Reserve Accounting for ski days

Setting innovation strategies to deal with declining resource stocks sounds like the kind of long-range planning that’s only good for oil, mining, timber, and other companies in the extraction business. But as I mention in an earlier post, the Innovating against Declining Resources, that’s changing. In Getting Green Done, Auden Schendler describes how his company, the Aspen Skiing Company, and the City of Aspen are recognizing the same need in setting their own strategic planning.

In the growing trend to include environmental resources in corporate accounting, the city of Aspen undertook a study of the environmental and economic effects of climate change on the local area, Aspen Climate Study. The report found several key changes taking place:

  • Aspen’s climate has changed noticeably over the past 25 years. Temperatures have increased about 3 degrees F, and the average number of frost free days per year has increased about 20 days.
  • While highly variable, total precipitation has decreased 6 percent in the past 25 years and the amount falling as snow has decreased 16 percent. Higher in the area mountains at 10,600 feet, total precipitation has decreased 17 percent.
  • In the future, more of Aspen’s precipitation will fall as rain rather than as snow. Snowpack will decline, and peak runoff will occur earlier in the spring. Summer and fall stream flows will be reduced, potentially declining below the minimum needed to protect aquatic species. The greater the temperature rise, the more extreme these effects will be.

The implications are considerable, but directly affect their most important asset—the ski industry. As the report recognized,

“Continued growth in global greenhouse gas emissions is projected to end skiing in Aspen by 2100 and possibly well before then. Reducing emissions could preserve skiing at middle and upper elevations. In general, the ski season is likely to start later and end earlier. Snow depths will be reduced. Spring melt will begin earlier. Higher temperatures will reduce snowmaking opportunities and increase competition for the needed water supplies.”

As an executive of the Aspen Skiing Company, what would you do if you knew your business was going to be significantly impacted in the coming years and likely gone by the end of the century? Would you get while the getting’s good—and leave the problem for others? Would you begin diversifying now, so that the next generation of leadership, of shareholders, and of all stakeholders, is better positioned to manage the change?

Oil and gas companies are well-acquainted with the need to continually assess and report on their reserves (though the science behind these reporting metrics is far from precise). These reserves tend not to change over time—excepting when people decide to change how they’re measured. Yet how many other businesses are equally dependent on “environmental” reserves that can and do change over time depending on the actions of others?

From the Aspen press release:

“While climate change is a global problem, its causes and its impacts occur locally,” says Dan Richardson, Global Warming Project Manager for the city. “Like other mountainous areas, Aspen is particularly vulnerable to global warming,” adds report coordinator John Katzenberger of the Aspen Global Change Institute. “This is really a pioneering study, where a single community realized climate change could affect their quality of life and the local economy and then commissioned a report to get specific climate change information about the consequent impacts,” notes Gerald Meehl, senior scientist at the National Center for Atmospheric Research and a member of the science advisory panel for the study.

And there is the cost of acknowledging these risks. While Aspen recognized them (even commissioning the study), the nearby town of Vail chose this opportunity to deny experiencing any adverse effects, choosing instead the short-term value of marketing against the competition.

The first step in developing an innovation strategy against declining stocks of environmental resources is admitting you have a problem.