This Week in Leadership
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Even as legislators and consumers have lost focus, companies increasingly embrace sustainability as smart business.
The recent global recession’s many adverse consequences included the robbing of a good deal of momentum from the fledgling green economy. In the United States, changes in the elected leadership and a general weakening of political will greatly reduce the prospects for legislation promoting sustainability. In 2010, Congress delayed spending on transit systems and deferred creating clear policy on alternative and renewable energy. Even consumers, faced with tough times, have taken a step back. A 2011 Harris poll found “adults in America are now less likely to engage in green behaviors in their daily life” than they were two years ago. Also in 2011, a Gallup poll showed Americans giving priority to economic growth over environmental protection by the largest margin in the last 30 years (54 percent to 36 percent). In the words of Joel Makower, chairman and executive editor of GreenBiz Group, “Saving the earth has taken a back seat to simply saving the day.”
This stands in stark contrast to the trend among corporate leaders, who are doubling down on their sustainability efforts, to a large degree because of the challenging economic times. In the past year, many companies seem to have crossed over from viewing sustainability as a smart marketing tactic or a regulatory obligation to seeing it as an elemental strategic driver. According to the GreenBiz Group’s recent report, “The State of Green Business 2011,” a growing number of executives view sustainability — whether in the form of reducing waste, improving efficiency or finding new business opportunities — as the key to competing in an increasingly resource-constrained world.
On a company by company basis, the GreenBiz report details a good deal of progress, especially in the areas of recycling and waste reduction. Some Kraft Foods plants, for instance, use the whey left over from making cream cheese to make enough biogas to generate 30 percent of the plants’ energy. Dell has reduced packaging volume, thereby reducing production, storage and transportation costs. Ford Motor Company, Stonyfield Farm and Procter & Gamble each have introduced petroleum-alternative packaging made from a wide range of biodegradable commodities. Unilever has focused on the impact of its supply chain, from the farms that supply raw materials for its products to the emissions and waste generated by customer use of those products. Wal-Mart Stores has instituted a series of five-year goals that address sustainable sourcing and waste reduction in the food supply chain, including a plan to sell $2 billion in food sourced from small and medium-size farms by 2015.
However, the report also identifies some broad areas of minimal or no progress and concern. Electronic waste continues to grow dangerously, as does the rate at which we are creating greenhouse gases. Organic agriculture still represents less than 1 percent of all U.S. cropland. And, although recycling efforts are laudable, most of them amount to getting just one additional use out of a given material or item before it eventually ends up in a landfill. The ideal of a closed-loop society in which everything is recycled is still a distant goal.
The lack of progress on several fronts frustrates many. Makower, for example, noted that it’s “time for bigger, bolder, more audacious changes in what companies do and how they operate.
Marc Gunther, a contributing editor at Fortune magazine who also writes for GreenBiz, offered an example: “Procter & Gamble sets carbon intensity targets, meaning that it will produce its products using less energy, but because of the company’s growth imperative, it will pollute more, not less, in absolute terms. I just wonder whether the emerging orthodoxy of green business, one that is willing to settle for incremental changes, is going to get us where we need to go.”
Stacy Mitchell, a senior researcher with the New Rules Project, which seeks to promote sustainable policy, provided a similar insight: “Wal-Mart’s eco-commitments are not without substance, [but] it has carefully defined the parameters of sustainability to avoid running up against the basic formula of how it operates and grows. Glaringly absent is any mention of sprawl or land use [or] how the big-box format that Wal-Mart pioneered has led to a sharp increase in the number of miles Americans drive for shopping.” Others point out that not only does Wal-Mart’s business model encourage frequent consumption and disposability, but it has also induced domestic suppliers to take their operations to lower-cost countries, where environmental impact controls are minimal and from which goods have to be transported great distances on petroleum-fueled container ships.
Some believe that the existing shareholder-driven model of corporate responsibility makes companies like Procter & Gamble and Wal-Mart intrinsically incapable of real sustainability. “It’s plain to me that market leaders have an inherent disincentive for radical innovation,” said Adam Lowry, co-founder of method, makers of nontoxic, biodegradable household cleaning products. “Disruptive new ideas require a company to cannibalize itself. That’s incredibly risky for a business that has incumbency.”
The nonprofit organization B Lab proposes to help change that dynamic by introducing a new kind of corporate legal structure called the Benefit (or B) Corporation that meets rigorous, independent standards of social and environmental performance and accountability. In return, B Corporations receive enhanced brand equity, service partnership discounts and tax breaks. B Lab’s stated mission is “to create a new sector of the economy which uses the power of business to solve social and environmental problems.” B Lab’s certification and advocacy efforts seek to redefine fiduciary duty to include having a positive — or at least not a negative — impact on society and the environment.
Many laud the B Lab approach as an addition, not an alternative, to shareholder-driven capitalism. They believe market mechanisms are already in place to reward companies that find ways to simultaneously serve their shareholders, their customers, their employees and their communities.
“Capitalism is by far the best system ever created for allocating resources, but there are market failures that require smart regulation,” said Farron Levy, president of True Impact, a consulting company that helps organizations measure the social and business value of their operating practices. “The value of B Lab is not regulatory, however, but how it helps companies be more attentive to their overall impacts. Ultimately, B Lab supports a concept that too often gets lost these days: the purpose of business is not to make a profit, but to create value, which earns profits. Value capture without value creation is a recipe for disaster, as our financial industry has so well illustrated.”