After Cancun: What does COP16 mean for SMEs?

Two Tomorrows senior consultant Doug Bannerman sets out the key issues for SMEs arising from the United Nations Climate Change Conference

You would be easily forgiven for not understanding why last week’s United Nations Climate Change Conference in Cancun (COP16) was met with enthusiasm when it appears little progress was made. To many, it appears most of the hard work got kicked down the road to Durban, the last climate conference before Kyoto expires in 2012.
 
While debate around future solutions continues, climate change is forcing adaptation in real time – not years or decades from now. For instance, rising sea levels are not only a threat to distant, low-lying countries but to North American coastal regions as well. States along the U.S. Eastern Seaboard are already responding to rising sea levels that threaten waterfront property, including critical farmland and transportation corridors. Climate change is having a negative impact on biodiversity and ecosystems and North Americans face the threat of climate-related diseases and pandemics.
 
When it comes to climate, is your business ready to manage the expectations of regulators, shareholders and society? Do you have a comprehensive understanding of your exposure to carbon risks and opportunities? To help get the perspective you need, consider the following four areas:
 
Operations
 
Given other day-to-day priories, SMEs may not have a good understanding of their climate related risks. However, if you are an SME business it is important get a sense of your strengths and weaknesses and to ‘put your house in order.’
 
All companies, regardless of size, are exposed to future carbon pricing that could influence supply and transportation costs. If GHG emissions from supply logistics and transportation are not monitored and measured, it can be difficult to determine this risk, especially if any of your manufacturing processes are outsourced.
 
One way to a grasp on your company’s climate risks and opportunities is to complete the Carbon Disclosure Project (CDP) survey. Currently, 3,000 companies and organizations in 60 countries measure and disclose their greenhouse gas emissions and climate change strategies through CDP. To quantify the emissions associated with your supply chain, start first with transportation of raw materials, then move onto product packaging, delivery, and finally product take-back (if relevant).
 
You can also develop a product lifecycle carbon footprint using tools such as the UK’S Publicly Available Specification (PAS) 2050, which provides a method for assessing GHG emissions from initial sourcing of raw materials through manufacture, transport, use and ultimately waste disposal or recovery. There are also numerous carbon calculators available for free that will help you determine your Scope 1 emissions (all your direct GHG emissions) and your Scope 2 emissions (all indirect GHG emissions from the consumption of purchased electricity, heat or steam).
 
There are opportunities to reduce energy and GHG emissions by installing solar panels or making other weather-related improvements to your business – and often there are government cash and tax incentives to help offset the cost of these investments. It can also be mutually beneficial to work with suppliers to identify energy efficiencies or emissions reduction potential and share any cost savings that result.
 
Regulation

A key theme at COP16 was that responsibility for climate regulation has fallen to cities, states, and provinces that are enacting their own legislation, such as California’s landmark Global Warming Solutions Act of 2006 (known as AB32). At the same time, federal governments have not relinquished their role entirely. New federal legislation, such as the American Power Act or Environmental Protection Agency (EPA) regulations targeting power generation are likely to be enacted in 2011.
 
One certainty is that companies will face a patchwork of carbon related rules and regulation, not only in their home jurisdiction but wherever they do business. This will certainly mean additional burden in terms of compliance or required equipment upgrades or modifications. At the same time, government programs typically phase in over time, feature “grandfather” clauses and include subsidies and incentives.
 
To get a better sense of your company’s risk and opportunity profile, develop a lifecycle product emissions footprint for one of your most widely distributed products. This way, your company is better be able to predict how it may be affected by emerging regulations and adapt more readily to new requirements.
 
Reputation

Certainly, from a customer and stakeholder perspective, no company wants to appear to have no climate game plan or to be out of step with broader societal expectations. While NGO campaigns and climate advocacy organizations have focused primarily on Fortune 500 companies, SMEs have not entirely escaped their radar. In some industries, there is significant risk of reputation damage from ‘guilt by association’ with large emitters. This may hurt your company’s reputation, sales or overall value.
 
Two Tomorrows has seen a significant trend towards greater carbon transparency and validation of carbon data. For SMEs, there is an opportunity to learn from others in their sector – even simply by benchmarking the CSR or sustainability reports of their larger peers to identify best practices in carbon management. SMEs may also consider engaging with local NGOs or nonprofits to explore what technical assistance or partnerships may be possible.
 
Depending on where your company is on the value chain, being able to demonstrate these energy savings to your customers may position your business as a leader or help you graduate to a higher tier.
 
Litigation

The risk of climate related litigation for most SMEs is negligible; however, larger companies, particularly energy utilities have been subject to 'nuisance' lawsuits and observers are closely watching a major climate lawsuit before the U.S. Supreme Court. Ninety-five climate-related shareholder resolutions were filed with U.S. companies this year. So, for publicly traded companies, there is concern about the potential for investor lawsuits related to the carbon disclosure but the risk is considered low, especially for companies who follow the SEC’s guidance.
 
Climate adaptation is already affecting business decisions, including where to locate facilities, how to secure water, raw materials, energy and other inputs, and how to move products and services to market (and take them back again). As a result, companies of all sizes are taking a hard look at how current and emerging climate trends will affect their business, their supply chain and their customers, and they are taking action now to adapt and to remain competitive and profitable.

This article was first published on GreenLeap, a business-to-business web community