Many, if not most, major companies are doing something to cut their greenhouse gas emissions—reducing their use of electricity perhaps, or starting a recycling program. But cutting-edge businesses are rising to another level—taking more ambitious and sophisticated steps to address the rise in global temperatures caused by climate change. Concerned about an array of issues, from the excessive use of water at suppliers’ plants and potential risks posed by government regulation to an increasing investor focus on climate change, companies are venturing beyond the tried-and-true. They’re trying new strategies that range from producing a trailblazing sustainability report to helping farmers participate in carbon offset exchanges or changing the firm’s very business model. “These companies recognize the serious business risks to the long-term sustainability of the company,” says John Jarrett, director of research at GovernanceMetrics International. “With world resources becoming increasingly limited, they see the imperative of addressing issues that previously weren’t even on the radar screen.” Here’s what five such companies are doing.(NRG's Steve Corneli, left)
NRG: It’s All About Diversity
NRG wasn’t always focused on clean and renewable energy. But 20 years after it was spun off from Northern States Power in Minnesota, the $9 billion, Princeton, N.J.-based independent power producer’s business model has an unusual emphasis on diverse sources of energy, ranging from coal and natural gas to solar and wind.
NRG Energy started in the 1980s as a co-generation company and affiliate of Northern States Power. Then Northern States took advantage of a recently passed law encouraging utilities to buy energy from other power producers and used NRG to acquire power plants around the country, picking up around 12,000 megawatts (MW) of power in about two years. In 1992, NRG was incorporated. But buying all those plants sunk it into debt and in 2003 the company declared bankruptcy.
Upon emerging from bankruptcy later that year, NRG hired David Crane as its CEO. His initial aim was to upgrade inefficient existing plants. By 2004 Crane had refined his strategy considerably to focus on increasing the company’s sustainable energy resources ASAP.
“We got much more involved in activism around climate change,” says Steve Corneli, senior vice president of sustainability, policy and strategy. The aim: “To try to deploy zero or low carbon technology as quickly as we could and still be financially profitable,” Corneli says.
Crane’s plan was to develop clean energy sources, like solar or wind, and sell renewable energy products and services to customers. Simultaneously, NRG would shut down older coal plants or clean them up to meet new regulations, redeploying revenue from those conventional sources to develop other projects. “Our philosophy is to make our existing assets greener and use the money we earn from them to fund our other initiatives,” says Corneli.
That included developing more efficient natural gas generation plants at existing sites in California and the Northeast, with plans to build more capacity in New Jersey. On the retail side, over the past two years the company bought two energy producers, including Green Mountain Energy, a Houston-based company that sells renewable energy largely in the Northeast.
Perhaps the biggest push has been in solar energy. NRG Solar, a division started in 2009, has about 2,000 MW of power under development. One solar thermal project, a 392 MW facility in the Mojave Desert, is expected to be the biggest in the world when it’s finished in 2013. A year ago, the company also launched a venture investment fund with GE and ConocoPhillips that will focus on solar technology, among other areas. And NRG is making a push in distributed solar energy, placing rooftop panels on schools, shopping malls and other locations, which Corneli says are cheaper to build than centralized power facilities.
“We want to be a big player in solar,” he says. “It’s going to be one of the most compelling clean energy sources out there.”
Then there are NRG’s efforts to boost the use of electric cars. In a partnership with such companies as Nissan, Hertz and GE, the company recently launched a pilot program in Houston and the Dallas/Fort Worth area to build a network of more than 50 vehicle chargers. For a $90 monthly fee, NRG customers can charge their cars using off-peak electricity.
Paul Herman, CEO of HIP Investor, a San Francisco-based socially responsible investment consultant, says the NRG model is in part a way to “mitigate the volatility of different energy sources. They’re trying a variety of energy initiatives and as a result they can see which markets are moving fastest, so they’re ready for anything.”
For now, the vast majority of power NRG generates is from coal facilities—48,316 megawatt-hours (MWh) vs. 10,325 MWh from low- or no-carbon sources of energy. But the company is thinking long term, a particularly important approach for an enterprise that builds power facilities meant to last 40 years or more. Says Corneli: “We need to prepare for a day when our older assets for environmental or economic reasons are no longer profitable.”
For SAP, sustainability is an internal goal, a topic for reporting and a business opportunity. The software giant’s work to cut greenhouse emissions and report on those efforts helped it spot a different market niche. And the software vendor it acquired to target that opportunity helped the company create a new type of sustainability report.
Scott Bolick, vice president of sustainability (left), recalls that because he was unsure of just what was involved in measuring SAP’s carbon footprint, he carpooled with one of the greenhouse emission report’s authors to discuss the models he used in his analysis. It was a revelation. “Going through that process, I realized the complexity of measuring and reporting greenhouse gases,” Bolick says. SAP soon realized its customers were struggling with the same issue and would welcome a way to automate the process.
SAP eventually decided the best path was acquisition and in 2009 bought Clear Standards, whose software allows companies to measure their carbon footprint and figure out ways to reduce their emissions. Today, the program is one of SAP’s fastest growing products.
Buying Clear Standards also ended up providing SAP, which is halfway toward its goal of cutting greenhouse emissions by 50% by 2020, with something more: a useful tool with which to create a cutting-edge, detailed and interactive report on its sustainability activities. “It’s really difficult to say you’re going to sell sustainability software if you’re not an example of sustainability yourself,” Bolick says.
SAP took that product, which it renamed SAP Carbon Impact, and used it to create an online report that allows readers to drill down into detailed data related to the company’s environmental, social and economic performance.
Consider SAP’s 2010 report. Click on the environment heading in the report’s Operations Impact section, and you’ll see a long list of topics, from the company’s greenhouse gas footprint to its use of renewable forms of electricity. Clicking on greenhouse gas footprint shows a drop from 450 kilotons in 2009 to 425 kilotons in 2010 and provides several graphs detailing components of that reduction—for example, a 9% decline in electricity usage and a 14% decrease in employee commuting. You can also view the information by region and find data for the Americas, the EU and Asia Pacific.
The report doesn’t just include good news, either. For example, under the customer heading, it indicates a slight drop in customer satisfaction, as well as a decline in employee engagement. Business air travel was up 33%. “They’re forthright about the information they produce,” says GovernanceMetrics’ Jarrett. “That says a lot about how serious they are.”
The report also allows for reader input, observations that have provided solid recommendations. For example, one commenter suggested that the company create a PDF version. That’s now included.
The report is produced quarterly. And in its financial disclosures, SAP includes links to the report’s most current sustainability updates. Says Jarrett: “It’s highly unusual.”
How do you create a sustainability strategy for a holding company with more than 30 apparel brands under its belt?
The answer: Carefully, allowing each brand some autonomy, while providing overall guidelines for direction.
That, at least, is the approach VF Corp. has taken. The Greensboro, N.C., company, with more than $7 billion in revenue, lets each brand establish the elements of its own sustainability strategy. But the company tells its brands the key areas to focus on, such as resource management, energy efficiency and greenhouse gas reduction.
To that end, VF formed a sustainability council in 2009 with representatives from each brand, as well as supply chain, human resources and other functional areas. It meets twice a year.
Generally, the top areas of focus are those that provide financial benefits. Take resource management. “If we’re not using our resources efficiently, that’s considered waste,” says Letitia Webster, director of global corporate sustainability. “We look at environmental waste as financial waste.”
Two years ago, the company started an effort to measure energy use and greenhouse gas emissions in each of its brands and identify the best areas in which to cut both energy and costs. “We’re looking for where you can get the most bang for the buck,” says Webster. That approach, in fact, is common among leading-edge companies, according to HIP Investor’s Herman. “These companies are focusing on the operating metrics of environmental action,” he says.
Farthest along may be North Face, a San Leandro, Calif., seller of outdoor apparel, which started doing such audits before VF purchased it in 2008. Thanks to the audits, North Face learned that its distribution center in California was its largest user of energy. With that in mind, it installed a 1 MW solar panel platform on the center’s roof, and now is in the process of retrofitting lighting and other energy reduction efforts. Webster estimates the moves, with a 2½-year ROI, will cut costs by about 30%.
Thanks to its audits, VF also discovered a number of areas throughout the company where there was a notable amount of waste. For that reason, the sustainability council recently held a packaging summit to look at alternatives to the plastic bags, hangers and shopping bags most brands were using. The effort is still a work in progress. But, says Webster, “We’re going to come up with a company-wide approach to the problem.”
There’s also a lot of sharing of best practices. Each brand has its own green team to promote local sustainability initiatives, such as employee ride sharing or beach cleanups. But the teams share ideas over a company-wide sustainability social networking site, and there’s also a lot of idea swapping during sustainability council meetings.
In some cases, such best-practice sharing involves projects that are considerably more ambitious than, say, encouraging employees to recycle. The North Face, for example, launched an effort in 2008 to reduce its environmental impact by changing the design of products composed of petroleum-based materials.
Working with Bluesign Technologies, a Swiss group that helps companies create more environmentally sound textiles and manufacturing processes, North Face analyzed the chemical makeup of its products to make sure it was using the most ecologically friendly substances possible. North Face and Bluesign also worked with textile mills to reduce water usage and waste. Now, several other VF brands are signing on with Bluesign to do the same thing.
“It’s a really big deal with ramifications way beyond VF or North Face,” says Andrea Moffat, senior director of corporate programs at Ceres, a coalition focused on sustainability. “Once you go to the supply chain, you have the potential to get hundreds of companies involved in decreasing their impact.”
About four years ago, the folks at Jones Lang LaSalle decided it was time to do more than tend to their own environmental garden. The $2.9 billion Chicago-based real estate services and investment management company needed to focus on clients and bigger policy issues, too. As a heavy user of electricity, natural gas and other forms of energy, as well as water, and a major producer of waste, the real estate industry accounts for as much as 40% of the total U.S. carbon footprint, according to Lauralee Martin, the company’s CFO and COO (left).
“You put all that together and it means we’re going to be in the middle of any agenda as far as sustainability is concerned,” she says. “And as a company, we can have a big impact on the real estate space.”
Says Ceres’ Moffat: “They’re really trying to drive change across all their activities, from their own business to climate policy, and that’s unusual for companies in this industry.”
Jones Lang LaSalle reasoned that the consequences of climate change, from increased flooding to higher temperatures, would have a significant effect on its clients’ properties. Starting in the ’90s, the company launched an effort to help clients lower their carbon footprint and reduce energy consumption. In 2007, it set up a separate 90-person unit, the energy sustainability service, to focus on such services as measuring clients’ carbon emissions and energy use and then, depending on the situation, designing and putting in place appropriate methods to bring those levels down.
“We’ve done everything from a major retrofit to just helping the client follow best practices by, say changing the filters more often,” says Martin. In addition, Jones Lang LaSalle may help with workplace strategies, such as finding ways to fit more people in a smaller space so as to reduce energy usage.
The new service isn’t a big money maker, however, comprising a “tiny percentage” of total revenues, according to Martin. At the same time, “It serves as a key differentiator,” she says. “It’s like the steering wheel of a car. It might be a big part of the automobile, but you have to have one.”
The company also encourages its employees to become environmentally literate in an effort to integrate that knowledge into all its services. It has started training them to become certified in LEED, the accreditation from the U.S. Green Building Council, or other appropriate accreditations overseas. So far, about 750 employees have received such training and Jones Lang LaSalle expects another 250 to become certified by the end of 2012. In addition, 650 engineers in charge of building operations receive three days of training each year in everything from energy management to the latest waste reduction products.
More recently, the company stepped up its activities by getting involved in advocacy work. In May it announced plans to partner with the nonprofit Carbon Disclosure Project on the group’s new program aimed at cities. Forty large cities globally, together with other cutting-edge urban areas, are joining forces to assess their carbon footprints and energy use and decide on the best ways to handle anything from droughts to transportation of nuclear waste. Jones Lang LaSalle’s role: To help figure out a comprehensive, uniform method of measurement so, says Martin, “You’re not comparing apples and oranges.”
Certainly a plentiful supply of coffee beans is essential to Starbucks’ long-term success. But so is the viability of the thousands of farmers in Central America, East Africa and other regions who are the $10.7 billion Seattle company’s suppliers. And that means ensuring those farmers engage in practices using less water and more sophisticated irrigation techniques and get paid decently.
For that reason, two years ago Starbucks launched a four-year pilot program in Chiapas, Mexico, and Sumatra, Indonesia, to measure the impact on the environment of sustainable coffee growing methods. “We believe that sustainable coffee production has a positive impact on the climate,” says Jim Hanna, director of environmental affairs (above). Once the company has determined the amount of carbon saved thanks to sustainable practices, participating farmers will have the option of selling carbon credits on European exchanges.
“We can give farmers an additional source of income and help the company mitigate the climate footprint of coffee production by rewarding them,” says Hanna.
That program builds on an ongoing effort, launched in 2004, to teach farmers new growing methods, help them install water treatment facilities and other equipment, and make sure coffee is grown and processed in an environmentally friendly way.
“The supply chain is key for the mitigation of our footprint,” says Hanna. The Coffee and Farmer Equity (C.A.F.E.) Practices uses a set of buying guidelines—for example, mandating that farmers have methods for managing water quality and reducing the use of pesticides, as well as compliance with minimum wage standards and evidence of the portion of the price that goes to farmers. More than 80% of the coffee Starbucks uses comes from farmers participating in the program, according to Kelly Goodejohn, the company’s director of global responsibility, ethical sourcing. The ultimate goal: To have all coffee supplied from such sources by 2015.
To persuade farmers to sign on, Starbucks offers a number of incentives. A team of experts in soil management and field-crop production is stationed in San Jose, Costa Rica, and there are two regional support centers, one in Costa Rica and another in Rwanda. The company also helps farmers get loans, over $15 million so far.
Perhaps most important, Starbucks pays farmers a premium for participating. “We’re helping them grow better coffee in a more sustainable way,” Hanna says. “And that helps us get better coffee.”
To see what other corporates are doing to make their companies greener, see Treasury & Risk’s 2011 Going Green Survey.
Read about Cisco’s award-winning use of online meeting technology here.