Why carrots beat sticks

While some opinions are divided, a new international agreement on tackling climate change must be reached in Copenhagen later this year.

Some countries have already set aggressive targets. The British government has taken the lead, pledging to cut greenhouse gas emissions by 80% by 2050. Across the EU, the goal is a minimum 20% reduction by 2020 – 30% if other developed countries follow suit. In India, the government has said the per capita level of greenhouse gas emissions across the subcontinent will “at no point exceed that of developed countries”.

China, now the world’s largest emitter of greenhouse gases, has set a target to reduce energy intensity per unit of GDP by 20% over five years. Even the United States – long accused of dragging its feet when it comes to climate change – is expected to take a new stance and commit to significant reductions. Shortly after his election, President Obama confirmed his intention to reduce his country’s emissions to their 1990 levels by 2020 and by an additional 80% by 2050.

The question, of course, is: how are these targets to be achieved? Legislative sticks are certain to play a part, but companies and individuals can’t simply be bludgeoned into making the significant changes in working practices and lifestyles that will be required. Carrots that give people incentives to cut their emissions will be at least as important, if not more so. Everyone has a part to play in the solution and, as anyone who has tried to build an effective team will know, a volunteer is worth ten pressed men.

Take BT, for example. We made our first commitment to reduce carbon emissions back in 1992, well before the urgency of taking action became clear and the first government targets were set. Since then, we’ve become one of the world’s largest purchasers of green electricity. Almost all the power used by our UK business now comes from renewable sources and combined-heat-and-power schemes. To go further, we recently announced plans to construct wind farms capable of meeting 25% of our existing UK electricity requirements by 2016.

Other examples of our commitment to sustainability include a solar power scheme at BT Americas’ headquarters in El Segundo, California. This provides 15% of the electricity used in the building, which houses one of our main data centres as well as head office staff. Our carbon emissions will be reduced by more than 290 tonnes a year as a result.

Overall, our carbon reduction target is one of the most aggressive to have been set by any business anywhere in the world. Our aim is to reduce the carbon intensity of our global business – a measure that relates our emissions to our economic performance – by 80% by 2020.

While the prospect of tough legislation is something that increasingly influences our deliberations, our decision to reduce our CO2 emissions was an act of enlightened self-interest. True, we are strong advocates of corporate social responsibility, and believe it is our duty to keep our impact on the environment as low as possible. But, as a business, we also have a duty to make profits.

In this context, three factors stand out.

First, by cutting our energy consumption, we both reduce our costs in the short term and prepare our business for a future in which energy could be much more expensive than it has been in the past. By building our own wind farms and solar energy plants, we both control costs and secure our sources of supply.

Second, it is increasingly clear that governments, businesses and consumers prefer to deal with suppliers that have strong green credentials. We estimate that our achievements in reducing our carbon emissions and in other areas of CSR influenced our customers’ decisions on bids and tenders worth some £2.2B in 2007/8, £400M more than in the year before.

Finally, the global demand for green products, services and solutions is bound to grow. Worldwide, ICT already accounts for about two percent of total CO2 emissions and, as demands for computing power and data storage increase, its footprint looks likely to grow. However, ICT is both sinner and saint when it comes to CO2 emissions. Conferencing, for example, is a much greener way for people to meet than by travel, and it’s just one of the networked IT solutions we’ve identified that can significantly improve the energy efficiency of our customers’ activities and processes.

Such carrots are significant. They encouraged us to act in the past, and continue to do so even now during a global recession. Given that measures to reduce carbon emissions often also cuts costs – sometimes dramatically so – our view is that cutbacks in our plans during the downturn would be a bad mistake.

But BT is just one of a great many businesses that need to change their ways if government targets are to be met. As Lord Stern noted at a meeting of the UN’s Economic and Social Council in June 2008, success in combating climate change will require both “global political leadership” and “the largest collaborative effort the world has ever seen”.

So what could be done to encourage more volunteers like BT to step forward? In our view, the answer lies in commitment management, an approach that replaces the stick of management edict with carrots that incentivise whichever behaviours are required in a way that creates win-win outcomes.

We practise this in our own dealings with our suppliers, for instance. BT has an excellent reputation all over the world, and companies are keen to number us among their customers. To win our business, however, they must sign up to exacting standards that require them to: minimise the materials and energy consumed throughout their products’ lifecycles; limit the use of hazardous materials; and enable the reuse, recycling and safe disposal of products at the end of their life.

The introduction of BT’s 21st century network, 21CN, has provided a particular focus for this work. Significant quantities of new equipment are being purchased, and factors like energy consumption will determine BT’s environmental performance for years to come.

We are also keen to encourage change in the broader business communities in which we operate. In November 2008, we launched a new Sustainable Development Index in India, developed in partnership with Globescan, an independent public opinion and stakeholder research company. By recognising best practice and acknowledging those who make the biggest contributions, the index identifies clear directions for companies to improve their performance in areas such as climate change, social inclusion and corporate responsibility.

We clearly aren’t alone in thinking that green carrots are going to be at least as important as green sticks in the years ahead. Speaking to Prospect magazine, Lord Stern said: “The Kyoto clean development mechanism (CDM) has shown that, if you give incentives, you see a lot of initiative in response.” And Nitin Desai, a former UN under-secretary-general for economic and social affairs who advised on the development of our Sustainable Development Index, said: “Given the importance of the issues at stake, there is a clear need for initiatives such as BT’s to help channel corporate sustainability efforts to where they can have the most beneficial impact.”

And we are far from alone in taking the course we have. UK retailer Marks and Spencer has started to engage and involve its customers, employees and suppliers in the changes it is making as a part of the Plan A eco plan it launched in January 2007, for example. It hopes to create a virtuous circle, using their ideas and commitment to stimulate improvements in its own performance. Toyota is encouraging its suppliers to achieve the highest standards of environmental performance in their respective country or region, supporting them by sharing best practice, exchanging information and training auditors. As in our own case, the bold commitments made by these companies to improving their environmental performance have been influenced by carrots including cost savings and changing customer attitudes.

We hope governments across the world will take note. Legislation is important, but on its own is unlikely to address the growing threat of climate change. Only through partnerships that build enthusiasm and commitment across our society can we realistically expect to bring about the changes we so urgently need. Such partnerships are most likely to develop in response to clear – and firm – incentives. Businesses are keen to act, but will do much more if they are encouraged by supportive regulation, tax breaks and other such inducements.

It may be a myth that carrots help you see through the dark, but we think their contribution to cleaning up our planet will be pivotal.