GOOD TO GREEN
MANAGING BUSINESS RISKS AND OPPORTUNITIES IN THE AGE OF ENVIRONMENTAL AWARENESS
JOHN-DAVID PHYPER AND PAUL MACLEAN
WILEY 2009
PART 2
Introduction
The environment has finally been given a seat at the boardroom table. Even companies that were once notorious for their exploitation of the environment are joining the discussion, as they try to cope with the depth and speed of the upheaval environmental issues are having on their business. Some business leaders are coming to terms with this new reality through the following acts:
Humility – as they stand in front of shareholders at the annual general meeting and explain that the strategy of blissfully ignoring hazardous ingredients and the threat of climate change is hurting their profitability, and
Generosity – as their companies pay significant fines to environmental regulatory agencies or settlements to plaintiffs in class-action lawsuits over product recalls, both of which could have been avoided by adopting more robust programs to protect the environment and by ensuring that products did not contain hazardous materials.
Many companies are caught in a tidal wave of green issues – climate change, alternative energy, scarcity of resources (e.g., looming water shortages) and the explosion of information on the Internet (raising awareness of hazardous materials in consumer products, as well as corporate injustice anywhere in the world). This green wave will force companies to reassess how they do business, by re-evaluating the life cycle of their products and the effectiveness of their supply chains.
Discussion around boardrooms on environmental issues is no longer defined by words like “nice to do” and “early adopters.” Instead, one hears the terms “business critical,” “crossing the chasm” and “creating competitive advantage” – all giving rise to a new lexicon that is being used at the executive level to identify and exploit opportunities where others see threats.
This green wave will also create a “green rush” that will have a substantial impact on both the economy and the environment in the long term. As with the gold rush of the late 19th century, some individuals will prosper significantly while others will not for a variety of reasons – inadequate market information, lack of business acumen, timing, access to capital and uncertainty in oil prices. However, unlike the original gold rush, this boom should actually improve environmental conditions, rather than degrade them further. Organizations that fail to consider environmental issues in their business model may find themselves victims of the inevitable bust that awaits those who miss out. The key drivers for change include
v Increased public awareness of environmental issues (e.g., global warming, species extinctions, carcinogens, endocrine disruptors) has significantly impacted consumer spending and retention
v Growth in the quantity, complexity and enforcement of legislation related to the protection of consumers, workers and the environment around the world
v An increase in the amount of market-based instruments put forward by governments around the globe to reduce emissions and promote alternative energy
v Expansion of U.S. disclosure requirements to include environmental costs and liabilities under the Sarbanes-Oxley legislation
v Forecasted water shortages in many parts of the globe
v The drive to reduce supply chain costs associated with environmental mismanagement (the Wal-Mart effect)
v Increased environmental disclosure requirements from the investment and insurance communities and negative response (i.e., decreased valuation or increased premiums) if environmental, social and governance factors are neglected
v Dramatic impacts to the bottom line resulting from the impairment of corporate brand via consumer, worker or environmental issues
v Forecasted increase in petroleum prices, which will reinforce activities related to renewable energy and energy-efficient transportation
v Elevated security concerns related to the movement and storage of hazardous materials as well as reliance on foreign oil, especially reserves controlled by national oil companies
v improved employee satisfaction and retention following implementation of sustainable development (SD) programs
Industry visionaries have emerged to guide their companies, their sector and, in some cases, industry in general, towards principles of SD and corporate social responsibility (CSR), both of which are discussed in more detail in chapter 1. Key principles that these visionaries have in common are the need to innovate and invest in activities that will provide a strong triple bottom line (TBL) – people, planet and profit. These leaders are turning challenges (such as additional expenditures, process inefficiencies) into opportunities (new products/services) for innovation and success throughout their companies’ value chain. They are thinking out of the box and in doing so increasing revenue, reducing expenditures and risk, and creating strong brands. They are decoupling the concepts of “increased production” and “increased environmental impact.”
- This book doe not define the impact or the moral reasons to change – we have left this for other authorities.
- Nor does it address the cosmetic activities to be green such as purchasing carbon offsets.
- What it does provide is evidence that a green rush is occurring.
- The key difference between this wave and previous green waves – 1970s/1980s controls on emissions/discharges from heavy industry and 1990s adoption of management systems (ISO/CSR) standards – is that, this time around, environmental issues are being included in key strategic, tactical and operational planning and decisions.
Changing concerns
The creation of a product, whether for industrial or consumer use, by its very nature will impact the environment. The extent of the impact can vary significantly depending upon the raw materials, process being utilized, emission control technology, end-of-life practices and the sensitivity of the receiving environment.
- As companies overcame the hurdle of “significant local impact,” they began to pay attention to the cumulative effect of industrial activity on a global scale.
- The focus has shifted from local to global impact – not just related to the transmigration of contaminants and global warming, but also to the quality of goods shipped from developing countries (e.g. concern over lead-based paints on toys shipped from China) to North America and Europe, and the environmental conditions of the manufacturing facilities.
Changing management of environmental issues
In the 1990s, Paul Hawken wrote two ground-breaking books on business and the environment. In preparation for our book, we revisited these topics to gauge their continued relevance to today’s business environment.
His work Ecology of Commerce: A Declaration of Sustainability, published in 1994, was a milestone that promoted the concept that businesses must “re-imagine” and “re-invent” themselves as cyclical operations, i.e., from “cradle to cradle.” Hawken advised three broad approaches: observe the waste-equals-food (raw products) principle of nature, change from a carbon to a hydrogen-/sunshine-based economy, and create systems that support restorative behavior. Hawken also posed a key question – who will lead the next industrial revolution, as the first one is not working?
Natural Capitalism: Creating the Next Industrial Revolution, published in 1999, has been described as the first book to explore the lucrative opportunities for businesses in an era of approaching environmental limits. Natural Capitalism describes a future in which business and environmental interests increasingly overlap, and in which businesses can better satisfy their customers’ needs, increase profits and help solve environmental problems all at the same time. The four interlinked principles of natural capitalism are
- Shifting from the traditional economic focus on productivity per unit of labor to productivity per unit of natural resources use
- Building production systems that mimic nature (for example, an agricultural production system that recycles wastes, as nature does, rather than discarding them)
- Transitioning from a goods-producing, “owning things” economy to a “service and flow” economy
- Investing in activities that protect or restore ecosystems
The evolution of industrial stewardship of environmental impacts can generally be described as follows, with forward-thinking companies ahead of these timelines (see also figure III):……
Follow the money trail
Government activities
Consumer demand
Increasing demand for alternative energy/water purification
Greening of the boardroom
Guiding Principles
The following nine guiding principles should be considered the mantra of companies wanting to minimize environmental impact and maximize revenue:
- Integrate the environment in all business decisions.
- Seek the truth.
- Eliminate waste throughout the product life cycle.
- Treat stakeholders as you would want to be treated.
- Eliminate hazardous chemicals.
- Switch away from high-carbon energy sources.
- Promote cultures of innovation.
- Leverage new technologies/disruptions.
- Don’t forget basic principles.
Integrate the environment into all business decisions
Seek the truth
Eliminate waste throughout the product life cycle
Treat stakeholders as you would want to be treated
Eliminate hazardous chemicals
Switch away from high-carbon energy sources
Promote cultures of innovation
Don’t forget basic business principles
Key Websites
Related Reading
Chapter 1: Executing a Green Strategic Plan
Chapter 2: (Mis)Management Systems
Chapter 3: “Green” or Just “Good” Design
Chapter 4: Green Marketing: Moving Green Products to the Mainstream
Chapter 5: Supply Chain Drivers
Chapter 6: What Are the Alternatives to Petroleum?
Chapter 7: Emissions Trading
Chapter 8: Managing Human Resources to Nurture a Culture of Innovation
Chapter 9: Road Map for the Future
Bibliography
Appendix A: Examples of Eco-Design and Green Procurement Legislation/Policy
Appendix B: List of Acronyms
Index