| For a growing number of businesses, implementing | | | | and make it available should the EPA request to |
| smart environmental policy aids legal compliance and | | | | review it. |
| promotes competitiveness. Gone are the days when | | | | This new EPA regulation is just one of many |
| the only companies concerned about environmental | | | | international, federal, state, and regional programs |
| laws were heavy manufacturers. Recent | | | | already enacted or currently pending to address the |
| developments in both the U.S. government and | | | | issue of GHG emissions. While there is still a great |
| private corporate sectors have ushered in a new era | | | | deal of uncertainty regarding climate change matters |
| of corporate sustainability, in which complying with | | | | and sustainability compliance, it's not a question of |
| environmental regulations is moving from a | | | | whether most companies will eventually be legally |
| recommendation to a mandate for a wide range of | | | | required to monitor, report and reduce their GHG |
| businesses. Just as organizations must develop and | | | | emissions -- it's only a question of when, and how. |
| enforce policies in the areas of governance, | | | | IV. Private Sector Sustainability Programs |
| employment, and safety, many companies and public | | | | In the business community, despite the lack of |
| agencies are now required to track and report | | | | uniform laws and regulations, the last several years |
| sustainability measurements to ensure legal | | | | have seen a great deal of climate change |
| compliance. Moreover, many forward-thinking | | | | momentum. In October 2009, major corporations |
| companies are already implementing environmental | | | | including Apple, Pacific Gas & Electric and Exelon left |
| policies to stay competitive, even though it is not yet | | | | the U.S. Chamber of Commerce over its strong |
| a legal requirement. In-house counsel should be aware | | | | position against U.S. regulation of GHG emissions. |
| of the new corporate sustainability requirements and | | | | Microsoft co-founder and chairman Bill Gates has |
| recommendations to advise organizations how to | | | | recently been calling for making climate change our |
| develop policies, avoid liability and succeed in the new | | | | number one priority, and advocates a global effort to |
| green economy. | | | | lower carbon emissions to zero by 2050 to avoid the |
| While 2010 began without a comprehensive U.S. | | | | damaging effects of climate change. |
| federal climate law or legally binding international | | | | More companies are now voluntarily launching new |
| agreement, regulatory action and negotiations are | | | | efforts to reduce their climate impact. The steady |
| ongoing. Despite the failure of the United Nations | | | | increase in corporate action toward energy |
| Climate Change Conference in Denmark last | | | | efficiency, renewable energy investment, carbon |
| December to produce any binding greenhouse gas | | | | neutrality, and technological innovation stands in stark |
| emission ("GHG") reduction laws, nations will continue | | | | contrast to the stalled political action on climate |
| working toward a global climate treaty. In the U.S., a | | | | change. |
| bi-partisan bill being sponsored by Senator John Kerry | | | | Perhaps the most significant corporate action |
| (D-Mass.) could succeed in bringing the parties | | | | addressing climate change and sustainability is that of |
| together and finally getting a new climate law passed. | | | | Walmart, the world's largest retailer. The company |
| In the meantime, businesses cannot afford to sit | | | | recently put into effect the "Walmart Sustainability |
| back and wait for definitive law in this area, since a | | | | Index," which assesses all of its suppliers worldwide |
| new federal Executive Order, EPA regulations, SEC | | | | based on the lifecycle analysis and environmental |
| guidance and private sector programs have gone into | | | | impact of their products. Over 100,000 suppliers are |
| effect which apply to a wide variety of companies | | | | now highly incentivized to increase their sustainability |
| and public agencies. All organizations that are subject | | | | efforts in order to maintain a successful business |
| to these new requirements should be incorporating | | | | relationship with Walmart and remain competitive in |
| them into their planning and taking steps to ensure | | | | the marketplace. |
| compliance. | | | | Working closely with the Environmental Defense Fund |
| I. Executive Order 13514 | | | | ("EDF"), Walmart has also committed to reducing 20 |
| On October 5, 2009, President Obama signed | | | | million metric tons of carbon pollution from its |
| Executive Order 13514, titled Federal Leadership in | | | | products' lifecycle and supply chain by the end of |
| Environmental, Energy, and Economic Performance. | | | | 2015. This equates to the annual GHG from 3.8 million |
| This Executive Order requires all federal agencies to | | | | cars -- a significant impact. |
| inventory their GHG emissions, set targets to reduce | | | | Due to its sheer size, Walmart is in a unique position |
| their emissions by 2020, and develop a plan for | | | | to cut carbon pollution across the globe. Its new |
| meeting a wide range of goals for improving | | | | commitments are bold because: |
| sustainability, such as increasing energy and water | | | | * Walmart's supply chain is huge, so these initiatives |
| efficiency, reducing waste, reducing fleet petroleum | | | | will have widespread repercussions. Walmart's new |
| consumption, supporting sustainable communities, | | | | index encourages suppliers to reduce their emissions - |
| developing and maintaining high performance buildings, | | | | which they might not otherwise do -- resulting in |
| and leveraging Federal purchasing power to promote | | | | positive energy efficiency efforts by tens of |
| environmentally-responsible products and technologies. | | | | thousands of companies around the world. |
| Other environmental targets in the order include a | | | | * Walmart is prioritizing the products that create the |
| 30% reduction in fleet gasoline use and 26% boost in | | | | most carbon emissions across their lifecycles as well |
| water efficiency by 2020, and a 50% waste recycling | | | | as top selling products, and focusing on those first. |
| and diversion rate by 2015. The 2030 | | | | * The results are immediate, and not dependent on |
| net-zero-energy building requirement must also be | | | | any particular governmental body to act, or any |
| implemented under the order. Each agency must | | | | specific laws or regulations, which may be appealed |
| appoint a senior sustainability officer responsible for | | | | or changed. |
| complying with the order. The Chair of the Council on | | | | * In conjunction with the Sustainability Index and |
| Environment will report agency goals and results | | | | other measures, it clearly communicates a strong |
| directly to the President. | | | | message from Walmart to its international network |
| "As the largest consumer of energy in the U.S. | | | | of suppliers that they must reduce carbon pollution. |
| economy, the Federal government can and should | | | | Other major global companies taking aggressive |
| lead by example when it comes to creating | | | | action in the area of sustainability and climate change |
| innovative ways to reduce greenhouse gas emissions, | | | | include Hewlett Packard, IBM, Ikea, Johnson & |
| increase energy efficiency, conserve water, reduce | | | | Johnson, Nike, Intel, Dell and Weyerhaeuser. Given |
| waste, and use environmentally-responsible products | | | | their hundreds of thousands of employees, suppliers |
| and technologies," President Obama said in a | | | | and customers around the world, these companies |
| statement. | | | | have the ability to be very influential in the |
| The Executive Order was intended to jumpstart a | | | | development of green business practices. |
| transition to a clean energy economy as climate | | | | Between the federal government with its more than |
| change legislation works its way through Congress, | | | | a half trillion dollar procurement budget, the many |
| saving taxpayers money in the process. The order | | | | companies subject to SEC climate change disclosure |
| will have a significant impact based on the Federal | | | | rules and/or EPA GHG monitoring requirements, and |
| government's sheer size: it occupies nearly 500,000 | | | | the private corporate programs such as Walmart's |
| buildings and operates more than 600,000 vehicles. | | | | index which in effect guarantee preferences to |
| Another key component of the Executive Order is a | | | | vendors who implement sustainable practices, |
| green procurement policy requiring 95% of new | | | | businesses and organizations of all sizes, across |
| federal contracts and acquisitions to meet | | | | virtually all industries, will soon be facing the need to |
| sustainability requirements which promote | | | | increase sustainability efforts. |
| environmentally responsible products and technologies. | | | | Further, these developments indicate that |
| This also carries a lot of weight due to the | | | | sustainability targets, once merely an option, will soon |
| government's huge buying power, which exceeds | | | | be mandated in both the private and public sector. |
| more than $500 billion spent on goods and services | | | | Apart from the legal compliance requirements, from a |
| annually. The Executive Order charges the General | | | | corporate perspective developing sustainability policies |
| Services Administration ("GSA") with exploring the | | | | now provides a competitive advantage in the |
| feasibility of tracking vendor GHG emissions. | | | | marketplace and reduces costs. |
| Recommendations could include requiring vendors to | | | | V. Developing a Sustainability Compliance Program |
| register with a voluntary GHG emissions registry and | | | | Businesses should therefore carefully assess the legal |
| disclose their efforts to reduce emissions. | | | | threats and growth opportunities presented by |
| Preferences or other incentives could be given for | | | | sustainability initiatives. This assessment requires |
| "products manufactured using processes that | | | | consideration of qualitative and quantitative |
| minimize greenhouse gas emissions." | | | | information, since both strategic issues and corporate |
| For the purchase of electronic products and services, | | | | emissions levels drive the identification of climate |
| the Executive Order requires the GSA to ensure that | | | | change-related risks and opportunities. For example, |
| 95% of new contract actions, task orders, and | | | | certain issues mentioned in the SEC guidance, such as |
| delivery orders for products and services (excluding | | | | legal, technological, political, and scientific |
| weapon systems) are energy efficient (ENERGY | | | | developments, can alter the competitive marketplace |
| STAR® or FEMP-designated), water efficient, | | | | by creating new business areas or threatening |
| bio-based, environmentally preferable (Electronic | | | | existing ones, thereby triggering the need for |
| Product Environmental Assessment Tool (EPEAT) | | | | disclosure in a company's management discussion and |
| certified), non-ozone depleting, contain recycled | | | | analysis. |
| content, or are non-toxic or less-toxic alternatives | | | | Depending on the organization's specific business area |
| where such products and services meet agency | | | | and operations, companies should consider taking |
| performance requirements. | | | | some or all of the following steps, with the goal of |
| The GSA announced in late January 2010 that it had | | | | making sustainability a part of the overall culture: |
| already drafted energy service agreements with 18 | | | | * Establish a benchmark of your organization's |
| companies to reduce its consumption through energy | | | | environmental performance. This is a critical step in |
| audits, monitoring and use of renewable energy.The | | | | establishing goals and developing a comprehensive |
| GSA also took steps to make the federal fleet more | | | | sustainability program. |
| efficient with the purchase of thousands of new | | | | * If your company manufactures or supplies |
| vehicles last year using $210 million in stimulus funds. | | | | products, evaluate the products' life cycle impacts. |
| Roughly 6,500 of the vehicles -- a mix of hybrids, | | | | This can be done by completing or outsourcing a life |
| flex-fuel and four-cylinders -- are earmarked for the | | | | cycle assessment (LCA). The LCA will be a valuable |
| U.S. Postal Service, which operates the country's | | | | tool to help make any needed changes to the |
| largest fleet of alternative fuel vehicles.In 2008, the | | | | product or service and reduce environmental impacts |
| GSA estimated its purchase of 15,000 seats of | | | | and overall costs. |
| power management software would save up to | | | | * Hire or appoint a corporate sustainability officer. |
| $750,000 annually. | | | | Federal government agencies are now mandated to |
| Eventually, all federal purchasing will incorporate the | | | | fulfill this job function, and savvy private companies |
| measurement of GHG emissions as a contract | | | | are doing the same. One caveat: if you appoint a |
| requirement. The first step, which is part of | | | | sustainability officer with little expertise in this area, |
| Executive Order 13514, is the creation of a voluntary | | | | they should receive training or consulting services |
| GHG emissions reporting system for government | | | | from an experienced and credible agency (e.g., the |
| contractors and vendors. Contractors' (and | | | | Institute of Green Professionals). |
| subcontractors') ability to measure and minimize their | | | | * Establish cross-functional teams to develop |
| GHG emissions and provide energy efficient products | | | | sustainability programs for your organization. Pulling |
| and services will become an important factor in | | | | data from the benchmarking data should be used to |
| winning government contracts. | | | | assist the teams in setting realistic and achievable |
| II. SEC Guidance on Climate Change Disclosures | | | | goals. |
| The U.S. Securities and Exchange Commission ("SEC") | | | | * Set initial sustainability goals that will achieve |
| issued Interpretive Release No. 33-9106 on February | | | | immediate success such as waste reduction and |
| 2, 2010 in order to provide guidance to public | | | | recycling. This will build momentum for the program |
| companies of the agency's disclosure requirements | | | | and generate savings that can go towards the more |
| regarding climate change issues. The guidance, which | | | | difficult and long-term tasks. |
| became effective immediately, applies to all public | | | | * Provide sustainability training to those who need it |
| companies. | | | | in your organization as it relates to their specific job |
| The release doesn't create new disclosure | | | | functions. |
| requirements or modify existing disclosure | | | | * Communicate information about the sustainability |
| requirements, but rather, was issued for clarification | | | | program to your shareholders, employees, customers |
| purposes. Specifically, the guidance addresses four | | | | and vendors. |
| areas that may trigger disclosure obligations under | | | | There are a number of systems available to help |
| existing SEC requirements: | | | | companies assess their climate change related risks |
| (1) whether the impact of proposed or existing | | | | and opportunities, calculate their quantitative |
| climate change laws and regulations in the U.S. and | | | | emissions information, inform them of the likelihood |
| other countries may materially affect the company's | | | | of potential costs from regulation, as well as highlight |
| financial condition or operations; | | | | potential benefits, such as profits from the sale of |
| (2) whether international climate change accords or | | | | carbon credits and opportunities for energy efficiency |
| treaties will impact its business; | | | | cost-savings. Participation in a voluntary reporting |
| (3) whether a company is likely to face indirect | | | | program such as the Climate Registry or the Carbon |
| opportunities or risks arising out of legal, technological, | | | | Disclosure Project is one way companies can begin |
| political and scientific developments regarding climate | | | | gathering information on their carbon footprint and |
| change (such as changes in demand for the | | | | gain greater insight into where emissions are occurring |
| company's goods/services, increased competition, or | | | | in their operations. Companies may also be able to |
| reputational damage); and | | | | use the information they collect for these programs |
| (4) whether a company faces potential physical | | | | to assist them in creating other outputs, including 10K |
| impacts of climate change on its business (such as | | | | filings. The Carbon Disclosure Project questionnaire, or |
| disruption to operations caused by weather or supply | | | | the GRI reporting system, can be used as a |
| interruptions, increased insurance, or water availability | | | | framework to begin internally assessing which factors |
| and quality). | | | | within their business create climate change risks or |
| The SEC guidance provides that these climate change | | | | opportunities. |
| disclosures may be required under the Description of | | | | Corporations can expect to see carbon management |
| Business (Item 101), Legal Proceedings (103), | | | | grow in importance as domestic and international |
| Management's Discussion and Analysis (303), and Risk | | | | regulatory activity continues in 2010. In tandem with |
| Factors (503(c)) sections of companies' filings under | | | | this trend, the number of products and services |
| Regulation S-K. | | | | developed to help organizations measure and manage |
| The SEC noted its concern that some companies had | | | | their environmental impacts will expand, from startup |
| already been providing climate change information on | | | | offerings to more sophisticated enterprise solutions |
| a voluntary basis to third parties, and it wanted to | | | | from industry leaders such as SAP, IBM and |
| ensure that similar disclosures were in SEC filings as | | | | Microsoft. Enterprise carbon accounting software and |
| may be required under SEC regulations. Independent | | | | sustainability consulting services sales will grow as |
| organizations such as The Climate Registry and The | | | | companies seek detailed, real-time information about |
| Carbon Disclosure Project maintain corporate climate | | | | their climate impacts. |
| change data, while the most dominant reporting | | | | In addition, companies can obtain assistance in |
| regulations are those of the Global Reporting Initiative | | | | sustainability compliance from organizations which |
| (GRI). Launched in 1997 with the goal of "enhancing | | | | have been formed to share environmental |
| the quality, rigor, and utility of sustainability reporting," | | | | technology and solutions. The Eco-Patent Commons |
| the GRI develops criteria that could eventually serve | | | | was launched in 2008 by IBM, Nokia, Pitney-Bowes |
| as the basis for generally accepted sustainability | | | | and Sony in conjunction with the World Business |
| reporting standards. As of 2008, more than 1,000 | | | | Council for Sustainable Development to contribute |
| companies from more than 60 countries registered | | | | environmental patents to the public domain. The |
| with the GRI and were issuing corporate sustainability | | | | organization's mission is to protect the environment |
| reports using its reporting framework. | | | | and enable collaboration between businesses that |
| The SEC expressly indicated in the comments to the | | | | foster new innovations. There are now 100 |
| guidance that it will be focusing on climate change | | | | eco-friendly patents pledged to the public domain |
| disclosures in its review of company filings. As a | | | | through this venture. |
| practical matter, public companies are well advised to | | | | The GreenXchange was created to enable companies |
| treat this guidance as binding; if they haven't | | | | to share intellectual property for green product |
| disclosed climate risks in the past, they'll need to | | | | design, packaging, manufacturing and other uses. |
| begin establishing disclosure procedures for all future | | | | Founded by Nike and other companies, the group is a |
| relevant filings using these measures as a roadmap. | | | | Web-based marketplace where organizations can |
| III. EPA Mandatory Greenhouse Gas Reporting Rule | | | | collaborate and share intellectual property, with the |
| Beginning on January 1, 2010, a mandatory EPA rule | | | | goal of developing new sustainability business models |
| went into effect, which requires that all major GHG | | | | and innovation. |
| emitters track and report their GHG emissions data | | | | Similarly, last year the EDF launched an Innovation |
| under a new system. The new rule applies to | | | | Exchange to encourage companies to share |
| industries or facilities that emit over 25,000 tons of | | | | strategies related to energy, water, climate and a |
| carbon dioxide equivalent per year, of which there | | | | host of other issues. Like the Eco-Patent Commons |
| are currently approximately 10,000 in the U.S. Most | | | | and the GreenXchange, it hopes to publicize new |
| emitters are required to install new monitoring | | | | technologies and best practices. The EDF included |
| equipment or at a minimum develop new GHG | | | | content in the Innovation Exchange that it developed |
| measurement protocols. Recognizing that not all of | | | | during its 20 years of experience in working with |
| the organizations would be able to comply by January | | | | Fortune 500 companies including Walmart, FedEx and |
| 1, 2010, the rule allows them to use their "best | | | | McDonald's. |
| available monitoring methods" until April 1, 2010. | | | | Business counsel should familiarize themselves with |
| Affected entities will also need to have a written | | | | the new corporate sustainability compliance initiatives |
| GHG Monitoring Plan, which must address the | | | | being implemented by many of the world's largest |
| methods used to collect GHG data, specify the | | | | corporations, as well as the tools and resources |
| quality assurance, maintenance, and repair procedures | | | | available to assist businesses in developing their own |
| for the GHG monitoring equipment, and assigned roles | | | | environmental policies and procedures. Soon, legal |
| for facility staff to gather data. In addition, the rule | | | | departments will regularly be called upon to counsel |
| mandates the implementation of GHG monitoring | | | | management on how to handle the current and |
| training and documentation procedures in line with the | | | | future mandatory corporate sustainability |
| record keeping requirements. While the facilities do | | | | requirements, which will not only help their companies |
| not have to send their monitoring plans to the EPA, | | | | avoid liability but also improve their businesses and |
| they are required to maintain the plan at their facility | | | | reduce environmental impact. |