As 2010 begins, looking back at how the posture of business towards climate change has changed over the last decade is fitting. Although a landmark global agreement did not emerge from the Copenhagen summit, businesses in industries as diverse as power generation, consumer products, and investments have embraced going green as a strategy to reduce costs, stimulate innovation, and gain competitive advantage. While corporate leaders and environmentalists once stood on opposite sides of the spectrum businesses now engage environmental issues and climate change through organizations and initiatives such as the World Business Council for Sustainable Development, the Carbon Disclosure Project, EPA Climate Leaders, and the Investor Network on Climate Risk. The first in a two-part series, this review of the latest data about climate change, its economic consequences, and strategies leading businesses have undertaken in response provides an examination of where we’ve come from and points to alternative paths forward that businesses can chose when consideration of the triple bottom line of profits, planet, and people is their guide. In the next issue of Sustainable Enterprise Quarterly we will examine specific companies and the tactics they’ve employed to reduce their environmental footprint.
Science, Economics, and Public Perceptions of Climate Change
A survey conducted by the Pew Center for the People and the Press in fall 2009 revealed a sharp decline in the percentage of Americans believing there is solid evidence that global warming is a serious problem—57 percent compared to 71 percent a year earlier, despite unprecedented consensus on the part of scientific experts. While the evidence linking human activity with climate change was equivocal when the Intergovernmental Panel on Climate Change (IPCC) published its first Assessment Report in 1990, five years later in its second Assessment Report, a shift in the IPCC’s conclusions was apparent. IPCC’s second Assessment Report concluded, “the balance of evidence suggests a discernible human influence on global climate.”1
By its third report in 2001, the solidification of scientific consensus was clear. “An increasing body of observations gives a collective picture of a warming world. There is new and stronger evidence that most of the warming observed over the last 50 years is attributable to human activities.”2 The fourth and most recent Assessment Report, published in 2007 and reflecting the consensus of 2500 plus expert scientific experts, 800 plus contributing authors, and 450 plus lead authors, contained IPCC’s strongest assertion to date: “Warming of the climate system is unequivocal…Most of the observed increase in globally averaged temperatures since the mid-20th century is very likely due to the observed increase in anthropogenic greenhouse gas concentrations” [with “very likely” defined as having greater than 90 percent certainty]. The fourth IPCC report also concluded that world temperatures could rise between 1.1 and 6.4°C during the 21st century and that sea levels will probably rise by 0.2 to 0.6 meters during the same time.3 Data released since the publication of the fourth Assessment Report show that sea level rise is more likely to be in the range of 0.5 to 2.0 meters and that a temperature increase of 5°C is likely.4
Figure 1 shows the historical record of carbon dioxide (CO2) concentrations as determined from (A) marine sediment cores, (B) ice cores, (C) tree rings, and (D) direct measurement.5 These data show CO2 concentrations varying between ~170 and 280ppm over a period of over 400 thousand years until around 1750 at which time CO2 levels began to rise. Current levels exceed 390ppm. This figure shows that while there are natural variations in atmospheric CO2, with the peaks representing interglacial periods and valleys corresponding to ice ages, current CO2 levels dramatically exceed those at any other time in human history.
Predictions are that CO2 levels could reach 550ppm by 2025, a level at which scientists predict there is 77 to 99 percent chance that global temperature rise will exceed 2°C and a 50 percent chance that global temperatures will increase by 5°C. While climate change deniers site historic natural variations in climate and CO2 levels, missing from their analysis is evaluation of the consequences of unprecedented CO2 levels on human systems. Changes in global temperature, sea level, and weather patterns induced by elevated CO2 levels, while intrinsically neither positive nor negative, cause negative consequences when imposed on a human society that has developed to its current state under a particular climate regime. Were it not for the devastating human impact, Hurricane Katrina would have been yet one of a long line of strong, but forgotten named storms.
Potential human health and economic consequences of a changing climate have been summarized most notably in the Stern Review on the Economics of Climate Change.6 Rising sea levels will not only displace hundreds of millions of people, sea level change will affect fresh water reservoirs and the amount of land available for cultivation. While crop yields may increase at mid to high latitudes, already food-stressed areas including much of Africa, India, and China, will likely experience a decrease in crop yields. The third IPCC Assessment Report projected that a 1.5°C temperature increase could decrease India’s grain yield by 3 to 15 percent. Increasing temperatures will also cause changes in ecosystems, including the geographic distribution of disease-transmitting insects such as mosquitoes. The IPCC 4th Report projects that the percentage of the world’s population living in areas favorable for the transmission of malaria will increase from 45 percent to 60 percent by 2050.7
The disproportionate effects of climate change on the world’s poorest which Victor Flatt and Donna Surge describe in the op-ed “Warming Woes and the World’s Women” were also highlighted in The Stern Review. 8 “Climate change will take the world outside the range of human experience…The impacts of climate change are not evenly distributed. The poorest countries and people will suffer earliest and most. …Climate change is a grave threat to the developing world and a major obstacle to continued poverty reduction across its many dimensions.” The Stern Review explains developing countries are at greater risk because of their heavy dependence on agriculture, inadequate public health services, and economic constraints which make adapting to climate change more difficult. The Stern Review also warms that extreme weather events (e.g., hurricanes and floods) triggered by higher than average global temperatures could total 0.5-1 percent of global GDP per annum by mid century. Furthermore, the Stern Review points out that a 5-6°C warming could induce losses in global GDP of 5-10 percent and that continuing “business as usual” will induce climate change that will reduce global welfare “by an amount equivalent to a reduction in consumption per head of between 5 and 20 percent.”
Business Responses to Climate Change
Driven by a desire to reduce costs, minimize risks, and gain competitive advantage, some businesses have assumed a proactive strategy to confront the challenges posed by climate change. One example is the World Business Council for Sustainable Development (WBCSD), an organization of CEOs from over 200 companies from 35 countries and 20 major industrial sectors which had its origins at the United Nations Conference on Environment and Development in Rio de Janeiro in 1992. The WBCSD provides a forum through which business leaders can exchange best practices, discuss experiences, and advocate business positions on environmental and sustainable development issues.9 During the Copenhagen climate summit, World Business Day brought together members of WBCSD and the International Chamber of Conference. Business does not question climate science” and that “Business is looking at a fast-growing world that is going to be resource and carbon-constrained.”10 The solutions proposed during World Business Day are a focus on “energy efficiency, green technologies, new societal infrastructure, efficient markets, and changes of lifestyle and consumption patterns.”11 The business leaders gathered at World Business Day also agreed that “Business has the knowledge, management capacity, and financial resources to contribute [to meeting the climate challenge] although WBCSD President Bjorn Stigson asserted that “[Governments will not solve climate change without business at the table as an engaged, involved partner – Governments cannot deliver the targets which are being talked about without business.”12
Another example of corporate action ahead of government regulation is the Carbon Disclosure Project (CDP). The mission of CDP is “to collect and distribute high quality information that motivates investors, corporations and governments to take action to prevent dangerous climate change.”13 Founded in 2000, the CDP acts on behalf of 475 institutional investors which manage assets valued over $55 trillion and consists of 2,500 organizations from 60 countries which measure and disclose their greenhouse gas emissions following WBCSD’s Greenhouse Gas Protocol. By making greenhouse gas emissions data available, CDP aims to promote emissions reductions and performance improvements. In addition to promoting emissions reporting according to a standard protocol, CDP publishes reports and case studies to educate business leaders about best practices and lessons learned by corporations at the vanguard of climate change mitigation. Companies covered in CDP case studies include Wal-Mart, Cisco Systems and EMC.
On a national level, the U.S. Environmental Protection Agency’s (EPA’s) Climate Leaders program is a public-private partnership that, like CDP, promotes the measurement and reporting of greenhouse gas emissions, the setting of reduction targets, and achievement of emissions reductions. Through their association with EPA, participating businesses gain access to technical assistance, case studies and webinars which address best practices and lessons learned, as well as recognition of their efforts through EPA-sponsored publicity.
Pressure from the investment community to disclose emissions and exposure to climate change risks has also intensified. Investors are increasingly aware of the fact that nearly every company has exposure to the adverse consequences of climate change, in the form of physical risk, regulatory burden, reputational vulnerabilities, and the threat of litigation. In its 2005 Policy Framework, Goldman Sachs asserted, “We believe climate change is one of the most significant environmental challenges of the 21st century and is linked to other important issues such as economic growth and development, poverty alleviation, access to clean water, and adequate energy supplies."14 An example of the investment community’s engagement with climate change is the Investor Network on Climate Risk (INCR), a network of over 80 institutional investors including asset managers, state and city treasurers and comptrollers, public and labor pension funds, and foundations. With over $8 million of assets under management, INCR promotes disclosure and understanding of the risks and associated investment opportunities associated with climate change.
As demonstrated by the above examples, businesses not only have accepted that global climate is changing as a result of anthropogenic greenhouse gas emissions, businesses are organizing and taking action to reduce emissions oftentimes ahead of government action. Leaders have emerged from a diversity of industry sectors offering the prospect that in the coming years businesses’ embrace of environmental stewardship will continue to grow.
Climate Change 1995: The Second Assessment Report of the Intergovernmental Panel on Climate Change
, Bolin, B. and the Core Writing Team (eds.). IPCC. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA, 1995.
Climate Change 2001: Synthesis Report, Contribution of Working Groups I, II, and III, and the Third Assessment Report of the Intergovernmental Panel on Climate Change
, Watson, R.T. and the Core Writing Team (eds.), IPCC. Cambridge University Press, Cambridge, United Kingdom, and New York, NY, USA, 2001.
Climate Change 2007: Summary for Policymakers
The Physical Science Basis. Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change
, Solomon, S., D. Qin, M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M.Tignor and H.L. Miller (eds.). IPCC, Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA, 2007.
Key Scientific Developments since the IPCC Fourth Assessment Report
, Pew Center on Global Climate Change, 2009.
Carbon Dioxide Variations
, Image created by Robert A. Rohde, Global Warming Art.
Stern Review on the Economics of Climate Change
Stern, N. HM Treasury, London, 2006.
Stern, N. 2006.
World Business Council for Sustainable Development (WBCSD) Mission Statement
, WBCSD Web Site.
Governments Cannot Deliver Without Business
, WBCSD, Copenhagen, 17 December 2009.
Carbon Disclosure Project (CDP)
, CDP Web Site.
Goldman Sachs Environmental Policy Framework
, Goldman Sachs Web Site.
Copyright © 2009 The University of North Carolina at Chapel Hill