Jonathan Lash

Fred Wellington

<article-ideainbrief class="article-ideainbrief">
 <h4 class="ideainbrief-title">The Idea in Brief</h4>
 <div class="ideainbrief-contents">
 Global warming is affecting your business, no matter what industry you’re in. You face numerous climate-change risks—including tough emission-reduction legislation, damaging backlash from environmentally concerned consumers, and weather-related damage to physical assets. Consumers are increasingly taking your environmental record into account when they make purchasing decisions. And investors are already discounting share prices of firms poorly positioned to compete in a carbon-constrained world.
 But the risks of climate change also offer new sources of competitive advantage, say Lash and Wellington. How to seize those opportunities? First, measure your firm’s contribution to global warming. Then assess your climate-related risks and opportunities. Reinvent your business—before rivals do—to mitigate those risks and seize the opportunities.
 GE, for instance, launched Ecomagination—a set of clean technologies serving the transportation, energy, water, and consumer product sectors. Revenues from Ecomagination reached $8.5 billion in 2005, with orders and commitments nearly doubling to $17 billion.
 The Idea in Practice
 Lash and Wellington recommend this four-step process for mitigating climate-related risks and seizing new opportunities for competitive advantage:
 <h2>Step 1: Quantify Your Carbon “Footprint”</h2>
 Using available reporting standards (such as the Greenhouse Gas Protocol), prepare an inventory that provides a true and fair account of your company’s greenhouse gas emissions. Differentiate between direct (such as smokestack) emissions and indirect emissions (for example, those resulting from your firm’s energy consumption and travel).
 By quantifying your carbon “footprint,” you signal to investors, customers, and employees your recognition that climate change is a crucial issue. And you begin gaining a broad view of the risks and opportunities presented by a carbon-constrained economy.
 <h2>Step 2: Assess Your Carbon-Related Risks and Opportunities</h2>
 Consider how the following risks could hurt—or present opportunities to help—your business:
 <ul>
 <li>Regulatory—mandatory emissions-reduction legislation</li>
 </ul>
 <ul>
 <li>Supply chain—suppliers’ passing their higher carbon-related costs to you</li>
 </ul>
 <ul>
 <li>Product and technology—rivals’ developing climate-friendly offerings before you do</li>
 </ul>
 <ul>
 <li>Litigation—lawsuits charging you with negligence, public nuisance, or trespass</li>
 </ul>
 <ul>
 <li>Reputation—destructive consumer or shareholder backlash</li>
 </ul>
 <ul>
 <li>Physical—damage to your assets through drought, floods, and storms</li>
 </ul>
 Example:&nbsp; 
 Forest products company Weyerhauser could ask itself questions such as: “Will milder winters spur wood-beetle populations, damaging trees? Could climate change affect demand for our products, if customers require more energy efficient building materials—or increasingly choose wood over other materials?” 
 <h2>Step 3: Adapt Your Business</h2>
 Based on your assessment of how climate change could affect your company, develop and implement strategies for reducing energy consumption and carbon emissions. And consider how you might reinvent parts of your business to seize new opportunities. Example:&nbsp; 
 Caterpillar is making its already relatively low emission diesel engines even more efficient. It is also building a new business: making particulate filter systems that can be retrofitted on its own and other manufacturers’ engines. In addition, it’s studying engines that run on bio-fuels. 
 <h2>Step 4: Do It Better than Rivals</h2>
 “Doing well by doing good” isn’t enough: You have to beat rivals at reducing your exposure to climate-related risk and finding business opportunities within those risks. Example:&nbsp; 
 Honda and Toyota have bested competitors (including GM, DaimlerChrysler, and BMW) by making their fleets more fuel efficient than most rivals’ and taking the lead in commercializing hybrid vehicles.
 </div>
</article-ideainbrief>Whether you’re in a traditional smokestack industry or a “clean” business like investment banking, your company will increasingly feel the effects of climate change. Even people skeptical of the dangers of global warming are recognizing that simply because so many others are concerned, the phenomenon has wide-ranging implications.

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In this article, the authors offer a systematic approach to mapping and responding to climate change risks. They divide these risks into six categories: regulatory (policies such as new emissions standards), products and technology (the development and marketing of climate-friendly products and services), litigation (lawsuits alleging environmental harm), reputational (how a company&#8217;s environmental policies affect its brand), supply chain (potentially higher raw material and energy costs), and physical (such as an increase in the incidence of hurricanes). The authors go on to propose a four-step process for responding to climate change risk: Quantify your company&#8217;s carbon footprint, identify the risks and opportunities you face, adapt your business in response, and do it better than your competitors. Today&#8217;s customers insist that the companies they support do their part to&#160;address climate change and other pressing issues &#8212; so protecting the planet is also your best shot at protecting your bottom line.

Competitive Advantage on a Warming Planet

In this article, the authors offer a systematic approach to mapping and responding to climate change risks. They divide these risks into six categories: regulatory (policies such as new emissions standards), products and technology (the development and marketing of climate-friendly products and services), litigation (lawsuits alleging environmental harm), reputational (how a company’s environmental policies affect its brand), supply chain (potentially higher raw material and energy costs), and physical (such as an increase in the incidence of hurricanes). The authors go on to propose a four-step process for responding to climate change risk: Quantify your company’s carbon footprint, identify the risks and opportunities you face, adapt your business in response, and do it better than your competitors. Today’s customers insist that the companies they support do their part to address climate change and other pressing issues — so protecting the planet is also your best shot at protecting your bottom line.

Competitive Advantage on a Warming Planet

Summary.

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