As the recession hits bottom lines, will profits take precedence over green initiatives or will businesses give carbon regulations the support they need? Teresa Hitchcock reports

How are businesses reacting to the downturn in economic activity? Will they be tempted to 'green-wash' through the recession, will they genuinely try to make sense of the 'green is good for business' argument, or will they simply not bother to do either?

Despite the negative impact of recessions, it is often said that they have beneficial effects in forcing economies and businesses to restructure themselves to meet new challenges and new opportunities. This restructuring provides the necessary basis for a future upturn.

Recessions, therefore, have a silver lining for businesses prepared to adapt to meet those challenges and opportunities, though the future is bleak for those who do not adapt.

This point of view may be relevant in considering the challenges and opportunities posed by climate change.

The climate change agenda presents opportunities for business growth. Consider the potential market deriving from carbon capture and storage (CCS) proposals. An announcement by the UK Government that all new coal plants must be fitted with the green technology to make carbon capture and storage possible opens the door for international project management and engineering services, legal and environmental consultancies. In 2007-08 the UK's share of the international market for CCS was £468m as published in a recent report for the Department for Business Enterprise and Regulatory Reform (BERR). If we consider that the market as a whole is worth around £13bn, we can see the potential for growth.

Other parts of the environmental industries sector will profit from the introduction of green technological solutions in wind, water, solar and biomass. If we are to succeed in bringing about a true low-carbon economy then this sector must receive the support and investment it needs.

The global market of the sector is in excess of £3,046bn (2007-08 figures) and the UK has 3.5% global market share. We fall behind the US, China, Japan, India and Germany, but have the potential, with the right degree of encouragement, to increase this share substantially.

The public sector will also have a part to play and this will invariably be led by government policy. Take the recent change in the funding rules governing public transport schemes initiated by the Department for Transport (DfT). The NATA (New Approach to Transport Appraisal) scheme, that has prevailed over the last 10 years and provides advice, software and data products to the DfT (which shares this with those organisations developing business cases to attract government funding) has often been criticised for being biased towards road schemes. This bias is well evidenced against those schemes that are structured to reduce car use. These schemes invariably produce a negative cost-to-benefit ratio as the reduction in car numbers results in a corresponding reduction in fuel duty payable to the Treasury.

Under the changed funding rules, indirect tax considerations will be removed from the funding application appraisal, and other criteria will be introduced into the assessment that promote health – such as walking and cycling – and reduced air pollution. Inevitably this means that greener transport should fare better under the new procedure, kick-starting new initiatives.

Universities, colleges and other organisations that have pioneering research and development skills also look set to benefit from new technological advances. Tackling climate change will require innovative and creative answers not only in developing workable solutions but also in weeding out those projects that offer no lasting or sustainable option.

Geo-engineering has recently been considered by the House of Commons Innovation, Universities Science and Skills Committee in its report Engineering: Turning Ideas into Reality.

The term 'geo-engineering' is best described by reference to the creation of massive sun shields to redirect earth rays back into space, injecting aerosols into space, or manufacturing artificial trees to absorb carbon dioxide from the atmosphere. These are alternatives to climate change mitigation and adaptation, two concepts readily accepted as being part of our future policy infrastructure.

Both the Department of the Environment and the Department of Energy and Climate Change accept that these ideas need further research, but both appear reluctant to sink significant funds into their development. If government policy and funding proposals are not prepared to reach into these areas, then the initiative will have to come, if it is to develop at all, from the private sector. This may have the effect of stimulating further private sector investment and thereby promote innovative technology. Otherwise, investment may be stifled because the risk of failure is too great.

This dilemma is the centre of the debate concerning the reaction of businesses to slow economic conditions and the pursuit of a low carbon strategy in such a climate.
If an organisation remains risk-averse throughout the downturn then it will be extremely difficult for it to rise to the challenge of taking a chance on untested technologies. It will take a certain risk appetite to deliver on green business, even in the environmental industries sector. Indeed this concept may well have wider application. The fear is that without a government commitment to a strong policy that deals with a low-carbon infrastructure in major investment strategies then we may well commit the future economy to a high-carbon, resource-intensive path that undermines everything that has been achieved.

To survive and thrive, however, businesses will need to respond to the signals coming from Government.

Carbon reduction commitment

The Carbon Reduction Commitment (CRC) provides a particularly good example of the challenges and opportunities facing businesses in relation to climate change. This new emissions trading scheme covering energy use by larger business and public sector organisations, which will come into operation on 1 April, 2010, is a key instrument in ensuring that the Government meets its targets for reductions in emissions of greenhouse gasses under the Climate Change Act.

Organisations included in the scheme will need to monitor their non-transport related energy consumption on an annual basis, and purchase allowances for surrender under the scheme to match that consumption. After an introductory phase, the allowances available will be capped to force down consumption. The revenue obtained by the sale of allowances under the scheme, which will be auctioned after the introductory phase, will be recycled to participants on the basis of their performance.

Accordingly, the CRC will impose significant cost burdens on organisations that fail to adapt and reduce their energy consumption. However, those that meet the challenge will benefit significantly from the incentive payments they will receive, the reduced need to buy allowances and the reduction in their energy costs as a result of energy saving.

A survey commissioned for the Prince of Wales' third May Day Climate Change Summit this year, unfortunately, revealed that 71% of British senior management were unaware of the potential impact of the CRC on their business. Time is clearly running out for them to get ready for the commencement of the scheme.

There is a broader issue of whether the aspiration of economic growth can ever exist easily side by side with a green future. The Government's own think tank on this subject, the Sustainable Development Commission, has in its recent report suggested that economic growth must now end. If economic growth has previously been viewed as the saviour of our society, and the wellbeing and general happiness of that society, then it must now be seen as the destroyer of our way of life in the most basic sense.

It is well-established that we, as a human race, cannot exist without nature, but we have now reached a pivotal point where nature will not survive without our human intervention. And so begins the vicious circle. If a developing economy has the effect of producing a drastic decline in our natural environment then irrespective of our wealth, status and comfort, we will not have longevity as a species.

I am not sure that I would agree with the Sustainable Development Commission's approach, which is unlikely to find favour outside the rich countries of the developed West. I would, I think, prefer to say that economic growth must be in green terms. Let us not stifle the potential for change, the potential for a greener way of doing business. Rather, let us have the political will, the infrastructure in place and support for both the public and private sector to prosper but in a way that maximises both the creation of a low-carbon economy and living above the poverty line.

We are an ingenious species. Joined-up global thinking cannot be beyond our comprehension and achievement. Yes, there will be compromises along the way, but better an imperfect strategy that achieves something than nothing at all.

It is also clear to me that the climate change agenda is more, not less, relevant to businesses in a time of recession. Businesses that adapt to the challenge will survive and prosper as the businesses of the future. Those that do not adapt are more likely to become the victims of the recession than the agenda itself.

Teresa Hitchcock is UK head of safety, health and environment at DLA Piper.