Managers can learn from different strategies when considering how to deal with climate change in their business.
Until the late 1990s, companies focused on political responses to climate change, usually to oppose new regulations. By 2005, they used market strategies to find opportunities or mitigate risk.
Research by Ans Kolk and Jonatan Pinkse identifies market strategies companies used in response to climate change in 2005. They examined corporate climate change strategies for 136 Global 500 companies (the 500 largest companies according to the Financial Times), provided by the Carbon Disclosure Project. Using cluster analysis, the researchers formed groups or “organizational configurations” to create company profiles based on average cluster values across six dimensions.
Several company profiles emerged. Many companies were considering reducing emissions, but had not yet implemented change. Some seized climate change opportunities within their company, along their supply chain, or beyond their current markets. Others mitigated risk by entering the emissions market.
For 67 per cent were considering reducing emissions. Some set targets, but most made no change. For example, Bristol-Myers Squibb set targets to reduce emissions 10 percent from 2001 levels for itself and suppliers but lacked the ability to follow up on goals.
14 per cent were reducing emissions within their company. Nippon-Steel set targets to reduce energy by 30 percent by 2010, developed energy-saving equipment and increased logistics efficiency.
10 per cent were exploring vertical supply chain opportunities. Unilever, for example, tracked emissions, created joint projects with suppliers to reduce emissions, and used life-cycle analysis.
Five per cent were exploring horizontal opportunities outside their market. Stora Enso, a forest products company, planned to expand into green energy, using sawmill and logging residue as biofuel.
Four per cent were trading emissions or participating in offset projects.Mitsubishi created an emissions market in Japan.
Increasingly, managers chose between innovation, such as more energy-efficient production, and compensation, such as the purchase of emissions credits. Managers can learn from these strategies when considering how to deal with climate change in their business.
For managers, it’s important to develop a climate change plan that is strategically sound for your company. Some options include:
Calculate your greenhouse gas emissions. Set targets for reducing emissions and measure progress.
Leverage life-cycle analysis. Use life-cycle analysis to identify ways to reduce negative environmental impacts of products.
Consider entering the emissions market. Buy or sell emissions credits or use offsets like those offered by the EU Emissions Trading Scheme, Clean Development Mechanism or Joint Implementation.
Work with suppliers. Reduce emissions along your supply chain by measuring overall emissions, setting reduction targets and requiring ISO 14000 certification. Form partnerships to develop low-emissions technologies.
Kolk and Pinkse suggest future research examine development of climate change strategies as regulation increases and emissions markets evolve. What climate strategies are most appropriate for different industries and organizations? How do stakeholders respond or engage? What factors lead to successful ventures into new markets? Research on these questions would provide valuable insights for business and policy makers.
Kolk, Ans, & Pinkse, Jonatan. (2005). Business Responses to Climate Change: Identifying Emergent Strategies. California Management Review, 47(3): 6-20.