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Threading the Needle: How BT Integrates Climate Stabilization with Economic Prosperity
September 12th, 2012
Kevin Moss, head of BT's Net Good program, considers himself a “rudder” at BT, a crewmember whose contributions help steer the ship toward sustainability. And the British telecommunications giant’s sense of direction is arguably more attuned than other companies when it comes to navigating the Scylla and Charybdis of climate change and economic competitiveness.
“New Metrics of Sustainable Business” Issue in Focus guest editor Bill Baue recently interviewed Moss about the company’s innovative Climate Stabilization Intensity (CSI) methodology, which set precedent in the field by linking greenhouse gas reduction targets to climate stabilization scenarios from the scientific community (several companies have since followed in BT’s footsteps, and Sustainable Brands will feature interviews with leaders at each of these companies as part of our September Issue in Focus). For a sense of the most recent results, check out the BT Carbon Emissions Statement 2011.
Bill Baue: When it comes to setting carbon reduction targets, most companies take one of two approaches: absolute, where they seek to reduce their actual emissions; or intensity, where they seek to reduce their emissions normalized to unit of output or revenue, for example. In 2008, BT launched a “third-way” solution: the CSI methodology, which balances the scientific consensus on the targets necessary for reducing emissions to avoid catastrophic climate change on the one hand, with the ability to continue growing economic productivity on the other hand. How did BT decide to take this approach?
Kevin Moss: We needed to review and refresh our carbon reduction targets to reflect business and scientific changes in the decade since we had set them. The way CSI came about was that we couldn't easily articulate our rationale behind the specific level of the carbon reduction target we had — which was absolute. We realized we weren’t looking at things within a context. When it comes to climate change, the context is solving the problem of catastrophic climate change. Doing more isn’t enough; getting half-way isn’t enough: “half-catastrophic” isn't a viable outcome! So the context we needed was to find the carbon reduction number around which the scientific community had reached a consensus as required to avoid catastrophic climate change, and we pinned our target to that number.
Baue: That’s half the story — the other half addresses the economic side of the equation ...
Moss: Right. Whilst we recognized the downsides of an intensity approach — which enables companies to keep growing their carbon footprint while seeming to shrink it — we recognized that our economic growth is part of our contribution to society. The challenge we faced: How do we contribute our fair share to stabilizing our climate while also doing our part for enhancing economic prosperity? “Doing our fair share” held the key to the solution.
Baue: You all worked with Norwegian School of Management Professor of Climate Strategy Jørgen Randers — who co-authored the seminal 1972 Limits to Growth report with Dana and Dennis Meadows and William Behrens, and recently published an academic paper on the methodology.
Moss: Yes, Dr. Chris Tuppen, our Chief Sustainability Officer at the time, worked with Prof. Randers on an innovative methodology that measures a company’s contribution to global GDP to set its “fair share” contribution for lowering carbon emissions in line with climate scientists’ targets. It's about your contribution being commensurate with your part of the problem: What's your allocated part of the problem, so what's your allocated part of the solution?
Baue: How do you determine this?
Moss: We use Gross Value Added—in Europe this figure can be derived from the data in a company’s report and accounts, although not in the US. GVA gives a very good idea of our economic contribution in a proportionate way that scales up or down as we do. For example, when you make an acquisition or divestiture, it comes with a carbon footprint and with Gross Value Added; the same thing applies to outsourcing or in-sourcing. So you can't get away from carbon by giving it to someone else, because it impacts your value added.
Baue: How does CSI’s allocation mechanism work, at a macro level?
Moss: We look at GDP growth projections for the entire economy, and calculate against our current GVA-based contribution to GDP. That’s gives us our “fair share” of responsibility for reducing greenhouse gas emissions — a 90 percent reduction per unit of GDP by 2050 for a company operating in a developed economy. However, 2050 is too far out to set a manageable target, so we extrapolated the threshold back to derive a 2020 target that put us on the right track.
Baue: That’s quite a feat!
Moss: Yes — both the emissions reductions and the calculations. The upside is that it makes the magnitude of the challenge very transparent. The downside to CSI: It's complicated! Indeed, the debate on these kinds of measurement systems is that they’re complex — that said, it’s easier than coming up with a metric to assess our progress towards eradicating world poverty!
Baue: And yet many financial analysis methodologies are exceedingly complicated. But the complexity of your CSI method hasn’t stopped other companies from adapting it.
Moss: Well, I don’t see it quite like that. You are right in that Autodesk based their new tool, C-FACT — which stands for Corporate Finance Approach to Climate-Stabilizing Targets — on the same methodology as CSI. And my friend and colleague Kathrin Winkler has introduced a comparable approach at EMC, but BT’s approach has been out there for four years now. The Carbon Disclosure Project has produced a report called The Carbon Chasm, highlighting the enormous gap between existing targets and climate stabilization. But as I have written and spoken about a number of times, only two other companies coming on board is not the sort of reaction we had hoped for.
Baue: I couldn’t agree more — I’d love to see all companies adopting an approach like yours, which takes the context of climate thresholds into account. It seems like there’s immense value in solving this problem, even if that value isn’t measurable on the bottom line.
Moss: Exactly. There's an assumption there's financial value in solving problems. Porter and Kramer call this Creating Shared Value, looking at the intersection between financial value and social solutions. Focusing just on solutions that create financial value will get us part of the way, but it doesn't get us the whole way — there are still some problems to which industry and commerce contribute, where business’ very core is compromised by these problems. But solutions, if applied unilaterally, create short-term competitive disadvantage. The trick is finding a way to align a joint intrinsic incentive to solve the problem with our ability to continue generating economic prosperity.
Baue: Thread the needle, so to speak.