Jim Harris

Canada Business News

Davos: Talking Champagne on a Sinking Titanic

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I am in Davos at the World Economic Forum (WEF) where the top issues that world leaders must address are: unstable global economy, eurozone fragility; and financial system instability. Climate change only ranks as the 7th issue. To me, it’s like a group of business leaders and “experts” on the sinking Titanic discussing the fragility of champagne sales. I am deeply concerned about the Alice-in-Wonderland perception of the environment’s big picture.

On the morning of Saturday, January 12 when I logged onto Facebook, a friend’s status update jumped out at me: “WHY DO MEDIA FAIL TO DISCUSS OPENLY THE SIGNS OF CLIMATE CHANGE? IT”S NOW 12 DEGREES IN TORONTO, NO SNOW, AND THE SIGNS OF SPRING IN JANUARY ARE NOT GOOD FOR ECOLOGY, HYDROLOGY, OR HUMAN PROSPERITY.”

Later in the day the temperature rose to 15ºC, at 3 p.m. setting a new record according to Environment Canada.

It is deeply disturbing that we experience +15ºC in the middle of winter. And I am disturbed listening to the media commentary about how wonderful this warm weather is. A friend mentioned that the Magnolia tree in their neighbourhood was showing signs that it was about to bud. If this Spring weather continues in the middle of winter it will bud. And its flowering will be killed off with the inevitable return of winter weather.

The stability and predictability of the seasons is defined as “security” by many Aboriginal peoples. The changing of the weather on a global scale is bringing unprecedented, disastrous changes in human experience.

When I hear on the radio or in media how wonderful this mild weather is, I despair. Because to me it’s like people dancing as the Titanic is sinking, unaware of the impending consequences. And so the band played on… Yes, It is deeply disturbing. And frankly depressing.

In 2012 the sustained early spring-like weather during winter followed by the return of cold weather had a disastrous consequence for Niagara Apple growers as the trees budding were killed off by frost.

Wildly variable weather is having drastic economic consequences:

Munich Re, the largest re-insurance company worldwide, estimates that the final damage from Hurricane Sandy will top $50 billion — of which only half of the losses are insured. Never before has New York been hit by a Hurricane.

The drought that plagued the U.S. in the summer of 2012 was the worst since the 1930s. The consequence for farmers was devastating as the drought was combined with record-breaking heat. The consequence? An estimated $75-150 billion loss — making it the costliest natural disaster in U.S. history.

Australia has been plagued in January by the worst ever heat wave in Australian history — setting a new record of 40.3°C, for the highest national average temperature. The result? Wildfires have raged across Australia. And the temperatures have become so hot the country’s Bureau of Meteorology was forced to add a new color — deep purple — to heat maps to show areas that have exceeded all-time heat records. And it’s not just the interior of Australia that’s baking — on January 18, Sydney set a new a record-breaking 46.4ºC (115.5ºC).

Over the last 20 years, Greenland and the Antarctic have lost 4 trillion tons of ice.

Colony Collapse Disorder (CCD) is a phenomenon not well understood but colonies of bees are dying off. Causes are thought to be pesticides and cellphone tower radiation. The death to honey bees in North America would kill $15 billion of commercial agricultural crops.

So here’s my point: Just how many apocalyptic signs are required before global leaders get serious about preventing climate change and the preservation of natural capital? Apparently the answer is more.

I am in Davos at the World Economic Forum (WEF), which formally began Monday night. The top issues that world leaders must address, according to a survey of 1,500 experts in academica, business, civil society and governments conducted for WEF, are unstable global economy, eurozone fragility; and financial system instability. Climate change only ranks as the 7th issue — and then only for Climate Change Adaption, not urgently preventing the change in the first place.

To me it’s like a group of business leaders and “experts” on the sinking Titanic discussing the fragility of champagne sales. I am deeply concerned about the Alice-in-Wonderland perception of the big picture of what is happening to our world.

As one of my heroes, Thomas Berry, said: the earth economy is primary, the human economy a derivative. Bankruptcies in the earth economy are immediately followed by bankruptcies in the human economy. In other words, when there are no more Cod on the Grand Banks, Newfoundland fisheries go bankrupt.

In a ground breaking analysis in 1997 Robert Costanza and his colleagues estimated that the value of eco-services that the world’s eco-systems provide was $33 trillion— for instance the value of pollination that bees provide for free; the value that trees and plants provide by turning CO2 back into O2; and the value the hydrological cycle provides by raining — just to take a few examples. By comparison, the global cumulative national product was $18 trillion. In other words the value of the natural world far, far exceeds the value of the human economy.

Increasingly unpredictable, unstable, extreme weather events will drive increasing economic catastrophes. So if global leaders are concerned with economic stability, addressing economic fragility and building economic resilience, they should start with addressing the more fundamental issue first.

Signs of Hope

There are reasons for hope. One WEF report calls for $14 trillion of green investment in green technology and retrofitting.

The McKinsey Study Reducing US Greenhouse Gas Emissions: How Much at What Cost? highlights how 40 per cent of the CO2 cuts that were required to meet the Kyoto targets were highly profitable. I interviewed the senior partner in charge of the study — Jon Creyts. He pointed out that if the profit from these high ROI projects were invested in the next least cost solutions we could have got all the way to achieving the goals at zero cost to society!

Focusing on energy efficiency is not only highly profitable but will spur innovation, job creation and help businesses, homeowners and society as a whole cut costs and create energy and economic security. This is the point of a report entitled More Bang for Our Buck: How Canada can Create More Energy Jobs and Less Pollution. Every $1 million invested in oil and gas only creates two jobs, while by contrast investing in energy efficiency creates 15 jobs, and has the economic benefit of insulating business and homeowners from the inevitable rise in energy prices.

Another McKinsey study: The Case for Investing in Energy Productivityhighlights that the internal rate of return (IRR) for investing in energy efficiency is 17 per cent. I like to note that by comparison the returns for investing in the stock market over the long term is 10 per cent and real estate 16 per cent — the two vehicles that we’ve been told create the best long term results.

Globally, oil and gas receive $557 billion a year in subsidies according the International Energy Agency (IEA) and $700-800 billion a year according to the head of the United Nations Environment Program. Why are global governments subsidizing the most profitable industry in the world? Why are governments literally subsidizing climate change? I thought that subsidies were supposed to be for new emerging industries, not highly profitable, mature ones.

And so I question how relevant the discussions are at Davos when world leaders are addressing symptoms, rather than the root causes of the challenges we face. And our economic system is liquidating natural capital and recording it as income.

Jim Harris is in Davos at the World Economic Forum for the launch Corporate Knights’ Global 100 — the ranking of the 100 most responsible firms with a market cap of $2 Billion or more which are doing the best job of charting a sustainable path based on 12 key performance indicators. For more information see http://www.global100.org/ You can follow his live tweeting from Davos at @JimHarris

Original Article

Why CFO’s Need to Care About Sustainability Now

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Chief Financial Officers (CFOs) and Chief Operating Officers (COOs) are increasingly accountable for sustainability. A study by Deloitte — Sustainability: CFOs are coming to the table — found their accountability for sustainability had jumped sharply during the last year. In 2012, 26 per cent of CFOs were responsible to the board for their firm’s sustainability strategy, up from 17 per cent in 2011. Similarly, for COOs it was 10 per cent in 2012, up from 3 per cent in 2011. Further, 53 per cent of CFOs said their involvement had increased in the last year, with 61 per cent noting they expected it to increase over the next two years.

The increasing relevance of business sustainability to financial performance and shareholder value was also highlighted in a recent study by the Chartered Accountants of Canada (CAC) — Sustainability: Environmental and Social Issues Briefing, which noted that “key environmental issues, stakeholder trust and relationships and an evolving environmental and social legal and regulatory landscape are interconnected and impact strategy for competitiveness, risk and resilience.”

The report draws attention to the many environmental and social issues of relevance to directors in discharging their oversight responsibilities, including strategy, risk and risk oversight, financial performance, external reporting, and the reliability of reported information.

When Canadian Tire began reporting its environmental footprint and the results of its business sustainability strategy in its core financial documents in Q3 2010, Marco Marrone was the Corporation’s CFO. (He is now COO of Canadian Tire Retail.) Rather than issue a separate corporate social responsibility report communicating its environmental footprint, annual productivity gains and reductions in GHG emissions and waste, Marrone oversaw the transfer of business sustainability measurement and accounting from the Business Sustainability function to the Finance and Accounting function, along with adding the associated due diligence of the Corporation’s CEO-CFO Certification Process. This enabled the Corporation to build upon the measurement of business sustainability performance in its operating plans, and integrate sustainability into its public quarterly financial reporting. There are a number of reasons:

“When you report measures, you don’t want people to question the measures,” says Marrone. “So we embedded sustainability measures into our external reporting for two reasons: it is great to provide the external world with updates on our sustainability programs; but putting the numbers through the rigor of our certifications process for external reporting is extremely important. Those numbers have to go before our audit committee.”

This is becoming increasingly more important as some academics are questioning the validity of sustainability reporting that is not put through the rigor of the audit process.

Embedding sustainability in a company’s financial DNA enables executives to communicate business sustainability issues, strategy and results with confidence to the board, while also signaling to every manager that sustainability is measured on the profit and loss statements of the organization. And as the saying goes, what is measured is managed.

An Ernst & Young study — Bottom-line benefits of sustainable business practices— looked at some of the drivers for the CFO’s involvement in sustainability. First was managing risks (56.9 per cent); second was cost reduction (52.3 per cent); then stakeholder expectations (47.4 per cent), revenue generation (38.3 per cent) and finally government regulation (33.5 per cent).

Managing Risk

As Marrone notes: “We’ve looked at what would happen in a carbon-constrained economy. At a cost of $30 per tonne, in many cases, the impact to the cost of goods sold could be in the low single-digit percentages. However in some product categories, the cost of goods sold could be 30 per cent or 40 per cent higher. The modeling has allowed us to quantify carbon price-risk in these categories and identify how we can take energy and carbon out of the equation. That’s how we are working to manage risk.”

Indeed, there are numerous benefits to placing a shadow price on carbon and examining the impacts on your business competitiveness.

Managing Costs & Regulatory Change

Sustainability is a powerful lens through which to look at your business and supply chain, drive out waste and inefficiency, and address the changing environmental and social regulatory landscape. It is also a powerful tool to engage employees and suppliers in that effort. For instance, package rightsizing initiatives have saved Canadian Tire millions of dollars in operational costs while mitigating the increasing regulatory costs of extended producer responsibility legislation across Canada.

Meeting Stakeholder Expectations

The CAC report noted above also emphasizes that understanding how business sustainability issues affect stakeholders and their expectations can be an important source of insight for management, helping to identify opportunity and risk, with positive relationships contributing to trust, which is essential for competitiveness and resilience.

For example, a staggering 92 per cent of graduating MBAs want to work for a socially responsible company, according to a 2007 MonsterTRAK.com survey. This is becoming increasingly important to Canadian retailers as more and more foreign retailers enter Canada and compete for talent and market share.

Friedman’s edict — that “the business of business is business,” and the creation of shareholder profit, its fundamental mandate — is just as true now as it ever was. Yet what has changed is the context within which business operates, and thus how one interprets and applies this edict.

In 2022, Canadian Tire will celebrate its 100th year in business. The competitive forces acting upon it continue to change; they are fundamentally different today compared to 1922, and they will be different yet again in 2022. And so, executives and directors should not be surprised by shifts in business criteria, scope of considerations and sources of value, or changes in the business activities required to deliver a winning value proposition. After all, in the broadest sense, is not the management of such considerations at the root of a business’s sustainability?

Original Article

Will Canada Take Action on Energy?

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Canada needs a “national approach to climate policy and carbon pricing.” Think that this is the advice of some environmental group? Then think again; this is the urging of the Canadian Council of Chief Executives (CCCE) in a policy paper: Clean Growth 2.0: How Canada can be a Leader in Energy and Environmental Innovation.

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The paper highlights how Canada can build a more competitive economy and a more sustainable society while ensuring adequate public finances to fund Canadian’s way of life. It calls for the federal government, in partnership with the provinces and territories, to develop a national energy framework, specifically to “develop clean energy solutions and position Canada for leadership internationally.”

And, contrary to current inaction, the CEOs urge Canada to take the lead in establishing a bilateral energy and climate accord with the United States to incorporate Canadian interests, and secure greater cross-border collaboration on energy, climate change policy, technology and trade.

The CCCE stresses that a bilateral approach does not mean that nothing can be done until there is clarity on US action; rather, it argues that we must begin to prioritize areas for coordination and ensure that our policy is adaptable to the eventual US system. One thing is certain; during the interim, we cannot expect the Americans to adequately represent Canadian interests in our absence.

Proffering five strategic recommendations, the CCCEs argue that a national approach to climate policy and carbon pricing should be implemented, beginning with a relatively low price and rising over time. Revenue from this should be available as incentives for companies and individuals to adopt cleaner technologies, products and services and shift consumption from high energy intensive goods to lower intensity.

A staggering 88 per cent of CEOs say that innovation is important to grow their top line and increase profitability according to a study by Leger Marketing in conjunction with The Globe and Mail. But only 33 per cent of CEOs are happy with the current results that they are achieving. Among other things, a price on carbon would stimulate innovation because it would give business a greater payback for increasing the efficiency of their operations.

Back to the CCCE paper: the best answer to rising energy costs and environmental impacts associated with energy use is energy efficiency. The most energy efficient countries will have a great competitive advantage in a world of expensive energy.

The paper points out that Canadian electricity production makes use of less than 50 per cent of the energy source used in generation! Coal, nuclear and gas-fired electricity generation plants use only one third of the energy — the rest goes up the smoke stack as “waste” heat. But it doesn’t have to be that way.

Denmark, the global leader in co-generation [also known as Combined Heat and Power (CHP) or district energy], uses that “waste” heat to heat buildings, hospitals and entire towns. CHP or co-gen increased the efficiency of Denmark’s electricity production from Canada’s 33 per cent to 90 per cent! Imagine tripling the efficiency of the Canadian electricity grid with one simple strategy!

Figure 13 in the CCCE paper articulates the benefits of a climate strategy that engages the end user of energy. On average 100 units of energy of natural gas generating electricity converts into only two units of lighting energy! Meaning that only 2 per cent of the energy generates productive end use — and 98 per cent is lost due to inefficiency. Is this sustainable from a business perspective? No; and it highlights the value of energy and climate policy being broadly applied across the economy, including consumer end-use.

Source: Clean Growth 2.0: How Canada can be a leader in energy and Environmental Innovation, page 29

Energy Efficiency = Competitive Advantage

Jim loves to tell the story about the first oil crisis of 1973 — when the price of oil quadrupled in just 18 months. Japan recognized how vulnerable its economy was to rises in oil prices — as the country imports 100 per cent of its oil. So the Ministry of Industry and Trade (MITI) began the most aggressive energy efficiency program in the country and the world’s history.

Japan’s heavy industries — pulp and paper, cement, petrochemical and steel — were able to improve energy efficiency by up to 35 per cent in the following years.

Steel making is hugely energy intensive. By 1987 US Japanese Steel makers were using 41 per cent less energy than US steel makers. And the impact? Over the next 13 years 300,000 American steelmakers lost their jobs, with energy inefficiency being a significant factor. So was energy inefficiency an advantage or a ticking time bomb for America’s economy?

In terms of energy efficiency, Canada has the second worst economy of the G8 countries: Germany, for instance, produces almost twice as much GDP for each unit of energy input. Only Russia is worse, but seriously, who wants to benchmark the Canadian economy against Russia’s? The world average is 6.1 so Canada not only lags among the G8 but also worldwide:

G8 GDP Produced per Unit of Energy

(PPP $ per kg of oil equivalent in 2009)

Italy: 11.3

United Kingdom: 10.8

Germany: 9.2

Japan: 8.7

France: 8.4

US: 5.8

Canada: 4.7

Russia: 3.0

Source: World Bank

In summary, we need not wait for others to develop smart policy to promote energy development and environmental stewardship as mutually reinforcing objectives with Canadian interests in mind — it won’t happen and we have more at stake.

Nor should we wait for the Americans to dictate to Canadians our national approach on energy and climate, what qualifies as “renewable” energy or the treatment of embedded carbon in our exports to the US. Canadian business wants to do more; but, we need a policy roadmap that is clear, predictable, fair and efficient, and we need leadership and representation on the international stage so that Canadian firms selling into the US and other markets are not unjustly subject to carbon tariffs or other border adjustments.

Original Article

 

Jim Harris is a disruptive innovation speaker, who has appeared on Idea City, Canada’s version TED Talks on numerous occasions. Contact him today to book him for your next event.

Why Culture Eats Strategy for Breakfast

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“Culture eats strategy for breakfast, every day.” This was Tyler’s response to a question during a panel session at a recent conference. The panel was discussing the challenges faced by professional managers in their efforts to implement sustainability into business.

The other challenge under discussion was about finding the appropriate balance between sharing insights and strategy with others, versus holding some things back for the competitive reasons.

Tyler’s comment was relevant to both. His point: having a strategy is one thing, but being able to implement it is entirely another. After all, the value of a strategy is not what is written on the whiteboard or the back of napkin, it is the value unleashed by engaging the minds and hearts of motivated employees and suppliers.

The key to unlocking this value is to understand and harness the corporate culture, work within its bounds and value system, while making room for new ideas. Enterprise Risk Management colleagues refer to the ability to implement a strategy (or not) as “execution risk.”

Tyler has been fortunate to have had the experience of developing and implementing business sustainability strategies over the past decade in three different, very large corporations: a $14 billion company, a $400 billion company and Canadian Tire, a $12 billion company. In every instance he had to tailor his approach to the culture’s unique value system and the process by which ideas are accepted into the community.

Making Room for New Ideas

New ideas may not easily find room to coexist with pre-existing ones: There is a natural institutional and cultural inertia that opposes new concepts that compete for acceptance within an established corporate culture. It’s like a new group of people joining a cocktail party that is already well underway. They are either accepted, adding to and changing the pre-existing dynamic — tolerated as a fringe element, talking amongst themselves in the corner of the room — or totally rejected and asked to leave.

In short, one must tailor how the building blocks of the strategy are applied so that they are accepted. This is a very difficult to achieve, particularly for new employees, or “outsiders” tasked with this agenda. And believe us, we’ve both made a few mistakes; but, we’ve also learned that it is important to push the boundaries as well. The trick is knowing when and how to do it.

During the launch of the sustainability strategy for Tyler’s previous employer (a global retailer headquartered in a “dry county” of a US state in the buckle of the Bible belt) business sustainability “milestone meetings” were held every four months for employees and key suppliers to listen and learn from external sustainability leaders, and to share employee progress and success stories.

At one meeting, Ray Anderson, the Founder of Interface carpet, was the guest speaker. [As an aside: Interface’s 15 year sustainability effort has driven $450 million to the bottom line in savings — equal to 28 per cent of the cumulative operating profit over that period.] When Ray was part way through his talk people began to walk out — right in front of the CEO, Board members, senior executives and several hundred employees and guests. Tyler was astonished and had no idea why, or how people could be so rude or have such disregard for a guest speaker.

Later, as he found out via a few blunt e-mails from some of those who had left, he learned that Ray’s use of the geological time scale and comparing it to a 24-hour clock to demonstrate how relatively little time humans had been on the planet — a few seconds on Ray’s clock — and yet had how much we had changed it, was offensive to their fundamental religious beliefs

Being Canadian and new to the US south, being an atheist and someone who had studied geology, Tyler had no idea that such ideas could be a source of friction — that there were still people who believed that the world was only several thousand years old. Who knew?

Debriefing with the CEO after the meeting, Tyler apologized for the cultural oversight. The CEO waved off Tyler’s apology and expressed his disappointment at those who had left the meeting because, as he saw it, part of the value of the business sustainability strategy was opening up one’s perspective to those of others, to listen and learn about what matters to other people and their value systems. To this very day, one of the core competencies Tyler stress’s and includes in job requirements is the ability and wiliness to:

• Raise potentially controversial issues in a manner that encourages dialogue;

• Listen to others while maintaining a wide perspective on issues; and

• Incorporate diverse views and constructive criticism, leading to improved outcomes and understanding.

You Gotta have Faith

Reflecting upon his first few months in his new context, Tyler began to see a pattern of behaviour and expression of acceptance of sustainability into the culture by employees as almost evangelical in nature. People expressed acceptance of business sustainability as they would a faith-based belief system.

It hit Tyler smack in the face when, during one of the regular Saturday morning meetings, a senior vice president stood up and declared that he was now “a believer” in sustainability and its value to business because, if it was not for the business sustainability initiative, he would not have been able to sign the deal with “The Eagles” for the retailer to be the sole distributor of their retrospective CD box set. As it turned out, it was the underlying value system of sustainability that helped the west-coast musicians relate to the executive from rural middle-America. That deal alone probably paid for the entire sustainability team’s payroll and consulting budget for the next decade.

A beer-drinking Canadian atheist in the Republican dominated dry-county in the US Bible belt, Tyler had his work cut out for him for the next business sustainability Milestone Meeting. The featured guest speaker was non-other than the former Vice President Al Gore, who was going to give his now famous An Inconvenient Truth talk and promote his movie. If some people didn’t believe the world was more than a few thousand years old, how the hell would they ever “believe in climate change” — from a democrat politician?

Remember, culture trumps strategy every time: As it turned out, the answer was to open up with a preacher as the Vice President’s warm-up act. Jim Ball, the Executive Director of the Evangelical Environmental Network, kicked off the meeting’s discussion on climate change playing to the home-town audience — talking about how climate change has repercussions for “the health of our children” and “global and domestic poverty” because it is the world’s poor that will be most affected by it.

Jim’s message was that climate change was not a political issue; rather, it is an issue of moral duty. “How we care for God’s creation is one of the greatest moral challenges of our time. And as Christians, we also know it is a challenge that cuts to the heart of how we promote and cherish life.”

After this meeting, “belief” in climate change was never an issue, and Al Gore received a standing ovation.

In closing we offer you this observation: Implementing a business sustainability strategy into any business is equal parts strategy and change management. They are intertwined and dependent. To be successful, one should use the momentum of the force that oppose change — the cultural values, practices and inertia of the business — as the conduit into the business and its operations. It’s like using a sort of cultural Judo to embed sustainability values into the business operations and its culture.

 

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What’s Really Killing Print Journalism

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Print journalism is changing fundamentally. Three dramatic events last week make the point: On October 18, Newsweek magazine announced it will become a digital only publication in 2013, ending 80 years in print.

The same week, John Stackhouse, Editor-in-Chief ofThe Globe and Mail, announced that the paper will launch a paywall for its articles. You will get to read the first 10 articles a month for free and then have to pay for the remainder. Finally Huffington Post Canada announced it has become Canada’s largest national news site, with a record 3.9 million monthly unique visitors. In the US HuffPost’s traffic has trumped the New York Time’s.

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The Benefits of Carbon Shadow Pricing

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Placing a shadow price on carbon can help a company cut costs, while dramatically reducing its risk and exposure to rising energy prices and a price being put on carbon.

One of the roles of corporate strategy function is to assist the CEO and board in managing strategic uncertainty and risk. Knowing that it’s impossible to accurately forecast future events, one of the jobs of corporate strategy is to develop scenarios of potential future realities, strategies for these scenarios, and a portfolio of options that may be exercised in the event that a scenario comes into being.

Royal Dutch Shell is perhaps the best known example of a company using scenario planning to prepare for future events, beginning in the 1970s. Shell’s scenario planning prepared it for the first oil crisis in 1973 — when the price of oil quadrupled in just 18 months. Most recently Shell has been using scenario planning for developing strategies mitigating the effects of climate change.

The greater the value of resources and time invested in a strategic commitment — such as developing a new oil field or pipeline — the greater the value of scenario planning is to an organization. But a firm doesn’t have to be a multinational oil company to get value from managing the risk that is implicit in any business strategy.

Planning for a Carbon-constrained Economy

Placing a price on carbon of anywhere from $10 to $80 a tonne can have a profound effect on business planning. It immediately highlights the areas of business operations that will be negatively affected when a price is finally put on carbon. Using a shadow price can assist management in quantifying and identifying material risk and making strategic decisions on how to take action to mitigate that risk — such as by reducing the energy and carbon associated with material composition of products, manufacturing process, product sourcing and transportation decisions and other business activities.

Doing so identifies “hot-spots” in the value chain and often opportunities for reducing risk where it is currently profitable to do so, financing the mitigation of future commodity and carbon price-risk via energy savings and cost avoidance today.

Canadian Tire has been doing this for four years. Managers coined the term “carbon price-risk” and defined it as the potential economic cost to the value chain of carbon being priced. Managers can tell their executives and the board how a price on carbon will affect the average cost of goods sold, which product categories will be hardest hit, whether or not the energy mix in one country versus another should affect sourcing decisions, and how it could affect transportation practices. And, most importantly, what strategies the company can put in place today to mitigate and prepare for a carbon-constrained world.

The right mind-set makes all the difference

Upon framing the issue in terms of business performance and risk — as opposed to the traditional language of corporate social responsibility (CSR) — the concept of carbon price-risk becomes real and relevant to strategy, the C-suite and the board. Two things become immediately apparent:

First, one does not have to “believe” in climate change to see the value in developing strategies and options for addressing risk. Whether one believes in climate change is irrelevant when the risk is 1) rising energy prices (which are inevitable over the long-term) and 2) legislative and likely to be a significant issue in international trade.

Second, it establishes the value chain as the appropriate scope for strategic thinking, scenario planning, and mitigation — far beyond the traditional corporate mindset and boundaries of “responsibility.” After all, it does not matter if your corporation is “responsible” for the carbon emissions or if it is in a distant third-party in your value chain; in the end, the cost will be passed on to the consumer, like all costs — which is a good thing, because it promotes better decision-making.

Placing a shadow price on carbon is a powerful tool for corporations to use. It exposes the carbon risk inherent in operations, and it allows management to communicate that risk to the Board and executives — who are tasked with mitigating risk and ensuring the long-term competitiveness of the company. Which brings us to an important question…

What’s your company’s carbon price-risk and what are you doing about it?

Original Article

A Little Less Cardboard Can Save You Millions

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Using sustainability as strategy can drive change within a company’s supply chain by engaging suppliers and service providers with the resulting savings running into the millions of dollars a year.

A case in point: one of Canadian Tire’s most popular products is a six-foot folding utility table, selling many tens-of-thousands a year. The company collaborated with its supplier on product redesign and packaging to use less raw materials to make and package the product. Now, the tables use 11 per cent less plastic in their construction and occupy 15 per cent less volume for shipping. The annual savings for Canadian Tire: more than $375,000 a year as a result of reduced material, packaging and shipping costs.

Employee Engagement

Sustainability as strategy can also engage employees. In 2010, Canadian Tire’s Senior Vice President of Merchandizing invited all the company’s buyers to the conference centre for an afternoon departmental meeting. Employees thought it was to discuss organizational restructuring. Before the start of the meeting, the conference centre was very quiet.

The goal, it turned out, was to engage buyers in a creative way — to shake things up — to facilitate some disruptive innovation on something that should have been a core element of their business activities, but at the time wasn’t.

Corporate thinking is often to execute on a perfect plan — in this case, we wanted to take buyers out of their usual, comfortable environment and see what insights could be developed by briefing them on a subject and then turning them loose in a store to see how they could apply it. We wanted our buyers to see things with new eyes.

At the conference centre the buyers learned the real purpose of the event: to gain new insight into how packaging sustainability can affect profitability and the environment. After a couple of presentations, the group boarded buses to a local Canadian Tire store where the goal was to discover examples of “stupid packaging” — examples of too much packaging, improper packaging, or even too little packaging resulting in damaged product, waste, squandered energy use, and excessive greenhouse gas emissions from shipping damaged product that can’t be sold.

The buyers identified over 3,000 examples and calculated the potential savings to the company of improving the packaging into the millions annually in cost avoidance. One of the best finds: the company sold a tool for opening plastic clamshell packaging. And guess what? The tool came in a thick plastic clamshell.

Prior to the session buyers really hadn’t seen the relevance or value of packaging to profitability. The session kicked off a disciplined, systematic focus on package right-sizing that each year results in hundreds of packaging changes and is generating more than $3 million annually in avoided costs.

In 2011 and 2010, Canadian Tire completed 320 packaging changes that saved the company $6.3 million in costs, while reducing greenhouse gas emissions by more than 4,300 tonnes each and every year the products are stocked.

Of course to sustain such an initiative requires more than just a bus trip, it also requires the systems and structures to support and foster the ongoing effort, such as good measurement, reporting — and aligned incentives — now going into a third year.

Mitigating Risk

There’s another reason for companies to focus on cutting unnecessary packaging. Extended Producer Responsibility (EPR) costs are rising dramatically. Since 2004 stewardship fees charged to companies and the associated cost of managing dozens of different EPR programs across Canada have grown at a cumulative average rate of 38 per cent.

This dramatic rise has been driven by four factors: 1) implementation of EPR legislation in provincial jurisdictions across Canada; 2) increasing rates being charged for products and packaging under EPR programs; 3) a shift of those costs from government to business, and 4) the data management, point of sale and other systems and resources required to manage them.

The cost of the Blue Box program used to be shared equally between companies and the government. But today, corporations are paying all the blue box fees. For Canadian Tire in 2008, fees alone were $8.9 million and these basically have doubled to $18.5 million in 2011. In 2008 only 4,000 products had environmental fees and this has grown almost six-fold to 23,541 at the end of 2011 with many products being attached to multiple programs in different provinces.

Fees are based on the type of material used and the weight and volume of packaging. Having a disciplined focus on packaging materials and right-sizing can decrease the fee rates applied and the volume and weight of packaging, dramatically mitigating costs and the risk of increasing EPR fees.

Of course there is a balance that needs to be achieved: packaging can’t be reduced so much that it results in higher damage rates to the goods being sold.

Rightsizing packaging also resonates with customers, as the number one complaint re sustainability from customer is excessive packaging

So using sustainability as strategy is a way of engaging employees, suppliers and service providers in a concerted effort to drive innovation within retail, to drive out waste and inefficiency, and to lower the corporate footprint and reduce the liability to extended producer fees. We believe all retailers should be aggressively pursuing sustainability as strategy.

Original Article

There’s More Oil in Detroit than Saudi Arabia

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Transportation accounts for 29 percent of US and 26 percent of Canada’s Greenhouse Gas (GHG) emissions. It also accounts for 70 per cent of oil consumed in North America is used for transportation.

On average the US consumes about 367 million gallons (1,389 million litres) of gas a day, driving 8 billion miles (13 billion kilometres) per day while in Canada we consume 264 million litres daily.

In the US, passenger cars, SUVs, pickup trucks and minivans account for 59 per cent of transportation GHG emissions while freight trucks represent 19 per cent and commercial aircraft (both domestic and international) account for 12 per cent.

Canadians drive more than 300 billion kilometres (186 billion miles), each driving on average 16,000 km per year.

All in all, it is billions of barrels per year. And what’s the potential for savings? Huge!

First off, if every car in North America got the same fuel efficiency as Jim’s Toyota Prius, there’d be no need for oil imports into North America. And there’d be no need to drill in the Gulf of Mexico or to drill in the Arctic.

In other words, the billions of dollars that the US sends to Middle Eastern countries to import is a choice. By choosing not to regulate for higher fuel efficiency standards, the US voluntarily sends billions of dollars to foreign countries every year and unnecessarily exposes itself to environmental, economic and political risk. Roughly half the US oil consumption is from imports.

This has led Amory Lovins to state that there’s more oil in Detroit than in Saudi Arabia. There’s actually no oil in Detroit, but the reluctance of auto executives to pursue higher fuel efficiency standards, imposes billions of dollars of cost on North American companies and car owners.

What can companies do?

Taxis drive 10 times the distance of a normal car a year, so converting a taxi from a Ford Crown Victoria to a Toyota Prius has a payback of less than two years in fuel savings. Vancouver’s largest taxi company, Yellow Cabs, saves $3 million a year in fuel with its hybrid fleet.

Canadians put an average of 16,000 kms a year on a car. Logically, high-use cars — taxis, and those used by sales reps, repair people, and long-distance commuters — should be the most efficient vehicles possible. If cars are company owned, simply ensure that they’re an efficient model. Or ensure that only efficient cars are available for high-use functions.

Similarly, if the company re-imburses employees for the use of their cars, the CRA standard is 53¢ a kilometre, a policy paying a premium for using high-efficiency vehicle — such as a Toyota Prius, Smart Car, Nissan LEAF, Mitsubishi i-MiEVm, Honda Civic Hybrid, Honda Insight — might seem counter intuitive, but it would help shift employees into more efficient vehicles. When oil rises to the $225 a barrel — as former CIBC Chief Economist Jeff Rubin predicts it will — companies that have incented employees to shift to high efficiency vehicles will reap significant financial benefits for their leadership.

Long-Haul Trucking —the average long-haul truck in North America is only loaded to 50 per cent capacity! Empty backhauls or deadhead miles are the largest contributor to fuel waste. Some experts suggest that load optimization software and freight matching web-based systems could cut deadheading by 90 per cent. In Canada, Sustainable Development Technology Canada (SDTC) notes that empty backhauling results in one in every three trucks on Canadian highways being empty and more than half are not fully loaded.

Auxiliary Power Units (APUs) — allow the cab to be heated or cooled while the driver sleeps without having to keep the truck idling. This can save up to eight per cent of fuel use for long-haul trucks.

Low Resistance Tires & Proper Inflation — can cut fuel use by up to 4-8 per cent.

Hybrid Chilling — can save 10 per cent of fuel use.

Aerodynamic Design — of the tractor and trailers, side-skirts on the trailer and rear fairing can reduce fuel consumption by up to five per cent according to the EPA, but according to the Rocky Mountain Institute, futuristic design could save up to 10 per cent.

Altogether these strategies can reduce the fuel consumption by more than 50 per cent in the North American trucking fleet. And each 1 per cent increase in efficiency reduces diesel use by 245 million gallons (927 million litres) a year!

So the available savings are significant. Which contributes to our thesis for this blog — that sustainability can save business.

Original Article

In Business, Don’t Waste a Crisis

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Many Canadians are trying to do more with less during this economy of thrift. But we all face essential expenses — those costs associated with “keeping the lights on” — often, literally.

Whether you’re managing a household or a large corporation, energy — that stuff that enables your car to move from one place to another, keeps your beer cold and your shower hot — is generally regarded as an essential expense. Sure, you could drink warm beer and take cold showers; but really? There’s got to be a better way.

During a poor economy, it can be a challenge for a business to increase profitability as competition for the “cautious consumer” intensifies and there is increasing pressure on margins. But a recession offers the perfect opportunity to question the way things have always been done — and drive out waste and inefficiency. One of Jim’s favourite slogans is: “a crisis is a terrible thing to waste.”

While most are cautiously optimistic about the North American economy today, it was a different story in the latter half of 2008 when Canadian Tire launched its Business Sustainability Strategy with an aspiration to profitably grow the business without increasing energy use or contributing to an increase in the carbon footprint of the economy.

And the company has been somewhat successful: energy and fuel used to move product from vendors to stores is nine per cent lower, despite a 22 per cent increase in tonne-km of product shipped. And energy use for buildings and operations has been cut nine per cent despite more than a nine per cent increase in the amount of real estate square footage.

So sustainability cut costs and mitigated risk against rising energy prices. So how did Canadian Tire achieve this?

The first step was insight and political will. Business leaders need to view sustainability as a way of driving out waste and inefficiency — and a strategic tool in engaging employees and suppliers in transforming operations.

Second was measuring the energy and carbon footprint of the business and its supply chain — after all, what gets measured gets managed. This quickly identified two core operational functions responsible for most of the energy use: heating, lighting and cooling over 34-million square feet of retail space, and moving billions of dollars worth of product from over 50 countries from all over the world to a store near you.

The third step was to recognize that innovation is a social process. Employees formed “sustainable innovation networks” around buildings and operations, product transportation, and products and packaging, bringing together people from Corporate Strategy, Marketing, Merchandizing, Packaging, Real Estate, Supply Chain, Strategic Sourcing and Transportation.

These teams broke through their traditional silos to examine and optimize the systems that are Canadian Tire’s extended value chain, identifying inefficiency and waste. They brainstormed what more streamlined, energy efficient operations would look like in three, five and 10 years. And then the teams brainstormed the projects and initiatives that would get them there.

With the path revealed, they began their journey and started reporting progress quarterly and measuring economic and environmental benefits.

Three years and more than 1,350 business sustainability projects later, the energy use of Canadian Tire’s operations have become significantly more efficient. The amount of energy used to transport a tonne of product one kilometre has decreased by more than 26 per cent, and the amount of energy used to heat, light and cool a single square foot of real estate has decreased by 18 per cent.

That’s like having more cold beer at a lower cost while doing your part for the environment — it’s a win-win-win — or, for Canadian Tire, it’s the equivalent of realizing the net profit of three and a half additional stores without actually having to build and operate them.

So sustainability is a strategy that business should be pursuing, especially in a recessionary market.

Original Article

You Are Better Off Investing in Sustainability Than Stocks

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It is surprising just how big is the “sustainability” opportunity is.

In just the energy efficiency (EE) field McKinsey & Company estimates that $2 trillion can be invested in EE by 2020 with an internal rate of return (IRR) of 17 per cent. To put that into perspective: that rate of return is better than investing in the stock market or in real estate over the long-term — the two investments we’re always told give the best long-term returns.

The net effect would be equivalent to cutting the need for 64 million barrels of oil a day — about one and a half times today’s entire U.S. consumption.

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