With environmental sustainability moving up the boardroom agenda, progressive companies are now realising that 'going green' can save them money, increase profits and reduce risk. By Darren Baguley
When Westpac spun off its subsidiary, Westpac Property Trust, in late 2000 to create the property investment company Investa, the new entity faced two major challenges. One was the potential impact of the recently introduced Australian Building Greenhouse Rating (ABGR) scheme, which provided a benchmarking system to rate the greenhouse gas impact of office buildings. The other was how to differentiate the new entity in a crowded and competitive market.
Investa's management team could have used any number of strategies to stand out in the marketplace, but they realised that, while the ABGR scheme was
(and is) voluntary, its launch represented a shift in the commercial property market. They reasoned that if the market was heading towards improved sustainability, the new company had a perfect opportunity to position itself as environmentally and socially responsible.
"Being a new company it was the obvious thing to focus on the environmental performance of the business," says Craig Roussac, Investa Property Group's General Manager Sustainability, Safety and Environment. "In late 1999, the ABGR scheme was launched and the importance of that scheme can't be overstated. The rating gives people the ability to understand the greenhouse gas emissions associated with office buildings, because it looks at the energy bills, how big it is and how long its hours of operation are, and calculates the overall greenhouse intensity of that building.
"Being new, our directors looked around and asked 'where is the industry going?' Governments and institutional tenants are all worried about how they report on their environmental impacts. For many of them, their offices are their biggest impact, so there was an opportunity for Investa to rate its buildings and set that as one of the measures of our management performance in managing our own offices. At the time, the strategic play for the group was to set itself out as a provider of more environmentally and socially responsible office space for tenants." This approach has taken Investa to a leading position worldwide on the Dow Jones Sustainability Index (DJSI) for both Real Estate and the Financial Services super-sector.
On the radar
A similar sensibility informed the approach of global bank HSBC, which was the first organisation in the world to achieve carbon neutrality. "About three years ago the board and the group chairman at the time, Sir John Bond, came to the conclusion that this whole issue of sustainability and corporate responsibility was important enough to be on the corporate radar," says Francis Sullivan, HSBC's adviser on the environment. "And while you couldn't prove there were prizes for doing it well, you could certainly prove that if you got it wrong your reputation was dented. So while the upside was unclear, the downside was very clear, and a number of companies have suffered in the supply chain, customer base or shareholder base for getting something wrong in this area. So it was a sensible precaution to position the company as one of the leaders in corporate responsibility and sustainability."
What is evident, however, is that the commercial imperative driving both Investa and HSBC represents a seismic shift in the corporate world's attitude to environmental sustainability.
Good business sense
While senior executives like Ray Anderson, Interface Carpet's Founder and Chairman, are embracing sustainability because it's the right thing to do, they remain in the minority; more Australian executives are realising that it's quite simply good business, says Tony Cooper, Managing Director of Energetics, an energy and environmental management consulting company.
"There are leaders and laggards when it comes to sustainability," says Cooper. "The leaders see what's happening in the world today, with issues around greenhouse gases and fossil fuels, and see the risk, but more importantly their minds turn to how they can turn the risk to an opportunity. Leaders fall into one of two camps: the progressives are on the front foot, and they see the whole question of sustainability as a point of differentiation, while the others are less public about what they're doing. The laggards tend to be either [those with a] compliance issue: 'my peers are doing it, I'd better be seen doing it, but I'm not really interested in it'; or 'what do I have to do to get under the radar?'."
At the forefront of this shift are people like the Canadian author of The Sustainability Advantage and The Next Sustainability Wave: Building Boardroom Buy In, Bob Willard. If the stereotypical image of an environmentalist is unemployed, dreadlocked, and poor personal hygiene, Willard is the polar opposite.
Speaking at the launch of the NSW Department of Environment and Conservation's (DEC) Sustainability Advantage program, the suited Willard looks like the 35-year IBM veteran that he once was. Passionate about the environment, Willard is also a complete pragmatist. He doesn't care why a business focuses more on sustainability, just that it does. In this case, he believes that the end justifies the means, and has identified four main stages a company progresses through.
"There are companies that don't comply and I call that a pre-compliance stage: they break the rules and get away with it. They [then] get caught and move up to the compliance stage, and go beyond compliance for two reasons. Firstly, beyond compliance companies are going after the low-hanging fruit, eco-efficiencies, which are savings in their water, energy, materials and waste handling. They're doing this because it's smart business. The second reason companies go beyond compliance is the threat of regulation; a good example of this is the chemical industry cleaning up its act after the Bhopal disaster. [Another] reason is bad press such as Shell's Brent Spar episode in the North Sea ."
While beyond compliance is the third stage, Willard says, the fourth stage is the total integration between environmental sustainability and the way the company runs its business. Companies that achieve this stage will often rebrand themselves as an environmentally sustainable company. "It's a very tough stage to get to and companies will only do that if they can see that it is smart business," says Willard. "[But] that's the Holy Grail of all our sustainability efforts, to get companies to not think that they are either responsible environmentally, or they are a successful business, but [to be both]; these are enabling strategies for them to focus on."
The advantages of reaching this stage are considerable, however. Hard-headed marketing consultants without an iota of environmental sensibility have been telling companies for a while that a large percentage of the population care enough about the environment to want to do the right thing; especially if it costs them little or no money. According to HSBC's Sullivan, "This can lead to increased mind share and customer loyalty for companies that are doing the right thing, while research shows that companies who don't can actually lose customers because of it."
Focusing on sustainability can also enhance a company's ability to attract, retain and get more productivity from its top talent. The war for talent is far from over, and one criteria that young people look for are companies with values that resonate with theirs, that are doing things that they think are useful. If they don't like the company they'll go somewhere else, so it's a factor that managers shouldn't underestimate.
Fairfax Regional Printers was a pilot site for the DEC's Sustainability Advantage program, and Mechanical Service Coordinator Dave Davies believes it has made a real difference to workforce morale. "We're a bunch of young guys and feel it's the right thing to do," says Davies. "There are cost savings to be made as well, but in some ways that's just to keep the bean counters happy. The staff is happy to see that Fairfax is going this way. We recycle and do all this other stuff at home like worm farms, but big business doesn't seem to be doing a lot of that. So it's good that the company is doing this and involving people in it."
Conversely, if a company is not doing the right thing environmentally there are a number of potential risks, according to Willard. "Financial institutions are looking at the risk factors of companies that don't pay attention to [environmental sustainability] and they're starting to look at premiums being a bit lower for companies that manage these risks better."
Then there's the Carbon Disclosure Project: 225 of the world's largest institutional investors representing $US31 trillion in assets asked two questions of the world's top 1800 companies. To what extent do you think your share price will be impacted by global warming? And what are you doing about it?
"It started in 2003, and back then a lot of companies didn't understand the question," says Willard. "'Share price? Global warming? What are you talking about?'. But these institutional investors are concerned that if people get really worried about global warming then governments will put caps on the amount of carbon emissions companies can put out. It could be very expensive for companies to meet those caps, and if it's expensive it could affect their profit, which could affect their share price - therefore global warming can affect your share price."