Date: 2024-12-26 Page is: DBtxt003.php txt00006683
Sustainability
Ikea
IKEA's Aggressive Approach To Sustainability Creates Enormous Business Opportunities
Burgess COMMENTARY
Peter Burgess
IKEA's Aggressive Approach To Sustainability Creates Enormous Business Opportunities
IKEA released its 2013 Sustainability Report this week, and the results in the energy arena are pretty impressive. The company continues to follow through on its commitment to develop and own renewable electricity supplies, with a 2020 goal of producing more energy than it uses. IKEA has numerous other sustainability-related goals, and is expanding its offerings to customers as well.
I spoke on the phone with Chief Sustainability Officer Steve Howard to discuss IKEA’s aims, its overall approach to the issue of sustainability, and what the future may hold. One thing that was clear from the outset: IKEA is committed to ‘future proofing’ its company, and is proactively anticipating many of the challenges to be faced in the coming years.
Howard commented that values are critical to the entire endeavor.
If you start with a values-driven point of view, you can make a business case. Climate change and energy security mean you have to have a radical approach. We need a six, seven, or eight-fold decrease in carbon intensity. That’s not business as usual. Energy efficiency only gets you so far. You have to decouple your business from carbon. Then you have to look at what’s commercially scalable.
He notes that there is a solid financial argument to be made for their renewable energy investments.
There has to be a rational business decision with a decent payback. Any business with access to capital has a choice of where to invest. Of course, you can invest in growth of business, and we do that, but we also look at what delivers long-term energy security, a macro hedge on energy price rises and addresses carbon. IKEA also has a long-term business philosophy, where we own most of our stores, our factories, and the land they are built on. We have the capital, so why would we rent? It’s the same with energy – if we can own our own energy production why would we not want to do it?
Image: www.stratasolar.com Dan Bigman ... Forbes Staff
As a consequence, IKEA owns as many renewable energy resources as some energy companies, with 157 wind turbines (96 of which are already operational), with a capacity rating of 345 megawatts. The company has also installed 550,000 solar panels, totaling 90 MW.
In the U.S., IKEA’s numbers are also pretty formidable, with an investment of $150 million in PV systems, making IKEA the second largest private commercial solar owner. Currently, 39 of their 44 locations are served by solar arrays, with four more installations planned in 2014 (including one on a new store). When completed, the combined capacity of IKEA’s solar portfolio will total 38 megawatts. The company is also working on a geothermal system to heat and cool a soon-to-be-constructed store near Kansas City.
I asked Howard about how IKEA thinks about risk in making this type of investment. After all, IKEA makes furniture and consumer goods. It’s not an energy company.
We think it’s a good long-term investment. If you take wind or solar, of course there is a degree of risk, as there is in anything, but you can manage the risks. Where else can you invest capital with huge co-benefits and a good return with managable risks? We just need good long-term investments.All of this makes for good press. It also makes good business sense, as the company is largely isolating itself from the volatilities of electric power markets – the most unpredictable markets on the planet. Essentially, IKEA is building out a long-term ‘green’ hedge, which –among other benefits – will allow them to much more accurately forecast future energy operating costs.
The company also realizes that the cheapest energy is that which is saved through low-cost efficiency measures. IKEA reports having saved $54 million in warehouse energy efficiency programs since 2010. These savings have resulted from a combination of lighting, HVAC, new energy management systems, upgraded boilers, and geothermal.
Howard’s approach to this area is noteworthy. In his view, there are always new opportunities.
I think that the advantage of new technology is that the low-hanging fruit grows back. Efficiency investments that weren’t commercially viable then become feasible…It’s the same with renewables. We’ve been on a learning curve with renewable energy investments. Solar PV is also progressing nicely on the cost curve, so we can go back to existing locations and find applications that weren’t cost effective before. Rooftops are easy, but when panels and associated kit drop in price, then you can go to car-park solar opportunities that now become cost-effective.How did this laser focus on sustainability come about? It started with a commitment to culture and planning.
We have a nine person management team for IKEA group. If you could see the passion, engagement and energy in the room, you would say ‘wow.’ We have a totally engaged management team. We have a strategic landscape with sustainability as a visible cornerstone. Then we have 11 guiding group strategies, of which one is sustainability, which runs like a green thread through the others. We’ve been working with all competencies in the organization so that everybody understands what that means.Howard is pretty clear that there is both a threat and an opportunity here.
Look, we have 3 billion people over the poverty line, coming in less than 20 years, who will have middle class living standards. We’ve got emissions that have to peak by 2020, and then we need a rapid decline in order to stabilize the climate. And we are building cities like never before. We have resource scarcity and climate change. So you have to say ‘this has to be a transformative agenda.’ Sustainability used to be a ‘nice to do,’ like planting trees, or doing incrementally less bad. It’s about a mindset. If you’re trying to reduce impacts here and there, that won’t do –it’s when you go all in that matters.Going all in means committing to change, and looking at incrementalism as a mediocre approach.
Saying we are going to reduce CO2 emission by 10% over 5 years is one thing, but saying we are going to 100% LEDs creates real change. At one point, we were ready to make slightly better CFLs and halogen lights but instead invested all our money in fantastic LEDs. By transformation targets you make change. When you go for aggressive transformation, it creates all kinds of fantastic new opportunities from a business point of view. We have to make the commitments and then invest behind them.He notes that the same philosophy that drives IKEA to invest in optimizing its own energy use applies to its customers as well, and cites lighting as an example. On the customer side, IKEA moved 22.4 million LED products, including 12.3 million LED bulbs. Earlier this year, IKEA was selling the 40 watt equivalent in the U.S. for under $4.
We now have fantastic LEDs, yet the world still sells 6 billion incandescent bulbs, which is a disservice to everyone who buys them. We already have 300 products today that help customers save resources, from LEDs to water efficient taps. We need to systematically help customers see and buy these products. If we don’t do that, who’s likely to do it? Sustainability has to be made affordable for everybody. There’s no space for green premiums.So IKEA is radically transforming how it thinks about and uses resources, and then applying those lessons to make products for its consumers. Howard ended our conversation with both optimism and a sense of visceral urgency, and a challenge.
I’m convinced we are in the middle of this clean revolution right now, but I’m also not convinced we are doing it fast enough. All the challenges are solvable with the solutions we have today, but we don’t have the right leadership, policies and priorities in place. Most political and business leaders are in a state of denial. Sustainability will be a decisive factor in terms of which business will be here in 30 years time. It’s also the future of business.