Cutting carbon boosts bottom line

With the economy in the grip of a double-dip recession, businesses are reducing costs and looking closely at discretionary spending. So, in such times, does a low-carbon strategy make sense? Flemmich Webb reports

For some companies, creating and implementing a low-carbon strategy comes under the bracket of a nice-to-have rather than a must-have. As budgets tighten, their priority is to cut costs, improve sales and survive.

Others, often those who have already begun the shift towards low-carbon operations and have seen the benefits of implementing such strategies, regard them as a crucial part of business going forward.

So what are the financial benefits of having a low-carbon strategy? The simplest area to quantify is that of energy efficiency and carbon reduction. Cutting carbon means reducing energy use, which means lower energy bills.

To get some idea of the scale of savings that can be achieved, over the past decade the Carbon Trust has worked with 75 per cent of FTSE 100 companies and worked out the carbon footprint of hundreds of organisations globally to help identify risks and opportunities. This work has resulted in a reduction of 38 million tonnes in carbon emissions and savings of £3.7 billion for the companies.

Whitbread is one company that has benefitted. It began its low-carbon journey in 2007, working first with the Carbon Trust through its low-carbon buildings refurbishment programme, then in 2008/9 with PwC on corporate social responsibility, out of which came its low-carbon strategy.

“There was a general feeling at the time that we were being left behind, that we didn’t have a strategy in place,” says Ben Brakes, Whitbread’s environment manager.

Cutting carbon means reducing energy use, which means lower energy bills

Now the company does have one, it’s seeing the benefits. “We are getting absolute carbon reductions so we are seeing savings on our energy budget, totalling between £1.5 million and £1.8 million in avoided energy costs last year, even though we are growing the business.” And with energy prices predicted to increase by about 40 per cent up to 2020, Whitbread’s low-carbon strategy should help the company save money for years to come.

Sainsbury’s published its 20 by 20 Sustainability Plan in October 2011 and, though it has grown the floor-space of its supermarkets by around 25 per cent over the past four years, it has reduced energy use by more than 9 per cent. An energy efficiency programme is in its sixth year and has generated energy savings equivalent to running 110 supermarkets a year, through more than 14,000 energy initiatives.

There are other more qualitative benefits to having a low-carbon strategy, such as reputation, attractiveness to investors and differentiation from your competitors, all of which have the potential to impact the bottom line.

Marks & Spencer’s Plan A, the retailer’s much trumpeted sustainability plan, has garnered columns of positive press coverage, and has almost become a brand in its own right, indelibly associating the company with progressive procurement and operational policies.

It is, however, difficult to work out the financial benefits of such initiatives and companies can find it hard to prove the business case for adopting a low-carbon strategy. Increasingly, though, work is being carried out in this area.

A recent Harvard Business School paper, which tracked the corporate performance for 18 years of “high sustainability” companies and “low sustainability” companies, found the former outperformed the latter in terms of both stock market and accounting performance.

The counter arguments to adopting a low-carbon strategy include that management might lose focus by diverting attention to issues that are not core to the company’s operations or may incur higher costs by, for example, reducing environmental impacts over and above what is required by regulation.

“The benefits of a low-carbon strategy are multiple,” says Hugh Jones, managing director of business advice at the Carbon Trust. “It sets up companies for a more profitable future. Organisations that take it seriously tend to have more motivated employees and better buy-in from stakeholders, and are positioned to exploit changing patterns in demand from customers and consumers.

“Going forward, it will also be the basis for revenue generation and, in relation to supply chains, will be essential to sourcing and producing in a sustainable way in a resource-constrained future. Adopting a low-carbon strategy is at some level about staying in business.”