Last month, I had the opportunity to attend the United Nations Climate Change conference in Copenhagen last month and participate in a panel hosted by the Carbon Disclosure Project titled, “Economic Opportunities in a Low Carbon World.” This post outlines a summary of what was accomplished and I share some thoughts on the implications of this event for businesses in our region.

As has been reported, the 15th Conference of the Parties to the UN Framework Convention on Climate Change (COP15) ended last month with a nonbinding political framework agreement. This “Copenhagen Accord” was brokered in the 11th hour by President Obama and counterparts from China, India, Brazil and South Africa. While the agreement did not include short- or medium-range carbon emission reduction goals, it did establish a global goal of no more than 2 degrees Celsius of warming over the next 40 years.

The Copenhagen Accord commits the signatory developed countries like the U.S. to adopt emissions caps. For the first time, developing countries such as China, India and Brazil agreed to submit a reduction pledge and make their emissions data available for independent verification. The Accord also pledges funding to help developing countries adapt to climate change and invest in clean technology. This funding from the developed nations will rise from $10 billion a year in 2012 to $100 billion by 2020.

For most climate-action advocates, the Copenhagen Accord was at best a modest success. Privately, some participants and NGOs told me that, while COP 15 did not produce the type of legally binding agreement they wanted, the fact that the U.S., China and India were engaged in the Copenhagen process and ultimately came to an agreement bodes well for future climate change negotiations. However, for the business and investor communities seeking clarity on the future of carbon markets, signals for a price on carbon, and guidance for future investments in clean technology, COP 15 failed to meet expectations.

What Happens Next?

Countries supporting the Copenhagen Accord have until February to submit their emission reduction pledge into the annex of the agreement (see Figure 1 above). While Germany is slated to host the next official round of negotiations this spring, all parties are slated to gather in Mexico City in November for COP 16 – another attempt at a binding treaty.

In the U.S., Senators Joe Lieberman, John Kerry and Lindsey Graham are making a bipartisan push to introduce for consideration in 2010 a Senate bill that would meet the 17% emissions reduction by 2020 that the President announced at the climate talks. Proponents of such legislation point to China’s willingness to take action as increasing the likelihood of action in the U.S. Congress. But the ongoing and bitter healthcare debate, the recent election of a Republican to replace the seat held by Ted Kennedy in Massachusetts, and the upcoming mid-term elections greatly reduce the chances of a climate bill hitting the President’s desk in 2010. The Administration is more likely to take the lead in forcing carbon reduction via the regulatory powers of the Environmental Protection Agency and working with Congress to pass “clean energy” legislation.

What Does This Mean for St. Louis Business and the Region?

It would be a mistake to view Copenhagen as an isolated political event. Rather, it is another  milestone in the global trend towards an economy less reliant on carbon. For businesses, the climate discussion is no longer about just being “green.” Businesses will need to rethink the way they operate in this transition to a lower carbon economy. The Copenhagen Accord is another step in this transition. It will further frame the regulatory and marketplace pressures on the business community, pushing companies to operate more efficiently and continue reducing their reliance on high carbon energy sources.

The practical impact for companies based in St. Louis but have operations in other regions of the world, is that a patchwork of rules governing carbon and emissions trading schemes will continue to exist.  This uncertainty will make it difficult to calculate both the costs and size of investments companies need to know in order to successfully compete in this transition to a carbon constrained economy.

Additionally, for companies in the region that see market opportunities in this transition, to fully realize this market it will be incumbent upon them to redouble their efforts to help shape the regulatory environment, particularly in the U.S., that will drive this transition. In the U.S., efforts will center on meeting Obama’s pledge to reduce emissions by 17% by 2020 from 2005 levels.

Finally, this transition presents the St. Louis region with a strategic opportunity to reposition itself and the ways in which it promotes the region to keep and attract new businesses across the country—and world.

One such area may lie in reducing the need for physical air travel. Technology exists today that produces an “in person”  virtual meeting experience, negating the need for a significant amount of physical travel.  Companies like Cisco and AT&T are on the leading edge of this technology—both as a means to reduce their own travel as well as travel for their business customers. I’ve experienced this technology, through my work with AT&T, and it bears no resemblance to the video conferencing technology of old.  It truly replaces the need for a significant amount of physical travel.

Looking at opportunities locally to grow a portion of our economy on travel substitution, consider Lambert airport.  Lambert is no longer an air traffic hub. Why not supplement efforts to increase the number of flights going in and out of Lambert with an effort to position Lambert as a “teleconference” hub? St. Louis could work with the local business community to identify cities where there is a strong demand for business travel, but is no longer conveniently served out of Lambert.  We could potentially work with these cities to explore the feasibility of establishing teleconference hubs and work together to support a local economy that encourages travel substitution as an economic growth driver.

Whether this is actually feasible, local leaders and airport officials can make that determination.  But, it’s one example of the economic opportunities this transition presents if we accept the belief the world is headed in this direction and we actively look for and act on the possibilities it will present.

This article is the personal opinion of the author and does not necessarily represent the views of his employer or its clients.

This past July, Wal-Mart announced its intentions to implement a “Sustainability Index” that will ultimately ask its suppliers to provide Wal-Mart with information about the social and environmental impacts of their products.  Last month, the company hosted a follow up webinar where it attempted to provide greater context behind the initiative and answer questions from many of its suppliers.  Locally, this has created both concern and confusion with companies doing business with Wal-Mart.  Regardless of the outcome, it has certainly created a heightened conversation inside many companies on the long term costs their policies and operations will have on the communities where they do business.  So, what is this Index, why is Wal-Mart doing this, and why should we care?

What is the Index?

Wal-Mart’s index is an attempt to gather sustainability information on companies, and, eventually, products sold in all Wal-Mart and Sam’s Club stores.  As a first step, Wal-Mart asked its more than 100,000 suppliers to answer a set of 15 questions aimed at measuring current sustainability efforts.  The fifteen questions are grouped in four broad categories:  energy and climate, material efficiency, natural resources, and people and community.  This last category, “people and community,”  is interesting in that it moves the assessment beyond environmental issues to the broader definition of sustainability, which includes social issues.  It also allows Wal-Mart to begin inoculating itself from sweat shop criticisms it has received in the past on the working conditions in some of the companies in its supply chain.
By providing a degree of transparency that has previously not existed, the questions are designed to allow Wal-Mart and others to compare companies to one another, showing how each performs.  In other words, it’s a means by which to assess and compare companies’ efforts to sustain their operations as the world transitions to a low carbon, resource constrained economy.   The next phase of the Index will be to provide this same type of transparency on all the products sold at their stores.  A consumer will be able to comparison shop based on the carbon and water footprint it took from origin to product shelf; the amount of material resources used to make and transport a product; and, the type of working conditions that exist for the employees who manufacture a product.

Why is Wal-Mart Doing This?

No doubt, this is the latest in a long history of initiatives to drive greater efficiencies throughout the company’s supply chain—to support their branding campaign, “Save Money. Live Better.”   And, it’s a recognition that in the not too distant future there will be higher business costs associated with  energy and resource consumption.  That said, when Wal-Mart President and CEO Mike Duke discussed the reasons for such an initiative, he indicated that another motivation was based on market research.  Duke stated their internal research showed “the next generation consumer will make purchasing decisions based on the type of sustainability information we will have on our products.”   He went on to say that “for these consumers, Wal-Mart will never be cool.  But, we want to let them know that we’re big, we care, and we can make a difference.”
Now, I have a 14 year old daughter who fits this description. She knows which clothing stores have been accused of sweat shop conditions and which ones have not.  She’s constantly reminding me to recycle more than what I do.  And, she rolls her eyes at me when I come home with groceries in plastic bags.  (But, I do drive a Camry hybrid, which she holds up as an example to her friends that I’m not a total lost cause.)  Not that my daughter’s behavior is an accurate predictor of what her generation’s purchasing habits will be, but my wife and I have a one person focus group living in our house providing us with a window on what they might be.

Why should we care?

I personally believe that Wal-Mart’s efforts will extend well beyond its supply chain and competitors.  And, the company has made it clear that it doesn’t intend to own this:  the index will live within a credible, broad-based entity that will continue to develop and deploy it. The Sustainability Consortium is the group that will spearhead this initiative.  This group is administered by two universities—University of Arkansas and Arizona State University.  Companies from a variety of industry sectors are paying $250,000 a year to sit at the table with leading environmental groups and other interested parties to develop the industry standards that will be used to develop the sustainability information for products.
Potentially, this could even have an impact on a local region’s ability to attract and retain business. Using Wal-Mart’s 15 question supplier assessment as a guide, a region could assess its own strengths and weaknesses to determine if it’s better suited to support a sustainable business environment than its neighbors.  No doubt some regions will use it as a marketing opportunity to attract new business.
A long way to go—yes.  But, it’s a bold move that attempts to leverage both retailers and consumers’ buying power to affect change.  Who knows–Wal-Mart might ultimately end up being more of a catalyst for social and environmental change than governments—who would have ever thunk?

Tony Calandro
Senior Vice President and Partner
Vox Global
This article is the personal opinion of the author and does not necessarily represent the views of his employer or its clients.