THE “green” issue is drilling down into the business community much quicker than it is making political headway. Businesses are adapting fast to the challenges of global climate change, and in many cases it is the staff and consumers who are driving the changes to encourage renewable energy and waste recycling.
Here are just three examples of how businesses are changing. Even in the opaque world of investment banking, the staff now want to know what the emissions policy is. One chief executive I spoke to last week said he was regularly e-mailed with questions ranging from “are we in a carbon- efficient building?” to the use of recycled paper.
The property industry is also at the cutting edge of change. One developer told me that when he wants to let a building, it is now standard to first show round the human resources director to check all the green boxes are ticked. Only after that will a deal proceed to the next stage.
And as my colleague Matthew Goodman explains on the opposite page, it is the consumer who is driving the supermarkets to sell “greener” goods. The result is a green race similar to that experienced with the arms race.
Companies that have not formulated a green policy will have to learn fast, and here’s the reason. It is another differentiator that can give a competitive advantage in attracting the brightest graduates.
Many of these graduates have grown up in a home environment where separating their weekly rubbish is part of family life. And now they want to ensure their future employers share similar values.
What is equally significant is that there is now a greater investment appetite to pump money into green technology. As The Sunday Times first revealed two weeks ago, Sir Richard Branson is pouring hundreds of millions of pounds into environmentally friendly investments.
Branson’s decision is based on a business, rather than a charitable rationale. He needs to find an alternative biofuel to replace conventional petroleum products. Branson says what has killed these technologies before is the fluctuating price of oil — the price comes down and they can’t compete.
However, with petrol still above $60 a barrel (and likely to stay that way), the need to find alternative fuel is imperative. Even if the oil price slipped back to $40 a barrel the green momentum would probably slow down for a bit, but it would not stop.
Part of Branson’s road-to-Damascus conversion to green came after reading The Weather Makers by Tim Flannery. He is now telling every business person to read it.
Some of the smart hedge funds such as Lansdowne Partners have already built up a spread of small investments in renewable energy. Someone will make a lot of money, although identifying the future winners is still a lottery. In most cases, the businesses lack scale and the management and the technology have not been sufficiently tested.
Exchange of ideas
MICHAEL SPENCER, the chief executive of Icap, is the City’s richest man and he is also one of the smartest. His all-British solution to merge his company, which specialises in inter-dealing broking, with the London Stock Exchange is a proposal that was taken very seriously by both sides.
Although talks to create a £6 billion exchange powerhouse have broken down, there could be calls from LSE investors to reopen them. There is a growing belief that if Nasdaq, the American exchange, does make a renewed approach to buy the LSE, it will be referred to the competition commission. Spencer’s view is that the Office of Fair Trading, which makes the referral, will have little option but to take this course. A Nasdaq takeover would reduce competition and throw up huge regulatory issues.
A competition probe could drag on for a year and do little to support the LSE share price. The full detail of the Icap proposal has yet to emerge but it would create a global giant in equities, derivatives and foreign-exchange trading.
Much of the operations of both businesses are now electronic. Clara Furse, the LSE’s chief executive, has a lot of respect for Spencer. While both individuals want to do the deal, one of the main obstacles is that they can’t identify sufficient costs to be taken out. One of the other issues is cultural, and that will require a lot of work to overcome.
Nuclear options
THIS weekend British Energy, the nuclear-power producer, will close down its Hinkley Point B station to check if it has similar cracks in its pipes to those discovered at its sister plant at Hunterston B. Such is the heat generated in these pipes that it will take at least 10 days to cool down before the inspection can start.
Last week, British Energy warned that cracks in one of its boiler tubes at Hunterston will hit this year’s output and the shares fell 67p on the week to close at 568p. Whatever the outcome it is becoming increasingly unlikely that the government will proceed with the sale of a 20% to 30% stake in British Energy until January.
The original aim was to start an international roadshow early in October. But it will be very hard for the government to proceed with this timetable. The cracks that have already been discovered will spook investors that the network needs a bigger overhaul.
The government is sitting on a huge profit from its 65% in the £3.19 billion company.
It is such a strategic asset that there will be a strong demand for its stake, but there is no need to rush when the shares are also under pressure from a fall in wholesale electricity prices.
Capital quest
The big players in hedge funds and private equity are working on ways of locking into long-term capital that can’t be redeemed early by investors.
KKR, the private-equity group, managed it when it raised a $5 billion (£2.6 billion) fund earlier this year which is now trading on Euronext’s Amsterdam exchange.
The frustration for many of these groups is that the traditional three to five-year fundraising roadshows are time-consuming. The result is there is now a stack of new funds trying to come to market to raise long-term capital.
After the near collapse of Amaranth Advisors, the hedge fund that lost $6 billion after a series of bad bets, investors should do their homework. There’s a difference between bad luck and a bad investment, and Amaranth looks increasingly like the latter.
