When is a fish worth £800?

Does your firm face serious (costly and reputation-harming) oil pollution risk, and can that risk be quantified in financial terms?: it's not just about tankers crashing or oil platforms exploding.  Many firms store enough oil on their sites to be at significant financial risk.

Companies that store oil for heating, process use, or vehicle fuel are subject to strict regulations to prevent pollution incidents from poor storage.  According to the EnvironmentAgency, on average an oil spill (which might occur due to aging equipment or poor choice of equipment or errors in filling or draining the tank) costs a business £30K in fines, clean up costs and lost operational time.  This figure doesn't appear to include the cost of buying more oil to make up for the amount spilled.

The relevant regulations that firms need to comply with in England are the Oil Storage Regulations and the Control of Major Accident Hazards containment policy; there are equivalent regulations for Scotland and Northern Ireland.

200 Litre oil drum.  If you have a volume of oil storage equivalent
to more than one of these in England you must follow the oil storage regs

Small firms aren't necessarily exempt.  Any firm with at least 200 litres of oil being stored needs to comply.  That's just slightly less than the volume of a typical domestic wheelie bin.  And it's the volume of a conventional oil drum.

The Environment Agency provides quite a lot of advice for free on their website.

Spills happen all the time; they are not a rare problem.  Oil is the most common type of waste pollution in the UK.  The Environement Agency says it records over 5K incidents annually.    Few people know that oil pollution is a criminal rather than a civil offense in the UK.  Recent research in Europe  by The European Space Agency has found that just over a third of oil reaching the oceans came from land-based spills rather than ships or oil platforms, so it makes sense that spills on land are treated so seriously.

Recently the UK's largest producer of malt was fined £20,000 and made to pay £6475 in costs and were ordered to make improvements costing £11K to prevent a recurrence after oil leaked from a faulty storage bund  into a nearby river, killing 47 fish.  That's a cost to the business of about £800 per fish they killed.  That's one way to put a value on environmental assets.  Of course it doesn't make sense in terms of the cost of a fish, but the long term damage to ecosystems in the river will mean many more fish (and other animals and plants) will be affected.  Moreover there may be farm animals downstream drinking this water, and companies drawing it off for process use, and eventually maybe a water company that will recycle and purify it into mains water.

One seriously expensive fish!

Eventually, the firm is reported to have spent £106,304 on clean-up andmaintenance.  The event polluted 4 km of river.

These penalties are perhaps not so surprising at a time when water resources are increasingly under pressure, resulting in hosepipe bans and increased metering, as well as the threat of rising prices: over the  years 2002-07 UK water charges rose 32% (http://www.earth-policy.org/plan_b_updates/2007/update64), considerably faster than inflation.

What can you do about this risk?

Manyspecialist oil storage firms can offer help in bringing your oil storage up to required standards

Julia Lawrence Sustainable Business Management can help you evaluate the risk to your firm and compare the risks, costs and benefits of oil alternatives that would suit your organisation's needs.

Everybody’s talking about it: the cost of going green

Read the papers, listen to pundits, and you will know that everyone says it costs money to “go green” – and in a recession, it’s a luxury few firms can afford. This is consistent with other things we know – we think of environmental regulations, and we know that regulations often add cost to business. Take waste electrical goods – these now have to be disposed of correctly (WEEE regulations), and you can’t just hide them in the skip with the rest of your trash. So if everyone says it, and it makes sense, the logical conclusion is that it must be true.

Why would lemmings commit suicide?

There is a lovely example in this month’s news from an organisation that should know better: The Carbon Trust. This non-profit organisation has laboured with ingenuity and style for many years to help UK businesses become more cost competitive by reducing their emissions. Yet the first line of their press release says that four public sector organisations will “defy” the economic downturn by reducing their carbon footprints and slashing their energy costs by 25%. How cutting costs by reducing waste energy amounts to defiance in the face of pressure to reduce costs, is not made clear in the article. Could the strategy here be to use a standard prejudice about the cost of going green in order to lure readers in?

Many years ago, I was given a selection of books as a leaving present from a generous boss, of which my favourite was You Know What They Say... The Truth About Popular Beliefs. This book tackled a huge number of well-known “truths”, and examined the evidence for them in detail. These varied from things that just about everyone over five years old will tell you (“No two snowflakes are alike”) to beliefs that have serious consequences (“Rewards motivate people”). In some cases the evidence was mixed or reasonably good, but for most, the real evidence was so poor or non-existent that you wondered how people could go on saying these things (“Lemmings commit mass suicide”).

So what’s the evidence for the cost of going green? It is overwhelmingly in favour of saving money. There are of course rare exceptions – green initiatives that attract nothing but cost. In their excellent book Green to Gold, Winston and Esty describe how “going green” can (accidentally) reduce profits – most notably, through misunderstanding the market, for example by expecting a price premium, or planning on customer tastes fitting your planned innovations. However, the book mainly focuses on the plentiful examples of companies generating huge profits through environmentally sound strategies that are implemented well.

Recent research has continued to support the benefits of pursuing a green business strategy. For example, research published in January showed that firms that report emissions produce a bounce in their share price – especially if they’re small. In a study published last month, ISO 14001 certification in Brazilian firms was shown to correlate directly with improved profitability. There is a rapidly growing literature that looks at “green strategy” from a variety of perspectives, and shows that when executed well, green strategies pay dividends.

So, the next time someone tells you that going green will hurt your profitability, ask them if they know anything about lemmings.

Will the Green Deal help my business be more energy efficient?

Greg Barker and Green Deal providers.  Credit: DECCgovuk

The government wants businesses to become much more energy efficient, and the Green Deal was meant to be one of the ways to encourage it.  Big firms may be able to finance their own improvements, but finance was seen as an obstacle for SMEs in particular.  This was to be the purpose of the Green Deal for business customers – to provide affordable financing for energy efficiency on a “pay-as-you-save” basis.  Yet the media is full of assertions that it will do no good.  Do we have a problem?  Is the Green Deal a big deal for your company?

Delay

DECC announced recently that the Green Deal will roll out for domestic properties in October as planned, but that it won’t be available to non-domestic properties until later.  Ostensibly this is because it is more complicated.  Whatever the reason, this does mean that only home-based businesses will qualify in October – as long as they apply under the umbrella of the domestic Green Deal.  Any firm that has outgrown the dining room or barn conversion will have to wait – and as yet we don’t know exactly how long.

Landlord – Tenant problem

The Green Deal improvements are paid for by a financing company, while the beneficiary pays for them over the life of the project through their electricity bill.  How will this work for business tenants?  Apparently this has not been thought through, even though there are plans in place for ensuring domestic tenants and landlords can take advantage of Green Deal offers.  Commercial tenancies may be sufficiently different from their domestic counterparts that significant alterations need to be made to the scheme to make it suitable for companies.

So now we can see some problems.  However, just because a policy is coming under fire from the media and commentators, that doesn’t mean it will be no good, nor does it mean that you shouldn’t be interested.

So does my company need the Green Deal?

Most companies can save substantial sums by revisiting their use of energy and other resources.  However, the largest companies – and some smaller ones – have already been gaining enormous profits from doing this, without the Green Deal.  Why might your company need it?

First, the Green Deal specialises in sorting out energy usage.  This will give your organisation focus, if that’s what you need.

Second, the Green Deal will have specially trained energy advisers who will give your firm a report on energy efficiency opportunities.  Many such people exist already, and some NGOs even offer this service for free to qualifying companies, but if your firm hasn’t located this sort of expertise, the Green Deal might simplify the process.

Third, and by far the most compelling, is that the Green Deal offers finance.  The “pay-as-you-save” approach to efficiency improvements has been tried elsewhere and can be very attractive to a firm short of cash.  The concept is simple: a finance firm pays for the efficiency investment.  Payments to the finance firm come from the beneficiary’s electricity bill.  The “Golden Rule” means that the extra payment to the finance company must be less than the savings made through efficiency, so the beneficiary still saves a bit of money (and much more once the finance firm is paid off), but doesn’t need to invest their own capital.

This may be attractive to those firms eager to invest, but without other access to capital at affordable rates.  For firms that are sitting on cash, or whose credit rating makes loans affordable, the Green Deal may not offer a better rate than they would have been given elsewhere.

What should my business priorities be as regards the Green Deal?

Here there is no question.  Your priority should be to invest in people, technologies, processes and knowhow that cost-effectively reduce your environmental footprint – your use of energy, water and other resources, and your emissions of greenhouse gasses and waste.  This is a tall order – it’s hard work and takes commitment from the top of the business and engagement of every stakeholder in the firm.  If the Green Deal has no place in your sustainable strategy because it doesn’t offer what you need, then forget the Green Deal and do what you need to do.

Competition on sustainability is not about installing energy efficient technology.  It’s about making money now, and doing it in a way that means you will still be making money in 40 years’ time – that is sustainability.  That might or might not involve solar panels and insulation, but it definitely involves thinking strategically about the way you do business in terms of resources in and out.  Get to know what is available to you from the Green Deal, but don’t let it lead your strategy.  Your firm has its own place: you should take the lead, and use the Green Deal if – and only if – it suits your strategy.

Sustainability – great engineering isn’t enough

I’ve enjoyed reading Jim Stengel’s bestseller Grow, in which he explains how pursuing great values is critical in the game of trying to grow a business.  He shows some credible evidence – does this mean that sustainable approaches to business aren’t important to growth after all?  Are values all that matter?

In fact, much of his argument sounds like a sustainable business story, but with different language.  In essence (and I don’t do justice here – read the book) he’s saying that if the people involved in your business are all on the same page, engaged, and positive about your mission, you’ll do well.  And these are the very qualities that are critical to a business on a sustainability path.

Great engineering, fully engaged kids.  Credit: Extra Ketchup

The journey towards sustainability needs to be part of the CEO’s vision – but it’s not something that can just be imposed, like an ERP system.  Employees, suppliers, customers and partners all need to be engaged and positive about the sustainability mission.  They all need to understand what it really means, and agree on where that puts the priorities.  You want people to be so engaged and committed that there is no temptation to game your measurement systems, or to undermine outcomes for the sake of attention or status.

Business values and stakeholder engagement often receive too little attention in attempts to create change towards a more sustainable business model.  No doubt this is in part because the phrases are so clichéd – of course we’ll do stakeholder engagement, this is part of our core values.  Engagement is a bolt-on “done” by some department or external expert.  Values are a given.  It’s hard to think about them in a way that is wholly integrated with the sustainability journey.

The struggle to give this “touchy feely stuff” enough attention may also be influenced by a tendency for the engineering approach to sustainability to take over.  Because a firm needs systems thinking, robust measurement, and a sophisticated understanding of process technologies (in the strict and loose senses) to identify problems and solutions, this is naturally going to be the dominant mode of thinking about the change process.  But change involves people, and their behaviours and relationships are not so easily engineered. 

Stengel isn't really talking about sustainability, but he does seem to have an insight into part of the solution to this dilemma.  Any company that feels stuck on its sustainability journey even though it has a great understanding of where it's going may do well to ask it's stakeholders - are we all moving together?

Is your firm safe from oil price increases?

There is a story about two hikers in the Rockies who spot a grizzly bear, as species known for its aggression towards humans.  As the bear charges one hiker turns to run, but the other sits down, unpacks his trainers, and starts unlacing his boots.  “What are you doing?” asks his companion, “you can’t outrun a bear!”  He replies, “It’s not the bear I’m trying to outrun.”

Monthly oil price spot.  Credit: TomtheHand/Wikimedia

Many commentators are forecasting oil price rises as demand from the developing world increases post-recession, and as supply from Saudi Arabia diminishes.  Rises of around a third are bandied about, and greater increases are not out of the question, over a vague time period but certainly during this decade.  As repeated economic squeezes come, how will you stack up against your competitors?

If you use oil-derived products for heat, transport, or lubrication, you will of course see an increase in these costs.  Your suppliers will see their costs rise, increasing your input prices, and your customers will similarly feel the pinch, reducing their margins and provoking them into looking for savings up their supply chain.  End customer demand should also decline as fossil fuel prices eat into disposable income.  In other words, we would be in for another recession each time oil prices spike.

As it looks increasingly likely that this is the sort of future we have to look forward to, many firms are looking at ways of freeing themselves from oil-derived products in their processes and supply chains.  This is no easy task because there are still no economic substitutes for oil in most applications.  However, as we know from the recent global recession, keeping ahead of the competition on cost can be a matter of company life or death.

In the search for practical ways to prepare for volatile and/or high oil prices, here are some of the approaches that firms small and large are already pursuing:

• Supply chains: redesign of distribution e.g. route planning, creating more localised supply chains, optimising vehicle technology and driver behaviour
• Products: Making products more fuel efficient in both production and use
• Systems: Identifying low-value-added uses of oil and designing them out of the business model
• Resource stewardship: waste elimination and recycling
• Substitution: identifying those uses of oil for which cost-effective substitutes are now or will soon be available.

Tackling these issues now will make your firm more resilient during periods of oil price volatility.  While no firm needs to be best in class in every area, it does need to be better than its competitors overall when the economics squeezes come.

Does UK manufacturing need more patriotism?

"Make it in Great Britain"  Credit: bisgovuk

At the EEF Manufacturing Conference in London today, Ed Miliband spoke about a need to be more patriotic about manufacturing in the UK.  Unfortunately for the Labour Party leader, protectionism isn’t as easy as it used to be – so how can we be more patriotic without violating our international trade agreements?

Suggestions from Mr Miliband and others include wider use of the “Made in the UK” mark, a greater effort to find acceptable ways for the government to give manufacturers more money (e.g. greater capital allowances), and even better education for the next generation’s workers.

The last suggestion holds considerable promise, though as it stands it is too simplistic.  Education focuses too often on learning what is already known.  Worse still, engineering is considered irrelevant to the country’s success by many, and anti-capitalist protests suggest that among the young, the whole idea of gaining personally by bringing innovation and growth to UK’s manufacturers and services is highly suspect.  By failing to educate young people effectively about the opportunities for social, cultural, and economic advancement for all (as well as individuals) that engineering, innovation, and enterprise bring, we are letting them down.

I recently visited a highly respected and academically league-topping independent school for girls whose syllabus in Design & Technology incorporated only cookery and sewing – not even covering food safety or textile engineering.  The idea that bright young people will somehow learn about innovation, engineering, and related subjects outside the curriculum is fanciful.  A few may be so lucky, but most will not stumble across the right sources of inspiration, and will presumably grow up considering technology to be wholly irrelevant to them.

What should we be doing?  First, young people need to learn about the mechanics of capitalism, and how money is used for investment, which can drive innovations and advancements that create jobs, better and cheaper products and services, and benefits of all kinds touching every part of our lives.  This sounds like a very basic lesson, but it is one that is clearly missing in the discourse of many young people today.

Second, young people – as early as possible in their education, i.e. primary school – should be introduced to innovation as something that they can get involved in, and where they can have impact.  First Lego League does this for children from the age of 9, involving them not only in Lego robotics (a good draw), but also in product and service innovation projects which have nothing to do with plastic bricks.  An engineer involved as a referee remarked to me recently that the youngest teams are often the best – and it’s important to capture their interest while they are still young enough to “think outside the box” relatively easily.

Third, and perhaps most difficult of all, we need to teach teachers about manufacturing and industry.  How can we expect them to impart an enthusiasm for an activity of which they have little or no direct experience?  How do we think they will answer their pupil’s questions?  They are no more likely to absorb this understanding by chance from their private reading and hobbies than their students are.

These days, many young people who go into manufacturing learn everything they know on the job, from their colleagues and superiors.  While this is an excellent way to learn, it is not adequate on its own – it ensures that firms carry on doing things exactly the same way they always have.  In order to innovate and compete effectively, manufacturers need employees who have a wider experience and understanding than they can get solely from studying traditional methods and practices.

What does this have to do with sustainable business, the subject of this blog?  For business to be sustainable, it must not rely on government support or protection.  It needs to be able to survive on its own, and to adapt to new conditions.  Ultimately survival depends on the ability to change.  Firms will not be able to do that if their staff think innovation is something other people do, growth is something legislated by governments, and that design and technology are about copying best practices that their elders pass down to them.  UK manufacturing has a proud tradition of radical innovation, risk-taking in investments, and visionary change.  If there is anything to be patriotic about it is this – as a cultural entity, UK manufacturing has led the world, and with capable people, can continue to do so.

Electric vans - does the £8000 grant make them a good buy?

The UK government has just announced grants of up to £8000 to support sales of electric vans.  Will the take-up on these be better than the take-up of electric cars?  Arguably yes.  Businesses tend to make decisions based solely on economic criteria, and the economics support the purchase of an electric van under the right circumstances.  However, the truth is that very few firms would currently benefit from buying an electric van.  This is because of current technical constraints – they won’t last forever, but they will dent the growth prospects of EV vans in the short term.

Range: who will be able to use an EV van?

The first question everyone asks about electric vehicles is range.  Take for example the Renault Kangoo ZE, with a range of 106 miles.  Assuming no power infrastructure, that gives a return range of 53 miles, the distance from Bristol to the M50 junction with the M5.  At the moment, the UK network of EV charging points is underdeveloped, although Ecotricity is working on this.  The Ecotricity charge points are currently slow (6-8 hours for a full charge on a Renault Kangoo van), making their use for commercial transport impractical.

This means that at present, electric vans are only suitable for businesses that mainly serve their local area, or which have a fleet of more than one van, where at least one (electric van) could be dedicated to local service.

The typical charging time means these vans are also mainly going to be used only by firms that need the van intermittently, rather than driving all day.  For all day driving one would need either several vans, or a fast charge point, and while the prices of these are coming down they are still prohibitively expensive.

Running cost: who will gain financially?

Even at today’s high electricity price levels, running an EV is cheap compared to either diesel or petrol – about one fifth the cost.  On the other hand, the van itself is more expensive.  How many miles would you need to do to make the EV worthwhile?

This depends on your firm’s economic circumstances, of course, because the cost needs to be paid up front, while the savings will come over a number of years.  Let’s compare two firms – one drives about 115 miles per week, or 6000 miles per year, using the van for only about ¾ of an hour each weekday.  The other firm does 15K miles per year, or about 288 miles per week, using the van for nearly 2 hours per day on average.

First, the lower-mileage firm:

	Kangoo EV	Kangoo diesel	Difference
Price after subsidy	13,592	8,950	-4,642
Miles per gallon		54
KwH / mile	0.21
Battery lease £/month	60
cost per mile	0.02	0.11
miles per year	6,000	6,000
Road tax		115
Running cost per year	844	788	-56

In other words, for the low mileage firm it’s actually more expensive to run the electric van, even before we look at the up front cost.

Now let’s look at the higher mileage firm:

	Kangoo EV	Kangoo diesel	Difference
Price after subsidy	13,592	8,950	-4,642
Miles per gallon		54
KwH / mile	0.21
Battery lease £/month	105
cost per mile	0.02	0.11
miles per year	15,000	15,000
Road tax	-	115
Running cost per year	1,570	1,798	228

Unlike the other firm, this one gets an annual saving from driving the electric van, but the payback time is only about 20 years.  This means that even for the high mileage firm, which generates the most savings from driving, the electric van is still not currently worthwhile.

So will anyone benefit from buying an electric van?

There are some additional considerations on the financial side.  First, a central London-based firm will save on the congestion charge, which could mean that the choice to go electric pays for itself in a couple of years.  A firm with just one van delivering every weekday for 50 weeks of the year would save £2600.  Combined with the good EV charging network in London, this makes EV vans an excellent choice for firms that deliver within the London congestion charge zone.

Another consideration is the capital allowance – firms can claim 100% of the van’s cost in the first year.  Of course, SMEs with low capital spend may be able to do this anyway.  Whether this benefits your firm depends entirely on your circumstances.

Last but not least is the marketing benefit of driving a green vehicle.  Whether your customers are private sector bodies, socially conscious urbanites, or commercial firms looking to green their supply chain, driving an electric van can send out a useful marketing message.  It is difficult to quantify this but plenty of firms will no doubt use this argument to tip an uncertain financial decision in favour of the electric van.

Does this mean electric vans will never dominate?

No.  Many of the drawbacks depend on things that will change.  Range will improve.  The differential between electricity and petrol / diesel prices may widen.  EV charging will get faster, cheaper, and more ubiquitous.  So the economics of electric vans will change, and they will undoubtedly change for the better.  Of course, by that time there may be hydrogen powered vans competing for our business buck, but that blog entry will have to wait until 2015.