It's Not Easy Being Green

Chief executives who lived through the heady days of TQM and similar runaway management fads might be feeling just a little skeptical as they watch the green movement take on a life of its own. With sustainability and carbon neutral becoming household words, companies everywhere are jumping on the "green wagon," offering environmentally conscious consumers everything from biodegradable shirts, to eco-friendly golf balls, to green bank accounts (no pun intended). Companies are being warned that their very survival, along with that of the planet, depends on their getting with the program. Go green-or else. 

While few CEOs would argue that global warming is a legitimate universal problem to be solved, they may not be as clear on which of the dizzying array of green products, strategies and promises are, in fact, about sustainability. What is green? What impact will some of the new sustainability strategies have on the environment? And on shareholder value? Would an investment in a new fleet of hybrid cars, for example, be a win-win for the environment and shareholders-or will the chief wind up on the chopping block for wasting investor dollars? "As CEO you can't just go spending your company's money on whatever you might like to do because you think it's the right thing to do. It's not your money," says James Barrett, an economist with Redefining Progress, an Oakland, Calif.-based nonprofit policy group that promotes sustainable living. "There is clearly a tension between fiduciary responsibility and wanting to do the right thing. For most companies it's hard to reconcile the two of them." 

But not impossible, he adds, noting that the "zen of being green" is about finding that sweet spot-the moves that will be good for both the environment and the company. In the case of sustainability, greater efficiency is very often, by definition, green. As Michael Porter wrote in the mid-1990s, economic competitiveness and environmental improvement can and should be complementary, not adversarial. "He found that it was not the case that companies that spent more money cleaning up pollution or were more highly regulated were less profitable. In fact, in the long run, they were more profitable because they were forced by regulation to go out and find ways to cut waste," Barrett notes. 

Such has been the case for companies that have looked into conservation strategies and found there was much fat to be cut. For example, through energy conservation and the use of renewable energy, IBM claims it has saved more than $100 million since 1998, while simultaneously avoiding more than 1.28 million tons of CO2 emissions. Xerox's new $60 million manufacturing plant, which will produce a more environmentally friendly toner, is expected to boost toner production capacity by 175 percent thanks to "smart" manufacturing principles. And Wal-Mart estimates it will save $7 million annually on electricity by replacing incandescent light bulbs in stores with super-efficient compact fluorescent light bulbs. Companies that have adopted alternative fuel and energy solutions are able to lower their exposure to oil price volatility while increasing energy efficiency. 

That does not mean, of course, that any cost-efficient strategy will be positive for the environment. "The least expensive thing to do for your energy use is to use coal, but it's also one of the least environmentally friendly, so there's going to be a trade-off," says Miles White, CEO of global health care company Abbott Laboratories in Abbott Park, Ill., which recently ranked in the top 10 percent of the 2,500 largest companies on the Dow Jones Sustainability Indexes. White notes that the long-term cost to companies that don't take sustainability seriously is as significant as the short-term price tag of adopting earth friendly strategies. "There's going to be a cost, one way or the other, whether it's in the damage you do environmentally or the regulation you may receive later." 

Abbott has been internally monitoring its energy use and water consumption for at least five years. In January the company signed up for the GreenFleet pilot program, developed by PHH Arval, a fleet management services provider in Mt. Laurel, N.J., and national nonprofit Environmental Defense in New York to help companies reduce fuel consumption and improve efficiency among their commercial fleets. As the latest step, Abbott announced it was going "carbon neutral" by offering a hybrid vehicle option to reduce carbon emissions from its 6,000-vehicle fleet in the U.S. and would then purchase carbon offsets in early 2008 to neutralize the balance of the fleet's environmental impact. Though still the subject of some controversy because there are no formal standards, carbon offsets have become a popular way for both companies and individuals to mitigate their own greenhouse gas emissions by paying for emissions reductions elsewhere. Abbott's goal is to reduce its own CO2 emissions by 30 percent by 2011. 

To separate the hype from reality, White says, the company does its own analysis and investigation to see whether a particular strategy has merit, and he realizes there are no perfect solutions. In the case of Abbott's new hybrid vehicle alternatives, White found there were a disappointing few choices available on the market, and solving one problem can create another. "I asked my people to do an analysis on the environmental impact [of the new hybrid cars]. We got some mixed results. Yes, it will reduce emissions, but you'll have an alternative issue with battery disposal. There's always a trade-off. The more you look at the big picture, the more difficult it becomes." 

Like Abbott, many companies are turning to environmental watchdogs for help in sorting through their options and finding an appropriate strategy, or in some cases tapping them for research. The thought of partnering with the same organizations that once boycotted them might not excite some CEOs, but Malin Jennings, senior vice president of Fleishman-Hillard, St. Louis, Mo., notes the once antagonistic relationship between environmental agencies and companies has thawed significantly. "Increasingly, [environmental groups] recognize that the only way out of the climate change catastrophe is if business, government and science cooperate-but that business is critical to solving the problem," she observes.

Environmental Defense, for example, has worked with over a dozen Fortune 500 companies on their green strategies. In Citigroup's case, the plan involved reducing paper waste and saving money. And FedEx Express opted to introduce gasoline parallel hybrid-electric power trains for their delivery fleet. Since then, the company has seen a 57 percent increase in fuel efficiency, says Gwen Ruta, director of the corporate partnerships program for Environmental Defense, who reports an explosion in business interest in the environment and going green in the last several months. 

Collaboration among stakeholders, and even former critics, is be coming the norm for CEOs hammering out their green strategies. "What you find is that companies doing this intelligently don't just announce, €˜This is what we're doing,' in isolation," notes Mark Cohen, law professor with the Owen Graduate School of Management in Nashville, who writes about environmental management and sustainability. "What they do is they sit down and engage with their stakeholders- NGOs and committees and workers that have the most concerns and are most affected by the environmental consequences-and they work through it. They get those stakeholders on board with the change." 

Getting that seal of approval by a recognized environmental authority, trusted by customers, can especially help with a perception problem in industries that have more trouble proving they care about the environment. Chevron, which ranks ahead of most of its U.S. oil and gas counterparts, though behind European and Canadian companies, has initiated alliances and partnerships with several organizations, including the Department of Energy's National Renewable Energy Laboratory in Golden, Colo., the Massachusetts Institute of Technology Joint Program on the Science and Policy of Global Change, and the University of California, Davis. In addition to gaining some credibility by linking with these think tanks, Chevron will ideally also benefit from some of the renewable energy opportunities that come out of the research. 

In another industry lambasted for insensitivity to all things green, printing company Consolidated Graphics in Houston had already been recycling paper and aluminum printing plates and using environmentally friendly soy-based ink. Then management decided to give the program a boost-along with added visibility- by partnering with American Forests, a nonprofit that works to protect and restore forests. The company also secured Forest Stewardship Council (FSC) certifications for all of its 68 facilities, which CEO Joe Davis says will be a competitive advantage. "We have a number of customers who are interested in purchasing paper that has been certified by FSC, so we've had requests there," he says. "Most of our customers have green initiatives going on at this time." 

But customers won't be easily fooled by one-off efforts either, so the most successful environmental plans are not set up within isolated departments but integrated into the overall business strategy. "We're seeing more and more of this," says Mindy Lubber, president of Ceres, a Boston-based coalition of investors and environmental groups focused on the environmental impacts of corporate action. "It's not just an add-on cute environmental program you tee up around Earth Day. It's about, €˜How do you integrate it into the DNA of the organization?'" 

That means looking at how the company builds new facilities to include green strategies, and then building that strategy into compensation so that key executives are held accountable for specific goals, as Abbott Labs has been doing for several years. "It should be part of the culture and core of the business, which is not too much to ask these days because so many of these environmental issues run to the financial bottom line," says Lubber. 

For the most part, consumers are seeing that direct link. "One of the things we've found is that consumers expect companies to make money and profit from the sustainability work they do," says Fleishman's Jennings. 

"The thinking behind that is that if it's not financially sustainable, it's not going to be environmentally sustainable." The early adopters have been riding the green wave and profiting from the heightened environmental consciousness. GE last year reported that revenues from its ecomagination line of energy-efficient and environmentally friendly products and services passed $12 billion, up 20 percent from 2005. Home Depot saw a double-digit increase in sales of compact fluorescent light bulbs and a 30 percent jump in sales of EnergyStar appliances in 2006. 

For other industries that don't have an opportunity to make money directly off the green machine, getting an early foot in the door can help companies plan better for a greener future- or at least a more heavily regulated one. Jennings points to Jim Rogers, former CEO of Cinergy and now head of Duke Energy, who began to retool Cinergy's strategic plan when he realized that the U.S. would eventually adopt a limit on carbon dioxide. 

"The brilliant thing about this is by getting way out ahead of the competition and thinking about this and preparing yourself for change and then advocating for that change, they have a big advantage over competitors who are just now in the position of saying, €˜Jeez, we better do something,'" Jennings says.