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Paul Suff outlines the key steps to take when developing and
implementing a climate-change strategy

All but the most intransigent sceptic now accepts that climate change
is occurring and is predominantly caused by human activity. The
question now is how the world mitigates the impacts and adapts to
inevitable change. While policymakers grapple with negotiating an
international agreement to replace the Kyoto Protocol from 2012,
business leaders must put in place measures to reduce their own
organisations' climate-change impacts and ensure their sustainability.

"Reducing its carbon footprint should be a key strategic aim for every
organisation. We have a collective responsibility to leave the planet
in as good a shape as is possible for future generations," said Moir
Lockhead, chief executive of FirstGroup, when its climate-change
strategy was launched in May 2007. FirstGroup is one of a growing
number of businesses with a climate-change strategy.

"A climate-change strategy is really all about change management,"
comments James Stacey, head of sustainable business at Standard
Chartered Bank (SCB). "It's about considering new things and
prioritising new things."

SCB's environment and climate-change strategy, for example, includes targets to reduce CO₂
emissions from energy consumption by 10% per full-time employee by the
end of 2008, as well as cut emissions from air travel by a similar
amount.

The new environment

Regulation is one of the main drivers behind decisions to implement a
climate-change strategy, as policymakers increasingly look to legislate
to change corporate behaviour. The EU emissions trading scheme has
hastened the introduction of such strategies in many large
energy-intensive companies, while the Climate Change Bill currently
before parliament will mean more UK organisations are covered by
carbon-trading arrangements. Mounting pressure from an investment
community worried about companies' long-term sustainability has also
been a major influence on corporate policy. Investor bodies are
increasingly demanding that companies disclose their climate-change
strategies and actions.

Edward Butt, vice-president of sustainability at Reckitt Benckiser,
told the 2008 Institute of Environmental Management and Assessment
conference that a combination of legislative requirements, customer and
consumer expectations, investor demands, brand and reputation issues
and risks and opportunities lay behind the company's decision to
develop its climate-change strategy, called Carbon 20. The company is
aiming for a 20% reduction per unit in its products' total carbon
footprint - from raw and packaging materials to product manufacture and
from product distribution to product and packaging disposal and
recycling - by 2020. 

Climate change represents a market shift, one that will alter many
existing markets and create new ones. It poses risks as well as
commercial opportunities. The extent of the threat depends on the type
of business and its markets, however. SCB, for example, operates mainly
in the Middle East, Africa and Asia, some of the areas forecast to be
quickly and severely affected by climate change. Preparation is
everything. Lord Stern said in his ground-breaking Stern Review on the Economics of Climate Change
(EiB, December 2006) that a planned approach to dealing with climate
change allows for change in line with natural replacement cycles, as it
will avoid costly retrofits or the abandonment of infrastructure before
the end of its normal useful life. Businesses that adopt a strategic
approach to climate change are likely to reap the benefits. SCB says it
expects to gain from transferring best practice as markets evolve and
from providing funding for clean-energy projects. Other companies that
have put climate-change strategies in place have developed innovative
products and services to meet the growing demand for goods that are
more environmentally friendly. Toyota's Prius hybrid car is one
example.

Understanding the risks and opportunities will make it easier to make
the business case for a climate-change strategy. Stacey says a business
case is fundamental to developing a strategy that works and does not
merely "play at the edges" of what is required. "Where there is a
business case, it is easier to get agreement on acting in a progressive
way towards the environment," he says. 

What's in strategy?

A strategy sets out what needs to change and how the change will be
managed. It will include an intention to do something, how it will be
accomplished and a way of measuring progress. A climate-change strategy
needs to identify both the direct and indirect climate-change impacts
of the business and its products, from sourcing raw materials to
end-of-life disposal, the risks and opportunities emerging from the
changing environment, key measures of performance, plus objectives and
targets. It also needs to outline the actions to deliver the aims. And,
given the increasing demands from different stakeholders for greater
transparency, the strategy must set out how it will be communicated and
the outcomes reported.

SCB introduced its five-year environment and climate-change strategy in
2007. Stacey says it focuses on four key areas: operational impact; how
the bank interacts with its stakeholders; integrating sustainable
development into its lending culture; and developing products and
services that support climate-change solutions.

Edward Butt at Reckitt Benckiser says a climate-change strategy needs to:

• identify all material climate-change aspects and impacts of the business;

• identify financial and non-financial risks and opportunities;

• understand issues and stakeholders and their drivers and strategy;

• outline measurement, objectives, targets and key performance indicators;

• define, demonstrate and communicate the climate-change commitment; and

• be action-oriented.

The strategy should set out both the short-term and long-term aims of
the organisation in relation to climate change, such as a commitment to
halve greenhouse-gas (GHG) emissions from the company's plants within a
specified timeframe. Objectives, targets and key performance indicators
are important as they provide the criteria against which the strategy
will be measured. Strategy formulation is an evolutionary process, with
new demands on organisations - such as new regulation - requiring
changes to meet them.

Climate-change strategies cannot be bought off-the-shelf. Andrew
Hoffman, professor of sustainable enterprise at the University of
Michigan and author of Climate Strategies: How Leading Companies are Reducing their Climate Change Footprint,
says organisations need to develop their own approach to dealing with
climate change. "It needs to fit the culture of the organisation," he
told EiB. He warns against making the same mistake some organisations
made with total quality maintenance, with many importing it from
another business "lock, stock and barrel" without refining it to suit
their own circumstances.

Step-by-step

"Start small and look at direct emissions," advises Hoffman. "You need
to understand your exposure," he says. Although direct emissions should
be the starting point, Hoffman says that looking at ways of monitoring
indirect emissions should be on the agenda as well. "If you're already
tracking all your emissions, you'll be better placed when inevitable
regulation comes," he comments.

James Stacey says that an organisation must understand how it interacts
with the environment before it can develop an effective a
climate-change strategy. He also says organisations need to understand
their markets. Climate change means very different things in the
markets in which SCB operates. "In Kenya," Stacey says, "climate change
means drought. In India it's about water quality. And in Hong Kong it's
air quality."

Hoffman outlines the following four steps in developing a strategy:

1. Assess emissions profile - what kinds of direct and indirect GHG
emissions are being created by the organisation, from what sources and
in what quantities?

2. Gauge risks and opportunities - what are the risks of climate change
to the organisation and what products and services could flourish?

3. Evaluate action options - how can the organisation reduce GHG
emissions, from "low-hanging" emission-reduction opportunities to
longer-term steps.

4. Set goals and targets - what kind of goals are achievable?

Hoffman says developing an emissions inventory is an essential early
step in setting a climate-change strategy. The energy used by buildings
is often a good place to begin when dealing with direct emissions. "Do
an energy audit of your heating and electricity. Find out where all the
energy is going. If a building is leaking like a sieve, identify what
technology exists to reduce waste. Look at relatively low-cost
solutions, like motion sensors and more efficient lighting," he
advises. Once it has control of direct emissions, an organisation can
move on to its indirect ones, such as commuter, air and shipping miles.
"These are not terribly complex equations," says Hoffman. "Do some
rough numbers, like miles per gallon and see where you can make
improvements." Edward Butt agrees that the strategy must map CO₂ emissions.

When it comes to monitoring emissions, the GHG Protocol1 provides
guidance on preparing a GHG emissions inventory, and covers the
accounting and reporting of the six GHGs covered by the Kyoto Protocol.
Defra's reporting guidelines also provide help with measuring emissions
from the six main GHGs, including CO₂².

There are three categories of emissions under the GHG Protocol:

• scope 1 focuses on direct emissions;

• scope 2 includes indirect emissions from the consumption of electricity, heat or steam that is bought in; and

• scope 3 includes all other indirect emissions.

Reckitt Benckiser's Carbon 20 strategy covers all three, as does SCB's
strategy. Prior to committing to the 20% reduction by 2020 target,
Reckitt Benckiser trialled its measurement processes in 2006 to ensure
it could capture its total carbon footprint across hundreds of products
and thousands of stock-keeping units globally. It found that the direct
impact of its operations is relatively small, with consumer use of its
products - in dishwashers and washing machines - contributing between
50% and 70% of its total carbon footprint, with the second largest
being in raw and packaging materials. Consequently, the key areas for
action include changing consumer behaviour, ensuring suppliers are more
energy-efficient and that lower-carbon materials and packaging are
selected.

Success factors

Embedding the strategy is key to making it work. Getting buy-in from
the workforce and ensuring climate-change activities are core, not
peripheral, are vital. According to Hoffman, a climate-change strategy
should mimic the language of the organisation. "Direct it at what the
business already cares about," says Hoffman. He gives the example of
the US company Whirlpool, which has a long tradition of focusing on
energy efficiency. Rather than baldly introducing the concept of
climate change, the white-goods manufacturer simply couched its
strategy in terms of making further gains in energy efficiency. "Why
change the words when something already works?" asks Hoffman. "Energy
efficiency is synonymous with climate change anyway."

James Stacey says developing a strategy is all well and good, but an
organisation will also need a means of operationalising it. "You need a
‘machine' to turn it into action or fantastic ideas will remain just
ideas," he says. Board-level commitment is crucial. Stacey also points
out that implementation depends on having suitable in-house competence.
"You need someone who knows what they are doing," he explains. Large
organisations will need a means of operationalising the strategy across
all parts of the business. SCB's group environment committee - which
reports to the main board - is chaired by an executive director and
includes the chief operating officers of the wholesale and retail
banking divisions, plus the heads of risk, human resources, corporate
affairs, corporate real estate (buildings), and technology and
innovations. Two non-executive advisers, including the renowned
environmentalist Tom Burke, and Stacey also attend. "It's a very
powerful committee," says Stacey. It agrees strategy and puts together
a detailed action plan. The setup is mirrored in each country in which
SCB operates, so the strategy and action plans are tailored to regional
circumstances.

A strategy that reflects the organisation's different markets will
resonate more with its own people, which is important when it comes to
implementing it. "A strategy won't work if it's implemented by a small
team at head office," warns Stacey. SCB's environment and
climate-change strategy therefore differs "subtly" in each country.
"There's flexibility in the system," explains Stacey. For example, the
main focus in Hong Kong is working to improve air quality, while in
Indonesia it is deforestation. Stacey says the bank's environment and
climate-change strategy is part of employees' everyday job.

Climate change is driving major change for the business community.
Businesses must engage. There is no alternative. A climate-change
strategy will help businesses tackle their impacts head-on and
capitalise on the potential opportunities.

¹ The GHG Protocol Initiative, www.ghgprotocol.org/

² Environmental Key Performance Indicators: Reporting Guidelines for UK Businesses, www.defra.gov.uk/environment/business/index.htm

Photo from Norwich Union's "FloodSim", an interactive game, developed
by PlayGen, that puts players in charge of UK flood policy.