Large-Scale Green Business Risk

This kind of risk — a market being redefined out from under you — is a bit scary. But companies that don't keep an eye on all these forces, from shifts in customer attitudes to wide-reaching laws and mandates, will disappear.
03/17/2008 05:36 pm ET Updated May 25, 2011

I wrote a few weeks ago about Virgin Airline's biofuel test flight. While it was a bit of a publicity stunt, it was also a good thing — we need experimentation to find ways to reduce carbon emissions in all industries. But another news item HuffPo linked to this week brought my attention back to the airline industry. Apparently, the EU is saying that US airlines will need to pay for carbon emissions, or risk losing flight slots in and out of Europe.

For me, this story is about risk, which is a big part of the equation in green business strategy. Reducing risk is a solid strategy for creating value in your business, and in the green realm, it used to be mainly about avoiding regulations. Or about avoiding brand-killing incidents like the discovery of something dangerous in your products (see Mattel last year with lead in its toys). But green-related risk is getting much broader and more challenging to manage. The EU's position, for example, creates market access risk for airlines that don't play the game and either manage or pay for their carbon sins.

But many industries face bigger risks from the changing attitudes of consumers and other stakeholders. To stick with airlines for the moment...just a few years ago, nobody knew what a carbon footprint was, and now we hear statistics all the time about the footprint of everything we do, especially travel. There's even data on how much airlines contribute to total global emissions (2-3%). So the pressure is rising. Customers may develop a distaste for flying in general given its high environmental toll. As I mentioned in my last post, business customers now have another option to help their companies reduce travel emissions and keep their green promises: high-quality teleconferencing.

This customer-driven risk may not threaten airlines too badly, but customer tastes and public perceptions are fickle and in other areas they can turn against an industry or product quickly. Take the somewhat strange trip of attitudes toward bottled water, which has turned south in the last year. Is bottled water a smart use of resources? Of course not; tap water is pretty good so why wrap it in plastic? But is an extra bottle here and there the worst environmental offender in our lives? Not likely, especially compared to what we drive to the store to get the bottles in the first place. I don't know if bottled water sales are slowing — it may be too early to tell — but the focus hasn't been easy for companies like Coke, Pepsi, and Nestlé.

Fast Company ran an excellent analysis of the pros and cons of the bottled water business. The article concluded with one important insight: "Bottled water is not a sin, but it is a choice." We can't always see it coming, but consumers and business customers will make choices that avoid products with perceived environmental problems. When business customers make a new 'choice' it can move much faster than customer attitudes — just watch what's happening to plastic bags, with bans in place in some retail environments...and now cities and countries around the world are eliminating the bags as well.

So on top of customer choice, businesses face new risks through market forces and government mandates that make the EU carbon tax look quaint. Most people don't realize that the last energy bill passed by the U.S. Congress basically banned regular, incandescent light bulbs. In the coverage of that bill, the press focused mainly on the rise in automobile fuel efficiency standards (to a 35 mpg average by 2020, which seems to me like a no-brainer). But the real story was the light bulbs.

The bill set new standards for energy efficiency that regular bulbs won't be able to meet (hello, compact fluorescents). It's really an astonishing law when you think about it — we're banning something that isn't inherently unsafe. I can't think of another example like that. And to add to it, we're replacing current bulbs with products that are less save in your home — CFL's have mercury in them. Don't get me wrong: the trade-off is worth it for now — as a society we'd rather deal with a pile of mercury bulbs that we're not sure what to do with than with climate change. Of course this kind of mandate creates opportunity for anyone who can innovate and avoid the problems associated with either kind of bulb. LED lights anyone?

If you make incandescent bulbs, or plastic shopping bags, you're facing the death of your business. I bet some manufacturers wish they had something as "easy" to deal with as an EU carbon tax. This kind of risk — a market being redefined out from under you — is a bit scary. The risk is complete irrelevance. But companies that don't keep an eye on all these forces, from shifts in customer attitudes to wide-reaching laws and mandates, will disappear. The smart ones will innovate and profit in a newly defined market.

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