Preparing For Success in the Carbon-Constrained Economy

Embedding eco-consciousness starts with measuring environmental impact and following market trends, regulations

By Chris Park

Like it or not, the carbon-constrained economy is coming. It’s an economy where marketplace forces will demand that companies minimize their greenhouse gas (GHG) emissions in response to the global climate change issue. It’s an economy where a company’s carbon footprint and GHG emissions profile will have a significant impact on its bottom line. And it’s an economy where companies that apply carbon-savvy thinking to their business decisions will have a clear competitive advantage over those that don’t.

Many of the risks of the carbon-constrained economy have already materialized. A growing number of regulations and policies around GHGs are posing new compliance challenges across industries around the globe. Stakeholders and investors, realizing the significance of these emerging regulations, are actively pushing for transparent, accurate reporting of carbon-related risks though consortiums like Ceres and the Carbon Disclosure Project (CDP). More and more consumers are starting to care, not just about the impact of particular products on the environment, but also about the commitment to sustainable business practices up and down the value chain, from manufacturers to distributors to retailers.

The opportunities are just as real. Reducing GHG emissions, for instance, can also help reduce energy costs by curbing energy consumption. Green-conscious consumers can add significant market share to companies that court them with appropriate products and services. The rising importance of clean energy offers companies new investment opportunities, as do cap-and-trade programs that allow companies to trade carbon offsets on the open market.

The carbon-constrained economy will affect business practices across all areas of the enterprise, even those that may not seem connected to environmental concerns. Already, companies are basing their sourcing decisions at least partially on sustainability; as the carbon-constrained economy gains momentum, it will push companies to consider the carbon implications of many more activities. Where a company today might decide where to put a data center based primarily on real estate and labor costs, for example, a carbon-constrained view of the same decision might also consider factors such as local climate (cooler temperatures help dissipate waste heat), access to clean energy (to reduce the data center’s carbon footprint), and the availability of backup power (to mitigate the risk of blackouts).

To thrive in the carbon-constrained economy, companies will need to embed carbon-consciousness into their systems, operations, and leadership to an extent far beyond what exists at most companies today. They’ll need technology and processes to effectively capture carbon-related information, including detailed data about their own carbon footprint and that of their vendors and customers as well as broader information on regulations and marketplace trends. They’ll need leaders with the right knowledge and experience to use that information to make smart decisions. And they’ll need the right infrastructure to efficiently and effectively carry out those decisions.

The investment needed to support a carbon-constrained business is comparable to the investment companies routinely make in managing their financial information. Like financial information, carbon-related information can help leaders make better business decisions as well as satisfy regulators’ and shareholders’ expectations around compliance and disclosure. Like financial information, carbon-related information needs to be collected from all parts of the business and organized in a way that helps executives understand the issues and think through the options. (Software vendors, including some well-known ERP vendors, are responding to this need with a slew of products designed to help companies track and manage GHG emissions data.)

Most importantly, in the carbon-constrained economy, considerations related to GHG emissions and carbon footprint will have just as large an impact on core strategic decisions – including location, supply partnerships, product mix, business partner networks, and others – as a company’s financial state. A thorough understanding of carbon-related risks and opportunities can help leaders recognize and act on the new trends and business models that the carbon-constrained economy is bound to create. Energy prices, customer behavior, world trade patterns, agricultural output, public health, national incomes, standards of living – all these areas and more are fair game for changes driven by climate change concerns, GHG emissions policies, and the increasing environmental concern among consumers and investors. The sooner a company can lay the groundwork to support a carbon-constrained approach to business, the better prepared it will be to thrive in the carbon-constrained economy.