WHEB Commentary

Seb Beloe

What Ornithology can teach us about the Market for Sustainability


We’ve all heard of ‘black swans’, the metaphor chosen by the author Nassim Taleb to represent highly improbable but high commercial impact events. But what do flamingos, starlings and pigeons have to teach us about business?

David Metcalfe the CEO of the consulting firm Verdantix employed this unlikely ornithological device at the firm’s recent conference on sustainability and energy strategies to illustrate the different market dynamics that influence corporate investment in sustainability programmes. Flamingos (incremental background data which is easily ignored), black swans (infrequent unexpected events that are difficult to plan for) and ‘secretary birds’ (regulatory changes) are in Verdantix’s view, less likely to drive corporate decision-making than ‘pigeons’ – routine but increasingly onerous maintenance and services spend.

This perspective was broadly shared by many of the subsequent speakers, particularly in reference to energy management which, driven by high and volatile prices today, with higher and more volatile prices anticipated for tomorrow, is clearly coming of age. A representative from Tesco was one of these speakers and emphasised that, as a business using approximately 1% of all UK electricity, it is particularly exposed to these dynamics. Tesco’s sustainability programme, initiated by Sri Terry Leahy in order to mitigate carbon emissions, has generated £290m in savings since 2006 and has reduced energy use by one third per unit of store space.

For Tesco, energy is a major concern with a 1p increase in electricity price leading to a 5% increase in their electricity budget. Their strategy is to aggressively tackle energy efficiency – an area where they claim investment returns are still ‘very attractive’ – through the deployment of LED lighting and by utilising energy management software that can identify where energy is being wasted. In the medium-term, the company is also keen to hedge rising energy prices by building their own portfolio of energy generating assets. Currently this is limited to back-up diesel and biofuel-fed generators and combined heat and power, but increasingly will include solar PV and even dedicated wind farms.

Other speakers also emphasised the energy efficiency opportunity. In the real estate industry they argued that what started as public relation-led objective to secure ‘green certificates’ has become a strategy to reduce operational expenses, particularly through reductions in energy costs. The Green Investment Bank has energy efficiency projects as one of their top three priorities (the others being offshore wind and energy from waste/biomass). Their focus is on supporting the deployment of variable speed drives, boiler upgrades and more efficient motors, and also on wholesale re-engineering of industrial processes.

The final panel focused on the role and expectations of the investment community. ‘Cleantech’ has become something of a dirty-word in the investment world, but after several fallow years, a number of investors claimed that interest was now returning, typically in areas now re-labelled as resource efficiency and infrastructure. The one area all investors were in agreement on was on the dangers of regulation. Few felt that the UK would enact any retrospective changes to renewable tariffs as some have feared, but all were clear that technologies and business models that were dependent on subsidies were areas to be avoided. As one speaker put it, returning to the ornithological theme, “Subsidies are the real dodos”.

 

 

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