sustainable businesses

Sustainable Businesses Navigating towards a more sustainable future

Contents

Introduction – Nathan Goode 2

Strategy & Risk Management 4

Implementation: Governance & Embedding Sustainability 8

Sustainability Reporting 13

Sector Specific Approaches 17

Food & Beverage 18

Freight & Logistics 20

Property & Construction 22

Higher Education 24

Local Authorities 26

Healthcare 28

Conclusion – Nathan Goode 30

Contact us 33

“ Sustainability is one of the buzz words of the moment. But what does it really mean for business? Global and large quoted corporations increasingly see sustainability issues as important to their business model.”

Foreword

Nathan GoodeHead of Energy, Environment and SustainabilityGrant Thornton UK LLP

Sustainable Businesses 1

2 Sustainable Businesses

What about nationally or regionally based organisations, or companies that are part of global supply chains, operating business-to-business or competing in specialised markets? Do these organisations need to plan for sustainability amidst competition and cost pressures on all sides?

Sustainability can be tricky to define in a way that satisfies everyone. Sustainability involves both planning for the long-term, seeing the linkages between all of the influencing factors – and understanding that the relationships between an organisation and its environment (in the broadest sense) are both dynamic and interactive. Sustainability is fundamentally linked to an organisation’s use of resources and the waste outputs that it produces.

We can see the leadership from global corporates and understand the rationale, but at Grant Thornton we wanted to know whether these approaches were starting to spread into the wider economy. And if they were, how those organisations were thinking about the cost of resources: were they focused on today’s cost model or looking forward to a world where basic commodities such as energy, water and minerals show themselves to be volatile, costly, finite and scarce? And how important for their own future do these organisations think the impact is on the communities they serve, where they operate and

where they draw resources? Do they draw an explicit link between these issues and their own profitability and competitiveness? Can and should the principles of sustainability be universally part of an organisation’s DNA, embedded in its business model, and given equivalent value to the financial bottom line?

“What are the threats and opportunities coming out of global shifts in resource use and patterns, greater awareness of the corporate footprint in general and changing government regulation around areas such as carbon emissions, waste management and renewable energy?”

At Grant Thornton, we sensed that business models are starting to respond to these challenges, and not just amongst the global multinationals. But we wanted to test this presumption, see if we could identify a trend and, if so, assess how widespread and how deep it was.

So we commissioned independent analyst firm Verdantix to undertake an independent, anonymised review with 200 senior executives across the private and public sector in the UK, choosing the types of organisation we work with on a day to day basis: ‘mid-tier’ businesses broadly in the £250 million – £1 billion turnover range, who are key to the

Introduction

Whilst global and large quoted corporations’ public profile provides an obvious rationale for incorporating sustainability issues into the way they operate, what about the rest of the business world?


“ Sustainability is fundamentally linked to an organisation’s use of resources and the waste outputs that it produces.”

country’s future economic growth, in sectors which should in theory be amongst the first to be affected by sustainability issues:

Food & Beverage, Freight & Logistics, Higher Education, Property & Construction and the Public Sector, concentrating on Health and Local Authorities.

We want to look at the challenges these organisations face in developing a long-term, sustainable business model and ask: what is the business case for sustainability? What are the threats and opportunities coming out of global shifts in resource use and patterns, greater awareness of the corporate footprint in general and changing government regulation around areas such as carbon emissions, waste management and renewable energy?

This report addresses sustainability in the following key areas:• Strategy and risk management• Governance arrangements• Embedding sustainability• Reporting sustainability

The organisations we surveyed had clearly begun the journey, but to a greater or lesser extent were still only part of the way there. There is still plenty more to do before sustainability becomes business as usual.



Overview

The primary finding of this survey is that sustainability is no longer the preserve of the happy few; different forces are compelling many businesses and other organisations to recalibrate their operations in a more sustainable fashion.

In the sectors we reviewed, something of a ‘tipping point’ seems to have been reached – those organisations still failing to face up to the impact of sustainability on their organisational performance now risk being left behind by their peers. The sustainability imperative is starting to be seen as a determinant of business success.

This is illustrated by the fact that 92% of survey respondents stated that sustainability performance is either ‘very important’ or ‘important’ to the overall success of their organisation, and that the vast

majority have already begun integrating sustainable development into their daily work practices.

85% of those surveyed said this trend will increase in importance in the next year and 94% indicated that this will be of even greater importance over the next five years. Sustainability therefore has a strong and growing relationship to overall organisational behaviour.

Strategy12% of respondents were still grappling with what sustainability meant for their organisation, although the vast majority (88%) of those interviewed were able to articulate this. The residual 12% may be failing to identify the risks and opportunities associated with sustainability, which may place them at a competitive disadvantage. However, the overwhelming majority of our sample had at the very least reached ‘first base’ in seeing a direct relationship between sustainability and overall organisational performance.

Strategy & Risk Management

Findings

Which statement best describes your perspective on what sustainability means for your organisation?

Sustainability describes ourorganisation’s performance on

non-financial metrics such asenergy, environment and social

Sustainability is a new conceptfor our organisation and we are

still grappling with what it means

Sustainability describes the long-term viability of our organisation in the context of natural resource scarcity

46%

12%

42%


OrganisationSurvey respondents were encouraged to give their own thoughts as well as answer specific questions. “We are constantly trying to raise the bar every year on our sustainability targets,” was how a respondent from the Food & Beverage sector expressed their company’s attitude. As another, in the Freight & Logistics sector, put it: “Market demand means that ignoring sustainability is not an option.”

Why do so many organisations think the significance of sustainability will increase in the future? There appears to be a combination of factors, such as rising energy costs, government targets, competition within the sector and a commitment to social responsibility. Each organisation will rank these factors differently according to their own circumstances. However, short-term financial constraints, especially in the public sector, are affecting the kinds of sustainability initiatives that are being undertaken.

Clearly ones with immediate cost benefits are more attractive. “I see a significant increase in the importance of sustainability due to the cost of utilities, indirect cost associated with sustainability like waste and packaging, procurement, cost of transport, increase in fuel charge, fuel duty, aviation taxes, all of it,” was one comment from a Higher Education respondent.

At the same time, sustainability is now seen as a necessary cost of doing business. “The increase [in our interest in sustainability] is because of the financial importance of achieving cost savings and our commitment towards using more sustainable products. We include this even in tenders and our overall procurement process and this will only increase,” said a respondent from the Property & Construction sector. Another, in the Food & Beverage said “It will be more and more important to find out how to source our raw materials in a sustainable way and then strive to improve and increase efficiency.”

There was a high level of confidence amongst interviewees that sustainability was a part of the organisation’s strategic planning. A substantial majority said their organisations had fully or partly included sustainability into the following areas:• Long-term strategy (89%)• Core values (81%)• Mission statement (79%)• Vision statement (79%)• Financial objectives (70%)

Awareness of the issue, therefore, was the norm amongst our interviewees. The next question is how this is reflected in everyday business practice.

“ Market demand means that ignoring sustainability is not an option.”


Risk ManagementWe wanted to know how organisations assessed the key risks associated with sustainability and set performance targets against them. The survey listed seven risk areas. These were:• Carbon regulations• Energy prices• Environmental regulations• Water scarcity• Commodity prices• Extreme weather• Substitution risk from more sustainable products

The responses showed a real mix of concerns, with no single dominant risk area, indicating that carbon regulations were identified as the ‘most important’ sustainability risk factor for an organisation’s performance in over a quarter (27%) of cases, and energy prices by one fifth (20%) of respondents.

“Climate change will impact on healthcare and so we need to mitigate this. The Department of Health has carbon reduction targets. We’re very much looking to beat them,” said one Healthcare sector respondent.

It is important to stress that this survey is a snapshot, taken at a particular point in time. We can see the rationale for identifying regulatory drivers as

the highest business risks, but wouldn’t be surprised to see more fundamental economic considerations starting to come to the fore in future surveys.

Perhaps one conclusion from these results is that people are not necessarily distinguishing the concept of risk (which is about volatility and unpredictability in forward planning) from simply articulating current business concerns. In some cases, limited datasets or technical experience to undertake an effective evaluation may also be playing a part, particularly where these issues are relatively new to a sector.

When the analysis is broken down, some sectors gave more of a preponderance to carbon regulations than others. Carbon regulations were identified as the most important risk factor by 60% of respondents in the Mining & Extractive sector (and energy prices by 40%), by Local Authorities in 44% of cases, and by 39% of respondents in Higher Education (and energy prices by 32%).

168 Local Authorities in the UK are subject to the CRC Energy Efficiency Scheme which may be driving the responses here, but it is a relatively predictable business cost rather than a risk, and it is also likely that public sector responses reflected wider concerns and aligned with current public policy agendas.

“ Climate change will impact on Healthcare and so we need to mitigate this. The Department of Health has carbon reduction targets. We’re very much looking to beat them.”

Carbon regulations

Energy prices

Environmental

regulations

Water scarcity

Comm

odity prices

Extreme w

eather

Substitution risk fromm

ore sustainable products

1 2 3 4 5 6 7

1 – Most important

70

80

90

100

%

60

50

40

30

20

10

0

70

80

90

100

%

60

50

40

30

20

10

0 Long-term strategy

Core values

Mission statem

ent

Vision statement

Financial objectives

Fully included Partially included

Not included Don’t know


On average across all sectors, the second biggest risk after carbon was energy prices (20%). Environmental regulations (17%), water scarcity (16%) and commodity prices (10%) followed. At the other end of the scale, 25% thought that extreme weather events were the least important risk, which is interesting given this year’s widespread flooding incidents and other extreme events globally.

Substitution risks from competitive, more sustainable products were considered the least important risk by 19% of respondents. This kind of ‘disruptive’ market intervention can have profound consequences, especially in fast-moving technology fields, but it is likely that in the sectors we chose, this risk was not considered particularly relevant to the business model.

To what extent has your organisation’s leadership included sustainability in the following?

In the next two years, how significant will the following risks be to your organisation’s performance?

CEO

Sustainability Director

Other

Vice Chancellor

Environment/Energy Director

Head of Council

COO

Managing Director

CFO

Facilities/Estates Director

40%

20%

10%

7%

5%

4%

4%

2% 2%

4%


Overview

Awareness is one thing, but translating this into meaningful and effective action is a different matter. Leaders wishing to implement change face plenty of challenges.

Is there resistance to change and, if so, where does it lie? What strategies are available to overcome it? Does there have to be a crisis to drive change, or can there be evolution during periods of stability? How is change best institutionalised? How does an organisation implement sustainability goals while surviving in a potentially conflicting

competitive market? And how can you tell the difference between superficial box-ticking and genuine action?

Often environmental compliance requirements affecting a company’s ‘licence to operate’ is the entry point for sustainability in the operational areas of a business. However, to move from this to ‘embedding’ sustainability so that it becomes a core part of the business model is a major step. Often resources and money are the barriers to action, but also lack of clarity about what sustainability initiatives can and should achieve. If sustainability is treated predominantly as an ‘environmental’ issue, rather than also as an economic and social issue, embedding could be harder.

Who is accountable for performance against sustainability goals in your organisation?

Implementation: Governance & Embedding Sustainability

Findings


Governance Ascertaining who has designated leadership for sustainability, together with which departments of the organisation are involved was revealing.

Questions targeted on accountability and responsibility generated some very interesting results. In order to surmount barriers to embedding sustainability, it is clear that leadership is crucial.

With a strong and consistent message from the top of an organisation sustainability can be communicated as something that simply has to be done. “The CEO made it very clear that... addressing sustainability issues are necessary for the growth of our organisation,” was how one respondent in the Food & Beverage sector put it.

The survey showed the CEO or equivalent was accountable for sustainability performance in nearly half of the organisations questioned. 47% of respondents reported that the CEO or Vice Chancellor (the equivalent of a CEO in Higher Education) was the individual accountable for performance against sustainability goals. A further 20% identified the Sustainability Director as responsible. With other board-level categories there was a clear 80% where sustainability was led from the ‘top table’ of the organisation. This is a

critical finding – not only do successful organisations have the strategy for addressing and incorporating sustainability throughout the business mix, but designated responsibility goes to the top.

Where a board has committed the time and effort to establish such a position, it is a highly positive sign that sustainability has been acknowledged as key to overall business performance and requires its own management.

The range of job titles in this response suggests a diversity of approaches, however. Organisations need to implement as well as strategise and it is interesting to see that in only 7% of cases the Chief Financial Officer or the Chief Operational Officer is accountable for attaining sustainability goals, despite the survey showing that sustainability is enshrined ‘partially’ or ‘fully’ in 70% of organisations’ financial targets. Yet the economic case for sustainability is already very important and becoming more so. “In the short-term, financial benefits and increased awareness will increase the importance of sustainability,” one respondent from the Local Authorities sector commented.


Embedding SustainabilitySustainability goals are not always embedded consistently throughout all branches of an operation. They must cascade down through every department, or there is the risk of a disconnect between high-level strategy and organisational reality.

In our review, sustainability performance metrics were least noticeable in financial management and product development compared to energy and environmental management functions. It is clear that the stage of embedding sustainability is where many organisations still have much to do.

In leading organisations and businesses, by contrast sustainability is fully embedded throughout the core strategy, and is seen as a driver of growth and innovation. For the SME’s reviewed in this research, sustainability goals were described as ‘fully embedded’ in any department in no more than a third of respondents. This highest response rate at 33% was Operations – the lowest, at 14% was Sales, with the others falling between these extremes.

The scores go up when ‘fully embedded’ and ‘partially embedded’ are combined, but the results show clearly that HR and Sales are lagging well behind

in adopting sustainable business practices, either fully or in part, with under 60% of respondents in these two specialisms reporting that sustainability was either fully or partially embedded. Many organisations have started the journey towards embedding sustainability and to measure where each organisation was on this journey would require more detailed analysis.

The uncertainty may be because many departments still consider sustainability as just an environmental issue. In Sales for example, where targets are financially driven, non-financial metrics are considered to be less important, unless they are seen as having a direct impact – for example where businesses need to meet certain environmental requirements in order to win contracts.

Less than 60% of respondents reported thatsustainability goals had been ‘fully embedded’or ‘partially embedded’ within HR and Sales.

“ Sustainability goals were described as ‘fully embedded’ in any department in no more than a third of respondents.”

Operations

Risk

Finance

R & D

IT Supply chain

Fully embedded Partially embedded

HR Sales

Not embedded Don’t know

70

80

90

100%

60

50

40

30

20

10

0


The power of sustainable business practice is recognised as a potent motivator for behavioural change. When the SME’s in this survey were asked whether there were plans to incentivise the incorporation of sustainability into employee behaviour, responses indicated limited consideration of possible interventions. Only 13% said that they planned to fully embed employee recognition for improving sustainability into their strategy. This was ‘employee recognition’ in a non-financial sense – we asked separately about bonuses and pay rises. The figure rose to 51% to include ‘partial embedding’, but again what this means in practice is a moot point.

Employee recognition was the most popular of all suggested strategies. Giving bonuses to executives was the next most popular choice (9% fully embedded) with general employee pay rises or bonuses the lowest (3% fully embedded).

To what extent are sustainability goals embedded in the following functions?

53%67%48%

15%5%

Longer payback periods are considered for sustainable projects

Environmental and social information is not included in the assessment process

Non-financial environmental and social information is included in the assessment process

Don’t know

All environmental and social costs and benefits must be monetised for consideration in the appraisal process


There is a majority recognition that different investment criteria should apply to sustainability projects. 67% of respondents identified longer payback periods as being allowable for sustainability projects and 53% included non-financial social and environmental information in the assessment process. 48% had reached the stage of monetising these criteria, while only 15% did not include social and environmental information in the process. This seems like a strong platform to build on. No doubt different metrics are inconsistently reported in organisations’ sustainability reports and wide disparities exist between the quality, quantity and types of information represented, but a process at least appears to be underway.

Leading companies which have already successfully integrated sustainability throughout their organisation all report that they have some form of recognition for behaviour change embedded in their operations. When sustainability metrics directly affect financial performance and therefore the reward that people derive from their work within the organisation, they can become truly embedded.

How does your organisation account for sustainability in its capital investment appraisal processes?


Sustainability information was reported either internally and/or externally in over 80% of organisations surveyed. Just 16% did not publicise any information related to their sustainability performance.

But exactly what they are reporting varies widely. Of those who do report, 46% see ‘sustainability’ as their organisation’s performance on non-financial metrics such as energy, environment and social. Almost as many, 42%, see it as the long-term viability of their organisation in the context of natural resource scarcity.

Either way, this suggests that sustainability reporting can provide a way of systematically and quantitatively measuring management quality. However, the fact that Waste and Environmental Management came top of the reporting list suggests there isn’t necessarily a strong correlation between the responses on external sustainability risks (carbon, energy etc.) and what gets reported on. It is likely that what gets measured tends to be linked to what is required for compliance purposes. Yet it is important that organisations measure, manage and disclose the full range of factors that help it to create and preserve value.

At the top of the list of reported metrics was Waste Management (fully included by 56%), followed by Environmental Management (51%). Energy Management came third at 50%.

This probably reflects the length of time that waste and environmental (pollution) legislation has been in force (up to thirty years in some cases), during which time it has become almost a standard concern. In particular, the Landfill Directive has begun driving increasing recycling, waste minimisation and resource efficiency, with material effects on the bottom line.

“We have to nearly double our recycling rates from 28% to 40% by 2014,” said one respondent from the Local Authority sector.

Water Management has been creeping up the agenda (fully included in 46% of reports) due to compulsory water metering and rising costs.

Sustainability Reporting

Findings

Fully included Partially included Not included Don’t know

Waste management 56% 37% 2% 4%

Environmental management 51% 42% 5% 1%

Energy management 50% 42% 6% 2%

Water management 46% 45% 6% 4%

Facilities management 34% 45% 17% 4%

Procurement 29% 51% 17% 4%

Travel and logistics 26% 45% 22% 7%

Financial management 21% 50% 22% 7%

Product development 13% 39% 32% 16%


Boards take a variety of approaches to presenting sustainability data. 28% present it as a standalone report. A further 40% either integrate it or present it as a separate section in the annual report. 16% just include it in their internal reports and 16% do not report on it at all. It is probably fair to say that sustainability is not yet seen as having a direct impact on financial results – only 7% of those surveyed consider the CFO/FD responsible for deciding how to present sustainability information. This was significantly less than the Head of Corporate

Communications (20%) or the CEO (37%) or the Head of Sustainability (42%).

External validation of sustainability information was not widespread in this group. Only one third of sustainability information was subject to any form of assurance.

Yet, despite there being no regulatory requirement, many organisations are reporting. Many other countries, such as South Africa, France and parts of Scandinavia, have statutory obligations for sustainability reporting.

To what extent does your organisation include sustainability performance metrics in the following areas?

“ Sector and trade bodies have the opportunity to demonstrate leadership to assist this process by working closely with regulators and governments to improve the quality and value of reporting.”


Businesses that have incorporated sustainability in their reporting processes tend to adopt independent benchmarking according to recognised standards. This helps organisations avoid accusations of ‘greenwashing’. Independent assurance is possible using AA1000AS (2008), the Carbon Trust’s GHG Protocol Product Standard, GRI (G3) guidelines, and ISO26000, for example. There are new initiatives to improve corporate reporting such as the development of an integrated reporting framework by the International Integrated Reporting Council and the disclosure of carbon emissions by the Carbon Disclosure Project. Sector and trade bodies have the opportunity to demonstrate leadership to assist this process by working closely with regulators and governments to improve the quality and value of reporting.

The proposed introduction of mandatory carbon reporting for UK companies listed on the main exchange should also lead to greater transparency and comparability in reporting. Whilst there is a concern that this may add to the reporting burden, the move towards mandatory carbon reporting was wholeheartedly backed by business during the recent Government consultation process.

The argument is that companies, investors and other stakeholders will benefit from improved information about the risks and opportunities facing the organisation; this should lead to better decision-making through increased awareness of sustainability issues. Many respondents to our survey cited the expectations of clients and the public as being important motivators for reporting.


Which of the following statements best describes your approach to sustainability reporting?

Sustainability information is integrated in our internal management reports

We do not publicise any information relating to our organisation’s sustainability performance

Sustainability information is integrated into the annual report and accounts

20%

16%

16%

Sustainability information is presented as an independent section within the annual report and accounts

20%

Sustainability information is presented in a standalone sustainability report

28%

As one respondent put it: “It is mainly external influence, customers’ expectations on our company. A lot depends on the external stakeholders and at times they are putting a lot of increasing pressure on the business to address these sustainability issues.” Reputation is everything and can massively affect brand value, and this is seen as vital by many leading companies.

Other barriers to effective communication include not quantifying and accounting for sustainability issues in financial terms, which can result in the issues having less perceived importance to the investment

community and diluting efforts to move away from a solely short-term focus on investment decision-making. On the other hand, developments in social and interactive media are magnifying the potential for reputational damage and may act as a catalyst for change.

Effective communication of sustainability performance can enhance reputation, but ineffective communication or a lack of trust can equally work in the opposite direction, particularly through social media, where damage may be difficult to repair.


Sector Specific Approaches

Within sectors, as we have identified, approaches to sustainability differed widely on a sector by sector basis.

Sector

“ We deal with sustainability thoroughly; it is part of our business and it will only increase in importance.”


Companies in the food and beverage sector are exposed to reputation and resource scarcity risks. To mitigate these risks and achieve positive brand impacts, firms are investing in sustainable supply chain strategies which are less resource intensive and focus on building stronger relationships with key suppliers.

“We deal with sustainability thoroughly; it is part of our business and it will only increase in importance,” said one respondent. 32% of respondents confirmed that sustainability goals had been fully embedded into their supply chain, for example by sourcing locally. This was the highest value recorded for supply chain and is reflective of its relative importance in this industry when compared to the others evaluated in this study.

In this sector, consumers have been taking a more active interest in the sustainability of products for some time and many have been the target of consumer campaigns. This explains why communicating sustainability performance to customers was identified as ‘very important’ by this sector.

In terms of threats, water scarcity emerged as the most important risk factor for this sector (identified as such by 32% of respondents), reflective of the high water usage intensity levels of this industry.

Food & Beverage

Sector

An independent research and analysis report conducted by our Strategy and Commercial Advisory Team on behalf of the Food and Drinks Federation (FDF) identified growth opportunities and barriers that companies in the sector are facing based on extensive surveys and interviews with senior management (representing c. 29% of the total industry by turnover value).

One of the major future risks identified in this report was access to raw materials exacerbated by the growing demand from emerging markets and the extreme volatility in commodity prices. Executives regarded access to raw materials a competitive disadvantage for the UK compared to other countries who are more self-sufficient or can access more raw materials locally, compared to the UK, which remains particularly dependent on importing certain commodities.

One of the conclusions of the report is that in order to ensure food security, the UK food and drink industry and Government must work together. The industry must develop more resilient supply chains (produce more with less resources while reducing the impact on the environment) while the Government should facilitate greater trade liberalisation through international trade negotiations.


Case Study:

Marks & Spencer (M&S) is one of the UK’s leading retailers. They have delivered £185 million in net benefits through Plan A. An essential element has been close collaboration across the supply chain.

Adam Elman, Head of Delivery at Plan A, commented that CO2 emissions from the supply chain are up to 10 times that of the company itself. “We do not have all the answers and it makes sense to work together and learn from each other.”

A Supplier Exchange best practices programme was launched 5 years ago that allows best practice to be shared on a whole range of topics both on-line and face-to-face working groups plus at an annual conference where over 1,200 suppliers can engage with each other to discuss challenges and opportunities. This approach engenders collaborative working to develop better working practices but suppliers must meet sustainability standards from an environmental, social and economic perspective that align to the company’s balanced scorecard, in effect a ‘carrot and stick’ approach is used.

Marks & Spencer plc


For Freight & Logistics, the sustainability agenda (specifically low carbon transport) is having a transformative impact on this industry, and it was the shareholders who were the target group most frequently identified as ‘very important’ for sustainability performance communications.

Whilst low carbon is a priority it is also a challenge for companies in the sector because alternative fuel systems – such as electric – have yet to be developed which can run vehicles for long periods of time.

Looking ahead, this sector sees more efficient transportation as a theme which has been strong for the last three years and is likely to continue to be so. Although 24% of respondents foresaw no change in the importance of sustainability in the next year, this is because they have already taken on board the importance of the aspects of sustainability most relevant to them.

The need to embed sustainability was noted by one respondent from the Freight and Logistics sector who stated: “We are driving [sustainability] through our internal environmental management system which requires input from lots of departments and teams.”

Freight & Logistics

Sector


Deben Transport provides container haulage services to multinational shipping companies. The haulage sector faces increased regulatory pressures to reduce carbon emissions, such as Euro 6, which alone can add £10,000 to the cost of new vehicles. Deben attributes the sustainability of its business model to high levels of performance and reliability, achieved through commitment to co-operation and partnerships and a highly skilled workforce that is able to adapt to changing demands.

Deben TransportCase Study: Case Study:

Debach, a warehousing, logistics and distribution company, has installed a large solar PV array at one of its depots. Another is planned. Bee Kemball, MD of Debach, said: “[the deal] is financially rewarding immediately and long-term, giving us and our customers, operational and most importantly, environmental benefits.” The company has a goal of becoming carbon neutral and the initiative sits alongside effective energy monitoring and management systems and insulation. Debach plan to tackle transportation emissions next.

Debach Enterprises Ltd


The Property & Construction sector appears to have been more effective at embedding sustainability goals into its Operations and Risk functions than any of the other sectors (45% and 43% of respondents respectively confirmed they were fully embedded). The UK property market is highly competitive, and firms in this sector are seeing sustainability credentials as a way to differentiate in the market place.

Legislation is also playing a part. One respondent in the Property & Construction sector remarked that sustainability is increasing in importance for their company “because of the financial importance of achieving cost savings and our commitment towards using more sustainable products. We include this even in tenders and our overall procurement process.”

Environmental regulations were most frequently identified (26%) as the major risk factor for this sector. This is due to the significant volume of environmental legislation to which the industry is subject. “It is linked to quotas for sustainable homes which is a national policy, basically that is by 2016 all new homes have to be constructed zero carbon,” said one respondent.

Property & Construction

Sector


Quintain is an estate-leasing and urban regeneration business. It tries to avoid undue focus on the financial bottom line through an integrated development approach. One Brighton contains 172 zero carbon eco-homes, offices and community areas that reflect sustainability principles with a car club, rooftop allotments and recycling facilities. Eco-studios and apartments feature highly energy-efficient lights, appliances and fittings. Sky gardens on every level provide communal space. All energy is supplied from renewable sources, achieving a 95% reduction in CO2 emissions.

Elsewhere, Quintain’s student accommodation block in Hoxton, London, has been fitted with LED lighting, CHP for heating and hot water, individual flat sub-metering, a central energy management system, a green roof and a bat box. The social element of sustainability is addressed through the provision of ample, communal, social and study space and facilities, which encourages students from a range of disciplines and countries to mix. Quintain has supported local businesses by facilitating them giving discounts to residents.

QuintainCase Study: Case Study:

Property development company Argent Group strives to manage its sites as sustainably as possible. For example, its 67 acre development in King’s Cross, London, which requires £2 billion of infrastructure works, will include a district heating system running off an already existing 2MW Combined Heat and Power system, with two similar plants to be added. The project included an Energy Centre on site, and working closely with English Heritage ensured a listed building was refurbished to their requirements.

In a totally different kind of project – an open-cast coal mine and land reclamation scheme near Merthyr Tydfil – Argent is remediating the environmental impact of coal extraction, and providing much-needed employment, by restoring the land and its former biodiversity. This involves the removal of three toxic tips and preserving a community of Great Crested Newts, an endangered species.

Argent Group


Higher EducationIn Higher Education, 53% of respondents saw a significant increase in the importance of this topic over the next year. This appears to be in part due to the relatively recent appearance of sustainability on the policy agenda in this sector. There are a number of drivers, which include: rising energy costs, government targets, competition within the sector and greater expectations by stakeholders of institutions to perform on social responsibility.

“I see a significant increase in the importance of sustainability due to the cost of utilities, indirect cost associated with sustainability like waste and packaging waste, procurement, cost of transport, increase in fuel charge, fuel duty, aviation taxes, all of it,” said one respondent.

Carbon regulations were identified as the most significant risk factor for this sector, by 39% of respondents. At the same time, energy prices were also reported as the most significant risk by 32% of respondents. Higher Education bodies are mandated to produce carbon management plans by their funding body, the HEFCE. “Our Carbon Management Plan, and the university’s long-term plan as well as government policies will mean significant increase in sustainability,” said one respondent.

In terms of communicating performance, policymakers were the group identified most frequently as a ‘very important’ target for messages.

Sector


With savings in fuel consumption of 14.4% gas and 11.4% electricity, cost reductions are over £45,000pa and carbon emissions over 300 tonnes CO2e. As a result Downing became the first Oxbridge college to achieve Carbon Trust Certification. Success has been achieved with a range of methods addressing the specific challenges of sustainably refurbishing a 200 year old building. Solutions included hiding solar panels on roofspaces, insulation in attics, and double glazing in listed Georgian sash windows. In addition rainwater harvesting, an electric vehicle charging point and a ground source heat pump for its new £8 million Howard Theatre, has already delivered up to 40% savings. Funding is assessed on a ‘spend to save’ basis, recognising that some returns may be over the long-term.

The University’s award winning Combined Heat and Power facility connects to a district heating network on its Highfield campus, using heat normally wasted in generating plant to meet over half of the heating demand, thus reducing the need for conventional boilers. The £3.5 million initiative was largely funded by the University, supplemented by an £800,000 Government grant. Over £1 million of this was spent on reducing the heat demand of existing buildings, and with a web-based metering system allowing close monitoring of running costs, a six-figure operating profit was achieved with a saving of 4,000 tonnes of CO2e. Other benefits of the scheme include increased property value and a contribution to satisfying planning requirements on subsequent building projects. Southampton University is passing on its experience to other organisations, with keen interest shown by private businesses, as well as the education sector.

Downing College, Cambridge

University of Southampton

Case Study: Case Study:


Local Authorities already see sustainability performance as an integral part of their organisational performance, for example with respect to the Carbon Reduction Commitment; many have signed up to the Nottingham Declaration on climate change and its successor, Climate Local, and, going back further, were involved in the post-1992 Rio Earth Summit Local Agenda 21 project.

This is the only sector where any respondents suggested the importance of sustainable development may reduce; 24% also foresaw no change in the next year. This was identified as being down to depressed budgets, where spending on sustainability becomes tougher to justify (though it should be noted that some more imaginative respondents used the challenging economic environment as a driver for continued investment, due to the expected cost savings).

As one respondent here put it: “In the short-term, financial benefits and increased awareness will increase the importance of sustainability. New projects are bringing attention to it; successes mean there has been positive attention on what we’re doing on sustainability. This will create support for maintaining sustainability in the long-term.”

Here again, carbon regulations were identified as the most significant risk factor in 44% of cases. Most authorities are subject to the CRC, but ongoing uncertainty around the final shape of this scheme creates a risk for these organisations.

The primary audience for communication of their performance for Local Authorities is almost always the residents of their boroughs. “The council’s role is to serve the general public, sustainability goals lead to improving their climate security, energy bills, health etc.,” said one respondent.

Local Authorities

Sector


The Intelligently Green Plan provides the blueprint for Wychavon from 2012-2020 with practical actions to cut energy use, tackle fuel poverty and reduce reliance on fossil fuels.

It covers energy, construction, transport, food, tourism and green space. The plan contains a range of new commitments including developing an Intelligently Green Award scheme, reviewing cycle provision at train stations and major bus interchanges, promoting examples of sustainable construction, working with farmers and growers on water supply issues and making it easier for business parks to install green technologies. Wychavon will be promoting the Green Deal programme and currently offers free loft and cavity wall insulation to all owner occupiers or residents privately renting their home.

“Being intelligently green is about things that not only have a positive impact on the environment, but also bring financial or community benefits.”

Wychavon District Council ‘Intelligently Green’

Haringey Borough CouncilHaringey have committed to a 40% CO2 reduction from its corporate estate by 2015. The Sustainable Investment Fund (SIF) is a £1.5 million, ring-fenced fund supplementing Business Unit budgets ensuring that installations and works are not simply replaced, but completely upgraded mainstreaming whole-life costing by removing the ‘price premium’ and focusing on the combined costs of price, operations and disposal. Several projects have been completed on the strength of the swift return on investment through energy savings. The scheme can also be used to finance entire projects requiring significant capital investment, with an investment return of less than five years through energy cost reduction. The Council benefits from CO2 reductions immediately.

Arguably the most successful project to date has been a new ‘regenerative filtration’ system based on fired volcanic glass material for the swimming pool at Tottenham Leisure Centre, saving 106 tonnes of CO2 emissions and almost £7,000 in water charges per year. The pool was the first in England to have the new system installed.

Case Study: Case Study:


HealthcareFor the Healthcare sector, it is the general public as well as policymakers who are the key driver and target for communication. “Being a Trust there is a constant need to ensure that we provide sustainable services to our local people and community. This has to be done to ensure a sustainable future for our hospitals,” said one respondent.

However, because of the pressure on the NHS to save money, this makes it harder for some Trusts to make the initial investments that may be required to make long-term, sustainable savings. When asked about barriers to action, one respondent commented: “Top of the list is money, then second is the necessary will of the organisation itself. We need to get to grips with the fact that a lot of sustainability is becoming mandatory. The NHS needs a culture change.” Another agreed with this: “We only get so much allocation each year for capital projects – there are limits. Possibly this will improve but it depends on pressures from above. I’m not sure if it’s being taken seriously enough. We struggle to get financial backing, which indicates that it’s just not being taken seriously by management.”

Overall, pressure on finances is key; as another respondent said “We should make sure that we save money, as we are the NHS!”

Sector


“ Being a Trust there is a constant need to ensure that we provide sustainable services to our local people and community.”


This survey reveals that sustainability is an integral part of the strategic fabric of the ‘middle tier’ of organisations in the UK. Sustainability is no longer a luxury; many different forces are compelling businesses and other organisations to revolutionise and recalibrate their operations in a more sustainable fashion. Organisations failing to understand the impact of this on their organisational performance risk being left behind by their peers. As one respondent put it: “Market demand means that ignoring sustainability is not an option.”

The survey showed that 9 out of 10 respondents see sustainability performance as either ‘very important’ or ‘important’ to the overall success of their organisation and many of them have already begun integrating sustainable development into their daily work practices. This is a trend that will grow in importance over the next five years. A combination of factors emerge, such as rising energy costs, increase in compliance and government targets, competition within the sector and a commitment to social responsibility. As one respondent puts it “we deal with sustainability thoroughly; it is part of our business and it will only increase in importance.”

The supply chain impact is also evident and one that larger corporates and small to medium sized companies need to take note of. Up to one in three of respondents confirmed that sustainability goals had been fully embedded into their supply chain, for example by sourcing locally. This has greater prominence in retail markets where consumers traditionally take a more active interest in the sustainability of products, many of which have been the target of consumer campaigns.

However, embedding sustainability into the business model, making it ‘business as usual’, remains a work in progress. Responsibilities and incentives vary and a common framework for articulating sustainability practices has yet to emerge. The primary risks and drivers for sustainability approaches vary widely, and not just on a sector by sector basis.

Sustainability looks set to become a core element of the business model as regulations increase and the availability of resources presents new challenges. Organisations, both public and private, that are able to innovate and adopt sustainable practices should stand to gain an advantage in their marketplace.


Conclusion

“ Responsibilities and incentives vary and a common framework for articulating sustainability practices has yet to emerge.”


Notes


Contact usFor further information on this report and its findings please contact:

Jane StevensenDirector, Sustainability T 020 7728 3046 E [email protected]

Nathan GoodePartner, Head of Energy, Environment and SustainabilityT (Edinburgh) 0131 659 8513T (London) 020 7728 2513E [email protected]

Mike ReidAssociate Director, SustainabilityT 0131 659 8503E [email protected]

© 2012 Grant Thornton UK LLP, All rights reserved.

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