Oct. 18, 2006

Climate-change strategies help companies stay ahead of the curve

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ANN ARBOR, Mich.—A growing number of companies are learning that implementing sustainable business practices isn’t just good for the environment—it can also be good for the bottom line, says a professor at the University of Michigan’s Ross School of Business.

In a new report prepared for the Pew Center on Global Climate Change, Andrew Hoffman, associate director of U-M’s Erb Institute for Global Sustainable Enterprise, says that companies with a history of climate-related activity are trying to shift their strategies from a focus on risk management and bottom-line protection to an emphasis on business opportunities and top-line enhancements.

The Erb Institute, a joint partnership between the Ross School of Business and the U-M School of Natural Resources and Environment (SNRE), provides teaching, research and public outreach on issues of sustainability.

"Firms that incorporate climate change into their core business strategies will be in the best position to take advantage of emerging opportunities and gain competitive advantage in a changing market environment,” said Hoffman, who will discuss his report at a Nov. 10 conference at the U-M. “Sustainable climate strategies cannot be an add-on to business as usual—they must be integrated with a company’s core business activities."

Hoffman’s report, “Getting Ahead of the Curve: Corporate Strategies that Address Climate Change,” is a "how-to" manual for companies interested in developing effective climate strategies. It is based on a 31-company survey and six in-depth case studies of Alcoa, Cinergy, DuPont, Shell, Swiss Re and Whirlpool. These six companies will share their climate-change strategies at the November conference.

It offers eight specific steps clustered into three stages that describe the various components of a climate-related strategy. These steps include measuring a company’s greenhouse gas emissions, gauging how operations and sales may be affected by climate change-related factors, evaluating options for reducing emissions, setting goals and targets to reduce emissions, developing financial mechanisms to support climate programs, getting employee buy-in, formulating a policy strategy and managing external relations.

According to Hoffman, nearly all of the companies—mostly large, publicly held multinational corporations—surveyed in the report believe that government regulation is imminent and about 87 percent believe federal standards will take effect before 2015.

The report presents "lessons learned" at each step of a climate-strategy development process. Taken together, four overarching themes emerge: ensure strategic timing; establish appropriate levels of commitment; influence policy development; and create business opportunities.

Hoffman says the companies in the report identified three key drivers that "will hasten the transformation to a carbon-constrained world." These include the establishment of regulations, rising energy prices and growing interest within the investment community.

"The prospect of greenhouse gas controls is already altering existing markets and creating new ones, changing the business environment in ways that are real and yet still fluid," said Hoffman, an associate professor at the Ross School and SNRE. "As in any market transition, there are risks and opportunities, and there will be winners and losers. All companies will be affected to varying degrees and all have a managerial and fiduciary obligation to at least assess their business exposure to decide whether climate-related action is prudent.

"The companies in this report believe a proactive approach is necessary to prepare for the coming market transformation and that doing nothing means missing myriad near-term financial opportunities and setting themselves up for long-term political, operational and financial challenges. The rules of the game are changing and companies ignore these changes at their peril."

Hoffman will discuss his report at a U-M conference 9 a.m.-5 p.m. Nov. 10 that will help companies consider the range of available options for developing a climate strategy and to help financial analysts identify benchmarks for industry best practices on the issue.

Held at U-M’s Palmer Commons Great Lakes Room, the conference will explore the risks, rewards, opportunities and barriers surrounding corporate action on climate change and will provide insights from companies that have led the way in taking early action.

Keynote speakers include Winston Hickox, senior portfolio manager for California Public Employees' Retirement System, who will discuss "Motivating Climate-Related Strategies: A View from the Investment Community," and Bill Townsend, deputy CEO of Holcim (US) Inc., who will address “Linking Climate and Business Strategy." Panel discussions will focus on lessons learned from resource-based companies and from utilities, consumer goods and insurance.

Related Links:

The conference agenda

Register for the live Webcast of the conference

Contact: Bernie DeGroat
Phone: (734) 647-1847

Related Categories: Business

Related Keywords: global warming, environment, ecology