For some time now, sustainability has been on the periphery of company strategy, something nice to have in corporate responsibility program. But running your business on sustainable lines has become a necessity for successful financial performance as well as significant business opportunity with real and far-reaching benefits.
A new study by global management consultants, A.T. Kearney, states that “the most sustainability-focused companies may well emerge from the current crisis stronger than ever ... Our findings suggest that investors may reward true sustainability-focused companies that demonstrate an emphasis on long-term health rather than short-term gains, strong corporate governance, sound risk management practices and a history of investing in green innovations.”
Our experience at BT shows five key drivers for adopting a genuine sustainability agenda, which are what we term the five Rs – regulation, reputation, revenue, recruitment, and perhaps more importantly, recession.
One of the significant changes brought by the current recession is in the attitude towards sustainability. According to a recent article in the Financial Times, “the downturn will produce more integrated, strategic and value-creating sustainability efforts in many companies. While traditional corporate and philanthropic activities may suffer, core elements of the sustainability agenda will survive or even thrive in a re-ordered economy.” These core elements include areas in which sustainability offers opportunities for organizations to make huge saving in operations, create new products and revenue streams, and motivate their workforce.
ICT plays a dual role in a business’s sustainability as it can be both a liability and an enabler. While it is becoming an increasing source of CO2 emissions, it also has the capacity to transform business processes and operations by enabling more sustainable ways of working.
Jeremy Oppenheim, Director of McKinsey’s Climate Change Special Initiative, recently highlighted the substantial savings companies can make through modest investment in ICT, both financially and in terms of CO2. For example, dematerialization – the substitution of high-carbon products and activities with low-carbon activities – could eliminate emissions by 0.5 GTCO2e a year worldwide by 2020, an amount just less than Australia’s emissions in 2005. Some examples of dematerialization include video-conferencing, teleworking, paperless billing, and many more. All are easy and cost little to introduce while the returns on investment are significant and can quickly feed through the bottom line.
In contrast, opportunities to reduce CO2 emissions by using ICT to improve the efficiency of industrial activities are far larger but take more money and time to achieve. Oppenheim highlighted several areas such as smart motor, logistics, and building, where adopting smarter solutions would have an operational effect. He also calculated that if ICT systems and other smart technologies were used to monitor, optimize and manage operations, the logistics industry could reduce its emissions by 1.5 GtCO2e per year. Operators could therefore save as much as 280 billion euros just by using less energy and fuel.
Clearly, such savings directly impact revenues and profits. The savings mentioned above are explored in SMART 2020, a 2008 report by the Climate Group on behalf of the Global Sustainability Initiative, which identified opportunities to reduce global CO2 emissions by 15 percent by 2020. As Oppenheim remarked “most companies in most sectors have profitable opportunities to save money by cutting energy consumption and gas emissions. Our studies indicate that many companies can reduce them by up to 50 per cent.”
The outcome would be nothing short of transformational.
Things have also changed for corporate reputation. During the last recession, attitudes towards sustainability were essentially that it was a luxury. But thanks to efforts of people such as Al Gore, Lord Stern and the UN Intergovernmental Panel on Climate Change, sustainability has become a core component by which the public and stakeholders perceive corporations and hold them accountable.
Indeed, there’s a growing body of opinion that organizations and governments should seize the downturn as an opportunity to forge a ‘green new deal’ to fight the world recession and it will be those best adapted to a low-carbon future that will prosper most when the recovery comes. Korea and the Lee Myung-Bak administrations have already taken steps in this direction.
An enhanced reputation can also make it easier for organizations to recruit and retain the best people. Employment sectors have been affected all over the globe but top companies are always keen to hunt down outstanding talent that will help them achieve these transformations.
Finally, there is regulation. According to the Financial Times, one aspect of sustainability that is “alive and kicking,” perhaps more so because of the economic crisis, is concern with corporate governance.
Especially in the current economic climate, firms that want to succeed must demonstrate that they are trustworthy and will face greater scrutiny from policy makers, stakeholders and shareholders, who want to be sure that companies are conducting their business responsibly.
Additionally, low carbon legislation will continue to be introduced. For example, the Climate Change Bill in the UK is now an act of parliament, prompting big changes in many industries. Starting 2010, a mandatory ‘cap and trade’ system will apply to all large public and private companies and in April 2012, mandatory greenhouse gas reporting will come into effect. This is all part of the government’s plan to reduce the UK greenhouse gas emissions by at least 80 per cent by 2050 compared to its 1990 baseline.
The world has changed but sustainability is here to stay and many factors point to the transformative opportunity for many firms and despite the tough economic environment, it is the right time to lay the foundations for our low-carbon futures.