Whether or not you’re convinced by science and media reports on global warming, there is no doubt that our planet is under pressure at the moment. Things must change, and the governments of the world – not to mention increasingly vocal activists – have started to put pressure on companies and individuals to reduce energy usage and become more environmentally friendly and sustainable. Yet many businesses continue to ignore these issues, relegating it to a low priority task team, or simply paying lip service to it as a PR exercise. This is short sighted and potentially damaging. And it doesn’t make business sense, either.
There are significant advantages for the companies that take energy efficiency and business sustainability seriously. You don’t have to be a do-gooder to develop processes and systems to improve the environmental performance of your business. There is a strong business case for doing so.
Here are nine reasons why you should take these issues seriously, and see business improvement as a result. Doing well by doing good is possible. And desirable!
1. You are wasting money
Energy, water, materials and resources all cost money. Most companies use more of these resources than they actually need to. Our problem is that most of your staff have grown up in a world where energy, water and other resources (supplied by “utility” companies) have not been managed as a habit or lifestyle. We grew up just expecting lights to burn and water to run, and not really counting the cost of this. That has changed, of course. Our children are very aware of the cost of the use of these resources – not just the monetary cost, but also the cost to the planet. But that generation is not yet working for you in significant numbers.
It’s no surprise then that we use unnecessary energy and resources. The good news is that most companies can easily and quickly reduce this usage. And this will result in immediate savings, reduction of costs and therefore increased profit. Savings from reducing waste (whether that is wasted materials, resources, water or energy) go straight to your bottom line. If your profit margin is 25%, every £1 saved in this way is equivalent to £4 worth of new sales. During the recession, when every penny counts, this must be worth considering. And unlike reducing staff, reductions in waste costs improve rather than detract from your ability to deliver value to your customers.
There are four simple steps to reducing your costs. You must start by measuring your usage. You can improve what you can measure. You must then empower your people to make adjustments to systems and behaviour. Thirdly, you might need to make some physical changes and upgrades to your facilities. This need not scare you – there are ways to do this whereby a return on investment within a few months is guaranteed. Finally, you need to report on what you have done, communicating to all stakeholders.
Of course, there is some complexity in each of these steps. But the principle is simple, the execution can be easy, and the results are immediate. Stop wasting money, and start reducing your resource usage now.
2. Your energy, water and waste management costs are rising
Energy costs have more than doubled in the past two years. Waste management costs continue to rise as landfill tax escalates and the type of materials that can be landfilled is increasingly restricted. Water resources are becoming more and more scarce, especially in densely populated regions of the world, leading to rising costs. These costs will not be reduced in the years ahead. In fact, they will increase in price exponentially, as both the underlying costs increase due to shortage of supply and government imposes further taxes on their usage. Doing nothing on environment performance means going backwards rather than standing still.
3. Your compliance costs are rising and you could end up in court
The UK is one of the first major economies to pass a Climate Change Act. The Act was promulgated by Parliament in December 2008, and is now being followed by a raft of policies and programmes to ensure it is implemented and adhered to. The same will happen in economies around the world. President Obama has promised to do something similar within his first term, and Prime Minister Rudd has been doing so in Australia since he came to power. There are literally hundreds of pieces of environmental legislation being drafted around the world. Most companies have not begun to fully understand the implications of this trend for their businesses over the next decade.
In addition to legislation, regulators such as the US Environment Agency are increasingly taking a risk-based approach to enforcement. If, for example, your company routinely stores hazardous materials, or you are regarded as having poor environmental practices, you will be targeted for inspections and audits. This will be time consuming, disrupt your activities, and could end up in fines, court action and even closure of your business.
Your response over the next few years could be to continually shift in an incremental fashion, to keep just ahead of the law. But this is an expensive hobby. Eradicating problems completely is much cheaper in the long run and will keep you miles ahead of the lawmakers. Maybe more importantly, it will also potentially keep you miles ahead of your competitors, and allow you the luxury of calling for greater regulation in your industry, thus putting more pressure on your competition.
4. You can reduce your risk (and increase access to capital)
When this recession is over, a new landscape of credit and risk management will have emerged. We are not going to go back to how things were. Probably the greatest change will be access to funding and credit. Simply put, your access to capital is dependent on your future prospects and your risk profile. The lower the risk, the more funds you’ll have access to and the cheaper your credit will be. It really does work like that.
Increasingly, before the recession, savvy investors were using environmental records as a proxy for good management and hidden value. After the recession, they will increasingly analyse your environmental record for signs of risk. Given the legislation in the pipeline, and the public’s demand for ethical behaviour and environmental excellence, your record on environmental issues will be hugely significant to potential investors and creditors. Now is the time to develop your reputation in this area.
In addition to access to cheaper capital, lower risks also mean cheaper insurance. Since climate related insurance claims have increased exponentially over the past decade, the ability to demonstrate that your business is future-proofing itself against these types of risks will have a significant effect on premiums payable.
5. Your customers or clients demand it
If you sell to the public, certain markets are going solidly “green”. A new generation of ethically aware consumers is demanding that your products and services meet certain standards in this regard. And they are becoming increasingly educated on what questions to ask, and where to look for the answers to their questions. The proportion of white goods rated “A” for energy efficiency has risen from none to 76% in the ten years to 2006. The same trend is evident in many sectors and products lines.
If you sell to other businesses, then your environmental performance becomes their environmental performance. Increasingly larger organisations are demanding information on suppliers’ performance and Local Authorities, the NHS and other public sector bodies are turning to “green procurement” to meet Government targets. In February 2009, for example, the UK’s National Health Service issued a policy document entitled, “Reducing Carbon, Improving Healthcare”. This document highlighted the role of suppliers in the NHS’s carbon footprint, and mandated NHS facilities to put significant pressure on its suppliers to reduce energy use over the next 5 years. The NHS employs 1.3 million people (5% of the UK workforce) and is the largest employer in Europe. The pressure on suppliers will be significant, and your ability to compete for NHS work may be hampered or helped by your environmental record.
6. Your competitors are doing it
Given what we’ve said so far, this point should be fairly obvious. The issue of environmental policies is more and more going to be a competitive advantage opportunity. You don’t want to be the last company in your industry to understand this. And, in a world where every competitive advantage is temporary anyway, it would be a pity for you to miss such an obvious and easy opportunity to take a lead in your industry right now.
Some sectors are already slugging it out in this space. Retailers in the UK, for example, are fighting each other to become carbon neutral and demonstrate energy usage reductions. It might be argued that a lot of what they are doing has more to do with public perception and green image than reality. That will ultimately trip some of them up, but for now none of the big retail chains can afford to ignore this issue.
But it isn’t all about image. If your competitors have a better environmental performance than you, they will also have lower operating costs, higher profit margins and opportunities to be more competitive on pricing strategy. They will be more robust and able to adapt to future legislation, lower risk, avoid environmental taxation and respond more effectively to ethical consumer demand, with much better PR and marketing opportunities. It’s also been proven that companies with good environmental policies have better motivated employees and are able to attract the best new recruits. When you put it that way, you’d be mad not to do this.
7. Your staff want you to do it
An increasing number of graduate recruits are stating that the environmental policies and ethical image of potential employers is “very important” in their decision making process. In the “war for talent” that companies of all sizes have to fight, environmental issues can be a deciding factor.
This has been confirmed in the UK by both the Association of Graduate Recruiters (AGR) and the Chartered Institute for Personnel and Development (CIPD). In the US, a survey of over 4,000 people carried out by recruitment job site MonsterTRAK found that 80% of young professionals are interested in securing a job that has a positive impact on the environment. And over 90% claimed they would prefer to work for an environmentally friendly employer. In the UK, a survey of 5,000 job hunters showed that 43% would not work for a firm which had no ethical or environmental policies, even if they were offered £10,000 a year more than to work for a business with a sense of corporate social responsibility. This was confirmed in a global survey of graduates by PriceWaterhouseCoopers, “Millennials at Work”, which found that 88% of young staff wanted an employer whose CSR values matched their own. 58% of employees specifically indicated that they wanted their employer’s policy on climate change to match their own.
This is not only a recruitment issue. Employees are much more likely to be engaged in a company that makes a positive contribution to the environment. The media coverage and goodwill generated will also serve to motivate staff and engender a sense of pride in their work and association with an environmentally progressive organisation.
8. They’re watching you – activists will not leave you alone
In 2007, Apple Computers was one of the world’s most admired companies, with a remarkable image and stylish products. That was until Greenpeace put them at the bottom of an environmental league table of electronics companies and set up a parody of Apple’s website to detail their environmental infractions. Apple’s CEO, Steve Jobs, at first dismissed the campaign, but this only instigated a stronger backlash. It then became clear that Apple’s image could be very quickly tarnished, and the company did a swift u-turn. Jobs personally launched and oversaw a radical programme to improve environmental performance. This was publicised on the company’s home page for a month. It cost a lot, disrupted plans and was reactionary. But Apple will feel the benefits for years to come.
The message is clear. You can wait until you are forced to become green, or you can choose to do so at your own pace and on your terms. But, ultimately, you will have to go green. And if the activists do get hold of you, they can destroy years of brand building in an instant.
The higher profile your business, the more likely you will be targeted by activists. These groups need high profile campaigns, like Apple, Gap, Primark, Nike and others, to make the mainstream media take notice. If you are a smaller business, but you do business with a high profile client, then pressure groups will hold them responsible for your environmental sins. This is a very easy way to lose a major customer.
The positive side of this issue is that the media is very hungry for “green” stories at the moment. By embarking on energy saving strategies and becoming environmentally progressive, you will make it a lot easier to get PR and media coverage. And some of that exposure cannot be bought with money.
9. Just because you can
Of course, ethical consumption is more than just a new consumer fad. It is not just this season’s “in-thing”. The reason that people are becoming ethical consumers is because they understand, even if only instinctively, that we are over utilizing – in many cases, even abusing – the planet’s resources. We know that this cannot be sustained, and we know that we have to do something about it. We can no longer claim ignorance about issues like global warming, devastation of natural environments, abuse of workers and the like. And once we acknowledge that these are indeed issues, then we must respond.
There are good business reasons to do something now. There are compelling moral reasons, too. The issue of environmental performance should be on every business leader’s agenda, and should be a non negotiable line item in every strategy session your company runs over the next decade. You don’t have to abandon everything else and focus solely on this issue, and you don’t have to go overboard and overspend on items and programmes that have little or no return on investment. With some clever thinking and simple planning, you can make money and enhance your business dramatically. The business case is clear, when you take the time to investigate it.
Dr Graeme Codrington is a presenter, author and future trends analyst at TomorrowToday, a global strategy consultancy. From his base in London, he assists companies around the world to anticipate and respond to macro people trends. He is the author of three best selling books, visiting professor at four top business schools, including GIBS and the London Business School, and has won numerous awards for his keynote presentations. He can be contacted at [email protected].