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Supply Chain

How Much Can Business Influence the Environment?

December 17, 2012 By Jim Harris

Our first blog, How Sustainability Can Save Business, reframes the common purpose of traditional Corporate Social Responsibility (CSR) practitioners — that of “saving the environment.” Our premise: Given the social and economic frameworks and institutions of our society, more can be accomplished (and faster) by viewing sustainability as an economic opportunity relevant to business, compared to viewing it as an environmental initiative in isolation of business. Therefore the goal of “saving the environment” may be more appropriately framed as “saving business.”

Our perspective is pragmatic; that the worthy purpose of “saving the environment” is destined to be ineffectual, and at best immaterial, if environmental initiatives are pursued in isolation of the economic engines and structures of our society — that is, capitalism, business, government and the active participation of other organizations and individuals within this framework. It is within this framework that companies are applying a central guiding principle to their business sustainability strategies — “derive economic benefits from improved environmental and social outcomes.” Why? Because it delivers results.

We do not argue the desired outcome of healthy people and a healthy planet, and an economic framework that includes a broader social purpose. Indeed, we align on these values. After all, Jim was leader of the Green Party of Canada and Tyler used to earn his living as a conservation biologist in the forests of British Columbia, Alaska and the Northwest Territories.

It’s just that we don’t really think we have time to wait for traditional approaches to environmentalism to be successful. Similarly, we do not argue the value of traditional environmentalism and the vital role it continues to play within our society; rather, we simply note that traditional approaches to environmental objectives have failed to deliver results at the scale that’s required and in the time frame that’s required. In short, traditional environmental methods have not been successful enough, fast enough.

During the interim, some businesses have demonstrated that they can implement and scale the environmental benefits far better traditional approaches to “saving the environment” while also delivering shareholder value. For example, Canadian Tire estimates that they have accumulated an annual benefit stream of approximately $25 million in cost avoidance since launching its Business Sustainability Strategy in 2008 and reduced its transportation and real estate greenhouse gas footprint by 9 per cent while actually growing — increasing their tonne-km of product shipped by 22.5 per cent and the amount of real estate area by 9 per cent!

This applied eco-capitalism favours free market principles to achieve environmental objectives. Which is convenient, since business will find itself in an economic context in which sustainability issues will increasingly influence financial performance and global trade.

As such, our observation is this — for profit seeking companies, sustainability is most successfully employed as a strategic framework for innovation, value creation, employee engagement and organizational improvement — while generating environmental benefits. What’s excites us most about this approach, is that it would appear that Canadian business also shares this view.

Companies are informed and engaged; some even track, manage and mitigate their GHG emissions with internal rates of return (IRRs) at multiples of the cost of capital. And some incorporate internal carbon pricing into management discussions and decision-making. Many have discovered that business sustainability issues are production issues, supply chain issues, marketing, sales and customer issues, and post-consumer use issues. In short, they are economic issues in addition to being environmental issues, and we say, engage them as such.

As we noted previously, the Canadian Council of Chief Executives (CCCE) has urged Canada for a “national approach to climate policy and carbon pricing” in a policy paper — Clean Growth 2.0: How Canada can be a Leader in Energy and Environmental Innovation — highlighting 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.

Most recently, Perrin Beatty, the president of the Canadian Chamber of Commerce, has echoed this opportunity in a policy paper on strategic partnerships among Canada and Mexico, noting that carbon pricing is an area that may be ripe for bilateral Canada-Mexico collaboration. It is interesting to note that Beatty served as a Member of Parliament for the Progressive Conservative Party of Canada for 20 years (1972-1993) and served as a Cabinet Minister.

Change is afoot. The environmental community knows it; the business community knows it. All we need is for Canada’s government to know it — to recognize the opportunity and collaborate with business and the rest of society to build the policy framework that will enable us to participate in the greatest entrepreneurial imperative of our time, the creation of economic benefits from social and environmental leadership.

Which brings us to the original question: Will business influence Canada’s approach to environmental issues? We think they already are. And perhaps the question should be: How successful will business be in influencing Canada’s approach to environmental issues?

We are going to take some time over the holidays. So all the best for the holidays and Happy New Year to all our readers. Thank you so much for your support, feedback, and getting the word out about this blog! So this will be our last blog for 2012. When we return in 2013, we’ll continue to highlight how Canadian business is innovating from the inside out to begin to address many social and environmental issues.

Original Article

Filed Under: Magazine Articles Tagged With: Business Strategy, Canada News, Canadian Council Of Chief Executives, Canadian Tire, Carbon Pricing, cleantech, climate change, Climate Policy, Corporate Social Responsibility, Eco-Capitalists, energy efficiency, greenhouse gas emissions, innovation, Internal Rate Of Return, Mexico, Supply Chain, sustainability, Sustainable Business

The Benefits of Carbon Shadow Pricing

October 23, 2012 By Jim Harris

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

Filed Under: Magazine Articles Tagged With: Board Of Directors, Business Strategy, Canada Business News, Carbon Pricing, Corporate Social Responsibility, energy efficiency, Oil Crisis, Profit, Risk Mitigation, Royal Dutch Shell, Scenario-Planning, Scenarios, Shell Oil, Strategy, Supply Chain

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Jim Harris
Focusing on disruptive innovation, digital transformation, strategic planning with executive teams and boards & leadership.


#1 International Bestselling Author, Management Consultant, Keynote Speaker and Strategic Planning Facilitator.
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