How green is your business?
On 20 April this year, Chancellor Gordon Brown stood up in front of the
UN ambassadors in New York to make what may turn out to be one of the
most significant speeches of his career. He introduced his subject as
“one of the greatest international challenges of our time – how we
protect our environment, secure our planet and safeguard our future for
our children and generations to come”.
Environmental and economic priorities, he said, have too often been considered to be mutually exclusive – that we can either
have economic growth at the expense of the environment or environmental care at the expense of growth and prosperity. But environmental sustainability isn’t an option, he continued, it’s a necessity.
“For economies to flourish, for global poverty to be banished, for the wellbeing of the world’s people to be enhanced… we have a compelling and ever more urgent duty of stewardship to take care of the natural environment and resources on which our economic activity and social fabric depends.
“I want to argue today,” he went on, “that far from being at odds with each other, our economic objectives, our environmental objectives now increasingly reinforce each other.”
This sentiment will seem perfectly logical to most Geographical readers. But to hear it from the lips of the chancellor, whose priority has always been to support the economy, British business and the City, is something of a surprise. Recent events, however, suggest that the idea of a synergy between economic and environmental considerations might not be as radical as it seems.
In fact, the theme of Brown’s speech reflects a trend that is emerging in the business community. During the past five years, and increasingly during the past 12 months, a growing number of companies have made a serious commitment to reduce their impact on the environment. And these aren’t small fry – they are among the world’s largest corporations.
Tesco, for example, has announced plans to invest £100million in renewable energy for its stores. And in the USA, General Electric has set aside US$1.5billion (£0.8billion) to develop new environmental technologies. Even McDonald’s has joined in, pledging to source its agricultural produce from sustainable suppliers.
“What is happening now is something quite exciting,” says David Vincent, technology director of the Carbon Trust, a government-funded company helping business and the public sector reduce carbon emissions. “We’re seeing the beginnings of an economy in transition, where the leading thinkers have made the connection between profitability and environmental stewardship, and corporate responsibility and brand reputation, and are looking at these issues as part of their core business."
Their actions and announcements not only mark a significant change in business attitudes towards the environment, but signify a radical shift in the dynamics between the business community, governments and non-governmental organisations. We’re seeing new alliances formed between the likes of Greenpeace and McDonald’s, and Friends of the Earth, Tesco and Shell.
As a result, it may be time to review the commonly held perception that business, especially big business, and its capitalist ideology are greedy and immoral and fundamentally at odds with sustainable development. Not only is this good news for the environment, it’s good news for business, says Merlin Hyman, director of the UK Environmental Industries Commission.
“Those companies that are already taking steps to address their environmental impact have shown that the opportunities for British business and for the UK economy as a whole are tremendous,” he says. “If the government can provide the right support, we will not only see a move to a more eco-efficient economy, but a host of new business and employment opportunities in the environmental industries sector.”
Taking responsibility
In 2002, HSBC announced that it had teamed up with WWF, Botanic Gardens Conservation International and the Earthwatch Institute to launch Investing in Nature, a five-year ‘eco-partnership’ through which the bank would donate US$50million to conservation projects around the world and send 2,000 of its staff to take part in fieldwork.
The aim was to clean up three of the world’s major rivers – the Amazon, the Yangtze and the Rio Grande – to help save 20,000 rare plants from extinction and to train 200 scientists in developing countries. As one of the most ambitious and generous corporate social responsibility (CSR) initiatives ever undertaken, it helped to develop HSBC’s reputation as a responsible business and to reinforce its brand image as “the world’s local bank”.
The concept of CSR emerged during the 1990s as a result of growing criticism of the business world by environmental and social-rights activists. Today, it’s an integral part of most large companies’ strategies and the means by which they attempt to prove their green credentials.
However, just as the notion of CSR has caught on, so has use of the term ‘greenwashing’ to criticise initiatives that don’t address a company’s environmental and social footprint. A company supporting baseline biodiversity surveys in a national park is all very well, the argument goes, but what use is this if that same company is pumping millions of tonnes of CO2 into the atmosphere every year?
According to Jonathon Porritt, environmentalist and programme director of the Forum for the Future, there is something deceptive about CSR. “The very fact that the majority of companies still opt for CSR,” he writes in his book Capitalism as if the World Matters, “as the self-contained box into which to pack all their ‘good stuff’, while they continue to pursue their core business… without the remotest likelihood that they or their products/services will ever become genuinely sustainable, reveals all one really needs to know about the empty, seductive illusion that is CSR.”
But while the majority of companies were busy earning their green stripes during the 1990s, a few progressive corporations began quietly looking beyond the bolt-on, band-aid CSR initiatives to the environmental impact of their core business.
BT was one of the first British companies to do so. Having set its first target for cutting its CO2 emissions in 1992, today, its emissions have been reduced by 60 per cent of 1996 levels, a drop of almost one million tonnes. Similarly, BP was operating an internal emissions trading system long before the UK launched its scheme in 2002 and the EU in 2005. By 2004, it had reduced its emissions by 14 per cent on 1998 levels, from 116.5 million to 91.6 million tonnes.
According to Vincent, the difference in what these companies are doing is that the investment and procurement decisions are influenced by a systematic analysis of the environmental impact of the business. “Once you get into this territory,” he says, “you’re beginning to get signals that the company has realised there is a little more to it than greenwashing.”
During the past five years, an increasing number of companies has begun to do just that. A report published last year by the UK-based Climate Group documents the efforts of 74 companies in 11 countries to combat climate change. IBM, for example, cut its CO2 emissions by 38 per cent from 1990 levels, Prudential by 35 per cent between 2001 and 2003, and Proctor and Gamble by seven per cent between 2002 and 2004. Other names in the report include BAA, the Royal Bank of Scotland, Philips and Sony.
And it isn’t just about climate change and CO2 emissions. Starbucks has committed to developing sustainable supplies of coffee and McDonald’s to sustainable supplies of fish and other agricultural products. General Electric, the world’s largest company, is investing US$1.5billion into developing new technologies such as cleaner coal-fired power plants, a diesel-and-electric hybrid locomotive and an agricultural silicon that cuts the amount of water and pesticide used in spraying fields.
Now, it seems, barely a week goes by without another big name throwing its hat into the ring. Avis, Barclays, DHL, Honda and O2
are among a growing list of companies that have committed to becoming carbon neutral; late last year, HSBC became the world’s first bank to actually do so. And Tesco recently pledged to halve its energy use by investing £100million in renewable-energy technologies, including wind turbines, solar energy, geothermal power and gasification, “a revolutionary way of turning waste into clean, sustainable power”.
One of the most significant moves came last November, when Wal-Mart, the world’s largest supermarket chain, announced it would invest US$500million in sustainability projects and set targets to double the efficiency of its vehicle fleet in the next ten years, to eliminate 30 per cent of the energy used in its stores and to reduce solid waste by 25 per cent in three years.
Cynics would suggest that the introduction of new environmental regulations has forced these companies to act. And it’s true that both the Kyoto Protocol and Europe’s Emissions Trading Scheme have recently come into force, while other initiatives for reducing emissions have been announced in Japan, Canada, Australia and parts of the USA.
But, according to Steve Howard, CEO of the Climate Group, an international non-profit organisation dedicated to promoting business and governmental leadership on climate change, many of the leading companies are now going beyond compliance. “These companies have realised that it’s quite possible to do business in an ethical way and still make lots of money,” he says. “And that, in the longer term, doing it that way is better risk management.”
Difficult to swallow
If it’s difficult to swallow the marketing spin that accompanies the vast majority of CSR initiatives – about corporations caring for the environment and for the citizens of the world – then the reasons for these new moves appear far more straightforward.
The case for reducing carbon emissions is an obvious one. “An element of every company’s emissions results from energy inefficiency,” says Vincent. “So if you can cut that out of your manufacturing process or business activity, you’re not only reducing your environmental footprint, you’re saving money.” According to the Climate Group, BP’s net value has risen by US$650million due to increased operational efficiency, application of new technologies and improvements in energy management.
The same goes for waste and recycling. “One tends to think of waste as stuff that we throw away,” says Howard. “But if you’re a manufacturer, you’ve probably paid for what you’re throwing away in the first place and will then have to pay landfill duties on top of that. So any way a company can re-use or recycle materials is going to save it money.” Last year, BT saved itself more than £3.2million by recycling 42 per cent of its engineering and office waste.
Companies that are developing new environmental technologies, such as BP and General Electric, have recognised a significant profit opportunity. “They’ve seen a future where climate change in particular will drive a real demand for low-carbon products and services, energy-efficient products and renewable-energy products,” says Howard. “So when you have that future, you make a strategic investment so that you can be part of it.”
There is an argument that says that when push comes to shove, any business worth its salt will prioritise its profits before the environment. But such companies as Wal-Mart, McDonald’s and Starbucks have realised that if they want their profits to continue to grow in the future, their business must be based on good environmental management, says Glenn Prickett, executive director of Conservation International’s Center for Environmental Leadership in Business. “This can apply to the product or the service itself, and many companies are now taking steps to ensure the sustainability of the natural resources on which their businesses depend.”
It would be wrong to assume that direct financial benefits are the only driver. Reputation, brand image, PR – all of the things that originally inspired CSR – remain important. In fact, the increasing level of public debate about climate change means that there is now even more pressure on companies to prove their environmental credentials. “Shareholders, investors, the big City institutions are now paying much more attention,” says Chris Tuppen, head of sustainable development at BT. “And when we pitch for new contracts, our big business customers and government departments are increasingly asking us what we are doing in this area.”
With environmental organisations scrutinising their every move, it now makes sense for businesses to be seen to be addressing their environmental impact. “A few years ago, General Electric was involved in a very high-profile fight with the US Environmental Protection Agency about pollution in the Hudson River,” says Prickett. “Jack Welch, the CEO at the time, dug his heels in and there was this big legal battle [that GE settled by agreeing to pay US$111million to help clean up the river]. His successor, Jeffrey Immelt, wanted to turn around the perception that GE was an environmental problem. And he has been able to do that in a way that also makes very good business sense [by investing in new green technologies].”
Not only is there a danger of companies with a poor record being shunned by clients and consumers, there are opportunities for progressive companies to differentiate their brand from competitors. “As the first carbon-neutral bank,” says Howard, “HSBC has already had people seeking finance for renewable-energy projects approaching them preferentially, because they feel that the bank is on the same wavelength.”
It isn’t just customers and clients that companies are eager to please. They are increasingly listening to the views of their employees and prospective employees. “It’s a very competitive labour market out there,” says Prickett. “So for companies such as Shell, BP or GE, for example, that are trying to recruit very highly educated engineers, talented scientists, MBAs and so on, it’s important that they appeal to the values of the young people coming out of school. For someone like Wal-Mart, it’s more about keeping the workforce motivated, because staff turnover is expensive.”
Howard believes that these first steps indicate that there is huge potential for change. “Many of these companies have milestones – targets that they’re moving towards. It’s a fantastic statement of intent and is what we need in 2006. We need more companies like this, and I hope that this change in attitude will spread into the wider business community.”
Challenging perceptions
The actions of the progressive companies not only signal a radical change in corporate attitudes towards the environment, but challenge commonly held perceptions of the business world.
The anti-globalisation lobby has propagated the view that when it comes to business, small is beautiful. But, according to Howard, while it’s still important to scrutinise the operations of all companies, scale is irrelevant. “There are some great local small companies that really take their place in the community seriously – recycling everything and so on. But, equally, you also
get lots of small companies that are appallingly managed from an environmental perspective.”
The advantage of big companies, he continues, is that they have systems in place and economies of scale that mean that if they decide to make a change, it’s enormously beneficial. Wal-Mart, for example, has already determined that it could save 3,800 trees and one million barrels of oil by eliminating excessive packaging from one of its ranges of toys.
In the same way, says Prickett, these powerful companies have a huge influence on the business world. “The buying power of some of these companies is tremendous,” he says.
“So when the likes of Wal-Mart, Starbucks and McDonald’s tell their suppliers they expect a higher standard of environmental management in the way their coffee is grown, their wood is harvested or their fish is sourced, it has a big impact on small producers all over the world. Wal-Mart, alone, has 60,000 suppliers.”
In effect, he continues, these companies are establishing informal regulatory systems. “In the absence of leadership from state governments or international institutions, it’s the business world that is now setting standards within its supply chains and eliciting changes of behaviour as a result.”
There are similarities here with the Forest Stewardship Council, Marine Stewardship Council and other industry initiatives that have attempted to establish some form of regulation within their sectors. In this case, however, the companies now making commitments are part of the mainstream.
This point highlights what is perhaps the most fascinating aspect of this transition: that the traditional roles and relationships among businesses, environmentalists and governments are changing. “Historically, governments took the lead and basically arbitrated battles between environmentalists and corporations,” says Prickett. “But that dynamic is really changing now. What we’re excited about is the possibility of business leaders and environmentalists coming together and speaking with one voice.”
And this is already happening. Earlier this year, Geographical reported on the work of the Roundtable on Sustainable Palm Oil (RSPO; Seeds of destruction, March 2006), which has seen environmental groups such as WWF teaming up with companies involved in the production, manufacture and trade of palm oil, including the Body Shop, Cadbury’s and Unilever. (Interestingly, Asda, which is owned by Wal-Mart, was the first British supermarket to join the RSPO.)
This year has also seen a new partnership established between two very unlikely bedfellows: Greenpeace and McDonald’s. A dialogue between the two has resulted in the fast-food outlet agreeing to stop selling chicken fed on soya grown in newly deforested area of the Amazon, as well as spear-heading the campaign to halt deforestation for the expansion of the soya industry.
And in supporting the position of the Corporate Leaders’ Group on Climate Change, Friends of the Earth now finds itself backing some of its longest-standing nemeses, including BAA, Shell and Tesco. It seems that there is no longer a place for the fundamentalist idealism that once saw campaigning groups calling for the overthrow of capitalism. “We need the market to deliver solutions,” says Craig Bennett, head of corporate accountability at Friends of the Earth. “Maybe there is a better system than capitalism, maybe there isn’t. But the point is that in the time we’ve got left to do anything significant about carbon emissions, we’re not going to have a different system in place. So we have to do what we can to get it working in the right way and driving change now.”
Don’t get carried away
While most of those within the environmental movement to whom Geographical spoke recognised that there was significant potential for change within the business community, they all warned against getting carried away. “There are lots of companies taking important steps to reduce their environmental impact at the moment,” says Hyman, “but it’s still only a small fraction that are really doing anything. Maybe five per cent have made any significant change.”
In order to encourage more businesses to become sustainable, and to bring about a transition to a low-carbon economy, he says,
the government must introduce legislative and fiscal measures so that the market rewards those that take steps towards sustainability.
“You won’t get a critical mass of change unless the market points companies in that direction. So the idea is that you put a cost on pollution – via a tax or some sort of legislative mechanism. And once there is a cost associated with it, the market will respond.”
As things stand, however, the influence of the Confederation of British Industry (CBI) means that persuading the government to intervene will be difficult, says Hyman. “In the UK, the CBI represents the single biggest impediment to the transition to a more sustainable economy,” he says. “It’s very influential in Number 10 and Number 11 [Downing Street] and pitches a line that says, ‘Yes, we do need to do something about the environment, but we can’t go too far because we’ll undermine the UK’s competitiveness.’
”The governments of the USA and Australia used the same argument to explain their refusal to ratify the Kyoto Protocol.
But there isn’t any evidence to support this opinion, says Hyman. “The Environment Audit under MP Peter Ainsworth made an enquiry into this last year and concluded that the CBI was scaremongering.”
In fact, there is evidence that the very opposite is true, he continues. “Not only has it been shown that individual companies can cut costs and increase their profits by adopting more sustainable operations, but if we seize the initiative, there is a significant opportunity for the UK to become a leader in the environmental industries sector.”
At present, however, many companies have no real incentive to make their operations more sustainable. Whatever savings they might make aren’t large enough to convince them to invest the time or the funds. “Human nature hasn’t changed,” says Howard. “In areas where there’s poor enforcement or poor regulation, there are plenty of people who will continue to make as much money as possible without any concern for their wider impact.”
Nevertheless, opinion in the business world is divided on the issue, and the position taken by the CBI appears to be increasingly reactionary.On 6 June this year, the Aldersgate Group, a coalition of businesses and environmental organisations, produced a report calling for “smart regulation” to create market incentives. On the same day, senior executives of 14 British companies – including Vodafone, BAA, Unilever, Tesco, John Lewis, Scottish Power and Shell – wrote to the prime minister under the banner of the Corporate Leaders’ Group on Climate Change, asking him to set targets for emissions reductions for 2025 to give companies greater certainty about the value of investing in more sustainable products and services.
Howard agrees that it’s time for the government to support corporations that have taken a lead. “There is now a new model
in which the environment is integrated into the business model, and this puts us in a great position. The market has the ability to
fully address the environmental challenges that we now face. If we have the right regulations and incentives to drive the change, the business world will respond by putting in innovation and investment. Then we could really get somewhere.”
Environmental and economic priorities, he said, have too often been considered to be mutually exclusive – that we can either
have economic growth at the expense of the environment or environmental care at the expense of growth and prosperity. But environmental sustainability isn’t an option, he continued, it’s a necessity.
“For economies to flourish, for global poverty to be banished, for the wellbeing of the world’s people to be enhanced… we have a compelling and ever more urgent duty of stewardship to take care of the natural environment and resources on which our economic activity and social fabric depends.
“I want to argue today,” he went on, “that far from being at odds with each other, our economic objectives, our environmental objectives now increasingly reinforce each other.”
How green in your business?
Start the slideshow (10 pictures)
This sentiment will seem perfectly logical to most Geographical readers. But to hear it from the lips of the chancellor, whose priority has always been to support the economy, British business and the City, is something of a surprise. Recent events, however, suggest that the idea of a synergy between economic and environmental considerations might not be as radical as it seems.
In fact, the theme of Brown’s speech reflects a trend that is emerging in the business community. During the past five years, and increasingly during the past 12 months, a growing number of companies have made a serious commitment to reduce their impact on the environment. And these aren’t small fry – they are among the world’s largest corporations.
Tesco, for example, has announced plans to invest £100million in renewable energy for its stores. And in the USA, General Electric has set aside US$1.5billion (£0.8billion) to develop new environmental technologies. Even McDonald’s has joined in, pledging to source its agricultural produce from sustainable suppliers.
“What is happening now is something quite exciting,” says David Vincent, technology director of the Carbon Trust, a government-funded company helping business and the public sector reduce carbon emissions. “We’re seeing the beginnings of an economy in transition, where the leading thinkers have made the connection between profitability and environmental stewardship, and corporate responsibility and brand reputation, and are looking at these issues as part of their core business."
Their actions and announcements not only mark a significant change in business attitudes towards the environment, but signify a radical shift in the dynamics between the business community, governments and non-governmental organisations. We’re seeing new alliances formed between the likes of Greenpeace and McDonald’s, and Friends of the Earth, Tesco and Shell.
As a result, it may be time to review the commonly held perception that business, especially big business, and its capitalist ideology are greedy and immoral and fundamentally at odds with sustainable development. Not only is this good news for the environment, it’s good news for business, says Merlin Hyman, director of the UK Environmental Industries Commission.
“Those companies that are already taking steps to address their environmental impact have shown that the opportunities for British business and for the UK economy as a whole are tremendous,” he says. “If the government can provide the right support, we will not only see a move to a more eco-efficient economy, but a host of new business and employment opportunities in the environmental industries sector.”
Taking responsibility
In 2002, HSBC announced that it had teamed up with WWF, Botanic Gardens Conservation International and the Earthwatch Institute to launch Investing in Nature, a five-year ‘eco-partnership’ through which the bank would donate US$50million to conservation projects around the world and send 2,000 of its staff to take part in fieldwork.
The aim was to clean up three of the world’s major rivers – the Amazon, the Yangtze and the Rio Grande – to help save 20,000 rare plants from extinction and to train 200 scientists in developing countries. As one of the most ambitious and generous corporate social responsibility (CSR) initiatives ever undertaken, it helped to develop HSBC’s reputation as a responsible business and to reinforce its brand image as “the world’s local bank”.
The concept of CSR emerged during the 1990s as a result of growing criticism of the business world by environmental and social-rights activists. Today, it’s an integral part of most large companies’ strategies and the means by which they attempt to prove their green credentials.
However, just as the notion of CSR has caught on, so has use of the term ‘greenwashing’ to criticise initiatives that don’t address a company’s environmental and social footprint. A company supporting baseline biodiversity surveys in a national park is all very well, the argument goes, but what use is this if that same company is pumping millions of tonnes of CO2 into the atmosphere every year?
According to Jonathon Porritt, environmentalist and programme director of the Forum for the Future, there is something deceptive about CSR. “The very fact that the majority of companies still opt for CSR,” he writes in his book Capitalism as if the World Matters, “as the self-contained box into which to pack all their ‘good stuff’, while they continue to pursue their core business… without the remotest likelihood that they or their products/services will ever become genuinely sustainable, reveals all one really needs to know about the empty, seductive illusion that is CSR.”
But while the majority of companies were busy earning their green stripes during the 1990s, a few progressive corporations began quietly looking beyond the bolt-on, band-aid CSR initiatives to the environmental impact of their core business.
BT was one of the first British companies to do so. Having set its first target for cutting its CO2 emissions in 1992, today, its emissions have been reduced by 60 per cent of 1996 levels, a drop of almost one million tonnes. Similarly, BP was operating an internal emissions trading system long before the UK launched its scheme in 2002 and the EU in 2005. By 2004, it had reduced its emissions by 14 per cent on 1998 levels, from 116.5 million to 91.6 million tonnes.
According to Vincent, the difference in what these companies are doing is that the investment and procurement decisions are influenced by a systematic analysis of the environmental impact of the business. “Once you get into this territory,” he says, “you’re beginning to get signals that the company has realised there is a little more to it than greenwashing.”
During the past five years, an increasing number of companies has begun to do just that. A report published last year by the UK-based Climate Group documents the efforts of 74 companies in 11 countries to combat climate change. IBM, for example, cut its CO2 emissions by 38 per cent from 1990 levels, Prudential by 35 per cent between 2001 and 2003, and Proctor and Gamble by seven per cent between 2002 and 2004. Other names in the report include BAA, the Royal Bank of Scotland, Philips and Sony.
And it isn’t just about climate change and CO2 emissions. Starbucks has committed to developing sustainable supplies of coffee and McDonald’s to sustainable supplies of fish and other agricultural products. General Electric, the world’s largest company, is investing US$1.5billion into developing new technologies such as cleaner coal-fired power plants, a diesel-and-electric hybrid locomotive and an agricultural silicon that cuts the amount of water and pesticide used in spraying fields.
Now, it seems, barely a week goes by without another big name throwing its hat into the ring. Avis, Barclays, DHL, Honda and O2
are among a growing list of companies that have committed to becoming carbon neutral; late last year, HSBC became the world’s first bank to actually do so. And Tesco recently pledged to halve its energy use by investing £100million in renewable-energy technologies, including wind turbines, solar energy, geothermal power and gasification, “a revolutionary way of turning waste into clean, sustainable power”.
One of the most significant moves came last November, when Wal-Mart, the world’s largest supermarket chain, announced it would invest US$500million in sustainability projects and set targets to double the efficiency of its vehicle fleet in the next ten years, to eliminate 30 per cent of the energy used in its stores and to reduce solid waste by 25 per cent in three years.
Cynics would suggest that the introduction of new environmental regulations has forced these companies to act. And it’s true that both the Kyoto Protocol and Europe’s Emissions Trading Scheme have recently come into force, while other initiatives for reducing emissions have been announced in Japan, Canada, Australia and parts of the USA.
But, according to Steve Howard, CEO of the Climate Group, an international non-profit organisation dedicated to promoting business and governmental leadership on climate change, many of the leading companies are now going beyond compliance. “These companies have realised that it’s quite possible to do business in an ethical way and still make lots of money,” he says. “And that, in the longer term, doing it that way is better risk management.”
Difficult to swallow
If it’s difficult to swallow the marketing spin that accompanies the vast majority of CSR initiatives – about corporations caring for the environment and for the citizens of the world – then the reasons for these new moves appear far more straightforward.
The case for reducing carbon emissions is an obvious one. “An element of every company’s emissions results from energy inefficiency,” says Vincent. “So if you can cut that out of your manufacturing process or business activity, you’re not only reducing your environmental footprint, you’re saving money.” According to the Climate Group, BP’s net value has risen by US$650million due to increased operational efficiency, application of new technologies and improvements in energy management.
The same goes for waste and recycling. “One tends to think of waste as stuff that we throw away,” says Howard. “But if you’re a manufacturer, you’ve probably paid for what you’re throwing away in the first place and will then have to pay landfill duties on top of that. So any way a company can re-use or recycle materials is going to save it money.” Last year, BT saved itself more than £3.2million by recycling 42 per cent of its engineering and office waste.
Companies that are developing new environmental technologies, such as BP and General Electric, have recognised a significant profit opportunity. “They’ve seen a future where climate change in particular will drive a real demand for low-carbon products and services, energy-efficient products and renewable-energy products,” says Howard. “So when you have that future, you make a strategic investment so that you can be part of it.”
There is an argument that says that when push comes to shove, any business worth its salt will prioritise its profits before the environment. But such companies as Wal-Mart, McDonald’s and Starbucks have realised that if they want their profits to continue to grow in the future, their business must be based on good environmental management, says Glenn Prickett, executive director of Conservation International’s Center for Environmental Leadership in Business. “This can apply to the product or the service itself, and many companies are now taking steps to ensure the sustainability of the natural resources on which their businesses depend.”
It would be wrong to assume that direct financial benefits are the only driver. Reputation, brand image, PR – all of the things that originally inspired CSR – remain important. In fact, the increasing level of public debate about climate change means that there is now even more pressure on companies to prove their environmental credentials. “Shareholders, investors, the big City institutions are now paying much more attention,” says Chris Tuppen, head of sustainable development at BT. “And when we pitch for new contracts, our big business customers and government departments are increasingly asking us what we are doing in this area.”
With environmental organisations scrutinising their every move, it now makes sense for businesses to be seen to be addressing their environmental impact. “A few years ago, General Electric was involved in a very high-profile fight with the US Environmental Protection Agency about pollution in the Hudson River,” says Prickett. “Jack Welch, the CEO at the time, dug his heels in and there was this big legal battle [that GE settled by agreeing to pay US$111million to help clean up the river]. His successor, Jeffrey Immelt, wanted to turn around the perception that GE was an environmental problem. And he has been able to do that in a way that also makes very good business sense [by investing in new green technologies].”
Not only is there a danger of companies with a poor record being shunned by clients and consumers, there are opportunities for progressive companies to differentiate their brand from competitors. “As the first carbon-neutral bank,” says Howard, “HSBC has already had people seeking finance for renewable-energy projects approaching them preferentially, because they feel that the bank is on the same wavelength.”
It isn’t just customers and clients that companies are eager to please. They are increasingly listening to the views of their employees and prospective employees. “It’s a very competitive labour market out there,” says Prickett. “So for companies such as Shell, BP or GE, for example, that are trying to recruit very highly educated engineers, talented scientists, MBAs and so on, it’s important that they appeal to the values of the young people coming out of school. For someone like Wal-Mart, it’s more about keeping the workforce motivated, because staff turnover is expensive.”
Howard believes that these first steps indicate that there is huge potential for change. “Many of these companies have milestones – targets that they’re moving towards. It’s a fantastic statement of intent and is what we need in 2006. We need more companies like this, and I hope that this change in attitude will spread into the wider business community.”
Challenging perceptions
The actions of the progressive companies not only signal a radical change in corporate attitudes towards the environment, but challenge commonly held perceptions of the business world.
The anti-globalisation lobby has propagated the view that when it comes to business, small is beautiful. But, according to Howard, while it’s still important to scrutinise the operations of all companies, scale is irrelevant. “There are some great local small companies that really take their place in the community seriously – recycling everything and so on. But, equally, you also
get lots of small companies that are appallingly managed from an environmental perspective.”
The advantage of big companies, he continues, is that they have systems in place and economies of scale that mean that if they decide to make a change, it’s enormously beneficial. Wal-Mart, for example, has already determined that it could save 3,800 trees and one million barrels of oil by eliminating excessive packaging from one of its ranges of toys.
In the same way, says Prickett, these powerful companies have a huge influence on the business world. “The buying power of some of these companies is tremendous,” he says.
“So when the likes of Wal-Mart, Starbucks and McDonald’s tell their suppliers they expect a higher standard of environmental management in the way their coffee is grown, their wood is harvested or their fish is sourced, it has a big impact on small producers all over the world. Wal-Mart, alone, has 60,000 suppliers.”
In effect, he continues, these companies are establishing informal regulatory systems. “In the absence of leadership from state governments or international institutions, it’s the business world that is now setting standards within its supply chains and eliciting changes of behaviour as a result.”
There are similarities here with the Forest Stewardship Council, Marine Stewardship Council and other industry initiatives that have attempted to establish some form of regulation within their sectors. In this case, however, the companies now making commitments are part of the mainstream.
This point highlights what is perhaps the most fascinating aspect of this transition: that the traditional roles and relationships among businesses, environmentalists and governments are changing. “Historically, governments took the lead and basically arbitrated battles between environmentalists and corporations,” says Prickett. “But that dynamic is really changing now. What we’re excited about is the possibility of business leaders and environmentalists coming together and speaking with one voice.”
And this is already happening. Earlier this year, Geographical reported on the work of the Roundtable on Sustainable Palm Oil (RSPO; Seeds of destruction, March 2006), which has seen environmental groups such as WWF teaming up with companies involved in the production, manufacture and trade of palm oil, including the Body Shop, Cadbury’s and Unilever. (Interestingly, Asda, which is owned by Wal-Mart, was the first British supermarket to join the RSPO.)
This year has also seen a new partnership established between two very unlikely bedfellows: Greenpeace and McDonald’s. A dialogue between the two has resulted in the fast-food outlet agreeing to stop selling chicken fed on soya grown in newly deforested area of the Amazon, as well as spear-heading the campaign to halt deforestation for the expansion of the soya industry.
And in supporting the position of the Corporate Leaders’ Group on Climate Change, Friends of the Earth now finds itself backing some of its longest-standing nemeses, including BAA, Shell and Tesco. It seems that there is no longer a place for the fundamentalist idealism that once saw campaigning groups calling for the overthrow of capitalism. “We need the market to deliver solutions,” says Craig Bennett, head of corporate accountability at Friends of the Earth. “Maybe there is a better system than capitalism, maybe there isn’t. But the point is that in the time we’ve got left to do anything significant about carbon emissions, we’re not going to have a different system in place. So we have to do what we can to get it working in the right way and driving change now.”
Don’t get carried away
While most of those within the environmental movement to whom Geographical spoke recognised that there was significant potential for change within the business community, they all warned against getting carried away. “There are lots of companies taking important steps to reduce their environmental impact at the moment,” says Hyman, “but it’s still only a small fraction that are really doing anything. Maybe five per cent have made any significant change.”
In order to encourage more businesses to become sustainable, and to bring about a transition to a low-carbon economy, he says,
the government must introduce legislative and fiscal measures so that the market rewards those that take steps towards sustainability.
“You won’t get a critical mass of change unless the market points companies in that direction. So the idea is that you put a cost on pollution – via a tax or some sort of legislative mechanism. And once there is a cost associated with it, the market will respond.”
As things stand, however, the influence of the Confederation of British Industry (CBI) means that persuading the government to intervene will be difficult, says Hyman. “In the UK, the CBI represents the single biggest impediment to the transition to a more sustainable economy,” he says. “It’s very influential in Number 10 and Number 11 [Downing Street] and pitches a line that says, ‘Yes, we do need to do something about the environment, but we can’t go too far because we’ll undermine the UK’s competitiveness.’
”The governments of the USA and Australia used the same argument to explain their refusal to ratify the Kyoto Protocol.
But there isn’t any evidence to support this opinion, says Hyman. “The Environment Audit under MP Peter Ainsworth made an enquiry into this last year and concluded that the CBI was scaremongering.”
In fact, there is evidence that the very opposite is true, he continues. “Not only has it been shown that individual companies can cut costs and increase their profits by adopting more sustainable operations, but if we seize the initiative, there is a significant opportunity for the UK to become a leader in the environmental industries sector.”
At present, however, many companies have no real incentive to make their operations more sustainable. Whatever savings they might make aren’t large enough to convince them to invest the time or the funds. “Human nature hasn’t changed,” says Howard. “In areas where there’s poor enforcement or poor regulation, there are plenty of people who will continue to make as much money as possible without any concern for their wider impact.”
Nevertheless, opinion in the business world is divided on the issue, and the position taken by the CBI appears to be increasingly reactionary.On 6 June this year, the Aldersgate Group, a coalition of businesses and environmental organisations, produced a report calling for “smart regulation” to create market incentives. On the same day, senior executives of 14 British companies – including Vodafone, BAA, Unilever, Tesco, John Lewis, Scottish Power and Shell – wrote to the prime minister under the banner of the Corporate Leaders’ Group on Climate Change, asking him to set targets for emissions reductions for 2025 to give companies greater certainty about the value of investing in more sustainable products and services.
Howard agrees that it’s time for the government to support corporations that have taken a lead. “There is now a new model
in which the environment is integrated into the business model, and this puts us in a great position. The market has the ability to
fully address the environmental challenges that we now face. If we have the right regulations and incentives to drive the change, the business world will respond by putting in innovation and investment. Then we could really get somewhere.”
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