The Business Case for Offset Inclusive Carbon Management

March 18, 2010
Corus' strategy of combining existing sustainable product elements with future product development in sustainability and investments in carbon offsets, has given it a competitive advantage.

As U.S. companies transition to a low carbon economy, carbon management represents a new and fundamental challenge for business. How companies respond to this challenge has fast become a strategic issue that can help build or destroy brands and reputations.

Carbon management presents both a challenge and an opportunity. When Corus, part of the global Tata Steel Group, stepped up to manufacture the world's first carbon neutral pre-finished steel building envelope and improve awareness of how it can provide a sustainable solution for roof and wall cladding systems, they were blazing a trail. What may have seemed a costly headache at first glance has provided a differentiated product that specifically helps to meet carbon reduction objectives across the building supply chain.

Even with a lack of clear international agreements and definitive U.S. federal regulations, the business drivers for taking action on emissions reduction are only strengthening. Many companies are realizing the reputational and commercial value of implementing offset inclusive carbon management programs as they represent:

  • The only way to reduce emissions that are unavoidable within a business
  • For many the only means to reach scientifically significant emission reduction targets
  • A cost-effective way to present an environmental credential to customers that will drive revenue and to stakeholders that will enhance corporate reputation
  • A cost benchmark against which to measure the efficiency of all internal reduction opportunities
  • A driver of behavioral change to adopt energy efficient working practices
  • A catalyst for capital expenditures that reduce emissions

Sustainability is a key strategic focus for TATA Steel, who has committed to a climate change strategy focused on reducing CO2 emissions by 20% from 1990 to 2020. This will be delivered by a combination of major investments and good housekeeping across sites to reduce energy consumption.

Corus also wanted to show that pre-finished steel can help build a sustainable world. The company launched their carbon management plan by first accurately calculating the greenhouse gas emissions produced over the life-cycle of their two main pre-finished steel products, Colorcoat Prisma and Colorcoat HPS200 UItra -- including manufacture, installation, use, re-use and end-of-life options for a number of customers cladding systems.

This carbon footprint was then reduced to net zero through the purchase of carbon offsets which meet global carbon offset standards and Confidex Sustain, the world's first CarbonNeutral building envelope, was introduced. The results for each cladding system were then published as an EPD (environmental product declaration) providing total transparency.

The strategy of combining existing sustainable product elements, such as steel's recyclability, with future product development in sustainability and investments in carbon offsets, has given Corus and its supply chain a real competitive advantage. Since they began manufacturing their product in 2007, the results have exceeded their expectations. Fifty-seven projects have been registered using their CarbonNeutral products which have reduced 26,850 tons of carbon from being emitted into the atmosphere.

As a result of its CarbonNeutral credentials, not only is Corus producing a sought-after product for construction, but its products have won numerous industry awards, including the Construction Industry Waste Management (CIWM) Award for Environmental Excellence in the category of Sustainable Product Development of the Year.

Drivers for Managing Carbon Emissions

The prevailing scientific and economic consensus is that an absolute reduction of 80% in global greenhouse gas emissions is required by the middle of this century to prevent material damage to the world's economy. This is at a time when global emissions are growing at their fastest rate ever. There is a massive gap between the "business as usual" global emissions growth path and the "stabilization" trajectory.

Most businesses face the same challenge: how to grow profitably while reducing emissions. To meet the stabilization trajectory, a company would need to average a ~ 4% absolute reduction year on year to 2050. The phrase "scientifically significant" is used to describe emission reductions that meet this stabilization requirement. A report by the Carbon Disclosure Projecti found the world's largest companies are on track for an annual reduction of just 1.9%, reaching the scientifically recommended level of greenhouse gas cuts by 2089 -- that would be 39 years too late.

Businesses and consumers are increasingly interested in low carbon brands, products and services. The environmental agenda is a key area where a company can differentiate its offerings -- a company that has a comprehensive, easy to communicate and transparent carbon management program stands apart from those that only pay lip service to the issue. As it is, the Federal Trade Commission is cracking down on "greenwashing" by large corporations and the SEC is calling for increased disclosure of business risks attributable to climate change. It is estimated that tackling emissions reduction could create opportunities for a company to increase its value by up to 80% if it is well positioned and proactive. Conversely, it could threaten up to 65% of value if the company is poorly positioned or lagging behind.

Executing an Offset Inclusive Carbon Management Strategy

Companies getting started in executing offset inclusive carbon management strategies: (1) measure baseline emissions (2) set scientifically significant reduction targets, (3) meet the targets most cost effectively and (4) communicate their activity to stakeholders. This means evaluating all internal carbon reduction projects against the cost of paying for a comparable reduction elsewhere and implementing those that can be efficiently accomplished.

The remainder of the target is met through external reductions which are commonly referred to as carbon offsets. In simple terms, businesses pay to outsource emissions reductions which are less costly than internal reductions or necessary to balance out unavoidable emissions from business activities. The decision is analogous to a decision to outsource a business process like accounts payable or payroll. Every business makes strategic decisions to make or buy, to in-source or outsource, and delivering emissions reductions is no different.

Engaging Stakeholders to Drive Down Costs

An offset commitment as part of a carbon management framework helps to drive out cost faster and deeper by placing a monetary value on the benefits of bottom-up initiatives that engage employees, suppliers and customers. Reductions in emissions from changing working practices, commuting habits and product choices result in quantifiable savings from less dependence on external reductions. In addition, an offset program can act as a 'good news' project to provide a positive focus for employees during a period of cost cutting.

Winning Business Through a Strong Carbon Position

Carbon neutrality is the most cost-effective way to present a credible credential to existing and prospective customers who are increasingly interested in low carbon brands, products and services. Implementing an offset inclusive carbon management program to achieve carbon neutrality is a simple and immediate way to demonstrate leadership in a market and differentiate a company from less environmentally responsible brands.

Strengthening Corporate Reputation and Protecting Enterprise Value

The widespread and positive reception by the financial community of the Carbon Disclosure Project confirms that the extent to which a company manages its carbon emissions is now a key measure of business performance. A lack of action and preparedness puts brands at risk and valuations in jeopardy. An offset inclusive carbon management program is a high-impact, cost-efficient means of strengthening a business's environmental credentials and corporate reputation and building value while moving to a low carbon economy.

The CarbonNeutral Company,, is a global business that helps companies take a strategic approach to offset inclusive carbon management to gain immediate business benefit and protect long term value.

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