Sustainability needn't cost the earth
There is a common misconception that operating sustainably increases cost. Matt McGeehan CA looks at some case studies which indicate that being green needn’t cost the earth and can actually reduce costs.
The recent ICAS sustainability surveys reflected a degree of cynicism among ICAS members about the green agenda. Some felt that the whole sustainability debate was costly greenwashing which diverted us from real business issues and that accountants should just stick to the numbers.
This may stem from what we see on a personal level in our daily lives. In the supermarket, organic or sustainably sourced products seem to cost much more than the mass produced equivalent.
However, this needn’t translate to the business arena. The case studies below demonstrate that being greener can reduce costs.
Case Study 1 – National Grid
UK infrastructure projects are responsible for half the country’s carbon emissions. National Grid introduced a minimum 5% carbon weighting on construction project tenders to incentivise suppliers to reduce the carbon content of infrastructure assets in order to deliver energy and resource efficiencies, as well as financial savings.
It also developed a Carbon Interface Tool (CIT) to measure the carbon emissions from the construction and lifetime operation of its assets and shared this with its supply chain stakeholders.
The CIT approach enabled National Grid to;
- Monitor the carbon intensity of projects at the design stage.
- Focus attention on activities with high carbon intensity.
- Identify innovative alternative solutions.
- Deliver real reductions in cost and carbon.
National Grid is building a new electricity substation in Wimbledon and, by applying the CIT approach, has produced carbon savings of over 20% (39,000 tonnes) across the asset’s life, along with significant cost savings of £3m against the original design through:
- Reduced volumes of green house gas emissions in electricity transmission equipment.
- Use of low-carbon concrete.
- Sourcing recycled steel for reinforcements.
The outcome was that lower carbon equalled lower cost. The innovations made in this project provided a baseline for future tenders. National Grid's finance team has played a pivotal role in capturing the financial effects of these initiatives by developing a new methodology using annualised net present value (ANPV) which makes it easier to incorporate sustainability factors into capital investment decision making.
Case Study 2 – Marks & Spencer (M&S)
M&S employs 81,000 people and has 760 UK stores. In 2006, the Stern Review on the Economics of Climate Change warned about the economic and business consequences of climate change. In response, M&S launched “Plan A”. (It was called Plan A because there was no Plan B for our planet).
Initially the plan was simply to collate and publicise its existing sustainability initiatives. M&S intended to invest £200m over five years which would enable it to reach its sustainability goals without creating extra costs for customers. At first, the focus was how to manage a projected increase in budget.
However, M&S developed Plan A and applied it right across the value chain to;
- Combat climate change.
- Reduce waste.
- Use sustainable raw materials.
- Trade ethically.
- Help customers to lead healthier lifestyles.
It not only made the business more sustainable, but it also generated over £185m in net cost benefits in five years. This wasn’t delivered by a small corporate social responsibility team. It needed transformational change right across the business from logistics to human resources.
The focus then became how to harness these benefits and really understand the implications. The finance team had a role to play in building the business case for new opportunities and encouraging savings by reporting the financial benefits.
M&S became the world’s first carbon neutral retailer and:
- Reduced energy consumption by 28%.
- Reduced food waste by 40%.
- Cut packaging by 26%.
- Reduced food carrier bag use by 78%.
- Reduced water usage in stores, offices and warehouses by 18%.
M&S achieved zero waste to landfill from all stores, offices and warehouses and, in doing so, it saved £4.6m. It also cut its paper usage by over 25% through best practice and investment in IT saving £2.6m. Its biggest store, Cheshire Oaks, has an 80,000 litre rainwater tank and 70% of the store’s heating comes from a biomass boiler and heat reclamation resulting in lower water and heating costs.
It is wrong to assume that operating sustainably must mean increased cost. In fact, applying the green agenda drives innovative solutions that can reduce cost. Accountants should not leave sustainability to someone else. Measuring, monitoring and driving the net benefit from sustainability initiatives should be a core part of our job description.