The Green to Gold Business Playbook

How to Implement Sustainability Practices for Bottom-Line Results in Every Business Function

Daniel C. Esty, P. J. Simmons

• Publisher: Wiley
• Year: 2011
• ISBN:
  9781118010891
• Edition: 1
• Topic: Business
• Subtopic: Sustainability in Business
• Index: Business

"Implement the green strategies outlined in Dan Esty's and Andrew Winston's bestseller Green to Gold"

Hard-nosed business advice for gaining competitive advantage through sustainability action in buildings and operations, information technology, product design, sourcing, manufacturing, logistics and transportation, marketing, accounting, and other key business functions

Whether you are a climate change skeptic or an environmentalist, sustainability issues cannot be ignored in today's corporate world. With rising energy and natural resource costs, intensified regulations, investor pressures, and a growing demand for environmentally friendly products, sustainability is no longer an option—it's a business imperative.

Unlike many green business books, the Playbook skips the environmental ideology and deals exclusively with tools and strategies that have been shown to cut costs, reduce risks, drive revenues, and build brand identity.

• Builds on Dan Esty and Andrew Winston's prizewinning Green to Gold, which has become a business classic and a staple of management training across the world.
• Shows in detail how each business function or department can achieve an eco-advantage over the competition
• Offers frameworks, checklists, and action plans applicable to any business–big or small, in manufacturing or services

The Green to Gold Business Playbook gives you the tools to make green work - and work profitably-for your business.

Part One

Introduction

Chapter 1

Why Every Business Needs an Eco-Strategy

CEO Jack Welch of General Electric (GE) seemingly could do no wrong in the 1990s. Named Fortune magazine's “Manager of the Century” in 1999, he presided over a company whose market value grew from $14 billion to over $400 billion in 20 years. While Welch pushed the company to manage environmental issues more rigorously, he didn't make everyone's Christmas card list. Critics saw GE as an environmental bad actor based on Welch's endless battles with the Environmental Protection Agency over whether and how to clean up the dioxin and other pollutants GE factories had dumped in the Hudson and Housatonic rivers decades earlier.

Welch's take-no-prisoners approach to the EPA left the company in a difficult strategic position. Regulators watched the company like hawks. Political leaders shied away from being seen as too friendly with the company. The GE human resources group began to notice that top recruits turned them down, citing doubts about the company's core values. Pitched legal battles cost the company tens of millions of dollars.

When Jeff Immelt took over as CEO of GE in 2001, he reversed course, working to make GE a world leader on corporate environmental matters. Today, many corporate sustainability experts cite GE's environmental management system as a model. The company's “digital cockpit” of performance metrics—scalable from a particular production line in a single factory to the entire company—wins praise for being top of the line. GE executives no longer see the environment as a burden with regulations to follow, costs to manage, and risks to mitigate. Indeed, they see environmental issues as opportunities for competitive advantage and marketplace success. As Immelt likes to say: “Green is green.”

Jeff Immelt knows what he is talking about. Under his leadership, GE's “ecomagination” line of products and services has blossomed. With high-efficiency jet engines and locomotives, wind turbines, water purification technologies, solar power systems, and other clean energy equipment, GE has become a world-leading “environmental solutions” provider. Immelt's push to meet the government, business-to-business, and consumer demand for “green” does not mean that he is secretly a member of the Sierra Club or otherwise an “environmentalist.”

No, his logic is pure business. Immelt sees the high-growth, high-margin ecomagination line as fundamental to GE's future ability to deliver value to its shareholders.1 And while parts of the company have struggled in recent years, GE now earns over $20 billion per year from its ecomagination products and services with better than 20 percent annual growth in these lines of business.

REIMAGINING A BUSINESS THROUGH A GREEN LENS

GE's ecomagination success comes from the fact that it looks at environmental challenges through the eyes of the customer. All across the world, pollution control, energy efficiency, and careful stewardship of natural resources have become critical agenda items. Thus, GE's pitch of cutting-edge, efficiency-minded, less-polluting products grabs the customer's attention. The GEnx aircraft engine, for example, burns 15 percent less fuel, emits 30 percent less nitrous oxide, runs 30 percent quieter, and costs less to maintain than the prior generation of engines.2 For an airline, replacing older jet engines with the GEnx model can mean fuel cost savings that run to the tens of millions of dollars.

GE's environmental commitment continues to grow with more than 80 product lines now bearing the ecomagination brand, up from 17 in 2005. And the company spends $1.5 billion each year on research and development aimed at generating additional eco-friendly technologies and services.3

You don't have to be a corporate giant to uncover the competitive differentiation that derives from bringing sustainability into strategy—what Dan Esty and Andrew Winston dubbed “Eco-Advantage” in Green to Gold: How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage. Smaller companies can also benefit from going green. Take Curtis Packaging Corporation, a 165-year-old Connecticut-based company with 188 employees that produces folding cardboard cartons for products such as cosmetics, pharmaceuticals, gourmet foods, and golf balls. In 2003, CEO Don Droppo decided to put sustainability at the heart of the company's business strategy. Rebranding itself as “luxuriously responsible,” the company switched to renewable energy, reduced waste and emissions, and incorporated eco-friendly materials into its products. By 2007, annual sales had doubled to $47 million.4 The Curtis management team attributes the gains to improved product quality and environmental goodwill, which secured customer loyalty and brought in new business partners.

The GE and Curtis Packaging stories are part of a much bigger drama playing out across the country and the world. Interest in environmental protection and sustainability is growing. In fact, sustainability has emerged as a business megatrend that promises to shift the foundations of competition in every industry in every marketplace. This Green Wave presents significant challenges for companies but also offers real opportunities for those who learn to ride it.

So let's be clear, you don't have to be an environmentalist to find this book valuable. The Green to Gold Business Playbook will be especially useful to those who are skeptical about the push to address climate change, perhaps see environmental fears as exaggerated, and don't share the enthusiasm for all things green. Our goal is not to get you to join Greenpeace. Rather, it is to position you to be a winner in a world where environmental factors shape competition and determine marketplace success.

WHAT DO WE MEAN BY SUSTAINABILITY?

“Sustainability” has a variety of meanings depending on the context. In the corporate realm, the term is often used to refer to a “triple bottom line” approach to business through which companies seek to deliver not just profits and solid economic results but also good performance from an environmental and social perspective. The environmental dimension of sustainability generally refers to the ability of a company to do business in a fashion that minimizes pollution and reflects careful management of natural resources. The social sustainability agenda encompasses a range of issues including labor conditions, diversity, workforce compensation, training, among others.

While in this book we generally focus on “environmental sustainability,” we don't mean to underestimate the social dimension. On the contrary, an emphasis on people is critical to many companies’ long-term success. In fact, much of the emphasis on the environment is a function of wanting to protect people—their health, economic opportunity, and development.

To be truly “sustainable,” a company would have to eliminate all waste and emissions and only consume materials derived from renewable resources that were managed in a fashion that does not deplete the resource stock. Few companies are even close to this vision of true sustainability. The practical goal must therefore be to strive for greater sustainability while seeking to decouple business success from environmental impact.

How to Create Eco-Advantage

GE and Curtis Packaging didn't stumble into profits with their environmental efforts. They systematically pursued Eco-Advantage and the four strategic values identified in Green to Gold. Specifically, they looked to:

1. Identify and reduce environmental and regulatory risks, not only within their own operations but across their entire value chains, thereby reducing liabilities, avoiding costs, and increasing speed to market.

2. Cut operational costs and improve efficiency by reducing environmental expenses, including scrap, waste, disposal fees, regulatory paperwork, and energy spending.

3. Grow their revenues by designing and marketing environmentally superior products that meet their customers’ needs for energy efficiency, improved resource productivity, and reduced pollution.

4. Create intangible value for their businesses by enhancing their brands, connecting with customers on an emotional level through environmental stewardship, raising workforce productivity, and attracting and retaining the best employees.

Let's examine each of these core elements of Eco-Advantage in a bit more detail.

Mitigating Risks

For many companies, the most immediate environmental challenges involve how to manage pollution and waste. For those who handle oil, heavy metals, or toxic chemicals, even a little mistake can lead to big problems in the form of costly accidents, legal liabilities, product recalls, regulatory violations, and government penalties. Inadequate risk management can lead to more than just higher costs. It can bring an abrupt end to an executive's career. Just ask Tony Hayward, ex-CEO of BP, who lost his job over the 2010 Gulf of Mexico oil spill.

Every business faces some eco-risks as a part of broader enterprise risks. Properly managed, this exposure need not present any real threat to the business. But if mismanaged or missed altogether, eco-risks can take a business down. Robert Eckert, the CEO of Mattel knows this reality all too well. In 2007, one of Mattel's suppliers in China was found to have painted its toys with lead paint in violation of U.S. law. The uproar that followed became a PR disaster for Mattel and a model of what happens when eco-risks are mismanaged.

The fact that the supplier had violated Mattel's explicit procurement guidelines offered no protection from the media and public onslaught. The company's reputation for quality, built up over generations, took a terrible battering. At the end of the day, Mattel had to recall over 21 million items—including Barbie dolls, Polly Pockets, and Fisher Price infant toys—at the cost of hundreds of millions of dollars. The CEO faced a congressional inquiry, Mattel stock fell over 20 percent in three months, and the company ended up paying a $2.3 million fine.5

If the Mattel story were unusual, we would not put so much stress on sound eco-risk management. But it is not. In recent years, stories of eco-risk management gone awry have become a staple of the media diet. Contaminated peanut butter, milk, chocolate, dog food, toothpaste, bottled water, eggs, chicken, spinach, and cough syrup have all hit the headlines. So in the chapters that follow, we'll show you how to look at your business through an environmental lens so as to reduce risk exposure and liability—which translate into cost. We'll walk through a number of strategies for digging out eco-risks, particularly in extended supply chains. This focus is especially important for big companies with consumer-facing brands who suffer the consequences and reputational loss if their suppliers misbehave. Simply put, we live in a world of “extended producer responsibility,” meaning that companies can expect to be held accountable for anything that goes wrong anywhere in their value chain—from the extraction of raw materials to the end-of-life disposal of their products by their customers (or even their customers’ customers).

ENVIRONMENT AS A STRATEGIC IMPERATIVE

At Coca-Cola, sustainability issues present clear challenges to business continuity—especially when it comes to water. As the company's top sustainability officer Jeff Seabright told us: “For us, water is essential—and a resource under growing stress around the world. Without healthy watersheds, we do not have a sustainable business.”6 The company is feeling increasing pressure in this regard all over the world—in Latin America, Asia, and Africa, where watersheds are under stress from poor management, overexploitation, deforestation, and climate change. Even in the company's home state of Georgia, a drought led to cutbacks in production for a number of months in 2009. With clarity about water as a strategic imperative, the company isn't trying to just manage its water use, but seeks to address the underlying problems as well: climate change, deforestation, and community-scale water needs.

The risks that need to be managed come in all sorts of shapes and sizes. Spills of toxic materials in the workplace, liability for improper disposal of hazardous waste, and exposure related to a product that later turns out to be environmentally harmful—they all need to be carefully managed. But less obvious risks also need to be addressed: Could regulatory changes disadvantage your company's products or service relative to the competition? Is the burden of paperwork related to chemicals in your production process adding costs that your competition does not bear? Will growing scarcity of a critical natural resource used as an input to one of your products make it much more costly to produce? Or limit the markets in which you can operate? Could shifting consumer tastes translate into reduced demand for your products? Or even expose you to activist boycotts?

Effective environmental risk management spots the full spectrum of possible threats to the business and maps out what sorts of liabilities might emerge. The best risk management systems look at scenarios and probabilities related to potential threats. And they explore exposure not just within the company's own operations but also upstream (across the supply chain) and downstream (involving a customer's use of the product).

EVEN HONEST MISTAKES CAN BE COSTLY

Known for its caffeinated beverage products, Red Bull came under fire in July 2009 for lax oversight of its recycling operations. It emerged that the company had not complied with its legal obligations for waste management in the UK for over eight years! The result: $450,000 in fines and a big PR black eye. Although an honest mistake, Red Bull paid dearly for its compliance failure.7

Cutting Costs

For many businesses, cutting costs is an ongoing imperative. Adding a sustainability focus to your corporate strategy can bring to light numerous ways to cut waste and inefficiency. Indeed, we've seen endless examples of companies that have achieved substantial co...