Companies try to reduce humanity’s footprint

Environmental strategies are part of the development of more robust supply chains, says Sarah Murray

The Worldwatch Institute, an environmental group, argues in a recent report that, with the rate at which natural resources are consumed more than doubling in the past 50 years and up to 2bn more aspiring consumers, humanity is “outstripping its resource base at an unprecedented global scale”.

It is a message many companies are taking seriously. The question is whether their environmental strategies are sufficiently ambitious. Be it water stewardship or carbon reduction, it is hard these days to find a leading brand that does not proclaim a range of environmental goals. With the concept of sustainable business well established, many companies claim to be working to minimise their impact on the planet while developing more sustainable products and services.

Increasingly, such efforts are seen less as part of building a reputation as a responsible business and more as part of risk management strategies and the development of more robust supply chains. This is borne out by a 2011 McKinsey survey in which the share of executives citing operational efficiency and lowering costs as their company’s top reasons for addressing sustainability had risen 14 percentage points since 2010 to 33 per cent – overtaking corporate reputation, which was chosen by 32 per cent of respondents.

Sustainable business spending is set to increase rapidly. According to Verdantix, an analyst firm that advises companies on environmental and energy strategies, this growth will be 20 times faster in the UK in 2012 than the country’s gross domestic product growth, with the lion’s share of the spending going on strategic energy management.

Some companies are even putting hard numbers on their environmental footprint. Last year, Puma, the sportswear business owned by French luxury group PPR, became one of the first multinationals to publish estimates of the real cost of its carbon dioxide emissions. Its “environmental profit-and-loss” account statement measures and prices its use of ecosystem services and its ecological footprint.

Sustainability can also be a catalyst for product improvements. When SC Johnson, the US cleaning products manufacturer, reformulated its Windex using its Greenlist – a rating system that evaluates the health and environmental impact of its ingredients – it removed from it a large number of volatile organic compounds. At the same time, it increased the product’s cleaning power by 30 per cent.

Private equity firms are waking up to the potential of finding these kinds of efficiencies in the operations of the companies that they acquire. When PwC polled senior corporate executives, 72 per cent of the private equity community respondents said sustainability was a priority or important to their firms – and 68 per cent of the respondents from corporate organisations agreed.

Investors are also increasingly interested in the environmental performance of the companies they put money into. On behalf of institutional investors managing combined assets of more than $78tn, the Carbon Dis­closure Project receives reports on the greenhouse gas emissions and climate change strategies of thousands of organisations and has launched a similar project to understand the risks posed to companies by global water stress and the opportunities presented by water stewardship.

Meanwhile, large manufacturers and retailers are using their buying power to push their suppliers into more environmentally friendly practices. Procter & Gamble, the consumer goods group, has a rating process and sustainability scorecard designed to assess its suppliers’ performance in areas such as waste management, water consumption and greenhouse gas emissions.

However, set against these developments is the fact that the overall impact of business activities on the planet is intensifying. Companies may be reducing the impact of many parts of their businesses but their overall footprint it still expanding rapidly to meet shareholder demands for increased profit margins.

Take Walmart, the global retailer that has implemented ambitious sustainability measures. Its efforts to cut greenhouse gas emissions from its stores, clubs and distribution centres have had demonstrable results – a reduction of more than 10 per cent by the end of 2009 from the 2005 baseline, according to its sustainability report.

Yet while it increases its energy efficiency and use of renewable energy, Walmart also plans to expand its operations, particularly in developing countries.

For many companies, corporate sustainability initiatives still occupy a relatively small place in business operations that are focused on meeting growing demand for cheap goods and satisfying the short-term demands of capital markets.

Measurement also remains difficult. A report by Ernst & Young and, a business and environment portal, found that while sustainability is firmly integrated into the operations of many large and midsized companies, their efforts may have a limited effect since they struggle to track the results or evaluate the risks of insufficient action.

While big brands are boosting their spending and setting themselves tough environment goals, much of the commercial sector does not reside behind a logo. Many small businesses hesitate to put sustainability on the agenda because they believe efforts to address their environmental footprints will increase costs.

Environmental advocates believe the race to bring the global impact of commercial activities and human consumption into line with the world’s resources is being lost.

The rate at which species are becoming extinct, for instance, is estimated to be 1,000 times higher today than it was in pre-industrial times. Yet few companies have analysed their impact on biodiversity or their business exposure to its loss.

Humans already depend on the equivalent of 1.5 planets to provide the resources they use and to absorb their waste, according to the Global Footprint Network. This, it says, means it takes the earth a year and a half to regenerate what human beings use in a year.

Some companies believe that it is possible to grow while maintaining or reducing their environmental footprint. Unilever, the Anglo-Dutch consumer goods company, says it plans to double the company’s size while halving its environmental footprint and sourcing all of its agricultural raw materials sustainably.

Others argue that capitalism needs to be governed by better rules. Here, signs of change are emerging. In the US, seven states have adopted a new form of corporate legislation.

Benefit corporation laws confer responsibility on registered enterprises to create positive returns for society and the environment as well as profit. Several more states are looking at introducing the legislation.

Yet benefit corporations and other environmentally driven enterprises remain a tiny proportion of the economy. And as the 20th anniversary of the 1992 Rio Earth Summit approaches, many question whether new business entities, along with the sustainability efforts of large companies, will be able to transform consumption patterns fast enough to secure the long-term health of the planet.

*State of the World 2012: Moving Toward Sustainable Prosperity, Worldwatch Institute

Copyright The Financial Times Limited 2016. All rights reserved. You may share using our article tools. Please don't cut articles from and redistribute by email or post to the web.

More on this topic

Suggestions below based on Special Report