Location Strategy And Carbon Reduction

With the global pandemic still on everyone’s mind, another major global subject facing corporate executives has been highlighted with the conclusion of the United Nations Climate Change Conference (COP26) in Glasgow during November 2021. COP26 set forth a multitude of new guidelines, government programs, and frameworks to be incorporated in many countries around the world, including the United States. The US Department of Commerce has released new programs on climate and clean tech solutions and businesses have been adjusting their priorities, risks, and expenses to create new opportunities to thrive in an increasingly climate conscious world.

But what does a carbon-neutral or carbon-reduction location strategy look like? Why is it important to have one? How should climate-concerned CEOs incorporate green concepts into their strategic location and footprint initiatives?

With conversations increasing about climate change and corporate responsibility, companies are seeing customers, shareholders, and employees demand a more climate-conscious approach. A recent Deloitte article, “Tectonic Shifts: How ESG is changing business, moving markets, and driving regulation” discusses how companies, shareholders, and employees are driving these new strategies: “As employees, people are increasingly concerned with the ESG activities of their employers across all geographies. In a 2019 survey of business leaders by the Environmental Defense Fund, 85% believed their employees would hold them more accountable for their impact on the environment, a 13-percentage-point increase from the prior year”. 

In a decarbonizing word, especially in Europe and North America, new market opportunities in form of having either products, processes, or solutions in place that are carbon-friendly not only help companies achieve their ESG goals but also provide improved profit potential due to increasing demand for sustainable products and processes. Being able to offer these to other businesses could further reduce the overall carbon footprint and create new lines of revenue beyond the traditional value of the equipment and services by placing a price tag on the overall carbon reduction of the site. 

The Deloitte article referenced above continues: “The Global Sustainable Investment Alliance’s latest investment review shows that global sustainable investment now tops US$35 trillion—up 15 percent in two years, and in total equating to 36 percent of all professionally managed assets.” 

While some businesses merely see these major changes as compliance obligations, forward-thinking companies are seeing growth opportunities. “A purely compliance-focused mentality might appear to be the easier choice but may leave you falling behind your investors’ expectations, your customers’ needs, and your competitors’ actions. Adapting to thrive in this business environment requires incorporating stakeholder feedback into your long-term business plans, recognizing the new risks that could emerge in an era of dynamic environmental and social change, and identifying new opportunities for value creation in a more sustainable future. Stepping up to be accountable now opens the door to the transformations that follow,” the Deloitte article concludes. 

In short, businesses are either forced to adapt to new climate-friendly policies or they choose to do so in order to benefit from a rapidly growing market. 

What are some example strategies that leaders can implement to achieve a more carbon-friendly business?

1) Growing desire for office tenants and corporate headquarters to utilize green building standards

According to the American Institute of Architects (AIA), 40 percent of U.S. energy is consumed by buildings, and buildings alone count for 39 percent of greenhouse gases. Having corporate headquarters and office buildings LEED (Leadership in Energy and Environmental Design) certified is one step towards a more climate-friendly, and cost-effective, office environment. A 2014 UC Berkeley study cited by the US Green Buildings Council, found that by building to LEED standards, buildings contributed 50 percent fewer greenhouse gases than conventionally constructed buildings due to water consumption, 48 percent fewer greenhouse gases due to solid waste, and 5 percent fewer greenhouse gases due to transportation.

Implementing green building standards, LEED, and passive-house concepts have risen dramatically over the last decade. LEED-certified projects grew to over 100,000 in 2019, according to the Green Building Council. Businesses can make use of the new green building standards when relocating or opening new locations and take advantage of a variety of possible tax credits and incentives, in addition to achieving a lower carbon footprint.

2) Understanding of renewable power standards for manufacturing companies and large power users

Besides the construction of buildings for office, distribution, or manufacturing use, many manufacturers struggle with how carbon-based energy consumption can be reduced within their processes. Using renewable power can be one effective and impactful alternative. Many U.S. states and regions now offer some form of renewable energy in their portfolio but deciding on providers and types of energy options is not always an easy task. According to the U.S. Energy Information Administration, there are over 3,000 electric utility and distribution companies in the US. In 2020, renewable energy sources accounted for about 12.6 percent of total U.S. energy consumption and about 19.8 percent of electricity generation. Some states offer completely deregulated utility portfolios, with businesses being able to choose up to 100 percent for their energy demand from renewable sources. In other states, utilities offer a renewable portfolio, but the customer is not always able to choose the power source or percentage. Other locations do not offer any renewable energy standards at all and it is up to the customer to either generate their own power or work with the utility providers to figure out solutions. Within each state, an educated location decision is crucial to ensure that a site can be served with renewable energy without extraordinary infrastructure investments based on the providers to a specific site. 

There has been increased focus in the marketplace regarding companies looking to either supplement or fully replace their power demand by renewables. Many manufacturing companies are looking for new locations with a higher priority percentage of renewables to be reflected in their business cases.

With the Glasgow Climate Pact structured to accelerating efforts towards the phasedown of unabated coal power and phase-out of inefficient fossil fuel subsidies, along with the increase in natural gas prices, combined with a renewed federal emphasis on climate change, the alternatives across the country for renewable power are expected to rise significantly. Solar energy could account for 40 percent of U.S. electricity by 2035 according to a recent Department of Energy study. Businesses that are considering expanding or relocating part of their operations have a great new tool by utilizing all the different power supply options to reduce their overall carbon footprint and the associated cost. 

3) Transportation and logistics

Transportation, logistics and supply chains that have been at the top of every executive’s mind due to the pandemic, play an increasingly important role in carbon emissions and ESG goals. If shipping continues the way is has been pre-pandemic, freight emissions will surpass energy as the most carbon-intensive sector by 2050 according to Suzanne Greene at MIT. The Global Logistics Emissions Council (GLEC), a group of leading logistics providers and large freight forwarders have created a harmonized calculation of the logistics greenhouse gas emissions across the supply chain. Having a corporate location strategy for new, and existing facilities, could not only have tremendous effects on the corporate carbon balance but also on global supply chains and logistics.

4) Overall carbon reduction or carbon-neural production sites

Almost every manufacturing company is affected by the reduction of carbon emissions in one way or another; few businesses can escape the modern demand towards reducing greenhouse gas emissions. These pressures generally come from location-driven political requirements for carbon reduction, customer base and/or employee demands to make reductions, or the business sees growth opportunities by manufacturing carbon-neutral and negative products. Using new technologies, energy efficient automation and manufacturing methods, and locating in regions that financially incentivize the growth of low carbon emission businesses provides a lot of options for the climate conscious executive. 

Additionally, some existing manufacturers that operate with a high carbon output have started looking for synergistic opportunities to reduce their own carbon footprint. This could translate into them being open to and actively recruiting new partners to their facilities that can reduce the overall carbon output of the site. This can be an additional incentive for companies that are carbon-negative or have carbon reducing products to co-locate in such areas—from a tax perspective, but also from a shared cost perspective with the existing facility. 

How and to what extent a business will and is able to reduce its carbon footprint is certainly a case-by-case scenario, but with a proper strategy and an informed site decision, significant progress can be made in the reduction of greenhouse gases, and along with those steps, better align to shareholder, customer and employee expectations.