Three main factors are pushing organisations to raise their environmental, carbon and sustainability performance. This report will look in a little more detail at each of these drivers below, and ask why companies are turning to software tools.
Environmental legislation really started to hit heavy industry in the 1980s, via a slew of regulations covering health and safety, local pollution, acid rain and hazardous materials. This generated a first-wave market for environmental, health and safety software (EHS) tools that typically helped streamline the tasks of tracking impacts, dealing with permit applications, reporting routine or accidental emissions and planning corrective action.
These laws and the management challenges they entail remain relevant today. But over the past five to ten years new legislation has increasingly focused on emissions of carbon dioxide and other greenhouse gases, driven by climate change fears.
Across Europe, power generators and energy-intensive industry are now regulated under the EU emissions trading scheme. In the UK, additional laws have been passed, including the climate change levy on energy-intensive businesses and now the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme. Under the CRC, 5,000 organisations will be drawn into a carbon-trading scheme. Another 15,000 will have to report their energy use.
These and other laws, for example on mandatory carbon reporting, are transforming the way organisations are having to account for their global warming impact. Many are still unprepared.
A survey of the UK’s 100 largest companies by Solar Gard found more than half did not realise they needed to register for the CRC scheme and one third did not know their energy usage. The Economist Intelligence Unit reported that one third of 542 senior executives surveyed worldwide did not have a coherent strategy to reduce energy use. Software company Enviance found that 61% of US firms had not set up systems to comply with mandatory carbon reporting legislation.
A crude focus on profit is giving way to increasing awareness of the ‘triple bottom line’, which rates environmental and social performance alongside financial strength. Companies are facing more intense scrutiny, not just from traditional critics among environmental and social lobby groups and local communities, but from customers, employees and investors.
Investors today demand information about companies’ sustainability impacts because they believe that those with strong management of environmental and social risks will have a competitive edge.
More than 1,300 large organisations now report in line with the Global Reporting Initiative sustainability reporting template. Investors use the Dow Jones Sustainability Index which ranks companies in terms of their environmental, social and economic performance.
Some 2,500 firms, including 80% of the world’s largest companies, supply information on energy and carbon to the Carbon Disclosure Project (CDP). This data appears on Wall Street traders’ terminals and on Google Finance. In the UK it is used to compile the FTSE CDP Carbon Strategy Index, recently launched in collaboration with ENDS Carbon.
Businesses are passing the pressure on to their supply chains. Of the companies reporting to the CDP, 89% have a strategy for engaging with suppliers and more than half expect to deselect those with poor carbon management in future. The most oft-quoted example is the Walmart questionnaire, sent to all its 100,000 suppliers in 2009, listing 15 simple questions on sustainability, including carbon emissions, waste production and energy use.
The next step may be product labelling. Walmart is compiling a database of product life-cycle information that could be used for sustainability labelling. Tesco is pioneering the use of carbon labels on some produce.
Across the board, these and other demands for greater transparency are driving more and more organisations to report regularly on their carbon, environmental or broader sustainability performance.
The recession may have pushed green issues down the political agenda, but there is ample evidence that, far from being a luxury, good environmental management will cut waste, improve efficiency and save money.
Although energy and resource prices crashed in 2008, they are already back on an upwards trend. Both oil and electricity costs are projected to increase. Water supply is becoming constrained in many regions, and waste disposal costs will escalate as the landfill tax continues to rise.
Simon Drury of the Waste and Resources Action Programme (WRAP) estimates that most companies can save 4% of their turnover through simple measures to reduce waste. Smart organisations are focusing on improving their eco-efficiency – delivering their goods and services with a smaller resource footprint. This can shield companies from a whole range of financial risks, including exposure to supply disruptions, price volatility and long-term price rises, future changes in regulation and the costs of accidental releases and spills.
There is mounting evidence that more eco-efficient companies perform better financially. A study by consultants AT Kearney found that the share prices of the top 99 companies in the Dow Jones Sustainability Index outperformed the industry average by 15% in 16 out of 18 sectors.
The potential to make savings can extend to the supply chain. Walmart’s supply chain initiative is largely geared to driving down costs, on the basis that savings made by suppliers can be passed on as price cuts to its customers.
All three of these drivers are powerful forces encouraging or requiring organisations to better understand, better manage and better plan their energy and resource use, carbon emissions and environmental impacts.
Many organisations start to measure and manage their impacts using in-house tools based on spreadsheet and database packages such as Excel and Access. These can be quick, easy and cheap, and can be customised to a firm’s own requirements. But there are strong drivers towards the adoption of environmental business software:
- Complexity: Spreadsheets and databases can fail to meet the needs of large organisations that have many facilities and emission sources. This is especially so where these are spread across different countries with different reporting requirements, legislative targets and emission factors. They also lack the number-crunching ability to handle forecasts and scenario analysis, and the sophistication for participation in cap-and-trade schemes.
- Accessibility: Software can provide a single data store accessible to individuals across an organisation. It can also provide different interfaces for user groups such as managers, report generators, data providers, carbon traders, customers and suppliers.
- Integration: Software can be tailored to integrate with company management and financial systems, or to collect data automatically from utility meters.
- Standardisation: The use of a single tool and methodology across the company guarantees compliance with different legislative or reporting standards and reduces the scope for errors which can arise where multiple copies of spreadsheets are used. It also enables benchmarking comparisons to be made between company departments or other organisations within the sector.
- Auditability: A well-designed commercial software package can provide a consistent, visible, defensible record of compliance with legislation that can be confidently signed off at board level. This will become increasingly important as organisations shift from voluntary reporting to mandatory reporting and participation in trading schemes.
- Better reporting capabilities: This is especially useful where different report formats are required. UK organisations are finding that compliance with the CRC requires much more detailed reporting than their existing systems allow.
- Cost: Software can prove cheaper than the cost of manual data collection or in-house systems, especially as reporting requirements become more complex. Updates to emission factors or report formats can be carried out automatically, for example. Independent analyst firm Verdantix estimates that the typical payback time for a commercial package can be less than one year.
- Continuity: In addition to providing reliable, robust, well-tested software, commercial packages eliminate the risk of relying on “black box” systems run by experts who may leave the organisation.