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May, 2012

May 22nd, 2012

Why Sustainability isn’t just for Hippies Anymore

The following article first appeared in Corp! Magazine on May 1, 2012.

A new era of capitalism is dawning in which corporations are being challenged by investors and consumers to remain profitable while abiding to the laws of the natural environment.

Mike Bellamente, Director, Climate CountsAlthough the idea of triple bottom line reporting on profit, people, and planet may still cause indigestion for purists of capitalism, the fact that it has become the norm over the exception can no longer be denied.   Earlier this year, Ernst & Young published a report indicating that environmental and social proposals made up 40 percent of corporate shareholder resolutions in 2011, up from 31 percent in 2010.   Suffice it to say, when investors are pushing the needle on corporate social responsibility, it becomes increasingly difficult for CEOs and board members to look the other way.

So how then do companies strike the right balance of achieving their primary goal (maximizing shareholder wealth) while simultaneously appealing to societies growing need for businesses to act as upstanding corporate citizens?  From an environmental standpoint, it becomes a question of materiality, or, more specifically, which environmental concerns are most material to the success of the business, and how those concerns can be turned into an opportunity.

When Levi’s conducted a life-cycle assessment of its 501 blue jeans in 2007, they found that the bulk of energy and water consumed was attributed to two primary sources: 1) the harvesting of raw cotton to make the jeans and; 2) consumer end use associated with heating the water to wash the jeans.   With much of their cotton being harvested in drought-prone regions already being affected by climate change, Levi’s saw an opportunity to innovate.  The company has since embarked on several water- and energy-saving initiatives such as the development of their Water>Less jeans product line and their Care Tag for the Planet.

For most companies, especially those operating in countries that have implemented a carbon tax (India, Australia, and most of Europe to name a few), the goal is long-term risk and cost avoidance.  To remain globally competitive, multinational companies have no choice but to outline a forward thinking strategy for reducing greenhouse gas (GHG) emissions (such as carbon) associated with fossil fuel consumption.  It is no longer just a question of brand equity and reputation, but rather a matter of how costs will continue to climb per unit produced if energy and fuel consumption is left unchecked.

In addition to measuring and managing GHG emissions, conducting climate risk analyses along the value chain is also becoming more commonplace in the world of corporate sustainability.  To borrow from Clay Nesler, VP of global energy and sustainability at Johnson Controls, even if a company isn’t measuring risk associated with the impacts of climate change, it is imperative that they consider the material risks which might be influenced by climate change: spiking energy costs, access to raw materials, disruption of trade routes from extreme weather events, etc.

The common thread across all these examples, of course, is that corporate performance as it relates to profitability is becoming ever more aligned with performing well in terms of environmental sustainability. To be sure, renewable energy and alternative fuels have a long way to go before there is an attractive enough rate of return for companies to embrace them wholeheartedly. But it must first be realized that the goal of becoming a low-carbon society is an iterative process that can be achieved only with the business community driving the ship toward a new brand of capitalism - the kind with a triple-bottom line.

Mike Bellamente is the director of Climate Counts, a consumer outreach organization that rates corporations on how well they measure, reduce and report their greenhouse gas (GHG) emissions.   In February 2012, Bellamente was named to Ethisphere’s 2011 list of 100 most influential people in business ethics for his thought leadership in corporate sustainability.

May 1st, 2012

Wells Fargo “Green Economy” Pledge Signals Shifting Tide

When lending institutions (like banks) trumpet their commitment to environmental stewardship, they find themselves subject to the proverbial “sniff” test.   It is one thing, for example, to offer paperless banking as a means of satisfying the eco-conscious consumer, but it requires a much higher degree of commitment to, say, discontinue financing of mountaintop removal (MTR) as a means of extracting coal.

On April 23, Wells Fargo announced an “enhanced commitment to environmental leadership through a series of goals to be achieved by 2020 including: $30 billion in loans and investments in support of a “greener” economy, $100 million in community grants for grassroots environmental initiatives, and a 40% increase in the company’s energy efficiency.  With these ambitious targets, Wells’ is indeed showing a commitment to investing in a green economy.

Underlying these targets, however, is the signal of a much larger shift in how the bank approaches its lending practices; one that is both strategic and transparent in nature.

Although Wells Fargo has never been seen as a major culprit in financing strip mining and dirty coal energy (PNC, Citi and UBS take the title on that front), they have nonetheless identified the need to modify their approach to what is increasingly becoming a poster child for global climate change.   To this end, the company earns modest points for what it calls environmental and socially responsible lending (PDF).

The new approach outlined for coal and metal mining, for instance, requires an “enhanced due diligence process, including evaluation of a company’s track record regarding litigation, regulatory compliance, worker safety and environmental compliance; and the degree of organizational capacity and commitment the company dedicates to these concerns.”

This signals a more head-on approach to what has traditionally been considered a taboo subject.  Sure coal is dirty and bad for the climate, but the reality of having any renewable energy source take its place in the near term is illogical.  What Wells is attempting to do is say, “OK, we realize that there are certain negative drawbacks to financing coal, so we’ll take more precautions, but there is still enough of a business case for us to do it.”

In a report released late last year entitled Bankrolling Climate Change: A Look into the Portfolios of the World’s Largest Banks, Wells Fargo was ranked 19 out of 93 major banks with $5.9 billion of financing in coal mining and coal fired electricity from 2005 to 2011.

To whatever degree Wells has invested in coal fired energy in the past, however, there seems to be a conscious change of tact in how they go about it with their latest environmental commitments. In a statement regarding their environmental affairs, the company has stated that “Wells Fargo seeks to ensure that as we do business, natural resources are protected and environmental, social and economic needs are part of our everyday decisions. In this integrated approach to sustainability, we are committed to finding new ways to minimize our energy consumption, address climate change, use renewable sources, and inspire others to do the same so we can lower our impact on the planet.”

Climate Counts most recently scored Wells Fargo at a “starting” 49 out of 100 points.

In terms of sniff test, Wells Fargo may not smell the best, but their investments in a green economy are absolutely a step in the right direction.


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