Case Study. Reduction Story. Clay Nesler Vice President, Global Energy & Sustainability. Steve Thomas Manager, Energy & Sustainability Communications

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1 Case Study The Johnson Controls Greenhouse Gas Reduction Story Clay Nesler Vice President, Global Energy & Sustainability Steve Thomas Manager, Energy & Sustainability Communications August 2010

2 Pressures Heating Up for Global 1000 Companies It s hard to pick up a newspaper these days without reading about the tremendous pressures that companies are facing across the world. Budgets are under enormous pressure, utility costs are escalating, and many companies are trying to do their part to reduce costs while also doing the right thing for their employees and the communities in which they operate. At the same time, external forces are pressuring these companies a renewed interest in renewable energy and energy independence, the green movement, changing regulations regarding energy and green house gas emissions, and government-driven economic stimulus for a variety of projects. Because of these internal and external pressures, companies are looking for ways to measure, manage and report on their energy consumption and greenhouse gas (GHG) emissions. More than two-thirds of the Fortune 500 companies in the US now issue stand-alone sustainability reports to report what they are doing, and many global companies have made public commitments to reduce their greenhouse gas emissions. The companies that make these commitments are employing various methods and technologies to reduce emissions, primarily energy efficiency, transportation improvements, real estate rationalization, and by addressing non-energy utilities, such as water and waste. Each company must create a goal and an actionable plan to meet its goals. Many companies have started this process and are looking to other companies who are ahead of the curve for expertise and guidance. This paper describes the genesis and evolution of the greenhouse gas management efforts at Johnson Controls. An Introduction to Johnson Controls Johnson Controls is a global diversified technology and industrial leader serving customers in over 150 countries. The company s 130,000 employees create quality products, services and solutions to optimize energy and operational efficiencies of buildings; to produce lead-acid automotive batteries and advanced batteries for hybrid and electric vehicles; and to design and manufacture interior systems for automobiles. Its commitment to sustainability dates back to our roots in 1885, with the invention of the first electric room thermostat. The company is headquartered in Glendale, Wisconsin. As a Global 200 company, Johnson Controls faces pressures similar to those of its business peers. Because of its diverse business model and the businesses it is in Johnson Controls also faces some unique pressures. For example, due to its innovation in the Building Efficiency division, the company is expected to walk the talk and demonstrate a product s efficacy before bringing it to the marketplace. 2 Institute for Building Efficiency

3 Starting to Report At the turn of the millennium, many corporations viewed their societal impacts through a compliance lens: if they weren t being fined for environmental or labor violations, they felt they were meeting their obligations. Nongovernmental organizations challenged this view, pressuring companies to be transparent about the environmental and social impacts of their businesses and to work to improve. Additionally, large investing groups began to apply social responsibility criteria to their selections of companies and funds. Against this backdrop, the Interfaith Center on Corporate Responsibility (ICCR) approached Johnson Controls about its environmental activities. In a series of dialogue sessions, held in 2000, the ICCR asked what environmental data Johnson Controls was recording and requested that Johnson Controls publicly report on its sustainability activities. Johnson Controls realized that this was an opportunity to show sustainability leadership and build credibility in the marketplace, and the company s first Environmental, Health and Safety (EHS) report was issued that year (2000). This initial report contained only scant GHG data because this was not yet systematically collected and managed within the company. Over the next several years, Johnson Controls improved on its initial sustainability report. By 2003 the company made the annual sustainability reports publicly available online and followed the Global Reporting Initiative s Sustainability Reporting Guidelines. Internally, these efforts were promoted by the company s corporate Environmental Roundtable (ERT). A challenge that crystallized early was the complexity of calculating the greenhouse gas impact of the company s energy use, spread across dozens of countries and multiple fuel sources. To address this, Johnson Controls joined the Business Roundtable s Climate RESOLVE subcommittee in This director-level group provides education and support to companies in the early stages of developing GHG management programs and shares best practices related to climate change and greenhouse gases. In joining Climate RESOLVE, Johnson Controls accepted the subcommittee s challenge to help meet President George W. Bush s 2002 goal of reducing America s greenhouse gas intensity by 18 percent from 2002 to 2012 and adopted that as its own reduction goal. (Johnson Controls achieved this goal by early 2006.) The company then began a concerted effort to compile its GHG data. A first effort was to collect energy consumption data from U.S. locations using a utility-related software package and a custom GHG conversion module. This approach had several limitations. The software was geographically limited to the United States, Canada, and parts of Mexico, and the software vendor indicated that they would not expand the tool s international capabilities. Collecting data in this way didn t have a built-in quality plan (e.g., via third-party audits), and once it was collected, there was no good way to communicate the data and findings publicly. Institute for Building Efficiency 3

4 Becoming a Climate Leader Johnson Controls joined Climate Leaders in The US Environmental Protection Agency s (EPA) Climate Leaders program offered solutions to each of these issues as well as numerous other benefits, and Johnson Controls joined in The Climate Leaders Inventory Guidance is based on the well-established and respected corporate GHG inventorying protocol developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). Combined with the program s independent audits of companies inventories and achievements, the program ensures the quality of participants data and results. Membership in Climate Leaders is free, and the participation and achievements of many forward-looking businesses make the program prestigious. When Johnson Controls joined Climate Leaders in 2003, the company also began extrapolating its U.S. GHG data to its facilities in the rest of the world so they could start to understand their total carbon footprint and prepare to set an aggressive greenhouse gas reduction goal for Climate Leaders (going beyond the Climate RESOLVE goal). By this time, public awareness and understanding of greenhouse gases and climate change had also increased. Key people within Johnson Controls realized that, in addition to being a reporting and responsibility obligation, the company s greenhouse gas efforts could also be a business opportunity. In particular, the company s Building Efficiency division was well-positioned to profit from increased interest in carbon reductions through energy efficiency. Both the public interest in business GHG emissions and Johnson Controls recognition of the business opportunities involved in addressing climate change are reflected in the company s first response to the Carbon Disclosure Project (CDP4 in 2006). The CDP, which collects and distributes high-quality information that motivates investors, corporations and governments to take action to prevent dangerous climate change, is the world s only global climate change reporting system. Johnson Controls has submitted responses to the CDP s annual questionnaire since However, to effectively and credibly pursue the business opportunities in climate change mitigation, Johnson Controls would need even more complete and detailed GHG data. Devising an Action Plan for Reduction To meet these challenges, Johnson Controls tasked the Vice President of Global Energy & Sustainability at Building Efficiency with creating, tracking, and reporting the company s global energy use and with identifying actions to reduce energy use and greenhouse gas emissions. As a result, Johnson Controls embarked on a comprehensive reduction strategy that combined technology, buildings, energy, and personal engagement. Actions developed as part of this strategy were selected based on four principles: Low- or no-cost actions should be taken first. Actions should be easy to implement. Actions should meet the company s standard targets for return on investment. The best reduction opportunities are those that give the company a chance to learn about its own products so they can be better marketed and showcased. 4 Institute for Building Efficiency

5 The key task of computing the Johnson Controls carbon footprint was handled by a team of employees, working with multiple contacts and with data collected across three divisions spanning all regions of the globe. Making the Commitment In 2007, Johnson Controls submitted the inventory of its U.S. greenhouse gas data to Climate Leaders and had the inventory audited. This submission was accepted. Based on this inventory and the understanding of its carbon footprint gained through its Climate Leaders participation since 2003, Johnson Controls then announced its greenhouse gas reduction commitment: The company would reduce its U.S. greenhouse gas intensity (GHG emissions per dollar of revenue) by 30 percent from 2002 to Climate Leaders deemed this goal sufficiently aggressive, and Johnson Controls became a Climate Leaders Goal Setter. Johnson Controls further demonstrated its corporate-wide commitment by extending the same 30 percent GHG intensity reduction target across its global operations. Improving Data Collection Clay Nesler with Robert E. Roberts, Regional Administrator for EPA Region 8. After computing a baseline and establishing a reduction commitment, Johnson Controls sought to find a better utility bill capture method for its operations outside the U.S. and Canada. At the time, various regions submitted their data through documents and spreadsheets with varying content and formats, which was not a workable and repeatable solution. The company looked for a standardized software solution that would allow it to collect and analyze data globally, with an interface that would allow for local user input in multiple languages, units of measure and currencies. The software also needed to collect data and present it in a way that would comply with international standards and allow it to be audited by third parties. Johnson Controls found, licensed, and began using an Energy and Emissions Management System Tool from PWI Energy, an energy consulting firm based in Philadelphia, PA. This Web-based, user-friendly system allows global organizations to input and analyze energy use and trends, calculate their carbon footprint, set targets, report energy and environmental best practices, and produce easy-to-understand, auditable reports to summarize and validate the data. Data can be entered via the Web using utility bills or can be received electronically directly from utility companies. In 2008, Johnson Controls acquired PWI Energy and began offering the Energy and Emissions Management System to its own customers to help them reduce costs, reduce energy use, and report their own GHG emissions. Global Sustainability Scorecard Initiative In 2008, reflecting the increased importance and visibility of GHG emissions management within Johnson Controls, the internal Corporate Environmental Roundtable (ERT) was restructured into the Global Environmental Sustainability Council (GESC). This small group of high-level executives reports to the Johnson Controls CEO and to the three division presidents. Institute for Building Efficiency 5

6 The GESC is divided into subcommittees, each with different functions in relation to sustainability: data collection & reporting, product design, compliance, and public affairs, for example. The subcommittee in charge of the data collection & reporting has re-defined the data collection and reporting goal and expanded the list of metrics to track against a newly established Sustainability Scorecard. The Sustainability Scorecard tracks GHG metrics, along with energy, water, and waste reduction. A new 10-year goal has also been established a further 30 percent reduction in GHG intensity using 2008 as the baseline year and running through Intensity reduction goals for the period from 2008 to 2018 were also established for the three new sustainability metrics on the scorecard: Energy (30 percent reduction per dollar of sales, measured in gigajoules) Water (10 percent reduction per dollar of sales, measured in cubic meters) Waste (20 percent reduction per dollar of sales, measured in metric tons) Applying a Continuous Improvement Process A key differentiator of the sustainability management approach at Johnson Controls is the application of a continuous improvement process to drive best business practices in energy, water, and waste management. A common set of metrics, aligned with the sustainability scorecard goals and normalized by unit of production, is tracked at the plant level and rolled up into the scorecard. The metrics for plants with similar product lines are used to compare average performance with the best in class. Benchmarking is used to close the gaps by identifying and sharing best practices: the key processes, practices and technology that should be implemented across all businesses and facilities to reduce cost and improve sustainability. This approach also promotes data transparency and availability for the plants, business units, and divisions, and helps Johnson Controls broaden its sustainability vision and goals. It reaches people in plants all over the globe and gives them the ability to view their impacts in relation to the entire company s environmental footprint. Addressing the Supply Chain In 2009, Johnson Controls expanded the scope of its carbon management plan to address emissions associated with the company s supply chain. In alignment with its own vision, the company expects its suppliers to conduct business in a safe, sustainable manner. This includes efforts to reduce carbon emissions. As part of this initiative, Johnson Controls invited its main suppliers to participate in the Carbon Disclosure Project, and released a supplier sustainability survey on its website asking 17 questions related to human rights, working conditions, employee safety and energy management. Supplier responses generate a sustainability rating, giving Johnson Controls a method for measuring and tracking the sustainability activity and compliance of its supply base. Johnson Controls invited 78 of its suppliers to participate in 2009 and had a response rate of nearly 80 percent. 6 Institute for Building Efficiency

7 Conclusion and Lessons Learned Over the past decade, Johnson Controls has made significant progress in its understanding and strategies for measuring and managing its carbon footprint. Today, the company comprehensively and transparently reports its progress to stakeholders and the public and has committed to aggressive carbon footprint reductions not only on site, but throughout its supply chain. Each new internal project and effort to reach out and influence the behavior of its suppliers provides an opportunity for greater carbon and cost savings, increased understanding, and new best business practices to share with the rest of the company. Efforts to address energy efficiency and GHG management highlight three key lessons: 1. Top-down support is critical: For an organization to reliably collect energy and GHG emissions data, senior management must support the process and provide assistance. To effect sustained changes and maintain attention on these efforts, top management must continually reinforce their importance to employees and managers. 2. Energy efficiency and reduced carbon footprints come from both technology and behavior: New technologies, like a Metasys Building Management System or a biomass boiler, can reduce energy use and GHG emissions on their own, but the greatest savings come from engaged, vigilant employees who know how to use the technologies efficiently and identify additional areas for savings. 3. Committing to GHG reductions is an opportunity, not a sacrifice: Johnson Controls believes that forwardlooking companies that commit to energy efficiency and low-carbon enterprise will achieve competitive advantage through cost savings, risk reduction, and quality improvement, as well as strategically positioning the company for business growth in an increasingly energy-conscious, carbon-constrained world. Institute for Building Efficiency 7

8 The Institute for Building Efficiency is an initiative of Johnson Controls providing information and analysis of technologies, policies, and practices for efficient, high performance buildings and smart energy systems around the world. The Institute leverages the company s 125 years of global experi ence providing energy efficient solutions for buildings to support and complement the efforts of nonprofit organizations and industry associations. The Institute focuses on practical solutions that are innovative, cost-effective and scalable Johnson Controls, Inc. 444 North Capitol St., NW Suite 729, Washington DC Printed in USA

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