4-Jan-10 3:00 AM AWST

Carbon and You One Step Ahead of Green in China

At the 15th United Nations Climate Change Conference (COP15), analysts and negotiators were citing China and the United States as the primary actors who would create a binding climate change agreement. In reality, the COP15 conference results are unlikely to have much direct impact on those of us outside the negotiating rooms. However, the results of these negotiations are really a moot point, as the supply chain already faces serious issues far more tangible to business models when compared to carbon trading, emission caps, or polar bears. Plans to address such economic and environmental sustainability issues in relation to material usage, energy efficiency, labor standards, waste management, and product life cycles should not wait for the next climate change symposium. Organizations risk seeing their brands diminished through increased consumer awareness, fines as a result of increased law enforcement, and shutdown as government policies changed from GDP at any cost to high value GDP. So, what is a firm to do? How should firms re- act in the face of an emotional argument (over carbon) that is basically indefinable in their business model or typical set of constraints?

First, firms need to understand that outside of market pressures to "green" processes and facilities, pressure will also come from governments at all levels looking for answers to problems they face. This will increase the regulatory risk that firms are exposed to. Low hanging fruit for some may be the auto industry and disposable products. 18 months ago when China changed the law and banned ultrathin plastic bags, retailers had to change the way they did business. This changed the entire marketing scheme of companies from Carrefour to the local Kedi; even though they no longer had to spend money purchasing bags to give away, customers were also no longer carrying around branded bags either. Obviously, some groups compensated by putting out their own brand of material bags. Taking that a step further, one needs little imagination to understand how a ban on paper cups would impact the likes of McDonald's or Starbucks, which is perhaps why Starbucks has under their "Shared Planet" campaign begun to advertise that by 2015 they will have an answer for the paper cup. They hope this will put them ahead of the curve, when disposable cups incur the wrath of a political ban.

Second, while the recession may have eased price pressures on raw inputs, it is important to remember that little more than a year ago prices for energy, commodities, and labor were at all time highs, and will return to those levels again. So, with that in mind, by leveraging sustainable practices and looking at sustainable materials, many firms will find themselves capturing costs in materials, labor, and transportation. Process firms like Nike, Haworth, Xerox, and Interface flooring have all embedded into their supply chain from the design phase by looking at how the materials and processes they use to produce their goods with lower environmental footprints, and in ways that their products can be reused and recycled more easily.

While for many managers the current conversations on carbon may be intangible, and easy to ignore, the real drivers going forward will be more substantial. It will take the form of higher direct costs as regulations induce higher standards, and fines grow in size and frequency. It will take the form of reduce revenues as consumers walk away from firms whose profits do not meet their expectations, rational or not. And finally, it will take the form of higher indirect costs, as firms are forced to retool themselves and their products should they fail to understand that while this is an emotional topic for some, it will clearly translate into an economic impact for others.

Richard Brubaker is the Founder of Collective Responsibility (www.collectiveresponsibility.orrg), Visiting Professor of Sustainability at CEIBS, and Editor of Cleaner Greener China