Profiting from Climate Change

Business strategies for low carbon world

Climate change affects your company s competitive landscape.

Winners will be the companies which recognize this earlier and
reposition themselves to take the advantage in low carbon future.
Profiting from climate change

Climate Change - An idea in brief

Climate change is topic for hot discussions in board rooms. Top executives are
concerned about how climate change going to affect the profitability of their
companies. Many factors such as - existing and upcoming carbon regulations,
customer demand for low carbon products and services, rising cost of
conventional energy, and pressure from societies and governments around the
world to act on carbon emissions, are going to put increasing pressure on
profitability of the companies. Winners will be the companies which recognize
the role of climate change and repositions themselves to take the advantage of
the low carbon future.
According to the survey conducted by global consulting firm Mckinsey1 shows
that 45% executives of 150 surveyed Indian companies think that climate
change will be the major factor shaping corporate strategy in coming years. Low
carbon future will affect initially the high carbon intensive industries such as
energy, transport, and heavy industries, followed by consumers goods, retail,
and financial sectors.
Carbon emission has to be reduced by 80% from current level by 20502 to
contain global warming. To make it possible, the carbon efficiency of the world
economy should increase from current rate of 1% to 20%.

Year GDP in trillion dollar (In real 2000) CO2 Emissions (tonnes) Ratios

1950 5 9 0.56

2000 32 32 1

2050 145 7 20

Required CO2 emissions to

contain global warming

Source: World Resource Institute, IPCC, McKinsey report, Agneya analysis

1 McKinsey Global Survey on how companies think about climate change published in 2008.
2 According to fourth assessment report published by IPCC
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The seven wedge model3 demonstrates that it is possible to achieve the

required carbon intensity with currently available technologies. To make it
happen, these technologies should be implemented in large scale across the
world. Individuals, organizations, societies, and governments have to adapt to
lower carbon intensive technologies across the sectors and businesses, shifting
the whole economy towards low carbon future.

Shift towards low carbon future

The shift toward low carbon future can take place by
- Increasing the carbon efficiency of the existing assets and increasing usage of
renewable energy
- Innovating and developing low carbon solutions that will help businesses make
the transition
- Increasing the efficiency of supply chain through energy efficiency measures at
supplier end
- Creating regulations and public policies that will make the transition towards
low carbon world permanent and irreversible

Companies can first increase the efficiency of their existing assets by

implementing energy efficiency programs. Studies show that most of the
industries have 20% 30% potential for saving energy through implementation
of existing energy efficiency technologies. Insulations, efficient lighting, and
effective control of leakages in plant and factories can be good plans to start
with. All the energy efficiency measures save the cost by reducing energy bill
and hence payback itself. Furthermore industries can increase the use of clean
energy sources such as solar, wind, and biomass. Companies such as
Hindusthan Lever and Nestle in India have opted for biomass based solid fuel
boilers replacing furnace oil/diesel/coal based boilers in their plants. Others are

3 Seven Wedges model is developed at Princeton University by Prof. Robert Socolow

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investing in wind and solar power for clean energy. These initiatives also help
them earn carbon credits.
Companies are focusing externally to increase the efficiency of supply chain by
training the suppliers and implementing energy efficiency measures at their end.
Walmart has asked all its suppliers to implement energy and water efficiency
measure in their manufacturing plants and report the same on annual basis. The
program is implemented through Walmart s Supplier Sustainability Assessment4 .
Walmart has successfully reduced the carbon footprint and energy intensity at
supplier end resulting in saving of millions of dollars.
Regulations and policies around the world are promoting renewable energy and
curbing carbon intensive industries. India expects to raise $535 millions per year
from the levy on coal producers. This money will be invested as a collateral for
the loans given for renewable energy projects. France and Germany have one
time tax on vehicles having higher CO2 emissions per kilometer. The tax ranges
between €2 to €100 per vehicles. Majority of the countries are having
renewable energy targets for 2020. The investments in renewable energy
projects will be funded through the taxation on high energy and carbon
intensive industries such as cement, power utilities companies, auto, and steel.
Municipal Corporations in India are offering tax rebates on property tax if the
real estate developers follow green building codes. These policies will create
favorable environment for making transition toward low carbon economy.

Business strategies for climate change

The low carbon future will change the competitive landscape for all industries.
Companies should reposition themselves to mitigate the risks and reap the
opportunities thereby creating competitive advantage in low carbon future.
Those who start now will get early mover advantage. Organizations can orient
their strategies through four stages discussed below.

4Read more about Walmartʼs supplier sustainability assessment program at our blog
www.agneyablog.wordpress.com
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1) Measure organization s carbon footprint

First step is to measure organization s carbon footprint. By doing it
organizations signal its investors, customers, and other stakeholders that it
recognize climate change as critical issue for business. Other benefits of carbon
footprint study are that it help understand the energy usage and profile, and
energy hot spots in the organization. Thus through application of appropriate
energy efficiency measures, organizations can reduce their energy bill and
hence carbon footprint. Carbon footprint measurement is a strong tool to
promote and brand organization s products and services to attract investors
and customer who are more concerned about carbon intensity of their
investments or purchases. Many customers are asking the carbon footprint data
as part of environmental information disclosure before selecting their vendors.
Security Exchange Commission and EPA in USA has made it compulsory for all
the listed companies to measure and report the carbon footprint and climate
change related data as part of mandatory information disclosure. Majority of the
organizations around the world and notably in India are adopting various carbon
footprint measurement protocols5 to measure and report their carbon footprint.

2) Assess carbon related risks and opportunities

Carbon footprint sets the stage for next level analysis. Organizations can assess
risks and opportunities that will arise due to climate change related issues.
Some of the risks and opportunities are

• Regulatory - mandatory emission reduction could be risk for high energy

intensive companies which either need to acquire energy efficient assets or
buy carbon offsets. While its risk for some, it turns out to be opportunity for
the companies which design and develop the products that can help energy
intensive companies to become more energy efficient.

5 Various standards are used for carbon footprint measurement and reporting such as GHG protocol,
ISO14064, and PAS2050.
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• Supply chain - suppliers who are less energy efficient will pass their higher
carbon-related costs to you. Few companies such as Walmart is working
actively with its suppliers making them more energy and carbon efficient
thereby reducing cost of product it procure.

• Product and technology - some of the technologies and products might

become obsolete. Automobile with low mileage will have lower demand than
high mileage vehicles, because carbon tax will make later costlier to buy. At
the same time new products and technologies will gain market share.
Demand for products such as LED lightning that reduce electricity cost will
increase manifold. Technologies such as Carbon Capture and Storage will
gain momentum and more buyers.
• Physical - Climate change can cause unpredictable and erratic weather
leading to damage to company s assets through floods, storms, and
droughts. The cost of insuring such assets would go up substantially.

• More profits - Climate change will help open more markets and extra cash
flows through carbon credits.
Investors are asking more information on climate change related strategies and
policies adopted by organizations. Investors are seeking this information
through forums such as Carbon Disclosure Project. A fair assessment of risk
sand opportunities can help organization device its corporate strategy to
mitigate the risks and reap the benefits from available opportunities.

3) Adapt your business

Based on the assessment, organization should develop and implement strategies
for reducing energy consumption, increasing energy efficiency and use of
renewable energy. They should engage suppliers actively in the whole process to
reduce the carbon footprint of the supply chain, design and develop products
which are low carbon intensive. Caterpillar is making low emission diesel engines
and has developed filters which can be retrofitted to reduce the carbon
emissions from existing engines. GE through its initiative ecomagination has
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been serving transport, energy, consumer products, and water sector through
innovative clean technologies. The revenue of Eco-magination, approximately
$18 billion, shows that market is growing for clean technologies. In India, ITC has
developed sustainable forestry which supply raw material for its paper and pulp
business and earns carbon credits for the company. Similarly, its hotel business
has implemented number of energy efficiency techniques which earns carbon
credit for ITC. Its first Indian company which is carbon neutral. 25% of the top
200 Indian companies have started measuring and reporting their carbon
footprint. Some of them have taken carbon reduction targets, while other like
Tata Auto Component Company is committed to become a carbon neutral
company in auto sector.

4) Do better than your rivals

Companies has to beat its rivals at reducing exposure to climate related risks
and finding business opportunities within those risks. Honda and Toyota are way
ahead in hybrid car technology than their rivals. Also they make more fuel
efficient cars than competitors. Staying ahead on the curve will build competitive
advantage which can help companies get more market share, reduce risks, and
enhance shareholder s value.

Reference:
1. McKinsey Quarterly report - Business strategies for climate change
2. HBR review report - Competitive advantage over warming plant by Jonathan Lash and Fred Wellington
3. Agneya analysis
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Agneya Carbon Ventures is a focused Carbon,

Renewable Energy, and Sustainability Management
consulting firm. We provide services in the wide
spectrum of carbon management, Renewable Energy
projects, and Sustainability domain helping our clients
identify and mitigate the risks, exploit the opportunities,
and thus tackle the environmental, social, and
economic challenge.

For further details contact us at

Indrajeet@agneya.in / +91-9028788430
kedar@agneya.in / +91-9665407848

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