Climate change presents a real economic liability of increased risks to growth and productivity of American business. However, the silver lining in all the dire news about climate change is the opportunity for the private sector to not only quell the rising tide, but do it profitably.
Timing is critical. If U.S. businesses act now to reduce emissions 3 percent per year through 2020, they can collectively capture present value cost-savings up to $190 billion in 2020 alone. And just as importantly, these companies can put us on the pathway to change the trajectory of climate change.
Extreme weather events such as droughts, floods and storms are becoming the norm and resulting in catastrophic impacts on people and the businesses that serve them. However, science shows that we can better manage these challenges if we can keep the average temperature from exceeding two degrees above pre-industrial levels.
Our research tells us that corporate reduction goals aligned with science lead to an increased return on investments in greenhouse gas emissions mitigation. However, many corporate emission reduction goals are set through a lens of “what is possible” instead of considering “what science tells us” and looking for that return on investment.
Based upon rigorous analysis by some highly respected consulting firms, The 3% Solution offers the business case for setting ambitious reduction targets, and identifies cost savings of up to $780 billion for the U.S. corporate sector from 2010-2020.
Our research told us that U.S. businesses have the opportunity to capture cost savings by:
- Setting ambitious, science-based GHG reduction targets
- Improving energy management by increasing corporate investment in Net Positive Value-positive emissions-reducing activities to, on average, 3-4 percent of capital expenditures; and
- Increasing clean energy supplies, developing low-GHG products and supply chains, and engaging with stakeholders and government.
Since we launched The 3% Solution, we have seen some of the leading U.S. companies adopt its methodology:
- General Electric: In February 2014, GE announced a new goal for GHG reductions through 2020. This new goal is a 20 percent absolute reduction from a 2011 baseline of operational GHG emissions and was developed in concert with The 3% Solution. Meeting the 20 percent reduction goal should result in a 40 percent reduction in GE’s GHG footprint from the original 2004 baseline.
- Colgate: Earlier this year, Colgate announced a commitment to reduce GHG emissions on an absolute basis by 25 percent compared to 2002, with a longer-term goal of a 50 percent absolute reduction by 2050 compared to 2002.
With such a clear business case, why aren’t more companies taking steps to reduce their GHG footprint?
Based on interviews with dozens of business leaders, we identified three key internal obstacles to fully realizing profitable GHG reduction opportunities.
- Capital constraints. Companies often set high internal hurdle rates, even though GHG reduction investments are very low-risk with long-term stable returns. If the corporate sector would devote 3-4 percent of its capital expenditures to GHG reduction activities, they would fully realize the cost savings.
- Low management priority. Many managers don’t realize setting ambitious GHG reduction targets can unleash innovation and profits. It is common to underestimate the financial potential and overestimate the capital investment required.
- Lack of expertise. Some companies may lack the technical expertise to implement a cost-effective GHG reduction program. However, innovative companies are creating a central management function or consulting external providers.
In order to address these challenges, we developed The Carbon Productivity Portfolio, a set of five actions that collectively create a practical pathway to maximize GHG reduction while creating business value.
If we wait until 2020 to start the journey, it will be costly for companies and for all of us on the planet and could require a 9.7 percent reduction annually to meet the minimum 2050 target. Waiting until 2030 is not an option.
The time to act is now.
Suzanne Apple is senior vice president, Private Sector Engagement at World Wildlife Fund.