meet LEED (Leaderships in Energy and Environmental Design)standards, to reduce their environmental impact and to demonstrate that a company like ours can both attain these environmental goals, and save money at the same time. One of our newest stores, in Dedham, Mass. has been called “the greenest supermarket on the planet”. The store generates 90 percent of its energy on site with a 400 kilowatt fuel cell and a 80 kilowatt solar panel installation on the roof. When the power grid shuts down during a major storm, that store stays open — operating on its own power.

While looking at the energy we consume, we have also looked at what we throw away. Much of our waste stream is food, and 70 percent of waste stream is compostable. If you bury food in a landfill it produces methane gas which is 72 times more potent than carbon dioxide over a 20 year period. Our stores sort all waste into three major streams: compostables, recyclables, and the remaining 10 percent or less that gets buried in landfills as trash.

When I started as eco czar in 2003, Whole Foods Market didn't compost at all, and neither did any of our competitors. And until we in the supermarket industry started to think about this collaboratively, none of us could get anywhere with composting because we didn't have a surrounding infrastructure to enable it to happen. We worked through the Massachusetts Food Association and the Massachusetts Department of Environmental Protection to bring most of the retail grocery chains in Massachusetts together to create that infrastructure.

We did such things as buying containers in bulk, which created a market for manufacturers and helped to bring down prices for compost and recycling containers. With all our stores, there was now enough route density to make it worthwhile for waste haulers to put trucks on the road to pick up compost. That, in turn, provided the necessary incentive for some compost facilities to go through the permitting process to set up industrial-scale food waste operations.

Today, many Massachusetts grocery stores compost the majority of their food waste; and I believe this as been a model of what we're going to need going forward.

Climate change is an existential threat to our civilization and our humanity, and there's no single or simple solution to the problem. The business community is going to need many more examples of competitors finding ways to collaborate to create new, environmentally-sustainable ways of doing business to meet the challenges we face.

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