Reasons Why You MUST Improve the Environmental Performance of Your Business

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1. YOU ARE WASTING MONEY

Between 2005 and 2010 I was involved with two publicly funded projects that required me to undertake environmental reviews of businesses and identity areas where savings in waste, raw materials, energy and water could be made.  Now I wished I’d kept a tally (think I will from now on), but the saving that businesses implemented were significant.

Savings from cutting waste (whether that is waste, materials, energy or water) comes straight off your bottom line. If your profit margin is 25%, every £1 saved in this way is equivalent to £4 worth of new sales. And unlike cutting staff, cutting waste costs improves rather than detracts from your ability to deliver value to your customers.

A few weeks ago I undertook a site visit to an empty warehouse that was previously occupied by a local business that unfortunately went bust.  Many people lost their job as a result. I have no idea about the bigger picture, or the root causes.  However, looking round the premises it was clear that their utility costs would have been high and from a short glance around there were areas where they could have saved money.

“45% of businesses that have made improvements to their environmental performance have seen a reduction in their operating costs1″.

2. THE TRUE COST OF YOUR WASTE CAN BE IMMENSE

I despair at the number of businesses who go to great lengths to manufacture a high value product and then reverse a forklift truck into it or spill it on the floor during packaging. Most businesses know how much waste costs to dispose of, but the true cost of this type of waste is much higher as it includes:

  • Disposal costs;
  • Raw material costs;
  • Energy and other utility costs for manufacturing;
  • Labour costs both from the original manufacturing and the clean up;
  • The cost of the disruption required to fulfil orders including knock-on effects on other orders;
  • Opportunity costs of not being able to sell that product;
  • Opportunity costs from poor customer satisfaction (eg lost future orders).

I will use an example of a business I worked with a few years ago now. They were a large SME, but the same theory applies, no matter what size the business is.

Business X

  • Turnover £53M
  • Waste disposal costs 0.4% of their turnover = £212,000
  • The TRUE cost of waste is often 15 x the actual costs = £3,108,00
  • OR waste actually costs 6% of turnover (now that will have got you thinking!!)

3. ENERGY, WATER AND WASTE COSTS ARE RISING

Between 2010 and 2020 DECC predict that energy costs will rise by 36%.  Every time I read this figure I’m shocked.  The figures are scary and from my experience, especially during a rescission, businesses need to look at what they can do to mitigate the impacts of these rises.

Landfill tax was introduced in 1996 and in April 2011 was £56 per tonne and is set to be increased by £8 per tonne per annum until 2013 when it will reach £72 per tonne.  Businesses that I was working with 5-6 years ago that really took this message on board will surely have a competitive advantage now.

In areas such as the South East of England, water resources are becoming ever more scarce.  Therefore, costs are also rising.  Between 2011-2012 South West Water is expected to increase their prises by 5.1%.

4. YOUR CUSTOMERS AND CLIENTS DEMAND IT

If you sell to the public, certain markets are going solidly green. The proportion of white goods rated A for energy efficiency sold has risen from 0% to 76% in the ten years to 2006.  70% of baby food sold in the UK is now organic.

If you sell to other businesses, then your environmental performance becomes their environmental performance. Increasingly larger organisations are demanding information on suppliers’ performance and Local Authorities (including Cornwall Council) and other public sector bodies are turning to ‘green procurement’ to meet Government targets. Not improving your environmental performance could mean forfeiting orders.

The most recent example I have come across is Sainsbury’s who have launched an ambitious new sustainability strategy. Sainsbury’s 20 by 20 Sustainability Plan pledges that:

7. By 2020, our suppliers will also be leaders in meeting or exceeding our social and environmental standards.

13. By 2020, through robust water stewardship we’ll ensure that our supply chain approach is sustainable in areas of water vulnerability.

14. By 2020, we’ll have worked with our own brand suppliers to reduce carbon emissions across all of our own brand products by 50 per cent.

Research undertaken by the Carbon Trust surveyed UK-based multi-nationals and 56% of respondandts replied:

“they expect to drop suppliers that have a poor carbon performance”.

5. YOUR COMPLIANCE COSTS ARE RISING

The amount of existing environmental legislation is huge and at Eco Outsource we work hard to try to make this easy for you.  However, the amount of environmental legislation on the horizon often surprises even me.  I can see why it is happening and the reasons are clear:

  • Water scarcity.
  • Landfill space is at a premium.
  • Climate change.

Regulators, such as the Environment Agency are increasingly taking a risk based approach to enforcement. If you routinely store hazardous materials, or they regard your practices as poor, they’ll be knocking on your door much more often than if you have eradicated the hazards and have tip-top housekeeping.

6. YOU MAYBE RISKING PROSECUTION

Every two years the Environment Agency surveys small business’ attitudes to the environment.  In 2009 only 23% could name one piece of environmental legislation that affects them1, even though every company must comply with several pieces of legislation.

I want to make this simple – I visit businesses all the time that are completely unaware of the environmental legislation that they MUST adhere too.  If you think the Environmental Agency are less likely to come knocking on your door down in this neck of the woods – think again. Our beloved Trago Mills (well I love it) were recently fined £185,000 for ‘reckless waste offences’.  I am sure this will have an impact on their business from both a financial and PR perspective. To be honest I feel a bit guilty using this as an example, but if Trago’s shortcomings can help other businesses in the region take note then at least that is one positive outcome.

7.  You are missing out on a great PR opportunity

With all the media attention on environmental issues, good environmental performance gives you a great opportunity to get good news stories into the media and advertising. Good solid green PR will impress the public, the pressure groups, your clients and customers and the regulators.

MPAD, a Cornish communications agency, is a leading example of this.  They recently won the regional Chamber of Commerce Sustainable Business award and represented the westcountry as a national finalist at the British Chambers of Commerce awards.  Well done MPAD!!

The Cornwall Sustainability Awards is fast becoming a high profile event in the regions calender.

8. YOUR STAFF WANT YOU TO DO IT

Environmental and CSR initiatives are a determining factor in employee retention and engagement rates according to the Chartered Institute for Personnel and Development (CIPD).  In the US, a survey of over 4,000 people carried out by recruitment job site MonsterTRAK found that 80 per cent of young professionals are interested in securing a job that has a positive impact on the environment. Meanwhile, over 90 per cent claimed they would prefer to work for an environmentally friendly employer. In the UK, a survey of 5,000 job hunters showed that 43% would not work for a firm which had no ethical or environmental policies, even if they were offered £10,000 a year more than to work for a business with a sense of corporate social responsibility.

9. YOUR COMPETITORS ARE DOING IT

The 2009 NetRegs survey found that 84% of businesses had made at least one practical step to improve their environmental performance. This was more often than not recycling but there is so much more that businesses can do. Some sectors have seen green issues come right to the fore e.g. the current great green supermarket wars where Marks & Spencer, Tesco and Sainsbury’s are fighting it out to get the best green image.

If your competitors have a better environmental performance than you, they will:

  • Have lower operating costs and either a higher profit margin or a more  competitive pricing structure;
  • Be more robust to future change: new legislation, green taxation, and customer demand;
  • Have better PR and marketing opportunities;
  • Have better motivated employees and will be attracting the best new recruits;
  • Have less risk of prosecution, NGO campaigns and a lighter touch from the regulators.
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2 Comments

Filed under Business Case

2 responses to “Reasons Why You MUST Improve the Environmental Performance of Your Business

  1. Lots of big companies like IBM or Microsoft are now asking their suppliers to join green initiative. At first, these suppliers may feel uncomfortable. Anyway, at the end of the day, they will find out that their operating cost reduces a lot.

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