Henkel's 20-Year View of Sustainability Reporting
I got a PR pitch recently about a multinational company’s just-published sustainability report. Nothing new there; I get those dozens of times a year. They’re sometimes interesting, though only rarely newsworthy.
This one was for the Henkel, the German-based maker of brands and technologies for laundry and home care products, cosmetics and toiletries, and adhesives. Henkel’s report seemed solid -- the company’s sustainability performance was outpacing its targets, etc. No big deal. I prepared to move on to the next thing.
But one thing jumped out: This was Henkel’s 20th annual report. That puts the company at the head of the class. Only a handful of firms have issued such reports annually for 20 years.
Intrigued, I reached out to Uwe Bergmann, Head of Sustainability Management at the Dusseldorf-based company. I wanted to know what Henkel had learned about sustainability reporting over the past two decades.
Bergmann has been with Henkel since 2000, “so technically this is my eleventh,” he quickly pointed out. But he’s no stranger to reporting. “I did my first bachelor project on reporting in 1995 and included Henkel’s report back then, and then again in my master thesis later on.”
Henkel’s first sustainability report came in 1992, the year of the Rio Earth Summit. That event spurred a handful of companies -- probably no more than a couple dozen -- to publish reports on their environmental commitments and performance, among them Bank of America, Baxter, British Telecom, Ciba-Gigy (now part of Novartis), Dupont, and Shell. These weren’t the first companies to report -- a few others first issued reports in the 1980s, notably from the chemical industry, which was under fire by activists for toxic misdeeds.
At Henkel, the assumption was that its first report would be followed two years later by its second -- a pace other companies were taking. But, says Bergmann, “There was so much internal and external feedback that we decided that we were going to account for it annually.”
He recalls: “The first one was very much centered on Germany and the data was basically just the headquarters, our biggest production site. Over time, the number or production sites we included increased to the bigger international sites. Nowadays we cover [sites representing] 98 percent of the production volume.” The quality of reporting grew, too, to include more aspects of Henkel’s operations, and some of its suppliers’ impacts. Over the years, the scope of the report broadened from environmental topics to include safety and health (starting in 1998), and sustainability (starting in 2001).
I plied Bergmann with questions to garner some of the lessons Henkel has learned from all these years of reporting. Following is an edited summary of what he shared.
Is the report an end unto itself or a tool for continuous improvement?
I would say it’s the end of a process. I mean, we report about our progress of the previous year. So, whatever is in there we have done and conceptualized. But the discipline of writing the report obviously gives some rationale to continuously work on your systems, on your coverage of reporting systems and gives the whole exercise an element of discipline.
You have to separate between the sustainability report and our internal reporting tools. We have tools to report our data from the sites and they do a quarterly reporting on their environmental data. And you have occupational health and safety reporting tools where you track any accident that happens.
Who is the principal audience for the report?
There are a number of expert audiences, especially in the socially and ethical investment community, and they will spend a lot of time reading it very intensively. Also universities. Internal audiences or customers won’t be reading it as intensively back-to-back but will be going through picking out interesting stories. So it’s basically a Swiss Army knife.
We try to write it in a way that it’s understandable for interested lay people, and there’s a lot of them around. They can be working for our customers. They can be working for authorities, or they can be interested teachers in the community or just interested consumers. So, they have to be able to understand it. It also has to be relevant and substantial enough for the expert audiences social and ethical investment specialists or even sustainability specialists, such as customers who assess their suppliers.
So, we try to cover all of those. And the feedback so far has been that we’re doing fairly successfully by having a pretty compact format, having the relevant examples, but pretty understandable language.
April 25, 2011 in Business Practices, State of the Art | Permalink | Save This Page | Comments (2)
Earth Day and the Polling of America 2011
It’s become a rite of spring: a bumper crop of data, surveys, polls, and analyses about the green market space. Each year, as Earth Day comes into view, a picture emerges about U.S. consumer attitudes toward green business and green shopping. It’s a murky picture at best.
As I have done for the past several years (see 2007, 2008, 2009, and 2010), I’ve waded through the latest tranche of data — nearly a score of research reports from major agencies (Gallup, Harris, Ogilvy), boutique firms (BBMG, Cone, Shelton) and some lesser-knowns (Mambo Sprouts Marketing, anyone?) — that has come out over the past several months. It’s a tedious, mind-numbing exercise, to be sure. But it’s my self-appointed duty.
Here are three conclusions I’ve harvested from the latest crop.
1. Consumers are taking a harder look at companies, but they’re not impressed. The notion of green business is starting to be eclipsed by the larger notion of sustainable or responsible business, which encompasses social and environmental issues, as well as overall ethical behavior.
As they scan the marketplace, consumers seem underwhelmed. According to the Cone Shared Responsibility Study, three-quarters of Americans assign companies a “C,” “D,” or “F” grade on how well they are engaging consumers around critical social and environmental issues. That’s unfortunate, given the steady parade of progress that we report each week on GreenBiz.com — major commitments and achievements by big companies — though little of this makes it into the mainstream media.
Sustainability seems to be growing as a concept, even though not everyone groks the term. According to the Hartman Group, 15 percent more consumers are now aware of the term “sustainability” compared to three years ago (69 percent in 2010 vs. 54 percent in 2007), though only 21 percent can identify a sustainable product and even fewer, 12 percent, can name specific companies as “sustainable.”
That’s worth repeating: About four out of five consumers can’t identify a sustainable product and nearly nine in ten can’t name a sustainable company.
All of which points up two big problems: One, “sustainability,” for all its use by companies, remains a mystery to many people. And two, companies haven’t yet figured out how to tell their stories in compelling and credible ways.
Companies’ walk-talk gap remains vast — but not in the way many consumers think. The reality is that companies are walking far more than they’re talking — that is, doing more than they’re saying.
That was evident in the Sense & Sustainability study by the public relations firm Gibbs & Soell. It found that 29 percent of executives believe that a majority of businesses are committed to “going green,” compared to only 16 percent of consumers who believe this. Closing that 13-point gap would be a good start, though it would mean that more than two-thirds of the populace still remains unconvinced.
Suffice to say, there’s a vast chasm of credibility. Citizens want to be heard by companies and want to hear what companies are doing, but they don’t necessarily trust companies on either count. According to Cone, 84 percent of Americans believe their ideas can help companies create products and services that are a win for consumers, business, and society. But only 53 percent feel companies are effectively encouraging them to speak up on corporate social and environmental practices and products. That represents a big opportunity for smart companies to differentiate themselves.
To be sure, it’s a risky proposition. Cone found a whopping 92 percent of consumer saying they want companies to tell them what they’re doing to improve their products, services and operations. But nearly as many — 87 percent — believe the communication is one-sided — that is, companies share the positive information about their efforts, but withhold the negative — and 67 percent say they are confused by the messages companies use to talk about their social and environmental commitments.
The takeaway: Companies must walk a tightrope of credibility. They need to get much better at talking about their sustainability commitments and achievements, as well as listening to customers’ ideas and concerns, all the while managing the public’s inherent skepticism about companies’ authenticity in this arena.
2. Consumers aren’t as green as they claim. Talk about a walk-talk gap: Even in a good economy, consumers profess a higher level of interest in environmental shopping and living than they actually demonstrate in their actions. For example, at the beginning of 2011, a survey by Opinion Research for the paper company Marcal revealed that 80 percent of Americans planned to be greener this year. That’s typical of consumers’ irrational exuberance of green shopping, as I’ve noted in the past.
Research by the Natural Marketing Institute, which tracks the so-called LOHAS (Lifestyles of Health and Sustainability) market space, found that four out of five of the consumer segmentations it tracks are “much more involved in the sustainability marketplace and lifestyle than they used to be,” as NMI’s Gwynne Rogers told me earlier this year. Only one segment, the “Unconcerneds,” representing 17 percent of the marketplace, are holdouts.
The high numbers from some research firms belie a continued reluctance by consumers to actually shop their talk. (But it doesn’t stop hyperbole: NMI’s research recently led one green marketing author to tout that “83 percent of consumers … are some shade of green.”)
Consider the countervailing evidence. Brand Sustainable Futures, a report by Havas Media and MPG, found that while sustainability remains a key issue for consumers worldwide, only 5 percent of U.S. consumers always consider environmental/social aspects when making purchase decisions, deterred by confusion, lack of clarity and perceived higher prices.
True, you’d expect only a small sliver of consumers to “always” shop green and responsibly. And you might get to 80 percent if you consider anyone who’s ever made at least one such purchase — a less-toxic cleaner, an energy-efficient appliance, an organic food, or a “natural” cosmetic. But there’s a vast space in the middle, which is what most of the market segmentations attempt to measure and analyze — nearly all of which I find wanting.
Research by the polling firms, as opposed to those selling market research services, seem to be more sober:
- Harris Interactive found a one-year drop in the number of Americans who say they are "going green." U.S. adults “are now less likely to engage in various green behaviors in their daily life,” says Harris, including purchasing locally grown produce, locally manufactured products, and organic products; using less water; and composting food and organic waste.
- Gallup found the widest margin in nearly 30 years in Americans prioritizing economic growth (54 percent) over environmental protection (36 percent). “Americans for the most part have given the environment higher priority since Gallup first asked this question in 1984.”
Here are two noteworthy demographic findings I came across:
- Older men are more skeptical about green marketing, according to the advertising insight firm Crowd Science. People over 55, and men in particular, are almost twice as likely to hold the opinion that shopping for green products makes no difference.
- Lesbian, gay, bisexual and/or transgender (LGBT) adults are accelerating their personal commitment to environmental issues at a higher rate than their heterosexual counterparts, found Harris Interactive. A majority (55 percent) of LGBT adults, say they "personally care a great deal about the current state and future of the environment," compared to just 33 percent of heterosexual American adults.
The takeaway: There’s still a lot of bluster on the part of consumers about their willingness to make good, green choices in the marketplace. The reality comes down to a small handful of products where consumers believe there either is sufficient value proposition (energy savings, health) or acceptable tradeoffs (higher prices, inconvenience). But don’t fall for some marketers’ everyone-is-going-green hype.
3. Consumers aren’t getting any smarter. You’d think that, after all these Earth Days, there’d be a greater consciousness among consumers, and greater confidence about the environmental choices they make. But that just doesn’t seem to be happening.
For starters, there’s climate change. Public confusion about the climate — Is it changing? Whose fault is it? What can be done? — has been well documented. A report by the Yale Project on Climate Change Communication found that 63 percent of Americans believe that global warming is happening, “but many do not understand why.” The study also found important gaps in knowledge and common misconceptions about climate change and the earth system.
It concluded that many Americans lack some of the knowledge needed for informed decision-making in a democratic society. For example, only 57 percent know that the greenhouse effect refers to gases in the atmosphere that trap heat. Meanwhile, “large majorities incorrectly think that the hole in the ozone layer and aerosol spray cans contribute to global warming, leading many to incorrectly conclude that banning aerosol spray cans or stopping rockets from punching holes in the ozone layer are viable solutions." (Ozone-destroying chlorofluorocarbons have been banned from aerosols in the U.S. for a third of a century, since 1978.)
The Shelton Group, while tracking attitudes toward energy efficiency, found several data points indicating that “more Americans than in previous years 1) think that they're doing more than they really are, 2) think that they're doing all that they can, or 3) think that they've done enough already. All three of these perceptions are troubling because they increase resistance to taking on the more substantial home improvements that truly reduce energy consumption.”
The takeaway: Companies have their work cut out for them getting consumers smarter and more motivated about environmental issues. As it stands now, some consumers are losing interest.
All in all, I like the conclusions of BBMG, which recently released a report on The New Consumer — its coinage for that portion of the U.S. adult population it describes as “values-aspirational, practical purchasers who are constantly looking to align their actions with their ideals; yet tight budgets and time constraints require them to make practical trade-offs every day.” BBMG estimates about a third of Americans fall into this category, but only one in three “strongly agrees that it’s important to purchase products with social and environmental benefits, even in a tough economy.”
Let’s see: one in three of 33 percent equals about 10 percent of the population. That seems a more realistic appraisal of who’s really committed to green shopping and lifestyles. By and large, says BBMG, the New Consumer represents U.S. demographics but skews younger, female, and educated. That, too, feels about right.
Says BBMG:
New Consumers are looking for brands that deliver “total value” — products that work well, last longer, cost less and, hopefully, do some good. They want brands that deliver the “triple value proposition” — uniting practical benefits (e.g., cost savings, durability and style), social and environmental benefits (e.g., local, fair trade and biodegradable), and tribal benefits (e.g., connecting them to a community of people who share their values and aspirations).
The jury is out as to whether a third of Americans shop with their tribal members in mind. But I’ll take it on faith that consumers are seeking something to give them meaning and fulfillment during these tough times.
Problem is, no one’s sure exactly what that is.
March 28, 2011 in Green Marketing, State of the Art | Permalink | Save This Page | Comments (3)
Clean Tech’s First Decade
Ten years ago, Ron Pernick and I started a company to help companies, public agencies, and investors better understand and tap into the emerging world of clean technology. This week, that company, Clean Edge, published its 10th annual assessment of the clean-tech marketplace, so it seems an appropriate time to step back and take a broader look.
At the time Clean Edge was born, the term “clean tech” was nascent. As Ron explains: “Clean tech was virtually unknown in the mass media, in business circles, and among politicians. At the time, there was one clean-tech institute in India and the United Nations used the term sporadically, but decided, in a move that only a bureaucrat could love, to use the term ‘environmentally sound technologies’ or ESTs, instead.”
In April 2001, Clean Edge published “Clean Tech: Profits and Potential” (download – PDF), one of the earliest efforts to define the space. We divvied the sector into four major buckets: energy, transportation, water, and materials. We made some predictions about market growth. We proffered some thoughts about what it would take for that growth to happen.
Eight months later, in January 2002, we published the first of what would be an annual assessment of the clean energy marketplace, the part of the clean-tech world that was growing most quickly. They include annual forecasts of the decade ahead, providing growth estimates for various energy technologies.
The most recent of these, Clean Energy Trends 2011, has just been released. You can download the free report here.
Looking back 10 years, some of those forecasts, however bullish, proved to be a tad sheepish. Example: We forecast in 2001 “the markets for clean energy technologies growing from less than $7 billion today to $82 billion by 2010.” The most recent Clean Edge report puts the 2010 market value of just three clean-energy technologies — biofuels, solar photovoltaics, and wind power — at $188 billion. Hey, what’s $106 billion among friends?
But the gist of what we wrote in 2001 was on the money: the political, social, and technological context for the forthcoming clean-tech boom, and the potential barriers and wildcards that could slow or accelerate the development of clean tech. The latter included government support, or lack thereof; the vagaries of economic swings; the potential for incumbent companies (and their lobbyists) to resist change — or suddenly jump in; the need for standards that would accelerate market uptake; the infrastructural changes needed to support some of these technologies; the acceptance of clean technologies by customers, both institutional buyers and individual consumers; and activists’ role in “keeping the heat on companies, governments, and others to develop and promote clean technologies.”
All of those remain critical components of a robust clean-energy future.
The clean-tech marketplace has matured, and it’s changed. A decade ago, clean technology was the domain of mostly start-up companies. A few oil companies — BP, Exxon, Shell — dabbled in solar, fuel cells, or wind power — but few other large corporations had even dipped a toe into the clean-tech waters. Today, it’s difficult to find a large company that doesn’t have a clean-tech play.
Want proof? Consider: What do the following companies have in common?
3M, Agilent, Audi, Autodesk, BASF, Best Buy, Bosch, Caterpillar, Dow Corning, Dupont, Eaton, Firestone, General Electric, IBM, Intel, ITT, Johnson Controls, Kyocera, LG, Mitsubishi, National Semiconductor, PPG, Praxair, Sanyo, Sharp, Texas Instruments, United Technologies, Waste Management, Xerox.
The answer: They’re all in the solar business — variously making materials, components, or systems to produce solar electricity; or offering services to design, manage, or sell solar energy systems to companies or consumers. (A few of these have offerings that aren’t yet in the marketplace, but soon will be.) They're not just installing panels on their roofs and selling the excess energy into the grid. They're actually in the solar business.
Not one of these companies is a traditional energy company or utility.
Solar’s just one example. Big companies are in all of the clean technologies we identified in 2001. (Of course, there also are more early-stage companies than ever before. For example, there are more than 200 VC-backed or pre-VC solar start-ups alone, according to one report.) Examples include Google's investments in Silver Spring Networks and V-Vehicle, Daimler's investment in Tesla Motors, GE's investment in A123, and Norsk Hydro's investment in Norsun. But these represent just the tip of the iceberg.
Big-company investments will accelerate. In the coming years, as more start-ups need expansion capital in order to scale, they will turn not to venture capitalists but to major corporations, with their healthy balance sheets and large cash reserves. Big companies will overtake VCs (and banks) as the leading funder of clean-tech startups.
The other major trend, of course, is the global nature of clean-tech markets. China has outpaced the U.S. and other countries as the low-cost providers of clean-tech hardware such as solar panels and wind turbines, and is becoming one of the largest markets for clean technologies, along with India, Brazil, and other growing economies. (Depending on who you ask, China is either underhyped or overhyped as a clean-tech player.) As such, the largely U.S.-centric marketplace we saw in 2001 has become truly global.
All of this is only just beginning: the scale-up of technologies, the entry of big companies, the explosion of startups, the expansion of global markets. There’s lots more to come.
And Clean Edge — which now convenes one of the industry’s leading annual clean-tech events, publishes clean-tech stock indices for Nasdaq, and produces authoritative research (some free and some not) — continues to show the way, as evidenced in this week’s 10th anniversary report. I’ve stepped back from day-to-day involvement in Clean Edge (though I remain a not-so-silent partner) and have enjoyed watching from the sidelines as the company grows in lockstep with the industry it helped define.
March 21, 2011 in Clean Tech, State of the Art | Permalink | Save This Page | Comments (1)
Storytelling and the Power of One Great Idea
A couple years ago, at a meeting of the GreenBiz Executive Network — my company's membership-based learning forum for chief sustainability executives — we began the meeting by asking each attendee to present “one great idea” from their company. It was an ice-breaker of sorts, a way for everyone to weigh in on something they were doing that was exciting, different, making a difference.
We budgeted 45 minutes for this. Five and a half hours later, we got to the second item on the agenda.
It wasn’t merely that the members were verbose. It was that each “great idea” spurred a lengthy period of questions and comments. We could have cut it short, hewing to our original agenda, but we didn’t. The conversation served perfectly the network’s mission: to allow executives at some of the world’s largest companies to learn from one another in an open, safe environment.
Since then, “One Great Idea” has become part of the GreenBiz brand. At last month’s three GreenBiz Executive Forums, we instituted a series of 15-minute, one-person stand-up presentations (yes: à la TED Talks) using that title. They covered a breadth of topics and presenters: from 25-year-old technology wunderkind Alexis Ringwald, who has three startups under her belt; to Johnson Controls’ Clay Nesler, giving the inside scoop on the greening of the Empire State Building; to Ina Pockrass, who aims to nearly singlehandedly prod the dental industry toward greener practices. There were corporate presenters from Adobe, BASF, Campbell’s Sopu, IBM, Intuit, Method, Microsoft, Nike, and others. And innovators like Jim Kors, creator of the world’s first 3-D printed car. Each democratically allotted 15 minutes.
(You can view videos of many of their presentations here.)
They were, I believe, a resounding success. At least, that’s what the audience told us. And it highlights a need in the green business arena: Nearly everyone, it seems, has One Great Idea. The question is how to bring them to the fore, let alone to share them as widely as appropriate.
John Davies, vice president and senior analyst at GreenBiz Group, and the leader of the GreenBiz Executive Network, gets credit for the One Great Idea coinage. “I think asking people for One Great Idea makes them focus in a way that is different from their day to day work,” he told me the other day. “When people are asked to make a presentation, they tend to throw out a number of ideas and hope some of it connects.”
Instead, says Davies, One Great Idea is more like the challenge of desert island discs or books. “It's asking for that one legacy idea, one thing that others might benefit from and you might be remembered for. I think the approach works because people think more about sharing the idea, communicating it clearly, and not just pulling out a tired slide deck.”
Granted, doing a One Great Idea presentation can be challenging. When we prepped speakers for our State of Green Business Forums, we found that, despite the title of the session, some were prone to throw everything into the hopper. I recall one speaker, a senior corporate executive, saying, “Wow, 15 minutes. It usually takes me 30 minutes to get through everything. I’ll have to talk fast.”
No, I pointed out. “This isn’t about getting through everything. This is about one great idea. Just one.” Even with this admonition, a few of our speakers tried to shoehorn in their life’s work or their usual dog-and-pony show. But most rose to the occasion. And when it works, it’s a beautiful, powerful thing.
The idea of presenting One Great Idea shouldn’t be unique to sustainable business, of course. But it plays a special role here. Sustainability is multifaceted and complex, and many people — including many professionals — quickly find themselves overwhelmed by all of the moving parts. The to-do list for sustainability is long and — by definition — never-ending. It’s easy to get paralyzed by the enormity of it all.
One Great Idea helps in two ways. First, it gets us focused on a single tactic, technique, or takeaway. Second, it involves a story. And in sustainability, the power of storytelling is huge. It allows us to combine the technical and the personal, head and heart, creating something both credible and compelling. It’s simply the best way we know to spread an idea.
So, what’s your One Great Idea? How are you sharing it with those who could benefit? I’d love to know.
March 7, 2011 in Business Practices, State of the Art | Permalink | Save This Page | Comments (3)
The State of Green Business 2011
Today, we publish our fourth State of Green Business report, GreenBiz.com's annual effort to take the pulse of what and how the world of sustainable business is doing.
It's an interesting time to take this accounting, to say the least. In society, environmental issues seem to have faded from view, at least in the U.S., thanks in large part to the recession. "Saving the earth" has taken a back seat to simply saving the day. The politics of the moment seem to have made clean air, clean water, biodiversity, and planetary survival a controversial thing — something we can afford only in "good times." Consumers continue to sit largely on the sidelines, taking small (but, for them, meaningful) actions, like recycling, employing reusable shopping bags, and buying energy-efficient products.
And climate change, that inconvenient truth, has conveniently faded from view as an issue of national import.
It's a different story in the business world. In fact, it's hard to find a big company these days that isn't engaged in environmental issues in a meaningful way. Indeed, a dramatic shift is occurring in business: Companies are thinking bigger and longer term about sustainability — a sea change from their otherwise notoriously incremental, short-term mindset. And even during these challenging economic times, many have doubled down on their sustainability activities and commitments.
Exactly how and why is the story we tell in the State of Green Business 2011, a free downloadable report. As in the past, we identify ten key trends and measure the greening of the U.S. economy through 20 indicators, from carbon intensity to cleantech investing to corporate reporting.
The verdict? As always, it's mixed. Of the 20 indicators, 7 were found to be "swimming" — that is, making progress; 2 are deemed "sinking" — losing ground; and the other 11 are "treading" — just hanging on.
The bigger picture, though, is more positive. From the introduction:
During 2010, we saw a steady march of progress, with some of the world’s biggest companies and brands putting a stake in the ground in the name of environmental (and sometimes social) sustainability. Some are companies that hadn’t previously been visible in these ways. Others, it turned out, had been quietly taking action, walking more than talking, only recently discovering that modesty is no longer an asset in a world that increasingly demands transparency. Still others have only recently elevated sustainability to a level of importance, hiring their first senior executives to oversee and coordinate sustainability commitments and goals.
Some of the areas we found encouraging were energy efficiency (it now takes less than half the energy to produce a dollar of GDP than in 1970); green office space (the square footage of commercial green buildings continues to grow, a bright spot in an otherwise dismal real estate market); packaging intensity (the amount of packaging needed to produce a dollar of GDP has declined steadily since we began measuring it five years ago); and paper (every year, we use less paper per dollar of GDP and recycle more of it, nearing the point where all the paper that can reasonably be recycled is being collected).
But it's not all good news. Electronic waste recycling continues to grow, but so does the amount of e-waste coming into the waste stream); carbon intensity (the amount of energy-related greenhouse gases produced per dollar of GDP went up last year after dropping steadily); organic agriculture (it's growing, but still represents less than 1 percent of all U.S. cropland). On many of our indicators there was only a hint of progress, far too little to make a difference.
As always, a mixed bag. That's the way of the green business world.
What's encouraging about this year's report is the momentum we see, embodied in the stories my colleagues at GreenBiz.com bring every business day. While not every story is earth-shattering, the corporate commitments and achievements continue to grow every year in both size and scope. During 2010, for example, we saw major corporate commitments from Procter & Gamble and Unilever; major commitments to buy electric vehicles by GE and other companies; a new wave of water footprint assessments by several large companies; zero-waste accomplishments by GM, Kraft, and others; a new generation of green chemistry coming from Dow, BASF, and others; plant-based plastics being used by several major consumer packaged goods companies.
I could go on (and on). These aren't stories you would have seen two or three years ago, and that's the point. The state of green business is moving forward — sometimes way too slowly, but there's progress at every turn.
That's our story. Please read the report and let me know if you agree.
February 1, 2011 in Business Practices, State of the Art | Permalink | Save This Page | Comments (1)
Why Dow is Putting Nature on the Balance Sheet
Today’s announcement by Dow Chemical that it will launch a multi-year effort to measure and track the business value of ecosystem services represents a small step for a company, a giant leap for critters of all kinds.
Dow isn’t the first company to make the link between the services nature provides and their value to a company’s bottom line. But its new initiative — a five-year partnership with The Nature Conservancy — goes beyond the academic. Its aim is to create a set of tools and methodologies other companies can use to integrate the economics of ecosystem services in business decision making.
For the uninitiated, ecosystem services refers to the $33 trillion or so worth of “free” deliverables provided to us by a healthy planet, including clean water, breathable air, pollination, recreation, habitat, soil formation, pest control, a livable climate, and a bunch of other things we generally take for granted. As I’ve written about for years (see here, here, here, and here), such benefits aren't valued by companies, since they don’t directly pay for them; they don’t appear on a company’s balance sheet. But that doesn’t mean they aren’t critical to a company’s financial future.
Ecosystems have value, when you consider what a company would have to pay to replicate their services if they weren’t otherwise available. And as ecosystems get stretched and diminished — whether by human activity, changes in climate, or natural cycles — they can impinge not just on profits, but a company’s very ability to operate.
Under the agreement announced today, Dow and TNC will work together to examine how Dow’s operations rely on and affect nature. The aim is to advance the incorporation of the value of nature into business, and to take action to protect the earth’s natural systems and the services they provide business and society. One key objective is to share all tools, lessons learned and results so that other companies, scientists and interested parties can test and apply them.
Dow and its foundation are committing $10 million to this collaboration over the next five years.
What’s going on here? Why has this venerable chemical giant suddenly decided to put a price tag on nature?
“We have been on a sustainability journey for close to 20 years,” Neil Hawkins, Dow’s Vice President, Sustainability & EH&S, told me last week. “We had our first set of sustainability goals that ended in 2005. We’re halfway through our 2015 sustainability goals. They’re very focused on some of the areas you’d expect — EH&S performance, the whole life-cycle of our products, and delivering products that actually help the world solve major challenges.
“But the one area that we don’t explicitly address is ecosystem services and biodiversity. It’s an area we felt we needed to get better in. We have a long history in conservation, and probably have done as much conservation as most companies. But we needed a thoughtful, economic approach that builds directly into our business decision making the value of nature to Dow — be it water, wetlands, forests, etc. And also the value we’re providing, because we have a lot of land holdings and a lot of facilities worldwide.”
For example, Hawkins explained, consider water. Dow uses a lot of water in the production of its materials and chemicals. "Most places in the world don’t have a mechanism for understanding the value of the water from the point of view of pricing. But there are implications to Dow if we don't have the supply of water we need at the right time and the right place." If a plant is in a water-challenged region, finding ways to improve the water availability for everyone, including Dow's plant, can be a valuable opportunity. “There might be value in Dow’s making investments far away from our plant in order to secure more reliable supplies of water,” he said.
“Water supplies don’t just come from rivers on site. They’re also impacted by the ecosystems upstream, like forests,” explained Michelle Lapinski, Director, Corporate Practices at TNC. “Forest cover in a watershed significantly influences water quality and quantity. Trees naturally hold back water during rain events and release it slowly, preventing flooding and providing water during dry periods – and regulating the supply and quality of water better than many facilities can. By evaluating ecosystem services, a company like Dow may decide to invest in forest restoration to ensure continued water flow for their business, and others who rely on it.”
Of course, some of these decisions go beyond a single company’s — or even a group of companies’ — ability to control. It’s a societal matter, not a corporate one. That’s where a group like The Nature Conservancy comes in. “We work in a number of cities in water supply,” Glenn Prickett, TNC’s Chief External Affairs Officer, told me. “In Bogotá, Quito, and São Paulo, we’ve worked with combinations of bottling plants, hydroelectric facilities and local water utilities to help each of them understand the value of the water they’re getting from the watershed in terms of what it would cost to install their own reservoir or filtration plant if they didn’t have the water they need in the quantity and quality they’re currently getting it. That becomes the benchmark. Then there’s an economic case for them to provide some amount of money up to that value toward a common effort to protect and restore that watershed. So, we’ve set up water funds in those cities where different entities pay into the fund to work with upstream landowners to protect and restore forests in the riparian areas. That’s an example of how a company can do a very clear valuation and be part of a larger societal effort to maintain the resources.”
These are complex calculations, the stuff of doctoral dissertations, being applied to the down-and-dirty world of business activity in faraway places. As such, the Dow-TNC partnership will likely make only a small dent in understanding how to integrate the value of nature into business decisions, and in only a limited number of scenarios, let alone have the valuations appear on corporate balance sheets. But there’s significant potential here to bring the scientists together with the bean counters — and have them translate all of this complexity into a language meaningful to those who set corporate strategy. As Lapinski put it: “Businesses talk in dollars and numbers and scientists and conservationists talk about beetles and birds. We’re trying to take beetles and birds and put them into dollar numbers so that companies can value nature just as any other asset.”
Of course, the implications of this go well beyond accounting. I asked Hawkins how he would measure the success of this five-year collaboration.
Success, he said, would be, “if, at the end of this, we’re able to fully integrate this into our business decision making as we site facilities, as we make changes to existing facilities, as we look at our product development — if we can build in an economic valuation of nature and how we touch nature. If we can create environments and markets where business naturally is doing valuations and reaching the best economic outcomes while still meeting their growth objectives — I think that becomes a longer-term goal.”
TNC’s Prickett weighed in: “To me, most fundamentally, success comes if businesses start to see conservation — that is, helping to restore healthy ecosystems — as a source of cost reduction and revenue enhancement. This is business, not just a philanthropic exercise in corporate responsibility or regulatory compliance.”
It’s a first step, to be sure, but an important one. And it will take more than just one chemical company and one NGO, however well-funded, well-staffed, and well-intentioned, to bring this into the mainstream.
“You’ve got to have some companies that are willing to try this, to take it on, to partner and collaborate with another organization with similar interests,” says Dow’s Hawkins. “And that’s really at the core of this agreement: How do you take that first step to make this a reality by building it into a company and into a business and, hopefully, into a broader economic approach?”
January 24, 2011 in Business Practices, State of the Art, Sustainability | Permalink | Save This Page | Comments (0)
The 10 Most Hopeful Green Business Stories of 2010
There's a lot to be said for viewing the year just passed through the rear-view window.
Toyota's hybrids hit the wall, so to speak, in terms of being seen as a paragon of safety. BP spouted all too vividly the perils of the petro-based economy. The bigger peril, climate change (or global warming, or whatever it's called) became, somehow, a non-issue, politically speaking. Indeed, the political climate in the United States turned against pretty much all things environmental. Meanwhile, toxic substances and gender-bending chemicals found their way into everything from mattresses to baby bottles. I could go on.
But please, kind readers: Step away from the ledge. There's much to be hopeful about.
I've just finished an annual ritual, combing the past year's stories — all 2,139 of them — published on GreenBiz.com and its sister sites in order to identify significant trends in the world of sustainable business. I do this each year in preparation for our annual State of Green Business report, the 2011 edition of which will be released on February 1, the eve of the first of three State of Green Business Forums we'll be staging this year. The report identifies 10 key trends and 20 key indicators that show how, and how much, companies are transforming their operations in environmentally responsible ways.
Doing this review is tedious and time-consuming, but also heartening. There was much to celebrate over the past 12 months. Here, in no particular order, are 10 stories we published that I believe represent significant, hopeful developments:
GE To Boost Electric Vehicle Fleet By 25K
General Electric is by no means the first or only company to make a significant pledge to buy large quantities of electric and plug-in vehicles, though its recent commitment is one of the largest. In doing so, large fleet buyers like GE (and Enterprise, Frito-Lay, UPS and others) are proving that there is a mainstream market for these vehicles — that they're not just the playthings of well-to-do techies and greenies. And GE's initial purchase of 12,000 vehicles from General Motors, including the Chevy Volt, was a strong vote of confidence for the re-emerging U.S. automaker.
Procter & Gamble Packages Up a New Green Vision
For two decades, the world's largest consumer packaged goods company pretty much out stayed of the green marketplace. Its few forays were either ill-conceived (such as early 1990s commercials claiming that diapers were compostable) or focused solely on money-saving benefits (such as its successful Tide Coldwater detergent). But that changed in dramatic fashion with a series of long-term goals which, if met, would bring the company's factories to be 100 percent renewably powered, use 100 percent renewable or recycled materials for all products and packaging, and send nothing to landfills. Those bold goals are mid-century but the company set 10-year interim benchmarks that would set a trajectory for how products are designed and manufactured going forward. P&G still won't necessarily be overtly marketing green, but it could demonstrate that significant green commitments aren't incompatible with mainstream products and profitability.
Interface to Conduct Life-Cycle Analyses on All Products
The sustainability-minded carpet maker said it would complete something called "Environmental Product Declarations" or EPDs — detailed documents explaining the life-cycle impacts — for all of its products by 2012. EPDs analyze products from their raw material stage to disposal and are certified by independent third parties. In doing so, Interface took the lead on a growing trend of product transparency — not just for carpets, but for a wide range of other goods whose ingredients had previously been protected as trade secrets. We'll be hearing more about EPDs in the future, as more companies follow Interface's lead and make product transparency a core ingredient in their operations.
Levi's, Outdoor Industry Join Forces for Product Footprint Tool
Transparency doesn't come without a great deal of investigation and quantification, the metrics of which are still in their infancy. Those metrics took a leap forward, at least for one industry, with the emergence of the Eco Index, a project of the Outdoor Industry Association, a trade group of apparel, footwear, and equipment manufacturers. The Index, a web-based tool, provides guidelines, indicators and metrics aimed at enabling companies to score individual products related to their materials, packaging, manufacturing and assembly, transportation and distribution, use and service, and end of life. This is a terrific example of industry collaboration to solve collective challenges and get all players speaking the same language and using the same yardsticks. The presence of leadership companies like Levi's and Timberland will help ensure that the Index isn't intended for just a small circle of niche players.
Walmart Sows Major Sustainable Ag Commitment
Sustainable agriculture hasn't generally been the domain of large food growers or retailers, residing principally in the world of locavores, farmers markets, and natural food stores. But the world's largest retailer is helping to bring it into the mainstream with a commitment to support local farmers and their communities. Specifically, Walmart pledged to sell $1 billion in food sourced from 1 million small and medium farmers and provide training to farmers in sustainable farm practices, all while increasing these farmers' income. And while $1 billion over five years represents a tiny fraction of Walmart's annual grocery revenue — more than $250 billion in 2009 alone — it signaled that sustainable ag has matured into a mainstream means of production.
Eastman Bets on Bigger Profits from Greener Chemicals
Large chemical manufacturers have been turning gradually to green chemistry in recent years, but Eastman Chemical Company's goal — to derive two-thirds of revenue from new products that have sustainability benefits relative to other products on the market — represents a new direction for the 90-year-old Fortune 500 firm. Eastman also laid out some broader goals, such as working with customers to help them meet sustainability plans, using sustainability as a key factor in identifying growth opportunities, and using its internal Innovation and Sustainability Council to manage investments and determine priorities. It's not a 180-degree turnaround for the company, which claims to already derive one-fourth of its revenue from greener alternatives, but it sends a message that a fundamental shift is underway for an industry long linked to some of humanity's and the planet's worst health impacts.
Nike Shrinks GHG Footprint to 2007 Levels and Dumps Carbon Offsets
Amid political squabbling over whether curbs on carbon emissions would harm the economy, Nike reached a milestone, and did so profitably. The world's leading maker of athletic footwear and apparel announced it had dialed back its greenhouse gas emissions to 2007 levels. And it did this despite having announced in 2009 that it would stop buying carbon offsets and concentrate instead on reducing emissions through curbing business travel and reducing the embedded energy in materials and energy used in its manufacturing process. None of this, it seemed, hurt the bottom line. While Nike's fiscal 2010 revenue dropped 1 percent from the previous year, "We've never been more profitable," reported Nike President and CEO Mark Parker in the company's 2010 annual report, adding: "Gross margins came in at 46.3 percent for the year — that's a record." Nike has proved that addressing climate change can go hand in hand with scoring points with investors.
Half of General Motors' Plants Achieve Landfill-Free Status
This is the latest milestone in a decade-long effort GM has undertaken, getting 76 of its 145 plants worldwide to be "zero-waste." On average, 97 percent of the waste at these 76 sites gets recycled or reused to make new car parts, while 3 percent is incinerated to generate energy. The car maker is hardly the only company these days pursuing a waste-free goal, though it's been doing it longer than most. What's most remarkable about its achievement is that the company didn't put the brakes on its zero-waste efforts during its financial woes, bankruptcy, and multiple management changes, showing that eliminating waste can be and enduring and profitable pursuit.
LG to Spend $18B Cutting Carbon, Making Greener Products
The Korean industrial company was just one of several Asian manufacturers to make significant commitments last year to clean technology and greener products. Panasonic unveiled a three-year plan called "Green Transformation 2012," which it said will lay the groundwork for it to become the world's leading "Green Innovation Company" by 2018, Panasonic's 100th anniversary. Hitachi, which reached its century milestone in 2010, said it would put environmental innovations at the core of the company's operations for the next 100 years. Samsung said it spent $865 million during 2009 to develop greener products and make its manufacturing sites more efficient as part of a multi-pronged efforts to become one of the world's most environmentally friendly companies. And NEC Corp., Japan's largest PC maker, unveiled plans to invest $1.1 billion over eight years in battery and smart grid technologies. LG, for its part, said it would spend nearly $18 billion over the next decade cutting its carbon footprint by 40 percent and developing greener products. The ultimate impact of these efforts won't be known for years, but collectively, they made it loud and clear that Asian firms view green and clean innovations as their path forward to growth and profitability.
Intel Adds Sustainability to Corporate Charter
This was a largely unreported yet landmark achievement. Nearly all corporate charters, at least for large companies, mandate that management keep their eye focused solely on the financial bottom line, with no regard for environmental or social impacts. Indeed, diverting profits to invest in reducing those impacts could be seen as a violation of management's fiduciary responsibility to shareholders and subject the board to lawsuits or worse. Intel's board sought to change that, amending its charter to require that its Corporate Governance and Nominating Committee "Reviews and reports to the Board on a periodic basis with regards to matters of corporate responsibility and sustainability performance, including potential long- and short-term trends and impacts...." It was the highest elevation to date of the triple bottom line as a matter of shareholder concern.
That's my list. What's your most hopeful green business story of 2010? Feel free to weigh in below.
January 3, 2011 in Business Practices, State of the Art | Permalink | Save This Page | Comments (1)
