Consumers are increasingly making choices based on companies’ environmental and ethical reputations. CEOs picking up on this trend are already reaping the benefits of their greener policies. Adrienne Baker reports.
CEOs are waking up to the business opportunities offered by greening up their operations and wearing their ethical credentials on their sleeves. In fact, not taking action on climate change is increasingly turning out to be the riskier choice.
As much as 80% of FTSE 100 companies now identify climate change as a business risk, according to the CarbonNeutral Company. Meanwhile, CEOs of some of the largest US companies, including DuPont, Duke Energy, Alcoa and General Electric, are so concerned about the threat that global warming poses to their businesses, they are lobbying the Bush administration to enact mandatory carbon caps.
These companies see national emissions targets as a way to avoid a patchwork of potentially costly and opposing state regulations that will hamper their ability to compete globally.
In a letter to President Bush, they wrote: "We can and must take prompt action to establish a coordinated, economy-wide market-driven approach to climate protection." Climate response is also being embraced as a way to boost profits by capitalising on rising consumer demand for low carbon products and services. Dr Anne-Marie Warris, global product manager for climate change at Lloyd’s Register Quality Assurance, points out: "96% of consumers now use environmental considerations in making purchasing decisions."
In addition, two thirds of consumers also think organisations need to take global warming more seriously and 60% want retailers to provide more information on CO2 emissions at point-of-sale, according to a joint study by Consumers International and AccountAbility.
GREENING THE GROCER
One of the most prevalent sectors in the race to be green is retailing. James Stanway, director of project development at Wal-Mart, says: "Climate change is a huge opportunity for new business models and a huge threat to old models." In October 2005, his CEO, Lee Scott, pledged to reduce greenhouse gas emissions across the company’s 5,000 stores by investing $500m annually in environmental technologies.
According to Stanway, the world’s largest retailer initially responded to climate change as a defensive strategy to combat criticism of poor labour and environmental practices, but it now sees this as a serious business opportunity. Scott has since committed Wal-Mart to using 100% renewable energy sources and producing zero waste. No timeline has been set for these targets, but Wal-Mart is currently working to make its stores 25% more efficient over the next seven years.
Tesco CEO Sir Terry Leahy made headlines in January 2007 when he promised "a revolution in green consumption" and unveiled a series of ambitious projects, including halving the carbon footprint of the company’s existing stores and distribution centres by 2020 and labelling the amount of carbon embedded in its 70,000 products. He said: "Clear information about the carbon costs of the products we buy will enable customers to make effective green choices."
Around the same time, Marks & Spencer CEO Stuart Rose announced the retailer’s £200m eco-plan that aims to make the company carbon neutral in five years. He said: "As a major UK retailer, we believe it’s vital that we take a lead on addressing climate change." M&S aims to send zero waste to landfill, label airfreighted food and improve energy efficiency by 25%. Richard Gillies, director of store development, explains: "The commitment to develop and deliver our plan comes from Stuart Rose and his colleagues on the board. Stuart personally chairs a ‘how we do business committee’ that includes representatives from across the business to oversee delivery of the plan."
US grocery chain Whole Foods is taking a slightly different approach, favouring a CO2 reduction strategy centred on energy efficiency, purchasing renewables and green building initiatives. The organic retailer has also launched a number of projects to get customers directly involved in climate response.
Under its ‘30 Ways in 30 Days’ campaign, customers and employees can learn to calculate their carbon footprint and make reductions. Kathy Loftus, national energy manager at Whole Foods, adds: "We also have signs in the stores that discuss our green building initiatives, and we participate in the community and other events to share information."
These initiatives are strongly supported by CEO John Mackey. As Loftus explains: "We’re very lucky we have a CEO and team members that are motivated in this area." In simple terms, this support helps Loftus get things done. "The advantages of having a leader who is supportive of climate change actions range from increased funding for energy reduction, distributed energy and renewable energy projects to educational opportunities within and outside the company."
Led by CEO Ben Verwaayen, BT’s climate change strategy also focuses on carbon reduction rather than carbon neutrality. Dr Chris Tuppen, head of sustainable development and corporate accountability at BT, adds: "We also haven’t announced a pounds figure in terms of our commitment to climate change."
The telecommunications company is aiming to reduce its emissions by 80% by 2016 compared to 1996 levels. This is equivalent to the emissions produced by 143,000 cars a year. BT has a number of projects on the go, including working with suppliers to produce products with lower emissions, auditing the energy consumption of its data centres and getting staff to reduce their carbon footprints.
Tuppen remarks: "The most efficient way to reduce carbon is to embed it in the natural business cycles – it then becomes business as normal."
He acknowledges that in some cases it can be difficult for a CEO to focus the board’s attention on carbon mitigation, but many times it makes clear business sense. In the case of energy use, for example, saving on gas and electricity has a direct bottom-line benefit for BT, which is currently responsible for around 0.7% of the UK’s entire electricity consumption.
As with other companies, BT’s climate change response has teeth because its CEO is committed to the cause. Verwaayen leads the Confederation of British Industry’s climate change task force, which comprises a number of business leaders, including Tesco’s Leahy.
Using the Stern Review on climate change as a starting point, the task force is charged with setting out recommendations for how business can tackle climate change. At the task force’s launch in January 2007, Verwaayen said: "The risks presented by climate change are too big to ignore. The business community needs to take action that is urgent, concrete and measurable."
The Stern Review was really the first to spell out disastrous economic consequences if climate change is not curbed. Its publication in October 2006 provoked new government targets for carbon reduction in the UK and influenced business leaders such as Rose and Leahy to adjust their company’s mitigation targets. In particular, Sir Nicolas Stern estimated that climate change could cost the global economy up to £3.67tn and displace up to 200 million people unless a drastic 60% reduction in Carbon emissions is reached by 2050
UK bank Standard Chartered’s green initiatives also take a topdown approach, with chairman Mervyn Davies taking the lead on climate issues.
Davies is a member of the Corporate Leaders Group on Climate Action and one of its main goals is to encourage governments to introduce climate change policies and support investment in low-carbon technologies. As part of this mission, he recently addressed Chinese Premier Wen Jiabao on the issue of climate security.
Standard Chartered is actively engaging its employee base, 97% of which is based in Southeast Asia. Jason Leonard, head of environment, explains. "We educate our staff not to take trips to Singapore for a one-hour meeting," he says. The company’s climate change action also focuses on rebuilding and refurbishing its buildings to become more energy-efficient and investing in renewable energy projects to the tune of $800m.
Whole Foods’ Loftus also sees employees as important stewards of climate action. "Many personally committed employees at middle management level at some companies have been able to achieve tremendous results," she says. "Focusing on reducing energy usage with prudent capital investments and budgeting certain expenses has resulted in returns on investment that are better than some other corporate initiatives."
Loftus adds that by demonstrating the bottom-line benefits, some employees have managed to convince their CEOs to get involved. "Showing results that benefit several areas of the business can really grab a CEO’s attention," she says.
M&S CEO Rose also understands the value of encouraging employees to think green. Last summer, he challenged his staff to come up with an ambitious vision for how the retailer should be dealing with social and environmental issues in 2012. Then, over the course of six months, every part of the retailer’s business from food to clothing, to stores and logistics, developed the company’s eco-plan.
Now M&S employees are spearheading the execution of the retailer’s strategy. Rose believes that it is part of the retailer’s responsibility to get employees, customers and suppliers to take global warming seriously. "We can inspire and help our 15 million customers, 70,000 employees and 2,000 suppliers to deliver the changes we all need to make, not just in the UK, but across our global supply chain."
THE GORE QUESTION
A vocal advocate at the top of the organisation really sets a company apart. Simon Propper, managing director of London-based CSR consultancy Context, says: "It is very important to have the CEO or chairman as the spokesman and explicit endorser of a company’s climate change strategy to give it credibility."
At the same time, a visibly committed leader can differentiate a company’s green efforts from its competitors as more businesses jump on the global warming bandwagon, Propper adds.
Experts also say it is important to understand the impact of your company’s carbon footprint. According to Jonathan Shopley, CEO of the CarbonNeutral Company: "You need to set targets that are meaningful to the climate change challenge and can be communicated well to staff, customers and supply chain partners in a way that changes their behaviour and reports the company’s commitment."
Chief executives also want to avoid the Gore question, which is likely to come when a company pledges to go carbon neutral. Following the release of his Oscar-winning global warming documentary An Inconvenient Truth, Gore was criticised in the press for spending considerably more on energy use than the average American.
Climate leaders have to walk the walk if they talk the talk, in other words. Rose, for instance, also pledged to swap his BMW for a hydrogen-fuelled model when releasing his eco-plan. "I don’t know how many CEOs want to drive around in a Toyota Prius but they will be asked what they drive and how they live," says Propper. "Practising what you preach is where credibility is born with climate change."