The most progressive European companies are moving towards sustainability being central to their business models, but the best ideas don’t necessarily come from the top
Business in Europe is living through the age of scrutiny. Companies are scrutinised because of what they did in before and during the financial crisis, and they are scrutinised because Europe is struggling to get out of the crisis, especially southern Europe where unemployment is dizzyingly high.
European companies must repair the damage that has resulted in Europeans trusting companies less than people elsewhere – 52% of Europeans think companies have a positive effect on society, compared with 60% of Americans and 79% of Brazilians, according to research published in April by Eurobarometer.
And modern technology has intensified the scrutiny. If an issue arises in the supply chain, “consumers in Europe can sometimes hear about it literally in seconds”, says Richard Hardyment, head of research and futures at corporate responsibility consultancy Corporate Citizenship.
Consumers, meanwhile, are constantly pushing for more openness. “In Europe, it’s probably fair to say that there is a more significant number of consumers increasingly interested in, for example, supply chains,” Hardyment adds.
Regulators are also piling on the pressure. At European Union level, a series of initiatives to push companies in the direction of greater corporate responsibility is under discussion (see separate article).
Europe’s curious structure has a role in encouraging corporate behaviour that attracts critical attention. Although the European Union is in principle a single market with harmonised standards, issues such as corporate taxation remain in the hands of national authorities, resulting in a patchwork of different regimes. This has enabled companies to go shopping for the tax system that suits them best, and Europe is not short of countries that are considered tax shelters, from Andorra to Switzerland.
“Since the global economic crisis we’ve seen an explosion of interest in the economic side of corporate responsibility,” Hardyment says. “Tax is certainly an issue. It comes down to an issue of fairness. It’s up to companies to explain in simple terms that what they are doing is fair.”
Scrutiny through standards
Companies are also under more scrutiny because of the expanding canon of corporate responsibility standards and guidelines, which non-governmental organisations can use as a means to keep companies in line.
One example is the OECD Guidelines for Multinational Enterprises, under which grievances against companies can be filed with national contact points. Amsterdam-based NGO OECD Watch says it is “committed to testing the guidelines as part of the wider NGO campaign towards binding regulation of multinationals”.
OECD Watch coordinator Virginia Sandjojo says more cases are being filed under the guidelines, with the human rights chapter of the guidelines referenced in most cases. “We take a watchdog approach,” she says. “On paper there is huge potential in the OECD guidelines, but the majority of cases are still not successfully resolved.”
Different national contact points take varying approaches to implementation of the guidelines, Sandjojo adds. The Dutch, Norwegian and UK contact points are most progressive, but “a lot of countries have very little outreach”. Contact points in countries such as the Czech Republic and Slovakia are “basically invisible”, though in many cases, lack of resources is the problem. Ultimately, the OECD guidelines should be made binding, Sandjojo argues.
The corporate response
Many European companies are responding to the ever-greater levels of scrutiny by emphasising their ethics and sustainability efforts. Stefan Crets, executive director of EU-level networking organisation CSR Europe, says that because of the crisis, corporate responsibility has become “less fluffy”.
The major trends are more openness and collaboration, and more wide-ranging exploration of new ways of doing business. There is evidence that companies are approaching the end of a journey that started from corporate sustainability as marketing gloss, went via reduction of their impacts through target-setting and efficiency gains, and is now concluding with serious thinking about fundamental changes to business models that should make them more sustainable in the long run.
“We think that’s a good evolution: mainstreaming [of sustainability] becomes a must,” Crets says. He adds that for CSR Europe, “traditionally our public were the CSR managers. We see now in our working groups the purchasing managers and business innovation people.”
Crets cites the examples of BMW and Daimler, which are moving into car-sharing in a major way. BMW operates the DriveNow scheme in collaboration with car rental firm Sixt. DriveNow is a membership scheme available in Berlin, Cologne, Düsseldorf, Munich and San Francisco.
Scheme members can find cars online or using their smartphones. Fuel is included – in San Francisco, the vehicles are electric. Parking is also generally included. In Cologne, BMW has struck a deal with the city under which it settles parking fees directly, meaning vehicles can be left anywhere. Users are charged from about €0.30 per minute of driving. BMW has said it expects its annual revenues from car sharing to grow to €1bn by 2020.
Daimler’s Car2Go scheme is similar, using German-manufactured Smart cars, some of which are electric. It covers more cities than BMW’s scheme, including Birmingham and London. Manufacturers such as Renault and Volkswagen are rolling out similar schemes.
Other companies are working on the concept of the circular economy. A foundation established by former round-the-world yachtswoman, Ellen MacArthur, is working with the senior management of a range of companies to promote the circular economy concept and see how they can integrate it into their operations (see box). The most recent companies to join the programme are brewers SABMiller and China’s Shenzhen Guo Wei Electronics. Scotland has recently become the first government to join the programme.
Small can be beautiful
The world’s, most sustainable company, according to the Global 100 ranking prepared by investment researchers Corporate Knights, is Belgium’s Umicore. Norway’s Statoil, Finland’s Neste Oil and Denmark’s Novo Nordisk also figure high in the rankings.
Umicore is an example of a company that has made the transition to sustainability as an integral part of its business model – though over a longer timeframe than many companies. It was a highly polluting mining and smelting conglomerate, but has transformed since the turn of the millennium into a highly specialised materials and recycling group. Rather than extraction of raw materials from the ground, it now extracts metals such as indium, selenium and tellurium, from old computers and mobile phones.
The Global 100 ranking only considers companies with a market capitalisation of more than $2bn. But many of the most interesting developments in Europe are taking place at the level of much smaller companies, which are either starting up with sustainability and corporate responsibility at the heart of their businesses, or are adopting sustainability to differentiate themselves from the competition.
In Bristol, for example, ModCell, a firm established as a joint venture by an architectural practice and an engineering design company, is manufacturing straw panels for use in construction. The material is cheap, low-carbon, a good insulator, and not vulnerable to fire as might be thought, because the straw is so tightly packed that there is no oxygen within the panels for fire to feed on.
ModCell tested its product by building a “Balehaus” at Bath University. It has been comprehensively tested for everything from breathability and humidity to fire resistance and wind resistance. The university estimates that Balehaus heating bills could be 85% lower than those of standard dwellings, with associated greenhouse gas emission reductions.
In Belgium, meanwhile, small company EcoNation has been recognised for its Lightcatcher light dome, which is used typically to light large, flat-roofed buildings such as supermarkets, factories or warehouses. The Lightcatcher is a solar-powered “intelligent” dome incorporating mirrors that track the movement of the sun and shine its light into building interiors.
Even on overcast days, the Lightcatcher can capture sufficient light to illuminate 60 to 120 square metres of floorspace through a 1.6 square metre roof opening, according to EcoNation. Smart monitoring is built into the system so that if light levels fall too low, electric lighting is triggered.
EcoNation also has a pricing scheme that means the company itself reaps the benefits of its products' sustainability performance. Via the smart monitoring system installed in each Lightcatcher, it calculates how much artificial light is replaced by natural light and bills its clients for a share of the saving. The greater the saving, the larger EcoNation’s share.
The company has expanded beyond Belgium and is now selling Lightcatchers to China. In April 2013, it was the only European company out of 10 finalists to receive a Bloomberg New Energy Finance “New Energy Pioneers” award.
The Lightcatcher is an example of what CSR Europe’s Stefan Crets calls “the crisis and the urgency of sustainability” pushing European companies to review their product portfolios and come up with new ideas. “That’s the real work of sustainability,” Crets says.
Case study: Vodafone
UK-based telecoms giant Vodafone has been publicly pasted for its tax arrangements, particularly for paying zero UK corporation tax for the second year running in 2012/13, despite revenues of £5bn and operating profits of £294m. Tax campaign group UK Uncut says the company has got away with £6bn in unpaid taxes over the past 10 years, but the government is itself partly to blame. UK Uncut condemns the latest figures as “one of the most shameless, blatant and costly examples of corporate-government cronyism in years”.
Vodafone has responded to growing criticism by publishing details of its country-by-country tax payments, categorising payments as direct (such as corporation tax and employer’s social security contributions) and indirect (VAT and taxes paid by employees). In 2011/12, the global direct contribution was £3.37bn, and the indirect total was £5.93bn, or 7.3% and 12.8% respectively of Vodafone’s global revenues in that year.
The figures are still not fully transparent. The summary includes a mysterious “non-OpCo” line, which gives a direct taxation figure of £400m paid to Luxembourg and other unnamed jurisdictions where Vodafone has no operating company, but through which it channels group services, such as procurement and financing.
Vodafone has opened up about its tax affairs more than some companies. But Vodafone might find that its disclosure, as well as providing some answers, provokes a new round of questions.
Case study: Ellen MacArthur Foundation
Setting a more sustainable course
Britain’s favourite round-the-world sailor, Dame Ellen MacArthur, wants to put sustainability at the heart of company strategies by educating chief executives about the circular economy, meaning the use of what might formerly have been regarded as by-products as inputs in a new round of production. The overall aim is for companies to cut waste to zero.
The Ellen MacArthur Foundation is recruiting companies to its Circular Economy 100 (CE100) programme. Through this, it is hoped that collaborations can be established to work on specific projects related to the circular economy idea. “It’s about initiatives to generate new revenue streams through new business models,” says CE100 programme manager Stuart Whitman.
Companies that have signed up include well-known sustainability leaders, such as Kingfisher, Philips and Unilever. The CE100 has 48 participants so far, Whitman says, and is at the stage of identifying possible partnerships between the participants. Whitman adds that success will be measured according to the number of cross-company and cross-sector collaborations that result.
The Ellen MacArthur approach is hard-headed.A rapid move to a circular economy is needed to replace the “consumption-driven linear economy exposed to volatile resource prices, rising energy bills and limited credit,” the foundation says. Ellen MacArthur herself has said that being alone at sea taught her the importance of managing finite resources. The foundation is trying to extend this approach into more corporate boardrooms.
Case study: Aquafil
Recycling that stretches profits
Italy’s Aquafil is one of the world’s biggest producers of nylon fibres for flooring and sportswear. It is expecting global fibre consumption to grow by 30% by 2020 compared with 2010 – good for its business but bad in terms of waste generation, fossil fuel and raw material use and water consumption.
Nylon fibres are in principle endlessly recyclable, however. Aquafil has developed a regeneration system, known as Econyl, which can recover a very high proportion of first-grade nylon from waste material and turn it into good-as-new fibres. The company’s investment in the Econyl process has amounted to €20m over four years.
Aquafil recycles both pre- and post-consumer waste into Econyl. It wants to increase the proportion of post-consumer waste, which made up 50% of the product in 2013. Most recently, in a partnership with the Netherlands-based European Centre for Nature Conservation, Aquafil has started recovering nylon fishing nets dumped in the ocean for recycling into Econyl socks and swimwear.
The company reports that Econyl has boosted its profits. In 2012, its unit that makes textile floor coverings recorded a 4% increase in revenues “substantially due to the increase in sales prices achieved through a mix containing a higher proportion of Econyl products”.business models corporate responsibility europe briefing region briefing sustainable business