But leading companies—like Toyota, GE, The Timberland Company,
and Starbucks Coffee Company—are taking a different tack. Instead
of a risk-management perspective, their view is that sustainability
can be a platform for profitable growth.
GE, for instance, recently established an "Ecomagination"
initiative, founded on the "belief that financial and environmental
performance can work together to drive company growth, while taking
on some of the world's biggest challenges," the company says.
As part of this project, GE has named a chief sustainability
officer for product development, Lorraine Bolsinger, and committed
to increase revenues from products that provide significant
environmental performance advantages to customers to at least $20
billion in 2010. Among other things, GE is betting that, with tax
incentives to spur them, railroads will quickly transition to its
new engine. Indeed, GE says, if all pre-2001 North American engines
were replaced with its new locomotive, railroads would not only
save $425 million annually in fuel costs, but the changeover would
"cut nitrogen oxide emissions [by] as much as removing one-third of
all cars from U.S. roads."
Today, such direct links between sustainability and
profitability are usually tenuous—both in the minds of many
business leaders and in convincing data proving the case. Among the
latter, one 2003 Morgan Stanley study asserted that "sustainability
leaders" outperformed laggards financially over a four-year period,
while a Swiss-based Bank Sarasin study in 2002 showed that
environmentally responsible policies had a positive impact on
shareholder value. The cause and effect may simply be that well-run
companies also take pains to be good corporate citizens.
A "Prerequisite" for Growth
Certainly, there is a growing understanding that
sustainability can be a "prerequisite" for profitable growth.
Companies are well aware of the following kinds of statistics: An
Environics study in 2004 showed that at least two-thirds of 25,000
consumers in the U.S., Canada and Western Europe form impressions
based partly on a company's ethics, environmental impact and social
responsibility. Meantime, in the U.S., 60 percent of adults
interviewed said that "knowing a company is mindful of its impact
on the environment and society makes me more likely to buy their
products and services," or that 40 percent said they would avoid
buying products if they thought "the packaging disposal would cause
a potential threat to wildlife."
Because of these trends, and their own convictions, many
consumer products companies have rushed to the environmental
banner. Innovations in products and processes have proliferated.
General Mills, for instance, shrank the packaging of its "Hamburger
Helper" product, claiming it has eliminated the need for 500
delivery trucks a year, while Unilever says it has saved plastic
equaling 15 million bottles by redesigning its "Suave" shampoo
container. The Timberland Company, meantime, now manufactures
"biodegradable" boots and shoes, and lists the carbon footprint—or
how much fossil fuel it took to create each pair of footwear—on
every shoebox as a "Green Index" label." Or, as CEO Jeff Swartz
explained at a recent London gathering: "At The Timberland Company,
we believe that sustainability—that commerce and justice—can be
simultaneously pursued and delivered in the marketplace."
Nor is there much doubt about whether there are cost savings
inherent in sustainable activities. Ford recently announced, for
instance, that it now applies three coats of paint to its cars in
one step, eliminating drying time, machinery and emissions, while
saving $7 per vehicle in the process. More traditionally, Macy's
Inc. benefited from significant tax credits by placing solar panels
atop 28 stores in California, while Wal-Mart announced a goal of
designing a high-efficiency store that will use 20 percent less
energy than its standard Supercenter store. And there are
outstanding corporate-messaging opportunities in such announcements
as Wal-Mart's own hybrid-powered initiative. Recently, the
retailing giant said it is working with truck manufacturers to
develop the first diesel-hybrid 18-wheeler by next year as the
mainstay of the second-largest truck fleet in the U.S.
Moreover, companies have noted an advantage in recruiting and
retaining talent when they have a viable sustainability stance. As
evidence, MonsterTRAK.com recently reported that 92 percent of
young professionals said they were more inclined to work for a
"green" company. Merrill Lynch thus outlines its environmental
policies on the back of every campus-recruiting brochure. Various
studies also show that eco-friendly policies help to increase
employee productivity. Among other findings are that "green"
workplaces tend to favor natural lighting, which may improve the
mood of employees, and many green workplaces use advanced
air-filtration systems, offering better air quality.
Three Levels of Sustainability Efforts
Many companies, in our experience and in recent study findings,
are coming up against the hard fact that the sustainability factors
under their control are limited—and wider solutions require
collective solutions (a topic we'll return to). But on their own,
and where they can with others, many consumer-based companies are
incorporating sustainability throughout their businesses: in their
products' design and assortment, their supply chains, their
operational footprints and their messaging to consumers, investors,
and employees. These efforts fall into one of three camps: novice,
engaged and innovative. Most companies we surveyed have a
"portfolio" approach to sustainability, tackling some activities
within each category.
Novice activities focus on prevention and
compliance with standards. They are easily separable from daily
business functions. They include corporate-giving programs or
taking such steps as using recycled paper in mailing or reducing
harmful materials and ingredients by eliminating hazards like PVC
plastics or trans-fats in foods. These efforts are part of
being a responsible corporation. Swedish home goods store Ikea, for
example, reports that 14 percent of materials in its catalog come
from certified forest fibers.
Engaged activities have taken the next step:
incorporating sustainability into daily business functions and core
products. Over half of the activities included in our database
falls into this category. Office store Staples thus produces
private-label manila folders made from recycled content as an
alternative to less-sustainable folders. Crate & Barrel has
begun testing a line of sustainable products as well. Meantime,
some firms simply decide it's their duty to go environmental. The
Home Depot, for example, didn't sell all the roses it could have
last Mother's Day in the U.S.: Local producers couldn't meet the
supply for organic ones, and the company felt the carbon emissions
from shipping inexpensive ones from Venezuela wasn't
acceptable.
Such actions have short-term return-on-investment implications
and fall into a category of actions "expected" by key stakeholders.
These activities require more strategic involvement of one or more
business divisions.
Innovative activities complete the journey to
full environmental awareness. One method companies use is editing
their assortments to provide sustainable offerings only. Wal-Mart
has gone this route in some categories, stripping its shelves of
standard light bulbs and replacing them with energy-saving ones.
Supermarket chain Wegmans now sources its shrimp from a farm in
Belize that adheres to strict sustainability standards, and is
creating its own organic farm as a test. Tesco provides an example
of an innovative supply chain idea: The U.K. retailer is pushing
suppliers to deliver merchandise to Tesco stores in double-deck
trailers, which carry two-thirds more cargo per load than
conventional trailers. In operations, a leader is General Mills,
which now sells its oat hulls, a Cheerios breakfast cereal
by-product, as fuel to recyclers. Formerly, it paid to have the
hulls carted off. Last year, General Mills recycled 86 percent of
its solid waste, earning more than it spent on disposal.
Going further, some other firms are embedding sustainability
into their initial design and sourcing strategies. Nike's
"Considered" brand of clothing, shoes and accessories, for
instance, is a line made from recycled polyester and reused rubber,
as well as organically grown cotton and hemp. The sporting goods
giant has also drawn a 200-mile shipping circumference around its
manufacturing plants that make these clothes to reduce emissions
and transportation costs.
Such forward thinking translates into activities that transform
business processes, product design and development. They require
cooperation from vendors and customers—who often pay more for
eco-friendly offerings—and help to define the company's brand on a
higher plane.
Steps to Expanding Your Sustainability
Advantage
Some companies, such as Wal-Mart, have invested a lot of time,
thought and money into sustainability issues. Wal-Mart's Personal
Sustainability Project is even teaching employees to recycle, cook
healthy meals and use alternative transportation. But whether your
enterprise's environmental awareness is just beginning or has
progressed to creating a new eco-platform for growth, there are
four actions that can help you gain an advantage in this critical
area.
Start by determining your enterprise vision.
Ask yourself: What does sustainability mean to your company and
your brand? What is your motivation and what goals can you set? The
Timberland Company's family-owned company has a passionate vision,
recently expressed by CEO Jeff Swartz: "We believe in our guts that
commerce and justice are not separate ideas; that doing well and
doing good are not antithetical notions; that being cognizant of
this quarter's earnings is part of what we are responsible
for—just as being our brother's and sister's keeper is part of
what we are responsible for, every business day."
Next, assess where you are. Obviously,
different tactics will be necessary for companies that are just
getting started, those that are engaged or those leaders that are
already innovating. As part of this process, study the
sustainability activities of others inside and out of your markets.
For instance, many firms could adopt PepsiCo's sustainability
filter for capital expenditures. It incorporates review of
sustainability aspects such as watershed impact, green-building
opportunities and renewable resource use for proposed new plants
and warehouses. Companies may find that they rate as novices in
some areas—like product design—but are innovative in other
areas—like energy conservation and waste recycling.
Think from the beginning to maximize growth
opportunities. The biggest opportunities for innovation
and bottom-line impact are at the head of the value chain. In 2001,
for example, Starbucks Coffee Company began ensuring both its
source of premium coffee beans and its environmental and social
responsibilities by adopting principles it calls C.A.F.E., for
Coffee and Farmer Equity Practices. These business rules require
that suppliers not only meet high-quality standards, but also
provide documented evidence of payments made along all levels of
the supply chain—particularly to the farmer. Specifically, they
provide protections aimed at maintaining fair and humane working
conditions, ensuring workers' rights, guaranteeing adequate living
conditions, and paying living wages. Last year, Starbucks Coffee
Company purchased 53 percent of the 294 million pounds it bought
through C.A.F.E. and will increase the amount this year. It's a
thoroughgoing application of designing processes with
sustainability in mind at the outset versus adding it as a patch
later in value chain.
Measure outcomes to determine your level of
success. Common sustainability standards and metrics are
still elusive, but there are steps companies can take to track
progress. The Timberland Company, for instance, went so far as to
create a board-level committee to hold the company accountable for
results. It's also a good idea to give such initiatives political
heft and genuine expertise. When DuPont hired its first chief
sustainability officer, it chose Linda J. Fisher, who had once
worked for the U.S. Environmental Protection Agency. Francis
Sullivan, deputy head of group sustainable development for the HBSC
Group, came from the World Wildlife Fund.
Thinking beyond Corporate Walls
Eventually, every company begins to realize that the biggest
environmental challenges require cross-industry collaboration and
work with governmental and NGO entities.
An early collaborative business group was the Outdoor Industry
Association (OIA), which numbers such members as Mountain Hardwear,
Patagonia, The Timberland Company and VF Outdoor. Founded in 1989,
OIA's goals include raising the environmental standards of the
industry; increasing participation in outdoor recreation to
strengthen business markets; providing support services to boost
member profitability; representing member interests in the
legislative and regulatory process; promoting professional training
and education; and supporting innovation.
Collaboration has also taken the form of teaming with groups
that brand and certify the environmental sustainability of raw
materials. Such an organization is the Organic Exchange, which
Wal-Mart, Patagonia, The Timberland Company and others use to
certify that cotton fibers in certain clothing products are
organic. Similar organizations exist for fish products and wood
pulp, such as the Marine Stewardship Council and Forest Stewardship
Council, respectively. Retailers like Unilever, Tesco, The Home
Depot and Ikea all support these efforts.
Meantime, companies have learned to engage constructively with
NGOs and business rating organizations, which were formerly viewed
with some degree of suspicion. Among these, the Global Reporting
Initiative (GRI), which created the world's most widely used
sustainability reporting framework, now works closely with such
leaders as Nestlé, Tyson Foods and Green Mountain
coffee.
More broadly still is the potential role of global business
organizations like the World Economic Forum. Such an entity can
transcend competitive pressures to help senior executives develop
the business case for sustainable development, as well as serve as
a repository for best practices and new ideas across industries and
countries.
Government entities, of course, will play a role in all this.
But WEF backing can help create an international network of
environmentally sensitive businesspeople who can work together on
broad-scale or sector-specific initiatives, drawing up policies
that will engage the best thinking of commerce, science and
NGOs.
The ultimate idea is to create a sustainable business platform
in both the environmental and economic sense of the word; one that,
in the words of The Timberland Company's Jeff Swartz, will help
fulfill "a moral imperative for shareholders, for customers, for
employees—and for our planet."
