Monday, January 5, 2015

2014 Year End Review: Sustainable Business

In 2014 it became much harder to ignore climate change and whether through supply chain pressures or through their own strategic planning, businesses are engaging sustainability in unprecedented numbers. Some of the world’s leading companies are exploiting the transition to sustainability as a powerful opportunity while others are reluctantly being dragged along. Whether leading from the front or being pushed from behind the momentum towards change was undeniable last year.

The increasing volume of those engaged in sustainability is lowering the cost of getting on-board the low carbon/low impact economy. Addressing climate change is getting less expensive and the rewards are becoming more apparent. The costs and reputational risks associated with ignoring the issue have also been made powerfully evident in a number of reports. The business case for sustainability is getting increasingly difficult to ignore.

The profit potential of a clean economy is an incentive that is driving private sector interest. The false choice between the environment and the economy has given way to the realization that we can walk and chew gum at the same time.

There were a spate of reports in 2014 that showed that climate change is with us now and destined to get far worse unless we do something about it.

One of the most important achievements in 2014 involves a shift away from short-termism, the bane of sustainability. Companies are even abandoning lucrative elements of their product mix in favor of a more responsible strategy. This is the case for big chain drugstore CVS which removed tobacco from its shelves in 2014. CVS sees the brand value in relinquishing tobacco even though it generates 2 billion in annual sales. Others like Apple share the view that sustainability makes good business sense.

The case for a low carbon economy is being made by some very serious business people. The Worldwide Charter for Fair International Commerce (WCFIC), is a global initiative which supports international businesses showcasing social and environmental sensibility through a code of conduct and a set of universal principles. Signatories commit to adopt and implement the Charter’s Principles to demonstrate its commitment to be among the world leaders in fair business and corporate responsibility. They also agree to take all possible measures to avoid or minimize damage to the environment and human health.

A powerful coalition was formed in September 2014 called "We Mean Business" they see climate change as both a very serious threat and as a tremendous opportunity. They advocate a host of solutions including setting ambitious targets, reporting emissions and scaling low carbon investments. They show how companies can "unleash a wave of innovation in low carbon technologies, create new products and services, generate employment, reduce energy consumption and increase savings if the right policies are in place."

We Mean Business has published a report titled, THE CLIMATE HAS CHANGED, which shows how companies making investments in low-carbon technologies are realizing a 27 percent average internal rate of return.

"The [report] underlines that we do not have to choose between climate action and economic growth," said Unilever CEO Paul Polman. "The report shows this is a false dilemma. They can be achieved simultaneously. The next 15 years are critical. Around $90 trillion will be invested in cities, land use and energy infrastructure globally between now and 2030."

The report indicates that we can be both prosperous and responsible. Given the anticipated level of infrastructure spending, making that investment compatible with efforts to combat climate change will not add very much to the bottom line.

Another group of sustainability leaders is known as RE100. This action from the We Mean Business Coalition includes more than a dozen corporations (BT, Commerzbank, FIA Formula E, H&M, IKEA, KPN, Mars, Nestle , Philips, Reed Elsevier, J. Safra Sarasin, Swiss Re and Yoox) who have made pledges to derive all of their power from renewable sources of energy by 2020. As explained on their website, investing in renewable energy is, "a smart business opportunity. In addition to providing clean power for a business, renewable energy investment can provide financial returns compatible with - and in some cases even higher than - other mainstream investment options."

One group on the front lines of combating climate action is called the Divest-Invest coalition. With the tag line of, "divest from fossil fuels invest in climate solutions," this coalition of key investment groups includes the Rockefeller Brothers Fund. Together they are focused on accelerating the transition to a sustainable and equitable economy by encouraging foundations to divest from fossil fuels and invest in clean energy. They indicate that fossil fuel stocks are over-valued as most of their reserves cannot be burned. They also say that with clean energy investments we can get good, safe returns while helping to build a new energy system.

Investors are also showing leadership on climate change. As part of organizational effort like the Ceres Declaration, investors are also putting their money where their mouth is and supporting carbon pricing and clean energy initiatives.

The fossil fuel industry is under threat both from distributed generation of renewable power and from the burgeoning realization that their assets will end up being stranded. In 2014, the Bank of England said unequivocally that the “vast majority of reserves are unburnable.” In May, Barclays bank downgraded the bonds of the entire US utility sector. Some utilities are even abandoning their fossil fuel assets in favor of renewables. This is the case for German utility E.On and U.S., utility NRG which has committed to cutting its carbon emissions by 50 percent by 2030 and 90 percent by 2050.

The business case for collaboration has been building for years and in 2014 the message appears to be getting through. Collaboration is key to a sustainable supply chain and it is becoming increasingly apparent that we need collaboration to drive innovation and build a sustainable future.

Other collaborative efforts this year included the Natural Capital Business Hub, the new Closed Loop Fund, and a business/government pledge to eliminate deforestation by 2030.

At the UN Climate summit in New York City last September, companies made a total of eleven major pledges including efforts to decrease deforestation, and support carbon pricing. 

Changes in palm oil plantations are one of the great sustainability success stories of 2014. The efforts to monitor and pressure disreputable players in the palm oil industry have succeeded in securing pledges to reduce deforestation and protect the habitat of endangered animals like the Orangutan.

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