TODAY’S STUDY: The Private Sector Takes Over The Climate Fight
Power Forward 3.0 How the largest U.S. companies are capturing business value while addressing climate change
April 25, 2017 (WWF, CDP, Calvert Research, and Ceres)
The largest companies in the United States are steadily increasing their clean energy and energy efciency eforts while improving their bottom lines—a trend that is having an important role in the decarbonization of the U.S. electric power sector in recent years. That’s the key fnding of our latest Power Forward 3.0 report, which evaluates clean energy data provided publicly by Fortune 500 companies.
Overall, nearly half of the companies in the 2016 Fortune 500 have set targets to reduce greenhouse gases (GHG), improve energy efciency, and/or increase renewable energy sourcing—up fve percentage points from our last report in 2014.
The strongest eforts are among Fortune 100 companies, with 63 percent adopting or retaining goals. In addition to the steady overall increase, the report also shows strong improvement among the smallest 100 companies in the Fortune 500, with 44 percent of these setting goals in one or more categories, up 19 percentage points from 2013. Overall, Consumer Staples sector companies had the highest percentage of companies with targets, while the Energy sector (mostly oil & gas companies) had the lowest percentage by far.
Meanwhile, businesses are reaping bigger and bigger cost savings from energy efciency projects they have implemented to meet their targets, with 190 companies collectively reporting $3.7 billion in annual savings.
The most signifcant new trend among the Fortune 500 since the last report is the increasing ambition of goal setting leaders, as more companies move to establish science-based targets and set 100 percent renewable energy goals. A science-based target utilizes the best available climate science to defne a company’s appropriate share of the emission reductions required to limit global temperature increases to below two degrees Celsius.
As of January 2017, 210 companies from around the world have set or committed to set such targets through the Science Based Targets initiative. 1 Among those are 10 Fortune 500 companies, including Procter & Gamble, General Mills and Kellogg Company. Additionally, 72 Fortune 500 companies (14 percent of the index) have reported to CDP2 and/or the Science Based Targets initiative that they intend to set such a target within two years.
Attracted by plummeting renewable energy costs, nearly two-dozen Fortune 500 companies have committed to power all of their corporate operations with 100 percent renewable energy, mostly wind and solar, compared to only a handful of companies a few years ago. Among the diverse industry giants going all-renewable are WalMart, Bank of America, Google and Facebook.
Growth in overall target-setting over the past several years has been steady, with a net total of 25 companies in the Fortune 500 adding targets since our last Power Forward 2.03 report was issued in 2014. Forty-eight percent of Fortune 500 companies (240 companies) now have climate and/or energy targets, up fve percentage points from the previous report. Companies are also doing well in meeting their respective targets. On average, companies reported an 81 percent success rate in achieving or exceeding their targets on time. This results in real emissions reductions.
Pursuing and achieving clean energy goals has also yielded fnancial benefts to these companies. Nearly 80,000 emissions-reducing projects were behind the $3.7 billion in savings captured by 190 companies in 2016 alone. Praxair, Microsoft, and IBM are among the companies saving tens of millions of dollars every year through their energy efciency eforts. Companies also decreased their annual emissions by 155.7 million metric tons of CO2 equivalent, which is equal to taking 45 coal-fred power plants ofine for a year.
Across the Fortune 500, GHG targets represent the most common target category: 211, or 42 percent, of Fortune 500 companies have either an absolute or intensitybased emissions reduction target—up 4 percentage points from the previous report. Renewable energy target-setting is also on an upward trajectory, with 53 Fortune 500 companies, or 10 percent of the index, setting such public targets in 2016, up from 42 companies in the previous report. Many more use renewable energy to meet their GHG targets. Of those setting public renewable energy targets, 23 companies have staked out leadership positions with commitments to 100 percent renewable electricity targets; 19 (83 percent) are RE100 signatories4 .
A breakdown of the 2016 Fortune 500 by industry reveals a signifcant spread in target-setting between leading and lagging sectors.5 The Consumer Staples sector is the leading sector with 72 percent of companies having set a target. Nearly two out of three companies in the Materials (66 percent), Utilities (65 percent) and Industrials (62 percent) sectors have set targets as well.
Following closely behind is the Real Estate sector, with 60 percent of the fve companies in this sector having a target. The Information Technology sector is next at 57 percent. The Telecommunications, Consumer Discretionary and Healthcare sectors are clustered just below the index average of 48 percent, at 43 percent, 42 percent and 41 percent, respectively. The Energy sector, mostly oil and gas companies, again lags all others in the Fortune 500, with just 11 percent of companies setting targets—down from nearly 25 percent in the previous report. Since the previous report, target-setting increased for all sectors except Energy and Consumer Discretionary.
Companies’ ability to adopt and subsequently achieve such ambitious and holistic goals is inextricably linked to several factors, including:
• The continuation of favorable policy environments at the federal and state levels;
• Continued cost declines in clean energy technologies;
• Technical innovations that allow for increased renewable energy grid penetration and demand-response; and
• Advances in enabling financial instruments.
Key Recommendations for Companies
• Set and implement organization-wide, science-based targets for reducing GHG emissions and increasing renewable energy and energy efciency for their own operations.
• Set ambitious reduction targets for GHG emissions in their value chain (scope 3 emissions), encourage suppliers to set climate and energy targets for their own operations and supply chains, and share energy and emission reduction tools, resources, and best practices.
• Pursue both energy efciency and renewable energy and demonstrate market demand by joining other companies in initiatives such as the Renewable Energy Buyers Alliance6 , RE1007 and EP1008 . Companies should accelerate implementation and contracting for wind and solar power before the federal tax incentives for both these technologies ramp down in the next few years.
• Support local, state and national policies that make it easier to scale up renewable energy and energy efciency, thus enabling companies to achieve their climate and energy commitments. Consider leveraging policy advocacy by joining groups such as Business for Innovative Climate and Energy Policy9 (BICEP).
• Publicly promote their targets through both company-owned communications channels and multistakeholder platforms such as the Science Based Targets initiative10 and the NAZCA portal. 11
• Transparently report their GHG emissions profles, targets, fnancial implications, and the role that renewable energy should play in meeting them to CDP12, utilizing the GHG Protocol’s13 corporate standards for greenhouse gas accounting.
• Engage with peer companies, multi-stakeholder initiatives and consultants to fll experience and capacity gaps on target-setting and emission reduction activities. Recommendations for Policymakers Federal and state policymakers should:
• Provide companies and investors with long-term policy clarity through continued participation in the global Paris Climate Agreement14, support for low-carbon policies that allow the U.S. to meet or exceed its national commitments under the Paris accord, and investment in the low-carbon economy at home and abroad.
• Authorize the use of third-party Power Purchase Agreements (PPAs) for onsite renewable energy and allow access to net-metering. Regulators will also need to consider large energy buyers’ increasing interest in access to ofsite renewable energy in traditionally regulated states, and this need could be met through the development of viable utility renewable energy oferings or enabling access to third-party PPAs.
• Support state renewable portfolio standards, which have created strong marketplaces for renewable energy in which large corporate buyers can now participate.
• Create or join market-based GHG reduction programs such as RGGI15 or the Western Climate Initiative16.
• Ensure smooth transitions when making changes to existing energy policies and make sure to appropriately grandfather certain classes of customers who have already made signifcant investments.
Recommendations for Investors
• Consider the implications of climate change and the transformation of the Energy sector for companies on both the supply and the demand sides of energy, and assess how these companies are positioning themselves for a global low-carbon future.
• Disclose their portfolio exposure, and engage with peers through the multistakeholder initiatives of the Investor Platform For Climate Actions17 to highlight the risks of climate-change impacts to investment portfolios, disclose the carbon footprint of portfolios, and call on businesses and governments to act.
• Continue to fle shareholder resolutions and engage in dialogues with companies to encourage them to set climate and energy targets to deliver cost savings and reduce climate-related business risks—which may contribute to shareholder returns in the long run.
• Consider weighting their investment strategies towards companies that are setting and meeting ambitious targets, including 100 percent renewable energy and science-based greenhouse gas targets.
• Engage with investor networks dedicated to addressing climate change and other key sustainability risks such as the Investor Network on Climate Risk18 (INCR). Recommendations for the Electricity Sector Utilities should:
• Offer cost-competitive renewable energy options to large customers.
• Engage in dialogues with their large customers on ways to sell the renewable energy oferings corporate customers are looking for. The Corporate Renewable Energy Buyers’ Principles website19 ofers information to utilities on corporate customers’ needs, existing utility green tarifs, and how to design successful oferings.