The cost of running a business is set to rocket thanks to a growing pressure on resources, warns Paul Monaghan. But there are ways we can turn this to our competitive advantage . . .
The cost of running a business has rocketed over the last two decades. Brent crude was selling at $16 a barrel in 1993 – it’s now $103 a barrel. Gate fees at landfill sites have rocketed from £18 to £76 per tonne. Internationally, the Commodity Food Price Index has virtually doubled and the Metals Price Index more than tripled.
But this isn’t the bad news: the bad news is that we can expect prices to increase further for years to come, with water being the next basic commodity to rocket in price in the UK.
The United States’ National Intelligence Council is predicting that global demand for food, water, and energy will grow by 35, 40, and 50 percent respectively by 2030 (http://s.coop/1q41r). This will be driven by an increase in the global population and the consumption patterns of an expanding middle class.
The underlying driver to these price increases is the increasing scarcity of resources. This may sound perplexing to anyone who recalls the years after 1972 when the Club of Rome released the Limits to Growth.
This book predicted that the world would run out of resources and that action was needed, but it was widely ridiculed for its Malthusian predictions; especially after the ‘green revolution’ realised a massive increase in agricultural productivity through the 70s and energy prices plummeted in the 80s. Now, however, the book and its predictions are looking increasingly accurate when viewed against recent developments (Read it here: http://s.coop/1q41u)
Thankfully, there is an upside to all of this. Those who use resources efficiently will have a competitive advantage. Twenty years ago (even ten years ago) it was near impossible for a business manager to secure a decent sum of capital for energy efficiency or waste recycling.
Investment appraisal (be it Pay Back Period or Internal Rate of Return) worked against you given the cost of buying energy or disposing of waste was so low. It was rare to even see systematic investment in energy and water meters! That all changed after 2007 when a series of price shocks changed the game fundamentally – suddenly the numbers were on the side of environmental investment and the taps opened.
An increasing number of businesses are responding to this new reality in a strategic way. Unilever stated in 2010 that they wanted to both double the size of their business and half their environmental footprint (http://s.coop/1q41t). To date they have made £250 million of eco-efficiencies and more than a third of their raw materials are now from sustainable sources (they want it to be at 100 percent by 2020).
Closer to home, the Co-operative Group is now realising projected savings of £65 million per annum as a result of investments in energy efficiency and waste minimisation and recycling (see the figures: http://s.coop/1q41v). And Midcounties Co-operative is hoping to progress a fantastic scheme whereby their food waste is collected, supplied to an anaerobic digester and the methane is used to generate electricity: electricity that can then be sold to the customers via Co-operative Energy. Top draw innovation.
For further information, I’d recommend The Ellen MacArthur Foundation: an up and coming hub dedicated to all things connected with eco-efficiency. It’s loaded with case studies and contains a toolkit for those in business who are interested in taking the first steps towards circular economy innovation. Go loopy.