Why energy efficiency makes perfect business sense

Five years ago the world’s economy went into shock as Lehman Brothers filed for bankruptcy.  The resulting global economic crisis was driven by the greed of loosely regulated financial institutions, governments seeking short term popularity and the unhealthy relationship between the two. It has resulted in unsustainable levels of debt in many developed economies with a period of austerity prescribed to restore balance within a decade, although the scars may last far longer and the effects have trickled all the way through to developing nations across the globe.

But a more fundamental risk to our long term economic development lies in the rapidly expanding use of our scarce natural resources, combined with the planet’s ability to cope with the multiple impacts of their use. We know that we are living well beyond our means, drawing on natural resources at a rate that we cannot sustain.  Just as we have accumulated debt priced too cheaply, so we have built economies with resources priced too cheaply.

Whichever basic need we consider, from warmth to mobility to food, today’s solutions are hugely inefficient – in the same year the Lehman Brothers went under, the world was using resources at a rate 50% faster than it can renew.  And as our growing population, expected to reach nine billion by 2050, consumes more, these strains on our natural capital will become even more acute.

The inevitable conclusion of this is a resource crunch. It means we urgently need to find new methods of production, address wasteful consumption and develop innovative business models that put sustainability at the heart of business operations. Energy is one resource that really matters as it is required for economic growth, and this is especially important in developing economies like Africa, where lack of basic energy is still a major obstacle to advancement. However, if generated the wrong way, this can have negative environmental consequences.  Therefore the role of energy efficiency is fundamental to moving sustainability inside businesses.

Looking at the context in South Africa, for example, shows how important energy efficiency can be. South Africa is historically a fossil fuel based economy with a significant reliance on coal and imported oil as its key sources of energy supply.  Because of its natural abundance of coal, together with the historically and comparatively low price of electricity, the South African economy has developed along both an energy and carbon intensive trajectory.

While this context has been changing slowly following the promulgation of the first National Energy Efficiency Strategy for South Africa in 2005, the country’s first consolidated governmental effort towards the development and implementation of energy efficiency practices,  a number of critical systematic issues are driving an increased need for energy management and energy efficiency. A few examples of drivers include:

  • Energy security: the challenge of matching supply with demand due to economic growth, inadequate power generation capacity and high peak demands led to the memorable “load shedding” (or rolling blackouts) of 2008, which is estimated to have cost the economy R50 billion. This event focused the country on the need to conserve energy and invest in new sources of power generation capacity;
  • Energy pricing: investment in new power generation capacity has resulted in exponential electricity tariff increases which are beginning to affect consumers and companies alike, and energy intensive industries in particular, reducing the competitiveness and sustainability of South African industry and causing negative impacts on the broader economy;
  • Climate change: as a high carbon emitting country, South Africa is quickly recognising  its responsibility to participate in global processes to reduce carbon emissions and transition to a sustainable, low carbon economy;
  • Climate and energy policies: the South African Government has been active in creating policies and regulations in an effort to drive change domestically.  Policies covering energy efficiency, tax incentives, energy management, measurement and verification will require acceptance and participation by the private sector to ensure efficacy and creating lasting impacts.          

So what can be done on the ground to implement the energy efficient solution and ensure energy management begins to sit within business strategies? Here at The Carbon Trust for example, we are working alongside NBI, in South Africa, to implement a programme to help South African businesses take real action on the ground.  Funded by DFID, the programme will work with over 1,000 South African businesses to help them identify opportunities for energy efficiency improvement.  The programme aims to save £238m in energy costs by 2015 and save 3.6million tons of CO2 equivalent – some 1% of South Africa’s total emissions in 2008.

In our work with businesses all around the world, whether in developed or developing nations, we have found two distinct behaviours when it comes to sustainability.  Think of this analogy – the 19th century science experiment with frogs and boiling water. Most businesses are treading water on the issue of sustainability as the temperature rises. They won’t move until the issue bites them hard. Our research suggests that they are discounting the impacts of sustainability on their business well into the future, beyond the time horizon of most shareholders or the CEO’s likely tenure.

A few, the jumpers in the frog analogy, are moving now.  They anticipate the danger and see a way out. The first step they take is to look inside their business and map out the resources used in the products and services that they provide.  The insight gained usually highlights simple cost saving measures to improve efficiency and resource use. But incremental improvements that once seemed ground breaking can now look like greenwash, damaging reputations and doing little to ensure competitiveness and survival.

True leaders go further and take a deeper look at resource use to drive a far more fundamental business change. These companies are at the cutting edge, redesigning products and services and their business models to minimise the use of resources that were once plentiful and cheap but are increasingly scarce and costly. Interface, the world’s largest maker of carpet tiles, is an example of a company putting sustainability at the heart of business strategy. It’s not being done as an add-on but is core to the future success of the business. Dyson, through its focus on designing out inefficiency from the start, is another.

While it can seem difficult to challenge the status quo before the platform is burning, the alternative can be harder still. Just think how many well known names that have recently failed could have survived had they anticipated, not just reacted, to the onslaught of the internet.  A new tsunami of change will result from the resource crunch with less reliable access to cheap land, energy, water and materials as regions of the world and business supply chains become resource stressed.

A golden age of sustainability lies in waiting, and African businesses are in a prime position to gain economic advantage through implementing sustainability from the ground up. As we slowly recover from the debt crisis, businesses all over the world that have been hoarding capital are now looking to invest once again in their future. But that future can’t just be more of the same. Business face a world where consumers will expect more but resources will be scarce and expensive. This is a huge opportunity to innovate, and provides a level playing field for African businesses to leap ahead. Successful businesses will be sustainable investments, resilient to the resource crunch, but they will also be good businesses that appeal to environmentally conscious consumers. They will have sustainability inside.