Progressives, those concerned about the course of globalization, and supporters of diverse local economies alike lament the power that national and global brands have over our economic choices. In a world of largely-undifferentiated commodities, branding is the medium for distinguishing one product from another, and so many companies put disproportionate effort into building and maintaining brand identity. But this emphasis on brand is arguably a lever for change: as people's attitudes towards a certain issue evolve, brands that become associated with the issue can be harmed. Specifically, as global warming and climate disruption become more widely-recognized public concerns, brands that are linked to climate misbehavior can have their value plummet.
Such is the conclusion of the UK's Carbon Trust, a government-sponsored initiative to study the social and economic factors related to a need to reduce greenhouse gases. In a new report ("Brand value at risk from climate change" -- PDF), the Carbon Trust looks at how corporate identity and value could evolve in a world where climate issues capture the public attention. The summary conclusions are straightforward:
1 Climate change could plausibly become a mainstream consumer issue in the next five years.
2 When this happens, there will be reputational implications for many sectors not seen to be addressing the issue appropriately.
3 In some sectors, the lead time for action could be several years, leaving unprepared companies at risk.
Interestingly, the study (which looks at six economic sectors, across a range of perceived carbon intensity) found that the Food & Beverage Production industry was at the highest financial risk of brand vulnerability, even moreso than Oil & Gas. Despite the relatively lower perceived carbon footprint of the food and drink industry, such purchases take up such a large part of consumer budgets, and have abundant available substitutions. Air travel was also found to be quite vulnerable, with lower financial risk but higher overall industry exposure, as it combines high perceived carbon intensity with relatively low necessity -- consumers can choose to stop flying more readily than they can choose to stop driving, for example.
Although the study focuses on the UK market, its methodologies and conclusions can be applicable more broadly. Many of the core principles used in the research -- substitutability, carbon intensity, and operational exposure, for example -- work equally well with national and global brands world-wide. Further, the results suggest strategies for political and economic pressure for activists, as well as providing foresight for investors. And, of course, the study is a useful (if skimpy) guide for companies looking to build brand identity around positive climate positions. As the report puts it:
...even in the 'low carbon' sectors of banking and telecommunications, where direct emissions from operations do not create brand risk, there are opportunities for companies to create positive brand value if they position themselves appropriately on the climate change issues that affect their customers, rather than their own operations.
The report also weakens, a bit, one of the common refrains among Viridian-type environmentalists: that the energy companies will be the next cigarette companies for the public (and state governments looking to fatten their coffers). There will be efforts to "RJR" the oil companies, to be sure, but until there's greater substitutability for the energy companies' products, brand vulnerability will be muted.
One important argument from the study is that the time required to mitigate carbon intensity can be much longer than other sorts of "socially responsible" changes (such as avoiding sweatshops or buying "fair trade" coffee beans), and the brands will remain vulnerable during and for some time after the transition to lower-carbon behaviors. This makes a typical organizational response to questionable activities -- wait until the customers start making noise about it, but take advantage of it as long as possible -- a problematic strategy. Companies wishing to avoid being labeled greenhouse villains a decade hence need to be paying attention now to their carbon footprints.