Starting July 1st — the beginning of the company's fiscal year 2013 — the software giant will charge all of its 100-plus global offices and datacenters a fee for every ton of carbon they produce (mostly from plugging into the electric grid, so-called "indirect" emissions). The money collected will go to purchase Renewable Energy Certificates (RECs) and carbon offsets, allowing Microsoft to declare itself carbon neutral.

Although carbon neutrality is a claim that's gotten less credible over the last few years, Microsoft seems well aware of the challenge and is handling it well. Here's the problem with asserting neutrality: it's hard to ensure that any carbon reductions you're paying for — from, say, capturing methane from a landfill or replacing inefficient cook stoves in Africa — would not have happened anyway (this is the problem of "additionality").

So to navigate this tricky terrain and make the most of its efforts, Microsoft is working with a handful of NGOs and a well-respected partner, Sterling Planet, which will buy the RECs and offsets.

Interestingly, however, carbon neutrality doesn't seem to be the real point of Microsoft's initiative. From my conversations with the company, I take away four major reasons they're doing this:

1. Behavior change. Microsoft seems more interested in lowering overall carbon emissions and energy use, not just neutrality in and of itself. This focus on actual emissions and outcomes is the right way to go. The offsets become a tool, a last resort to be avoided, and both energy efficiency and using renewable energy (onsite or directly purchased) become the paths of least resistance and cost. As Rob Bernard, Microsoft's Chief Environmental Strategist says, "If you run one of our offices, and you choose to use carbon-based power, we'll charge you more for your energy." And this charge will, in theory, move managers to make greener choices. So the point of this fee, like all "taxes," is to change behavior, discouraging some pathways by making them less palatable.

2. Accountability throughout the organization. Each division is going to own this issue. Let's say NGOs or customers are asking questions about what kind of energy Microsoft uses to power its datacenters. The executives running that facility, not just centrally located sustainability professionals, will be empowered to address any concerns, drive for greater efficiency, and choose greener power. Pricing carbon is an excellent way to raise awareness internally before the external pressure builds.

3. Risk reduction. Bernard and his colleague who's running the program, TJ DiCaprio, have encouraged the organization to better understand its profound energy-related risks. As Microsoft takes on more of its customers' operations through cloud-based services, reliance on the utility grid creates real operational and price risk (from outages and volatile prices). Cloud service providers are increasingly proxies for utilities — they require 100% uptime, significant quantities of their own power, and predictable variable cost (which for renewables is nearly zero).

4. Sales/Becoming the Vendor of Choice. The company knows that its customers are increasingly looking for providers that can offer reliable service at low cost — and low carbon emissions. Driving the organization to use more alternative energy helps land large customers concerned about their value-chain footprint.

So how will Microsoft make this initiative a reality? The execution plan has some interesting elements (see a pithy white paper on the full carbon neutrality plan here). The company will measure carbon footprint in different operational buckets such as plug load (electricity used) and business travel, and then offset each category "like for like" (i.e., buying RECs for electricity and offsets for travel). The fees will vary as well; for example, the company will charge employees for all air travel on a per-mile basis, which raises awareness at the individual level.

The program is smart, but I'm left with one major concern: Will the fees be high enough to change behavior? Right now, the market price of carbon is very low, so Microsoft is charging a small amount per ton. Even so, they will collect north of $10 million, which is enough to buy offsets. Over time, by my calculations, given the growth in cloud services the company is banking on, these carbon fees could rise to a more noticeable $50 million by 2020. But let's be honest, these numbers are clearly rounding errors to a company that netted $23 billion last year.

To be fair, as the behavioral psychology gurus (from books like Nudge) will tell you, sometimes just making people aware of a cost is enough to foment change. So the minor nudge here may be good enough. But in the longer run, the price on carbon needs to be more of a sledgehammer than a nudge. It should reflect the full cost to society of health impacts, national security risks, and price volatility, all of which add up to tens of dollars per ton or more.

Pricing carbon on your own, without a real market in place, is hard, which is why there are so few examples of companies doing it. Going back over a decade, BP put in place an internal carbon trading system that used a "shadow" price to encourage divisions to find the cheapest reduction opportunities (others like Shell have also used this tactic). But executives weren't charged real money. And more recently, athletic apparel company Puma (working with my colleagues at PwC and the UK's TruCost) produced an "environmental P&L" which measured the "real" cost of carbon and other environmental inputs like water. The company is exploring how to include the "price" in operations and give ownership to line managers; it currently says the metrics will "inform operational decisions."

So even with important experiments like these that have gone before, Microsoft's program is perhaps the first actual internal fee at this scale (my research isn't turning up anything exactly like this — please send me examples if you have them!). It's innovative and committed, but it also points to a massive global failure of leadership on climate policy. We should put a price on carbon across the entire economy. But as Bernard says, "While governments have an important role to play, we hope there's a benefit in us moving faster than the policy world."

He's absolutely right. Companies cannot wait for the government wheels to turn to price and manage carbon — the cost saving, risk reduction, and brand benefits of leading are too high.

(This post first appeared at Harvard Business Online.)

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As the New York Times recently reported, in the early 2000s, when Walmart de Mexico was building stores at a furious pace (making the country the company's second largest market), it was making illegal payments to get building permits and speed store expansion. The growth miracle was, it turns out, not so miraculous.

Of course this is not a good thing in and of itself. But where the story gets really troubling, if the accusations are true, is in how the company handled the matter. After its internal, FBI-trained watchdog group investigated the allegations — and made waves — the case was given back to the chief lawyer for the Mexican operations. This was, as the Times put it, "a remarkable choice since the same general counsel was alleged to have authorized bribes." It sure looks like something not flattering, and possibly illegal, was swept under the rug.

So what do the recent allegations mean for Walmart's sustainability efforts? On the one hand, nothing. In fact, the same week this story surfaced, the company released its 2012 Global Responsibility Report, an interesting juxtaposition to say the least. I've long been a fan and chronicler of the company's green efforts (full disclosure: I've spoken at multiple Walmart events, including a sustainability summit held by Walmart Mexico in 2010), and this report did not disappoint on that front.

Walmart listed some impressive accomplishments, from diverting 80% of waste from landfills, to doubling the amount of local food sold, to generating over 1 billion kilowatt-hours of renewable energy onsite (the second most of any corporation in the U.S.). These achievements, along with a 5-year record of pushing the sustainability agenda harder than almost any company, are real and demonstrate leadership in responsible business.

So here's the rub with sustainability, corporate social responsibility, ethics, and anything else that's generally (if sometimes awkwardly) thrown together into the vast bucket of "good stuff": The measurable and legitimately good things a company does will not make up for what it does wrong. But nor will the bad cancel out the good — the good things are no less legitimate just because the company does some things its leaders should be ashamed of. The good practices are worth emulating regardless of the larger context.

The significant challenge of how to view, judge, and learn from the actions of a complex, messy thing called a "company" is nothing new. If an oil and gas company wages a multi-decade campaign to muddy climate science, but also funds next generation low-carbon fuels research and operates incredibly efficiently, is that original campaign any less immoral? Should other companies avoid the cost-saving, innovative, best practices of the bad actor? Of course not. When it comes to what we can learn or gain from a company's profitable and sustainable initiatives, the bad things don't really come to bear.

But when thinking about a company as a whole and that vague thing called a "brand," it's a different story — everything is related. Key stakeholders, such as customers, consumers, employees, and even the investors and markets, judge the value and values of a company and then decide if they want to interact with it. That judgment so far is pretty clear in this case. Even though one can never have too much faith in short-term market reactions, this one was serious: Walmart's stock dropped 5% when the story broke and, as of this writing, is down 8%, or $16 billion in market cap (while the Dow was flat).

I'm frankly surprised investors care — there's historically, and unfortunately, little downside for companies that engage in this kind of corruption in developing countries. But the immediate market reaction here is fascinating. It says to me that there's some recognition of real risk to the company in these practices: that the hit to the brand matters, or that people may not want to work for or buy from a company they can't trust.

There's some understanding that a company's value in the market is connected to its values (of which sustainability efforts can be a good indication). Just as it's not sustainable to over-consume natural resources, it's not sustainable to alienate key stakeholders through ethical lapses.

The totality of a company's actions does matter. We should demand consistent, ethical behavior and a real commitment to doing what's good for people, planet, and profit, which includes not compromising on ethics. We can expect more from companies we buy from and work with and for, especially the very large ones that show such promise and leadership.

(This post first appeared at Harvard Business Online.)

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The science of cloud cover is important for understanding how our climate will change and how fast, but the scientific debate here isn't actually the point. The big problem with this article, and nearly every other discussion of climate change, is that it rests on a deeply false premise: the idea that tackling climate change will just cost too much. This is hogwash.

It does not cost more to reduce carbon emissions; it costs less. Companies, consumers, and countries save money when they reduce reliance on fossil fuels. Study after study -- and the constant experience of companies saving billions in eco-efficiency -- prove this point over and over.

Some great books cover this terrain well. See Climate Capitalism by Hunter Lovins and Boyd Cohen, for example. Or explore the latest data-rich entry into the canon of eco-savings from one of its founding fathers, Amory Lovins. Just peruse the executive summary of his latest book, Reinventing Fire for the calculations.

We can cut out huge quantities of carbon from our economy while saving literally trillions of dollars at a high IRR by investing in energy efficiency -- just looking at the built environment, buildings have nearly $2 trillion of untapped savings over the coming decades at an IRR of 33%. (For this story at the microeconomic level, watch this video of Tony Malkin, owner of the Empire State Building, talking about the business benefits of the energy retrofit of the world's most iconic building -- a 38% cut in energy use, less than 3 year payback, higher rents from tenants.)

And none of these purely fiscal calculations include the significant health and national security benefits, which alone are enough to justify a quick exit from a carbon-based economy.

So it's absurd, yet not shocking, that the Times lets two seemingly damning quotes in the article go completely unchallenged. First, GOP Congressman Dana Rohrabacher: "There are people trying to tell us that we have got to accept draconian changes in our way of life." Second, the climate skeptic and self-proclaimed cloud cover savior featured in this article, Dr. Lindzen: " “If I’m right, we’ll have saved money” by avoiding measures to limit emissions."

Very few people are looking for "draconian" changes at this point -- radically more efficiency perhaps. But explain to me how insulated buildings with top-notch windows that make us more comfortable at far lower cost...or cars using no oil and causing no money to go to petro-dictators abroad...constitute threats to our way of life? Still, Rohrbacher is right to some extent but not how he intends: the longer we listen to naysayers like him and avoid making smart investments in our future, the harder the change will be. We will most certainly face draconian changes if we wait any longer. And Lindzen's comment that we'll save money by continuing to pump carbon, which is a waste product, into the atmosphere is just false.

Let's be clear: These denier statements are big, fat, ugly, dangerous, and very expensive lies.

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This recent humorous Platonic dialogue between a physicist and economist, as told by the physicist Tom Murphy, reveals the absurdity of expecting steady growth in energy use (or economic growth) indefinitely.

To be fair, it's not like economics is the only discipline with magical assumptions — high school physics is filled with Newtonian models of frictionless environments. But teachers are describing theoretical "laws" to further our understanding of the universe, not perfectly predicting everyday experience, or basing policy on the perfect scenario.

Physics accepts that there are limits. If you push something on a frictionless surface, it will accelerate in proportion to mass and force, no more, no less. There is no perpetual motion machine. In mathematical terms, these models have asymptotes that can never quite be reached. But in the economics, business, and political realms, very few seem to admit that there's an upper limit on the growth of an economy or resource use.

So in Murphy's mock debate, the physicist wins — not because he's a better debater, but because, in the end, math and physics trump all by exposing the fallacy of that kind of perpetual motion. Here are some fun stats that Murphy uses to make his point:

Apparently, for a few hundred years, the total energy demand of humanity has risen steadily at about 3 percent per year. We've gotten more and more out of that energy, with quality of life for increasing numbers of people rising even faster. But even if you assume energy use will grow at a slower 2.3% indefinitely, Murphy says (and I ran the calculations as well), we start to hit some silly quantities over the coming centuries. In 1400 years, we would be consuming all of the energy that the sun produces (in just 400 years, it would be all of the solar energy hitting the earth).

You might say that the world 1400 years from today doesn't matter much now. But consider thisfascinating article in Time by Fareed Zakaria about a totally unrelated topic, the struggle of many countries in the Arab world to embrace democracy. A new study proposes a theory: it was the Arab conquering of these lands in the early 600s (yes, 1400 years ago) that led to their challenges today. So what we're doing now can have real impact on real people living 1400 years in the future, even if it seems remote.

Of course we have much more pressing problems today than what the world could look like 1400 years from now, but the point is the same — what we do today matters to the future. And expecting compound growth will get us into trouble long before another millennium, or even another century, is out. In the shorter timeframe, the real pressing problem is not just total energy use, but where that energy comes from. Too much carbon in the atmosphere is the pressing problem.

If we stop using the dead-plant, fossil-based forms of energy, and move fast to renewable energy, we can provide all our possible power needs for many centuries and avoid the problems of compounding carbon in the atmosphere. We can also decouple the growth of quality of life (basic needs, plus rising fulfillment and joy) from the growth of energy, possibly allowing us to set rising economic targets for much longer before we hit a physical wall (we'd still need to deal with other limits like water).

Then we can move on to worrying about where we'll get another sun to power our needs in the year 3412.

(This post first appeared at Harvard Business Online.)

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- Chicago one day shy of the record for most 80 degree days...in April (link)

- So far chicago's march temp would make it the 7th warmest...april on record.

- March 12-18: 3,350 record high temps in the U.S., 18 record lows. (link)

- For 2012, U.S. high temp records outpace low records by 15,785 to 1,385, or 11.4 to 1.

- Even the top of Mt. Washington sets new record (And NWS computer asks local observer: You sure about these #s?) (link)

- Now it's Maine: town of Caribou broke old heat record by...23 degrees (link)

- It's not just this week: DC posts the warmest winter in its history, by two full degrees

- March days this hot maybe once in 4779 years statistically?

- I know I'm a little obsessed with this heat wave--but: it's not just off the charts, it's off the wall the charts are tacked to.

Ok, so who can blame Bill for getting a bit obsessed with all of this? I'm always really hesitant to say that a warm day or week or month "proves" climate change, since then people can (and do) say that a cold day disproves it. But really, let's get serious. The odds of all of this happening without the "theory" of climate change behind it are very, very low. It's time to get real.

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @GreenAdvantage)

In GreenBiz's annual review of 20 indicators of "how business is doing" on green, we learn that 6 of those indicators are on a downward trend. But in the report "Sustainability Nears a Tipping Point," MIT and BCG prove their point with a fast-rising graph of companies that recently put sustainability "on the management agenda."

While they seem at odds, both views are right — companies are no longer ignoring sustainability; most big companies now have someone focused on it, at least in part. That's why execs can honestly tell MIT that it's on their agenda. But with sustainability often siloed into just one person or department in each organization, it's hardly a surprise that, at the same time, we're seeing some loss of momentum. Sustainability has moved from being a hot, new management trend to being just one more thing for execs to keep an eye on: for many it's become a check-box exercise..

This structural gap reveals the fundamental misunderstanding about what sustainability really means for organizations. I've seen it time and again in the companies that I work with or study. For them, sustainability is a thing to tackle, a functional area; it's a what, like marketing or product development.

But sustainability needs to be viewed as much more of a how concept, like quality or innovation. It's a way of operating that creates the most value when it's embedded throughout the organization.

Of course companies have distinct quality or R&D departments and professionals, but the most committed companies drive the thinking into every aspect of the business. This is the mindset that sustainability needs to engender throughout an organization. And as with quality, this isn't just about ethical or aspirational hopes — acting with sustainable values, for example, as covered well by many, including Dov Seidman in his book How.

No, I'm talking here about the more prosaic, everyday, tactical, blocking-and-tackling of business. Sustainability pressures force changes in how we build our supply chains, how we design and manufacture products, how we deliver services, how we create and execute our business models and strategies, how we develop financial metrics to measure success, how we attract and retain 21st-century, holistic thinkers, and on and on. So sustainability pressures, if acted on, drive us to create and build better products, design more efficient services, execute better, and hire the best. Those are goals that reach throughout the entire organizational structure, and they're actually enabled by sustainable thinking.

Given the scale of these goals — and the global challenges we all face — putting just one (or a few) people against the what of sustainability is a woefully inadequate response.Resource constraints and rising input prices; increasing demands from customers, employees, and consumers; the risks of severe business continuity disruptions from water, climate, or labor problems in the supply chain...the list of big pressures grows more complicated every day. And these issues require a full-court press from all aspects of operations.

It's become a mantra in the sustainability world that green needs to be a part of everyone's job. Of course that's true, since detecting risks and innovating around them will often fall to those closest to the ground (hint, that's rarely the c-suite). But most companies are missing a big step.

To conquer a how you need more than just a mantra. You need a significant investment of resources in time, top-leader focus, people, and money. You need people to ride herd and drive the agenda — to do the cross-cutting analyses such as lifecycle assessments, to track and get a handle on the many diverse and complex issues, to present a unified front to employees and external stakeholders, to question business models and find new, heretical ways to operate and serve customers...the list goes on.

There's no "ideal" structure for sustainability efforts, just as no two companies would tackle innovation the same way. Most large companies have now appointed a lead on sustainability, but have provided limited financial support and fewer human resources. There are exceptions: a few well-known sustainability leaders, such as Starbucks, Nike, and Coca-Cola employ central teams with specialists in areas like water, climate, and packaging, as well as reps spread out around the organization.

One of my clients, Kimberly-Clark, a much quieter sustainability leader, has a centralized team of 5 to 10 sustainability-only managers (and that's only part of the 50-plus central staff covering environmental, health &safety (EHS), OSHA, and, yes, quality). More importantly, Kimberly-Clark has another couple dozen professionals in dedicated sustainability roles (again, not EHS) embedded in business lines and geographic regions.

But even the leaders with robust organizations are rarely putting much money specifically into sustainability-driven innovation or disruptive changes that might dramatically reduce the value chain footprint of the company's products. Let's be honest: It's very hard to assess how much is "enough" when you're investing in a strategic priority. But it helps if the organization first defines it as a strategic priority. And given the ever-rising costs of under-reacting to sustainability pressures (such as direct costs from rising input prices, or business discontinuity risks from extreme weather), it's clear that companies should put a lot more people and money against an agenda as large, complicated, pressing — and let's not forget profitable — as sustainability.

Only with significant investment can we move down the path to sustainability integration and real, ongoing, full value creation. A robust network of sustainability professionals within a company — whether or not they sit in one "department" — may need to obsolete themselves over time. But until then, sustainability can't drive anything — it will just remain a nice side show.

(This post first appeared at Harvard Business Online.)

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The attempt to give corporate buyers and end consumers more sustainability data about the products they are purchasing has had a somewhat tortured history. The Tesco experience in particular highlights a few big questions about green data labeling.

Tesco has been a leader in sharing carbon footprint information with consumers, having reviewed and labeled over 500 products. The company's efforts came on the heels of Pepsi's first foray into labeling with its Walkers potato chips brand, also in the UK. Since then, however, it has been running up against the most important questions about how to make data labeling work:

Which products "need" it? It makes a lot more sense to put information on a car, which is a purchase people research heavily and one that has a significant impact on a household's carbon emissions. Your potato chips, not so much.

What type of information should be provided (if any)? Is the carbon footprint the most useful data for customers to have? Or total energy use during the product's lifetime? The best thing to share will depend heavily on the product - the labels on energy hogs like light bulbs, air conditioners, and cars should tell us the total energy use and cost to operate over a year or the product's lifetime. For milk or snacks, the energy used to get it to shelves makes sense, but again, may not be helpful for consumers. So even without the specific grams of carbon, a combination of qualitative and quantitative info, like on Chevy's new labels, could still make sense in many cases.

Can you even summarize the sustainability of a product in a label? This is perhaps the toughest question and the literally hundreds of highly varying eco-labels out there attest to the challenges of trying. In some cases, like a car, maybe the concept of "sustainability" is fairly straightforward given how much of the impact comes in the "use phase" of the product — if you're getting 50% better fuel efficiency, you know you're reducing the impact a great deal. But how sustainable is 80 grams of carbon for a bag of chips? Heck if I know.

How much work/cost does it take to research and produce the label? Tesco made it clear that a core reason it's stopping this process is that each product takes "a minimum of several months' work." It's an interesting time to reach that conclusion because the tools for calculating footprint are evolving fast. But, and this is a big caveat, we're a lot closer to knowing the "hot spots" in most product lifecycles (e.g., for detergent, the largest part of the footprint is the washing machine in the home), than we are to knowing the exact grams of carbon per product. That level of sophistication will come with better data and carbon allocation methods (mirroring, I suspect, the cost allocation tools accountants have developed for a century). But isn't directionally correct information good enough in most cases?

Do consumers even care? This is the critical question, but the answer for now may not matter. Did people "care" about nutrition labels when they first came out? Probably not much, and it's unclear if they do now, given how unhealthy Americans are in general. But then, maybe our obesity problems would be worse without the labels.

But what's really interesting about all of this is that the consumer side of the discussion, while getting more media attention, has been less important in actually forcing change. It's in the business-to-business world that the demands for more information on every product have really been rising. From the Sustainability Consortium for retail and consumer products — which saw its own shakeup recently with the exodus of its Executive Director after only 8 months on the job — to the Sustainable Apparel Coalition for outdoor gear and clothing, industry groups are coming together to gather data and set standards for measuring footprints.

I am confident that Tesco and other major retailers will continue to ask suppliers for carbon data and other sustainability data when picking products for their shelves and setting up special promotions. The greening of the supply chain is the most dependable of trends in the sustainability sphere because there is so much clear benefit to companies when they know their value-chain footprint, from cost savings to risk reduction to better brand storytelling.

So much of this data-gathering and ranking work will continue unbeknownst to consumers. Given how much power retailers and other B2B customers have to transform products and pre-select better options for consumers, maybe it's actually better this way.

(This post first appeared at Harvard Business Online.)

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But amidst a seemingly scripted set of responses on Walmart's supply chain and operational greening efforts, the discussion took an interesting turn. When addressing the company's aspirational goal of using 100% renewable energy, Bedore said two noteworthy things.

First, 75 percent of Walmart's California stores now have "some kind of renewable energy system." Renewables are still providing only a tiny percentage of the company's total electricity demand, but it's definite progress. And the commitment to green energy has helped Walmart take third place on the U.S. EPA's latest list of the top 50 renewable energy buyers.

Second, Bedore spoke about how Walmart thinks about its investments in green power:

"There is an ROI calculation on all sustainability investments like on all projects, but...we look at where the investment gets us. [For example] the longer term payback on solar helps us get to scale down the road."

In essence, Bedore was saying that Walmart recognizes that it can help take the solar market to scale, thus lowering its costs in the future. It also recognizes that, in the meantime, operational managers will gain valuable experience and knowledge about how to optimize the new power systems. The company can also reap the immediate variable cost benefits of free power.

In short, Walmart has tweaked its ROI requirements for green power initiatives to reflect more of the big picture.

Of course, investing in projects with a hard-to-measure payback — such as a new marketing campaign or entry into new geographic or customer markets — is a normal part of business strategy. And making choices that do have measurable, but longer-term, strategic value should be par for the course as well. So it shouldn't be a surprise that Walmart is doing this.

But in my experience, this larger view of a company's goals has in recent years taken a back seat to a relentless pursuit of quarterly earnings. We worship internal rates of return (IRR) to our detriment.

When it comes to green projects, this narrowly-defined measure of "payback" is particularly destructive. The typical (but evolving) view is that all sustainability initiatives are either an expense and/or should only happen if they meet the strictest hurdle rate. For years I've made the case that companies should shift their decision-making and investment criteria to take into account intangible and longer-term benefits that are missed in normal IRR calculations. But only a handful of leaders do this consistently.

For their part, Walmart execs have said repeatedly (and justifiably proudly) that all their sustainability projects thus far — such as dramatically improving the energy efficiency of stores and the fuel efficiency of the distribution fleet — have met normal ROI requirements. Bedore said as much...until he added the critical caveat that in the case of green power, Walmart bean counters were looking beyond the near-term payback.

Investments in renewables are an important case where this kind of flexibility of thinking is required. The actual cash payback periods are getting shorter, but they rarely meet the typical 2-year (or so) ROI required by most large companies.

But green power initiatives yield other important benefits, from reducing risk by lowering reliance on volatilely priced resources to enhancing brand value by putting visible symbols of green commitment on stores. These paybacks are real, even if they're hard to measure, and they need to be accounted for strategically when considering the ROI on green projects.

We need a lot more flexible thinking going forward. Hurdle rates are important to provide some means of comparison between projects competing for capital. But an internal rate of return cannot be a straitjacket.

If the lords of low cost recognize the strategic value of green investments, so can the rest of us.

(This post first appeared at Harvard Business Online.)

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A couple of weeks ago, Apple reported breathtaking earnings. In the fourth calendar quarter of 2011, Christmas shoppers snapped up 15 million iPads and 37 million iPhone 4Ss. The world's most innovative company brought in $46 billion in revenues, $13 billion in profit, and an eye-popping $17.5 billion in cash flow. Apple is the only company competing with, and now beating, Exxon for the title of "most profitable company ever."

Right when Apple's earnings came out, the New York Times also hit us with two powerful articles about Apple's supply chain that revealed some deeply troubling issues for the company's business model. The first, "How the U.S. Lost Out on iPhone Work," painted a dim picture of U.S. competitiveness by demonstrating what Chinese suppliers are willing to do to get Apple's business. But the second article, "In China, Human Costs are Built Into an iPad," shows us the enormous human cost of getting work for cheap. It's a horrifying picture of life at the now infamous Foxconn facilities.

Combine Apple's incredible earnings with the reality of life in its supply chain, and it's clear that the tech giant could afford to do much better by workers. It's not sustainable for any company to continue relying on people with such limited rights and life prospects.

But is it fair to pick on Apple? Yes, to some degree, since other companies with deep connections to China have done better on working conditions (a Times source name checks HP, Intel, and Nike for example). In the spirit of being balanced, a few points: (1) even with a few good actors, worker treatment is a systemic challenge common to electronics, apparel, and any other sector with complex, worldwide supply chains; (2) Apple has put some effort into improving supplier conditionsand CEO Tim Cook replied last week to the concerns; (3) Consumers also take on some responsibility-we should be demanding more transparency and information about how our products are made (I'm targeting myself here as well since I'm typing this on a MacBook Pro).

But Apple too should be doing far more.

We'll only fix the problem if the largest, most profitable, and most powerful brands demand better treatment for all people who work on a product. The most damning quotes in the Timespiece come from former Apple execs: "Noncompliance is tolerated...If we meant business, core violations would disappear" and "Suppliers would change everything tomorrow if Apple told them they didn't have another choice."

So am I suggesting companies pursue unprofitable paths? Hardly. These labor challenges are complicated, but any argument that it would be too expensive to pay people better and give them much better working conditions is absurd.

Some reasonable estimates from The Atlantic place the cost of materials (of a mid-level 32GB $600 iPad) at about $325. Labor is a whopping $10. If we assume, very conservatively, that iPhone assembly costs the same, then in the fourth quarter, Apple spent about $500 million assembling iPhones and iPads.

Let's imagine that Apple tripled expense on assembly to ensure better pay and worker treatment. The total additional cost: $1 billion The cost of an iPad or iPhone would go up $20 or — and here's a radical thought — Apple would make a little bit less money. I'm not remotely saying Apple shouldn't be profitable.

But would anybody in their right mind be disappointed with $16.5 billion in quarterly cash flow instead of $17.5 billion?

Am I making a complex issue too simple? To check my thinking, I spoke with a former Nike exec with deep experience in supply chains and China. Here's his view:

"Someone needs to break the cycle...why not Nike — or Apple? I don't see that as an oversimplification at all. The current "low cost" business model is not really low cost. Isn't one purpose of business to create the prosperity needed to increase the number of consumers capable of buying the goods we make? In fact, I would argue that what Apple is doing now is against the best interests of the shareholders...I've never heard a lucid explanation of what I'm missing."

This is about what we value in the world. Consider IKEA, one of the most sustainability-minded large companies in the world. The Swedish furniture giant has its own challenges (some history of labor issues as well and concerns about the sustainability of its short-lived products, for example), but the company has stated clearly that it's about "low prices...but not at any price."

Why is that a radical idea? I refuse the notion that maintaining a moral compass is anti-business, anti-competitive, or naïve in some way. Smart, innovative, lean companies can make plenty of money and do the right thing. And, frankly, since companies have an awful lot of the rights of humans, they should share some of the moral responsibility as well.

Our system of competition yields amazing results — incredible technological innovation provided in massive quantities very quickly. But these marvels often rely on very real human costs. The whole system has some deep flaws that we must fix.

Apple prides itself on changing the game. So just imagine a world where the company applied its staggering innovation and design skills to create the iSupplyChain or iWorkingConditions. Everyone, including this fan of Apple products, would be a lot iHappier.

(This post first appeared at Harvard Business Online.)

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When we talk about natural resource constraints on business — such as shortages in water or increases in the cost of energy or agricultural products — we tend to forget how deeply intertwined these commodities are. In the business community, just as in a natural ecosystem, an individual organism (in this case a company) is vulnerable to changes in the availability of these systemic inputs.

The risks are greater than we realize because the availability of any of these key resources deeply affects the availability of the others. For example, it takes 95 liters of water to produce one kilowatt-hour (kWh) of electricity; and each year, the US uses 520 billion kilowatt hours — or roughly 13 percent of all electricity consumed — to move, treat, and heat water. With agriculture accounting for roughly 70 percent of water use, you can imagine how complicated it can become to maintain a steady supply of all three to industry, citizens, and municipalities.

This interdependent nexus is now evolving in a way that will threaten the wellbeing of billions. In 2050, to meet demand from a rising and increasingly carnivorous population, we will need to grow and process 70 percent more food. This technological and logistical challenge is made all the harder by the fact that by 2030, we'll be confronting a water supply shortage of approximately 40 percent due to a toxic combination of rising demand and climate-change-driven shifts in water supply. Facing these clear resource constraints, businesses will need to adapt, and soon.

At the World Economic Forum in Davos this week, a new brand of resource realism will begin to take hold in the business community with the launch of the Water Resources Group, which recognizes these constraints and the need for adaptation. This public-private collaboration includes the International Finance Corporation and food and beverage giants such as Coca-Cola, Nestle, and SABMiller. Together, these diverse players will help governments, companies and communities work together to manage the nexus. Rather than well-meaning but one-sided solutions, these business leaders hope to harness the private sector's comprehensive, value-chain viewpoint to solve these multifaceted problems.

That comprehensive viewpoint is critical, as a supply shock in any of these resources can cause ripple effects elsewhere. The energy industry has witnessed its resource co-dependencies first hand in Texas, where the state's worst ever single year drought has threatened to stall plans for new power production and distribution projects.

Companies will need to measure and prepare for potential resource shortages and price increases, which will deeply affect their business operations, supply chains, and customers. These issues create collective risks that cannot be managed in silos. Companies will need to look along and beyond their own value chains to become agents of change. They'll bring together communities, governments and NGOs to address the challenge holistically.

All sectors — not just agriculture — must recognize how their actions are interlinked with all the people who use and depend on these resources. Consider, for example, how any facility needing water must work to ensure that all agricultural players in the community are adopting clean, non-polluting practices in local watersheds. If a community runs out of water, it affects everyone in the area, even companies that were good stewards of the resource. The collective nature of these resources means that everyone shares both the responsibilities for their protection and the risks of their scarcity.

For businesses, understanding the implications of this nexus begins with assessing how a lack of water can impact the bottom line. For example, a business dependent on food can only fully understand its vulnerability if it assesses the availability of water to feed the crops it needs upstream.

In recent years, multi-national food and beverage companies with a clear stake in how the nexus plays out have begun to assess their "water footprint." This exercise allows them to identify risks and opportunities in their own supply chains, and discover how they can create more value while consuming less.

Forward-looking companies must assess the risks of mismanaging this resource nexus, learn to partner outside their comfort zone, and integrate resource-saving initiatives into their long-term business plans. It's the only way we can ensure the long-term security and supply of the resources that our economy and society depend on.

(This post first appeared at Harvard Business Online.)

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The basics of sustainability excellence are fairly well known by now: reduce your footprint, create products and services that help customers do the same, drive employee engagement, think value chain, track data and enable transparency, and on and on. But real leaders will go further and address the scale of the sustainability challenges we face by fundamentally remaking their companies. Here’s what I envision in a few key areas:

Science-Based Goals

Footprint reduction targets are important, but if the goals are not based on what scientists tell us – i.e., we need an 80% reduction in absolute greenhouse gas emissions – they’re not good enough. Sony and a few others have targeted zero impact by 2050. This level of commitment needs to become the norm, and then a few brave souls can go beyond reducing harm (even to zero) and set goals to build restorative enterprises.

Policy

While uncommon today, the basic level of performance on policy should be to make lobbying efforts consistent with core business strategy and public messaging (for example, are you proudly launching products that use less energy, yet lobbying hard against higher efficiency standards?). Real leaders go much further and lobby for stricter standards and aggressive action on climate. CEOs can demonstrate their external leadership by promoting this agenda with corporate peers and government leaders. Some companies are on track, committing to the recent “2 Degree Challenge Communiqué” or joining groups like BICEP (led by Ceres, Nike, and others) which demand strong climate policy action.

Product and Service Innovation

Reducing the customer’s footprint will need to be the core aim of all innovation efforts and all product lines (not just a sliver of the portfolio as it is today). Sustainability innovators will open up their creativity process, inviting customers and partners to offer innovative solutions (GE’s Ecomagination Challengeis a good example). Innovators will embrace disruption and heresy (which I’ve written about before) by helping customers use less of their products. For a glimpse of the future, see Unilever’s campaigns to get customers to reduce water use and Patagonia’s Common Threads, which offers a grand bargain: “We make useful gear that lasts a long time…You don’t buy what you don’t need.”

Valuation and Investments: Financial and Operational Metrics

Leaders such as P&G and GE have set aggressive revenue targets for their greener products. A few companies put a price on carbon for internal capital allocation decisions or, like DuPont and Owens Corning, set aside a percentage of capex for eco-efficiency investments. These actions help correct the inherent flaws of ROI decision-making by valuing sustainability more explicitly. The next step is fully incorporating intangible value – employee engagement, customer loyalty, brand value, and the like – as well as measuring and including all externalized costs in investment decisions. Two trendsetters, Puma and Dow, have begun this important journey.

Investor Relations

I believe that the relentless pursuit of short-term, quarterly profit goals to please Wall Street analysts is bad for companies – great enterprises very rarely seek profit alone – and certainly isn’t good for the planet. Like Unilever’s CEO Paul Polman, the real leaders will stop providing quarterly guidance and ask managers to focus on the real measures of success: making great products, serving customer needs, creating good jobs, and driving both cash flow and long-term profitability. The most sustainable companies will become “benefit companies” or “B Corps”, with a broader charter than just pursuing shareholder value. Seek greatness and sustainability, and the money will follow.

Resources Dedicated

Most companies give their sustainability execs woefully inadequate resources to do their stated jobs, let alone transform their companies. A truly committed organization will allocate resources equal to the challenge and will give the sustainability function real power. I suggest creating a “skunk works” team run by sustainability, along with perhaps corporate strategy and R&D, to question everything and challenge the core business model (e.g., What if the product were a service? What if we used no fossil fuels?). This is how companies can systematize heretical innovation.

Employee Engagement

Educating all employees on sustainability principles and creating green teams are good first steps. Tying all executive compensation directly, and substantially, to sustainability goals is even better. But real leaders should work to convince those hostile to change throughout the organization…or eliminate them. In the words of Jim Collins in Good to Great, “get the right people on (and off) the bus.” Leaders will also help employees pursue sustainability in their own lives and communities and provide an outlet for organizing campaigns, such as the awareness-raising “climate ride” conducted by apparel company Eileen Fisher. If the workplace is appropriate for United Way drives, why not for climate action?

In short, I’m imagining a very different kind of company. The overwhelming challenges we face demand profound shifts. Of course, much more than I’ve mentioned will need to change – on the social side of the equation for sure – so please let me know what you would add to my vision of true leadership.

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And yet, there is so much progress (see my top 10 stories of 2011 for more on both sides of the equation). In those same couple of weeks pre-holiday, Yale e360 published a great story about a big utility CEO, NRG’s David Crane, and his compelling, reality-based case for green energy and electric cars (he also, much to my great enjoyment, called those who say they don’t believe climate change liars). Another story, a New York Times piece, described how the latest iteration of the age-old Coca-Cola/Pepsi war is about which company has the greenest bottle.

Fossil fuel CEOs taking climate change seriously, companies competing head-to-head on green, and from my top 10 list, companies like Patagonia and Unilever seriously pushing the envelope on sustainable consumption…these are pretty good signs.

And while I was mulling all this, I took an eye-opening family trip to ski in Great Barrington, MA last week. There’s no natural snow right now -- so the ski industry knows that the climate is in fact changing. The vacationers get it as well...some folks on the lifts told us that you’d have to be crazy to not believe anymore. But even so, I was surprised to see how much the region appeared to be embracing green.

For example, the two restaurants we picked randomly both had significant environmental efforts. The first, Barrington Brewery, uses solar power to brew the beer and the second, Four Brothers Pizza, captures its used cooking oil to produce energy. Also, on the way into town, we drove by the Berkshire School and saw the largest private school solar array in New England (a stunning 2 megawatts covering 8 acres).

I choose to see all these microcosms as harbingers of the future. The full logic of green -- the economic, environmental, social, and moral imperative -- is dawning on everyone from joe skier to fossil-fuel CEOs and local entrepreneurs.

Of course at the macrocosm level, the brutal facts coming out of the scientific community are not pretty, and staying positive is hard. So I choose optimism -- we'll get a lot more done if we believe that our species will in fact get its act together.

But of course it wouldn’t be a New Years’ resolution if it were easy!

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1. The usual sustainability drivers got stronger
Ok, this one is cheating a bit, but on a fundamental level, the top themes in green business haven't actually changed too much (see the 2010 list). So, rather than take up valuable list real estate with these perennial favorites and big-picture drivers, I'll quickly list them in one big bucket of mega-trends:

• The rise of the consumer around the world, related to...
• China, China, and China. From relentless demand for resources to bamboo-like 9% growth to vicious competition for the technologies and industries of the future, China will be the big story for a long time.
• The greening of the supply chain. Big organizations keep asking more of their suppliers.
• Increased demand for transparency and its close partners, (a) the quest to define and develop useful sustainability metrics and (b) the growing sustainability data explosion.
• The military continues to lead the way on energy and climate.
• The ongoing failure of policy at a global level (with the important exceptions of some successes/workarounds such as new mileage targets for cars and trucks and a carbon tax in Australia).

These drivers underpin a number of stories from 2011, but a few new themes came out as well. Here's the rest of my top 10 stories, with callouts for companies and examples that typify the trend.

2. Malthus strikes back: Coca-Cola takes an $800 million hit on commodity costs
Coca-Cola was not alone in facing increasing costs in 2011; one of my clients, Kimberly-Clark, took an earnings hit from record pulp prices. These companies are notable victims of a new reality: resources are constrained and input prices are fundamentally rising.

For over 200 years, from Thomas Malthus to the Limits to Growth gang, many people have made the case that it won't be long before we'll run out of food, energy, materials, and on and on. It's an idea that has enthralled many, but has seemed to be wrong. But this year, something felt different as we hit 7 billion hungry, striving humans on the planet. While "running out" isn't really the right phrase, it's clear that delivering many commodities to market is getting harder and more expensive (we don't dig for oil a mile under the ocean for the heck of it). And the dangerous mix of supply crunch and rising demand is only increasing, across nearly all commodities.

In January, China "seized" its rare earth metals (meaning it wouldn't export them anymore). In June, the New York Times declared a warming world hostile to food production. The best analysis of the resource scarcity mega-trend came from asset manager Jeremy Grantham. His analysis of commodity availability on a finite planet is compelling, thorough, and absolutely fascinating. Here's the gist: after 100+ years of fundamentally declining resource prices, the data show a rising trend for nearly every input into our society. Business as usual is no more.

3. Climate Change Arrives: Texas weather triumphs over (some) ignorance
Climate change is here. The list of "once-in-a-century" storms, floods, and droughts this year is too long to list. I know, I know — no single storm or season "proves" climate change. Was a year like 2011 possible in a world without climate change? Of course. But please. Was a year like 2011 likely? Not at all. In the words of climate scientist Jim Hansen, we've loaded the dice in favor of extreme weather events.

From Thailand to Pakistan to Texas, some areas are deluged with water, while others have absolutely none. Please look at the numbers for how dry and hot Texas was this summer (I'll wait). The data speaks for itself: Texas' heat was literally off the charts this year. What was once temporary drought is looking more like permanent change. For another angle on a changing "normal," read Jeff Goodell's piece in Rolling Stone on "Climate Change and the End of Australia." Finally, if the immediacy of the "look out the window" method of gauging climate change didn't work for some, at least one major climate skeptic changed his tune based on longer-term data. Richard Muller ran the models himself and discovered that, surprise, the thousands of scientists before him had gotten it right. It's probably wishful thinking, but I believe the climate debate is actually over (and a solid majority of Americans agree).

4. High-profile "failures" shake up clean tech: Solyndra has its day in the, um, sun
What can one say about the failure of solar company Solyndra? It certainly has become a media darling for clean tech skeptics. Soon after this quasi-fiasco, a few other stories seemed to indicate that corporate America was backing off of green tech. Google stopped its high-profile pursuit of cheaper-than-fossil-fuel renewables, and California utility PG&E quietly pulled the plug on its carbon offset program. In my view, none of this is all that distressing. So one technology and company failed miserably (and perhaps the government made a bad investment choice). And some initiatives didn't work out as planned. So what. Whether it's government money, venture capital, or corporate initiatives, you gotta place lots of bets to get some winners. These were all experiments, and you always learn from what doesn't work. But the real reason I'm not too worried is that...

5. ...clean tech is rising fast: Renewable investment tops fossil fuels for first time
Markets have a remarkable way of sorting the wheat from the chaff. While the overall carbon emissions news is not good, the renewable energy market is growing very fast. The sector is larger than most people realize, with clean tech investment hovering around $200 billion globally. Total investment in new power generation is a good indication of where we're headed, and for the first time renewables beat fossil fuels globally. Right now, the U.S. and China are entering a trade battle over solar subsidies, which tells me it's a real market now. They wouldn't be arguing if the prize were not very large.

5b. Nuclear on the outs

Following the nuclear meltdown in Fukushima, Japan, the once-resurgent nuclear industry is flatlining: generation actually fell globally in 2011, with Germany alone shutting down 8 gigawatts' worth. In September, Siemens, one of the world's largest nuclear power plant suppliers, exited the business. CEO Peter Loscher declared Germany's plans to move aggressively toward renewables "the project of the century."

6. Water rising — both literally and as a serious issue for business: Honda's supply chain gets slammed, Levi's gets creative
A list of floods that devastated lives, homes, and countries this year would be tragically long. So it's no wonder that business started to wake up to the serious danger that storms and shortages present to their operations, both from direct damage to property and from massive production interruptions (i.e., "business continuity"). Think back to the January floods in Australia which covered an area larger than France and Germany combined. The extreme weather seriously disrupted coal production, one of the most important economic engines in the country. At the microeconomic level, consider what Thailand's floods have done to the market for disk drives, or to supply chains for Honda and Toyota (which are dealing with a double flood hit from the tsunami as well).

On the use side of the water issue, companies with products that depend on water in production (beverages) or in use (shampoo, apparel) are also seeing the writing on the wall and getting creative. Levi's announced a low-water jeans production method, Unilever started asking customers to shorten showers, and beverage companies are working with farmers and NGOs to drive water use down throughout the value chain (see my last blog, co-written with Andy Wales from SABMiller). In 2011, the phrase "water footprint" became a lot more common.

7. Value chain and transparency partnerships growing: The apparel industry bands together
One of my favorite new partnerships is the new Sustainable Apparel Coalition, an impressive mix of powerful retailers, apparel manufacturers, and NGOs. The group is leveraging extensive data from Nike and the Outdoor Industry Association on supplier sustainability performance (energy, water, toxicity, etc.) for "every manufacturer, component, and process in apparel production." The goal: to reduce negative environmental and social impacts of the $1.4 trillion market for clothes and shoes.

The larger trend here is the continued growth of "open" — open data and open innovation, including new value-chain business partnerships and cattle-call contests inviting in any and all ideas. The movement has been building for years, from P&G opening up its product development pipeline early in the 2000s to the launch of the GreenXchange for sharing green patents early in 2010. But the trend accelerated this year, with GE's expanded Ecomagination Challenge and other coalitions and open competitions.

8. Valuing and internalizing the externalities: Puma Calculates its Environmental P&L
A few very cutting edge companies are starting to ask some deeper questions about the value they create and destroy in the world. Puma, in a surprise leap to the front of the sustainability leadership pack, commissioned TruCost and PwC (full disclosure: I have a partnership with PwC) to assess the value of its total environmental impacts from operations and supply chain, including carbon pollution, water use, land use, and waste generated. The total: 145 million euros. In a similar vein, Dow Chemical launched a 5-year, $10 million partnership with The Nature Conservancy to "value nature" (so called "ecosystem services") as an input into their businesses. It's unclear what companies can do with these numbers since externalities are by their nature, well, external to the regular P&L. But it's the beginning of something very important — companies are starting to understand the real value and costs of their businesses, to themselves and to society. Watch this space.

9. The people speak: Keystone and OWS
Speaking of getting companies and governments to think longer term about value and costs to society: against all odds and expectation, the protests against the Keystone XL pipeline from Canada — led most prominently by uber-environmentalist Bill McKibben — were successful (for now). And what can one say about Occupy Wall Street? The movement is, in part, about this larger question of value and values. Do we value the right things (equity, fairness, justice) or just promote growth and profit above all? Currently, our businesses are driven entirely by quarterly profits. Pursuing the short-term payback can cause a firm to deviate wildly from actual, long-term, sustainable profitability. This disconnect was bound to stir some passions eventually. Whatever your politics, ignoring or dismissing this movement is a big mistake. The concerns underpinning the anger out there stem from concern about what's good for the long-term, and what's truly sustainable. None of these questions are going away.

10. A path to sustainable consumption begins to emerge: Patagonia asks us to buy only what we need
Perhaps the most heartening business story of the year came from perennial thought (and action) leader, Patagonia. Its Common Threads campaign/business model questions consumption at its core. The company announced that it would take back its clothing and refurbish, resell, reuse, re-whatever. The website proposes a grand bargain - we make clothes that last, and you don't buy what you don't need. A holiday ad got more specific and demanded we "Don't buy this jacket." Patagonia is testing new ground and it's not a gimmick — it's a sign of the future.

Looking Forward to 2012 and beyond: New business models coming
Patagonia has always been at the leading edge; it was one of first companies to buy organic cotton or to turn recycled plastic into fleece. Now it's showing the way to new business models. I've written about this kind of heresy before, but the few examples out there are generally B-to-B (Waste Management, Xerox). Patagonia's move is a warning shot over the bow that the consumer-facing consumption question is coming. The near future will hold more questions about how businesses can and should operate in a resource-constrained, hotter, drier (or wetter) world. And companies will increasingly question the wisdom of focusing on quarterly profits. It won't all come to fruition in 2012, but it's on its way.

As usual, I'm sure I'm missing many great stories in my list. I look forward to your suggestions. Happy holidays and Happy New Year!

(This post first appeared at Harvard Business Online.)

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @GreenAdvantage)

It's hard to put into words how dry and hot Texas was this past summer. "Off the charts" is both figuratively and literally accurate: the data for the last 100 years shows a tight regression of temperature and water availability in Texas...except for the 2011 drought, which is far off the line (three degrees hotter with an inch less rainfall than any previous year).

The economic cost of the drought has been incredible; Texas lost $5.2 billion in agricultural production alone. With agriculture making up 9 percent of the state's economy, and water shortages already threatening growth in the state's energy industry, it's not a reach to suggest that the future of the Texas economy will be tied closely to water availability. And it's not a short-term problem, either. As Columbia University's Richard Seager told the New York Times this summer, "You can't really call it a drought because that implies a temporary change...You don't say, 'The Sahara is in drought.' It's a desert. If the models are right, then the Southwest will face a permanent drying out."

The trend is clear globally as well. Due to rising population, coupled with increasing demands by the agriculture and energy industries (often referred to as the water-food-energy nexus), global demand for clean water will outstrip supply by an average of 40 percent by 2030. While this reality poses grave risks to thousands of communities, it is also the driver of a daunting, and often confusing, economic dilemma which businesses must prepare for. It's time for companies operating in the many dry regions around the world to equip themselves with the tools and mindset they need to navigate this new normal.

While access to water has been recognized as a basic human right, it is also increasingly clear to see that it is a commodity — a resource in high demand that should be valued according to its supply.

But for such a transparent substance, water's economics are anything but clear. Water is one of the world's most glaring commercial anomalies, with a price reflecting nothing more than the costs to extract and distribute it. The value is exempt from the ebb and flow of the market. Even as demand vastly outpaces supply, the market price is as static as a boulder in stream.

With such imprecision in the marketplace, companies must take it upon themselves to identify long term risks, quantifying the true value of water in order to steer clear of long-term hazards. Much of the leading work in understanding water risk has come from Coca-Cola. The beverage giant is now working with the World Resources Institute's Aqueduct Initiative and sharing its extensive global database of previously proprietary data on water availability and risk. By identifying these risks, Coca-Cola is providing a strategic resource for broader communities facing water shortages.

Many companies are now calculating their "water footprint," which adds up the water they use throughout the value chain. The first corporate water footprint was jointly published by SABMiller and WWF in 2009, and since then Coca-Cola, Nestle, and UPM-Kymmene, and others have published footprints for key product lines. However, while the problem affects people globally, water is inherently local, so a global corporate footprint is only so useful. What the calculation does do, however, is help companies highlight those specific, local dangers where a low water supply could disrupt both business operations and the surrounding community.

But managing the risk, and preparing for the 40 percent global supply gap, will require a tough balance of local and large-scale, collective action in cities and watersheds around the world. Andy Wales' company, SABMiller, recently invited businesses, NGOs and other organizations to join a global water initiative, the Water Futures Partnership, in conjunction with the World Wildlife Fund (WWF) and the German development agency (GIZ). This article is part of an ongoing invitation to companies and NGOs worldwide to join the partnership.

From SABMiller's experience — and the work of others across many business sectors — we have learned that once a company understands water's real economic value, both innovation and efficiency weave their way into long term water plans. MillerCoors, for example, has partnered with The Nature Conservancy to help farmers develop a tool to save potentially more than 400,000 gallons of water in every crop rotation - a saving of nearly 20 percent. This kind of deep supply chain work fits the model of "shared value" creation that strategy guru Michael Porter laid out in HBR earlier this year.

While some voices in Texas have called for more action from the government, the real opportunity for leadership will be in the private sector. The leading water-aware companies may be better attuned to slowly emerging water disasters and best equipped to help reduce the gap between supply and demand. They will avoid business disruptions and build more resilient enterprises. They will also, by recognizing the true value of water, help protect everyone's access to clean water.

(This post first appeared at Harvard Business Online.)

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Is there a better distillation of the serious problem with our economic system? Not to put too fine a point on it, but the relentless pursuit to satisfy analysts, and not customers or other stakeholders, is killing our economy and our planet.

Earlier this year, I asked a CEO of Fortune 100 company how he dealt with analyst pressure. Even though he answered on stage in a public forum, I'll keep this anonymous in case it was a moment of mistaken honesty. What he said was this: "I don't know any CEO that would want to run a company the way analysts would want us to."

And yet...I keep hearing from top executives at large, profitable companies that they're under "P&L pressure." This pressure comes not from being anywhere near unprofitable; no, it stems from fear of not hitting growth targets for earnings per share. What all senior executives seem to have forgotten — in some mass delusion — is that these growth targets are arbitrary.

Who declared 7 or 10 or 15 percent growth in earnings a sacrosanct pursuit, above all other corporate goals — like the innovation that leads to novel solutions that address customer needs? If you believe the best-selling business books from the last 25 years, companies are "In Search of Excellence" or trying to go from "Good to Great." Nobody writes a paean to the search for 9 percent EPS growth.

Moreover, pure growth targets are even wackier right now. The debt and overleverage explosion artificially inflated our economies and corporate earnings. So expecting growth in earnings today, while we re-set the economy to a more "normal" growth level, is absurd.

Now imagine for a moment that a proverbial alien lands on the planet and looks at the financial statements of many of our largest companies (I know, aliens might have better things to do, but go with it). They would see massive profits, tons of free cash flow, and healthy balance sheets. Since they wouldn't know that the companies had set and missed growth targets, they'd declare them very successful. But not the analysts.

Our big, profitable companies have the resources to do everything they might consider a priority in the long run — invest in R&D, pay shareholders well, build new businesses and hire people, create a more sustainable enterprise...whatever.

The strategic decisions that would lead to these outcomes require broader thinking, not quarterly focus. But the pressure to "impress analysts" means that leaders can't pursue the long-term perspective that creates truly lasting, great, and sustainable organizations. It's a strategic and operational straight-jacket.

A few leaders — from companies such as Google and Unilever — have told Wall Street that they won't provide "guidance" anymore. In essence, they'll report their results to GAAP standards and as the SEC, FASB, and other quasi-regulatory bodies require...but they won't answer to analysts. Not coincidentally, these CEOs are also deep sustainability thinkers.

I have a sneaking suspicion that most CEOs and CFOs would enjoy this kind of freedom from analyst conversations. Wouldn't it be more personally rewarding for them — and all the layers of management beneath them — to build and lead fundamentally more profitable organizations (versus maximizing short-term profits)?

As Unilever CEO Paul Polman told the crowd at the World Economic Forum in Davos in January, "The worse thing would be to do what is probably right for the long-term benefit of society and being forced out of that because you don't get the short-term results...I want people to focus on cash flow, which is a much longer-term measure than short-term profit."

Sustainability is about the real long-term health of both the planet and enterprise. I hope we see more leaders walking away from these absurd pressures that keep them from building innovative, profitable, sustainable companies.

(This post first appeared at Harvard Business Online.)

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @GreenAdvantage)

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