"Carbon Footprint" is a term that gets used often but it's a mistake to assume that anyone in your organization knows what it means, let alone how that knowledge matters to your business model. In this post we'll fix that with terms a 3rd grader can understand and give you 5 actions you can take with that knowledge.

Hello and welcome to Climate|Money|Policy where we explore climate change as a business issue and an opportunity to grow your organization. Often in these posts I've talked about the need to look at an organization's operations through a sustainability and resilience framework, just look here, here, and here for a few examples. It should also be obvious that many readers have bought into that idea but have no idea where to start. One of the most basic tools in doing so is the "carbon footprint" which can be used in a variety of ways ranging from operational improvement to gathering data that your suppliers wouldn't otherwise share.

What is a Carbon Footprint?

Global Climate Change is the warming due to greenhouse gasses that human activities have released into the atmosphere. The most substantial contributor to the greenhouse effect is the gas carbon dioxide. A carbon footprint is the amount of carbon dioxide (CO2) that was released in order for a product to be produced or a process to be completed. Carbon and carbon dioxide are among the most common substances on earth. As a result virtually all things interact with CO2 in one form or another. Even products like solar panels and wind turbines have a carbon footprint because of the material they're made from and the processes used to manufacture them. Therefore it's important to question how much of a contribution a product or service makes to the climate crisis both during it's creation/implementation and over it's lifetime.

When you start to measure a carbon footprint you quickly start running into questions of responsibility: Who's responsible for the footprint of my travel, our company or the airline we travel? Do we count the footprint of our employees day-to-day commutes? What about the power we buy? There are lots of measures for dealing with those questions which have become generally accepted but we're not going to get into those in this post. Instead let's go over some uses for this measure once you have it calculated.

5 Uses for a Carbon Footprint

1. Audit your suppliers

For all the reasons you'd expect, many companies like to know as much as they can about their close upstream partners. Depending on the kinds of relationships you've cultivated over the years you may already know everything you care to about your suppliers but in the event you don't this is one more reason to get into their business. Reviewing the carbon footprint of your work product will inevitably lead you to question the carbon footprint of your raw materials. For all the reasons articulated below you may want to review your suppliers processes. You may find they have massive liability to carbon regulation (see #3). If so it could be time to consider innovating an additional process (see #5) to remove the liability they represent.

2. Marketing to a specific segment

There's a section of the market that makes their buying decisions partly on the basis how their purchases impact the environment. Goods can be expensive (Tesla Motors) or cheap (cloth diapers) or not even physical (carbon-neutral concert tickets) there's clearly a market for products and services that have good environmental bonafides. It's an intellectual dishonesty to consider a product environmentally friendly without being clear on what the carbon footprint of the offering is.

3. Reducing your exposure to regulation

Deeply conservative thinkers from former Treasury Secretary Henry Paulson to former coal investor Tom Steyer have come out publicly in favor of carbon regulation as a means of dealing with a global climate change. Some kind of legislation and regulation will be forthcoming, possibly as early as 2015. When that happens your organization will see a change in it's cost of goods / cost of services. How much of a change depends on the carbon footprint of your operations as well as the strength of the regulation and it's form (tax v. trading scheme v. other). Knowing that data in advance is a critical step to deleveraging your organization from it's carbon liability and gaining first-mover advantage on your competition which has yet to recognize the severity of the issue.

4. Cost Savings

Another way to look at a carbon footprint is that it's a measure of the energy intensity of a thing. Through this lens a CFO or COO can use the data to make decisions on how to allocate budget toward efficiency and continuous improvement. Let's suppose you determine that one product has a substantial carbon footprint relative to the other products you have on offer. You may want to start asking about the efficiency of the process that produces that offering. Data like this produces actionable metrics from which costs and efficiencies can be managed.

5. Spurring Innovation

You'll find that in many cases you have a product with a substantial carbon footprint from a supplier who has a tremendous carbon liability and no clear way to mitigate the situation. What you've discovered is an objectively dangerous situation that can impact you business model and needs to be truncated. Clearly you need to innovate your way out of a corner. What does it look like to replace this product or offering with something that less carbon intensive? How would you replace the raw goods that go into your product with ones that are carbon neutral? Lots of possibilities open up here that only become clear when you start measuring the carbon footprint.

Everyone knows that what gets measured gets managed. The CO2 intensity of a product/service represents a risk (or at least a liability) to most business models. CFOs and financially responsible managers need to be clear on that risk. These five points are a tiny part of the a proper sustainability initiative but that part is in the foundation. Managers with no concerns at all for the environment should still be looking at carbon footprinting as an opportunity to reduce costs and gain a strategic edge in every segment of the market.

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