Corporate Responses to Global Climate Change: Threats and Opportunities

Corporate Responses to Global Climate Change:

Threats and Opportunities

Jason Kibbey Steve Aronowitz

Elizabeth Singleton Pedro Vieira

Alec Perkins

Overview• Climate Change Impacts• CERES Analysis of Carbon Disclosure• Information to Action: Industry Analysis

– Technology– Energy– Ski Areas– Real Estate

• Climate Change as Strategic Advantage• Sources

Changing Climate

-Global Temperatures increasing

-Levels of CO2 increasing

-Anthropogenic drivers

Climate change threats to society and profits

• Threat of comprehensive regulations at transnational, national, state, and even local levels

• Threat of negative consumer response

• Direct liability from physical changes due to climate change (weather, sea level rise, agricultural growing zones, snow patterns, water availability, etc.)

• Legal liability

Threats to profits and corporations

• Global sea level rise is likely to be at least 0.28 meters (1 foot) in this century;

• Forecasts predict that climate change could increase forest fires by 143 percent.

• The risk and severity of flooding is exacerbated by climate-induced melting in early spring.

• Evidence that indicates that ocean warming increases the intensity of hurricanes

• Increased incidence of human morbidity and mortality

Threats to planet and society




Corporate Awareness & Action Still Low

The Carbon Disclosure Project (CDP4)

High Impact Industries Understand the Importance of Climate Change to their Business

Percentage of Information Provided by Key Industry in CERES CDP4




Industries Analyzed

Technology Energy Ski Industry Real Estate

- HP- Intel

- BP- PG&E

- National Ski Area Association

- Aspen Snowmass

- ProLogis- Westfield

Malls- Liberty

Property Trust

Framework for Analysis• Threats: Business practice contribution to

GHG emissions and corresponding potential impact from climate change action/regulation

• Opportunities: Profitable response to climate change threat

• Action: Steps/ meausures taken by company to date or currently in process

• Alignment: Level to which Action is appropriate to threat and opportunities

Technology

Threats

• Highly visible brand likely to be targeted by activists and regulators

• Products contribute to GHG emissions through energy consumption

• Normal business practices contribute GHG emissions

• Sophisticated workforce will require company commitment to global problem

• HP’s “invent” tagline and reputation for innovation could be strengthened through application to climate change problem

• Sophisticated workforce could volunteer IT and computing skills to climate research and data analysis tasks

• Large GHG footprint indicates potential efficiency improvements

• Partnership and emissions reduction in strong alignment

• Could do more to improve GHG contribution of products

Opportunities Action Alignment

• Energy audits and reduction of GHG emissions

• Entered into partnership with WWF to provide support to climate change research programs

HP

Threats

• Most visible microprocessor brand--main product consumes a significant share of world’s energy

• Intel microprocessors will play a measurable role in future world energy consumption

• Products contribute to GHG emissions through energy consumption

• Normal business practices contribute GHG emissions

• Sophisticated workforce will require company commitment to global problem

• Improving product design and efficiencies could lead to significant GHG emissions reductions

• Large GHG footprint indicates potential efficiency improvements

• Products could potentially be used for dramatic improvements in climate modeling

• Strong alignment with product design focus on energy efficiency

• Impressive annual energy efficiency improvements


• Recognizes human causes of climate change and supports government policies to curb GHG emissions

• Focusing significant R&D dollars to more energy efficient chip designs to reduce power consumption

• Reducing energy consumption by 4% annually

Intel

Ski Resort Industry

• Direct economic threat. Shorter ski seasons, less snowfall, more precipitation as rain all equal less lift tickets purchased.

• Many resorts also make revenue from real estate sales, prices could be impacted.

National Ski Area Association:Threats

• Many customers are concerned with the issue, can build a relationship on shared values and action.

• Easy to communicate with customers about actions taken and recommend actions for them.

• Legitimacy in debate over global warming based on self-interest.


• Partnered with NRDC to start “Keep Winter Cool Campaign”.

• Web site, targeted TV and print ads, info at some resorts.

• Members are buying wind/solar energy and/or offsets.

• Educating customers how to reduce footprint.

• Backing legislation.

• Resorts, customers and society interests are all aligned.

• Don’t have expertise in reduction so partnered with NRDC.

• Ability to talk to customers in appropriate and convincing language.

• BUT not all resorts are participating, still fractured industry despite leadership from top.

National Ski Area Association

• Same threats as general industry.

• Face a specific geographic location with high environmental values.

Aspen Snowmass

• Chance to lead the industry on this issue, go beyond what other resorts are willing to do.

• Brand association with environmental action.

• Significant control due to near monopoly in the Aspen area.


• Started own campaign, “Save Snow”. www.savesnow.com

• Amicus brief in the EPA carbon lawsuit.

• Print ads in lifestyle magazines.

• 100% carbon offsets with wind power.

• Distinguishing with “first” and “only” in industry on website.

• Same as industry.

• Could be more closely aligned with local residents and specific customers than industry in general.

Aspen Snowmass

http://www.savesnow.com/

ENERGY

• Top 3 energy company-- likely to be targeted by activists and regulators

• Its products are major contributors to climate change

• Its operations contribute strongly to GHGs emissions

BP: Beyond PetroleumThreats

• Better product design can lead to dramatic reduction on emissions

• New markets

• Ability to influence legislation

• Better brand recognition

• Cost savings

• Strong alignment with technology

• Strong alignment with product design

• Playing a distinguished role in the industry

• Exploring new market opportunities


• First multinational corporation to join the consensus on climate change.

• Committed to reduce GHG emissions from its own business operations.

• Joined international efforts to reduce GHGs

• Renewables were officially moved up on par with BP’s other business lines

British Petroleum

• Green-push from customers

• Products contribute to GHG emissions

• Operations contribute to GHG emissions

Threats

• New markets

• Ability to influence legislation

• Better brand recognition

• Cost savings

• Alignment with portfolio design

• Alignment with market expectations

• Playing a distinguished role in the industry

• Exploring new market opportunities


• Reporting (e.g. Carbon Disclosure Project)

• Reduce rates of GHG emissions from operations (one of the lowest rates of GHG emissions in the nation)

• Sharing best practices (SF6 reduction partnership; CH4 from NG distribution)

• Advancing responsible businesses (USCAP, Clean Energy Group)

• ClimateSmart (carbon neutral program)

Pacific Gas & Electric Company

REAL ESTATE

Real Estate Companies

Threats

• Office, Mall, Industrial Storage, and Apartments generate a significant amount of emissions and location of development impacts the necessity for increased or decreased automobile emissions from commuter and transportation vehicle.

• Natural disasters present a real risk to real estate assets

• Climate changes could create population shifts away from office and mall’s strongest growth regions. CA, AZ, costal regions

Opportunities

• First movers will have an advantage in securing green tenants

• Reduced emissions will reduce expense to property managers and tenants

• strategic development locations will help attract tenants unwilling to commute.

• Most experienced green / LEED certified developers will win valuable state / university and green conscious clients

Real Estate CompaniesControl $26 Bil of real estate assets

•422 mil sq ft

•2466 properties

•80 mkts in Asia, Europe, and US

•1st public real estate co

to offset carbon footprint

Response to Climate Change

Connection to Strategy

• Joined the Chicago Climate Exchange requiring complete offset of their “carbon footprint” for all properties in the US

• Quantified (but did not disclose) total carbon output at all facilities worldwide

• Installed solar roofing panels on several development projects. (didn’t say how many, or give a percentage of total energy used)

• Selected development sites to minimize transportation/ carbon emission. (part of core strategy)

• Provided recharging stations at Denver HQ for electric vehicles. (probably minor total impact, but positive for employee satisfaction)

• Redeveloped properties instead of “greenfield” building.

• Made “Sustainability” their 2005 tagline for their 10K and integrated it through their economic reporting with mention of continued carbon reduction as a goal.

• Carbon offset strategy helps win business w/ environmentally conscious customers

• Energy efficiency at properties reduces customers’ expense on triple net leases by cutting energy costs.

• Locating properties near distribution hubs and reducing transportation emissions is core to industrial distribution strategy.

• Decreased carbon output from properties increases likelihood of future development approval from local and state governments.

• First mover advantage over AMB, others and a partial reason for their #1 rank in Real Estate for Fortune’s most admired companies.

http://www.prologis.com/

Real Estate CompaniesResponse to Climate Change


• Reduced carbon dioxide emissions during construction by 40% on recent office development

• Committed to further disclose climate risk information to investors at the urging of the INCR

• Used wind generated energy to power common areas thus reducing GHG emissions

• Located development near public transportation

• Lead office REITs in developing LEED certified buildings that stipulate reduced emissions

• 2005 10K includes an argument that green buildings provide financial benefit as well as PR benefits

• Focusing on reduced emissions buildings is directly connected to their core strategy of real estate development

• Reduced energy consumption saves tenants and Liberty on increasing energy costs in the long run

• Several tenants are demanding lower emission buildings closer to public transportation

• Improves likelihood of future development approvals from state and local governments

• Has helped win contracts with universities and other public projects

•$49 Bil mkt cap

•65 million sq ft

•700 properties

•2,100 tenants

•Located in mkts in US/ UK/ NZ and Australia

Westfield Shopping Centers

Real Estate CompaniesResponse to Climate Change


• Took part in a review of each shopping center’s impact on climate change and energy as well as other environmental concerns lead by an independent consultant.

• Retrofitted lighting in 11 shopping centers to conserve energy and quantified the results. Total cost was $4.6 million but energy savings of $2.6millon annual will make the project cost effective in less than 2 years and will save 30 million kWh of electricity per year.

• Located mall developments near public transportation and committed to reducing energy and transportation at new sites.

• Website highlights their positive contributions to the environment and climate change specifically for positive PR and improved disclosure.

• Focusing on reduced emissions buildings is directly connected to their core strategy of real estate development

• Reduced energy consumption saves tenants and Westfield on increasing energy costs in the long run

• Green tenants are demanding lower emission buildings closer to public transportation

• Improves likelihood of future development approvals from state and local governments

•$48 Bil in real estate assets

•100 mil sq ft

•121 properties

•22,750 retail outlets

•20 mkts in US/UK

•1st Green Builder

Deep Dive Summary: Action v. Threat

Threats

Action Taken PG&E

BP

Size of circle indicates magnitude of impact on reducing GHG

emissions

Small Large

Weak

Strong

Aspen

HP

Intel

NSAA

WestfieldLiberty

Prologis

Trend line of expected future action and threats

Inaction is no longer an option.

• Growing societal expectations of action

• Increasingly vocal scientific consensus

• National and international policies on climate change inevitable




Business Protection and Profitability

define strategic climate change response. More aligned…

IntelProduct roadmap focuses on high efficiency chips with lower power consumption—potential to make significant WW power consumption reduction

PGEEnergy conservation strategies for consumers have become core element of message and service

SkiIndustries profitability and existence dependant on an aggressive climate change response.

Less aligned…

HPClimate change response focuses on philanthropic investments and partnerships and reducing carbon footprint

BPMedia efforts and incremental alternative energy investments not impacting major dependence on fossil fuels

REITsAddition of green development capabilities and carbon offsets haven’t changed core real estate portfolio’s energy consumption.

Turning climate change risk into strategic business advantage

• Green building advantage• Dow sustainability index• Emissions-free power generation

• Low power consumption processors and chipsets driving product roadmap

• Dramatic emissions reductions from company business practices

• Ecomagination “Green is Green”• GE investment portfolio approach to green

technologies• CFLs, LEDs, Hybrid Locomotives, Photovolatics, Wind

Turbines, etc all seen as NPV + investments for GE

Greenhouse gas contributors have potential to transition GHG liability into profitable business advantage

GHG Contributions: Elevators, engines, HVAC, helicopters

GHG Contributions : PCs, servers, data centers

GHG Contributions : Light bulbs, engines, power facilities

Moderate contributors to climate change can find strategic business advantage in climate

change response

Even companies without significant climate change exposure can benefit from strategic climate change responses

• Operational efficiency (HP, Intel, Westfield, Prologis, Liberty)

• Improved consumer reception in the marketplace (PG&E, Aspen, HP)

• Reduced exposure to risk (Westfield, Prologis, Liberty)

Conclusions

• Climate change is critical to the future of business

• Threat level vary by industry

• Best responses to Climate Change are aligned with core business objectives

• Companies with substantial Climate Change risks have the potential for significant business opportunity

• Even companies with low to moderate threat levels are profiting from their responses to Climate Change




Sources• Intergovernmental Panel on Climate Change, Climate Change 2001: Synthesis Report, Summary for

Policymakers, http://www.ipcc.ch/pub/un/syreng/spm.pdf, p. 5. in Climate Risk Disclosure by the S&P 500. Ceres, January 2007.

• National Research Council, Committee on Surface Temperature Reconstructions for the Last 2,000 years, Surface Temperature Reconstructions for the Last 2,000 years, Prepublication Copy, Pp., 3-5 (Washington, DC: National Academies Press, 2006) in Climate Risk Disclosure by the S&P 500. Ceres, January 2007.

• Except where noted, this summary is taken from Allianz Group and World Wildlife Federation, Climate Change and Insurance: An Agenda for Action in the United States, October 2006 in Climate Risk Disclosure by the S&P 500. Ceres, January 2007.

• A.L. Westerling, H.G. Hidalgo, D.R. Cayan, and T.W. Swetnam, “Warming and Earlier Spring Increase Western U.S. Forest Wildfire Activity,” Science, August 18, 2006, Vol. 313, No. 5789, pp. 940-943 in Climate Risk Disclosure by the S&P 500. Ceres, January 2007.

• Association of British Insurers, Financial Risks of Climate Change, Summary Report, June 2005, p. 4 in Climate Risk Disclosure by the S&P 500. Ceres, January 2007.

• Kerry Emanuel, “Anthropogenic Effects on Tropical Cyclone Activity,” MIT, January 2006,http://wind.mit.edu/~emanuel/anthro2.htm in Climate Risk Disclosure by the S&P 500. Ceres, January 2007.

• Paul R. Epstein, “Climate Change and Human Health,” New England Journal of Medicine, October 6, 2005, p. 1434 in Climate Risk Disclosure by the S&P 500. Ceres, January 2007.

• www.CERES.org

• www.BP.com

• www.PGE.com

http://www.ceres.org/

http://www.bp.com/

http://www.pge.com/

Sources (continued)• www.prologis.com

• www.westfield.com

• www.libertyproperty.com

• ProLogis 2005 Annual Report

• Westfield 2005 Annual Report

• Liberty Property 2005 Annual Report

• www.HP.com

• www.intel.com

• www.ecomagination.com

• www.utc.com

• www.us-cap.org

http://www.prologis.com/

http://www.westfield.com/

http://www.libertyproperty.com/

http://www.hp.com/

http://www.intel.com/

http://www.ecomagination.com/

http://www.utc.com/

http://www.us-cap.org/

Documents

Corporate Responses to Global Climate Change: Threats and Opportunities