Credit crunch: Greening the economic blues

For businesses trying to sell a product, the idea of sustainability has become increasingly important in recent years - but as the economic downturn begins to bite, it is widely assumed that companies and consumers will abandon their new-found green credentials.

The rumours have been fuelled by recent news that sales of organic food have fallen, and suggestions that the energy sector has shifted its focus from climate change to energy security due to the easing off of oil prices and the conflict in Georgia endangering gas supplies. After all, when recession bit following the last green consumer boom, in the 1980s, environmentally minded spending disappeared off the radar.

Yet there are some good reasons to believe that will not happen this time. The market for sustainable products is now vast: in the US, the Natural Marketing Institute says the “Lifestyles of Health and Sustainability” (LOHAS) market is worth $209bn and involves 41 million consumers, one-fifth of the adult population. Research by Innovest Strategic Investors shows that 80% to 90% of consumers would buy a more environmentally friendly product, as long as it was not more expensive than the alternative. However, as the threat of recession sparks supermarket price wars, the alternative may yet prove too cheap for most greener products to compete against.


Costlier resources, tougher regulation

Another reason we shouldn't write off the green revolution too quickly is that, unlike in the 1980s, resources are costly. In 1987, when the bestselling Green Consumer Guide was first published, the price of oil was about $20 a barrel, and over the next decade, it dropped to about $10. Even with oil prices falling recently, they remain well over $100, more than 10 times 1998 levels. This will continue to drive resource efficiency in business, and many firms will market these gains for their inherent environmental benefits.

Perhaps most importantly, and again unlike the 1980s, there is now a raft of environmental legislation shaping the way companies behave. Global carbon markets are growing at a phenomenal rate – the first half of 2008 saw almost as many carbon permits traded as the whole of 2007, which itself saw a doubling from the previous year. Regulation to cut carbon emissions is spreading, which means businesses have no choice but to tackle the issue.

Large emitters of greenhouse gases have to cut their emissions or buy carbon allowances under the EU’s emissions trading scheme; other UK companies, such as supermarket chains, banks and hotel chains, will need to buy allowances under the Carbon Reduction Commitment from 2010. EU legislation also requires the recycling of cars, massive cuts in waste going to landfill, more efficient buildings and appliances, and an increase in renewable energy.

Together, legislative pressures and high fuel prices are continuing to drive increased production and sales of “green” products, many of which - such as alternative-fuel cars, low-energy light bulbs and water-saving washing machines - are aimed at providing long-term economic savings to consumers.


Long-term trends

“I do not see a wholesale reduction in plans to become more environmentally friendly or sustainable, because they make economic sense,” says Marc Brammer, director of product development at Innovest Strategic Investors. He explains that companies are becoming more sustainable in response to long-term market trends and conditions that are not going to go away, such as energy prices and climate change.

Economic imperatives are motivating Wal Mart's UK retailer Asda to make its new stores 30% more energy efficient; to eliminate waste sent to landfill (thus avoiding paying landfill tax, which is increasing at a rate of £8 per tonne every year); and to switch more of its freight to rail and to cut road miles for its truck fleet by 15% by the end of 2009, on top of the 25% reduction already achieved. “By saving resources and energy, we're able to save money - which in turn can only benefit our customers, colleagues and Wal-Mart shareholders,” says a company spokesperson.

Richard Gillies, director of M&S's sustainability scheme, Plan A, says that since he took up the post in March this year he has been asked repeatedly if business should continue to invest in CSR in the current economic climate. "For M&S the answer is an unequivocal yes, because Plan A makes sense on every level and we’re in it for the long haul."

Among other things, Plan A calls for M&S to become carbon neutral and send no waste to landfill by 2012. According to Gillies, the scheme became cost neutral by the end of its first year.

But it's not simply about cutting costs: companies continue to claim that they maximise sales by acting responsibly. B&Q, one of the largest DIY retailers, introduced a sustainable timber policy as far back as 1991. “Our research has shown that customers are more willing to buy from a company that acts responsibly" says a spokesperson. "In a recent DIY.com survey 64% of customers said a company’s green credentials are important to them when considering a product.”

Behaving responsibly is not incompatible with making a profit, agrees Mark Robertson, of Eiris, the Ethical Investment Research Service. “Companies that deal well with environmental, social and governance issues," he says, "are generally better run, less exposed to risks and see less fluctuation in their share price.”



Related links:

Jupiter Guide to 20 Years of Green Investing
UK Climate Change Bill
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