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The imperative of businesses to reduce their carbon footprint
NOTE: This article was first published in Aurora, a bi-monthly publication of the Dawn media group, in its March-April 2022 issue, under the heading Business and Environmental Action. It can be read online at https://aurora.dawn.com/news/1144436/business-and-environmental-action
There is one and only one social responsibility of business–to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game
Milton Friedman
Milton Friedman was a renowned American economist and the recipient of the 1976 Nobel Prize in Economic Sciences. A committed capitalist, his theories and thoughts heavily influenced policy for a long time not only in the USA but in several other Western countries also.
From our perspective today, in Friedman’s era the ‘rules of the game’ were fairly indulgent. Although terms like global warming or climate change had already been coined by then, the understanding of these phenomena was largely limited to the academia and the scientific community. And thus global society used fossil fuels with gay abandon, deforestation for agriculture, pastureland and mining went on unchecked, and industries flourished with scant attention to discharge of gaseous or liquid affluent. This may sound like a sweeping statement, because in many developed countries at least, laws were enacted or were being enacted to make businesses more responsible. However this statement still holds true, if we consider how much more stringent laws have become today, relating to controlling environmental pollution, creating greenhouse gases and so on.
The shift by companies, starting largely in the early 1990s towards taking on a greater environmental responsibility and for reducing their carbon footprint was less out of altruism and more as responding to rapidly increasing public pressure. Environmental activists – both organizations like Greenpeace and individuals – became more vocal and even dramatic in drawing public attention to environmental issues. Then came the giant leap in communication and information technology with the advent and rapid spread of social media in the early 2000s, with Facebook and Twitter leading the way. For environmental activism, it couldn’t have been better for spreading the message globally and catalyzing public opinion to pressure both governments and companies. And in recent years we have witnessed the youth more than any other societal segment taking the lead in demanding action now. Who has not heard of Greta Thunberg, the Swedish environmental activist? She started off at age 15 with a protest outside the Swedish Parliament, calling for stronger action on climate change, before earlier persuading her parents to adopt lifestyle choices that reduced their own carbon footprint.
Compared to individuals, big business has a BIG carbon footprint. Energy or power generation using fossil fuels is generally regarded as the leading contributor to global warming, although several studies place agriculture as the biggest culprit. Transportation (land, sea and air), oil & gas exploration, mining and petrochemicals based industries are also major generators of greenhouse gases. And perhaps unrealized by most of us, the energy needed to power very large computer networks and data processing systems is also substantial, with its own carbon footprint.
Admittedly, for a lot of businesses it may be financially unfeasible or practically not possible to source their energy from renewable sources. In case of the former, if an industrial production unit requires hundreds of megawatts energy (steel-making is one example), the cost of setting up solar generation for this output will be astronomical. In the case of the latter, can an airline fly its fleet of aircraft on solar power? Obviously it cannot. However this is not to say that nothing can be done. All companies can have at least some operations run on renewable energy, while reducing fossil fuels generated energy in other operations.
A good current example of this is the introduction of e-bikes by foodpanda, a food delivery company. With about 50,000 registered delivery riders, foodpanda recently launched a programme to shift as many riders as possible over time to e-bikes from motorcycles using conventional fossil fuel. There is a long way to go of course, but this is a fine example of a company acting to bring about a reduction in the carbon footprint in a critical part of its operations, while also benefiting its riders in terms of savings in fuel costs.
Tetra Pak, a world leading food processing and packaging solutions company, believes that the economy of the future must be circular and low-carbon with a minimum climate impact across the entire value chain. It works to achieve this by delivering solutions with the lowest carbon footprint and highest efficiency, minimizing the environmental impact of its own operations and working with partners to address the end-of-life of its products. Its goal is to make all packages from 100 percent renewable materials. Already, the cartons are made mostly from plant-based materials with a significantly lower climate impact than other packaging. The lifetime carbon impact of a Tetra Pak carton is five times less than its steel or glass equivalent.
Some years ago a large manufacturing company in the Punjab got a study carried out to see how energy (and cost) can be reduced both at the plant site and at the head office. Some of the recommendations of the study were quite eye-opening, revealing how some easily put into practice measures can result in huge savings. Measures like increasing the operating temperature of chillers by a couple of degrees (thus reducing energy required for greater cooling) without any real impact on the chillers’ performance, reducing air leakages, optimizing lights level, and installing solar power systems to power energy use in the head office, and some similar energy needs at the plant. The study concluded that by enacting the recommendations, energy use would be reduced by 1.7 million KWh/year, resulting in cost savings of over PKR 22.5 million per year and CO2 reduction by over 860 tons per year.
The above 3 examples are illustrative of what can be called the business case for environmental action, or more specifically of companies taking measures to reduce the carbon footprint, which actually pay back into the business in terms of cost savings. In effect, the desire of Mr. Friedman, delivered decades ago that the goal of companies must remain the maximization of profits is still being met!
To start on the path of reducing its carbon footprint, a company first of all needs to be strongly committed, with a categorical buy-in from top to bottom, and especially from the top – the Board of Directors. A definite change of mindset will be required. As one writer put it, ‘reskilling the Board’ is required. While over the years corporate leadership has become much more supportive of adopting sustainable practices, there is still a lot of old-fashioned or traditional thought at Board level which resists the introduction of new values and policies. Thus reskilling Board members will cover financial, transitional, and operational matters within an ESG framework.
Once the Board is firmly on board (no pun intended!), a comprehensive audit of energy usage needs to be carried out by experts over a period of time to cater for seasonal and other variances, and covering all operations of the company. In this exercise the experts will work closely with in-house technical people – engineers and others – to identify where and how energy savings can be implemented, and where energy from fossil fuels can be replaced by renewable energy systems procured and installed for the purpose.
A further extension of this step would be for the audit to also measure and evaluate the potential of reducing the carbon footprint to cover the company’s entire supply and value chain and supporting the players in the value chain to also adopt measures to reduce their own carbon footprint.
Finally, business associations like federal and city chambers of commerce and even the OICCI, industry associations (e.g. APTMA) and pan industry advocacy groups like the PBC need to explore how there can be collective action to engender economies of scale whereby the cost of a joint carbon reduction programme for each participating company is reduced, while at the same time the scale of the programme becomes much larger.
Experts believe we are already late in reversing climate change and global warming. The best our future generations can hope for is slowing down the process, even substantially, if all stakeholders act now. And businesses undeniably have a significant role to play in keeping hope alive.
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