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Cutting Costs and Increasing Profitability by Going Green

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Following a history of previous investment, Ikea has recently announced that it is investing 600 million euros in renewable energy to power itself. To date, “Ikea runs 224 wind turbines and has installed 700,000 solar panels”. Although we haven’t seen profits rise significantly, this will provide them with security of supply and allow them to be as off the grid as possible, reducing the exposure to rising energy prices.

Unilever, one of the most household business name has embraced energy efficiency significantly. “The company recently announced that energy consumption has been reduced by 20pc since 2008 – enough to run 40 factories – and which resulted in savings of €244m.”

One of the major drivers for reduction in carbon dioxide for a business is that it can be linked to bonuses. Unilever chief executive, Paul Polman, has in the past tied GHG emissions reductions targets both within Unilever and throughout its supply chain to his bonus package.

Pension funds and long-term investors have also woken up to the fact that their traditional business models and assets need to adapt. As the world moves to decarbonise, their assets will depreciate significantly. Even oil giants such as Texaco have started investing in electric car charging station. This would complement its existing infrastructure of petrol stations.

Greener firms are proving to be more profitable, not just because they are going green, but also because it shows that there is better management there. Shares are rising in those companies as investors see it as a proxy for good management. The concept of “zero waste” has gathered significant pace, not because companies feel the need to be part of the movement, but because it makes business sense to improve transparency in the supply chain and provide proof of better corporate governance, which increases the value of a company.

Sources – Telegraph, Newsweek, FT


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