Green Business – why it makes so much sense
07 April 2016
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Hello and welcome to another edition of Old Mutual Live Business, my name is Chris Gibbons. In this edition we look at why running a green business makes sense. We’re joined now by an expert on sustainable business Professor Wayne Visser. Wayne holds the Transnet Chair of Sustainable Business at GIBS, one of South Africa’s top business schools.
He’s also a Senior Associate at Cambridge University in the United Kingdom, as well as being Founder and Director of Kaleidoscope Futures. He joins us on the line from Cambridge. Professor Visser, welcome to Old Mutual Live Business, thanks for being with us. You have a number of key reasons why green business makes sense, where would you like to start?
Why Green Business is the way to go
Wayne Visser: Well, it’s a great pleasure to be joining you today. I think we could start with a big picture and that’s to say that the world has changed. We’re in a world today that faces increasing resource constraints. We have climate change happening already affecting us.
We have numerous social and environmental issues coming up the agenda. So the big picture is, why would you adopt green business or what we might call sustainable business? Is simply that you want to be on the right side of history.
There is no doubt that in the long-term, businesses that do not take care of their impacts on the environment will be the companies that go out of business. As resource prices go up, as these crises get worse, it will be the company that has innovated the solutions that will be the ones that are prospering.
Let me give you an example just to put this into stark contrast. When Jeff Immelt took over from Jack Welch at General Electric, he changed the strategy of that company. He bet the future of General Electric in two areas. One is health technology and the other is clean technology.
He invested in those early days, round about $12 billion into what they call their eco-imagination programme and the shareholders were understandably nervous about such a large investment. In what was still seen as a fairly unknown and un-quantified area.
A few years later, that’s probably ten years down the track now, they’ve made back from that investment, $200 billion in terms of business sales in the clean tech area. This is what we mean by future proofing or becoming future fit. Which is really the main reason for going down the green business or the sustainable business route.
CG: Do most business leaders see it the same way as Jeff Immelt?
Are business leaders catching on quick enough?
WV: No, I think that the dilemma that we have is that the markets are still very short-term. Shareholders have a lot of power. So for many companies, probably still the majority, the pricing in the market is not actually rewarding them in the short term or encouraging and incentivising them to move to the sustainable way of doing business.
We still tend to see that it’s only the pioneering companies and they’re investing in a medium to long-term future. They will be the winners in that game but in the short-term, until we start to change the policy environment, it’s more difficult for companies to see the business case.
Having said that, there are very clear business reasons for going down the sustainable route. The most obvious one and the one that CEO’s actually, when they’re polled at the World Economic Forum on this. The one that they identify as most compelling is reputational benefits.
Companies are still struggling with the issue of lack of trust in business and in business leadership. One of the ways that you counteract that is by showing that you’re doing something constructive. Reputation is a big one. There are definitely cost savings to be had through what we call eco-efficiencies.
If course if you’re saving on waste or on emissions or on water or on energy, that translates into direct cost savings. There are risk mitigation benefits, so if you have better relationships with your communities, with your stakeholders, they are far less likely to oppose you or to make it difficult for you to do business.
You’re far more likely to avoid future fines and penalties or to avoid the kind of risks that, let’s put an example on the table again; BP, you may remember a few years ago, the Gulf of Mexico spill. Well BP lost 50% of its value within 50 days. The estimate that I’ve seen most recently is as a result of that spill, they will have spent $56 billion to deal with that. Avoiding those kinds of liabilities is obviously a compelling case as well.
Then one that is perhaps overlooked, but the evidence is very clear is that businesses that invest in sustainability and social responsibility are businesses that people want to work for. There is an element of employee motivation, loyalty, they’re more likely to recommend the company to their friends. They tend to be more productive and it’s very simple, people want to work for a company that they can believe in. That they can feel good about.
To give you an example, a company like Unilever which the last three years has been voted globally by sustainability experts as the leader on sustainability. Every year they get 1.8 million people applying to that company. Because everybody wants to work for a company that they don’t feel ashamed of.
My point is, there are many business benefits to be had, but we still need to tackle the issue of making the policy incentives and the market pricing incentives right so that we make it far easier for companies to become sustainable.
Are governments putting enough pressure on companies?
CG: You’re talking about policy makers, government, what if it is as easy as you describe, and the benefits are so clear. Why is government not pushing this through? I say government in the broader sense, South Africa, but also in other parts of the world too.
WV: I think government faces the same dilemma as business, which is that they’re in a system which is very short-term. You’ve got an election cycle of 4-5 years. The average CEO is in place for round about three years today. So you have pressures to make decisions which are very short-term.
Most of the real benefits that we get from sustainability require big investments because let’s be clear about this. We’re talking about a new industrial revolution. That’s how significant this change is that we have to go through.
We have a fossil fuel based economy and we need to get to a low carbon economy. The scientists tell us we have to reduce carbon in the economy 80-90% by 2050. You don’t get there by just tinkering at the margins. You have to completely reinvent your whole economy.
In places like Europe, the government is being sufficiently long-term and perhaps sufficiently wealthy to invest in that transition. For them, things like sustainability or what they call circular economy, are actually investments in the competitiveness of Europe going forward, into the future, under their Lisbon 2020 strategy.
But for many developing countries, they don’t have that luxury or that foresight to make those big investments, to make that transition. We’ve just seen the classic case in South Africa with further investment in coal to keep the lights on, literally. To get beyond all of the load shedding and that energy crisis that we’ve had the last couple of years. They’re forced into short-term and actually quite short-sighted action.
How does small business approach this?
CG: One final question for you, this is all well and good, if I’m Jeff Immelt. If I have a spare billion dollars here, a spare billion dollars there to invest for the future. I don’t, I’m a small business, it’s really difficult times at the moment, the economy is very tough, how do I approach this?
WV: The thing with small businesses is often they’re very imbedded into the community, which is a good thing. Here the owner/director has to take a lead and actually the moral element plays a bigger role here. We actually do find this often with small companies is that they are prepared to put their values on the line. Say: look, we want to be seen in our community as doing something good.
But then practically what they have to do is focus on the quick wins, if you like. With the low-hanging fruit, which usually starts with those eco-efficiencies. So how do you cut down on the waste, how do you cut down on the water, on the energy. The cost savings from that are what can often fund the bigger investments that they may have to make.
There are also increasingly incentives from governments. There are funds international and national that SME’s can tap into. Which will allow them to make that transition more easily. It’s something like that the United Nations Environment Programme is putting money into. So there are different ways to make that transition. But the short answer is, focus on those immediate cost savings that you can make from being smarter about the way that you do business.
CG: Professor Wayne Visser, Transnet Chair of Sustainable Business at GIBS, Senior Associate, Cambridge University, Founder and Director of Kaleidoscope Futures, on the line to us from Cambridge in the UK. Wayne, thank you for being with us on Old Mutual Live Business.
WV: Thanks so much.