A Predictable Industrial Revolution

13 Oct 2010 – Alicia Ayars

This is the season for ratings, with new results from the Dow Jones Sustainability Index, Maplecroft, and FTSE4Good to name a few. All of this comes on the back of SustainAbility’s phase 2 report of Rate the Raters, taking a critical look at ratings organisations, their methods for collecting and interpreting information, and how companies can navigate the ratings landscape into the future.

The Good

The most recent results have been published by the Carbon Disclosure Project (CDP), highlighting the FTSE350 in London. As we have come to expect, there was no shortage of rhetoric supporting the assertion that investors and corporations are more engaged than ever in tackling greenhouse gas (GHG) emissions reductions. This is supported by the simple fact that CDP has grown from the endorsement of 35 institutional investors representing assets of US$4.5 trillion in 2000 to a base in 2010 of 534 investors with assets of US$64 trillion. Following this trend, 2456 companies responded to CDP in 2009 with the number of responses this year set to exceed 3,000. From humble beginnings, CDP truly has become the most powerful NGO you’ve never heard of, acting as a catalyst for what Paul Dickinson called the first predictable industrial revolution.

Through the morning, the audience heard positive messages about the increase in disclosure worldwide and the interesting products companies are developing as they seize climate change opportunities. For example, Kingfisher has identified a nearly £100 billion market opportunity, by concluding that, “in the UK, [they] estimate that households will need to spend between £4,000 and £6,000 on energy efficient measures over the next decade if the government is to meet its carbon reduction targets,” (p. 23). In 2009 HSBC launched a suite of insurance products under the Green & Sustainable Insurance plan to, “encourage customers to reduce their carbon footprint, provide insurance services for, and investments in, new green sectors and protect them against climate change impacts such as droughts and floods.”

On a more conceptual level, speakers focused on building pride in their organisations through good corporate citizenship. Equally encouraging was the message that the appeal of changing business models to mitigate impact is inherently emotional. I believe this is a message business tends to shy away from, for fear of appearing weak. In a world where growth is still the bottom line and where people struggle to survive in the midst of an on-going recession, ensuring the survival of the so called “intangibles” doesn’t tend to resonate with the majority of society.

The Bad

Unfortunately the above isn’t the whole story, and before the next industrial revolution can take place we must ensure that “climate” data is rigorous, reliable and assurable. I fully understand why CDP does not require companies to assure their information; it is seen as a barrier to entry. But as CDP steps into its role as the most powerful NGO in the world, it needs to stop apologizing to companies for asking them to provide verifiable information. In 2010, while 61% of Global 500 respondents have their data verified in “some form”, this number decreases throughout the other expansions (44% or 95 respondents in the FTSE 350, a low of 21% of respondents verifying their Scope 2 emissions in the Canadian 200). This is simply not good enough any longer.

The Ugly

During the CDP launch a question was posed regarding the increasing abundance of relative targets in contrast to absolute reduction targets. The response across the board, including from CDP, was typical of a new brand of business as usual: “targets signal intent”. In my experience, intent rarely translates to meaningful action. It is true that a relative target is better than no target at all but these relative targets come with exceptions, meaning we (and CDP) are buying into change on a dramatically smaller scale than we need (if indeed there are any reductions at all). Walmart is the perfect example of a company that continually sets relative targets, including a global goal to reduce GHGs at their existing stores and distribution centres around the world. Note the word “existing”. There are still hard choices ahead and the longer we ignore this simple fact, the more difficult it is going to be for society as a whole to reach our goal of 2⁰. CDP now has the power to radically change the business approach to climate change but it is not going to make friends in the process and it has to reconcile itself to this fact, before they can push back on relative emissions reductions and we can start seeing dramatic GHG emissions reductions.

The Silver Lining

So what is the silver lining? In wading through the CDP reports, you will find companies that are changing their business models; making the hard choices. Take B&Q for example, which stopped selling patio heaters in 2008. While it was a popular product that sold well, B&Q thought that to be serious about sustainability, they could not keep selling a product they saw as environmentally damaging. This type of leadership is the base of the next industrial revolution, and well done to CDP for shining a light on such companies.