Stern revisited - When the lights went on

The Stern review, published a year ago this month, was a "eureka moment" that made UK plc realise it had to act on climate change.

But while companies have made a good start, their work to address the challenge has only just begunIn describing climate change as "the greatest and widest-ranging market failure ever seen", Sir Nicholas Stern's review of the economics of global warming sent a stark message to businesses everywhere.

While the Intergovernmental Panel on Climate Change gathered the science and Al Gore established the moral cause for action, Stern's review was internationally hailed for putting the challenge of climate change into terms that corporate leaders could understand.

The message was clear: companies should act sooner rather than later to reduce greenhouse gas emissions. Doing so would not only be safer for the long-term future of their businesses, it would be cheaper too.

UK companies have announced a host of green initiatives since Stern's Treasury-commissioned report was published in October last year. But not all say Stern was the key factor in those decisions.

At Cadbury Schweppes, Stern was enough to change the course of the company's environmental policy.

Alex Cole, director of corporate responsibility, says the report was used as a tool by the firm's board and executives to demonstrate that the cost of inaction may be greater than action.

"Stern made a big impact," she says. "For the first time the debate was subjected to the kind of rigour that other business trends are put to."Cole said the company developed its Purple Goes Green environmental programme with Stern in mind.

For Cadbury, the review helped make the business case for change, moving the firm from an energy management model to one where it is now aiming to transform how its does business.

The firm has set itself an absolute carbon target of a 50% reduction in net emissions - a first in the manufacturing sector. Meeting that target will require "fundamental change" to the way Cadbury does business, says Cole.

Consumer pressure

For Marks & Spencer, Stern was just one factor in developing its climate change initiative, which is part of its Plan A scheme.

Head of corporate responsibility Mike Barry says the aftermath of Hurricane Katrina and Gore's movie "An Inconvenient Truth" also made a significant impact on the firm and its customers.

"This was the first time we saw significant consumer interest in climate change," he says."On this issue we are more driven by consumer sentiment than the energy sector may be by economics or regulation.

The report probably had a larger impact on companies that invest over periods of 30 years or more."

Insurance firm Aviva's CSR director, Louella Eastman, says the report provided a translation of the science into economics that could be used at Aviva.However, she adds: "I wouldn't say it has changed the corporate attitude, but it has strengthened our resolve in the area of climate change."

Stern has encouraged co-operation between firms in tackling climate change, she observes.

In September the insurance industry launched the "Climate Wise" initiative, committing to reduce their own carbon footprints and offer "green" insurance policies for customers.

Despite reluctance to cite Stern as a major factor in forming climate change policy, WWF energy policy adviser Andrea Kaszewski says the report has had more of an effect behind closed doors.

"Some firms are discussing their carbon impact but it's difficult to do it in public, considering the effect it could have on shareholders," she says, adding that the subject is being brought up at AGMs far more than it ever was before.

Even if Stern has reinforced the zeal of corporate responsibility chiefs, environmental NGOs believe that corporate climate change policies are yet to make a real difference.

Many companies are now declaring their carbon footprint in corporate reports and to the Carbon Disclosure Project, albeit not publicly. But we do not yet have a full picture of UK firms' impact on the climate.

It is a picture that becomes more blurred when considering the carbon footprint of complex supply chains.

Christian Aid claims that the carbon footprint of Tesco would be 12 times greater than reported by the supermarket if emissions from customer travel and suppliers were taken into account.

WWF's head of business and industry relations, Dax Lovegrove, warns: "There are still very few [companies] with strong carbon disclosure practices, and very few with robust climate change strategies as a whole."

He believes firms need to look deeper into their supply chains, including the impacts of consumers using their products.

Product footprints

Some companies are beginning to take note of their so-called "indirect impacts", looking into the environmental effects of products throughout their life cycles.

M&S plans joint campaigns with the Women's Institute and the Climate Group to help consumers calculate their carbon footprints, while the M&S Suppliers Exchange will help suppliers find ways to reduce their emissions.

In addition, some M&S clothing now comes with labels recommending they are washed at 30ºC. BSkyB has modified set-top boxes so that they automatically revert to standby during the night.

It has also distributed energy-saving light bulbs to partially offset emissions generated by its TV equipment.

Walkers and Alliance Boots, the UK pharmacy chain, are working with the government-backed Carbon Trust on a high-profile carbon labelling experiment. The firms are trialling labels showing the carbon footprint of each bag of crisps and bottle of shampoo, with each promising to cut emissions within two years.

Ambitious targets for emissions reductions - especially absolute ones, like Cadbury Schweppes has set itself - are an important step and a growing trend, says Lovegrove.

Other observers, including Forum for the Future's business programme director Sally Uren, argue that "normalised" targets - such as those linked to floor space or other growth factors - could actually allow for an absolute increase in emissions.

Christian Aid's head of climate change campaigns Andrew Pendleton agrees, saying: "The fundamental problem for all big companies is that while promising to make cuts in emissions on the one hand, they are planning to grow massively on the other."

Uren says companies should aim for absolute emissions reduction targets, or at least to exceed the minimum government standards. Firms should also demonstrate a strategic understanding of the risks and opportunities that climate change presents.

Companies outside the FTSE 100 are, on the whole, yet to demonstrate this understanding. Only 36% of the UK's 101st to 350th largest firms responded to the 2006 Carbon Disclosure Project. Of those, just 16% provided quantified emissions data.

F&C Asset Management's associate director of governance and sustainable development Vicki Bakhshi observes: "In the 250 there are examples of sectors which are vulnerable to climate change where we are beginning to see positive strategies, but it's a much patchier picture elsewhere."

Travel firms such as First Choice and food companies such as Premier Foods and Northern Foods are companies that are taking action, she says.Smaller firms in particular are concerned about the costs of tackling climate change.

The British Chambers of Commerce in August said it was concerned that, despite SMEs making up 50% of business energy use, no statement had been made to assisting SMEs meet the government's Climate Change Bill targets.

The government wants a 32% emissions cut by 2020. But despite problems with some initial announcements, and the fact that ambitious targets such as those made by Cadbury are the exception rather than the rule, most agree that Stern alerted businesses to the challenge of climate change.

Simon Thomas, chief executive of research outfit Trucost, says the review marked a step-change in how the issue is seen by the corporate world."The movement has been very rapid in the last year," Thomas says.

"Most businessmen have something to say about this, going from a point where two years ago firms did not want to discuss their emissions on the basis that they were immaterial, to where their declarations are comprehensive.

While it wasn't Stern alone that worked to do this, something has certainly changed.

Encouraging signs that UK companies are starting to reduce their carbon footprints are on show across the country, suggesting that climate change is no longer a taboo term in the boardroom.

But the first steps of cutting greenhouse gas emissions are the easiest. The real winners, those companies that have made predictions of a carbon-constrained world central to strategy, will emerge not in the coming months, but over coming years.

Big firms acting on climate change

Cadbury Schweppes has proven to be a climate change leader in its sector. The Birmingham-based confectioner has committed itself to halving its carbon emissions by 2020.

Energy reductions and renewables will form the bulk of its cuts, although the company says it will use offsets as a last resort.

The target has also been made irrespective of growth - predicted by the company to run at 4% to 6% a year.To top it off, the company was named best-in-show by the Carbon Disclosure Project in September 2006 for its climate change reporting.

Forum for the Future says Cadbury will break even on its carbon-neutral investments within the next few years. Other manufacturers have also stepped up to the challenge.

Unilever, one of the world's largest makers of household goods and food, has already reduced emissions in its manufacturing operations by more than 30% over the past decade.

But few companies have yet to meet Cadbury's ambitious plans.Supermarkets have fallen over themselves to launch climate change campaigns.

Tesco has committed itself to halving its greenhouse gas emissions by 2020 - in part by investing £500 million into environmentally friendly store refits. Marks & Spencer's comprehensive Plan A campaign aims to reduce energy use, open model "green" stores, research the food miles of its supply chain and help customers understand their own carbon footprints.

HSBC has introduced a range of energy efficiency measures to reach its target to go carbon neutral. Sir Nicholas Stern, author of the report "The Economics of Climate Change", has joined the bank as an adviser on investments. Competitor Barclays has committed itself to reducing its carbon emissions by 2010 by a fifth, based on a 2000 baseline.

It, like HSBC, has gone "carbon neutral" through offsetting its remaining emissions.Baby steps are also being taken into the world of carbon labelling.

Walkers and Alliance Boots have co-operated with the Carbon Trust to launch a label that shows consumers the footprint of products - Walkers' cheese and onion flavour crisps and Boots' Botanics and Ingredients shampoos - and the scheme will be withdrawn if the firms do not reduce those declared emissions within a two-year period.

Draft climate change bill

The key points in the proposed UK legislation:

• The bill puts into statute government targets to reduce carbon dioxide emissions by 60% by 2050 and 26-32% by 2020, against a 1990 baseline
• Five-year carbon budgets - in which government will set binding limits on carbon dioxide emissions during five year budget periods, beginning with the period 2008-12
• Emission reductions purchased overseas may be counted towards the UK's targets, consistent with the UK's international obligations
• An independent committee on climate change will advise on setting carbon budgets and make annual reports to Parliament on progress towards meeting emissions reduction targets

This article is reproduced with kind permission of climatechangecorp.com. Originally published 18 Oct 2007.