- Issue: Spring 2015
- Author: Kevin Nance
"In the last decade, many major US businesses have recognized that the protection of natural resources is directly aligned with profitability and long-term growth,” says Suzanne Apple, senior vice president of private sector engagement at WWF-US. “It has moved from a risk-management-focused, nice-to-do approach to a core business function that is becoming more integrated into everything from operations to procurement. When companies like The Coca-Cola Company are at risk of losing access to, or availability of, water resources in key markets,” she adds, “sustainability and conservation become even greater business imperatives. Or consider a company that produces wood, paper or pulp: What happens when they run out of trees? This is especially true in challenging economic times when reducing costs becomes an absolute priority.”
More and more major companies across America have been reaching the same conclusion: saving money and saving the planet are not mutually exclusive. They’ve made another important connection as well. Meeting the challenges of global climate change—by improving energy efficiency, reducing waste and investing in green technology and renewable energy—is good for the bottom line.
But what does “good” look like in the context of sustainable business, and how is it best pursued in light of the latest climate change science? How can sustainability investments bolster profitability both in the short term, through energy cost savings, and in the long term, by securing markets and preventing disruptions to supply chains? Taken from another angle: What is a company’s fair share in the fight against climate change, and what are the potential rewards? What are the possible consequences of inaction?
Answers to these and other pressing questions can be found in The 3% Solution: Driving Profits Through Carbon Reduction, a groundbreaking report prepared and issued in 2013 by WWF and the London-based CDP (formerly the Carbon Disclosure Project), a global environmental charity that monitors corporate greenhouse gas emissions worldwide. Analytical support was provided by Point380, a climate analytics consulting firm, and McKinsey & Company, a global management consulting firm.
In keeping with the long-standing recommendations of the Intergovernmental Panel on Climate Change—which say that global temperatures must be kept below a 2°C rise to avoid potentially devastating consequences—The 3% Solution calls upon American corporations collectively to reduce annual greenhouse gas emissions from 2010 levels by 1.2 billion metric tons by 2020. That’s equivalent to the annual emissions from about 250 million passenger vehicles, from the energy used by about 100 million homes, or from about 315 coal-fired power plants.
In essence, if corporate America reduced its absolute carbon emissions 3% every year from 2010 through 2020, they would have us on track with what scientists say is needed. And that would be a major win for the planet. Even better, the report quantifies a staggering payback over those 10 years for American corporations that use energy, excluding the electric utilities that generate it: up to $780 billion in total and up to $190 billion in 2020 alone. The report also lays out how the 3% goal can be achieved with the help of a carbon productivity portfolio and a carbon-target-and-profit calculator, both available on WWF’s website.
“The idea for the 3% solution was generated in 2006, when we started exploring how we could go from a few dozen companies taking up the climate protection agenda to an effort that inspired widespread adoption of the tactics pioneered by our Climate Savers partners throughout the US private sector,” explains Matthew Banks, a manager on the private sector engagement team. “WWF specialists worked with McKinsey analysts to look at the problem with a focus on sectors with the most savings and profit opportunities. In other words, The 3% Solution features the industries that have the most to gain from cutting greenhouse gas emissions.”
Carbon Out, Productivity and Profit In
Built on the real-world experiences and successes of major US companies, the Carbon Productivity Portfolio maximizes carbon reduction and creates business value through a practical, five-step process. It is just one tool in the corporate toolkit WWF has created to help capture the full emission savings possible in 2020.
Carbon Productivity Portfolio
Engage with stakeholders and government
Improve energy management and investment
Develop low-carbon products and supply chains
Increase low-carbon energy supplies
Set ambitious targets
Those that set “stretch” targets often reach and exceed them, likely because the targets spur innovation and reductions that are more profitable than anticipated.
Most companies on the 3% solution path will come up against common barriers like capital constraints, low management priority and lack of expertise. However, these barriers can be overcome.
Switching to low-carbon energy supplies and other actions will take US companies only to a certain point; to go further, the utility sector will also need to support more low-carbon energy supplies.
Use of the 3% solution process can influence the entire supply chain by reducing customers’ costs and emissions, working with suppliers to develop low-carbon products and more.
To maximize emissions reduction, collaboration is a key tool.Encouraging innovation and low-carbon-focused policy changes requires governments, NGOs, industry associations and others to work together.
And that’s perhaps the greatest asset of The 3% Solution—that it brings clarity and cohesion to an effort that many companies across the globe have been tackling individually, often without scientific guidelines and with varying results.
When science-based goal setting is in place, however, the chances that a company’s carbon reduction program will succeed are amplified. Swartz goes on to explain, “When you set a goal, you professionalize your approach to this. You put a program in place, and you put responsibility and accountability for delivering it in place, and you deliver better performance.”
The prospect of wide and possibly cooperative participation in the 3% solution vision is particularly exciting, he says. “Having a large number of very big companies set goals on common timelines, with a common analytical framework, to reach common objectives, is a concept with tremendous power. If you could get 100 of the Fortune 500 companies to set goals to this 3% pathway and to work collaboratively on delivering emissions reductions, the coordination that would come from that would be several orders of magnitude more than what the individual companies could do on their own.”
Paul Simpson, CEO of the global environmental charity CDP, agrees. “We know that setting targets can facilitate better corporate performance. CDP data suggests that companies that perform better on climate change generate superior financial returns,” he says. “While companies don’t always achieve their sustainability targets, those targets are powerful drivers of behavioral change.”
At press time, six major corporations—Bloomberg, Brown-Forman, Cisco Systems, Colgate-Palmolive, General Electric (GE) and Hewlett-Packard (HP)—have set targets on course with the 3% solution and reset their emissions goals in part using the report’s carbon-target-and-profit calculator. To further increase participation, WWF’s climate team has been actively pitching the 3% solution to large American corporations, in particular those who lack carbon emissions goals or whose goals have expired or are nearing expiration.
The team is also deploying the early 3% adopters to teach the next class. “Since around 2000, a lot of companies began setting sustainability targets within the context of what they thought they could do as private enterprises, but the science of climate change didn’t play a large role in the process,” Banks explains. “Gradually—primarily in the last year and a half—they’ve come to accept that they can set a target that is more globally relevant, and more situated in the context of the global debate about climate change.”
Now, companies are increasingly viewing the climate change challenge through a different, more self-interested lens. “For many of these companies, climate change is having a direct and growing impact on their operations, supply chains, customers, and ability to deliver and foresee business stability for decades to come,” says Marty Spitzer, WWF’s director of US climate and renewable energy policy. “They are asking, ‘What happens if we can’t get the raw materials or clean energy that we need? What happens if we can’t get the agricultural products that we need because of water shortages due to climate change? What does it mean to the business to have a destabilized climate?' Those analyses are happening at all levels now, and we see the companies asking those questions far more than they used to.”
Step by Step: Ecofriendly Targets Get a Boost
For the largest corporations in the United States, clean energy is now becoming mainstream.
215 companies in the Fortune 500 have set targets in one of three categories:
1 greenhouse gas (GHG) reduction commitments
2 energy efficiency
3 renewable energy
of the largest companies in the US are capturing significant business value by cutting emissions and using clean forms of energy to power their operations.
of Fortune 100 companies had set clean energy and GHG reduction targets as of 2013.
For the 20 Fortune 100 companies with targets ending in 2012:
achieved their target.
have set greater targets or have other ongoing targets.
in annual savings was recorded through their carbon reduction projects.
The 3% Solution is a way to help guide and shape that conversation within companies, including the 43% of Fortune 500 companies that have set climate and/or clean energy targets (most of which are not science based). Even for corporations that have been aggressively embracing sustainability for many years, the report is proving useful in a number of ways.
When we set our carbon emissions goals back in 2004, we and other companies were still early in the process of understanding how to set them, what kinds of behaviors we wanted to drive, and so on,” says Ann R. Klee, vice president for global operations, environment, health and safety at GE. “Our goals were aspirational,” says Klee. “We did not have a line of sight on how we were going to get there, because it was based on the very limited experience we had at the time. Over the last 10 years, we’ve had a lot more experience. And then when it was time to set new goals for 2020, being able to look at what WWF had done in The 3% Solution was extraordinarily helpful, because it gave us a scientific basis and methodology for setting goals going forward.
Indeed, what Klee and her colleagues found perhaps most compelling about the report was that it was based on science. “For an engineering company like GE, that works well with our leadership and employees,” she says. “We also really liked the fact that this target is based on what industries need to do to be part of the societal solution to the really challenging problem of global climate change. Having the ability to tie our future goal to a science-based methodology with that kind of credibility is very valuable and very important.
Less Is More
Huge savings are possible in nearly all elements of the US corporate sector, to the tune of over a trillion dollars in total by 2020. And, whether from implementing behavior changes or improving technology, the potential for carbon emission reduction is just as big.
Up to$190 bn
in total savings
Up to1.2 Gt
in total reductions
for all the following elements in the US corporate sector:
- Telecommunication Services
- Information Technology
- Commercial & Professional
- Health Care
- Consumer Staples
- Consumer Discretionary
By Carbon Reduction Method
Net savings in 2020 (billions of dollars)
$40 - $70
Combined Heat and Power
Carbon Emission Reductions in 2020 (gigatons)
0.14 - 0.27
Combined Heat and Power
While the report focuses on the carrot of cost savings for participating US companies, it also brandishes the stick of the potential cost of failing to act immediately. “If you don’t act now, it’s going to be far more expensive and harder to plan for,” says CDP’s Simpson. “The costs of inaction are very high, including significant disruptions to supply chains. We’re already seeing companies reporting increased physical risks from changing weather patterns and a changing climate.”
To avoid those scenarios, The 3% Solution identifies three categories of corporate activities that can achieve the required carbon emissions reductions and generate the associated cost savings. These are improved energy efficiency through behavioral or management changes; technology improvements (like creating systems that generate heat and power at the same time and by switching from older, energy-inefficient technologies to newer, upgraded systems); and increased investment in low-carbon and renewable energy—especially rooftop solar power.
“I personally was a bit surprised at the report’s emphasis on rooftop solar, but I shouldn’t have been because innovation, mass production and scale are really driving the cost of photovoltaics down,” Simpson says. “There are many cost-effective approaches to emissions reductions with great returns on investment available. But the cost of solar panels has plummeted in the past five years, making solar energy more attractive. It presents a huge opportunity for many of these companies that have enormous roof spaces.”
Johnson & Johnson is already reaping the benefits of investment in solar power. According to the company’s global energy director, Jed Richardson, J&J now has more than 20 megawatts of solar panel arrays installed on its properties worldwide. “Years ago, solar was much more expensive, and our implementation was reliant on rebates and incentives offered by states and countries around the world,” Richardson explains. “Today, because the price of solar panels has dropped so dramatically from what it was even five years ago, we’re beginning to look at solar in parts of the world where the energy rates are just high, even though you don’t necessarily have any external force influencing the installation of the panels.”
“The nice thing about solar for us is that it really is plug-and-play. You turn it on, you walk away and it really does its job,” says Richardson. “J&J is also increasing its use of wind power, recently installing two three-megawatt wind turbines at its manufacturing plants in Ireland.”
Slow and Steady Wins the (Climate) Race
There’s no time to waste to help the environment (and improve the the bottom line). Adjustments made now will allow companies to spread out the cost of 3% improvements over time while limiting the climate-related disruptions many groups have already seen. From a scientific and business perspective, Scenario A offers the greatest return on investment.
Start In 2010 to Reach 2020 Target and 2050 Budget
3.2% annual reduction 2010-2020
corporate emissions budget 2010 thru 2050, per IPCC
4.3% annual reduction 2020-2050
avoided emissions 2010 thru 2050
Start In 2020 to Reach 2050 Budget
Business As Usual 2010 - 2020
corporate emissions budget 2010 thru 2050, per IPCC
9.7% annual reduction 2020-2050
avoided emissions 2010 thru 2050
Start In 2030 to Reach 2050 Bugdet
Business As Usual 2010 - 2030
corporate emissions budget5.0 Gt
excess corporate emissions91.5 Gt
total emissions 2010 thru 2050
Emissions Budget Exceeded 2010-2020
avoided emissions 2010 thru 2050
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