Eco-frenzy or eco-friendly – the real cost of going green

Market expectations and tangible cost benefits are the new cornerstones of corporate sustainability goals. NAOMI SNELLING reports

Cost of going greenFinancial experts point out that as the global economy shifts towards a low-carbon model, many of the world’s largest companies and organisations are under an increasing pressure to cut their greenhouse gas emissions – embedding low-carbon thinking and practice across all their operations.

This drive for low-carbon comes in the wake of the Paris Agreement, an international accord to limit greenhouse gas emissions, which came into force in November 2016.
A growing trend for multi-nationals, such as Amazon, Google, Ikea and Lego to source “clean” energy and even invest in renewable energy resources, reflects this over-arching push to respond positively to climate change and embed green policies at the heart of business.

Energy consumption is also a key focus point at governmental level, and in July 2017, the UK government launched a plan to give homes and businesses more control over their energy use and support innovative new technologies, as part of its Industrial Strategy.
The plan revolves around a smarter, more flexible energy system by removing barriers to smart and battery technology, reducing costs for consumers.

Until fairly recently, corporates and forward-thinking SMEs embraced key principles of the sustainability movement, such as reducing water and power usage, in order to achieve their end goal of better-managed risk- and cost-savings.

The environmental benefits were a plus, not a driver. But now emerging societal and governmental pressures are accelerating the push to go green.

Finance staff are also realising that greener practices can be a useful part of helping to control volatile energy and input costs.

But sustainability looks different for each business – it’s rarely a one-size-fits-all solution. Targeting Value, the latest report from UK think-tank SustainAbility states that the right approach to setting corporate sustainability goals depends on a company’s culture, its progress on its sustainability journey, and the context of the issue targeted.

Robert Speht, director of Renewable Experts Limited consultancy, points out that going green is crucially about changing a culture from within not changing appearance from without.

“In the past, companies have gone green to be seen to be going green and financially it didn’t really stack up.

“Unless your branding is green or your product or services are green, I would say don’t waste money from your marketing budget on green gimmicks but do spend time and a little money saving energy. Look at your heating, lighting and transport – every £1 you can save here counts.

“There’s a whole host of energy advice you can get for free depending on your industry sector.

“Normally it won’t involve capital investment, it’s more likely to involve a bit of time, so it’s part of your operational budget. After you’ve brought energy costs down it might be the next natural step to make a capital investment focused on sustainability.”

Speht also highlights that the rationale of the Paris accord means that by the end of the century all businesses will have to be zero carbon.

“If you’re a company with public shares, you have to report to the market. It’s about market expectations: businesses are increasingly being measured on environmental and social performance, as well as financial. Large and successful organisations need to be moving along the curve towards carbon free.”

And getting ahead of the curve offers significant business benefits, especially as climate change has already shown to impact on businesses, and its ripple effects could end up being even bigger than expected.

On a global scale, predictions indicate that climate change could also have an impact on the financial stability of individual economies.

In December, 2017, Bank of England governor Mark Carney added his voice to a swell of support for the Taskforce on Climate-related Financial Disclosures (TCFD), a campaign that aims to improve climate-related disclosures. Around 237 firms with a stock market value of more than $6 trillion (£4.5 trillion) have signed up to back the plans.

December 2017 also saw the launch of the Climate Action 100+ initiative at the One Planet Summit in Paris, France, which will see around 225 global investors engaging with the world’s largest corporate greenhouse gas emitters, hopefully prompting them to enhance their emission ambitions.

With trillions of dollars’ worth of influence behind it, the five-year initiative will make it even harder for any major listed firm to ignore, or downplay, the climate-related risks being faced.

Although multi-nationals may be leading the way, SMEs are often quick to adapt and follow-suit.

Oxford-based Seacourt Ltd, a green printing company, was recognised by the European Commission EMAS Programme as the most sustainable SME in Europe, a remarkable accolade for a manufacturing business in a perceived “dirty” industry.

Managing director of Seacourt, Gareth Dinnage, believes that sustainability must have board-level representation, and be seen as a valuable asset which can further support brand reputation.

“We have been working to the triple-bottom-line, before there was such a thing, and having social and environmental business goals as part of your wider objectives will ensure you have a stronger business in all aspects.

“Our reputation is everything, as it provides our customers confidence that by working with us they can make a positive impact on their supply chain, and further enhance their reputation.

“It is this position which has ensured we have not just survived in a commoditised industry, but thrived.”

Dinnage suggests that organisations should review responding to climate change as an opportunity to future-proof their business.

“Climate change is not going away, positive change needs to happen now – customers will decide the fate of all businesses and so if you are demonstrating leadership in your sector you will receive the deserved loyalty of your customers, which in turn will translate into enhanced brand reputation and ultimately a stronger business.

“But greenwash will have the opposite effect – you need to be serious with your objectives.”

Sustainability goals yield as much as any other well-designed business goals. Meeting market expectations, reputational boost, cost-savings, increased certainty, and opportunities for growth.

Whether one cares deeply about environmental benefits or not, in today’s economy there are few business strategies that are more promising or cost-effective.