How to grow in a low-carbon future

By Richard Milne
Published: April 21 2009 03:00

When Wilh. Wilhelmsen, a Norwegian shipping company that is among the world's largest, began developing a fuelefficient propulsion system, it began a journey of discovery that led to a line of environmentally friendly changes.
Ingar Skaug, chief executive, says the group was thinking about a "low carbon" future - a world in which the company would still be able to grow but in which its emissions would have to be lower. In co-operation with Royal Dutch Shell and Det Norske Veritas, a risk management company, it examined ways to reduce fuel consumption and take out as much sulphur and nitrogen dioxide as possible from its engines.
In the process, Wilh. Wilhelmsen found opportunities for other innovations: a catalytic converter developed with Yara, a fertiliser company, that injects ammonia to neutralise nitrogen dioxide; a technology for sulphur scrubbing to cut emissions; a switch to water-based cleaning products rather than chemical ones; a better air-conditioning system; and a cleaning system for ballast water on its ships that reduced the spread of bacteria around the world.
Mr Skaug says: "What we have proven is that to focus on the environment is very good business."
With energy costs rising and the penalties for polluters getting harsher, many companies are thinking along similar lines. "We are entering a new time where companies are for low-carbon growth that is benefiting their bottom line . . . This is not an environmentalist's approach, this is business strategy," says Osvald Bjelland. The Norwegian entrepreneur helped set up the Global Leadership and Technology Exchange (GLTE), a venture that allows companies such as Wilh. Wilhelmsen, Tata, Gazprom and Deutsche Bank to exchange information and start environmentally friendly projects.
That awareness is not just for companies that are advanced in their thinking on cutting emissions. Collaboration can also help companies that are just beginning to address these issues, and those in relatively dirty industries.
"We are not shy of learning. We are behind as far as the world is concerned on low-carbon growth," says J.J. Irani, a director of Tata Sons, the Indian conglomerate's holding company.
Of the hundred or so companies that it owns, Tata is focusing on its five most polluting businesses; activities such as steel, power generation and cars account for more than 80 per cent of the group's emissions. "The trick is to find a business case solution at the same time as protecting the environment," says Mr Irani, who is in Europe this week discussing the issue with companies such as Ikea, Siemens and Standard Chartered.
Mr Bjelland believes there are four things that business leaders need to consider to gain low-carbon growth. The first is simply to understand the shifting science and politics of climate change and communicate that within the company. Second, and perhaps most importantly, companies must incorporate climate change in their strategies and possibly even adapt business models as a result.
One example is Interface, a US carpet company, that in the mid-1990s rethought its business model completely and in the process cut its material costs, waste and emissions by a huge amount and increased profitability. Instead of selling carpets, it leases them, replacing only the parts that are worn out (see below).
Companies are also seeing the marketing advantage that can come from putting a focus on environmentally friendly products. General Electric's Ecomagination initiative has brought it highprofile success. But Siemens, GE's German rival, was surprised to find that its "green" products - developed without any overarching initiative - last year added up to nearly double GE's in dollar terms.
"German groups have failed in marketing," admits chief executive Peter Löscher, pointing also to how German carmakers were outflanked on hybrids by the Japanese. Siemens is aiming for €25bn (£22bn) in green sales by 2011, GE for $25bn (£17bn) by next year and Philips, their smaller Dutch rival, for about €10bn by 2012.
For some, part of the answer lies in collaboration, whether informally or through a group such as GLTE, to improve sustainability in the supply chain. Tata is discussing with Wilh. Wilhelmsen how they can both reduce emissions - and also costs - in the way they transport cars around the world.
Mr Skaug points to simple possibilities, such as using more efficient routes, decreasing the frequency of service and simply sailing more slowly. "It is a theme that is sweeping through the business world: collaborative business. Two people think better than one," he says.
Mr Irani agrees: "It is a matter of not trying to reinvent the wheel. If others have trod the path first, we can learn from them."
Collaboration has led to some unlikely transfers of knowledge. Wilh. Wilhelmsen talked to GE about jet engine design to see whether any of its innovations could be used in ships, while its ballast water cleaning system was developed by a group of South African engineers after they found out about the Norwegian company's interest in the area.
The third and related suggestion made by Mr Bjelland is for leaders to embrace the changes and use them not just internally but in their dealings with regulators, customers and suppliers. Seemingly mundane decisions - such as Deutsche Bank's refurbishment of its Frankfurt headquarters - can be turned into a chance to improve energy efficiency or save costs. At Siemens, Mr Löscher says part of his role has been just to make the conglomerate see how much it was doing without realising it, and then to try to push that further.
Mr Irani says leaders should aim for a sense of urgency. Tata has created a central group of six people working on low-carbon growth to co-ordinate about 100 workers dedicated to the issue alone across all of its companies. "Eighty per cent of power generation in India comes from coal - what kind of solutions are there for this? That is a challenge but an important one for us to respond to," he says.
The fourth area is to come up with concrete projects. Many of these are for the long term, such as a study between General Motors and Gazprom to look at what infrastructure would be needed for cars powered by alternative fuels. Similarly, shipping companies are looking at ideas such as fuel cells, wind or solar energy to power vessels, although some remain sceptical.
Others ideas seem more tangible, such as Wilh. Wilhelmsen's talks with Mitsubishi Heavy Industries on the future design of ships following the widening of the Panama Canal. "We may be able to develop ships that are completely different: wider but less deep, which means more efficient and they won't burn as much fuel," says Mr Skaug.
Mr Bjelland sounds positively evangelical: "This is a time of renewal with new technologies and new business models. It could be a pioneering time."
Founder who refused to sweep climate worries under the carpet
The carpet manufacturer Interface is often held up as an example of how businesses can find growth in sustainability. Yet when he started in the 1970s, the environment was the least of founder Ray Anderson's concerns - making carpets at the time relied heavily on petroleum.
His epiphany came in the mid-1990s when he became aware of the growing importance of climate change. He swiftly moved through the other three points proposed by the Norwegian entrepreneur Osvald Bjelland (see main piece) for growth in a low-carbon economy.
Mr Anderson redirected Interface's strategy to cutting waste, emissions and water use. In an interview with the Corporate Design Foundation last year, he said Interface had cut its waste by half, its greenhouse gas tonnage by 88 per cent and water use by 79 per cent compared with 1998. Half of its factories run on renewable energy.
Mr Anderson became a champion for reducing waste and emissions throughout the company. Finally, he set about thinking of long-term changes to Interface's business model. As well as trying the use of new materials, Interface asked customers to lease rather than buy carpets, and then replace only worn sections rather than the whole floor.
Nevertheless, Interface's actions are a drop in the ocean given the size of the industry; waste from the sector as a whole is still increasing.
Copyright The Financial Times Limited 2009