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Why being a green laggard is bad for business

June 2, 2009

This article was just published on GreenBiz.com:

Have you recently been targeted for your lack of progress on addressing climate change and sustainability issues? Have you not incorporated sustainability strategy into your operations because you think you have more important issues to focus on?

Then this article is for you.

If you know a CEO who fits this description, please pass this on. If you are already sold on the business case for going green, but need advice on how to get started, Part II of this series will be of interest to you.

Because even though there are plenty of companies that are leading the charge in the green business movement — and reaping significant rewards in the process — there are just as many, if not more, laggards who are slow to the game. So I will lay out three of the simplest reasons why sustainability makes good business sense from a bottom-line perspective.

The elevator to pitch to a skeptical CEO on why sustainability makes good business sense would contain these top three reasons:

• It will save you money
• It will provide better access to capital
• It will drive top-line revenues

It Will Save You Money

More efficient use of energy and cutting out waste saves you money. Big, expensive sustainability plans are not necessary to get started. Bonnie Nixon, Director of Environmental Sustainability at Hewlett Packard (HP), advises to scan your operations and begin by looking for quick wins. HP has recently focused on areas that would quickly provide both cost-savings and environmental benefits such as consolidation of their real estate and data centers and a commitment to teleconferencing. HP’s Halo system enables companies to cut travel time, dramatically reduce travel costs and lower one’s carbon footprint.

The Environmental Defense Fund’s (EDF) Climate Corps program places specially trained MBA students into corporations to identify energy efficiency improvements. In 2008, their fellows discovered efficiencies in lighting, computer equipment and heating and cooling systems that could save the participating companies $35 million in net costs over five years.

According to EDF, “companies are missing significant savings in annual operating costs — around $40,000 for every 50,000 square feet in office space using no-cost or low-cost measures…”

Teams from Natural Capitalism Solutions have shown companies how to save millions each year by turning off unnecessary lights and unused computers. Nationally, turning off unused computers would save $2.8 billion and enough carbon emissions to equal removing 4 million cars from the roads.

A recent study by A.T. Kearny cites a global consumer packaged goods company, featured on both the Dow Jones Sustainability Index and the Goldman Sachs SUSTAIN focus list, that increased production by 76 percent since 1998, but reduced its greenhouse gas emissions by 16 percent — improved energy efficiency saved the company about $30 million in 2007.

Aberdeen Group’s recent report Sustainability Matters found that companies in the top tier of sustainable performance had a 9 percent decrease in energy costs, 10 percent decrease in overall facility costs, 11 percent decrease in paper costs and other costs savings in waste disposal, transportation logistics and packaging, while the laggards had an 19 percent increase in energy costs and 15 percent increase in facility costs.

It Will Provide Better Access to Capital

Institutional and socially responsible investors are pushing companies to integrate climate risk and sustainability into their business strategy.

“Another aspect of the integrated bottom line,” explains Hunter Lovins, president and founder of Natural Capitalism Solutions, “is better access to capital. Companies that are high on Dow Jones Sustainability Index may find that they have an easier time getting capital. Socially responsible investors typically won’t lend to companies that don’t have a sustainability policy.”

“The most sustainability-focused companies may well emerge from the current crisis stronger than ever — recognized by investors who appreciate the true long-term value of sustainability,” according to the A.T. Kearny report.

It Will Drive Top-Line Revenues

A commitment to sustainability can also drive top-line revenues. It can catalyze innovation, attract the best and brightest talent, inspire new products and increase market share by differentiating products.

Lovins points to the example of STMicroelectronics, which made a commitment to become carbon neutral by 2010 with a 40-fold increase in production. The process of figuring out how to achieve this ambitious goal was a catalyst for corporate innovation, increasing the company’s market share and saving millions of dollars in the process.

Yale University set a goal of designing a new, carbon-neutral building for the School of Forestry and Environmental Studies. Despite all kinds of impediments, the commitment to being carbon neutral spurred the design team to stretch, try new technologies and ultimately set a new benchmark for a sustainable building. The school’s new Kroon Hall is a great example of how an audacious commitment can spur innovation and create opportunities to advance change.

And while there is disagreement on whether in this economy consumers are willing to spend more for green products, according to a new report by the Yale Project on Climate Change, The Six Ways Americans View Global Warming [PDF], there is a growing group of “alarmed” and “concerned” consumers willing to reward companies addressing climate change by buying their products and also willing to punish companies by not buying their products.

Ready to Get Started?

If any of the above arguments resonate with you, create a senior level sustainability position and empower it with the resources to get started. Part II of this series, “You are a Sustainability Director: Now What?”, offers seven tips for newcomers to the role.

Reports on the Business Case for Going Green

Green Winners by AT Kearney
Sustainability Matters by Aberdeen Group
Green is Gold by Goldman Sachs (older, but still referenced)
The Responsible and Sustainable Board by Deloitte
Business Case for Climate Protection by Hunter Lovins

For another perspective on the same topic, check out this piece on Harvard Business Press.

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