Environment & Business – Review of the Year 2006
When looking back on 2006 commentators may note that this was the year when environmental issues became mainstream, rather than a fringe concern beyond the interests of every day politics and economics.
In 2005 the OFR debacle had suggested that despite the rhetoric to the contrary, Government was not too bothered about the environment and, when push came to shove, was more concerned about keeping companies happy.
But in 2006 the environment ceased to be the political property of obscure committees hidden far from the real corridors of power and moved away from its traditional location on the news agenda – buried deep in the parts of papers that nobody ever reaches – and into the limelight.
While the ascendancy of the environment as a political concern is down to a complex web of factors – not least among them the apparent acceptance that we are reaching the point of no return if we wish to tackle climate change before it’s too late – there are two things which, in the UK at least, stand out above the rest when it comes to driving up the prominence of these issues.
The first is Westminster’s apparent sudden love affair with green issues, attributed by some to the David Cameron effect, as the bright young thing of the Conservative party forces the Government’s hand on an area of obvious public concern.
While Mr Cameron doubtless has a just claim to some of the credit, clear changes in public opinion about the importance of environmental protection and the growing body of scientific evidence predicting climate chaos is we fail to curb our appetite for energy and resources have also played their part in pushing the planet up the political agenda.
The second landmark event which has stoked up interest is the publication of leading economist Nicholas Stern’s review of the likely impact of climate change.
Much of what the report said – that taking early steps to avoid the worst effects would be cheaper than waiting for an environmental Armageddon before acting – was either common sense or had been said before by NGOs.
But Stern’s reputation as a former chief economist at the World Bank and now leading advisor to the Treasury made all the difference to the reception of the review.
This combined with the meticulous attention to detail shown by his team – making the report’s findings read more like a business forecast than the vague, apocalyptic predictions of some of the previous work in this area – meant that business leaders and politicians the world over sat up and paid attention.
It was also a year when capitalists seem to have realised en masse that the environmental sector has the potential to mirror the dotcom boom of the ’90s with new green investment funds and carbon trading companies springing up on an almost daily basis (see related story as one of many examples of this trend).
Carbon neutral became the New Oxford American English Dictionary’s ‘word’ of the year and, under the banner of the Carbon Disclosure Project, financiers with over US$31 trillion to play with demanded would-be beneficiaries prove their green credentials before receiving investment.
Big business continued to present a confused face, with many leading corporates recognising the value of CSR on the one hand, while continuing to top the league tables of the worst polluters.
Paradoxically, those who paid the closest attention to CSR tended to be those under the brightest spotlight when it came to public concerns about their activities – the oil companies, heavy industry and multinationals which had received negative publicity in the past for their ethical lapses.
In the UK it seemed that more and more companies were waking up to the need for a robust CSR policy – and 80% of the FTSE100 saying they recognised the threat posed to their business by climate change – but concern did not translate into spending.
According to the Giving List, an ongoing investigation by the Guardian newspaper, the amount spent by big business to mitigate its environmental and social impact fell during 2006, dipping to 0.79% of their pre-tax profits, compared with a 2005 average of 0.87%.
Meanwhile, research conducted by Trucost and the Environment Agency found that less than a quarter of all FTSE listed companies were bothering to make any quantitative environmental disclosures in their annual reports, and only a small proportion of those that did actually linked environmental disclosures to financial consequences or future changes in shareholder value.
2006 will also be remembered as a milestone year for carbon trading. The first round of Europe’s Emissions Trading Scheme received mixed reviews from the critics.
While a lack of scarcity in the market led to a near collapse in the price of CO2, and the scheme did little to reduce the amount of carbon being pumped into the atmosphere, it did show us all how such a system might work.
Its defenders, however, argue this was like the first hand of a new card game, designed to explain the rules. Next round, we are told by Brussels, we’re playing for real money (see related story).
The ETS has already had knock on effects, with the UK keen to appear to be taking a lead on tackling the emissions of organisations which do not fall under the European scheme.
While these companies have already paid for their carbon as the costs of the ETS are reflected in increasing energy bills, Government predicts that the price hike will not, alone, be a powerful enough driver to convince business to change its behaviour.
The new scheme, complete with league tables and its own self-contained cap and trade system is expected to provide the incentive needed.
Further proof that the environmental sector was destined for greatness, if it were needed, came in the form of an announcement that Defra and the DTI would be teaming up to assess the potential of the industry with Environment Secretary David Miliband and Trade and Industry Secretary Alistair Darling set to jointly chair the think tank, which will bring together civil servants, academics, NGOs and industry leaders (related story).
This growing interest and support, coupled with ever-tougher environmental standards, sets a rosy scene for environmental industries as they step into 2007, which promises to be another year of rapid growth for the sector.