Globally the number of green banking services is soaring, but, asks Joel Makower, is the US being left behind  in the race to develop green financial services?

Markets for environmental products and services tend to cluster in categories. Makers of computers and other electronics, for example, have almost unanimously embraced energy efficiency, product take back, and the like, as demands accelerated from customers, activists, shareholders, and regulators. Energy and environmental considerations are also becoming commonplace in appliances and most other energy-consuming goods - with the notable exception of automobiles. It's hard to find a dishwasher, for instance, that doesn't boast about its energy-saving features.

We seem to be on the cusp of a cluster of green financial services - everything from energy-efficiency mortgages to green consumer banks to climate-friendly credit cards. It's hardly approaching a tipping point, but financial services companies seem increasingly interested, almost eager, to cater to green-minded consumers and companies.

A new report from the United Nations Environment Programme Finance Initiative has nicely documented the trend, showing what's happening and where, and what it might take for such services to garner even greater interest.

The report (Download -- PDF) looks at the current crop of green products and services, in North America, Europe, Australia, and Japan. It notes that "Relative to their North American counterparts, banks in other developed regions have traditionally been more proactive and innovative with respect to 'green' product and service development." As usual, we Americans are green laggards.

One reason is that US banks have gone through a wave of consolidation in recent years, leaving fewer, larger banks. As a result, says UNEP:

"it becomes more challenging to integrate innovative banking products, including 'gree'" products and services, into their respective portfolios. In a less competitive environment, banks are not given a high incentive to innovate and thus differentiate themselves from peers with state-of-the-art offerings, such as 'green' financial products and services."

When they do offer green products and services, it's usually because of one of two drivers, says UNEP: they are either "board-driven" (when a bank's leadership recognises the opportunities or risks of an environmental issue, then responds by defining one or more optimal products or services) or "client-driven" (where a bank recognises a considerable demand and fills a niche).

For example, in the area of emissions trading, the board of Paris-based BNP Paribas made an executive-level decision to enter the climate change market long before clients expressed the need for such a service. Conversely, Italy's Banca Intesa waited to establish an emissions trading desk until a considerable number of corporate clients requested the service, which over time became highly profitable.

Of course, activists have played a role, too, with environmental and shareholder organisations demanding that financial institutions adopt sustainable banking policies and practices, such as the Equator Principles, which govern project financing, especially in the developing world. Some groups, such as BankTrack, also provide advice on improving bank sustainability policies. Last year, for example, BankTrack engaged with several European banks, including ABN, AMRO, Citigroup, HSBC, and Rabobank, to review their environmental initiatives.

What impressed me most about the UNEP report was its exhaustive catalogue of green banking products and services, including examples from around the world. Considering the world of retail banking - the kinds of services typically available to individuals and small businesses - this is just a sampling of green offerings:

• Home mortgages - reduced interest rates for loans that meet environmental criteria (several Dutch banks); free home energy rating and carbon offsets during the life of the loan (Cooperative Financial Services, UK); Generation Green Home Loans, which allow existing mortgage holders to take advantage of discounted rates by doing energy retrofits (Bendigo Bank, Australia).
• Commercial building loans - Condominium loans, in which the developer repays loan with funds that would otherwise be spent on operating costs using conventional equipment and material (TAF, Canada); Loans and refinancing for LEED-certified commercial buildings, in which developers don't have to pay an initial premium for green features, due to lower operating costs and higher performance (Wells Fargo, U.S.).
• Home-equity loans - One-stop solar financing, with a 25-year amortisation, equal to the same period of time as the solar panel warranty (New Resource Bank, US); Environmental Home Equity Program for customers using a line of Visa access credit, for which the bank will donate to an environmental NGO (Bank of America, US).
• Auto loans - Clean Air Auto Loan with preferential rates for hybrids (VanCity, Canada); goGreen Auto Loan, offsetting 100 percent of a car's greenhouse gas emissions for the life of the loan (mecu, Australia).
• Deposits - Landcare Term Deposit, in which for every dollar spent, the bank lends an equivalent amount to support sustainable agriculture practices (Westpac, Australia); EcoDeposits, fully-insured deposits earmarked for lending to local energy-efficient companies aiming to reduce waste and pollution, or conserve natural resources (Shorebank Pacific, U.S.).

That doesn't include any of several green credit cards that, variously, donate a portion of sales to environmental groups, offset emissions associated with purchases, or reduce interest rates for green products and services, among other schemes.

Such products seem to be paying off for some banks. For example, the goGreen car loan offered by Australia's mecu - in which the bank provides low interest rates to cars based on their greenhouse gas rating, the offsets the car's carbon emissions during the life of the loan - has led to a 45 percent climb in car loans at the bank. Meanwhile, Barclays has issued nearly 11 million of its Breathe carbon neutral debit and credit cards.

And then there's the corporate and investment-grade banking category, featuring another wide spectrum of offerings, involving project finance, securitisation, bonds, technology leasing, carbon finance and emissions trading, and other products and services. The UNEP report offers examples of each.

There's more to come, says UNEP, including green commercial real estate, carbon markets, clean technology, and climate-related insurance, to name four broad markets expected to gain traction in coming years.

For all the promise, however, UNEP remains sceptical about the US:

"There continues to be minimal environmental leadership, or at least awareness, in North America's retail banking sector. The popular perception is that the consumer and [small and midsized company] banking space remains relatively neutral in terms of environmental impact; a stance that overlooks the formidable influence, positive and negative, that clients wield over the use and management of natural resources."

Moreover, UNEP acknowledges that most green financial products and services remain either in the nascent stage of development or haven't yet proven themselves in the marketplace. As a result, "any rigorous measurement or ranking of these designs would be overly speculative and risk misrepresenting some designs over others".

Still, the growth of green finance seems inevitable, as banks and other financial institutions recognise the pressing environmental need and the growing customer demand for more socially responsible financial services.

And that, at the end of the day, money is the root of all evolutions.

Joel Makower is the executive editor of Greener World Media. This article originally appeared on his blog, Two Steps Forward, and at Greenbiz.com.

Posted by James Murray on October 4, 2007 | Permalink | Comments (1)

If a fund manager said he was investing in a UK stock on a multiple of over 750 times the fund might legitimately be described as high risk, particularly if there were a number of other stocks on similarly high valuations in the portfolio. Valuations were not even at this extreme back in the heady days of the technology boom in 1999 and 2000.

But such a valuation is alive and well in the UK market. The company is Climate Exchange Limited – the ticker is CLE LN.

The company market cap is £750m, and the shares were up 11% on the back of President Bush's announcement on 'clean air.' It had sales last year of £880,000 and the only justification for the rating is that it runs a carbon trading exchange. To put the valuation in context many fund managers estimate that an 'expensive' technology stock would be on 10x-12x revenues.

The story doesn't end there. The Chinese company TDK Solar, is on a p/e of 26 times and its recent IPO was oversubscribed ten times.

As one fund manager commented to Investment Week recently: "We think that this is an accident waiting to happen."

He was referring to the plethora of so-called 'green stocks' which seem to be around in the UK equity especially and he quite legitimately raises the issues of whether or not this sector is a bubble which is likely to burst with painful consequences.

Two of the leading SRI fund managers, F&C and Jupiter, have already had greater inflows into their environmental funds so far in 2007 than they had in the whole of 2006.

The climate change debate has attracted a 'new breed' of investors – some of whom invest with their conscience and some of whom believe they do not have to sacrifice their beliefs for a return.

The technology boom of the late 1990s attracted a new breed of investors and their stampede from the market place took the fund management sector five years to recover from. Many of that 'lost generation' of investors are those who switched instead to buy-to-let investing.

The industry needs to be very careful that SRI and environmental investing does not become the next 'bubble' to suck up and spit out another group of inexperienced investors.

It must differentiate between speculative concept stocks or those green 'growth' companies with low revenues and high valuations, and those boring old companies with real revenues and profits profiting from the green trend such as BSkyB, Tesco or M&S.

The climate change debate is a crucial one for the planet but is also an attractive one for investors – let's just hope they don't end up with manure on their bed of roses.

This article first appeared in Investment Week.

Posted by James Murray on June 11, 2007 | Permalink | Comments (1)

The world of green business seems to have come out of nowhere to dominate magazine and newspaper coverage. But, writes Joel Makower, far from a being an overhyped fad, here are ten reasons why this green shift will go the distance.

The media calls and e-mails have been arriving fast and furious -- a dozen or more each week, even now that Earth Day is over. CNN, the New York Times, Business Week, Advertising Age, "Good Morning America," the Sundance Channel, Reuters, the Discovery Channel, Marketplace radio, and a slew of local papers. And a surprising number seem to have some variation of the same two questions:

Is all of this focus on the greening of business merely a fad? When will the bubble burst?

Such questions are understandable, albeit misguided. The world of green business appears to have come out of nowhere to grace the cover of every major magazine, business and otherwise, not to mention scads of other stories on inside pages. Where stories about business and environmental issues used to appear sporadically in the New York Times, Wall Street Journal, and other major publications, they are now daily fare, with sometimes as many as a half-dozen news stories, feature articles, and opinion pieces in a single daily edition.

For those of us who have been toiling in these fields for a long time, the greening of business is viewed as an "overnight success story" that was twenty years in the making.

Given our society's microscopic attention span, and the apparent need of the media to deflate trends they've helped pump up, coverage of green business would seem likely headed for a fall. And that might indeed happen, for any number of reasons. From the public's perspective, this would make it seem like the greening of business was yet another cynical fad that's now faded into the woodwork.

Such perceptions aside, the topic isn't going away any time soon. Here, in no particular order, are ten reasons why I think the greening of business will be an enduring issue for years to come, regardless of the media's attention span:

1. The problems aren't getting any better. This is fairly obvious, especially if you've seen The Movie. The environmental movement, it's been said, is rapidly morphing into the climate movement, and there's a parallel shift taking place on the business side. The motivations may be different -- for activists, climate has become a rallying cry that gives disparate groups a singular focus; for companies, it's about the need to squeeze efficiency out of every operational nook and cranny while reducing risk and enhancing image -- but the upshot is the same: Until the climate problem is under control, it will be Job One, environmentally speaking, inside most companies. And as concern, regulation, and market-based mechanisms to address climate change ramp up, this will be a key business focus for a long, long time.

2. The political will is finally emerging. Again, climate is the reason. In the U.S. and elsewhere, political leaders are realizing that this isn't a topic that will go away; indeed, it is gaining steam and could even be a focus of the 2008 U.S. election. That could increase public scrutiny of how company lobbyists are pressing for favorable treatment, and some of this pressure could come from companies otherwise seen as "leaders" in corporate climate action, leading to activist charges of greenwashing or worse. If there's evidence of a parade of public concern over climate change, politicians will certainly want to get in front of it, and companies may end up finding that there's simply no longer enough lobbying money to buy their way out of the problem -- or, better still, not enough politicians willing to be bought off.

3. Consumers are waking up. This remains to be seen, of course, but there are encouraging signs that the American public is finally ready to vote with their pocketbooks, choosing greener products, or products from companies perceived to be green leaders. One thing is certain: the pipeline of greener products from household brands is filling up. We'll see a new wave of green product introductions starting later this year, including some from companies that haven't previously been in the green marketplace. If their products catch on, that pipeline could become a gusher.

4. The supply chain is gaining power. Wal-Mart, which is pushing its 60,000 suppliers to perform all sorts of sustainability somersaults, is one big reason, but they're hardly alone. Corporate and institutional buyers of everything from carpets to car parts are looking upstream for solutions, asking suppliers to, variously, reduce packaging, eliminate hazardous materials, use more organic or biobased ingredients, and take other measures to "green up" their products and operations. That's moving some markets toward cleaner production methods far faster than any mass consumer movement could.

5. The environment has become a fiduciary issue. The past twelve months has seen an almost weekly stream of stories and reports from large financial institutions -- banks, insurance companies, and investment houses -- talking about the risks of climate change, toxics, and other environmental issues to shareholders. And shareholders, especially pension funds and large faith-based institutional investors, are starting to hammer hard on companies to acknowledge, reduce, and report on their risk profiles in these areas.

6. The bar keeps moving. One theme of my presentations lately is the question, "How good is good enough?" Simply put, it bemoans the lack of standards or general agreement on what constitutes a "green business." That lack of standards frustrates many companies' efforts to be seen as "good guys"; instead, they never seem to be good enough. But there may be an upside to the lack of definitions: With no standards, the bar is free to drift continually higher. And that seems to be what is happening. For example, as more companies claim some form of carbon neutrality, the value of carbon neutral as a marketing claim becomes increasingly devalued. And as the bar rises, laggard companies, even if fully compliant on the regulatory front, are finding themselves further and further behind, from a reputational perspective.

7. Companies are moving beyond "sustainability." Given the rising bar, it would follow that companies are continually innovating, and that the cutting edge moves increasingly farther out. Within the next two years, it would not surprise me if being a "sustainable" company was no longer seen as a leadership goal. The real leaders will have focused their sights on being restorative -- for example, not being merely carbon neutral, but being carbon negative, taking more carbon out of the atmosphere than they put in.

8. More companies are telling their stories. It's no longer good enough for companies to be quiet and humble on things green. That doesn't necessarily mean they should be needlessly boastful, especially if it's not in their nature to do so. But doing the right thing and keeping it quiet is less of an option these days. Customers -- both consumers and business customers -- want green heroes, companies they believe are setting the pace. Companies that believe that walking more than talking will insulate them from criticism are finding that the risks of being overly exposed may be outweighed by the risks of being seen as a laggard. Expect green advertising and marketing campaigns to grow in the coming months.

9. Clean technology is changing the game. The clean-tech boom (which, indeed, may be a bubble unto itself) is making it easier and cheaper for companies to transform their products, processes, and performance to use more renewable energy, biobased or lightweight materials, and fewer toxic ingredients. Given that some of the most promising, game-changing technologies are only just now reaching their intended markets, we are on the cusp of a new generation of clean-tech products and services. As they roll out, whether from startups or mega-conglomerates, they'll enable a wide range of new green products, services, and business opportunities.

10. There's money to be made. That's the real bottom line: The environment is now being seen increasingly as a potential value-add, not merely a cost to be minimized. Hence, green leaders are emerging throughout companies, not just in the environmental departments, as forward-thinking entrepreneurs (and intrapreneurs) identify and exploit new ways to leverage green thinking into new products and markets. As the number of success stories moves beyond hybrid automobiles and organic foods to include other categories products and services, green will be seen as a more "normal" part of the marketplace.

There's more. (What did I miss? Please weigh in.) I managed to get through all this without once mentioning China or India. They, of course, are also game-changers, as they move forward -- too slowly at times, leapfrogging the industrialized world at others -- in building their fast-growing economies.

And then there's the specter of surprises: another Katrina, a terrorist attack, refinery explosion, nuclear meltdown, deadly heat wave, infectious epidemic, discombobulating iceberg, any other catastrophe. Each of these could help move the role and responsibility of the private sector to be green leaders back into the limelight.

And once again, the media will likely "discover" the greening of business.

Joel Makower is the founder and executive editor of Greenbiz.com.

This article first appeared at Greenbiz.com

Posted by James Murray on May 14, 2007 | Permalink | Comments (2)

Investment in clean technology companies is soaring, but there are signs that a bubble is developing setting the stage for a boom and bust cycle, according to a major new research report out this week.

The 600 page report from US analysts Lux Research found that with 1,500 clean tech start ups now operating worldwide global spending on R&D climbed 9 percent in 2005 to $48bn, while the value of IPOs and venture capital investments in the sector more than doubled to $4.1bn and $1.5bn respectively.

However, the report warned that while these soaring investment levels highlighted the pace at which environmental concerns have reached the business mainstream they also raise the risk of a boom and bust cycle crippling the embryonic market.

"Driven by solar and biofuel deals, the energy segment looks overheated," said Lux Research President Matthew M. Nordan. "There's no way that more than a fraction of the 930 energy start-ups operating worldwide can possibly succeed."

However, Lux Research argued that other clean technology segments could provide more fertile ground for investors. "The attention to energy masks neglected opportunity in other segments," argued Nordan. "For example, the waste segment accounted for 32% of merger and acquisition value last year but only 1% of IPO value and 4% of venture capital."

His comments echo those of Ziad Tassabehji of the Abu Dhabi based Masdar Clean Tech Fund who warned at the recent Library House Clean Tech conference that hype was overtaking good judgement in certain sectors of the clean tech market and diverting investment away from some important green technologies.

"Within weeks of the State of the Union address [in which President Bush unveiled plans for an almost fivefold increase in biofuel use] we saw countless biofuel companies emerge and in my opinion many of those companies are ridiculously over valued," he said. "Other [clean tech] subsectors like carbon sequestration, water purification and energy storage, which there are a real world need for, are seeing far slower deal flow."

Posted by James Murray on May 2, 2007 | Permalink | Comments (0)

Finance directors increasingly regard green issues as important to their organisation, but many lack information on how best to limit their firms' environmental impact and are unimpressed by the government's efforts to encourage more sustainable business models.

That is the finding of a recent survey from GBN's sister magazine Financial Director, which revealed environmental issues are taking a central role in many firms finance departments.

The survey of over 100 finance directors found that almost 85 percent regard environmental issues as either quite important or very important to their business, with those at large companies with sales of over £100m the most likely to consider the environment important.

Encouragingly for other executives requesting budget from their finance department for environmental projects, almost two thirds of finance directors claim that environmental considerations play a role in their company's decisions right from the outset of a project. This dropped to just over a third for smaller firms, but only 12 percent claimed that environmental factors had no role to play in decision making.

However, the government was widely criticised for failing to provide enough guidance or support in the transition towards greener business models. Almost 85 percent of respondents said they did not believe revenue raised from so-called green taxes would be re-directed into environmental projects, while just one percent said that government incentives had encouraged them to engage in activities aimed at combating climate change.

The government also came under fire for failing to make current incentives accessible, with one respondent claiming that getting the climate change rebate was like "getting blood from a stone". Meanwhile, opinion on green taxes was divided with some arguing they would diminish UK competitiveness without a global scheme and others claiming the government is not going far enough.

As one respondent told Financial Director: "If it is the most important issue facing humanity, why does the prime minister say it won't do anything to damage business. We appreciate that some of the measures may be initially unpopular, but what is the government doing to take the electorate on a journey to the right decisions?"

But overall the survey revealed a positive attitude towards green business models from the nation's finance departments with the bulk of finance directors sold on the bottom line and brand benefits of moving to tackle climate change. And if those holding the purse strings are increasingly in favour of green business projects that has to be good news for the rest of the business.

Posted by James Murray on January 15, 2007 | Permalink | Comments (0)

Industrial firms that do the most to cut their carbon emissions could enjoy major financial gains after the European Commission this week ordered an overhaul to the EU's Emissions Trading Scheme (ETS) that is likely to drive up the market value of carbon credits.

Under the scheme, which was introduced last year, heavy industrial and energy firms are allocated carbon dioxide emission allowances. Those that don't use up their full allocation can sell the remainder to those firms that exceed their allocation in the form of carbon credits. Any firm found to be exceeding their allocation with out having acquired the extra credits required will face EU fines.

The EC had hoped the creation of a carbon market would provide the ideal mechanism to ensure it meets its emission reduction requirements under the Kyoto protocol. However, the scheme has faced criticism during its first year with member countries being accused of setting their emission caps too high, ensuring the EU will not meet its Kyoto targets and reportedly leading to a slump in the price of carbon credits to as little as £6 a tonne.

Other critics argued too many firms were buying carbon credits from offsetting projects in the developing world, rather than taking action at home.

The EC has now moved to make the scheme more stringent proposing a limit on the number of credits firms can buy from the developing world and this week instructing nine countries, including Germany, Ireland and Sweden, to reduce the carbon allowances they are planning to grant for 2008 to 2012 by almost seven percent.

Of the 10 EU nations presenting their plans for the second stage of ETS only the UK was granted approval. France, meanwhile, withdrew its plans before they were reviewed, pledging to come back with a tougher emissions allowances.

The EC's actions are expected to increase the scarcity of carbon credits, driving up prices and providing a greater incentive for firms that cut their carbon emissions and higher penalties for those that fail to do so. 

Stavros Dimas, the environment commissioner, said that the decision sent "a strong signal that Europe is fully committed to achieving the Kyoto target and making the EU ETS a success".

Gordon Brown, meanwhile, is expected to next week announce plans to expand the trading scheme in the UK to incorporate other sectors besides heavy industry as part of his pre-budget report.

However, environmentalists argued that while the latest news was encouraging emissions allowances needed to be cut still further if Europe is to meet its Kyoto targets. Keith Allott, head of climate change at WWF-UK, argued that the UK still needed to do more to tackle emissions. "Whilst the UK was the best of a bad bunch the government has ducked a key opportunity to tackle its rising carbon dioxide emissions," he said.  "Failure to get tough on industry has meant that the UK will not meet its long standing domestic target to reduce emissions by 20 per cent by 2010."

Meanwhile, some critics would be forgiven for asking if everyone at the EC is on the same page when it comes to tackling climate change after the European Parliament this week approved a €54bn science research fund but made less than €4bn available to energy and environmental technologies.

Over €9bn has been made available to IT R&D with the EC arguing that investment here is likely to underpin improvements in many different sectors. However, firms developing specifically environmental and renewable energy technologies are likely to be disappointed.

The move also comes just days after the Corporate Leaders Group on Climate Change, which represents 25 major companies, wrote to EC president José Manuel Barroso urging greater support and improved incentives for firms developing low-carbon technologies.

Posted by James Murray on December 1, 2006 | Permalink | Comments (1)

Could virtualisation become a key weapon in the war to reduce power consumption and thus carbon emissions? An intriguing announcement from US energy company PG&E (Pacific Gas and Electric) seems to suggest so.

Speaking at the international user conference of virtualisation specialist VMware, VM World, a representative of the company, outlined a new scheme where PG&E will pay data centre managers money for every server they unplug.

Up to a ceiling of $4m per organisation, a customer could expect between $750 and $1,350 back per device they disable. The idea means the utility company would pay up to 50% of the set up costs for users who want to use virtualisation as a way to save server proliferation: the money is effectively a rebate on power you’ll save running the kit.

The offer’s only open for a limited time – until virtualisation takes off, apparently – but the energy firm says the potential total saving could be as high as 8bn kw, the equivalent of the juice all of New England uses in a year. PG&E says it has set up the project because it can save money long term if less electricity is used through having to build less generating plant and capacity.

“Virtualisation is helping our customers realise significant energy and cost savings, while addressing critical data centre capacity issues,” claims a spokesperson. In August, incidentally, PG&E outlined a scheme with Sun Microsystems where customers purchasing the latter’s more energy efficient servers also get offered cash against future bills.

Virtualisation’s supporters, which include Intel, claim that hardware can be much more efficiently used by better resource management. The problem is that it’s been an issue of great hype for some years. But IDC analyst Nathaniel Martinez believes its time may have come: “We see virtualisation not in mission-critical application areas but certainly in places like Web serving. Better power optimisation and cutting down the number of servers deployed in any part of IT will ultimately save customers money and will of course have an environmental impact.”

Martinez adds that if the average server is, as his company’s research suggests, actually in use only 28% of the time, there is patently a lot of power being wasted that could be saved. And that translates into a lot of wasted cash. IDC believes the total power and cooling bill for servers in the US stands at a $14bn a year, and may hit $50bn by the end of the decade.

Will we see such a scheme in the UK? The government’s energy review is still at an early stage, but some form of incentive to cut down power-hungry equipment seems bound to form part of any long-term green energy strategy. Will it be virtualisation-shaped? Only time – and more pushes like this – will tell.

Look here for more information on the PG&E scheme.

Posted by Gary Flood on November 17, 2006 | Permalink | Comments (0)

Janet Blake, head of global corporate social responsibility (CSR) at BT, reckons CSR is delivering real and measurable financial value for the telco giant. In an exclusive interview with GBN she explains how the company measures the impact of its CSR work, details BT's plans to reinforce its position as a green business leader, and argues that the government must do more to help firms tackle climate change.

GBN: Why is CSR important to BT?
Janet Blake: BT has transformed as a company over the last ten years and service is very much key to our marketshare. As a service company brand, reputation, values and image are essential to our success and CSR activities help in all these areas.

But can you make a firm business case for CSR?
We believe there is a clear a business case for CSR – and there has to be because you have to ask if any form of investment you make is the right thing to do for the business and its shareholders. We've done a lot of work to make the case for our CSR investments. The main point is that it is good for the bottom line. We tracked new business and evaluated the proportion that is CSR driven. We found that £2.2bn of revenue a year had CSR credentials.

How did you come to that figure?
We looked at the value of our deals then identified the value the customer put on the CSR record of its suppliers. This assessment backs up the nice words about CSR, quantifies the value people place on it and highlights the business we could lose if we didn't have these initiatives. You do need to quantify it – we spent £21m on charitable efforts last year and if you are spending that kind of money a business needs to be it is getting a return.

What other benefits do you see from CSR?
Another big benefit is the cost savings we gain from environmental initiatives. We've saved £290m from improving energy efficiency and reformatting the way our staff work. We now have 11,000 home workers and a further 64,000 flexible workers who work from home some of the time. As a result we've been able to cut back on office real estate and reduced our business travel budget. Another benefit is in customer satisfaction, which as a service firm is critical to our competitiveness. We've looked at the proportion of a purchasing decision that comes down to reputation and the proportion CSR efforts contribute to our reputation. We've used customer panels and surveys to estimate that a 10 percent increase in customer awareness of CSR leads to a 1 percent increase in overall customer satisfaction.

Should firms have a separate CSR department or should CSR activities be embedded into everything they do?
It is a pertinent question. Long term CSR can’t be done as a single department running alongside day to day operations. It has to be embedded and for that to happen you need senior executives willing to push the agenda. Our CEO, Ben Verwaayen, has been very vocal about his support for our CSR initiatives and that really helps. However, at a practical level it helps to have CSR activities under one banner. If you are managing change in any business you need targets and specific objectives if you want that change delivered and having a department responsible for that change makes it easier to drive forward.

Why do you think firms have suddenly started taking a bigger interest in environmental issues?
For business managers the agenda has shifted from the environment to climate change. The environment is quite a passive concept, people feel they need to do their bit, but there is no burning platform for the issue. Climate change has provided that burning platform and forced itself up the agenda. The science is better understood by businesses while publicity, like the Al Gore film, has meant that people are getting it. It is focusing people's minds on the steps that can be taken. The challenge now is to keep this platform alive because it is the best way of driving change.

What efforts have BT made to become greener?
Ten years ago the environment was about complying with regulations but not doing anything radical, but in 2003 we looked at the issues we were facing and decided to do something radical. In 2004 we signed the world's largest renewable energy deal with npower and British Gas. That means all our exchanges, satellite networks and offices are powered by renewable energy.

Didn't that drive up costs?
It actually worked out cheaper for us. It was a good deal for BT. Now it is not so lucrative, but because we moved first we got a good deal.

What other steps have you taken?
Next we ramped up our agile working initiative. We have replaced three quarters of meetings with virtual meetings, which have eradicated 1.5m journeys a year. That equates to 55,000 tonnes of CO2 and has saved us £120m a year in travel, accommodation and lost productivity.

Where BT take its green agenda next?
We have just decided on three CSR priorities for the future: climate change, sustainable economic development and social inclusion. With climate change we want to take another radical step and make a bigger impact by changing some of the things that are intrinsic to the way we do business. We will make more detailed announcements in January, but one of the main focuses is on making our new 21st century network as environmentally friendly as possible. We are also working on our datacenters to ensure they are up to the latest environmental specs. Thirdly, we will look at how to make our whole product set more environmentally sustainable. One thing we want to do is work out the CO2 emissions of our product set and let our customers know what it is. We see that as helping to secure business because as our customers get more carbon aware having that data will help them better manage their carbon footprint.

Is there the customer interest to justify these investments?
Look at Innocent Smoothies. People will pay more for something that they perceive as better. It is consumer power that will ultimately drive these green business models. I think we need a few big wins to make that apparent to everyone, but I believe we will see widespread increase in the value placed on firms' environmental record.

BT is a member of the Corporate Leaders Group on Climate Change and signed the letter earlier this year urging the government to do more to tackle the problem. What would you like to see the government do?
The government has taken some positive steps, but there is room for improvement. Governments can do more and none of them are really taking a leadership position. Overall, I believe it is market forces that will do the most to drive change in business models, but the government has to put in place a better framework to enable change. Of course there needs to be basic legislation, but I’d also like to see incentives that find ways of awarding those companies that get it right and make investments in green business models.

Posted by James Murray on October 30, 2006 | Permalink | Comments (0) | TrackBack (0)