Thinking Green in a Blue Economy

Joel_makower_jpegsJoel Makower takes a close look at the impact that the current economy might have on businesses that are trying to green.  He states that unlike during economic crunches of the past, this time businesses and their environmental departments are capable of outlasting the crisis and in fact might be able to take advantage of it by further reducing costs, improving efficency and setting themselves apart in front of consumers.

Posted Oct. 20th, 2008
By Joel Makower, Two Steps Forward

A few weeks ago, I keynoted a conference of leaders from the
Washington, D.C. metropolitan area — corporate executives, government
officials, nonprofit leaders, and at least one university president.
During the Q&A portion, one corporate VP asked how to weigh the
implementation of environmental initiatives that don’t have attractive
returns on investments. "How can I justify putting money into things
that don’t make business sense?" she asked.

Makower_graph_jpegMy answer: You probably shouldn’t bother.

That seemed like common sense to me, but — as I learned later — it sent a minor ripple around the room. Could
this green business evangelist possibly be suggesting that one needn’t
engage in green initiatives that don’t make financial sense?
"It was liberating," one of the audience members told me later. "I don’t think we expected you to say that."

Their response caught me off guard, too. I hadn’t fully appreciated
how much some business people were grappling with the tyranny of going
green. I’ve since probed a bit deeper and found more than a little
guilt among some senior environmental managers who feel they’re not
doing enough, in part because they can’t make the business case for
doing more. The issue is perennial, but it takes on even greater import
during turbulent economic times. It’s not surprising that in the
current climate, companies have a limited appetite for investing in
environmental improvements that don’t have a discernable and solid
return.

Questions about how green business will fare amid the current
turmoil have been coming up almost daily as I traverse from speech to
meeting to conversations with friends, colleagues, and strangers in
airports, and peruse the opining online. (I also queried the 5,000 or
so members of GreenBiz.com’s Green Business network on LinkedIn,
which I’m finding to be a highly useful tool.) The question most
frequently posed: How should we think about green in a blue economy?
When times get tough, should we stay the course or alter it?

It’s a question that is as curious as it is logical, as it seems to ask: How much "green" is worth it?

In the past, the answer was, "Only as much as we can afford." That
was because most environmental departments were seen as costs to be
minimized. During previous downturns, environmental managers were
usually among the first to be tossed overboard in the name of
cost-cutting (or, as the 1990s euphemism put it, "re-engineering"). In
many ways, environmental managers — good, earnest people committed to
improving their company’s environmental performance — brought this on
themselves by failing to demonstrate that they could add value, not
just incur costs. As my friend Rob Shelton put it years ago, most
environmental managers had more in common culturally with the EPA than
the CFO. That is, they could geek out with the regulatory crowd about
such things as biological oxygen demand or parts per million of noxious
chemicals, but they couldn’t talk with their own company’s bean
counters about how their good, green work was cutting costs, risks, and
liabilities; improving quality; and reducing recruitment and training
costs by improving employee retention. As such, corporate enviro folks
dug their own professional graves.

Things have changed. Here are three ways they’re different:

Commitments: Many of the current generation of
environmental managers inside companies — including a few survivors of
those earlier times — are no longer marginalized, increasingly viewed
as key players. In many cases, their companies have made commitments to
shareholders, customers, and stakeholders to reduce energy use,
greenhouse gases, toxic emissions, and other forms of waste and
pollution. And while it’s possible that a dire recession or depression
could lead companies to backslide on these commitments, they would do
so at their own reputational peril, especially if their competitors
didn’t follow suit.

Cost-cutting: Even without commitments, most
companies now recognize that well-executed environmental programs lead
to reduced operating costs and improved efficiencies. The pressure to
do both could accelerate during tough times, and environmental
departments may find themselves with increased demands, if not
concomitantly increased budgets and headcount.

Customers: In many respects, WMT is the new EPA.
WMT, for the non-cognoscenti, is the stock-symbol shorthand for
Wal-Mart, the biggest of a growing number of retailers and other
business-to-business customers that are putting demands on suppliers,
requiring that they take green measures seriously — not just by
reducing emissions and waste but by bringing innovative and affordable
green products to market.

None of this ensures that green is here to stay — after all, we’re
entering uncharted economic territory — and there are countervailing
forces to consider. As long as credit remains tight, for example,
companies will struggle to find the capital for these investments. Many
promising clean-tech start-ups will be left to whither and die, unable
to garner capital to execute their go-to-market strategies. Regulatory
backtracking on expected carbon regulation in the name of economic
recovery could defer corporate initiatives. To succeed, companies — and
their environmental leaders — will need to be smarter than ever in
picking and choosing projects, making sure to showcase economic "wins"
whenever possible.

But the problems — climate change, energy and water shortages,
growing global competition for finite resources — aren’t going away.
The greening of business is hardly a "nice to do." It will endure.

What about all the recent articles heralding the bursting of the
green business bubble? Most are referring to green-consumer purchases —
organics, hybrids, solar panels, green cleaners, and other products
viewed as upscale and, therefore, discretionary. Sales of these and
other products will likely dip, if not swoon, a natural reaction to
belt-tightening times.

But the hand-wringing is overblown. Example: Ad Age recently
reported that "The green-marketing movement is taking a hit from the
economy," citing a Duke University study that concluded that chief
marketing officers "are placing less emphasis on cause-related and
environmental issues. In fact, marketing that is ‘beneficial for
society’ or that minimizes the impact on the environment ranked at the
bottom of five priorities listed by respondents for the next 12 months."

Moreover, said the advertising trade journal, "some backers of
sustainability efforts" are "soft-pedaling their efforts or girding for
a time when such messages pack less punch." For example:

Wal-Mart Stores, which made sustainability a central
feature of its communications strategy in recent years, is talking
about it less often lately. An analysis of news stories on LexisNexis
shows an average of 73 stories monthly featuring Wal-Mart and
"sustainability" in the past year but only 37 in the past month.
Environmental or sustainability themes had found their way into only 12
Wal-Mart press releases through Sept. 11 of this year (and none since
June), compared with 29 during the same period last year.

But simply counting news stories is misleading. Behind the scenes,
Wal-Mart is preparing to roll out an ambitious scorecard system that it
hopes to implement to its 60,000 or so suppliers. The system, still be
devised, will rate hundreds of thousands of products on a wide range of
environmental criteria. It’s just one of many companies that have
developed ratings systems for suppliers and their products.

The Wal-Mart example is telling. As I’ve stated frequently (and cover extensively in my book),
most green business activities take place out of public view, a vast
assortment of both incremental and more dramatic changes that aren’t
obvious in finished products: less-embedded energy, water, materials,
toxicity, carbon intensity, and all the rest. Companies are doing these
things with little or no marketing fanfare, in part because these can
be difficult stories to tell; they often amount to "doing less bad," an
underwhelming marketing claim, to say the least. So, companies are
happy to enjoy the financial rewards, foregoing the reputational ones.
A dramatic drop in press releases is hardly an indicator of diminished
activity.

At the end of the day, most green business activity is — or should
be — about making companies, and economies, more resilient and
competitive. That seems to me to be a recipe for success during good
times and bad. Green can make sense when times are tough — and even because times are tough. As such, forecasts of the death, or dearth, of green business activity are greatly exaggerated.

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