Learning to live with the triple bottom line
May 1st 2007

As well as the enduring drive to improve commercial performance and deliver to the bottom line, engineering companies now need to respond to regulatory and societal pressure to improve their environmental performance. Paul Lazarevic, head of advanced sales at npower business assesses the situation and suggests that a move to the Low Carbon Economy presents more opportunities than threats

The Government has laid the path to the Low Carbon Economy signalled by the prominence given to this new way of working in the Climate Change Bill.

This set clear targets for the reduction of CO2 emissions – 60% below 1990 levels by 2050 – with business operations identified as one of the key areas for improvement if this target is to be achieved. While regulatory pressure in the form of the Climate Change Levy and the EU Emissions Trading Scheme presents both a carrot and a stick to business to reduce CO2, on-the-ground advice is lacking.

Our own research suggests that a significant step change is required to achieve the future envisioned in the Low Carbon Economy. npower business recently completed its latest npower Business Energy Index (nBEI), an independent, biannual report canvassing opinion from a wide range of companies on energy issues.

Respondents displayed a great deal of confusion and a lack of common understanding as to what the term Low Carbon Economy means. There is also evidence of ambivalence towards efforts to tackle climate change, with 60% of all companies in the report stating that reducing CO2 is not a current business priority, and half of those believing it never would be. The results were better with major energy users where only 40% stated that reducing CO2 was not a business priority, but it is still an alarmingly high number considering the importance being put on a low carbon future.

While these findings might be met with derision in Whitehall, the nBEI provides solace in the form of energy management, which is emerging as a key discipline within all businesses. The number of companies actively seeking to improve the monitoring and management of energy is at its highest level since the nBEI began over two years ago, currently 93.5% of respondents.

The results suggest, however, that many engineering companies have increased investment in energy efficiency measures as an attempt to mitigate high energy prices, rather than for long-term efficiency gain. There is a tendency for companies to only adopt measures that provide a quick return on investment and make a minimal impact on cost and resources. It appears that a major barrier to further improvements is the short payback that businesses demand on investment of typically one to two years. Based on this approach the investment available to make long-term improvements in efficiency will always be limited.

So what is apparent then, is that the major driver behind the rise of energy management is economic, rather than environmental, considerations. In a Low Carbon Economy, this policy will have to change to become one that is more sustainable and moves away from the straightforward bottom line, to the triple bottom line: environmental and social accountability as well as financial.

Traditionally in energy management, opportunities to invest in efficiency have been in retro-fit, add-on, and projects such as improved lighting, better heating controls or variable speed drives. Today, these should be considered the basics and should be fully implemented in all situations. A sensible capital spend for these kind of measures needs to be established and maintained over two to three years to achieve optimum results.

A more sustainable approach to energy management presents the best opportunity to combine economic and environmental concerns in the current climate. In this scenario, the focus switches to more wholesale approaches to re-engineer complete energy systems.

This includes focusing on optimising whole systems instead of just components. The evidence is that this approach produces a step change in reducing emissions through more efficient energy use and maintenance costs, 50% or more in many cases. It is not yet widely understood or taught and manufacturers are more interested in using larger capacity equipment which although highly efficient itself, may not be the optimum choice if a more holistic method is employed when selecting new plant and equipment.

In a Low Carbon Economy, a company investing now in improving energy management and reducing emissions will enjoy the long term benefit over competitors. This benefit will come in trading options under the EU ETS and in the avoidance of future levies that are being discussed as a legislative pressure on high carbon producers of the future.

There are strong indications too that there are market advantages to be had from lower carbon operations. The supply chains of the large retailers are already beginning to see this as the Sainsbury's and Marks & Spencer's of this world look for products with a minimal carbon footprint. This approach will gather pace in other sectors.

Responding to the findings of the nBEI, npower business recently published its White Paper: Making Sense of the Low Carbon Economy. The report, written by the UK's leading sustainable charity Forum for the Future, outlines the challenge facing business and the broader community to address climate change.

Against a backdrop of uncertainty in wholesale energy costs, businesses should grasp this double-edged sword and use it to their benefit. A sustainable approach to energy will garner reductions in carbon and cost and rather than feeling under attack from all sides, companies can gain significant competitive advantage in the Low Carbon Economy.

More articles from npower business: