In today’s competitive landscape, environmental performance has to work alongside return on investment in the bottom line of a sustainable business. But is it so hard to balance costs and benefits? Lee Collinson reports.
Industrial activity accounts for around a third of the world’s greenhouse gas emissions and 16% of the UK’s total power consumption, so it’s not surprising that managing energy spend and decarbonisation has risen to become a strategic board-level priority.
Alongside the obvious financial benefit of becoming more energy efficient, there is also growing attention from a range of stakeholders (investors, current/future employees, policymakers and regulators) and their demand for improvement and transparent governance.
In June 2019, the UK became the world’s first major economy to pass laws to end its contribution to global warming by 2050. The target will require the UK to bring all greenhouse gas emissions to net zero by 2050, compared with the previous target of at least 80% reduction from 1990 levels.
Increasingly, consumers are also prioritising sustainability in their purchasing decision. Two-thirds of the British public (67%) say they care more about the environmental impact of the goods they buy now compared to five years ago, and more than half (53%) feel it’s the responsibility of manufacturers to tackle the issue, according to research by KPMG.
Various factors contribute to a manufacturer’s total energy consumption – outdated systems, inefficient machinery, traditional processes, old buildings, a lack of visibility and ill-informed workers.
The complexity involved can make moving towards a more sustainable, efficient way of operating appear daunting. What should be prioritised? Will it distract employees and the business from your core objectives? Will it generate a noticeable return? Will those returns be sustained over the long-term?
In today’s competitive landscape, environmental performance has to work alongside return on investment in the bottom line of a sustainable business. But is it so hard to balance costs and benefits?
Not necessarily, according to Professor Steve Evans, Director of Research at the Centre for Industrial Sustainability at the University of Cambridge, but businesses need to assess their current practices before pinpointing where improvements can be made.
Writing in The Manufacturer, Evans notes: “Economic principles would suggest that businesses will seek and find the most efficient ways to operate in order to drive down costs – and resource efficiency is imperative for this.
“And yet, the evidence shows that most companies are not using resources efficiently. In fact, they’re often unaware of where their inefficiencies are, or even if there are things they can do immediately that don’t rely on heavy investment.”
More and more responsible companies are realising how aligning business activities with sustainable practices can bring value. Yet, beyond the purely economic argument for and against investing in a solar array, for example, it can still be tricky to quantify exactly how subjective added value contributes to objective financial value.
Perhaps what’s needed is a broader, more sophisticated definition of ‘benefit’, one based on measurable ‘value drivers’.
According to the UKGBC, there are 11 such business value drivers, ranked in order of priority – in many cases, the value created by one overlaps with one or more of the others:
- Cost saving – associated with the use of energy, waste and materials. Resulting investment may have a higher cost at the capital phase, with the savings occurring through the operational phase.
- Talent attraction & retention – those businesses aiming to become an employer of choice to both new and existing staff often demonstrate higher productivity, loyalty and efficiency.
- Customer attraction & retention – help your customers, new and existing, to obtain their own sustainability ambitions and create long-term opportunities for collaboration.
- Brand & reputation – considered to be one your most valuable assets.
- Licence to operate – your activities should include ensuring legal compliance with regulations and understand the obligations placed on you by society. There is a strong link between licence to operate and brand & reputation.
- Resilience – high levels of resilience are required to survive and thrive in an increasingly volatile, uncertain and complex global trading environment. The long-term nature of environmental investments can help to improve your business resilience.
- Access to capital – there is an increasing amount of financial capital (equity or debt) that is being allocated on the basis of environmental and/or social factors. At Barclays we have more information about green finance which you can find here.
- Innovation – assessing the environmental and social impacts that result from the production and delivery of your goods and services can help identify new business opportunities.
- Productivity – improving the efficiency of energy, water and material use improves productivity levels as spend is reduced. Reacting to changing workforce expectations, new methods of production and delivery and new technology can also increase output.
- Quality – focusing on the environmental and societal impact of your goods and services can help future-proof and maintain their relevance to your customers.
- Value of Assets – Assets that are designed, manufactured and managed in line with sustainability at their core should suffer less from obsolescence.
What’s important, the UKGBC emphasises, is that these value drivers are factored in at the start of all business activities to aid decision-making.
I’d love to hear your thoughts, so please connect with me on LinkedIn.
Lee Collinson is National Head of Manufacturing, Transport & Logistics at Barclays
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*Images courtesy of Depositphotos