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23 February 2018

Are you incentivising the right people?

I was at the North East Recycling Forum yesterday, one of the very few events I go to as a punter as it really punches above its weight when it comes to speakers and content.

I brought two big thoughts away from me, one I'll blog about on Monday as it requires some stats to make my point, but a qualitative one arose from a presentation on Deposit Return Schemes (DRSs). These are the automatic reverse vending machines which accept glass and plastic waste and pay out cash in return. I've seen this work in action a decade ago in Cologne, not only do people tend to return their bottles, but there is a whole grey economy around homeless and kids collecting litter to make a few shekels.

The problem with this is that these very materials are the ones which make cash for local authorities through existing recycling channels. So by moving to DRS, more material would get recycled, but it would shift the direct economic benefit from local authorities to private companies. The aim of yesterday's talk was to persuade the Council waste officers in the room that the economic benefits from reduced collection costs, reduced litter etc, made up from the lost income from selling materials. They didn't look terribly convinced.

This made me think more generally about the alignment of incentives, beneficiaries and decision-makers. To take an example I've come up against a few times, if you rent a building, either for living or working, then you usually pay the energy bills, but the landlord owns the heating system. Therefore there is no incentive for the landlord to install an efficient heating system as the benefit will go to you, not them.

But you can fix some of these disconnects. If you use activity based accounting, then all overheads are attributed to each activity – so, say, each production manager is responsible for the whole cost of energy, waste etc for their production line, rather than the whole lot being lumped together. You can write contracts to incentivise contractors and suppliers to solve your problems.

You really need to be conscious of this problem or it could jump up and bite your Sustainability efforts on the backside.


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18 October 2017

Making Sustainability Robust to Sudden Change


What happens if your super-Sustainability-champion-of-a-CEO suddenly announces their retirement? How do you make sure your Sustainability programme survives the inevitable upheaval? It was questions like this that my Corporate Sustainability Mastermind Group considered recently in the gorgeous and historic surroundings of the Undercroft at the Live Theatre, Newcastle.

The Masterminds chose three such upheavals to discuss and below is a selection of the resulting learning points. As we operate under the Chatham House rules, the identity of the members and the conversation leading up the generic points has not been recorded.

Change in the C-suite

  • Research the incomer’s background (eg via LinkedIn) and tailor your pitch to their interests (ie Green Jujitsu) for example, talking $ to someone with a CFO past;
  • Embed Sustainability so deeply and overtly that any incoming CXO knows exactly what they’re getting themselves in for (and the ‘wrong type’ doesn’t apply);
  • In particular, have commitment and coherent message coming from rest of C-suite and senior management;
  • Align Sustainability Strategy to the business case as it applies to your organisation so backpedalling is counter-productive to the business;
  • Stick to the plan until you are told otherwise; you don’t need permission to do Sustainability;
  • A new face may bring new opportunities to address issues which weren’t on the agenda before.

Read the rest of this entry »

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12 October 2016

Squaring the Sustainability vs ROI circle

The latest edition of Ask Gareth considers the problem of making sure Sustainability benefits are considered fully in investment appraisals/decision making so it can stand up against 'return on investment' calculations – a critical issue if we are to move away from 'business as usual.'

Ask Gareth depends on a steady stream of killer sustainability/CSR questions, so please tell me what's bugging you about sustainability (click here) and I'll do my best to help.

You can see all previous editions here.


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4 July 2016

Accounting for Sustainability Properly

Tax calculator and penA client coaching session last week focussed on investment appraisal and how it can block sustainability progress – in this case investment in renewables. As we dug deeper and deeper into the company's systems, we realised that the process did not account for direct carbon costs as these were apportioned to a regulatory budget. Simply factoring this into the benefits of investing in renewables could change a difficult decision into a very simple one.

Total Cost Accounting is the concept of apportioning all costs, fixed and variable, to their proper place. This sounds obvious, but simply being aware of all the costs involved is a challenge in itself. This is where a coach comes in handy, as they (I!) can ask the apparently stupid questions which uncover uncomfortable truths hiding in plain sight.

My client now has the task of trying to change the criteria to factor in carbon costs. In theory this shouldn't be too difficult as it will lead to better decisions from a financial point of view as well as a sustainability aspect, but in practice, changing processes in a very large company is never easy. But once it is done, all low carbon options will compete on a level playing field on costs at least.

Of course there are many other benefits of renewables which should be factored in – PR, customer satisfaction, employee engagement, energy security, risk reduction – but getting the £, $, €, ¥ right is an important step in the right direction.


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14 March 2014

Are you capturing all the benefits of Sustainability?

Tax calculator and penThe news that wind power is saving Europe €2.4bn worth of water each year (source BusinessGreen) reminded me that we need to capture all the benefits of sustainability measures like renewable energy. Carbon is just one part of the reason to go down the renewables route - other benefits over fossil fuel include security of supply, safety, reduced transportation, air quality - and now we see reduced water consumption added to the list.

The same applies to assessments of organisational sustainability options - the benefits can be much wider and deeper than you expect. For example, Marks & Spencer launched Plan A with the intention of protecting the its 'trusted brand' status, but have found that it's more than paying for itself by cutting costs. Interface wanted to install renewable energy to cut carbon, but ended up producing 'SolarMade' carpet as a brand. Other businesses have found that using natural light has boosted productivity.

This requires a more intelligent approach to assess costs and benefits and not rely on a narrow trade-off. But you can manage that, can't you?


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2 July 2012

Diamond's in the Rough: Bankers' Values and CSR

So just when we thought the banking industry couldn't get embroiled in another ethical scandal, Barclays gets a £300 million fine for artificially manipulating the Libor - the interest rate for inter-bank loans - to maximise profits. This asks all sorts of questions, not least was this not a criminal act, but I want to pick up on something Barclays Chief Executive Bob Diamond said about it:

"I am sorry that some people acted in a manner not consistent with our culture and values."

This is a very interesting statement. Culture and values manifest themselves in behaviour, not carefully crafted mission statements. If 14 people at Barclays have been caught fiddling the system (who knows how many more were complicit) and others have been fired from other banks  for doing the same, it suggests that such ducking and diving is very much part of the culture and the true values of the banking sector. The most shocking story in the press at the weekend was that Allied Irish Bank had sacked or marginalised three successive Chief Internal Auditors for reporting corrupt practices to the board - an astonishing disregard from the top of the organisation for even staying within the law.

If Diamond really does want to create a new culture and values in Barclays, he's clearly got a huge challenge on his hands. He has already given up his bonus to try to demonstrate leadership responsibility, but with politicians and press lining up to call for his head, it might not be him who takes it on. As I write, it has been announced that Marcus Agius, the Chairman of Barclays, has stepped down but this may not be enough blood on the boardroom floor yet to satisfy the public.

The lesson from the banking mire for the rest of us is clear - leaders can believe the culture and values of the organisation to be those in their glossy corporate brochures, but it is actual behaviour, not words, which is the real test of corporate social responsibility.

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10 May 2012

Does the 'Shareholder Spring' herald a new era for CSR?

Since the Arab Spring last year, it seems that appending 'Spring' to any popular movement has already become a cliche - the "-gate" of the modern day. But my ears pricked up at the mention of the 'Shareholder Spring' this year where a number of big businesses are being given a firm clip around the ear by the people that own them - their shareholders.

When Business Secretary Vince Cable announced last year that one of his efforts to contain excessive executive pay was to give more power to shareholders, I must admit I was sceptical. Yes a few individual shareholders may protest, but the big institutional shareholders who have to find enough money to pay our pensions tend not to rock the boat. But now there have been shareholder revolts at Aviva, Barclays, AstraZeneca, Trinity Mirror and several others - and chief executive heads have rolled. Cable is keen to legislate for more power to the shareholder elbow and is being urged on by his opposite number Chuka Umunna, suggesting momentum will continue.

The big focus of the Shareholder Spring is excessive executive pay - in particular rewards for poor or mediocre performance. The fast expanding ratio of executive to average pay is one of the scandals of recent times - and it clearly contributes to inequalities in society. But with wider corporate social responsibility (CSR) becoming a key source of competitive advantage, when will shareholders start looking at the whole range of green and ethical risks?

And will those investors start seeing their investments as opportunities to demonstrate their own CSR? Currently you can invest in green and ethical funds (which often outperform the mainstream), but in the same way as 'green' is being integrated into mainstream consumer products like P&G's Ariel Excel Gel, will CSR be integrated into mainstream investment policies? The environmental pressure groups certainly think this is a key arm to twist - for example targeting the part nationalised RBS last year for its investments in tar sands. The leverage of shareholders is massive - probably bigger than any other stakeholder including customers - so this is a huge opportunity to drive positive change.

For me, it looks like I may have to update the business model in The Green Executive to include shareholders. I did consider including them at the time, but as none of my corporate clients, or indeed the executives I interviewed for the book listed them as a driver, I left them out. The way things are going, I might have to insert them in the second edition. Things move fast in this business!

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30 March 2012

Are we stuck in an oil price doom loop?

I'm reading The Third Industrial Revolution by Jeremy Rifkin - I'll post a review here in the next few weeks - but in the first section he makes a persuasive argument that everytime the global economy tries to rally, the demand for oil pushes its price up, smothering the green shoots.

The graph below shows Brent and West Texas Intermediate oil prices. You can see how they shot up to a peak in 2008 before crashing as the global financial markets went into meltdown. But the prices have rallied again staying above the $100 mark which seemed so impossible pre 2008. This has lead to periodic warnings from the International Energy Agency amongst others that we will never get out of the mire if prices are that high. The big question is: how much is oil price a symptom and how much is it a cause of financial woes? This is rarely part of the current political discourse in the UK which has recently been focussing on tax on snacks. Are we hiding from the truth and squandering opportunities to break out of this loop?

The loop poses a real challenge. Money is tight, oil prices are stifling growth, so where are we going to find the investment to break free? Clearly it would have been better to be investing in the boom years, but we are where we are. I think the answer can be seen in Southampton - where a distributed energy system has developed over 21 years, expanding organically - and in Woking - where an innovative energy services company financing system has allowed enormous investment in local energy generation - and more recently in Birmingham.

These example show it can be done and for the time being we might just have to start small and grow. But we could have lots of entrepreneurs and forward looking companies initiating lots of these small projects. Innovation is key - not just in technology, but in finance and, dare I say it, public/private partnerships. But more than anything else, we're going to have to face up to the fact we have a problem.

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25 February 2011

Climate Change & the World of Finance

This video from The Telegraph gives an insight into the financial sector's views on low carbon technology. Unsurprisingly they're taking a very hard nosed approach (the suit being interviewed dismisses ethical funds as 'fun' investments), and they are seeing climate change as a financial driver which will make green tech stocks grow - and that those stocks are a 'hedge' against inflation.

Some may find such calculated profiteering on the back of climate change vaguely distasteful, but I always argue that if we are to tackle climate change fast, then the solutions must be integrated into the way the world economy works now.

What this video also demonstrates is that if you want investment in your planet saving technology, these guys are no dupes - you're going to have to have a technology which delivers what it claims it can, at a realistic cost and a decent financial return. And beat the competition.

The low carbon economy - no place for wimps!

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24 March 2010

What's a Green Investment Bank?

With today's UK Governmental budget expected to be all doom and gloom, one green diamond in the murk could be Mr Darling's well trailed Green Investment Bank. If you, like me, are wondering what such a bank might look like and operate, the Guardian has a useful compendium of opinions here. We shall have to wait and see what Mr Darling has in his red box...

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17 February 2010

Tuesday Training

Yesterday I was on the trains again, this time down to York to train environmental champions for a public transport company. It was another beautiful early morning - this time misty where Monday was crystal clear, Durham Cathedral appeared lit golden behind the rising and evaporating trails of fog. The two sessions went well and the feedback good.

Since Monday, I've been mulling on an insight from Martin Blake of Royal Mail - what book value will high carbon buildings and infrastructure have in 5 or 10 years? Who will want to buy a 'dirty legacy'? This applies to today's client as well, although I'd thrown so much new stuff (ecological footprinting, carbon footprinting, climate change, sustainability, energy management etc) at the poor attendees that I thought this was one driver I would omit. As I write The Green Executive, I'm finding that sustainability is running deeper and deeper into the core of every organisation - everytime I think I've got it, there's another new angle. That's what I love about this job!

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