Government must avoid risk of strangling environmental imagination and innovation
June 1st 2004

An edited version of Stephen Timms speech to the BCE awards 20th April 2004

I salute the widespread trend in business to adopt sustainable development as part of business strategy. Not just as an add-on, still less as philanthropy though that has its place but as a core part of the business. Not a nice to do but a must do.

Last autumn, DTI and the Environment Department Defra jointly published a framework for sustainable consumption and production, looking at how resource use and environmental impacts can be de-coupled from economic growth. This debate continues, as the coverage of the latest Sustainable Development Commission report last week showed.

The challenge of sustainability is one for everyone for Government, for consumers, and especially for business. And like all challenges, it also represents an immense opportunity for new products, new processes, new ways of doing business. That is something that the winners this evening, and many companies like them, clearly understand.

A couple of weeks ago I met the Italian Minister of Labour Roberto Maroni in London. We were continuing a very successful partnership we have developed, which has brought UK and Italian businesses together to learn from each other. We come from different starting points Minister Maroni is primarily concerned with reforms to the labour market and social welfare in Italy. And the structure of the Italian economy is very different a much higher proportion is made up of SMEs, for example. But our views on corporate responsibility have converged. We agree that it is most effective when it is business led, and voluntary going beyond legal compliance. And we agree that for Government to attempt to regulate it risks strangling it and removing from it exactly the imagination and innovation which are among its most valuable characteristics today.

Regulation of course is important. We shall shortly publish the draft regulations on the Operating and Financial Review, requiring larger companies to provide more information on a wide range of issues, including social and environmental aspects. It will though remain for a companys directors to decide where this information is material to an assessment of the companys prospects. The OFR will introduce social and environmental factors into the way a company reports on its performance to its owners, to its shareholders. In doing so it will mean the directors of the company have to consider them. And I believe those regulations will be a good example of how light touch, non-prescriptive regulation can help in this area, rather than hinder.

Environmental innovation

I wanted to say something this evening on a topic which is taking up a great deal of our time and attention in the DTI currently, and that is innovation. Companies that make sustainability part of their innovation strategies can create new market opportunities. They can reduce costs by designing products which use fewer parts, fewer resources the K-Hayler is an excellent example or by making recycling an integral part of the process as several of this evenings winners have done. It has been estimated that wasted resources have a cost to UK business equivalent to about 7% of total manufacturing profit. So there is huge savings potential.

Companies that build regulatory changes into their investment plans at an early stage can significantly reduce the cost of compliance, and gain a competitive edge. I have spoken to a number of companies keen to take advantage of implementation in the UK of the EU Waste Electrical and Electronic Equipment Directive for environmental innovation. Recycling directives affecting the heavy, lead-rich glass of cathode-ray tubes and the need for better energy efficiency are driving innovation in display technologies. Manufacturers are investing heavily in R&D and production engineering to produce new, flat, energy efficient screens. Environmental challenges and the resulting regulation are impacting commercial decisions.

Now, I am not saying that we should regulate simply in order to drive innovation. But where there is an agreed environmental goal, we should look at whether the means to achieve it can be designed to be less costly, more effective, and so as to promote rather than hinder innovation. These are lessons we want to learn from a current project which is part of the DTIs innovation review. This is looking at 3 areas eco-design in display screens, which I have already mentioned, vehicle emissions, and the UKs implementation of the European integrated pollution prevention and control regulations. In each area, information will be gathered about the impact of past regulation on innovation, new technological developments, environmental impacts and how future regulations might promote innovation. This will help us to improve future practice, and contribute to a guide for policy makers on innovation-friendly regulation.

There are still too many companies who see sustainability solely as a cost, and environmental improvement as something to be avoided or put off for as long as possible. They will end up paying more to comply with new requirements than those who have planned well in advance. If UK companies do not meet this challenge, those in other countries will. US, Japanese and Chinese equipment manufacturers are already planning for the WEEE Directive, and are avid for more information about how we are doing it.

Of course, it also puts the onus on us in Government to signal clearly and well in advance what the requirements will be. We are widely seen as having taken a lead in Europe in looking for solutions to the problems it poses. We have taken care to work in partnership with the businesses affected.

There are important lessons in a comparison of two of the worlds pulp and paper sectors. In the US in the 1970s, strict and inflexible regulations were imposed which forced companies to rush to adopt best available techniques quickly. They had no choice but to install proven but costly end-of-pipe treatment systems.

In Scandinavia, on the other hand, regulation permitted more flexible approaches, enabling companies to focus on the production process itself. So their companies developed innovative pulping and bleaching technologies that not only met emission requirements but also lowered operating costs. Even though the US was the first to regulate, US companies were unable to realise any first-mover advantage because US regulations failed to allow industry to find its own solutions to the problems the regulations were designed to tackle. That is a lesson we have been keen to learn.

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