Low carbon is future of business

Concerns about rising greenhouse gas emissions, population growth, extreme weather and resource scarcity are combining to transform corporate and investor understanding of the need for sustainable low-carbon business, writes Felicia Jackson

According to the Global Footprint Network, it takes one-and-a-half years to regenerate the resources used and absorb the waste created every year in the global economy. Yet, as the world’s growing middle classes open new markets for business, they also demand a greater supply of goods which can be highly energy, water and resource-intensive.

Awareness of this is driving fundamental changes in expectations of corporate behaviour among all stakeholders. Acting without thought of the future is beginning to be seen as a failure of management at the highest level.

The global economy faces interconnected challenges in energy supply, materials availability, and food and water security at a time of economic constraint and political uncertainty.

A critical factor is the interconnected nature of the global supply chain. Failings in one area can have a knock-on effect around the world. These effects will in turn have implications for ecosystems, human health and other systems, such as buildings, industrial processes, transportation, energy supply and demand as well as infrastructure.

Paul Simpson, chief executive of the Carbon Disclosure Project (CDP), points out that the 2011 Thai floods caused Intel £1 billion in supply-chain related losses, while Lloyds of London lost £2.1 billion in insurance. The 2011 drought in Texas resulted in a loss of $5.2 billion in agricultural profits and the current drought is expected to be the worst since 1956.

There is a potentially enormous economic opportunity to create new products, and new ways of manufacture and distribution

Carbon emissions are on the increase and failure to agree strong targets at an international level has meant a lack of certainty on how to act at a domestic level. Such emissions have a crucial role to play in the sustainability of demands made on the planet yet fossil fuels, one of the largest sources of man-made emissions, remain the backbone of today’s energy supplies.

Attempts to challenge that dominance often leads to discussions of affordability yet, according to figures from the International Energy Agency, 2010 saw $409 billion in subsidies to the fossil fuel industry while the renewables industry only received $66 billion.

In a resource constrained world, there is a desperate need for increases in efficiency across the economy. In the UK today around 80 per cent of the economy is linear – it relies on a supply of cheap commodities and wastes valuable materials in landfill – and there is growing interest in the potential of a circular, or closed-loop, economic model.

The connection must be made between access to natural resources, the supply chain, consumer demand and the likely impact of legislation on the future value of business.

Industry lobbyists across many sectors have expressed concern about the detrimental long-term impact of carbon constraints on shareholder value and profitability, especially with regard to expected increases in energy prices and the potential impact of regional carbon trading on global competitiveness.

Yet there is also a potentially enormous economic opportunity to create new products, and new ways of manufacture and distribution.

The economic environment is changing and the shift to low carbon business, driven by legislation, concern about climate, energy and commodity price volatility, is becoming a necessity, rather than an added branding benefit for consumer-facing industries.

Neil Tonge, global director of environmental health and safety & sustainability at brewers Molson Coors, says that internal investment planning includes forward modelling of the impact of carbon price and energy price volatility. As he says: “Sustainability is just good business.”