Time to Raise the Bar

28 June 2011

Hugh Jones, MD of the Carbon Trust Advisory, says it's high time firms improved their carbon reduction performance.

Despite the UK Government's commitment to set the country on a trajectory for an 80% reduction in carbon emissions from 1990 levels by 2050, Carbon Trust Advisory analysis released recently shows that around two-fifths (41%) of FTSE 100 businesses don't have clear, robust targets to cut carbon emissions - a prerequisite for demonstrating genuine accountability and embedding carbon reduction within an organisation's core business strategy.

The revelation that many FTSE 100 companies don't have a forward-looking target to reduce emissions comes in the midst of Defra's consultation on mandatory carbon, which recognises that measuring and reporting emissions is critical to cutting corporate carbon footprints. And yet business supply chains are accountable for the majority of carbon emissions, through their own direct operations, as well as the public's consumption of their products and services. This gives businesses a unique opportunity to take action to fundamentally reduce their impact on the environment, and in so doing, support the Government's drive to meet stringent environmental targets through the 2020s and beyond.

The business rationale for setting targets drives greater efficiency and innovation, and serves as a catalyst to generate longer-term returns to the bottom line and share price, while enhancing reputation. But what do we mean by a good quality carbon target? The characteristics of effective stretching targets are as follows: they're precise in what's being measured; aspirational in driving collaboration and innovation; and appropriate and relevant to the business in question and its sector.

Rather surprisingly only the Kingfisher Group (trading as B&Q and Screwfix in the UK) has publicly set a target to directly drive revenue from the sale of sustainable products. Kingfisher has put green business at the heart of its corporate strategy, recognising the potential to boost profits through energy efficiency and by tapping into the demand from consumers for environmentally friendly products. Its corporate responsibility strategy, Future Homes, has two aims. The first is to make sustainable living easy for its customers, by providing affordable eco products, such as eco paint and solar panels. The second is to embed sustainability into all aspects of its own operation. It has increased its sales of independently verified eco products to £1.1 billion, accounting for 10.5% of total retail sales across the group.

"Firms that lost their momentum and vision for reduction sacrificed the associated benefits of setting and implementing robust targets."

While exemplar companies such as Kingfisher are making impressive strides, the gap between the leaders and the laggards is widening.

During the financial crisis, many organisations battened down the hatches and focused solely on the bottom line. In the atmosphere of austerity that followed, sustainability initiatives were considered a luxury rather than a necessity.

Companies that lost their momentum and vision for carbon reduction sacrificed the associated benefits of setting and implementing robust targets, including the ability to mitigate risks by minimising exposure to raw-material price volatility, improved talent retention and enhanced business reputation, not to mention increased profitability.

BrandZ, the WPP brand and corporate reputation study carried out by Millward Brown, calculated that on average about 20% of sales are influenced by corporate reputation and about 10% of the corporate influence is directly related to perceived environmental behaviour. This equates to 2% of all sales, which for many companies represents millions of pounds.

However, Carbon Trust Advisory analysis also demonstrates that only a relatively small number of FTSE 100 companies are excelling in this area, meaning that there is still a window of opportunity (albeit a narrowing one) to build competitive advantage by developing an in-depth carbon strategy to improve efficiencies, meet the demand for sustainable products, services and practices, and define workable, stretching targets which the enterprise can strive to achieve.

"A combination of pressures is forcing firms to raise the bar, including the requirement to respond to consumer demand."

Businesses have essentially reached a tipping point. A combination of pressures is forcing companies to raise the bar on carbon reduction performance, including the requirement to respond to consumer demand. According to Carbon Trust Advisory research, the number of shoppers that would shun brands that don't take steps to measure and reduce the carbon footprints of their products has doubled in the past year to almost one-in-two shoppers (45%). Businesses currently have an opportunity to set targets and demonstrate a wider appreciation of the environmental pressures emerging on the business, social and political landscape, including an appreciation of how water, waste and packaging is counted against their environmental footprint. By stepping up to the plate, these businesses will be in a position to help drive green growth in the low-carbon economy, and to benefit from it.

The time to take advantage of this is today, while businesses still have a chance to carve out a leadership position by creating a vision for a profitable and sustainable future.

Hugh Jones, MD of the Carbon Trust Advisory.