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Firms Start to See Climate Change as Barrier to Profit

By Juliet Eilperin
Washington Post Staff Writer
Monday, September 21, 2009

As the real-world impacts of climate change begin to materialize and regulation of greenhouse gases appears more likely, corporate America has begun to grapple with a challenging question: How do you quantify the risks associated with climate change?

The answer depends on one's perspective. But companies are beginning to show increased willingness to disclose the extent to which they're contributing to global warming and what they're doing to keep it from harming their business.

"If we don't move now, it just becomes more expensive, more complicated and a bigger risk," said Brad Figel, director of government affairs at Nike, at a Capitol Hill briefing last week sponsored by Oxfam America.

On Monday, the Carbon Disclosure Project is set to release a report surveying the climate policies of the majority of the S&P 500, in which 52 percent of respondents said they've set emissions-reduction targets for the companies, compared with 32 percent last year. Many of these groups also see global warming as a threat to their bottom lines -- including 84 percent of financial-sector respondents -- citing concerns including a potential shortage of raw materials and supply-chain disruptions because of severe weather.

When it comes to climate, corporations "are demonstrating they are willing, ready and able to engage with it," said Carbon Disclosure Project chief executive Paul Dickinson. "We are moving, without any doubt, into a carbon-constrained world," he added.

The Chamber of Commerce and the National Association of Manufacturers say that some of the prescriptions to address climate change, such as the climate bill passed by the House in June, present more risks to the economy than global warming does.

But a number of companies have split with the chamber to back the House bill and are taking steps to curb their own carbon footprints.

Anna Walker, senior manager for worldwide government affairs and public policy at Levi Strauss, said 95 percent of her company's offerings are made from cotton. Climate-related water shortages threaten cotton supplies, to say nothing of the tornadoes and floods that could threaten the company's cut-and-sew operations in Bangladesh, Cambodia, Vietnam and other countries.

"This is very practical and happening for us," Walker said. "We really do get it."

Companies that depend heavily on the goodwill of both consumers and their employees are also sensitive to the issue.

"Climate is top of mind for our customers right now," said Jim Hanna, Starbucks's director of environmental impact, who added that the company is aware that its workers are also eyeing its business practices and public policy positions. "For us to attract the best talent coming out of college, and for us to retain that talent over time, we've got to operate that way."

But calculating a firm's emissions, as well as how much of a risk climate change may pose to the business in the future, can be complicated. Dickinson's group -- which represents 475 institutional investors that manage $55 trillion in funds -- is working with the world's four biggest accounting firms to establish the Climate Disclosure Standards Board, which aims to make greenhouse-gas reporting more uniform.

Ceres, a Boston-based network of investors, environmental organizations and public-interest groups, has petitioned the Securities and Exchange Commission to require companies to report climate-change risks as part of their regular financial disclosures.

"It is such a material risk that it needs to be moved from off the balance sheets into the formal disclosure that needs to be made," said Ceres President Mindy Lubber. "To build our economy, we need to be looking at all the risks and opportunities related to climate and water and other limited resources that we use to fuel our economy."

SEC staff is looking at the issue this fall, according to agency spokesman John Nester, though he did not indicate when the agency might make a decision on the matter.

The Environmental Protection Agency is about to issue a final rule, as early as this week, that would establish the nation's first mandatory greenhouse-gas registry. Under the rule, any entity emitting the equivalent of 25,000 tons of carbon dioxide a year would have to declare how much pollution it releases into the atmosphere.

Lou Leonard, director of U.S. policy on international climate affairs for the World Wildlife Fund, said programs like the Carbon Disclosure Project and the WWF's Climate Savers, where private companies made voluntary commitments to cut their emissions, "had an important role to play" in the past, in part because they helped companies "internalize greenhouse-gas emissions as part of their business operations." But he added, "We cannot let them substitute for mandatory, economy-wide limits in these key countries" that emit the most carbon pollution.

Wal-Mart has instituted a range of measures aimed at cutting its emissions, including adopting a more fuel-efficient fleet and installing skylights that can substitute on sunny days for electrical lighting. But as a growing global company, it still boasts an expanding carbon footprint, increasing at a compound rate of 4.3 percent a year even as its emissions relative to sales have decreased by the same proportion.

"We're still growing, but we're getting more efficient at it," said Greg Trimble, Wal-Mart's senior director for global energy development and reporting.

In the meantime, corporate types such as Nike's Figel are trying to convince lawmakers that capping greenhouse gas emissions and providing money so vulnerable countries can adapt to climate change makes sense.

"People would say to us, 'You really don't have any skin in the game,' " he said. "No one really thought about what it would do to our supply chain."

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