Just good business: Smart Firms Will Embrace The Economic, Climate And Energy Crises

While some wonder if green business and policies are luxury during global downturn, the evidence mounts that sustainable businesses are performing better. They’re also more in tune with what consumers want and may well ride the economic storm and respond better to other crucial changes which must be made to manage energy security and climate change.
Despite the recession, New Zealanders’ concerns over climate change and protecting their quality of life are still running high. The most recent survey of New Zealanders on climate change (2851 respondents to ShapeNZ in February 2009) shows six out of 10 rank climate change as an issue which can have serious impact on them. Some 44 percent believe it will be threat to their personal lifestyle within their lifetime.
Governments are responding to the triple crises of economic downturn, energy insecurity and climate change with green investment packages. An example is our recently announced programme to insulate homes, which follows similar initiatives in Australia and the United Kingdom.
An HSBC analysis of more than 20 economic recovery packages finds governments have allocated more than US$430 billion to key climate change investment themes.
The economic and environmental crises are offering an opportunity to respond in ways which address the issues, but also provide for growth and improved quality of life.
A survey of the stock price performance of 99 firms on the Dow Jones Sustainability Index and the Goldman Sachs SUSTAIN focus list of green companies by global management consultancy firm AT Kearney, for six months to last November showed:
• In 16 of 18 industries included in the review, businesses deemed “sustainability focused” outperformed industry peers over three- and six-month periods and were “well protected from value erosion”.
• From September through November last year, the performance differential was 10 percent and 15 percent over six months.
• The average performance differential equalled US$650 million in market capitalisation per company.
AT Kearney says: “Many corporate drives to reduce waste and emissions, use renewable energy and produce goods that have less of an impact on the environment have seemingly become ‘me too’ efforts in recent years. Yet companies with history in green innovations have reaped the most benefits.”
Kearney cites global consumer packaged goods company which started its sustainability efforts more than 10 years ago and has since changed its business model to incorporate sustainability practices in every link of the value chain. Since 1988 the firm has increased production volume 76 percent, cut greenhouse gas emissions 16 percent, water use 28 percent, and energy use three percent. In 2007, improvements in energy efficiency led to $30 million in savings. So embracing sustainability is useful driver to aid profitability.
Research on what consumers want provides strong support for Kearney’s conclusion that “those that continue to make meaningful investments will continue to prosper, both in terms of business results achieved and public perception”.
As the US assumes an increasingly major leadership role to manage climate change including pricing emissions, and the world moves to shift billions in investment to cleaner technologies, the need for businesses to embrace sustainability increases.
New Zealand businesses, including our agricultural ones, should not assume lack of urgency because of the politically-driven delays to confirming and developing emissions reductions policies domestically. The world is moving on, even if New Zealand has gone into review mode since last November. heavy local focus within some sectors on trying to delay or avoid price on emissions isn’t the best way to prepare for the emerging new long-term climate and trading realties.
Among New Zealanders there is majority support (51 percent for, 22 percent opposed) for New Zealand signing new international agreement on climate change even if some fast growing but poorer economies, like China, Brazil, India and Indonesia, do not agree to constrain emissions growth.
There is also overwhelming support for suite of policies to complement an emissions trading scheme, to help reduce emissions and also grow low-emission industries and rapidly commercialise and sell New Zealand low-emission technology to the world.
There is 82 percent support for incentives to help businesses develop renewable energy projects, 74 percent backing for incentives to plant more carbon sink forests, 74 percent support for government fund to quickly commercialise new low-emissions technology invented in New Zealand, boost research on lowering emissions (71 percent) and even to subsidise farmers using fertilisers which inhibit the release of nitrogen.
It’s hard to imagine New Zealand will even try achieving tougher new emission reduction targets without MPs resorting to popular new complementary policies which cut emissions, steer investment into areas providing products and services to cut emissions and pollution, create jobs, and protect and create new trading opportunities in market measuring and pricing carbon.
Capitalism doesn’t so much face crisis now as challenge it has always confronted: just how smart will each business be at changing direction to help meet the economic, climate and energy crises in ways which make money and help fulfil customers’ hopes for improved lives?

Peter Neilson is chief executive of the New Zealand Business Council for Sustainable Development.

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