The reason I wanted to say a few words about Lunenburg is that the town is an example of how the environment and business are intimately connected.

The tie between Lunenburg and sustainability is that it’s a UNESCO World Heritage Site and for more than 200 years was the reigning center of the cod industry. Hundreds of schooners set sail every year to deliver salt cod around the world.

The cod population collapsed as a result of overfishing and mismanagement of the natural resource. After 1945, deep-sea trawlers, freezer ships and sophisticated “super trawlers” began to deplete the resource. In 1991, the industry was devastated as northern cod stocks essentially disappeared. Moratoriums were imposed, and now fishing fleets operate on strict quotas.

I bring all of this up because we seldom visit a community that has suffered ecological collapse and rebuilt its economy (Lunenburg is actually in the process of rebuilding). The city is now capitalizing on the fact that it is the best surviving example of a planned British colonial settlement in North America. Established in 1753, it has retained its original layout and overall appearance, based on a rectangular grid pattern drawn up in the home country. The inhabitants have managed to safeguard the city’s identity throughout the centuries by preserving the wooden architecture of the houses, some of which date from the 18th century.

Collectively, there is a prevailing view of a disconnection between business and the environment, as though they exist as separate entities. They do not. There is no business without the environment.

Think of how a collapse in agriculture (or a shift because of climate change, droughts, etc.) would affect your supply chain.

Sustainability is about being proactive in managing resources (including your supply chain) just as you would manage your financial performance.
Perhaps we need a real profit-and-loss statement and balance sheet for natural resources.

The issue includes “10 Trends You Have to Watch” and “Managing in the New World.” These articles highlight the new importance of “sustainability business drivers” and how there is a new business paradigm.

The old business paradigm relied on abundant resources and few stakeholders, and companies were not very transparent. In the new paradigm, resource efficiency is essential, “everyone” is a stakeholder and companies are increasingly transparent.

Even in the midst of the recession, the business drivers for sustainability are ever-present.

A few quotes from selected articles:

• “Resources feeling the strain” (page 56):
o “We believe that, in the years to come, ‘resource productivity’ (the output achieved from every unit of oil, power, water, or other resource input) will become central to company competitiveness.”

• “Trust in business is running out” (page 57):
o “Regaining trust also means dispensing with the view that the only objective of management is to increase shareholder value. Broadening the list of key stakeholders to include employees, customers, suppliers, communities, the press, unions, government, and civil society will help companies rebuild credibility.”

• “Innovation marching on” (page 60):
o “Research shows that companies investing countercyclically in R&D during downturns tend to outpace their competitors on the upswing.”

• “How Gen Y & Boomers Will Reshape Your Agenda” (page 71) and in particular “Portrait of Gen Y” (page 74):
o “Portrait of Gen Y, 86 percent say it’s important that their work make a positive impact on the world.”
o “Gen Y workers want an employer who shares their eco-awareness and social consciousness, even down to the details of office energy use. Nearly one quarter say it’s very important to work in a green, environmentally conscious workplace.”

• “Understanding the Post Recession Consumer” (page 106):
o “Slowed Trends, Green Consumerism. Environmentalism is by now deeply rooted in the consumer mind-set and public policy arena, although consumers and politicians express widely varying degrees of engagement. Consumers are forgoing pricey green products and instead are cheaply and discreetly reducing waste.”
o “Dominant Trends, A Focus on the Boardroom. Outraged by corporate malfeasance, people are punishing companies for unethical governance.”

• Emerging Strategies to Beat the Slowdown (page 134) and in particular Shift 4 (page 136), the “Higher Stakes in Sustainability”:
o C.K. Prahalad (University of Michigan): “Companies that understand the opportunities engendered by sustainability will come out of this recession ready to capitalize on the low-carbon and clean-energy economy of the future.”

What does all of this mean?

In my mind, it answers the question posed by clients and peers late last year: “Will companies abandon sustainability because of the poor economy?”

The answer is no because the business drivers for sustainability have not disappeared into the background of business priorities. Instead, sustainability represents opportunities to reduce operating costs (reduced energy, water and material use) and to innovate. The successful companies in 2009 are reducing their environmental footprint and investing in innovating new products and services to thrive in a global economy where resources are constrained, the climate is changing, companies are transparent and everyone is a stakeholder.

Some background, and how this latest move “fits” within the quickly evolving U.S. policy:
On April 2, 2007, in Massachusetts v. EPA, 549 U.S. 497 (2007), the Supreme Court found that greenhouse gases are air pollutants covered by the Clean Air Act. The Court ruled that the U.S. EPA Administrator must determine “whether or not emissions of greenhouse gases from new motor vehicles cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare, or whether the science is too uncertain to make a reasoned decision.”

With this decision, “the U.S. EPA Administrator is required to follow the language of section 202(a) of the Clean Air Act. The Supreme Court decision resulted from a petition for rule making under section 202(a) filed by more than a dozen environmental, renewable energy, and other organizations.”

As a follow-up to this earlier decision, the U.S. EPA Administrator signed a proposal with the two findings:
“The Administrator is proposing to find that the current and projected concentrations of the mix of six key greenhouse gases—carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6)—in the atmosphere threaten the public health and welfare of current and future generations. This is referred to as the endangerment finding.”

“The Administrator is further proposing to find that the combined emissions of CO2, CH4, N2O, and HFCs from new motor vehicles and motor vehicle engines contribute to the atmospheric concentrations of these key greenhouse gases and hence to the threat of climate change. This is referred to as the cause or contribute finding.”

While this is a significant development (and was expected) it does not necessarily mean that greenhouse gases will be regulated under the Clean Air Act.

Before the EPA can officially adopt the ruling or take any regulatory actions, the proposed ruling – based on a peer-reviewed scientific analysis of: carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride – must undergo a 60-day public comment period.

This move by the U.S. EPA is playing out while Congress also moves forward to develop a plan to regulate carbon. Congressional hearings are scheduled to begin this week.

The draft House bill, “American Clean Energy and Security Act of 2009” authored by Rep. Henry Waxman (Chairman of the Energy and Commerce Committee) and Rep. Edward Markey (Chairman of the Energy and Environment subcommittee) is significantly shaping the debate as to what a federal climate program looks like. This is essentially the current competition with the U.S. EPA.

Key elements of the draft bill are:
- “A national renewable electricity mandate where utilities need to get 6 percent of power from solar, wind, biomass, or geothermal sources in 2012 and 25 percent in 2025. One-fifth of the requirement can be met with energy-efficiency measures.

- A demonstration facility for carbon capture and sequestration where carbon dioxide from coal-burning power plants is stored underground.

- Giving authority to the Federal Electricity Regulatory Commission for planning power grid modernization with smart-grid technology and upgrades to the transmission lines.

- A single federal fuel-efficiency standard and low-carbon fuel standard for biofuels.

- An “energy efficiency resource standard” to create incentives for electricity and natural gas companies to invest in customer efficiency programs.

- A global warming reduction program modeled on recommendations from U.S. Climate Action Partnership (www.us-cap.org) which is a coalition of large corporations and NGOs advocating regulation. The target is a 20 percent reduction of greenhouse gas emissions below 2005 levels in 2020, 42 percent reduction in 2030, and 83 percent cut in 2050.

- Programs to promote “green jobs,” such as training, and rebates for heavily polluting industries that could be put at a competitive disadvantage from costs related to carbon regulations.”

It appears that the preference is for congressional action to regulate carbon and not U.S. EPA under the Clean Air Act. Congress is now in a race with the. EPA.

Bear in mind that we are also looking at the U.S. becoming engaged in upcoming negotiations in Copenhagen during early December 2009. It is unlikely that the US will go into these negotiations with a final congressional bill or U.S. EPA regulations in place. There needs to be “room to negotiate” during Copenhagen. As we move forward on a federal program to regulate greenhouse gases a clearer message as to what the program will look like will wait just a bit longer until later this year.

In the midst of all of this, U.S. companies need to determine their carbon footprint (including their supply chain and products) and explore the various regulatory scenarios and how they will impact their business (including potentially new products and services).

This is now a classic risk management exercise.

For further reading on the endangerment assessment, visit http://epa.gov/climatechange/endangerment.html.