Warming up for Profit

Warming up for Profit

"Whosoever desires constant success must change his conduct with the times."

Niccolo Machiavelli's advice to Princes nearly half a millennium ago would be well heeded by modern princes of business. The times are changing now, and unless we act urgently the change may become uncomfortably dramatic. The effects of global warming have become a pressing concern to many citizens, governments and businesses alike. Calls for action are no longer confined to a small group of frustrated Cassandras.

The urgency of climate change is universal, as is the need to "change our conduct with the times." But should every sector of society respond with the same kind of changes in conduct and behavior? The most effective responses will be those that fit not just the circumstances, but also the philosophies underpinning different organizations.

On a "housekeeping" level, every home, hospital, shop, office, factory, school, government department, farm, restaurant and museum should be searching for ways to improve their energy efficiency. The battle goes on to get companies large and small to make this a part of "the way we do things around here." The main carrots usually offered are cost savings (plus the chance to crow about their achievements on the corporate responsibility front).

Using these motivational tools, it's an uphill struggle to get effective action embedded into “business as usual.” Because, to put it bluntly, saving money isn't business as usual; it's what you have to do when business (usual or unusual) isn’t going so well. Efficiency is like accounting: most business leaders know it’s important, but they’d prefer someone else to do it.

What really draws many business leaders to the commercial sector is the excitement -- of chasing opportunities, finding markets, driving up sales, fighting off competitors and “bringing home the bacon.” For them, real “business as usual” is about responding to changes in the market -- trying to fill niches and generate profit out of the opportunities that changed markets create. And business can be very, very good at that.

So could -- or should -- the business community respond to climate change as if it were an exciting new market development, like the communications revolution, or a new country opening up to trade? For those who spent years battling against the climate change deniers (many of them companies), there’s a certain irony in a new win-win model that treats its undeniable reality as an opportunity to profit. But would any of us complain, if such an opportunity approach really worked to combat climate change?

The signs are that things are changing this way -- or at least, the rhetoric is. In a recent speech, environment secretary Margaret Beckett laid out the case for a profit-driven approach. “The rewards that will flow from a successful shift to a low-carbon economy are high. Neither governments nor business can afford to let these opportunities pass them by.” Sebastian Gallehr, chief executive director of the European Business Council for Sustainable Energy (e5), is even more specific about what is needed. “Neither downtalk climate change nor lament it. Instead, highlight the potentials, shift R&D resources, provide incentives and reward climate pioneers.”

This is language many of us are not yet used to associating with climate change: “rewards,” “success,” “opportunities,” “potential,” “incentives.” It’s a language designed to reach deep into a business brain and light up the “profit” cortex.

Business is beginning to see things this way too. In a recent study, the consultancy Article 13 found that one third of companies identified “new products” as the key opportunity arising from climate change. Those who are skeptical about climate change opportunities could still point, of course, to the fact that much more profit is still being made from business activities that cause climate change than from those that mitigate it. But the language of the letter written by 13 of Britain’s most powerful companies to the prime minister in May of this year is that of a group of eager salesmen frustrated by government caution:

“Governments tend to feel limited in their ability to introduce new policies for reducing emissions because they fear business resistance, while companies are unable to take their investments in low-carbon solutions [my italics] to scale because of lack of long-term policies.”

Tom Delay of the Carbon Trust gives the government higher marks. “The U.K.,” he says, “is taking climate change seriously with a raft of policies and regulations opening up new markets for low-carbon products and services. As consumers, increasingly concerned by climate change, realize that the best product or service is often the environmental choice too, these markets will really take off.”

But there’s a potentially better story to tell in another part of the business world: that of the small and medium-sized enterprises. The success of profit-driven small entrepreneurial companies in this area may end up encouraging the larger companies to play catch-up. And the potential for SMEs themselves to drive profit through combating climate change is huge. The SME sector makes up 98.9% of all enterprises in the U.K., and accounts for over half of U.K. employment. SMEs are also innovators: 39.5% of them introduced some kind of new product or service in the last year, according to the annual survey of the Small Business Service. Do the math, and you find that small businesses are a hotbed of micro-level innovation on a scale no multinational could match. They play with ideas, risk new business models and swiftly bring ideas to the market, without the bureaucracy and hesitancy of a large company (for whom a new product might mean millions of staff hours and millions of pounds of risk).

The high regard in which our SME sector is held means that there is a real opportunity for the U.K. to take a leadership role. The Economist Intelligence Unit ranked the U.K. this year as the fifth best business environment in the world, while the Global Entrepreneurship Monitor ranks us third among the G7 countries in terms of total entrepreneurial activity (behind the U.S. and Canada). And these high rankings are due in no small part to the innovation, passion and hard work of our small businesses.

Low-carbon products and services are a huge opportunity for these quick-thinking smaller businesses to innovate and grow. “It just takes a little imagination,” says Delay. And one key area where this imagination can be demonstrated is in linking the entrepreneurial spirit to our world class research and scientific capabilities on climate change. The combination could see the U.K. leading the new global market for climate-friendly products and services. As of February 2004, there were 14 separate centers in U.K. universities for renewable energy alone -- some of them with an impressive track record of providing expertise for 30 years and more.

The U.K. renewables industry is doing well as a result. In March, Ernst & Young’s Renewable Energy Country Attractiveness Indices placed the U.K. second only to Spain. These indices are forward-looking and account for national renewable energy markets, renewable energy infrastructures and their suitability for individual technologies. The social benefits of climate entrepreneurialism might even match the environmental ones -- in 2004 a government study estimated that up to 35,000 jobs could be sustained by the renewable energy industry in the U.K. by 2020.

The potential rewards are enticing -- boosting sustainable development, combating climate change, driving the economy and creating new jobs. More initiatives such as the Shell Springboard fund will be needed to help U.K. businesses develop at the pace and scale needed to grasp these rewards.

That’s because being a small business isn’t easy. According to the Small Business Service, three-quarters of all businesses report having problems starting up, with one in five finding obstacles in raising the initial finance. However much passion and expertise an entrepreneur can demonstrate, it seems unlikely that most small business managers in local banks would immediately seize upon a climate-friendly product and service as a safe loan prospect.

Comprehensive market research would be extremely helpful in those pitches for funds. It would firm up the business case for investment, and demonstrate that climate-friendly products and services have a good chance of becoming commercially viable.

The scope for action is huge, and the urgency of finding new solutions is unquestionable. Both of these facts were emphasized at the G8’s recent Gleneagles summit meeting. The window of opportunity will not remain open forever.

Of course, the G8 did not have much to offer in the way of specific proposals for what they’re going to do about it. And the principles of liberal capitalism might themselves be to blame for the difficulty that some companies find in bringing their ideas to market. Theoretically, if you’ve found a viable business niche, are well managed and invest your profits wisely, you shouldn’t need any outside help; the market is designed for you to succeed. This may prove to be true in the long run, but perhaps the small businesses with commercially viable solutions to problems arising from climate change should be given more of a boost. After all, don’t we need them as much as they need us?

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Solitaire Townsend is managing director of Futerra.

This article has been reprinted courtesy of Green Futures magazine. It first appeared in the September/October issue of that publication.