Green Shoots Only?

Green Shoots Only?

The pace of green business investment and what needs to be done to accelerate it

A global report from Regus June 2010

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Key Findings •

Governments have set ambitious targets to reduce national carbon emissions by 6080% over the next forty years, but need to do more to encourage conversion to environmentally-friendly technology and policies

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The business community is not moving fast enough on its green policies and activities, to help meet those ambitious national targets

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Worldwide, 63% of companies do not yet monitor their energy consumption and 81% of companies globally do not monitor their carbon footprint

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In order to radically increase business investment in green equipment and policies, governments need to implement more effective incentives

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75% of companies declare tax incentives would spur them to make more green investments and 46% of companies declare they will only invest in low-carbon equipment if it is cheaper to do so.

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However, tax incentives are currently focused on too narrow a range of equipment

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The authors of this paper contend that tax incentives not only need to increase, but also be made applicable to all measurable initiatives to reduce carbon emissions

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One key extension of tax incentives would be to reduce office property underoccupancy where energy is wasted through unnecessary heating and lighting (the largest carbon emission culprit worldwide)

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Additional tax breaks for businesses (64%) and interest rates remaining low for another twelve months (58%) were the measures businesses globally declared most likely to contribute to economic regeneration

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Small companies – which typically make up half of a country’s turnover –are making significantly less investment in green initiatives than their larger counterparts

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87% of smaller businesses do not monitor their carbon footprint, and only 34% have a policy to invest exclusively in energy-efficient equipment compared with 52% of their larger counterparts

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This indicates a need focus even more generous incentives on smaller businesses that are harder pressed to select low-carbon equipment when this comes at marginally higher price

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China and India are the countries taking green measures most seriously, in spite of criticism from the West

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Chinese (56%) and Indian (51%) companies are among the most attentive to monitoring their emissions

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Likewise, companies in China (25%) and India (21%) are among the best auditors of their carbon footprints

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However, 75% of companies in China declare that they would only invest in lowcarbon equipment if it were cheaper than conventional equipment

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In Europe, Belgium/Luxembourg had the overall greatest proportion of companies monitoring energy consumption (67%)

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Introduction In the past decade converting to more sustainable business practices has evolved into an important corporate requirement. Green issues dominate the media especially around global negotiations such as the Copenhagen summit. Scientific evidence shows that the cost of inaction will be far higher than the cost of converting to low carbon technologies and practices. For instance, in the UK, the Stern Review actually estimates that the overall cost of inactivity on this front, occasioning irreversible damage to the earth and social and economical activity, could reach up to 20% of GDP. By contrast the cost of conversion is estimated at around 1% of GDP each year. 1

Major energy efficiency savings can be made by converting to eco-friendly technology and practices, and businesses will insist on a return on investment from eco-conversion. However, obstacles are posed by slow innovation and high pricing in low-carbon technologies, as well as the failure on the part of governments to introduce more widespread incentives to convert.

Green-house gas emissions are not a regional problem but affect the whole globe. Although developed countries need to cut emissions by 60-80%, developing countries are by no means exonerated. If no action is taken, the concentration of green house gases in the atmosphere could reach double pre-industrial level by 2035, causing a temperature rise of at least 2°C and perhaps 5°C in the long term. 2

It is possible to square the circle between economic development and carbon emission reduction.

Growth can easily be decoupled from rising greenhouse gas emissions thanks to technological developments and changes in the structure of economies where low-carbon markets have become more established.

Commentators have highlighted some of the core measures that provide the necessary stimulus for conversion to a green economy worldwide. Amongst these measures, ‘support for innovation’ and ‘deployment of energy-efficient technologies’ are of particular importance to businesses. In fact, while many countries have established funds for the development of greener cars, the range of ‘green’ equipment where investment is incentivised with tax breaks is still very restricted.

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Stern Review, on the Economics of climate change, 2006 Ibid.

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In order to identify a consistent global picture of the underlying trends and attitudes to green investment, Regus, the global workplace solutions provider, commissioned research amongst its 1m+ business contact database, asking companies worldwide to assess their current level of investment in low carbon equipment. Businesses were also asked to describe what part environmentally sustainable activities will have in their business in the coming year, as well as providing views on the measures they believed would prove effective in helping them convert completely to environmentally friendly equipment.

Policy Background Governments around the world have set ambitious targets for carbon emission reduction in their economies. Mexico for example has pledged to reduce its GHG (Green House Gas) emissions by 50% by 2050. 3 Similarly Japan presented its proposal for a low carbon economy which included a commitment to reduce its emissions by 60-80% by 2050. 4 France has pledged a four-fold reduction of carbon emissions by 2050 as part of its Grenelle de L’environnement initiative.

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Yet

however laudable these promises, when combined with the current low take up of environmental investments, are a recipe for environmental disaster and need to be flanked by more impressive short term goals.

Some governments are starting to extend their support of ‘green’ conversion by business. In the UK, for instance, former Chancellor Alistair Darling declared that the UK government would set up a green investment bank with £2bn of equity to fund energy efficient schemes and transport. 6 The establishment of a Green Investment Bank (GIB) is a measure that had already found favour with the new administration, with the Prime Minister stating that such an establishment must not only finance large-scale infrastructure projects but also operate at grass-roots level and foster investment in smaller green tech businesses to promote the creation of new jobs. 7

Some countries need to act immediately and decisively. The biggest polluters are reported to be China, the USA, India and Japan. Similarly efforts need to embrace all industries, despite the fact 3

HSBC, Building a green recovery, May 2009 Ibid.

5 http://www.eurofound.europa.eu/eiro/studies/tn0908019s/fr0908019q.htm 6 th The Guardian, Budget 2010: Chancellor announces green investment bank, 24 Mach 2010 7 th Business-Green.com , Green Investment bank gathers momentum ahead of budget, 17 March 2010 4

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that governments tend to devote a great deal of attention to automotive issues. The health sector, for example, contributes 8% of total US carbon emissions according to University of Chicago research in 2009. In the UK the music industry alone created 540,000 tons of greenhouse gas a year 8 while well-known emitters such as the airline industry and the manufacturing sector represent 3% 9 and 36% 10 of global emissions respectively. A shock report revealed the ICT industry accounts for the same proportion of CO2 emissions as the world airline industry, with 15 minutes of surfing the internet consuming as much as 10g of CO2 . 11 However, the biggest single culprit is the heating/cooling and lighting of buildings, responsible for a full 50% of carbon footprint in developed economies. 12

Government incentives for green investment therefore need to embrace all activities that can measurably reduce carbon emissions. For instance, under-occupancy of office space is a major contributor to carbon footprint. Conservative estimates reveal that 38% of office space is unoccupied at any given time. 13 This space, however, still has to be heated, cooled and/or lit.

Given that each employee workspace in a service industry business consumes energy equivalent to two tons of carbon emission each year 14 , then under-occupancy becomes a serious contributor to energy wastage. Many companies are therefore looking for more flexible workspace solutions that avoid this wastage. Savvy companies have already adopted hybrid solutions that address the under-occupancy problem.

China and India have come under heavy fire from the media their lack of participation in the Kyoto program. Yet this Regus survey found that developing eastern economies, China and India in particular, are actually taking a more proactive approach to monitoring their energy consumption and investing in sustainable business initiatives than their critical western counterparts. 15

The Chinese central government has in fact settled a US$585 billion economic stimulus package, which includes US$36.5 billion for environmental projects, such as waste-water treatment and

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The Guardian, Study reveals carbon footprint of UK music industry, 12 March 2010 rd The Times, Air travel industry fights back over CO2, 23 April 2007 10 The IEA (International Energy Agency), Tracking Industrial Energy Efficiency and CO2 Emissions, 2007 th 11 Alex Wissner-Gross, Harvard; Chris Goodall, Ten Technologies to Save the Planet, 2008 12 th The Guardian, Construction sector rises to challenge of building eco-friendly homes of the future, 28 February 2007 13 Regus, A Waste of Space, April 2010 14 Chris Goodall, Carbon Emissions and the Service Sector, 2008 15 4 th Gartner, Symposium 2007 – Emerging Trends; Der Spiegel, Dead rivers and Raw sewerage: choking on pollution in India, 6 July 200; The th th Economist, India’s pollution crisis, 17 July 2008; The Daily Telegraph, China considering green tax as extent of pollution is revealed, 10 February 2010; The New Scientist, China emissions to swamp Kyoto by 2010, 9

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renewable energy facilities. 16 In addition, the country plans a 20% reduction in energy consumption per unit of GDP, a 10% reduction in sulphur dioxide (SO2) emissions, a 30% reduction in water consumption per unit of industrial value-added and a 60% recycling rate of industrial solid waste by 2010. 17 Green stimulus measures in India are a little less comprehensive, amounting to a maximum of INR400bn, equivalent to about 0.7% of GDP. 18

Western economies appeared much more concerned with the cost of environmental initiatives, possibly as a result of the crippling effect of the economic downturn on R&D, along with the continuing credit squeeze. Canada is reported to be falling behind on green investments, 19 having dedicated only 9% of its stimulus package to clean energy investment in 2009, less than Mexico (10%), the world’s thirteenth largest CO2 emitter, 20 and Germany (13%). 21 The same report also highlights how Japan devoted just 6% of its stimulus package to green investment.

This overview does hide some interesting variations. While 19% of Germany’s recovery plan is based on green investment 22 and Germany has become the global leader in installed solar capacity 23 , having invested for years in sustainable technology, a developing country such as Mexico (which does not have commitments under the Kyoto Protocol) has nevertheless implemented a local programme (Mexico GHG Programme) aiming to reduce its emissions to 50% below 2002 levels by 2050. 24

In summary, while emerging economies are the highest polluters, for pundits and the media to spread the myth that they are doing nothing about it is quite plainly untrue. The detailed results of the Regus survey clearly show that these economies are proactively addressing the issue, with vigour and commitment. All in all, it would appear that Western economies should stop pointing the finger at Latin America, China and India and start monitoring their own outputs more closely.

While on the one hand companies are under pressure to deliver more output from the same resources, it is also predicted that the overall energy consumption of OECD countries will nevertheless grow by 29% between 2005 and 2030; in Brazil, Russia, India and China, 16

HSBC, Building a green recovery, 2009 17 OECD, China Investment Policies Review, 2008 18 HSBC, Building a green recovery, may 2009 19 The Montreal Gazette, Canada falling behind on green jobs investment: Report, 03/05/2010 20 IEA 2006 data 21 Canadian Environmental Defence, Falling Behind, 2010 22 th The Guardian, Can the economic rescue also save the planet?, 24 feb 2009 23 Centre for American Progress, Out of the Running?, March 2010 24 HSBC, Building a green recovery, May 2009

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consumption will rocket by 72% 25 . Companies must be vigilant in containing their energy consumption and associated costs if they want to maintain a positive image while remaining competitive in the up-turn.

Detailed Findings Globally the results of the Regus survey show a stark division between activity and apathy. Only 37% of companies monitor their energy consumption and an even more dismal 19% of businesses monitor their carbon footprint.

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OECD, Environmental outlook to 2030, 2008

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Small Companies vs Large Companies Small companies throughout are below average on their actual and predicted level of green investment. Larger companies are consistently over the average, indicating that smaller businesses are harder pressed to select low-carbon equipment when this comes at marginally higher prices, as short-term needs are more urgent than long-term investment. Only 13% of small businesses monitor their carbon foot print compared to 43% of large businesses; likewise only 34% have a policy to invest exclusively in energy-efficient equipment compared with 52% of their larger counterparts.

Just over half of large companies (52%) actually have a policy in place to invest exclusively in low carbon equipment, whereas only a third of SMEs worldwide have actually invested in low energy equipment, indicating that global economies are far from reaching the proposed targets with this critical section of any business community.

Sector Variations In the manufacturing sector, responsible for a large part of global emissions, only 51% of companies have taken up the green flag and replaced the majority of their equipment with energy efficient equipment, and less than half can declare they have invested in energy efficient equipment (47%). The retail sector also shows shockingly low take-up of energy efficient equipment with less than a third of companies having invested in ‘green’ or having a policy in place to do so (27%). Similarly companies in the Healthcare sector cannot boast a take up of lowcarbon equipment over 32% and only 31% have a policy in place to purchase energy efficient equipment. More than half of Healthcare companies declare that they would only invest in lowcarbon equipment if it were cheaper or parallel cost to run compared to conventional equipment (54%), indicating that costs are an important crux when pondering green investment.

Country Highlights Country-wise, a full 56% of Chinese firms, 51% Indian companies and (within the Eurozone) 57% of companies in Belgium/Luxembourg, were found to monitor their energy consumption. Likewise,

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China and India were the most attentive to measuring their carbon footprint (34% and 30% of companies respectively) with Belgium/Luxembourg coming in third at 38%.

Companies in the Netherlands and in the US (the world’s second biggest polluter) were also very poor at measuring their carbon emissions with only 21% and 27% respectively taking an interest in doing so. In Japan, also among the world’s greatest polluters, only 27% of companies monitor emissions. In Canada (24%), Australia (23%), Germany (29%) and South Africa( 31%) also, less than a third of companies measure their emissions.

Investment Policy Less than half of companies globally (42%) have a policy to only invest in low carbon, efficient equipment and 46% of companies declare that they will only invest in low-carbon equipment if the running costs are the same or lower than those of conventional equipment. Chinese companies were 29% more cost-conscious than average followed by Japanese and Indian companies

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Tax Incentives 75% of businesses that believe tax incentives to lighten the onus of investment in sustainable equipment would accelerate the rate of green investment of companies globally. Although large businesses have begun to integrate a larger proportion of green technology in their equipment investment, they are all the more vocal about the need for policy makers to step in and help businesses make a more concerted effort in green investment, with 82% declaring that tax incentives would accelerate the rate of investment. Country-wise this view is shared by some of the world’s biggest polluters: 88% of Chinese businesses, 87% of businesses in Belgium/Luxembourg and 85% in India. Moreover, policy makers cannot reach targets without all sizes of businesses taking on green measures and investments. SMEs in particular are crying out for assistance in taking on this onus to play their part in emissions reduction.

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Job Creation It is worth noting, at a time when unemployment is rising, that green investment is often a job creator. The Grenelle initiatives in France are predicted to create 600,000 jobs and in Canada, the Harper government’s failure to keep pace with renewable energy investments made by the Obama administration is believed to be costing 66,000 potential new jobs 26 . The White House Council of Economic Advisors estimated that stimulus spending on clean energy had created 52,000 clean energy jobs and another 11,000 induced jobs by September 2009 and is estimated to create 700,000 by 2010. 27 In Austria new eco-tax proposals have been calculated to be able to potentially generate 100,000 new jobs by 2020. 28

China, which our report found to be at the forefront of technological investment, was reported in 2008 to be employing 1.12 million people in renewable energy jobs and to be adding 100,000 new clean energy jobs each year. 29 2.9 million new jobs in China will be created to meet just its domestic demand for clean energy. In short, a new industrial revolution is taking place and it is based around the creation of a more sustainable future.

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The Montreal Gazette, Canada falling behind on green jobs investment: Report, 03/05/2010 Canadian Environmental Defense, Falling Behind, 2010 28 th Tax-news.com, Austria considers green taxes, 12 April 2010 29 Canadian Environmental Defense, Falling Behind, 2010 27

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Country Specifics UK •

34% of companies monitor their energy consumption (globally 37%), a fifth ( 20%) monitor their carbon foot print (globally 19%).

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47% of businesses (globally 46%) would only invest in low carbon equipment if running costs were the same or lower than those of conventional equipment.

France •

22% more companies than the global average of 37% monitor their energy consumption and 9% more monitor their carbon foot print (globally 19%).

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Just over half of companies (54%) have invested in or favour investment in green equipment.

Germany •

Only 29% of companies monitor their energy consumption and 12% monitor their carbon footprint.

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4% fewer German companies than the global average declare that they would only invest in green equipment if it were cheaper or the same to run as conventional equipment.

USA •

Only 27% of companies monitor their energy consumption

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37% (globally 46%) would only invest in low carbon equipment if running costs were lower or the same as conventional equipment.

Belgium/Luxembourg •

30% and 19% more businesses in Belgium/Luxembourg measure respectively their energy consumption and carbon foot print (globally 37% and 19%).

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45% (globally 46%) of companies declare they would only purchase green equipment if it were cheaper to run or the same as conventional equipment, but 12% more than average (75%) declare that tax incentives would accelerate green investment.

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Netherlands •

Less than a quarter of companies (21%) monitor their energy consumption (globally 37%) and 10% monitor their carbon footprint.

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42% of companies in the Netherlands favour green investment, exactly on global average and 66% believe tax incentives would accelerate take up (globally 75%).

Australia •

Less than a fifth of companies (14%) monitor their carbon footprint while 23% monitor their energy consumption.

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79% of companies believe tax incentives would accelerate green investment (globally 75%).

China •

19% more companies than the global average of 37% monitor their energy consumption while 15% more monitor their carbon foot print.

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Just over half (52%) plan to start monitoring their carbon foot print in the next two years and 66% (globally 35%) to measure their energy consumption.

Mexico •

3% fewer companies than average (37%) measure their energy consumption but 41% plan to start doing so in the next two years; however only 16% plan to start measuring their carbon foot print in the same period (globally 26%).

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Only 34% of companies would invest in green technology only if it were cheaper or the same to run as conventional technology.

Spain •

38% of companies measure their energy consumption and 39% plan to measure their energy consumption in the next two years.

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Less than a third of companies (31%) have invested in low carbon equipment

Canada •

Less than a quarter of companies (24%) monitor their energy consumption and 9% (globally 19%) their carbon foot print.

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32% of companies would only invest in green equipment only if running costs were lower or the same as conventional equipment.

South Africa •

31% of companies (globally 37%) monitor their energy consumption and 19% (globally 19%) monitor their carbon foot print.

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80% believe that tax incentives would accelerate green investment.

India •

51% (globally 37%) of companies monitor their energy consumption and 30% (globally 19%)monitor their carbon foot print.

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85% believe that tax incentives would accelerate green investment.

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Half of companies have a policy for using only energy efficient equipment.

Japan •

27% of companies (globally 37%) monitor their energy consumption.

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59% of companies would only invest in energy efficient equipment if the costs of running it were the same or lower than those of conventional equipment (globally 46%).

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Conclusion

The results of this survey indicate that while the majority of businesses are moving towards closer monitoring of their energy consumption, take-up of green equipment and monitoring initiatives is still disappointingly low, particularly for smaller companies.

Governments around the world have set ambitious targets for carbon emission reduction.

However, on the evidence from this survey, as governments are setting targets for businesses to reduce emissions, take-up will fall short of expectations if not accompanied by suitable tax incentives. Business cannot afford to conduct wholesale conversion to environmentally-friendly equipment and policies if the process involves them paying more than for conventional equipment.

Neither is equipment the whole story. The single biggest generator of carbon emissions in many economies is the heating/cooling and lighting of buildings. Yet Regus research has shown that 38% of office space lies unoccupied at any given time, with this under-occupancy wasting the energy devoted to heating and lighting that workspace. Governments need to widen the environmental initiatives that can attract tax incentives, in order to embrace all measurable activities in the effort to minimize energy usage and pollution.

Finally, finger-pointing by developed Western economies appears unjustified. A particularly strong propensity is found on the part of developing countries to show a responsible attitude towards issues of climate change and to proactively engage with green investment.

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Methodology

Over 15,000 business respondents from the Regus global contacts database were interviewed during February and March 2010. The Regus global contacts database of over 1 million business-people worldwide, is highly representative of senior managers and owners in businesses across the globe. Respondents were asked about their recent revenue and profit trends, along with their future views on a number of issues including the timing of substantial economic recovery in their country. The survey was managed and administered by the independent organisation, MarketingUK.

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