The value of going green for fast-growth businesses
How your businesses can be eco-friendly and still save money
It’s impossible to run a business – any business – without leaving some sort of imprint on the environment.
All companies consume energy, buy in raw materials and create waste that has to be disposed of. The price we pay for a buoyant and growing economy is a degree of environmental degradation.
But that’s not to say businesses can’t take action to reduce the impact their commercial activity has on the planet. Indeed, as our political leaders queue up to be photographed beside melting icecaps or taking delivery of spanking, new, energy-efficient ministerial cars, the word from Whitehall is that the business community should be doing its part to ensure that the Earth’s resources are used in a responsible and sustainable way.
In part, this has manifested itself in a welter of red tape and regulation, such as the WEEE (Waste Electrical and Electronic Equipment) Directive and RoHS (Restriction of Hazardous Substances) legislation, for example. But there is also a positive message coming from government and its various agencies – going green is good for your bottom line. There are some obvious points to be made here. Use energy efficiently and your gas and power bills fall. Create less waste and you not only cut down on raw materials spending but also reduce any landfill charge that you have to pay. In other words, taking a responsible approach to environmental issues is not only a good thing to do from a moral and ethical perspective, it also makes sound business sense.
Cutting out waste
Waste typically costs 4% of turnover, which could well be the difference between profit and loss or just profit and increased profit. That has certainly been the experience of Devon-based potato crisp manufacturer Burts Chips. Although the company is still relatively small – it currently has around 50 employees on its books – it has carved out a niche supplying crisps to retailers such as Waitrose and Harrods. Demand has grown rapidly, and the company will soon be moving from its current premises (6,000 sq ft) to an outlet with almost six times the floor space.
But the business has had a problem. The production process has generated large amounts of waste, with too many potatoes and crisps being thrown away. According to technical manager Rebecca Woodward, this meant the business was labouring under the double whammy of unnecessarily high raw materials and waste disposal costs. Action was necessary.
“In any growing business, ready cash tends to get used up as soon as it appears, so we needed to address the problem,” says Woodward. “We recognised that by reducing the waste we could save money and we could also reduce our impact on the environment.”
Burt Chips’ solutions were both procedural and technical. On the former front, better training on quality control meant that fewer chips – indeed an impressive 90% fewer – were thrown away during the production process.
In the meantime, the company also invested in equipment that would apply seasoning to its products more evenly, reducing waste on that front too. “The seasoning is the most expensive ingredient,” explains Woodward.
The result of all this has been a £21,000 annual saving on raw materials and waste disposal. Now the company intends to continue with a policy of improving efficiency while lessening its environmental impact when it moves into its new factory. “In designing the new plant, we have included a more efficient heat exchange system to cut down on power usage,” says Woodward. “We are also introducing a sorting machine that will further cut down waste.”
Going green for financial payback
Arguably, the steps taken by Burts Chips simply represent good management that also happen to have a positive impact on the environment, almost as a by-product. But the company’s experience does illustrate the point made by government and environmental campaigners that a great deal of the measures that can be taken to ‘green’ a company will provide a financial payback.
And if you get the basics right, your business can save money for virtually no upfront spending. As Dr Garry Felgate, a director of government-sponsored energy efficiency advisory service the Carbon Trust points out, there are many low-cost measures that companies can use to reduce their energy bills – and reduce carbon emissions into the atmosphere.
These include using low-energy light bulbs, only lighting and heating parts of the building that are actively being used and turning off electronic equipment overnight and at lunchtime. “You can even take out light bulbs,” he says. “At the Carbon Trust offices, our lights are arranged in banks of four. By taking out two bulbs from each bank, you can cut the lighting bill by half.”
These simple conservation measures don’t have to be confined to power consumption. Envirowise, another state-funded organisation, provides consultancy services to businesses on a broader range of green issues.
Director Mary Leonard says that just as you can make inroads into light and heating bills by tightening up on usage, you can also cut down on water and raw materials costs. “There are lots of things you can do,” she says. “From recycling envelopes through to fixing leaks and taking steps to cut down on the water used when lavatories are flushed.”
Thinking carefully about transport issues can also save cash. If your company runs a fleet of cars, replacing them with more fuel-efficient models when the present contract hire period comes to an end will save you money on petrol. Research by business-focused financial adviser Bibby Financial Services suggests that many company buyers have already taken this on board. In a survey of entrepreneurs, Bibby found that 59% of businesses take the knock-on effect on the environment into account when making purchases, with features such as fuel efficiency becoming more important than status and performance.
The case for investment
However, to make real progress along the green/ energy-efficiency highway, you will have to consider additional investments both in time and money. “You can do certain easy things that don’t make a big difference,” says Felgate. “Or you can do much harder things that will in the end make a very big difference.”
Felgate uses the example of a piece of equipment commonly found on factory floors: the humble compressed air pump. A business can save a certain amount of money by insisting that staff clean the floor using brooms, rather than energy-guzzling compressed air. Failing that, savings can be achieved through regular maintenance, to ensure the motor powering the device runs at peak efficiency. But to really make a difference, you should invest in a motor designed to be energy efficient.
And an investment in new equipment can pay for itself over a relatively short space of time. For instance, the Carbon Trust recently worked with plastic bag manufacturer Nelson Packaging to identify savings. The biggest investment the company made was in a power correction unit for its factory at a cost of £13,000. Not small beer, but consequent savings of £4,000 per annum on the heating bill meant that the money could be recouped in three years. The business case was therefore easy to establish.
And, as Felgate stresses, businesses needn’t bear the entire burden of upfront spending on new kit. Under measures introduced by chancellor Gordon Brown, certain environmentally friendly equipment attracts 100% capital allowance in the first year. In addition, the Carbon Trust will provide interest-free loans to fund agreed projects.
Carrying out a green audit
The problem is, of course, that the average workplace is a complex environment, and in order to formulate a green plan that will both deliver the maximum efficiencies while minimising environmental impact, you have to look at the operation in its totality – ideally through a green audit.
There’s a lot of help available here. In addition to the advice that water and energy utilities are increasingly offering to business customers, the Carbon Trust and Envirowise offer free audit services.
Envirowise’s Leonard says regardless of the size of company or sector, this can be a financially rewarding process. “On average, we can save manufacturing businesses £1,000 per employee per year while the average saving for service companies is about £350 for each member of staff,” she claims.
A comprehensive audit will also identify the quick, cheap wins and the more expensive longterm solutions. “We’ll show you what savings you can achieve for no cost or for low cost. We will also show you what you can achieve by investing in new equipment,” says Felgate.
Sustainable sources, premium prices
It has to be said that not all green initiatives will automatically save you money. For instance, cutting power consumption will certainly help reduce greenhouse gas emissions, but unless you switch to green power from sources that don’t involve burning fossil fuel – wind, hydro, etc – you will still be a net polluter. You can ask your electricity company to be supplied with power that is produced from sustainable sources only, but you may have to pay extra.
Similarly, if you decide to switch to recycled materials – such as paper or envelopes – your office procurement bills will tend to rise rather than fall. So is there a business case for buying more expensive supplies from sustainable sources?
Well there can be, if the expense is counterbalanced by savings elsewhere. For instance, in the case of green electricity, your power companies may charge you more for using it, but the government will take less in tax.
“There is a small premium when you buy green electricity,” says Denise Wareham, head of B2B at energy company EDF. “But that can be offset. Industrial users who source green power get an exemption on the climate change levy.”
In other areas, however, the business case may be less clear-cut. via3office provides recycled paper and other green goods to businesses of all sizes. To keep the cost down, the company has set up buying groups to enable clients to collectively buy in bulk, but as founder and managing director Karl Harder admits, it is difficult to get the cost of, say, recycled paper down to that of its tree-produced alternative. “So the approach we take is to work with companies to help them find savings elsewhere – such as in reducing power consumption. In that way, they can offset the additional cost of using recycled materials.”
So the driver here isn’t purely financial. If it was, Harder’s clients could simply take the savings and forget about sourcing sustainable products. However, what via3offi ce can offer is an opportunity for businesses to take an ethical stand without having to incur higher costs.
“I always felt that we should go green,” says Charlie Holton, building manager of via3office Office client Bromley by Bow, a social enterprise based in London’s East End, which through via3office converted 40% of the core office spend to green options, saving 4% in the process. Its environmental management system will also secure it the Green Mark accreditation stamp. “We didn’t think we could afford it, but by putting a three-year plan together we found we could.” It was a plan that not only involved using recycled paper but also selling recycled goods – such as printer cartridges – for profit.
The PR benefits of going green
Harder argues that one of the less tangible effects of a green stance is improved staff motivation as employees begin to feel better about the organisation. Your customers may feel better too, for in this age of heightened environmental awareness, taking a proactive approach to green issues can help win your business new friends.
Certainly that’s the view of Andrew Wanliss-Orlebar, head of corporate social responsibility at brand strategy consultancy Corporate Edge. He argues that a green message can be used to differentiate your company from its rivals.
He cites the example of Radio Taxis, a firm that has pledged to become carbon-neutral by offsetting the emissions produced by its cabs. It has set out to achieve this by spending £100,000 a year on environmental projects. In commercial terms, the strategy appears to have paid off, with the company claiming to have won B2B contracts with HSBC, ECX and the Bank of England as a result.
Wanliss-Orlebar says the approach will win the company business at the non-corporate level, too. “If you can make people feel good about the choice they have made, that is a strong message. Taxi users will feel that by choosing Radio Taxis they will have done something for the environment.”
So perhaps that can explain the enthusiasm with which many businesses are now publicising their green credentials. BT has pledged to switch to green power. Total is buying hybrid cars for its workers, and Boots has made great hay of the fact that it covers up its freezers to save energy.
All of these initiatives, says Wanliss-Orlebar, have given the companies in question some alpha plus PR. “But you have to go beyond compliance with regulations,” he adds. “You have to offer a real story. For instance, when BT says all its power will be green power, that is an iconic statement.”
Potential investors may also be impressed by companies that go the extra mile on green. Andrew Garside, a new investment director at private equity house ISIS Equity Partners, says environmental credentials are not the first thing taken into account when his firm assesses a business, but it does matter.
“There are three reasons,” he says. “First, the companies we invest in have to comply with the law on environmental issues. Secondly, a company that is cutting edge in its practices is likely to have more value. And finally, there are reputation issues. We put directors on all the boards of our investee companies. They want to be associated with good businesses.”
Greening a company undoubtedly uses up some management bandwidth; although, it is often not necessary for the owner to get involved in the day-to-day intricacies of a project. According to via3office’s Harder, it is very often facilities or operations managers who lead the implementation once the idea has been sold to an owner. Envirowise’s Leonard agrees that the MD needn’t be in the driver’s seat, but she stresses that someone must have responsibility. “You need to appoint a champion,” she says.
There is more to going green than saving money. At one level, it can provide you with the compliance credentials you need to sell to government or major clients. At the same time, it can be a major differentiator when less bureaucratic customers decide to spend money. And beyond the bottom line? Well, we all have to live on the planet, so looking after it is always going to make sense.