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Moving the horse to greener pastures
Volschenk, Jaco
8/1/2010
Encouraging companies to be greener can be likened to encouraging a horse to move to greener pastures, writes Jako Volschenk, Environmental Finance lecturer at the University of Stellenbosch Business School.
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Assuming you are not on the horse, you can either push or pull it. And you quickly learn the hard way that pulling is better than pushing. The lessons taken from such an analogy can be applied successfully to the problem of moving our industries to be less damaging to the environment.

Let's first address the need for movement. Many companies do not see the value of moving towards more environmentally friendly practices. But doing the right thing is beyond debate. To pollute a river or to destroy an estuary has been considered an ethical issue for years, but is now also considered a legal issue. 

Such legal requirements represent the push side of environmental action. To accomplish movement, we should continually push. In other words, we should continually strive to do less damage, and make sure that the lowest common denominator, i.e. the "dirtiest" companies, are forced to comply with ever-increasing environmental standards.

Employees, consumers and investors have an active role to play. When employees and consumers start to expect proactive behaviour from companies, it creates one of the strongest push factors. And once we require our pension funds (i.e. institutional shareholders) to be truly concerned about the world of our old age, we should see that decision-making in companies includes environmental issues as a societal requirement rather than a legal requirement.

Yet, once you have movement, steering and sustaining the action can be better accomplished by pulling forces as represented by opportunity. When companies move beyond what is expected, an interesting phenomenon emerges. Consumers start buying their products because it is good and it's green. AfriSam, the South African cement producer, was the first cement company in the world to introduce a CO2 rating on all its cement products. 

The company drove its total emissions down by 34% in a time that its production increased by 54%. Not only do low emissions foretell lower energy bills for AfriSam, but the company charges a premium on its product to environmentally conscious consumers. The numerous awards that AfriSam has won are worth more than any marketing campaign it could hope for. But while the market for expensive green products is often small, most consumers would opt for greener options if it does not involve paying a price premium or a reduction in comfort or functionality. 

Similarly, research increasingly confirms that today's graduates aspire to work for companies they can trust to do the right things, and they are even willing to accept a lower salary in doing so. Ipsos Mori conducted a survey in fifteen countries (including China and Brazil) in 2007 and found that eighty per cent of the respondents indicated a preference to work for an environmentally responsible company. We see a similar trend among South African students. A strong environmental ethos in a business has the power to align people to a much greater extent than any vision statement can. 

The list of value creators is far longer than there is space for in this piece. But the future belongs to those companies that innovate. Innovative solutions dissolve rather than solveproblems, meaning that the big innovations lie not in the incremental space, but make the original dilemma irrelevant.

Environmental responsibility is a moral requirement that companies should not be allowed to exist without. An American hospital recently decided to source all its energy from renewable sources. Its logic was that if their mission was to care for the long-term health of people, it could not justify its contribution to climate change by relying on fossil fuels for its energy needs. The irony is that this hospital now enjoys unprecedented success, confirming that people want to see authentic signs from companies that they care for the greater good. South African companies that seem to understand this are Woolworths and Pick n Pay. 

While we should expect environmental action from companies as a moral obligation, few would argue that movement would happen faster if it made financial sense to do so. Push and pull actions both have a place in encouraging companies to be greener. If this is done correctly, we should find that environmental actions and solutions are matched with what is required.

 

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