The good news is that what is right for the world is also right for business

The debate about climate change has moved on — the case that it is occurring at least in part as a consequence of man’s actions is now firmly established and recognised by the majority of the business community. So says Philip Green, CEO of United Utilities plc, and indeed he goes further than that: as he puts it, ‘for the UK’s biggest businesses, it is an article of faith. Some would argue that this has taken too long.’

What is certainly true, he says, is that the argument that business will suffer from the consequences of climate change, but has the capacity to play a significant role in addressing it, ‘has won over business surprisingly fast’ — a tribute to the work of Nick Stern, the former Treasury mandarin, whose report, published in November 2006, set out the economic risks in detail.

A few months later, the first May Day Business Summit on Climate Change took place at St James’ Palace. UK plc’s finest pledged themselves to targets for greenhouse gas emissions and committed to putting in place action plans to deliver them.

Philip Green was one of them. This year he also took up the chair of Business in the Community’s environmental programme.

Interestingly, the company he leads has doubled emissions in the last twenty years as a result of ever more stringent water quality regulations — made when the consequences for carbon emissions were barely considered — yet his company must still reduce emissions to below 1990 levels.

Parliamentary Brief met with Philip Green just before the 2008 May Day summit, to get his take on business’s response to climate change.

Even in the midst of the credit crunch he recognises it ‘as the biggest long-term threat facing the world economy, and business just can’t ignore that’, he says.

Spelling it out, he sets out five reasons that make it a compelling issue for business to address. His first is that it is a moral responsibility for business stemming from its stewardship of vast resources and the impact this has on everyone else in society.

Secondly, there is the impact of climate change on business performance itself — in United Utilities’ case this would include the change in rainfall patterns and excessive and more prevalent flooding, both pretty central issues.

Third, ‘greenness’ is demanded by customers, both B2C and B2B. The way a business engages with climate change matters to current and prospective employees — very often the highly skilled — when they are making their choice as to which company to work for.

And finally, if that is not enough, excessive carbon expenditure is going to get expensive in the next few years: the ‘greatest market failure in history’ will — must — be put right, exposing many companies that haven’t addressed their emissions to very significant costs.

So, whichever way business looks, it has to deal with climate change.

Rising sea levels and changing climate will have huge impacts on land use, the availability of fresh water and food production levels. He has seen the social and economic impacts of HIV first hand in South Africa, and judges that, not dissimilarly, climate change could be just as harmful to the economy of the UK and the world.

With business responsible for 40 per cent of the UK’s greenhouse gas it has to get involved if national and global emissions are to be reduced. And it is. ‘Even two to three years ago we wouldn’t be having a conversation like this’ he tells me.

Britain’s largest companies are not only aware of the threat to their business interests from climate change but are addressing this through planning and action. There are many impressive case studies available, not least from companies like DLA Piper, M&S, BT, LloydsTSB, AllianceBoots, BSkyB, his own firm United Utilities and many others.

Corporate climate change policy is now going much further. Companies are aware that it is not just their own emissions that matter; they need to take into account their supply chain, customers and their employees.

Whilst climate change represents a huge challenge, he sees plenty of reasons to be positive. ‘Although no one knows how we are going to make the reductions necessary if we are to limit the impact of climate change, we have at least identified the problem, and that is 80 per cent of the solution.

‘Having targets for emissions reduction is a major step forward too: at least 26 per cent reductions on 1990 levels by 2020 and 60 percent by 2050. There has been a lot of work in getting agreement on systems of measurement, but we’re not there yet and more work is urgently needed to get this right’, he says.

As a demonstration of progress, most big UK companies’ fundamental capital programmes already include carbon as a factor — even three years ago that would not have been the case, he points out.

‘Although what is required is a fundamental change in behaviour, I am confident that we are going to be successful — I am an optimist by nature, but who would have thought only five years ago that smoking would be outlawed in public places? And yet it is, and without the threatened exodus from pubs some forecast. If we can do this for smoking then we can do this for climate change.

‘To deliver this, leadership is going to be really important. The leadership of the Prince of Wales, who has been well ahead of most of us on this issue, is outstanding. I am impressed by the government too: David Miliband when he was at DEFRA and his successor Hilary Benn understand this as of course does David Cameron who has made it his personal signature and the new logo of his party.

‘Many of the UK’s businesses are world leaders when it comes to understanding the problem of climate change and the scale of the solutions required, and they’re grappling with them’, he says.

Philip does not shy away from the need for proper carbon pricing ‘which is going to be essential — we must have a mechanism that drives behaviour’, he says. He recognises that the functioning of the next phase EU Emission Trading Scheme (ETS) will be very interesting, and that we will have to think very carefully about how to ensure that the third phase starting in 2012 is really robust, delivering prices for carbon that are more reflective of their real cost.

‘Whilst we have to show progress in the next three to five years — to show momentum — the crunch time is 2035 to 2050. By then, we will have delivered the easy wins — for instance, the extensive employment of existing technology that makes business sense like combined heat and power, which has a swift payback and for which a business case can easily be made.

‘To meet the longer-term targets we are going to have to do business differently. That’s going to be particularly true for power, airlines, retail, utilities and transport businesses. We are going to have to develop and apply new technologies.

‘Also, companies will have to take negative profit and loss decisions — a difficult move for business. P&L-negative decision making will have to be driven by costs imposed upon them, like carbon prices. I expect this to start before 2020; the third phase EU ETS may represent the beginning of that as early as 2012.’

Of course, climate change is global and so is business, but the UK is significant. It’s the fourth largest economy in the world, a leading partner in the European Union, a permanent member of the UN Security Council, the leading member of the Commonwealth, and the closest ally of the United States, ‘giving us great scope for influence; but our credibility requires authenticity in our own approach’, he says.

Philip believes that the best approach for any business is to reduce its own emissions — including within its supply chain and among its customers and its workforce. This is where the real challenge lies. Buying in green energy is a major contributor to most companies’ ability to deliver on their commitments, but it’s second best and offsetting is very definitely a last option for him.

At the end of the day, you cannot buy your way out of this problem. Fortunately, the case for doing what is right is justified by the business case.