Sustainability is often in the eye of the beholder, and economic interests certainly have a role to play, too. We take a closer look at a few of the most popular sustainability measures:
A battery-powered car is less polluting than a car with a conventional combustion engine – but only if the electricity is not generated at a lignite-fuelled power plant. However, a real transition in the field of mobility requires not only a technological revolution, but also a change in behaviour.
The gains achieved through technological progress are often negated by increased consumption. This is known as the 'rebound effect'. Replacing all conventional vehicles with the same number of electric vehicles will also have an adverse impact on the environment, and does not solve the problem of congestion. Safe cycle paths, comfortable and affordable public transport and car-sharing systems, on the other hand, do. Another example of the rebound effect: using the electricity generated by solar panels to warm a swimming pool or to provide artificial lighting in the garden at night.
Urban agriculture, reducing food miles, local production... the 'short chain' is the latest big thing. It is, after all, a simple way of ensuring more sustainable production and consumption – but that does not make it a cure-all. For example, in short chains, the baby that is fair trade is thrown out with the bathwater.
The challenge here is to create a long chain that is socially equitable as well as environmentally sustainable. That's no easy task, but it does allow you to tick off more sustainable objectives. If farmers and traders in the south get a fair price for bananas, coffee and chocolate, and if the environmental impact of transporting those goods remains marginal, then a sustainable system has been created.
On the other hand, transporting North Sea prawns to and from Morocco just to have them peeled there is not sustainable – even if the peelers are paid a fair wage. A tip for anyone who wants to give peeling prawns a try themselves: twist the head off, remove a few scales, give the tail a pinch and voilà!
Public and social profit institutions can promote sustainability through procurement
Public procurement in Europe accounts for around 19% of GNP. This purchasing power is an often underutilised icebreaker for rendering the economy more sustainable.
Public organisations, when combined, have enormous purchasing power. They can use this to steer the entire economy onto a more sustainable course. According to Mieke Pieters, this does not happen often enough. For many years, she worked as a strategic procurement expert for the City of Ghent, and organised the Ecoprocura conference last year. These days, through The global picture, she provides training and advice on sustainable procurement policies, facility management and chain management.
Mieke Pieters: 'The government and the social profit sector are giants with feet of clay: they have enormous potential, but it is hardly ever utilised. Yet you can achieve sustainable objectives via procurement policy without having to spend extra money.'
The inclusion of sustainability criteria in public contracts is just the first step on the path to a more mature procurement policy. The next step is the development of a procurement strategy. This is a relatively easy task, provided that the organisation has a clear strategy. Mieke Pieters:
'For example, that could be: by 2020 we want to reduce our CO2 emissions by 20%. But it could also be: we want to boost the social economy. It is then down to the procurement department to translate the organisation's strategy into procurement targets.'
Real needs, well-considered specifications
A sustainable procurement policy does not begin with the question 'What do we want to buy?', but with the question 'What do we really need?'. Simply replacing 50 petrol cars in a fleet with 50 hybrid cars without a second thought is not the right approach, explains Mieke Pieters:
'First ask yourself whether the organisation actually needs 50 cars. If they are used efficiently, you might only need 25. Then, those cars can be really state-of-the-art when it comes to sustainability, and can cost a bit more. Or you can switch part of the fleet to car-sharing vehicles. Or encourage the use of electric bicycles: 80% of the impact of sustainability measures is down to thinking about what you really need. You can perform this same exercise with computers, office equipment and so on.'
With the help of well-considered specifications, public bodies and social profit institutions can also set their suppliers on the path to sustainability. These organisations have hundreds of delivery vans driving around every day with paper, meals, laundry, etc. Give the supplier with the most sustainable vehicle fleet extra points, and you have already made a little progress.
Mieke Pieters: 'The same applies to other sustainability criteria. One particular hot topic is sustainable chain management. No city wants to hear that the cobblestones for its streets were made by children, just as hospitals like their work clothing to be produced under humane working conditions.
Or take the issue of social employment. As a public authority, you can achieve some of your equal opportunity policy targets via public contracting. For example, if a new school is being built, you can insert an employment clause in your specifications. This will place an obligation on the contractor to select an agreed number of unemployed young people, train them up and give them a contract if they show promise. The professions in question are often in need of new blood, so the employer benefits too.
You could also ask a contractor to turn to the social economy for certain labour-intensive, repetitive tasks. These employees could, for example, prepare the site before the contractor's painting team arrives and then tidy up afterwards.'
These new ideas surrounding sustainability are bringing about a revolution in the world of procurement. For example, a new ISO standard on sustainable procurement (ISO 20400) is set to arrive in 2016 or 2017. CPOs (chief procurement officers) in large organisations will, with the support of their procurement teams and in consultation with the management, quickly be able to catch up. But what about procurement officers in municipalities or other smaller organisations? Here, it is best to create a team to support procurement officers, says Pieters:
'The people in that team must determine the strategy and objectives, as the procurement officer cannot do that alone. A second option is to join a larger procurement group. More and more smaller municipalities are carrying out their procurement operations together with cities, which do have well-developed procurement teams. This joining of forces makes it possible to pursue a sustainable procurement policy at the best price.'
Five quick wins
- In your specifications, give priority to suppliers with a modern, environmentally-friendly fleet.
- Switch to recyclable packaging that the supplier takes away with them.
- Purchase products with sustainability labels (FSC or PSC, Ecolabel, Max Havelaar, Fair Trade, etc.).
- Opt for environmentally-friendly paint and for painting companies that employ people from disadvantaged groups.
- Record everything you have done (energy savings, switching from several individual printers to one communal, multifunctional printer, etc.) and communicate that information, too. Without communication, there can be no sustainability, and you cannot build the necessary support for it either.
The bottom-up approach to sustainability: the comeback of the cooperative
Not all blessings are sent down from above. Citizens themselves are coming up with innovative, sustainable initiatives. How can governments respond?
Car-sharing, community-supported agriculture, co-housing, social bicycle workshops, food teams that buy collectively from farmers, communal allotments, local residents coming together and investing in a wind turbine... these are the kinds of transitional ideas that citizens themselves are starting to come up with. The guiding principle behind it all is the cooperative philosophy. Larger cities in particular are getting really experimental. A bottom-up approach then. Or is it?
'In practice, there's sometimes a bit of top-down involved, too. Many of the initiatives are actually co-launched by people working for the local government,' explains Thomas Block, sustainability and governance lecturer at the University of Ghent. 'They wear two hats. That can sometimes cause confusion. Sometimes during consultations, they no longer know whether they are there as a citizen or as an official. They may also clash with the city council or other city services. Take the example of the 'liveable streets' project, whereby residents create their own temporary car-free 'dream street' with the support of the city. What happens if a minority of residents don't want to be involved? What should governments do then, go ahead with it anyway? And what do you do if the fire service opposes the plan?'
Some citizens' initiatives quickly fizzle out; others catch on. Car-sharing systems like Cambio, for example, are popping up like mushrooms. What makes a movement successful? According to Thomas Block, there is a range of factors at play.
The role of citizens
A recurring theme in many sustainable citizens' initiatives is the cooperative philosophy: upon joining forces, people feel strong enough to approach things differently. For those behind the initiative, the social aspect is sometimes even more important than the sustainability factor. They are not always primarily concerned with saving the earth, but enjoy finding new ways of addressing problems.
The role of public authorities
It is not always clear whether and how cities or municipalities should provide support for sustainable citizens' initiatives. A financial boost is always welcome, as is the sharing of expertise. However, it is rarely a good idea for cities and municipalities to completely take over an initiative and manage it themselves. They must be bold enough to loosen the reins a little and allow people to do their thing. It is also best to resist the urge to develop a one-size-fits-all solution. Every initiative arises from a specific context, and requires a specific approach. The response must be made-to-measure.
The role of policy entrepreneurs
The term 'policy entrepreneurs' is jargon for politicians, officials or citizens who take on the role of inspired entrepreneurs. They see opportunities, make use of an extensive network, connect citizens and public authorities and work tirelessly in doing so. They also know what policy avenues need to be pursued in order to get results.
The maturity of the project
The initiative must be 'mature' enough to respond to the cracks that have appeared in large systems. Again, take the example of the mobility system, which is historically tailored for use by private car owners. The cracks in the system are well-known: fine dust, congestion and noise, and at a higher level global warming and the depletion of commodities. Car-sharing takes advantage of those cracks, and provides an attractive alternative for an increasing number of citizens. The system is self-sustaining. The local authorities make their contribution by reserving parking spaces for car-sharing in key locations, and by using the system themselves.
Thomas Block does, however, have a couple of disclaimers when it comes to this cooperative voluntarism:
- Even a successful initiative may not always be able to shake up the status quo. The powers that be include not only industry and big business, but also citizens themselves. Eating local, organic and seasonal food appeals to a portion of the population. However, many consumers still believe that strawberries and beans should be available in supermarkets all year round.
- The citizens involved in cooperative initiatives mostly belong to the white, progressive and critical middle class; i.e. they are a minority group.
Local and global power gains
In many policy areas, the authority of nation states is being eroded. The same applies to sustainability. Local authorities and global institutes are gaining power:
More power for mayors
Nation states are too large for direct democracy to function properly. In addition, according to the American political scientist Benjamin Barber, they represent an obstacle to international cooperation as they are loath to concede any authority over their territory. As a result, they prevent solutions being found for cross-border problems such as global warming.
In his book 'If Mayors Ruled the World', Barber explains how cities do have the necessary assets to address global issues. For example, Los Angeles has already reduced its CO2 emissions by 20%, whilst the US as a nation has made far less progress. Many other cities have also set themselves more ambitious CO2 reduction targets than other authorities.
Many cities are now trying to join forces with other cities to find solutions to problems, via a range of networks and organisations such as Eurocities. Barber believes this could be taken even further. He calls for the establishment of a global parliament of mayors with 300 seats rotating between the participating cities, which would meet three times a year to adopt (non-binding) proposals.
'Cities should be given more room for manoeuvre, both financially and legally,' explains Barber in an interview with the Dutch online journalism platform De Correspondent. 'Cities usually have more in common than countries do. If Germany grows, Poland becomes smaller. But if Berlin grows, that won't affect Krakow at all. I think it's much more likely that New York and Moscow will work together than Obama and Putin.'
More power for Europe and global institutes
A robust body with global powers of enforcement? The UN is not far off, but the disadvantage is that decisions lie in the hands of a small group of players. Closer to home, the European Union is wrestling with a democratic deficit that is even greater than that of nation states. However, it is precisely because of the distance between European institutions and European citizens that the EU can sometimes force through unpopular, but sustainable measures. Take the problem of fertilisers. The strategy is a familiar one: national politicians 'ask' Europe to impose stricter environmental and other standards, and then turn to their citizens and say, 'it was Europe's decision'.
The Pension Tower: 50 years old and highly economical
The South Tower in Brussels, better known as the Pension Tower, was built back in 1964. Yet today, it is one of the most energy-efficient office blocks in the country.
The South Tower (150 metres tall, 36 floors, 41,000 m² of usable surface area, 1,670 members of staff) is the tallest building in Belgium. Its outer shell – a glass facade – was renovated 20 years ago. Yet the Belgian State Pensions Service (RVP) still hoped to find room for more savings.
The facility management team, together with Veolia, which manages the technical installations, set up an Energy Team in 2008. That team conducted an energy audit, and subsequently managed to drastically reduce the building's energy bill and CO2 emissions. How did they do it?
Marc Leunens (RVP facilities manager): 'We insulated the emergency stairwell, which goes right up to the 36th floor, and we appealed to employees to turn off the lights and computers when leaving work. But the greatest difference came as a result of taking a different approach to heating and cooling. In the space of four years, it was possible to reduce electricity consumption by 29% and even reduce fuel oil consumption by 37%: consumption fell from 760,000 litres in 2009 to 443,000 litres in 2013. All in all, we were able to reduce CO2 emissions by more than 6,000 tonnes – that amounts to the average emissions quantity produced by 1,600 households.'
Office blocks are traditionally heated using fuel oil. During the transitional season in particular, the Pension Tower's three oil-fired boilers are largely redundant, says Marc Leunens:
'In spring and early autumn, it is often enough to just turn the heating on briefly in the morning and leave it off for the rest of the day. That's why we installed two additional heating sources. The first is a cogeneration installation. The engine is gas-driven, and produces both electricity and heat. We use the two of those in parallel as much as possible. The electricity goes to the servers in our data room, as they have to be running constantly. Then we use the heat for heating the building during the transitional season. An extra advantage is that we received green electricity certificates for the cogeneration installation.
A second new source of energy is our two heat pumps. They run on green electricity. One of them is a high-temperature water pump: the first of its kind in a European office block. Thanks to these new systems, we can wait a lot longer before starting up our oil-fired boilers.'
An ongoing quest
The Energy Team is continuing its quest for energy savings. But their task is becoming more difficult, admits Marc Leunens:
'We are looking into installing small-scale wind turbines on the roof. Our tower is one of the five most suitable locations in Brussels for such a project. We are also conducting a small study into LED lighting. The problem is that we already fitted our lights with energy-saving light bulbs 15 years ago. If we now replace all of those with LED lights, we will either end up producing too much light, or we will have to reduce the number of light fittings. But then we would also have to adjust the ceilings. That could get very expensive, especially in combination with the costly LED lights.
In any case, the quest continues. We would really like to hold on to the EMAS certificate that we received in 2008. EMAS stands for 'Eco-Management and Audit Scheme', which is a European management instrument for organisations that are constantly striving to improve their environmental performance.'
Energy performance contracts: a trick for tenants
Tenants are the ones who pay energy bills. So why would landlords or external installation managers want to invest in more efficient systems? It costs them money and they get nothing in return. A good trick for tenants? Energy performance contracts. Marc Leunens explains:
'You take a reference year for consumption, with adjustments for very cold and very warm days. We have a weather station on the roof for that purpose, but you can also get this information from the Belgian Royal Meteorological Institute. If we use less energy than the reference year in order to reach the agreed optimum temperature, our bill is cheaper. We share the profit from that with our service provider. If we use more, for example due to less adequate control of the system, the service provider pays us back the difference. This kind of bonus-malus system gives the provider a financial incentive to help ensure the building is run as economically as possible.'
Factoring: A success story
Factoring is on the rise: last year this market reached a total turnover of 61.2 billion euros, resulting in an impressive growth of as much as 10.5%. BNP Paribas Fortis' market share rose slightly from 38.4% to 38.6%.
Ignace De Keyser, Sales & Marketing Director at BNP Paribas Fortis Factor, explains the increasing success of factoring.
How is the Belgian factoring market developing? Do you see any marked trends?
‘The growth figures speak for themselves: factoring is clearly becoming more important. Factoring used to be more of a support mechanism, but today it is a mainstream solution easily competing with banking solutions. This obviously has to do with the liquidity crisis and the successive measures.
Factoring is not entirely comparable with a banking solution, of course. Factoring offers companies more than just flexible financing. The factoring range also includes credit management and hedging, although these services have receded into the background somewhat in recent years. Factoring owes much of its popularity to the financing aspect.
The lingering economic uncertainty, the search for new markets and the realisation that 'too big to fail' is really an illusion are forcing companies to protect their low margins. More and more entrepreneurs are adding this element to their factoring solution.
Credit management outsourcing is also on the rise again. Many larger companies had already professionalised this area, but are now outsourcing all non-core business as much as they can.
BNP Paribas Fortis Factor has always held this service close to its heart. Our customers can therefore rely on a specialised team that guarantees continuous follow-up both here and abroad.’
What are the reasons for this change of attitude?
‘There are two main reasons for it. First and foremost, our services and operating methods have changed radically in the last few years. That is largely due to the development of new communication technology. Some years ago, all communication was still by mail or fax, bills had to be processed and entered in the system manually, and reporting was also done manually. In brief, it was a time-consuming process with more potential for mistakes.
Nowadays the vast majority of our customers transfer all their data electronically, directly from their accounting program. As a result, the entire process – from the customer drawing up bills to receipt of the funds – takes two days at most, depending on the quality of the file sent to us. And there is much less risk of mistakes. Thanks to these innovations, factoring is now much quicker and more straightforward than before, which has also meant a reduction in the cost for our customers.
Secondly, there has been a major change in the target group and the use of factoring. In the past, banks suggested factoring to customers that had become too risky to finance using conventional loans. In other words, it was a last-ditch form of short-term funding that provided the bank with much greater protection in the event of the customer going bankrupt. Consequently, some companies were more or less forced to use factoring and were not overly pleased with it. Add to that the administrative switch and it's easy to see why factoring got a bad reputation. The most oft quoted argument against factoring was fear of what customers would think.
The turnaround came some years ago with the introduction of the new Basel II standards, whereby banks were required to maintain a capital buffer to cover their risky activities. The buffer for factoring was significantly lower than for conventional loans, making factoring a more attractive option for banks. As a result, they started to offer factoring to customers with a good credit rating, who in turn began to see its potential.
On the back of these two changes, an increasing number of companies are using factoring to boost their working capital, and for a longer period. Twenty years ago a customer would be with us for an average of two to three years, but that has since doubled.’
Will Basel III intensify this trend?
‘There can be no two ways about it. Basel III has made banks subject to even stricter capital requirements, which can only make factoring a more attractive option. What is more, the new standards focus much more on liquidity. In this connection, the operational relationship between the bank and the customer plays an important role: if a company entrusts its cash flows to a bank, it can regard the risk of loss of liquidity as low and maintain a lower liquidity buffer. In this respect, too, factoring hits the mark.’
So what makes factoring such an attractive option for companies?
‘A financially sound company can benefit by outsourcing the administration of its accounts receivable to us. While we monitor the receivables, the customer can focus entirely on business. And in the vast majority of cases, we are able to collect amounts due 25% more quickly than the customer. Thanks to our experience – we know all of the most commonly used excuses – and reputation, we can encourage debtors to honour their payment terms. After all, no-one wants a financial partner to think that they are an unreliable payer.
More importantly still, factoring is a more flexible form of funding than conventional bank loans. That is because funding develops in line with turnover: if turnover increases, the company issues more invoices, and funding rises too. Factoring is therefore a very attractive option for developing companies.
The "off-balance-sheet" aspect of factoring is another deciding factor. This not only improves the company’s balance ratios, but also has a positive impact on the cost and availability of the company's other credit facilities.’
Is this typically a product used to cope with a crisis?
‘No, definitely not. Factoring is especially popular when economic conditions are volatile, which means periods of crisis and of growth. In such circumstances, it is essential for companies to be able to convert their receivables to cash quickly. This is less important when the economy is stable or less volatile.
That is why the factoring market expanded so considerably in 2009-10, when the financial and economic crisis was at its worst. Because debtors were taking longer to pay, many companies had to contend with cash-flow problems. Quicker collection of bills can go a long way towards reducing that pressure. That is particularly so if you combine quicker collection with a package that includes cover against the non-payment risk and debtor default.
However, factoring is also an attractive option when the economy is improving. If companies receive more orders and turnover increases, there can be cash-flow problems because their working capital need is higher. So factoring is a highly flexible means of funding the working capital requirement based on increasing receivables.
It is not therefore a product just for times of crisis; it can be beneficial for any company. And the best way to prove the effect of factoring is simply to try it out.’