By Frances Way

Treest Power is right to recognize that climate change and the transition to a low-carbon economy provide business opportunities as well as risks. Companies are increasingly treating global warming and carbon management as a core business issue, rather than another environmental issue. Vanguard companies have carbon-reduction strategies driven by board members and integrated into business operations; this is no longer merely a "nice to have" as these companies expect a first-mover advantage and a return on their investments. The CDP Supply Chain 2010 report produced by AT Kearney and published Feb. 1, 2010 shows that the real leaders are the companies that have extended their carbon management beyond their own operations and into their supply chains.

It is important that Treest Power approaches carbon management in a rigorous and comprehensive manner to avoid accusations of greenwash. I recommend that you follow these steps:

1. Keeping score: A company can only manage what it measures, so the first step for Treest Power is keeping score. The process of measuring carbon emissions for the first time often reveals that company operations are not as streamlined and efficient as previously thought. This can lead to significant efficiencies and cost savings. The Carbon Disclosure Project (CDP) provides a standardized reporting mechanism for companies to disclose their carbon emissions on an annual basis and track performance over time and against their peers.
   
   For example, according to EMC, the reporting process "gives a real focus and has led to initiatives focusing, for example, on driving energy efficiencies in remote offices as well as the major campuses, and energy use evaluations distinguishing between the energy intensities of office space vs. labs, data centers, and manufacturing spaces, etc."
   
   
2. Setting targets: Once the baseline has been measured, Treest Power needs to act and start improving its carbon performance. A detailed carbon reduction target with a baseline and target year should go hand in hand with an emissions and/or energy reduction plan. Performance against targets should be tracked and publicly reported on an annual basis.
   
   Companies should have "absolute targets," which set out a goal to reduce carbon emissions over time, and they also can have "intensity targets," which set out goals to reduce emissions over time relative to a business metric such as revenue, sales, or a production unit. In 2007 the Intergovernmental Panel on Climate Change stated that developed economies must reduce GHG emissions by 80% to 95% by 2050 using a 1990 baseline in order to avoid dangerous climate change [Intergovernmental Panel for Climate Change (IPCC) Fourth Assessment Report, 2007]: it is important that Treest Power sets targets that are aligned with these scientific requirements.
   
   Plans need to be formalized and documented and should include a number of approaches to reduce emissions, such as increased energy efficiency, process improvements, and use of renewable energy. Staff objectives have to be aligned with reduction goals and a board level member should take overall responsibility for meeting targets.
   
   
3. Strategic thinking: In order to position Treest Power as a leader not a laggard in the transition to a low-carbon economy, it is important to strategically assess the business risks and opportunities from climate change. CDP collects this information from more than 2,500 companies each year in order to make it available to requesting shareholders and customers who view it as material to their selection process.
   
   Multinational companies have to meet regulatory requirements in every country in which they operate. The lack of visibility surrounding the emerging international regulatory framework on long-term emissions reductions has made long-term investments difficult for companies. However, a number of early movers are already successfully taking advantage of climate-change mitigation instruments, such as the Kyoto mechanisms and national subsidies for renewable energy.
   
   As a manufacturer of engine and transmission components, Treest Power operates within a carbon-intensive industry and has to review its long-term business plan and consider how changes in the climate and the move to a low-carbon economy might impact its sourcing of materials, manufacturing processes, the use of its products, and the possible changes in customer demand.
   
   
4. Collaboration: The risks and opportunities identified by Treest Power will not be limited to its own operations. Collaboration with suppliers is key in order to avoid threats to sourcing activities and to encourage innovation, process improvements, and reduced emissions. Collaboration with customers requesting documentation on green practices should strengthen business relationships and protect Treest Power from possible deselection based on carbon-management criteria. The CDP Supply Chain Report 2010, produced by AT Kearney, shows the majority (56%) of CDP Supply Chain members requesting climate change information from suppliers.
   
   
5. Reporting publicly: To enjoy the benefits of following these steps, Treest Power should be transparent and report publicly on carbon accounting, plans, and progress. Shareholders, customers, competitors, suppliers, policy makers, and consumers are some of the stakeholders already using CDP's database of corporate climate change data to inform their decision-making.

Tell us what you think of Frances' solution.