Continued reports of rising temperatures and melting polar ice caps made 2006 a year of unprecedented media coverage on global climate change. In fact, “carbon neutral” was named the New Oxford American Dictionary’s 2006 “word of the year.”1 Climate change is quickly becoming solidified as the ultimate sustainability issue, one that touches each key element—a pressing environmental, financial, and social issue.
As recently concluded in the Stern Review, “The scientific evidence is now overwhelming: climate change is a serious global threat, and it demands an urgent global response….[T]he evidence gathered by the review leads to a simple conclusion: the benefits of strong and early action far outweigh the economic costs of not acting. Climate change will affect the basic elements of life for people around the world—access to water, food production, health, and the environment.”2 In addition, the Intergovernmental Panel on Climate Change recently issued its Fourth Assessment Report’s Summary for Policymakers in February 2007. Among other items, the report states that “most of the observed increase in globally averaged temperatures since the mid-20th century is very likely due to the observed increase in anthropogenic greenhouse gas concentrations.”3
Though federal legislation on climate change is nascent in the United States, the European Union’s Emissions Trading Scheme (EU ETS; www.euets.com) is maturing and demonstrating that a carbon cap-and-trade program, while expectedly volatile in its infancy, can be a workable and cost-effective compliance mechanism. And as international programs like the EU ETS continue to advance, numerous U.S. states are beginning to lay the framework for future climate change regulation. Meanwhile, on Wall Street, shareholders continue to demonstrate concerns about climate change through shareholder resolutions, emerging hedge funds are purchasing and financing international carbon offset projects, and mainstream insurance and banking companies are developing policies and products that address climate change business risk. Due to these varied pressure points, U.S. companies are exposed to immeasurable business uncertainty, even as they attempt to structure their climate change strategies on a constantly changing climate game board.
This article provides an outline of current key regulatory initiatives and the steps that U.S. companies can take to prepare a comprehensive corporate climate change strategy. These basic steps, which often run somewhat concurrently, include tracking policy developments, conducting a baseline greenhouse gas (GHG) inventory, evaluating voluntary program participation, and setting GHG reduction targets and objectives.