The conundrum of going green that Malaysian companies face

Updated 10 Nov 2017 – By Caitlyn Ng


The recent flash floods and minor landslides in Penang show the distinct effects of places getting urbanised too rapidly. Some of the more serious issues which take a huge toll on both the human population and cash reserves of countries include natural disasters.

According to the United Nations Office for the Coordination of Humanitarian Affairs (OCHA), “2.4bil people were affected by climate-related catastrophes in the last decade, compared to 1.7bil in the previous decade. The cost of responding to such disasters has risen tenfold between 1992 and 2008.”

Green technology seems to be the way forward to mitigate or reverse the effects of human activity on the environment. For the uninitiated, green technology encompasses a continuously evolving group of methods and materials, from techniques for generating energy to non-toxic cleaning products.

Wouldn’t it thus make sense for Malaysian companies to emulate multinational giants in their efforts to utilise green technology, such as that of General Electric, McDonald’s and Apple Inc? However, there are a few questions that need to be addressed first: What are the advantages and disadvantages of going green? Is it worth the efforts to go green? Let’s take a closer look.

Advantages

1) Cost saving in the long run: The reduction of unnecessary waste is not only the first step towards becoming environmentally friendly, but will be able to improve the overall efficiency of the company. There are some practices which can be used as examples, one of which simple enough: turning off all lights, air-conditioning and non-vital electronic equipment in vacant offices. This will not only save energy, but save on utility costs and increase the company’s bottom line.

Real world example: McDonald’s partnered up with the EDF (Environmental Defense Fund) to reduce its packaging and waste. In the 90s, over the next decade, EDF has successfully helped McDonald’s to save an estimated USD6mil (approximately RM25mil) per year. This was done through various initiatives such as eliminating more than 136mil kgs of packaging, recycling 1mil tonnes of corrugated boxes and reducing restaurant waste by 30%.

2) Positive brand image: Any publicity is good publicity right? Why not appear in the press for positive reasons then, such as a company that is making the effort to become environmentally friendly? Steps can be as simple as using recycled products, or on a larger-scale such as changing manufacturing processes to ones that are safer for the environment. By making the company’s efforts to go green a part of the annual marketing campaign, it can play a key role in building a positive brand image in the eyes of the consumers.

Real world example: General Electric (GE) launched ‘Ecomagination’ in 2005, their business strategy to “deliver clean technology solutions that drive positive economic and environmental outcomes for their customers and the world”. Since then, they have invested a total of USD20bil (approximately RM84bil) in cleaner technology solutions which has seen them receiving returns of USD270bil (approximately RM1.1tril) in revenues.

3) Tax reductions: Here’s another reason to go green: companies can enhance their bottom lines with governments all over the world introducing incentives for companies to go green in the form of tax reductions. Malaysia is no different, with our government launching the National Green Technology Policy in 2009. In Budget 2014, there were further incentives announced, “in the form of investment tax allowance for the purchase of green technology assets and income tax exemption for the use of green technology services and system”.

Example of a calculation: The qualifying capital investment by Company ABC in Malaysia for their usage of Renewable Energy (RE) is RM100,000. However, thanks to their cumulative capital allowance tax savings of RM25,000 as well as their investment tax allowance savings of RM25,000, Company ABC’s total tax (fiscal) savings is RM50,000. As such, their net investment is only RM50,000 as can be seen in the comprehensive calculations here.

Disadvantages

1) High initial cost: The initial costs that are involved when a company decides to go green can be costly due to the novelty of green technology within the company. For example, a switch from conventional electricity to solar power will create the need to install solar panels at the company’s facilities. Since an investment in green technology might strain one’s budget, small companies might not be able to take this step, or are those who are willing to take out an interest-bearing loan.

As can be seen in the example of General Electric, they had to spend a total of USD20bil (approximately RM84bil) before they could receive returns of USD270bil (approximately RM1.1tril) in revenues.

2) Time and effort required: There is a saying that good things don’t come easy, and what could be truer than a company that has to change the lifestyle of its employees in keeping with the decision to go green. It’s easier for people to toss every manner of trash into one bin; it’s another story to sort the trash according to their type (paper, plastic, metal, etc).

Then there is the purchasing department which is required to source and verify the green status of products and suppliers instead of purchasing the cheapest goods and services available.

3) Difficulties meeting expectations: It takes an extended period of time – a few years if all goes well – to create a positive brand image and build credibility of their efforts to go green. A company that announces its intentions will thus create performance expectations in the minds of consumers, and any false claims regarding the environmental friendliness of their products and/or services (a process known as ‘greenwashing’) will create a backlash which can be so severe they never fully recover from it.

Case in point, Volkswagen Group’s massive mess-up in September 2015, which caused the carmaker’s shares to fall by about a third during the scandal. VW pushed into the US diesel car market, using a huge marketing campaign proclaiming its automobiles’ low carbon dioxide emissions. As it turns out, they were cheating on the emissions tests in the USA by fitting the engines with a ‘defeat device’, which is essentially a piece of software that could detect when it was being tested and change the performance accordingly to improve results.

Success story

If you still think that going green isn’t worthwhile, let’s take a look at the greenest tech company in the world, according to Greenpeace.

Apple Inc took its first baby steps in 2009 to go green, and made a pledge alongside other big brand names (think: Google and Facebook) in 2012 to transition to 100% renewable energy. Fast forward to today and you have a company that has been deemed the ‘most environmentally friendly of the major tech companies in the world’ for the third year in a row.

Apple’s new headquarters, once completed, will run completely on renewable energy thanks in part to its estimated 700,000 sq ft of solar panels. In Greenpeace’s report, Apple is leading the sector in matching their growth with an equivalent or larger supply of renewable energy. In addition, the company is building 200 megawatts of solar projects in China in order to reduce its carbon footprint in China.

To conclude

Climate change is one of the greatest issues that the world currently faces, and while not many companies worldwide can afford the massive ‘going green practices’ due to the immense cost, there is still plenty which Malaysian companies can do to play a part (however small) in sustaining the world’s resources for future generations.

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