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29 January 2007

The green rush

Businesses are vying to save the planet, and getting rich. But does it matter, so long as they deliv

By James Harding

There are two dirty secrets and one redeeming truth behind British business’s sudden eagerness to kick off its brogues and slip into a pair of Birkenstocks.

The first is that the modern “green rush” is motivated by the same force that drove men to the Klondike. In the long term, it may be about saving the planet. Meanwhile, it’s about turning a profit. More precisely, it’s about marketing.

When Chevron changed its advertising message to focus on renewable energy, the US oil giant saw a marked pick-up in trade on the forecourts of its petrol stations: the commitment to deal with scarce energy resources delivered more customers at the pump. Likewise, both Shell and BP are investing heavily in renewables, but still draw the vast bulk of their profits from hydrocarbons.

In the retail sector, the economics of climate-change PR are even more compelling. Marks & Spencer recently announced a £200m environmental programme and a pledge to go carbon-neutral. Three days later, Tesco declared it would “carbon label” all the goods on its shelves. Sir Nicholas Stern, the author of last year’s government report on the economics of climate change, had been invited up to the Tesco headquarters in Cheshunt a couple of weeks earlier to brief senior managers on global warming and the power of business to alter public behaviour and curb the rising temperature.

Sir Terry Leahy, the Tesco chief executive, says that the supermarkets are simply responding to customers. This is true, but there is a bit more to it than that. Retailers are not just answering a need, they are cultivating it. For retailing is a cut-throat business, historically driven by competition on price.

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Nice little earner

Tesco’s appeal to shoppers is fundamentally a value proposition. The past few years have seen competition drive down prices and the supermarkets left with wafer-thin margins. The environment offers retailers the chance to appeal to shoppers’ values and earn themselves a slightly thicker margin. TNS, a research firm, reported that a quarter of UK shoppers say they are prepared to pay more for goods that come from companies that pay employees a fair wage and protect the environment. Organic food, line-caught fish, locally sourced produce, biofuel delivery vans and a clampdown on plastic bags all offer retailers the chance to get into higher-margin product ranges and services. Waitrose is the most expensive of the big supermarkets and the pioneer in organic food. Its pricing model is pitched above the national average, but it has shown the higher margin available to retailers perceived to be selling groceries and the greater good.

A green competition has broken out on the high street, not because the CSR crunchies have taken over the boardroom. In fact, it is not really about corporate social responsibility at all. It’s about marketing and margins.

For many companies, going green can be cheap. Bradford & Bingley, I was told, overhauled its entire operation in six months and at a net cost of £50,000 and, as of this year, the building society can boast throughout its high-street network and in all its promotional materials that it is a carbon-neutral company. Vincent Tchenguiz is one of Britain’s most successful property investors. He is known for his billions, his houses scattered across the UK and the Med, and his array of sports cars. He told me he had decided to go carbon-neutral, offsetting his jet-setting footprint at a total cost of £5,000.

Companies that have gone carbon-neutral are transforming the culture of business. They have shown courage to bring to their boards proposals that do not obviously chime with the interests of shareholders. And they create a climate of expectation that all companies should be striving to minimise emissions. But Al Gore’s corporate storm troopers are the companies that have found it, both financially and logistically, easy. They are not mining companies such as Anglo American, or power generators such as Drax. They are organisations such as Man Group, the hedge fund, and Sky, the broadcaster.

Still, for all the distrust of corporate greed, the redeeming truth is that business is doing good, unbidden. On the issue of global warming, the corporation, on the verge of becoming a dirty word in the heyday of anti-globalisation, has become the most energetic agent of change for the public good.

Companies have eclipsed politicians, individuals and NGOs in committing unprecedented resources to addressing a problem that does not show up on their balance sheet. The Stern report deemed climate change the most catastrophic market failure in human history. The market did not reject the charge, but has responded to it. Cometh the hour, cometh the chief executive.

James Harding is business editor of the Times

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“If no action is taken, we will be faced with an economic downturn of the kind that we haven’t seen since the Great Depression”
Government’s chief scientific adviser, Sir David King, responding to the Stern report

“When the realisation of what’s coming begins to dawn on people, oh boy!”
Tim Barnett, marine physicist at the Scripps Institution of Oceanography, San Diego, on seeing a draft of the IPCC report

Read more from this climate change special report

No time to lose by Tony McDermott
The world must urgently face up to the global violence and conflict that would result from rapid climate change, warns Tony McDermott, adviser to Al Gore

Yes, we can save the world . . . if we want to by Chris Luebkeman
Chris Luebkeman asks whether we are ready to change everything

A matter of security by Josh Arnold-Forster
Why is the MoD so seriously concerned about global warming? Josh Arnold-Forster on the social collapse we are not prepared for

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