Over the past few years, the state of the environment has become one of the most pressing issues facing mankind. Climate change, also known as global warming, threatens not only commerce but almost everything that we hold dear. It is no exaggeration to say that, in many cases, it will jeopardise not only livelihoods but lives.
... far from adding to costs, green measures can actually save money – large amounts of it.
As businesses produce almost half of the UK's carbon emissions, our 'Big Question' in the last issue of 42 degrees asked how much profit would you be prepared to sacrifice to help safeguard the environment for future generations? The majority of respondents said they would be prepared to forego 5-10 per cent of profit to achieve this.
There is good news, however, for those who have put off biting the 'green' bullet because they fear it will be too costly. Many companies that have already started the process of 'greening' their businesses, for example, by reducing their carbon emissions, report that, far from adding to costs, green measures can actually save money – large amounts of it.
As energy costs escalate, companies that don't start some kind of 'greening' are failing not only to act ethically, but also to manage their businesses profitably, says Joe Reeve, managing director of Oxford-based plastics injection-moulding firm Data Plastics.
"Its almost incomprehensible that more small firms aren't doing this," he says. "I'm as concerned about the environment as the next man. But reducing your carbon footprint is not about ethics, it's about old-fashioned, hard-headed 'lets-make-more-money', business efficiency."
It's almost incomprehensible that more small firms aren’t doing this.
He argues that in an industry such as plastics, which faces paper-thin margins and ferocious foreign competition, potential energy savings are so significant that they could well make the differences between profit and loss: "Our industry is struggling. Average profits before tax are only 1.4 per cent. I believe that better energy conservation could double that figure."
Help the environment and grow rich? It sounds like a tall claim, almost too good to be true. Of course, it is more true of industries such as plastics moulding and transport, which use large amounts of energy, than in service companies, which use much less.
But experts say all companies can profit from green measures in three ways. First there are the straight financial savings on the bottom line. "These typically equal three to five per cent of turnover," says Erik Bichard of the National Centre For Business & Sustainability.
... customers are often prepared to pay a premium
for more ethically produced
products
Such measures range from almost banal housekeeping steps, such as turning off the lights, to complex technical procedures to regulate energy use and supply-chain management. "There are always immediate savings from the easy hits," says Bichard. "And we all have them. Just look around and I guarantee you will see examples of wasteful energy use all over your business."
All the evidence suggests that energy costs are likely to increase further over the coming decades as the world economy expands and fossil fuels run out. So the next stage is investing to accumulate in, for instance, a combined heat and power system with a three or four year pay back, he adds.
When you consider that the government has a range of interest-free loans and grants available for the installation of energy-saving technology, it's hard to imagine why any company would not take steps to reduce carbon emissions.
"Measures such as these will provide you with an immediate competitive edge," says Bichard. "But if we collectively fail to implement them, you can be pretty certain that global warming will accelerate and eat into your profits in a number of ways including more expensive energy and raw materials, more stringent government regulation, social upheaval and changing patterns of trade."
... energy costs are likely to increase further over the coming decades as the world economy expands and fossil fuels run out.
The second big sphere of savings lies in the slightly less measurable area of corporate reputation, says Hugh Jones, a senior account manager at government-funded body, the Carbon Trust. "There can be benefits to a business's reputation through improving its environmental performance," he explains. "The businesses we work with are beginning to see that some customers are prepared to pay a premium for ethically produced products in preference to those they regard as unethical."
But it's not only customers who are impressed by such ethical behaviour. "Green companies are making real savings in the social sphere, too," says Bichard. "Staff turnover drops and recruitment becomes easier in companies that are green and open. These also produce considerable savings in quite a short time."
Lastly, if none of these arguments move you, perhaps the law will. Climate change is rapidly becoming a political issue and the government is developing a 'fat carrot/big stick approach' to energy efficiency.
For instance, energy-efficient machinery now qualifies for 100 per cent tax allowance in the first year that you buy it. This allows businesses to offset costs against taxable profits. On the other hand, it has also introduced measures such as the Climate Change Levy, which adds up to 0.43p per kilowatt hour to the price of electricity.
The carrots are likely to become fatter and the sticks more painful in the future. "Being better prepared for these changes now will improve business performance and save you money if new measures are introduced," says Hugh Jones. "Plus, if you start saving energy straight away, you will immediately reduce your energy bill."
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