The urgency for businesses to implement green initiatives is growing rapidly. The UK government has defined a series of six environmental taxes to encourage “environmentally positive behaviour change” and expects revenue through these taxes to double by 2015/16. In the private sector, Scottish Widows – which owns shares in one third of FTSE 100 companies – is telling the companies in which it invests to raise their green performance. Economic imperative is now replacing emotion as the prime driver of green initiatives.
The wider business context in which any such initiatives will be launched could hardly be less encouraging. Investors and lenders are still concerned by the fall-out from the global financial crisis. The preventative regulatory measures applied as a result of the crisis means these organisations are under pressure to manage scarce and costly capital and liquidity tightly. In the corporate and SME sectors, the priority for many companies remains to get through the next cash-flow cycle.
Making the transition to an environmentally efficient, low-carbon or 'green economy' is the only sustainable answer. But how can businesses, investors and governments steer a practical line between needs and constraints? There are three substantial changes that need to take place before the green economy becomes a reality.
First of all, there needs to be a mindset to embrace green initiatives. One way of creating this would be to price green initiatives in terms that actually mean something to markets. A corn trader in Chicago, for example, may have limited interest in green principles, but if we can articulate the value of a hectare of rainforest in terms of rainfall in Iowa, and the knock-on effects on the price of corn futures, then all of a sudden we have his interest. Similarly, governments around the world should underscore the urgency of action by replacing pilot projects and short-term measures with long- term initiatives.
Secondly, practical steps are needed to drive the shift to the green economy in different areas. In the markets, for example, breaking environmental risk into component parts and pricing them individually would attract a far broader spread of investors and would likely enable a secondary market with its attendant liquidity. In addition, any government guarantees or support can be targeted at the residual lump of tough risk rather than the whole project, leaving the less-risky components to stand alone, so sharpening focus (manageability) and reducing costs. An example of this is the development of offshore wind farms where the risk from complexity is increased and therefore the desire to invest is considerably reduced.
Likewise, in the energy sector, co-locating utility infrastructure such as power plants with their sources of fuel would be practical from an environmental and cost-saving perspective. These areas – including ports, refineries, mines – are often of limited alternative use anyway and such an initiative would reduce the need to criss-cross countries with fuel and waste in transit.
Finally, more needs to be done to either punish or provide additional incentive to firms that have not changed their behaviour. As well as fining and taxing miscreant firms, pricing non-compliance directly into goods and services would : In this way, green becomes a point of differentiation in the market itself and so will gain the full attention of senior management.
Recognising both the realities and the options above would enable governments and companies to work together cohesively and secure quicker, greener outcomes. But the time to start is already upon us.
Growing your business in the green economy means addressing green initiatives now. To find out more, contact us now.