Global warming and investment: Business climate adapts to meet Earth's changes

30 April 2011 - 00:19 By Tina Weavind
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The world in which corporations operate today cares about sustainability, writes Tina Weavind

Forget Gordon Gekko's infamous "Greed is good" motto; these days, "green is good", and when it comes to investing, green is something you should keep front of mind.

Whether you believe the world is warming or not, the drive towards sustainability cannot be ignored.

Deutsche Bank's global head of asset management, Kevin Parker, is adamant that investors should be shifting their asset allocation towards funds associated with sustainability. In the Deutsche Bank report, "Investing in Climate Change 2010", Parker says investing in climate change "produces outperformance", adding that the group showed that a 6% allocation to climate change would have outperformed by 0.7% a benchmark portfolio over the previous three to five years.

Mercer, the US-based consulting, outsourcing and investment firm, has created a "TIP Framework" to assess the risk and opportunity climate change has for their clients. The framework estimates the rate of global investment into green technology (T); the costs - in terms of food security and health - of environmental impact (I); and the cost of carbon as a result of global policy (P).

They work on the basis that, by 2030, investment in green technology could reach $5-trillion; a lack of food, and health-related and environmental costs could exceed $4-trillion; and global policy could increase the cost of carbon emissions by $8-trillion. Mercer suggested that investors take a good, hard look at their portfolio's sensitivity to TIP factors, and quantify the risk and take appropriate action if they need to.

Donald Gibson, a director of the Transnet programme in sustainable development and faculty member at the Gordon Institute of Business Science in Illovo, Johannesburg, said that sustainable practices saved money as well as the environment, both of which were good for business. Gibson pointed out that reducing the amount of waste a factory generates and reducing its energy requirements, for example, automatically boosts its bottom line. And if you factor in the potential costs to the company of the mooted carbon tax, any spending on cleaning-up operations will be going to good use.

But Gibson was adamant that a major cash outlay to green up operations was usually unnecessary and that a little creativity and forward thinking went a long way. He gave the example of Interface, a US carpet manufacturer whose founder and chairman, Ray Anderson, set the petroleum-intensive company on course towards "Mission Zero" in which it would generate no emissions or waste and would be entirely reliant on sustainable energy. In 17 years, the company has been transformed through the redesign of processes, the use of new technologies and a major focus on recycling, and while it hasn't quite reached the summit of Mount Sustainability, it's getting pretty close.

General Electric is another company that has become famous for its pioneering work on sustainability. In 2010 the company topped the Global 100 list of the most sustainable large corporations in the world because it cut carbon emissions from 10.8 million tons to 6.5 million tons between 2006 to 2008 while increasing sales from $150-billion to $181-billion. Global 100 companies are spread across 24 countries. They were evaluated according to how well they managed their "environmental, social and governance risks and opportunities relative to their industry peers", says environmentalleader.com.

This year, General Electric dropped to 11th place - mainly because other big companies are seeing the benefit of making huge strides greenwards and are improving dramatically.

Sasol, once a big polluter, has made significant steps towards ecological sustainability and last year was ranked among the top 100 companies by the QCRD Global Sustainability Index, which recognises "exceptional delivery in the fields of environmental, social and governance issues, along with a strong financial performance".

Michael Muyot, the president of CRD Analytics, told Sasol CEO Pat Davies: "Thanks to companies like Sasol, the investment world has started to grasp the critical connection between sustainability and solid financial performance".

Although sustainability is one of the key issues of the King III corporate governance code, which all locally listed companies must account for in their annual reports, South Africa generally doesn't feature very prominently on global scales of greenness. Mining is a notorious polluter of the environment , and while efforts are being made to mitigate the worst of the effects, it is an industry with a long way to go. That said, it is worth noting that Anglo Platinum ranked 82nd in the Global 100 survey last year for its success in lowering its carbon emissions relative to its earnings.

Going green is being picked up with varying degrees of enthusiasm by most local companies. The big banks, for example, stress their green credentials and food retailers Woolworths and Pick n Pay are making strides towards sustainability in all its forms.

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