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Appealing to the bottom line

The Edge, February 26 ,2007

By Dorothy Teoh

Cut Carbon, Grow Profits - Business Strategies for Managing Climate Change and Sustainability
By Kenny Tang CFA and Ruth Yeoh (Editors)
ISBN: 978 1 904750 15 4

Recent headlines about climate change have all been gloomy, and the two editors of this newly published book don't mince their words when asked if there are any signs for optimism.

"There aren't any. Scientists say there is a small window of opportunity of about 10 years to reduce carbon and other greenhouse gases that cause climate change... Our only hope is to take the lessons from the past and move towards a low-carbon economy, a sustainable economy. We need to start thinking about adaptation, that is, adapting to the inevitable effects of climate change," say Dr Kenny Tang and Ruth Yeoh.

Tang is founder and CEO of Oxbridge Climate Capital, a leader in the low carbon and cleantech area. A regular contributor to the Financial Times and the Wall Street Journal, he is also the author of The Finance of Climate Change - A Guide for Governments, Corporations and Investors.

Yeoh, the daughter of corporate chieftain Tan Sri Francis Yeoh, is also finance director of YTL Corp. While with Credit Suisse in Singapore, she was responsible for research in renewable energy markets, commodities, clean technology and investments.

Both see Asian CEOs as lagging behind those in Europe and the US when it comes to climate change but they're hoping to change that by appealing to something close to the hearts of all CEOs - the bottom line. In the following e-mail interview with Manager@Work, they discuss the book and tell how their interest in the subject and their collaboration came about.

Could you share with us key business strategies for managing climate change and sustainability that you write about in your book? Are these strategies applicable to both developing and developed countries?
Kenny Tang and Ruth Yeoh:
The key message is that energy conservation and energy efficiency pay dividends immediately. Furthermore, the book shows how businesses create sustainable shareholder value, cut costs, increase revenues, build formidable corporate reputations, develop new low-carbon products and services, engage employees and create powerful brands, through incorporating strategic aspects of carbon thinking into their business strategies and those of their customers and suppliers as they begin the low-carbon journey.

There are various strategies outlined in the book, firstly on climate change and then on sustainability as a whole. Basically, it is very simply distilled into two major areas -the direct and indirect impacts on your business. Direct impacts will impact on direct operations, engage direct stakeholders, etc while indirect impacts will go beyond the boundaries of the corporation and engage indirect stakeholders. For example, the strategies for a cement operation will be very different from those of a bank.

What prompted you to get this book written?
Firstly, we want businesses and industries in developing countries to benefit from the transition to a low-carbon economy, and generation of carbon credits which gives them a competitive advantage. The transition to a low-carbon economy creates a level playing field in many ways for developing countries.

Secondly, the involvement of business is a must if we are to combat the extreme effects of climate change. It is business that will provide the sophisticated energy-intensive goods and services demanded by the voracious consumer appetites of the world's burgeoning population. It is business that deploys the world's production and logistical machinery that needs significant energy support and resource use. It is business that utilises immense financial resources to fund the world's desire and pressure for year-on-year economic growth. It is business, therefore, that will be required to act innovatively and responsibly to combat ecological and environmental concerns.
Both of you have a background in finance. How did you get involved in issues of climate change and sustainability?
Issues of climate change and sustainability in fact are rooted in finance and economics - for example, the concept of externality or externalising one's costs is rampant in business as far as pollution, waste discharges, are concerned. These negatives become someone's problem and someone's cost. The key is to internalise back into the corporation such costs.

For example, previously, generating electricity through the use of fossil fuels and emitting carbon was free - there was no extra cost. You were free to pollute! Now, through caps on carbon emissions, there is a financial value placed on emitting a tonne of carbon dioxide and other greenhouse gases that cause climate change. Companies have to factor in the cost of carbon in their decisions.

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Left: Ruth Yeoh. Right: Dr Kenny Tang

Yeoh: From an early age, I have had an interest in conservation and environmental protection. I fondly recall planting trees and shrubs with my father on our private island resort of Pangkor Laut at the age of seven, in those early days before it became the internationally recognised tourist destination it is today. This mentality of doing business in the right way and being environmentally friendly in the process was due to my father who strongly believes in resource and nature conservation - it makes good business sense if you look at the current state the world is in today.

We (YTL) have done much over the years to be responsible to our shareholders and our community, including supporting and donating to leading conservation organisations such as The Nature Conservancy which acts on behalf of corporate bodies to protect the environment. YTL also recently donated RM3 million to relief efforts in Johor in the aftermath of the flooding - a disaster which arguably resulted from global warming.

In my role as finance director, I introduced corporate social responsibility and environmental responsibility into our annual report (2006).

My interest in climate change strengthened after meeting Dr Kenny Tang at a corporate road show in London - and we decided to embark on the project of the book thereafter.

Why should business and CEOs worry about climate change?
Worry would not be the right word - concern would be more appropriate. Climate change, at its simplest, is about changes in the external business environment. It has the ability to change many business rules of competition in the transition to a low-carbon economy. So they should be concerned. Also climate change has become a political issue with global caps on emissions and national caps on emissions, tighter and tougher regulations, and of course green taxes.

Climate change is also about new opportunities, ranging from more climate-friendly products and services to new infrastructure for food production, to cope with floods, hurricanes, etc.

In Asia, what will it take for business and CEOs to start thinking seriously about climate change and factoring it into their business strategies and decisions?
To be truthful, we see very little on the immediate horizon that will change the thinking of Asian CEOs in addressing environmental issues such as pollution, climate change. Asia is largely seen as the factory of the world with a need to stay competitive in a manufacturing sense. Anything environmental is seen as a cost and a negative impact. The concept of externality or externalising one's costs is critical to understanding the problem. [Let's say] a company has some waste discharges - it could dispose of it and pay for it. Or it is tempted to save on the costs of proper disposal by discharging the waste into the river - it becomes someone else's problem. Then it becomes a much bigger problem for everyone!

Of course, each country and its people will reach a tipping point when it will say No to this sort of environmental pollution, and governments will need to act. In some Asian countries, the tipping point will come earlier.

However, we see an Asian opportunity, which is to appeal to the bottom line - that it is possible to cut carbon and grow profits at the same time. Hence, the title.
Ruth, you're finance director of YTL Corp. How is YTL factoring climate change into its business strategies? For instance, YTL is also involved in the retail and hotel sectors which are dependent on consumption and global travel. How does it juggle the profit imperative on the one hand and environmental and social sustainability on the other?
I have highlighted YTL as a case study in our book. To summarise, we believe it is important to continue to provide and deliver energy, products and services in a way that minimises the impact our emissions have on the environment. Environmental and social sustainability is part and parcel of doing business at YTL and our people and shareholders understand this well. YTL has done much to mitigate climate change risk across all its operations...
Sir Nicholas Stern has said: "There is still time to avoid the worst impacts of climate change, if we act now and act internationally. Governments, businesses and individuals all need to work together to respond to the challenge." Do you see the onus as being more on government and business? What is the individual's responsibility?
As individuals, we all have to be responsible - to change our individual lifestyle. The power of the individual is frequently underestimated. Increasingly, individuals are demanding more climate-friendly products and services. As businesses, we all have to be responsible - to change our business practices, whether we conserve energy, be energy efficient, etc. Governments are different - they have a much heavier responsibility and duty to promote and encourage the changes in lifestyle and energy choices through a number of ways: tighter regulations as well as incentives or taxes to change behaviour.

What plans do you have for further collaboration?
We have two exciting projects underway - firstly, on waste management and waste strategies. This is a real problem for Asian cities - not only are the cities growing bigger, the people living in them are using more energy-intensive appliances and producing more waste per person.
We are also working on a publication around the problem of financing climate change adaptation for the poor, developing countries. The Stern Review strongly concludes that early effective action outweighs the cost. We think the whole arena of Climate Bonds could be issued in the capital markets to frontload development aid that is vitally necessary for climate change adaptation projects in food production, water, flood defences, etc.

YTL will be holding the international launch of Cut Carbon, Grow Profits in Kuala Lumpur in conjunction with Climate Change Week from March 6-9.

The Cut Carbon Grow Profits Conference will be held on March 8, at the Ritz-Carlton Conference Centre. For details, please visit: www.ytlcommunity.com/climatechange. To attend the conference, please register at: https://www.ytlcommunity.com/climatechange/registerc.asp 

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