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SuStainability StrategieS

February 2010

Nine Sustainability Trends To Watch Out For

by Hiranya Fernando t the end of last year, AMR Research shared our sustainability outlook for 2010 as part of a discussion with the Sustainability Peer Forum. We highlighted broad themes such as increased regulations and reporting, green jobs growth, and the proliferation of eco-labels. Six weeks into the new year, here are some more specific predictions and trends worth paying attention to in 2010.

No. 1Mandatory carbon reporting will spur software development

To say that sustainability initiatives will gain momentum not because of corporate social responsibility (CSR) or compliance but because corporations finally understand the financial value is so last decade. Yes, companies are committing to sustainability initiatives, and yes, theyre doing it because it makes business sense. But the more interesting question is how theyll seek to implement their sustainability initiatives in practice within their operations. We think companies will increasingly look to IT for help. On January 1, 2010, the Environmental Protection Agencys (EPA) mandatory carbon reporting rule kicked in, which applies to all businesses that produce 25,000 metric tons or more per year of greenhouse gas (GHG) emissions. The 13,000-plus affected facilities will now have to report emissions every January. This will no doubt spur the development of a slew of carbon planning, reporting, and auditing software. Its likely the carbon reporting functionality will be integrated into ERP and financial applications.

filings. The SEC urges companies to disclose to investors where climate change impacts are a material risk to financial health. Climate risk can come in different forms: physical damage (for example, a bank with a portfolio of properties in costal areas that could be affected by rising sea levels) or regulations (for example, a carbon-intensive business that may suffer decreased revenue or increased operational costs as a result of new laws limiting CO2). Most large U.S. companies already publicly report their CO2 emissions to bodies like the Carbon Disclosure Project (CDP), with most already reporting under the EPA mandatory reporting rule as of January, 1, 2010, if theyre high-emitters. Therefore, simply including this information in SEC filings may not be a giant leap forward. What might be more challenging are the disclosures relating to future CO2-limiting regulations and how they might affect a companys financial health (for more information on this, see SEC, Sustainability, and Financial Accounting: Climate Change Hits the Balance Sheet).

No. 2SEC guidance on climate risk disclosure might increase transparency, but its not a game changer
On January 27, 2010, the Securities and Exchange Commission (SEC) provided guidance on including risks associated with climate change within corporate
Sustainability Strategies | February 2010

No. 3Smart mobility will take off

Driven by sustainability initiatives and new emissions regulations, practically every carmaker has plans to launch a plug-in hybrid or electric car sometime between 2010 and 2013. Many have concept cars that are becoming production models, with target launches for the Chevy Volt and the Nissan EV-02 in 2010.
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But the big news isnt that mainstream carmakers are producing electric carsthat scoop broke in 2009 (the all-electric cars big debut on the mainstream scene was at the Frankfurt Auto Show last fall). Instead, its that clean cars appear to be part of a broader shift to smart mobility (or, better yet, well all give up our cars and start taking the bus). Smart mobility means different things to different people, but essentially its defined as sophisticated travel demand management and transportation infrastructure as well as eco-urban systems that support high levels of non-motorized travel, reduced vehicle trips, and shorter average trip lengths. Watch out for an interesting confluence of the new energy model and the sustainable design of urban systems.

legislation six months ago, but the Senate bill is far from the 60 votes needed to assure passage, with supporters struggling to produce a package of measures that can win bipartisan backing. Cap and trade has always been the cornerstone of the proposed climate legislation, but given the current conditions, it may or may not be part of the ultimate deal. Senate efforts at a compromise could include new incentives for oil and gas development, accelerated construction of nuclear plants, and new funding for research on carbon capture and storage (clean coal). Either way, President Obama thought it sufficiently critical to raise the issue in his State of the Union address, where he urged Congress to enact comprehensive energy and climate change legislation he said will create jobs, cut oil imports, and reduce carbon emissions. Meanwhile, the EPAs finding that CO2 endangers human health on top of the threat of executive action in the absence of legislation should put additional pressure on the Senate.

No. 4Green buildings, especially retrofit and renovation, will be a big growth sector
According to a report from McGraw-Hill Construction, green building currently accounts for 5% to 9% of the retrofit and renovation market, which equates to $2B to $4B. By 2014, this share is projected to grow to 20% to 30%, making it a $10B to $15B market for major retrofit projects. Consider LEED project registrations for 2010. Most are for greening existing buildings as opposed to building new ones. The desire to reduce carbon emissions by going green will also lead more government agencies at the state and federal levels to require making their buildings more energy, waste, and water efficient. Vendors like Autodesk, which create 3D design software that facilitates sustainable building practices, will do well. In fact, Autodesk recently partnered with the U.S. Green Building Council with a goal of integrating its technology with the LEED rating system. Good design software means superior design, which in turn means optimal use of resources and decreased waste, both in the building retrofit and renovation process as well as the end use.

No. 6Clean technology will continue its upward trajectory, with some consolidation
Global venture capital and private equity in the cleantech sector has gone from $0.9B, to $4B, to $8.5B over the six years since the asset category was identified and defined in 2002. In the recession of 2009, it fell back to $5.6B. Predictions are that clean-tech investment in 2010 will recover and exceed 2009 numbers. However, analysts also predict there will be some shakeout in sectors and geographies where theres been over-investment in recent years. For example, solar equipment manufacturers in China will go through some consolidation, even though the overall Chinese renewable energy market is expected to grow. The top clean-tech sectors, if we are to go by 2009 numbers, are solar, transportation (e.g., electric vehicles, advanced batteries, fuel cells), and energy efficiency.

No. 5The United States will finally pass legislation limiting CO2 emissions, though it may be very weak
The House passed historic energy and climate change

No. 7Resource constraints beyond carbon will gain attention

Although carbon dioxide is the biggest challenge because of climate change and the imperative to move

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Sustainability Strategies | February 2010

to a low-carbon, clean-energy future, well be forced to pay attention this year to other resource constraints like water. After all, water scarcity, water pollution, and water competition can adversely affect your companys operations and supply chains. Disruptions, costs, revenue losses, or growth constraints caused by any of these three can impact operational performance and profitability. Thermal power generation, especially coal based, requires large quantities of water for processing and cooling. There have already been cases of power plants shutting down in water-scarce regions of the United States. In 2010, expect to see more talk about the coming global crisis in fresh water supply and an increased response from sectors like building construction, which will lead on the consumption side, taking steps to conserve water through innovative new technologies. Also watch for the industrial and utility sector to become more resource efficient in their operations, facilities, and supply chains in order to preserve margins.

ity gains and optimal resource use. And anything to do with more efficient use of energy is going to be popular. Every single legislative proposal on energy and climate in Congress has included dollars and incentives for energy efficiency. It attracts broad policy support. Therefore, IT or software organizations that can position themselves as robust providers in a carbon-, energy-, and resource-constrained world is poised to reap the benefits.

No. 9Like it or not, product-level sustainability footprints and environmental labeling will gain traction
Wal-Marts Product Sustainability Index will have influence beyond the 100,000 or so of its suppliers. The broader implications are that more companies will now require their vendors and providers to disclose similar information and eventually demonstrate that theyre taking steps to become greener and more sustainable. Building supplier capacity will become important. Progressive companies will pursue partnerships with suppliers. In turn, more consumer and household products will be green certified and made available at mainstream retailers. But what will really gain traction this year is the idea of providing the full lifecycle picture of a product or service, whether its a pair of shoes, a car, or a computer. Is providing accurate and defendable estimates at the SKU level of the environmental inputs needed to source, manufacture, and ship goods the right way to go about saving the planet? We have our doubts. Nevertheless, the era of labels is upon us. Of note is the new World Resources Institute (WRI) Protocol on calculating greenhouse gas emissions for products and supply chains that was released in January 2010.

No. 8Energy efficiency and IT will make a perfect marriage

Energy efficiency will finally have its day in the limelight in 2010. Its always been the somewhat-dowdy cousin to the more sexy renewable energy and cleantech space, but energy efficiency has one very important thing renewables and clean tech do nota relatively lower cost. Even if theres an upfront capex to putting efficiency measures into place, the lower opex goes on for years and easily recoups the upfront investment. Many analysts have alluded to the fact that the best way of capturing that efficiencyfrom the smart grid, to remote sensing, to industrial designusually involves IT/software and innovation. IT and smart systems with embedded intelligence can drive incredible productiv-

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2010 AMR Research, Inc.