Secret: There’s No Such Thing As Green Business

Posted on 06. Jan, 2010 by Ross in Corporate Policy

Green your business by using less energy. Be a more environmentally-friendly company by greening your supply chain. Become a shining green beacon of economic enlightenment by making more from less recycling what you have left over and encouraging your consumers to recycle your product once its finish being useful to them too. Your business must be green.

Nonsense!

From a financial perspective, green is meaningless. However, taking actions which are thought of as green business actions, such as becoming more energy efficient, are great business steps to take since they invariably add to the bottom line and protect the company on a number of levels from external influences, making a green business more resilient in the unpredictable world of economics.

Not convinced? We’ll deal with some of the most common green business activities and show how the motivation for performing such actions can be based on financial imperatives alone.

Energy Efficiency

Let’s start with the hot potato of green business at the moment. At the moment, everyone’s attention is still on cost cutting as businesses seek to emerge from the global downturn, and energy efficiency is a way which significant cost savings can be quickly achieved whilst reducing carbon emissions at the same time.

In some cases the need to replace broken machinery is what triggers the search for a newer, more efficient model: quite often businesses will defer energy efficiency upgrades until equipment reaches the end of its useful lifespan. In other cases, the energy savings on offer are so substantial that a compelling business case can be made for instantly approving a green project: energy efficient lighting is typical of this, where savings of 60-80% can easily be achieved with the right technology, with return on investment periods from 12-18 months.

With such fantastic savings available, the business case for green energy efficiency technology is often so good that energy efficiency projects offer better potential than any other use of a company’s cash. Not only that, but governments around the world see energy efficiency as a way of meeting international commitments on climate change whilst assisting companies to become leaner and more competitive. As a result there are large pools of funding available across most of the developed and developing world for energy efficiency projects for businesses: the UK Carbon Trust’s Big Business Refit is just one such example.

For businesses, saving energy is primarily about saving money. However, as governments continue to attempt to drive carbon emissions lower, new carbon taxes and cap-and-trade schemes are being brought in to play as mechanisms with which to penalise commercial and industrial energy use. Not only will greater energy efficiency reduce direct energy costs, but it will also reduce the amount of extra taxation and/or cash flow burden which carbon capping schemes such as the EU Emissions Trading Scheme or the UK CRC Energy Efficiency Scheme bring.

On-Site Power Generation

Environmental activists love renewable power, and would equally love to see both households and businesses embark upon a frenzy of microgenerators to make everybody more energy self-sufficient. But should your business go green by purchasing a wind turbine or a biogas burner?

The simple economics would tell most businesses a resounding ‘no’ to that question. Compared to energy efficiency, renewable power projects have much longer return on investment periods. There are also the obvious unpredictable yields associated with wind turbines and solar panels. Even factoring in the steep price rises for energy expected across the western world in the coming decades, renewable energy projects simply fail to excite even the most green of financial directors.

There is another factor to be considered, however, which is all too familiar across much of the developing world: energy shortages. Most of the world is constantly plagued with blackouts and energy rationing due to the inability of governments to supply enough power stations to keep up with the ever-growing demand.

The developed world will also shortly become familiar with such problems, as governments have failed to build enough new power stations to replace those soon to be decommissioned. Dithering over the green issue of climate change has left planning decisions over new coal and nuclear power stations up in the air, and insufficient renewable power is being installed to fill the generating gap which is to be left in the interim. This is another reason why governments are keen for businesses to engage in energy efficiency drives: by lower demand, less power stations will require replacing.

Energy efficiency will not decouple your business from its reliance upon national electricity shortages, however. Energy efficiency uses the resource more effectively; on-site generation guarantees the supply of that resource. Only on-site power generation will guarantee resilience against energy shortages and protect the business from uncontrollable shutdowns in operation which would destroy competitiveness.

Product Redesign

Underlying most business is the supply and demand of products or services. One popular way of becoming labelled a green business is to redesign products (or their packaging) so that they use less materials in their manufacture and/or waste less resources, creating less of an impact upon the planet.

Green business, or just business? Companies are always seeking ways of making their products for less money in order to bost profit margins. Outsourcing is a particularly divisive method of achieving this aim, by getting lower-paid workers in other countries to perform the same tasks which higher-paid westerners did previously.

Going back to the drawing board and redesigning a product to have new or better functionality whilst using even less resources is another fundamental business practice. Reducing the amount of resources needed for a product not only lowers costs but protects profits from volatile market conditions or a squeeze on supplies. Some resources have relatively low availability from limited sources, so by restricting dependence upon such resources (or even taking them out of the equation entirely by using an alternative solution) businesses can become less reliant on the whims of other companies, export and import duties or national and international conflicts.

Resource awareness is perhaps the only aspect of 21st business which is not part of the traditional notion of ‘business-as-usual’. Whereas in the previous century companies were more able to exploit resources to a near-endless degree, increasing world development has led to greater competition for resources. New supplies have often not been matched by new sources, and the over-exploitation of certain reserves such as water and oil has led to much debate over ‘peak theories’. Resource awareness is therefore less a green business concern but a new concern to add to the main body of strategic business planning.

So Why Claim to be a Green Business?

If all the common notions of ‘green business’ are in fact just straightforward common business sense, then why claim to be green at all? Using the green tag opens companies up to accusations of greenwashing, whilst many business leaders are put off from taking sensible courses of action because of the connotations of high cost which green initiatives imply in the minds of executives.

‘Green business’ is a marketing term with genuine value in building relationships with customers. In a growing climate of environmental awareness, consumers are looking for businesses which are making a green difference - often so that they don’t have to make their own sacrifices in order to satisfy their new conscientiousness.

The fact that businesses also benefit by becoming more competitive and resilient by becoming green is reason enough to take action. Promoting yourself as a green business afterwards is simply the icing on the business cake.

Image by Nieve44 @ Flickr