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Three steps to greener power

A benchmarking study into the environmental performance of Siemens, GE, Alstom and ABB highlights three key actions the power sector can take to meet rising green concern and regulation while staying profitable, argues Dr David Vasak.

Overall performance in three areas for assessment

Overall performance in three areas for assessment
PA's assessment examined three areas: strategy and organisation, product portfolio, and transparency and operational performance. We scored each area separately, and then added the scores together to give a total score out of 100 for each company, allowing us to compare their overall performance.

Industries such as manufacturing, engineering, automotive and consumer goods have long been large emitters of pollutants and intensive users of energy. As a result, they face significant consumer pressure to improve their environmental performance and reduce the impact of products they sell. They are also subject to increasingly stringent and specific regulatory requirements across their operations and these regulations apply wherever companies work in the world.

Strategy and organisation

Strategy and organisation
PA examined each company's published statements and assessed how clear its sustainability strategy is, and how well green approaches are integrated into its operations and supply chain.

PA Consulting's recent benchmarking study of the environmental performance of a sample of leading electrical engineering companies – Siemens, GE, Alstom, and ABB – examined three areas: strategy and organisation, product portfolio, and transparency and operational performance. One thing is clear: that there are clear practical steps the sector can take to meet these requirements and to operate in greener and more profitable ways.

The case for greener power

It is clear that electrical engineering companies have a huge opportunity to meet consumer and regulatory pressure to improve their environmental performance and to develop the products that help us all reduce our impact on the environment.

New energy sources are conquering the sector. The original equipment manufacturers (OEM) are facing the challenge of developing new technologies for green energy for which the markets are largely determined by volatile government strategies and subsidies.

In parallel, their R&D investments also address the huge potential of conventional technologies to contribute to environment protection. An increase in the efficiency of a large turbine or generator will reduce greenhouse gas emissions by hundreds or even thousands of tonnes over the lifetime of that product. A similar impact results from cutting losses in transformers or transmission lines or raising the efficiency of drives. This is obvious, and every environmental group would agree to what is written in many corporate glossy brochures on sustainability. Have the OEMs also signed up to the planet's well-being?

In fact, profitability rather than saving the planet is the primary objective for the management of any private enterprise or corporation, including the OEMs in the electric power sector.

Nonetheless, the green performance of production and product operations is rising up their corporate agenda. And there are good reasons for that.

PA's benchmarking study of the green performance of leading industrial companies found that companies are increasingly undertaking a full-scale life-cycle analysis of the environmental impact of their products.

The companies reviewed in the study are paying more attention to making their businesses greener. Siemens emerged as greenest company in the study and has improved its performance between early 2011 and the middle of 2012. This reflects a very clear commitment from its chief executive, Peter Löscher, to focus on green business. In particular, Siemens has continued to develop a full-scale life-cycle analysis of its products that now covers 88 per cent of its total portfolio. The company also maintained its leading position in Carbon Disclosure Project Report Global 500.

Companies like ABB, GE and Alstom are now following Siemens, and applying full-scale life-cycle analysis of environmental impact to a significant percentage of their products. ABB and Alstom are gaining momentum in the attention they give to green performance and are improving their profile by introducing eco-friendly products to their portfolio and making progress in transparency and coverage of certifications.

Although performance is variable and there is more to be done, this approach means some of the companies in the benchmarking survey have been able to reduce annual carbon dioxide (CO2) emissions by up to 9 tonnes of CO2 for every €1000 ($1300) of green products sold.

This kind of activity and focus on operating in greener ways obviously brings advantages in reputational terms but also has a clear beneficial impact on profitability.

'Greening' production processes (manufacturing, supply chain and logistics) can reduce energy consumption and so cut operating costs as well as greenhouse gas emissions (which can in turn reduce the cost of carbon certificates).

Equally, designing products and processes that use less (hazardous) material and diminish emissions of volatile organic compounds (VOCs) reduces material expenditures and environmental costs such as cleaning, filtering and disposal.

All these approaches can then be applied to suppliers to leverage the benefits across the supply chain and logistics, decreasing the cost of materials and parts.

These greener products and ways of operating will also enable companies to comply with regulations and so qualify for public tenders, opening up larger markets and sales volumes. Lower costs will appeal to all customers and companies with a strong reputation in these areas are more likely to attract investors.

Key steps to greener business

So how do companies achieve these green ambitions? PA's benchmarking study identified three key practical steps companies can take to become greener businesses.

Transparency and operational performance

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Using the Carbon Disclosure Project Global 500 Index report, PA measured the transparency of information the companies provide to the public.

The essential first step is to take a top-down strategic approach to corporate sustainability.This means ensuring the visible commitment of senior management through a comprehensive and consistent sustainability strategy. This needs to be embedded in an organisation with clearly assigned roles and responsibilities underpinned by corporate targets that are reflected in middle management objectives.

In most cases, this will require companies to create a management role focused on environmental performance. Simply adding to the management team's existing responsibilities creates a danger that green issues will be neglected for the more pressing needs of the day-to-day business.

Ensuring transparency on performance and guiding corrective actions is the second key step. You need a performance scorecard and underlying process and systems to collect hard data on energy consumption, greenhouse gas emissions and other key sustainability indicators.

Performance on product portfolio

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Companies' contributions to global environmental efforts were assessed and their green products were analysed.

These KPI metrics can then be used to monitor the progress of improvements at appropriate levels in the organisation.

The third step is to look outside the company and consider the environmental impact of products across the whole life-cycle. It is clear that successful companies today must not only make great products but also minimise the resources that the products consume in use, and ensure that they are recyclable and eco-friendly.

The monitoring and reporting system should be able to consistently communicate data such as efficiency, carbon emission savings and life-cycle cost on products under standard operating conditions and outline trends to key internal and external stakeholders.

By adopting these three key actions, electrical engineering companies will be able both to meet the expectations of consumers and regulators and to deliver real improvements to their profitability.

Dr David Vasak is a greening business expert at PA Consulting Group. For more information, visit www.paconsulting.com/greeningbusiness

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