Supply Chain Archives

October 15, 2007

Picks and Shovels in the Green Wal-Mart Era

Last week Wal-Mart had a big meeting near its headquarters which it called a Sustainability Summit. Lee Scott, the CEO, invited the CEOs of the giant's biggest suppliers. And they came. I was part of the "other" group invited — green people from all over. The centerpiece of the day was a two hour presentation/meeting led by Lee talking about how sustainability fit into the new Wal-Mart slogan, "Save Money. Live Better." I had half expected a big announcement, but the reality was something more interesting. (There were a couple of interesting, fairly vague targets: Wal-Mart wants 20% of the items on the shelf to be "influenced by Live Better innovations" and Sam's Club wants 100% of its products to be touched by the "lens of sustainability"...but these were not the centerpiece of the day by any means).

First, Scott's opening comments confirmed everything I've been thinking/hoping. He answered the question "Is this a fad?" definitively. He pointed out that Wal-Mart is saving money, driving profitability, involving employees, and improving reputation "more than we dreamed." As he said, sustainability will mean better products helping customers create a better life. The message was "we're committed." It's not a fad, Scott said, and not a marketing ploy, but a "remarkable business opportunity." (For a longer excerpt of Scott's comments and another perspective, see Joel Makower's take on the day here.)

So it was almost a regular, everyday operational meeting (with the unusual aspect being all CEOs in a room of course). Wal-Mart was just asking suppliers to innovate and provide products to help it go green — the company wants 100 products like the CFL light bulbs it has sold 100 million of. No big fancy targets, just hard work. It struck me that this movement is really happening now.

Lest this blog turn into an all Wal-Mart discussion (which is almost hard to avoid given how much of a driving force they are right now), let me comment on another aspect of the meeting that was really fascinating to me. The day also included a medium-sized trade show of sorts — booths set up by all the organizations that Wal-Mart thought could help its suppliers go green. It was a mix of mainly NGOs and consulting firms for the most part (full list here). The latter group is exploding, including consulting arms from Interface and Wal-Mart itself. This may be a bit insular, but this certainly was interesting to me since I do consulting in this field, often with partner DOMANI.

The mad dash of companies trying to come to the aid of the Fortune 1000 in their new green quest reminds me of any gold rush throughout history. The consultants are now competing to offer picks and shovels for this new green age. And no matter how many there are, who knows if it will be enough to satisfy the growing demand.

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!

November 19, 2008

The Green Wave Marches On: Wal-Mart in China

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 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.

January 14, 2009

2009: The Year of Light Green

It's always fun to predict what's going to happen. The risk of being spectacularly wrong is very high, but that's what makes the exercise so entertaining. 'Tis the season for dwelling, quickly, on what we learned last year -- de-leveraging is really painful and when gas prices are high, people want smaller cars -- and for pontificating about what to expect in 2009.

For my predictions, I'll stick to my area of knowledge, the greening of business. Over the past two years "green" has become part of nearly every serious business discussion. But what will happen now in this damaged economy? It would be silly to suggest that the intensity of the focus on green will continue unabated. But we'll see a form of what I'll call "light green" this year.

Some of the green pressure on companies will lessen, but I believe that the underlying forces driving the green wave will continue over the coming years - from volatile commodity prices (which will rise again aggressively after the recession) to a rise in transparency to tougher questions from key stakeholders (such as your business customers, consumers, and employees). Those big picture trends will continue over years, but here now are a few specific predictions for 2009.

"Light Green" will focus primarily on cost reduction...

Going green drives innovation and creates value in four fundamental ways: cost reduction, risk mitigation, revenue growth, and brand value enhancement. But for 2009, the top priority will be the first one, lowering costs (primarily through so-called "eco-efficiency"). Few companies will have the stomach for deep investments in R&D to create new green products.

...but, companies (and banks in particular) will also broaden the definition of "risk"

If we learned one thing in 2008, it's that the business and financial communities are not so great at measuring and accounting for risk. It's in our nature to overestimate some risks and drastically underestimate others (like the possibility that housing prices could actually drop). On climate change, we're realizing that the risk of inaction is too great.

Citigroup, JP Morgan and Morgan Stanley launched the Carbon Principles early in 2008. In short, this agreement committed the companies to look very hard at any coal investments and ask tough questions about how climate change and a cost on carbon would affect the risk profile. And at the end of '08, other financial and insurance giants -- including HSBC, Munich Re, Standard Chartered, and Swiss Re -- created the Climate Principles. These guidelines are admittedly aspirational, but they also increase awareness of the impact of climate change on all aspects of their businesses, including their investment portfolios.

Leading companies (read: Wal-Mart) will continue pressing suppliers.

To be a bit cynical for a moment, greening the supply chain is perhaps the easiest path to take in hard times. After all, you basically push the problem and cost onto others, and if you're as big as Wal-Mart, you get your way. To be less cynical, the companies that have learned to take a value-chain perspective have discovered real value in lower costs and better products. So why go back if you've discovered a better way of doing business? Wal-Mart and others clearly believe that reducing environmental impacts up and down the chain creates value for all. The retail giant convened a historic meeting in Beijing, China in October 2008 (see my first-hand account of the meeting here). Wal-Mart's top execs made it very clear that the green agenda was not going away and, in fact, that it was accelerating. Of course global recessions can put a damper on anyone's plans, but there are few indications the big guns are pulling back on supply chain pressure.

Innovation will become even more important.

This may sound like a contradiction to my "cost reduction will rule" prediction. But innovation is about more than just flashy new products; it's also central to reducing costs in a smart way. But beyond getting lean, 2009 will be a good time to truly rethink business models and ask new heretical questions. Innovation guru Clayton Christensen recently told the Wall Street Journal that the economic downturn "will have an unmitigated positive effect on innovation." Say what? By his counterintuitive logic, tight times "force innovators to not waste nearly so much money."

So use 2009 to seek out green innovation opportunities. Find ways to drastically reduce energy and other resource use both in your own operations and through your products (that is, help customers reduce theirfootprint). Even if investment dollars remain scarce, be ready to run with good ideas when cash frees up. We may look back at the end of 2009 and see that staying green during the recession, at least in mindset, not only drove creativity, but even saved some companies.

Yes, 2009 will be a tough year. But the Green Wave, albeit a bit diminished, will roll on. The smartest companies will continue to pour the foundations for a new form of capitalism - one that takes into account the resource constraints we face. After this recession, when capital is more readily available, green investments will begin in earnest again. Sustainable business will no longer be a side pursuit, but the core focus of successful companies.

This post first appeared at Harvard Business Online.

July 28, 2009

Wal-Mart Asks, Where's the Beef (From)?

[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]

December 10, 2009

Gathering Green Data: Tools and Tips

A couple posts ago, I talked about the ways you can use green data — footprinting information on your products and services up and down the value chain — to create enormous value for your company. As they say, you can't manage what you don't measure. And those with the best information can cut costs, reduce risk, answer customer questions on environmental and social impacts, and help customers reduce their footprints.

But it's a fair question to ask how you might gather this data, especially when budgets remain very tight as the economy gradually recovers. Conducting a full, detailed lifecycle analysis (LCA) is likely to be a time-consuming, resource-draining affair. But luckily there are some shortcuts. Here are a few principles and guidelines for getting smarter about your footprint with the least resources possible:

1. Qualitative analysis is good. In fact, it's better to start with a more strategic view on your products or services than to dive right into detailed numeric analysis. Map out your value chain for a quick view on resource use. Then ask really top level questions that aren't part of the normal day-to-day thinking for most functions in a company, like what comes in the door, and what did it take for suppliers to produce it (are there processes energy or water intensive, for example)? What do we do with our inputs, and how much energy and resources do we use? How much energy and resources do our customers use? What happens to our products after customers are done with them?

You're looking for directionally-correct answers on where the biggest risks and opportunities are...or at the very least, where your data gaps are and how best to fill them.

2. "Back of the envelope" analysis is also okay. Top-line numbers on your own impacts and energy use, from departments like IT, facilities, and distribution, can give you sense of where cuts are most needed or valuable. The data may not be readily available at first, but it certainly isn't capital intensive to find it.

3. Use data that's already out there. A truly detailed LCA is, frankly, a pain. Following a product through every stage of its creation and use is difficult. Luckily, the resources available to help you are multiplying. Industry groups and academics have conducted LCAs on many products. You can extrapolate numbers from similar categories to save time and at least understand where the biggest issues lie. For example, let's say you produce food products, some of which have a big dairy component. The dairy industry has conducted an extensive LCA on a gallon of milk. That study can tell you that the methane produced by livestock may dominate your life-cycle carbon footprint as well.

Another option: public (or quasi-public) databases. See the wonky-sounding Economic Input-Output Life Cycle Assessment (EIO-LCA) data at Carnegie Mellon, or the data collected by AMEE in the UK. Without going into too much detail, the EIO-LCA captures data on flows of goods in and out of all sectors of the U.S. economy, along with data on energy use in each sector, and allows for big picture estimates on impacts. It's a back-of-the-envelope calculation — on a very big envelope. But if you don't want to dig into databases yourself (and who does), then you'll be glad to know that some smart developers have embedded these data sources into handy software products, so...

4. Seek out tools to help you. There is also a wealth of options for software that can help you get a handle on your impacts, including those throughout your supply chain. There are a few now classic providers of product LCA software, such as Ecobilan's TEAM and GaBi Sofware. But new niche players and products that focus on a company's carbon footprint include offerings from both the usual suspects and new entrants: Carbon Impact (formerly Clear Standards, now part of SAP), Planet Metrics, SAS for Sustainability Management, Computer Associates eco-Software, and two open source solutions Carbon Counted and Earthster (in beta).

I've worked with, or been taken through demos of most of these players — all are offering good tools and expertise. But I'm sure I've missed many others so please send me tools you've found useful (

On top of these carbon modeling tools, companies are offering a range of other green data-tracking services: a sustainability dashboard from Microsoft, Google PowerMeter to measure energy consumption (for homes, but how far off are business-targeted versions), and a cool new product from AngelPoints (working with Saatchi S) that puts the Wal-Mart Personal Sustainability Project program into tracking software so companies can show employees what all their pledges of behavior change add up to.

Beyond these more self-help methods, there is an ever-growing number of consultants that can guide you (including partners of mine such as Domani). You may need to start small with my guidelines above and estimate if resources are too tight, but if you can, working with experts can provide you with a much deeper picture of your company's data-gathering capabilities.

Finally, a larger investment in getting smarter — building that internal capacity to understand footprints on an ongoing basis, and even real-time — will pay back in ways you can barely imagine. Those with the best data win.

This first appeared on Harvard Business online.

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May 6, 2010

Wal-Mart: The Largest (Sustainable) Company Ever

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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May 26, 2010

Greening Pepsi, from Fertilizer to Bottles

[This appeared first on my Harvard Business Review blog]

Pepsi recently demonstrated its commitment to reducing its environmental impacts up and down the value chain with two rapid-fire announcements about new initiatives. The old-school approach to greening is to focus on operations within the proverbial "four walls." But Pepsi, like other leaders, is approaching sustainability more holistically, with much greater impact.

I recently spoke with Tim Carey, Pepsi's Director of Sustainability for Beverages in the Americas, about two big initiatives in which he's playing a key role.

First, on the downstream side, Pepsi looked for ways to raise the recycling rate of beverage containers from a relatively paltry 34% to 50% or higher. Working with GreenOps, a division of Waste Management, Pepsi launched a new program called "Dream Machine." These "reverse" vending machines, now being placed in high-traffic areas such as gas stations and stadiums, take back those often-abandoned and often-unrecycled empty bottles and give users points toward rewards from sponsors or local merchants.

But Pepsi has gone beyond those relatively minor incentives to add on a social mission. The program will also help fund Pepsi's donation to a group called Entrepreneurship Bootcamp for Veterans with Disabilities (EBV), which trains vets at business schools around the country. Pepsi expects that the combined immediate points and larger mission will drive new, greener customer behaviors — and help solve one of the beverage industry's most intractable value chain problems.

Second, Pepsi has embarked on a very unusual supply chain effort to reduce the carbon emissions associated with its Tropicana orange juice. After conducting a full life-cycle analysis of the product line, the company was relatively surprised to find that the biggest portion of the carbon footprint was found not in manufacturing, or distribution, but actually back in the agriculture stage — primarily the result of the heavily natural-gas dependent process of making fertilizer (see chart).


The analysis showed Pepsi execs where the largest impacts were, and thus where they'd get the biggest bang for their buck on carbon reductions. The company started working with suppliers and farmers to find new ways to make and apply fertilizer. For example, instead of using natural gas from as far away as Russia (which then requires shipping heavy fertilizer across the world), Pepsi is using biomass from closer to home. Wood waste and agricultural by-products are two sources, but execs are hopeful they can also use the large number of their own orange rinds left over in manufacturing, which would fully close the loop.

The company is also working with scientists on the root chemistry of orange trees, applying fungi and bacteria to increase the uptake of nutrients. All that techno-speak means that the trees will need less fertilizer in total, which means less manufacturing and shipping of that fertilizer and, voila, a smaller footprint.

A 100-acre test run of these new methods of working with new, low-carbon fertilizer is underway. A few years from now, Pepsi and its suppliers will know what's working and what isn't.

But here's the best part: the cost of these changes to consumers and growers will be about zero. And it had to be. Let's face it, this kind of carbon reduction isn't easy to convey to consumers, so the market benefit may be small for now. So the sustainability team needed to find ways to lower the fertilizer footprint without causing any additional cost to suppliers or farmers. How did they do it?

By focusing its efforts on the real footprint — identified through a solid lifecycle analysis and good data — Pepsi found the approach with the highest payback. As sustainability exec Tim Carey put it, "It's not unusual to spend tens of millions of dollars removing some carbon from a manufacturing process at returns that can be 10% or less...or we can take 15% of total carbon out in the fertilizer step without costing anything."

The impacts of these tests — and future rollout — will not be small; Pepsi buys a fairly shocking one-third of the Florida orange harvest. And the recycling work could shift millions of bottles out of landfills. Pepsi's full value chain view on sustainability is deep green stuff — this is how you implement green thinking.

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May 28, 2010

New Supply Chain Mandates (Pepsi, P&G, IBM, others)

A few days ago I posted a blog about Pepsi's work with suppliers on new low-carbon fertilizers for Tropicana orange juice.

But there have been other major announcements lately about new supply chain demands as well. My monthly e-letter came out this week and covers Pepsi briefly, but also a few other stories from IBM, P&B, and Kaiser Permanente (some of which i'll delve into in more detail soon).

The full e-letter is here, but below is the opening...

For the last few years, if you said "greening the supply chain," a lot might come to mind, but most of it was about Wal-Mart. The pressure the retail giant has put on its 100,000 suppliers is now legendary (in the sustainability world).

Of course other companies have had programs for years, but often were behind the scenes. No longer. Just in the last month, we’ve seen some important, large-scale announcements that I wanted to review here briefly. Companies such as IBM, P&G, Pepsi, Ikea, Ford, and Kaiser Permanente are setting new, tougher standards. In some cases, they’re getting directly involved in how suppliers operate and how they make their products.

To understand a couple of these initiatives better, I spoke to key executives to get the scoop on what they're trying to do.

The overarching theme of these new initiatives, as I see it, is transparency. It's all about gathering, publicizing, and acting on lifecycle data. But in the trenches things have gotten much more tactical. The age of gathering green metrics – and acting on what we learn from them – is definitely upon us.

What's also interesting to me is that the Wal-Mart focus has been most relevant to consumer products, food, and a few other sectors. Now, with companies like IBM, Ford, and Kaiser Permanente raising the bar, other large value chains will feel the pinch as well. It's rippling through every sector and every company of any size.

To get my head around the recent announcements, I put them in a few big categories, in roughly ascending order of impact and change demanded:

- Asking for data and filling out scorecards to rate suppliers
- Setting standards for how suppliers manage environmental issues (this is about both systems and capabilities development)
- Driving operational and product changes in supplier companies

[see the rest here, and sign up for my monthly e-letter at my site]

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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December 23, 2010

The Top 10 Green Business Stories of 2010

Here's my attempt to capture the most important stories that affected the greening of business in 2010. To keep this to blog length, it's going to be quick, so see the links for more on these stories.


The first five are macro-level issues that affect the context for business:

1. The climate bill dies in the U.S. Senate. Any hope for a national approach to tackling the largest challenge facing humanity petered out pathetically this year (see the complete, sad tale in a Pulitzer-worthy New Yorker article). Unfortunately for every other country, this is a global story. When the U.S. can't get its act together, the world can't create global policies, and thus the Cancun meeting last week resulted in some nice agreements to raise funds for adaptation -- arranging the deck chairs on the Titanic, anyone? -- but no binding targets on carbon.

2. Nature strikes back/Climate change is real. Ironically, given the rising debate in the U.S. on the science, the world got hotter, a lot hotter, this decade and this year. Russia saw its worst drought in 1,000 years (video), and Pakistan was overcome by flooding (video). Scientists will always give the caveat that you cannot blame climate change for any single weather event, but let's get real - this is what devastating climate change looks like on the ground. These weather events also directly affect resource availability, bringing me to my next point...

3. Resources get very tight. The drought in Russia destroyed 40% of its wheat crop, so Putin pulled wheat -- 1/6 of the global trade in the crop -- off the global market, driving up wheat prices. The floods in Pakistan helped double the price of cotton. And I could write a book on the topic of rare earth metals, those precious elements that make nearly every green technology possible and go into every iPhone. China mines 95% of these metals, and it needs them all now, making the U.S. "vulnerable to rare earth shortages." We're also vulnerable on fossil fuels. We learned from the massive spill in the Gulf of Mexico that readily accessible oil is a thing of the past -- we don't dig one mile under the ocean for the heck of it. So most natural resources are getting more scarce, from oil to metals to crops. Smart companies like Hitachi are trying to find solutions, such as its new plan to develop rare earth recycling technologies.

4. China, China, China. Did I mention rare earth metals? Or the rise of the world's largest solar producer from a manufacturing base of nearly nothing a few years ago? Or how about China's unparalleled (and some would say illegal) support for its renewables companies, which has the World Trade Organization fretting about trade barriers? China is very serious about its green ambitions, with support from the very top, and the business community is taking note.

5. Renewables are for real and moving fast. Ok, there's some good news. The market for renewables is growing fast. About 45% of Portugal's electricity comes from renewables, and this is up from 18% in just five years. Germany, not really the sunniest country in the world, added 1% of its electric needs in solar in 2010 alone (it took 10 years to get the first 1% online, and just 8 months for the second 1%). No wonder HSBC says the market for clean tech and climate change solutions will top $2.2 trillion by 2020.

Now for the company-level stories:

6. Supply chain pressure continues to rise (a.k.a., Wal-Mart doesn't slow down). Even coming out of the recession, this was a big year for green supply chain announcements. In February, Wal-Mart said it would eliminate 20 million metric tons of GHG emissions from its supply chain. Then in October, the retail giant announced it would double the amount of locally-grown produce on its shelves (and former sustainability exec Matt Kistler indicated this year that products getting higher scores in its Sustainability Index would get more shelf space). We also saw big announcements from P&G and Kaiser Permanente on supplier scorecards, IBM greatly increasing its demands on suppliers, and Pepsi using detailed carbon lifecycle data to make suppliers rethink how they grow Tropicana oranges.

7. Zero is the new black. Companies seem to be tripping over themselves on the path to "zero waste." GM announced that 62 of its plants now send zero waste to landfill, and UK retailer Marks & Spencer reached a 92% diversion rate on the way to its zero goals. And Sony one-upped everyone by setting a goal of zero environmental impact across its operations by 2050.

8. Big goals were back. Recession-schmecession. Sony wasn't the only one setting aggressive targets. Panasonic said it wanted its GHG emissions to peak by 2018 and it would greatly increase sales of eco-products. Unilever has probably gone the furthest, announcing it would double sales by 2020, but halve total environmental impact (among other big goals). Unilever's leaders are serious about driving these plans into the operations of the whole company.

9. Electric vehicles storm the market. The Nissan LEAF was just named 2011 European Car of the Year, and GE announced it would buy 25,000 electric cars. Since the auto industry is one of the biggest in the world, there will be ripples from this movement. Enough said.

10. Small guys can do it too. It's easy to get caught up in the tales of giant companies. So one of my favorite stories of the year is a simple example of eco-efficiency and savings from 10-employee Bowman Design with just 2,000 square feet of office space in Southern California (where else?). See founder Tom Bowman's description of his company's path to a 65% reduction in GHG emissions and $9,000 savings annually (ok, I'll admit that I didn't mind that Tom name-checked my book Green to Gold in his article, but I don't know him).

11. (Bonus!) The Military gets serious about green. Honorable mention to the government and military, which is technically not "green business". But they're not kidding around, from plans to greatly reduce reliance on oil and diesel in Army operations, to Navy sustainability plans and test flights of planes running on biofuels. Go military green!

Looking Forward to 2011

No list would be complete without utterly over-confident predictions of the future. It's obvious that the pressures/themes above will continue to get stronger in the coming year. In particular, and in addition...

  • Supply chain pressure will evolve and get more sophisticated (such as retailers who said in August they would not buy fuel from Canadian oil sands). This shift will be partly driven by...
  • A data explosion around green is brewing. Companies will know more than ever about their impacts up and down the value chain.
  • Water will become a very big topic for business (it began this year, but there will be some great stories in my 2011 wrap up a year from now). My first couple of blogs of the New Year will look at water strategy.
  • Biomimicry, the design principle that suggests looking to nature for great ideas, will gain currency
  • Energy innovation will be the order of the day (e.g., the Paris metro station that captures body heat to warm a nearby building)
  • But here's my final, shocking prediction: climate change policy won't matter (much). Even though the failure of the bill was my #1 above, #2 through 10 tells me that for business, the logic of green does not depend on believing in climate change, or in having a law in place. The natural resource, supply chain, innovation, and profit drivers are just too strong.

    Business will be getting a lot greener in every sense of the word, no matter what political battles are waging. We're going to stop debating climate in the business community and just focus on the larger case for prosperity, for companies and countries alike.

    I'm sure I missed many, many great stories. Please share your favorites here, and have a merry green 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)

February 8, 2011

The Fundamentals of a Corporate Sustainability Program

I attended a Executive Sustainability Summit last week at Xerox's request and I'm writing a few blogs about what I saw and heard. This first one is on Xerox's site and I comment on a framework proposed by Xerox's long-time VP of EH&S, Patty Calkins. I think she provides a good set of principles for a sustainability program, including a quantitative focus and value chain perspective.

There's also a quick "top ten reasons to act sustainability," and a short video of me talking about green strategy (which is also up on YouTube here).

Check out the blog here.


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August 22, 2011

Excess Inventory Wastes Carbon and Energy, Not Just Money

Inventory. For those of us not in operations, supply chain, or logistics, it's a vaguely familiar line item we learned about in finance class. We know it's important and that we're supposed to reduce it by increasing "turns."


But inventory is not a minor issue. By some estimates, the world is sitting on roughly $8 trillion worth of goods held for sale, and nearly $2 trillion in the U.S. alone, according to a report by the Council of Supply Chain Management Professionals (note: the full report requires membership, but this number is mentioned about 9 minutes into the video at the CSCMP site).

That's a lot of capital tied up in warehouses. It also represents a tremendous amount of environmental footprint "embedded": logic suggests that this inventory stock, since it represents a healthy percentage of our economic output, required a good percentage of our energy and water to produce (so billions of tons of carbon emitted, for example). If we could permanently reduce the amount of product sitting idle, we'd save money, energy, and material.

So managing inventory well is both a financial win and a sustainability victory.

Perhaps the most powerful lever over inventory levels is predicting how much product customers will want, or what's called "demand planning." I recently delved into this meld of art and science when I spoke at a meeting held by Terra Technology, a relatively new and successful player in the "demand sensing" world (the difference between "sensing" and "planning" is about gathering data as close to real-time as possible and feeding it back up the supply chain quickly).

While I know little about the field of demand estimation — or what tools companies are using — my interest was in learning about anything that helps companies save money and reduce their environmental footprints. (Full disclosure: Terra Technology was my client for this event.)

At the meeting were representatives from many of the world's largest consumer product (CPG) companies. The giants in the field, such as P&G and Unilever, spend a lot of money on demand planning, each employing hundreds of people, many with advanced math degrees...and for good reason: P&G's 2010 total inventory, for example, was valued on the balance sheet at $6.4 billion.

Even though predicting the future is devilishly hard, I figured that the explosion of point-of-sale and operational data over the last 20 years, would give companies a good handle on how much of something they'll sell. I was wrong.

As I learned at the conference, according to Terra Technology's benchmarking study, the error rate for CPG companies on estimated vs. actual sales is shockingly high. Even with the fastest-selling, most predictable products, the estimates are off by an average of more than 40 percent. Imagine that a CPG company believes that 1 million bottles of a fast-turning laundry detergent will sell this week. With 40 percent average error, half the time sales will actually fall between 600,000 and 1.4 million bottles. And the other half of the time sales will be even further off the mark.

The repercussions of all this uncertainty are dramatic in terms of cost and material use. Companies have to keep much more inventory, since going out of stock is really unpleasant to explain to consumers, your CEO, or, say, Wal-Mart. The buffer is called "safety stock," and its sole purpose is to mitigate this risk. There's a lot of safety stock out there — nobody knows exactly how much, but what stock level would you keep on hand if you didn't know whether sales would be 1 or 2 million units?

As we've found so many times before, data and software can play a critical role in making operations more efficient and sustainable. For example, using both demand sensing software and good management practices, P&G has cut 17 days and $2.1 billion out of inventory. All that production avoided saves a lot of money in manufacturing, distribution, and ongoing warehousing. It also saves a lot of carbon, material, and water.

Like many companies that realize there's a green element to their offerings, Terra Technology is now making this footprint-reduction case as part of its pitch for better demand prediction. As Robert F. Byrne, the company's CEO, puts it, "I want people to think of inventory as not just piles of cash, but also piles of carbon and piles of water." It's smart positioning, especially because it's true.

The definition of what makes a "green" initiative is broadening, and that's a good thing. Companies would certainly include a lighting retrofit at a warehouse in their list of sustainability or eco-efficiency projects. But until recently, it probably hadn't occurred to logistics execs that reducing the inventory itself could be the greenest thing they do.

(This post first appeared at Harvard Business Online.)

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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:


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)

February 6, 2012

Apple's Greatness, and Its Shame

Is there such a thing as too much profit? A disciple of Milton Friedman would say "never." The idea that companies should only maximize shareholder value has had a stranglehold on the business world for decades. It's time to rethink this assumption.


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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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.


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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October 10, 2012

How Walmart's Green Performance Reviews Could Change Retail for Good

Walmart's efforts to green its supply chain are about to get much more effective. Sustainability will now play a role in its merchants' performance reviews, which help determine pay raises and potential for future promotion. This is a big deal: these merchants are high-level managers responsible for multibillion-dollar buying decisions. They're the people who determine which products appear on the shelves of the world's largest retailer.


Some quick background: Walmart deserves praise for its industry-leading sustainability successes, such as improving its fleet fuel efficiency by 69% and becoming the nation's leading commercial buyer of solar energy. The company's most important sustainability initiative — the pressure it puts on its 100,000 suppliers to improve their environmental performance — has changed how thousands of products are made, packaged and sold.

For the past five years, Walmart has built sturdy scaffolding around what could be a world-beating green supply chain, including:

  • Developing Sustainable Value Networks, which bring together major suppliers with cross-functional internal teams to tackle issues from packaging to waste to energy use.
  • Asking 100,000 suppliers to answer and provide data on 15 environmental impact questions.
  • Building the Sustainability Consortium (TSC) with many of the world's largest consumer products companies and big retail competitors. TSC created metrics to evaluate suppliers and their products on environmental and social performance, and Walmart has integrated these metrics into its own supplier Sustainability Index and scorecards.

But greening its supply chain has been a tough task. Suppliers have repeatedly voiced one critical and legitimate complaint: Walmart's merchants don't really take sustainability into account when they make buying decisions. This flaw in Walmart's green supply chain program has threatened to undermine the foundations of a highly-touted and important initiative.

In essence, the suppliers and other stakeholders have told the company, according to Walmart's Sustainability director Jeff Rice, "It's great to ask your suppliers questions, but it only matters if you do something with the information." In their view, the company has continued to choose the products it sells primarily on price.

But now, in addition to Walmart's long-standing, laser-like focus on cost, its merchants will have to consider sustainability in their buying decisions — or risk a weak performance review. And all because of a simple shift in incentives.

Jeff Rice gave me a great example of how this change is already working, in the form of how Walmart selects the personal computers it sells. Laptops use a lot of energy over their lifetime, and a big driver of energy use is the default setting on power management. These settings determine how fast (if at all) the computer goes to sleep or when the screen dims. Using the index scorecards I mentioned above, Walmart's laptop buyer identified energy use as the biggest determinant of the computer's total lifecycle footprint and emissions.

The buyer then discovered that only 30% of the laptops sold at Walmart ship with the advanced energy-saving settings in place. To compound the problem, the company's research shows that most consumers leave such settings at factory default. So the laptop buyer set a new goal for herself: to increase the percentage of laptops sold with the advanced power settings from 30% to 100% by this Christmas. This single product shift will reduce CO2 emissions by hundreds of thousands of metric tons and save customers money on their electric bills.

Rice told me that performance evaluations for buyers only include a handful of targets, and all are discussed thoroughly at annual reviews. Sustainability performance won't determine the entire evaluation, of course, but it's high profile enough that it should affect behavior.

Incentives matter and cultures shift over time. Hard-won operational changes like modifying performance reviews may not be sexy, but the results can be profound. And when it's the world's largest retailer changing its buying criteria, the ripples will likely be felt around the world.

(This post first appeared at Harvard Business Online

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December 22, 2012

Top 10 Sustainable Business Stories of 2012

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 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.)

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February 27, 2014

It Just Got Easier for Companies to Invest in Nature

Nature is valuable. But figuring out how valuable has been challenging. By some measures, the services that nature provides business and society — clean water, food and metals, natural defense from storms and floods, and much more — are worth many trillions of dollars. But that number is not helpful to companies trying to assess how dependent they are on natural resources, or how to value them as business inputs.


In recent years, many large companies have realized that they need to get a handle on these issues, and that doing it well creates business resilience. But figuring out what steps to take has been challenging. Into that void steps a new, very helpful tool, the Natural Capital Business Hub. The Hub is a project run by the Corporate EcoForum, The Nature Conservancy, and The Natural Capital Coalition (and built by Tata Consultancy Services). It builds off a partnership launched at the Rio+20 summit in 2012 with companies such as Alcoa, Coca-Cola, Disney, Dow, GM, Kimberly-Clark, Nike, Unilever, and Xerox. At the time, they produced a report with case studies showing how companies have managed natural capital issues. The Hub expands that effort, making much more information available and searchable.

The Hub basically does four things:

  • Provides case studies of corporate action for benchmarking and learning, which you can search by industry, region, ecosystem, or value-creation focus (cost reduction, brand building, etc.).
  • Offers perspective on how to make the business case internally by laying out how valuing natural capital helps business.
  • Gives us a framework for implementation and a thorough description of (or links to) the best tools for valuing and managing natural capital.
  • Opens up collaboration opportunities by listing programs that need more partners and builds a network of professionals (with 2Degrees Network) who are working on these issues.

The case studies are ostensibly the core of the site. Project managers, facility heads, executives who make capital decisions, sustainability managers, and many others can learn from the work that leading companies have done already. Managing natural capital is a young field, but Dow, for example, is now three years into its six-year partnership with The Nature Conservancy to “recognize, value, and incorporate the value of nature into business decisions, strategies and goals.” (The company just released the latest update on the partnership.) The Hub is a place to start your research and learn from Dow and many others.

On the site, you can find stories of completed projects or prospective collaborations that need more partners to get off the ground. In the first category, you’ll find stories like the one about Grupo Bimbo, the Mexican food company that owns Sara Lee, Hostess, and Pepperidge Farms. Bimbo needed to manage stormwater around a site in Pennsylvania. Using natural or “green” infrastructure such as rain gardens and forest buffers — versus “gray”, manmade systems like retention ponds and pipes — the company reduced ongoing operating costs and avoided the complications of burying pipes in sensitive ecosystems.

On a somewhat larger scale, consider Darden restaurants (owner of Olive Garden, Red Lobster, and many more) and its efforts to save fisheries. As companies like Unilever and McDonald’s have long recognized, ensuring healthy fish stocks isn’t a philanthropic nice-to-have, but core to business survival: no fish, no fish sticks, lobster plates, or Filet-O-Fish sandwiches. Darden is working with the National Fish & Wildlife Foundation and others to target valuable fisheries and manage them closely.

What’s interesting about the Darden case study, and the Hub in general, is that this project is just getting started — essentially, it’s an open call for collaboration. The Hub is innovative and helpful because of the partnership tools. Natural capital issues are not easy and cross many lines – every company, city, and home in a region, for example, depends on water and flood protection. No organization or region can act alone, and it shouldn’t. By listing the major collaborations that are actively searching for new partners, the Hub has done a great service.

(This post first appeared on the Harvard Business Review blog network.)

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August 11, 2015

How Target Is Taking Sustainable Products Mainstream (and Working with Walmart)

For years, the answer to the question “Do people really want to buy more sustainable products?” was a profound “sort of.” Surveys consistently show that we aspire to buy responsibly, and we even say we’ll pay more for environmental or socially preferable products. But purchase intent does not always translate to real sales, and companies have often struggled to make sustainable products more mainstream.


That seems to be changing. Kate Heiny, who very recently departed as the director of sustainability at Target, told the crowd at this summer’s sizableSustainable Brands conference that: “With their words and wallets, our customers are asking for more [sustainable products].”

The numbers bear this out: Within Target’s “naturals and organics” category, sales grew 17% last year, four times faster than its total grocery sales. And it’s not just happening at Target. A new Conference Board study, as CFO magazine reported, reveals some startling growth in greener products at a dozen big companies like Kimberly-Clark, Dow, GE, Siemens, Toshiba, and more.

So why are sustainable products surging now? I’ve been in contact with Heiny and her team at Target over the last year about the program she helped build to drive product innovation and more sales. Our discussions focused on three reinforcing elements.

First, the company painstakingly built its own Sustainable Product Standard.Working with UL’s Good Guide system, Target scores 7,000 products on a 100-point scale, with 50 points at stake related to the toxicity of ingredients. Additional points are awarded for reduced packaging impacts (can consumers recycle it?) and transparency (that is, sharing all ingredients on the product labels with deductions for things like “fragrance” without the details). The list of no-no ingredients is long — 1,600 chemicals tracked or regulated by NGOs and governments around the world.

It’s unclear whether Target will really eliminate low-scoring products, but the company has certainly promoted the highest scoring options – and that’s part two of the story. Under the banner of “Made to Matter,” Target is showcasing good-guy products, including usual suspects like Ben & Jerry’s, Annie’s, Stonyfield, Seventh Generation, and Method, but also some lesser-known players. In total, these brands are projected to reach revenues of $1 billion at Target alone this year.

With this level of topline growth, it’s no wonder that Target wants more options.

This gets us to part 3, an unusual initiative with the company’s arch-rival Walmart to improve the sustainability of the entire personal care value chain. But in order to understand their unlikely collaboration, it’s important to consider the competitive strategic elements of Target’s approach.

Target has, until recently, lagged Walmart on building its brand around sustainability issues. For nearly a decade, Walmart has made environmental progress a priority, in word and in deeds. The company has made significant efforts to improve store operations with their impressive energy efficiency workand the purchase of more solar power than any entity in the U.S. besides the military. For years, the retail giant has also applied imposing pressure on suppliers to reduce and improve packaging, cut carbon, and much more.

While Target has also reduced its impacts and committed to using much more solar power, it always seemed like the company was searching for its unique, brand-appropriate approach to environmental and social issues. Now Target has clearly focused its attention on consumers. Making sustainable products more accessible is a great fit for Target — after all, the company was dubbed Tar-jayyears ago after its many successful forays into making high-end design affordable.

This all isn’t to say that Walmart has sat still on the consumer front — a few months ago it launched an important experiment on to highlight mainstream products “made by sustainability leaders,” as they called it. But by and large, for years, Walmart has taken, in my view, a mainly operational, cost-reducing, brand-fitting approach to sustainability.

Target is, by comparison, focusing much more about the downstream part of the value chain. But of course, for a retailer to provide better products to customers, it has to work with suppliers and, now it seems, even with competitors.

Target and Walmart launched the Personal Care Sustainability Summit last year, and invited the largest players in the $74 billion market for lotions, soaps, and other beauty and grooming products to join them. I attended the two main meetings thus far, first in Chicago in 2014 and then in Brooklyn earlier this year. In one room, at the behest of the two big guns of retail, sat the largest consumer product, chemical, and fragrance companies.

The collaboration, which the NGO Forum for the Future is managing, has high aspirations. They’ve developed ongoing working groups to seek solutions on critical themes like information sharing; agreements on science-based definitions for safety/toxicity on ingredients; and — in the truly unusual part — group R&D across the value chain to develop new, safer classes of chemicals (particularly in preservatives). Over the last five years, Walmart and Target have increasingly become what I call “de facto regulators” of chemicals through their programs to limit certain ingredients. But now they’re actively pushing the supply chain to invest better options.

When I asked Target why they would go to this much trouble, they saw the big picture. As Laysha Ward, Target’s EVP and Chief Corporate Social Responsibility Officer said, “We realize that we can leverage our scale, influence and resources to improve the way products come to market and drive transformational change for our business and society.” But again, it’s not solely a change-the-world discussion – Target is seeing real customer demand. As Heiny put it, “It is quite clear that our guest is asking for these products, which is why we’re having these summits.”

In all, Target’s growing focus on the consumer end of the equation demonstrates some key elements of a modern sustainability strategy, including giving customers options that are not just greener, but better; data-driven analysis and transparency; value chain and systems thinking; and radical collaboration with suppliers and even competitors.

Anytime the giants of an industry really start competing and collaborating on sustainability, it’s a very good development. Let’s hope we consumers continue to play a positive role — we may be key to companies making big, important changes.

(This post first appeared at

(Andrew's new book, The Big Pivot, was named a Best Business Book of the Year by Strategy+Business Magazine! Get your copy here. See also Andrew's TED talk on The Big Pivot. Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston)

June 8, 2016

A New Report on How General Mills and Kellogg are Tackling Climate Change

In the global effort to limit climate change and reduce greenhouse gas emissions (GHGs), the energy and transportation sectors are the most obvious targets, but perhaps not the biggest. Consider the food business. Agriculture alone – not including the sizable food processing industry — produces up to 35% of the world’s greenhouse gas emissions (and uses70% of the water).

By some estimates, humanity may need to produce as much food in the next 40 years as it did in the last 8,000. And that can’t happen if we don’t get the carbon and water footprint of agriculture under control. With the stakes so high, it’s welcome news that food giants are getting serious about emissions.

Two big companies in particular, General Mills and Kellogg, have set new, aggressive goals. Their targets are important and different than what came before in two key ways: 1) they’re explicitly based on science; and 2) they cover emissions from agricultural suppliers. This latter point is a big deal — General Mills estimates that agriculture is responsible for more than 40% of its lifecycle GHG emissions (and uses 82% of the water).

The companies’ goals as stated, are fairly straightforward:

  • General Mills will cut absolute GHGs by 28% by 2025 “across the entire value chain.” By 2050 it will slash emissions up to 72%, with the exact number TBD, but at a pace that will keep them “in line with scientific consensus.”
  • Kellogg’s 2050 target is to cut its own and supplier emissions by 65% and 50% respectively.

But the reality of reaching targets like these is much less simple.

First, emissions from food and agriculture stem from a diverse and complicated mixed bag of sources, including clearing land for grazing or crops (often burning trees and releasing the CO2), direct energy use on farms, fertilizer production, and methane from rice fields and from animals (mostly burps).

Second, even if you get the sources right, the state of data collection on farms is mostly nascent. The industry and partner NGOs are building tools and programs to get farms measuring emissions, but the current state of the art is surprisingly simplistic: take your total yield of a crop and multiply it by an estimate of emissions for that crop (taken, most likely, from an academic study of some plot of land or in a lab). It’s a blunt tool since clearly that kind of estimate does not reflect differences in growing region or farming methods.

So given the inherent difficulty of this whole endeavor, it’s important to ask how prepared General Mills and Kellogg are to navigate this tricky terrain. Answering that question was a core reason my firm, at the request of Oxfam International, authored a new report, Evaluation of General Mills’ and Kellogg’s GHG Emissions Targets and Plans.

We were not trying to judge the companies and their goals on outcomes, but rather to assess how their goals line with credible science-based target methodologies, and whether their action plans are robust enough to make achieving the goals likely.

I won’t rehash the whole report – you can check it out here – but in short, the outlook for both companies, for both areas of assessment, is positive. Their goals are clearly connected to science-based methods (leveraging work by NGOs like the World Resources Institute and CDP and working with advisors like BSR). And they both have multi-faceted plans to get there.

Written with my colleague Jeff Gowdy, sustainability consultant and adjunct professor at Vanderbilt’s Owen Graduate School of Business, the assessment suggests five areas to consider carefully in crafting an operational plan to reach science-based carbon reductions:

  • Build good governance around the process to ensure internal accountability
  • Develop robust plans to engage suppliers (and provide human and financial capital if necessary) to identify and spread best practices and technologies
  • Invest in the development of solid measurement and metrics
  • Establish interim goals and adjustments to the targets as climate science evolves
  • Be transparent and open about progress

In essence, we’re saying companies should ask themselves: who’s in charge, how will we spread best practices, how will we know if we’re making progress, how well will we adjust to changing science, and how open are we being with the world?

Given the built-in uncertainty surrounding agricultural emissions, locking down a plan with these elements is important. But it’s only good enough in the short-run. Some additional big gaps need to be closed for the food value chain to slash emissions dramatically. Companies will need much better data at the farm level, expanded industry-wide research and best practice collaborations, and some investment funds to spread technologies.

But thinking even more expansively, the leading companies need to start imagining goingbeyond science-based targets. Climate math is brutal — we only have so much carbon left to emit to keep the planet stable. Thus science-based targets are the minimum — like how much water you need to put out a fire. Leaders should consider setting goals that are even more aggressive to provide some buffer if some best practices fail to live up to their promise, and to help make up for the laggards in an industry. The goal, ultimately, is to prevent the fire in the first place.

Going big is also an opportunity to explore truly cutting edge techniques in what some call “regenerative agriculture”: techniques to use farms and ranches to actually capture more carbon from the air than they produce. The leaders in this exciting new space (often, ironically, using ancient practices) are employing a range of techniques, including grazing animals differently and managing soil smarter so both processes sequester carbon. It’s possible that agriculture could move from being a third of the carbon problem to being the ultimate solution.

For now, though, companies like General Mills and Kellogg are on the right path. Even without completely reimagining food production, these companies are taking a big leap of faith — they’re setting goals without knowing exactly how they’ll get there. But the science of climate change demands that we move quickly and these goals and plans are a very good start.

(This post first appeared at Harvard Business Review online.)

(Andrew's book, The Big Pivot, was named a Best Business Book of the Year by Strategy+Business Magazine! Get your copy here. See also Andrew's TED talk on The Big Pivot.

If you enjoyed this blog, please sign up for Andrew Winston's RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston)

November 2, 2016

General Mills' CEO is Serious about Climate

Climate change has been nearly absent in the presidential election. But it's front and center in business. We’ve left the era of climate denial and CEOs are talking more openly about what a changing climate means for business. Exhibit A is General Mills, which is, like its competitor Kellogg, sounding alarms about the climate...and for good reason.


Ken Powell, General Mills’ Chairman and CEO, opened the Business for Social Responsibility conference yesterday in New York and laid out some compelling reasons why climate and sustainability were core issues for the company. One reason he gave was something I don't hear often. As CEO, he said, he is directly "accountable for enterprise risk management"

Powell said that he is expected – by investors, I presume – to have plans in place to avoid disruptions to the business. Issues range from facility safety (making sure a factory isn't wiped out by an earthquake or storm) to fraud and cybersecurity. He used these risks as examples to make an important point: climate change is now firmly on the list of issues he has to manage. And putting any uncertainty to rest, he said, “clearly, there’s a strong scientific consensus that climate is a risk.”

Powell provided another big reason that General Mills is pursuing sustainability aggressively: pressure from key stakeholders, particularly employees, consumers, and retailers.

Employees, he said, care deeply about two things: food security (helping those who don’t have enough) and sustainability. And they let him know it. Consumer expectations "have never been higher,” with rising demand for simpler, less processed, less artificial food. Many executives, Powell included, say that this “clean label” movement is the most dramatic change in the food industry that they’ve ever seen. It’s part of larger shift in expectations. All of us, he said, “want to know that the company that makes your food shares your values.” Finally, Powell talked about pressure to improve environmental and social performance coming from big retailers like Walmart.

But in the end, Powell’s interest in sustainability and climate change is even more fundamental than stakeholder pressures. As he put it, “Sustainability is an important business imperative for us. To feed a growing population, we need clean water, healthy soil, strong ecosystems, a stable climate, and thriving farm communities.” In short, you can't grow food without healthy farms operating in a good climate.

Clearly Powell understands that tackling climate change, as well as ensuring the basic health of the planet, is core to the success of his business. To make that connection clear, last year he set aggressive carbon goals for the company’s own operations and its agricultural suppliers (my firm wrote a report for Oxfam that assessed General Mills’ and Kellogg’s value chain GHG goals).

Watching the CEO of a traditional, old-school company – nearly 150 years old – talking fluently about megatrends and climate change was wonderful to see. It's a great sign that companies are getting focused on climate, even as the country debates everything else.

PS, On a lighter note, Powell did provide one fun factoid. Apparently, Lucky Charms, which most would guess is targeted at kids is mostly consumed by adults. It’s the #1 cereal on college campuses.

(Andrew's book, The Big Pivot, was named a Best Business Book of the Year by Strategy+Business Magazine! Get your copy here. See also Andrew's TED talk on The Big Pivot.

If you enjoyed this blog, please sign up for Andrew Winston's RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston)

January 31, 2017

An Inside View of How LVMH Makes Luxury More Sustainable

(Note: It can feel odd right now to talk about nearly anything except what's going on in the U.S. An increasing percentage of my time is spent on activism. But the realm of my core work -- sustainable business -- is perhaps more critical than ever.

A few months before the election I did some research and interviews with executives at the large luxury company LVMH. I was doing something I hadn't done in a while -- focusing on what a single company was doing to improve its environmental and social impacts. It took me months to carve out time to write it up. I posted this at a few weeks ago.

I received some pushback and commentary from a few people who felt the company is not doing enough. That's always true. I may be a touch rosy in this piece, but I've never felt that highlighting what a company is doing right confers a blanket endorsement...or indicates that the organization has conquered sustainability. If I only wrote about fully sustainable companies, I wouldn't have much to write about. That said, I'm more interested in the macro question for a company like LVMH -- can it ever be "sustainable"? See what you think...)

The LVMH Sustainability Story

The companies that are most vocal about environmental and social issues tend to be big, mass-market brands — well-known retailers, consumer products giants, and tech firms that are telling a new story to consumers who increasingly care about sustainability. It might seem that luxury goods companies would not feel the same pressure, but the high-end brands face important questions about the way their businesses impact the world. These companies can’t ignore sustainability.


One luxury leader, LVMH, provides a great example of how to build a robust sustainability program. The company is a €36 billion decentralized collection of valuable brands — which they call houses (or maisons) — covering fashion, wine and spirits, cosmetics, and jewelry. To understand its sustainability journey better, I spoke with the company’s head of environment, Sylvie Benard, and the CEOs of two of its wine and spirits brands.

The center of the corporate program is a framework it calls LIFE (LVMH Initiatives for the Environment), a “strategic backbone” for programs that address nine environmental challenges. LIFE focuses attention on the full life cycle of products, from supply chain to production excellence to designing longer-lasting and repairable products. Each brand’s strategic business plans now include a LIFE plan, with actions and targets laid out for the next five years.

Looking at LVMH’s efforts, I’ll highlight three areas where I see great impact and innovation: managing carbon and energy, building a connection with customers around brand purpose, and working closely with suppliers. I’ll then discuss some of LVMH’s challenges.

Managing Carbon and Energy

Since 2001 LVMH has studied its life cycle carbon footprint, focusing on both the obvious energy hogs — its stores and distribution — and brand-specific issues, such as packaging in spirits and personal care. The company has aggressively reduced its own energy demand and ramped up the use of clean energy. By the end of this year, 100% of the electricity for LVMH facilities in France will be renewable.

Belvedere Vodka, a brand with sales in 120 countries, has pursued many large-scale projects to reduce its CO2 footprint. Belvedere’s distillery in Poland shifted from oil to gas for energy generation and added heat recovery systems to capture wasted energy. Charles Gibb, Belvedere’s CEO, says it made a strategic choice to invest in this project, even though it had a longer payback period than normal. It was part of a larger overhaul that included automating some distillery operations, which gave it better data and helped slash energy and water use. As a result, Belvedere’s greenhouse gas emissions have dropped by 40%.

The most innovative part of LVMH’s carbon strategy is the use of an internal carbon fund. Dozens of the world’s largest companies use “shadow prices” to model how a carbon tax would affect their investment decisions. But only a few big companies actually collect real money from their divisions or brands (Disney and Microsoft were early leaders). LVMH’s approach is somewhat unique. Where others have collected funds internally to create a central pool of money for carbon-reducing projects, LVMH instead requires every maison to spend €15 for every ton of carbon emissions (either on-site or from grid-based electricity) on efficiency and energy reduction, clean energy, or research to understand that brand’s greenhouse gas emissions better. Like its carbon-taxing peers, LVMH has created a powerful virtuous circle of emissions reductions. In total, LVMH has invested about €6 million in the first year of the program.

Brand-Building and Customer Connection

The LVMH leaders I spoke with believe strongly that Millennials, more so than previous generations, care about sustainability. As Gibb puts it, “Until recently, marketing would focus mainly on product and brand image. But now people look for whether you’re both socially and environmentally responsible. People look at brands and ask what they do for the world. If you don’t do this stuff, you’re not a modern brand.”

One of the ways the company is telling a more sustainable story to customers is through the use of the “Butterfly Mark,” a symbol — a first in the luxury industry — that “at a glance helps people identify brands committed to social and environmental sustainability.” (Disclosure: I’m an unpaid advisor to Positive Luxury, the company behind the mark.) The Butterfly Mark will soon appear on Krug’s Champagne. Krug also uses a fun, innovative tracking system to share information with consumers. Every bottle has a unique six-digit number, which you can input on its website to get that bottle’s story.

Supply Chain Partnerships

Maggie Henriquez, CEO of Krug Champagne, says that its focus on environmental and social impacts, and the story the company tells about it, stems from looking inward at its own history. Like many luxury brands, Krug was struggling after the 2008 financial crisis. Henriquez says there was a deeper problem than just economic conditions: It had lost its connection to the founder’s 19th-century ideals about craftsmanship, humility, and quality.

A critical part of going back to its roots, Henriquez says, required connecting in a deeper way to growers. The quality of the crops, and the care of the growers, are key to the success of the business. Henriquez started a program to work with growers on sustainability and quality, going plot by plot to review harvest times and implement modern best practices. Together they reduce waste and agricultural inputs (such as fertilizer and water) to get better yields, which reduces the overall footprint. Some of LVMH’s other businesses, such as jewelry brand Bulgari, have also implemented supply chain tracing programs for critical inputs with potentially troubled histories (like some metals and diamonds).

In one sense, none of this is surprising or cutting edge. Most large companies with agricultural supply chains, like Kellogg and General Mills, have developed elaborate, robust supplier programs to improve yields and cut water use and greenhouse gas emissions. And on the jewelry side, companies like Tiffany employ extensive tracking programs to avoid conflict minerals and blood diamonds.

But LVMH does some unusual things. Henriquez decided that growers were so important to the Krug story that she wanted them engaged in a deeper way. Henriquez, growers, and the winemaking team enjoy product tastings together, allowing growers to enjoy the end results of their work and their crops. It sounds so simple, but Henriquez says, “It’s not normal in our business, and it’s such a moment of connection.”

The Challenges

The sustainability and operating execs at LVMH talk openly about some of the challenges they face. As usual, short-term pressures on financial performance are a concern, and change takes time. Environmental exec Sylvie Benard comments that changing behavior can take a few years, and you have to keep hammering home the message and “find the right moment” to act.

However, it’s a bit easier for the brand CEOs to stay focused on the long term when some of the maisons are three centuries old. They have to plant trees today, for example, to have the right wood for casks 150 years from now. As Gibb puts it, “If you’re not thinking about the brand over a 10-year period, you’re not doing your job.”

Perhaps the biggest hurdle is more existential: Can luxury goods ever be sustainable? On one level, probably not, since these products almost by definition are not an inherent human need. But while it would be easy for sustainability people to assert that “none of these products should exist,” that’s more than just unrealistic — it’s probably counterproductive. Everyone has different definitions of what makes for a thriving life; for many, it can easily include some wants, or things that provide fun and beauty.

The challenge, then, is to make sure sustainability and beauty are inseparable. LVMH is on the right track, talking about sustainability as core to excellence, quality, and brand image — and central to how the company operates. As Sylvie Benard says, when “the marketing director, financial director, logistics director, and so on take the environment into account when making a decision, then life will be beautiful.”

(This post first appeared at Harvard Business Review online.)

If you enjoyed this article, please sign up for Andrew Winston's RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston)

(Andrew's book, The Big Pivot, was named a Best Business Book of the Year by Strategy+Business Magazine! Get your copy here. See also Andrew's TED talk on The Big Pivot.

May 30, 2018

A Blockchain Crash Course: How It Can Enable the Clean, Smart Grid

(Another article from my column for MIT Sloan Management Review. This is my attempt at an "explainer" on blockchain, describing it as simply as I can, and exploring how it may help build the clean grid. I will dive into other uses later...)


Blockchain is everywhere — at least when you’re talking about media coverage. It’s the new technology that enables those wild cryptocurrencies. But some techies think it will revolutionize more than money. In short, in the words of a recent Wired overview of the technology, blockchain creates “tamperproof databases.” Every transaction in some defined system, like all trades of a particular currency, is “cryptographically signed,” meaning it’s encoded to be theoretically unhackable. Then, the “block” of data, with its crypto info, is saved on thousands of computers in parallel — so that if you wanted to tamper with a record, you’d have to change everyone’s computer at the same time.

At first blush, it’s unclear why a really good, tamperproof database will be so groundbreaking. But big companies and startups alike are exploring how blockchain could change everything from contracts, corporate compliance, and auditing to digital identity and voting, supply chain tracking, and even building a smart, carbon-free electric grid. These ideas are fascinating, but the latter few in particular have caught my eye. Anything that might solve big, global, environmental, and social challenges, from climate change to reducing forced labor in the supply chain, is worth a look.

It’s impossible to unpack all of the potential ideas at once, so let’s talk about how blockchain might help with one critical aspect of the climate change fight: the challenges of managing clean, zero-carbon energy on the grid.

The pace of adoption of clean energy is breathtaking, but it’s not moving as fast as it could. One issue is that, as critics love to point out, the wind and sun are “intermittent” (they come and go). In parallel, how much energy we use swings wildly during the day. Demand in most regions peaks after dark, as everyone gets home from work, right when solar power is waning. This mismatch creates what the utilities call the “duck curve” problem, named for the misshapen curves of supply and demand. It’s a chaotic situation for utilities that are trying to keep a giant power grid in balance.

Massive battery storage will help solve the problem but getting to total grid scale is some ways off. We’ll also need demand-side options, such as a long-standing practice called “demand response.” When the utilities see fast-rising demand, they pay companies to reduce their energy demand by, for example, turning down their cooling systems a degree. Now imagine if billions of connected devices could adjust themselves to balance the grid. And then picture them talking directly to each other, partly through a shared, trusted system.

This is where blockchain may come in.

1. Blockchain Could Make Tracking Energy More Granular, Automated, and Trusted

To understand how this new tech could be a solution to thorny grid problems, I spoke to Jesse Morris from the Rocky Mountain Institute (RMI), based in Colorado. The nonprofit has cofounded, with the Austria-based startup Grid Singularity, the Energy Web Foundation (EWF), headquartered in Zug, Switzerland. The new organization is hoping to provide an open-source blockchain platform to the energy sector and accelerate the transition to renewables.

Imagine, Morris said, if every utility meter “assigned a crypto identity and time stamp, with geolocation,” to every unit of energy used and produced. On the supply side, the system would track every kilowatt hour of renewable energy generated. That would be useful to all those multinationals buying gigawatts of renewable power every year.

Right now, when utilities or companies buy renewables, they basically have three choices: Finance their own projects and own the panels or turbines, sign power purchase agreements (PPAs) to buy clean power from someone else for the next 15 to 20 years, or purchase certificates that represent the green attributes of energy. Some critics of these renewable energy certificates (RECs) question whether they truly drive new investment in clean energy — and thus whether the cleanly sourced electrons are actually displacing dirtier energy on the grid.

Morris believes that blockchain can help by making tracking more granular, automated, and trusted, which can allow companies to better verify claims of carbon neutrality. It will also help avoid double-counting on RECs or PPAs (that is, when an energy developer and the buyer of RECs count the clean energy as their own). So we’ll know how much progress on carbon reduction we’re really making.

2. Financing New Energy Projects Could Be Streamlined

Blockchain may also help increase the supply of renewable energy in another way. It could streamline the financing and insuring of new energy projects, which can get complicated and expensive. One new company I spoke with San Francisco-based, Banyan Infrastructure Corp., is piloting a blockchain ledger to manage the contractual obligations — of the developer, the buyer of the energy, the lender, and so on — and to lower some of these administrative costs. Since these costs are mostly fixed, smaller projects like a 10-megawatt solar farm would benefit the most.

But the real potential, according to Banyan’s CEO Tad Neeley, is to use blockchain ledgers to reduce the capital requirements for new projects.

The problem is this: Banks place conservative debt service requirements on the developers of renewables projects (because of uncertainties, some real and some exaggerated, about how dependable solar or wind farms are). The developers must keep a lot of cash on hand to ensure that they can meet loan payments. Neeley believes that a shared, real-time database that is tracking energy production can help lower the perceived risk and thus reduce these capital requirements. A shared ledger could make investors more comfortable that the turbines and panels will continue spinning off both electrons and cash.

3. Tamperproof Ledgers Could Facilitate a New Energy Market

So blockchain may help increase the supply of clean energy — but now consider the demand side. Millions of individual devices and building systems could track their needs and trade electricity device to device, across the full grid, or on small, localized microgrids. Blockchain’s shared, tamperproof ledger could verify all transactions, creating a new kind of energy market.

Of course, these visions of the near future create as many questions as they answer, such as: What’s the role of the utility when my refrigerator is talking to your HVAC system, or your solar panels are selling power to my electric car? This is not some completely futuristic scenario — the first blockchain-enabled sale of power from one neighbor to another just happened in England. And what, if anything, replaces the oversight and management of the shared resource that we call “the grid”?

But even with so much unanswered, bringing some excitement to this thorny problem of building a clean grid is a good thing in and of itself. It would be great to move beyond cryptocurrencies and bring blockchain innovation to cool, real-world problems like how every single thing that uses or produces electricity will communicate and optimize energy use. Or how to build a zero-carbon grid and tackle climate change.

This is all new territory, and I’m planning to dive into different parts of this story over time. The prospect of better tracking of supply chains, or of tracking carbon footprints for every product, is exciting. Stay tuned, as I’m sure there are newer blockchain applications — both real and hyped — to come.

(MIT Sloan Management Review first published this piece here)

If you enjoyed this article, please sign up for Andrew Winston's RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston

Andrew's book, The Big Pivot, was named a Best Business Book of the Year by Strategy+Business Magazine! Get your copy here. See also Andrew's TED talk on The Big Pivot.

January 11, 2019

The Story of Sustainability in 2018: “We Have About 12 Years Left”

(Hi to my blog readers. Happy new year. Below is my annual year-end review of sustainability that was posted at right after Christmas. I'm believe it's the most viewed piece I've ever written for them (hundreds of thousands of views). Part of the reason may be the title, which attracted some heated exchanges. So let me clarify it a bit. The idea that there are "12 years left" on climate change comes from the big IPCC 1.5 degree report from October. As I say below, what it means is that humanity has until 2030 to dramatically cut emissions (in half) to avoid some of the worst of a changing climate...nobody is saying the world will end in 2030. But time is very short. This piece seems to be a kind of Rorschach test for readers -- some people emailed me about how pessimistic it was, others about the optimism. I'm curious what you all think.)


Every year, I look for important themes in sustainability that will have lasting impact on society, from glaring evidence of global megatrends to inspiring stories of corporate action. The year 2018 brought extreme change — in weather and environmental ecosystems, in political winds and power, and in the expectations of business. It also brought incredible clarity about the scale of our challenges and opportunities.

So let’s start with the big picture before moving to some corporate success stories.

The world’s scientists sound a final alarm on climate

We have about 12 years left. That’s the clear message from a monumental studyfrom the Intergovernmental Panel on Climate Change (IPCC). To avoid some of the most devastating impacts of climate change, the world must slash carbon emissions by 45% by 2030, and completely decarbonize by 2050 (while, in the meantime, emissions are still rising).

The IPCC looked at the difference between the world “only” warming two degrees Celsius (3.8°F) — the agreed upon goal at global climate summits in Copenhagen and Paris — or holding warming to just 1.5 degrees. Even the latter, they say, will require a monumental effort “unprecedented in terms of scale.” We face serious problems either way, but every half degree matters a great deal in human, planetary, and economic losses.

It wasn’t just the IPCC that told a stark story. Thirteen U.S. government agencies issued the U.S. National Climate Assessment, which concluded that climate change could knock at least 10% off of GDP. Other studies tell us that sea level rise is going to be worse than we thought, Antarctica is melting three times fasterthan a decade ago, and Greenland is losing ice quickly as well. If both those ice sheets go, sea level rise could reach 200-plus feet, resulting in utter devastation, including the loss of the entire Atlantic seaboard (Boston, New York, D.C., etc.), all of Florida, London, Stockholm, Denmark, Uruguay and Paraguay, and land now inhabited by more than 1 billion Asians.

All of this suggests that business must dramatically change how it operates: companies will need to push well past their comfort zones from areas like politics and policy to engaging consumers to how they make investment decisions.

Entire towns are wiped off the map by extreme weather

This year the weather devastation around the world got, in the words of one colleague, “biblical.” The town of Paradise, California, was effectively eliminated by wildfires (that, yes, are made worse by climate change), killing at least 85 people. Most houses in Mexico Beach, Florida, were destroyed by Hurricane Michael. Unprecedented rains and damage from Hurricane Florence slammed North Carolina and temporarily turned a major highway into a river. Typhoon Mangkhut ravaged the Philippines and parts of China, killing dozens of people. Incredible heat blanketed four continents this summer, with records falling across Europe and Asia. Venezuela’s last glacier is disappearing. Finally, Capetown, South Africa, is essentially out of water due in part to drought — the city nearly shut off all the taps this year, but has held off “Day Zero” through ongoing restrictions and aggressive citizen action.

The consequences of these extremes are not theoretical. What is the economic cost to an area with no water, or one that’s under water, or burned to the ground? In the U.S. alone, it was $306 billion in 2017, shattering records.

Coral is dying, insects are disappearing, and the fate of major ecosystems looks dim

The world’s top coral expert confirms that at 2 degrees of warming, all coral will die. This will destroy a critical part of an ocean system that provides protein to hundreds of millions of people, helps blunt coastal storm surges, and supports the livelihoods of people working in fishing and tourism.

And it’s not just coral: there’s the death of pacific kelp forests, radical declines in insect populations, and continuing population drops in all mammals and bees.

How does this all connect to business? For some sectors, it’s obvious: the food and agriculture industry will have trouble feeding us without pollinators, and tourism takes a big hit without coral and other wildlife. But more broadly, society will not thrive in a world where entire pillars of planetary support are collapsing. And if society can’t thrive, neither can business.

The U.S. environmental protection system continues being dismantled … from within

The EPA and Department of Interior are reversing years of protections for air, water, and land. In 2018, the Trump administration has opened up offshore waters and rolled back safety rules for drilling, greatly weakened the voice of science in policy, reduced focus on children’s health, and moved to make it easier to build dirty coal plants.

The big question now is whether businesses will push back and go down a cleaner path on their own. It’s easy to see why multinationals might as they face pressure from sub-national regions — California Gov. Jerry Brown held a Global Climate Action Summit which produced many aggressive climate goals from cities and state, for example. Gov. Brown also signed aggressive new laws committing to carbon-free electricity statewide by 2045 and requiring solar on all new homes. So even if U.S. action sputters, governors and mayors who influence local and regional business conditions will be pushing the clean economy and pro-climate agendas.

In pointed contrast to the U.S., the EU backed a proposal to strike no new trade deals with countries not in the Paris climate accord (i.e., only the U.S.), France will shut coal plants by 2021, India just cancelled plans for big coal plants, and China banned 500 inefficient models of cars.

A prominent leader retires, but new leaders step up

For nearly a decade, no business leader has done more to bring sustainability into the business mainstream than Paul Polman, Unilever’s outgoing CEO (Full disclosure: I’ve worked with Unilever). His depth of understanding of our biggest global, social, and environmental challenges, and his commitment to use business as a way to tackle them, has been unparalleled. But it wasn’t just talk. The company also grew throughout Polman’s tenure and the stock outperformed peers and the FTSE index. Luckily, there are other corporate leaders who are stepping up, including Danone’s Emmanuel Faber (see below for more).

But climate isn’t the only area where we’re seeing bold stances. Societal issues more broadly made headlines, too. The New York Times declared 2018 year that “CEO activism has become the new normal,” with prominent voices like Salesforce’s Marc Benioff leading the way. Other notable moments include Nike making Colin Kaepernick — the man who led NFL player protests about police violence against African Americans — the face of its 30th anniversary “Just Do It” campaign (sales rose quickly). Under pressure from survivors of school mass shootings, Dick’s Sporting Goods stopped selling assault weapons, and other companies cut ties to the powerful National Rifle Association. Kroger celebrated a year of its “End Hunger” initiative. Unilever threatened to pull its substantial ad dollars from Facebook and Google if they didn’t police “fake news and toxic content.” One hundred U.S. CEOs urged action on controversial immigration issues. And more than 100 U.S. companies gave employees time off to vote.

Danone North America becomes the world’s largest B Corporation

A “B Corp” certification requires answering an intensive set of questions on environmental, social, and governance issues. But most importantly, it commits a company to create value for all stakeholders (customers, employees, communities, and so on), not just shareholders.

French consumer products giant Danone has now put 30% of its brands and businesses through the certification process and says that “companies are fundamentally challenged as to whose interests they really serve.” Becoming a B Corp is arguably is a direct statement about whose interests it values most, and it’s and fascinating frontal attack on the dominance of shareholder capitalism.

More investors are viewing climate and sustainability as core value issues

Something is shifting in finance. Vanguard wants CEOs to be a force for good. Mark Carney, Governor of the Bank of England, said that “70% of [UK] banks, who normally have a shorter horizon, are viewing climate as a financial risk—not a CSR one.” Larry Fink, CEO of Blackrock, the world’s largest asset owner, encouraged longer-term thinking about environmental, social, and governance issues in a strongly-worded letter to large-company CEOs.

Anecdotally, I’ve talked to leaders at big banks who are now thinking differently about purpose and systemic risk. And in a quieter move, a major real estate investor in Miami began pulling money out of coastal assets to avoid risk of sea level rise. Watch this space.

The clean technology explosion continues and accelerates

Three big clean tech themes wowed me this year.

1) Renewables keep getting cheaper. According to Lazard’s annual analysis of the cost of building new power plants, renewables are now the cheapest. And another global analysis showed that new wind and solar are cheaper than one-third of the coal already on the grid — and will be cheaper than 96% of existing plants by 2030.

2) Corporate buying of clean energy keeps rising. By the end of just the first half of 2018, businesses bought more clean energy than they did in 2017. Companies like Owens Corning (disclosure: a client of mine) are buying enough green energy to pitch their products as cleanly manufactured (which they started doing in late 2017).

3) Electric vehicle sales are exploding, and it’s not just small vehicles: even container ships are going electric. UPS bought its first EV delivery vehicles at price parity to combustion engines, and China is adding nearly 10,000 electric buses to the roads — equal to the size of London’s entire bus fleet – every five weeks.

China rejects the world’s trash

For years, the U.S. had a great deal: When container ships arrived from China with goods, we sent them back filled with our recyclable paper and glass. But starting January 1, 2018, China stopped accepting our trash. The ripples of this move are unpredictable and still moving through the system, but in some regions, materials piled up and prices for recycled content plummeted. In a business world trying to go “circular” (i.e., find a use for everything and eliminate waste), it was a wake-up call about how much waste we still produce.

The battle against single-use plastic heats up, starting (somewhat oddly) with straws

Sometimes weird things hit a tipping point. For a combination of reasons, including a viral video showing a turtle with a straw stuck in its nose, companies waged war on straws this year. Marriott, McDonald’s, Starbucks, Burger King, and the city of Seattle, among others, all banned or are phasing out straws. It was a very small part of a larger conversation about “single-use plastics,” most notably plastic bags, which IKEA and Taiwan are banning as well.

Raising the bar for suppliers

The greening of the supply chain is a perennial story, but there are some noteworthy recent actions. Apple created a $300 million fund to help suppliers in China build more solar, and also partnered with Alcoa and Rio Tinto to develop a better smelting process to make carbon-free aluminum. On the labor side of the supply chain equation, PepsiCo and Nestle cut ties with a palm oil supplier over human rights abuses and Coca-Cola said it would work with the U.S. State Department to use blockchain to fight forced labor.

Meatless options grow plentiful

Given the way most cattle is currently raised, one of the most effective things an individual can do to reduce her carbon footprint is eat less meat. The options to do so are growing, and the rise of products made from non-animal proteins has been remarkable. The Impossible Burger, Beyond Meat, and other brands have made believers out of skeptics (they taste great) and are, as the Wall Street Journal put it, “overrunning grocery meat cases.” In another fascinating move, tech company WeWork went meat-free in its offices and even stopped reimbursing employees on business trips for meat meals.

What comes next…

I’m sure I missed many stories, especially globally (my view is from the U.S.). Predictions are hard, but I’m safe in assuming 2019 will be a bumpy ride again. Ultimately, today’s global political situation is, at best, unpredictable. Brazil now has a strongman-style leader who talks about cutting down the Amazon, but the U.S. just swung its House of Representatives back the other way, giving power to Democrats who want more focus on climate change, inequality, and other sustainability agenda items. No matter what happens politically, it seems clear that companies will continue to feel pressure, internally and externally, to do more on social and environmental issues. While the problems face we are extremely serious, I remain optimistic that companies will be doing more in 2019 than ever before.

(This post first appeared at Harvard Business Review online )

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