Transparency Archives

July 24, 2007

Whole Transparent Foods

The bizarre story of Whole Foods' CEO John Mackey is very educational. In case you missed it (which would be hard), Mackey was using the internet in ways that he shouldn't. No, this wasn't another sex scandal. Operating under the name "Rahodeb", for years Mackey was posting comments on Yahoo Finance investor boards, taking shots at competitor Wild Oats (and in some stranger moments, defending the Whole Foods' CEO's haircut — yes, that's his own hair -- as 'cute'). Gleefully, the Wall Street Journal recently ran a front page, center column story...the second front pager in just eight days.

This story is just too easy — thus the constant coverage. How much more can you say about how not-smart his behavior was? Wow.

But let's look at it in another way. What's the connection to the trend toward responsible and green business? In Green to Gold, we talk about the Green Wave, the combination of natural world and stakeholder pressures coming to bear on companies. In addition, seismic global forces are making the Wave even stronger — Friedman "World is Flat" kinds of trends like technology, globalization...and transparency.

This Mackey story is a new classic demonstrating how hard it is to hide what you do anymore. Anything you write, say, instant message, or send by carrier pidgeon — no matter how you encode it or hide behind a pseudonym — has a very good chance of becoming public knowledge. Mackey is in the middle of the proverbial nightmare, "don't do anything you wouldn't want splashed on the front page of the paper." And he's lived it twice in a week.

The world is driving fast toward universal expectations of transparency. Companies and CEOs are even starting to encourage this, with blogs from inside companies — the Journal did a follow up story last week about this phenomenon and the problem of over-sharing (one CEO talked about his colonoscopy). Examples abound — more here from an earlier post.

This new world of transparency means companies will need to open up about everything they do and how they impact the world — socially, environmentally, and through their Internet posts.

January 6, 2008

2008, The Wave Continues

The New Year is always a time for taking stock, looking both back and forward. How did your company handle the shifting sands for business in 2007, the greening of society? Companies across many industry groups were scrambling and strategizing about how to best manage the environmental impacts of everything they do. Green issues were huge in '07 (see my upcoming strategy e-letter on the crushing flow of media to green issues in 2007 here in a few days).

But 2007 was just the beginning. It was not a fad — or a bad dream for some — but a fundamental shift in how we all do business. Why? Well the Green Wave was a big part of it: the two big forces of the natural world — real resource constraints like water shortages and climate change — and the rising pressure from stakeholders got stronger. But what was the strongest reason to belive it's not a fad (and one that became much clearer in 2007 )? In short, green business is better business — companies are slashing costs, driving new revenues, reducing risk, and enhancing brand value. Why go back if your business is better?

But the tipping point year is over now and the game is on. So what environmentally-driven challenges and questions will your business face in 2008 and how will you handle them?
I could pick many trends (I believe that most aspects of the Green Wave are getting stronger and still changing fast, even in tougher economic times), but I'll highlight just a few of the forces that will grow stronger in '08 and the coming years.

The "greening of the supply chain" grew legs this past year with Wal-Mart adding its substantial weight to a movement that had been gaining steam for years. The leviathan started asking suppliers to redesign packaging and reduce fossil fuel use, and even demanding more information on exactly how much energy a product used in its creation, from procurement to manufacturing to distribution. The B2B greening pressure means every company will need to track much more data on its operations. This is where we're headed: a world where every product will carry information with it about how it was made — the energy, water, resource use — who made it and where, how much they were paid, and on and on.

Clearly this won't all happen in '08, but it has already begun in earnest. The pressure for more data is part of a larger movement toward transparency in all we do. Dole now puts a sticker on its organic bananas with a farm number on it. Go to Dole's website and pick the farm number and watch as Google Earth zooms you to a satellite view of the farm itself. This is a fun use of transparency.

Other stakeholders are using the same tools for more critical uses, to expose much more information about where your products, or your energy, come from. Look at Appalachian Voices, a small but very smart NGO that works to combat mountain-top removal mining practices. Put in your zipcode at their site, and see a very clear picture of the mountains that were cut down to power your life. I spoke to Mary Ann Hitt, the director of this group, and for good reason, companies should be nervous about what she and other innovative NGO leaders will do with new technologies. Google is enamored with this kind of interesting use of their tools and has built Appalachian Voices' data into the popular Google Earth program. Every version includes an overlay of all the mountains destroyed anywhere (along with some other overlays under the "Global Awareness" check-box including WWF maps, biodiversity hotspots, etc).

Are you ready for this level of exposure and expectation of openness?

So next December, when many of your resolutions have fallen by the wayside and you're not as organized or as on-time as you hoped (I'm shooting to fully adopt the Getting Things Done workflow approach and we'll see how it goes...), will you be able to say that you made your business better? That your company is on a more profitable path using the green lens? Will you have an action plan to stay ahead of the curve on this critical business issue?

Good luck and Happy (Green) New Year!

April 2, 2009

Rising Transparency -- One Way to Avoid Massive Market Failure

Last week, Hernando de Soto (the insightful Peruvian economist and author of The Mystery of Capital) wrote one of better pieces I've seen about the financial meltdown and all these "toxic assets." In the Wall Street Journal, De Soto made the compelling case that "the real problem is not the bad loans, but the debasement of the paper they are printed on." The $50 trillion in bad paper, he says, is far more than the $1 trillion in subprime mortgages that supposedly started all of this.

To put the magnitude of the derivative financial creations in perspective, de Soto describes simply the scale of all assets in the world: $100 trillion of tangible goods (land, buildings), $170 trillion of semiliquid asssets (mortgages, stocks), and $1 quadrillion of new derivatives (mortgage-backed securities, collateralized debt obligations, and so on). Let me repeat that. One quad-rill-ion -- as in one thousand trillion. First, I've never heard anyone use figures like that outside of my 5-year-old making jokes about wanting infinity or googol more minutes to play a favorite game before bedtime.

Ok, shocking numbers aside, de Soto outlines six prescriptions to avoid this kind of market failure in the future. In short, the answer is making sure "property" is not some financial figment, but something definable and trackable, something we can guarantee the value and legitimacy of. The first two guidelines he provides are why I'm writing about this.

First, he says, "all documents and the assets and transactions they represent or are derived from must be recorded in publicly accessible registries." Second, "the law has to take into account the 'externalities' or side effects of all financial transactions..." This sounds an awful lot like themes of sustainability and business. Internalize the externalities and get much more knowledgeable and open about your impacts. I couldn't agree more. The solution de Soto recommends hinges on a renewed commitment to transparency so there's no "back-room" financial market that regulators and, more importantly, investors can't see.

Transparency is one of the driving forces keeping the green and sustainability waves moving (it's a theme I touch on in my new book, Green Recovery, coming out this summer, so I'll return to this topic over the coming months). I believe that we're rapidly entering an era of radical openness, driven both by regulation -- see the EPAs recent announcement that it plans to "ask" 13,000 facilities in the United States to share data on carbon emissions -- and the rising demands of employees and customers, particularly the younger ones. The new level of transparency will make any of us old enough to remember a world before MTV uncomfortable. But the Facebook and MySpace generation will have no problem with it -- in fact, they'll be expecting it.

A renewed transparency drive may be partly fueled by the latest emotional issue of the day -- executive pay and bonuses. I don't really believe in government-mandated 90% tax brackets for bonuses, no matter how repugnant the payments may seem. But I do think the government can set standards for openness. Let's list everyone who got bonuses at these firms and how much they made. Let the court of public opinion (and that of peers and co-workers) be the judge.

I'm going to make a seemingly unlikely prediction: companies will increasingly reveal all salaries and bonuses (far beyond sharing the pay to a few top executives as required by the SEC). The most responsible companies already do this to some extent -- Seventh Generation has a public commitment to keeping the CEOs salary below 14 times the lowest salary. The biggest companies will, painfully, follow suit (about sharing, not about the 14x multiple) over the coming years as it becomes clear that the more open they are, the more trustworthy they'll be.

Imagine what openness about salaries and bonuses might do for some other thorny issues, such as equal pay for women and minorities. Wal-Mart is facing a highly publicized class action suit about its treatment of women. Will complete openness about pay generate more of these kinds of claims, or help companies avoid these problems? I have no idea, but I certainly hope it's the latter since the transparency is coming, like it or not.

How do you prepare for this new open world? It's not easy, but some of those old grandmotherly maxims seem to gain some force: don't say anything about anyone that you wouldn't be comfortable with that person hearing...or don't do anything you wouldn't want on the cover of the paper...or the standard Golden Rule certainly comes to mind. No doubt there will be some real challenges in handling increased transparency, but my hopeful view is that it will drive more ethical, sustainable behavior.

In this view, those who can't meet the standard will struggle. But those companies that are proud of their operations will be fine talking about what's in their products, how products are made, how much energy they use, how much they pay people, who else is involved in the production, and what their executives receive in compensation. They will also attract and retain the best people who trust their employers. And they will build a more loyal base of customers that feel the authenticity. Sorry for all the unbridled optimism in such a pessimistic time, but maybe it's time to look on the bright side of some of these massive changes in the works.


This post first appeared at Harvard Business Online.

July 29, 2010

IBM's Green Supply Chain

While the "greening of the supply chain" has been in the works for decades, the movement has really taken off in 2010. In the last few months, a number of corporate giants have announced new initiatives that pressure suppliers to do much more to measure and manage their environmental impacts. The big guns asking the questions include Pepsi, P&G (more in a future post), and IBM.

For years, most supply chain programs have included a similar, somewhat narrow range of demands: stay on the right side of the law, keep operations within regulatory levels of air and water pollution, avoid child labor, and so on. Wal-Mart has already pushed that envelope to dive much deeper into supplier practices (packaging, fossil fuel use, and even how some things are sourced). These new announcements also expand the demands in different ways. In recent years, most of the high-profile supply chain initiatives like Wal-Mart's have taken hold in the consumer products and retail arenas, and Pepsi and P&G are no exception.

But IBM brings a new value chain — electronics and IT — to the discussion and thus broadens the movement. Other electronics companies are also pressuring suppliers; the biggest players in the industry launched the Electronics Industry Code of Conduct (EICC) for suppliers in 2004, and members now include Apple, Cisco, Dell, Hitachi, HP, IBM, Intel, Microsoft, Sony, Xerox, and many more.

But IBM is helping expand the definition of a green IT supplier by upping the demands. To get a sense of what IBM is asking of its 28,000 first tier suppliers, I spoke with Wayne Balta, IBM's VP of corporate environmental affairs and product safety.

Balta described IBM's work as "just the latest step in a long-standing continuum." In 2004, the company launched its own IBM Supplier Conduct Principles, which helped define the EICC standards. Even earlier, in 1998, IBM asked suppliers to consider adopting the international green operating standards, ISO 14000. But the new announcement makes this "request" more of a mandate, and that's at the core of the new demands.

In short, IBM is asking for four things and telling suppliers they must:

1. Define and deploy an environmental management systems (EMS).

2. Measure existing environmental impacts and establish goals to improve performance.

3. Publicly disclose their metrics and results.

4. "Cascade" these requirements to any suppliers that are material to IBM's products.

The mandate for deploying an EMS helps suppliers build their own capacity to manage environmental issues. But most of the biggest suppliers already have some EMS in place, and that means they will have some metrics already. So I find the third and fourth elements even more important. These demands differentiate IBM's program from most of what's come before. They give heft to the requirements and expand their influence.

The third element makes companies publicly disclose their data — they don't just need to report their information to IBM; they need to make it clear for all to see. Transparency is a very powerful tool, and the new openness will benefit every customer of these suppliers. It will encourage improved performance like no other incentive (good, open data, drives competition and results in many ways - see my post Five Ways to Use Green Data to Make Money).

The fourth component, "cascading," means that IBM's requirements will ripple up the supply chain. Businesses will move a step closer to the holy grail of environmental measurement — knowing the footprint of every product without conducting a costly and time-consuming lifecycle analysis. In essence, if every link in the value chain tracks its footprint closely, and uses the tools of cost accounting to distribute these impact measurements across components, it becomes much easier for companies to estimate the value-chain impacts of their products.

IBM didn't undertake this initiative lightly. Balta explains that "we thought carefully about how we would feel about having these requirements ourselves from our customers." In essence, they're not asking anyone to do anything they have not already done themselves.

IBM execs know that the green path is a profitable one, so they're pushing suppliers to operate leaner, better, and smarter. As Balta says, "Our goal is not to punish people, but to have them succeed."

(This post first appeared at Harvard Business Online.)

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April 21, 2011

How Can We Build a Culture of Disruptive, Heretical Innovation?

The forces driving the business world toward sustainability are vast, powerful, systematic…and growing. In recent months, we’ve witnessed massive climate disruptions everywhere from Russia and Pakistan to Brazil and Nashville. Resource constraints are a reality, with serious discussions about peak oil, peak coal, peak coffee, and, well, peak everything. Technology-driven transparency is creating a mad rush to capture product and company sustainability data, and companies continue to push new demands aggressively up their supply chains.

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And the mega-force to beat all – the relentless rise of population and living standards in the developing world – continues unabated. So how will we provide a good quality of life to what will be 9 billion people on a resource-constrained planet?

In short, we need some very large changes to “business as usual,” requiring radically new ways of thinking.

Over the past couple of years, I’ve written frequently (in my last book Green Recovery in particular) about the need for “heretical” innovation – that is, asking very hard questions that challenge the very nature of a business or product. I wrote recently about two companies, Waste Management and Xerox, in the middle of deep transitions. From hauling waste and getting paid by the ton, to managing recycling streams and helping customers achieve zero waste goals. Or from selling as many printers as possible to helping customers reduce the number of devices and do less printing over all. Asking customers to use less of their core products – that’s heretical.

Some will point out that this is similar to the concept of “servicizing”, and of course it is. But I believe there’s a deeper heresy at work than just turning a product into a service. After all, Xerox could offer outsourced printing services and try to print as many pages as possible. It’s the combination of service and talking openly to customers about using less in total that makes it novel.

So I have a paradoxical task in mind: figuring out how to systematically and logically ask illogical, wacky, heretical, leapfrog questions. I’m looking for ideas from the assembled knowledge and experience of the sustainability leaders reading this.

My three main questions are:
1) How do we cultivate a culture of heretical innovation (how do we make it ok to ask wacky questions)?
2) How do we identify and support the true innovators, intrapreneurs, and heretics in even the largest organizations?
3) Is sustainability-driven innovation fundamentally different than ‘regular’ disruptive innovation, and how?

On the first question at least, I have a few broad ideas. Here’s a starting list for budding corporate heretics:

Start with value-chain data to identify big risks and opportunities. With solid data, managers can focus limited resources on tackling the real footprint and drive toward new ideas and questions. For example, Pepsi’s Tropicana brand is experimenting with low-carbon fertilizer after discovering that growing oranges was the biggest part of its GHG footprint. And more famously, P&G launched Tide Coldwater to address the largest (by far) portion of detergent lifecyle emissions, washing clothes in hot water.

Use open innovation. The hottest concept in innovation today is inviting people in to solve your problems. P&G has opened up its innovation pipeline to anyone with a good product idea. A few companies are sharing some of their best ideas (and patents) with the world – as Nike and others do with GreenXChange – and then hoping for reciprocal karma.

Try “co-creation” (the second hottest concept in innovation and a subset of open innovation perhaps). IBM has had great success in recent years with “Innovation Jams” that allow all employees and customers to throw ideas into the mix. Cross-fertilizing people from radically different disciplines, and from outside the organization as well, can lead to some novel questions.

Show personal leadership (walk the talk). Have senior execs take part in jams and brainstorms. Let them publicly generate wacky ideas and support pilot projects to explore them.

Systematize innovation. 3M and Google famously set aside a portion of everyone’s time for whatever strikes their fancy. More companies should emulate this practice, but also make a point of focusing specifically on sustainability pressures.

Award the wackiest ideas, even the ones that don’t pan out. Some public pats on the back and recognition for employees who show bravery and try new things can go a long way.

Create competition. Sharing data on sustainability performance internally can drive real competition and learning across divisions or products. Or utilize public prizes, like the famous X Prize or the $1 million Netflix Prize.

All of these paths can help us regularly ask the toughest, most interesting questions. Only then can we match the scale of innovation to the scale of the sustainability challenge.

These are just a few ideas (after all, this is a blog, not a book). There are many more. So please send me your thoughts on how to drive breakthrough innovation and how to find the heretics in the organization. Finally, any examples of heretical questions within your organizations are very welcome. (andrew@eco-strategies.com).

(This post first appeared on Corporate Eco-Forum's site.)

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December 22, 2011

Top 10 Green Business Stories of 2011

Yes, it's December again somehow: time to look back on what we've learned and oversimplify into a handy list. Here's my take on the 10 big stories in sustainability and green business this year:

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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.)

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February 27, 2012

Eco-Labeling: The Critical Questions to Ask

Will we see the day when all products carry environmental labels with data on carbon emissions and other impacts? Recent news tells us a definitive...maybe. Within a couple days of each other, GM announced new eco-labels for some Chevy models, while UK mega-retailer Tesco pulled back from an important 4-year experiment in carbon labeling.

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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.)

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

December 22, 2012

Top 10 Sustainable Business Stories of 2012

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It's time once again to try and summarize the last 12 months in a handy list. But before I dive in, some quick thoughts.

It was an odd year for green business, and it began with some mixed signals about how far companies were coming on sustainability. A GreenBiz report indicated that progress had slowed or even regressed, but MIT and BCG also declared that sustainability had reached a "tipping point" with more companies putting sustainability "on the management agenda."

In reality, both views were right. Corporate sustainability lost some of its sexiness from previous years, as it grew more entrenched in day-to-day business. Some parts of the agenda — eco-efficiency and resource conservation for example — are widely accepted now, and it's rare to find a big-company CEO who doesn't have sustainability on his or her radar.

The mega forces driving sustainability deep into business — such as climate change, resource constraints, and transparency — are getting stronger. We may not be keeping pace with these pressures, but leading companies continue to evolve more sustainable strategies and tactics. Let's look at some top macro- and company-level stories.

Macro Trends

1. Historic drought and Hurricane Sandy sweep away (some) climate denial
For many people this year, climate change moved from theoretical to painfully real. Mega weather took many lives and cost over $120 billion in the U.S. alone ($50 billion for the drought, $71 billion for Sandy). After Sandy raged across the eastern coast, Businessweek blared on its cover "It's Global Warming, Stupid." New York Mayor Bloomberg, a Republican, endorsed President Obama in the election, titling his open letter, "A Vote for a President to Lead on Climate Change."

As bad as Sandy was, the relentless drought across the middle of the country may prove more convincing in the long run. Corn yields per acre fell 19%, food prices rose, and water disappeared —the Mississippi River may soon struggle to support commerce. Individual companies are feeling the bite: analysts at Morningstar estimate that input costs at Tyson Foods will rise by $700 million — more than its 2012 net income.

Over one-third of the world's largest companies surveyed by the Carbon Disclosure Project arealready seeing the impacts of climate change on their business. So with life-and-death consequences and vast costs, we must have moved quickly to tackle climate change, right? Sort of...

The year ended with the failure, yet again, of the international community to come to some agreement on climate change. But country-level and regional policy moved forward: Australia passed a carbon tax, South Korea approved carbon trading, and California just began its own trading experiment.

Many countries also committed serious funds to build a clean economy: Saudi Arabia pledged $109 billion for solar, Japan declared that a $628 billion green energy industry would be central to its 2020 strategy, and China targeted $372 billion to cut energy use and pollution.

In the U.S., a backdoor approach to climate policy took over. The Obama administration issued new standards to double the fuel economy of cars and trucks, and the National Resources Defense Council (an NGO) proposed using the Clean Air Act to reduce emissions from power plants by 25%.

2. The math and physics of a planetary constraints get clearer
Arithmetic had a big year: Nate Silver's nearly perfect predictions of the election gave him the oxymoronic status of rock-star statistician. The math and physics of sustainability got some serious attention as well.

Writer and activist Bill McKibben wrote a widely-read piece in Rolling Stone about climate math — how much more carbon emissions the planet can take — and followed it up with a national awareness-building tour. Based on similar numbers, both McKinsey and PwC UK calculated how fast we must reduce the carbon intensity of the global economy (PwC's number is 5% per year until 2050).

And on the resource constraint front, Jeremy Grantham, co-founder of the asset management firm GMO ($100 billion invested), continued his relentless numbers-based assault on the fallacy of infinite resources. In his November newsletter, he demonstrated exactly how much of a drag on the U.S. economy commodity prices have become.

Nobody can really deny that, in principle, exponential growth must stop someday. Grantham, McKibben, and many others are making the case that someday has arrived.

3. The clean economy continues to explode
The rapid growth of natural gas production (the biggest energy story of the year) and the high-profile failure of one solar manufacturer (Solyndra) have confused people about the prospects for clean tech. In reality, the clean economy is winning. The share of U.S. electricity coming from non-hydro renewables doubled to 6% in the last 4 years. On May 26, Germany set a world record when it produced 50% of its electricity needs from solar power alone. In a mini political tipping point, six Republican senators publicly supported an extension to the wind production tax credit in the U.S. (which will expire in days), and got an earful from a Wall Street Journal editorial.

It wasn't just energy. One auto analyst declared 2012 the "Year of the Green Car," with more high-MPG models, 500,000 hybrid sales in the U.S., and plug-in sales up 228%. To cap the year, the pure electric Tesla Model S was selected as the Motor Trend Car of the Year.

Company Stories

This year, there were countless eco-efficiency stories about companies saving millions of dollarsand developing new tools to make buildings, fleets (Staples and UPS, for example), and manufacturing much leaner. Aside from that overall theme, the following stories grabbed me because of their connection to larger trends.

4. The green supply chain gets some teeth: Walmart changes incentives for buyers
This year, Walmart finally added a key element to its impressive green supply chain efforts. The retail giant's powerful buyers, or merchants, now have a sustainability goal in their performance targets and reviews. For example, the laptop PC buyer set a goal that, by Christmas, all of the laptops Walmart sells would come pre-installed with advanced energy-saving settings. It was by no means a hiccup-free year on sustainability issues for Walmart, with deep concerns about corruption in its Mexican operations. But the subtle change in buyer incentives is a big deal.

5. Transparency and tragedy raise awareness about worker conditions
Early in 2012, Apple took some serious heat for the working conditions at Foxconn, the giant company that assembles a huge percentage of our electronics. Later in the year, tragedy struck Dhaka, Bangladesh when a fire at the Tazreen Fashion factory killed or injured hundreds of people. The company that owns the factory serves Walmart, Carrefour, IKEA, and many others (but in fact,some companies didn't even know that Tazreen was a supplier). It's unclear if any of these human and PR disasters will affect the companies downstream, but transparency and knowledge about the lives of the people who make our products will continue to rise.

6. Data gets bigger and faster: PepsiCo and Columbia speed up lifecycle assessments
The rise of Big Data was an important theme in business in general this year, but especially in sustainability. And nowhere is good data needed more than in the onerous and expensive task of calculating a product's lifecycle footprint. PepsiCo has had great success with the method, finding ways to reduce cost and risk for key brands, but execs wanted to apply the tool across thousands of products. To make the exercise feasible and affordable, they turned to Columbia University, which developed a new algorithm for fast carbon footprinting. This isn't just a wonky exercise: As PepsiCo exec Al Halvorsen told me, "the real reason you do an LCA is improve the business, to put more efficient processes in place, and innovate in the supply chain."

7. Sustainability innovation opens up: Unilever, Heineken, and EMC ask the world for help
This new world of social media, where everyone has a voice, can be tough on companies. Consumers can gather around a green issue and pressure companies to change their behavior. Some notable change.org campaigns this year challenged Universal Pictures (about its green messaging around The Lorax), Crayola (recycling markers), and Dunkin' Donuts (Styrofoam cups). But companies can also use "open" innovation tools to generate new ideas and invite the world to solve problems together.

Unilever, which has my vote for leader in corporate sustainability right now, held an online discussion or "jam." Then the company posted a list of "Challenges and wants" and asked for ideas on solving big issues such as how to bring safe drinking water to the world's poorest regions.Unilever has received over 1,000 ideas and is "pursuing 6 to 7 percent of these with internal teams." Other notable open innovation models this year included Heineken's $10,000 sustainable packaging contest (which yielded some very fun ideas like a roving tap truck) and EMC's eco-challenge with InnoCentive on e-waste.

8. The economy gets a bit more circular: M&S, H&M, and Puma experiment with closing loops
On the heels of Patagonia's "Don't Buy This Jacket" campaign (one of my top 10 stories from last year), British retailer M&S began a program called "Schwop" that asked customers to bring back old clothes every time they bought new ones. This month, H&M also rolled out a global clothing collection and recycling effort.

Puma, after making last year's list with it's Environmental P&L, kept the momentum going andannounced a new "InCycle" collection with biodegradable sneakers and shirts, and recyclable jackets and backpacks. Remanufacturing has been around a long time, but closing loops is getting more popular every year.

9. Dematerialization gets sexier: Nike's knitted shoe shows off sustainable style
Keeping the apparel theme, um, running, check out Nike's new shoe with FlyKnit technology. The upper part of the shoe is constructed from a single strand, which greatly reduces waste and lightens the shoe dramatically. It's a great thing when a more sustainable design also coincides perfectly with customer needs. Enough said.

10. Zero becomes more the norm: DuPont, GM, and John Elkington show the way
The idea that organizations should send zero waste to landfill was once a niche idea, but it's quickly becoming the ante to enter the waste management game. Announcements on waste may not be exciting, but they demonstrate how companies can turn a cost center into a source of profit. DuPont's Building Innovation Products business reduced its landfill waste from 81 million pounds to zero in three years. GM announced that it would ramp up its already extensive waste reuse and recycling efforts, which are now generating $1 billion a year. And a plug for a fellow writer: In a new book, sustainability thought leader John Elkington made the case that the future would belong to the "Zeronauts," the "new breed of innovators determined to drive problems such as carbon, waste, toxics, and poverty to zero."

Five Questions For 2013

Some other promising stories are in the "too early to tell" stage, but bring up some key questions:

1. Can we standardize sustainability, which some smart folks began to do around rankings (GISR) and accounting (Sustainability Accounting Standards Board)?

2. Will we find a way to value externalities like ecosystem services and internalized, intangible benefits? (A focus of some of my work as an advisor to PwC US). For example, Microsoft launched an internal carbon tax and some major companies (Coca-Cola, Nike, Kimberly-Clark, etc.) pledged to value natural capital at Rio+20.

3. Will government get in the way or help, like when the U.S. Senate allowed the military to keep investing in biofuels?

4. Hertz and B&Q (Kingfisher) have delved into collaborative consumption (see WWF's Green Game-Changers report), but will the sharing economy make a dent on sustainability issues?

5. Finally, how much will we challenge the nature of capitalism, and what will that mean for how companies operate? (This is the focus of my next project.)

So many stories, so little time... on to 2013. Happy holidays and have a safe and wonderful 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 @AndrewWinston)