ENVEC making sustainability happen in a changing climate

Keynote speech by the Rt. Hon. Michael Meacher MP, Minister of State (Environment and Agri-Environment) to ENVEC 2002

9th October 2002, Weston-super-Mare

(Note: The Minister's response to the plenary session is towards the end of this page)

Your conference comes on the back of the recent World Summit in Johannesburg which was about getting the world economy to re-orient towards sustainable development in the face of phenomena like climate change, but it also emphasised the crucial importance of business playing a full and active part.

One of the key challenges - for Governments and for business - is to de-link economic growth from environmental degradation. To do this we need new tools so that we can measure what our effects are.

There is an old saying in business that goes - 'if you don't measure it, you can't manage it.' For some time now the Government has been encouraging organisations of all kinds to measure, manage and report on their key environmental impacts. These relatively simple actions can help companies use resources more efficiently - by getting more from less. You might think that leading businesses like yours are already paragons of efficiency. Perhaps yours is. But the evidence suggests that most businesses can do a great deal better by introducing basic environmental management techniques. Anglian Water, for example, report a saving of one million pounds year on year on energy consumption through energy management initiatives such as identifying major energy users, educating employees and managing energy on sites. That's worth having.

Saving money is not the only, or even the most important, reason to look carefully at how your business interacts with the environment. Your stakeholders are increasingly concerned that environmental and other non-financial considerations are taken into account in the day to day running of the business and in formulating business strategy. Shareholders want to know that you're managing risk and identifying business opportunities. Customers want to know that the products and services they buy from you are not causing irreparable damage to the environment. And your employees want to feel good about what they do and who they work for.

The evidence for this growing stakeholder awareness is all around us: The development of ethical indices such as the FTSE4Good. The growth of Socially Responsible Investment, which even has its own acronym: SRI, and the increasing engagement of business itself through Corporate Social Responsibility.

That is why we have proposed some important new reporting provisions and directors' duties in the White Paper on Modernising Company Law published in July. These would require approximately 1,000 of the most economically significant companies to include information on environmental, social and community issues relevant to the company's business in a new Operating and Financial Review. They would also require directors to take into account, where it is relevant, the company's impact on the environment and the wider community, which the Government believes every director needs to consider as an issue 'first among equals'. The Government is establishing an independent group of experts to help in the process of providing guidance on how directors can assess whether an item is material to their company and hence be included in an OFR.

With the DTI we have already produced guidance to help companies measure and report key environmental impacts such as greenhouse gas emissions, waste and water. Last November we also published guidance to help companies consider and report on other impacts such as resource use, biodiversity and supply chain issues. The CBI endorsed these guidelines and sent them to their members and to all of the FTSE 350 leading companies.

Companies can also look to environmental management systems, particularly the European Regulation EMAS, to help them make a commitment to continual performance improvement and ensure they are measuring and managing their key impacts. EMAS reports are also independently validated which can help investors and regulators benchmark companies and give them an assurance that the information they provide is accurate and reliable. This should be of interest to businesses who value credibility in reporting and disclosure and it will set them apart from their competitors.

I have also recently launched a Chartered Institute of Management Accountants guide to new environmental accounting methodologies. Following this guide companies can go further towards assessing their environmental impacts and costs by doing full environmental cost accounting. Using basic managerial accounting tools to track environmental costs can help companies reduce their environmental impact, benefit the bottom line and identify and plan for environmental factors affecting the business - the triple win, win, win.

Accountants are in a unique position to review business costs and highlight opportunities to improve resource productivity. By allocating, for example waste disposal costs to particular activities, environmental management accounting techniques can highlight, and help eliminate, unnecessary waste - and there's an awful lot of it. They can point the way towards producing more goods and services with fewer inputs of materials and utilities, and with less pollution and waste. Improving resource productivity will increase business efficiency, and hence profits.

Now in addition we need a methodology and tool kit for external cost accounting. These 'externalities' are costs arising from environmental impacts that are not currently borne by the company, but are picked up by the rest of society. It is evident that there has been a lot of interest and activity in this area since the European Commission's Fifth Action Programme called for the accountancy profession to develop Full Cost Accounting so that "the consumption and use of environmental resources are accounted for as part of the full cost of production and reflected in market prices" - that's the key point.

But this is advanced stuff, and we are still some way off an agreed environmental accounting methodology that can deliver incontestable costs for environmental impacts. For those of you just starting out on the road to measuring and managing your environmental performance, I would strongly encourage you to look first at the scope for implementing the tried and tested environmental management systems and at environmental reporting. Both can help companies to benefit the environment while at the same time improving public image and reduce running costs.

Here in the South West you have the "Our South West"¹ sustainability web site managed by the Government Office to help you to access all the information and guidance that is available.

It has often been said that there are three types of business. Those that make things happen, those that watch things happen and those that wondered what happened. Forward thinking companies that adapt positively to the sustainable business agenda will be at the forefront of resource productivity, reducing waste and of environmental reporting. They and their management teams make things happen ahead of their competitors. And they will reap the rewards - financial as well as environmental. That is, I think, the win, win, win combination that we all want.

¹www.oursouthwest.com

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Response from Rt. Hon. Michael Meacher to the PLENARY session of ENVEC 2002:-

I am very sorry that circumstances prevented me from attending ENVEC 2002 in person but I am pleased to hear that the event was well attended and that you had an interesting open plenary discussion on some of the key issues surrounding the move towards a low carbon economy for the UK. I understand that there was much discussion about the issue of the New Electricity Trading Arrangements (NETA) and their impact on the take-up of renewable energy and combined heat and power schemes and also on the UK's own renewable energy industry. You also discussed the need for greater investment by Government in support of renewable energy and energy efficiency both in the South West and in the wider UK as a whole if the UK is to move towards a low carbon economy.

NETA has removed the distortions inherent in the Pool, and driven down wholesale electricity prices. There is over capacity in electricity generation, which is the result of the artificially high prices set by the Pool. The forthcoming Energy White Paper, that we anticipate will be published in the New Year, will offer the opportunity to assess and consider the wider issues involved.

DEFRA has been working closely with DTI to identify the necessary actions to address the adverse impact that NETA appears to be having on smaller generators as identified by the Ofgem review. On 4 April 2002, DTI published the Government Response to its consultation on NETA and smaller generators that identifies action to help smaller generators operate more effectively under NETA. Ofgem officials are working with DTI to progress proposals.

Government is firmly committed to the target of doubling Good Quality CHP capacity to 10,000 megawatts by 2010. We believe that the measures set out in the draft CHP Strategy, incentives such as full exemption from the Climate Change Levy for exports of CHP generated electricity and Business Rates Exemption alongside development of new technology (Micro CHP) will help us meet this target. If further measures are needed to achieve these goals, we will consider them.

For renewable energy, the Government is looking very carefully into its long-term future at the moment in preparing the Energy White Paper. This is expected to address a number of issues including the question of the longer term targets for renewables and the contribution they might make to a low carbon economy.

However, we have already put in place a strong package of support mechanisms to develop renewable energy. In April, the new Renewables Obligation on electricity suppliers came into force, with the aim that 10% of electricity sales will come from eligible renewables by 2010. The target for the current year is 3%.

The Obligation itself will be underpinned by a package of direct Government funding worth over £260 million over 3 years with a further £38m available later. This will support developments in technologies as diverse as offshore wind, energy crops and solar photovoltaics, and enable the industry to build up a substantial bank of knowledge and expertise. The new Renewables UK unit, based in Aberdeen but with a UK-wide focus, will also have an important role to play in the development of industry expertise, and in the promotion of export opportunities. Taken together, we expect these initiatives to create a market for renewables worth over £1 billion by 2010.

For energy efficiency, The Carbon Trust receives around £50m a year from Government and this includes £100m over 3 years from the Climate Change Levy for managing Action Energy (formerly the Energy Efficiency Best Practice Programme). Enhanced Capital Allowances (ECAs) were introduced in April 2001 giving 100% first year capital allowances for approved energy saving investments for business. The list of energy efficient technologies for ECAs is also managed by The Carbon Trust. The ECA scheme is worth an estimated £200m over 2 years, depending on take up. Over 3 years £75m of Climate Change Levy receipts are also being invested to accelerate the development of low carbon and energy efficient technologies. The Low Carbon Innovation Programme has been developed by the Carbon Trust to provide support for innovative technologies within a low carbon economy.

The Energy Saving Trust received funding of nearly £24m from DEFRA in 2002-03 for its work in domestic energy efficiency as well as funding from the Scottish Executive and Department for Transport for its transport programmes. The Trust works to promote the sustainable and efficient use of energy by providing information and advice, and working with the market to develop and market energy efficient goods and services.

These are significant investments by Government in helping the UK to become more energy efficient.

23 October 2002

END.

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