Despite governments’ failure to put a price on carbon, more businesses see profits in greenery
Nov 12th 2011
from the print edition
SHORTLY before the 2009 UN climate summit in Copenhagen, many companies got into green. The summit was expected to lead to new regulations restricting greenhouse-gas emissions. Dozens of chief executives came to see history being made and to be seen on the right side of it. But Copenhagen was a flop. Most firms turned their thoughts elsewhere. Only four bosses showed up at the next annual climate meet, in Cancún. Few are expected at this year’s bash, which begins in Durban on November 28th.
Alas, that represents a realistic assessment of the Durban summit’s chances of delivering anything like the long-term certainty that businesses crave. Of 300 bosses of big global firms recently quizzed by Ernst & Young, 83% said they wanted to see a legally binding multilateral deal struck in Durban to update the ailing Kyoto protocol and help to put a price on carbon emissions. But only 18% expect this to happen. The absence of a clear climate policy helps explain why, for example, investment in British clean technology fell from around $11 billion in 2009 to $3 billion last year. It would also suggest that any firm factoring a steep carbon price into its plans—as Shell does, assuming a notional price of $40 a tonne—should quietly lower it.
Despite the failures of the UN process and a tough economy, many firms are increasing their eco-friendly investments. Of Ernst & Young’s respondents, 44% said their company’s spending on sustainability—a woolly term that refers partly to the welfare of employees but mainly to green strategies—had increased since the 2008 financial crisis. Another 44% said that, unlike tumbling public spending on greenery, it had stayed the same. This is consistent with a discernible trend, argues Juan Costa Climent, Ernst & Young’s head of sustainability. Many companies have found that, even with little carbon regulation, some sorts of green investment make commercial sense.
Improved energy efficiency and waste management are obvious examples. With oil prices so high, small changes can save a lot of money, which is why companies that adopted ambitious emissions-reduction targets around the time of Copenhagen have tended to stiffen, not slacken, them. They include Walmart, which adopted energy-efficiency targets in 2005 and claims to be saving over $200m a year on transport fuel alone. Tesco aims to be carbon-neutral by 2050 and claims to be saving £150m ($239m) a year. According to the Carbon Disclosure Project (CDP), a watchdog that collects information on the emissions of over 500 large companies, 59% of emissions-reducing investments made so far—mostly in energy efficiency or renewable energy—will pay for themselves within three years.
The falling price of renewable energy is starting to offer firms another way to cut costs. A big advantage of solar and wind energy is that it is distributed: put a panel or a turbine on a factory roof and you have electricity to drive machinery. This makes it attractive to mining companies, which operate in inconvenient places where they cannot easily plug into a national grid. BHP Billiton and Rio Tinto are both investing in renewables. So is Alcoa, an aluminium producer, which is also attempting to measure its environmental impacts. This could provide a defence against future emissions regulations or perhaps help it grab green subsidies.
In a recent survey of CDP’s companies, 68% claimed to have made their global-warming strategy part of their core strategy, up from 48% last year. Given a surfeit of green PR bunkum, it is not easy to know whether they mean what they say. But if they are sincere, it is probably because they believe they must plan for a world in which water and other natural resources are increasingly scarce. Commodity prices are rising, and droughts seem increasingly common in fast-growing developing countries, including China and India. According to a recent survey by PwC, most bosses believe that resource scarcity is a bigger threat to their medium-term prospects than climate change more broadly.
The companies making the most noise about resource constraints are, by and large, the ones already known for their greenery. Yet that is not necessarily a reason for cynicism. These firms include Coca-Cola, Unilever, Nestlé and PepsiCo, all of which have big ambitions in developing countries and use a lot of water. Each firm’s embrace of greenery has followed a similar pattern. At least partly in response to being attacked by green activists—including Coke for using HFC refrigerant gases, Pepsi for dumping plastic waste and Nestlé and Unilever for their ties to palm-oil companies linked to tropical deforestation—all have been improving their environmental record for a decade or more. In the process, they appear to have become seriously convinced about the benefits of being green.
More than just being seen to be green
Cutting energy costs is only part of the story. A world of scarcity will create new opportunities for money-making: by developing products that use fewer valuable resources, for example, or which allow users to use less. “We know what the future looks like,” says Gavin Neath, Unilever’s head of sustainability. “We know water will be very scarce, we know that energy prices will be much higher, we know sanitation will be ghastly in increasingly crowded urban areas.” He may or may not be right, but Unilever is certainly putting its money where his mouth is.
It has started selling products in Asia specially designed for that resource-constrained future, including detergents that clean well at relatively low temperatures and can be rinsed off using relatively little water. In a forthcoming report, the McKinsey Global Institute, a think-tank, will argue that using energy and resources more efficiently could save the world $2.9 trillion a year by 2030, and massively curb emissions. It could also make clean firms a lot of filthy cash
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