By Steven Heim
With 2019 ushered in, the findings of a new report suggest that harnessing Eco-Efficiency – improving energy efficiency, water management and other environmental processes – will be among the New Year’s resolutions of many corporate leaders. The report, ‘Improving efficiency, unlocking returns’ shows how changes to environmental management practices by the likes of BMW, Repsol and 3M are an ideal way to not only reduce emissions but also to drive investment returns.
The Case for Eco-Efficiency
A wake-up call was delivered last autumn with the UN’s Intergovernmental Panel on Climate Change warning there are only a dozen years to act if we are to keep global warming to a maximum of 1.5°C. Beyond this the risks of drought, floods and extreme heat worsen significantly. Clearly, there is a worrying gap between where we are now and where we need to be.
However, the solution to the planet’s climate conundrum could be right in front of our eyes. Last year, the International Energy Agency (IEA) concluded that “energy efficiency alone could cause greenhouse gas emissions to peak before 2020, a key target of the Paris Agreement on climate change.”
Knowing this, companies looking to lead on climate change are improving the efficiency of their energy and water use and eliminating emissions and waste by reimagining products, re-conceptualizing strategy, and redesigning processes that will increase their resource productivity. Many are also embracing the circular economy. Firms are diverting their waste from landfills, saving on the operational cost of disposal and repurposing the waste for use in another company’s process.
As the business community begins to realize the vast potential presented by eco-efficiency, groups are emerging such as EP100, which encourages companies to implement a smart energy management system, advance net zero carbon buildings and commit to double their energy productivity within 25 years. The Climate Group estimates that if 100 firms follow through on this last commitment it would generate twice as much economic output for every unit of energy consumed and would avoid over 170 million metric tons of emissions, equivalent to taking 37 million cars off the road for a year.
Which Companies are Walking the Talk
The greatest driver for catalysing action is the realization that increasing eco-efficiency can have bottom-line savings. Not only is eco-efficiency good for the environment, it can also be good for firms’ profits and this is not lost on companies.
One such business that is seeing financial returns from its efficiency push is U.S. Fortune 500 company Cummins. The firm first adopted public greenhouse gas (GHG) and energy efficiency goals in 2006 and since then has saved $40 million to $50 million a year on energy costs. German car giant BMW has saved €150 million through efficiency initiatives since 2006 and one BMW plant site in Mexico now uses 100% renewable energy and recycles all wastewater.
Governance of sustainability practices can pay off too. 3M, through a central center, integrates sustainability into strategic planning in every 3M market, region, and business. The company’s ground-breaking “Pollution Prevention Pays” program has saved 3M nearly $2 billion since its 1975 launch.
Use of the circular economy has also paid major dividends for Spanish energy company Repsol. Business strategies to more effectively use internal wastes has resulted in savings to Repsol of $1 per barrel of refined products.
The Path Forward
Though eco-efficiency measures are economically compelling, and ecologically beneficial, corporations still face internal barriers to adoption, which can vary by industry. Overcoming these barriers requires a redesign of internal processes.
The biggest internal barrier is fair capital allocation for eco-efficiency investments. Firms need to make a commitment to allocate the required resources to ensure they are not leaving money on the table. Similarly, recognising that change comes from the top, it is critical that companies assign explicit Board and executive leadership responsibility, oversight, and accountability for ‘Eco-Efficiency’. Setting public goals, aligning corporate culture and measuring and reporting energy and water use will also remove the barriers to greater adoption of Eco-Efficiency.
The past year has made it clear that ‘business as usual’ will put our planet in a perilous position. Eco-Efficiency presents companies with a tremendous opportunity to both protect the environment and their profits. That’s a win-win for both companies and the planet.
Steven Heim is Managing Director at Boston Common Asset Management; Steven is the Director of ESG Research at Boston Common Asset Management, an investment firm which targets global impact initiatives in pursuit of both financial return and social change. He currently serves on the Board of Directors of Cultural Survival and the International Funders for Indigenous Peoples and sits on the Ford Motor Company’s sustainability report stakeholder team. Since 1992 Steven has served in leadership roles on numerous industry committees and working groups with special expertise in issues of climate change, extractive industries, hydraulic fracturing, and the rights of indigenous peoples worldwide. He co-authored “Disclosing the Facts: Transparency and Risk in Hydraulic Fracturing Operations,” in cooperation with As You Sow and the Investor Environmental Health Network.
The information in this article should not be considered a recommendation to buy or sell any security. This article is supported by ESG Communications.