28 Mar 2012 05:23pm

Sustainable gain

Sustainability isn’t just about keeping customers happy – it can put a smile on shareholders’ faces, too. David Adams makes the case for going green

There may still be hundreds of businesses in the UK led by people who, to be frank, couldn’t give a monkey’s about sustainability. But whether an entrepreneur or board member is a Green Party card-carrier or a climate change sceptic is becoming irrelevant. There are now just too many good business reasons to adopt a sustainable approach.

Nor has the sustainability agenda been weakened by the recession, because one of the most immediately obvious effects of a sustainable approach is the generation of significant cost reductions.

"This is a bottom line issue," says Jae Mather, director of sustainability at accountancy firm HW Fisher & Co. "It’s not going away. It can be cheaper to reduce your costs than to increase your income."

The business case is much bigger than the cash figure. Employees talk about motivation and inspiration. There’s a big brand benefit too

David Adams

Many organisations that have embraced sustainability now use the concept of the triple bottom line, a concept that involves combining the traditional financial bottom line with metrics for environmental and social impacts. In future, more will use integrated reporting, encompassing the triple bottom line, instead of conventional annual reports.

In part, the advance of sustainability is a consequence of regulatory change. The UK government’s Carbon Reduction Commitment (CRC) Energy Efficiency Scheme now requires the private and public sector organisations that consume the most energy per year (only about 2% of organisations) to report energy efficiency in detail. In November, for the first time, league tables revealing their performances in this area were published. It is all but certain that energy efficiency reporting will gradually become mandatory for smaller organisations too.

"[The CRC] will lead to radical changes in the way businesses have to report and behave," says Ian Ellis, marketing manager at Siemens Building Technologies, which focuses on helping clients change the way they construct or use buildings. "More and more we find we’re speaking to financial people, not just facilities management people, because [energy is] a massive cost – and not a fixed cost either.

"The other knock-on effect is the way organisations are perceived by shareholders, stakeholders or the public. It can have a detrimental effect on your public image if you’re seen to be performing badly in this respect."

Retailers, manufacturers and other organisations are also increasingly anxious to avoid reputational damage as a result of working with business partners that behave unethically. It is possible that within the next few years new rules for ethical procurement in the public sector will be introduced, giving suppliers to the public sector another good reason to practise sustainability.

But if the recession didn’t stop organisations seeking sustainability, it has forced organisations to focus on the potential financial returns such activities can provide. "There is much more pressure now to deliver a clear, measurable business case," says Andrew Mack, principal at the Boston Consulting Group (BCG). "Our clients are under pressure to reduce costs and find smarter ways of doing things. Sustainability fits within that."

Green machines

Organisations are also now investing in greener forms of IT. Virtualisation software specialist VMware has claimed that virtualisation (whereby multiple server computers are replicated in a virtual form within a single, more powerful server) can save $700 (£438) in energy costs per server, per year, based on savings of 7,000 kWh. Consolidation of large numbers of servers can multiply these savings dramatically, with a single machine replacing 10 or 20 predecessors. The layout of server rooms can also be optimised to reduce energy consumption.

Companies that use IT in very intensive ways may also benefit from technologies such as graphics processors (GPUs) instead of CPU microprocessors, which enable faster algorithmic calculations yet consume less electricity.

A Business Sustainability e-learning programme is run by ICAEW for members. "We consider it to be an important business issue," explains Richard Spencer, head of sustainability at ICAEW. "A lot of people talk in terms of what businesses ought to do. But businesses do things because they make financial sense."

He points to Unilever’s commitment to try to use only sustainable resources, or Puma’s publication of its environmental profit and loss performance as examples. "They’re doing this because even in the medium term if these businesses are to continue to exist they need this sort of input," says Spencer. "When Puma did the environmental profit and loss account they identified €145m of impact to the environment: costs nature is absorbing. Puma is saying that sustainability is a fixed point and the business model needs to change. They’re asking, ‘How can we get rid of that €145m cost?’ rather than trying to offset it. Some of the businesses doing this do so because they’ve got that vision."

However, Spencer believes those companies are still a minority, because even if there is pressure from customers or consumers to behave in certain ways, it is still less important to many investors.

"The big drivers are the potential for additional revenue generation or cost reduction," he says. "The visionary stuff is for companies with deeper pockets. But hard-pressed businesses are open to ideas around cost savings. If you’re a small business and the Carbon Trust offers you a free survey of your energy consumption they can identify savings you can make straight away."

Large organisations that have implemented sustainability initiatives can point to some significant results. In 2010 Unilever introduced its Sustainable Living Plan. Its three goals are to halve the environmental footprint of its products by 2020, to source 100% of agricultural raw materials sustainably; and to help one billion people take action to improve their health and wellbeing.

"Underlying these three big targets are 50 separate commitments," says Helen Fenwick, Unilever Sustainable Living Plan manager, Unilever UK and Ireland. "They cover everything from salt reduction in stock cubes to reducing the impact of washing our clothes and showering, to the use of renewable energy in our factories."

Unilever plans to halve the waste associated with disposal of its products by 2020, through reducing, reusing and recycling packaging; and reducing manufacturing process waste. "Since 1995 we have reduced waste by nearly three quarters, [emissions of ] greenhouse gases by 40% and water [consumption] by two thirds in our 250 factories," says Fenwick. "Our 11 manufacturing sites in the UK, two R&D sites at Port Sunlight and Colworth and two major offices in London and Leatherhead no longer send waste to landfill. Following an agreement with [waste services supplier] Veolia 97% of waste is recycled.

The remaining 3% is converted into usable energy." There have also been consumer recycling projects involving plastics and aluminium.

"We see no conflict between sustainable consumption and business growth – quite the opposite in fact – and the business case for growing our company sustainably is compelling," Fenwick declares. "A growing number of consumers are asking for it. Retailers increasingly demand it: many have sustainability goals of their own but need the support of suppliers like Unilever to achieve them."

Sticking to Plan A

One of the UK’s biggest retail names, Marks & Spencer, launched its Plan A sustainability programme in 2007, making 100 commitments to be achieved within five years. This has now been extended to 180 commitments related to climate change mitigation, waste reduction, use of sustainable raw materials and ethical trading, to be achieved by 2015. "Because of the scale of our ambition and what we needed to deliver, we had to embed Plan A in the business, getting every bit of the business to own it and drive it forward," says Adam Elman, head of Plan A delivery at M&S. "We needed programme controls and governance for 75,000 employees.

"By year two we were saving as much money as we were spending. By year three we’d delivered a net benefit of £50m. Last year that had risen to £70m. So it isn’t just a green, fluffy corporate social responsibility programme. It’s the right thing to do for sustainability in its wider sense and in terms of the sustainability of the business.

"But the business case is much bigger than the cash figure. Around employees it’s about motivation and inspiration. From an employee point of view, working for a business that wants to do the right thing has become a positive. Employees talk about Plan A as a reason to join the company. There’s a big brand benefit too."

Plan A has also generated cost savings in the supply chain through measures including use of more fuel-efficient vehicles transporting more products. M&S has also partnered with suppliers to create eco-factories, where new techniques can be trialled. Sustainability innovations tried out in new stores, such as LED lights, sustainable timber and recycled bricks, have since been incorporated into the company’s standard store build specifications.

Elman says developing ways of measuring the cost benefits of Plan A has been complicated. "There is no historical precedent, but we’ve come up with something we think is robust. We have people working on this across the business. It’s now part of our financial analysts’ roles. It also identifies opportunities. It helps us look at costs and benefits from a total business level – for example, the total costs for printing and paper, ink, technical support and so on. You can look at the whole life cost of equipment and at future operating costs."

Alongside these actions the retailer has nurtured partnerships with other organisations to help reduce negative environmental impacts, such as the Oxfam Clothes Exchange, which stops old clothes going into landfill.

Thinking small

Smaller businesses of all kinds all over the country, from restaurants to retailers and actuaries to electricians, have all benefitted from working towards sustainability. And whatever the size or type of organisation seeking those benefits, there will be a role for accountancy.

"We are trusted advisors, we help manage clients’ money and protect against risk," says Simon Mott-Cowan, partner at HW Fisher & Co. "Sustainability is a natural extension of our services. We believe that a strong sustainability strategy is common sense for SMEs. There’s a synergy with the work we’re already doing." He suggests it could make sense for companies to combine statutory and carbon audits.

In the longer term it is thought more organisations will aim to provide integrated reporting on sustainability and financial performance. In October the International Integrated Reporting Committee (IIRC), a group that represents members in the corporate, regulatory and academic sectors, released a discussion paper on the business case for integrated reporting and announced a pilot programme in which companies including Microsoft, HSBC and Gold Fields will participate. Some countries, including Denmark, South Africa and China, have made some form of integrated reporting mandatory for companies and it is possible that the UK will one day follow suit.

But the primary motive for most businesses trying to operate in a more sustainable way will continue to be business benefits, rather than regulatory pressure or moral considerations. "There is an absolutely compelling business case for being a more sustainable business, not just a moral case," says Elman. "It can save you money, inspire your staff and help build your brand."