This article originally appeared in The Huffington Post. It has been republished here with their permission.
Call it Hopenhagen if you like, but make no mistake — President Obama’s decision to attend and speak at the United Nations climate conference has significant implications for governments and corporations around the world.
The White House has said the President will speak toward the end of the conference in order to push negotiations over the top, but it is the content of his speech that will determine whether or not he is successful.
The world is looking to the US for guidance, and as the leader of the global economy, a formal US position on climate change carries significant weight with the global community. President Obama’s delivery of the US position on climate change will likely determine whether the US will play a leadership role in climate change, or surrenders that position to China or European Union.
What’s at stake? Primarily, America’s ability to capitalize on the economic opportunity of climate change. To say that nothing will come of Copenhagen is short-sighted. COP15 will undoubtedly have significant impact; however the nature of that impact and how it will affect the US is not yet clear.
The US is known for capitalizing on markets to attract business and innovation, and COP15 represents another moment where it must seize the opportunity — this time with climate change. But COP15 also represents a significant risk to US economic growth if it does not act because, for the first time, there are serious contenders abroad.
Progress in Copenhagen could spur breakthroughs in fuel cell, biofuel and solar technologies, allow the manipulation of catalysts at the nano scale, and lead to the invention of a number of other technologies yet to be discovered. Unlike Kyoto however, failure by the US to establish a clear leadership position may not stall the international process as it did before; rather it may open up new opportunities for other countries to take the lead.
In recent months, fast growing nations such as China have signaled commitment to progress on reducing emissions and developing carbon markets, and it is exactly this opportunity they have in mind.
In the 1990s, China was exempted from reductions imposed under Kyoto because the UN considered the country a developing nation, facing economic challenges so serious it could not possibly meet imposed targets. Today, China is transforming its procurement and use of energy and the policies that govern it. They are investing in wind turbines, nuclear, solar and a host of technologies that reduce their reliance on oil and coal, and diversify their long-term energy strategy in the process. By 2011, China plans to reduce emissions at the level of nearly twice Germany’s annual emissions output. Impressive environmental goals, but it is clear that economics are driving these decisions.
Of course cleaning up emissions is the right thing to do for our environment and our economy. I got the idea for my own company while studying environmental management in my undergraduate program in the mid-1990s. I firmly believe we must be responsible stewards of the earth and providing business with the proper incentives is the best path to environmental stewardship. But we also must realize that progress on emissions and energy reductions from a policy perspective represents a potential boon for U.S. innovation and business.
My company is growing fast because our customers - mostly Fortune 500s - can save money by using our technology to better manage their sustainability metrics (energy, GHG, water, etc). I am proud to say we are a living, breathing example of innovation that is creating “green jobs” .
America has a long and vibrant history of innovation. But without clear direction from policy on climate change, our innovation engine is idle. We need to take charge of our own destiny; companies need government leadership in policy to help pave the way for success, and that’s why Obama’s speech is so critical.
A vacuum has resulted in the absence of leadership since the Kyoto Accord, and has given rise to a false debate regarding whether or not we need to take any action at all. But it is clear that the world needs action from both an environmental and economic perspective. While the science behind global warming will likely always be debated, it cannot be argued that the environment is changing and that the global economy needs a new engine. With clear, aggressive, and comprehensive policy on climate change, we may get to solve both problems with one solution. But as long as we lack clear direction from our leaders, global business will be forced into a holding pattern.
President Obama faces a significant challenge. It will be difficult for him to make significant and binding commitments on climate change, especially while such legislation is still being debated at home. But if Mr. Obama can successfully channel his ability to gather consensus in Copenhagen, it may pressure Congress to pass binding legislation.
Right now, the US is recognized as the leader in clean tech innovation. But if clear policy signals are not received from the current administration at COP15, business is not likely to react and the opportunity will be seized by other economies. And the jobs will go with them.
In this light, the US opportunity in Copenhagen is not just about climate change, it’s about remaining at the epicenter of the clean tech economic revolution. The Obama administration has the formidable task of ensuring that the US comes out on top, and to demonstrate that what’s good for the environment is also good for the US economy.
This post originally appeared in Forbes. It has been reprinted here with their permission.
In corporations across the globe from Intel to Xcel Energy , a new trend has emerged in binding executive compensation to progress made on corporate sustainability goals, including reductions made in energy costs and consumption. The changing legislative and financial landscape in the U.S. and elsewhere underscores the potential impact of this trend on every executive in America.
Managing executives based on performance to goals is nothing new. Management by objectives is a mainstay of most executive compensation plans to ensure pay and strategic growth are closely aligned. Most options packages include a vesting period to maximize the contribution of employees associated with organizational goals. Key performance indicators have been the benchmark system of HR departments for years. Performance-based pay is a common method of compensation.
But a new indicator of organizational performance has emerged that has potentially far-reaching implications: the achievement of sustainability goals. Sustainability has slowly moved into the realm of finance and corporate oversight as energy, carbon emissions, water, and waste have become financial assets in terms of reduced cost, risk mitigation and new lines of revenue. The Securities & Exchange Commission recently issued guidelines for corporate disclosure around sustainability because it sees this as a key risk for corporations, including the impact of climate legislation and even the physical impact of climate change.
Even shareholders are using their considerable leverage to move companies to address sustainability in their business plans. With the public outcry regarding golden parachutes provided to top executives and the subsequent financial collapse, executive compensation has become a highly visible, hot-button issue. So have corporate responsibility and environmental track records. Corporations are responding by combining the two: tying executive compensation to the success or failure of company-wide sustainability initiatives. Just as energy and carbon are being treated like any other financial asset, companies are looking toward sustainability as a new way of measuring corporate success–and the financial motivations of their executives.
U.S. corporations are reacting swiftly. Investment in environmental products and services is skyrocketing–the global market for low-carbon and environmental goods and services (LCEGS, which includes alternative fuel vehicles and waste management) was worth over $5 trillion in 2009 -and companies are starting to look at their own internal operations for incentives to green their business.
The corporate justification for aligning executive compensation and sustainability goals shouldn’t be surprising. While the American conversation on the environment has focused on climate regulation, corporations have recognized for some time that change is coming. For them it has not been a question of if this change will occur, but when. The immediate corporate response was to establish a baseline and internal metrics around sustainability, spurring the Enterprise Carbon & Energy Management software market and a $9.6 billion market in sustainability consulting. Corporate culture is now following suit.
This trend isn’t isolated to countries where there are environmental markets; it is clear and pervasive across industries around the globe. In addition to Intel and Xcel Energy, companies such as ING, National Grid, Suncor Energy and others are making executive compensation decisions based on how well the company’s business units perform in relation to its sustainability goals.
What’s new here is the notion of performance in sustainability, and it has far-reaching implications for business. To reach this level of analysis on executive compensation, companies needed to walk before they could run. Even a few years ago, there were few technologies or consultants who could accurately calculate an organization’s sustainability footprint, at least at an executive level. Today there is a wide range of solutions available to help companies manage their entire sustainability portfolio, from energy to carbon, water, and waste. What was once a major corporate effort and expense can now be done online at minimal cost, providing companies with all of the information required to make strategic decisions around sustainability.
This fundamental shift in the availability of corporate sustainability information is a double-edged sword, making data more available to not only corporate leaders but also to those who hold them accountable, including shareholders and regulators. This is the key driver for a wide range of corporate developments in sustainability, including executive compensation, and it will continue to filter down into organizations and into organizational relationships including vendors, partners, and customers.
It is no longer enough for companies to simply address their sustainability goals with mere compliance; they are now held to a much higher standard to set reduction goals and accurately report on progress, managing the performance of their organization towards these goals. Their customers, shareholders, and even regulators are starting to demand it.
This article originally appeared in GreenBiz. It has been republished here with their permission.
We often think that climate change is something for the government to worry about -- the news is packed full of debate around government response to global warming, whether it’s the climate bill, or how China is outpacing us yet again in carbon markets.
But there’s a more immediate risk to companies in the U.S., something that is much closer to home and independent of whatever the public sentiment happens to be on climate change. For the first time in history, executives and their companies are being held liable for activities that contribute to global warming. It’s not a debate, it’s already happening.
It all started with the SEC Disclosure Requirements in early 2010. Under these new requirements, companies must weigh the impact of climate change when reporting risks to their investors. For the first time, companies need to track, analyze, and report such things as energy use and efficiency, GHG emissions, and other aspects of their business that have until now been a purely political exercise.
Not surprisingly, this has far-reaching implications, but an interesting development is the changing nature of executive liability, and who is ultimately responsible for a company’s actions re global warming.
Directors and officers (D&O) insurance protects companies from the actions of its directors and officers. Without it, entire corporations would be at risk from the actions of it’s executives. It’s a key part of the corporate structure, and has now entered a gray area due to climate change.
Several cases have already been brought about to the Supreme Court as groups target executives and their corporations for their activities that contribute to global warming. What’s interesting is that there is a new issue emerging that is still playing out -- when it comes to a company’s impact on climate change, does D&O insurance cover executives? While companies say yes, the insurance industry is saying no. We’re talking millions -- perhaps billions -- in legal liability here, so someone will end up holding the bag. Hot potato.
At the center of this debate is a common inclusion in D&O that excludes “pollution” from coverage. The question is: “Do greenhouse gases constitute pollution”? If they do, then executives are not covered by corporate insurance and the company may exposed to the risk of litigation. The EPA issues a recent ruling that GHG is a pollutant, and this sets a precedent that could adversely impact corporations on the wrong side of this debate.
For corporate officers it’s all about protecting the the company and shareholder value, which includes avoiding the risk of litigation at all costs. It appears that -- even without any climate legislation in place -- the question of executive liability is forcing the issue of climate change in the American corporation today.
This article originally appeared in GreenBiz. It has been republished here with their permission.
Historically, environmental software has enjoyed a long and unexciting relationship with regulatory frameworks. Heavily focused on reporting and compliance, much of the current environmental market owes its existence to global environmental regulations that vary greatly yet change slowly over time.
Until recently, mainstream IT analysts barely tracked the environmental software sector and vendors responded with relatively little innovation. With respect to carbon management, innovation in the traditional environmental software industries (Environment, Health, & Safety and compliance vendors) matched the relatively slow progress of climate change regulation. For years the industry maxim seemed to be that "slow and steady wins the race."
The race, however, is changing. Carbon has become a prime focus of the industry and traditional vendors are finding it difficult to adjust. Most vendors have been vertically-focused, targeting facility managers, directors, and others who require data acquisition and aggregation for their reporting needs.
But as carbon becomes a corporate mandate, traditional vendors have difficulty bridging the "c-level gap" and are finding new competition from both above and below their market niche. Translating their data in a way that makes sense to a CFO or CEO is no small task and for most vendors the market isn't particularly well-suited to the build-or-buy decisions of the dot-com era. With flatlining or shrinking revenues, it is very difficult for the market incumbents to react to this rapidly changing market.
With a slowing global economy, increasingly noisy market, shifting pending regulations, consumer uncertainty, and vague demands from the market to make sense of it all, today's incumbent environmental software vendors are not in an enviable position. Many of them are generalists and cannot react to quickly changing market development and regulations, and suffer from a lack of capital. Many established vendors are left to retool their marketing message or add relatively small feature enhancements. In many cases, this is insufficient to bridge the gap to their new customer: the executive.
As with most transitional markets, incumbent vendors rely on marketing to get their green message across in advance of any real product development, often attempting to create new niches in the green sector based on their old competencies. This makes good sense for the vendor: in the face of uncertain regulation it is difficult (and often unwise) to commit to a new, unfamiliar product direction. However the opportunity in the carbon management space has far outweighed the risks for most vendors: Carbon is already a $65 billion market worldwide and regulation is widely considered to be a certainty throughout the world.
Emerging market leaders are already figuring out that you can't bring a knife to what is rapidly becoming a climate change gunfight. Successful software companies must be able to change their products and services to more clearly articulate the relationships between carbon, finance, and opex.
In this time of uncertain regulatory timelines, solutions need to show the value of both short- and long-term reduction projects, providing a wide range of scenario planning and forecasting tools to help with critical business decisions. Moreover, solutions must address all levels of investment risk within client organizations, providing tools for both risk-averse/low-yield and high-risk carbon investment scenarios.
Lastly, these solutions must be flexible enough to include both internal and external financial vehicles, such as CDM, JI, and bilateral projects. In this time of corporate accountability and disclosure, successful solutions will show the value of corporate carbon management and reductions to stakeholders, including shareholders and the public.
Michael is the former CEO of the Global Reporting Initiative, Carbonetworks, and other sustainability organizations. He has been an advisor and CEO in sustainability for almost 20 years, and writes about technology, sustainability, and social innovation.