Thursday, 20 August 2009

New environmental finance can feed green shoots we need

Published Date: 20 August 2009
By Michael Groves
EVERYONE is familiar with the received wisdom of a corporate downturn. Marketing and advertising go first, closely followed by other "soft" functions. In this we can include environment and sustainability, of course.
But this is the perfect time for corporate animals to embrace climate change, waste management, water quality, water availability, noise, air emissions and all of the other themes that regularly appear in sustainability reports.The climate change sceptics would argue that when the share price is tanking, it is specious to debate paper recycling versus incineration with heat recovery. But it is time to devise fresh business models and unleash the innovation department, unfettered by risk modellers and rating agencies.Let's brush toxic debt aside and work on the basis that we have a blank sheet of paper on to which we can write new commercial models. Enter the environment, stage right. The commercial drivers are strong, despite the doom. Continental and regional initiatives are springing up, such as emissions trading schemes. Global energy prices are still on the up. Solid European and UK regulations on waste and recycling remain. The UK is introducing a carbon reduction commitment. Major retailers are applying supply chain pressure. The consumer is more enviro-literate. Investors have woken up to environmental stewardship as a measure of corporate governance. Technologies continue to make all sorts of things possible. And bright young job candidates are asking awkward questions about their prospective employers' approaches to these issues.While improving the environment is a universal challenge, the banking sector in Scotland is worth a particular look for three main reasons. First, the sector is hugely important to Scotland's economy. Second, entrepreneurs should put their "bank stories" aside and stand up for fellow carriers of the commercial flame. Finally, opportunities abound to create financial companies, products and services that are built on an innovative approach to environment and climate change.What can a finance provider hope to gain from the environment? Some do very well in this regard. The Co-operative Bank and Triodos spring to mind, organisations that have built successful businesses by innovating and linking financial products to improved environmental management. So here's a thing. Scotland's environment is hugely important commercially, societally and spiritually. Scotland is an acknowledged cradle of innovation, from engineering to medicine, economics, geology, philosophy, design and, of course, banking. And while I accept that Scotland's landscape is not perfectly natural, has been knocked around and provided gruesome playgrounds for Victorian industrialists, it still seems a good meeting place for finance and the environment.While parts of Scotland's banking sector have embraced the opportunity, this is small beer compared with the innovation efforts focused elsewhere … and look where we ended up. This latent innovation resource should be thrown at carbon and environmental management. At the very least, given that clean technology stocks have taken a beating over the past six months, there are some excellent investment bargains to be had.The other reason for such a focus, over and above an acceleration of climate change effects, is that international pricing mechanisms for carbon emissions and savings are affecting all manner of business models. This presents commercial opportunities for those with technical solutions for reducing carbon and environmental risk. It also offers fertile ground for banks and other financial companies to create products and services that help homeowners and businesses reduce energy and environmental costs, innovate and improve environmental performance.As a consequence, I believe new financial institutions can – and will – emerge in Scotland that are built on the commercial opportunities offered by improved environmental stewardship. These companies will be at the heart of a new paradigm in financial services, driving innovation in relation to the price of carbon and improving our standard of living and that of our offspring. These new companies may be start-ups or they may emerge from existing institutions. They may be banks, fund managers and investment houses, venture capitalists or related technology and service providers. In all cases, they will have the vision to realise that effective stewardship of the environment is not a pain in the corporate backside, but one of the key commercial themes of the 21st century.• Michael Groves is an environmental professional and entrepreneur