Sustainability Leadership
I received a few interesting responses to my last blog posting so I thought it may be fun to keep the dialogue going. The comments I received are pretty consistent with what I hear from many friends and colleagues here in the Bay Area – namely that companies need to be regulated in order to really take progressive, proactive action on social, environmental and labor issues. In particular, I believe most folks feel that companies need regulation to take meaningful action on global warming via hard-hitting new regulation on energy usage and GHG emissions reduction. While I think there is some truth to the fact that companies do need to be “motivated” by regulation (a.k.a. the “cattle prod approach”), I also see companies taking proactive steps independent of regulations, and I think that this should be acknowledged. I also think that such proactive steps if/when taken for the right reasons represent our best shot at truly meaningful, lasting, long-term change.
At my company, Aravo, we speak with Fortune 500 firms on a daily basis about their sustainability initiatives, priorities and plans. While I will acknowledge that carbon management is typically number three or four on the priority list at this time, it does appear on the list. We see our clients and prospects – including leading firms such as Ford, GE, Google, Citigroup, Best Buy, and Caterpillar – actively seeking our advice and guidance as they plan and implement a range of sustainability programs. Key areas we see firms focusing in on include toxic substances management, green sourcing and procurement, supplier and factory audits, waste management, and, yes, carbon footprinting and GHG management. In only one case presently can I identify the client or prospect acting out of a need to meet the needs of regulators, and all the rest are voluntary. (Of interesting note is the fact that the one regulatory client is responding to EU regs around toxic substances rather than US).
I am particularly impressed by the senior sponsorship sustainability initiatives typically receive within these enterprises. In many cases we are dealing with C-level executives, and in nearly all cases we are told that the client or prospect’s management team and Board are closely tracking sustainability program development and deployment. As I think about this I credit IBM, GE and Wal Mart with a lot of this momentum inside companies. Each of these firms has taken the position that sustainability is good for business and the bottom line rather than a burden to be dealt with. For example, Wal Mart stands to save billions of dollars by reducing packaging; GE sees immense opportunity for a variety of green products ranging from locomotives to home appliances to HVAC systems; and IBM, through its Big Green initiative, sees huge new markets for technologies that help companies and municipalities gather, analyze and act on a variety of sustainability-related data. These leading firms take a very different, and far more capitalist, approach to sustainability versus standard regulatory “command and control” systems.
All of the above said, I very much agree with some of the comments I have received that many companies will require firm, clear regulations in order to take meaningful action on carbon reduction and energy conservation. I simply argue that the best companies, the companies who really “get it” are currently showing signs that they are out well ahead of regulations and intend to capitalize on the sustainability “sea change” to their benefit rather than view sustainability as a burden to be managed.
I agree with the sentiment that the proactive steps business takes toward sustainability “should be acknowledged” and the “senior sponsorship [of] sustainability initiatives” is impressive.
1Regardless of motivations, their progress benefits the environment, broadens legitimacy of sustainability and persuasively demonstrates cost-effective practices. In return, their green-wise customers reward them with sales, EPA recognizes their green practices with numerous awards, and their green-brand is burnished. Responsible business is good business and the firms you identify are market leaders.
Unfortunately, when we look at just two of the initiatives you mention — management of toxics and greenhouse gases — progress seems to have stalled or barely started. In each case, though, the media heralded the voluntary commitments. According to EPA’s Toxic Release Inventory (here) some emissions are down and others up, with little or no overall reduction since 2001. For example, under global economic pressures in the mid-1990s, the U. S. chemical industry understandably quietly abandoned its celebrated voluntary commitment to reduce its toxic releases 50% below 1990 levels. The TRI rules require reporting, not reduction.
The CCX (Chicago Climate Exchange) is the first voluntary and legally enforceable program to reduce GHG emissions. During a February 2008 presentation to the California Air Resources Board, Mike Walsh of CCX showed that through 2006 (four years of operations), members had reduced their direct emissions by 171 million metric tons of CO2-equivalent gases. That seems impressive until compared to the total U. S. emissions over the same period of approximately 29,000 million metric tons (0.5% of total emissions). Yes, this is action and it is preferable to no action, but it’s hardly commensurate with the scale of the problem.
Like you, I’m no advocate of command-and-control. But it’s hard to argue with results. Since passage of the Clean Air Act in 1970 (and two subsequent sets of amendments), even places as conducive to smog formation as Los Angeles have improved air quality, amidst substantial population and economic growth. The job’s not complete but the improving trend is evident throughout California and the rest of the U. S. Similar trends are evident in water quality, except for mercury levels outside of Florida.
Sustainability is not easy to define, at least operationally, and seems too malleable for government regulation. Unlike air and water quality, for which standards can be established and progress toward attainment tracked and enforced, metrics for sustainability are in a nascent state of development. Few have publicly explored the quantitative linkages between sustainability metrics and financial goals.
Sustainability initiatives in the aggregate are tough to value and so far virtually impossible to examine through cost-benefit analysis. As a result, evaluations are done item-by-item and project-by-project, subjecting each to some “financial hurdle” such as cost-savings, return on invested capital, or discounted cash flow. Other concepts such as the Balanced Scorecard or Economic Value Added may also come into play. Here’s where new sustainability performance metrics are needed and where corporate culture and leadership is crucial—either pushing the close-calls forward or sending them to the investment land-fill. For those that survive the “test”, measuring and tracking performance seems valuable.
Businesses may be entering a tough economy. Can business maintain its voluntary sustainability programs—with its unavoidable upfront costs—without enforceable directions? Will “sustainability as a value creating strategy” stand up against short-term performance pressures? Or, will the program’s expense be looked upon as a necessary investment for building the organization of the future? It might be easier to accelerate progress with government regulations, but complying with inappropriate promulgations could be money and time wasted, and could damage the legitimacy of sustainability. At this point, it seems the ball is in business’ court. Let’s hope for all of us business can keep it in play. If so, then I too would agree that “meaningful, lasting, long-term change” is likely.