By Joel Makower, Chairman and Executive editor of GreenBiz Group.
In the world of sustainable business, there is a tried-and-true litany of reasons why companies take proactive measures. You hear them recited at conferences and read them in books and articles, as well as in companies’ own sustainable business reports and manifestos: We do these things not because they are required by law, but because they make us a better company. They reduce costs, improve quality, meet customers’ expectations, engage employees, and foster innovative new products and services. They help improve the bottom line and, in some cases, grow the top line.
Those are the reasons that have become standard rationale under sustainable business as usual.
But these are not usual times.
With increasing volatility, where everything from natural resources to supply chains to political realities to the global economy can be turned topsy-turvy in relatively short order, “sustainability” takes on new, poignant meaning. It has to do with aligning economic, environmental and social interests, of course. But increasingly, it is taking on even more strategic importance, linked to reducing supply-chain risk and ensuring business continuity during disruptions, the right to operate in resource-stressed areas, reliable and cost-efficient energy supplies, and brand value and reputation.
In other words, the things upon which companies sink or swim.
Here’s all you need to know about the state of green business: If the global private sector had to pay outright the true cost of their companies’ environmental impacts, it would cut profits by 40 to 50 percent.
That’s the key takeaway from the 2013 State of Green Business report (free download), my company’s sixth annual assessment of how well businesses are addressing the world’s environmental impacts. It also looks at the 10 megatrends that will drive change in the coming years.
Moving the Needle? We launched the report after more than a decade of reporting daily on business and the environment: how the world’s biggest companies are integrating a wide range of innovations and initiatives into their operations that align with their — and society’s — sustainability goals. It’s a world largely invisible to the public, despite the pace with which companies are aggressively reducing emissions and waste, increasing their use of renewable energy and resources, and creating new products and services to a growing global consumer culture.
So, is all that effort moving the needle on climate change, resource scarcity, toxic emissions, and all the rest? That’s what we set out to learn.
The report uses data from Trucost, a leading research firm focusing on natural capital and sustainability metrics, to measure companies’ natural capital costs, their supply-chain impacts, various measurements of transparency and disclosure, and other things.
The bottom line: Despite the seeming flurry of commitments and activity, companies’ efforts aren’t addressing planetary problems at the scale, scope, and speed they demand. At best, we’re treading water. At worst — well, all bets are off.
Here’s the good news: Something more fundamental is taking place when it comes to business and sustainability. The conversation is shifting from “eco-efficiency” and “doing the right thing” to more strategic issues: reducing supply-chain risk and ensuring business continuity during disruptions, the right to operate in resource-stressed areas, reliable and cost-efficient energy supplies, and brand value and reputation.
The New Rationale. Ours is a world in which a flood in Thailand can cut off global supplies of computer disk drives for the better part of a year; where a record-low Mississippi River can choke the flow of commerce; where an unprecedented hurricane (or “superstorm”) can upend one of the world’s financial centers for weeks. In that context, how should a company view climate change, renewable energy, and resource efficiency? How should its shareholders view risk and resilience as it relates to the surety of their investments? And how should communities assess the responsibility of companies within their regions, in terms of the fair appropriation of local resources when they become scarce?
Six CEF member companies will detail their efforts to protect and value natural capital at the Green Biz Forum on February 21st in NYC. “Understanding Natural Capital as a Core Business Issue” will feature Diana Glassman, TD Bank; Neil Hawkins, The Dow Chemical Company; Veli Ivanova, CH2M HILL; Mariann Quinn, Duke Energy; Jeff Seabright, The Coca-Cola Company; and Brandon Tidwell, Darden Restaurants, and is part of CEF’s effort to kick off the expansion of our Valuing Natural Capital Initiativein 2013.GreenBiz Forum brings together thought leaders and business executives to discuss the trends, challenges and opportunities in sustainable business today. CEF Members who attend (NY or San Francisco) are eligible for a 10% partner discount– just register here with discount code gbf13eco
The “old” rationale hasn’t gone away — companies are still harnessing sustainability to cut costs, improve quality, engage employees, and all the rest — but the world of sustainable business made some slight but profound shifts in 2012. As the global economy sputtered back to life, companies began to link their sustainability strategy to critical business activities. Today’s rationale might sound something like this: We do these things to insulate ourselves from turbulent times, adhere to customer requirements, ensure that communities where we operate will welcome us, and protect our reputation. They help us be resilient and ensure our survival amid disruptions.
Beyond Incrementalism. This is the new world of sustainable business. It goes well beyond the nice-to-do issues of “corporate responsibility” and “eco-efficiency.” It views incrementalism as insufficient, ignorance as unacceptable, and unpredictability as the new norm.
Technology is playing a critical role, with the growth and expansion of the interconnected, networked world. What has been dubbed the “Internet of things” is enabling companies, cities, and others to monitor, track, analyze, and control just about anything from just about anywhere, and do so increasingly cheaply and efficiently. Sensor networks and associated software and controls mean even highly rated “platinum” green buildings still can enjoy dramatic improvements in energy efficiency. Vehicles of all kinds, from bikes to buses, can operate more efficiently by maximizing their overall use and minimizing downtime, optimizing their innards to decrease fuel use, plotting routes to minimize time and energy, and employing other technological tricks. And communities, campuses, and cities can improve and strengthen their infrastructure by providing real-time data about their use, analyzing and troubleshooting operations 24/7.
But it’s not just tech. Last year saw a resurgence of interest in the idea of accounting for “natural capital” — the indispensable stocks of natural resources provided by the planet that are essential for human survival and economic activity. The notion of integrating sustainability reporting with financial reporting — and, in the process, making the two inextricably linked — also got some lift. In both cases, progress is slow and the changes relatively small, but the conversation is changing: These things are now being discussed by some of the world’s largest companies, and not just in passing. In the coming years, they will become part of sustainability’s next wave — a new level of company engagement with the world in which they operate.
Exceeding Goals. As engagement grows, some companies are finding they are able to achieve, even exceed, their sustainability goals. Suddenly, small improvements in energy efficiency seem quaint, compared with the leapfrog advances enabled by advanced technology and systems-level thinking. Some companies are even finding that they’ve set the bar too low.
The question, of course, is what positive changes are actually taking place, and at what speed, scale, and scope. Is the growing engagement of companies sufficient to alter the trajectory of negative environmental and social trend lines — issues like climate change, air quality, the health of aquifers, species extinction, the abundance of topsoil and fisheries, human health and well-being, and all of the other things that make up, for lack of a better term, “the sustainability agenda”?
That’s an open question. In our latest State of Green Business report, we take stock of the trends and indicators that tell how, and how well, the world of business is addressing these concerns.
Joel Makower is chairman and executive editor of GreenBiz Group, and lead author of the annual State of Green Business report.