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Balancing sustainability in business with growth and innovation

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Balancing sustainability in business with growth and innovation

Aidan Bell, co-founder of sustainable business EnviroBuild.

Modern sustainability today is generally seen in three pillars; economic, environmental and social. Economic sustainability has always been seen as an important part of business growth. Sustainability in this instance is remaining commercially viable and being able to sustain operations in the face of unexpected events.

Social sustainability means it should have the support and approval of its community, such as employees and stakeholders. Although these both fit within corporate sustainability, historically environmental sustainability and business growth are often discussed as if they’re on separate ends of the spectrum.

 In fact, a misconception exists suggesting that being ecologically aware or investing in environmental sustainability as a business is something that works directly against profit and growth. In turn, these assumptions are linked to things commonly associated with business, such as innovation and disruptive strategies. This means that sustainability continues to be seen as something entirely separate from innovation and progressive strategies within global business.

Where does this come from?

Historically the driver of business decisions and the only measure of success was financial shareholder value.

Legally this is still the case within the Anglo-Saxon governance system, so therefore it’s easier to appeal sustainability and ecological factors to corporations by presenting the economic gains and commercial opportunities that can come to a business from being focused on environmental sustainability. Although this may seem counter-intuitive as these motivations are driven purely on financial profit, any changes towards genuine sustainability should only be seen as positive.

Only third sector charitable companies, philanthropic organisations or smaller companies (where the founder has control and had their own altruistic reasons for sustainability) have historically looked at sustainability.

The world is changing

However, the world and business globally is changing. Green issues have become of increasing importance, environmental laws have been implemented and companies are now adopting their own green pacts and responsibilities. CSR (Corporate Social Responsibility) came along and companies begun taking their branding and sustainable image seriously.

Uniquely Indian law now stipulates a CSR legislation that companies have to give a minimum of 2% of their profits back to charitable causes. However, this legislation creates a focus on expenditure rather than outcome. In fact, it often results in spending primarily in locations where the spend is most likely to result in increased business for the companies donating. Another criticism is that it is allowing the government to relax their own social responsibility towards the rural poor, something that should be considered if this was to become commonplace in other companies internationally.

Generally however, CSR is often related to creation of a better brand image, effectively part of a marketing budget. There are examples beyond this, but bringing it central to a businesses core has never truly troubled the Fortune 500.

Today, the consumer is more aware than ever of the importance of environmental sustainability. As the realisation kicks in that bringing sustainability central to your brand can actually increase performance, many companies are using this ‘green’ USP as a selling point which is changing consumer behaviour. For example, a 2016 Morgan Stanley survey on consumer buying habits and ethics showed that when choosing apparel retailers, 51% of respondents think that ethical credentials are important.

The workforce is increasingly mobile and there is an ever increasing battle for talent.  Employees, particularly those with talent and correspondingly with the greatest choice of employers, wish to feel part of something greater than themselves.  Companies are not slow to recognise value and this is being seen as an equal driver of business decisions.

Business benefits for sustainability

It’s important to remember that innovation is integral to sustainability and the two can work in partnership, such as innovative companies that now exist which support the inclusion of environmentalism in business. For example, environmental accounting now is an innovative practice which serves to increase the profit margin when applied properly. Companies themselves can practise the novel approach of environmental accounting which aims at identifying inefficiency due to excessive waste or poor use of input within the value chain.

Today, companies are being created which are doing good as part of an organisation’s core offering rather than as an ‘afterthought’ or as a marketing strategy. These kind of companies inevitably can create better revenue growth into sustainable programs. For example, according to The Financial Times, there is evidence that investment funds which observe environmental and social standards in their strategies tend to outperform those that don’t.

We know that in order to stand out in the changing landscape, companies need to think about their sustainable practises in terms of their economic growth, not aside from it. Many businesses may find that integration of these strategies in fact this creates the need to think innovatively, use imagination and creativity to redesign their goals; all factors which will inevitably lend themselves as beneficial to other commercial areas of the business.

It’s also inevitably true that innovation of what constitutes shareholder value is easier in companies where a few individuals can exert large control. It is easier for a company like Facebook, Amazon, Alphabet or any start-up to innovate in this regard than GE or JP Morgan Chase.

Growth and sustainability

Perpetual growth is incompatible with the finite world we live in. Although many argue capitalism can go hand in hand with sustainability, the creation of products and services requires the use of natural resources and therefore will always come at an environmental cost. The principles of “limitless economic growth” directly counters the idea of sustainability. In business, growth must sustain growth, meaning resources must continue to be used in order to keep this up infinitely.  We currently use resources three times faster than they are replaced by the Earth, which is clearly unsustainable.

We understand within society and within business that we rely on ecological and environmental resources in order to survive on the planet. However, these points are often forgotten in the midst of the individual search for short-term fulfillment through economic growth and materialistic need.

How can we make a change?

Step changes generally come through technological changes and the solution to the above conundrum isn’t on the near horizon. It is imperative that the financial motive be leveraged to develop. This could be achieved by government mandated valuation of the economic “externalities” of waste, pollution, global warming like the EU attempts at placing a price upon Co2. This is obviously a supra-governmental issue and not one that an individual corporation answerable to shareholders can easily navigate.

We live in a time where economic growth is seen as far more important than the detrimental effects that the burning of fossil fuels has on the environment, as well as the eventual implication of limited resources. Another solution then would be for society to reassess what it defines as shareholder value, however, that feels unlikely as it requires even more people to agree upon something. It is the global poor who will suffer most dramatically, but who have the least say in any of the solutions.  It is deeply ironic that the method most effective to resisting climate change as an individual is ensuring that you have the money to do so

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Oil extends losses as Texas prepares to ramp up output

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Oil extends losses as Texas prepares to ramp up output 1

By Devika Krishna Kumar

NEW YORK (Reuters) – Oil prices fell for a second day on Friday, retreating further from recent highs as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather.

Brent crude futures were down 33 cents, or 0.5%, at $63.60 a barrel by 11:06 a.m. (1606 GMT) U.S. West Texas Intermediate (WTI) crude futures fell 60 cents, or 1%, to $59.92.

This week, both benchmarks had climbed to the highest in more than a year.

“Price pullback thus far appears corrective and is slight within the context of this month’s major upside price acceleration,” said Jim Ritterbusch, president of Ritterbusch and Associates.

Unusually cold weather in Texas and the Plains states curtailed up to 4 million barrels per day (bpd) of crude production and 21 billion cubic feet of natural gas, analysts estimated.

Texas refiners halted about a fifth of the nation’s oil processing amid power outages and severe cold.

Companies were expected to prepare for production restarts on Friday as electric power and water services slowly resume, sources said.

“While much of the selling relates to a gradual resumption of power in the Gulf coast region ahead of a significant temperature warmup, the magnitude of this week’s loss of supply may require further discounting given much uncertainty regarding the extent and possible duration of lost output,” Ritterbusch said.

Oil fell despite a surprise drop in U.S. crude stockpiles in the week to Feb. 12, before the big freeze. Inventories fell by 7.3 million barrels to 461.8 million barrels, their lowest since March, the Energy Information Administration reported on Thursday. [EIA/S]

The United States on Thursday said it was ready to talk to Iran about returning to a 2015 agreement that aimed to prevent Tehran from acquiring nuclear weapons. Still, analysts did not expect near-term reversal of sanctions on Iran that were imposed by the previous U.S. administration.

“This breakthrough increases the probability that we may see Iran returning to the oil market soon, although there is much to be discussed and a new deal will not be a carbon-copy of the 2015 nuclear deal,” said StoneX analyst Kevin Solomon.

(Additional reporting by Ahmad Ghaddar in London and Roslan Khasawneh in Singapore and Sonali Paul in Melbourne; Editing by Jason Neely, David Goodman and David Gregorio)

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Analysis: Carmakers wake up to new pecking order as chip crunch intensifies

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Analysis: Carmakers wake up to new pecking order as chip crunch intensifies 2

By Douglas Busvine and Christoph Steitz

BERLIN (Reuters) – The semiconductor crunch that has battered the auto sector leaves carmakers with a stark choice: pay up, stock up or risk getting stuck on the sidelines as chipmakers focus on more lucrative business elsewhere.

Car manufacturers including Volkswagen, Ford and General Motors have cut output as the chip market was swept clean by makers of consumer electronics such as smartphones – the chip industry’s preferred customers because they buy more advanced, higher-margin chips.

The semiconductor shortage – over $800 worth of silicon is packed into a modern electric vehicle – has exposed the disconnect between an auto industry spoilt by decades of just-in-time deliveries and an electronics industry supply chain it can no longer bend to its will.

“The car sector has been used to the fact that the whole supply chain is centred around cars,” said McKinsey partner Ondrej Burkacky. “What has been overlooked is that semiconductor makers actually do have an alternative.”

Automakers are responding to the shortage by lobbying governments to subsidize the construction of more chip-making capacity.

In Germany, Volkswagen has pointed the finger at suppliers, saying it gave them timely warning last April – when much global car production was idled due to the coronavirus pandemic – that it expected demand to recover strongly in the second half of the year.

That complaint by the world’s No.2 volume carmaker cuts little ice with chipmakers, who say the auto industry is both quick to cancel orders in a slump and to demand investment in new production in a recovery.

“Last year we had to furlough staff and bear the cost of carrying idle capacity,” said a source at one European semiconductor maker, who spoke on condition of anonymity.

“If the carmakers are asking us to invest in new capacity, can they please tell us who will pay for that idle capacity in the next downturn?”

LOW-TECH CUSTOMER

The auto industry spends around $40 billion a year on chips – about a tenth of the global market. By comparison, Apple spends more on chips just to make its iPhones, Mirabaud tech analyst Neil Campling reckons.

Moreover, the chips used in cars tend to be basic products such as micro controllers made under contract at older foundries – hardly the leading-edge production technology in which chipmakers would be willing to invest.

“The suppliers are saying: ‘If we continue to produce this stuff there is nowhere else for it to go. Sony isn’t going to use it for a Playstation 5 or Apple for its next iPhone’,” said Asif Anwar at Strategy Analytics.

Chipmakers were surprised by the panicked reaction of the German car industry, which persuaded Economy Minister Peter Altmaier to write a letter in January to his counterpart in Taiwan to ask its semiconductor makers to supply more chips.

No extra supplies were forthcoming, with one German industry source joking that the Americans stood a better chance of getting more chips from Taiwan because they could at least park an aircraft carrier off the coast – referring to the ability of the United States to project power in Asia.

Closer to home, a source at another European chipmaker expressed disbelief at the poor understanding at one carmaker of how it operates.

“We got a call from one auto maker that was desperate for supply. They said: Why don’t you run a night shift to increase production?” this person said.

“What they didn’t understand is that we have been running a night shift since the beginning.”

NO QUICK FIX

While Infineon, the leading supplier of chips to the global auto industry, and Robert Bosch, the top ‘Tier 1’ parts supplier, both plan to commission new chip plants this year, there is little chance of supply shortages easing soon.

Specialist chipmakers like Infineon outsource some production of automotive chips to contract manufacturers led by Taiwan Semiconductor Manufacturing Co Ltd (TSMC), but the Asian foundries are currently prioritising high-end electronics makers as they come up against capacity constraints.

Over the longer term, the relationship between chip makers and the car industry will become closer as electric vehicles are more widely adopted and features such as assisted and autonomous driving develop, requiring more advanced chips.

But, in the short term, there is no quick fix for the lack of chip supply: IHS Markit estimates that the time it takes to deliver a microcontroller has doubled to 26 weeks and shortages will only bottom out in March.

That puts the production of 1 million light vehicles at risk in the first quarter, says IHS Markit. European chip industry executives and analysts agree that supply will not catch up with demand until later in the year.

Chip shortages are having a “snowball effect” as auto makers idle some capacity to prioritize building profitable models, said Anwar at Strategy Analytics, who forecasts a drop in car production in Europe and North America of 5%-10% in 2021.

The head of Franco-Italian chipmaker STMicroelectronics, Jean-Marc Chery, forecasts capacity constraints will affect carmakers until mid-year.

“Up to the end of the second quarter, the industry will have to manage at the lean inventory level,” Chery told a recent Goldman Sachs conference.

(Douglas Busvine from Berlin and Christoph Steitz from Frankfurt; Additional reporting by Mathieu Rosemain and Gilles Gillaume in Paris; Editing by Susan Fenton)

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Aussie and sterling hit multi-year highs on recovery bets

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Aussie and sterling hit multi-year highs on recovery bets 3

By Tommy Wilkes

LONDON (Reuters) – The Australian dollar rose to near a three-year high and the British pound scaled $1.40 for the first time since 2018 on optimism about economic rebounds in the two countries and after the U.S. dollar was knocked by disappointing jobs data.

The U.S. currency had been rising in recent days as a jump in Treasury yields on the back of the so-called reflation trade drew investors. But an unexpected increase in U.S. weekly jobless claims soured the economic outlook and sent the dollar lower overnight.

On Friday it traded down 0.3% against a basket of currencies, with the dollar index at 90.309.

The Aussie rose 0.8% to $0.784, its highest since March 2018. The currency, which is closely linked to commodity prices and the outlook for global growth, has been helped by a recent rally in commodity prices.

The New Zealand dollar also gained, and was not far off a more than two-year high, while the Canadian dollar rose too.

Sterling rose to $1.4009 on Friday, an almost three-year high amid Britain’s aggressive vaccination programme.

Given the size of Britain’s vital services sector, analysts say the faster it can reopen the economy, the better for the currency. Sterling was also helped by better-than-expected purchasing managers index flash survey data for February.

The U.S. dollar has been weighed down by a string of soft labour data, even as other indicators have shown resilience, and as President Joe Biden’s pandemic relief efforts take shape, including a proposed $1.9 trillion spending package.

Despite the recent rise in U.S. yields, many analysts think they won’t climb too much higher, limiting the benefit for the dollar.

“Our view remains that the Fed will hold the line and remain very cautious about tapering asset purchases. We think it will keep communicating that tightening is very far off, which should dampen pro-dollar sentiment,” said UBS Global Wealth Management strategist Gaétan Peroux and analyst Tilmann Kolb.

ING analysts said “the rise in rates will be self-regulating, meaning the dollar need not correct too much higher”.

They see the greenback index trading down to the 90.10 to 91.05 range.

U.S. dollar

Aussie and sterling hit multi-year highs on recovery bets 4

The euro rose 0.4% to $1.2134. The single currency showed little reaction to purchasing manager index data, which showed a slowdown in business activity in February. However, factories had their busiest month in three years, buoying sentiment.

The dollar bought 105.39 yen, down 0.3% and a continued retreat from the five-month high of 106.225 reached Wednesday.

(Editing by Hugh Lawson and Pravin Char)

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