September 28, 2007

Top U.S. Companies Face Impact Of Long-Range Energy Uncertainties

Energy was once managed as a cost, but companies in every sector increasingly see it as a strategic risk - and even as a source of new value and opportunity, according to a new report (PDF) from the Global Business Network, “Energy Strategy for the Road Ahead.”

The report summarizes a year-long project sponsored by the U.S. Environmental Protection Agency’s ENERGY STAR program. Senior executives from 20 major U.S. companiesA?AA¢AA¢aAA¬AA¢a?A¬?including Merck, National Starch & Chemical, HSBC, and ToyotaA?AA¢AA¢aAA¬AA¢a?A¬?along with energy experts from GBN and the EPA’s ENERGY STAR program examined the potential energy impacts that U.S. businesses may face over the next decade, based on four scenarios of the world in 2020:

• Scenario one: Current economic and energy trends continue with no major regulatory shifts in climate policy,
• Scenario two: Investment flows overseas make it difficult for most U.S. companies to adjust to an energy and carbon constrained world,
• Scenario three: Severe weather events and international economic crises bankrupt many U.S. companies and institutions, and
• Scenario four: An innovative focus on clean and efficient technology fosters a new era of economic prosperity and self-reliance in a carbon-constrained global marketplace.

The report identifies a set of strategies that businesses can employ to ensure energy success across these scenarios, then concludes with a check list of steps that executives, senior managers, and boards can take in four key areas:

1. Master the fundamentals of energy efficiency. Build an energy efficiency culture through executive leadership:appointing an empowered corporate energy director and team, set aggressive goals, measure and track energy performance for all operations, and establish accountability and review and recognition systems across the business.
2. Take both a longer and a broader view of investments and strategic decisions about energy. Make major company strategic decisions (e.g., acquisitions, technology choices, and facility location) with energy cost, use, and supply in mind. Balance more assured returns of energy project investments against lower initial returns across a longer time horizon. See the entire Energy Value Chain, including upstream inputs from suppliers (into internal operations) and downstream outputs to customers (from internal operations).
3. Search out business transformation opportunities in the way the company manages, procures, and uses energy. Frame energy as a lever for positive growth and change within the business, not simply a cost. Make the most of the strategic value of energy by thinking in terms of “Embedded Energy” and “Energy Productivity.” Be innovative and aggressive in pursuing and publicizing new product and service offerings based on new energy technologies and supplies.
4. Prepare contingent strategies for emergent future scenarios. Rehearse specific aspects of the future, including substantial and sustained swings in energy price and supply, severe weather events, and penalties or incentives around energy use and greenhouse gas emissions. Actively manage exposure to risks, and ready plans to take full advantage of what the future brings. Monitor for signs of which “road ahead” is emerging
5. Take personal action. Corporate leaders can take a number of “to-do” actions today for tomorrow. All can be taken individually, in companies, on corporate boards, and across industries.

“The relationship between energy, the world’s economies, and society is fundamentally changing,” says Peter Schwartz, chairman of GBN and former strategist for Royal Dutch/Shell. “This report encourages U.S. business leaders to reevaluate their current operations to determine if their businesses can survive an uncertain and potentially disruptive energy future.”

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