Business begins to see profit in going green

Around the country and around the world, more companies and investment funds are walking their talk on tackling global climate change.

Businesses are conducting annual surveys of carbon dioxide footprints, filing C02 inventories, purchasing greenhouse-gas credits, and tying executive bonus pay to environmental targets. Financial Week reports:

"Florida's chief financial officer recently issued a directive requiring investment managers of state money to report on the potential effects of climate risk as part of their semiannual reviews. Likewise, officials at Calpers and Calsters, the influential California state employee and teacher pension funds, have teamed with other large funds to devise a global strategy tied to climate change. Eventually, the two California funds, which collectively manage $420 billion in assets, may end up rejiggering their portfolio mixes, pulling capital out of businesses which remain silent on the topic."

It's not just environmental do-gooderism in a power tie. Increasingly, businesses are finding that going green can be profitable.

A new study by international consulting firm McKinsey finds that half the necessary cuts in greenhouse-gas emissions can be achieved at a net profit. The study shows that investment in energy efficiency of about $170 billion annually worldwide would yield a profit of about 17 percent, or $29 billion. The Financial Times reports:

"Diana Farrell, director of the McKinsey Global Institute, said: 'It shows just how much deadweight loss there is in the economy in energy use.' She said the most inefficient sector was heavy industry in China, with the second residential housing in the US, where homes are large, poorly insulated ..."

At the United Nations Investor Summit on Climate Risk in New York last week, nearly 50 major US and international investors pledged to invest $10 billion in clean technology over the next two years. That's considerably more than two years ago when 26 funds made a $1 billion pledge. The initiative also calls for pressuring federal regulators to require companies to disclose how they are dealing with the financial risks of global warming. The Sacramento Bee reports:

"In recent years, some of the world's largest companies have launched campaigns to invest in clean technology. Last year, banking giants Citigroup Inc. and Bank of America Corp. committed a combined $70 billion to invest in green projects over the next decade. 'The ideals are being absorbed into the very fiber of our financial markets,' said Denise Nappier, Connecticut state treasurer."

Small states are doing their bit, too, says Oregon state treasurer Randall Edwards. In The Oregonian, he writes that the state has established tax credits for energy-efficient systems at home, as well as for businesses for green building constructions.

As the US moves toward a major shift in its political landscape this election year, it seems certain that less-polluting companies will benefit from a carbon-trading scheme – a legislation that all the major presidential candidates favor.

Two recent reports estimate that within a few years the annual carbon-trading market could range from $600 billion to $1 trillion. New Scientist online reports:

"Given the bipartisan momentum behind these bills, and their strong backing among White House candidates, analysts agree the US is very likely to see a cap-and-trade emissions market emerge in the next few years.... [P]ower companies will pass the higher cost of producing energy onto consumers. But businesses involved in bringing new 'green' technologies to market will stand to gain from the new market."

Rajendra Pachauri, chairman of the UN Intergovernmental Panel on Climate Change, recently walked "into the lion's den," as he put it, when he told oil executives in Houston that they need to lead the way in cutting greenhouse gases. Reuters reports:

" 'The world will be moving to a low-carbon future, therefore companies that take the lead will meet with success in both business and in the eyes of society,' Pachauri said. "Those who don't will be left behind. I think that's becoming more and more apparent.' "