Green around the edges

The recent global turmoil, both ecological and economic, caused many businesses to rethink their approach to environmental issues. The Green Mile looks at the year's green business milestones, local legislation, the growing focus on sustainability and how it's likely to develop.

Earlier this year, the world still reeling from a depressed global economy and resounding failure at Copenhagen, Greenbiz.com unveiled its annual State of Green Business report. The results were mixed, with lead author Joel Makower saying: “More companies are doing more things, but they're moving the needle of environmental progress only slightly, if at all."

Eight months later, the situation looks much the same, with awareness and action remaining far apart in many cases.

Tim James, CEO of local consultancy sustainableIT, notes the effects of the financial crisis are still evident, with markets globally not picking up as quickly as anticipated.

“This has had a negative impact on sustainability initiatives as well as the chance of a climate deal being struck in Mexico, which looks extremely remote.

“The lack of a deal in Copenhagen in December 2009 and the 'watered down' Copenhagen Accord did not provide any momentum, or direction in terms of carbon markets and clean energy investment, which is a worry and has a trickle-down effect in terms of overall sustainability initiatives or the lack thereof.”

Lindie Engelbrecht, director of climate change and sustainability at Ernst & Young, says a key issue for business is changing mindsets to realise the world system has changed dramatically over the past two centuries.

“It is now 'full', where increasingly complex technologies and institutions, mounting resource constraints, and a decreasing energy return on investment have made human society more brittle - and hence more susceptible to collapse.”

Energy is one area in which this has become clear, notes Engelbrecht. Energy management companies boomed in SA since 2008's rolling blackouts, with more executives realising unsustainable practices are no longer profitable, she explains.

James agrees the 'green' momentum has largely been driven by cost concerns around energy. This follows electricity price hikes announced by Eskom and the regulator in February, at around 25% annually for the next three years.

“As these increases kicked in towards the latter part of the year, more emphasis has been placed on energy efficiency and by association, reduced carbon emissions,” he says.

According to James, it's critical for companies to begin understanding their risk exposure as the world's economies move towards a low-carbon future. “You really don't want to be left behind when international carbon tariffs come into play and risk mitigation strategies need to be developed for many companies now before it is too late.”

This year has seen the introduction of legislation and fiscal policies affecting business behaviour. In February, finance minister Pravin Gordhan highlighted in his first budget speech the need to help industries manage scarce resources efficiently and reduce greenhouse gas (GHG) emissions through appropriate energy pricing.

“It's very much lip service, with no budget or timelines given, and no real focus.”

Warren Johnson, Windows Client lead for sustainable IT, Microsoft SA.

Gordhan also introduced a carbon emissions tax on vehicles, and said additional environmental taxes are being explored to raise revenue and meet sustainability goals. These moves form part of SA's overall commitment to reduce emissions by 34% below business as usual by 2020, and 42% by 2025.

Andrew Johnston, group company secretary of Altron, says this year has seen pressure build on two fronts: from stakeholders, and local legislation.

On the governance front, the third King Code came into effect in March, with a greater emphasis on integrated reporting and sustainability as a factor in business decisions.

However, Warren Johnson, Windows Client lead for sustainable IT at Microsoft SA, says companies are merely paying lip service to King III: “Take what you do and fit it into the integrated report, versus rethink what you're doing and proactively make changes.”

Johnston adds that while King III and the barrage of incoming environmental legislation has created greater awareness among directors and boards, companies have been fairly slow to respond to the integrated reporting approach.

He points out that while SA has progressive laws, it lacks an effective enforcement agency. “Until you replicate something like the Competition Commission in the environmental space, where you can order heavy fines and lock directors away, companies are happy just keeping their heads below the radar.”

In November, the Department of Water and Environmental Affairs published the National Climate Change Response Green Paper for public comment, outlining government's vision for a long-term transition to a low-carbon economy.

James says the green paper appears to be a step in the right direction. “[It] will shape SA government's thinking over the next few years, including potential carbon reporting as early as 2013 for major emitters.”

In May, SA held its first Green Economy Summit, highlighting the country's commitment to follow a more sustainable growth path, and the need for public-private partnerships to help achieve this.

President Jacob Zuma said increased capacity and investment in clean technologies would strengthen the economic case for environmental management and sustainable development.

Despite these assurances from government, Johnston notes environmental issues are still a bit of an “orphan” among local businesses.

“In the JSE Top 40, most companies are quite mature and developed. But by and large South African companies are still behind the curve from a global point of view in terms of environmental awareness and response.”

According to James, local businesses do not see sustainability, green IT, and related concerns as strategic issues. From an IT perspective, he says, the fundamental problem is measurement and KPIs.

“ICTs do not have targets in terms of sustainability, energy-efficiency and green IT. As such, no budget is set aside to fund such initiatives.

“This blinkered approach is often mirrored at a macro level in terms of business strategy and senior management give higher priority to other focus areas,” James explains.

Johnson, who deals with the top 177 companies in SA, including the public sector, says: “I've been speaking to them about sustainable IT - getting the IT house in order - and IT for sustainability - using IT to help reduce carbon in the business for a few years.

“I'm finding the following: not a single corporate is driving either message to their IT department properly. It's very much lip service, with no budget or timelines given, and no real focus.”

He adds while there's a massive role for technology - which can create systems to measure, analyse and report, and do modelling - these concepts need to be sold to business, as it provides the funding.

“IT has a massive disconnect just about everywhere to business, and thus is not thinking about how to use IT to proactively help business reduce its overall carbon footprint - and business does not seem that interested either.”

The message Johnson gets back from IT is that until it's legislated in SA, with large enough fines and rewards, business is not going to do much about it.

“Generally, sustainable IT is looked at if the company can save money through it, and getting there doesn't cost them anything from a pure financial sense. Carbon footprint is not something being looked at.”

Earlier this month, the local report of the 2010 Carbon Disclosure Project was released, with SA ranking fourth highest globally in terms of emissions disclosure. Of the JSE's top 100, 74 companies responded, 94% disclosed their GHG emissions, and 31 adopted specific reduction targets.

Engelbrecht says the outlook is good and environmentally sustainable practices are here to stay. But she adds there's a need to improve manufacturing efficiencies for green products to drive prices down, which is the key to the overall success of the industry.

According to Johnston, the past two years have seen an increasing awareness and commitment by more companies to focus on environmental issues. “When this becomes law, if you don't calculate your carbon footprint, it will actually be a black mark against you for investors and stakeholders - the business community is increasingly focusing on softer issues.”

Johnston adds that people now expect more from businesses and the Y-generation expects companies to be responsible corporate citizens. “It boils down to reputation - if you don't have a good reputation from a social, ethical and environmental perspective, you'll lose competitive advantage.”

Engelbrecht says a shift to a new, better-adapted worldview and economy is limited less by technical innovation than by people's inability to challenge outdated mindsets and cultural norms. “Society as a whole, and business as a subset, needs to revisit the purpose of its activities, as well as the manner in which they are conducted,” she explains.

With 2011 around the corner, the eyes of the world will soon be on SA when COP 17 takes place in Durban late next year, to discuss targets and policies to advance climate change solutions.

But James doesn't see much change in the near future, saying the next climate conference in Cancun, Mexico, will be “a damp squib” and not create enough impetus in the short-term.

“I am hopeful, however, with COP 17 happening in SA at the end of 2011, that more focus will start being placed in this area towards the latter part of next year. It is, after all, another chance for SA to get the world's attention and we should do all that we can to maximise efforts leading up to COP 17.”