Stephen Farrant and Shivvy Jervis: We Need a Green ‘Innovation Revolution’ for Business to be Truly Sustainable

By Stephen Farrant and Shivvy Jervis, IBLF

We Need a Green ‘Innovation Revolution’ for Business to be Truly Sustainable

It’s a straightforward premise really – in the longer run, all business has to be environmentally sustainable or the laws of science will take over.

We believe there is a clear and compelling business case for energy-intensive businesses to put environmental responsibility and resource efficiency on their core agenda now. And with the operating environment for business set to face some unprecedented challenges around growth over the coming decades, we cannot assume that ‘business as usual’ is going to get us there. Improving resource efficiency – including switching to cleaner energy sources – will help not merely to reduce operational costs, but to increase competitiveness and sustainability in the medium term.

The scarcity of fossil fuels – oil, gas and coal – in particular, is a very real threat to economic prosperity and logic dictates that the goal of de-carbonising industry has to move up the list of global business priorities. An extensive UK Energy Research Institute report concludes that a peak in oil production is very likely before 2020, and as Jeremy Leggett (convenor of the UK Industry Taskforce on Energy Security) says: “We are asleep at the wheel, choosing to ignore a threat to the global economy that is quite as bad as the credit crunch, quite possibly worse.”

Now let’s take the international hotel industry for example. Resource hungry, energy intensive and – in line with the rest of the travel and tourism industry – traditionally based on volume growth, the sector spends over a whopping £1bn per year on energy and produces 3.5m tonnes of carbon emissions annually in the UK alone (source: Carbon Trust).

For the hospitality sector to truly thrive, IBLF’s International Tourism Partnership, which works with leading global hotel chains on the sustainability agenda, believes that continually highlighting best practice in environmental and social responsibility, together with pressing the case for further change are crucial to the industry’s long-term success.

The good news however is that more and more, these issues are being embedded into the Board agendas of many leading companies. And the focus is absolutely on innovation, rather than merely offsetting.

From a fundamental re-think in building design to the use of natural insulation, solar power, ground source heat pumps and mechanical ventilation, the scope for improving environmental impact is massive. Diversifying into alternative energy sources and bringing renewables or clean energy into the mix is also a vital part of the solution. It is particularly relevant that global investment in clean energy was up by 30 per cent year-on-year in 2010 (Bloomberg New Energy Finance). And as this starts to drive more scale, the price should fall – making it more financially persuasive.

However, irrespective of sector or size, many of the measures that are either being planned or are already in place from business, point to incremental change over a number of years. Examples of large-scale ‘disruptive innovation’ that re-define the basic business model (built on assumptions of continual volume growth) are harder to find.

But it is market forces and competition that will really drive the development of energy efficient products and start to push the step change that we need. Also customers (especially at the corporate level) are significantly more aware of green issues and are increasingly looking to make purchasing decisions that carry the lightest possible environmental impact. The Co-Operative Bank’s latest Ethical Consumerism report (2010) shows that spending on eco-travel and transport has grown by 23% in the last two years, from £2.2bn to £2.7bn.

Not only consumers, but investors are also putting pressure on companies to cut energy consumption. In April this year, 34 established companies with some US$7.6 trillion in combined assets teamed up with the Carbon Disclosure Project (CDP) to launch an appeal to the world’s largest businesses to implement reductions in greenhouse gas emissions.

Changes in legislation are playing a strong part too. The UK’s Carbon Reduction Commitment (CRC) Energy Efficiency Scheme, introduced in April 2010 and phased in over three years, is a compulsory scheme aimed at large public and private sector organisations and, critically for industry sectors such as the hotel business, make the franchisor responsible for reporting all activities undertaken under their brand, even those of their franchisees.

However, an ‘innovation revolution’ across big business calls for moving the best-in-class to the mainstream, and accelerating company action on energy consumption. And all environmental costs need to be fully internalised into the decision-making processes of multinational companies.

Will there be clear winners? The potent combination of surging investor interest, tightening legislation and burgeoning customer demand means that companies that have their systems geared up now, stand to gain true competitive advantage as we move to a more responsible and sustainable future.

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