iOS app Android app

Joel Makower

Joel Makower

Posted: January 3, 2006 04:26 AM

The State of Green Business: Good News and Bad


Recently, after 15 years, I ceased publication of my monthly publication, The Green Business Letter. The reason, simply put, had to do with closing one door before opening others -- which I expect to do in 2006.

Following is adapted from the final edition, in which I offered my assessment of the green-business landscape over the past decade and a half.

If you've been engaged in the green business world for any length of time, you know the short story: there's good news and bad. Herewith is a top-ten list of sorts: five reasons for optimism, and five reasons for concern, about the state of business and the environment.

Five Reasons for Optimism
1. The leading edge is moving. During the past two decades, the leading edge of green business activity has moved across three phases. Phase One might be referred to as the Eco-Hippocratic Oath: "First, Do No Harm." During the 1990s, Phase Two -- let's call it "Doing Well By Doing Good" -- kicked in, during which companies recognized they could reduce costs through pollution prevention, waste minimization, energy efficiency, and other means -- and in the process, they could garner public goodwill.

More recently, the leading edge has shifted into Phase Three: "Creating Value." In this phase, sustainable business initiatives are being designed not just to save money, but to drive topline growth -- increased sales, customer retention, innovation, and the like. General Electric, Sun Microsystems, Toyota, Shaw Industries, and other companies are among those demonstrating the business opportunities to be found in offering products and services that help customers to reduce emissions, save money, lower risks, and enjoy other benefits.

Environmental responsibility as a driver of topline growth: This is the point at which sustainability becomes, well, sustainable.

2. Environmental concerns are being widely addressed. Nearly every large company and institution has taken at least some steps to address their environmental impacts. The breadth of issues being addressed has grown, too. This is evident from, among other things, the steady stream of annual environmental (or sustainability or corporate social responsibility) reports being published. Early on, companies focused on toxic emissions or solid waste issues. As pollution prevention, recycling, and waste minimization initiatives took hold, companies began looking at other issues, especially those related to energy and climate, but also looking upstream to consider the impacts of suppliers and downstream to address the impacts of customers, including what happens to a company's products when they are no longer needed or of service to customers.

All told, the foundation has been set for developing more comprehensive life-cycle solutions for tomorrow's products and services.

3. The bottom-line case is building. At first, there were the low-hanging fruit derived from reducing pollution and waste. A big company could redesign something as simple as a beer can (Anheuser-Busch) or a paper napkin (McDonald's) and save millions of pounds of natural resources -- and millions of dollars. Simple, sensible management practices in industrial processes could dramatically slash waste, along with the cost of its disposal.

Today, the business case is more sophisticated and robust. Research is showing how investments in energy management, carbon mitigation, toxics reduction, and product end-of-life management can provide both tangible and intangible benefits of interest to financial analysts, institutional investors, and others. And there is evidence that environmentally minded activities can contribute to companies' ability to attract and retain employees.

For companies seeking to justify, on bottom-line grounds, the value of sustainability, the arguments can be readily found.

4. Customers are driving change. In the early 1990s, regulators and activists were the principal drivers of most companies' sustainability agendas. But increasingly, the market is kicking in, with customer needs -- or demands -- shaping company environmental policies and practices.

For example, in its 2005 Global Citizenship Report, HP says that in 2004 it received more than $6 billion in requests for quotations that required information on HP's commitment to social and environmental responsibility -- an increase of 95% compared to 2003 and 660% compared to 2002. Those requests came from Asia and Europe as well as North America.

That's on the b-to-b side. On the consumer side, demand for greener products, services, and companies is less apparent, though there are encouraging signs, notably the marketplace success of hybrid vehicles and other energy-efficient products. They show that consumers are willing to embrace green technologies under certain circumstances -- a less-than-worldchanging development, to be sure, but progress nonetheless. It helps when energy markets -- gasoline, heating oil, natural gas, electricity -- reflect true market prices, not the heavily subsidized ones that have kept consumers from paying their full costs and making purchase decisions that reflect more accurate information.

5. Sustainability is spurring innovation. This is implicit in Reasons #1 and #4 above, but it bears repeating: Sustainability is spurring companies to innovate with new processes that enhance their bottom lines, such as closed-loop manufacturing processes, in which there is virtually no energy, water, or material waste. Products designed with fewer, simpler, less-toxic, and more recyclable ingredients enable everything from carpets to car parts to be fully recycled at the end of their useful lives -- not simply "downcycled" into commingled, less-valuable materials. Markets for biobased products -- polymers, building materials, textiles, and other goods made from plants or crops -- have been frustratingly slow to develop, but progress is being made to break through market barriers. And the green-building revolution has led to a wealth of innovative designs, systems, products, and materials intended to make tomorrow's structures simultaneously more livable, more beautiful, less expensive, and less destructive to the environment.

There's more to celebrate, but it's time to look at the other side of the coin.

Five Reasons for Concern
1. The pace of change is slow. While it's easy to point to how far the leading edge has progressed, it's hardly the full story. Many companies still struggle to make even small, incremental improvements to their policies, processes, and products, and many of the innovations being seen inside companies are limited to a single facility, business unit, or product line. It's all progress, of course, but it's easy for cynics to make the case that such changes fall into the too-little-too-late category.

To be fair, the frustratingly slow pace of change isn't always companies' fault -- or, at least, not entirely. Most industries represent a complex web of suppliers, customers, shareholders, activists, regulators, and others whose opinion or actions can thwart even the best-intended companies or most passionate CEOs. I've been sobered over the years by tales of large, multinational companies unable to get supply-chain buy-in to support their companies' laudable goals for reducing toxics, waste, or energy use. And I've heard countless tales of companies that have abandoned development or marketing of greener products and services for lack of customer support. Whether such underwhelming sales resulted from customer resistance or poorly designed or marketed goods is arguable. In most cases, there's plenty of blame to go around.

And some barriers to change are internal -- the failure to gain the support of line employees and, perhaps more critically, that thick, impenetrable band of resistance known as "middle management." While "Get top-level buy-in" remains number one on the list of how-to tips for most company environmental efforts, even the greenest of executives can be thwarted by those down the line. As one CEO famously put it: "An organization's ability to resist and defeat a direct order to do something difficult is just about infinite."

2. "Good" is rarely good enough. When it comes to addressing society's environmental concerns, most companies find themselves aiming at a moving target. Yesterday's activist ideals are tomorrow's minimum requirements. The result is that some companies are never entirely sure how good is "good enough."

Things are most challenging for consumer-facing brands, and especially for market leaders. They often are held to a standard far higher than their competitors -- a function of environmental groups' need to slay corporate dragons in order to rally the troops and justify their funding. One result is that many firms are afraid to promote, or even discuss, their environmental initiatives for fear that doing so will unwittingly illuminate their shortcomings. The unfortunate outcome is twofold: companies don't receive the credit they deserve in the eyes of customers and other interested parties; and the people inside companies who work, often struggle, to make these changes happen find it that much harder to get internal support for taking on the next, perhaps more substantive, set of company challenges.

3. EHS still doesn't get it. Environmental, health, and safety (EHS) departments inside companies remain a ghetto of regulatory compliance and engineering fixes -- perfectly fine functions, to be sure, but ones often seen as outside of core business strategy. As a result, many talented EHS professionals have found themselves on the street, having been handed their walking papers during the latest round of downsizing or re-engineering.

Much of this is self-inflicted. Historically, EHS professionals haven't learned how to make environmental concerns a source of business value and not just a cost. Despite years of effort on the part of professional organizations, business schools, and others to imbue EHS folks with business skills, most remain far more at home talking geek-speak with the regulatory crowd than discussing with their higher-ups how to turn environmental initiatives into new sources of business value.

That's a lost opportunity. EHS has a great deal to contribute. But the lack of EHS departments to think in these terms, let alone take action on them, will forever limit their effectiveness -- and, in many cases, lead to their demise.

4. Small business isn't engaged. The vast majority of efforts to improve companies' environmental performance -- whether taken by regulators, activists, the public, or companies themselves -- have focused on the largest companies. That makes sense: As an environmental Willie Sutton might have put it, that's where the pollution is.

But not all. Roughly 98% of all U.S. companies have fewer than 100 employees. While many of these smaller firms provide services that have negligible environmental impacts, there are tens of thousands of dry cleaners, printers, bakers, metal finishers, furniture makers, automobile repair shops, and others among them with seemingly small but cumulatively significant emissions and waste. And these firms have largely been left out of the sustainability conversation.

The failure to find effective means of bringing smaller firms into the environmental fold will continue to limit progress on many fronts and will become a growing problem as larger companies continue to improve their performance.

5. The public remains clueless. It's hard for companies to effect widespread culture change if the people who comprise its employees, customers, suppliers, and shareholders don't understand the underlying issues. Despite more than a quarter-century of Earth Days, the rise of green activism, and the growth of environmental curricula in schools at all levels, the public remains woefully uninformed. Surveys show that most citizens' understanding of environmental issues remains depressingly low and that myths and misunderstandings persist.

Companies often are their own worst enemies here. The tremendous communications clout many businesses, especially service-sector firms, possess could be harnessed to improve the public's eco-literacy and, in the process, help garner newfound appreciation and build markets for companies' environmental initiatives. But there's been little appetite on the part of companies to educate, and not just propagandize, the masses on these issues.

As with the good news, there are more concerns, too, but I'll leave it at that. And despite the obstacles, I remain optimistic -- indeed, confident -- that the hard work of good people inside good companies will continue to raise the bar, the performance, and the appreciation of corporate environmental practices.