The Three Ways Climate Change Legislation Will Affect Business

As the first part of this blog argued, climate change legislation is one of the most transformative trends affecting business in the next 20 years – regardless of industry – as it underpins customer, investor, and regulator behavior.

Even companies that dedicate fully-staffed teams to climate change find it difficult to keep on top of the changing agenda. Broadly speaking there are three effects stemming from climate change legislation in the U.S. and elsewhere that will affect firms across industries. Read more from page 15 onwards* or listen to a replay of our teleconference on preparing for energy legislation and increased energy costs.

The Hot List

1. Energy Cost Increases: Energy prices are projected to rise considerably in the next decade, yet at the same as time firms’ energy efficiency investments are diminishing. Between 2007 and 2009, the percentage of global firms planning to invest in energy efficiency as part of the operating budget fell from 64% to 55%, and from 57% to 46% for those planning capital investments. Some of this is a result of the recession but it is unlikely that all of this spending will return in the near term as economic conditions improve.Underinvestment in energy initiatives is driven by a few main factors: typically, firms fail to apply investment filters that capture the true potential of energy investments; they don’t invest enough in the right skills; and they don’t craft comprehensive climate change strategies: only 17% of companies surveyed by The Economist have a climate strategy that includes business partners and their supply chain.
2. Anticompetitive Behavior: In the current version of the U.S. legislation, there is a provision for domestic firms in carbon intensive industries to receive rebates to cushion the effects of legislation but, by 2020, imports from carbon-intensive industries in countries that don’t comply with standards will in effect face a carbon tariff. Similar rules are being debated in other developed countries and this could create (as so often with international trade) tit-for-tat lawmaking across the globe. It could also in effect mean an international energy tax on global trade.
3. The “Greening” of Investor and Consumer Preferences: Socially responsible investing (SRI) is expected to grow in the next decade, reaching between 15% and 20% of total global assets under management in the U.S. by 2015; in Europe the trend is even more pronounced. Investors are interested either in positively putting money into socially-responsible companies or just avoiding any with a poor social and environmental record. A Nielsen survey found that 53% of global consumers actively look for energy efficient products and 27% try to purchase those with a low carbon footprint. This is important: Marketing Leadership Council research tells us that as consumers adjust to new realities, it is the emotional part of a brand that will most change buying preferences. “Green” products most definitely have an emotional appeal.

Use these resources to keep on top of climate change and the fallout from Copenhagen:

• The Washington Post’s “Climate Agenda” Review
• The Wall Street Journal’s “Environmental Capital” Blog
• The Guardian’s Climate Change Microsite

Contact us if you have questions about climate change and its effect on business, or ask your peers.