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December 19, 2012

Businesses Unprepared for Resource Scarcity
    by Robert Kropp

Carbon Trust surveys the CEOs of corporations in five countries and finds that most have not set targets for reducing their use of natural resources, with nearly half stating that to do so would cost too much.

SocialFunds.com -- For the last couple of days, SocialFunds.com has reported on developments suggesting that in increasing numbers, corporations are finally recognizing the business case for sustainability. A report from Ceres, Calvert Investments, and the World Wildlife Fund (WWF) found that most of the world's largest companies have set at least short-term goals for reductions in greenhouse gas (GHG) emissions.

And the Governance & Accountability Institute reports that the number of S&P 500 companies now producing sustainability reports has increased dramatically in just the last year, from 19% in 2011 to 53%.

Yet as Mindy Lubber, president of Ceres, stated earlier this year, "Sustainability has yet to gain traction at anywhere near the scale and speed required given the global threats we face."

A recently published infographic from the UK-based consultancy Carbon Trust demonstrates the degree to which many corporations headquartered in five nationsóBrazil, China, South Korea, the UK, and the USóare unprepared for resource scarcity. Based on surveys of 475 senior executives, the study "shows that many are not prepared to look at the issue of resource shortages now and believe they will not need to make significant changes in their business operations to combat resource scarcity until 2018," according to Carbon Trust.

More than half of the companies surveyed do not yet have targets in place for reductions in emissions, water usage, or waste. Almost half have yet to even monitor the risks to their business operations from environmentally-related events, even though widespread scientific consensus indicates that the effects of climate change are already upon us.

Half of the executives polled believe that addressing sustainability will decrease profits. "When resource constraints become a reality," Carbon Trust reports, "60% of organizations think the cost of their products and services will need to increase, 55% that they will need to engage in fewer markets and 43% that they will deliver a less varied service or product offering."

Despite such acknowledgements, however, the externalization by businesses of social and environmental costs persists. Most business-to-business companies believe that they have four more years before they will have to address sustainability, and for consumer-facing companies the outlook is even more unrealistic; on average, they estimate that they have ten years before they will have to do so. Most consumer-facing companies do not even have a sustainability program at present, and one-third say they have no plans to enact one.

One reason for the blindness may be that only 13% of board directors are rewarded for achieving sustainability targets. In fact, "The sustainability buck stops with the board in only 4% of organizations surveyed," Carbon Trust found.

"Too often businesses see taking action on resource and sustainability issues as an obligation and a cost," Tom Delay, the Chief Executive of Carbon Trust, said. "We know from our extensive work on carbon that good management of resources can lead to new commercial opportunities and thriving businesses. Currently, many organizations seem to accept that they will have to make significant changes to their business because of resource scarcity, and that these changes could impact their profits. But many are sleepwalking into a resource crunch."

At the country level, 87% of UK-based companies report that they have a sustainability program in place, followed by the US at 77%, South Korea at 67% and China at 65%. Only 49% of Brazilian companies have a sustainability program; 76% of Brazilian companies surveyed state that they cannot afford the necessary investment.

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