Thanks to the subprime crisis and issues such as the global credit crunch, many economies are in poor shape. Oil prices are at high levels and food costs are rising.
Some express the fear that together these trends will drive the developed world deeper into recession. Commentators point to events such as the World Economic Forum at Davos in January, where climate change was bumped off the agenda by the turmoil in world markets.
I’d argue, however, that people — and companies — who think sustainability is merely a fair-weather exercise have been missing the point all along. Indeed, as environmental entrepreneur Shai Agassi comments, the lack of an official green agenda in Davos is actually a good sign. He says: “It just shows that we are off the hype curve and into solutions.”And as Lord Stern, author of the UK Treasury’s Review on the Economics of Climate Change, noted recently: “There will be some ups and downs over the next fifty years but we have to push through that.”
He’s right. When times are tough, every business has to save money, protect and build its revenues and make sure its assets are fully utilized. So why make life even more complicated by worrying about sustainability?
First, it’s a good way of responding to the three “Rs” — revenue, reputation and regulation. Take revenues. To protect them, businesses have to get serious about driving costs out of their supply chains and business processes. A focus on sustainability can help. According to McKinsey and Co., for example, “most companies in most sectors have profitable opportunities to save money by cutting energy consumption and gas emissions”. Pfizer, the pharmaceuticals company, saved $30 million a year between 2002 and 2005 with its programme to cut energy wastage and use more power from renewable sources. Wal-Mart, the world’s largest retailer, found it could save $26 million a year on running costs for its fleet of 7,200 trucks by installing auxiliary power units to keep cabs warm or cool during drivers’ mandatory breaks. Before that, truck engines idled all night, wasting fuel. Collecting plastic and selling it for recycling added $28 million to its profits.
The same is true when it comes to reputation and regulation.
Just because times are tough, customers won’t alter their attitudes and behaviour. They will still want to see companies doing the right thing, environmentally, economically and socially. How would customers respond if, for example, Marks and Spencer, the UK retailer that in January 2007 announced a £200 million plan to become carbon neutral in five years, abandoned it because of fears of recession?
And recession or no recession, governments will go on with plans to introduce low-carbon legislation. The European Commission still plans to cut emissions by 20% by 2020 and both US presidential candidates are talking about 65-80% cuts by 2050.
The second reason to ramp up sustainability efforts when times are tough is that crises often spur innovation and (perhaps overdue) change. In its 2007 special report on innovation, The Economist quotes Vinod Khosla, the venture capitalist who was a co-founder of Sun Microsystems, as saying: “A crisis is a terrible thing to waste.” Talking about car makers’ addiction to oil and the consequent warming of the planet, he said: “The energy and car industries have not been innovative in many years because they have faced no real crisis, no impetus for change.”
A recent Boston Consulting Group report looking at the world’s top 50 innovative companies noted they tend to develop more during a recession, rather than scaling back on creativity. As BusinessWeek says: “No finger-wagging Wall Street analyst is going to keep them from doubling down on smart bets that will position them well when the economy rights itself again.”
2008 leaders include the Tata Group, which entered the list for the first time, thanks to its paradigm-busting $2,500 Nano car. Also listed was US firm General Electric, the CEO of which, Jeff Immelt, is so encouraged by his company’s “ecoimagination” initiative that he’s raising the revenue target for green projects from $20 billion to $25 billion by 2010.
Indeed, making sustainability part of your core business can lead to the creation of new markets for companies.
Take another firm on the 2008 innovation list — Toyota, creator of the new hybrid car market. Now one of the best known car makers in the world, the Japanese company plans to roll out a more fuel-efficient Prius in 2009 and expects to sell one million hybrid cars a year by the early 2010s.
Or BT. Our new immersive video -conferencing solution is fast establishing itself as a real alternative to executive travel, putting us in competition with airlines. And the design changes we’ve made in our new data centres, which mean they use 60% less power than traditionally-designed equivalents, give businesses an attractive “green” alternative to operating their own power-hungry installations.
Jeff Bezos, Amazon.com’s founder, recently said: “I think frugality drives innovation, just like other constraints do. One of the only ways to get out of a tight box is to invent your way out.” We are in a period of constraints at the moment. But that doesn’t mean we need to choose between averting climate change and growth and development. Far from being a bad time to think about sustainability, a downturn may prove the most fruitful time to do so.
Arun Seth is chairman, BT India. Comment at email@example.com