Ideas From the Front

Good Climate For Business

Joining the Fight Against Greenhouse Gas Emissions Helps Firms Grow Opportunities

Posted Oct 29, 2005 4:33 AM CDT
By Jill Schachner Chanen

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Reducing greenhouse gases can make a business a good corporate citizen, but can it also help win new clients?

Two law firms are making that wager by joining the nascent Chicago Climate Exchange, the nation’s first and only voluntary and legally binding exchange for trading greenhouse gas offsets, with the goal of reducing emissions.

Greenhouse gases, including carbon dioxide, methane and hydrofluorocarbons, are widely thought to contribute to the warming of the planet. Law firms and other service businesses do not emit the kinds of gases that come from large industrial manufacturers, but experts say their use of electricity and natural gas do contribute to global warming.

The CCX counts as members a host of international companies, many of which have significant potential to pollute, including Rolls-Royce, Ford Motor Co. and Dow Corning. The CCX aims to reduce each member’s greenhouse gas emissions by 1 percent per year, based on their annual average of emissions calculated from 1998 through 2001. Since its 2003 inception, the CCX claims, members’ total emissions were 8 percent lower than their emission-reduction commitment.

Milwaukee-based Foley & Lardner and New York City-based Sullivan & Cromwell have joined the exchange as associate members. Their membership obligates the firms to offset the greenhouse gas emissions that their offices release into the environment. Neither one is trading in the exchange’s private commodities market, however.

“We thought it would be an important initiative to be a market leader in addressing an area that we care about very significantly: the environment,” says Sullivan & Cromwell partner Kenneth Raisler.

It doesn’t hurt that the firm has active practices in areas that relate to the issues addressed by the exchange, including sustainable forestry, project financing and comparable European markets where the Kyoto Protocol comes into play. The protocol instructs developed nations to limit the greenhouse gases they emit.

“A lot of it is core trading questions, and we advise a lot of clients on that,” Raisler says. “But over time our hope is that this project will influence project-development people to buy forested land because of its value and look at development in a slightly different way.”

Firsthand Knowledge

Foley & Lardner’s Sandy Williams says his firm joined the exchange for similar reasons. Like Sullivan & Cromwell, Foley & Lardner has served as legal counsel to the exchange. Also, given the breadth of Foley & Lardner’s energy and environmental practices, the firm felt many of its clients may be participating in both mandatory and voluntary efforts to curb greenhouse gas effects and wanted to have firsthand knowledge to better advise its clients, Williams says.

According to Williams, many current and prospective clients look favorably on the law firm’s participation in the exchange, and the firm makes note of it in requests for proposals just as it would with diversity statistics.

“We felt that carbon neutrality was becoming a matter of international interest and local interest,” he says.

As associate members, the firms must calculate the amount of greenhouse gases they emit into the environment and buy credits on the exchange to offset the emissions. The price of the credits varies on a daily basis depending on the market. Since Williams’ firm joined the exchange last year it has spent $20,000 to $30,000 to purchase the required credits from members that reduce their emissions beyond the exchange’s guidelines.

Baker & McKenzie also is contemplating a membership, says Chicago-based associate Rick Saines, and the firm is evaluating whether the cost of the membership and the emission credits will be worthwhile.

“It is consistent with our practice,” Saines says. “We have spent a lot of time and energy developing what we think is the pre-eminent climate-change practice. Part and parcel of being a leader in this area is participating in these kinds of things when it makes sense to do so.”

But there’s also a sense that it’s simply the right thing to do, he says. “In our Chicago office in particular, there is a strong commitment to focus on the community and to meet all of our pro bono targets.”

Explosive Growth

Lawyer Patrick Esposito II is the chief operating officer for Augusta Systems Inc., a Morgantown, W.Va., company that has created software used in the trading of these emissions. He says firms that join the exchange may be on to something. “The idea of commodities markets for the environmental arena is set to grow exponentially,” he says. “These firms are joining to both serve clients and carve out a niche.”

The numbers support Esposito’s assertion: Wired magazine estimated last year that the global greenhouse gas commodities market will be worth as much as $45 billion in the next five years.

The boom is being fueled by the Kyoto Protocol. Although the U.S. opted not to become a signatory to the protocol, Esposito says curbing greenhouse gases has become an upfront issue for American manufacturers both at home and abroad. He says he expects to see more and more companies joining private exchanges such as the Chicago exchange or contracting privately to trade greenhouse gas emission offsets.

No matter how good a marketing device the membership in the exchange turns out to be, Esposito thinks the firms’ efforts are laudable.

“In the absence of national regulation,” Esposito says, “firms are stepping up and saying we are going to reduce our emissions.”

ABA on the Alert

Greenhouse gas exchanges may be relatively new, but the ABA has been studying these and other trading programs for several years through the Innovation, Management Systems and Trading Committee of the Environment, Energy and Resources Section.

The committee focuses on three separate yet related areas that offer alternatives to traditional regulation with the goal of fostering more efficient, effective environmental protections.

The committee sees each of these areas as ripe for furthering the ideals of environmental stewardship and sustainable development.

For more about the committee on the Web: www.abanet.org/environ/committees/secondgeneration/home.html.

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