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Sustainability in Credit

15 May 2007

The effective management of utilities consumption is vital if an organisation of the size of Barclays is to reduce environmental impact, control operating costs and act in a socially responsible way. Ray Wilson describes the journey taken by Barclays to achieve its environmental objectives

WITH OVER 300 YEARS OF HISTORY AND EXPERTISE in banking, Barclays PLC is a major global financial services provider engaged in retail and commercial banking, credit cards, investment banking, wealth management and investment management services. We are one of the largest financial services companies in the world by market capitalisation. Operating in over 60 countries with over 3,500 offices, we employ 123,000 people and move, lend, invest and protect money for over 27 million customers and clients worldwide. In 2006, total profit before tax was £7.1 billion.

Barclays business strategy is driven by an ambition to be a universal bank leading the global financial services industry. This strategy cannot succeed without considering the impact our sustainability performance will have on climate change and the societies and economies in which we operate. Sustainability is inextricably linked to the success of our business strategy. In 2006, Barclays announced its climate change strategy and in early 2007, offset 223,000 tonnes of CO2 emissions, making its UK operations carbon neutral for 2006.

Competitive advantage
The concept of sustainability, depending on your viewpoint, is either extremely simple or somewhat contentious. Questions on defining sustainability and what this means for businesses will occupy the minds of intellects worldwide for years to come – assuming that a consensus cannot be reached. Nevertheless, sustainable behaviour gives organisations competitive advantage and can have a positive impact upon financial performance. Indeed, the financial element of the so called ‘triple bottom line’ of social, environmental and economic performance of an organisation is perhaps misplaced. It could be argued that economic performance is a direct beneficiary of the corporate management of social and environmental responsibilities and the governance that surrounds them. So it is perhaps corporate governance in addition to social and environmental management, that can provide a more suitable indicator of corporate sustainability and financial performance.

Barclays Facilities Management (BFM) is responsible for the 8th largest retail property portfolio in the UK, exceeding 1 per cent of the entire UK commercial property stock, and the group’s third largest cost area - approaching £0.6bn/annum. For BFM, the concept of corporate sustainability has been integral to its business strategy for many years and as Barclays UK carbon footprint is made up of 80 per cent energy use and 20 per cent business travel, energy management in particular across the property portfolio, is a very high priority.

In 1980, BFM established an Energy Section with specific responsibility to control utilities expenditure and implement an Energy Monitoring & Targeting scheme (EMTS) within the Bank’s retail portfolio - an innovative approach at the time, as it also involved remote monitoring of key sites. These locations were subject to an accredited consultant’s energy survey, which identified target consumption levels commensurate with good energy management. Targets were then automatically recalculated annually taking into account actual energy use, or redefined if significant capital investment in energy saving measures was made. At its peak, over 2000 properties were subject to EMTS. In the mid 1990s, the portfolio was re-surveyed and a series of actions initiated which resulted in significant energy reductions, improved staff engagement in driving down consumption and actual cost savings of 12.5 per cent.

A series of significant events in the late 1990s and early 2000s, bought about a number of fantastic opportunities to introduce key improvements to Barclays’ environmental, sourcing and property strategies. Firstly, a new property model was adopted in which the FM of the majority of Barclays’ UK property portfolio was outsourced. Secondly, deregulation and changes to the utilities marketplace opened up the sub-100 kW electrical supply market to competition. Thirdly, the introduction of the Climate Change Levy (CCL) brought sharp focus to energy costs; and finally the appointment of Barclays’ Environmental Director, the development and introduction of Barclays’ Group Environmental Management System (EMS) and the adoption of the Group’s initial 5-year energy targets provided the foundation for Barclays’ environmental strategy.

The introduction of the EMS, the establishment of a clear energy policy and powerful governance structure ensured support at the highest level and provided the impetus to set clear expectations and to tackleenergy management throughout the organisation. The effective management of energy consumption is vital if an organisation is to meet its drivers of reducing environmental impact, controlling operating costs and acting in a socially responsible way.

The key components of an effective energy management system are:
● a computerised monitoring and targeting (M&T) system to record utility consumption against pre-set targets and provide appropriate management information;
● a bill validation system, integrated with the M&T system information, to ensure correct billing;
● a detailed utility contract sourcing and negotiation strategy to reduce the unit and standing cost of energy;
● an energy awareness programme covering both staff and suppliers to ensure full engagement of stakeholders and real
commitment to action; and
● sufficient and appropriate resources to analyse management information and ensure that controlling steps are taken to reduce both consumption and energy costs.

To achieve this, BFM outsourced Barclays’ utilities management, resulting in a clear understanding and control of all aspects of electricity, water and gas use, cost and consumption to the Barclays UK property portfolio. In addition, it delivered tangible benefits in terms of environmental reporting and performance. For example, Barclays staff can now receive advice and guidance on energy efficiency and related environmental matters through an internal helpdesk.

With over 16m sq ft of retail and office space across 2,500 properties, Barclays has developed utilities procurement strategies using its own and supply partners’ knowledge of the prevailing marketplace and energy tendering procedures, thus ensuring Barclays achieves the optimum commercial leverage. Environmental considerations are an integral part of the supplier selection process. When making a purchase in a ‘high-risk’ sector, information on the prospective suppliers’ environmental performance, which is weighted as 10 per cent of the selection decision is collated and scored. Account of the cost of carbon in purchasing decisions, for example, when buying energy now forms part of the Group’s climate change strategy.

Since 2001, the results of BFM’s and, more recently, the group’s Global procurement strategies have been spectacular, delivering reduced electricity supply costs, reduced CCL liability and reduced greenhouse gas emissions through procurement of renewables. These results illustrate the effective partnership of FM Sourcing and the Group’s Environmental Management functions in delivering an integrated approach to investment strategies - increasing investment in green energy, energy efficiency products and services. Energy efficiency is also a key driver in other areas of procurement. For example, BFM awarded a comprehensive four-year national contract across its retail property portfolio to replace existing standard white fluorescent lamps with an environmentally superior triphosphor lamp, and the replacement of standard spot lamps with energy saving dichroic spot lamps – giving cost savings of £270, 000 in addition to improved energy efficiency adding another £56,000 pa.

In 2007, Barclays agreed a new three year contract to buy 300GWh of green energy - its largest ever purchase - and enough to power a significant majority of Barclays’ UK property portfolio. Buying 300 GWh of green energy will save up to 125,000 tonnes CO2 per year – the equivalent to the emissions produced by 19,000 homes in the UK. The electricity comes from a portfolio of sources including wind, small scale hydro, landfill, bio-gas, tidal and waste, but does not include combined heat and power. This energy is sourced from UK and European based generators, which are accredited by Ofgem for the Climate Change Levy renewable exemption scheme.

In support of its Kyoto commitments to reduce greenhouse gas emissions, the UK Government introduced a voluntary carbon Emissions Trading Scheme (ETS). The Scheme required participants to contract to meet binding CO2 emissions reductions over a 5-year period, in return for incentive payments. BFM developed a proposal on behalf of Barclays which was duly endorsed by the Group’s Environmental Steering Committee. In March 2002, DEFRA announced the names of 34 organisations who successfully bid to join the UK ETS. Barclays was the only financial institution listed. Barclays successfully concluded its participation in April 2006, exceeding its reduction targets and saving over 52,000 tonnes of CO2 during the scheme. The financial incentives received in return have been reinvested in new energy-efficiency projects, such as the installation of AHU Variable Speed Drives at its computer centre in Gloucester.

The appointment of a dedicated energy manager for BFM - Nick Jones, Director of Energy Consulting Global Workplace Solutions - was also made in 2000 to drive BFM’s supply chain in energy initiatives and to contract manage the outsourced bureau utilitiesmanagement function. In conjunction with the supply chain and key Barclays stakeholders, an Energy Steering Group and Energy Champions workshops were initiated, hosted with Facilities Management Contractors (FMC) and ngineering contractors. These groups took strategic investment decisions and reviewed progress on specific energy initiatives, thus ensuring effective supply chain partnership and key stakeholder engagement and participation. Says Nick, ”All successful businesses, regardless of their position in the supply chain now acknowledge the importance of sustainable business practices. The convergence of the Sustainability Policies of employers and their service providers is now providing the critical mass and impetus needed to drive these principles forward. The relationship between Barclays and Johnson Controls shares commonSustainability goals which reinforce the Partnership and the approach taken in their achievement.”

BFM’s supplier and supply chain partnerships are critical in the pursuit of effective energy management. BFM’s suppliers not only have brought a wealth of technical knowledge and expertise, but each has successfully developed and delivered their own energy strategies in support of Barclays’ objectives and targets. Furthermore, these strategies have delivered specific energy initiatives, each one, critically scrutinised by the Energy Manager, is accompanied by a clear cost and payback period before sign off. Examples have included car park lighting improvements, boiler optimisation devices, upgrades to building management systems and the closure of non-essential use buildings at weekends. Prior to, and following, implementation, meter readings are taken to verify savings before being ‘credited’ to the suppliers’ strategic targets. For example in 2006, Barclays invested over £900,000 in remote monitoring and boiler upgrades across its Branch network giving annual savings 2.7 GWh or 513 tonnes of CO2. Atkins Remote Technology allows a company to monitor and adjust heating boilers from a single location, so they use less energy and can be turned off when necessary.

Through the Environmental Policy, BFM committed itself to a programme of environmental ‘performance’ improvements designed to reduce the impact of its operations upon the environment. One key objective of the policy was to improve its managed estate’s energy performance by 10 per cent compared to the year 2000 baseline, during the five-year period between 2001 and 2005. In simple terms, the performance improvement target was a 2 per cent year-on-year energy saving which was over-achieved. During the next five years, plans to cut UK energy consumption by another 20 per cent are supported by a ring-fenced annual budget for energy improvements as well as specific targeted initiatives. During the past six years, the results have been spectacular, with consistent cost and consumption savings year on year for the property-related initiatives, (see graph). This, without doubt, is testimony to the way in which Barclays’ supply chain has retained its focus on firstly driving basic housekeeping initiatives, then through tried and tested measures and presently on to cutting edge solutions. The cost and consumption case for effective energy management is compelling and also makes great business sense.

BFM and its suppliers have specifically targeted all corporate sites and those retail sites that are deemed worst performing. In this case, worst performing refers not only to cost and consumption of energy per ft2, but by the opportunity for savings. In the majority of cases, properties are targeted for improvement based on a combination of usage and opportunity to reduce energy consumption.

Other improvements include the introduction of a premises lighting policy that sets out Barclays’ minimum standards for the design, maintenance, control and management of premises lighting and implements core lighting hours for buildings and facilities that do not require specific operating hours such as its Global Headquarters in Canary Wharf, which was awarded an ‘Excellent’ rating under the BREEAM 2002 for Offices scheme.

As for the future, Barclays recognises that there are significant challenges ahead, which are threefold:
1. Barclays has an increased business requirement for energy to further its growth
2. Property assets are ‘sweated’ resulting in increased occupant densities
3. Relentless increases in the wholesale price of electricity and gas are expected to add another £3m to utilities costs in the short to medium term.

Barclays has so far produced significant and sound financial, environmental and social benefits. It is rightly proud of its achievements, which lay the foundation for even greater improvements in its aim to be a leader in corporate responsibility and quest to become one of the world’s leading banks.

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