Business Strategies to Address Climate Change

Leading companies are taking action both inside and outside their fence lines to reduce their own emissions and become more resilient to inevitable climate impacts. C2ES has found that, internally, companies are seeking a deeper understanding of the risks and opportunities of a changing climate, and are taking steps to reduce their carbon footprints (the emissions from producing their products) and their handprints (emissions from the sales and use of their products). Externally, they are engaging suppliers, customers, key stakeholders and policymakers, and are publicly reporting emissions and energy-usage data, climate-related risks and management strategies. Companies are also demonstrating their commitment to climate action by partnering with other companies and stakeholders on solutions and by publicly supporting policies like the Paris Agreement.

Climate Action Plans

 The first step for many companies is to develop climate action plans across the company and for individual business units. The components of a climate action plan depend on the type of company and the goals it wants to achieve, but every company faces a few general decisions, such as:

  • whether the plan is designed through a “top-down” or “bottom-up” process
  • whether to establish one or more targets – and if so, of what type and how
  • how targets fit in with other environmental management activities
  • to what extent the plan features market mechanisms such as internal carbon price and/or and external carbon offsets
  • how to use research and development resources and other means to drive innovation.

Once targets are established, they can drive innovation within the company, spurring internal programs and products that can help the company meet its goals. Sometimes the mere existence of emissions or energy use data generates interest and ideas for improvements that turn out to be profitable on their own.

Goals and Targets

A growing number of companies have voluntarily adopted climate-related targets. The type of target an individual company chooses depends on its products and production methods, policy environment, and business models. Some targets focus on reducing greenhouse gases, and others on energy use. Some serve as absolute limits, and others are relative to production levels and revenues. Goals and targets can also apply to supply chain purchases or use of company products.

Nearly 300 companies have set a greenhouse gas emission reduction target “in line with climate science.” More than 100 have set goals to be powered by 100 percent renewable energy. Other companies, such as Microsoft, are adopting operational carbon neutrality goals.  Some companies purchase carbon offsets from projects such as reduced deforestation to help achieve their emission goals more cost-effectively.

Companies have found that addressing climate also makes good business sense. Greenhouse gas targets have helped them save money, generally through improvements in energy and operational efficiency. They have also seen reduced production costs and enhanced product sales, making them more competitive.

Companies have also found these internal policies help prepare them for future regulation by investing in emissions reductions now. They’ve also protected and enhanced their reputation with customers and shareholders.

Internal Carbon Pricing

One business strategy gaining traction among leading businesses is internal carbon pricing, which assigns a price to carbon emissions attributable to the business. More than 1,200 companies worldwide are either pursuing internal carbon pricing or preparing to do so in the coming two years—up 23 percent from 2015.

Companies that establish a corporate carbon price assign a monetary value to CO2 emissions associated with a business activity. This price signal is factored into investment decisions, providing an incentive for the company to move from emissions-intensive programs and products to low-carbon, climate-resilient alternatives.

Nearly 300 companies have set a greenhouse gas emission reduction target in line with climate science. More than 100 have set goals to be powered by 100 percent renewable energy.

Energy Efficiency

Improved energy efficiency has emerged as a key component of corporate climate change strategies. Companies participating in the global EP 100 initiative pledge to double their energy productivity (dollar of output per unit of energy), which has the potential to save more than $2 trillion globally by 2030.

Leading firms that give greater attention to energy efficiency report billions of dollars in savings and millions of tons of avoided greenhouse gas emissions. Efficiency strategies can encompass internal operations, supply chains, products and services, and cross-cutting issues.

Companies that take on carbon footprinting and reduction strategies quickly come to see their energy use in a whole new light. When companies calculate their carbon footprint, they typically find that their energy consumption accounts for the great majority of their directly measurable emissions impact. Suddenly, energy shifts from perhaps a small cost item to the biggest piece of their carbon footprint. Viewed from this perspective, energy efficiency becomes a sustainability imperative.

Corporate energy efficiency strategies are most effective when:

  • Efficiency is an integral part of corporate strategic planning and risk assessment;
  • leadership and organizational support are real and sustained;
  • the company has SMART (specific, measurable, accountable, realistic, and time-bound) energy efficiency goals;
  • the strategy relies on a robust tracking and measurement system;
  • the organization puts substantial resources into efficiency;
  • the energy efficiency strategy shows results; and
  • the company effectively communicates efficiency results internally and externally.

Innovative Finance

Companies are also employing a wide range of innovative financial tools to achieve their climate and energy goals:

  • Energy producers and utilities often offer their customers on-bill financing, which allows a homeowner or commercial building owner to invest in energy efficiency improvements, with payments added on to their utility bills. This removes the high upfront costs of efficiency improvements, and encourages building owners to work directly with utilities on efficiency projects.
  • Large energy buyers also participate in green pricing programs (also known as green tariffs). U.S. utilities that offer these programs allow eligible customers to buy energy at a premium from a renewable project directly operated by the utility, or by issuing a renewable energy certificate (REC) from a renewable project. This allows businesses to use sources like wind, solar, low-impact hydro, biomass, landfill gas, and geothermal.
  • Some companies and banks are tapping into the rise in investor demand to finance environmentally sound projects by issuing green bonds or sustainability bonds. Green bonds act as a vehicle for institutional investors seeking to put their capital in projects that address climate change, and help drive innovation and development of low-carbon products. Like conventional bonds, green bonds can be issued by a corporate, bank, or government entity. The debt insurance by investors means that the companies do not need to tap into their limited credit lines or cash reserves to fund renewable or energy efficiency projects. While green bonds help support projects with a positive environmental impact, sustainability bonds work like green bonds, but also focus on the social impact.