May 14, 2007

Senior executives favour creation of chief energy officer to manage "Return on Environment"

A new international survey conducted by Hill & Knowlton in partnership with Penn, Schoen & Berland Associates has found that while a majority (82%) of corporate information technology (IT) decision-makers are closely monitoring the issue of climate change/global warming, close to two-thirds (65%) do not have a defined energy strategy to deal with it.

The level of concern is high among this group, however, such that more than three-quarters (77%) of the 420 senior business decision-makers surveyed agreed that the executive roster should be expanded to include a Chief Energy Officer (CNO) to manage, implement and measure what Hill & Knowlton calls the "Return on Environment" (ROE), a company's return on its investment in environmental technology.

The survey queried respondents from Canada, the U.S., the U.K. and China during March and April 2007. Not surprisingly, more than half (55%) said they believe greenhouse gases (GHGs) are partly responsible for global warming, although only 32% considered GHGs to be the leading cause.

Regardless of their views on the science of climate change, the issue has caught the attention of these senior executives, with 82% reporting that they monitor the issue "somewhat" or "very" closely. The percentage was highest in Canada (88%) and China (86%).

The open question, says the survey report, is how to define the emerging clean technology ("clean-tech") industry, which many look to as a possible panacea to climate change. Asked to define "clean-tech," more than half of all respondents (52%) support the definition as "environmentally friendly technologies that help to reduce or eliminate greenhouse gas emissions." Almost one-quarter (24%) favored a more limiting definition, i.e. "technologies that don't pollute" (for example, electric vehicles.)

Ideally, says the report, the clean-tech industry includes a broad range of technologies designed to reduce or eliminate negative environmental impacts while offering significant financial returns and economic sustainability.

Asked what role IT should play in reducing/eliminating GHGs and dealing with climate change, 36% of the respondents said technology and human behavior must work together to address climate change. Of that group, the Chinese (47%) supported this position more than respondents from other countries.

Another 31% believe that technology can help improve the world, but will not completely resolve the climate change issue, while 20% maintain that technology can play a leading role in reducing global warming. Only 13% believe that regardless of technology, human behavior must change to solve the issue.

The big surprise was the survey's discovery that nearly two-thirds (65%) of those polled said their firm has not yet defined its energy strategy. China led the pack at 77% followed by the U.S. (67%), Canada (62%) and the U.K. (51%).

Concerning who is responsible for defining a company's energy strategy, the poll results again reveal a similar uncertainty: 65% of the respondents reported that there is no one within their organization tasked with defining an energy strategy.

In China, such an organizational role is almost unheard of, with 82% of respondents indicating that no one in their company is responsible for developing an energy strategy. The U.S. fared only slightly better, with 70%, and the U.K. is farthest ahead with more than half of the companies polled (57%) having someone in place to define their energy strategy. The Canadian response was almost evenly divided, with 45% reporting having someone responsible for this task, but 55% having no one.

"The research suggests that there is an opportunity to expand the c-suite to include a Chief Energy Officer," said Joe Paluska, head of Hill & Knowlton's worldwide technology practice. "There's a growing need for corporate accountability on energy performance as companies grapple with increasing complexity and expectations of governments, customers, shareholders and employees. Ultimately, companies will need to quantify the return on the triple bottom line-people, profits and planet-or their reputation and valuation will suffer," he added.

The survey indicated that three out of four business decision-makers (75%) assign CEOs ultimate responsibility for implementing corporate commitments to reduce their company's adverse environmental impact. This, says the report, is somewhat surprising given that many of the solutions required will be linked to operations or IT.

Just as CEOs delegate functions such as finance, marketing and IT to other C-level executives, the need for accountability means they are increasingly likely to delegate the environmental function as well, the report continues.

The survey found that more than three-quarters (77%) of business decision-makers believe there is a need for a new corporate role-the Chief Energy Officer or "CNO." Demand for such a role is highest in China, where 87% see the need followed by Canada (84%) and the U.K. (80%), with the US lagging where only 66% see the need.

When asked how best to measure Return on Environment, 52% of the survey respondents named improved corporate reputation as the most important return on investment for environmental programs. Actual carbon emission reduction was the most important metric to 38% of respondents globally, and was rated number one in the UK.

More traditional measurements -- such as return on equity, total cost of ownership and internal rate of return -- also scored reasonably well. However, the report concludes that much work still remains to be done to accurately determine Return on Environment in a way that can be validated by consumers, investors and policymakers alike.

While there are no clear winners in the "green arms race," i.e. the race to reduce GHG emissions, the U.S., Japan and Germany were cited as the top three countries likely to contribute the most to clean-tech breakthroughs in the coming years. Not surprisingly, people believe it is their own country that is most likely to play the largest role in developing clean tech solutions.

Opinions on which industries are most likely to benefit from clean tech innovations also vary by country. More than half of the Canadian respondents (55%) view the transportation industry as having the most to gain, U.S. and British respondents view venture capitalists as benefiting, and executives from China think policymakers will be the clean-tech jackpot winners.

The full Return on Environment survey report may be viewed on-line at www.hillandknowlton.com/roe.

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