SUSTAINABLEBUSINESSFINANCIAL TIMES SPECIAL REPORT | Thursday October 9 2008

www.ft.com/sustainable­business­oct2008

Carrots and sticksA plethora of tools is beingused by governments toencourage businessesto be greener.Vanessa Houlder(right) looks atthe sweetenersand regulationsin five countriesPage 4

Staying on course in a tougher climate

Concerns over climatechange have not been atthe forefront of mostchief executives’ minds

in recent weeks: the financial cri-sis and economic downturn haveeclipsed all other issues. Whilemanagers are worried aboutwhether their businesses are sus-tainable economically, the ques-tion of whether they are sustain-able environmentally seems lesspressing.

Before the crisis wiped outother concerns, companies wereincreasingly eager to trumpettheir environmental credentials.Large companies, includinghousehold names such as Wal-Mart and General Electric, Fordand Coca-Cola, HSBC and NewsCorporation, made pledges to cuttheir greenhouse gas emissionsand lessen their environmentalimpact.

What will happen to compa-nies’ environmental commit-ments when businesses are fight-ing for their survival? Will thepledges made in a sunnier eco-nomic climate be forgotten?

Talk to any of the companiesthat have taken a lead on envi-ronmental issues, and the answeris the same: no. Environmentalsustainability is just as impor-tant in a downturn, they insist.

”Our goal is still to be one ofthe world’s leading brands in cor-porate sustainability and weregard it as central to businessstrategy,” says Francis Sullivan,deputy head of corporate sustain-ability at HSBC.

“We continue our commitmentto reducing our environmentalfootprint and implementing oursustainability risk policies. Wealso maintain that sustainabilityoffers diverse business opportuni-ties [such as investment inrenewable energy].”

Bank of America announcedlast March it was embarking on a$20bn 10-year strategy to tackleclimate change, and help its cus-tomers do the same. The com-pany insists that the crisisengulfing the sector will notdeflect it from this purpose.

“[We] continue to moveforward with our environmentalinitiative to address climatechange,” the company says.“Now, more than ever, there isa critical need for financingto develop environmentally sus-tainable products and technolo-gies, accelerate the deploymentof existing technologies, andincrease energy efficiency.”

Retailers and consumer goodscompanies are equally adamantthat they will stay the course.

“Sustainability will remaincritical to our business, even dur-ing an economic downturn,” saysIan Cheshire, group chief execu-tive at Kingfisher. “As a majorinternational retailer, we have aresponsibility to tackle issuessuch as climate change and worktowards a more sustainablefuture.”

Mr Cheshire says the com-pany’s customers are “increas-ingly aware of environmental

issues” and seeking to buy prod-ucts accordingly.

Indeed, companies would befoolish to abandon their greencredentials at the first sign ofdifficulty, says SolitaireTownsend, chief executive ofFuterra Sustainability Communi-cations, which advises companieson their green strategies.

“How would it look,” she asks.“If companies drop [their interestin green issues], everyone willunderstand that they didn’tmean it after all. What will thatdo to their relationship withtheir customers – or with theirstaff?”

Consumers are still interestedin environmental matters,despite their economic worries,argues Jenny Dawkins, researchdirector at Ipsos Mori, the pollingcompany. She points to pollsfrom the UK to prove the point:

the environment was mentionedas a top concern by 8 per cent ofpeople surveyed in September.

This is far below the numberconcerned about the economy –55 per cent, the highest recordedsince this series of polls began in1974 – and below the peak of 19per cent of people who rated it atop concern in early 2007, shortlyafter the release of Al Gore’s filmAn Inconvenient Truth. But it ismuch higher than the 2 to 4 percent of people who rated theenvironment a top concern in theperiod 2002 to 2004. The environ-ment remains relatively highamong people’s priorities.

“The environment has beenovershadowed [by the economy]but it has not dropped off theradar,” says Ms Dawkins.

People in the US are also stillinterested in climate change,says Michael Allegretti, head of

government relations in the USfor the Climate Group, a non-profit organisation that workswith businesses on cutting emis-sions. Although the economymay be a more pressing concern,

public opinion is in favour of tak-ing action to tackle global warm-ing, he says.

Businesses should take note,advises Ms Dawkins. “Seven outof 10 people think that in tougheconomic times it is more impor-tant for a company to behave

responsibly,” she says. “The onusis very much on companies tocontinue to behave responsiblyin line with consumer expecta-tions. That pressure is not goingaway.”

What is more, companies havemuch to gain from taking stepsto improve their environmentalperformance, says Ms Townsend.“This is not some fluffy issue. Itis a business issue. Companiesshould understand that.”

The guiding principles behindbehaving in an environmentallysound manner are the same asthe principles of thrift and econ-omy, she points out.

Using fewer resources is at thecore of environmental sustaina-bility, and leads to cost savings.“Thrift and being green go handin hand,” she says.

Jan Babiak, global climatechange and sustainability serv-

ices leader at Ernst & Young,says that companies should real-ise that there are substantial sav-ings to be made: from cuttingdown on the wasteful use ofenergy to economising with othermaterials.

She says: “Insightful manage-ments realise that having anenvironmental policy in placewill save them a lot of money.There are some very simple butimpactful changes that can bemade. Double-sided printing andswitching lights to movementsensitive activation are just twosmall examples.”

The current high energy pricesonly make the issue more impor-tant in a downturn, adds AndrewCaveney, partner for businessadvisory services at Ernst &Young. He explains: “Rocketingenergy and commodity pricesrepresent a far more powerful

driver of green business practicesthan the existing level of legisla-tion or consumer pressure.”

Managers can learn muchabout how to improve their busi-ness processes from looking attheir carbon dioxide emissions,he says. “Carbon in the supplychain is not only a liability initself but an indicator of an inef-ficient operating model and expo-sure to rising energy prices.”

Businesses that ignore climatechange may also expose them-selves to large risks. Forinstance, they may be challengedby lawsuits from plaintiffs argu-ing that companies have causeddamage to property by failing totake action to cut their emis-sions.

Companies also face the risk ofthe damaging effects of climatechange, such as rising sea levels,droughts, floods and fiercerstorms. Tightening environmen-tal regulations – such as theintroduction of a cap-and-tradesystem for cutting carbon emis-sions in the US, which has beenpromised by both presidentialcandidates – present a furtherrisk for unwary companies.

Mr Sullivan of HSBC says:“Managing risk and promotingbusiness opportunity is criticaland, in the context of sustainabil-ity issues, is as important todayas it was before the current chal-lenges in the financial marketssurfaced.”

As well as posing a threat, cli-mate change opens opportunitiesfor companies beyond efficiencysavings. If the global economy isto move to lower-carbon meansof production, then many indus-tries will have to change.

The energy industry is themost obvious, as renewableforms of energy will have to takeprecedence over fossil fuels. Newcarbon abatement technologiessuch as carbon capture and stor-age are also being developed,opening up a new market.

Other sectors will also have tochange, opening opportunitiesfor new products and businesstechniques. Construction compa-nies, for instance, will have tofind ways to make greener build-ings, using more environmen-tally sound materials anddesigns. Car companies are look-ing to use new technologies suchas electric engines and hydrogenfuel cells. Airlines are testingnew designs and fuels made fromplants.

The downturn will have someeffect on the number of compa-nies bringing out “green” initia-tives, predicts Ms Townsend atFuterra.

“Companies that just wantedto dip their toe in the water, orthat wanted to gush about cli-mate change rather than reallydoing anything real about theirenvironmental impact – they willgo away,” she says.

“There will be a lot fewer‘have-a-go greenies’ around,those companies that just talkabout green issues because theythink it’s fashionable.”

But companies with a longer-term vision, and companies thatperceive the benefits of environ-mental management, will con-tinue to seek to improve theirgreen performance, she says.“Consumers will trust those com-panies more.”

Leading companiessay sustainability isjust as important ina financial crisis,writes Fiona Harvey

Save energy – the less painful way to cut costs

In a downturn, companiesstart to look urgently forways to trim their costs.

Typically, this will includeredundancies and the clo-sure of some underperform-ing units. Managers will betold to do more with less,and corporate belt-tighten-ing may include cuttingdown on expenses such asentertaining or non-essentialtravel.

But could companiesachieve some of the sameresults through energy effi-ciency?

Soaring energy prices havemeant that energy is a muchbigger part of any company’soverheads than it used to be– the spend on energy hasmore than doubled in thepast three oro four years formany companies. So cutting

out the wasteful use ofenergy should bring savingswhich – importantly – aremuch less painful than cut-ting staff or closing offices.

Hugh Jones, director ofsolutions at the CarbonTrust, a UK government-funded body, says most com-panies can shave about 20per cent from their energybills without trying veryhard.

“A lot of these things arevery simple, like turning offlights in rooms where peoplearen’t working,” he says.

InterfaceFlor, for instance,a manufacturer of carpettiles, has pledged to have azero carbon footprint by2020, and in its effort to doso has cut its energy con-sumption by 45 per cent perunit of output. This, togetherwith other waste-reductionmeasures, has saved thecompany more than $372msince the mid-1990s.

Eon, the energy utility,estimates that the averageoffice wastes £6,000 a yearbecause employees fail totake basic energy efficiency

measures, which can be aseasy as turning off comput-ers when they go home andunplugging mobile phonechargers when not in use.

The company found thatsome of the barriers toemployees being more ener-gy-efficient were surprising.

Just over half the people itsurveyed said they were heldback by being afraid to askpermission, while a similarnumber said that the lack ofa financial incentive was toblame.

A quarter said they didnot take energy-efficiencymeasures because of worriesabout being ridiculed by col-leagues if they did so.

However, companies arebecoming much more awareof energy efficiency, owingto a combination of highprices and economic con-cerns, reports John Murphy,vice-president and managingdirector for systems andservices for Europe andAfrica at Johnson Controls,which makes building con-trol products.

“We are seeing much more

interest in energy efficiencyacross the board. There willbe much greater sensitivity[to energy-efficiency issues]from building owners, as thecredit crunch continues tobite,” he says.

Some energy-efficiencymeasures – such as turningoff computers or openingwindows rather than turning

on air conditioning – arestraightforward and savemoney immediately, whilerequiring little more thanminor behavioural changesto implement.

Others, however, are moredifficult and require invest-ment. For instance, “build-ing automation” improve-ments, such as installing

sensors to turn off lightswhen there is no movementor winding down the heatingof offices at night, can sub-stantially cut energy wast-age. But the costs of buyingand installing such equip-ment mean the paybackperiod may be one or twoyears, says Mr Murphy. Thisis often what makes compa-nies hesitate.

Harry Verhaar, seniordirector for energy and cli-mate change at PhilipsLighting, says lighting repre-sents 19 per cent of globalenergy use but more thanthree-quarters of lights areof the older, less efficienttype. If they were replacedby efficient lights, about 40per cent of this energy usecould be eliminated, result-ing in savings of more than€100bn a year worldwide.

The savings would beequivalent to the output ofabout 530 average-sizedpower plants, resulting inhuge cuts in carbon dioxideemissions.

But although energy-effi-cient lightbulbs save money

over a few years, they aremore expensive to buy thanthe older models.

Mark Nutt, managing con-sultant at Morse, the con-sulting and IT services com-pany, says chief executivescan encourage their manag-ers to find efficiencies bymaking each departmentresponsible for its ownenergy use.

“By making departmentspay for their own energy,managers will be incentiv-ised to monitor usage andfind areas where it can bereduced,” he explains. “Thegreatest initial savings canbe achieved with relativelysimple measures rather thanout-and-out reinvention.”

It is not just energy that iswasted. Cutting down on thewaste of raw materials canresult in substantial savingsfor manufacturers, says BillMcCausland, production spe-cialist at Envirowise, a UKgovernment-funded agencyhelping companies reducetheir environmental impact.

“With continued pressureon manufacturers to manage

the impact of higher rawmaterial costs, taking a sys-tematic approach to resourceefficiency can provide manu-facturers with a sustainablestrategy of cost reduction ina competitive market,” hesays.

Kimberly-Clark, for exam-ple, found it could cut costsby redesigning its toilet tis-sue, Andrex. The companyput 50 per cent more sheetson each roll and trimmed30mm of packaging from itspacks, saving about 83,000kgof plastic a year and cuttingtransport costs.

Encouraging companies torealise these cost savingscan still be difficult, how-ever, as it requires manage-ment time and effort that isin short supply, as compa-nies look to their survival.

Mr Murphy argues thatgovernments should playmore of a role: “I thinkthings such as investmenttax credits for buildingimprovements that increaseenergy efficiency wouldreally help get more compa-nies looking at this issue.”

ENERGY EFFICIENCY

Fiona Harvey onan alternative toredundancies andfactory closures

Inside this issueTransport Rising fuel pricesare forcing companies tore­evaluate strategies suchas just­in­time and – likeTesco (see picture) – topool some of their deliveryoperations, writes RodNewing Page 2

TeleconferencingNew technologiesare becomingincreasing appealingto companieslooking to cut theircarbon footprint,writes Sarah MurrayPage 3

Insurance The sector isencouraging customers tomanage and reduce climatechange risks, writes AndreaFelsted Page 5

Opinion Björn Stigson onwhy big issues are just asurgent in a crisis Page 6

It’s an ill wind that blows no good: the economy may be a more pressing worry at present, but people are still concerned by climate change

If the world is tomove to lower­carbonmeans of production,many industrieswill have to change

OCTOBER 9 2008 Section:Reports Time: 6/10/2008 - 15:39 User: baxtera Page Name: SBI1, Part,Page,Edition: SBI, 1, 1

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

2 ★ FINANCIAL TIMES THURSDAY OCTOBER 9 2008

Sustainable Business

Finding better ways to deliver the goods

Increased transportcosts because of oilprice rises can changethe economics on

which supply chains werebuilt.

Traditional strategies wereaimed at reducing theamount of money tied up ininventory and the number ofwarehouses. However, thiswas often at the expense ofincreased transport frequen-cies and distances, andtherefore emissions.

Strategies, such as just-in-time, lean manufacturingand even low-cost countrysourcing, must be re-evalu-ated in light of fuel prices.We have entered a new erawhere different supply chainstrategies are needed toengender high performance,says Past the Tipping Point,a recent report from Accen-ture and Ilog, the French-headquartered business soft-ware company.

Jonathan Wright, globalhead of the fulfilment prac-tice at Accenture, explainsthat tipping point analysis isan end-to-end assessment ofthe supply chain to under-stand at what point inven-tory should be held furtherforward in the supply chainto reduce transport costs.

Moving inventory closer todemand lowers transportand emissions at the expenseof higher inventory costs.

“That tipping point occursat different fuel prices,depending on the type andnature of the product,” hesays. “The tipping point willlower with a low-cost bulkyproduct, such as soft drinksor paper. There will alwaysbe areas where just-in-timeis the right thing to do andothers where it is history.”

Kimberly-Clark’s “Net-work of the Future” placesdistribution centres closer toits key customers and mar-kets, reducing the number of

delivery trips. Its strategyaims for 70 per cent of prod-uct to be made and sold inthe same country. In the USalone in 2007, it saved nearly2.8m miles and 500,000 gal-lons of fuel.

There is a carbon trade-offbetween more energy effi-cient centralised warehousesand transport costs, but,generally, cost and carbonreduction are aligned.

Professor Alan McKinnon,

director of the LogisticsResearch Centre at Scot-land’s Heriot-Watt Univer-sity, has identified nineways of reducing carbon infreight transport, most ofwhich will also reduce costs.

These are: switch fromroad and air to rail or water;reduce the number of linksin supply chains; reduceaverage journey length;increase average vehicleloading; reduce empty run-ning; increase vehicle capac-ity; reschedule deliveries tooff-peak periods; fuel effi-ciency; and use lower carbonfuels.

Sharing distribution cen-tres and deliveries is a pow-erful way to reduce cost andcarbon footprint.

Judy Blackburn, head ofthe UK logistics team atKurt Salmon Associates, aconsultancy, says that when

two competing companieshave merged their logisticsoperations and vehicle deliv-eries, transport costs havefallen by 15-25 per cent, sav-ing 300,000-400,000 tonnes ofcarbon dioxide.

“Current supply chaindesigns are primarily aimedat improving on-shelf availa-bility, reducing cost and sup-porting sound financial fig-ures,” according to The 2016Future Supply Chain: Serv-ing Consumers in a Sustaina-ble Way, a report by the Glo-bal Commerce Initiative ofmanufacturers and retailersand Capgemini, the consult-ant.

“In future, the industrymust design for additionalparameters, such as CO2emissions reduction, reducedenergy consumption, bettertraceability and reduced traf-fic congestion.”

The report envisages thatfinished products will beshipped to collaborativewarehouses in which multi-ple manufacturers storetheir products. Shared trans-port will deliver to city hubsand regional consolidationcentres. Final distribution tostores, pick-up points andhomes will use consolidateddeliveries.

This is already happening,

through the Sustainable Dis-tribution initiative to sharevehicles (see panel) andthrough third-party logisticsproviders. For example, Win-canton runs a “white fleet”of unbranded vehicles onbehalf of three major clients.

The Meadowhall ShoppingCentre’s consolidation centreoutside Sheffield, operatedby Clipper, receives 17 deliv-eries a day, which are con-solidated to six deliveries tothe shopping centre. LastChristmas, 37 deliveries aday were consolidated on to10 trucks.

Mr Wright warns thatalthough supply chain col-laboration is a big opportu-nity, there are challenges.Planning is hard enoughinternally, but even harderwhen companies plan in dif-ferent ways.

Two-thirds of the freighttonnage moved in the UKgoes by road, with most ofthe cost borne by truck oper-ators and passed on to cus-tomers. Prof McKinnonpoints out that some of thewider environmental andcongestion costs are imposedon the community at large.

“Not many companies willact unilaterally and volun-tarily to become greener if itis going to increase theircosts and reduce their com-petitiveness,” he says. A rareexample is Jaguar LandRover (see facing page).

High fuel prices are doingthe work of carbon taxes andemissions trading schemes,which were intended to“internalise” the environ-mental costs.

Prof McKinnon points outthat the current cost of atonne of carbon emissions ina trading scheme is about€25, whereas the averagefuel duty imposed is about€290. He also points out thattightening European emis-sion standards have causeda huge reduction in emis-sions, independently of fuelprices.

“We haven’t been verysmart in the past, so there isa lot we can do to reducetransport intensity of any-thing that we move usingcurrent technology,” con-cludes Martin Christopher,chairman of the CranfieldCentre for Logistics and Sup-ply Chain Management.

“The steep rise in the priceof oil means that for the firsttime people are taking thisissue seriously,” says MrChristopher. “The long-termtrend is that oil prices willgo up and up, so we mustrevisit our whole supplychain strategy.”

TRANSPORT

Rod Newing onhow sharply risingfuel prices arechanging priorities

The long and the short ofmeasuring carbon footprint

Calculating the supplychain’s carbon footprint andmonitoring the effect ofactions to reduce it is stillevolving. There are anumber of standards andsoftware approaches.

“Carbon calculations arestill almost at the back of anenvelope stage,” says MartinChristopher, chairman of theCranfield Centre for Logis-tics and Supply Chain Man-agement. “There is not yeteven total universal agree-ment on the carbon impactof different modes of trans-port.”

The first step is to assessthe internal operations thatthe organisation controls,such as inbound and out-bound transport and siteprocesses, using existinginformation. The next stageis to extend the process upand down the supply chain.

“There are some relativelysimple no-cost or low-costopportunities that can save20 per cent of the energycost base, such as staffawareness and training,process changes, bettermaintenance, equipment

upgrades and insulation,”says Euan Murray, a seniormanager at The CarbonTrust. “The main gains areoften outside the organisa-tion’s direct control, whichcan have a bigger impactthan doing the next internalproject.”

The necessary calculationscan be made using a spread-sheet, but Allan Behrens, adirector at Cambashi, a man-ufacturing management con-sultancy, advises talking toexisting suppliers of soft-ware, especially core busi-ness applications and engi-neering. “Find out whatcapabilities they have withinthe application to measurethe carbon footprint throughthe supply chain,” he says.

Companies such as AccessAccounting, Infor and SAShave dedicated carbon mod-ules. Supply chain simula-tion and optimisation toolsare also being extended,such as Ilog LogicNet Plus.

The Carbon Trust usesPRé Consultants’ SimaProand PE International’s GaBi.Kurt Salmon Associates, aretail management consult-ing firm, uses Cast from Bar-loworld Optimus and SupplyChain Guru from Llamasoft.

Other packages includeCarbonView from SupplyChain Consulting and Spec-tive from Maersk Logistics.

“The planning models

used to determine what tomake, where and when tomake it and where to locateinventory are focused onprofit or revenue maximisa-tion,” says Simon Mingay,research vice-president atGartner, the analyst. “How-ever, they can be extendedto include carbon emissions,which means that businessdecisions can be made withthe knowledge of their possi-ble environmental impacts.”

Judy Blackburn, head ofthe UK logistics team at

Kurt Salmon Associates,says the benefit of usingsoftware is that many differ-ent scenarios can be mod-elled relatively quickly. Thisidentifies the trade-offsbetween cost, service andcarbon emissions, helping todefine the best solution forthe company’s objectives.

Whichever package isused, it is important that theinformation is integratedinto the organisation’sreporting systems, particu-larly performance manage-ment systems based on busi-ness intelligence software.This is able to take in datafrom all operational systemsand make any necessaryconversions and calculationsto produce emission-relatedkey performance indicators.

“You will never get allprocesses into a single appli-cation,” says Ambuj Goyal,general manager for infor-mation management soft-ware at IBM. “The supplychain needs internal finan-cial, distribution and logis-tics data, as well as datafrom partners. You need to

populate the performancemanagement system withcleansed data from hundredsof applications to createtrusted information for anal-ysis. One tool will not solvethe problem.”

Giles Hutchins, head ofsustainability solutions forAtos Consulting, advisesthat rather than just meas-uring the immediate carboncost, sustainability should beembedded into the DNA ofthe organisation. Perform-ance management systemshelp to communicate inter-nally, to drive behaviourchange, and externally toshareholders, pressuregroups and consumers.

The problems of measure-ment should not be underes-timated, as there are anumber of difficult questionsthat the standards are tryingto address. Does the carbonfootprint of a machineinclude the cost of the opera-tor driving to work or wash-ing their work clothes? Howdo you allocate the runningcosts of a truck or factoryenergy over the differentproducts? What is the differ-ence between shipping railfreight pulled by diesel-elec-tric or pure diesel?

Dwight Klappich, researchvice-president at Gartner,says that although carbonfootprint is the primaryfocus today, in the futureusers will need to considerother factors that affect theirenvironment. These mightinclude direct operationalemissions of other pollut-ants, energy consumptionand waste generated.

Sound advice comes fromJohn Lockton, managingdirector at LCP Consulting,a supply chain managementconsultancy. “The mosteffective way to approachcarbon management is toapply business principles tothe environment,” he says,“not environmental princi-ples to business.”

IMPLEMENTATION

Rod Newing on thekey to sustainabilityin the supply chain

Vehicle sharing – an idea that carries weight in the cause of sustainabilityA group of 37 of the UK’s leadingfood and consumer goodscompanies recently made a littlenoticed move to pool some of theirdelivery operations. Instead ofdelivering with part­filled trucks orreturning empty, they have startedto share vehicles on certain routes,writes Rod Newing.

“Getting people to sharetransport sounds easy on thesurface, but in practice it is not,”says Tarun Patel, head of supplychain at IGD. “Our role is to helpbusinesses to understand why andhow they can collaborate.”

Formed in 1909 as the Instituteof Grocery Distribution, IGD is anot­for­profit organisation whoseaim is to make the food andgrocery industry more efficient andeffective. Three years ago, itidentified collaborative distributionas an opportunity. The price of fuelhad been going up, and all

projections showed further rises,and organisations wanted tobecome more sustainable.

According to the UK Departmentfor Transport, in 2007 “emptyrunning” for all vehicles was 27.4per cent of the available capacity,representing part­filled deliveriesand empty return journeys. IGD’sSustainable Distribution initiativehas set a voluntary target toremove 48m miles from 2007/8,saving of 61,500 tonnes of CO2.

IGD ran workshops, affectionatelyknown as “speed dating fortruckers”, to explain to members aseven­step process to achievecollaboration.

This is to produce a matrix ofroutes and volumes; identifycollaborative routes; agree rates;agree key performance indicatorsand a review mechanism; agreeand run a trial; review it; and rollout a full solution.

“When we started to run trials,we found that problems werepartly cultural,” says Mr Patel.“Organisations have differentattitudes towards customer service,costs, sharing vehicles and vehiclebranding. We had to break throughthat in the past two years bypointing out the size of the prizeand getting chief executives topush it down through theirorganisations.”

There have also been physicalproblems, such as manufacturerspreferring side loading trucks andretailers rear­loading, and insuranceissues to be addressed.

However, early trials havedelivered tangible results. At aworkshop, Nestlé discovered thatUnited Biscuits was running emptytrucks from close to its factories inthe north back to the Midlands.Returning United Biscuits trucksnow collect a full load of Nestlé

products each day from factoriesin York and Halifax and deliverthem to the Midlands.

“With other initiatives, theSustainable Distribution programmehas delivered a 6 per cent annualimprovement in our vehicleutilisation,” says Chris Tyas, supplychain director at Nestlé.

Returning Tesco vehicles passthrough Unilever’s Doncasterdistribution centre to collect healthand beauty products previouslydelivered direct to Tesco’s Gooledistribution centre, helping to take500,000 miles off the road.

Sainsbury’s trucks returning toEast Kilbride now collect Walkerscrisps and snacks from Peterlee,saving more than 100,000 miles ayear.

Chep, the leading UK provider ofpooled pallets, sends vehicles toAsda’s distribution sites to pick upleft­over empty pallets and

redistribute them for use amongother customers. Collaboration oncertain legs of the journey has ledthe two companies to save morethan 500,000 miles a year.

Other participating companiesinclude Booker, Boots, Coca­Cola,Colgate­Palmolive, Co­operativeGroup, Dairy Crest, HJ Heinz,Iceland Foods, Johnson & Johnson,Kellogg’s, Kimberly­Clark, KraftFoods, Marks and Spencer, Mars,Wm Morrison, Northern Foods,Premier Foods, Procter & Gamble,Somerfield, Unilever and Waitrose.

“We are delivering significantimprovements against a voluntarytarget, but we are at the tip of theiceberg,” says Mr Patel. “We needto get the whole industry, includingsmaller companies, on board. Theoverwhelming belief of ourmembers is that in 10 years timemost companies will be usingcollaborative distribution.”

Load­bearing: Tesco is among a wide range of supermarkets and food groups taking part in the Sustainable Distribution initiative Alamy

Contributors

Fiona HarveyEnvironment Correspondent

Vanessa HoulderEconomics Reporter

Andrea FelstedInsurance Correspondent

Rod NewingFT Contributor

Sarah MurrayFT Contributor

Andrew BaxterCommissioning Editor

Steven BirdDesigner

Andy MearsPicture Editor

For advertising details,contact: Liam Sweeney on+44 (0)20 7873 4148, fax+44 (0) 20 7873 4006,e­mail liam.sweeney@ft.com.

By using software,many differentscenarios canbe modelledrelatively quickly

OCTOBER 9 2008 Section:Reports Time: 6/10/2008 - 15:39 User: baxtera Page Name: SBI2, Part,Page,Edition: SBI, 2, 1

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

FINANCIAL TIMES THURSDAY OCTOBER 9 2008 ★ 3

Sustainable Business

Virtually as good as being there

At the end of a virtualmeeting using Cisco’sTelePresence system, abig disadvantage of the

technology becomes apparent:you cannot shake hands with theperson on the other side of thetable. This curious feelingemerges because the technologyso powerfully recreates realitythat meeting participants appearto be in the same room.

With surround sound audioand high-definition image resolu-tion, large plasma monitors dis-play people at life-size whilematching tables in each locationare blended to create the illusionof a single piece of furniture.

The existence of this kind oftechnology, providing the abilityto see the facial expressions, ges-tures and reactions and talkseamlessly, interrupting whennecessary, makes the reasons forjumping on an aircraft look lesscompelling – something that isbecoming increasingly appealingto global companies looking tocut their carbon footprint.

The effectiveness of systemssuch as Cisco’s puts virtual meet-ings worlds apart from the earlydays of videoconferencing withits jerky images, delayed deliveryand poor sound quality.

“This won’t replace the need tomeet,” says Marthin De Beer,senior vice-president of Cisco’semerging technologies group.“But now there’s an acceptablemeans of doing business [virtu-ally] with the ability to have aninteractive experience with allthe human dynamics – and that’snot been possible before.”

While smaller organisationsmay not be able to afford toinvest in telepresence facilities,there are leasing options formuch of the equipment, and eventhe more basic tools such asinstant messaging or the abilityto exchange documents and vis-ual presentations online areimproving the virtual team work-ing experience.

Familiarity with the technol-ogy helps, too. As a new genera-tion of tech-savvy employeesenters the job market, companiesare recruiting young individualsfor whom virtual communica-tions are simply part of life.

The rise in acceptance of vir-tual work comes at a time ofgrowing awareness of the envi-ronmental damage caused by

business travel. Even small com-panies can make a difference.According to research by BT, ifevery small business in the UKreplaced 10 meetings with audioconferences, small businessescould collectively save more than1.7m tonnes of carbon emissions.

And while the travel industryrepresents only a small propor-tion of the world’s carbon emis-sions, it is the fastest growingcontributor of greenhouse gasemissions. Airlines account for

about 3 per cent of Europe’semissions, but that figure willexpand rapidly as air travel isforecast to double across theEuropean Union by 2020.

“If you include all transportmodes, Americans travel 240bnmiles a year and each mile addsmore emissions,” says GwenRuta, vice-president of corporatepartnerships at the US-basedEnvironmental Defense Fund.“Some companies are pursuing

fuel-efficient vehicles but themost immediate way to cut emis-sions is simply by decreasingtravel.”

Organisations that take MsRuta’s advice can do more thanhelp protect the environment.“Companies are battling withtheir resources and trying not tostretch them too thin while main-taining a decent quality of life,”says Mr De Beer. “And to com-pete, they’re going to have tothink differently about the waythey do business.”

Part of doing business differ-ently is coping with rising fuelcosts. And there are significantsavings to be made from cuttingback on business travel.

“Carbon footprint is basicallyanother monetary unit. Itequates to dollars or pounds intravel costs,” says Aaron McCor-mack, chief executive of BT Con-ferencing, whose BT One Sourceservice combines managementsolutions with Cisco’s TelePres-ence. “In the current climate, theability to reduce costs is invogue, which makes this evenmore relevant than in an upsidemarket, where carbon reductioncan be seen as a nice-to-have.”

BT reckons that its 100,000employees save time worth morethan £100m a year by using con-ferencing technology rather than

travelling to meetings. And Ciscosays that since it deployed Tele-Presence across its organisationin 2006, it has avoided more than27,000 trips for meeting, saving$237m.

“Every responsible executivehas to have conferencing high onthe business agenda,” says TimDuffy, chief executive of Meeting-Zone, a UK-based audio and webconferencing service provider.“No other technology can con-tribute more in the short term tohelping alleviate the CO2 issues,and help companies save moneyin these tight economic condi-tions.”

Of course, there will always beoccasions for which face-to-facemeetings are essential, particu-larly at the beginning of a work-ing relationship, when it isimportant to build trust andfamiliarity with colleagues orcustomers.

And some problem-solvingcalls for reality rather than vir-tual reality. “Where it’s a type ofproblem you’ve never seen beforeand you need to go in unexpecteddirections, that’s hard to do in avirtual setting,” says Maggie vande Griend, a principal at Katzen-bach, the New York-based con-sultants. “So some types of inter-actions must be face to face – butthey are fewer than you think.”

CONFERENCING

Sarah Murray on thelatest developments intelepresence systems

‘No other technologycan contribute more inthe short term tohelping alleviatethe CO2 issues’

Nice to see you: Cisco’s TelePresence system in action

‘Milk run’ ismiles better

Five years ago, Jaguar LandRover did not know thecarbon footprint of itssupply chain. Now, it hasbeen measured, reductiontargets have been set,measures are being takenand the results are beingmonitored.

“Our total supply chaincarbon dioxide footprint inJanuary 2008 was 186,076tonnes a year,” says KevinWall, the company’smaterial, planning andlogistics director. “We areon target to reduce this by2,621 tonnes this year andwe have a 10-year plan toeliminate 90m road miles.”

Jaguar Cars is one of theworld’s premier makers ofluxury cars and LandRover’s four-wheel drivevehicles are world-famous.Together the twocompanies, which wereacquired by Tata Motorsfrom Ford Motor earlier thisyear, manufacture 290,000vehicles a year in he UK.

About five years agoJaguar Land Rover set upan integrated Europe-widesupply chain to collectcomponents from 380suppliers based in the UKand Europe. The aim of this“milk run” is to maximisethe full capacity of a trailer,by consolidating five or sixsuppliers in a similargeographical area. This hasreduced average road milesper week from 59,280 to30,780, a 52 per cent saving.

Although created toreduce costs, it has alsoeliminated CO2 emissions of1,772 tonnes a year. Thethird-party logistics contracthas just been rebid andnext-generation truckengines were specified, toreduce emissions andimprove economy by 10-12per cent. Other projectsinclude reduced pallet poolbalancing between Europeand the UK, which hassaved 1,265 tonnes a year,and reduced inter-sitemovements that have saved151 tonnes a year.

“Ten years ago oursupplier base was mainly inthe UK, but now it is trulyglobal,” says Mr Wall. “Youcan’t look at the purchaseprice any more, you have tolook at the total landedcost, including freight,packaging, customs and thecost of returning anyunique containers. It isdifficult to calculate, but wehave used this basis forseveral years and it takesinto account both the

financial and environmentalimplications of globalsourcing.”

The company has beentrying to switch vehicledelivery from road to trains.Finished vehicles for theUS, Australia and Japan goto Southampton by rail.This has eliminated 777,925road miles a year, equatingto 1,188 tonnes of CO2.

“It has been extremelydifficult to get through thebureaucracy,” says Mr Wall.“The business case requiresa minimum number ofcarriages and a minimumjourney of 100 miles tomake it beneficial.”

From Southampton,vehicles are transported byWallenius Wilhelmsenships. In partnership, thetwo organisations haveoptimised fleet utilisation,streamlined routes and runvessels – where possible –at more economical speeds.

Most significantly, insteadof normal bunker fuel, thecompany pays extra for theships to use low-sulphurfuel, which contains 1.3 percent of the mineral,compared with anInternational Maritime

Organisation target of 4.5per cent. Between 2001 and2007, this low-sulphur fuelsaved 98,500 tonnes ofsulphur dioxide emissions, areduction of 43 per cent,and has cut CO2 emissionsby 17 per cent.

Future projects includereviewing vessel steamingspeeds. A two-knotreduction saves 244kg ofCO2 per transported unit, 21per cent less than present.

JLR is also exploringWallenius Wilhelmsen’sOrcelle project for alightweight environmentallysound ship that can carry10,000 cars. Using solar,wind, and wave power, itdoes not release anyemissions into theatmosphere or the ocean.

“The Jaguar and LandRover logistics professionalshave long understood theirrole in moving freight fromroad to rail and sea, wherepractical,” concludes MrWall. “It has now taken ona whole new emphasis ineducating colleagues in theengineering and purchasingareas to ensure that acommon approach isapplied, with environmentalmeasures underpinning allthe actions that ultimatelywill lead to cost benefits.”

PROFILEJAGUAR LAND ROVER

Rod Newing on thecarmaker’s supplychain shake­up

Floating an idea: design for the Orcelle zero­emission ship

The company hasbeen trying toswitch vehicledelivery fromroad to trains

OCTOBER 9 2008 Section:Reports Time: 6/10/2008 - 16:19 User: allenk Page Name: SBI3, Part,Page,Edition: SII, 3, 1

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

4 ★ FINANCIAL TIMES THURSDAY OCTOBER 9 2008

Sustainable Business

Carrots and sticks to make businesses greener

When the economyfalters, environmen-tal issues tend totake a back seat.

But looking beyond the currentdownturn, businesses are bracedfor an acceleration of the move toa carbon-constrained world.

A plethora of tools is beingused by governments to influ-ence the behaviour of businesses,including regulation, voluntaryagreements, advice, taxes, trad-ing schemes and financial incen-

tives. Increasingly, the emphasisis on putting a price on carbonand addressing market and infor-mation failures.

The drive to put a price oncarbon has spread far beyondEurope. Australia is currentlydeveloping an emissions tradingsystem that is expected to startin 2010. Campaigning in the cur-rent Canadian election campaign,the Liberals have put forwardplans for an environmental”green shift” that would imposea carbon tax on the use of fossilfuels in place of some personaland corporate taxes.

As governments eye up fiscaldeficits, there is an obviousappeal in raising money fromcarbon emitters – either in theform of green taxes or auctioningpermits. Currently, industrialisedcountries raise just over 2 percent of GDP from about 375 envi-

ronmental taxes and some 250environmentally related fees andcharges. Nine-tenths of this reve-nue stem from taxes on vehiclesand vehicle fuels that weremostly introduced many decadesago – primarily as a means toraise revenue.

But concerns about competi-tiveness and the impact on poorhouseholds will remain stickingpoints. The exemptions that rid-dle existing green taxes meanthat they would need to be raisedby 15 per cent in the EuropeanUnion to yield the equivalent of a2 per cent increase in labourtaxes, according to a 2006 analy-sis by the European Environ-ment Agency.

The political difficulties of rais-ing substantial sums from envi-ronmental taxes are reflected instatistics showing that, between1996 and 2005, the proportion of

GDP accounted for by environ-mental taxes across 29 of theworld’s largest economies fell byan average of 0.2 per cent.

There is also political opposi-tion to raising money from car-bon trading schemes, as demon-strated by the arguments overthe next phase of the EU’sscheme, in which a proportion ofpermits are set to be auctioned.

Chris Sanger of Ernst &Young, the professional servicesfirm, thinks that governmentswould be foolish to dress up taxincreases as “green” measuresunless they are genuinelydesigned to change behaviour.“Where it is clear it is an excuse,it will be seen through quitequickly.”

Other tools to speed up thedeployment of green technologiesare typically easier to implementpolitically, but less cost-effective.

They include support forresearch and development,investment tax credits, and pricesupports, such as feed-in tariffsfor renewable electricity.

A recent report by the Inter-governmental Panel on ClimateChange concluded that thesekind of incentives were “oftencritical to overcoming the barri-ers to the penetration of newtechnologies”. But it warned:“Subsidies do tend to take on alife of their own, which makes itdifficult to eliminate or reducethem, should that be desired.”

Germany’s success in buildingup its solar and wind energyindustries demonstrates thepotential of this approach. Butthe risks of poorly-designed gov-ernment policies to promoterenewables are illustrated by thecontroversy over biofuel incen-tives, which have been attacked

as overly costly and contributingto higher food costs.

The cost of reducing emissionsover the next two decades islikely to be higher than previ-ously estimated, according to anew analysis by the Organisationfor Economic Co-operation andDevelopment. It called on allplayers, including businesses, tomount “a more co-ordinated,comprehensive and ambitiousresponse”.

If companies are to gainenough confidence to invest insustainable projects, governmentinitiatives need to offer clarity,transparency and longevity. WillBush, leader of E&Y’s Tax andClimate Change initiative, says:“Every jurisdiction has initia-tives coming through: What is itthat makes one effective and oth-ers not? It is the ease of imple-mentation by a busy business.”

TAXES AND INCENTIVES

Vanessa Houlder onhow governments infive countries use amix of sweetenersand regulations

The risks of poorlydesigned policies topromote renewablesare illustrated by thecontroversy overbiofuel incentives

Incentivescreateleadingpositionin market

When Blackstone, thebuy-out group, announced a€1bn investment in a windfarm development off theGerman coast in thesummer, it highlighted thecrucial role in its decisionthat was played by theGerman system ofregulations and incentives.

“Projects of this scalehave been made possible byGermany’s comprehensiveregulatory framework andincentive schemes forrenewable power, asamended by GermanParliament at the beginningof June, 2008,” according toBlackstone.

Incentives for renewableenergies have pushedGermany into amarket-leading position. Itsonshore wind installationsaccount for about half thetotal installed capacity inEurope. In spite of itscloudy skies, Germany isalso the largest market inthe world for photovoltaicsystems, which convertsunlight into electricity. Itis also the largest user ofbiofuels in Europe.

The main tool has been apredictable policyframework established bythe Renewable EnergiesAct, which requires energycompanies to purchasepower generated fromrenewable sources at anabove-market price. Reformsthis year strengthened thelegal framework forenergy-efficiencyinvestments, whilestimulating more windfarms through higherelectricity tariffs andlowering subsidies for thesolar power industry.

The tax system has alsoplayed a part in Germany’senvironmental reforms.Following Scandinavia, andsome other Europeancountries, it embarked onecological tax reform in1999.

It offset the introductionof a new electricity tax anda sharp rise in thecountry’s existing petroleumtax with reductions inwork-related tax.

The importance ofmanufacturing in theeconomy has meant thattaxing carbon emissions hasproved a more contentiousaspect of Germany’senvironmental policies.

Special arrangements forlower environmental taxrates were made forcompanies in themanufacturing, agricultureand forestry sectors.

This year, Germanindustry has mounted arearguard campaign againstEuropean Commissionproposals for an auction ofthe carbon emission permitsallocated under the EU-wideemissions trading scheme.

It argued that replacingthe current free distributionof carbon-dioxide permitswith a mandatory auctionbetween 2013 and 2020would cost billions ofeuros and damagecompetitiveness.

The German governmentlast month decided to backan almost total exemptionfor energy-intensiveindustry from paying forpermits.

Angela Merkel,chancellor, said recentlythat – although shesupported the need totackle climate change – she“could not support thedestruction of German jobsthrough an ill-advisedclimate policy”.

GERMANY

Worries overexpiry of keytax creditThe US last month seizedthe crown as the worldleader in wind energygeneration. Announcing thebreakthrough, the AmericanWind Energy Associationdeclared the industry hadachieved “in two yearswhat had previously takenmore than two decades”.

The tax system hasplayed a central role instimulating the growth ofthe wind industry, whichnow provides electricity for5.3m homes – just over 1.5per cent of the nation’selectricity – and is on trackto provide 20 per cent of USelectricity by 2030.

That was underlined bythe AWEA, which followedits triumphantannouncement with awarning that the loomingexpiry of the renewableenergy production tax credit“threatens this spectacularprogress.“

This point was furtherunderlined last month byJohn Krenicki, president ofGE Energy Infrastructure.“The renewable energy taxcredit is the foundation ofthis growth,” he told aSenate committee as hepleaded for an extension ofthe production tax creditbeyond the end of this year.

The intensity of lobbyingover this tax credit reflectsits generosity. It amounts toeither 1 cent or 2.1 centsper KWh of electricityproduced, depending on thetype of renewable energyused.

The government alsooffers a 30 per centinvestment tax credit forinvestments in solar energyequipment, as well asfavourable depreciationrates for the generatingequipment.

Fred Copeman, of Ernst &Young’s tax creditinvestment advisory group,says these incentivesamounted to between halfand 60 per cent of totalproject costs. “Thecombined value of all thesetax subsidies is trulysubstantial”, he says.

As well as the federalincentives, there are a raftof measures offered bystates, cities and counties.These include income taxcredits, sales taxexemptions, property taxabatements, recyclingcredits, and cash grants tohelp offset the cost ofinvesting in renewableenergy sources or otheremissions reductions.

Some incentives can bespecially negotiated in somejurisdictions, particularlywhere “green jobs” arebeing created.

As well as the heavyemphasis on incentives, USstates also use regulationsto speed the introduction ofrenewable energy. Abouthalf of US states haverenewable portfoliostandards that requirepower companies togenerate a share of theirenergy from renewablesources. E&Y says meetingthese standards is expectedto cost about £150bn in newinvestment.

States are also tacklingemissions by setting uptrading schemes withinregional coalitions. Thenorth-eastern states behindthe pioneering RegionalGreenhouse Gas Initiative,which begins trading nextyear, could raise more than$1bn by auctioning permits.

At least part of theproceeds are expected to beused to stimulaterenewables, energyefficiency and cut energycosts for low-incomefamilies.

Seven western states andfour provinces of Canadaare working on a tradingscheme, known as theWestern Climate Initiative.So are midwestern states, ina project known as theMidwestern regionalgreenhouse gas reductionaccord.

Businesses see bothopportunities and threatsahead. As well asgovernment pressure andincentives, they arefocusing on the promise ofnew revenues from “green”technology and services,examining the scope forcost reductions from energyefficiency and dealing withthe expectations ofshareholders, customers,employees and the media.

But businesses do notalways have a coherentresponse to these pressures.Steve Starbuck, leader ofE&Y’s US climate changeand sustainability team,says: “Tax and financeshould play an importantrole in these issues but ourexperience has been thatthese departments are oftennot consulted and may noteven be aware of whatever“green initiative” is beingpursued by the enterprise.”

A big change is underway in the US, which was,until recently, 20 yearsbehind much of Europe.

The battery of incentiveson offer has helped tacklethe price obstacles to a shiftfrom fossil fuels. But theUS approach has its critics.

Most seriously, theshort-term nature of the taxcredits – and the annualwrangling over how to payfor them – militates againstlong term investment.

UNITED STATES

Impact of measures fails to match the rhetoricWhen the UK governmentunveiled its biggest everpackage of environmentaltax reforms in 1999, itdeclared it was shifting “theburden of taxation from‘goods’ to ‘bads’”.

It cut taxes on employ-ment, on smaller cars, onclean fuels and providedincentives for energy effi-ciency, while increasing theburden on emitters of green-house gases, local air pollu-tion and waste creation.

The reforms have not beenas sweeping or effective asthe rhetoric implied.

Environmental taxes havedeclined, as a share of thetax base, since 2000. Thistrend was almost entirelydriven by the decision toabandon the annual fuelduty escalator in 1999 inresponse to protests by driv-ers. (The duty, however,remains among the highestin the world.)

Almost half of businessesbelieve that current govern-ment policy and the eco-nomic instruments used arenot effective in encouragingbusiness to make significantchanges in its its behaviour,according to research lastyear by PwC.

Nonetheless, the UK gov-ernment has remained anenergetic proponent of usingeconomic instruments tospur businesses into envi-ronmental action.

It has made the EU Emis-sions Trading Scheme thecentrepiece of its climatechange strategy.

This year’s Budget intro-duced further measures,including reform of VehicleExcise Duty, changes to thetax treatment of companycars and increases in theaggregate levy and the cli-mate change levy, theenergy tax on industry.

From 2010, many large

businesses that are notintensive energy users willcome under a new emissionstrading scheme, known asthe Carbon Reduction Com-mitment.

Frank Sangster, head ofenvironmental tax andincentives at KPMG, believesfurther initiatives are in thepipeline, although they areunlikely to be important rev-enue raisers. “We are goingto see more taxes and thegovernment has an openmind on incentives as well.”

Last month, the govern-ment promised £150m of sup-port for manufacturing in abid to create hundreds of

thousands of “green-collarjobs” in the renewable sec-tor. Business groups wel-comed the initiative, despitescepticism about how farpolicy would translate intoaction.

A common gripe ofbusinesses is that the gov-ernment’s zeal for taxingenvironmentally-damagingbehaviour is not matched byenthusiasm for incentives.

HY Hacker Young, anadvisory firm, has calculatedthat the government givesback just £607m, or 2 percent of its green tax revenue,in green tax breaks.

One of the main incentives

on offer – Enhanced CapitalAllowances – are frequentlycriticised as too bureau-cratic. The scheme providesbusinesses with 100 per centfirst year tax relief on ener-gy-saving investments.

It is billed as a straightfor-ward way for a business toimprove its cash flowthrough accelerated taxrelief.

But companies are fre-quently deterred by therequirement that qualifyingtechnologies must be speci-fied on the Energy Technol-ogy List, which is managedby the Carbon Trust onbehalf of the government.

Mr Sangster says: “Wefind it falls in between twoparts of the business. Facili-ties people don’t understandtax and tax people don’tunderstand the technology.”

Few governments havebeen busier at waving sticksat environmental laggards,but the UK has been lesseffective than many otherjurisdictions at offering car-rots to stimulate improve-ments, says Mr Sangster.

The PwC research con-cluded the current environ-mental incentives on offerare “unclear, complex andfail to motivate behaviouralchange”.

UNITED KINGDOM

China explores new ways to tackle its environmental challengesChina’s environmental challenges arelegion. Rapid industrialisation and aheavy reliance on coal have createdproblems that threaten its long­termgrowth potential.

But the government has started toexplore new ways to tackle carbonemissions and pollution, includingreforms to the taxation system.

“It has become increasinglyobvious that China is indeed movingin the ‘Go green’ direction in termsof its tax policies”, according to AlanWu of the professional servicesgroup PwC in China, in a recentstudy published by the US­basedBureau of National Affairs.

He says the new corporate incometax law passed in March 2007 was a“remarkable event in China’s taxhistory”, which reflected its intention

to encourage advanced technologies,environmental protection andresource conservation.

A consumption tax on disposablechopsticks, in a bid to preserve itsforests, is one of the most visiblesigns of China’s efforts to introducegreen elements into its indirect taxregime.

It has also raised taxes on carswith large engines and reducedthem for smaller vehicles.

Businesses are given a three­yeartax holiday from corporate incometax if they undertake certainenvironmental initiatives, includingenergy and water conservationprojects, followed by a 50 per centreduction for the next three years.

Tax also plays a role in thegovernment’s ambitious goals for

renewable energy. KPMG, theprofessional services group, saysChina offers “particularly privileged”treatment to wind generationprojects under its Renewable EnergyLaw. In addition to substantialcentral government support and theright to enter long­term powerpurchase agreements with their localpower grid, operators receiveconcessions on customs taxes andvalue added tax.

Hydropower is also being heavilypushed in China, where the massiveThree Gorges Dam is currently thelargest structure of its kind in theworld. Incentives include theexemption of all the equipment usedin hydropower projects fromcustoms duty and value added tax.

So far, the tax aspect of China’s

environmental reforms has beenlimited to embedding “green”elements in its existing regime.

However, this year, thegovernment said that it wasconsidering launching anenvironmental tax to encourage theefficient use of energy and to stemthe growth of greenhouse gasemissions.

It plans to research environmentaltaxes before making a decision.

John Manning of PwC, who isreviewing environmental initiatives injurisdictions around the world, saysChina is taking more action on theenvironment than its reputationwould imply. “It gets a bad pressbut the environment is being takenseriously in the tax system inChina.”

Making a meal of it: a consumption tax on disposable chopsticks is one of the most visible signs of China’s “Go green” approach ROPI

Tax proposal runs into oppositionJapan has a formidablerecord on environmentalissues. The Paris-based Inter-national Energy Agency thisyear praised the govern-ment’s “tremendous effort”at increasing the country’senergy efficiency and saidthat companies’ record onfulfilling their environmen-tal goals was “excellent”.

But the faltering economyhas created a difficult back-drop for further progress.

Japan is seeking furthercuts in emissions in an effortto meet its Kyoto targetswhile minimising the needto buy costly carbon creditsfrom abroad.

Proposals to introduce anenvironmental tax as part ofthis effort have run intoopposition from business.Keidanren, the influential

business association, hascriticised the plan as beingundesirable in current eco-nomic conditions.

So far, Japan has made lit-tle use of tools that put aprice on carbon. The IEAurged it to consider taxes,emissions-trading schemesand other market-based poli-cies, which it said “couldcreate the right signals andencourage the more efficientuse of resources throughoutthe economy”.

The distinctive approachadopted by Japan to foster-ing environmental improve-ments has used a mix of reg-ulatory measures, voluntaryactions by industry, and acombination of subsidies, taxexemptions and loans forinvestment to encourageenergy efficiency improve-ment in industry.

The tax system plays a

role by offering significantincentives for investments inrenewables, according toKPMG, the professional serv-ices group.

When investing in solar orwind power, biomaterialsand geothermal energy, com-panies can claim tax creditsof 7 per cent of acquisition

costs – limited to 20 per centof the tax – or a special ini-tial depreciation of 30 percent of acquisition costs.

Regulation also plays animportant role. Under theAct on the Rational Use ofEnergy, large-scale factorieshave been subject to energyefficiency requirementssince 1979.

Under Japan’s EnergyConservation Act, the stand-ards are set by the “top run-ner” method, which aims toimprove average energy effi-ciency of future productsabove the level of the mostenergy-efficient productscurrently available.

This programme not onlyimproves efficiency inJapan, but also spurs inter-national gains, given Japan’sstrength as an exporter ofelectronics and vehicles.

The IEA said: “Notably, it

is designed to continue toplace pressure to improveenergy efficiency, and thushas a built-in mechanism todrive energy improvementover the long term withoutcontinued policy negotia-tion.”

Voluntary efforts to cutenergy use have also playeda prominent role. Thisapproach was illustrated inthe summer of 2005, whenJunichiro Koizumi, thenprime minister, appealed tobusiness leaders to allowoffice workers to remove tiesand jackets and work inshort-sleeve shirts from Juneto September.

This “Cool Biz” campaign– which required offices toturn air conditioning unitsup to 28 deg C – saved theequivalent of the carbonemitted from 1m householdsfor a month.

JAPAN

Cool it: Junichiro Koizumi

OCTOBER 9 2008 Section:Reports Time: 6/10/2008 - 15:44 User: baxtera Page Name: SBI4, Part,Page,Edition: SBI, 4, 1

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

FINANCIAL TIMES THURSDAY OCTOBER 9 2008 ★ 5

Sustainable Business

Get the basics right before doing a refit

When JPMorganChase finished asection of the workon its Manhattan

headquarters on Park Avenue,managers overseeing the projectat the US banking group receiveda pleasant surprise.

The reflective properties of theVenetian plastering used onmany of the walls, combinedwith the light flowing throughthe open design, meant thatthose spaces required fewer elec-tric lights than had beenexpected, further reducingenergy consumption.

The bank’s retrofitting project

– which is designed to meet strictenvironmental standards on eve-rything from energy use to waterconsumption – is a major renova-tion of a 1.3m square foot, 50-storey building that was con-structed in the late 1950s.

However, not all companieswanting to cut the environmen-tal impact of their existing build-ings may have to embark onsuch an extensive programme ofrefitting and reconstruction.

Plenty of opportunities toreduce the consumption ofresources such as energy andwater exist, even if a buildingowner or manager is not going totake on a large-scale renovationproject.

“Before they even think aboutrefurbishment, companies needto work out how to get the opti-mum out of what they have got,”says Paul Toyne, head of sustain-ability at Bovis Lend Lease UK,the project management and con-struction company.

He advises companies to start

by educating the people whomanage and use the building sothat they understand fully howto operate equipment to obtainthe best performance. “There’soften a lack of understanding ofhow to use the kit and whetherit’s set up properly,” he says.

This includes not only heatingand cooling machinery and watermanagement systems but alsothe equipment used inside thebuilding. Charles Lockwood, aUS-based green real estate con-sultant, talks of the “secretenergy addicts” in offices.“There’s electronic equipmentthat you think you’ve turned offbut in fact it’s idling and you’reconsuming enormous amounts ofenergy,” he says. “So it’s not justabout the building – it’s what’s inthe building.”

Measurement is another cru-cial step to take before any refur-bishment or refitting has takenplace, particularly when it comesto energy consumption. If a com-pany has no understanding of the

current consumption of thebuilding it will be impossible totell what savings have beenmade as a result of the improve-ment work.

Once a baseline for energy usehas been established, it is possi-ble to see how even simple meas-ures can make a difference.

“Lighting is something you cantackle very quickly by changingto low-energy bulbs and introduc-ing lighting control systems,”says David Hitchcock, managingdirector of CB Richard Ellis’sbuilding consultancy. “That’s aquick win without having tothink about changing the fabric

of the building.” The sameapplies to heating and air condi-tioning which, without beingreplaced, will operate more effi-ciently by introducing high-qual-ity control systems such as ther-mostats.

“Most of these things can bedone fairly economically simplyby changing the managementregime,” says Mr Hitchcock.

With buildings of a certain age,however, renovation will proba-bly be deemed necessary at somepoint, whether to change the useof a facility or alter the look andfeel of an office as part of a cor-porate re-branding exercise. Thisis also an opportunity to improvethe environmental impact of thebuilding.

Yet this does not always hap-pen. “There are significant oppor-tunities to reduce carbon emis-sions through a retrofit but theyare being missed,” says MarkWilliams, director of innovationsat the Carbon Trust. “This isbecause contractors tend to be

risk-averse and deliver to costand time. They won’t necessarilyfocus on energy unless they’reasked to do so.”

Mr Williams therefore stressesthe importance of getting seniormanagement to commit them-selves to including things suchas water conservation, energyefficiency and carbon emissionsreduction as part of the overallspecifications for the project.

And while new high-techequipment is constantly comingon to the market, great savingson resources can be made byfocusing on low-tech measures,such as installing sufficient insu-lation and replacing cladding andwindow systems.

If the facility or office hasadjoining land, planting treesalong the side of the building willhelp block the sun in the sum-mer while lighter paving reducesthe heat generated by parkinglots.

“Generally speaking, it doesn’tneed to be about deploying high-

risk, early-stage technologies,”says Mr Williams. “Our evidencesuggests those technologies aregreat, but they’re more expensiveand the bigger opportunity oftenmissed is getting the basicsright.”

And, as with existing equip-ment, new machinery needs to beproperly understood. Employeesresponsible for buildings mainte-nance need to be trained in howto use any new systems installedand given performance targets tomeet. Mechanical and manage-ment controls should be put inplace and set so as to maximiseefficiency.

“If you do the green retrofit ofthe building and you don’t insti-tute company-wide policies andperiodic commissioning to makesure you’re achieving what youexpect, it’s like buying the Toy-ota Prius [hybrid car], not main-taining it and wondering whyyou’re not getting the perform-ance and the mileage you werepromised,” says Mr Lockwood.

BUILDING RENOVATION

There is plenty ofscope to save energywithout taking on abig refurbishment,writes Sarah Murray

Renovation is achance to improveenvironmental impact,yet this does notalways happen

Who left those lights on? A view of Manhattan at dusk Alamy

Premium oneducation forcustomers

From providing cover toproperties endangered byhurricanes, to protectinghomes at risk of flooding,insurers are exposed to theperils of climate change.

“Climate change is amajor risk to the insuranceindustry, and we have tomanage that risk appropri-ately,” says James Wallace,corporate responsibilitymanager at RSA Insurance.

The industry hasresponded by creating Cli-mateWise, and 40 of theworld’s biggest insurers,reinsurers and insurancebrokers have signed up to itsseries of principles for man-aging and reducing the riskof climate change.

One of the principles is toencourage individual andbusiness customers to man-age and reduce the risksfrom climate change. Insur-ers have developed a rangeof initiatives to help custom-ers cut emissions and oper-ate more sustainably.

Some of the measures areaimed at retail customers.These include offering dis-counts to drivers of hybridcars, or those with lowannual mileage.

“If people care about theenvironment, they are morelikely to be safe and con-cerned citizens in terms ofdriving, although the claimsdata are still being built,”says Mr Wallace.

Other measures in the per-sonal insurance sphereinclude offering policyhold-ers the option of buying car-bon offsets to neutralise car-bon emissions from theirvehicles.

Insurers are also hugebuyers of goods and servicesto make good claims, and anumber are introducinggreen principles into theirprocurement practices.Andrew Torrance, chief

executive of Allianz UK andchairman of ClimateWise,says Allianz offers policy-holders the option to userecycled parts on vehiclerepairs.

When it comes to house-hold cover, insurers holdhuge amounts of data onwhich homes are at risk offlooding.

But insurers also have arole in helping their big cor-porate and industrial cus-tomers reduce the risks fromclimate change.

In the corporate arena,insurers have introduced ini-tiatives to help their custom-ers be more energy efficient.

A number of insurers pro-vide services to help theircustomers certify or assesstheir energy efficiency. Theythen make recommendationsas to how they can becomemore energy efficient.

Similarly, insurers helptheir customers with riskmanagement, and a numberextend this to sustainability.

Norwich Union, the UK’sbiggest insurer, offers asix-stage carbon neutralprogramme as part of the

risk management proposi-tion offered to commercialcustomers with annualpremiums of more than£50,000.

“We believe there is agrowing appetite amongcommercial customers tolook at this,” says TomOxley, corporate responsibil-ity manager for NU acrossthe UK.

A number of insurers havemore specialist ways to helptheir customers operatemore sustainably.

Zurich Financial Servicesplans to offer cover to utili-ties using new technology tocapture and store carbonemissions and, potentially,

manufacturers of the rele-vant components.

“Utilities that deploy car-bon capture and storagetechnologies are going toneed insurance otherwisethey are not going to be ableto take all these risks ontheir balance sheets,” saysMike Kerner, global chiefunderwriting officer atZurich.

RSA covers the infrastruc-ture used to produce energyfrom water, solar power andbiological materials. Theinsurer covers onshore andoffshore technologies, and isinvolved in all the stages ofthe infrastructure’s lifecycle,from planning and construc-tion through to operationand end-of-life disposal.

“We have very close linkswith the manufacturers.Because of the great claimsdata we have built up, wecan help inform design,”says Mr Wallace.

Elsewhere, in the commer-cial arena, insurers can helpcompanies physically protecttheir businesses from therisk of flooding.

Many of the initiativesintroduced by insurers offerincentives to customers tobe more sustainable.

“The whole purpose of Cli-mateWise is to encourageimproved environmentalbehaviour and to providecustomers with the informa-tion and the incentives toallow them to deliver [that].

“It is absolutely aboutcarrots,” says Mr Torrance.

But, as well as carrots, isthere a role for sticks, suchas withdrawing cover, ofmaking terms of policiesmore onerous for businessesthat refrain from reducingthe risks from climatechange?

“It is not really feasible forinsurers to use a stick,” saysMr Wallace. “It is moreabout incentives and work-ing out the smart way toprovide an environmentallysustainable option at thesame cost.”

Mr Kerner says insurershave a role to play wherecustomer behaviour impactsthe risks they are covering.

“As an industry, we arenot in a position of being thepolice or an alternative tax,”he says.

“The stick is being thepolice, or being the alterna-tive tax. If there is coveragethat we are providing that isadversely impacted bybehaviours that are notgreen behaviours, these arethings we are going to takeinto account in the selectionprocess.

“But if there is no impactat all on the risk we are tak-ing, firstly, it would be badbusiness and secondly, manyregulators around the worldwould frown on that aswell.”

But Aon, the insurancebroker, suggests the insur-ance industry is not yetdoing enough to combat cli-mate change.

According to Peter Breit-stone, chief executive of AonEnvironmental Services: “Ifyou look at the size of theinsurance industry and youlook at the magnitude of theproblem, you really don’t seethe industry throwing a lotof capital at the problemrelative to other industries.

“I think the reason forthat is that other industriessee opportunities to makemoney. “The insuranceindustry has not yet figuredout how to commercialiseit.”

Many insurersoffer incentivesto customersto be moresustainable

Flooded out: insurers hold huge amounts of data Reuters

INSURANCE

Andrea Felsted onthe response to therisks posed byclimate change

OCTOBER 9 2008 Section:Reports Time: 6/10/2008 - 16:20 User: allenk Page Name: SBI5, Part,Page,Edition: SII, 5, 1

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

6 ★ FINANCIAL TIMES THURSDAY OCTOBER 9 2008

Sustainable Business

Putting your money on thinking for the future

Obstacles in path ofthe green innovators

As financial institutions andmarkets crash around us, I amfrequently being asked whetherglobal business can sustain itsactions for a greener, moreinclusive and economicallyrational world. Surely, somehave asked, the focus ofbusiness is elsewhere right now?

In my view, the need forresponsible business engagementin the big issues of our time hasnever been more urgent. Thelimited results of the HokkaidoG8 Summit, the Doha talks onliberalising world trade and therecent US financial bail-outdemonstrates the weakness ofpolitical leadership in many ofthe leading economies.

The potent social andemotional cocktail of highenergy and food prices, thedebate about biofuels,agricultural subsidies,deforestation, water stress, andenvironmental degradation isproving too difficult forgovernments to manage.

Throw into this mix the greedand short-sightedness of abunch of international bankers,and our children could all beforgiven for wondering whatsort of world they will inherit.

A number of governmentshave stated their goal of halvingcarbon emissions by 2050. Whatwill the world look like as itdoes this over the relativelyshort time frame of 42 years?

My short answer is“different”. We will see majorimpacts on lifestyles andconsumption patterns. However,progress in the negotiationsunder the United NationsFramework Convention onClimate Change (UNFCCC) isslow and with a clear “you

first” mentality. One reason forthis is that the negotiations arevery complicated. On thesurface they are about climatechange. But in reality they dealwith energy security and limitsto economic development.

A key milestone on the roadto negotiating a new climatechange agreement at the UN’s15th Summit on Climate Change(COP15, to be held inCopenhagen in December 2009)is the US election thisNovember. There is a realquestion mark about whetherthe new US Administration willhave sufficient time to be ableto make a substantialcontribution to a new climateagreement in Copenhagen.

Irrespective of this, it is clearthat the next decades will see anew industrial revolution thatwill be Clean, Lean and Mean.Clean, because of climate

consequences, water stress andeconomic impacts. Lean,characterised by a low carboneconomy and eco-efficiency,uncertainty around access toenergy and resources, highresource prices and governmentregulations on resourceefficiency. Mean, because wewill experience transformationalchange and destructiveinnovations that will createwinners and losers.

We will also see a shift inpolitical and economic powerfrom the US and the EU to theBric countries (Brazil, Russia,India and China) and MiddleEast countries. The role ofbusiness will be crucial in thischange process. Businesses, inparticular global companies, arethe major tool for innovation,investments, resource flows andjob creation to implement theactions that are necessary. This

is being recognised bygovernments and theirmotivation and willingness tolisten to constructive proposalsfor the needed policyframeworks will be high.

In the climate change arena,it is increasingly understoodthat business must be especiallyengaged in determining thesolutions for energy efficiencyand demand-side management,technology development anddeployment, carbon markets andfinancing and sectoralapproaches. Positive outcomesfor the negotiations inCopenhagen next year will notonly impact business, but willdepend for their success onaction by business.

Let me revisit the question Iraised at the beginning. Thecurrent financial crisis shouldalso be seen as the result ofunsustainable business models

in the finance sector – notunlike those that many otherindustries have experienced overpast decades. Industries thathave put sustainability issues atthe heart of their strategy offersome valuable lessons for thefinancial sector.

Over the past 20 years, manyindustries have come underpressure to revisit their businessmodels in reaction to pressurefrom consumers to maintain orrestore public trust.

Different industries atdifferent times have had tounderstand how sustainabilityissues such as constraints oncarbon, water and ecosystems,or the social impacts are core totheir business.

Leading businesses withinmany sectors are pushing theenvelope still further to examinetheir role in tomorrow’s society.This soul-searching is resulting

in business models that requireshifts to new products andservices that directly addressglobal challenges andsimultaneously focus ondelivering value to society.Leading businesses such asToyota, DuPont, Michelin,General Electric, Nokia, Vestasand Vodafone see this as anecessary evolution to achievinga sustainable world.

Frankly, the finance industryhas always lagged behind inaddressing sustainability issues.

The current financial crisis isshedding light on the flaws incurrent business models in thefinance industry and theenormous extent to whichpublic trust has been damaged.

To regain this trust, thefinance industry will need torevisit its role in society anddeliver updated business modelsthat consider current societalexpectations of open,transparent businesses thatdemonstrably deliver value tosociety.

One of the defining mantrasof the World Business Councilfor Sustainable Development isto remind our stakeholders thatbusiness cannot succeed insocieties that fail. There is nofuture for a successful businessif the societies that surround itare not working.

The leading global businessesthat are our membersunderstand this. The companiesthat continue to demonstratethoughtful responses to society’sneeds, and are planning for achanging future, will be amongthose that will still be operatingsuccessfully many years fromnow.

Björn Stigson is president of theWorld Business Council forSustainable Development(www.wbcsd.org)

OpinionBJÖRN STIGSON

Markets mayhem: the financial crisis should not deter global business from doing its bit for a greener, more inclusive and economically rational world AFP

Industries that haveput sustainabilityissues at the heartof their strategyoffer some valuablelessons for thefinancial sector

At first glance, clean tech-nology, which eitherimproves the efficiency orreduces the environmentalimpact of energy-relatedproducts, appears to be abooming industry. It is esti-mated to be worth $150bnnow but will reach $600bn by2020, a United Nations reportsays.

Investments are beingmade in a huge variety ofconcepts and technologies.In one high-profile example,Sapphire Energy, a SanDiego-based company thataims to make biofuel fromalgae, said last month that ithad raised more than $100mfrom investors. New backersinclude Cascade Investment,owned by Bill Gates, Micro-soft’s founder.

Eye-catching deals such asthis are focusing attentionon the algae industry, whichis still in its infancy. Butoverall, the clean technologysector faces big challenges ifit is to achieve the UN’sgrowth predictions.

Robert Hertzberg, co-founder of solar companyG24 Innovations and a pri-vate investor, says smallbusinesses in most of theclean technology industriesare unable to access thefunds they need to commer-cialise their products.

“There are just not enoughmarket-based incentives tocommercialisation,” he says.“There should be moreincentives for people toinvest . . . The smaller busi-nesses are spending all theirmoney on bankers and law-yers instead of engineers.That should be the principlefocus.”

For investors, meanwhile,one of the problems is thatachieving a return on invest-ment for some clean technol-ogies requires a leap of faith.There is money available forresearch and development,says Mr Hertzberg, but with-out sales there is no return.

Some observers believeclean technology will follow

a similar pattern to that ofIT and the internet, whichyielded huge returns forinvestors over short periods,especially in the dotcomboom at the end of the 1990s.

However venture capital-ists – mindful, perhaps, ofthe dotcom bust that fol-lowed from 2001 – are takinga cautious, longer-termapproach because some ofthe technologies remainunproven.

“[For entrepreneurs in thisspace] VCs do focus on theend user and do a lot of duediligence,” says PeterLinthwaite, managing part-ner at Carbon Trust Invest-ment Partners and formerchief executive of the BritishVenture Capital and PrivateEquity Association. “Youcan see there is a lot of capi-tal available for large-scalewind farms. But there is alack of capital for small busi-ness to move to commerciali-

sation of products in Europe.It still suffers from a lack ofscale to turbocharge thesebusinesses. “

“It’s a huge problem. Youmight get £3m but that willonly last a year and youdon’t expect VCs to pay out£20m immediately.”

Fortunately, some cleantechnologies have alreadyproved themselves, takingadvantage of the terrain,weather and daylight condi-tions on which they largelydepend. This is why thereare large solar farms activein places such as the Nevadadesert in the US and inSpain, while land developersbuild large wind farms innorthern Europe.

But government assistancein the form of incentives canmake a big difference, too.Generous government incen-tive schemes for wind farmshave caused this segment ofthe clean technology sectorto thrive – faster, perhaps,than any of the others.

“Solar is getting valuationbut the investment it

attracts is not so high,” saysMr Hertzberg. “Wind is get-ting a lot because there aredeals and ‘meat and pota-toes’ incentives.

“I have invested in wind inFrance and the UK becauseof some of the subsidies.We’re not at that level forother industries yet. Wedon’t have the policies orpolicies.”

The interest in windenergy was underlined lastOctober when Eon, the bigGerman energy supplier,bought the US wind powergenerating assets of Airtric-ity for $1.4bn, one of the big-gest deals yet in the sector.In January, Scottish andSouthern Energy (SSE)bought the rest of the Irishwind energy company for€1.45bn.

Another sector attractinginterest is energy efficiencyand saving. This can take avariety of forms. In IT, datacentre technologies that helpcut corporate electricity billsare proving popular – some40 per cent of the corporateelectricity bill is estimatedto be spent on IT.

At the same time, energycompanies are buying upproducts that help consum-ers to accomplish energysaving. For example, SSEhas £7m of orders placed forOnzo’s smart electricitymeter. This shows peoplehow they use their electric-ity and energy.

“We’re very interested inenergy efficiency in the largebusiness sector,” says MrLinthwaite at Carbon TrustInvestment Partners. “Thesecond area for us is reduc-ing the cost-base in therenewable area. The nextstage of that is to bring thecost down in the supplychain of components –whether they are for solar orwind power.”

Then there are the algaeenthusiasts. While SapphireEnergy has piqued Mr Gates’interest, Origo Industrieshas just begun trials withsupermarket group Tesco’sdelivery vans.

Origo’s technology cap-tures carbon emitted fromvehicles and uses algae to“eat” it, while making a bi-product of biofuel.

“Algae are moving at arapid pace,” says Ian Hou-ston, the company’s director.“A billion years ago therewere algae. When they died,they formed oil. People arenow realising that algae arethe way to go.

“We’ve been backed by anumber of people. It’s notonly the money you need,though, it’s the assistance. Alot of venture capitalistswhom you ask for £10m tryto take a big chunk of yourcompany. Once you do that,you sell your soul.”

CLEAN TECHNOLOGY

Dan Ilett on thechallenges facingcompanies seekingto commercialisetheir products

Investors arecautious becausesome of thetechnologiesremain unproven

Pond life: algae “are the way to go” Alamy

OCTOBER 9 2008 Section:Reports Time: 6/10/2008 - 15:42 User: baxtera Page Name: SBI6, Part,Page,Edition: SBI, 6, 1

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��