Background to t he study
Over the recent past, there has been an increment in the degree of sensitivity with regard to corporate social responsibility amongst the large and small enterprise operating in various economic sectors. According to Epstein (2008, p.288), management teams of firms in different economic sectors are becoming more concerned with the stakeholders and other social issues.
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As a result, they are committed towards ensuring that they improve the publicity of their business enterprises thus becoming good corporate citizens. The shift has resulted from an increment in pressure by either the stakeholders or due to an increment in government regulation.
In addition, the shift has also been occasioned by the high rate of globalization. Fisher (2009, p. 1) is of the opinion that the high rate of globalization is culminating into an increment in the rate at which the world economy is becoming integrated. This presents numerous opportunities for firms to exploit. However, a new set of dynamics have also resulted. Some of these challenges are relate to climate change.
There has been increased criticism towards business as being one of the major contributors towards various environmental issues being experienced currently. One of these issues relate to global warming.
This is evident in that businesses have a significant contribution in the amount of carbon dioxide and other greenhouse gases emitted to the environment. These gases are a major factor in the rise rate of global warming which is a major reason for the current climate change.
In an effort to minimize environmental degradation, various governments have formulated climate change strategies and regulations aimed at reducing greenhouse gas emissions to a particular baseline within a given period. In addition, other policy packages which firms are required to implement include adoption of cleaner technologies and emission trading.
Some countries such as the United Kingdom have established energy tax which is charged on firms depending on the amount of carbon they emit (OECD, 2002, p.81). The objective of these policies is to ensure that firms become carbon neutral in their operation. The major driving factor why firms are emphasizing on becoming carbon neutral is to be “clean” in their operation.
The resultant effect is that firms will be able to attain their profit maximization objective via reduction in the cost operation and improvement in their publicity. As a result, firms in different economic sectors have adopted the concept of carbon neutrality in their operation via incorporation of various strategies.
Given the level of awareness with regard to the impact of greenhouse gases on the environment, various firms have implemented strategies aimed at attaining carbon neutrality in an effort to comply with the environmental regulations. The strategies being implemented play a significant role in reducing the amount of carbon they emit into the environment.
Businesses are making adjustments either to the inputs used or their quantity so as to reduce the amount of waste generated. For example, firms are adopting cleaner technologies in their operation. Some of these technologies utilize green energy in their operation. The resultant effect is that there is significant reduction in the treatment of the resulting waste. In a quest to become carbon neutral, various firms are making changes to their corporate strategy.
The core objective of these changes is to minimize carbon emission. According to Howe and Gerrad (2010, p.306), increased incorporation of these strategies has led into firms claiming to be carbon neutral. Not only is the credibility of claims by firms being carbon neutral evident in their operational strategies but also in the product they supply to the consumers.
For example, Dell Company which deals with technology products supplies cost saving and environmental friendly products. In addition, the firm has also invested in renewable energy such as solar energy. These claims are credible considering the significance of the strategies in enabling a firm to attain carbon neutrality.
The report is aimed at analyzing businesses’ effort to become carbon neutral and whether the claims made by businesses indicating that they are carbon neutral are credible.
The report is organized into a number of sections. A discussion illustrating the importance of sustainability in business operation is outlined. The various ways through which the environmental regulations implemented are influencing business actions are discussed. In addition, the concept of carbon neutrality and its benefits to businesses is analyzed.
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The role of intermediaries which can help organizations attain carbon neutrality is evaluated. The report also discusses the concept of offsetting. Finally, conclusion and a set of recommendations are outlined.
In order to cope with changes in the environment, it has become necessary for firm’s management teams to formulate a new set of operational strategies which would enable the firms to survive in the long term. The resultant effect is that firms would be able to attain the concept of corporate sustainability.
The term sustainability is used differently according to the phenomenon being described. For example, environmentalists use term ecological sustainability while business individuals use the term economic sustainability. On the other hand, sociologists use the term social sustainability.
Considering the dynamic nature of business environment, it has become vital for management teams to consider integrating the concept of corporate sustainability planning. Fisher (2009, p.2) defines corporate sustainability planning as the process of ensuring that there is a balance between a firm’s economic growth, its commitment towards environmental protection and ensuring social equity.
Attaining carbon neutrality is one of the ways through which a firm can consider to be committed towards environmental sustainability.
Corporate sustainability is currently being considered as a new management philosophy. In the 21st century, the concept of corporate sustainability planning is being appreciated by businesses of all walks. According to Fisher, one of the reasons why the concept of sustainability is gaining so much attention is associated with firm’s effort to operate cost effectively (2009, p.1).
By being carbon neutral, a firm can be able to be cost effective in its operation. This arises from the various strategies being implemented such as utilization of renewable energy. In addition, via incorporation of corporate sustainability, it is possible for firms to address key aspects of its existence as outlined below.
- Organizational growth
- Social justice
- Environmental protection
- Equality in terms of environmental, social and economic issues
Fisher asserts that by being conscious of the environment in which the firm is operating, every firm will be committed towards reducing their waste disposal. The resultant effect is that the firm is able to save money while at the same time protect the environment.
In addition, the concept of sustainability enables the firm’s management team to align its organizational goals such as its profit maximization objective with environmental principles.
This means that sustainability presents a classic opportunity for firms to maximize profit and minimize cost while at the same time improving the planet and the livelihood of its people (2009, p.2).
Increased attention on sustainability amongst business enterprises is highly warranted. This is mainly so with regard to the environment. Currently, the world is experiencing numerous challenges. A report by the World Bank (2008, p.11) asserts that environmental issues are one of the major concerns in the world.
All countries around the world have increased their environmental concern especially with regard to carbon emission. However, it is the less developed countries which are hardest hit by changes in the environment and climate change.
The World Bank has been a major advocate in ensuring that firms incorporate the concept of environmental sustainability. The current environmental damage is a cause for concern amongst business enterprises.
As result, it is right for environmental sustainability to be of priority amongst business enterprises. According to Wilhelm (2009, p.12), business leaders are considering for more comprehensive ways through which they can gain a better understanding on the impact of climate change on their businesses.
This would enable them to develop effective strategies to deal with environmental changes. This arises from the fact that environmental damages and challenges arising from climate change present a threat to a countries economic growth. Wilhelm (2009, p.3) is of the opinion that both businesses and individuals have started to feel the effects of climate change.
For example, the resultant effect of a decline in a countries economic growth is that the consumer’s disposable income would be significantly reduced.
As a result, individual’s consumption behavior would be negatively affected. The businesses economic sustainability would be hampered via a reduction in businesses profitability. Therefore, it is important for business enterprises to consider ways through which they can increases their profitability while at the same time address issues related to climate change.
According to Dunphy, Griffitths and Ben (2005, p. 3), some of the challenges being experienced due to climate change and environmental degradation are as a result of business enterprises. Dunphy et al (2005, p.3) asserts that business enterprises are an important part of the society.
The current success being witnessed in business enterprises over the past decade have had a phenomenon impact on the world through exploitation of resources. In their operation, businesses continue to impact the world. It is therefore imperative for businesses to be concerned with the environment.
According to a report by the World Bank on climate change, both firms operating in the private and public sector must collaborate to in order to ensure effective mitigation of various environmental issues. This would be of significant benefit to business enterprises. According to Willard (2005, p.10), sustainability presents numerous opportunities for businesses.
For example, via sustainability, business enterprises are presented with new avenues with regard to product innovation and development and maintenance of stakeholders’ relationship.
Ways in which environmental regulation is influencing the action being taken
Various regulations aimed at controlling business operation with regard to the amount of carbon they emit into the environment have been formulated. This arises from the fact that there is a strong correlation between environmental sustainability and carbon neutrality. According to Jenkins, Barton and Hesselberg (2007, p.21), increased environmental regulation presents a challenge to businesses with regard to loss of competitiveness.
To cope with these challenges, businesses can implement various strategies in an effort to maintain their competitiveness. For example, businesses may exaggerate the impact of such regulations to prevent it from being implemented. For example, a study conducted by the Canadian government with regard to carbon emissions by firms in the pulp and paper industry indicated that the firm’s incurred a compliance cost of $4 to $5 for every ton.
However, firms in this industry were complaining that the cost was four times higher. In another case regarding regulation of sulphur-dioxide emission in the United States, the cost was found to be half what was estimated. The main reason for such overestimation with regard to compliance cost is to ensure that firms conduct their operations as usual.
Increased environmental regulation has stimulated firms to take various actions. Some of these strategies relate to their corporate strategy. For example, one of the strategies being integrated by firms in their operation entails inclusion of carbon foot-printing strategy in their operation. This refers to a form of control mechanism which helps business enterprises to baseline the amount of greenhouse gas that they emit. The framework below gives an illustration of carbon footprinting process.
Carbon foot-printing requirement have made firms to adjust their corporate strategies. Through carbon foot-printing, firms’ management teams are able to gain a comprehensive understanding of their operations which are considered to be carbon contributors. This strategy is an essential component in a company’s effort to reduce the amount of carbon emission.
As an environmental regulation strategy, carbon foot printing has a significant influence on the action being taken. Through carbon foot printing, it has become possible for management teams to identify other areas of inefficiency in their organizations systems. This means that this form of environmental regulation does not only enable a firm to reduce its carbon emission but also to operate cost effectively (Wilhelm, 2009, p. 12).
This means that businesses can be able to make the necessary changes to their systems thus attaining their environmental sustainability objective.
Ensuring effective implementation of carbon foot-printing as a form of environmental regulation is paramount. To achieve this, business organizations are required to formulate and implement a carbon foot-printing process. Implementation of this process is having significant influence on the actions being taken. Three main steps are involved. These include;
A number of activities are undertaken with regard to planning. These include setting the boundary, determination of the operations to be measured and setting the baseline year. With regard to setting the boundary for the process, the firms’ management teams have to make a decision which aspects of its operations will be included.
For example, the firms’ management teams have to make a decision whether its leased assets will be included in the process. The firm is at discretion to include such assets even if it is the actual owner.
Decision to include these assets in the carbon foot-printing process lies in the fact that it is the firm’s which is responsible for the resulting carbon emissions as a result of its operation. In addition, the management team has to set a boundary whether to include other components of its supply chain such as the suppler and customers.
According to Wilhelm (2009, p.14), most business enterprises are starting small with regard to carbon foot-printing. However, it is important for firms to include as many aspects as possible in the initial phase. This will enable the firm to identify other areas of carbon emission resulting from its operation thus reducing the cost. Setting the boundary will also involve the firm determining the various sources of its carbon which result from its operation.
Some of the sources include from transportation and freight methods such as via air, train, ship and trucks, solid waste such as garbage, office disposals such as office papers. A baseline with which the firm will track its carbon emission has to be established. The baseline may be backdated to a particular event such as when the firm undertook a merger or setting in of the century.
According to Wilhelm (2009, p.17), this decision is left for the company to decide on itself. Collecting the required data is challenging since the firm may not have sufficient mechanism to track all carbon related information. After completing the carbon calculation, the firm has to set clear reduction goals and formulate a strategy to attain them.
In order to achieve this, the management team has to ensure that a timeframe is well established. In most cases, the reduction target selected is dependent on the firm’s goals, size and its maturity (Wilhelm, 2009, p.18).
Upon completion of the process, the management team has to communicate the results obtained to the employees. This has to be done in such a way that the employees and other stakeholders will understand.
Improving their publicity
In their operation, businesses are charged with the mandate of ensuring that they operation in responsible manner. In order to attain this, firms have integrated the concept of Corporate Social Responsibility (CSR). This means that firms’ operations should not have a negative impact on the environment. Effective implementation of the CSR results into a firm improving its publicity. This means that the probability of the firm surviving in the society as a going concern entity is improved. The need to improve their publicity is one of the reasons why firms are incorporating the concept of carbon neutrality. This arises from the fact that business enterprises are a major contributor towards the change environmental change which is currently being experienced. Via improving their publicity, businesses can be able to continue with their operation due to reduction in the intensity of criticism. The resultant effect is that the firms will be able to attain their profit maximization objective. As a result of the financial crisis which occurred in 2008, there has been a shift in individuals’ consumption behavior. Most of the consumers are developing preference of products which they consider to be more sustainable. In addition, consumers are becoming more conscious of their health. In order to attract and retain customers, it is paramount for firms to be conscious of their impact on the environment (Wilhelm, 2009, p.147).
In the 21st century, the concept of carbon neutrality has been integrated within the firm’s CSR profile. Carbon neutrality refers to the concept whereby the amount of carbon dioxide (CO2) and other greenhouse gases emitted to the atmosphere is equivalent to the amount removed from the atmosphere.
According to Tolhurst, Pohl, Matten and Visser (2010, p. 57), carbon neutrality is attained via offsetting the amount of emissions via a number of ways. Some of these include investing in technologies which have minimal carbon emissions such as renewable energy projects and planting trees. For example, HSBC which is a public limited company operating in the banking and financial services industry in United States invested $ 4 million towards implementation of a programme aimed at minimizing its energy consumption and also to reduce its carbon emission via utilization of green energy for all its energy needs. In addition, the programme would also enable the firm to plant trees. Despite the increased incorporation of the concept of carbon neutrality by financial institution, most individuals perceive this as a publicity stunt. This arises from the fact that activities of these institutions contribute significantly to environmental degradation. However, the effort of firms to adopt carbon neutrality in their operation should be applauded rather than be criticized.
Intermediaries which help firms to become carbon neutral
Becoming carbon neutral may be a challenge to both large and small business enterprises. This arises from the fact that these firms may not have the sufficient mechanisms to become carbon neutral. In a quest to become carbon neutral, there are a number of intermediary organizations which assist firms to become carbon neutral as discussed below.
The CarbonNeutral Company
The firm was established in 1997 and has managed to become a global leader with regard to provision of services aimed at reducing carbon. Since its inception, the firm has helped approximately 300 large business enterprises and thousands of SMEs (Small and Medium Enterprises) (The CarbonNeutral Company, 2010).
In its operation, the firm is committed at ensuring that its customers attain value from its services. In order to attain this, the firm has formulated comprehensive carbon management strategies. The firm provides tools to enable firms’ management teams to develop an effective carbon reduction programme.
In addition, Carbon Neutral Company helps its clients to set their reduction targets. In pursuit of carbon neutrality goal, it is crucial for firms to communicate the results of the programme to all the relevant stakeholders.
In order to attain this, there has to be a well developed communication mechanism. The management team has to ensure that all the parties understand. As an intermediary, The Carbon Neutral Company provides management team with the most effective communication mechanism.
This is a firm which was established in 2007 in Australia and operates on an international scale. The core objective of the firm’s establishment is to provide businesses with meaningful ways through which they can deal with the challenges of sustainability and climate change.
Beyond Neutral helps other organizations to improve their sustainability credentials while at the same time reduce its greenhouse emissions. With regard to carbon neutrality, the firm helps its clients in the identification, tracking, verifying, validating and auditing its carbon emissions.
As a result, businesses are able to take advantage of market opportunities and avoid the negative impacts of greenhouse emission. In an effort to ensure that firms attain carbon neutrality, the firm provides its clients with a carbon offset portfolio. The portfolio entails a variety of offsets which are obtained from different projects (Beyond Neutral, 2009).
Commitment to the environment in pursuit of carbon neutrality, necessary changes and investment
To achieve the concept of carbon neutrality, businesses must be totally committed towards attaining environmental sustainability. In order to attain this, firms should analyze the impact of their operation on the environment with regard to carbon emission.
According to Kollmuss, Lazarus, Lee and Polycarp (2010, p.1), it is a must that emission of greenhouse gases be reduced by 80% by mid of the 21st century in order to abate the risks of climate change. This means that it is vital for firms to undertake drastic changes in some of their practices.
In addition, these changes will require a significant investment of resources for them to be effective. For example, some carbon emission resulting from the firms’ operation cannot be avoided. However, pursuing the concept of carbon neutrality requires that there should be zero carbon emission coming from the firm’s operation.
Carbon neutrality relies on ‘offsetting’
There is a strong correlation between carbon neutrality and offsetting. To attain carbon neutrality in their operation, firms will be required to purchase carbon offsets. These are financial tools specifically designed for projects aimed at preventing carbon being released from various activities from entering the earth’s atmosphere.
In their commitment to attain carbon neutrality, firms will be required to incorporate a portfolio of offsets. In addition, a considerable amount of investment will be required in the implementation of technologies which are carbon-saving in nature.
In addition, firms will be required to change some of their practices. For example, with regard to the firm’s energy needs, it is paramount for firms to incorporate green energy and other types of renewable energy. This will play a significant role in the firm’s effort to become carbon neutral and hence its commitment to the environment.
Kollmuss et al (2010, p.1) assert that carbon offsetting is gaining attention amongst individuals and organizational policy makers as one of the most effective ways through which firms can address the challenges associated with climate change. Incorporation of carbon offsets is paramount in a firms effort to attain carbon neutrality and hence its environmental targets.
This arises from the effectiveness with which carbon offsets avert carbon emission. According to Taiyab (2006, p.3), carbon offsets neutralizes the carbon dioxide equivalent (one ton) which is emitted at one place. This is achieved either by absorbing another tone of carbon dioxide equivalent released elsewhere or preventing its release. The offsets are developed via various projects. Some of these include;
- Renewable energy
- Destruction of industrial gases
- Energy efficiency
For example, if a particular business enterprise emits approximately 20,000 tones of carbon dioxide every year, it can offset its emission by planting trees which will absorbs an equivalent amount within the same time period. Alternatively, the firm can invest in a renewable energy project or energy efficient stoves which would be supplied to the poor.
Through such projects, a firm is able to offset the amount of its carbon emissions thus becoming carbon neutral (Taiyab, 2006, p.4). In addition to that, carbon offset projects have the capacity of absorbing other greenhouse gases from the environment. This makes it to be an effective strategy for firms in their effort to achieve their environmental target.
The concept of sustainability has proved to be very important amongst businesses in the 21st century. This is due to the fact that it is one of the ways thorough which businesses can maintain their competitive advantage amidst numerous challenges. There are various aspects of sustainability applicable to businesses.
One of them includes environmental sustainability. In their effort to achieve environmental sustainability, business enterprises are increasingly incorporating the concept of carbon neutrality.
This arises from the fact that businesses are a major contributor of the carbon emissions which is one of the key causes of climate change via global warming. Therefore, the priority being given to sustainability as an environmental issue is warranted.
Incorporation of carbon neutrality will play a significant role in businesses effort to attain sustainable development hence surviving into the future as going concern entity.
In addition, attainment of carbon neutrality will also enable businesses to attain their profit maximization objective. This arises from the fact that business organizations will be able to improve their publicity. This arises from the fact that the society will develop a positive attitude towards the firms hence considering the firm to be a part of the society.
As a result, there is a high probability of businesses attaining customer loyalty. As a result of being carbon neutral, firms will be able to operate cost efficiently.
In order to for firms to be regarded as being carbon neutral, there are a number of changes that the firms’ management team will be required to undertake. Despite the cost involved during the change process, the firm will benefit from being carbon neutral in the long run.
In order to be carbon neutral in their operation, it is paramount for the firm’s management team to consider implementing the following recommendations.
- Firms should ensure that they incorporate the concept of carbon footprinting in order to determine the amount of carbon they emit into the atmosphere as a result of their operation.
- If the firms do not have all the necessary mechanisms to undertake carbon footprinting, they should outsource these services from other intermediary organizations. This will enable the firm to be effective in measuring the amount of carbon it emits into the environment.
- In an effort to achieve carbon neutrality, it is paramount for firm’s management team to consider integrating the concept of carbon offsetting. This will enable the firms to prevent carbon emissions and at the same time operate social responsibility. The concept of carbon offsetting will require a substantial amount of investment. It is therefore important for the firm to rely on its own reserves other than sourcing the required finance externally.
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