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24 July 2010

Sustainable Development

Tag(s): Sustainability

                                                             

Last week I participated in a working group on sustainable development with other senior Non-Executive Directors organised by PricewaterhouseCoopers, which is one of no doubt many consulting firms that have identified sustainability as a key corporate priority and therefore an opportunity for the advisory community to build a new revenue stream. Leo Johnson, brother of Boris, whose firm Sustainable Finance Ltd has been absorbed by PWC, was one of the presenters. Sustainable Finance Ltd was set up in 2004 to advise international financial institutions around the risks and opportunities of sustainability.

Leo Johnson’s specialization is making sense of sustainability, pinpointing the mega-trends that will impact business performance from climate change, to price shocks in water, oil and food, to shifts in consumer preferences, then laying out the risks and opportunities for the financial sector and its core clients including insurance, commercial banking, private banking, asset management and private equity.

Leo described four possible scenarios that he had developed with one of the firm’s economists.

1.      Scenario 1: Business as usual. The world carries on regardless and sails through the IPCC recognised limit for CO2 emissions later this century with devastating results.

2.      Scenario 2: The world recognises the risks and adapts to a low carbon economy with a green new deal. Under this scenario GDP per capita can still grow.

3.      Scenario 3: Emissions increase to a level when a catastrophic climate change event takes place. The consequent reaction leads to rapidly declining GDP per capita.

4.      Scenario 4: The world seeks to solve the problem through geo engineering.

The group discussed these and initially appeared quite gloomy with a consensus about Scenario 1 or 3 being most likely. Several felt that more catastrophic events would have to occur before the world’s leaders would develop the political will to take the right decisions. The Prime Minister of Luxembourg was quoted as saying “We know the right things to do but we don’t know how to get re-elected afterwards”.

But the hosts gave us several examples of where major corporations are developing good practice and taking great strides. I reached the conclusion that while the public sector’s efforts were feeble the private sector would take the lead and develop sustainable businesses.

While Barack Obama was humiliated by Chinese officials in Copenhagen Wal-Mart has given notice to all its suppliers, many of which are of course based in China, that they must show evidence of reducing their carbon footprint by 20% to remain on the approved list. Wal-Mart, long a target of environmentalist campaigners, saw the light after Hurricane Katrina which had a direct impact on its business.

Other corporations have grasped the environmental nettle not so much for altruistic reasons but more out of good business sense. There can be direct and indirect financial impact through increased revenues and decreased costs.

It makes sense to reduce packaging costs. It makes sense to reduce energy costs. It makes sense to use fewer resources if the known availability of those resources is limited. Some more examples of companies who are doing this:

·         Tesco reports in its annual report on Corporate Responsibility including its attempt to reduce its environment impact. It has for example reduced the number of free plastic bags given out by 56% by offering incentives to recycle them or use long life bags.

·         Morrison’s reports on measuring its carbon footprint which reduced by 14% from 2005 to 2008 despite additional production facilities , stores and extensions. Refrigeration accounts for 24.5% of its carbon footprint and it is also replacing HCFCs with HFCs by the end of this year.

·         Aviva has adopted a wide ranging environmental strategy and now recycles 84% of its waste. Each new supplier has to sign up to Aviva’s Corporate Responsibility Supplier Code of Conduct focusing on environmental impact as well as human rights and social issues.

·         BT reports on the impacts of climate change, both mitigation and adaptation, and has identified opportunities for new products and services in a low carbon economy.

·         Vodafone has identified the most significant sustainability issues for its business and reports on them.

·         Hammerson has reduced its building energy intensity (expressed as carbon emissions) on a like-for-like basis at its UK shopping centres by 15.6% and its French shopping centres by 17.8% since its base year in 2006.

·         Northern Foods provides detailed reports of its progress in reducing its environmental impact and in one year from 2007/08 to 2008/09 reduced its total energy cost from £150m to £24m.

·         John Lewis is working with furniture suppliers to target certification of timber from renewable sources.

·         Sainsbury’s CEO Justin King chairs his company’s CR steering group and one of his recent actions is to hire the retailer's first beekeeper whose target is to develop a population of 2 million bees to help with the decline in the bee population.

·         Xstrata sets out a clear sustainable development framework which is independently assessed.

·         Reckitt Benckiser believes it is both more profitable and more sustainable because of its sustainable corporate strategy. It has for example reduced the packaging of its Vanish product by 70%.

·         Several major PLCs now incentivise their senior management on performance against a health, safety and environmental balanced score card. Unfortunately none of this makes the popular press while they focus on bashing the bankers.

These are all companies that have identified that this is not just a compliance issue. There is an opportunity to improve operational effectiveness, reducing the direct impact of their activities and generate organisational savings. They then move on to leverage their assets and particularly their key relationships with suppliers. They can then bid for industry leadership extending the positive impact of their activities and improving their reputation with key stakeholders. The World Business Council for sustainable development has developed a pathway for gaining control of greenhouse gases, developing ecosystem services, improving energy management and building the necessary infrastructure. All of this provides opportunities for healthy and sustainable economic development.

I came away from the meeting feeling less gloomy.

Copyright David C Pearson 2010 All rights reserved

 

 




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