Environmental management activities are multiplying across the private sector as climate change rises on the world’s agenda. Toby Kent examines some innovative programmes.
Environmental issues are once again rising on the corporate responsibility agenda. Climate change, one of the focal points of the G8 summit in Gleneagles, Scotland, is forcing companies to reduce and control their emissions, encouraging them to focus more on environmental management across their activities.
Companies are taking action for a combination of two reasons: because legislation forces them to and because primarily it makes commercial sense. For UK companies, two key legislative developments are driving the agenda forwards.
First, the Kyoto Protocol, which became legally binding for signatory countries in February this year, committed participants to cut their greenhouse gas emissions to 5% below 1990 levels by 2008-2012. In order to achieve Kyoto targets – widely considered to be a tall order – legislation has been set at both national and European Union levels, forcing business to reduce greenhouse gas emissions, develop and utilise renewable sources of energy and to increase energy efficiency. To date, the most significant measure is the EU’s emissions trading scheme, which came into effect on January 1. The scheme caps the emissions that companies are permitted to produce. They must either keep their emissions within allocated levels, purchase allowances from other companies – or face fines.
Second, the UK’s Operating and Financial Review obliges all UK-listed companies to disclose social and environmental risks in their annual reports, as of April 2005. Such legislation, combined with existing laws and industry-specific regulations, is forcing companies to approach environmental matters more transparently.
Commercially, there are accruable benefits from sound environmental management. For example, companies that keep their emissions below the cap imposed by the regulators can sell remaining credits, while reductions in emissions generally correlate to increased energy efficiency and cost savings. And that’s not forgetting the mostly intangible reputational benefits seen by businesses that act in environmentally responsible ways.
ENGAGING EMPLOYEES
Employee involvement and understanding throughout the workforce is key to successful environmental management. For example, directories publisher Yell and banking group HBOS have both introduced environmental awards for employees who develop or promote environmental initiatives.
In its UK offices Yell operates a programme Think Again that encourages a “reduce, re-use and recycle philosophy”. Yell’s environment, health and safety representatives oversee this programme across all UK offices. In the year ending 2004, Yell managed to divert almost half (46%) of all office waste from landfill. A similar programme by supermarket chain J Sainsbury diverts 57% of waste from landfill.
A company’s environmental management programmes often reflects the impacts specific to its business, such as Sainsbury’s strategy to reduce landfill waste through recycling, composting and food donations. Another good example can be seen in the brewer Scottish & Newcastle, which converts almost all the waste by-products of its beer-brewing process into animal feed and feedstock.
COLLABORATIVE EFFORTS
Yell’s most obvious environmental impact is through the distribution of large yellow-paged directories across communities and to businesses. Since it is not viable to collect all the old directories itself, the company has worked with local authorities to create recycling facilities capable of handling the waste directories outside traditional recycling activities. Yell’s Yellow Woods Challenge schools programme encourages people to recycle through schools, playing the dual role of recycling directories and helping to educate children about environmental values. Today, 93% of local authorities in the UK operate Yellow Pages recycling facilities.
PRODUCT INNOVATION
Sainsbury’s handling of waste created by packaging is perhaps more directly linked to its core business. This year, the company managed to reduce the packaging of its own-brand Easter eggs by 30%, while seeing a rise in sales. Although the received wisdom around selling Easter eggs is that packaging is important – the more the better – the supermarket achieved its target through innovative design, focusing on being visually appealing, reusable, recyclable but still strong enough to protect eggs from damage. The company has had similar success in reducing the size of its own-brand cereal packaging, and claims competitors followed suit once they realised sales were not negatively affected.
SAVING ENERGY
At Scottish & Newcastle, the energy management team delivers projects that are commercially and environmentally beneficial, leading to improvements in production, such as the capturing of biogas from the brewing production process. S & N reports that it captured 82% more biogas in the last three years, saving 3% of its total energy requirements.
In an effort to cut emissions, both Scottish & Newcastle and Sainsbury’s purchase 10% of their energy from renewable sources. HBOS is currently reporting only 5%, although the bank has wide-ranging environmental commitments throughout its operations.
Sainsbury Bank’s own environmental programme has been steered by the adoption of HBOS’s environmental standard, which was agreed when HBOS took a 45% stake in it.
INVESTORS
As a financial services company HBOS has fewer direct environmental impacts than companies such as J Sainsbury and Scottish & Newcastle, but the implications of its investments and lending can be wide-ranging. The company has made public its environmental policy and commitments, which among other things determine that the company will “consider environmental factors and risks in [its] commercial and retail lending decisions”. All of its assets are now housed and managed by Insight Investment, which has a specific mandate both to ensure responsible in-house business practices and to promote them in companies in which it invests.
ENVIRONMENTAL CERTIFICATION
One way companies can demonstrate their environmental commitments is through certification, such as ISO14001 or the Eco-Management and Assurance Scheme (EMAS). There are clear advantages to this approach: it obliges companies to meet their environmental commitments and to maintain functioning environmental management systems. It also provides them with a stamp of credibility and they have a legitimate stick with which to encourage suppliers and business partners to adopt better environmental practices themselves.
There are, however, drawbacks to certification. Fiona Wheatley, Sainsbury’s environmental manager, notes real concerns over the associated costs of certification. And being certified does not mean that a company is necessarily operating in the best way possible environmentally, but rather that it can demonstrate it is keeping to its own environmental policies and using the systems it said it would. Moreover the costs of compliance by trading partners are indiscriminate, and can in some cases hit smaller producers more than their larger counterparts.
A COMMERCIAL OPPORTUNITY
Continued pressure from specialist investment firms and others that have pushed environmental issues into their mainstream business practices is keeping the focus firmly on environmental matters. More significantly, the UK and other European governments’ commitments and environmental legislation are forcing companies to see these issues from core business perspectives, such as compliance and risk management. There are also commercial opportunities stemming from good environmental management.
Given the challenge of meeting greenhouse gas commitments and the fact that the UK lags behind other European countries in recycling levels, the pressure on companies to improve their environmental performance will continue. Moreover, acting responsibly will increasingly involve educating and helping customers and suppliers to be more environmentally responsible themselves. The future may not look bright, but it is becoming greener.
COMMENTS