An eco-efficiency framework: addressing climate risk in measurable ways

Climate change is unpredictable in nature, and concerns around its impact are growing. Environmental agencies warn that failure to step up climate action now could leave businesses, agriculture, and communities at risk. Consequently, eco-efficiency—the practice of improving energy efficiency and water management while reducing the levels of emissions and waste—is rapidly becoming a critical path to sustainability for corporations. 

To address this challenge, we launched a multiyear initiative in 2015 that we call our eco-efficiency framework. It’s a call to action for corporations to do more than just manage old tasks more efficiently; instead we’re asking managers to reimagine products, reconceptualize strategy, and redesign processes in ways that lead to more eco-efficient practices. With the help of our framework, we’ve sought to create a narrative that helps embed eco-efficiency at a management and corporate governance level, so that doing more with less is a consideration for every business decision.

Investors, likewise, can benefit from our framework. Our integrated environmental, social, and governance (ESG) and financial research team devised a set of questions to help uncover specific areas in which eco-efficiencies may also result in cost savings—and potentially have a positive effect on financial returns. While we expect investor questions to change over time, initially we focused on how companies use energy and water and publicly disclose their practices in sustainability reports. 

Nearly five years after we launched our eco-efficiency campaign, we've found amazing progress. Companies we've engaged with on very different challenges on eco-efficiency have made significant changes. For example, we’ve seen one utilities company divert millions of dollars away from coal and another reduce carbon emissions in construction projects by 50%, a technology and materials company double the rate of energy productivity improvements in U.S. facilities that used the ISO 50001 framework—the global standard for energy management systems, and an industrial gas company agree to purchase 50 megawatts of renewable wind electricity, saving 1.5 million tons of carbon dioxide emissions over the term of the agreement.

Progress that companies have made toward data, analysis, and reporting goals has been particularly encouraging, and investors may soon be able to use actual data to gauge a company’s performance against eco-efficiency objectives while also comparing it to peers.  

In the next phase of our eco-efficiency engagement, we’re asking companies to take even more steps toward change. We’re encouraging them to improve their eco-efficiency practices in measurable ways, specific to their business; more transparency and disclosures around reporting will play a key role in measuring progress toward eco-efficiency. We also plan to work with companies to refine the questions in the five areas of our framework, with the ultimate goal of compiling results that can be used by investors as a benchmark of best eco-efficiency practices across sectors.

We’re increasing our own campaign involvement as well. Recently, we convened industry roundtables, where investors and companies can share best practices for eco-efficiency. In our discussions, we’re looking closer at circular economy strategies—the elimination of waste and emissions—and have incorporated these formally into the questions in our framework for 2020. 

Eco-efficiency, at its core, aims to blend ecologically sound business practices with operational efficiencies and integrated design. If done right, eco-efficiency can have a significant business impact: by improving energy productivity while reducing emissions and waste, companies can enhance their resilience to climate change, meet more stringent emissions regulations, and at the same time, potentially help improve returns for investors.

Based on the progress we’ve seen so far, we’re optimistic about the future. Some companies have taken small steps with real impact on their business, while others have launched larger processes and strategic changes that are putting them squarely on a path toward more sustainable growth. To learn more about what they’ve accomplished, see our report titled “Improving efficiency, unlocking returns.”