Monday, October 15, 2007

Climate change moves to the board room

Toronto Globe & Mail, via Harvard Business Review: From a piece by Michael Porter and Forest Reinhardt.

Start treating carbon emissions as costly
If they aren't already, they soon will be, and you need to assess your vulnerability to climate-related environmental and economic shocks. Just as having too many employees in your shipping department is operationally ineffective, so is excess carbon emissions in your shipping operations.

Evaluate your vulnerability to climate-related effects
These can include regional shifts in the availability of energy and water, the reliability of infrastructures and supply chains, and the prevalence of infectious diseases.

Look for opportunities to enhance or extend your competitive positioning
This may come by creating products that exploit climate-induced demand, as hybrid car manufacturers have done. Or, you might restructure your operations to take advantage of climate change. In outbound logistics, for example, firms might replace physical books or manuals with electronic ones and, in after-sales services, they could supplant physical visits by service technicians with remote diagnostics and treatment programs.

Calculate your ratio of profits to total emissions in your value chain
This simple ratio can be a very telling indicator of potential climate impact, as it measures your overall corporate footprint, including suppliers. If new regulations put a tax of $10 per ton of emissions, how would that affect your firm? Again look for advantages: Forestry companies may find it as valuable to plant trees and remove carbon dioxide from the air as it is to cut trees down and produce paper or plywood.

Rethink your web of suppliers and how you get products to customers
"For example, modern supply chains, with their transportation-intensive, just-in-time inventory management systems, may no longer be optimal in a world with more costly emissions. Similarly, e-commerce, with its proliferation of small shipments, may face real limits," they stress.

Relentlessly seek strategic advantage
Remember as you address climate change to keep strategic advantage in mind. Emission-intensive activities that add little value to your operations and customers are candidates for elimination, and those that are important to value may become strategic if you can reduce your exposure relative to competitors and find a way to maintain that difference. Wal-Mart, they note, seems to be making a strategic bet that it can reduce its carbon emissions more than competitors and keep it lower.

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