U.S. SEC Directs Companies to Disclose Material Climate Issues

By Ryan Schuchard, Manager, Research & Innovation

On January 27, the U.S. Securities and Exchange Commission (SEC) ruled that climate change is a category of risk that companies should consider when disclosing material risk and opportunities. Along with this, the SEC is providing interpretive guidance for disclosing climate risks on key issues such as the:

• impact of legislation and regulation
• impact of international accords
• indirect consequences of regulation or business trends (such as risks driven from legal, technological, political, and scientific developments)
• physical impacts of climate change

In her statement, SEC Chairman Mary Schapiro pointed out that these issues can cut straight to investor concerns about companies’ liquidity, capital resources, and results of operations, and therefore companies have the obligation to determine their material impacts, and then reliably communicate that information to investors. This is, she said, the “bedrock of our disclosure framework.”

The SEC will release detailed guidance on its website soon. Until then, the Global Framework for Climate Risk Disclosure (PDF) offers insights on how companies will address such disclosure in practice.

Many companies (PDF) already disclose climate issues in their SEC reports, and this guidance will encourage them to provide more robust information. It will also likely spur other companies to start reporting on climate issues. Company reporting for the SEC will come in addition to existing efforts, such as annual voluntary submissions to the Carbon Disclosure Project, which offers a standardized way to communicate broad climate issues to investors outside the United States.

While the SEC decision is in step with scientists’ increasing confidence in the mechanics of climate change, and with the growing number of investors asking for details on how climate change will affect their business, the ruling may nonetheless leave it to companies to figure out what to report. That is because the SEC is explicitly taking no position related to the evidence of climate change itself, but rather saying that companies must make their own judgment.

As more details become available about the SEC’s instructions to specify climate risks and opportunities, we will be working closely with our members and clients to navigate this emerging framework, understand the best practices and benchmarks for climate reporting, and help companies get the most out of their investor-related disclosure efforts.

Sustainability Can Drive Innovation—But Only Through Disruption

By Aron Cramer, President and CEO

All of a sudden, companies are waking up to the fact that sustainability can drive innovation.

Innovation is one of those evergreen topics forever featured in business school reviews, classrooms, and business magazines. The link to sustainability, however, is new, and is steadily replacing old thinking that saw corporate responsibility mainly as a way to keep a company’s reputation out of trouble.

Companies looking to get this right need to think about innovation for sustainability in three ways: products, processes, and business models.

Sometimes the most familiar products offer the most radical opportunities for change. An executive at a large beverage company told me recently that they are thinking about selling packets of soluble powder instead of shipping their drinks around the world in cans and bottles. This would reduce energy and carbon emissions, as well as packaging. In the meantime, we still have bottles and cans. So another company, Coca-Cola, is taking on that issue: The company’s new “PlantBottle” is made of recyclable plastic comprised of 30 percent renewable, plant-based material such as sugar cane.

Business models are also changing to meet the challenge. Enter Best Buy, which is asking itself what business it’s in, and charting a path that leads from selling DVD players to selling and servicing small electronic vehicles. Kal Patel, the company’s executive vice president of emerging business, explained to me that Best Buy sees this as a path of simultaneous continuity and discontinuity. The continuity is in providing quality servicing: sort of a vehicular version of the Geek Squad. The discontinuity is in turning the back of Best Buy’s familiar blue buildings into service bays, remaking the company’s physical footprint.

Business process is also ripe for an overhaul. Maersk Line, which operates one of the world’s largest fleets of container ships, has pioneered the logistics industry’s answer to the slow food movement: “super slow steaming.” By running ships at speeds as low as 10 percent of top capacity, Maersk saves US$1 million, 3,500 tons of fuel, and 10,000 tons of carbon-dioxide emissions per ship every year. To make this work, of course, Maersk and others have to convince their customers, the world’s largest manufacturers and retailers, that speed to market is not the most important value it delivers.

Even Detroit, which has recently earned a well-deserved reputation for poor innovation, shows signs of change. Ford Motor Company Executive Chairman Bill Ford now speaks about a future that relies on a mix of car ownership, public transportation, and car sharing—a far cry from the mass production system his great-grandfather Henry created to establish the model of private vehicles.

One of the keys to innovation for sustainability is opening up the process of product, process, and business model design to a wider community, something that technology and growing comfort with stakeholders makes more possible than ever. I participated in a project at the World Economic Forum with Indian design students who mastered efficient water use much more quickly than their counterparts from the United States and Europe. So part of the solution lies in getting the right people around the table.

While the path here is increasingly clear, there are two cautionary notes to remember.

First, real innovation is disruptive. No one gets very far by sloshing some green paint on our current economy. But by reimagining products, processes, and models, transformation is possible.

Second, innovation and sustainability don’t automatically link. As Patrick Whitney, the dean of the Illinois Institute of Technology’s Institute of Design, put it to me last spring: “When innovation meets sustainability, it’s usually a train wreck, because it just promotes more consumption.”

But more and more, leading companies are looking for ways to reduce consumption and increase value. That’s the path we need to follow, and innovation has a crucial role in getting us there.

How Sustainability Survived the Great Recession

By Aron Cramer, President and CEO

Around this time last year, the deathwatch for sustainability was on full alert. Many wondered whether the "green bubble" would burst the same way the tech bubble and the housing bubble did. Would sustainability follow Lehman Brothers into the pages of history, a relic of the good times?

As we go into 2010, it's clear that sustainable business is not only here to stay, it will define the next wave of prosperity.

Consider the evidence: The number of sustainability reports--where companies report their performance against social and environmental criteria--continues to increase, according to the Global Reporting Initiative. Sustainability is everywhere on the agenda of the World Economic Forum meeting in Davos, January 27-31, 2010. And nearly nine out of ten business leaders surveyed at our recent BSR Conference said their companies' sustainability budgets would stay the same or increase this year. Suffice to say, the predictions that companies would abandon their commitments to corporate responsibility have not come true, and sustainability is as critical a business imperative as ever.

It's turned out this way for three main reasons.

There's money to be made. Recessions, even "Great" ones, come and go. When historians look back on the annus horribilis of 2009, they will likely conclude that the sharp increase in commodity prices was more a sign of the future than the sharp fall in share prices and employment. The prices of core materials like oil, wheat, and iron shot through the roof during the first part of the year. Conflict erupted as supplies of food, water, and energy dramatically dropped, and businesses battled over the competing uses of commodities such as biofuels and food. All this convinced the C-suite that resource inefficiencies are a material risk to their businesses today, and will be even more so tomorrow. To outlast the Great Recessions, companies have to improve resource efficiency to position themselves for success.

There's also a top-line story here. Companies now know that big global challenges create big global markets. That's why blue chip companies like GE, Philips, and Vodafone have all identified growth opportunities in areas like health care, consumer energy use, and social applications of mobile phone technology. It's why venture capitalist John Doerr is banking on a renewable energy revolution that he estimates could grow as high as US$6 trillion, or six times the size of the Internet business.

Despite (warranted) concerns about short-term thinking, business actually does look to the future. Look no further than the strong and growing business constituency for action on climate change. While governments move slowly on Capitol Hill and in Copenhagen, business leaders (and NGOs) are making the case for action. Executives responded to the tepid outcome in Copenhagen with a cry for governments to do better. Deutsche Bank Vice Chairman Caio Koch-Weser put it this way: "A strong deal is essential to create the rules, price signals, and risk-return incentives that business needs." Shell CEO Peter Voser called for "much more" to happen to build a strong deal on climate. They are doing this because they know that a price on carbon is coming, and they need to start planning their future today.

Society's expectations have changed--forever. There's just no turning back. Can you imagine the response if companies pulled back from their efforts to protect labor practices in their supply chains? If companies stopped providing information about energy and water use, or workplace diversity? Consumers--and the media--now view such activities as another dimension of product quality, and they're not considered optional.

Critics of sustainability have been planning its funeral several times in recent years. They have missed what most business leaders now know: Over the next half century, winning companies will be those that roll up their sleeves and build solutions to our most pressing global challenges. We need businesses that devote themselves to delivering a climate-friendly energy system, making efficient use of scarce natural resources, and creating efficient transportation for mega-cities. And because companies are waking up to the fact that this is where tomorrow's markets will be made, more and more are on that journey.

This is why sustainability not only survived the "stress test" of the Great Recession, it will define the next wave of prosperity.

This blog also was also published in Fast Company.

Support for Haiti

By Diane Osgood, Vice President, CSR Strategy

As news pours in from Haiti, it is clear that the level of destruction and human suffering is immense.

BSR and many member companies are involved in Better Work Haiti, an ILO/IFC program to improve worker conditions in garment factories in the Port-au-Prince industrial zones.

We got word last night that Richard Lavallée, the program manager for Better Work Haiti, is safe. We don’t yet have information on the status of the factories or the workers participating in the Better Work program; however, we will post updates on this blog with information and recommendations for emergency relief support.

What follows is a list of on-the-ground organizations that are accepting donations from individuals and companies for disaster relief in Haiti:

• American Red Cross and Mercy Corps are providing general emergency relief. You can text “HAITI” to "90999," and US$10 will be given through the U.S. State Department to the Red Cross, charged to your cell phone bill.

• UN World Food Programme is providing food supplies. Partners in Health is coordinating medical supplies.

• Yele: Wyclef Jean's organization has a multitude of programs rooted in the slums of Port-au-Prince.

• Restavek Foundation: This program works with the most vulnerable children—those in servitude and slavery.

PPPs and Eco-city Infrastructure in Europe

By Farid Baddache, Director, Europe and Nandini Hampole, Associate, Advisory Services

Public-private partnerships (PPPs) in Europe on eco cities, and for other smart and clean technologies, have been on the rise. And the recent European Commission Recommendation to mobilize the information, communications, and technology industry to facilitate a transition to a low-carbon economy is sure to provide a further boost.

This Recommendation comes on the heels of a 2007 target set by the European Commission to reduce GHGs across Europe by 20 percent below 1990 levels by 2020. In addition, EU Renewables legislation binds the region to satisfy 20 percent of its energy consumption from renewable energies. This makes Europe a fertile testing ground for larger and longer-term strategic partnerships between companies and governments.

We see these partnerships begin to take root in cases like GE who recently entered into a partnership with the Assembly of European Regions to develop ‘clean energy solutions’ for potentially 270 regions across 33 European countries. Earlier this year, the Danish government and companies including IBM, Siemens, Better Place, and Dong Energy kicked off EDISON, a project to pilot smart grid infrastructure in Denmark. Better Place also intends to build on its ongoing work with the governments in Israel, Hawaii, Canada, and San Francisco to extend to Denmark its automated battery swapping stations.

These efforts mark a good start and provide important insights for the future success of similar PPPs.

First, the development of eco-city infrastructures can succeed only if companies take the long-term view. Siemens, for instance, is looking to receive orders for more than US$6 billion by 2014 for intelligent power networks as it estimates the demand for electricity will double by 2030, due to trends like e-mobility.

Secondly, public authorities can contribute by providing more stability and continuing to foster these new technologies. Governments—in particular, city governments—have a large role to play in enabling a large-scale deployment of these initiatives, such as Paris’ Autolib (an electric car sharing scheme built on the success of the city's bike-sharing program) and the administrative Region of Paris, which provides financial incentives to customers installing equipment that use renewable sources of energy.

Lastly, voters and consumers need to endorse and support such partnerships. We need to see consumers as agents of change ready to move beyond their sometimes tepid acceptance of smart grid technology. A behavioral change is requisite, and technologies like smart meters which target lower energy consumption make sense only if consumers also learn to reign in their energy use.

We think activating consumer participation in energy efficiency is key to transforming PPPs into success. With this, we could move beyond traditional public-private partnerships into a next generation of “P3” structures—public-private-people partnerships.

People of the Years to Come?

By Aron Cramer, President and CEO

Time magazine is a conventional publication which gives a conventional accolade (“Person of the Year”) to typically conventional candidates. It recently named Ben Bernanke as Person of the Year 2009.

More interesting, however, is 2009’s third-place finisher: the Chinese worker.

Time has done a service by bringing the Chinese factory worker out of the shadows and into the limelight that she and he deserve. They may be a less well known than Nancy Pelosi (who came in fourth), but they may well have a greater impact on our world in the decades to come.

Throughout the past decade, this worker has been alternatively characterized as terribly oppressed, superhuman, out to steal Western jobs, etc. More often than not, the portrayal has said more about the people writing the stories than the of the millions of Chinese workers. These workers—most of them migrants from rural areas to the fast-growing cities of China’s east coast—have acted as a Rorschach test for a world that simultaneously gobbles up consumer goods sold at deflationary prices while decrying the system that produces these goods.

Looking ahead, these Chinese factory workers will shape our world far beyond how cheaply a DVD player can be sold at Wal-Mart. If we think about the impact they will have not as workers, but as consumers, citizens, and parents, we see a rising generation of Chinese urban dwellers, whose choice of politics for China and values and aspirations for their children, will help define the future of the world’s most-populous country. And the way they square those aspirations with sustainability principles will define China’s footprint for generations.

So, well done, Time. Here is an instance in which the much-maligned mainstream media got it at least half-way right. In 2050, when it comes time to reflect on the people of the first half-century, the previously faceless workers in Chinese factories will again be front and center. Not because of the impact of the world economy on them, but because of their impact on the world economy.