Market Strategies for Climate Change

European Management Journal Vol. 22, No. 3, pp. 304–314, 2004 2004 Elsevier Ltd. All rights reserved.Pergamon

Printed in Great Britain0263-2373 $30.00doi:10.1016/j.emj.2004.04.011

Market Strategies forClimate ChangeANS KOLK, University of AmsterdamJONATAN PINKSE, University of Amsterdam

The issue of climate change has attracted increasingbusiness attention in the past decade. Whereas com-panies initially aimed primarily at influencing thepolicy debate, corporate strategies increasinglyinclude economic responses. Existing classificationsfor climate change strategies however still reflectthe political, non-market components. Usingempirical information from the largest multi-national companies worldwide, this article exam-ines current market responses, focusing on the driv-ers (threats and opportunities) and the actionsbeing taken by companies to address climatechange. It also develops a typology of climate stra-tegies that addresses the market dimensions, cover-ing both the aim (strategic intent) and the degreeof cooperation (form of organisation). The aimturns out to be either innovation or compensation,while the organisational arrangements to reach thisobjective can be oriented at the company level(internal), at companies’ own supply chain (vertical)or at cooperation with other companies(competitors or companies in other sectors —horizontal). The typology can assist managers indeciding about the strategic option(s) they want tochoose regarding climate change, also based on theinsights offered by the paper about the current stateof activities of other companies worldwide. 2004 Elsevier Ltd. All rights reserved.

Keywords: Climate change, Corporate strategy,Environment, International policy, Multinationals

Introduction

Climate change is an international environmentalissue that has increasingly attracted business atten-tion in the past decade, because of its actual or poten-tial strategic impact on many companies. Climatechange poses strategic dilemmas for companiesacross a range of industries, affecting those that pro-duce fossil fuels (e.g. oil, utilities), depend on thesefuels directly (e.g. chemicals, airlines) or indirectly(automobile and aircraft manufacturers), and those

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that want to develop new market opportunities aris-ing from risk coverage or emerging emission tradingsystems (e.g. banks, insurance).

While public and policy interest started already inthe late 1980s, leading to a first international agree-ment at the Rio Conference in 1992, the main driverfor corporate strategic change was the adoption ofthe Kyoto Protocol in 1997 (Grubb et al., 1999). Thisevent spurred the development of regulation, andincreased the pressure from non-governmentalorganisations (NGOs) on governments to ensure rati-fication of the Protocol, and on companies, whichwere urged to take appropriate steps to address glo-bal warming.

In the period leading to the Kyoto meeting, a con-siderable number of large multinational companiesin particular had started to spend much time andeffort in trying to influence, both individually andthrough a range of business associations, theirgovernment’s stance on an international climate tre-aty and emission reduction policies (Ikwue and Skea,1994; Kolk, 2000; Levy, 1997; Newell and Paterson,1998). With only some exceptions, companies initiallyopposed the adoption of such measures and regu-lation. Uncertainties about the economic, technologi-cal and strategic impact of an international climatepolicy led many of them to stress the threats to theirbusiness and the negative consequences for the econ-omy as a whole. Especially in the US, the unresolvedscientific nature of the global warming debate wasoften used as further argument.

When government support for Kyoto turned out tobe more widespread than expected, however, the pic-ture started to change slowly but surely, and anincreasing number of companies stopped their oppo-sition. Some openly adhered to the precautionaryprinciple and emphasised the opportunities that amore proactive approach would bring. Others fol-lowed rather reluctantly, merely preparing to complywith expected regulation (Kolk, 2000; Levy and Egan,2003; O’Neill Packard and Reinhardt, 2000). The tim-ing and pace of these shifts varied by industry and

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country of origin. Early proponents could be foundin those sectors where market chances were quicklydiscovered, or where the risks of climate change pre-vailed. In the automotive and oil industries, compa-nies from European countries changed positionsmuch earlier than their US counterparts (Kolk andLevy, 2001; Kolk and Levy, 2004; Levy and Rothen-berg, 2002). As the climate issue matured, however,more companies adopted proactive climate stra-tegies. Corporate support for climate measuresbecame evident in the wave of activities and initiat-ives to reduce emissions, through product and pro-cess improvements, cooperation with other compa-nies, government agencies and NGOs to exchangetechnologies and expertise, and the exploration ofoptions such as emission trading (e.g. Dunn, 2002;Rosenzweig et al., 2002; Whittaker et al., 2003).

A decade of business interest in climate change hasthus led to a clear shift in the strategies adopted.While political, non-market, strategies predominatedin the first half of the 1990s, the market componentis clearly increasing in importance (Baron, 1995; Levyand Kolk, 2002). At the same time, however, the factthat large companies operate in a range of countrieswith sometimes different climate policies (Hamiltonet al., 2003; Schreurs, 2003) means that the moremulti-domestic non-market strategies (Baron, 1997)continue to have an impact. But in the firm-specificblend of market and non-market strategies in thefield of climate change, the former is currently receiv-ing more attention. However, existing classificationsfor climate change strategies, developed concurrentwith corporate (political) activity in the 1990s, are notyet able to grasp the new realities properly.

This paper introduces an adjusted typology, payingspecific attention to the market components relatedto climate change. To this end, it examines empiricalinformation from the largest multinationals world-wide, derived from a questionnaire, to explore themain elements of current corporate activity on cli-mate change. On the basis of this analysis, the domi-nant distinguishing peculiarities are subsequentlyinduced and a typology is presented. First, however,and before moving to the sample and data analysis,the next section briefly discusses the climate strategyclassifications that have been developed and usedso far.

Corporate Responses to ClimateChange: Existing Classifications

With the emergence of climate change as businessconcern, attempts have been made to characterisecorporate strategic responses. In line with thebroader literature on environmental management,particularly continuum models and, to a lesserextent, typologies have been used (Doty and Glick,

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1994; Kolk and Mauser, 2002; Rugman and Verbeke,1998). An example of a continuum is the RDAP-scale(Clarkson, 1995), adapted from a well-known classi-fication in research on corporate social responsibility.On this continuum, responses range from a reactivestance, which denies responsibility, at the one end,to proactivity at the other, where managers anticipatedevelopments. In between these two extremes,defensive and accommodative postures can be seen,characterised by, respectively, reluctant admissionand acceptance of responsibility.

In view of the difficulties in distinguishing the lasttwo categories, a three-step continuum (defensive,opportunistic/hesitant, and offensive) has been usedto classify the evolution of corporate climate changestrategies since the mid-1990s (Kolk, 2000). Thedefensive posture involves active opposition to aninternational climate treaty, with emphasis on thecosts involved and the lack of scientific evidence forglobal warming. In an opportunistic/hesitant strat-egy, companies prepare themselves for regulatoryand market changes, but take a cautious approach inpublic. They see no need to be a first mover and totake risks, but, at the same time, preparations arebeing made to change sides if necessary. Finally,companies that follow an offensive approach point attheir own responsibility and the need to take the firststep themselves, not only for environmental reasonsbut also because it will offer market opportunities orimprove their image. Moreover, the potential conse-quences and risks of climate change are seen as soserious that a precautionary approach should betaken.

In the description of the categories, elements of otherenvironmental management typologies can be recog-nised. This involves particularly perceptions ofenvironmental impact and its scientific significance(Roome, 1992), the risks involved (Rondinelli andVastag, 1996) and the market opportunities offeredthrough environmental protection (Steger, 1993). Itshould be noted that the defensive-opportunistic-offensive continuum involves broad categories, andthat companies can move from one strategy toanother in whatever direction. Moreover, they canadhere to one strategy openly (for example, resistingan international treaty — defensive) while simul-taneously preparing for change (research into newtechnologies — opportunistic). This was the case formost companies that lobbied actively against climatemeasures. The one-dimensional climate model alsosuffers from another well-known caveat, that is itsinability to take internal differences into account.Especially inside large multinational companies,divergent views, for example between European andUS locations, have been observed.

Hence, while this continuum had value in the periodwhen corporate reactions to climate policy started tochange, and when these positions more than theiractual activities mattered since the latter were just

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emerging, more differentiation became needed whenthe issue matured. A response to the limitations isthe typology developed out of Gladwin and Walter(1980), and applied to the development of climatechange responses by US and European oil multina-tionals (Levy and Kolk, 2002; see Figure 1).

This two-by-two matrix identifies whether compa-nies are cooperative, through support for mandatoryemission controls and climate investments (in this oilcase, involving renewable energy technologies) ornot. The second dimension relates to the assert-iveness of companies’ public position, identifyingtheir support for or opposition to attempts at regu-lation. The different climate strategies of large oilcompanies in the US and Europe can be seen in Fig-ure 1, which pictures the development over time,showing a certain degree of convergence.

Although this typology addresses some of thedeficiencies of the continuum model, it still focusesmore on their approach towards public policy thanon the actual market activities undertaken by compa-nies. In view of the fact that a considerable numberis involved in such market strategies for climatechange, committing resources to reduce emissions,there seems to be a need for a classification thatreflects these realities appropriately. In the next sec-tion, current climate change activities of large multi-nationals will be analysed in order to develop sucha typology.

Sample and Data

For the purpose of this article, we analysed the rawdata that have become available through the CarbonDisclosure Project, in which the largest 500 multina-tionals (according to the 2002 FT500 list) were sent aquestionnaire on their greenhouse gas emissionspolicies1. Almost half of the first 500 companies in

Figure 1 Corporate Responses to Climate Change byOil Multinationals∗

∗Positions as of 1998: arrows indicate subsequent movement.Source: Levy and Kolk, (2002, p. 289)


this Financial Times ranking gave detailed answers toseven questions about emission reduction targets,policies, activities and measurement, and their per-ceptions of climate change. Nearly 50 per cent ofthem have their home country in Europe, while 30per cent originate from the US and 14 per cent fromJapan. The main sectors are finance and securities(which forms 18 per cent of the responses), elec-tronics and computers (15 per cent), utilities (9 percent) and communications and media (7 per cent).Sectors with smaller numbers of companies (and per-centages of 5 per cent and lower) are food and bever-ages, pharmaceuticals, insurance, chemicals and syn-thetics, oil and gas, metals, manufacturing andengineering, mining and automobiles. More detailswill be given below when we report on those compa-nies that have publicly provided information throughthe questionnaires (for this qualitative analysis, aninductive coding technique was used, cf. Strauss andCorbin, 1998).

Before moving to the content analysis, however, it isnoteworthy that the respondents (the sample) are notrepresentative of the 500 largest companies of theworld; those companies that provided a fully answ-ered questionnaire are the most proactive regardingclimate change. A statistical analysis of the responserates (using logistic regression) showed that countryof origin played an important role in determining theprobability that a company would respond to thequestionnaire (more important than the sectoreffect)2. Moreover, a company from the EU turnedout to be seven times more likely to respond to thequestionnaire than a US multinational. Japanese com-panies are in between EU and US companies; theyare almost half as likely to respond than Europeanmultinationals and more than four times more likelyto respond than US multinationals3.

The likelihood of response to the questionnaire givesan indication of the overall posture of large multi-national companies towards the issue of climatechange. The results clearly correspond to the positionthat their home-country governments have takentowards the Kyoto Protocol in recent years. The refu-tation of the protocol by the US government appearsto have had its effect on US companies. By contrast,the EU ratified the protocol at an early stage, leadingto a more positive stance on the part of Europeancompanies. The Japanese government only ratifiedafter some hesitation, resulting in a more modest pos-ition of Japanese companies.

Analysing Corporate Climate ChangeActivities

The analysis of this section examines the mainaspects on which the companies have publicly pro-vided information through the questionnaires; this

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covers 111 responding companies. Whereas, asreported above, country of origin affects the responserates, industry peculiarities play a role in shaping thetype of debate and approach of the companies in thefield of climate change; this is why we have paid spe-cific attention to sector in the content analysis.

The topics that will be discussed are subsequently,in three subsections, companies’ perceptions of thebusiness opportunities and threats of climate change;their activities with regard to the measurement andtarget setting of emissions; and the actions under-taken to combat climate change. While the first sub-section merely serves to explain the context and thedrivers for climate strategies, the second and parti-cularly the third subsection analyse the contents andfocus of these strategies.

Drivers for Corporate Activity — Risks, Threatsand Opportunities

Almost all companies in the sample turn out to havea clear opinion about what climate change means totheir company. Only four companies have not yetformed a clear position, and (still) point at the uncer-tainty surrounding the issue. The analysis of thequestionnaires shows that the climate strategies ofthe responding companies are not directed at influ-encing government policy, but start from the positionthat government regulation is a reality they have tocope with. Even companies from countries that havenot ratified the Kyoto Protocol assume that theirgovernments will, at some point in time, adopt what-ever policy to reduce greenhouse gas emissions.About one third of the companies in the sample men-tion upcoming regulation as one of the main driversfor action to reduce emissions.

Whether government regulation is viewed as a busi-ness risk or opportunity strongly depends on thetype of industry. The most notable industries thatperceive it as a risk are oil and gas, mining, metalsand utilities. This is not surprising in view of the factthat emission reduction regulation is mainly directedat these industries. In the current design of the EUemissions trading scheme, for example, energy activi-ties, the production and processing of metals, themineral industry and the pulp and paper sector willbe subject to a cap on greenhouse gas emissions.Government regulation is viewed as an opportunityby some financial companies, which believe that theycan assist customers that are affected by such regu-lation through facilitating their emission trading orfinancing offset projects for them.

If we move beyond regulation as a driver for actionto the discussion about the business opportunities orthreats of climate change, corporate perceptionsshow considerable differences. The negative impli-cations are stressed by those companies thatexplicitly mention the influence of changing weather


patterns and weather-related catastrophes on theirbusiness. One quarter of the companies refer toweather-related events. This factor is most salient forinsurance and food and beverages and, to a lesserextent, finance and securities. For these sectors,changing weather mostly has an indirect impact onbusiness operations. For food and beverages compa-nies, it will affect their (agricultural) suppliers, whilethe insurance and finance sectors fear the impli-cations for their customer base due to increasinginsurance costs and loan defaults. Many companiesdo not wish to mention weather-related eventsresulting from climate change as a potential risk oropportunity, however, because these are expected tooccur only in the long run, not within their currentbusiness horizon.

On the whole, respondents emphasise the businessopportunities related to climate change rather thanthe risks. The competitive effects that they mentionfall into three categories: changes in costs (13 per centof the responses), changes in demand (18 per cent),and the development of new technologies (35 percent). Perspectives on the effects of cost changes aremixed. Cost increases due to rising energy pricespose a risk for companies that are energy intensive.At the same time, emissions reductions are also asso-ciated with cost reductions because of less energyuse, and are then seen as potential opportunities. Achange in demand is much more viewed as anopportunity, strongly related to the relatively lowemission potential of certain products. Companies inelectronics and computers and communications andmedia argue that the use of their products and ser-vices will lead to emission reductions on the part oftheir customers. Higher demand is anticipated byutilities that have an energy portfolio with a rela-tively large share of natural gas and/or renewableenergy.

The overwhelming majority of companies expect toincrease their competitiveness as a result of climatechange through process innovation or product devel-opment. Product development is most often men-tioned as leading to a competitive advantage,whereas process innovation is more strongly relatedto energy-efficiency improvements. The opport-unities for technological development are most sali-ent in technology-intensive industries such as chemi-cals and synthetics, automotive and oil and gas. Newproduct development is not necessarily related totechnology. Innovative products can also be found inthe insurance sector, where companies see opport-unities for developing insurance products thataddress climate change risks.

Finally, it must be noted that some companies dis-tance themselves from the previously mentioned dri-vers for taking action on climate change. They stresstheir corporate social responsibility and argue thattheir activities are part of an overall commitment tosustainable development or objective to be a corpor-ate citizen. Novartis, for example, states that:

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Our efforts for energy saving are rather driven by our com-mitment to sustainable development than by company spe-cific economic reasons.

It must be noted that this position implies that econ-omic motives do not play a dominant role when acompany wants to be socially responsible. This is notnecessarily the case. In relation to corporate socialresponsibility, leadership, reputation, image, stake-holder acceptance and investor confidence are men-tioned. This implies that being viewed as sociallyresponsible eventually also enhances companies’competitiveness, and that economic drivers are thusinvolved as well.

Emission Measurement and Targets

A first step towards more sophisticated action on cli-mate change is an inventory of greenhouse gas(GHG) emissions, because companies need to knowtheir current situation for a start. The overwhelmingmajority of the respondents have undertaken actionsin this area. The analysis of the responses also showsthat companies which lack such an inventory haveneither set targets nor developed measures to stabil-ise or reduce emissions. Applied Materials and Gen-eral Electric, for example, are still exploring the dif-ferent possibilities for measurement of emissions andstate that their climate strategy will depend on theoutcome of a planned inventory. In addition, compa-nies without emission measurement certainly do notalways intend to start doing this. Financial compa-nies such as the Bank of Ireland, Golden West Finan-cial and Merrill Lynch argue that their operations donot generate GHG emissions and that it is thereforenot necessary to measure them.

Considerable differences exist with regard to the typeof greenhouse gases that are monitored. Practicallyall companies measure carbon dioxide (CO2), butonly half of these also monitor other greenhousegases such as methane, CFCs (refrigerants) and PFCs(a synthetic industrial gas used in the manufacturingprocess of semiconductors). Some companies onlymeasure the direct emissions from their own oper-ations, others also account for indirect emissionsfrom electricity use.

If GHG emissions are measured, the majority of com-panies have used this information to draw upenvironmental programmes that include targets foremission reduction or stabilisation. While companiesmention very different time frames, baseline yearsand ambition levels, three approaches predominate.The first type is a target to reduce or sometimesstabilise GHG emissions (51 per cent of theresponses). Most often these targets aim to reduceemissions in absolute terms, but sometimes they arerelative, coupled to sales or related economic indi-cators. The second approach involves an objective todiminish energy consumption (absolute target), or


improve energy efficiency (relative target) (17 percent). Some companies have set a third and narrowertype of target, which is to reduce only fuel consump-tion (5 per cent).

The implementation process of target setting andassociated reporting displays more variation. At oneend of the spectrum, companies have a top-downapproach with a group-level target that accounts forworldwide operations; examples include Alcan andNovartis. At the other end are companies with a bot-tom-up approach, which includes local targets foreach business unit. This seems rather common infood and beverages (Unilever, Nestle). Some compa-nies set targets in cooperation with a third party,such as a government agency, an NGO or tradeassociation; others strive to do this fully on their own(Dow Chemical). Commitment to a target as part ofan agreement with a third party is mainly seen in the(more regulated) utilities industry. Overall, US com-panies tend to commit themselves more often by anagreement. Climate change targets are sometimespart of broader environmental programmes that werealready in place. The pharmaceutical industry, forexample, has a strong tradition in Environment,Health and Safety programmes in which GHG emis-sion reduction targets are currently also regularlyintegrated.

Controlling GHG emissions is not always limited tomonitoring and target-setting. A number of compa-nies intend to use the resulting climate change indi-cators in a more sophisticated way, for internal con-trol purposes. BG Group, Norsk Hydro, NovoNordisk, BHP Billiton and Munich Re all (plan to)include emission indicators in investment decisionprocesses. In the same vein, Santander Central His-pano has integrated these indicators in the creditdecision-making process. The most profound systemto compensate for GHG emissions internally is theinternal emission trading scheme. This has been pil-oted in BP and Royal Dutch Shell (BAA and SwissRe plan to introduce a similar programme for busi-ness units to trade emission credits).

With regard to internal compensation purposes,Roche notes that a global presence can be an advan-tage:

We support the idea that measures for reducing emissionsshould be taken at those places where the most significanteffects have been evaluated. For a multinational companythis means to generate emission certificates in places wheremaximum effects are expected with minimum costs andthen having the possibility to transfer these to sites wherethe situation for modifying installations is less favourable.

Whereas most strategies mentioned so far wereinternally focused, companies also pay attention tothe supply chain or even State to go beyond the sup-ply chain in the process of target setting. US compa-nies, for example, frequently mention industry-wide

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targets. There are also initiatives in which companiesagree on reduction objectives together with otherprivate organisations, for example under theumbrella of a broader climate change initiative.

Actions to Combat Climate Change

Although target-setting and monitoring with respectto GHG emissions is considered as a first step in aclimate strategy, this does not fully reveal the currentstate of companies’ business practices. More insightcan be obtained by looking at the actions being taken.Following Mintzberg and Waters (1985) in viewingstrategy as a pattern of actions, analysing this forcompanies’ emission reduction activities leads to abetter characterisation of their strategies.

An important distinction in this regard is the stra-tegic scope regarding climate change, as companieshave been shown above to exhibit differences con-cerning the extent to which they feel responsibilityfor emissions and perceive business opportunities.Below, first the corporate actions with the most ‘nar-row’, internal scope will be analysed. Subsequently,attention is paid to those strategies in which the emis-sions of companies’ supply chain are also included,or even go beyond the supply chain by engagementin partnerships and in emission markets. Figure 2summarises these corporate actions, differentiatingbetween actions that are already in place, that compa-nies plan to start, or that are absent. Table 1 gives anoverview per sector of the different actions under-taken, as reported by the companies in response tothe questionnaire.

Internally-oriented MeasuresInternal measures to reduce GHG emissions mainlyconsist of changes in the production process enabledby technological developments. Other measuresinvolve new product development, improved pro-ducts (in terms of energy efficiency), or a change in

Figure 2 Summary of Corporate Actions on ClimateChange (N = 111)


organisational culture (improving employee aware-ness of climate change issues) to achieve reductions.A focus on internal measures appears to be the mostcommon route currently taken by companies, con-sidering at least the extensive answers on this topic;responses concerning the broader strategic scope aremore limited (see Figure 2).

Most process improvements are directed at thereduction of CO2 emissions, seen as the main green-house gas. Only for electronics and computers andfood and beverages, respectively, PFC and CFC emis-sions have an impact as well. Direct CO2 emissionsresult from the combustion of fossil fuels whileindirect CO2 emissions are generated by the use ofelectricity and heating. The relative importance ofthese two emission sources differs per industry andhas consequences for companies’ ability to reduceemissions and for the type of measures taken. Lowenergy users, such as telecommunications, elec-tronics, insurance and the financial sector, do notgenerate large amounts of CO2 emissions. This alsomeans, however, that their possibilities to mitigateclimate change are more limited. The main measuretaken by companies in these industries are theimplementation of management programmes to con-serve energy (for example, systems that control heat-ing and reduce electricity use). This is often com-bined with a programme to increase staff awarenessof energy conservation and restrictions on businesstravel. Energy-intensive industries have moreoptions, but also experience greater pressure toreduce GHG emissions. Automotive, chemical, andmining companies mainly focus on the improvementof production processes by developing more energy-efficient technologies. The oil and gas industry hasa more specific measure available: the reduction ofgas flaring.

Whereas all these measures apply technologies thatare more energy efficient and lead to reductions inenergy use, companies can also focus on the type ofenergy sources. Most noteworthy in this respect issubstitution of fossil fuels by carbon-free renewableenergy. In sectors such as telecommunications andpharmaceuticals, this requires procurement of elec-tricity and heating generated from clean energysources. For companies that use fuels directly forcombustion purposes, fuel switching has a muchlarger impact because it requires a radical change ofthe combustion process (for example, through theinstallation of combined heat and power generators).For utilities and chemical firms, fuel switching some-times means that coal-fired plants have to be replacedby gas-fired plants or divested altogether, and is onlynoted as a measure of last resort.

Respondents also refer to more externally-orientedmeasures. Sometimes companies do not believe theycan sufficiently reduce their own emissions, butstress that their products and services have a positiveimpact on upstream and downstream activities, and

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Table 1 Corporate Actions on Climate Change per Sectora

Target Process Product Supply Market Partnerships (%)Sector N setting improvement development chain (%) mechanisms

(%) (%) (%) (%)

Automotive∗ 4 100 100 100 100 25 75Chemicals & synthetics∗ 7 57 100 86 57 0 29Communications & media 9 56 89 44 78 11 33Electronics & computers 16 69 56 56 81 13 50Finance & securities 21 48 57 5 52 14 33Food & beverages 9 89 89 44 78 22 33Insurance 8 50 75 0 50 25 13Metals & manufacturing∗ 6 83 83 83 100 50 33Mining∗ 3 100 100 67 100 0 33Oil & gas∗ 5 60 100 100 40 40 60Pharmaceuticals 10 80 90 20 70 0 40Utilities 13 69 54 31 31 31 69

aEspecially for the sectors marked with an ∗, the small sub-sample sizes should be taken into account, notably with regard to thehigh percentages for some of the categories

emphasise this as a way to reduce GHG emissions.For example, automotive and chemical companiesinvest in the development of more energy-efficientproducts that will lead to customer emissionreductions.

Supply-chain MeasuresVarious companies have started to consider emis-sions of their supply chain (upstream and/ordownstream). However, differences between indus-tries are not as clearly observable as in the case ofinternally-oriented measures. The more service-ori-ented industries — finance and securities andinsurance — have a different position than manufac-turers. Financial and, to a lesser extent, insurancecompanies argue that because they provide servicesand do not manufacture, there is no reason for meas-uring or taking action regarding emissions of theirproducts. Only two insurance companies — Legal &General Group and Swiss RE — note that their assetscause emissions indirectly, but they do not (yet)monitor them. Neither do most service-oriented com-panies consider upstream emissions, although someof them monitor their suppliers’ environmental pro-grammes.

A majority of companies in automotives, chemicals,metals, mining, and (to a lesser extent) electronicstake responsibility for emissions caused by the use oftheir products. In automotive, metals and chemicals,this is done through a life-cycle analysis of the majorproducts. Some companies integrate GHG emissionsin the design phase of their products (BMW, GE,IBM, Unilever); others, such as Applied Materials,assist their customers in reducing emissions:

As far as emissions generated by our products, we rou-tinely sample and analyze emissions for the purpose ofadvising customers about typical emissions and relatedcost of ownership issues (…).

In utilities and pharmaceuticals, products’ emissions


are usually not monitored because companies arguethat use (of respectively electricity and medicines)does not lead to emissions.

The two most outspoken industries considering sup-pliers’ emissions are food and beverages, and metals.The intensity of supplier engagement differs, rangingfrom sampled monitoring of only large suppliers todetailed emission targets and guidelines. In otherindustries the picture is more diffuse. Some compa-nies do not monitor their suppliers’ GHG emissions,but select their suppliers based on their environmen-tal programmes and sometimes require ISO 14001certification. There are also firms that expect theirsuppliers to have the same environmental standards(BMW Group) or cooperate with them more actively.Centrica, for example, has partnerships with its sup-pliers to increase understanding of the chain. Manyof the companies that do not take account of theirsupply chain’s emissions are considering this, whichsuggests that they are in a process of broadeningtheir strategic scope when it comes to emissions.

It seems that supply-chain measures are growing inimportance. For product development, which has aninnovative aim, the drivers are clearly of a competi-tive nature. The reasons for increased control oversuppliers are likely to be somewhat different, andrelated to compensation for current GHG emissions.

Measures beyond the Supply Chain

Recent public policy developments have led compa-nies to seek climate change solutions beyond the bor-ders of their internal organization and supply chain.The emphasis placed by the US government on theeconomically-damaging effect of short-term policymeasures (such as a carbon tax) during the negoti-ations of the Kyoto Protocol resulted in the inclusionof flexible mechanisms: emissions trading, the Clean

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Development Mechanism and Joint Implementation(Grubb et al., 1999). This means that companies areable to achieve reductions of GHG emissions incooperation with other companies or governments,either by trading emission credits or by a partnershipin an offset project. This is particularly the case in theEU and Japan, which have ratified the Protocol, andare developing these market mechanisms. Inaddition, other cooperative measures that are notalways related to government policy have alsoemerged.

Three types of cooperative agreements can beobserved: the use of market mechanisms; a voluntaryagreement as part of a partnership with a third (non-market) party (governments or NGOs); or a partner-ship with other companies, for example through astrategic alliance. While participation in marketmechanisms and voluntary commitments are con-sidered as strategies to compensate for a company’sown emissions, a strategic alliance has a strongerinnovative aim. It must be noted that the survey didnot explicitly ask for corporate approaches regarding(innovation-motivated) partnerships, which meansthat no overall picture can be given. Some companiesdo, nevertheless, hint at this form of cooperation. Inthe context of developing lower carbon products,BP comments:

This is not an issue that can be tackled by one company oreven one sector. BP is therefore facing up to the impact ofproduct emissions through both near and long-term part-nerships aimed at developing innovative, cost-effectivetechnology.

In most industries, there are companies which havea voluntary agreement with a government, NGO ortrade association; the only exception is the insurancesector. Utilities stand out because a majority has apartnership with a government agency, either indus-try-wide or individually. This seems to be due to thetraditionally regulated nature of the industry. In allother cases, the probability for a company to have anagreement with a government agency does notappear to depend on the industry, but on the countryof origin. It can be observed that the US and UKgovernments have both been active in committingcompanies to emission-reduction agreements. Othercountries where this has taken place are Switzerland,Germany and Australia. Apart from setting targets,voluntary agreements sometimes have other goals aswell, such as sharing a code of conduct (Fujitsu),designing an emission market (Electrabel) or creatingoffset projects (BG Group).

With respect to engagement in emissions trading, thecountry effect is even stronger, although this is notthe country of origin. For a company to participate inthe market for emission credits, it needs to be locatedin a country where such a market is already present,a ‘country-of-location’ effect. Currently only a limitednumber of emission markets exists. There are some


more localised, subnational, markets, and nationalmarkets in the UK and Denmark. In the US, the mostimportant market will be the Chicago ClimateExchange (Rosenzweig et al., 2002). Most companiesthat have already started to trade emission creditswere active in the UK scheme. The oil and gas indus-try appears to have progressed most in trading. BPand Royal Dutch Shell have not only participated inthe UK scheme, but also launched an internal emis-sion-trading scheme (BP has suspended tradinginternally in the meantime, waiting for the EUscheme). This raises the question about the(dis)advantages of an internal scheme compared to apublic international one. TotalFinaElf suggests that inthe future it can adopt market mechanisms forinternal control purposes:

(…) Our potentials of reduction are not uniformly locatedin the world. We have higher potentials in some countriesthan in others. Emissions trading and clean developmentmechanisms are essential tools to respond at the same timeto global and national demands.

Finally, it must be noted that many companies men-tion seeing emissions trading and offset projects as ameans to reduce GHG emissions without the necess-ity for internal efforts (an ‘easy way out’), and there-fore oppose these mechanisms, stating that theyintend to take responsibility themselves throughinternal measures. As Figure 2 shows, only a fewcompanies are already active in emission trading andoffset projects. At the same time, a much larger num-ber is closely following the development of emissionmarkets, and intend to become involved when themarket has matured.

A Typology of Market Strategies forClimate Change

On the basis of the evidence from the questionnaires,a typology can be developed. Companies turn out todiffer on two important dimensions of corporatestrategy regarding climate change: the aim (strategicintent) and the degree of cooperation (form oforganisation). These two dimensions are combined inone matrix in Table 2.

Table 2 Climate Change Strategies

Aim

Organisation Innovation Compensation

Internal(company) Process Internal targets,improvement control and trading

Vertical(supply Product Supply chainchain) development targets, control and

tradingHorizontal(beyond New product/market External marketthe supply chain) combinations mechanisms

Recent public policy

developments have led

companies to seek climate

change solutions beyond the

borders of their internal

organization and supply

chain

CLIMATE CHANGE

The table shows that, on the one hand, the aim ofcompanies differs. They can focus either on inno-vation (thus reducing emissions through improve-ments in processes, products, product orproduct/market combinations) or compensation(external or internal emission trading, and otherforms of offsets through e.g. the Clean DevelopmentMechanism or Joint Implementation). On the otherhand, there is a clear variation in the degree ofcooperation and form of organisation that companieschoose to reach their objectives. This can be done atthe individual company level (internal), through com-panies’ own supply chain (vertical), or together withother companies (competitors or companies in differ-ent sectors — horizontal).

The analysis of the perceptions of climate change inthis article showed that many companies emphasisethe strategic opportunities of new product develop-ment. Companies can innovate either in their supplychain, or beyond it, bydeveloping products for newmarkets. A possible way toenter new markets is to becomeinvolved in a strategic allianceor other forms of cooperationwith other companies. Thecooperation between oil andautomobile companies on fuelcells is a case in point.

It must be noted, however, thatcurrent measures are moredirected at process improve-ments, particularly energyreduction (and/or higher energy efficiency) andincreased use of relatively clean energy sources. Inenergy-intensive industries such as chemicals, min-ing, metals, utilities, and oil and gas, new energy-efficient technologies are developed andimplemented to achieve reductions, which can becharacterised as climate strategies with an innovationaim (upper left section in Table 2). Low energy-con-suming industries, such as telecommunications, fin-ance and insurance, implement energy conservationprogrammes and create employee awareness, anapproach that is more appropriately classified as aninternal control mechanism with a compensation aim(upper right section in Table 2). Compensation canalso be done through the supply chain, or throughrelying on external mechanisms, such as tradingschemes, as mentioned in this article. The differen-tiation in business unit targets, as adopted by somemultinationals, and the integration of targets ininvestment decisions have the strategic aim to com-pensate for current emissions.

The main focus of the strategies shown in Table 2reflects the extent to which a company wants todevelop firm-level green resources and capabilities(Hart, 1995; Rugman and Verbeke, 1998), reach suchcompetitive advantages through its supply chain, or


cooperate through the formation of alliances in whichknowledge is combined (cf. Contractor and Lorange,2002; Ruigrok and Van Tulder, 1995). And it refersto the type of control and coordination mechanismsneeded to reach targets in companies’ internal oper-ations, its value chain and network, or on the market(cf. Husted, 2003; Martinez and Jarillo, 1989).

Conclusions

The objective of this paper was to examine severalnotable trends with respect to companies’ marketactivities for climate change, and to identify the stra-tegies they are developing, relevant to both academ-ics and practitioners. Different approaches seem tohave emerged, as noted in Table 1. These strategiesdiffer in their aim (strategic intent) and degree ofcooperation (form of organisation). The typology can

assist managers in decidingabout the strategic option(s)they want to choose regardingclimate change, with regard tothe choice between innovatingor compensating; and concern-ing the extent to which theywant to focus on their ownoperations only, and/or alsocooperate in the supply chain,or even beyond that. The pap-er’s analysis of the current stateof climate change activities bymajor multinational companiescan be used as further input for

such a decision-making process. For practitioners,more insights into the emergent strategies and theoptions with regard to climate change will be helpfulin developing and/or adjusting managerial and pol-icy-making activities.

The current situation is that most companies havealready made an inventory of their GHG emissions.With respect to the measures being taken (see Figure2), most companies focus on internally-oriented mea-sures that improve energy efficiency of their businessprocesses. At the same time, however, a growingnumber are exploring possibilities to integrate thesupply chain in its climate strategy and develop new(energy-efficient) products. Current regulatory devel-opments also stimulate companies to look for sol-utions that stretch even further, through partnershipsand participation in emission markets.

The underlying trend is that companies increase thedegree of cooperation by broadening their strategicscope regarding climate change. Whether companiesaim at innovation or compensation remains a muchmore open question, which will partly rely on the(international) development of policy measures onclimate change. Companies’ means to compensate fortheir own emissions are currently still limited,

CLIMATE CHANGE

because of the immature state of emission marketsand offset projects. The location and geographicalspread of companies also influence the extent towhich this option will be(come) available.

As the content analysis in this paper has shown,industry peculiarities play a role in the responses for-mulated by companies, but mainly shape the type ofdebate on climate change. The analysis of the con-crete actions taken to reduce GHG emissions revealsa much less pronounced industry effect. Table 1shows that the characteristics of the target-settingprocess and the internal measures reflect relativelysharp distinctions between sectors, but that these dis-tinctions become more diffuse in the case of measureswith a broader scope. Within each sector, companiesfollow rather distinctive approaches, which results instrategies that could not be explained by a sector per-spective. Follow-up studies are necessary to obtainmore insight into the actual positioning of differentcompanies, and especially the determinants of thesedifferences. These factors can be firm-specific, butalso related to country of origin or location.

The importance of country of origin was shown inthe analysis of the sample responses. This revealedthat the responding companies were not representa-tive of the full set, and that European companieswere more likely to respond to the questionnaire thanJapanese and US companies respectively. Thisreflects the current state of the positions taken by therespective governments. It is clear that those compa-nies that responded to the questionnaire are the mostproactive with regard to market responses to climatechange. To what extent country of origin also influ-ences the contents of the specific climate strategy isan interesting area for further research. This alsoapplies to a possible country-of-location effect, whichmight be expected to become more dominant whenthe use of market mechanisms and concomitant busi-ness involvement in emission trading increase.

It is important for managers to consider not onlytheir companies’ home-country context when design-ing and implementing a climate strategy. If compa-nies are located in other countries as well, the regu-latory and societal context there matters too, andshould be considered — be it only because the devel-opment and applicability of new emission tradinginstruments and carbon tax regulations is unclearand uncertain. In addition, such a broader perspec-tive can also help to transfer (emerging) best practices(and prevent the spread of the ‘worst’) from aroundthe world, benefitting either from the expertise ofother companies or the knowledge built up intern-ally, in other units of the multinational company inquestion. This ‘learning approach’ is all the moredesirable if a company explicitly and actively wantsto develop its own profile and strategy for climatechange.


Notes

1. http://www.cdproject.net2. Logistic Regression (LR) was applied because OLS

regression could not be used in view of the dichotomousvariable of the dependent variable. The region variable wassignificant, the sector variable was not.

3. The numbers refer to the odds ratio, or logistic coefficient,calculated through LR, by comparing the probability of anevent occurring with the probability of an event not occur-ring. Such an odds ratio for a category should be inter-preted as the change in the odds of an event occurring fora company in a particular category vis-a-vis the odds ofthis event occurring when a company would be in a refer-ence category (Hair et al., 1998).

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