Climate change is now central to many national and international political and legislative agendas: businesses must take this into account in planning strategically.

This report is a summary of and a response to that rapidly changing picture. It takes account of recent events, including the failed international initiative at Copenhagen in 2009: and it proposes a framework and approach for businesses seeking to get this issue right, without tying themselves down with open-ended spending obligations.

Scope of this research

• Newly developed framework tool enabling companies to evaluate their own corporate social responsibility achievements • Overview of political and legislative tools available to governments seeking to regulate corporate energy use • Recommendations for future policy: balancing consumer demand, regulatory pressure and business need • Principles of brand and marketing in a world attuned to corporate social responsibility • Case studies covering corporate initiatives by business sector and by business focus

Research and analysis highlights

Climate change is now central to many national and international political and legislative agendas: businesses must take this into account in planning strategically.

Consumer response to climate change is far less homogenous than believed: in addition to being inconsistent and ill-informed, there is a distinct consumer segment that actively resists business “over-reaction” in this area, penalising those businesses believed to be adding cost unnecessarily through csr programmes.

Business solutions need to take account of the fact that their CO2 emissions are the result of complex interactions between inter-locking areas in business: change needs to be considered holistically (to ensure that improvement in one area is not wiped out by worse performance in another).

Key reasons to purchase this research

• What are the key issues driving the development of corporate social responsibility initiatives? • How can business evaluate their own performance in this area? Where can they go for assistance? • What is the downside to CSR, both in terms of failure to adapt (under-performance) and taking it up too enthusiastically (over-delivery)? • What are some of the key areas where businesses need to review their CSR performance? • What are the “quick win” areas? Review of consumer attitudes in the area of environmental friendliness

About the authors 2
J. Ozimek 2
Professor Merlin Stone 2
Disclaimer 3
Executive summary 14
Corporate social responsibility: key themes 14
Mapping the energy landscape: the climate change challenge 14
Options for combatting climate change 15
Global drivers to change 16
National policy instruments 17
The role of carbon trading 17
Consumer drivers 18
A framework for strategic compliance 19
Operational approaches to compliance 20
CO2 emissions reduction: case studies 21
The role of marketing 21
Conclusion and recommendations 22
Preface and key themes 23

Chapter 1 The climate change challenge 24
Summary 24
Introduction 24
Climate change as political fact 25
Emissions impact 25
Human intervention 26
Factors undermining the Kaya identity 27
The effect of prosperity on CO2 intensity 28
The relationship between energy intensity and prosperity 30
The impact of recession on CO2 emissions 32

Chapter 2 Options for combatting climate change 33
Summary 33
Introduction 34
Main physical principles involved in reducing CO2 emissions 34
Fuel switching 35
General principles 35
Fuel switching in practice 36
Power generation 36
Transport 37
Buildings 37
Reducing demand 38
The mode shift option 38
Optimization and behavioral change 39
Dynamic/integrated optimization 39
Network optimization 39
Smart grid approaches 40
Adopting more efficient equipment 42
The main alternatives to reducing CO2 emissions 44
Carbon capture and storage (CCS) 44
Land Use, Land-Use Change and Forestry (LULUCF) 44
Drawbacks to the LULUCF approach 45
The principle of adaptation 45

Chapter 3 Global drivers to change 47
Summary 47
Introduction 48
Global political drivers 48
Global pressures: the significance of the Kyoto Protocol 48
The Kyoto mechanisms for controlling GHG emissions 49
Monitoring emission targets 49
Reducing emissions from deforestation and forest degradation (REDD) 50
Beyond Kyoto: a failed initiative in Copenhagen 51
Beyond Kyoto: new hope from Cancun, Durban and South Korea 52

Chapter 4 National policy instruments 53
Summary 53
Introduction 54
Quantifying the drivers 54
The underlying message behind consumer concern 55
The role of national incentives 56
Emissions reduction: the regulatory framework 57
Regulatory 57
Labelling Programs 58
Energy audits 59
Financial measures 59
Fiscal measures 61
Cross-cutting measures 62
Evaluation and awareness of energy efficiency programs 63

Chapter 5 The role of carbon trading 67
Summary 67
Introduction 68
Carbon tax 68
Effectiveness of direct taxation 70
From cap-and-trade to carbon tax: the UK’s carbon reduction commitment 71
Scheme outline 71
Performance league table 72
The theory behind carbon markets 73
Trading units 73
EU emissions trading system (EU ETS) 74
How the EU ETS works 74
Scale of the EU ETS 74
Business implications 75
The carbon trading loophole 76
Voluntary trading schemes 76
Slower growth in the voluntary carbon markets 78
Factors impeding voluntary carbon market growth 80
US and China: an “alliance of denial” 81
National perspectives: a round-up 81

Chapter 6 Consumer drivers 83
Summary 83
Introduction 84
Consumer demand 84
National difference: the US 85
What consumers do – not what they say 86
China following in Western footsteps on electric cars 89
Perception is key 89
Consumer mis-estimation of energy usage 91
Numerate environmentalists – and mis-guided consumers 93
Greenwash 94
Consumer hostility 94
UK experience: over-enthusiastic environmentalism 95
Get it wrong – and sorry may not be enough 96
The importance of segmentation 96
The consumer: sophisticated actor in the environmental drama 97

Chapter 7 A framework for strategic compliance 100
Summary 100
Introduction 100
A compliance framework for the whole business 101
A basic compliance model 102
The core business activity 102
Theoretical underpinning to the business model 103
Focussing the strategic review externally as well as internally 104
Risk assessment and metrics 105
Policy checklist and drill-down 106
The key question 107
Other players offering strategic input and solutions 108
Consultancies: Ernst & Young 108
Other consultancies 109
Academic support 110
Government initiatives: strategic support for CSR 111
Other bodies providing support to business 113
Energy Savings Obligations motivate suppliers 114

Chapter 8 Operational approaches to compliance 116
Summary 116
Introduction 116
Technological focus 117
Drill-down energy audit 118
Supply chain focus 119
Energy efficiency within the business environment 121
Packaging focus 123
Global packaging trends 123
Material trends 123
Opportunities – and obligations 124
Legal pressures on packaging 126
Issues around consumer perspectives on packaging 127
Solution and framework for packaging sustainability 128

Chapter 9 CO2 emissions reduction: case studies 129
Summary 129
Introduction 129
Approaches to identifying lead companies in sustainability 130
The Dow Jones sustainability indexes 131
Adding detail to the Dow Jones Sustainability Index 132
Available indexes in the area of sustainability 133
World leaders 134
Dow Jones Sustainability companies distributed by country 136
Dow Jones Sustainability companies distributed by continent 138
Threat to US role in sustainability 139
Other examples of sustainability indexes 140
Non-financial approaches to identifying sustainability leaders 140
Case studies in sustainability leadership 141
Sustainability as cross-business objective 141
Wal-Mart 141
Wal-Mart sub-goals for environmental sustainability 142
Wal-Mart sustainability programmes 145
Toyota 145
Toyota approaches to reducing energy consumption 146
Sustainability by tackling supply chain issues 148
PepsiCo 148
Strategic embedding of PepsiCo sustainability initiative 150
Hewlett Packard (HP) 152
Sustainability through energy efficiency 153
United Technologies Corporation (UTC) 153
Bank of America 154
Packaging and resource efficiency initiatives 156
Coca-Cola 156
Measuring the environmental impact of its supply chain 157
ASDA 158
Nestlé 160

Chapter 10 The role of marketing 161
Summary 161
Core messages: credible, accurate, informative, clear 161
Real CSR versus “vanilla” (greenwash) 163
The right way to provide information 164
Branding and communications strategy 165
The role of social media 165
Do 166
Don’t 166
Self-promotion 166
O2 eco rating for phone handsets 167
SAP Sustainability reporting 168
The SAP approach to communicating energy information 169
In the news: typical news stories focusing on CSR 170
Awards for sustainable practice 170
Regional trends 171

Chapter 11 Conclusion and recommendations 173
Summary 173
Current state 173
Consumer confusion 174
Business complacency? 174
Learnings 175
Actions now 176
Future outlook 177
Geo-politics 178
Consumer resurgence 178
Competitive issues 180
Appendix 182
Scope 182
Methodology 183
Primary research 183
Secondary research 183
Glossary/Abbreviations 184
Bibliography/References 186
Major Source Works 186
Key companies used for source material 187
Key companies cited in cases 188

Table of figures
Figure 1: The Kaya Identity 27
Figure 2: Primary energy intensity at 2005 purchasing power parities in koe/$2005p 30
Figure 3: Primary energy intensity versus GDP per capita ($) at 2005 purchasing power parities in
koe/$2005p, 2010 31
Figure 4: Benefits of eco-efficiency (%), 2010 55
Figure 5: Examples of energy labeling, 2010 59
Figure 6: WEC energy efficiency framework selection screen 64
Figure 7: Selection from WEC Base: audits by country 65
Figure 8: Selection from WEC Base: All measures within one country (Switzerland) 66
Figure 9: Effectiveness and scope of emission reduction strategies, 2010 71
Figure 10: Voluntary carbon market trading volumes (MtCO2e), 2010 78
Figure 11: Transaction volume, (MtCO2e), global carbon market 2007-2009 79
Figure 12: Transaction value, ($m), global carbon market 2007-2009 80
Figure 13: Perceptions of energy saved versus energy actually used (Wh), 2010 91
Figure 14: Perception of perceived versus actual energy saved for automobiles (Wh), 2010 92
Figure 15: Perception of perceived versus actual energy saved for beverage containers (Btu), 2010 93
Figure 16: A framework for business energy compliance, 2010 102
Figure 17: Business compliance framework (core value chain), 2010 103
Figure 18: Business case for co-generation, 2010 114
Figure 19: Ernst & Young supply chain analysis tool, 2010 120
Figure 20: Framework for energy efficiency analysis (buildings), 2009 122
Figure 21: Proportion of glass containers recycled by country (leading European economies), 2009126
Figure 22: Sustainability scores for Panasonic Electric Works Co. Ltd, 2010 133
Figure 23: Distribution of Dow Jones supersector leaders by country (Number of companies), 2010138
Figure 24: Distribution of Dow Jones supersector leaders by continent (Number of companies), 2010
139
Figure 25: Scheme of Wal-Mart central energy control, 2009 144
Figure 26: Toyota overview of energy usage through the product lifecycle, 2009 146
Figure 27: PepsiCo model of supply chain, 2010 150
Figure 28: Carbon footprint of a 330ml Coca-Cola can containing 170g CO2e, 2010 158
Figure 29: Example of eco-rating label used by O2, 2010 168
Figure 30: SAP Sustainability Reporting Dashboard, 2011 169

Table of tables
Table 1: Temperature increase at equilibrium relative to pre-industrial (°C) 26
Table 2: Key ratios for energy-related CO2 emissions, 2007 28
Table 3: Primary energy intensity at 2005 purchasing power parities in koe/$2005p 29
Table 4: Primary energy intensity versus GDP per capita ($) at 2005 purchasing power parities in
koe/$2005p, 2010 31
Table 5: Benefits of eco-efficiency (%), 2010 54
Table 6: Carbon taxes prevalent in Northern Europe, 2010 70
Table 7: The carbon market at a glance, volumes and values in 2008-09 75
Table 8: Voluntary Carbon Market trading volumes (MtCO2e), 2010 77
Table 9: Transaction volumes (MtCO2e) and values ($m), global carbon market 2007-2009 79
Table 10: Framework for identifying key business issues in climate change and sustainability, 2010108
Table 11: Focus for sustainability consortium, 2009 111
Table 12: Example building energy audit, 2010 118
Table 13: Ernst & Young supply chain analysis key questions, 2010 120
Table 14: Proportion of glass containers recycled by country (leading European economies), 2009125
Table 15: Dow Jones sustainability index corporate sustainability assessment criteria, 2010 131
Table 16: Dow Jones supersector leaders (2010/11), 2011 136
Table 17: Distribution of Dow Jones supersector leaders by country (Number of companies), 2010137
Table 18: Distribution of Dow Jones supersector leaders by continent (Number of companies), 2010
138
Table 19: Wal-Mart plan for implementation of sustainability goals, 2009 142
Table 20: Carbon footprint of a 330ml Coca-Cola can containing 170g CO2e, 2010 157