Profiting from sustainability

The companies emerging as the most profitable are increasingly those looking to be the most sustainable, global sustainability expert Dr Martin Blake explains.

Global sustainability expert Martin Blake – last year named as one of the Top 100 Global Sustainability Leaders of 2011 and best known for his work at the UK’s Royal Mail – recently visited Australia for the International Green Awards and he came with a simple message: businesses need to stop looking at sustainability as a costly exercise.

“The companies that are beginning to emerge as the most profitable are also the ones that are looking to be the most sustainable,” Dr Blake tells Climate Spectator. “And so companies that do not embrace sustainability will not be here in the future because the ones that have been, are succeeding.”

While the gap between Australian companies and the UK, for example, may have shrunk, our firms have a long way to go to get near the successful strategies seen in countries like Denmark. In the meantime, Asia is fast catching up to us and will go straight past if we can’t manage to quell the short-termism that dominates political and business thinking. And the polarising 'carbon debate' isn't helping.

An edited transcript of the interview is below:

-- Where does Australia stand?

-- Long-term thinking versus short-termism. How far should businesses look ahead?

-- What company boards must do to avoid short-termism.

-- The world-class example of Marks & Spencer turning sustainability strategies into profit.

-- Customers are increasingly demanding sustainability and you can't escape the supply chain.

-- What businesses must do.

Daniel Palmer: You’re out here for the International Green Awards, what is the big message you’re trying to get across to delegates?

Martin Blake: The big thing that organizations need to do now is they really need to move beyond just reporting the big ticket numbers of how much energy did we use this year and how much will we reduce it by, without really knowing where it’s going. Systems, such as Carbon Systems, disaggregate the data and they enable business cases to be created and they enable energy to be performance managed out. So there’s a transition that enables that to happen.

So, at the moment, there’s too much talk in Australia around carbon and carbon tax and carbon this and carbon that. And as a result the real argument is being obfuscated and companies aren’t taking sufficient advantage of the low hanging fruit financially that’s there in terms of energy reductions because they’re too pre-occupied with carbon.

My view is that if you disaggregate the data and you know what you are spending and where, and you go through a process of building business cases for intervention then you can find ways for saving money and not it costing you money. That’s what organisations like mine, working in conjunction systems like Carbon Systems, do.

DP: So do you feel Australia is behind the rest of the developed world?

MB: Depends on which part of the world.

DP: Compared to countries like UK – and America?

MB: I wouldn’t benchmark against America. You might actually be ahead of them. But I would suggest the gap is closing. I notice with great interest over the last few weeks that I’ve been working with companies in Australia that increasingly more and more of them are beginning to develop marginal cost abatement curves. They’re beginning to go through a process of looking how much energy is costing and I think they are closing the gap with the UK.

In terms of closing the gap with countries like Denmark, there’s a significant way to go. Denmark is going to be a carbon neutral country by 2050 and that’s probably an unattainable goal for a country like Australia with its energy program. But you’re certainly closing the gap with countries like the UK.

But interestingly other countries are progressing faster. So countries in Asia are actually working more quickly and more deftly than Australia and I think there’s a real risk that Australia isn’t going to be overtaken… because of cheap labour and cheap energy. If they’re going to be overtaken, they’ll be overtaken is because (Asia) is actually doing it better. They’re doing it quicker, cleaner and their absolute intention is to be world leaders in the sustainability arena.

So it is a competitive global village and I think it would be very good for Australia to continue its journey. And forget this demeaning debate about carbon and just focus on getting energy savings strategies in place and seeking ways to innovatively make renewable cheaper. Because then it reflects through the rest of your infrastructure.  And if they focus on cost-effective renewables, and stimulating the renewables market, and cost-effective energy reduction, then it’ll happen.

You don’t need to talk about carbon for those two things. Avoid it, reduce it and then replace. If you follow that mantra of avoid, reduce and replace and you performance manage the energy and performance manage renewable into the economy and the rest will take care of itself.

DP: Long-term thinking versus short-term. Many businesses seem caught up in the short –term…

MB: It’s not just businesses it’s governments. That’s the problem with the democratic process, they only think for a three or four-year cycle.

DP: How far ahead should businesses (and politicians) be looking?

MB: Let’s take a world-class example. Singapore is investing in a 50-year strategy. They’re investing in a 50-year strategy. They’re buying IP on a 50-year horizon. And they’re doing what’s best for Singapore based on the deployment of a 50-year strategy. Sadly democracy has a number of issues with it and the democratic cycle has a number of issues with it. So that’s at the government level.

And of course companies do take a short-term view. They take a short-term view because chief executives tend to come and go. And they may say ‘I’ll do three or four years here and I’ll get my bonuses and share options and move onto the next biggest job’. So there is sadly a degree of short-termism which prevents the playing out of the most efficient long-term strategic plays.

DP: What can boards do to prevent this short-termism?

MB: Well the answer is ‘why do they have those short-term views’. And that’s because the reward and recognition that they’ve been given encourages it. So the view is the institutional investors need to be requiring companies to take long-term views, and then it would happen. And if you paid chief executives for taking long-term views and you rewarded companies for taking long-term views, then they would. Then the answer is in the hands of institutional investors.

DP: Major changes come from the top, but is there much risk in the filtering down of new messages? Are there some leading communication strategies?

MB: I don’t know that either top-down or bottom-up is right. I think that good communication strategies are essential.

For me, I’ve always found that the most change comes engaging at board level. I’ve always found that if you go into an organisation at the middle management level, they’re either not high enough up the organization to make a difference or they’re high enough up the organisation to be frightened if they get something wrong. As a result they tend to do stuff that is risk free and enables them to remain employed, keep their pension plan, and maybe get promoted. So they don’t tend to be agents of change.

Therefore often you need to get up to the board level where they can see the benefits of something and make a decision accordingly. So strategy needs to be set at the board. That’s their job; they have a fiduciary duty to do it.

DP: It wasn’t long ago that terms like CSR and triple bottom line were bandied about regularly in the press and by business leaders, but it seems such terms have fallen off the radar. Do you feel it slipping from companies’ focus?

MB: I think that people have got CSR fatigue and carbon fatigue and sustainability fatigue because of the demeaning political debate. So when you’ve got Julia Gillard and Tony Abbott at basically diametrically opposed positions on the debate, what do we expect the people in between to do – apart from just get tired of it?

So they need to focus very clearly on what counts, which is business, in order to be sustainable – and I’m talking in terms of economically sustainable – they need to make a financial difference. And you can do that by reducing your energy costs, your water costs and sending less waste to landfill. So the International Green Awards, where I’ve just been looking at best practice, the companies that are beginning to emerge as the most profitable are also the ones that are looking to be the most sustainable. They are absolutely managing their housekeeping in terms of energy, waste and water and the way they look after their staff in world class ways. And they’re winning.

Marks & Spencer is a classic example. When they began to set up their sustainability function and they thought they would do it under plan A, they expected plan A to be a cost centre. Now plan A represents 10 per cent of profit. It’s earning them 150 million a year, just by being sustainable. That’s how much the value of that program is. Ten per cent of net profit is a big number.

DP: Particularly for a large company.

MB: Yeah, so over the weeks here we’ve seen companies surviving, and prospering and growing because they’ve reduced their costs and they’ve increased their efficiency through a sustainability agenda. The more they keep bantering about carbon, the less likely people will do the right thing. Just focus on cost effective, good housekeeping and let energy efficiency, water efficiency, waste reduction strategies be hygiene factors.

DP: Do you think companies got held up a little with ‘greenwashing’?

MB: That’s old-fashioned. If they did they won’t be for long because it doesn’t work.

DP: Do you feel customers are looking for sustainable companies?

MB: Increasingly. Because you can’t escape the supply chain. So if you’re in a business and you’re looking to reduce your environmental and social impacts – in terms of negative impacts – then you will ask your suppliers to give you products that have low impact as well and they will in turn have to ask their suppliers. So the power of the supply chain is far reaching. It is a global web and you can’t escape it. And so companies that do not embrace sustainability will not be here in the future because the ones that are, are succeeding. It (a sustainability agenda) is not an impediment, it is an advantage. It’s giving them competitive advantage. So we will see companies become followers rather than leaders. And we will see some that don’t follow and they will exit.

Bottom line, you can’t manage what you can’t measure. Organisations need to be data-centric. That brings with it complexity, which is why I always say using a cloud-based host for all of your sustainability data and managing the program as you would manage sales or you would manage HR is the correct way to do it. You need granularity in your data and you need the ability to be able to dynamically model. If you can’t dynamically model and manage you can’t meet your goals and targets.

Martin Blake is the owner of Blake Advisory, the Founder and Chair of Carbon Zero Solutions, Director of Sustainable Development at IndustryRE, a Director of The Green Asia Group, a Non-Executive Director of Sabien Technology, Ecologic Transportation, and Amida Recruitment, as well as a Strategic Advisor to the Boards of CarbonSystems, MOSS (Models of Success and Sustainability) and The Upcycle the Gyres Society.