THE ONGOING series of The Next Green Thing looks at the upward pressure of energy prices and what companies need to do to make better use of the resources they have.
Twice in three years Russia has accused Ukraine of stealing its gas as it gets piped into Europe. Within hours the squabbles can escalate to a European energy crisis.
China, meanwhile, has oft incurred Europe’s ire. Its export quotas on rare earth metals (of which it produces 95% of the world’s supply) have alarmed manufacturers of everything from cars to solar panels. China is also returning tonnes of contaminated European plastic waste because it has enough uncontaminated waste of its own. Exposure to these kinds of resource challenges will become more frequent, with warnings already of a “resource crunch” on our doorstep. What’s more, reports from the Carbon Trust and PwC last month both suggested businesses could be sleepwalking into it.
The Carbon Trust survey of 475 senior executives in the UK, Brazil, China, Korea and USA found that 46% believe they will not need to make significant changes in their operations to combat resource scarcity until 2018. Meanwhile, 43% do not monitor the risks to their business of environmentally related shocks such as energy price rises and environmental disasters. Too many businesses see taking action on resource and sustainability issues as an obligation and a cost. However, the PwC survey of 800 CEOs found that 53% say energy and raw material costs are a major threat to growth prospects – up 7% from 2011. So why delay?
The long game
Upward pressure on energy prices has been tempered by the global slowdown and, in North America, by the boom in gas through fracking. The UK’s decision to look afresh at fracking is seen as short-termist given that prices are likely to rise in the long term, driven by demand from emerging markets, regulatory pressures and the scale of investment required. And it’s not just energy, as Richard Gledhill, from PwC’s sustainability and climate change team, explains: “Demand from emerging markets has kept the pressure on commodity prices, and extreme weather or natural disasters have exacerbated price uncertainty and security of supply risks, particularly in agricultural commodities.” With a growing population, and more people than ever demanding a Western-style diet, the food sector is not sheltered from the resource crunch. Energy, water and raw materials are all essential for the industry.
At the simplest level, companies need to make better use of the resources they have. Waste less food, for instance, and you shelter yourself better from price spikes. But resource management is also shifting from a linear to circular economy, using “closed loop” models. This circular economy would work a little bit like nature, with nothing lost. That isn’t easy – the whole economy would have to evolve, with companies from diverse sectors and across continents working together in a global “one man’s trash is another’s treasure” system. (Unless, of course, the likes of China and India build national systems. With their vast quantities of raw materials and advanced manufacturing sectors, that could leave the rest of the world standing still, waist high in its own filth). As the Sainsbury’s CEO, Justin King, put it: “Being a sustainable company is not about box ticking, it’s about future- proofing your business.”
While the UK is exposed to the commodity price shocks and resource protection of other countries, its companies are best placed to deal with a resource-constrained world. They spend the most on sustainability and are the most likely to have a programme with targets and reporting practices in place, says the Carbon Trust. They are also the most confident there is a business case for managing and reducing carbon emissions, water and waste. As the trust’s CEO, Tom Delay, wonders: “Could this mean that despite the current shift in the world economic order the UK will gain commercial opportunities as competitors in other markets struggle to cope in a resource-constrained world?