U.S. businesses that commit to cutting carbon emissions by 3 percent annually through 2020 could reap as much as $190 billion from reduced energy bills, increased productivity and innovation, and the tapping of new clean energy sources such as solar, a new report from the World Wildlife Fund and CDP has found.
But the window of opportunity is closing fast, and failure to begin curbing emissions of carbon dioxide and other greenhouse gases by the end of this decade will make it much harder to meet carbon reduction goals over the long term, according to the report. It will also increase the risk of business disruptions caused by extreme weather events such as droughts, floods and severe storms, the report states.
Whether U.S. businesses fare better or worse will depend on their ability to close what climate activists call the "gigaton gap," referring to the amount of CO2 expected to be emitted by the U.S. corporate sector by 2020 and the level of emissions necessary to prevent the planet from warming by 2 degrees Celsius from preindustrial levels.
In real numbers, that means U.S. businesses must shave 1.2 billion tons (1.2 gigatons), or 25 percent, from their current annual emissions levels of 4.2 billion tons of CO2 equivalent by 2020, according to the report. The glide path for meeting such a target would require a roughly 3 percent reduction in the U.S. business sector's CO2 every year for the next six years.
"Increasing the global average temperature more than 2°C above pre-industrial levels -- a path we are now on -- would cross a threshold beyond which climate change is expected to have long term, irreversible, and dangerous effects," states the report, titled "The 3% Solution." "Scientists say we need to substantially reduce emissions to have a fair chance of achieving the goal of not crossing the 2°C increase threshold."
Some are off to a running start
The good news is that hundreds of U.S. companies are already investing in carbon reduction programs while enhancing their profit margins, expanding their business portfolios, and creating new markets for climate-friendly products and services, according to the report's backers.
Still, more U.S. companies need to adopt stronger policies around carbon reduction and clean energy if the United States is to have a meaningful role in the reversal of decades of gradual climate warming that scientists predict could lead to permanent changes to ecosystems and alter the lives of billions of people.
"It's a big goal. It's a tough goal. But we think it's achievable, and we think it can be done profitably," said Steve Swartz, a partner with McKinsey & Co. and lead author of the report.
Paul Simpson, chief executive officer of London-based CDP, formerly the Carbon Disclosure Project, said the new report points to specific financial opportunities that U.S. corporations can seize to drive down carbon emissions while enhancing other measures of business productivity, including profit margins.
"But it is critical that senior management devote much more attention to the issue," and that more financial capital be directed toward programs and technologies that will move the U.S. economy away from a reliance on fossil fuels and other carbon-intensive processes, he said. "Investing in energy efficiency and renewable energy saves cost, stimulates innovation, creates jobs, and builds energy independence and security," he added.
Carbon reductions generate financial returns
The report, based on an analysis by McKinsey, makes clear that the old business paradigm that held that profit and environmental protection objectives run counter to each other no longer holds true. In fact, many U.S. businesses, including numerous Standard & Poor's 500 index firms, have reported a higher rate of return on investments in carbon-reduction technologies than on overall corporate capital investments.
Moreover, business sectors "with higher [carbon] reduction targets have greater potential profits than sectors with lower targets," the report states, because the targets help spur innovation and financially reward efficiencies that come with reduced energy demand and improved natural resource conservation.
Companies are also adapting to shifting consumer preferences as more Americans seek "green" products and services. Firms that demonstrate environmentally sound manufacturing processes often enjoy a reputation boost over their competitors, the report states.
McKinsey also found that nearly 80 percent of S&P 500 companies that report emissions to CDP see bigger financial returns on their carbon reduction investments than their overall capital investments, making reallocation of their capital expenditures a sound business decision.
Yet to unlock the billions of dollars in cost savings, the U.S. corporate sector would need to invest on average 3 to 4 percent of total capital expenditures each year on low-risk, profitable carbon reduction projects.
"World governments have moved far too slow to address the climate change threat, and people are looking for leadership from the brands they trust to take concrete actions now," said Carter Roberts, president and CEO of WWF. "These numbers provide a glimpse into the future -- where smart companies slashed emissions, increased profits and helped secure a better future for all of us."