Climate Change’s Bottom Line

According to the recently released National Climate Assessment, climate change is no longer a future concern, but affects us now. The average temperature in the United States has increased by 1.3°F to 1.9°F since 1895, and over the next few decades, is projected to rise another 2°F to 4°F in most areas. Human-induced climate change is also resulting in scarcity of natural resources (and thus higher prices), warmer ocean temperatures, heavy downpours, sea level rise and the shrinking of snow-cover, glaciers, and sea ice. “These changes and other climatic changes have affected and will continue to affect human health, water supply, agriculture, transportation, energy, coastal areas, and many other sectors of society, with increasingly adverse impacts on the American economy and quality of life,” says the assessment.

As Andrew Winston, expert on green business strategies, writes in his book The Big Pivot: Radically Practical Strategies for a Hotter, Scarcer and More Open World: “No country, city, or business can ignore this new reality of extreme weather and expensive resources. Political leaders and CEOs who avoid acknowledging and dealing proactively with it are looking increasingly foolish and irresponsible.”

In 2013, MITSloan and BCG surveyed executives and managers from a variety of businesses for a report on sustainability issues, defined as the issues most relevant to a company’s continued ability to function. Seventy percent of approximately 1,850 respondents rated social and environmental issues as “significant” or “very significant,” but only half said their companies are fully or largely addressing them. Only 36 percent “strongly agreed” that their company’s leadership believes climate change is real.

What corporate leaders believe about climate change may soon be a moot point, however, because if a company continues with “business as usual,” it may soon be unable to keep up with the changes that are fast upon us. A number of forward-thinking corporations already recognize the challenges and risks they face and are committed to becoming more energy and resource efficient and lowering their carbon footprints.

For example, Coca Cola’s goal is to replenish 100 percent of the water it uses by 2020. Unilever wants to halve the greenhouse gas emissions of its products across their lifecycles by 2020. Hitachi is aiming to reduce its annual carbon emissions by 100 million tons for its products and services by 2025. And Walmart aspires to eventually use only renewable energy.

General Motors is committed to reducing carbon intensity from its facilities 20 percent by 2020. To help reach this goal, GM asked Jonathan Beck, who has a Ph.D. in electrical engineering from Columbia University, to figure out how the company could save more energy and money. As a fellow in the Environmental Defense Fund’s Climate Corps program, which trains and places grad students as “energy problem solvers,” Beck found ways for GM to reduce its annual electricity and natural gas use, cutting the company’s greenhouse gas emissions by 16,000 metric tons a year. “I learned how much money there is to save and how it easily translates to carbon reduction,” said Beck.

Because the vehicle painting process consumes 70 percent of the energy used to produce each vehicle, Beck researched energy reduction projects at vehicle assembly plant paint shops. He recommended the use of variable frequency drives on cleaning liquid and paint pumps that enabled motors to at times run at slower speeds instead of just being on or off. (Reducing motor speed can result in large energy savings.) While many manufacturing facilities run 24/7 with machines kept on all the time, there are times when they don’t need to, so Beck suggested ways to make equipment operation patterns more efficient. He also helped design a benchmark for the minimum amount of energy needed to paint each car, so that when energy consumption exceeds the minimum, it’s possible to identify ways to be more efficient. And as part of the sustainability team, Beck made design recommendations for a new more efficient and economical painting facility.

EDF Climate Corps fellows can only recommend measures—it is up to the host company to implement them. Jeffrey Johnson, manager of process energy initiatives at GM, said that the company is on its way to implementing almost everything Beck recommended. “Jon’s proposals will save us about $1 million a year,” he said, “or enough energy to paint 25,000 cars a year.”

Deeply committed to sustainability, GM is the first and only automaker to sign the Climate Declaration, launched in 2013 by 33 companies and CERES, a nonprofit organization that promotes sustainable business practices. Climate Declaration signatories see the economic opportunities in addressing climate change and urge political leaders to take action on it now. GM’s leaders recognize that not dealing with climate change could present risks to their business, and that energy efficiency makes sense for the bottom line.

“When you do these things right,” said Johnson, “it makes everything better. Your costs come down, you reduce your energy use, operating costs and greenhouse gas emissions, and your product is better. It’s truly a win-win situation for everyone involved.”

Nicolas Gordon, a graduate of Columbia University and the Earth Institute’s Masters of Science in Sustainability Management (MSSM) program, which trains sustainability practitioners, worked for the American International Group as an EDF Climate Corps fellow. Through AIG’s global property management service provider, CBRE, he was tasked with finding energy and money-saving opportunities at the company’s New York City offices. AIG’s properties were seriously affected by superstorm Sandy, but while the company’s CEO, Bob Benmosche, won’t acknowledge that Sandy had anything to do with global warming, he recognizes that the weather is changing and that we must adapt to it.

At AIG’s headquarters’ building, Gordon found ways to reduce HVAC use through sun control window films, variable frequency drives on motors and fans, LED lighting and smart power strips for office machines. He recommended that AIG enroll (and AIG has) in a demand response program, which means that the company will curtail energy use at times when the grid is stressed—for example, turning off lights or certain elevators, or raising room temperatures. This enables grid operators, who pay companies for this participation, to avoid having to fire up polluting coal plants elsewhere to meet peak demand.

Gordon’s recommendations could save AIG $500,000 a year in net operating costs and avoid 1,700 metric tons of carbon emissions. “I don’t think upper management believes in climate change,” said Gordon. “But I think they believe in saving money. And I think they would definitely like to be better prepared for the next event like Sandy…”

CBRE’s director of health, safety and environment, Mike Rogers, said that Gordon identified, “many low-cost or no-cost opportunities with immediate returns…reinforcing the importance of having an overall energy management strategy in place to drive lasting, long-term results.”

Gordon now works at NYU’s Office of Sustainability, Division of Operations, figuring out how to help NYU reach its ambitious goal of reducing carbon emissions 50 percent by 2017 based on a 2006 baseline. “It’s still a big challenge,” said Gordon. “…to figure out who the decision makers are and to get the right angle to make it sell. If it doesn’t work selling it as sustainability, you have to sell it as better management.”

Steve Cohen, program director of the MSSM program and executive director of the Earth Institute, concurs.

“I think the issues of sustainability are becoming basic management principles…The use of water, materials, energy, questions of pollution, green buildings, energy efficiency—the average CEO needs to understand these issues,” said Cohen. “It’s part of how all organizations are thinking, and within a very short period of time, we’re going to look at sustainability as just part of what effective management is.”

“From the corporate perspective, what’s the argument against it?” he asked. ”Let’s waste energy? Let’s waste water? Let’s pollute something so that we get sued by people? Why would you do that?  I think a well-managed organization sees these things as opportunities to modernize and improve their operations.”

Caesars Entertainment, which owns 39 properties in the United States, is a company committed to sustainability and environmental stewardship. Through its CodeGreen strategy, it identifies, assesses and reduces its material impacts on the environment. Since 2007, it has reduced carbon emissions 11 percent, cut electricity consumption by 9 percent and in 2012, diverted 24 percent of its total waste.

Scott Miller, another MSSM graduate and EDF Climate Corps fellow, worked with the corporate Utilities, Engineering & Environmental Affairs group at Caesars Entertainment in Las Vegas.

He performed energy audits on all pool, spa and fountain pump systems at Caesars’ eight Las Vegas resorts. Miller recommended the use of more LEDs and variable frequency drives on pump systems. With the chief engineer of one resort, he audited countless square feet of resort space, looking for additional energy and water efficiency and conservation opportunities to cut operational costs, carbon emissions and water consumption. Miller’s recommendations could annually save Caesars $350,000; reduce the average energy consumed by its pools, spas and fountains by over 60 percent; save approximately 6 million kilowatt hours of electricity and avoid 3,400 metric tons of carbon dioxide emissions.

“Caesars wants to be a leader in sustainability in the gaming and entertainment section of the hospitality business,” said Miller. “They have set a 2025 target of reducing their energy intensity by 40 percent from 2007.”

According to Winston, “Business as a sector of the economy, and companies individually, need to match the global goals of cutting absolute emissions of carbon by 80 to 85 percent by 2050 and cutting carbon intensity at a rate of 6 percent per year” (to avoid the potentially catastrophic effects of global temperatures rising more than 3.6 ˚F (2˚ C)). While many companies like Caesars Entertainment have sustainability goals, of the world’s 200 largest corporations, only 56 have set a goal for carbon reduction in a major part of their business—manufacturing, product use, or supply chain—at the necessary pace.

Institutions that provide capital to businesses are growing increasingly concerned about the risk to companies and their earnings from the impacts of climate change. “The pension funds and the other investors, when they look at corporations to see if they should be invested in them, look to see if they adhere to sustainability practices,” said Cohen. “Not because they care about the environment, but because they see it as an indicator of excellent management…This is now a growing trend.”

The Earth Institute and the Robert F. Kennedy Center for Justice & Human Rights are partnering on a sustainable investing education program built on the idea that “sustainable investing is an element of risk mitigation which is at the core of fiduciary responsibility.”  The program describes sustainable investing as future-oriented, adjusted for risk, and directed toward opportunity.

CDP, which encourages companies to measure, report and reduce their carbon footprints, promotes sustainable investment via its Carbon Action initiative. Through Carbon Action, 254 investors representing $19 trillion in U.S. assets under management have asked global companies with the most carbon emissions to reduce those emissions yearly and to publicly disclose their targets. The carbon reduction measures they put in place are delivering an average return on investment of 33 percent.

Our polarized Congress and the ineffectual global community have proved unable to deal with the challenges and risks of climate change. They have also demonstrated that they lack the foresight necessary to take advantage of the economic opportunities today’s reality presents. It is up to the private sector now. As Winston writes, “In the business world, we either change quickly with the times, or we go extinct. Our version of capitalism has its issues, but it’s nothing if not ruthlessly efficient at casting out outdated models. The new way of doing business is upon us.”