Going green can sprout unexpected benefits

You can cut emissions and still boost profits and productivity

HOW DO you make money a bit greener? Greenery has gone a little out of fashion recently, at least as far as the business community is concerned. At a government level the debate continues but at a business level concern about the environment has slipped down the list of priorities.

HOW DO you make money a bit greener? Greenery has gone a little out of fashion recently, at least as far as the business community is concerned. At a government level the debate continues but at a business level concern about the environment has slipped down the list of priorities.

True, "green" issues associated with health and safety, such as the implications of genetically modified foods, can burst out and bite companies in the backside. This happens particularly when, for cultural reasons, a company has assumed that what is acceptable in one country is going to be acceptable elsewhere - as Monsanto has discovered to its cost. But other big issues, including the biggest of all, the link between CO2 emissions and global warming, seem to loom less large in the corporate mind than they did five years ago.

This is a pity, for at least three reasons. The first is that concern about the environment is likely to rise over the next generation, and the earlier action is taken to tackle it, the easier it will be to meet that concern. The second is it is easy for the more thoughtful companies to gain a competitive advantage in their environmental policies, because so many competitors don't bother. And the third is that in simple financial terms there are very high returns to be made from "green" investment.

Will concern really rise? Predicting changes in social attitudes is hazardous, but there are signs that concern is likely to rise. On the Internet, people who are concerned about any country or company's environmental performance can gather information with a freedom unthinkable five years ago. If they are really on to something they can gather support very quickly.

This has a number of practical effects. One is to affect investment portfolios. Individual investors are able to develop green portfolios, alongside those developed by the various ethical investment funds, so they can build an informal league table of companies ranked by their "greenery". Another effect is that (often small) firms that produce products or services which help companies improve their environmental performance can sell their wares more widely. Yet another effect is that knowledge of best practice spreads much more quickly.

An equally important reason why attitudes seem likely to change is the changing role of government. When governments owned large parts of commerce and industry (or at least, as is still the case in agriculture, intervened heavily in the production and marketing process) it was not in their self-interest to challenge environmental standards. Now, as government turns many functions to the private sector, it is coming to regulate more and more. Tightening environmental regulation is popular and imposes few costs on government.

There is also a capricious element to environmental concerns: an issue which is dormant for years can suddenly blaze up and do very serious damage to a business. So company investment in sound practice is almost an insurance policy against commercial catastrophe. If concerns rise, the greater the argument for paying that insurance premium. If this is right, then every company in the world ought to be racing to put in place sound environmental policies. But they don't.

From the point of view of the environment that is disturbing, but from the point of view of the individual company it is very good news, for it is a relatively easy way of gaining a march on rivals. Take greenhouse gas emissions. A new study* of more than 50 large companies, including household names such as Xerox, Toyota and BP Amoco, shows how cutting emissions has cut energy costs and boosted productivity and profits.

Perhaps his most notable example is the solution Shell found for disposing of Brent Spar. You may recall the original plan was to dump it in the Atlantic. German consumers protested and Shell abandoned the plan. Now it is being cut up and used to compete an extension to a landing dock in Norway, apparently a cheaper option since it saves the cost of much of the steel that would have been needed for the dock.

There is a further point not made fully here - that the experience of Brent Spar was one of the main factors leading to a complete rethink of Shell management, not just of environmental issues but of the way the firm was run. The need to get environmental policies right forced them to get their management right. The group has gone through one of the seismic managerial shifts which occasionally firms find they have to trigger, and Shell is emerging as a much better-run company as a result.

There are many other examples of companies which have managed to use environmental policies to lift their game more generally. There are more examples where quite simple investment brings swift returns.

Is it worth trying to save energy when fuel prices are so low? Absolutely. While the fall in energy prices has inevitably reduced the potential returns on energy-saving projects, the fall in long-term interest rates has tended to increase the returns. Further, a company can lock in the low cost of capital, but it cannot lock in the low energy costs. So investment now in energy-saving can both be made to work at present price levels, and is also an insurance policy against rising energy costs in the future.

Besides, a lot of energy-saving investment is now very cheap, maybe even free. The normal assumption people make is that to save energy you have to put in new kit - a more efficient boiler, for example, or new temperature controls. Obviously, sometimes you do. But companies can make large gains in energy efficiency by using existing plant better. This may mean new software, and sometimes the software is available free over the Net.

The key point here is that there are substantial indirect benefits to good environmental policies. They make sense in narrow financial terms and in broader public relations and ethical terms. But they also bring unexpected benefits along the way. So creating a culture where energy should be conserved creates a culture where other inputs should be conserved too. A culture of care for the environment reinforces a culture of care for customers.

You can justify good environmental policies on the narrow grounds, but maybe it is the side effects that bring the greatest benefits of all.

'Cool Companies' by Joseph J Romm, Earthscan, £18.99