Engaging Suppliers on Sustainability in 2012

As we move into 2012 one of the main conversations in our sector is the extent to which companies will continue to build out their sustainability programmes in the face of economic uncertainty and recession.

In Hong Kong much of this conversation is about supply chain sustainability – a theme of corporate interest that has grown considerably over the past 2-3 years.  As orders soften and projected revenues are revised downwards, will brands continue to engage their supplier base – and in particular their Asian and Chinese factories – on sustainability?

In practice the answer to this question is likely to depend on how the brand has engaged on sustainability issues in the past and – crucially – the extent to which supply chain sustainability is perceived to be delivering value to the company.

The value proposition around supply chain sustainability is often not well understood – we see a lot of brands ‘engaging’ suppliers on sustainability without a clear internal understanding of the value of this engagement to either party.  Such brands are less likely to aggressively pursue or expand these programmes through 2012, because internally the programme is perceived as a cost centre or a ‘nice-to-have’, particularly by people outside of the sustainability teams.

On the other hand companies that have clearly investigated, articulated (and hopefully internally communicated) the value proposition should continue to build out their supply chain sustainability initiatives.  There are a number of reasons for this:

• Supply chain sustainability programmes need not be very expensive, in fact if designed properly they should bring value to suppliers as well as brands which provides opportunities to share costs with the supplier base.
• Mothballing programmes means interrupting a conversation with the supplier base.  Not only will this reduce supplier confidence and buy-in, but it will also likely increase future costs when programmes have to be re-started.
• Well-designed supply chain sustainability should save money by focusing on efficiency opportunities, in particular energy saving opportunities, which are usually accompanied by attractive ‘recession consistent’ payback periods.

As a result tough economic conditions may drive a wider ‘sustainability gap’ between leaders and slower moving brands, as leaders continue to evolve their approach whilst slower movers – who tend to have a less well articulated understanding of the commercial value of supply chain sustainability – put the brakes on.  The ‘gap’ may end up piling more pressure on poor performers in the future. NGOs such as Greenpeace and the Beijing-based Institute for Public and Environmental Affairs (IPE), who both ran effective, supply chain campaigns against major brands in 2011 (see IPE’s latest report on Pollution Information Transparency Index released with NRDC), will be able to leverage this ‘gap’ to great effect by highlighting the differences in performance between competing brands.

It’s going to be an interesting year…….

by Liam Salter,CEO

What to do when atmospheric physicists don’t run PR companies

I attended part of the Hong Kong government’s climate dialogue the other week, which brought an international gathering of climate heads to town. I was pretty astonished at a discussion on climate science, that popped up when a hapless IPCC member canvassed the (sizeable) audience on how well they thought scientists had been ‘communicating’ their message and what they could do better.

Although I didn’t spot the ‘beat me’ sticker attached to his forehead it was cue for a whole swathe of climate (not communications) professionals to offer-up their opinions.  The main takeaway seemed to be that scientists needed to make things simpler.  We even had a retired general from the pentagon, who after providing us with an in-depth (i.e. lengthy) intervention on the strategic military imperatives of climate action, made a point of exhorting the scientists to essentially give him a two pager.

Is it really unreasonable to expect people like the pentagon, major international corporations and international NGOs to read through more than 1000 words and take some responsibility for processing and communicating the science effectively to their own constituencies?  I am struggling to see how your average atmospheric physicist is supposed to model the future of the planet in the morning and then develop a folder of one-pagers for the retired military and other assorted special interest groups before they clock off for the day.

Another issue is that scientists have already gone to considerable effort to simplfy and engage key constituencies. Take for example the statement (a two pager) from the leaders of 7 national academies of science to G8 leaders in 2005 emphasising, yes its real and serious, now please take action.  Yet for some reason the letter did not provoke a lightning bolt of realisation from world leaders and a sudden reshuffling of political priorities in favour of reducing carbon emissions.

Perhaps that reason (assuming G8 leaders didn’t want a one pager, which is admittedly possible) is that miscommunication by scientists is not really the main issue.  Maybe it has something to do with the fact the science is genuinely complicated. Or maybe routine distortion by a bunch of vested fossil fuel interests plays a role.  Or could it be do with the fact that some politicians use climate change as a political football and don’t give a damn whether it’s real or not.  Miscommunication does appear endemic, but blaming scientists has let a whole group of other people off the hook.

One of the good things about the Chinese climate change debate is that scientific concern so far seems confined to genuine academic query, rather than acting as a vehicle for a separate political or commercial agenda.  Maybe people read stuff.  Maybe everyone toes the Central Government line (and the Central Government has certainly done its homework). But the implications if this trend continues will ultimately not just be scientific – they will be commercial.  China now has a national carbon target that is changing government attitudes, business plans and technology priorities on the ground.

Time to draw up that list of US acquisition targets…

by Liam Salter, CEO
tweeting @RESETcarbon & @Liamsalty

Harness the Twin-value for Corporate Carbon Accounting

In the Greater China market where we operate, it is commonly known that conducting carbon footprint of your business is a means to support plans for greenhouse gas reduction. Indeed, we can do a lot with a well-established corporate carbon footprint. But does it mean that corporate carbon footprinting is just a means to an end? I would argue otherwise.

Companies all over the world are getting carbon footprinted for different reasons. But short of the very rare cases where they are legally required to do so (CRC Energy Efficiency Scheme in the UK) or commercially required to do so (companies supplying to giant buyers like Walmart), most companies start working on carbon having some sort of notion that “we need to do something about it” or “this makes business sense.”

The twin-value of cost-cutting and brand-building, achievable by simply starting with a good carbon footprint, is obvious when we think about it:

• Cost savings: Establishing your corporate carbon footprint allows you to see a heat map of your carbon emissions and energy use. When we do a corporate footprint, we ensure we conduct initial analysis of your operations. This allows us to give a useful first cut analysis of reduction opportunities and savings recommendations, just from looking at your consumption pattern data.  Yes, if we go deeper with energy audits we will find deeper savings with attractive ROI, but even at the carbon footprinting stage, you get value from knowing where to start cutting. With rising energy prices, even simple carbon reduction strategies can mean lots of cost savings.

• Brand Differentiation: While carbon accounting and footprint disclosure is becoming common practice rather than best practice in some sectors (e.g. banking,) geographically in Asia, conducting and regularly reporting your business’ carbon footprint to an international standard will make you stand out. A LOT. The sustainability leadership space is still open in many sectors. The opportunity is there for companies who care to show that they care about the environment and steer free of green-washing

In our experience, companies in Mainland China are increasingly open to the twin-value proposition. Partly to do with the central government’s determination to develop a low carbon future, Mainland Chinese companies also seek to assert themselves in the international stage —and this ambition invariably requires them to look into corporate sustainability. With the mega-brands’ head to head competition getting increasingly fierce within certain sectors like internet services–as seen in the recent battle between Sina & Tencent– the first to move forward to a carbon accounting commitment will differentiate way above the rest, riding the full buzz effect around carbon up front — and the cost reductions opportunities identified with improved data transparency will follow, delivering further value.

In Hong Kong, on the other hand we find corporates are often less aggressive, perhaps lulled by a culture still attuned to green brand building through corporate philanthropy than walking the talk. This approach, sadly, misses the opportunity to drive sustained value for the environment and the companies at once– by actually improving rather than compensating for how the business is run: environmentally and cost-wise.

From our experience, for Asian companies starting to look into carbon, there is almost always twin-value. There is almost always cost saving opportunities – at the simplest level an office 10% carbon reduction is available to almost everyone. For more energy intensive enterprises, the opportunities deepen and the paybacks shorten. And from a branding perspective recent surveys are repeatedly showing Asian consumers’ concern with sustainability and climate change, Asian governments are on the move and Western consumer trends can be felt in Asia through the buying preferences of big brands and retailers.

Leading international companies have leveraged their carbon footprints to drive carbon management plans and carbon targets delivering serious value to their enterprises. Chinese and Hong Kong companies like Cathay Pacific, Crystal Group, TAL, who got the twin-value proposition, have claimed leadership spots by demonstrating first, carbon transparency and then, sustainability commitments. Of course, they are not stopping at the square one of carbon accounting—because they see that holistic carbon management helps them not only to differentiate, but to prosper.

By Merlin Lao, Consultant & Monika Fung, Senior Consultant
both tweeting @RESETcarbon

Key to organising a recognised green event: Manage & communicate your carbon.

Image: Climate Dialogue 2010. We are carbon footprinting the event.

Over the past 14 months or so, carbon accounting & neutrality have increasingly become buzzwords for companies seeking to host greener, more sustainable events in Hong Kong.

Events & meetings, as a traditionally resource-intensive and high-wastage industry, is waking up to consumer demands regarding its environmental impact. In Asia, organisers are putting their feelers out for carbon neutral or low carbon events. Carbon is used becasue it helps engage people (and sponsors). It makes “green” something tangible and quantifiable expressed in a language that is internationally recognised. Carbon footprinting for events can also be used to drive changes in the ways people do things (event organisers, guests and participants alike), which translate into strong communications and stakeholder engagement benefits.

Chosen as the carbon services provider for the C40 workshops and the umbrella event (the Climate Dialogue 2010) launched this week in Hong Kong, the RESET team’s event carbon footprint & management portfolio has grown to cover a wide range of event types–from banquets, outdoor activities, week-long forums to conferences–since the company first offered this service just over a year ago. Our work has evolved from the basic footprinting along with providing simple footprint reduction guidelines, to producing event footprint baseline and bespoke reduction measures menu (and the relevant achievable carbon reductions), to providing structured stakeholder engagement programmes for event organisers. We see a clear approach: First, you must start with a credible carbon footprint focused on a scope that includes all material emission sources, second, you focus work with event managers and suppliers on areas where reduction potentials are highest and where communications angle is the strongest and, third, you gather primary data wherever possible to measure, track and disclose your footprint.

We find that many clients are coming to the conclusion that without managing and communicating event carbon footprint communications benefits will be limited, even if offsets are sourced justify a ‘carbon neutral’ claim.

Effective event carbon management boils primarily down to good planning and organisation.  Many simple measures exist. Cost saving opportunities do exist but are nto a major driver. The main driver -  reputational benefits – are enhanced by focused communications to key stakeholders.  By making your carbon management / reduction measures visible and accountable, you ask your delegates, speakers and attendees to join in the action.

Compared to many other sectors globally, the events industry is moving relatively slowly. A structured environmental approach to events is not common practice. After the COP15, the publishing of the Copenhagen Sustainability Meetings Protocol, with all eyes on the APEX (Accepted Practices Exchange) Standards to be released– the industry is still yearning to see THE overall usable structure to frame this. In lieu of such a universal sustainability rating tool becoming available, carbon remains an effective and easily deployable sustainability proxy.

In Asia we see the hospitality industry overall as new to the sustainabiltiy & carbon reporting issue. Event mangement companies are often too inexperienced to offer ‘green solutions’ as an added-value service.  Many clients do not yet see its value. Big event venues who monopolise the market in bigger events in certain Asian locations have not yet started competing on the basis of environmental performance.

In many ways carbon, because it is relatively low cost to measure and manage, yet communicate well, is an ideal place for events to start.

by Monika Fung, Senior Consultant
Monika tweets @RESETcarbon

What to do when economists don’t run factories (or “the Law of Factory Boss Marginal Unit of Time”)

Logic goes that carbon reductions should be a no-brainer for suppliers because they are accompanied by cost savings from improved energy efficiency.

Increasingly in the China market pilot projects such as NRDC’s Clean by Design are affirming this point and RESET Carbon’s own experiences, which to-date have been in the textile & apparel, toys and electronics sectors, indicate that cost effective carbon reductions are available almost everywhere.  And as NRDC have pointed out in their dye mill work, sizeable water savings are also often possible in parallel with the energy work.

Were factory managers economists, no doubt this ‘low hanging fruit’ would have been plucked (before being sold at an optimum price to a perfectly informed consumer).  However they’re not – the presence of economically rational options does not necessarily mean that these options will be taken up.

It’s worth drilling into this a little.

In a factory’s case one issue is time and one key issue is whether energy efficiency is worth it. Factory bosses are often incredibly busy people and therefore the Factory Boss Marginal Unit of Time – let’s say the FaBMUT value (RMB/hr) – of new initiatives needs to be high if new stuff is to get done.

Let’s look again at energy efficiency.  First of all its often a new issue and not well understood by the factory team.  Secondly the benefits do not accrue immediately but will payback often over several months. Thirdly the factory may need to outsource and manage a 3^rd party expert to realise any significant value.  Fourthly there may be considerable uncertainty that the whole process will actually work, because the neighbouring factory recently hired a dodgy energy auditor who sold them a bunch of strangely coloured LEDs and cleared off.

All of this is bad for FaBMUT.  Particularly compared to more conventional ways of saving money like looking for labour cost savings, improving production efficiency or squeezing suppliers.

This is where the brands become so critical.  If the issue shifts from just being about saving money, to retaining and attracting customers then FaBMUT suddenly skyrockets.  And if the brands offer incentives for energy efficiency – or a proxy such as lower carbon emissions that they can account for more easily – then FaBMUT blasts through the roof.

What we see in the market are the beginnings of a FaBMUT shift.  It’s brand driven.  It’s not easy.  But keep going guys because the environmental win, as well as the commercial opportunity, will be huge.

by Liam Salter, CEO.
Liam tweets @Liamsalty and @RESETCarbon

Working to reset carbon emissions in Asia

RESET Carbon has been working now as a commercial carbon management pure play for nearly 2 years.  Starting life with a small team as RESET Hong Kong Limited but now expanding our presence to several cities in mainland China, we are getting officially excited about how the story of business and governments measuring and reducing carbon footprint is unfolding – at speed and on the ground.

In fact we see a real, refreshing contrast between our conversations and projects with partners and clients and the mainstream media dirge we so often read and listen to coming from the West.  For some (not all) going low carbon in China is  fashionable, hip, trendy and a host of other words I would not apply to my wardrobe.  In some places (a minority but significant) carbon is a buzzword that fronts a positive concept, reflecting an understanding that approaching the future differently will yield opportunities for recognition and differentiation, together with more conventional benefits like cost savings.  The politicisation of climate science, leaked emails and over-analysis of IPCC reports has gained little traction when balanced against peoples’ growing understanding of the consequences of climate change on the ground, coupled with the shorter run ancillary benefits (such as improved air quality) of actually doing something.

Sure doing business in China is chaotic, risky and laden with cultural nuance (and not-so-nuance) – some days we feel like Super Mario launched into space and dropping into chasms – but much of the tone is positive and the energy and ambition undeniable.  We often hear stuff like ‘ I want to do a low carbon [factory/office/company/commercial park/ industrial park/event/product] – I don’t know what it is but we’re going to do it.  Can you help?’  And many of these people can pay for it.  For a group of entrepreneurs this is music to our ears.

So the RESET Carbon team decided to set up our blog and get tweeting.  We hope we can share our enthusiasm for what’s happening on the ground, temper the undoubted hype with some commercial reality and swap views, info and ideas with our peers and partners both in China and overseas.  What is increasingly clear is the China story is not just an in-China story, but a collective response to shattering an unsustainable carbon emissions trend that will bring-in people, their passion and their expertise from almost everywhere. So, Hello World!

Liam Salter, CEO @RESETCarbon
Liam tweets as @LiamSalty and @RESETCarbon