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Companies Seeing Green: Sustainable Business Practices Yielding Profits

Integrating climate change into business strategy

As climate change continues to be a hot topic for the environmental and political world, other sectors are beginning to take notice. Of these sectors, the business realm really has had its interest piqued and is benefiting from incorporating climate change and sustainability risks into their decision-making.

Studies show that global clean energy markets present a $2.3 trillion opportunity over the next 10 years. Similarly, the International Energy Agency has estimated that “delaying stronger climate action to 2020 would come at a cost: $1.5 trillion in low-carbon investments could be avoided before 2020, but $5 trillion in additional investments would be required thereafter to get back on track.”

Now, thanks to CDP and Sustainable Insight Capital Management, we can see how well these companies are doing by adopting sustainability initiatives into their business model. Published this past Monday, September 23, CDP released their annual report analyzing the financial performance of 334 S&P 500 companies who are working to reduce their environmental footprint and act on climate change with an eye on reducing overhead, increasing profits, and helping the environment.

Over 722 institutional investors, representing $87 Trillion in assets, worked with CDP to report on the strategies of 334 S&P 500 companies, of which 124 are U.S. based.  Heather Zichal, Deputy Assistant to President Obama for Energy and Climate, has affirmed, “The companies featured in this report are taking the kinds of steps the president outlined in his climate plan, showing that environmental protection and economic growth are not at odds.”            

The report focused on three areas of the reporting companies:

  1. Value creation

  2. Business transformation

  3. Next-generation leadership

If we dive into each of these target areas, we can see how well these reputable companies did financially in relation to their sustainability and climate initiatives.

 

Value Creation

Many of these S&P 500 companies are beginning to invest in cutting carbon emissions. By assigning values to carbon emissions, companies are finding new innovative ways to increase efficiencies, build new markets, and gain a competitive advantage over those companies that fail to implement these practices.

  • In 2012, a 6% reduction in carbon emissions led to a 15.8% increase in S&P 500 compound annual growth rate.

  • $1.2 Billion were saved from reporting companies that took climate change considerations into product design.

Economic growth and emissionsBusiness Transformation

Similarly to cutting carbon emissions, many companies are investing to prepare for potential climate change impacts. By identifying climate change risks, companies are able to plan for the long-term effects and build resilience into their business models. Also, by keeping these risks in mind and a new plan of action in hand, many companies are finding new business models and product revenue opportunities.

  • Of the report participants, 56% reported that climate change related events are incorporated into their corporate strategic decision making.
  • Companies reported that 75% of the new business product and innovation ideas are happening in the present or near term. This will drive new products in the near term that are a direct result of climate change and sustainability decisions.

These companies saw product and business opportunities arise based off of changing consumer behaviors, reputation, and government regulation. When assessing changing consumer behavior, one retail analysis showed that a 5% shift in consumer behavior could translate to $300 Million in sales. Reputation is a consideration for these companies – green is the new black. Companies are beginning to brand themselves in a green way and consumers are responding positively, driving up company revenue. Finally, many companies understand that there is only so much time before the US government puts regulations on carbon emissions and increases energy efficiency standards. By incorporating these factors into risk analyses and business decisions now, companies are getting a leg up on government regulations, as well as competitors, and are seeing higher profit margins.

Next-Generation Leadership

Rather than focusing on interdepartmental cooperation within a company, the way traditional business models often do, many are looking to break company boundaries and focus on solutions that will benefit multiple parties and the overall market, not just commercial enterprises. The idea is about attacking climate change through multidimensional engagement.

  • Of the companies reporting, 80% supported and are engaged in climate change policy, specifically on energy efficiency standards and clean energy production.

  • 69% of respondents engage with some aspect of value chain on climate change management.

Sustainability issues and increasing our clean energy generation are not a single company or nation challenge. They are complex issues that need a multinational and multi-sector business approach to solve.

Not only are the companies listed by the CDP helping to solve global issues of climate change and sustainability, but we are also seeing them generate increased profits and dividend growth versus other companies failing to incorporate these factors into their decision-making models.

Through clean energy investments and emissions reductions, the S&P 500 respondents have committed to investments of $50 billion. Investing also means investing in the resilience of a company’s value chain and product design. These reporting companies saw monetary savings from their own investments in three areas:

  1. Product design ($1.2 billion)

  2. Energy efficiency processes ($991 million)

  3. Transportation fleet and use ($709 million)

Investments made and savings unlocked

Based on this report, we can see that sustainability, climate change and carbon emissions are no longer an issue being addressed solely by environmentalists. We are seeing large corporations investing and incorporating these issues into their daily and long term decision-making strategies.

Paul Simpson, CEO CDP, says “As countries around the world seek economic growth, strong employment and safe environments, corporations have a unique responsibility to deliver that growth in a way that uses natural resources wisely. The opportunity is enormous and it is the only growth worth having.”

Companies have long been focused on maximizing profits, but now businesses advancing sustainability AND profitable growth is the way of the future. Although it may take some time before everyone hops on the bandwagon, it is promising to see the progress of these institutions towards a brighter and more profitable future.

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John is an MS candidate studying Climate Science and Solutions at Northern Arizona University.  During his time at NAU, John has worked on climate change communication and greenhouse gas inventory projects for the University and Flagstaff community.  Prior to his graduate education, he received his undergraduate degree in Environmental Geology from Murray State University.

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