The government is cranking up the pressure to slash carbon emissions, but how are directors of growing businesses to respond? Nick Paget-Brown takes the chair at a roundtable of directors and advisers and finds some businesses more willing to help than others

The panel

• Nick Paget-Brown, Editor, UK Environment News and founder of Pelham Research
• Chris Dodson, chairman, Torftech Group, engineering firm producing process reactor technologies
• Dr Sally Uren, director of business programme, Forum for the Future, sustainability organisation
• Brian Rickerby, Joint managing director of energyTEAM, B2B energy consultancy
• Lindsey Parnell, European CEO, Interface, flooring manufacture and design
• Peter Hambly, director of communications and marketing, the Carbon Trust
• Richard Ellis, Chairman, EEDA, the east's regional development agency
• Patrick King, Principal, MacIntytre Hudson LLP, accountancy firm
• Stuart Thomas Thomas Dunn, search and selection (and also a carbon-neutral company

Are companies aware of the policy shifts aimed at tackling climate change and what these might mean for them?

Chris Dodson: There is a very limited awareness.
Sally Uren: Most of the large FTSE companies are aware of policy shifts, but many smaller companies have yet to fully understand the implications of initiatives such as the Climate Change Bill. Many of those likely to be affected by the Carbon Reduction Commitment (CRC) are still blissfully ignorant.
Peter Hambly: We have a free business advice line that has received a surge of calls from smaller suppliers who have been asked to measure and cut their carbon footprint by the larger companies they supply. This issue is now racing up the agenda.
Brian Rickerby: But there is a lack of detailed knowledge on measures such as the Energy Performance of Buildings directive, even though this will have a significant impact on businesses. Energy Performance Certificates will be needed when a property is sold or leased, and regular boiler and air-conditioning system checks will be required. Climate change agreements are well understood by companies that have them as an alternative to paying the Climate Change Levy, and seriously intensive energy-users are already likely to be participating in the European Emissions Trading Scheme (EU ETS). The next policy instrument to affect businesses spending more than £500,000 a year on energy  will be the CRC, which does not take effect until 2010.
Lindsey Parnell: I think business leaders are becoming increasingly aware of the shift toward more environmentally aware ways of working. Thirteen years ago we embarked on a policy aimed at achieving a zero environmental footprint by 2020 and people thought we were crazy. Climate change is now much further up the policy agenda.
Peter Hambly: The UK is fast emerging as a front runner and there will be a competitive edge for those companies that take the lead. Knowledge among companies is variable, and tends to be lower where energy has not been an important factor in decision-making in the past. But the growing importance of carbon emission reductions to companies, their investors and consumers, means that they are gearing up to respond to policy shifts much more rapidly than in the past.

Are small businesses being too reactive?

Peter Hambly: A recent study by the Carbon Trust found that almost half of those surveyed either disagreed, or strongly disagreed, with the view that they would wait to take action until forced to do so. This shows that many businesses are prepared to act without waiting for legislation. A key challenge for us is to help companies to navigate these requirements and improve their efficiency. There are real opportunities created by the transition to a low-carbon economy, but those who do not make the change could see their costs escalate while they lose out on new market opportunities for low-carbon goods and services.
Lindsey Parnell: The government must set realistic time-frames and businesses should try to set their own targets rather than waiting for legislation. Last-minute compliance can be very costly.
Richard Ellis: The challenge for small and medium-sized enterprises (SMEs) is that they are less able to access information on the issues raised by climate change. Smaller businesses are struggling to know where to go for advice and there is confusion about the choice of services that are available. Regional Development Agencies are working to rectify this by developing a more cohesive support structure for SMEs.
Patrick King: There is a growing consensus at SME level that the awareness of environmental policies and their possible effect on businesses is relatively low. This will increase, when and if the effect of the policy changes begins to have a financial effect.
Stuart Thomas: Despite the media noise about global warming, where does a business get a one-page "official version" of what it has to do to tackle climate change? There is little real expertise around and a danger of the blind leading the blind.

Is too much or too little onus being placed on business to address climate change?

Richard Ellis: Many businesses are ahead of the game on mitigation. Last December's launch of the Code for Sustainable Homes [was a] step-change in sustainable building practices. The Offsite 2007 exhibition, the Big Build, showed that innovation and intelligent buildings can meet needs while protecting the environment. But it's essential that the government implements a long-term framework for providing clear advice and finance options for small businesses.
Chris Dodson: As far as SMEs go, there is no discernible requirement of which we are aware. But in our work there is direct involvement with mitigation to cut industrial energy consumption and to create energy from renewable sources or wastes. Legislation aimed at leased buildings to ban tungsten lighting, and eventually LEDs, should be a priority. Regular energy audits of buildings and of process plants could also become mandatory.
Brian Rickerby: Too much of the onus is being carried by business. Roughly a third of all carbon emissions come from this sector, but a similar figure applies to the domestic and transport sectors. But businesses don't have votes, unlike travellers and householders. There is also additional pressure coming from corporate social responsibility requirements and consumer demands on both large businesses and their suppliers.
Lindsey Parnell: A steady increase in pressure to mitigate [climate change] should be welcomed, but it's essential that the government provides tools and incentives to enable businesses to change. It also needs to get its own house in order through more consistently applied standards of procurement. These should also specify low-carbon and sustainability criteria.
Peter Hambly: Business has to be a key part of the solution. Carbon reduction is a business opportunity. Not taking action to reduce your carbon footprint is a significant risk. To make a transition to a low-carbon economy, we need to manage emissions as part of business-as-usual. Companies are spending millions on wasted energy and needlessly emitting hundreds of thousands of tonnes of carbon into the atmosphere. They should respond both to government policies and shareholder pressure to provide low-carbon choices to the market.
Sally Uren: Business alone cannot tackle climate change: consumers also need to exercise more carbon-friendly choices in their purchasing decisions. The government has a responsibility to set the right market framework, with incentives for those who use carbon carefully and invest in alternative, more sustainable forms of energy. It should penalise those businesses which are big, profligate carbon emitters. There also needs to be a greater sense of urgency with businesses making cuts in emissions today—not by 2020.
Patrick King: Business is in a position to make rapid changes. But education and a greater use of incentives and penalties for individuals will also be needed. Particular attention will need to be paid to emissions from housing. Differential VAT rates can be used to reduce or eliminate the difference in the price between currently expensive but energy-efficient goods and their cheaper, less efficient alternatives. The spectrum of VAT rates in Europe runs from five per cent to 25 per cent, so there is considerable scope to influence prices. Wider use of tax reliefs could encourage environmentally friendly plant and carbon-neutral heating systems.
Stuart Thomas: Too little is currently being done. Many organisations use climate change as a marketing tool, and are not addressing the core issue of carbon reduction. UK businesses should be given the same targets as the government has agreed (a 60 per cent reduction in carbon dioxide emissions on 1990 levels by 2050). Those that embrace the challenge should be rewarded through "green bands" of lower corporation tax. Those that fail should face higher levels.

Would you characterise some environmental regulations as beneficial, overall, and some not?

Chris Dodson: Carbon trading has had little impact because of the volatility of the carbon price under the EU ETS. It would be better to replace it with a carbon tax, which is simpler to calculate and to collect. But the regulations introduced to clean up emissions and regulate chemicals are essential. From my direct experience of contaminated sites around the world, it is terrifying how easily a corporate mindset can become immune to environmental issues.
Brian Rickerby: The Climate Change Levy rebates have a positive effect, with companies having to adhere to strict energy-saving targets to qualify. It remains to be seen whether the introduction of Energy Performance Certificates will result in owners making commercial premises more energy-efficient to increase saleability.
Lindsey Parnell: But the government needs to be more imaginative than merely imposing punitive taxation. One way would be to incentivise businesses by illustrating how environmental good practice can benefit their bottom line. In a competitive marketplace, where everything else is equal, a strong environmental policy can tip the balance and win the tender as companies look to make their supply chain greener.
Peter Hambly: The CRC, which is due to come in by 2010 as part of the Climate Change Bill, could be a beneficial measure as it will help a wider range of companies derive value from reducing their carbon emissions.
Sally Uren: Much of the legislation encourages a reduction in environmental impact and couples this with cost-saving opportunities. But some legislation has unintended and unsustainable consequences: for example, shipping waste to China and, in the UK, recycling high-value items, while continuing to ignore lower-value waste streams.
Stuart Thomas: Regulations around waste and recycling are beneficial, as are those that promote use of renewable energy. I support legislation that diminishes our reliance on motor vehicles and cheap air travel. We have not suffered from any unwelcome legislation thus far, which perhaps indicates that the current regulation isn't sufficiently challenging.

Are investors sufficiently supportive of cleantech ventures?

Chris Dodson: Generally, the City is uncomfortable with technology investments largely due to the non-technical background of the decision-makers.
Lindsey Parnell: The difficulty is that the return on investment for cleantech if often greater than four years. It becomes difficult to see the incentive to justify its use, especially in smaller organisations. More should and could be done to support organisations in the uptake of green technology.

How much does individual director behaviour matter?

Sally Uren: From the founders of Innocent to Stuart Rose at M&S, we see examples of leadership that delivers both more sustainable business practice and enhanced market share. Without this top-level leadership, we are more likely to see PR puffery as opposed to new, dynamic business models fit for a more sustainable world.