There's money to be made in them there green ideas

Financial Times, 3 July 2007 - A couple of decades ago, evidence of a relationship between business and the environment was limited to news stories about oil and chemical spills and a few products such as eco-light bulbs and "green" detergents that were seen as inferior to mainstream versions.

Today, the landscape has been transformed, with companies such as General Electric putting the environment at the heart of their business strategies. In May, GE revealed that it had doubled sales from environmentally friendly products to Dollars 12bn during the past two years.

Two main forces are driving business leaders' embrace of all things green. First, the recognition that the risks posed to business by climate change, pressure on water supplies, and chemical and other pollution is growing.

Companies are also seeing the potential for revenue generation in the development of new products, clean technologies, renewable fuels and other green goods and services. Certainly, the increase in severe storms and the devastation caused by events such as Hurricane Katrina have sent powerful messages to the business community about the dangers of ignoring their impact on the planet.

The body of research in this area is growing, with not only academics behind the studies but also business groups. The World Business Council for Sustainable Development has, for example, produced a series of scenarios designed to inform companies about the risks posed by shifts in the water supply.

It is developing a tool with which companies can assess their water footprints, assess which parts of the world could experience water stress in the future and take action.

At the same time, businesses are becoming more ambitious and wide-ranging in the ways they manage their environmental impact by looking beyond their own operations.

"Companies are starting to look up and down the supply chain and ask their suppliers to conform to certain environmental standards," says Hugh Jones, solutions project director at the Carbon Trust, a UK government-funded body that helps organisations cut their carbon emissions.

However, in the battle to reduce the environmental impact of business activities, there are few one-size-fits-all solutions. Companies face different challenges.

For Tetra Pak, the leading carton manufacturer, use of materials and waste management are big issues. The company focuses on sourcing from well-managed forests, developing recycling initiatives and reducing the amount of non-recyclable materials in its products. It has developed a new specification for the liner in its cartons that cuts the amount of plastic needed by third. "That enables us to improve the resource efficiency of what we use," says Richard Hands, environment manager at Tetra Pak UK.

On the other hand, the environmental footprint of a financial institution might look very different. While many banks and financial services companies like to broadcast their environmental credentials by switching off office computers and cutting back on printing documents, these remain of limited impact. For this sector, the real power lies in its lending operations.

Several initiatives have been launched that recognise this power. The Principles for Responsible Investment - a UN Global Compact initiative launched last year - offers guidelines for institutional investors on how to bring non-financial issues, including environmental considerations, into their investment decisions.

The Equator Principles - launched in 2003 by a group of leading banks - provide a benchmark against which the sector can measure its progress, including social and environmental criteria in its project financing.

Whatever sector they are in, many companies have now put climate change at the top of their agenda. "We have more requests for our products and services," says Mr Jones. "But, more tellingly, we find that we are engaging at more senior levels in a company's structure - and that's crucial because a lot of climate change initiatives involve organisational change and, if you haven't got high-level buy-in, you can't effect change."

Behind the new corporate carbon consciousness are several factors. For a start, the publication last year of the UK government-commissioned Stern Review not only presented a stark vision of the economic impact of climate change but also highlighted the cost of not mitigating it.

Some of the pressure for companies to address their carbon footprint is coming from consumers. Tesco, for example, has embarked on an ambitious labelling initiative that will eventually allow shoppers to compare products by their emissions levels just as they may do with price or nutritional value.

"Society expects high environmental standards, so ultimately for consumer-facing companies it could become a matter of survival," says Mr Hands. "The terrain has shifted quite markedly, particularly in the past year."

In addition, growing numbers of investors are starting to scrutinise the carbon footprint of the companies in which they invest. The Carbon Disclosure Project (CDP), an initiative representing 284 institutional investors with assets of Dollars 41,000m under management, has since 2002 sent a letter to the world's leading companies requesting information on the risks and opportunities posed to them by climate change. It compiles reports from the responses.

When it comes to the business case for addressing environmental issues, the focus is shifting from one of pure risk management to the pursuit of opportunities for revenue growth. The 2006 CPD report found, for example, that the global market for biofuels reached Dollars 15.7bn in 2005, up more than 15 per cent on the previous year.

This trend is confirmed by Seb Beloe, head of research and advocacy at SustainAbility, which advises companies including Ford, Shell, Nike, Dow Chemical, Unilever and Nestle on the risks and opportunities associated with corporate responsibility and sustainable development.

"We've worked with some of these companies for about nine years and for seven of those years it was at best an issue driven by risk," he says. Mr Beloe argues that, while investment in this area remains woefully insufficient, the focus on risk is giving way to a recognition of the emerging business opportunities in environmental technologies, products and services. "Companies are increasing their R&D in this area," he says.

Nevertheless, tricky trade-offs are emerging. Many argue, for instance, that switching to corn-based ethanol fuel could have unintended consequences, such as pushing up the price of staple foods consumed bythe world's poorest people.

Turning more land over to biofuel crops puts pressure on another natural resource: the global water supply. And while drip and spray irrigation techniques consume less water than gravity-based systems, they also consume power and so generate emissions.

Carbon offsetting is also proving controversial. Like priests handing out religious indulgences, companies now offer to create carbon savings in far-off countries to compensate for emissions at home. But judging the effectiveness of tree planting or renewable energy projects on the other side of the world is far from easy, and the credibility of many carbon credit schemes has been questioned.

While the focus on carbon brings its own problems, Mr Beloe sees it as the precursor to the mainstreaming of sustainability, a process he believes resembles the way that IT moved from its silo in the 1990s to the centre of business models.

"The same will happen with climate change and, ultimately, with environmental issues more broadly," he says. "Climate change is a precursor of a bigger agenda, which is about the environment as a whole."

Sarah Murray is author of "Moveable Feasts: The Incredible Journeys of the Thing We Eat", Aurum Press (UK), St Martins Press (US, November 2007).

Author Sarah Murray Publication Date 3 Jul 2007 Document Type WBCSD in the news Issue/Topic Business Role/CSR Company General Electric Company Royal Dutch Shell plc. The Dow Chemical Company Unilever N.V. Source Financial Times Include In RSS Business & Sustainable Development News Corporate Social Responsibility News