UK: GREENING THE BOTTOM LINE. - Basic business instincts mean that environmental friendliness is rising steadily up the corporate agenda. But principles become a paler shade of green when the price premium is too high. Malcolm Brown reports

Last Updated: 31 Aug 2010

Basic business instincts mean that environmental friendliness is rising steadily up the corporate agenda. But principles become a paler shade of green when the price premium is too high. Malcolm Brown reports

The Japanese car company Nissan wants to be environmentally friendly - but not at any cost. In fact, it would prefer it to be at no cost to the company whatever. When Ian Gibson, managing director of Sunderland-based Nissan Motor Manufacturing UK, was formulating the company's environmental policy in 1990 he took two radical decisions. The first was that responsibility for 'green' matters should lie with his director of engineering, Dr Les Nicholls, rather than, as is more conventional, with a separate 'health, safety and environment' specialist. The argument was that since the engineering and production people were the ones who caused environmental problems they would have an inside track on (and a vested interest in) how to prevent or ameliorate them.

The second decision was that any environmentalism should pay for itself. Gibson told Nicholls: 'For every penny you spend you must save a penny. You can spend as many pennies as you like as long as other environmental actions save an equal number.' So far, the Micawberish approach has paid off. 'We started to keep track on an annualised basis of what we were spending through environmental activity and what we were saving,' says Nicholls. 'So far we've managed to stay in credit.' The most vivid example of Nissan's policy in action is the way that money saved by recycling plastic off-cuts from the manufacture of Micra and Primera fuel tanks is paying for the switch to environmentally-friendly (but more expensive) water-based paints on the Micra to reduce solvent emissions. The recycling system means that all new fuel tanks contain 30% reclaimed materials, says Nicholls. 'There's a 30% reduction in the costs of virgin material coming into the plant and a transport and landfill saving because there's nothing going out of the plant.' The money saved - the first year's savings on raw materials was £700,000 - has paid for the move to water-based paints.

Nissan isn't alone in trying to make environmentalism good business. In a recent report, the Institute of Business Ethics (IBE) detailed no fewer than 70 environmental initiatives taken by 43 companies which had resulted in benefits to the bottom line, new product opportunities or increased market share. According to the IBE, a body which investigates the ethical nature of wealth creation, the aggregated annual savings from this small sample were more than £10 million, which suggests that 'the potential for savings in the UK as a whole is vast'.

The IBE's 'better bottom line' approach is popular with those proselytising for greenness in industry because it appeals to the most basic business instincts. Other analyses might equally show that environmentalism is mostly about cost and sacrifice. But whichever perspective is adopted, one thing is clear: environmental friendliness is rising steadily up the corporate agenda.

But why? Why do companies want to be (and, increasingly, be seen to be) green? The evidence suggests mixed motives. There is often a soupcon of altruism (many of today's chief executives, after all, are the first generation of bosses to have grown up with environmentalists - their own children - in the home) leavened with a large dollop of realism. Many potential polluters operate on the basis of an unspoken agreement between themselves and the community within which they operate - a 'licence to operate' which depends on the company's sensitivity to environmental fears and feelings.

Dr Richard Robson, ICI's environmental communications manager, says that a company needs to be environmentally conscious to be part of the real world, part of society. At the start of the decade, ICI set itself tough environmental objectives because it realised that it was part of a society which was recognising that environmental concerns were legitimate. 'We recognised that improvements were necessary to bring our performance up to the expectations of the public.' Dr Hugh Somerville, head of environment at British Airways, includes more downbeat reasons, like the need to see environmental matters as part of risk management. 'It's very difficult for top management to understand all the environmental issues and to understand their exposure. I suspect one of the things that motivates companies is that they see what happens in a Bhopal or an Exxon Valdez and they decide they need to bring a focus on it.' Bhopal - the 1984 Union Carbide chemical plant leak in India which killed more than 2,000 people - certainly galvanised the chemical company Monsanto, one of the pioneers of corporate environmentalism, into changing the way it thought. According to John Elkington, co-founder of London-based environmental management consultancy SustainAbility, though Bhopal did not directly involve Monsanto, it shocked the Monsanto directors as they realised they were potentially exposed to the same sort of problems.

'When Bhopal happened the company sent audit teams around the world to look at their plants,' says Elkington, who has discussed the matter with Monsanto's bosses. 'When they looked at the first set of numbers that came out - the fugitive emissions from their plants - the board was shocked. They'd no idea of the scale of releases. They were shocked in two senses - first of all health, safety and the environment, but also the economic loss of materials.' One result was publication of the Monsanto Pledge, which publicly committed the company to swingeing cuts in emissions. The pledge was followed by one of the first ever environmental reports by an industrial company, a detailed, openly published account of the effect that the group's operations were having on the environment and what it planned to do about it.

The same sort of thinking, with greater or lesser emphasis, depending on the risks inherent in their industries, has probably been replicated in many boardrooms. But despite all the acres of newsprint devoted to analysing the good works of the greenest companies, the identifiable results still seem relatively modest. If environmental reporting - the publication of a Monsanto-style report - is used as a measure, only 150 to 200 companies worldwide are doing it, out of an estimated 40,000 or so major companies and millions of small and medium-sized ones.

However, it should be remembered that the 150-plus who are reporting are generally the giants - companies which measure their turnover (and one or two of them their profits) in billions - and that while they may not be publishing the results, many more than the core group of companies are carrying out environmental audits. They know the impact of their operations and may be taking action, but are not yet convinced about going public.

A recent analysis of green reporting suggests that despite the small number of published reports, the trend is growing. Management consultants KPMG, which advises companies on reporting, says that in 1994, 34% of the Financial Times' top 100 companies produced separate environmental reports, compared with only 20% in 1993. Jon Symonds, KPMG's head of environmental services, also notes a marked increase in the quality of the reporting. 'Not only are more companies producing separate documents, but they are being far more open about their actions, and including records of bad performances as well as good.' Most of the steps which companies take to improve their environmental performance are in-house. They identify shortcomings and look, in more general terms, at how their basic needs, such as those for energy, can be satisfied using fewer resources. ICI's environmental objectives, set in 1990, are fairly typical and include, for instance, a commitment to very high environmental standards in new plants, wherever in the world they are built; a promise to reduce waste by 50% by the end of 1995; and an undertaking to improve the use of energy and resources.

More recently, however, several of the most environmentally conscious companies have been using their clout to try and encourage environmental friendliness in their suppliers. The Institute of Business Ethics (IBE) believes that this sort of pressure is valuable. In its recent report, Benefiting Business and the Environment, the IBE says that implementing an environmental programme is harder for small companies, particularly where it involves capital outlay: 'If pressure, ideally accompanied by assistance, is coming from larger companies, the outlays will be easier to justify and impetus stronger.' Business in the Environment (BiE), a non-profit organisation set up in the late 1980s to raise environmental awareness, particularly among small and medium-sized companies, agrees. It seconded John Carew, former environmental policy adviser to BT's central procurement unit, to promote the idea.

What BT has tried to do, says Carew, is to devise a simple system that enables its buyers to take environmental factors into account when they are deciding what to buy. 'When anybody buys something they weigh up a whole variety of factors - price, technical performance, the track record of the supplier, delivery - and what we're now saying is we want our 78e buyers to consider the environmental aspect of it as well. We've created a system which enables them to get a very simple numerical rating which reflects the environmental performance of the supplier. We're asking them to take that into account in the decision-making process.' So, if the most progressive companies are becoming greener, what, if anything, is the payoff? Is it all pain and no gain? The answer seems to be not necessarily. Companies trying to be more environmentally efficient - in energy conservation, for instance - have seen a payback in lower costs (usually after capital investment, of course) and customers, particularly retail customers, do seem to respond positively to corporate environmental concern and to green marketing. Supermarkets which have made the effort to be environmentally conscious have had good customer feedback. Some products specifically designed to reflect ecological consciousness have been strong sellers - witness the success of the Body Shop.

A rather dramatic, if indirect, measure of positive customer response is the way that the business of the Co-operative Bank has shot up in the wake of its award-winning 'ethical' advertising campaign. More than 70% of customers polled in 1991 believed that the bank should include environmental issues such as exploitation of scarce resources in an ethical policy. It did, and has been highlighting environmentalism in a major advertising campaign alongside the bank's embargo on investing in countries with oppressive regimes. It not only advises customers on how to be more ecologically sound, it will, in extremis, drop existing customers who fall below its standards and refuse to take on new ones for the same reason.

According to the Co-operative Bank's head of marketing, Simon Williams, there is a clear link between policy and performance: retail deposits were up 19% at the end of 1994. 'It definitely works. When we start advertising you see the results by the day. I'd regard the year-on-year 19% as a measure, if a quantitative measure was needed, against a pretty tough time in the deposits market.' The bank isn't naive and heart-on-sleeve about its environmentalism. It tries to be realistic. 'There are some industries which by their very nature will have the occasional problem, but that doesn't debar them,' says Williams. 'What does debar them is if, after our research, we come to a view that this is unreasonable, that they're not really making the effort, that we wouldn't expect this level of environmental damage to be done. It's a judgment call, taken after quite a bit of information is gathered.' One thing is certain about the environmentalist bandwagon. Once a company gets on there is no getting off again, at least not without great difficulty. What seems radical at first has a habit of becoming the norm. Good works impress at first but are soon expected as a matter of course and indeed even greater demands are made.

So it is with the environment. For instance, BiE has decided to benchmark the environmental performance of top companies. According to its national director Noel Morrin, the organisation will take the companies in the FTSE 100 and by giving a weighting to qualitative activities like training or in-house communication or the production of environmental reports, it will come up with an index number by which companies may be compared. It is not certain exactly how the information will be used. Rather than using it to rank individual companies from 1 to 100, BiE may take the ideal score and then see how groups of companies, say textiles or financial services, measure up. But the exercise is obviously upping the ante.

According to SustainAbility's Elkington, when the index was first mooted there was an extraordinary reaction inside the organisation itself. BiE has two groups of advisers. One is made up of outside experts, like Elkington, environmental lobbyists and academics: the other consists of the heads of the companies - like BT and NatWest - which make up the BiE board.

'The outside advisers, almost without exception - there were two exceptions, I was one of them - said, "Don't do this benchmarking exercise. It's too political. We don't think you can do it well enough and we wonder if you can put up with the backlash when it eventually comes." ' The board, on the other hand, without exception, gave the go-ahead. 'They said, "We really like this idea. We know that some of us are going to come very low down in the ranking, but let's start it, because if we once establish a set of criteria we'll know what we're trying to improve performance against and that will help everyone." 'says Elkington.

BiE's Morrin says it may simply be that the businessmen understand the value of comparing themselves one with another and they quite enjoy, as individuals, getting one up on the next man. 'They're very competitive people by nature.' But, as Elkington points out, for many companies environmentalism is still an act of faith. 'Anything which gives them some reassurance that they're not on their own, that they are maybe better than somebody else, even if it is a very subjective "better", gives them that extra bit of confidence to continue.'.

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