17/08/2010

By Event Director, Energy Solutions

In boardrooms across the UK, business leaders have traditionally skirted around energy management and sustainability in favour of focus on short-term profit. But rising energy bills and new carbon reduction legislation are now conspiring to force their hand.

Organisations need to realise that success and sustainability are not mutually exclusive, says Adrian Newton of Energy Solutions by bringing sustainability into the boardroom, companies can not only slash energy costs; they can also boost their bottom line, build their brand equity and reinforce their reputation.

Despite growing interest in corporate and social responsibility (CSR) issues, the UK’s business leaders have, until recently, neatly managed to sidestep any real strategic approach to energy management and sustainability.

A recent survey by O2 of senior leaders in the private and public sectors revealed a divergence of views on this issue. While 46 per cent of respondents said they planned to prioritise sustainability over the next two years, 36 per cent acknowledged that they would move away from it.

But the report also showed an emerging consensus that sustainability is good for business, with almost 60 percent of the senior executives questioned saying it would increase market share over the next ten years and 44 percent thought it would boost profits by underpinning a more efficient operating model.

Energy is one of the most risky items that an organisation has to manage, and this risk is no longer purely financial. Attrition of profits through high energy costs is a genuine consideration, but failure to address these issues in a convincing way can seriously jeopardise brand equity.

It can also turn off current clients and alienate prospects, who may choose only to work with companies that have watertight low-carbon credentials. Picking and choosing the convenient parts of a sustainability strategy is an approach that no longer cuts the mustard. Nor are shareholders, investors and customers willing to be whitewashed by hollow promises on sustainability and corporate posturing on environmental credentials.

One of the main drivers behind the growing profile of energy management and sustainability is the upcoming CRC Energy Efficiency Scheme (CRC). Formerly known as the Carbon Reduction Commitment, this government-mandated programme aims to improve energy efficiency and reduce carbon emissions in large public and private sector organisations, which account for 10 per cent of the UK’s total emissions.

Under the CRC, organisations buy carbon allowances that equate to their annual carbon emissions. The overall emissions reductions achieved will be decided by the emissions ‘cap’ on the total allowances available to participating companies.

Within this cap, individual companies can establish the most cost-effective way to reduce their emissions, whether through purchasing extra allowances or investing in ways to decrease the number of allowances they need to buy. All money raised through the allowances will be returned to participants, based on their performance.

For many organisations, this will be the first time that efforts to reduce emissions will have been driven from the financial side of the business, but many organisations are seeing it as an opportunity to realise some real business benefits, rather than as a cost burden.

Good performance in reducing emissions over the course of a reporting year could generate a refund higher than the original carbon allowances payment, but much more significant savings can be made as a direct result of reducing energy consumption.

So what can business leaders do on a practical level to address energy consumption within their organisations? Across the UK, companies that have grasped the opportunities presented by the CRC are starting to take a more integrated approach to addressing energy use, water consumption and waste production.

Many organisations are now installing smart meters as a very tangible way to monitor and manage consumption, with access to flexible tariffs and better visibility on where savings can be made. Some are going a step further by mitigating their energy risk by generating their own renewable energy through installing wind turbines or turning waste food into fuel and electricity.

Others have recognised that even small fluctuations in the price of energy can have a huge impact on their profit margins and are taking the long-term strategic view by buying up energy now to sidestep possible future volatility.

A notable public sector example is Islington Council which was awarded Energy Solutions’ London Workplace of the Year Award in 2009. The Council has initiated a £1.5 million programme to improve the energy performance of its buildings through improvements to heating and ventilation controls, lighting upgrades, replacing older inefficient boilers and improving insulation levels.

It has also installed a biomass boiler, five solar-thermal systems, eight solar photovoltaic arrays and four wind turbines. Meanwhile, the Council’s investment in waste management has increased the Borough’s recycling rate and drastically reduced the amount of domestic sent to landfill.

As the Government’s 2020 deadline approaches, environmental legislation is only going to get tougher. Organisations that implement robust carbon and environmental strategies will be agile enough to react rapidly to these changing regulatory demands, along with the new market opportunities they create. Playing catch-up is a strategy doomed to failure. Smart companies need to start looking at these issues now to stay one step ahead of regulators and competitors.

Energy management and sustainability are serious initiatives that need proper buy-in from business, starting from the boardroom. This is where the decision must be made that sustainability and profit can — and should — go hand in hand.

Organisations that have the foresight to make this leap in thinking will reap the benefits in terms of reduced energy costs and higher profit margins, as well as gaining a compliance, CSR and competitive advantage. Above all, getting sustainability priorities right is not a fluffy option: it’s about delivering real business benefits for organisations that bring it right into the heart of their corporate strategy.