The Greening of Business during the Economic Downturn

By Bruce Bendix and Chris Laszlo

For the majority of business managers, going green was a "nice to have" during the boom years. Now that difficult times have set in, such noble intentions need to be put on a backburner. Their view: in lean times business simply can't afford it. Conventional wisdom has it that environmental and social sustainability is expensive and not urgent, while other issues such as freezing costs have become critical to corporate survival. For companies with sustainability goals focused on energy efficiency and waste reduction, the not so hidden belief is that any well-run operation needs to address these goals and that there is no compelling reason to label them green.

Based on our surveys of hundreds of business managers, widespread confusion exists in most organizations as to the meaning and motives for sustainability. Some see it as a renewed moral agenda, expressed in environmentalist terms as ‘saving the whales'. For others, it is about anticipating tougher government regulations and maintaining license to operate. Still others hear it as charity and philanthropy. Skeptics consider it to be an inauthentic public relations exercise-greenwashing, as it is sometimes called. Finally, an emerging group of managers believe that sustainability is a powerful driver of innovation and business value.

The result of these differing (and often conflicting) views is that any business leader who wants to champion going green is meeting large and growing resistance - just at a time when society most needs business to play its part in innovating solutions to global problems.

Yet a small but influential number of corporate sustainability leaders are telling a vastly different story. When the CEOs of Procter & Gamble and DuPont are willing to tackle global challenges such as climate change and the widening gap between the rich and the poor, not as moral obligations but as a strategic business opportunity, you have to believe there is more going on than public relations. With its "Save money, Live better" campaign and focus on environmental sustainability, Wal-Mart's stock not only fell less than the S&P 500 in the three months prior to October 10^th (9% vs. 27%). It also benefitted from its reputation as a company that cares about the environment, from expanded sales of sustainable products such as fair-trade coffee and seafood certified by the Marine Stewardship Council, and from huge efficiencies in its store and fleet operations. General Electric, despite its falling stock price in recent weeks, has continued to show steady growth in its Ecomagination products from hybrid locomotives to wind turbines, reaching $20 billion in annual sales well ahead of plan. The great thing is that these success stories are drawn from mainstreet America; they are not niche businesses serving a minority of tree-huggers and they are not smoke and mirrors invented on Wall Street.

Sustainability leaders with household names are only the tip of the iceberg. We are working with numerous small and mid-size companies that are using sustainability pressures to drive innovation in their product designs and industrial processes. Far from being a cost to society and business, sustainability is emerging as a huge opportunity. Business leaders with vision and initiative are creating competitive advantage from the transition to a low carbon economy. They are figuring out new ways to tap into clean, renewable energy. Leading companies are reducing chemicals-of-concern to human health and finding an eagerly receptive customer base. In emerging markets, they are meeting basic human needs from nutrition and telecommunication to life insurance, and making a profit doing so.

In October 2008, a New York Times magazine article noted that Kleiner Perkins, the fabled venture capital firm, is raising hundreds of millions of dollars to pour into clean or green technologies. They see "solving the next huge problem for the planet. . .as the biggest target ever seen in [their lives]" and they also "don't expect the credit crunch to change that".

Recent events have only made sustainability more critical to companies. The lessons learned in the financial crisis will be an accelerant to regulation everywhere. Companies that do not get ahead of coming regulations will pay a heavy price. As Jeff Immelt, the CEO of General Electric said in a 2008 Fortune Magazine article, "You either get out ahead of these things or you get stomped by them". GE has been actively arguing for mandatory carbon caps and other stricter environmental regulations. Companies like GE that help shape regulations that they can meet better than their competitors create competitive advantage.

Trust in institutions is at an all time low. Activities that were "under the radar" will get increasing attention and criticism. Transparency is an unassailable reality for companies. Companies like Dole have used the internet to provide transparency in their global supply chain, in this case for organic bananas. They are taking the kind of actions needed for companies to regain trust and at the same time provide product differentiation for their customers.

As has been made very clear in the financial sector, companies are of greater risk today of complete annihilation as their reputation and confidence evaporates. Even before the recent carnage on Wall Street, numerous companies from Arthur Anderson to Union Carbide disappeared with huge losses in wealth and in employment because they ignored key risks in how they conducted their business. Today many companies have huge unrealized costs due to a lack of visibility and accounting for the risk of unsustainable business practices. How many company boardrooms are in denial about the sustainability-related risks in their businesses?

The solution for companies is to rapidly re-orient their priorities from financial value at any cost to society, to shareholder and stakeholder value driven by innovation. We need to revisit why our society created the construct of a corporation in the first place-it was not "just to make money" but to "knit together the whole fabric of civilization" in the century-old words of IBM founder Thomas J. Watson Sr. Companies that deliver value for customers, consumers, and local communities, governments, NGOs and the world community as a whole will have the largest sustainable profit opportunities and be the most immune to the economic tremors which are shaking our world today.

About the Authors

Bruce Bendix formerly was one of the lead partners for Accenture's Growth and Innovation Strategy Practice. He is an Associate Partner of Sustainable Value Partners, and founder and Managing Director of Eco Squared Consulting which helps companies develop sustainable strategy solutions. He has an MBA from Harvard Business School and a BS in Mechanical Engineering from Stanford University.

Chris Laszlo, PhD is the author of Sustainable Value: How the World's Leading Companies Are Doing Well by Doing Good (Stanford University Press, 2008). He is currently Visiting Professor at the Case Weatherhead School of Management in Cleveland, Ohio, and Visiting Scholar at INSEAD in Fontainebleau, France. He is a co-founder of Sustainable Value Partners, the strategy consulting firm.