Achieving High Performance in an Era of Climate Change

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Contents

Foreword........................................................................................... .1

Executive.Summary....................................................................... .�

Introduction..................................................................................... .4

1..How.climate.change.is.transforming.the.business.landscape.......................................................................................... .6

�..Current.business.responses.to.climate.change.................11

3..Constraints.on.action............................................................... 16

4..Regulatory.actions.favored.by.today’s..business.executives....................................................................... �1

5..Conclusion:..Meeting.the.business.challenges.of.climate.change...........30

Appendix—Country.Stories..........................................................34

Statistical.Appendix...................................................................... 41

References....................................................................................... 45

1

Foreword

News.coverage.about.climate.change.seems.to.increase.almost.daily.as.scientists,.governments,.consumers,.journalists.and.the.general.public.share.views.on.the.issue.and.its.potential.implications.

As.one.of.the.world’s.leading.management.consulting,.technology.and.outsourcing.companies,.Accenture.has.been.tracking.the.complex.scientific.and.political.discussions.surrounding.climate.change.and.various.proposals.for.responding.to.the.threat..We.also.have.the.ongoing.opportunity.to.exchange.views.and.ideas.about.climate.change.with.our.clients.and.other.business,.government.and.industry.leaders..What.comes.across.most.in.these.discussions.is.a.high.level.of.uncertainty—about.the.specific.ways.in.which.climate.change.will.affect.nations.and.businesses,.about.the.impact.of.regulation.and.global.cooperation,.and.also.about.the.opportunities.that.climate.change.presents.to.forward-thinking.businesses.that.want.to.get.out.in.front.of.the.

Mark.Foster.Group.Chief.Executive.Management.Consulting.&.Integrated.Markets.Accenture

issue..Despite.this.uncertainty,.and.regardless.of.individual.views.on.the.science.behind.climate.change,.one.thing.is.clear:.the.global.business.environment.is.in.the.midst.of.dramatic.change.caused,.in.part,.by.shifting.consumer.behavior,.media.scrutiny.and.new.public.policies—all.in.light.of.heightened.global.awareness.of.climate.change..Businesses.that.expect.to.achieve.and.sustain.high.performance.must.accelerate.their.responses.to.these.shifting.attitudes.and.behaviors..The.early.movers.here.hold.an.incalculable.advantage.

The.need.for.rapid.action.is.even.more.pressing.in.a.world.where.the.character.of.globalization.has.also.changed..In.what.Accenture.calls.the.“multi-polar.world,”.economic.power.is.becoming.more.dispersed.among.both.developed.and.emerging.nations..That,.in.turn,.means.that.awareness.and.cooperation.among.nations.are.also.increasing..As.in.the.classic.example.of.the.“butterfly.effect”.from.chaos.theory—how.a.butterfly.beating.its.wings.in.Beijing.can.eventually.affect.weather.patterns.in.North.America—every.action.taken.by.a.business.anywhere.is.likely.to.be.felt.everywhere..

At.a.time.of.intense.media.coverage.on.climate.change,.hard.facts.and.statistics.are.increasingly.vital..For.that.reason,.Accenture.has.conducted.a.wide-ranging.research.study.based.on.surveys.of.more.than.500.business.executives.around.the.world.in.both.developed.and.emerging.markets..What.is.the.prevailing.attitude.among.leading.executives.about.climate.change?.What.kinds.of.responses.are.under.way.or.being.considered?.In.what.ways.are.some.companies.gaining.competitive.advantage.over.their.rivals.through.unique.actions.and.strategies?.These.are.some.of.the.questions.we.have.sought.to.answer..

This.report.provides.businesses.with.a.view.of.some.specific.actions.to.consider.in.order.to.achieve.high.performance.in.this.changing.political,.economic.and.business.environment..Our.research.and.

experience.suggest.that.many.kinds.of.responses.are.possible:.looking.afresh.at.supply.chain.strategies;.considering.the.role.that.new.technologies.can.play;.capitalizing.on.opportunities.in.adjacent.markets.for.“green”.goods.and.services;.and.inculcating.a.broader.sense.of.sustainable.business.among.employees.through.performance.rewards.and.metrics..This.report.should.also.provide.essential.reading.for.policymakers.wanting.to.understand.the.impacts.of.climate.change.on.businesses,.as.well.as.how.leading.companies.perceive.the.challenges.of.climate.change.and.the.associated.regulation.that.will.continue.to.develop.

Those.who.follow.the.ongoing.discussions.about.climate.change.know.that.no.one.has.all.the.answers..However,.it.is.vital.to.understand.the.central.questions,.as.well.as.to.encourage.discussion.about.potential.solutions..The.most.compelling.conclusion.arising.from.our.research.is.that.businesses.have.to.be.more.proactive..Time.is.of.the.essence..Attitudes.are.changing.at.a.startling.pace,.and.businesses.need.to.keep.up—or,.better,.get.out.ahead.

Mark.Foster.Group.Chief.Executive..Management.Consulting..&.Integrated.Markets..Accenture

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Business attitudes toward climate change•.Business.executives.around.the.globe.increasingly.see.climate.change.as.a.major.issue.they.must.address.if.they.are.to.achieve.and.sustain.high.performance.into.the.future..

•.Forty-five.percent.of.all.respondents.said.that.climate.change.was.currently.a.major.issue.for.their.business..

•.A.much.higher.proportion—59.percent—believe.that.climate.change.will.be.a.major.issue.for.them.within.five.years.

•.At.the.same.time,.climate.change.is.not.high.on.the.list.of.strategic.priorities.for.many.companies..Only.5.percent.of.survey.respondents.named.climate.change.as.their.top.strategic.priority..In.no.region.of.the.world.did.that.number.rise.above.8.percent..Just.11.percent.of.businesses.stated.that.climate.change.figures.as.their.second.or.third.strategic.priority.

Direct and indirect impacts•.It.is.vital.that.businesses.develop.a.more.nuanced.understanding.of.the.impacts.that.climate.change.is.having.on.their.industries..The.direct.environmental.impact.of.climate.change.on.a.business.is.only.one.piece.of.the.puzzle..Other.critical.pieces.involve.indirect.

impacts:.the.attitudes.and.behaviors.of.a.range.of.stakeholders.that.includes.government,.consumers,.shareholders,.employees,.suppliers.and.the.media.

Current business responses to climate change •.While.businesses.may.feel.a.responsibility.to.respond.to.climate.change,.they.do.not.feel.well.positioned.to.do.so..About.two-thirds.of.all.respondents.stated.that.they.feel.a.responsibility.to.help.manage.the.impact.of.climate.change,.but.only.4�.percent.said.they.actually.feel.well.positioned.to.do.so..

•.Consequently,.business.responses.to.climate.change.tend.to.be.fragmented.across.a.range.of.piecemeal.activities..More.than.four-fifths.of.businesses.surveyed.are.currently.undertaking.initiatives.relating.to.climate.change,.yet.more.than.half.of.those.businesses.have.only.one.or.two.initiatives.in.place..

•.The.most.frequently.mentioned.activities.relate.to.reducing.or.managing.carbon-related.activities:.deploying.technologies.to.improve.energy.efficiency.(named.by.53.percent.of.respondents),.measuring.carbon.footprints.(39.percent).or.increasing.the.use.of.renewable.energy.(3�.percent)..More.comprehensive.and.holistic.practices.

such.as.reconfiguring.supply.chains.are.less.common.at.present,.with.only.17.percent.of.businesses.undertaking.such.initiatives..

•.Nearly.one-fifth.(19.percent).of.companies.are.doing.nothing.in.response.to.climate.change,.reflecting.in.part.an.under-appreciation.of.the.business.opportunities.presented.to.companies.by.climate.change..For.example,.67.percent.of.the.executives.surveyed.see.climate.change.as.a.necessary.cost,.compared.with.just.39.percent.who.see.it.bringing.new.business.opportunities..

Constraints on action•.More.than.half.of.the.businesses.(53.percent).surveyed.are.struggling.to.understand.the.implications.of.climate.change..However,.there.are.significant.variations.across.markets..For.example,.only.�8.percent.of.German.businesses.are.struggling.to.understand.the.implications..

•.Competing.strategic.priorities.mean.that.climate.change.may.receive.less.attention.than.other.business.imperatives..Climate.change.ranked.as.only.the.eighth.strategic.priority.for.businesses,.named.by.only.16.percent.of.respondents—lagging.behind.sales.growth.(47.percent),.cost.reduction.(46.percent),.developing.new.products.and.services.(45.percent),.the.war.for.talent.(39.percent),.growth.in.emerging.markets.(�9.percent),.innovation.(�8.percent).and.technology.(18.percent)..

•.Internal.challenges.also.exist.when.it.comes.to.implementing.climate-change-related.initiatives.within.a.business..The.three.most.commonly.cited.internal.challenges.were.introducing.new.technologies.(�5.percent),.changing.internal.behavior.(�4.percent).and.coping.with.new.regulations.(�0.percent)..

•.Uncertainty.around.the.shape.and.future.direction.of.climate.change.legislation.means.that.many.businesses.do.not.feel.in.a.position.to.place.significant.strategic.bets.on.climate-change-related.initiatives..

Executive SummaryDemands are increasing on businesses to do their part to respond to the threat of climate change based on their influential position within the global community. But what, exactly, are the impacts of climate change on businesses? What are some specific steps businesses can take to respond to both the threats and opportunities presented by climate change? To support a fact-based discussion of the business impact of climate change, Accenture surveyed more than 500 business leaders from China, Germany, India, Japan, the United Kingdom and the United States. The resulting analysis examines both the impact of climate change on global businesses and the responses that leading companies are taking to achieve and sustain high performance in the face of profound global change.

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Regulatory actions favored by businesses•.Government.was.the.most.commonly.mentioned.stakeholder.in.terms.of.its.influence.on.a.business’s.response.to.climate.change,.named.by.65.percent.of.respondents,.followed.by.consumers.(41.percent).and.shareholders.(36.percent)..

•.Sixty-three.percent.of.businesses.see.a.balance.between.market-driven.and.government-driven.responses.to.climate.change.as.being.most.effective..Where.regulation.is.introduced,.businesses.would.also.prefer.to.see.a.collaborative.approach:.46.percent.favor.co-regulation,.such.as.codes.of.practice.backed.by.government.but.enforced.by.industry..

•.Businesses.expect.a.combination.of.incentives.and.enforcement.policies.in.response.to.climate.change..Low-carbon/renewables.incentives.(named.by.74.percent.of.respondents).and.targets.to.reduce.carbon.emissions.(65.percent).were.seen.as.the.most.likely.regulatory.measures..Taxes.on.energy.use.are.also.expected,.with.54.percent.of.businesses.citing.them.as.likely..

•.Businesses.are.looking.for.regulatory.flexibility.that.reflects.the.different.business.environments.of.different.industries,.but.they.are.also.looking.for.a.degree.of.geographic.harmonization..In.particular,.the.communications.and.high-tech.sector.and.financial.services.companies.favor.flexibility.between.industries.as.they.might.not.wish.to.be.saddled.with.the.more.stringent.measures.to.which.more.energy-intensive.users.might.be.subjected..

•.Despite.the.importance.of.governments.in.setting.the.climate-change.agenda,.most.businesses.are.inadequately.involved.in.shaping.the.regulatory.agenda..Only.36.percent.of.companies.surveyed.had.taken.steps.to.shape.regulatory.policies.relating.to.climate.change..However,.that.number.rises.to.49.percent.for.very.large.companies.and.to.54.percent.in.the.natural.resources.industries,.where.climate.change.is.more.front-of-mind.and.closely.regulated..

How businesses can meet the challenge•.There.are.a.number.of.steps.that.businesses.should.take.if.they.are.to.position.themselves.to.achieve.high.performance.in.a.carbon-constrained.world..These.actions.fall.within.the.scope.of.the.three.critical.areas.that.Accenture.has.identified.as.the.building.blocks.of.high.performance:.market.focus.and.position;.distinctive.capabilities;.and.performance.anatomy..These.building.blocks.are.part.of.Accenture’s.research.into.High.Performance.Business,.which.is.based.on.an.extensive.analysis.of.6,000.companies.around.the.world.

Market focus and position—Business strategy decisions regarding where and when to compete•.Conduct.a.stakeholder.analysis:.Businesses.need.to.understand.the.key.sources.of.influence.shaping.the.climate.change.agenda,.such.as.government.and.consumers,.and.engage.them.accordingly..

•.Develop.“green”.products.and.services:.Businesses.should.assess.how.existing.and.new.products.can.meet.the.demands.of.increasingly.environmentally.conscious.consumers.and.also.satisfy.related.regulation.in.this.area..

•.Enhance.brand:.Businesses.should.consider.how.they.can.use.robust.environmental.credentials.to.reposition.their.brand.and.differentiate.themselves.from.their.competitors..

Distinctive capabilities—Hard-to-replicate capabilities that define how businesses compete•.Track.external.developments:.Businesses.need.to.ensure.they.are.able.to.monitor.closely.developments.in.the.political,.economic,.social.and.technological.arenas.and.take.action.accordingly.

•.Optimize.supply.chains:.Businesses.should.explore.the.extent.to.which.the.reworking.of.their.supply.chain.can.be.an.important.source.of.cost.savings.as.well.as.reducing.their.impact.on.the.environment.

•.Use.smart.technologies:.Businesses.should.seek.to.deploy.“green”.technologies.(e.g.,.green.data.centers,.which.use.less.energy).as.a.source.of.cost.reduction.as.well.as.competitive.advantage,.both.through.enhanced.reputation.and.more.efficient.delivery.of.services..

Performance anatomy—Common mindsets relating to culture, leadership and the workforce•.Ensure.senior.support:.Businesses.must.ensure.that.the.environmental.agenda.is.owned.at.a.senior.level.and.underpinned.by.regular.communication.on.progress.

•.Drive.human.performance:.Businesses.should.seek.to.refine.performance-management.regimes.so.that.they.reward.activities.that.support.the.organization’s.environmental.agenda..

•.Create.a.culture.of.carbon-consciousness:.Businesses.need.to.engender.the.right.set.of.cultural.mindsets.within.the.organization,.which.can.underpin.and.strengthen.new.processes.and.activities.

Introduction

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22%

51%

27%

US$50-100m

US$100m-US$1bn

US$1bn+

47%

8%

24%

6%10% 5%

Other

Financial Services

C&I

C&HT

Resources

Government

To.develop.a.richer.understanding.of.the.new.context.for.business.engendered.by.climate.change,.and.to.identify.some.of.the.new.paths.to.high.performance.being.forged.by.representative.industry.leaders,.Accenture.commissioned.Opinion.Leader.Research.to.conduct.an.anonymous.survey.of.the.attitudes.of.business.leaders.to.climate.change..Telephone.interviews,.administered.via.an.in-depth.questionnaire,.were.conducted.with.C-level.executives.from.504.companies,.with.fieldwork.completed.in.�007..All.respondents.had.influence.on.(and.had.some.responsibility.for.implementing).the.corporate.strategy.of.their.organizations.

The.companies.interviewed.were.located.in.six.countries—China,.Germany,.India,.Japan,.the.United.Kingdom.and.the.United.States—and.each.had.annual.revenues.of.at.least.US$50.million.(see.Figure.1)..The.survey.sample.included.both.local.and.global.companies,.varying.from.small.(fewer.than.�00.employees).to.major.(more.than.10,000.employees)..Respondents.were.distributed.across.a.broad.spectrum.of.industries.(see.Figure.�),.broken.down.into.five.broad.industry.sectors:.

•.Communications.and.high-tech.(C&HT):.Electronics.and.high-tech;.communications;.media.and.entertainment..

•.Consumer.and.industrial.(C&I):.Consumer.goods.(manufacturing.and.retail);.pharmaceuticals.and.medical.products;.health.services;.industrial.equipment;.automotive;.freight.and.logistics;.transportation.and.travel.services..

•.Financial.services:.Banking;.insurance;.capital.markets..

•.Government:.Defense;.education;.postal.services;.revenue;.public.services.

Figure 2: Industry breakdown of survey respondents1

Figure 1: Company size of survey respondents (by revenue)

•.Resources:.Chemicals;.energy;.forest.products;.metals.and.mining;.utilities..

Drawing.on.the.primary.data.collected.in.this.survey,.and.supported.by.extensive.secondary.research,.this.report.covers.five.primary.sections:.

•.Chapter.1.discusses.the.new.business.context.created.by.climate.change,.looking.in.particular.at.the.role.of.different.stakeholders.in.shaping.the.agenda..

•.Chapter.�.explores.how.businesses.are.responding.to.climate.change..

•.Chapter.3.looks.at.the.key.constraints.on.future.actions.by.businesses.in.response.to.climate.change.

•.Chapter.4.focuses.on.government.regulation.as.a.key.driver.and.presents.findings.on.what.businesses.want.to.see.out.of.the.regulatory.environment.with.regard.to.climate.change.

•.Chapter.5.makes.a.number.of.recommendations.about.how.businesses.can.meet.the.challenge.of.climate.change.and.position.themselves.to.achieve.high.performance..

Additionally,.we.provide.six.snapshots.of.business.attitudes.and.responses.in.the.countries.that.are.the.focus.of.this.study..An.appendix.to.the.main.study.provides.some.detailed.statistical.data.and.findings.from.our.survey.

How climate change is transforming the business landscape

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Sustained.business.success.over.economic.cycles.and.across.changes.in.executive.leadership—something.Accenture.calls.“high.performance”—is.no.accident..Our.High.Performance.Business.research.initiative.has.shown.that.high-performance.businesses.differentiate.themselves.through.three.essential.building.blocks..First,.they.have.remarkable.clarity.when.it.comes.to.their.market.focus.and.position—the.“where.and.when.to.compete”.aspects.of.business.strategy..Second,.high.performers.are.also.committed.to.creating.and.evolving.a.set.of.distinctive,.hard-to-replicate.capabilities.that.satisfy.multiple.stakeholders.(especially.customers).while.supporting.the.most.effective.utilization.of.assets..Third,.achieving.high.performance.depends.on.a.company’s.culture.or.what.we.refer.to.as.its.“performance.anatomy”—the.mindsets.that.result.in.effective.leadership.and.in.the.optimal.impact.of.talent.on.business.performance.

However,.a.company’s.ability.to.put.in.place.these.building.blocks.and.achieve.high.performance.is.being.challenged.dramatically.by.global.conditions.over.which.no.single.company.has.control..Climate.change—a.rise.in.global.temperatures.caused.at.least.in.part.by.human.activity—is.having.profound.impacts.on.shareholder.value..

A significant number of executives see climate change as a major issueOur.research.findings.suggest.that.business.executives.increasingly.see.climate.change.as.a.major.issue.they.must.face.if.they.are.to.sustain.high.performance.into.the.future..As.shown.in.Figure.3,.45.percent.of.all.respondents.said.that.climate.change.was.currently.a.major.issue.for.their.business..A.much.higher.proportion—59.percent—believe.that.climate.change.will.become.a.major.issue.for.them.within.five.years..These.numbers.reflect.the.fact.that.a.majority.of.business.leaders.recognize.that.climate-change-related.activity—especially.legislation—is.going.to.increase.significantly,.forcing.the.issue.on.to.the.corporate.radar.

Significant.differences.among.global.regions.are.evident..Businesses.in.the.United.Kingdom.are.the.most.likely.to.see.climate.change.as.a.major.issue.now..This.may.reflect.the.high.degree.of.media.attention.focused.on.the.issue.of.climate.change.since.the.�006.publication.of.government.advisor.Nicholas.Stern’s.report.on.the.economics.of.climate.change.�.German.businesses.appear.to.attach.less.priority.to.dealing.with.climate.change.than.do.their.counterparts.in.the.United.Kingdom.or.India..However,.Germany.has.a.longer.tradition.of.focusing.on.environmental.issues,.so.this.finding.might.mean.simply.that.German.businesspeople.no.longer.perceive.climate.change.as.a.new.issue.

We.also.saw.striking.differences.among.the.emerging.economies..For.example,.an.awareness.of.the.business.impacts.of.climate.change.appears.higher.among.Indian.businesses.than.among.companies.in.China..Yet.other.trends.and.research.findings.point.to.the.complexity.of.assessing.the.level.of.climate-change.awareness.among.businesses..For.example,.recent.Chinese.investments.in.green.technology.suggest.that.at.least.some.companies.in.this.rapidly.developing.nation.are.taking.forward-looking.positions.3.

Just as climate change may transform parts of our planet, so it is transforming the business landscape—the context and presumptions by which businesses typically operate today. This transformation is a result of both the direct impacts of climate change on business operations, as well as its indirect effects—experienced as the changing attitudes, preferences and behaviors of a varied set of stakeholders who are critical to achieving and sustaining high performance. Many business leaders feel a profound responsibility to do their part to respond to the pressing global challenge represented by climate change. But apart from this sense of societal obligation, business leaders must also be attuned to how climate change is altering the dynamics of markets, competition and profitability.

Figure 3: Climate change is a major issue for my business (% by market)

Germany

US

Japan

India

UK

All

0 25 50 75 100

China

Within five yearsNow

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Furthermore,.additional.research.conducted.by.Accenture.into.end-consumer.perceptions.of.climate.change.points.to.a.disconnect.between.consumers.and.businesses..Our.findings.showed.that.97.percent.of.consumers.in.China.are.concerned.about.climate.change,.compared.with.a.global.average.of.85.percent.4.Inevitably,.those.consumer.attitudes.will.be.reflected.back.into.corporate.attitudes..

Executives forecast climate change to be increasingly important over time

Across.most.of.the.industries.and.regions.surveyed—with.China.being.a.significant.exception—more.businesses.believe.that.climate.change.will.be.a.major.issue.in.five.years.than.it.is.today..Eighty.percent.of.UK.businesses.believe.this.to.be.the.case,.followed.by.India.with.70.percent.and.the.United.States.with.6�.percent..Only.�0.percent.of.Chinese.companies.agreed..The.biggest.increase.in.perceived.significance.of.climate.change.from.the.present.to.five.years.out.is.in.the.United.States.(39.percent.currently.and.6�.percent.in.five.years)..This.may.reflect.the.extent.to.which.legislation,.particularly.driven.by.states.like.California,.is.beginning.to.force.an.

awareness.of.climate.change.higher.up.on.the.US.corporate.agenda..

Perceptions differ among various industriesJust.as.differences.exist.among.regions.and.markets,.they.are.also.evident.across.industries.(see.Figure.4)..Only.30.percent.of.executives.working.in.communications.and.high-tech.(C&HT).sectors,.for.example,.said.that.climate.change.is.currently.a.major.issue.for.their.businesses..Looking.ahead.five.years,.the.figure.does.not.increase.significantly..This.finding.may.reflect.the.fact.that.companies.in.the.C&HT.sector.are.less.directly.dependent.on.natural.resources..Accenture.believes,.however,.that.industries.such.as.C&HT.may.under-appreciate.the.technological.opportunities.that.could.be.derived.from.climate-change-related.activities..For.example,.many.consumers.see.telecommuting.as.an.opportunity.to.reduce.reliance.on.non-renewable.resources,.so.C&HT.companies.have.considerable.potential.to.leverage.associated.technologies.such.as.teleconferencing.to.their.advantage.

In.the.resources.industries.(i.e.,.utilities,.energy.and.extractive),.where.environmental.impact.is.more.a.part.of.everyone’s.consciousness,.

more.than.half.(5�.percent).of.the.executives.surveyed.cited.climate.change.as.a.major.issue.for.their.businesses..That.number.grows.to.67.percent.when.looking.ahead.five.years..Financial.services.executives.also.demonstrated.a.relatively.high.awareness.of.climate.change.as.a.major.issue.for.them..This.finding.may.reflect.an.awareness.among.these.executives.of.the.future.financial.risks.and.opportunities.for.sectors.such.as.the.insurance.industry.stemming.from.more.severe.weather.conditions.

Direct and indirect impactsAccenture.believes.that.many.of.the.differences.reflected.in.the.survey.numbers—varying.levels.of.appreciation.of.the.effects.of.climate.change.on.business.operations—are.rooted.in.the.difference.between.direct.and.indirect.impacts.of.climate.change..

In.terms.of.direct.impacts,.a.rise.in.average.global.temperatures.can.lead.to.clear.cause-and-effect.relationships.in.many.industries—agriculture,.food.products,.tourism.and.many.others..Some.of.these.effects.are.potentially.threatening.to.sustainable.high.performance:.changing.climatic.conditions,.for.example,.may.directly.influence.patterns.of.future.costs.and.benefits..Yet.these.effects.may.also.drive.new.forms.of.innovation—for.example,.drought-resistant.crops.in.agriculture.and.food.processing,.or.new.financial.products.in.the.insurance.industry.to.mitigate.environmental.risk.

Many.industries.will.feel.less.of.a.direct.impact.from.climate.change..But.none.will.be.immune.from.its.indirect.impacts..Indeed,.Accenture.believes.that.it.is.the.indirect.impacts.of.climate.change.that.will.have.the.greatest.influence.over.future.business.strategy..The.following.are.the.most.significant.stakeholders.whose.actions.in.light.of.climate.change.are.likely.to.have.most.influence.on.the.business.community.(see.Figure.5).

Figure 4: Climate change is a major issue for my business (% by industry)

C&HT

C&I

FinancialServices

Resources

Within five yearsNow

0 25 50 75 100

9

Figure 5: Stakeholders viewed as most influential on a company’s response to climate change (%)

0 10 20 30 40 50 60 70

Government

Consumers

Shareholders

Employees

Members of the public

Suppliers

Media

Other

Advocacy groups

Non-governmental organizations

GovernmentExecutive.respondents.to.the.Accenture.survey.believe.that.government.will.play.a.critical.role.in.shaping.the.business.environment.relating.to.climate.change..Survey.results.showed.that.65.percent.of.respondents.cited.government.(both.national.and.local).as.the.most.significant.stakeholder.influencing.future.business.responses.to.climate.change..Government.policies.and.regulations.introduced.in.response.to.concerns.about.climate.change.have.the.potential.to.radically.alter.market.incentives.and.opportunities.for.profit..Chapter.4.provides.a.detailed.description.of.various.regulatory.mechanisms.that.may.come.into.play.here,.but.these.include:

•.“Cap-and-trade”.systems,.whereby.a.cap.is.imposed.on.overall.CO�.emissions,.with.participating.companies.free.to.trade.an.allocated.allowance.with.other.carbon.producers.

•.Subsidies,.which.reduce.market.prices.for.activities.that.in.some.way.contribute.to.lower.CO�.emissions..

•.“Green”.taxes,.which.aim.to.adjust.patterns.of.consumption.and.production.by.reflecting.the.additional.costs.associated.with.CO�.emissions..

Around.the.world,.the.pace.of.new.regulations.related.to.climate.change.has.already.been.rapid..For.example,.the.European.Union.Emissions.Trading.Scheme,.introduced.in.�005,.covers.40.to.50.percent.of.Europe’s.CO�.emissions.and.is.changing.the.face.of.business.activity.for.a.large.number.of.energy-intensive.industries.in.Europe..In.the.United.States,.support.for.legislation.in.states.such.as.California.seems.to.be.growing,.with.federal.legislation.potentially.not.too.far.away..

The.advent.of.new.regulatory.regimes.will.cause.two.fundamental.shifts.in.the.economics.of.doing.

business.in.many.industries..First,.regardless.of.the.specific.mechanism.used.to.limit.carbon.emissions,.most.schemes.have.in.common.the.creation.of.a.scarcity.value.of.carbon—a.price.that.will.need.to.be.factored.into.future.production.and.consumption.decisions..Second,.climate.change.regulation.will.have.an.international.character..That.means.that.a.multinational.corporation.may.be.faced.with.a.tapestry.of.different.regulatory.regimes.across.which.to.operate,.creating.challenges.in.terms.of.cost.structures.and.business.flexibility.

Regulation.is.likely.to.affect.different.industries.in.different.ways..For.example,.subsidies.for.biofuels.will.present.new.manufacturing.opportunities.for.the.automobile.industry.and.could.advance.the.market.for.new.farming.technologies..Conversely,.those.subsidies.could.also.shrink.the.land.available.for.conventional.crops,.affecting.prices.for.agribusiness.

10

and.food.processing..Incentives.for.the.use.of.energy-efficient.buildings.will.expand.the.market.for.eco-friendly.building.materials,.appliances.and.insulation.and.create.a.new.market.for.the.assessment.of.energy.efficiency..Emissions.trading.schemes,.which.set.limits.to.carbon.emissions.below.free-market.levels.so.that.they.can.be.valued.and.traded,.will.alter.the.balance.of.competitive.advantage.toward.more.efficient.producers.and.could.potentially.create.new.financial.markets.in.carbon-related.derivatives.

ConsumersConsumers.are.seen.by.our.executive.respondents.as.the.second.most.important.group.exerting.an.indirect.influence.on.the.response.of.businesses.to.climate.change..Changing.consumer.preferences.in.light.of.environmental.concerns.can.be.seen.in.trends.such.as.wider.demand.for.energy-efficient.products,.processes.and.services;.requests.for.better.information.about.environmental.impacts.of.products.and.services;.and.increased.adoption.of.energy-efficient.(or.“green”).technologies..The.Accenture.survey.of.end-consumers.mentioned.earlier.suggests.that.consumers.are.willing.to.translate.concern.over.the.environment.into.tangible.action.by.making.purchasing.decisions.according.to.a.company’s.track.record.on.environmental.impacts.5.

Environmental.responsibility.is.quickly.becoming.an.important.factor.in.a.buyer’s.decision.to.purchase.a.particular.product.or.service,.and.this.trend.will.only.accelerate..Businesses.need.to.be.proactive.with.strategies.that.can.exploit.this.shift.in.consumer.preferences.to.gain.competitive.advantage.and.advance.themselves.toward.sustainable.high.performance..

ShareholdersInvestor.decisions.about.the.allocation.of.capital.are.also.increasingly.informed.by.environmental.considerations..In.a.survey.conducted.by.the.US.National.Marketing.Institute,.50.percent.of.Americans.said.they.would.be.more.likely.to.buy.the.stock.of.a.company.with.more.environment-friendly.operations.6.Investor.interest.in.so-called.“ethical.mutual.funds”.has.mushroomed.in.recent.years..The.United.Kingdom.alone.has.more.than.60.such.funds,.with.a.total.of.£3.3.billion.(US$6.1.billion).of.capital.under.management.in.�005,.an.84.percent.increase.in.value.since.�000.7.

In.addition.to.the.ethical.investment.sector,.major.institutional.investors.such.as.pension.and.mutual.funds.are.increasingly.looking.at.a.company’s.environmental.performance.and.its.ability.to.respond.to.environmental.trends.as.key.factors.in.making.investment.decisions..One.recent.study.found.that.companies.that.exemplify.strong.competitive.positioning.combined.with.leadership.in.environmental,.social.and.governance.characteristics.outperformed.average.stock.market.returns.by.�5.percent.8

EmployeesA.company’s.environmental.performance.and.strategies.are.also.influencing.its.ability.to.recruit.and.retain.talent..One.study.found.that.75.percent.of.MBA.students.from.top.schools.would.be.willing.to.accept.a.pay.cut.of.between.10.and.�0.percent.in.order.to.work.for.a.company.they.regarded.as.socially.responsible—a.perception.that.is.linked.at.least.in.part.to.a.company’s.attitudes.and.actions.with.regard.to.climate.change.and.other.environmental.issues.9

In.summary,.climate.change.is.becoming.more.than.just.an.environmental.issue..It.is.now.playing.out.across.a.range.of.dimensions,.from.political.and.social.to.economic.and.technological..In.this.way,.climate.change.is.emerging.as.a.key.determinant.of.the.potential.of.today’s.companies.to.create.long-term.value.and.sustain.high.performance..A.number.of.important.stakeholders.are.shaping.the.business.landscape.because.of.climate.change.issues..The.exact.science.of.climate.change.should.matter.less.to.businesses.than.the.perceptions.and.behaviors.of.these.increasingly.powerful.stakeholders—especially.the.regulatory.responses.of.legislators.and.the.purchasing.patterns.of.consumers..Companies.that.are.attuned.to.these.shifts.and.that.respond.in.a.timely.and.proactive.manner.will.advance.toward.sustained.high.performance.faster.than.their.competitors.

Current business responses to climate change

2

11

1�

Although.our.survey.points.to.positive.news.about.executive.awareness.of.the.impacts.of.climate.change,.this.awareness.is.not.wholly.reflected.in.the.actions.that.businesses.are.taking...

Climate change is not yet a strategic business priorityOur.research.reveals.a.significant.gap.between.executive.awareness.of.environmental.issues.and.corporate.willingness.to.approach.climate.change.as.a.strategic.priority.(see.Figure.6).

Only.5.percent.of.survey.respondents.named.climate.change.as.their.first.strategic.priority..In.no.region.of.the.world.that.we.surveyed.did.that.proportion.rise.above.8.percent,.and.no.Chinese.company.named.climate.change.as.its.first.strategic.priority..Although.one.might.well.imagine.that.more.immediate.concerns.such.as.sales.growth.and.new.product.development.would.rank.as.the.top.strategic.priority,.the.numbers.did.not.rise.significantly.even.when.executives.were.asked.about.their.second.and.third.priorities..Across.all.countries.represented.in.our.research,.11.percent.of.businesses.stated.that.climate.change.figured.as.their.second.or.third.strategic.priority..This.gap.between.awareness.of.the.issue.of.climate.change.and.the.willingness.to.take.action.should.serve.as.a.warning.sign.for.any.company.seeking.sustainable.high.performance.today..Seizing.competitive.advantage.based.on.an.effective.response.to.climate.change.will.require.dedicated.resources,.innovative.thinking.and.concerted.strategic.action..

Analysis.of.responses.by.industry.(see.Figure.7).shows.that.financial.services.and.resources.companies.appear.to.place.greater.strategic.priority.on.climate.change.than.do.communications.and.high-tech.(C&HT).or.consumer.and.industrial.(C&I).companies..This.finding.most.likely.reflects.the.unique.business.environment.of.resources.companies.that.have.a.concern.over.direct.emissions,.and.of.financial.services.

Figure 6: Climate change is a strategic priority for my business (% by market)

India

US

Germany

Japan

UK

China

All

First strategic priority

Second or third strategic priority

0 5 10 15 20 25 30

Figure 7: Climate change is a strategic priority for my business (% by industry)

C&HT

C&I

Financial Services

Resources

0 5 10 15 20 25 30

First strategic priority

Second or third strategic priority

Figure 8: Perceptions of corporate responsibility and positioning to act on climate change (%)

100

80

60

40

20

0

Average global levels

China Germany India Japan UnitedKingdom

UnitedStates

My business has a responsibility to help manage the impact of climate change

My business is well positioned to deal with climate change

13

Figure 9: Types of climate change initiatives currently being undertaken (%)

Technologiesto improveenergyefficiency

Measuring/ reducing carbon footprint

Increasing use of renewable energy

Carbon offsetting strategy

Internal policy formulation

Employee training

New products & services

Consumer information

Supply chain reconfiguration

NoneOther

0

20

40

60

companies.that.see.the.significant.opportunities.represented.by.environment-conscious.investment.funds.and.the.direct.impact.that.more.severe.weather.conditions.could.have.on.insurance.markets..

Many businesses feel a responsibility to act but do not feel well positioned to do soWhen.it.comes.to.climate.change,.even.the.most.well-intentioned.businesses.might.not.have.the.leverage.or.positioning.to.have.an.impact..As.Figure.8.opposite.shows,.despite.feeling.a.pronounced.sense.of.responsibility,.many.businesses.do.not.feel.well.positioned.to.deal.with.climate.change..German.businesses.see.themselves.as.better.situated.than.most.others.to.respond.to.climate.change,.perhaps.reflecting.a.perception.of.being.at.the.forefront.of.environment-conscious.technologies.and.innovations..Indian.companies.also.feel.relatively.confident.about.their.ability.to.act.on.climate.change,.possibly.an.indication.of.the.pervasive.entrepreneurial.spirit.and.optimism.in.today’s.dynamic.Indian.economy..Chinese.companies.feel.the.least.well.positioned.to.deal.with.climate.change—a.sign,.perhaps,.of.the.scale.of.the.huge.environmental.challenges.that.China.faces.in.the.

future..In.total,.two-thirds.(67.percent).of.businesses.feel.they.have.a.role.to.play.in.tackling.climate.change,.but.only.4�.percent.feel.well.positioned.to.fulfill.that.role.

Business initiatives in response to climate change are generally spread across a broad range of activities, risking fragmentationThe.emergence.of.climate.change.as.a.major.issue.for.business.is.already.generating.a.broad.range.of.different.initiatives.(see.Figure.9),.varying.to.some.extent.by.industry.and.type.of.organization..Overall,.a.little.more.than.four-fifths.of.businesses.surveyed.currently.have.initiatives.in.place.relating.to.climate.change..The.most.frequently.mentioned.activities.typically.involve.reducing.or.managing.carbon-related.activities,.including:.

•.Deploying.technologies.such.as.smart.metering.or.energy-efficient.buildings.to.improve.energy.efficiency.(mentioned.by.53.percent.of.respondents).

•.Measuring.an.organization’s.carbon.usage—its.“carbon.footprint”.(39.percent).

•.Increasing.the.use.of.renewable.energy.sources.(3�.percent)..

A.smaller.proportion.of.companies.report.initiatives.in.the.area.of.internal.policy.formulation.(�8.percent).and.employee.training.and.communication.(�7.percent)..When.it.comes.to.more.comprehensive.activities.that.are.likely.to.create.substantial.efficiencies.or.new.business.opportunities,.fewer.companies.are.taking.action..For.example,.less.then.one.quarter.of.companies.are.creating.new.products.and.services.in.response.to.climate.change,.and.only.17.percent.are.looking.to.reconfigure.their.supply.chains..Both.activities,.Accenture.believes,.represent.areas.where.significant.value.can.be.realized.

Several.differences.emerge.among.the.industries.surveyed..New.products.and.services.are.more.likely.to.be.introduced.by.companies.in.the.resources.and.financial.services.industries.(with.�9.percent.and.30.percent,.respectively).than.their.counterparts.in.other.industries..C&HT.companies.are.generally.less.likely.to.be.undertaking.climate-change-related.initiatives,.with.38.percent.undertaking.none.at.all..The.most.common.initiative.for.the.C&HT.sector.is.in.relation.to.energy-efficiency.technologies,.mentioned.by.45.percent.of.those.companies..A.C&I.or.resources.company.is.more.likely.than.one.in.the.other.

14

industries.to.look.at.measuring.its.carbon.footprint..

In.short,.although.it.is.clear.from.our.research.that.businesses.are.pursuing.a.range.of.initiatives.in.response.to.climate.change,.there.is.little.evidence.of.an.enterprise-wide.or.holistic.approach..In.fact,.our.analysis.highlights.significant.fragmentation.in.business.responses..Almost.half.of.those.businesses.undertaking.any.initiatives.have.only.one.or.two.in.place..

On.the.other.hand,.where.more.fundamental.initiatives.are.underway,.there.is.evidence.that.a.more.holistic.approach.is.possible..For.example,.of.those.who.are.reconfiguring.their.supply.chains.in.response.to.climate.change,.more.than.80.percent.are.also.looking.at.four.or.more.other.initiatives..For.those.pursuing.more.limited.approaches—such.as.simply.improving.their.energy.efficiency—that.number.drops.to.just.over.40.percent.and.includes.16.

percent.who.are.doing.only.that..As.climate.change.moves.further.up.the.strategic.agenda.of.more.businesses,.we.would.expect.to.see.companies.take.a.more.holistic.approach.that.takes.into.account.all.aspects.of.business.operations..

Companies are too rarely considering the business opportunities represented by climate change As.shown.in.Figure.9,.about.one-fifth.of.the.companies.in.our.survey.have.no.climate.change.initiatives.under.way.at.all..This.finding.can.perhaps.be.best.explained.by.another.research.finding:.that,.across.the.board,.executives.look.at.climate.change.more.as.something.that.will.increase.the.cost.of.doing.business,.rather.than.something.that.can.open.up.new.opportunities..

Figure.10.shows.that.only.39.percent.of.businesses.see.climate.change.as.something.that.can.present.them.with.new.business.opportunities..

Two-thirds.(67.percent).consider.climate.change.to.be.a.necessary.cost,.rather.than.something.that.can.spur.potential.development..The.story.is.slightly.different.in.emerging.economies..In.China,.46.percent.of.companies.see.climate.change.as.presenting.new.opportunities—as.do.5�.percent.of.companies.in.India..

Figure 10: Perceptions of the costs and business opportunities of climate change (%)

IndiaGermany UnitedKingdom

UnitedStates

JapanAll

100

80

60

40

20

0China

Climate change will increase the cost of doing business

Climate change will open up many new opportunities for mybusiness

One.of.the.largest.financial.institutions.in.the.world,.UK-headquartered.HSBC.considers.climate.change.to.be.the.single.largest.environmental.challenge.of.this.century..HSBC.is.a.comparatively.low.emitter.of.CO�,.with.its.major.direct.impacts.on.atmospheric.carbon.concentrations.coming.from.electricity,.natural.gas.and.fuel.oil.consumption.to.power.and.heat.its.buildings.and.to.support.employee.travel..Through.a.three-point.Carbon.Management.Plan—reduce.energy.use,.buy.green.electricity.where.possible,.and.offset.remaining.emissions—in.October.�005.HSBC.became.the.world’s.first.major.bank.to.become.

carbon-neutral..HSBC.estimated.its.carbon.dioxide.emissions.for.the.last.three.months.of.�005.would.be.170,000.tons.and.invested.in.carbon.offset.projects.in.New.Zealand,.Australia,.India.and.Germany.at.a.total.cost.of.US$750,000.

HSBC.is.also.actively.encouraging.its.customers.to.reduce.their.own.impact.on.the.environment..For.the.month.of.January.�007,.the.bank.offered.a.special.promotion—which.it.called.a.“Green.Sale”—on.a.range.of.its.most.popular.products.and.services.for.personal.and.business.customers,.including.car.and.home.insurance,.loans,.credit.card.services,.business.start-up.

services.and.savings.accounts..For.every.Green.Sale.product.or.service.bought.in.the.United.Kingdom,.HSBC.contributed.£�.(about.US$4).to.a.group.of.environmental.organizations..

Case Study: HSBC

One.of.the.most.successful.car.companies.today,.Toyota.is.also.an.industry.leader.in.the.battle.against.climate.change..Its.approach.to.climate.change.is.a.story.of.innovation.and.market.anticipation,.perhaps.best.represented.by.its.first.mass-produced.hybrid.car.(the.Prius).in.Japan.in.1997..The.company’s.expanding.line-up.of.hybrid.vehicles.is.testimony.to.a.commitment.to.hybrid.technology.it.made.more.than.15.years.ago,.long.before.climate.change.came.on.to.most.companies’.radars..Since.the.Prius.was.introduced.into.the.North.American.market.in.�000,.Toyota.has.sold.more.than.400,000.hybrids,.and.demand.

is.still.outstripping.supply..By.late.�006,.Toyota.hybrid.drivers.in.the.United.States.were.estimated.to.have.saved.more.than.178.million.gallons.of.gasoline.and.1.6.million.tons.of.CO�.emissions..The.company.is.currently.developing.the.technology.behind.plug-in.cars.that.will.run.solely.on.electricity..

Case Study: Toyota

15

3Constraints on action

16

17

While.many.business.executives.feel.a.responsibility.to.respond.to.the.threat.of.climate.change,.they.often.do.not.feel.able.to.take.action.in.a.coherent.or.comprehensive.fashion..Our.survey.findings.point.to.a.number.of.constraints.experienced.by.the.typical.company.today.when.it.comes.to.taking.action.in.response.to.climate.change..

Difficulty understanding a complex and fluid issue More.than.half.of.businesses.said.that.they.are.struggling.to.understand.the.implications.of.climate.change.on.their.industry.and.business.(see.Figure.11)..This.finding.may.reflect.uncertainty.about.the.future.regulatory.environment.in.different.markets..Businesses.may.lack.clear.indications.about.the.type.or.strength.of.regulations.under.which.they.may.be.required.to.operate..For.example,.in.the.United.Kingdom.a.group.of.companies,.including.BT.and.United.Utilities,.has.published.an.open.letter.to.the.prime.

Figure 11: Proportion of survey respondents agreeing with the statement: “Businesses are struggling to understand the implications of climate change”

Agree

53%

24%

23%

Disagree

Neither agree nor disagree

18

minister.calling.for.clarity.around.a.common.carbon.reporting.standard.10.Conflicting.scientific.viewpoints.on.the.impacts.of.climate.change.may.also.add.to.this.sense.of.uncertainty,.compounded.by.intense.and.often.inconsistent.media.coverage.

Competing business prioritiesFigure.1�.shows.that.while.businesses.may.generally.agree.that.climate.change.is.a.major.issue,.it.tends.to.receive.less.attention.when.set.against.more.immediate.business.imperatives..Asked.to.name.their.most.pressing.strategic.priorities,.executives.named.sales.growth.(47.percent.of.respondents),.cost.reduction.(46.percent).and.developing.new.products.and.services.(45.percent).well.ahead.of.climate.change,.cited.by.just.16.percent.of.respondents.

One.challenge.is.to.develop.a.more.nuanced.understanding.of.how.climate.change.relates.to—and.shapes—many.of.these.other.business.priorities..For.example,.cost.reduction—the.second.most.important.business.priority.according.to.survey.respondents—is.increasingly.intertwined.with.climate.change.issues..An.oil.price.close.to.or.exceeding.US$100.per.barrel.is.forcing.businesses.to.assess.how.to.cut.costs.related.to.energy.usage..Alternative.energies.such.as.wind.and.solar,.once.viewed.as.uncompetitive,.are.starting.to.become.viable.options..The.potential.for.future.profits.in.biofuels.is.slightly.less.positive.due.to.rising.commodity.prices.in.raw.materials..However,.notwithstanding.this.trend,.alternative.energy.sources.will.eventually.constitute.a.significant.means.of.cost.reduction..The.German.Association.of.the.Biofuels.Industry,.for.example,.calculates.that.oil.prices.need.to.rise.to.US$1�0.per.barrel—a.figure.that.is.no.longer.unrealistic—to.make.

biofuels.competitive.11.If.such.a.scenario.were.coupled.with.a.fall.in.the.production.costs.of.biofuels—due.to.lower.prices.of.wheat.and.maize—biofuels.would.become.increasingly.economic.relative.to.other.fuel.sources..This.is.just.one.example.of.how.climate.change.increasingly.influences.other.business.priorities.

Internal business challengesAssessing.the.business.impacts.of.climate.change.is.a.difficult.task—but.actually.implementing.actions.within.an.organization.is.even.more.challenging..Figure.13.opposite.shows.those.areas.where.businesses.perceive.the.greatest.internal.challenges..Twenty-five.percent.of.respondents.considered.the.introduction.of.new.technologies.to.be.the.primary.challenge..This.finding.may.reflect.insufficient.experience.with.green.technologies.and.inadequate.understanding.of.what.they.can.offer.relative.to.business.requirements..Changing.internal.behaviors.was.the.second.

Figure 12: Strategic concerns named by businesses as a top-three priority (%)

12%

9%

13%

16%

18%

28%

29%

39%

45%

46%

47%

Other

Increasing the level of capital allocation

Regulation

Climate change

Technology

Innovation

Growth in emerging markets

War for talent

Developing new products and services

Cost reduction

Sales growth

19

most.pressing.internal.challenge,.named.by.�4.percent.of.respondents..This.finding.underscores.the.fact.that.preparing.organizations.for.a.future.that.requires.heightened.awareness.of.carbon.consumption.is.as.much.about.engendering.the.right.culture.as.it.is.about.implementing.the.right.systems.and.processes..Twenty.percent.of.executives.surveyed.also.shared.a.concern.about.coping.with.new.regulation,.pointing.to.the.key.role.played.by.regulators.and.to.the.uncertainty.surrounding.future.regulatory.environments..

Disparate but powerful stakeholdersAs.discussed.in.Chapter.1,.multiple.stakeholder.views.on.climate.change.are.critical.in.shaping.the.business.response.to.climate.change..How.businesses.deal.with.their.stakeholders.over.the.issue.of.climate.change.can.have.serious.repercussions.for.profits,.image.and.the.overall.pursuit.of.high.performance..In.our.survey,.65.

percent.of.executives.mentioned.government.(national.and.local).as.the.most.influential.stakeholder.in.terms.of.their.company’s.response.to.climate.change..Governments.are,.of.course,.in.charge.of.regulation.and.therefore.the.most.influential.player.in.setting.the.rules.of.the.game..As.such,.businesses.need.to.have.a.clear.understanding.of.likely.future.legislation.and.should.be.seeking.to.inform.and.shape.that.legislation.wherever.possible..However,.at.present,.uncertainty.over.future.regulation.is.hampering.business.in.its.desire.to.take.concrete.action,.as.we.show.in.Chapter.4.

Figure 13: Top challenges facing businesses in responding to climate change (%)

0 5 10 15 20 25 30

Updating performance metrics

Re-engineering internal business processes and systems

Managing stakeholder expectations

Coping with new regulations

Changing internal behaviors

Introducing new technologies

The.Tata.Group.is.a.good.example.of.how.a.corporate.entity.can.make.the.challenge.of.climate.change.integral.to.its.processes..An.Indian.conglomerate.comprising.over.100.companies.that.operate.in.seven.sectors,.from.cars.to.chemicals,.software.to.steel,.the.group.has.made.the.preservation.and.regeneration.of.the.environment.an.intrinsic.part.of.its.culture.of.corporate.sustainability.

Coordinating.and.directing.the.climate-change.efforts.of.the.Group’s.companies.is.Tata.Quality.Management.Services,.a.central.organization.that.draws.on.the.experience.and.expertise.of.senior.Tata.leaders..The.broad.concept.is.to.develop.a.

common.approach.to.the.critical.environmental.challenges.confronting.the.Group’s.businesses,.and.formulate.policies.that.can.deal.effectively.with.vital.issues.such.as.climate.change....

The.Tata.Group’s.approach.to.climate.change.has.made.it.stand.out.among.its.peers..In.our.survey.of.companies.across.India,.a.significant.number.cited.Tata.as.an.organization.that.is.a.leader.in.dealing.with.the.challenges.presented.by.climate.change.

Case Study: The Tata Group

�0

Regulatory actions favored by today’s business executives

4

�1

��

combination.of.market-driven.and.regulatory.measures,.although.the.degree.of.preference.varies.by.country.and.sector.

•.A.consensus.exists.among.business.leaders.that.future.regulation.related.to.climate.change.should.be.relatively.harmonized.across.different.countries.to.reduce.the.costs.of.compliance—but.at.the.same.time.should.be.more.flexibly.applied.in.different.industries.to.reflect.the.unique.conditions.existing.in.those.sectors.

•.By.standing.back.and.not.proactively.engaging.in.discussions.related.to.legislation,.businesses.risk.letting.others.set.the.regulatory.agenda.for.them..Only.a.small.percentage.of.businesses.are.working.with.other.organizations.or.taking.active.steps.to.help.shape.regulatory.policies.in.the.area.of.climate.change.

Figure 14: Most effective regulatory environment for responding to climate change (all respondents)

Balance between the two

18%

17% 63%

2%

Mainly government-driven

Mainly market-driven

Don’t know

Climate.change.is.now.the.subject.of.intense.political.debate.in.many.countries,.spurring.a.raft.of.regulatory.proposals.at.both.the.national.and.international.levels..However,.many.aspects.of.the.future.legislative.environment.have.yet.to.be.settled..Businesses.clearly.feel.a.sense.of.uncertainty.and.are.seeking.long-term.signals.about.where.and.how.to.invest..For.example,.the.European.Corporate.Leaders.on.Climate.Change.group.has.said.that.“to.promote.the.necessary.step-change.in.investments.in.low-carbon.goods.and.services,.a.strong.and.clear.policy.framework.that.creates.long-term.value.for.carbon.emissions.reductions.is.required.”1�.That.view.has.been.echoed.by.the.US.Climate.Action.Partnership,.which.has.written:.“Policies.are.needed.to.realize.the.full.potential.of.energy.efficiency.as.a.high.priority.energy.resource.and.a.cost-effective.means.of.reducing.greenhouse.gas.emissions.”13

These.concerns.expressed.by.the.business.community.highlight.a.fundamental.tension.surrounding.the.regulatory.framework.for.addressing.climate.change:.Businesses.are.reluctant.to.make.big.investments.in.climate-change-related.initiatives.until.the.form.and.scope.of.future.regulation.becomes.clearer..At.the.same.time,.policymakers.are.reluctant.to.push.ahead.with.particular.forms.of.regulation.until.more.is.known.about.the.impact.of.climate.change.and.regulation.on.business.competitiveness.

Given.this.complex.interplay.between.future.regulation.and.business.investment,.it.becomes.important.to.understand.how.businesses.view.the.evolving.regulatory.landscape.and.the.ways.in.which.they.are.responding.to.it..Our.research.and.analysis.highlight.the.following.key.findings:

•.Business.leaders.believe.that.climate.change.will.be.tackled.most.effectively.through.a.

�3

UnitedKingdom

UnitedStates

0

20

40

60

80

100

China Germany India Japan Mainly market-driven

Mainly government-driven

Balance between the two

Figure 15: Most effective regulatory environment to respond to climate change (% by market)

Different businesses favor market-driven or government-driven responsesAn.important.issue.for.policymakers.when.addressing.climate.change.is.whether.to.pursue.government-driven.responses.(e.g.,.standards,.emissions.controls.and.limits).or.market-based.approaches.(e.g.,.taxes.and.subsidies,.provision.of.consumer.information.on.the.environmental.impact.of.specific.products,.and.new.technologies)..Our.survey.shows.that.the.majority.of.business.leaders.(63.percent).favor.a.balance.between.market-driven.and.government-driven.initiatives.as.the.most.effective.means.of.responding.to.climate.change.(see.Figure.14.opposite)..The.remainder.of.respondents.are.fairly.evenly.divided.in.calling.for.either.mainly.government-driven.or.mainly.market-driven.approaches..

The.preference.for.a.combination.of.approaches.increases.to.some.degree.with.organizational.size..Sixty-seven.percent.of.businesses.

with.revenues.between.US$100.million.and.US$1.billion.favor.a.combined.approach,.while.only.54.percent.of.companies.in.the.US$50.million.to.US$100.million.category.favor.that.approach..This.difference.could.be.a.reflection.of.organizational.culture:.smaller.organizations.lean.toward.greater.autonomy,.while.larger.businesses.recognize.the.value.of.collaboration..

Some.marked.differences.are.also.evident.across.countries,.perhaps.reflecting.different.national.circumstances.and.regulatory.traditions.(see.Figure.15)..Business.leaders.in.the.United.Kingdom.are.more.likely.than.their.counterparts.elsewhere.to.favor.a.combination.of.market-driven.and.government-driven.intervention..Chinese.business.leaders.were.more.likely.to.believe.that.responses.to.climate.change.should.be.mainly.instigated.by.the.government.rather.than.market-driven.(4�.percent.versus.16.percent).

The.general.preference.of.businesses.for.approaches.that.involve.collaboration.between.government.and.industry.also.extends.to.the.way.in.which.future.regulation.might.operate..Where.regulation.is.introduced,.46.percent.of.survey.respondents.would.prefer.co-regulation,.such.as.codes.of.practice.backed.by.government.but.enforced.by.industry..The.remainder.of.those.surveyed.were.split.between.those.preferring.self-regulation.(�6.percent).and.those.favoring.government-led.regulation.(�8.percent)..Some.differences.exist.by.industry—for.example,.business.leaders.in.consumer.and.industrial.companies.are.more.likely.than.those.in.the.resources.sectors.to.favor.co-regulation.(49.percent.versus.35.percent)..This.could.reflect.the.fact.that.consumer.and.industrial.companies.are.generally.less.closely.regulated.than.resources.companies,.for.whom.government-led.regulation.is.often.the.norm.

�4

Executives expect a range of potential regulatory measures to be consideredA.wide.array.of.regulatory.instruments.have.been.put.forward.by.various.governments.in.response.to.the.issue.of.climate.change.(see.panel.at.the.end.of.this.chapter)..Some.of.these.regulatory.approaches,.such.as.taxes.and.subsidies,.aim.to.internalize.the.impact.of.emissions.by.altering.market.incentives.to.producers..Others.involve.more.direct.regulation.and.control.of.emissions..Some,.such.as.emissions.trading.schemes,.involve.both.market.and.regulatory.elements..

Our.survey.shows.a.consensus.of.expectation.among.business.leaders.that.renewable.energy.incentives.and.carbon.targets.will.form.part.of.the.policy.response.to.climate.change,.with.an.average.of.74.percent.and.65.percent,.respectively,.saying.that.these.kinds.of.measures.are.likely.to.be.implemented.in.their.countries..Other.types.of.policies.are.also.widely.expected,.but.to.a.lesser.degree..

These.include.increased.provision.of.information.to.consumers.through.measures.such.as.labeling.(named.by.58.percent.of.respondents),.taxes.on.energy-intensive.products.(54.percent),.and.carbon.trading.schemes.(46.percent)..In.a.situation.where.the.evolution.of.the.regulatory.environment.remains.very.uncertain,.the.message.seems.to.be.that.businesses.are.expecting.most.policy.options.to.be.on.the.table..

Again,.national.differences.are.apparent.(see.Figure.16)..US.executives.are.more.likely.to.expect.market-based.measures.such.as.incentives.and.consumer.information.than.to.expect.the.introduction.of.carbon.taxes.or.targets.to.reduce.emissions..Business.leaders.from.China,.Germany.and.the.United.Kingdom.are.more.likely.than.their.counterparts.elsewhere.to.expect.the.implementation.of.carbon.taxes..In.the.example.of.Germany.and.the.United.Kingdom,.this.is.likely.to.reflect.the.proactive.stance.that.their.respective.governments.have.

taken.in.this.area..For.example,.the.UK.Climate.Change.Bill.proposes.to.introduce.a.clear,.long-term.framework.in.which.the.United.Kingdom.can.reduce.CO�.emissions.and.ensure.that.steps.are.taken.to.adapt.to.climate.change.impacts.14.Furthermore,.the.United.Kingdom’s.Green.Fiscal.Commission,.launched.in.�007,.will.be.conducting.independent.research.into.environmental.tax.reform.and.its.implications.15

Even.if.the.future.regulatory.environment.were.more.predictable,.the.impact.of.legislation.on.business.would.not.be.easy.to.quantify..Figure.17.shows.that.future.regulatory.measures.are.expected.to.have.only.a.moderate.impact..This.may.reflect.executives’.optimism.about.the.ability.of.businesses.to.adapt.to.regulatory.constraints.or.it.may.simply.indicate.the.difficulty.in.identifying.the.impact.of.schemes.whose.form.and.scope.remain.uncertain.

Taxes.on.energy-intensive.products.and.services,.incentives.to.use.

�5

Figure 16: Perceived likelihood of various regulatory measures being implemented (% by market)

United Kingdom

Low-carbon/renewablesincentives

Targets toreduce carbonemissions

Consumerinformation(e.g., labeling)

Tax on energyuse

Carbontrading

0

25

50

75

100

JapanChina India United StatesGermany

Figure 17: Expected impact on businesses if various measures were implemented (1= no impact; 4 = big impact)

Low-carbon/renewablesincentives

Targets toreduce carbonemissions

Consumerinformation(e.g., labeling)

Tax on energyuse

Carbontrading

United KingdomJapanChina India United StatesGermany United KingdomJapanChina India United StatesGermany

1

2

3

4

�6

renewable.energy,.and.targets.to.reduce.energy.emissions.are.more.likely.to.be.seen.as.having.a.big.impact.on.business.than.are.consumer.information.and.carbon-trading.schemes..In.general,.business.leaders.from.developed.economies.such.as.the.United.Kingdom,.Germany.and.Japan.were.more.likely.to.see.such.measures.having.an.impact.on.their.business.while.Chinese.businesses.were.inclined.to.ascribe.little.impact.to.these.measures.

Businesses seek both international consistency and industry flexibilityBy.its.very.nature,.climate.change.is.a.global.issue,.leading.to.calls.for.more.consistent.and.coordinated.policy.approaches.at.the.international.level..These.concerns.are.echoed.in.our.survey.of.business.leaders,.who.expressed.a.preference.for.regulation.to.be.more.harmonized.across.different.countries..This.reflects.the.fact.that.many.of.these.businesses.

operate.across.multiple.countries.and.a.concern.that.a.proliferation.of.different.national.regimes.and.standards.will.lead.to.extra.complexity.and.impose.additional.costs.of.doing.business..

At.the.same.time,.the.implications.of.climate.change.are.often.radically.different.across.industries..Energy-intensive.users.such.as.manufacturers.or.resource.companies.will.necessarily.have.a.different.view.of.climate.change.than.less.energy-intensive.industries,.such.as.services..The.different.concerns.of.different.industries.were.borne.out.by.our.survey,.with.a.majority.of.business.leaders.saying.that.future.climate-change.regulation.should.be.flexible.across.different.industries.to.allow.for.variations.in.industry.conditions.and.circumstances.(see.Figure.18.opposite)..Such.flexibility.was.particularly.favored.by.C&HT.and.financial.services.companies,.which.might.not.wish.to.be.saddled.with.the.more.stringent.measures.to.which.energy-

intensive.users.might.be.subject..The.message.is.that.businesses.want.regulation.that.is.flexible.by.industry.but.more.consistent.across.international.boundaries.

Most businesses are inadequately involved in shaping regulationGiven.the.high.stakes.involved.when.it.comes.to.future.regulation.and.its.impact.on.the.ability.of.businesses.to.achieve.high.performance.in.the.face.of.climate.change,.it.is.surprising.that.relatively.few.companies.are.taking.active.steps.to.work.with.other.stakeholders.to.inform.and.shape.the.regulatory.debate..Only.36.percent.of.the.companies.we.surveyed.had.taken.steps.to.help.shape.regulatory.policies.in.this.area;.that.number.rises.to.49.percent.for.very.large.companies.and.to.54.percent.for.companies.in.the.resources.industries.(see.Figure.19.opposite),.where.regulation.is.a.more.front-of-mind.issue..Interestingly,.companies.that.

�7

Figure 19: Survey respondents who say their businesses are involved in shaping regulatory policies (% by industry)

Resources FinancialServices

C&IC&HT0

10

20

30

40

50

60

Figure 18: Preference for regulatory flexibility versus harmonization across industries (% by industry)

Financial Services C&IC&HT

More flexible More harmonized

0

10

20

30

40

50

60

70

80

Resources All

perceive.themselves.as.innovators.in.respect.of.their.responses.to.climate.change.are.more.likely.to.seek.to.shape.regulation.than.those.that.perceive.themselves.to.be.followers.(5�.percent.versus.�8.percent).

More.than.one-third.(37.percent).of.businesses.are.not.working.with.any.external.organization.on.the.business.implications.of.climate.change..Of.those.who.are,.the.most.frequently-mentioned.collaborators.are.industry.bodies.(40.percent),.government.departments.(34.percent).and.suppliers.(�9.percent)..Again,.self-perceived.innovators.are.much.more.likely.than.followers.to.be.working.with.external.organizations—80.percent.versus.53.percent.

Different.legislative.bodies.have.proposed.a.variety.of.regulatory.mechanisms.to.reduce.the.impact.of.carbon.emissions..These.regulations.fall.broadly.into.the.following.categories:.carbon.taxes;.subsidies/incentives;.“command-and-control”.approaches.(quantitative.restrictions);.emissions.trading.schemes;.standards;.and.information.provision..

•.Tax-based.instruments.aim.to.adjust.market.prices.of.consumption.and.production.activities.to.reflect.the.additional.social.costs.associated.with.CO�.emissions..Taxes.can.be.revenue-positive,.bringing.in.additional.money.to.the.public.purse,.which.could.be.channeled.toward.environmental.programs..Alternatively,.taxes.can.be.revenue-neutral,.with.the.revenue.from.carbon.taxes.used.to.reduce.taxes.levied.elsewhere..Carbon.taxes.are.in.place.in.Sweden,.Finland,.Norway.and.the.Netherlands,.but.proposals.to.introduce.them.elsewhere.(e.g.,.

in.New.Zealand.and.the.United.States).have.largely.stagnated..However,.the.launch.of.the.Carbon.Tax.Center.in.the.United.States,.and.government.advisor.Nicholas.Stern’s.backing.of.carbon.taxes.in.the.United.Kingdom,.have.put.carbon.taxes.back.on.the.agenda.as.a.credible.possibility.

•.Subsidies.and.incentives.work.in.the.opposite.direction.from.the.taxation.approach.by.aiming.to.reduce.market.prices.for.activities.that.contribute.in.some.way.to.reduced.CO�.emissions..Approaches.here.can.include.subsidies.for.substitute.goods.or.services.with.a.lower.carbon.footprint.than.alternatives.(e.g.,.public.transport.as.a.substitute.for.private.transport),.or.incentives.for.the.development.and.use.of.new.technologies.that.reduce.carbon.emissions.(e.g.,.energy-efficient.materials.for.buildings.and.housing,.next-generation.biofuels.and.solar.fuel.cells)..“Hidden”.subsidies.(such.as.tax.breaks).often.exist.for.fossil.

fuels..Eliminating.these.subsidies.would.redress.the.balance.of.fossil.versus.renewable.energy.in.the.market.but.probably.would.not.be.a.long-term.stand-alone.solution.

•.“Command-and-control”.approaches.to.regulation.usually.involve.some.form.of.quantitative.restriction.such.as.quotas.on.CO�.emissions.or.mandating.the.use.of.specific.energy.sources.or.technologies..In.practice,.quantitative.restrictions.are.usually.combined.with.some.form.of.arrangement.to.allow.firms.to.trade.individual.carbon.allowances.in.a.“cap-and-trade”.scheme.(discussed.below).

•.“Cap-and-trade”.schemes,.also.known.as.emissions.trading.schemes,.are.the.most.globally.significant.mechanisms.in.place,.forming.the.basis.of.the.United.Nations’.Kyoto.protocol—an.addition.to.the.original.United.Nations.Framework.Convention.on.Climate.Change..Under.such.

Regulatory options for reducing greenhouse gas emissions

�8

schemes.a.cap.is.imposed.on.overall.CO�.emissions,.with.those.companies.covered.by.the.scheme.(usually.in.energy-intensive.industries).allocated.an.individual.carbon.allowance,.which.can.be.traded.with.other.producers..The.lower.the.overall.cap.on.emissions,.the.higher.the.price.at.which.carbon.allowances.will.be.traded.(other.things.being.equal)..Emissions.trading.schemes.have.several.benefits.from.the.point.of.view.of.both.businesses.and.policymakers:.

-.They.are.economically.efficient.in.the.sense.that.businesses.that.can.generate.more.profit.per.unit.of.CO�.emissions.will.have.incentives.to.buy.allowances.from.less-productive.firms.

-.They.provide.price.signals.to.companies.to.help.guide.investment.decisions.

-.They.offer.industry.more.flexibility.in.meeting.CO�.limits.than.do.traditional.regulations.or.controls.

-.They.provide.more.certainty.with.respect.to.overall.limits.on.carbon.emissions.16....

The.most.well-known.cap-and-trade.scheme.is.the.European.Union.Emissions.Trading.Scheme,.introduced.in.�005.and.covering.around.40.to.50.percent.of.CO�.emissions.and.10,500.installations.across.the.European.Union..Phase.II,.set.to.run.from.�008.to.�01�,.will.include.tighter.caps.on.emissions.to.ensure.a.positive.price.for.carbon.and.may.bring.additional.gases.and.sectors.within.its.scope..

Legislators.in.the.United.States.are.considering.a.variety.of.cap-and-trade.schemes.with.several.schemes.at.the.state.level.already.in.existence,.such.as.the.US.Regional.Greenhouse.Gas.Initiative.and.the.(voluntary).Chicago.Climate.Exchange.17.Countries.including.New.Zealand,.Norway.and.Switzerland.are.also.developing.emissions-trading.schemes.18

With.correct.pricing.and.target.levels,.cap-and-trade.schemes.can.be.very.effective,.but.they.

are.subject.to.several.practical.difficulties..One.issue.is.whether.carbon.allocations.or.permits.should.be.awarded.free.to.producers.on.a.“grandfather.rights”.basis,.taking.into.account.existing.production.patterns,.or.whether.they.should.be.auctioned.to.the.highest.bidder,.providing.opportunities.for.new.producers.to.bid.for.allocations.and.generating.revenues.for.the.government..Regional.or.international.schemes.may.offer.greater.certainty.and.consistency.for.companies.operating.across.borders,.but.they.bring.the.additional.problem.of.finding.agreement.on.the.appropriate.division.of.carbon.allocations.by.nation..Developing.countries.will.want.allocations.that.reflect.their.future.growth.aspirations,.whereas.industrialized.nations.will.want.allocations.that.at.least.in.part.reflect.their.existing.levels.of.income.and.consumption..

•.Standards.can.also.play.a.role.in.increasing.efficiency.and.the.use.of.renewable.energy.sources..Standards.have.been.used.effectively.in.Europe.to.regulate.and.reduce.emissions.from.cars.and.have.been.used.in.Japan.more.broadly.to.enable.that.nation.to.become.the.most.energy-efficient.developed.country..However,.standards.do.not.always.work.precisely.as.intended..An.example.is.the.Corporate.Average.Fuel.Economy.(CAFE).legislation.introduced.in.the.United.States.in.1975,.which.imposed.mandatory.fuel.economy.requirements.on.cars.in.an.effort.to.encourage.consumers.to.buy.more-efficient.vehicles..The.effect.on.fuel.consumption.was.limited,.however,.largely.because.consumers.traded.up.to.larger.vehicles.such.as.light.trucks.and.because.the.reduction.in.fuel.costs.per.mile.lowered.the.cost.of.motoring.and.encouraged.owners.to.use.their.vehicles.more.than.before..Consequently,.in.�007,.Congress.passed.legislation.to.introduce.more-stringent.fuel.economy.standards.on.cars.and.light.trucks.by.around.�0�0.

•.Finally,.information.provision.can.play.a.role.in.helping.consumers.and.industrial.users.make.more.informed.purchasing.decisions.by.highlighting.the.energy.efficiency.or.carbon.footprint.of.different.products.and.services..Examples.would.include.energy-efficiency.labeling.of.electrical.appliances.and.labeling.of.food.items.to.show.their.carbon.footprint.

�9

5Conclusion: Meeting the business challenges of climate change

30

31

Accenture.defines.a.high-performance.business.as.one.that.outperforms.its.peers.consistently.over.the.long.term..Our.experience.in.working.with.clients—and.our.High.Performance.Business.research,.which.covers.more.than.6,000.companies—establishes.that.high-performance.businesses.differentiate.themselves.by.balancing,.aligning.and.renewing.three.essential.building.blocks.of.high.performance:

•.Market.focus.and.position—business.strategy.decisions.regarding.where.and.when.to.compete.

•.Distinctive.capabilities—hard-to-replicate.capabilities.that.define.how.businesses.compete.

•.Performance.anatomy—common.mindsets.relating.to.culture,.leadership.and.the.workforce.

While.the.environmental.context.in.which.businesses.are.operating.is.changing.rapidly,.there.are.nevertheless.a.number.of.steps.that.they.can.take.within.each.of.these.building.blocks.to.position.themselves.better.to.achieve.high.performance.in.an.era.of.climate.change..

Market focus and positionConduct.a.stakeholder.analysis:.Identify.and.gauge.the.key.sources.of.influence.on.your.company,.focusing.in.particular.on.the.views.of.the.government.as.well.as.consumers..As.part.of.this.analysis,.engage.with.the.regulatory.body.that.sets.the.environmental.agenda.and.help.to.shape.the.discussion.about.legislation..Governments.run.the.

risk.of.being.caught.in.a.situation.whereby.both.regulators.and.businesses.are.looking.to.each.other.to.make.the.first.move..Businesses.should.play.their.part.in.pre-empting.this.understandably.cautious.approach.and.should.articulate.a.clear.view.of.how.legislation.can.help.businesses.manage.the.impacts.of.climate.change..

Develop.environmentally.conscious,.or.“green,”.products.and.services:.Assess.how.existing.and.new.products.can.be.tailored.to.meet.consumer—and.potentially.regulatory—demands.for.reduced.environmental.impact..For.example,.as.part.of.a.wider.plan.to.reduce.energy.consumption,.the.UK.retailer.Marks.&.Spencer.is.selling.a.line.of.clothes.manufactured.with.polyester.from.recycled.bottles.19

Brand.repositioning:.Leverage.environmental.achievements.to.enhance.your.organizational.brand.and.position.your.business.more.firmly.within.the.sphere.of.environmental.responsibility..A.positive.reputation,.based.on.sound.credentials,.can.be.both.an.important.means.of.differentiation.as.well.as.a.method.to.enhance.competitive.advantage..However,.with.raised.expectations.comes.increased.scrutiny.of.performance...

Distinctive capabilitiesTrack.external.developments:.Monitor.changes.in.the.political,.economic,.social.and.technological.arenas.and.assess.those.developments.on.a.regular.basis.to.determine.whether.action.is.necessary.in.light.of.their.implications..Step-changes.

in.the.environmental.agenda.will.occur.only.through.a.confluence.of.political,.economic,.social.and.technological.factors..For.example,.the.potential.of.a.technological.development,.such.as.plug-in.electric.cars.or.hydrogen.fuels,.may.only.be.fully.realized.once.regulatory.support.(in.the.form.of.incentives).makes.widespread.take-up.economically.attractive.to.consumers..Until.all.of.those.factors.align,.change.will.most.likely.be.incremental.at.best..As.part.of.this,.businesses.should.generate.scenarios.around.what.core.operations.and.relations.with.consumers.look.like.in.a.future,.“carbon-constrained”.world..This.can.help.identify.implications.that.might.not.yet.have.been.identified.(see.panel.overleaf,.“Scenario.�0�0”)..

Optimize.supply.chains:.Ensuring.that.a.supply.chain.is.as.efficient.and.environment-friendly.as.possible—perhaps.the.next.frontier.of.managing.climate.change.impacts—offers.the.potential.for.significant.returns..At.the.same.time,.it.requires.concerted.effort.within.a.company’s.own.operations.but.principally.across.the.activities.of.other.companies.operating.in.the.supply.chain..For.example,.an.internal.survey.conducted.at.a.major.UK.newspaper.publisher.found.that.80.percent.of.its.carbon.footprint.was.added.by.processes.and.raw.materials.used.by.other.companies.in.the.supply.chain..This.shows.the.potential.value.to.be.gained.from.a.collaborative.supply.chain.approach.�0..

Deploy.smart.technologies:.Investments.in.new,.more.environmentally-conscious.technologies.such.as.green.data.centers.(which.use.less.energy).are.increasingly.a.source.of.cost.reduction.as.well.as.competitive.advantage..These.technologies.offer.the.promise.of.both.enhanced.reputation.and.more.efficient.delivery.of.services..In.the.utilities.sector,.for.example,.smart.meters.can.provide.real-time.information.to.domestic.consumers.about.the.cost.of.their.energy.use.and.about.areas.of.wastage..This.

Achieving high performance in an era of climate change requires businesses to take a holistic approach that spans the breadth of their value chain as well as the depth of their operating models. Managing the impacts of climate change is as much about effective strategy and culture change as it is about implementing supporting systems and processes. If companies can effectively integrate strategy, people, processes and technology in the pursuit of initiatives that respond to climate change, the result can be a powerful tool of long-term value creation.

It.is.the.year.�0�0..The.past.decade.has.seen.the.introduction.of.a.set.of.trends,.ideas.and.actions.in.relation.to.climate.change.that.have.coalesced.to.form.a.very.different.context.for.business.from.that.of.�008..What.does.this.world.look.like.and.what.are.businesses.and.policymakers.doing.differently.to.achieve.high.performance.in.this.altered.landscape?

The.first.thing.that.is.noticeable.is.that.businesses.rarely.talk.any.longer.about.specific.“environmental”.or.“green”.initiatives..In.very.much.the.same.way.that.eCommerce.ceased.to.exist.as.a.discrete.concept.once.it.became.an.everyday.part.of.business,.carbon.strategies.are.now.typically.infused.across.the.entire.organization,.from.manufacturing.and.research,.through.distribution.and.retail,.to.supply.chain.and.finance..Sustainability—encompassing.financial,.geopolitical.and.environment-related.risks.to.the.enterprise—is.the.name.of.the.game.and.is.now.seen.as.a.key.driver.of.high.performance..In.many.organizations.sustainability.is.now.a.central.tenet.underpinning.HR.training.and.processes,.as.well.as.organizational.culture.and.values..Of.course,.not.every.business.has.embraced.such.thinking.or.been.quick.enough.to.respond..Indeed,.those.that.failed.to.respond.to.the.changing.global.environment.in.a.timely.manner.are.typically.struggling.to.recover.lost.ground.

Such.a.shift.did.not.occur.by.accident,.but.through.a.combination.of.regulation,.stakeholder.preferences,.and.business.action..Businesses.have.continued.to.do.what.they.have.always.sought.to.do—maximize.shareholder.value—but.that.goal.is.now.contextualized.within.a.new.set.of.regulatory.constraints.and.stakeholder.concerns..Government.policies.and.regulations.have.been.instrumental.in.providing.the.initial.impulse.to.action..Some.

legislation.occasionally.encountered.stiff.business.resistance,.but.other.regulatory.measures.were.often.introduced.at.the.behest.of.coalitions.of.business.interests.concerned.that.continuing.regulatory.uncertainty.would.act.as.a.barrier.to.increased.investment.and.innovation..

From.�008.onwards.the.regulatory.framework.regarding.climate.change.increasingly.began.to.take.shape,.framed.by.national.preferences.and.economic.models..Some.countries.favored.direct.intervention.in.markets,.such.as.standard-setting.and.controls.on.emissions..Others.opted.for.more.market-based.mechanisms.such.as.taxes.and.subsidies.to.shift.consumption.to.less.carbon-intensive.activities.and.to.stimulate.innovation..Businesses.operating.across.borders.had.to.become.increasingly.adept.at.navigating.a.maze.of.different.regulatory.regimes,.though.there.was.some.limited.convergence.of.cross-border.regulations.under.pressure.from.businesses.wanting.a.level.playing.field.for.international.competition..

Hybrid.mechanisms.such.as.carbon.cap-and-trade.schemes.have.become.increasingly.common,.with.carbon.allocations.progressively.tightened.over.time.to.meet.international.emissions.targets.and.to.encourage.carbon-efficient.production.via.a.progressively.higher.price.of.carbon..Initially.established.on.a.local,.national.or.(as.in.the.European.Union).regional.basis,.these.schemes.have.grown.in.scope.and.scale..Today,.in.�0�0,.they.are.gradually.meshing.together.into.larger.regional.and.even.international.systems..This.development.has.yielded.a.significant.improvement.in.the.liquidity.of.carbon.emission.markets,.as.well.as.a.variety.of.secondary.markets.in.carbon-related.derivatives.and.options.to.help.businesses.hedge.and.manage.climate-change-related.risks.

Businesses.have.responded.in.a.variety.of.ways.to.the.new.competitive.context.wrought.by.regulation.and.changing.stakeholder.preferences.surrounding.climate.change..Some.businesses.have.limited.their.efforts.to.compliance.strategies,.working.to.anticipate.changes.in.the.regulatory.landscape.and.mitigate.future.risks.through.options.and.hedging.mechanisms..Others.have.gone.further,.harnessing.the.new.context.as.a.force.for.innovation.within.their.businesses—new.product.adaptations.and.business.models,.for.example..A.much.smaller.number.have.assumed.a.leadership.position.as.flagship.sustainable.businesses,.moving.beyond.compliance.and.innovation.to.reshape.the.competitive.context,.often.entering.adjacent.markets.or.creating.entirely.new.ones..The.actions.of.these.leading.companies.have.influenced.the.nature.of.regulation..At.the.same.time,.regulation.has.become.less.relevant.to.them,.because.the.market.increasingly.provides.technological.and.commercial.solutions.to.the.constraints.imposed.by.a.carbon-conscious.world..

In.fact,.technology.now.underpins.many.of.the.mechanisms.and.services.that.have.been.designed.to.reduce.emissions.or.manage.carbon-related.activities.more.efficiently..City.planners.now.talk.about.the.“smart.municipality,”.where.information.technology.and.advanced.urban.planning.techniques.are.combined.to.ensure.the.optimum.flows.of.energy.and.traffic.within.the.city.area..In.the.electricity.industry,.innovations.such.as.smart.metering.and.micro.combined-heat-and-power—which.allows.households.and.small.businesses.to.generate.electricity.as.a.byproduct.of.heating.and.then.sell.their.surplus.power.to.the.grid—are.now.commonplace..Information.technology.is.also.reducing.the.carbon.impact.of.automobile.traffic.through.traffic.management.systems.within.larger.metropolitan.areas..

Scenario 2020: One vision of a carbon-conscious future

3�

33

technology.can.help.to.reduce.overall.energy.consumption.as.well.as.provide.a.significant.business.opportunity.to.appropriately-incentivized.service.providers..

Performance anatomyEnsure.senior-level.ownership:.Setting.the.agenda.from.the.top.is.important.if.businesses.are.to.manage.the.impact.of.climate.change.in.a.coherent.and.proactive.way..Environmentally.based.initiatives.need.to.receive.senior-level.sponsorship.as.well.as.visible.signs.of.support.and.regular.communications.on.progress.

Drive.human.performance:.Companies.that.will.be.most.effective.in.achieving.high.performance.in.an.era.of.climate.change.will.be.those.that.distribute.environmental.responsibility.and.decision-making.throughout.their.organizations,.down.to.the.lowest.appropriate.level.but.guided.by.strong.leadership..Managing.the.performance.of.people.effectively.in.light.of.climate.change.will.require.companies.to.refine.their.employee.performance.measures.to.reward.activities.and.innovations.that.promote.the.organization’s.environmental.agenda.and.credentials.

Create.a.culture.of.carbon.consciousness:.Managing.the.business.impacts.of.climate.change.in.the.pursuit.of.high.performance.requires.companies.to.adopt.more.effective.collective.thinking..Ensuring.that.the.appropriate.organizational.mindsets.are.held.by.all.employees.will.support.the.more.operational.responses.that.businesses.need.to.take.and.will.help.them.make.more.informed.decisions.on.future.options..While.variations.among.industries.may.exist,.the.mindsets.needed.to.achieve.high.performance.in.an.era.of.climate.change.can.broadly.be.summarized.as.follows:

•.Carbon.impacts.are.not.an.overhead—they.need.to.be.factored.into.every.stage.of.the.value.chain,.just.as.any.other.type.of.expenditure.would.be..

Only.then.will.an.attentiveness.to.climate.change.become.a.routine.facet.of.everyday.business..

•.The.customer.is.always.right..An.executive’s.opinion.about.the.science.of.climate.change.is.secondary.to.consumer.perceptions.and.governmental.action..If.the.perceived.impacts.of.climate.change.are.important.to.governments.and.consumers,.they.should.be.important.to.a.business..

•.Employees.should.be.empowered..Environmental.stewardship.is.an.increasingly.powerful.motivator.behind.recruitment.decisions.and.subsequent.employee.performance..High.levels.of.engagement.among.employees.regarding.environmental.issues.should.be.harnessed,.so.that.climate.change.issues.become.an.integral.way.of.doing.business,.rather.than.a.corporate.overhead.undertaken.by.a.discrete.element.within.the.organization..

•.Higher.stretch.goals.should.be.set..Businesses.are.already.falling.into.the.trap.of.under-appreciating.the.business.opportunities.presented.by.climate.change..Undertaking.more.forward-looking.and.wide-ranging.innovations.could.help.businesses.examine.a.broader.range.of.strategic.opportunities.open.to.them..

The.journey.toward.high.performance.in.an.era.of.climate.change.is.unlikely.to.be.straightforward..Shifting.regulation,.changing.consumer.behaviors.and.new.technologies.are.just.some.of.the.factors.that.are.changing.the.environment.in.which.businesses.are.operating..Being.able.to.track.and.preempt.these.developments.will.give.businesses.significant.competitive.advantage..

Businesses.need.to.be.proactive.in.developing.the.capabilities.needed.to.succeed.in.an.era.of.climate.change..If.they.can.develop.the.right.cultural.mindsets—strengthened.by.organizational.processes.and.approaches—they.will.be.well.placed.to.achieve.high.performance.in.the.carbon-constrained.world.of.the.future.

Appendix— Country Stories

34

35

China

Summary:.Mindful.of.not.slowing.economic.growth.and.looking.to.the.government.to.take.a.lead.in.combating.climate.change.

Emerging.economies.have.experienced.substantial.economic.growth.fueled.by.overall.growth.in.energy.consumption,.and.China.is.no.exception..China’s.huge.economy.and.large.manufacturing.sector.mean.that.heavy.use.of.fossil.fuels.will.continue..Currently,.for.example,.a.new.coal-fired.power.station.opens.in.China.every.10.days.�1.However,.there.are.now.serious.efforts.around.the.country.to.promote.and.expand.renewable.energy..For.example,.Beijing.now.has.one.of.the.largest.fleets.of.compressed.natural.gas.(CNG).buses.in.the.world,.with.more.than.�,000.CNG.engines.��.At.the.Asia-Pacific.Economic.Cooperation.summit.in.September.�007,.China.increased.its.international.visibility.in.the.climate.change.arena.as.leaders.signed.an.agreement.on.tackling.climate.change,.though.without.binding.commitments.�3.

The.Chinese.business.leaders.interviewed.in.our.survey.generally.did.not.cite.climate.change.as.a.top.strategic.priority,.with.only.�.percent.placing.it.among.their.top.three..Sixty-six.percent.of.those.surveyed.are.currently.taking.no.action.in.response.to.climate.change.(see.Figure.�0),.and.70.percent.have.no.plans.to.do.so.within.the.next.five.years...

Nearly.half.of.Chinese.businesses.are.struggling.to.understand.the.implications.of.climate.change.and.are.therefore.looking.to.the.government.to.shape.and.formulate.any.response.in.the.short-.and.medium-term..The.majority.of.businesses.prefer.a.government-led.approach.to.regulation.(see.Figure.�1),.and.the.general.feeling.among.those.surveyed.is.that.the.most.positive.approach.to.climate.change.will.be.either.

wholly.or.partially.government-driven..In.this.vein,.66.percent.believe.that.implementation.of.a.green.tax.is.likely,.and.84.percent.believe.that.government-funded.incentives.to.use.renewable.energy.or.low.carbon.energy.are.likely.

It.is.here.that.China.has.the.potential.to.leapfrog.other.countries.in.alternative.solutions..Indeed,.it.has.already.made.significant.steps.in.becoming.one.of.the.world’s.leading.users.of.solar.energy,.particularly.in.water.heating..Cities.such.as.Rizhao.in.Shandong.province,.where.about.99.percent.

of.city-center.residents.use.solar.energy.for.water.heating,.provide.a.model.of.urban.development.that.can.be.rolled.out.across.China,.supported.by.the.government..In.�005,.the.use.of.solar.hot.water.in.China.exceeded.that.of.the.rest.of.the.world.combined.and.led.to.a.small.offset.of.carbon.emissions.�4

Figure 20: Businesses with no current climate change initiatives underway (%)

0 10 20 30 40 50 60 70

China

India

US

Germany

Japan

UK

All

Figure 21: Businesses preferring a government-led approach to regulation (%)

0 10 20 30 40 50 60

China

India

US

Germany

Japan

UK

All

36

Germany

Summary:.Confident.of.its.lead.in.response.to.climate.change.and.focused.on.aggressive.emissions.targets..

Holder.of.the.European.Union.presidency.in.the.first.half.of.�007.and.the.G8.Summit.presidency.throughout.�007,.Germany.has.been.well.placed.to.set.the.international.agenda.on.climate.change..Chancellor.Angela.Merkel’s.tough.stance.on.energy.security.and.climate.change.as.the.top.two.priorities.for.Germany’s.EU.presidency.stems.from.a.position.of.strength:.Germany.is.well.on.the.way.to.achieving.the.proposed.EU.target.of.�0.percent.of.primary.energy.coming.from.renewable.sources.by.�0�0.

The.actions.of.German.businesses.seem.to.mirror.their.government’s.environmental.message:.6.percent.cited.climate.change.as.their.top.strategic.priority,.17.percent.listed.it.in.their.top.three,.and.a.majority.see.it.as.continuing.to.be.a.major.issue.over.the.next.five.years..Across.a.range.of.survey.findings,.German.businesses.seem.to.demonstrate.a.certain.confidence.that.they.are.well.ahead.of.their.international.counterparts.in.this.area.

This.confidence.is.well.founded,.with.a.number.of.notable.successes..In.�00�,.three.years.ahead.of.schedule,.DB.(German.Railways).achieved.its.aim.of.reducing.energy.consumption.to.one-quarter.of.1990.levels.and.has.already.set.aggressive.new.targets.of.a.further.15.to.�0.percent.reduction.by.�0�0.�5.This.focus.on.efficiency.is.supported.by.our.survey.findings,.which.showed.that.61.percent.of.companies.are.currently.undertaking.initiatives.in.technologies.to.improve.energy.efficiency.

German.progress.in.creating.new.technologies.that.capitalize.on.climate.change.is.supported.by.generous.government.funding..The.

Federal.Research.Ministry.intends.to.intensify.research.activities.that.focus.on.new.technologies.and.manufacturing.opportunities.arising.from.climate.change.by.providing.€�34.million.(US$345.million).over.the.next.10.years.�6.This.emphasis.is.already.reaping.rewards:.a.third.of.all.solar.cells.and.almost.half.of.all.wind.turbines.in.the.world.are.produced.in.Germany.�7.Our.survey.respondents.identified.developing.new.energy.saving/renewable.products.and.the.development.of.new.technologies.as.the.future.top.business.opportunities.presented.by.climate.change..

While.it.is.clear.that.the.German.government.is.a.keen.advocate.of.action.on.climate.change,.German.businesses.actually.cited.shareholders.as.the.most.influential.stakeholder.in.their.response.to.climate.change.(see.Figure.��)..Businesses.are.also.looking.elsewhere.for.inspiration,.with.a.high.proportion.(78.percent).currently.working.with.one.or.more.external.organizations.to.address.the.issue.(see.Figure.�3).

All

China

India

US

Germany

Japan

UK

0 10 20 30 40 50 60 70

Figure 22: Businesses citing shareholders as influential in the corporate response to climate change (%)

0 5 10 15 20 25 30 35 40 45 50

None

Other

NGOs/ environmental groups

research institutions/academia

Consultants

Suppliers

Government

Industry bodies

Germany Survey average

Figure 23: German businesses working with external partners on climate change (%)

37

India

Summary:.Interested.in.the.potential.of.new.technologies.and.adopting.a.tough.international.stance.on.climate.change.

Like.China,.India.faces.considerable.pressure.on.environmental.issues.due.to.rapid.industrialization,.urbanization,.and.economic.development..With.its.large.and.growing.population,.the.economy.is.closely.tied.to.its.natural-resource.base..

The.Indian.government.has.begun.to.take.action..India.already.has.one.of.the.world’s.largest.renewable.energy.programs,.with.approximately.6.percent.of.its.electricity.transmission.grid.capacity.based.on.renewables—compared.with.less.than.1.percent.in.China.and.around.�.percent.in.the.United.States.�8.But.with.the.average.Indian.citizen.producing.one-tenth.of.the.carbon.emissions.of.the.average.European.and.one-twentieth.of.the.average.American,�9.and.with.roughly.one.quarter.of.India’s.population.living.below.the.poverty.line,.seeking.a.balance.between.economic.growth.and.energy.use.will.not.be.easy.30.

Among.the.businesses.surveyed,.only.4.percent.mentioned.climate.change.as.their.top.strategic.priority,.and.just.1�.percent.mentioned.it.at.all..However,.70.percent.foresee.that.climate.change.will.be.a.major.issue.for.their.business.in.the.next.five.years..

India.is.certainly.interested.in.the.new.technologies.that.may.be.developed.in.response.to.climate.change.and.in.gaining.competitive.finance.for.clean.technologies.through.the.world.trading.system.in.carbon.emissions..This.market.is.worth.approximately.US$�.billion.annually.in.the.developing. Survey averageIndia

0

10

20

30

40

50

60

70

80

Major issue now Major issue in next five years

Top three strategic priority

Figure 24: Businesses advocating new technology as a key to dealing with climate change (%)

China

India

US

Germany

Japan

UK

All

0 10 20 30 40 50 60 70 80 90

Figure 25: Indian businesses viewing climate change as a major issue now; in five years; a top three strategic priority (%)

world.31.Seventy-two.percent.of.our.survey.respondents.in.India.are.keen.on.technologies.to.improve.energy.efficiency.and.8�.percent.said.they.believe.that.new.technologies.provide.the.key.to.dealing.with.climate.change.(see.Figure.�4)..Accordingly,.more.than.half.said.that.climate.change.would.offer.them.many.new.business.opportunities..

India.is.perhaps.uniquely.vulnerable.among.the.rapidly.industrializing.nations.to.the.impact.of.possible.changing.weather.patterns.(food.security,.flooding.and.rising.sea.levels,.increased.breeding.grounds.for.malarial.mosquitoes)..Awareness.of.climate.change.issues.is.therefore.critical,.and.it.is.a.message.that.business.seems.to.be.heeding.(see.Figure.�5)..

38

Japan

Summary:.Already.highly.energy-efficient.and.confident.in.the.new.technologies.associated.with.combating.climate.change.

Over.the.last.two.decades.Japan.has.positioned.itself.as.one.of.the.leading.nations.in.tackling.climate.change..Despite.its.high.global.ranking.in.terms.of.total.energy.consumption.and.its.well-publicized.struggle.to.meet.its.Kyoto.emissions.reduction.targets,.Japan.has.a.low.per-capita.energy.consumption.level.and.is.one.of.the.least.energy-intensive.countries.in.the.developed.world.3�.Emissions.in.Japan.are.expected.to.increase.only.by.0.1.percent.per.year.from.�004.to.�030,.reflecting.the.overall.maturity.of.Japan’s.energy.infrastructure.33.This.energy.efficiency.is.due.largely.to.government-mandated.energy-savings.initiatives.and.strong.environmental.policies.encouraging.the.adoption.of.new,.efficient.technologies.

This.strong.governmental.role.is.reflected.in.the.fact.that.about.a.third.of.businesses.cited.government.as.the.prime.influence.on.their.response.to.climate.change.(see.Figure.�6)..This.influence.has.evidently.been.real:.95.percent.of.all.Japanese.businesses.surveyed.had.at.least.one.climate.change.initiative.in.place—the.highest.proportion.of.any.country.represented.in.our.study..Almost.half.have.taken.steps.to.measure.or.reduce.their.carbon.footprint,.and.more.than.one-third.are.involved.in.carbon.offsetting...

The.combined.strength.of.businesses.and.government.has.also.been.witnessed.in.the.Japanese.Voluntary.Emissions.Trading.Scheme.(JVETS),.which.was.established.in.May.�005.and.now.has.89.participants.34.By.subsidizing.the.cost.of.reduction,.this.voluntary.scheme.provides.economic.incentives.to.companies.that.achieve.self-determined.emission.reduction.targets...

Innovation.and.technology.are.themes.that.run.through.Japanese.business.

Figure 26: Businesses that consider government to be the prime influence on their response to climate change (%)

China

India

US

Germany

Japan

UK

0 10 20 30 40 50 60

All

Figure 27: Businesses seeing new commercial opportunities from climate change and identifying themselves as innovators (%)

China

India

US

Germany

Japan

UK

Identify themselves as innovators See new business opportunities

0 10 20 30 40 50 60

All

culture,.and.its.responses.to.climate.change.prove.no.exception..Forty-one.percent.of.Japanese.businesses.consider.themselves.to.be.innovators.compared.with.their.peers.and.39.percent.think.that.climate.change.will.open.up.many.new.opportunities.(see.Figure.�7)..Eighty-one.percent.think.new.technologies.provide.the.key.to.dealing.with.climate.change..This.sense.of.forward-looking.innovation.has.already.helped.Japan.position.itself.as.one.of.the.world’s.preeminent.exporters.of.new.technology,.with.its.automotive.industry.taking.the.lead.in.developing.hybrid.and.alternative-energy-powered.cars.

Looking.to.the.future,.Japan.has.announced.the.“Invitation.to.Cool.Earth.50”.initiative,.which.proposes.a.global.target.of.cutting.emissions.by.half.from.�007.levels.by.�050.35.Climate.change.will.be.high.on.the.agenda.of.the.G8.summit.in.�008,.which.Japan.will.host..Being.prepared.to.tackle.climate.change.is.critical.to.Japan,.owing.partly.to.its.vulnerability.to.changing.weather.patterns.and.partly.to.the.business.opportunities.that.climate.change.might.present.

39

United Kingdom

Summary:.Confident.it.is.ahead.of.the.curve.on.climate.change.but.still.seeking.greater.clarity.and.direction.on.future.regulation.

Climate.change.is.high.on.the.agenda.for.all.political.parties.in.the.United.Kingdom..Tough.targets.have.been.proposed—60.percent.reduction.in.emissions.from.1990.levels.by.�050—and.a.strong.leadership.role.on.climate.change.within.the.European.Union.has.been.established..Businesses.in.the.United.Kingdom.have,.for.the.most.part,.backed.this.position,.seeming.to.agree.that.“investment.in.preventing.[climate.change].now.will.pay.us.back.many.times”.(Tony.Blair,.former.UK.prime.minister,.�007).36.

As.shown.in.Figure.�8,.more.than.one-quarter.of.all.UK.businesses.consider.climate.change.to.be.a.top-three.strategic.priority—far.higher.than.any.other.market—and.80.percent.believe.it.will.be.a.major.issue.for.their.businesses.within.the.next.five.years..A.very.low.proportion.consider.climate.change.to.be.over-hyped,.and.85.percent.feel.they.have.a.responsibility.to.help.tackle.its.implications..A.clear.picture.is.building.of.UK.businesses.being.concerned.with.the.issue,.and.our.survey.suggests.that.they.are.taking.an.active.approach..Almost.nine.out.of.10.businesses.have.some.climate-change-related.initiative.in.place,.with.more.than.half.having.taken.steps.to.measure.or.reduce.their.carbon.footprint..UK.businesses.see.themselves.as.ahead.of.the.curve,.with.45.percent.considering.themselves.to.be.innovators.in.this.field.

Driving.these.businesses.to.act.are.government.(mentioned.by.53.percent.of.respondents),.consumers.(39.percent),.shareholders.(36.percent).and.employees.(3�.percent)..Businesses.are.looking.to.the.government.to.provide.a.clear.long-term.regulatory.framework.within.which.to.develop.policy.and.

Figure 28: Businesses that view climate change as a strategic priority (%)

First strategic Priority Second or third strategic priority

All

China

India

US

Germany

Japan

UK

0 5 10 15 20 25 30

Figure 29: Respondents agreeing with the statement: “Businesses struggling to understand the implications of climate change” (%)

China

India

US

Germany

Japan

UK

All

0 10 20 30 40 50 60 70 80 90

implement.initiatives.to.tackle.the.implications.of.climate.change..The.UK’s.Corporate.Leaders.Group.on.Climate.Change.believes.that.“there.is.an.urgent.need.to.develop.new.and.longer-term.policies.for.tackling.climate.change.”37

However,.the.picture.is.not.entirely.positive..UK.businesses.see.a.number.of.challenges.ahead,.with.“changing.internal.behaviors”.the.most.frequently.cited..Businesses.do.not.fully.understand.all.of.the.implications.of.climate.change.(see.Figure.�9),.with.only.14.percent.feeling.they.had.a.clear.view.on.this..

UK.businesses.are.keen.to.act.and.committed.to.working.with.their.customers.and.the.government..At.the.moment,.though,.they.do.not.have.the.clarity.they.need.to.make.big.investment.decisions..

40

United States

Summary:.Building.up.a.critical.mass.of.state.legislation.and.increasingly.active.in.addressing.climate.change.

Individual.US.states.have,.to.date,.been.foremost.in.driving.innovative.responses.to.climate.change..California,.Florida.and.a.corridor.of.northeastern.states.in.particular.have.been.in.the.vanguard..The.key.issue.for.the.United.States.is.whether.this.groundswell.of.state-led.initiatives.will.gather.enough.strength.to.tip.the.balance.toward.establishing.a.federal.framework..

In.January.�007.the.Edison.Electric.Institute.(the.US.trade.association.for.shareholder-owned.electricity.companies).called.for.regulation.on.carbon.emissions—although.stopped.short.of.asking.for.them.to.be.made.mandatory.38.At.the.same.time,.10.blue-chip.companies,.in.cooperation.with.four.leading.NGOs,.formed.the.United.States.Climate.Change.Action.Partnership.and.called.for.“strong”.federal.action.to.combat.climate.change.39.In.looking.for.this.clear.direction,.US.businesses.hope.to.see.a.collaborative.approach.between.industry.and.government;.6�.percent.of.US.respondents.said.they.wanted.to.see.a.balance.between.market-.and.government-driven.approaches..

The.appetite.for.clear.government.direction.is.almost.certainly.a.response.to.business.concerns.about.different.approaches.developing.across.the.United.States,.which.are.much.harder.to.manage.than.a.nationwide.system..Thirty-three.percent.of.those.surveyed.said.that.coping.with.new.regulation.was.the.greatest.challenge.posed.by.climate.change.(see.Figure.30).

US.businesses.feel.a.strong.sense.of.responsibility.to.help.manage.the.impact.of.climate.change.(see.Figure.31).and.in.many.areas.their.outlook.is.positive..Seventy-eight.percent.of.US.respondents.thought.that.incentives.

(financial.or.non-financial).to.use.renewable.energy.were.more.likely.than.taxation..Furthermore,.US.businesses.have.not.been.slow.to.recognize.the.potential.for.increased.energy.efficiency.through.new.technologies:.Sixty-seven.percent.of.respondents.were.taking.up.new.technologies.to.improve.energy.efficiency.and.6�.percent.said.they.believed.that.new.technologies.provide.the.key.to.dealing.with.climate.change.

Figure 30: Businesses that view “coping with new regulations” to be a significant challenge in responding to climate change (%)

Most important challenge Second most important challenge

China

India

US

Germany

Japan

UK

All

0 5 10 15 20 25 30 35 40 45 50

Figure 31: US businesses agreeing with the statement: “My business has a responsibility to help manage the impact of climate change” (%)

Agree

59%21%

20%

Disagree

Neither agree nor disagree

All China Germany India Japan UK US

Awareness & concernWhat.are.the.top.three.strategic.priorities.for.your.business.out.of.the.following.list?.(%).War.for.Talent. 39 68 �0 �6 74 14 35

Increasing.the.level.of.capital.allocation 9 1� 4 6 7 10 1�

Developing.new.products.and.services. 45 4� 47 60 47 39 43

Growth.in.emerging.markets. �9 44 38 4� 15 34 15

Climate.Change. 16 � 17 1� 13 �6 18

Innovation �8 34 38 3� 14 �4 �8

Technology 18 �8 �0 30 9 8 �4

Sales.growth. 47 �6 48 46 46 55 47

Cost.reduction 46 34 53 40 6� 37 41

Regulation. 13 10 6 6 11 16 �4

Do.you.agree/disagree.that.climate.change.is.currently.a.major.issue.for.your.business?.(%)Strongly.agree 19 � 17 �6 17 �5 ��

Agree �6 �� �� �8 33 35 17

Neither.agree.nor.disagree �8 �0 33 �4 30 �8 �5

Disagree 18 48 18 14 13 10 16

Strongly.disagree 9 8 11 6 6 � 19

Do.you.agree/disagree.that.climate.change.will.become.a.major.issue.for.your.business.in.the.next.five.years?.(%).Strongly.agree �3 4 18 3� 18 34 �5

Agree. 36 16 36 38 37 46 37

Neither.agree.nor.disagree 18 �� �5 16 �3 11 16

Disagree 14 50 10 8 15 7 8

Strongly.disagree 7 8 8 4 6 � 14

Action & initiativesWhat.initiatives.are.currently.undertaken.by.the.company.relating.to.climate.change?.(%)New.products.and.services �4 6 5 64 11 30 41

Consumer.information. 19 � �� 44 � �5 �8

Supply.chain.reconfiguration. 17 � 13 30 8 �8 �5

Technologies.to.improve.energy.efficiency. 53 4 61 7� 50 51 67

Increasing.the.use.of.renewable.energy.sources. 3� � 4� 3� �� 33 47

Measuring.and/or.reducing.your.CO�.footprint. 39 6 36 36 47 55 36

Internal.policy.formulation. �8 0 �8 48 11 34 46

Carbon.offset.strategy. �9 6 30 40 34 �1 36

Employee.training/.communications.strategy. �7 � 3� 66 9 33 �8Other.initiatives. 10 16 7 0 3 �1 10

Statistical Appendix

41

All China Germany India Japan UK US

DriversWhat.is.the.most.significant.challenge.facing.your.business.in.response.to.climate.change?.(%)Changing.internal.behaviors. �4 �4 14 3� �3 4� 17

Re-engineering.internal..business.processes.and.systems 9 16 7 18 7 6 6Introducing.new.technologies �5 30 41 3� 19 17 17

Updating.performance.metrics 4 4 � � 5 0 10

Coping.with.new.regulations �0 4 17 10 31 15 33

Managing.stakeholder.expectations..(e.g.,.consumers,.shareholders.etc.) 15 16 18 6 15 15 15Others 1 0 � 0 0 1 0

Which.of.your.stakeholders.are.influential.in.terms.of.your.company’s.response.to.climate.change?.(total.mentions)Shareholders. 36 36 60 �� �0 36 30

Employees �� � 13 �0 30 3� �5

Suppliers 9 8 4 8 18 10 5

Consumers 41 �8 35 50 4� 39 44

National.government 47 56 44 58 51 47 41

Local.government 18 36 7 �4 �1 6 �6

Media 4 1� 5 � 3 � �

NGOs � 0 � � 3 3 �

Members.of.the.public.at.large. 13 6 �4 1� 8 7 15

Advocacy.groups 3 � 3 � � 0 8

Other.(please.specify). 3 10 � 0 � 9 1

Regulatory environmentHow.likely.is.it.that.tax.on.high-energy.products.and.services.will.be.implemented.in.your.country?.(%)Very.likely �0 30 36 14 5 �6 13

Likely 34 36 �7 34 50 30 �4

Neither.likely.nor.unlikely �1 �0 18 �6 �� 14 �9

Not.likely 14 10 9 16 18 11 �0

Not.at.all.likely 6 4 4 10 5 � 1�

Already.in.existence 5 0 6 0 0 15 1

How.likely.is.it.that.incentives.to.use.renewable.energy/low.carbon.technology.will.be.implemented.in..your.country?.(%).Very.likely 3� 46 �5 34 34 �5 38

Likely 4� 38 36 44 55 35 40

Neither.likely.nor.unlikely 1� 4 19 1� 4 �0 11

Not.likely 5 � 6 4 � 11 4

Not.at.all.likely 1 0 � 4 1 � 0

Already.in.existence 7 10 13 � 4 6 7

4�

All China Germany India Japan UK US

How.likely.is.it.that.consumer.information.schemes.will.be.implemented.in.your.country?.(%).Very.likely �5 �4 �8 �� �� �5 �6

Likely 33 3� �0 46 41 �7 38

Neither.likely.nor.unlikely �� �0 �4 16 �5 �4 �0

Not.likely 9 10 17 4 5 9 9

Not.at.all.likely 3 � 5 4 � � 3

Already.in.existence 7 1� 7 8 5 11 3

How.likely.is.it.that.cap-and-trade.schemes.will.be.implemented.in.your.country?.(%)Very.likely 19 �8 15 �8 17 17 17

Likely �7 50 �� 1� 30 �5 �9

Neither.likely.nor.unlikely �� 4 18 �6 31 �0 �8

Not.likely 13 10 11 18 10 17 16

Not.at.all.likely 5 � 6 10 5 0 7

Already.in.existence 13 6 �9 6 7 19 3

How.likely.is.it.that.targets.to.reduce.carbon.emissions/carbon.content.will.be.implemented.in.your.country?.(%)Very.likely �6 �8 19 �8 30 33 ��

Likely 39 5� �9 4� 4� 31 4�

Neither.likely.nor.unlikely 17 14 �6 16 8 18 19

Not.likely 7 � 1� 8 5 3 8

Not.at.all.likely � � 3 4 0 0 5

Already.in.existence 9 � 11 � 15 15 3

GeneralTo.what.extent.do.you.agree.with.the.statement:.Climate.change.will.revolutionize.my.industry.over.the.next..five.years.(%).Strongly.agree 6 0 4 � 3 14 7

Agree. 17 4 10 38 16 �5 10

Neither.agree.nor.disagree 30 16 �8 �6 38 �7 36

Disagree �5 48 �4 �4 �8 �4 14

Strongly.disagree �3 3� 34 10 15 10 33

To.what.extent.do.you.agree.with.the.statement:.Climate.change.will.increase.the.cost.of.doing.business.(%)Strongly.agree �0 6 �1 16 �� �5 �6

Agree 47 5� 50 64 56 3� 35

Neither.agree.nor.disagree 17 18 19 6 13 30 13

Disagree 1� �0 7 10 5 13 �0

Strongly.disagree 4 4 4 4 4 0 6

To.what.extent.do.you.agree.with.the.statement:.Climate.change.will.open.up.many.new.opportunities.for..my.business.(%)Strongly.agree 10 8 9 6 8 10 1�

Agree �9 38 �1 46 31 �3 �6

Neither.agree.nor.disagree �6 �0 30 18 �7 �8 �5

Disagree �� 30 �0 �4 �4 �6 16

Strongly.disagree 14 4 �1 6 10 13 �1

43

All China Germany India Japan UK US

To.what.extent.do.you.agree.with.the.statement:.My.business.is.well.positioned.to.deal.with.climate.change.(%)Strongly.agree 1� � 18 4 8 10 19

Agree 30 1� 4� 48 �� 30 19

Neither.agree.nor.disagree 31 �0 �8 34 3� 4� �9

Disagree 19 50 8 10 �9 14 �0

Strongly.disagree 8 16 4 4 9 4 13

To.what.extent.do.you.agree.with.the.statement:.Climate.Change.is.over-hyped.(%)Strongly.agree. 7 0 7 0 � 9 17

Agree. 13 �0 1� �� 11 5 18

Neither.agree.nor.disagree �0 �4 15 �0 30 16 17

Disagree 34 4� �5 48 4� 38 �0

Strongly.disagree �6 14 4� 10 15 30 �8

To.what.extent.do.you.agree.with.the.statement:.Business.is.failing.to.take.a.lead.on.climate.change.(%)Strongly.agree 6 8 3 � 10 6 8

Agree. 3� 54 19 40 37 �� 3�

Neither.agree.nor.disagree �8 10 33 �0 31 34 �7

Disagree �5 �4 �9 30 �0 31 �1

Strongly.disagree 8 4 16 8 � 5 11

To.what.extent.do.you.agree.with.the.statement:.New.technology.provides.the.key.to.dealing.with.climate.change.(%)Strongly.agree 19 4 30 16 �0 1� �0

Agree. 49 58 44 66 61 35 4�

Neither.agree.nor.disagree �� 18 16 1� 18 36 �8

Disagree 8 16 7 6 1 1� 8

Strongly.disagree � 4 3 0 0 5 �

To.what.extent.do.you.agree.with.the.statement:.Businesses.are.struggling.to.understand.the.implications.of..climate.change.(%)Strongly.agree 13 0 10 4 8 19 �6

Agree. 40 44 18 50 41 44 5�

Neither.agree.nor.disagree �4 �� �5 18 36 �4 11

Disagree 17 �8 34 �� 11 14 4

Strongly.disagree 6 6 14 6 4 0 7

To.what.extent.do.you.agree.with.the.statement:.My.business.has.a.responsibility.to.help.manage.the.impact.of..climate.change.(%)Strongly.agree �4 16 �0 8 �5 41 �7

Agree. 43 56 34 70 39 44 3�

Neither.agree.nor.disagree 19 1� �� 10 �6 14 �0

Disagree 9 8 19 10 8 0 10

Strongly.disagree 5 8 6 � � 1 11

44

45

References1. For.subsequent.industry.analyses,.

government.agencies.have.been.excluded.from.the.findings.to.reflect.better.the.business.response.to.climate.change.

�..The.Stern.Review.on.the.Economics.of.Climate.Change,.�006.

3..The.Economist,.“Green.Shoots,”.January.19,.�007.

4. Accenture.end-consumer.survey.on.climate.change,.�007..

5.. Ibid,.p.16..6..US.National.Marketing.Institute.

report,.�005.7..Ethical.Investment.Research.Services.

(EIRIS),.December.�005,.www.gaeia.co.uk.

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group.open.letter.to.Gordon.Brown,”.November.13,.�007,.p.17..

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1�..Corporate.Leaders.on.Climate.Change,.“Letter.to.President.Barroso,”.November.�7,.�006.

13.United.States.Climate.Action.Partnership.(USCAP),.“A.call.for.action,”.�007,.p.10.

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15.Green.Fiscal.Commission.website,.www.greenfiscalcommission.org.uk..

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17..Stern.Review,.op..cit.,.p.311.and.p.3�9..

18..Ministry.for.the.Environment,.New.Zealand,.“How.a.New.Zealand.Emissions.Trading.Scheme.will.work,”.September.�007;.International.Energy.Agency,.Climate.Change.Policy.Database;.Aftenposten,.“Norway.claims.tough.CO�.scheme,”.March.8,.�007.

19..Marks.&.Spencer.website,.www.marksandspencer.com..

�0.The.Carbon.Trust,.“Carbon.footprints.in.the.supply.chain:.the.next.step.for.business,”.November.�006,.p.15..

�1.International.Energy.Agency,.World.Energy.Outlook,.�007.

��.Ecoworld,.“Hydrogen.Power.in.China:.Will.Fuel.Cells.Ever.Be.Clean,.Cheap,.Efficient?,”.October.15,.�004.

�3..Environmental.News.Network,.“India.and.China.sign.deal.to.stabilize.greenhouse.gases,”.November.1�,.�007.

�4..New.Scientist,.“The.Sun.King,”.November.�007,.p..54;.Renewable.Energy.Policy.Network.for.the.�1st.Century,.Renewables.Global.Status.Report.�006.Update..

�5..Responding.to.Climate.Change.(RTCC),.Transport.and.climate.change,.International.Union.of.Railways.(UIC),.�007.

�6..German.Embassy.Washington.website,.“Merkel:.Joint.Action.Needed.to.Counteract.Climate.Change,”.April.10,.�007,.www.germany.info..

�7..German.Embassy.Canberra.website,.“Economy.News:.Green.Champions,”.March.�007,.www.germanembassy.org.au.

�8..SciDevNet,.“India’s.pragmatic.approach.to.climate.change,”.August.31,.�006.

�9..Centre.for.Social.Markets,.“Climate.Change—Why.India.needs.to.take.leadership,”.August.�007,.p.8.

30.Central.Intelligence.Agency.(CIA),.The.World.Factbook,.�007.

31..Guardian.Unlimited,.”Stern.tackles.climate.change.for.India,”.January.18,.�007.

3�..National.Council.for.Science.and.the.Environment,.Energy.Profile.of.Japan,.December.�006.

33..United.States.Energy.Information.Administration,.International.Energy.Outlook.�007,.May.�007...

34..Reuters,.“Factbox:.Carbon.trading.schemes.around.the.world,”.June.1,.�007;.Ministry.of.the.Environment,.Japan,.Presentation.on.Japan’s.Voluntary.Emission.Trading.Scheme.(JVETS),.January.17,.�007.

35..”Invitation.to.“Cool.Earth.50”.-.3.proposals,.3.principles,”.speech.by.prime.minister.Shinzo.Abe,.May.�4,.�007.

36..UK.prime.minister.Tony.Blair’s.comments.at.the.launch.of.the.Stern.Review,.October.�006.

37..Corporate.Leaders.Group.on.Climate.Change.website,.�007,..www.cpi.cam.ac.uk..

38..Edison.Electric.Group,.“Electric.perspectives,”.May/June.�00�..

39.United.States.Climate.Action.Partnership.website,.www.us-cap.org.

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Core Project TeamTim Cooper, Alice Pearl, Mark Purdy, Matthew Robinson and Livia von Roetteken.

Senior Executive SponsorMark Spelman

We.would.also.like.to.thank.the.following.individuals.for.their.contributions.to.this.study:..Lucy.Atkinson,.Jo.Brown,.Gib.Bulloch,.Kit.Burdess,.Jonathan.Burton,..Ladan.Davarzani,.Olivia.Donnelly,.Henry.Egan,.John.Glen,.Iain.Griffiths,.Donald.Hamilton,.Jill.Huntley,.Nijma.Khan,.Adetola.Kunle-Hassan,.Peter.Lacy,.Saskia.Merriman,.Sarah.Michell,.Lauren.Miller,.Craig.Mindrum,.Paul.Nunes,.Andrew.Pincott,.Jeffrey.Playford,.Evis.Sakaj,.Becky.Sternberg.and.Oscar.Vasco..

For.more.information.visit:.www.accenture.com/forwardthinking.or.contact.tim.e.cooper@accenture.com

To.find.out.more.about.how.Accenture.can.help.companies.develop.sustainability.strategies.that.enable.high.performance,.contact.bruno.berthon@accenture.com

Accenture Policy & Corporate Affairs

This.study.was.produced.by.Accenture.Policy.&.Corporate.Affairs..The.group.is.Accenture’s.macroeconomic.and.geopolitical.think.tank,.analyzing.key.trends.and.their.implications.for.business.leaders.and.policymakers..The.group.uses.a.combination.of.primary.and.secondary.research,.strategic.analysis,.scenario.planning.and.ongoing.dialogue.and.debate.with.senior.executives,.clients.and.outside.experts..The.views.and.opinions.expressed.in.this.publication.are.meant.to.stimulate.thought.and.discussion..These.ideas.should.not.be.viewed.as.professional.advice.

About Accenture

Accenture.is.a.global.management.consulting,.technology.services.and.outsourcing.company..Combining.unparalleled.experience,.comprehensive.capabilities.across.all.industries.and.business.functions,.and.extensive.research.on.the.world’s.most.successful.companies,.Accenture.collaborates.with.clients.to.help.them.become.high-performance.businesses.and.governments..With.more.than.175,000.people.in.49.countries,.the.company.generated.net.revenues.of.US$19.70.billion.for.the.fiscal.year.ended.August.31,.�007..Its.home.page.is.www.accenture.com..