Wednesday, 12 December 2012

Can everyone really be "above average" when it comes to Carbon Management?

When I lived in the States I was a fan of Garrison Keillor’s News from Lake Wobegon. As part of his weekly radio show, Keillor told homespun stories from a small town where “all the women are strong, all the men are good looking, and all the children are above average.”

One of the charms of the show was Keillor’s knack for saying things that sounded reasonable but upon closer inspection were shown to be ridiculous or impossible. In particular, in order for one person to be above average, someone has to be below average! But few people would volunteer for that role.

The “Lake Wobegon effect”, a propensity to overestimate one’s capabilities, manifests itself in many walks of life – intelligence, driving, choosing the fastest lane on the freeway – even carbon management.  When we talk with large companies, the vast majority speak proudly of their climate change initiatives. In reality, there is a significant spread in the depth and breadth of carbon management programmes in the corporate world.

Some companies, mostly consumer facing retailers, are trail blazing when it comes to measuring and reporting their greenhouse gas emissions. These firms have a variety of projects, strategies and engagement programmes underway and they are setting the bar for being above average fairly high. As a Walmart executive commented recently to Fast Company, “This isn’t a project, it’s the company.”

But there are many other businesses that are only taking the first tentative steps in managing their climate change impact, and a handful are doing nothing at all. Clearly, then, not everyone is above average when it comes to carbon management.

Carbon Clear recently analysed the progress that member companies in the FTSE 100 have made measuring, reporting and managing their carbon emissions. This research, which has gained wide press coverage, builds on similar work we carried out last year. This year, however, we have taken a more nuanced view to better evaluate the maturity of companies’ carbon reporting. As a result, we have gone beyond asking whether or not a company reports its carbon footprint to explore how thoroughly it reports and whether it has obtained independent assurance for its claims.

These tougher evaluation criteria allow us to highlight clearer differences in companies’ carbon management strategies.  They reflect the fact that carbon management and sustainability are processes, not end goals, and the definition of “good enough” will continue to evolve.
Our analysis found that the majority of companies that performed well in last year’s rankings continued to perform well in 2012. One reason for this consistent performance may be because leading companies have put in place systems that help embed carbon management within their operations. Having overcome the initial learning curve, they find it easier to continue and advance their programmes.

Another reason is that leading companies are beginning to recognise the business benefits of carbon management. This should not be a surprise. At Carbon Clear, we have found repeatedly that companies that measure their carbon emissions begin to look at their operations in a different way, identifying efficiency and cost saving measures that strengthen their bottom line.

However, even amongst the biggest publicly listed companies in the UK, only a minority have successfully integrated carbon management into their businesses. In fact, the average overall performance score from our analysis is 47%. A start, to be sure, but not good enough given the benefits that come from an integrated carbon management programme.

More specifically, companies tended to score quite well in the measurement, reporting and verification competency area, with an average score of 58%. High scores in this domain may be due in part to the fact that the scoring criteria encompass those areas of carbon management that a company should logically address first.

Companies scored less well in the strategy competency area and in the carbon reduction competency area, with average scores of 42% and 30% respectively.

The strategy competency area focusses on whether companies have evaluated the risks and opportunities that arise from climate change, whether they have an overarching plan to reduce their emissions, and whether there is a senior leader in the company who takes responsibility for driving the strategy forward along a defined timeframe. Establishing a carbon management strategy requires a fairly sophisticated level of engagement by senior management, so it is not overly surprising that the average score in this area is relatively low.

What is more worrying is that companies are not scoring very well in the carbon reduction competency area. This is a concern as carbon reduction is a central feature of an effective carbon management strategy, helping drive cost savings and lower greenhouse gas emissions. Companies that are not driving ambitious reductions through their operations and supply chain are in many instances leaving money on the table.  Even fewer are offsetting their footprint, choosing for now to release greenhouse gases unabated into the atmosphere without any efforts at compensation. Given the urgent need for business leadership on climate change, we need more action in this area.

Engagement activities are one of the main and most visible benefits of comprehensive carbon reporting, so it’s not surprising that companies score quite well in this competency area, with an average score of 52%. Over half of the FTSE 100 demonstrates a commitment to building a platform with which to communicate their activities and establish a dialogue with their stakeholders around climate change and carbon management.

Our in-depth analysis has found that the FTSE 100 is making useful progress on the carbon management journey.  All of the companies we researched are taking some steps to measure and sometimes manage their carbon impact. And there are many more that have progressed further along the carbon maturity curve and achieved higher scores. What is evident from the analysis is that those companies demonstrating true carbon management leadership remain few and far between: there are many companies performing at the average level and not very many that live in Lake Wobegon.