The new economy: leadership

The new economy: leadership

SPECIAL SUPPLEMENTThe new economy: leadershipHow smart directors are leading the campaign forclean businessin association with

2The new economy—a Director special reportin association with the Carbon TrustContentsForeword 2Taking action on climate change is awinning business strategy, says the CarbonTrust’s chief executive, Tom DelayComment 3Dr Steve Downing explains howsustainability became the board’s keycorporate social responsibility issueLeadership 4David Gask of small printing firm Polarexplains how a “carbon balanced” stancehas sealed his reputation as a good directorMarketing 5Climate change is a risk to brand value butit’s also an opportunity, says the LondonBusiness School’s Craig SmithLeadership 6Middlesbrough Football Club’s head ofoperations, Terry Tasker, talks energy costcutting.Plus, Walter Todd, UK vicepresidentof operations at corporate giantPepsico, takes leadership via a carbon labelFinance 7Stephanie Pfeifer of the InstitutionalInvestors Group on Climate Change liststhe benefits of low carbon investmentDIRECTOR PUBLICATIONSPublishing Director Tom NashGroup Editor Joanna HigginsDeputy Editor Richard CreeManaging Editor Amy DuffWriter Mike ScottSub-editor Caroline ProudArt Director John PoilePicture Editor Jane MossClient Sales Manager Fiona O’MahonyProduction Manager Lisa RobertsonProduction Controller Jim CampbellChief Operating Officer Andrew Main WilsonPublished by Director Publications Ltd for theInstitute of Directors, 116 Pall Mall, London, SW1Y5ED. Opinions expressed do not necessarily reflectIoD policy. The IoD accepts no responsibility forviews expressed by contributors.Editorial 020 7766 8950Advertising 020 7766 8900Production 020 7766 8960Taking the lead in alow carbon economyDirectors who ignore climate change misscommercial opportunities and may be exposedto increased risk, says Tom Delay, chiefexecutive of the Carbon TrustWhat are the benefits to business of taking a lead in the fight against climatechange? This is a question currently on the minds of many directors, and theanswer in part depends on the nature of their businesses and their exposureto climate-change risks.For the vast majority of companies, however, doing nothing is no longeran option. There is overwhelming support for the scientific case for climatechange and the need to deal with it. The strength of this consensus makes itmuch less risky to take a lead than it was five years ago, when there was farmore uncertainty about how governments and consumers would respond.That climate change will influence the behaviour of consumers, investorsand politicians is now an accepted fact of business life. At the Carbon Trust,we know that companies that take a pro-active approach to the issue reducetheir costs, improve their reputations and, often, find themselvesin a position to develop new opportunities in the low carboneconomy.Many of the large, high-profile companies that areleading the campaign for clean business are now saying,“We are doing all that we can within our ownoperations—we are now going to look at our supplychains”. This has obvious implications for contractorsand small and medium-sized enterprises: climatechange is an issue for all businesses.Companies are now making “shadow” carbonpricing (looking at the carbon costs and risks ofprojects) a factor in business decisions. Everythingwe do or buy has a carbon impact and it is clearthat consumers and business want to take actionto help reduce their emissions. We may not haveall of the answers yet, but with almost dailywarnings on the need for action on climatechange, we—like most—believe time is of theessence.The case for boardroom leadership is economicas well as ethical. As the profiles in this supplementshow, a company of any size can win competitiveadvantage by taking action on climate change.Printed by St Ives Roche. Mailed by Priority Newstrade & Mailing.Paper supplied by McNaughton Publishing Papers Ltd.ISSN 0012-3242Tom Delay Chief executive, the Carbon TrustDIRECTORThe new economy: leadership

Comment 3A new direction for businessSustainability has increasingstrategic importance. Dr SteveDowning of the John MadejskiCentre for Reputation explains allto Mike ScottAccording to Dr Steve Downing, foundermember and associate professor of the JohnMadejski Centre for Reputation at HenleyManagement College, the definition of responsiblebusiness has changed in recent years. “For the lastdecade, we have been talking about corporatesocial responsibility, but now sustainability is thekey. You have organisations such as the CorporateLeaders Group on Climate Change, with the CEOsof companies such as Unilever, Shell and ABNAmro acknowledging that you cannot ignore thisissue—employees, the media and customers are allbecoming more globally aware,” he says.Downing, who is also the director of Henley’sSustainability Lab, believes the change will affectcompanies in every sector of the economy, fromtransport to tourism to food—not just the“obvious” industries such as oil and power.Businesses will, he says, increasingly stand or fallby their response to global warming. “Expectationsof companies in terms of environmentalperformance are rising—that is why companiesshould be taking an interest in climate change. Ifyou understand and exceed stakeholderexpectations, as Marks & Spencer and John Lewishave, you win a good reputation. But if you fallshort, you suffer reputational damage.”Taking the lead on sustainability, believesDowning, will help directors manage risks andprotect their brand while developing the business.The immediate advantages will include efficiencygains—“you will save money in all sorts of ways”—and a better relationship with employees. “Thenumber one thing that employees want from theirwork is a sense of meaning—rather than seeingthemselves as being part of some managementprogramme where everything changes every 12-18months,” says Downing.The companies that will benefit most over thelong term are those that take an active as well as areactive approach. Climate change creates hugecommercial opportunities; organisations that caninnovate and create new goods and services willhelp secure their futures. “The low carboneconomy is going to be the major driver of growthfor the next 30 years, so if you ignore it you aregoing to get left behind.”Businesses are under increased pressure from theCity and the financial services sector to take theenvironment and the threat of global warmingseriously. The Stern Report on the economics ofclimate change, published late last year, wasfollowed by a trio of climate-change “investmenttheses” from Lehman Brothers, UBS and Citigroup.The author of the first, The Business of ClimateChange: Challenges and Opportunities, said: “Thefirms that will prosper are mostly likely to be thosethat are early to recognise the importance andinexorability of climate change”.In other words, failure to respond to globalwarning makes you an investment risk. “Leadershipmeans taking a new path—you do have to makedifficult choices, but that is what leadership isabout,” says Downing. “Business has to step up andbe part of the solution, not part of the problem.”Useful contactsThe Carbon TrustTel: 0800 085 2005 or John Madejski Centrefor ReputationTel: 01491 571454 or 2007 DIRECTOR

4LeadershipCleanbreaksThe business case for cutting greenhouse gasemissions applies to all sectors. Mike Scott talksto three very different companies that each seetaking a lead on climate change as acompetitive advantageTHE SMALL BUSINESSGoing against typeWho PolarSector PrintingPolar is one of 10,000 small printingcompanies in the UK. But the Leicesterbased,54-employee business, which has aturnover of some £5m, is far from typical of theindustry. Since a management buy-out in 2004,Polar has repositioned itself as the printer of choicefor socially responsible companies. “The printingindustry has a reputation for being veryenvironmentally unfriendly—of 10,500 printingcompanies in the UK, only 80-90 are certified to theISO 14001 environmental standard and even feweruse paper certified by organisations such as theForestry Stewardship Council,” says David Gask,Polar’s managing director.Eleven million tonnes of paper are used in the UKevery year outside the newspaper industry—and fivemillion of that ends up in landfill. Printing processesuse VOCs (volatile organic compounds), which cancause low-level ozone and lead to respiratoryproblems, as well as crop and building damage.Polar prints on paper from FSC-certified sources.It also uses low-alcohol and vegetable oil-basedinks, saving seven tonnes of VOCs a year.Polar cannot completely eliminate carbon“It is aboutwinning morework by doing theright thing. It alsoputs us ahead ofthe game”

5emissions, instead aiming to be “carbon balanced”.It called in the Carbon Trust in January 2006 toassess energy saving opportunities and help it toreduce energy costs and waste. And it is workingwith the World Land Trust (WLT), whose projectsconserve biodiversity and absorb CO 2 emissions tothe value of their clients’ carbon footprints.The company has a range of certificationstandards and kitemarks, including ISO 9001(quality), ISO 14001 (environment), FSC (ForestStewardship Council), with the ISO 26000 (socialresponsibility) standard in the pipeline. These areonly a start, says Gask: “Many companies do onlythe minimum required to secure accreditation. Webelieve you need to use it as a catalyst to tackle thekey issues facing the industry.”Gask believes sustainability makes business sense.Polar’s clients include Comic Relief, ManchesterCity Football Club, Cancer Relief and FTSE4Good.“There is extreme competition within the industry,and we think our CSR stance makes us attractive asa supplier. It helps us to win business and to buildstronger relationships,” he says, adding that thecompany has expanded from 15 employees to itscurrent size in just three years.“It is about winning more work by doing theright thing. It also puts us ahead of the game. Smalland medium-sized enterprises are going to comeunder pressure from the large organisations thatthey supply to become more responsible.”Polar’s repositioning has been achieved withoutcost to the customer. “We don’t see why anyoneshould pay more for printing responsibly,” saysGask. “A lot of our competitors have fears abouthow much it will cost, but our focus on cuttingwaste and using less harmful materials has led tosignificant cost savings which keeps us competitive.”The company is helping competitors that wantto sign up to various standards and advising its inksupplier on how to achieve ISO 14001. It also triesto “educate” customers about responsible printing.“I think we are a catalyst within the industry—ifthere were another 49 Polars out there, it wouldput more pressure on suppliers and customers to dobusiness in a more sustainable way,” says Gask.THE MEDIUM-SIZED COMPANYWind of changeWho Middlesbrough FCSector Sport and leisureMiddlesbrough Football Club’s RiversideStadium, which has won plaudits for itsinnovative design since it opened in1995, could soon have an eye-catching addition—a£3m, 130ft wind turbine capable of providingelectricity not just for the stadium but also for1,000 local homes.The turbine is one of many ideas to cut energycosts at the club. Minds were focused on the issueof climate change after a severe storm in August2003 caused £250,000 of damage to the stadium.The storm broke after one of the hottest days of thecentury. “It really made us think about howexpensive climate change can be. We had alwaysrecognised the need to reduce our energy use—particularly from conventional sources—but thisspurred us into further action. Something like thatmakes you think the time is now,” recalls TerryTasker, Middlesbrough FC’s head of operations.It called in the Carbon Trust, whichrecommended some simple changes to help itimprove energy efficiency at the Riverside. TheseOn winning ground: “We hadalways recognised the needto reduce our energy use,”says Middlesbrough FC’sTerry Tasker on the board’sdecision to install a windturbine at the RiversideStadiumClimate change and customer brand valueAs customer awareness aboutclimate change grows, how abusiness chooses to takeresponsibility for its carbonfootprint and minimise its impacton the environment will become akey factor in purchasing decisions.Customers will realise they can dotheir bit by choosing the companiesthat are doing theirs.As Craig Smith, senior fellow inmarketing and ethics at the LondonBusiness School, says: “Climatechange has hit some industriesalready. Is this something you sitback and wait for, until there’ssome ‘certainty’, or is it somethingyou’re pro-active on? I’d say thereare good arguments for businessleaders to take responsibility.”If climate change represents arisk to brand value and reputation italso offers an opportunity forbusinesses. Companies that “get inand act soon” will have the “firstmover advantage,” says Smith.“Businesses shouldn’t shy awayfrom communicating to consumerswhat they’re doing,” he adds.Small and medium-sizedenterprises need only look to thelead set by big names such asTesco, which is putting labels on allits products so shoppers cancompare carbon costs. And thisyear, the Carbon Trust launched acarbon reduction label with WalkersCrisps, Boots and Innocent. “Theimpact of climate change on brandwill be felt differently in eachsector,” says Smith. “But theknock-on effects will hit everybusiness directly or indirectly.”How organisations are seen torespond is key: “You’ve got to thinkabout what your brand stands for,adopt a forward-thinking mindsetand think about consumerawareness and concern.”For more information 2007 DIRECTOR

6Leadershipincluded repairing plant-room equipment leaks,insulating valves and pipes, optimising lightingand controls, and installing draught-proofing inthe tunnels leading to the pitch. The club alsointroduced movement detector switches aroundthe ground, installed individual room thermostats,regulated by a building management system, andintroduced controls for the ticket office to allowbetter distribution of heat and cooling, particularlyfor the computer areas. In 2003/04, the club’s totalenergy costs were around £130,000. By 2005,thanks to the changes, its energy bill had fallen by£26,000.The Carbon Trust energy survey showed that 27per cent of the Riverside’s consumption went oncooling drinks in the club’s bars and hospitalityareas—by far the largest proportion of thestadium’s total use.So the management team looked at thepossibility of obtaining energy from renewablesources. The club considered a range of options,including solar panels, ground-source heat pumpsand biomass boilers, but the most cost-effectiveone, despite the £3m outlay, was the wind turbine.Once it comes on line, projected to be in 2009, thethree-megawatt turbine will immediately producemore electricity than the club needs, with thesurplus—enough to power 1,000 local homes—being sold through the National Grid, promising apayback period of about five years.The turbine will be a powerful symbol of theclub’s commitment to the environment. “It bringsrecognition that we are concerned about theenvironment, and there will be a number of spinoffbenefits for us—there are many educationalbenefits for our Football in the Communityprogramme, and it helps us attract business outsidefootball,” comments Tasker.The stadium’s facilities are used for conferences,seminars and other events, and Tasker believes theturbine will also help improve the club’s“Image iseverything—theturbine shows thatwe are modern andthat we are lookingto the future”On the ball: “Any businessthat does not look at theirenergy use is foolish,” saysTerry Tasker, MiddlesbroughFootball Club’s head ofoperationsreputation. “Image is everything—the turbineshows that we are modern and that we are lookingto the future,” he says.There have been frustrations along the way—theenvironmental impact assessment for the turbinehas led to delays, involving studies on local birdlife and a 12-month study of the site’s wind profile.“I don’t think the government is doing anything toencourage projects like this, despite what they say.It is frustrating, all the hoops you have to jumpthrough,” Tasker says. Nevertheless, he remainscommitted to the initiative. “I am surprised thatother companies do not seem to be identifying thisas the way forward. Any business that does notlook at their energy use is foolish.”Climate change and shareholder valueIn 2001, Greenpeace published areport warning that investors in BPwould lose out unless the oil giantbegan “the transition away fromfossil fuels”. Today, the linkbetween shareholder value andsustainable development isunderstood by the City and thefinancial services industry as wellas environmental activists.The Institutional Investors Groupon Climate Change (IIGCC)encourages companies in which itsmembers invest to address therisks and opportunities associatedwith climate change and the moveto a low carbon economy. The riskprofile of companies willincreasingly be affected by theirresponse to climate change,confirms IIGCC programme directorStephanie Pfeifer.She points to the physical risks,competitive risks, the tougherregulatory regime, the impact onreputation and the threat oflitigation. “There is insufficientdisclosure by companies on theirgreenhouse gas emissions,” shesays. “But we’re encouraginginvestors to engage with companiesto ensure they are minimising therisks and maximising theopportunities presented by climatechange. It isn’t just a green issue;there’s a financial impact, too.”Investor interest in climatechange has grown since the EUEmissions Trading Scheme in 2005,which meant that analysts “built aprice for carbon into their modelsfor the sectors covered by thescheme” but other events haveinfluenced investors. Pfeifer says:“Climate change is more obvious—look at the hurricanes, the hotsummer of 2003—and politiciansare responding with plans. A lot ofinvestors have signed up to the UNPrinciples for ResponsibleInvestment. Al Gore [whose filmabout climate change, AnInconvenient Truth, came out lastyear] has had a big impact in termsof raising awareness.” And whilethere’s work to do—“there’s a lackof long-term research specificallyfocused on climate change and stillmuch uncertainty about climatechange policy, so it can be difficultto value the impact”—she saysmore investors expect firms tointegrate climate change risks andopportunities into their businessstrategies.For more information new economy: leadership

7THE LARGE BUSINESSFood for thoughtWho PepsicoSector Food and DrinkWhen the Carbon Trust launched itscarbon reduction labelling scheme inMarch 2007, Pepsico company WalkersCrisps was one of the first to sign up. The schemeaims to help consumers make more informedpurchasing decisions. Carbon labels show thecarbon footprint of products and commit themanufacturer to reducing that figure. If after twoyears, the company has failed to honour thepledge, the label can be withdrawn.“For us, this was a production issue—it was aboutsaving money,” says Walter Todd, UK vice-presidentof operations. “We have been very successful—since 2000, we have cut the amount of energy perbag of crisps by one third, the amount of water weuse by nearly half and improved fuel efficiency by14 per cent.”The drive to improve environmental“performance” and make the business moreefficient applies across the portfolio of Pepsicobrands, which includes Tropicana and Quaker Oats.“This is an emergingarea for us, but we arecommitted to it—weconsider it a strategicimperative”On your marques: “This is anemerging area for us, but weare very committed to it,”says Pepsico’s UK vicepresidentof operations,Walter Todd on the carbonlabelling scheme“This is an emerging area for us, but we are verycommitted to it—we consider it a strategicimperative. We wanted to look at how we couldreduce the carbon footprint of our products and getahead of any regulation that is likely to occur inthe next few years,” says Todd. “About 18 monthsago, we started mapping our carbon footprint andexpanded our view right across the supply chain.”The company discovered that Tesco, one of itscustomers, makes deliveries to Scotland by railway,but the train returns to England half empty. “Weare looking to backhaul Quaker products from ourScottish plant on that train,” says Todd.The mapping exercise highlighted someimportant facts about food production. “We werequite surprised to discover that fresh produce hasquite a high carbon footprint as a result of fertiliseruse, harvesting and transport—for our crisps, up to45 per cent of the carbon footprint is in thepotatoes themselves,” says Todd. Reducing thecarbon footprint of the crisps meant changing theway the supply chain worked. Examining itssupply chain, Walkers discovered that potatofarmers were storing their crops in artificiallyhumidified sheds to manage quality andmaintain their water content. This alsomeant the frying process took longer.Walkers was advised to reward farmers forsupplying potatoes with lower watercontent; as a result, the company has saved9,200 tonnes of CO 2 and £1.2m per year.“We are looking to recover that water anduse it for washing the potatoes,” continuesTodd. “We are also taking the waste oil fromour fryers and treating it to create biodieselfor our distribution fleet.”While the initial focus of the Pepsicoprogramme was cost reduction, Toddidentifies there are wider benefits. “As wellas the clear economic and environmentalcase, there is also a ‘right to do business’case. If we do not get ahead of this issue, itmay curtail our ability to operate in thefuture,” he says.Todd offers some advice to othercompanies looking to address environmentalissues within their businesses. The key, hesays, is to assign enough staff to it and then“identify a pipeline of areas to focus on,make sure you track performance rigorouslyand engage with employees.” Pepsico’s focuson sustainability has helped it motivateemployees and attract and retain staff.“People want to work for a responsiblecompany,” Todd says. “The advantages areclear—I would encourage other businessesto follow.” DJuly 2007 DIRECTOR

This is the man.That knows how to cut carbon.That will visit your business.That could save you moneywith a free on-site survey.*Call our carbon experts on 0800 917 3030We could help your business to reduce its carbon footprint, tackle climatechange and cut costs with a FREE on-site energy survey.* Call our carbonexperts on 0800 917 3030 or visit Carbon Trust is an independent company grant funded by the Department for Environment, Food and Rural Affairs, the Department of Trade and Industry, the Scottish Executive,the Welsh Assembly Government and Invest Northern Ireland.*Eligibility terms and conditions apply.

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