Shoosmiths

The future is green

Question

What opportunities and threats does rising environmental awareness among consumers present for companies?

Answer

With ‘Veganuary’ in full swing, it is no shock to hear that the public are becoming ever more focused on sustainability and the future of the planet.

Changing times

Awareness of the overwhelming global need to move towards a more sustainable lifestyle is growing at an exponential rate. As consumers become more environmentally aware, it is vital that companies identify the opportunities presented by changing market views, but also the threats they present.

The current market demonstrates that many companies have capitalised on such trends early and have reaped the rewards; the development of trendy reusable water bottles as consumers become more aware of the devastating impacts of plastic on the oceans; the creation of the ‘KeepCup’ for all the designer coffee drinkers who want to reduce the impact their morning coffee has on the planet; the switch to paper straws in almost all bars and restaurants; the huge influx of every type of milk that is not produced by cows and so many more. It is clear consumers are demanding that their desire to protect the planet is heard and the new products on the market evidently validates this.

Companies are now under the spotlight like never before and are expected to achieve globally agreed sustainable development goals and play a leading role in fighting climate change, to ensure that nine billion people can survive comfortably on the planet by 2050.

Globally recognised sports brands such as Adidas are paving the way for other companies with their strong environmental focus and innovative products. Adidas has vowed to use only recycled plastics by 2024, a strong mission statement and one that clearly aligns with consumer demands. Adidas started its push towards more environmentally friendly products as early as 2012; at the Olympic Games in London all uniforms for volunteers were made from re-used water bottles.

Adidas offers consumers real added value beyond the aesthetics and quality of the products it makes; every pair of trainers sold contributes to the goal to preserve the oceans as part of Adidas’ ‘Run For the Oceans’ campaign.

The focus on sustainability clearly presents many opportunities for companies such as Adidas, which recognise the market trend and are able to design products or services to exploit this lucrative opportunity. Today more than 90% of CEOs say that sustainability is fundamental for success.

However, where there are opportunities, there are clearly challenges to be faced. Businesses whose current offerings are less sustainable may see a decrease in profits if they fail to change their ways.

The power of consumers is undeniable, so companies who are not seen to be making enough changes towards a more sustainable future are likely to be held accountable by consumers. With many competitors electing to publish their green objectives and demonstrate how they are mitigating their climate change impacts, this increases the pressure on others to follow suit or run the risk of tarnishing their reputation and brand. A company’s brand is vital – once tarnished the road to recovery is long and arduous.

Legislative driving force

While consumers may be the financial driving forcing for many companies, the legislative framework is also changing and placing a higher burden on companies to take their impact on their wider environment seriously, holding them to account through the power of reporting. This is one element of the government’s 25-year plan to improve the environment, published by the secretary of state for environment, food and rural affairs on 11 January 2018.

The Climate Change Act 2008 cements the government’s commitment to reduce the greenhouse gas emissions by at least 80% of 1990 level by 2050. As a result of this act, various further legislation and regulations have since been passed with the aim of reducing emissions.

With the abolition of the CRC Energy Efficiency Scheme (CRC), a mandatory emissions trading scheme, the government has implemented new regulations to ensure the obligations on companies to report their carbon footprints are not diminished. From April 2019 the Energy and Carbon Report Regulations 2018 will come into effect. These regulations will extend the requirements on companies to report on their carbon emissions and energy use and will capture a wider pool of companies who are required to report. The regulations are being implemented through the Companies Act 2006 and will apply throughout the UK. Over 11,900 organisations will now be required to conform with the Streamlined Energy and Carbon Reporting regulations (SECR).

Quoted companies are already required under the CRC to report on the following in their director’s strategic reports:

  • the annual quantity of greenhouse gas emissions arising directly from activities for which the company is responsible;

  • the annual quantity of greenhouse gas emissions resulting from the purchase of electricity; and

  • heat, steam and cooling by the company.

In addition, quoted companies also have to report on at least one ‘intensity metric’. This requires a company to express at least one of its annual emissions in relation to a quantifiable factor such as a business metric or financial indicator, for example, tonnes of CO2 per employee. The intensity metric allows direct comparison of companies over time and allows such companies to be compared and evaluated against others using similar or identical intensity metrics.

Under the regulations, the current obligations are being extended for the first time to large unquoted companies, some limited liability partnerships and unregistered companies which are already required to produce director’s reports, showing the government’s efforts to hold more companies to account over their activities and the impact on the environment. In addition to the current requirements, the regulations will place an obligation on quoted companies to report on their total energy use across all energy types. In the reports, companies must include a narrative on the energy efficiency action adopted throughout the financial year. 

The effects of the greener way of living are also being felt in the property sector. The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (MEES Regulations) also demonstrate a concern by the legislature to ensure properties are achieving minimum standards in terms of energy efficiency.

The MEES Regulations give domestic tenants the right to seek their landlord’s consent to carry out energy efficiency improvements, with such consent not to be unreasonably withheld. The MEES Regulations also provide prohibitions, in certain circumstances, on landlords letting out properties which do not achieve the minimum energy efficiency standard. Currently a property receiving an Energy Performance Certificate rating of F or G is classed as sub-standard and there is also speculation that the minimum rating on E may be reviewed upwards. Buildings are a significant contributor to the UK’s greenhouse gas emissions, so a focus by the government on reducing their impact demonstrates the commitment of the government to hold not only companies, but also landlords to account in a bid to reduce the UK’s impact on climate change. 

The extended obligations on companies to report on their energy efficiencies are likely to encourage many companies to clean up their energy use by holding them to account in the public domain.

As consumers become increasingly concerned with the force of climate change and take steps to reduce their own carbon footprints, many demand that companies not only match this behaviour but exceed it. The power of consumers holding companies to account over their actions and boycotting those that fail to toe the line has been shown countless times, and the current environmental focus of consumers seems unlikely to diminish anytime soon.

Rachel Girven is a first-seat trainee in the real estate division at Shoosmiths.

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