Questions and Answers
The 3% Solution demonstrates that if US business acts now to reduce emissions by 3% annually on average, US corporate sector will save up to $190 billion in 2020 alone or $780 billion over ten years. The approach is tremendously profitable and aggressive enough to protect the climate.
The 3% Solution is the solution that the business community and sustainability stakeholders have been looking for.
The 3% Solution is game-changing because it bridges the short-term financial concerns of businesses with science-based action necessary to address climate change.
Here are three ways the report is new and different:
- The 3% Solution offers the most compelling, CFO-focused business case for setting ambitious carbon reduction targets made to date, identifying cost savings of up to $190 billion in 2020 alone, and up to a total of $780 billion for the US corporate sector from 2010-2020.
- The analysis is squarely focused on achieving the full level of ambition required to address climate change rather than on an arbitrary goal set by politicians.
- The report takes a novel approach by allocating responsibility for reducing emissions based on a sector's profit opportunity and not simply on its carbon footprint. Often the biggest emitters have the biggest opportunity for capturing financial gains.
In addition, the report unveils two innovative tools for businesses:
- Carbon Productivity Portfolio - a set of five actions that together create a practical pathway to maximize carbon reduction potential while simultaneously creating business value
- Carbon Target and Profit Calculator - an online calculator that enables business leaders to set a 2020 carbon reduction target and identify the profits their company may realize if they achieve those reductions
The report is built upon rigorous analysis by several of the world’s leading consulting firms, namely McKinsey & Company, Point380 and Deloitte LLP. In addition the report draws upon data reported to the Carbon Disclosure Project (CDP) from major U.S. businesses, dozens of interviews with corporate leaders, and the real-world experience of consultants working directly with businesses to cut costs and shrink their carbon footprints.
Additional sources are referenced in the footnotes of the report.
If you have specific technical questions about the analysis, please contact us.
Based on interviews with dozens of business leaders, the report identifies three key internal obstacles to fully realizing profitable carbon reduction opportunities. The report is also filled with examples of how each obstacle can be overcome:
- Capital constraints. Companies often leave attractive opportunities on the table because they set high internal hurdle rates, even though carbon reduction investments are very low-risk with long-term stable returns. The corporate sector would need to devote 3-4 percent of its capital expenditures to carbon reduction activities to fully realize the cost savings.
- Low management priority. Many managers may be unaware of how setting ambitious carbon reduction targets can unleash innovation and profits. It is common to underestimate the financial potential and overestimate the capital investment required.
- Lack of expertise. Many companies may also lack the technical expertise to implement a cost-effective carbon reduction program. Companies are overcoming this by creating a central management function or consulting external providers.
More generally, some opportunities can only be seized by engaging with NGOs other stakeholders, such as coordinating with utilities to clean their energy mix, advocating for government policies that encourage innovation and carbon reductions.
An average annual reduction in emissions of 3% by the overall US corporate sector can be tremendously profitable and is aggressive enough to protect the climate. In contrast, reductions of less than 3% annually leave additional cost savings on the table.
On an industry by industry basis, the profitable reduction opportunities will vary. In some cases they are more and others less than 3%. See Table 1 on Page 14 of the report.
This report shows that companies can both save money and demonstrate corporate leadership on climate change. Here are three steps for businesses to take advantage of the opportunity:
- Set ambitious carbon reduction targets and identify cost savings opportunities using the Carbon Target and Profit Calculator. An ambitious carbon reduction target paired with action in each of the five components in the Carbon Productivity Portfolio can trigger a cascade of innovative energy- and cost-saving opportunities.
- Devote between 3-4 percent of capital expenditures to fully realize cost savings from low-risk carbon reduction investments. For some companies this may involve a reallocating some existing capital to these more profitable activities.
- Make the financial case in your own terms by estimating and translating your savings opportunity to your bottom line over a modest investment period.
Three types of activities make up the bulk of the profitable carbon reductions:
- Improved energy efficiency through technology improvements, such as capturing and reusing wasted energy (i.e. heat from equipment), using more energy-efficient heating, air conditioning and lighting, improved data centers and more fuel-efficient vehicles.
- Improved energy efficiency through management practices, such as switching off lights, monitoring energy use and identifying and stopped leaks or other waste.
- Deploying low-carbon energy, particularly rooftop solar on business facilities.
While the analysis shows companies can reach the IPCC’s minimum reduction target for 2020 with current technologies and policies, new policies could make the job easier and help overcome barriers. In addition, more aggressive reductions after 2020 are required to achieve the 2050 goal to keep global warming below 2 degrees Celsius above pre-industrial levels. Achieving these reductions will require investments in R&D and innovation as well as long-term policy certainty.
For years sustainability directors have been looking for a rock-solid business case for climate action that they can confidently bring to their CFOs and other financial decision makers. From what we hear, The 3% Solution is the most compelling business-case they have seen yet.
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