For many years, environmental strategy - if you could even call it that - was about complying with environmental regulations. All you had to do was make sure your facilities didn't spew too much pollution into the air or water, or your products didn't contain any banned substances, and you could call yourself a good green corporate citizen.

Then the phrase "beyond compliance" came into vogue to describe environmental actions that weren't required by law. I never really liked this phrase, because it implied that anything above the bare minimum was not only voluntary, it was probably some form of philanthropy.

Today, legal compliance is an incredibly narrow view and is step zero in going green. Most execs certainly see the need to do more than what the government is asking. And many forces are coming to bear on companies, making green a profitable (not optional) path. I'm not just talking about forces such as the shocking rise in energy and commodity prices over the last couple of years. Even the biggest eco-skeptic sees that resource efficiency is good business. No, I'm thinking about a much broader sense of "regulation" which puts compliance in a whole new light.

Companies are facing mandates from a range of stakeholders, with the government often being just a bit player. I'm not saying that government doesn't matter -- in these heady political times, who ends up in the White House will make an enormous different to a range of industries. But other forces are strong and growing no matter who wins in November.

Customers are remaking some markets by setting their own standards. Mega-retailers are in the process of creating their own environmental screens that determine what they'll carry on their shelves. The lead dog here has been Wal-Mart (as usual), which set tough restrictions on heavy metals in toys. The surface coating for any toy that wants space on Wal-Mart's shelves can hold no more than 90 parts per million of lead...a stunning 85% lower than the federal regulatory standard. So if you're a toymaker, only complying with the law won't get you very far.

Other retail giants are phasing out any products with a range of chemicals that some studies indicate are dangerous to human health. Toys "R" Us, Target, and Sears are eliminating, respectively, BPA in baby bottles, phthalates in plastic toys, and PVC plastic (on the phthalates, the government followed industry's lead recently). For these big brands, the logic for setting tight standards is impeccable. When a lead scare runs through the toy business, it doesn't just affect the manufacturer (such as Mattel); the retailer gets hit hard as well.

If companies don't want to research and establish their own standards -- an expensive and tough process -- they can mirror current government programs. Verizon recently set energy performance standards for suppliers of its telecom equipment. Execs describe the program as a commercial product version of Energy Star, the consumer product-focused federal program.

Even better is to go beyond what the government is asking. Take the case of environmental regulations about air pollutants from diesel trucks. The new 2007 federal standard was the strictest yet, but the laws include phase-in, or "grandfather," periods. Manufacturers have some time before every truck needs to meet the new standard - that is unless they want to sell to Home Depot. The retailer has quietly told suppliers and distribution companies that its whole fleet must soon meet the 2007 standard. The company is forcing a faster changeover in mobile infrastructure than the government is asking for.

Pseudo-regulation goes further than clear mandates from business customers. What about more subtle, harder-to-measure "standards" consumers might have, or what current and prospective employees demand? What about banks that set their own standards on carbon output from the investments they make (Bank of America does this)?

If your biggest customers, your end users, your employees, or other influencers set tough new standards - specifically measurable or not - then to get shelf space or mindshare, you have no choice but to acquiesce. Clearly, the definition of "compliance" is getting a lot broader. The government will always play a critical role and its restrictions will only get tighter, but other players and their demands may matter far more to your business.

So if your company proudly says it will do everything it can to comply with the law, it's fair to ask...Whose law?

This post first appeared at Harvard Business Online

You might think that the powerful green wave changing business will subside in a recession. True, some investments might wait a bit, but most companies I talk to are pushing ahead with the sustainability agenda. One important example is Wal-Mart, which doesn't seem to be slowing down.

I recently attended the Wal-Mart Sustainability Summit in Beijing. There are times you know you're watching something special. The point of the meeting was to bring Wal-Mart's Chinese suppliers (some 900 of them) together to hear Wal-Mart's sustainability agenda and the specific goals for the company's biggest supply partner. To put the relationship in context, if Wal-Mart were a country, it would be China's sixth or seventh largest trading partner (clearly the scale of both China and Wal-Mart is shocking).

After some opening talks that were fairly typical for these kinds of events, things took a historic turn. Wal-Mart's Vice Chairman, Mike Duke, explained what the event was really about. His "bad cop" talk covered a range of issues, and later CEO Lee Scott elaborated on some of the themes, but the critical discussion laid out what the world's biggest company was going to expect of its suppliers. Here are a few of main the commitments/ statements:

Supplier commitments: All suppliers will sign new agreements indicating compliance with environmental laws, starting with Chinese suppliers to the U.S., UK, and Canada in just 3 months. Over the next 3 years, all suppliers globally will sign.

Audits: Wal-Mart will "strengthen" its surprise and third-party audit program

Supplier goals: The top 200 suppliers will achieve 20% energy efficiency improvement, and most importantly, "By 2012, all suppliers that we buy from directly should source 95% of product from companies that have the highest ratings in audits."

Product goals and quality: Zero defective merchandise returns by 2012. Lee Scott connected quality to sustainability in very funny, specific terms: "Customers want a sock that will not fall down even if washed."

Transparency: Suppliers must reveal the name and location of every factory they use to make a product, as early as November for apparel, then home goods, toys, and others by the end of 2009. As Duke said, "If you sell us tennis shoes, we expect you to know and tell us where it was made and which sub-contractors were involved...If you don't pose these questions, our customers will...in this age of YouTube there is no trust without transparency." (Wal-Mart will have more insight into what's going on at factories than ever before thanks to the work of Ma Jun who runs an NGO that has compiled compliance data on every factory. See his group's stunning water pollution map here.)

Dropping suppliers: Wal-Mart will work with suppliers that fail to comply, but "if after a period of time, the supplier does not improve, we will move our business."

This last commitment is the one that gives all the others teeth and its worth repeating: for suppliers that do not live up to the standard, Wal-Mart will stop buying from them. This profound statement is truly historic. I've never heard a sizable company say this out loud. As Lee Scott said later, the companies that don't improve "will be banned from making products for Wal-Mart." Again, this clarity is unprecedented, but Scott made a business case for sustainability as a key screen for suppliers:

"A company that cheats on age of labor, dumps chemicals in rivers, or does not pay taxes will ultimately cheat on the quality of products...that's the same as cheating on customers and we will not tolerate that at Wal-Mart."

Scott is saying that sustainability ties directly to quality and serves as an indicator of a good or bad producer. This attitude demonstrates just how deep sustainability has gone at Wal-Mart. Execs truly believe that sustainability ties to core performance. Lee Scott said that "over the life of a product, it costs less to make product that passes testing, and over the life of the product it costs less to make one that's socially responsible and builds a loyal employee and customer base."

Clearly all of these commitments will not be easy to meet by any stretch of the imagination. First, Wal-Mart has to change the internal culture -- as one of the suppliers told me, "They sound serious, but with buyers it's still price, price, price." Lee Scott did address the associates directly during his talk and reinforced the message, but until buyers are paid or promoted differently, it's just talk.

Second, China is China. I met one of the keynotes speakers, Liz Economy, head of the Asia program at the Council on Foreign Relations and author of The River Runs Black, a book about China's environment. As she pointed out in her speech, Chinese companies use 20% more water and 40% more energy than companies in rest of world, and only 25% of waste water is treated currently (which makes the goal of having 95% in compliance by 2012 all the more aggressive).

I don't know a lot about the country, but the general feeling I got from the suppliers and China-watchers I met there seemed be a cautiously optimistic attitude of "we'll see." Many organizations, including the Chinese government itself, have been surprised at how hard change in the provinces really can be.

Lee Scott did not gloss over the challenges, but painted a picture of the promised land: "A year from now, each of you who chooses to make a commitment will be a more sustainable company and that will make a huge difference for you, Wal-Mart, China, our customers, and, yes, the planet."

The challenges are vast, but if, in a number of years, we see a cleaner manufacturing sector in China, and thus a cleaner country and world, Wal-Mart's Summit will be seen as one of the turning points.

This post first appeared at Harvard Business Online.

[I've been delayed in posting my blogs from other sites, so i'll put up a few in a row, and they all happen to be about Wal-Mart -- lots going on with the giant retailer. This one is from Huffington Post here]

A few weeks ago in Sao Paolo, Brazil, I heard the distinct sound of "taps" being played for the simple plastic shopping bag. Wal-Mart Brazil had invited all its suppliers to come and discuss its sustainability goals -- and sign a public agreement to match them. The pact dealt with everything from saving the Amazon forest, mostly through bans on sourcing beef and soy that come from cleared lands, to reducing phosphates in detergents (see the agreements here). It was an historic meeting that covered a lot of ground (full disclosure: I was hired to speak at the event and provide context on the greening of business globally).

But aside from the much larger and thornier Amazon-related initiatives, one announcement was both fun and indicative of the green pressures coming to bear on companies and particular products. Wal-Mart Brazil is sponsoring a nationwide campaign, in conjunction with the Brazilian government, to drastically reduce plastic bag use. The minister of the environment, Carlos Minc, was on hand to co-announce the project. Wal-Mart's own internal goal is a 50% reduction by 2013 (a larger reduction than the company's global goal, which I've commented was perhaps not strong enough).

The humorous national campaign includes television ads featuring the hip "Junior" (only the coolest have one name), a leader of youth-oriented NGO AfroReggae. The slogan for the campaign, "Saco E um Saco," translates roughly into "A bag is a pain in the butt" -- or at least that's what the simultaneous translators tried to convey...they seemed at a loss on how to handle it. One Portuguese executive told me that it's closer to "A bag sucks" which plays on the double use of "saco." Either way, it's a funny, yet aggressive way to get people to stop using these things.

Brazil is hardly alone in the national effort to eliminate bags. China starting taxing all shopping bags and has cut total usage 66%.

Companies are also trying many methods to get customers on board. Charging for bags is one clear signal to consumers to use fewer. British retailer Marks & Spencer recently announced an 80% drop in use at its stores after adding a small charge (IKEA and others have witnessed 80-90% drops in usage as well after charging a nickel to any customer wanting one).

Wal-Mart Brazil has experimented with refunds instead. If you don't take the bags, you get a discount off your grocery bill (so it's revenue neutral to the company and basically charges those who DO take the bag, without raising anybody's bill).

All companies should take note of this kind of coordinated effort by governments and other companies -- imagine what happens if your product, manufacturing process, or sourcing strategy ends up on the societal bad list. I've talked about the risk to business from these kinds of market shifts on green principles before. While we might have some guesses as to what's next (did your meat come from cleared Amazon? Do you use too much water from dry regions in your production?), it's unfortunately somewhat unpredictable where the questions might come from.

Bags are not the only products facing this kind of challenge -- it's happening to bottled water as well. But nothing compares to the coordinated global attack on plastic bags. Once your product is declared a pain in the butt, where do you go from there?

[Post #2 of 3 on Wal-Mart's activity in the last couple of months. This appeared at Harvard Business Online and then on BusinessWeek online]

In the last month, what event had the greatest potential for changing business as usual forever? If you said the passage of the climate change bill in the U.S. House of Representatives, it would be hard to argue with you. But I'm going to make the case for another event as the most influential (or at least a very close second): the Wal-Mart Sustainability Summit held in Sao Paolo, Brazil.

Following the model of the historic meeting Wal-Mart held for its Chinese suppliers last year, the President of Wal-Mart Brazil, Héctor Núñez, decided to hold a similar event for his suppliers. (Full disclosure: I was hired to give a keynote about the greening of business for larger context setting, but I have no consulting relationship with Wal-Mart).

Speakers at the event included the Brazilian Minister of the Environment and the director of Greenpeace Brazil, an organization that just a few weeks ago produced a damning report titled "Slaughtering the Amazon" that points the finger at the cattle industry as the primary cause of deforestation (growing soy is another leading cause). I had an interesting talk with Hector about his conversations with the aggressive NGO. He commented that "when you talk to Greenpeace, it's hard to argue with what they're saying."

But, I thought, arguing with the environmentalist perspective is exactly what business leaders normally do. But the world is changing fast. In fact, Hector's speech at the summit, with its soaring rhetoric about global environmental damage, made him sound more like a Greenpeace activist than a hard-nosed manager.

At the Summit, Wal-Mart announced significant goals and mandates to tackle some of the thorniest environmental and social problems in the world. Wal-Mart Brazil will now, in essence, ensure that its supply chain uses...

— No companies that employ slave labor; "forced" labor (read, slavery) is a rampant problem in developing countries.

— No soybeans sourced from illegally deforested areas; 20% of the world's carbon emissions (and 70% of Brazil's emissions) come from burning down trees.

— No beef sourced from any newly cleared Amazonian land; globally, deforestation emits more carbon than all vehicles. Brazil and Indonesia are at the heart of this enormous challenge.

[For the rest of this column, please see BusinessWeek]

Happy New Year all (ok, I'm a bit delayed, but I entered the new year and promptly got really sick -- lost over a week in there). So let's start fresh now!

Anyway, I took a bit of time at the end of 2009 and early 2010, with a couple weeks' perspective, to think about the stories that really grabbed me in 2009. The top 10 is below, but see my brief write-ups and logic on each at my e-letter site here.

1) Copenhagen fails or does it?
2) The debate over climate science rages on (in the U.S. at least)
3) The EPA steps in
4) Wal-Mart keeps the pressure up (and saves the rainforest?)
5) Domino's employees deliver a new kind of openness.
6) IBM starts building a "smarter planet"
7) GM goes bankrupt
8) Some of our biggest capitalists get serious about carbon
9) China emerges as a green tech leader and the world's biggest emitter
10) The bottom of the pyramid becomes a source of innovation

And the bonus, theater of the absurd, wacky story...
10 1/2) Forbes names Exxon green company of the year

The 2010 Fortune 500 list just came out and I'm completely blown away by Wal-Mart's size. We all know that the retail giant is the largest company in the world. But it's by how much that gets me.

Wal-Mart clocked in at $408 billion in revenues in 2009. The second-ranked Exxon Mobil, brought in $285 billion. If the difference between the two --$124 billion -- were a company, it would be ranked 7th on the list. Let me say that again: Wal-Mart is bigger than the next largest company by the equivalent of an AT&T.

Let's exclude the oil companies from the list for the moment, since their revenues depend heavily on the price of oil and swing wildly -- Exxon's revenues were over $400 billion last year. Looking at companies that make anything but oil, Wal-Mart is basically three to four times the size of the largest ones, including Ford, HP, Citigroup, GM, IBM, and so on.

All of this scale matters a great deal to the green movement. Wal-Mart's pursuit of sustainability in its operations, and in particular in its supply chain, is changing the way products are made globally. The company's five-year shift in strategy and in its approach to the external world (which I consider the largest strategic shift that we've ever seen) has spread beyond Wal-Mart's own walls and is influencing how the rest of us do business.

The company has improved fleet fuel efficiency 30%, and started experimenting with new fuel and engine technologies for its fleet, creating a very large impetus for truck manufacturers to build new models. Its push to adopt lighting technologies and energy management systems is helping to drive scale into new technologies that everyone can use.

But it's the supply chain pressure that really matters. I've covered this topic many times (see my pieces on Wal-Mart's trips to China and Brazil (here and here) to put pressure on suppliers). From my conversations with people in the retail space recently, including a top consumer products exec this week, it seems that nearly every other retailer is behind on this front. Sure, many are working on their own energy and waste projects, and doing well at it.

But only Wal-Mart has built tools of scale like the Sustainable Value Networks (bringing together partners in the value chain to work on big sustainability issues) and the packaging scorecard it made everyone fill it out, or got so involved in the sourcing choices of its suppliers.

Many people will, perhaps rightfully, still find fault with Wal-Mart on many social issues, such as health care or pay (and this week they even got fined on the environmental front for not handling hazardous waste well in California). But still, it would be very hard to find another company doing more. The race is on, even during and coming out of the recession, and Wal-Mart is winning. But it doesn't matter, as their scale will force everyone else to speed up as well.

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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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