Brand/Intangible Archives

July 19, 2007

Say it Ain't So, Toyota!

For quite some time, I have been trumpeting Toyota as perhaps the best company in the world. The combination of the most successful eco-product ever (Prius), the leanest manufacturing, and top-notch marketing make the company extremely hard to beat. But now we're seeing a disturbing trend around their new hybrids. This past weekend, The New York Times published a scathing, but fair, article about the new Lexus hybrid (cover of the Automobiles section, titled "Conspicuous Consumption with Green Illusions"- ouch).

Apparently, the hybrid gets worse mileage than the non-hybrid version (a not-that-impressive 21 mpg vs. 22 mpg in tests). The extra 700 pounds of weight from the battery and other components don't help. So what exactly makes the car green then? It is a super ultra-low emissions vehicle (SULEV), which is a measure of air pollutants, not CO2. But there are many non-hybrids that get SULEV ratings. So the green must just be the extra $30,000 it costs over the regular Lexus. As the author cheekily points out, you can buy the regular one, then use the extra $30K to buy a Prius for around the town driving.

This kind of false greenness is bad news for a company that has so much brand value riding on its environmental image (and sadly, this isn't the first time the company has been accused of this problem — its hybrid SUVs gain extra power, but not much extra fuel-efficiency).

From a strategic perspective, none of this makes much sense to me. A big part of Toyota's rise to world's #1 was what it did right on green issues — mainly the Prius. I hope this won't happen, but Toyota may find out that brand good will can be destroyed much faster than it's built.

July 7, 2008

Home Depot Solves and Eco-Problem

This post first appeared at Harvard Business Online.

Home Depot announced last week that it will collect and recycle compact fluorescent light bulbs (CFLs) in nearly 2,000 of its stores. This is great news since it eases the transition to low-energy bulbs by solving a big customer problem: what do I do with this bulb when I'm done with it? Home Depot is the not the first - IKEA and local stores have CFL recycling programs - but it brings a bigger scale and reach to solving the problem.

First, bravo. Home Depot is, in part, taking responsibility for the "end-of-life" of one of its products (in wonky terms, this is "extended producer responsibility" and it's the law for some products in some parts of the world, such as electronics in Europe). But in the New York Times article on this program, one quote really struck me. Ron Jarvis, the company's SVP for environmental innovation (cool title) said, "We're trying to do the right thing...Some of the things that we do are for the community and not for the bottom line."

I'm always a bit frustrated at a slightly sheepish explanation for a green program that costs some money and might impact the financial performance of the company. Of course it will affect the bottom line. But I think it will help it. No doubt Mr. Jarvis meant what he said, but may be wrong, and here's why. When are people most likely recycling a bulb? I'm going to go out on a limb and guess that it's when they need a new one. Why wouldn't they buy it while they're at Home Depot recycling the old one? And what about that mop or plant or lumber they've been meaning to get? Solving a customer eco-problem can drive business.

From a strategy perspective, Home Depot is utilizing a critical eco-advantage mindset and approach: thinking about the value chain. Here's how I'd recommend finding these kinds of business and green opportunities. To oversimplify...

1) Think about - and measure if possible - the full value chain impact of your products. Where are the big impacts for energy use, water, toxic waste, and so on?

2) Look forward in the value chain (after thinking about upstream opportunities as well). What issues do your customers face? In this case, you might hear two complaints:
A) Boy are my energy bills going up;
B) I have no idea what to do with my old CFL bulb.

3) See if you can solve their environmental problem. Solving A is easy: sell them CFLs (and insulation and better windows and on and on). Solving problem B is harder but possible with scale: start a recycling program.

4) Reap the benefits of a closer relationship with your customer who now thinks of you as a solution provider (and if you're Home Depot, sort of apologize for it).

OK, Home Depot didn't mean to do the last part of #4 I'm sure. But I can't figure out why any company should have to dance around how a green program might help the bottom line after costing some money upfront - in most cases, that's just called investment. Only on environmental initiatives do people feel the need to apologize about short-term expense. Home Depot and its execs were right to crow about the environmental benefit and doing the right thing. But they are also fully justified to promote the likely payback and business benefits of investing and bringing customers into their stores.

Or perhaps Mr. Jarvis and the Home Depot team are craftier than I realize. Maybe they didn't want to let their competition know how much of a win-win this could be. Sorry if I let the cat out of the bag.


April 23, 2009

Customer Service -- the Good and the Bad

Ok, I'll admit upfront that this isn't a green posting exactly. But I was thinking about customer service after an interesting comment at the Fortune Brainstorm Green event i just went to in California (more posts to come). One attendee said he had seen analysis on companies with high customer service scores (by some independent organization that ranks customer service) vs. those with lower marks for pleasing customers. Through this decade, apparently, the higher group started having a significant advantage in stock market performance. To stretch the analogy to green, perhaps companies that get the intangibles right -- including some aspects of connecting to customers around social and environmental issues -- will be rewarded. The context of this comment was in a session on investing in greener companies and the higher performance (and lower risk) of greener stocks. The session included the always funny and interesting Matt Kiernan, founder of Innovest and one of the true experts on green investing.

But anyway, I was in customer service mindset when I drove my Hertz Prius back to LAX and had two diametrically opposed customer experiences within 5 minutes.
A few blocks from Hertz is the gas station, AM PM Arco, right on La Cienega and W. Century Blvd. Everyone stopping there was filling up a rental. When you pull up to the pump, there are no instructions and you can't put any money in. A helpful gentleman pointed to a central payment station. But that didn't take credit cards. So you have to go in, wait in line, give them a credit card...which they keep and make you come back in for. When I came back in and waited for register, I got to the 'wrong' one and had to wait for the other guy with my card (handing it over was not possible I guess). So nobody was rude exactly, but the only helpful part of the process was the homeless guy out front making a living helping people negotiate this byzantine process.

So cut to 10 minutes later at Hertz. I get on the courtesy bus #26 driven by John, the single best bus driver I've every had. He paused the bus before we left the Hertz parking lot and asked if everyone was sure they hadn't left anything in their cars. Then he told us what to do if we realized we left something in the car later, or even left something in the bus -- "call us and i'll turn my bus around and come back to your terminal." He offered candy to everyone and helped every person on and off the bus. It was remarkable. I actually sent an email through the Hertz website to commend him.

Yes, it's sad when people doing their job well is so noticeable, but we've come to that. It's relatively easy to be remarkable in this environment, so why not? (see the work of Seth Godin and the "purple cow" concept for more on this.

So, a strange Earth Day-week post from me. I'm sure there's a green connection here (like being remarkable, which truly green-focused companies generally are -- think Patagonia -- pays off), but I won't stretch too far to find it.

February 9, 2010

Audi Green Police Ad: Funny or Not?

The Superbowl ads this year were fairly mediocre, on top of often being oddly dated and consistently anti-women. But one ad is getting a lot of discussion/attention in the green world: The Audi ad about the Green Police.

If you didn't see it, it depicts a new police force arresting people for choosing plastic bags at the supermarket or setting their jacuzzis at too high a temperature. Then a driver of an Audi "clean diesel" is waved right through an eco road block.

Was it funny? Yes (it's hard not to laugh when the eco-police, on their Segway's, ask a real policeman to "step out of the car" for drinking out of a styrofoam cup).

But was it also cringe-worthy? Yes. The ad really plays on all the worst stereotypes about how going green is hard and how you'll be judged. The redeeming quality is that the person doing the 'right' thing, the driver, gets a free pass.

But in terms of promoting green consumer choices, does Audi help the movement (and its own product) or hurt it?

What do you think?

March 1, 2010

The Greening of the Olympics' Sponsors

Every year, major sporting events get greener and the goals for renewable energy use, carbon-neutrality, or zero-waste get tougher. The Vancouver Olympics which just ended featured a large range of greening activities; the sustainability staff worked on them for years, producing sustainability reports as far back as 2007. In their bids for the 2016 Olympics, not only did Chicago describe its games as "low-carbon", but Tokyo actually claimed its event would be carbon-negative. As a special advisor to U.S. Soccer's bid for the FIFA World Cup in 2018 or 2022, I can tell you that there will be some tough goals in place for that event as well, should we win the bid.

In addition to the event committees themselves, what I find fascinating is how big, corporate-level sponsors are increasingly bringing their own sustainability agendas to the table as well.

It's smart, because if you're a sponsor, helping to green big events serves a number of purposes.

First, and most obviously, it's a great way to demonstrate your green bona fides, build your brand, and sell new products. There's no bigger or more passionate audience than live and TV-viewing sports fans. For a World Cup, for example, U.S. Soccer expects roughly five million fans through the gates, another ten million at fan "fests" nearby, and a cumulative audience of nearly 26 billion (multiple views for each of billions of fans, obviously) watching around the world. So of course companies fight to get these coveted spots and use them. For example, in 2008, GE leveraged the Beijing Olympics as a way to demonstrate its ecomagination portfolio.

But second, and perhaps more importantly, these events serve as a testing ground for new products, processes, and ways of doing business. Right before the games, Coke announced its aggressive targets for Vancouver — zero-waste and carbon-neutrality. The tactics behind these goals include employing new refrigerants to eliminate greenhouse gas emissions, deploying hybrid delivery fleets, the use of Coke's new "PlantBottle," and the purchase of carbon offsets as a matter of course.

It's not just the Olympics. At the PGA Phoenix Open (which also just ended), sponsor Waste Management is using the opportunity to try some new waste reduction and management techniques, including moving toward a zero-waste goal, introducing Solar Compactors, and installing "reverse" vending machines that collect recyclables. (Full disclosure: Waste Management hired me to speak at a dinner at this event -- more on that trip later.)

While cynics will say it's just grandstanding by these big brands, I actually do see real action and serious learning going on. Only with live tests like these can Coke learn, for example, how consumers react to a new bottle or whether low-GHG refrigerants perform as expected in the field. These events are pilot projects — they're circumscribed in time and space and allow new thinking and action on a controllable scale.

These efforts offer a great lesson for all companies. Any organization can try green initiatives out in a single office building or at a single corporate event (Earth Day events are the most obvious, but anything will do: a "fun run", fundraiser, etc.). Not all new ideas will work, so look for project opportunities of moderate scale — and sponsoring an external or internal event is a good place to start — and build from there.

(This post originally appeared in an earlier form on Harvard Business Online)

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April 21, 2010

Avoiding Greenwash and its Dangers

This week is the fortieth anniversary of Earth Day. The hype is unbelievably high as companies step all over themselves to share their latest sustainability accomplishments. In general, this is a good thing and it's wonderful to see companies competing on green.

But there is a high risk of saying something that isn't quite true, or of overstating the truth. Because this is the time of year for somewhat self-important pronouncements of changing the world, it's also a time for greenwash.

The incidence of actual, pure greenwash -- outright, purposeful untruths about the environmental attributes or impacts of products -- is probably not that high. But there's an awful lot out there that gets close (for a truly excellent review of the key missteps that would qualify, see the Seven Sins of Greenwashing from Terrachoice).

We've all seen some doozies along these lines. An ad touting paper-free banking as a way to save the forests, last year, not in 1997. A cheap car made specifically for the developing world (and not an electric car, mind you) presented for no apparent reason on a backdrop of a wind farm. I'm sure you've seen ads like these, and worse.

The problem of greenwash seems like a mild issue to worry about. But as advertising giant Ogilvy & Mather puts it in a new report, greenwash is actually "an extremely serious matter...it is insidious, eroding consumer trust, contaminating the credibility of all sustainability-related marketing and hence inhibiting progress toward a sustainable economy." In other words, it's very hard for customers to know what choices make a difference when some marketers are muddying the waters for all. When buyers throw up their hands in confusion, we all lose.

This perspective comes from Ogilvy's new guide for managing your brand: "From Greenwash to Great: A Practical Guide to Great Green Marketing (without the Greenwash)." (Full disclosure: I'm an informal advisor to Ogilvy Earth, and I'm quoted in this document, but I had very little to do with its creation).

The guide offers a simple framework in three buckets -- Planning Your Approach, Developing Communications, and Launch and Beyond -- with nine common-sense steps. For a preview of this helpful document (launching on the 21st), and some ideas of the kinds of stories they share, here are a couple deceptively simple prescriptions in the "Planning" phase (for a few more of the ideas in the guide, see my monthly e-letter here).

Focus on Fundamentals
This first step is where so many go wrong. An honest green story starts from inside the company, not from a marketing idea that you then try to spin. You need hard facts on the environmental improvement you're claiming, such as a certain amount of recycled content in your product or the energy used when your customers turn your gadget on. These benefits need to be measurable, verified, and not insignificant to the product's real footprint (e.g., a two-stroke engine lawn mower that hypes its recycled packaging is missing the point a bit). Ogilvy shares the story of Unilever's Hellmann's mayonnaise in the UK. The company explored its sustainability impacts, did the hard work on figuring out its supply chain, and made a switch to free-range eggs. Once it had its new policy in place, the company then made the pitch to consumers.

Get Out Ahead
Starting from an honest place doesn't mean you have to think small. Companies can still be bold and set new standards. One of my favorite examples of getting out ahead is IBM's Smarter Planet, perhaps the best green ad campaign in history. It's, well, very smart.

The company took an issue the IT industry is struggling with -- the significant and growing climate and energy impacts of information and communications technologies (which is now produce over 2% of global emissions) -- and flipped it on its head. Don't worry about the growth of IT, this campaign basically says, we're going to use our technology to solve much bigger environmental and energy problems (it's about tackling "the other 98" as many call it). We're going to build smarter transportation systems, smarter cities, and a smarter world.

Others in the IT community had talked about it, but IBM stuck its head out to own it. And they had the stories and case studies to back it up. It's my favorite green positioning because it doesn't talk about saving us from doom and gloom; it just asks us all to be smarter. And who doesn't want that?

The rest of Ogilvy's handbook shares some best practice ideas on executing a green campaign and beyond. While those buried in the green branding world may recognize many of the stories, there are some good gems even for the most knowledgeable, and a helpful framework for all.

Ogilvy's handbook will be available here on Wednesday, April 21.

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June 9, 2010

Five Lessons from the BP Oil Disaster

It's very easy to pile onto BP right now. The "accident," which may be due more to negligence, is bad enough. The company lost 11 employees — after losing 15 in a high-profile explosion at a refinery 5 years ago. The damage to the Gulf, its species, and the people who depend on it is almost incalculable. But surprisingly, it's even easier to criticize BP's behavior since the explosion — the company has tried hard to downplay the scale of the tragedy and it has moved slowly to stop the torrent of oil pouring into the Gulf.

The nightmare is not over and the repercussions in terms of regulations and the future of BP are far from certain. But it's high time to start sifting through the wreckage for some learning so we can avoid similar catastrophes. I'm sure there are literally dozens of good lessons (please post yours), and I think many companies already have a solid understanding of the key principles of good behavior. But why do we need to wait for each fresh disaster to relearn the lessons we already know?

Here are my top five lessons, running from geopolitical and philosophical to corporate-level branding and strategy.

1. Our reliance on old, fossil-fuel based technologies is devastating for the planet, for society, and for business. This spill is in many ways an expected result of the path we have chosen. Given the declining stocks of easy-access oil, our addiction is forcing us to dig up extremely remote oil — something very, very hard to do that comes with enormous complexity and myriad risks of catastrophic failure.

The assumption that we will continue to dig up more carbon-emitting fossil fuels may be called into question in a serious way by the Gulf oilpocalypse. Governments may very well ask for companies to invest far more in safety. It's a reasonable outcome that regulators demand that companies invest not only in the technologies to dig oil up, but also in cutting edge ways to greatly reduce the risk of it going all over the place. So far, the oil giants seem to be pursuing only the first part. Which brings me to...

2. Preparing for a world where things only go right is extremely dangerous. To hearken back to the recession for a moment, one of my favorite tidbits about the financial meltdown was something I read about the ratings agencies (you know, the groups that gave horribly risky investments triple-A ratings). In the spreadsheet models they used to estimate the value of mortgage-backed securities, analysts could only plug in a positive number in the "growth" cell. That is, they could not predict the value of those derivatives if housing prices actually went down. You have to wear very large blinders to build a model like that.

But the oil companies have done the same thing. They've invested heavily in exploration technologies, finding ways to do things — like dig a mile under water — that were only space-age fantasies until recently. But where are the technologies to avoid spills, contain them, and clean them up?

3. Downplaying your mistakes is, well, a big mistake. It's gospel in business schools that Johnson & Johnson set the bar on handling a disaster when it dealt with the poisoning of Tylenol (and thus murder of some of its customers) in 1982. The massive, and immediate, recall was unprecedented and set the standard for corporate behavior in the face of existential threats to a business.

Cut to 2010 where BP leaders apparently never read the J&J case study. CEO Tony Hayward infamously said that the spill was "relatively tiny" compared to the "very big ocean." That statement is both scientifically baseless and beside the point - the amount of leakage that the CEO should accept from his operations is approximately zero. Unfortunately, Hayward hasn't learned much in the way of media training as he told a reporter this week that he wants to end this disaster because, "I'd like my life back." Wow.

And the response has seemed awfully slow. Why, for example, has each attempt to stop the leak been done in a serial fashion? Meaning, when the "top kill" failed, why didn't BP have the next containment dome in position already instead of waiting a few more days? BP has been acting like a child that doesn't want to clean up its mess and drags its feet, which is strange, given the monumental risk to the company.

4. Environmental risks can threaten the viability of a business. Reducing risk was the core focus of environmental efforts for many years so it got a bit passé as a forward-looking argument for sustainability. But it certainly is making a comeback now. As someone who's written for years about how going green can drive profits and growth, I've probably also downplayed the role of risk reduction in creating green value. So let me make the very easy case for BP's poor risk management.

As of today, BP has lost over 40% of its market value, worth about $75 billion. The New York Times went so far as to suggest that BP could be vulnerable to takeover once all its liabilities for this spill are accounted for.

Of course for most companies, sustainability-related, enterprise-threatening risks are not quite as tangible as miles and miles of your product killing an entire ocean. But even harder-to-measure threats can destroy a business model. Think of the "stroke of the pen" risk from regulations that outlaw a component of a product due to toxicity (one recent candidate: plastics chemical BPA). Or consider at the risk to companies that do not meet the new sustainability-themed supply-chain demands from business customers. Or look at a company's ability to attract and retain talent based on how well the company manages its environmental and social performance. Ironically, BP leaders have told me in the past that their reputation as a green leader was making recruiting the best engineers far easier. But that reputation is shattered.

5. Companies can lose the reputation as a sustainability leader very fast. Warren Buffett famously said, "It takes 20 years to build a reputation and five minutes to ruin it." Having a reputation as a sustainability leader is valuable, but it's a tenuous thing, and it can be lost very fast. In the book I coauthored, Green to Gold, we open with two stories: one about Sony and environmental risk and the other about the money BP saved through carbon reductions. For years, the sustainability community has praised BP as best-in-class. In the 1990s, the CEO at the time, Lord John Browne, set BP on a path to go "beyond petroleum."

But over the last few years, BP has quietly reduced its investment in renewable energy to a negligible percentage of sales and profits. Under Hayward the focus has been on cutting costs, and the company has explicitly avoided talking about "green" initiatives in the media (give them credit at least for trying to reduce greenwash). Given the explosion of 2005 and this spill, it doesn't seem like much of a stretch to guess that the company has under-spent on safety.

BP nets about $20 billion a year. How much do you think BP should have spent on extra precautions and new clean-up technologies? Imagine if every well had a second, relief well nearly dug at all times. Expensive, yes, but so is the destruction of your reputation and business, not to mention an entire ecosystem.

The answer to how much BP, or any company, should spend to avoid these problems is somewhere between zero and how much the company is worth. Unfortunately for BP, that latter number is far smaller than it used to be.

[This post first appeared at Harvard Business Review Online]

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July 8, 2010

Stop Confusing Your Customers with Cognitive Dissonance

Alternate title: Why are All the Lights in My Hotel Room On?

I recently spent two nights at the lovely, high-end Westin hotel in Ft. Lauderdale, FL. Around my room I found the now-standard signs that describe how the hotel will save water and energy by not changing sheets and towels. These green messages say to customers figuratively, and often literally, "we care about the environment." So far so good. But when I first entered my room, every lamp and light in the place was on...plus two radios.

The cognitive dissonance of arriving at a room with every light blazing, and then being asked to hang a towel up to save energy, can cause even the most mildly environmentally aware customers some heartburn. But worse, this weird in-room disconnect betrays a corporate, internal conflict as well.

I truly don't mean to pick on Westin; the entire hospitality industry is guilty of similar dissonance. For example, who decided that the now-common "turn down" service was a good thing? Even if everyone wants a nice chocolate on their pillow, does anybody really need to come back to a room with lights ablaze and flat screen TV running? Frankly, the first few times I encountered this bizarre hotel practice, it scared the heck out of me since I thought I was walking into the wrong room. Now I leave the "Do Not Disturb" sign up when I leave. But I digress.

My reaction at the Westin was not just me being an overly watchful green strategy guy. One of my clients at the regular (as in non-sustainability themed) event I was speaking at told me that having to turn off all the lights bothered her as well.

I'm not crying "greenwash" here -- this kind of disconnect is much more subtle. I believe that hotels are basically sincere about the "we care" sheet-and-towel cards around the room. The big hotel chains (Westin is owned by Starwood) have been making strides to reduce their footprints. They all have environmental advocates and executives now. But it seems likely that policies about how to greet customers (leave the lights on) come out of some other part of the company.

Because of that organizational disconnect, the hotel is forcing its customers to face two conflicting messages, one conservation-oriented and one theoretically welcoming, but blatantly wasteful. In the spirit of making my stay comfortable, they've chosen a path that forced me to do some work - going around to flip everything off - and annoyed me immediately. Compare this with hotel rooms all over Europe (and a growing number in the U.S., including the Encore/Wynn in Las Vegas of all places) that install master control switches near the door. These handy devices can turn everything in the room off at once or, in their best incarnations, require a hotel keycard to turn anything on.

My point is this: companies need to work these inconsistencies out internally and not make customers wade through them. The number of people who would find the dissonance disconcerting is certainly growing, so the risk of alienating customers is rising as well.

These kinds of inconsistencies are not exclusive to hotels; they crop up everywhere. Consider the rental car companies that automatically "upgrade" you to an SUV, when you've specifically asked for an economy or hybrid car.

But one example from the restaurant industry seems particularly egregious. This past Sunday, the New York Times Magazine ran a chilling article about bluefin tuna, a majestic species driven to near extinction by our ever-rising demand for sushi-grade meat. As part of its campaign to tackle the crisis, the author Paul Greenberg says, Greenpeace has pressured high-profile restauranteurs, particularly the owners and chef of the famous Nobu, to find substitutes. Nobu has continued serving the tuna and responded to the pressure by merely adding what Greenberg describes as a "haiku-esque warning on the menus of its London eateries" which reads:

"Bluefin tuna
Is an environmentally threatened species
Please ask your server for an alternative."

Nobu seems to be saying, "We sort of care about environmental issues and the death of a species our business depends on, but not really enough to do the work for you, our valued customer -- so please make the decision for yourself."

This attempt to "abdicate responsibility" to customers, as Greenpeace's Willie MacKenzie put it, is absurd. It will likely make those customers uncomfortable at best, and really tick them off at worst.

It's inevitable that as organizations navigate the complex world of sustainability, they will experience some internal cognitive dissonance about how they operate. Nobody said it was easy to balance the competing forces of (a) the inertia of how things have always been done, (b) the desire to meet the assumed needs of customers (for, say, welcoming, well-lit rooms), and (c) new pressures and questions about environmental and social performance.

But forcing your customers to confront these choices or, worse, making them do the work themselves, is not a good option.

(This post first appeared at Harvard Business Online.)

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November 2, 2010

Are Green Marketers Still "Sinning"?

[Note: Below is the blog I posted at Harvard Business Online last week about Terrachoice's new "Sins of Greenwashing" report. It received some passionate commentary, particularly from friend and green marketing guru Jacquelyn Ottman. I've reposted her comment and my response below the blog. See also Joel Makower's excellent criticism of the report.]

The green marketing research firm Terrachoice released its annual "Sins of Greenwashing" study last Tuesday. I got a sneak peak on Monday and spoke with Scot Case, one of the key execs behind the report.

For the past few years, this study has been one of my favorite reviews of the pitfalls of green marketing. It's always a clever piece of analysis based on painstakingly assembled data about thousands of consumer products. This time their researchers explored 34 stores in Canada and the U.S. (from chains that have over 40,000 locations) and looked for any product that made a green claim — all while managing not to get arrested as they trolled store aisles for hours. They then counted how many products made any of seven mistakes, or "sins," that Terrachoice has previously identified.

Check out the report (page 10) for the exact definitions of the Seven Sins, but they include making claims that are vague ("all-natural"), having no proof (from, say, third-party certification), or stating irrelevant details (such as "CFC-free" on aerosol cans —the substance has been banned for 30 years).

This year's report is very well timed. The U.S. Federal Trade Commission just proposed changing its Green Guidelines, the standards for what marketers can legally say. The new, stricter rules are open for public comment (PDF) now. I'll be keeping a close eye on that story, but in the meantime I'll point out what I see as the key findings of the report. This report houses some of the best data on what marketers are trying to do and the pitfalls you should avoid. Here are the big picture findings:

1. The number of products making some kind of green claim is rising fast.
This year, Terrachoice cataloged 5,296 products. In just the two dozen stores it visited both in 2009 and 2010, the number rose from about 2,700 to 4,700, a 73% increase. Given the economic climate, this increase is particularly impressive. Because greener products are often considered to be (or actually are) more expensive, marketers would be forgiven for avoiding that pitch in a recession. Clearly there's a belief that consumer interest is still rising. (Side note: The overall increase in green claims has not gone unnoticed by certification and safety giant Underwriters Laboratory, which bought Terrachoice this year to help round out its UL Environment business.)

2. The vast majority of products with green claims are still committing at least one "sin"
In the first report in 2007, literally one product avoided all the sins. Terrachoice tries to put a positive spin on the new data, which shows a moderate increase of "sin-free" marketing. But the percentage of products that are still sinning remains very high at 95%. This level of greenwash, no matter how minor, leaves companies wide open to significant risk in the marketplace.

3. The mix of sins committed is shifting, and the sin of "worshipping false labels" is on the rise. An amazing 70% of these products now have no proof of their claims, and 31% go so far as to include some kind of label that looks like a third-party certification. As the report put it, "ease of access to false, completely meaningless eco-labels has become almost comical." The labeling world is much in flux and it's incredibly over-populated - the group EcoLabel Index is currently tracking more than 350 labels officially, and something like 600 in reality. Companies have to be very careful about this one - inventing your own label to make a claim is dangerous for the brand and could bring actual penalties.

4. The product and industry sectors with a longer track record of green marketing are doing better. Almost 30% of products in categories with a history of green claims, such as building and construction materials, include a legitimate certification (but still may sin in other ways). In newer categories such as toys, less than 15% include a certification. This finding bodes well for the future though, as companies learn and get more careful.

5. Claims about toxicity are on the rise, particularly in toys and baby products. A few years ago, nobody had heard of the chemical BPA or of phthalates. These substances help make plastics malleable or line the inside of canned goods, among other things. The focus on these chemicals, which may mimic hormones and screw up our endocrine system, has increased greatly. States and countries like Canada are banning the substances in kids' products. Not surprisingly, this year the number of products making "BPA-free" or "phthalate-free" claims rose 577% and 2,550% respectively.

Finally, the report comes to one interesting conclusion that I'm not sure I agree with. Larger retailers apparently have a lower percentage of sinning products than boutique and specialty green stores. Terrachoice uses that data to conclude that larger retailers are more trustworthy. But as far as I know, retailers are not really checking the product-level environmental claims that their suppliers make at this point. There are a number of initiatives in the works to provide some standards in the B2B world, the largest of which is the Sustainability Consortium, started by Wal-Mart. But none of these groups are close to rating or checking every product.

I believe that retailers, out of necessity from lack of data, are accepting the claims pretty much the same as consumers are. My explanation for the discrepancy that Terrachoice notes is that the bigger retailers carry a different product mix with more of the larger brand names that face more scrutiny and are thus more careful about claims. No matter what the reason, there are fewer false claims in larger stores. But even so, nearly every product surveyed made some mistake.

Luckily for business, these sins are not actually all that difficult to avoid. So take a good look at this report and explore some of the solutions offered by Terrachoice and in other guidelines — such as the Ogilvy & Mather greenwash guide I've discussed previously.

The standard marketers need to reach is not perfection, but speaking honestly about environmental impacts and not over-positioning the benefits (which is why it's sometimes hard for marketers to avoid). If you don't manage this communication well, you'll confuse your own customers and increase risk to the brand. On the up side, being known as an honest broker of green claims can only build loyalty. We all sin sometimes, but our products don't have to.

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Jacquie Ottman's Comments on HBR Online

“Sinning”, Really? “Painstaking” research, Really?

Andrew, you and I are friends and we usually see eye to eye on all things green, but I have to use my the little bully pulpit provided by this comment box to come clean on what I have long thought of this research —and it’s only been reinforced by Terrachoice’s new “Home and Family edition” (What is this, some type of board game?)

On his webinar Thursday afternoon, Scot MacDougal admitted his firm has not intended to be malicious in their use of the word “sins”. Ironically, however, this report is having the effect of maligning the entire green marketing-related industry—creating skeptics, even cynics, out of the press and consumers. (How many people, especially in the press, do you know who now use the terms “green marketing” and “greenwashing” interchangeably?)

The big issues here in my opinion are as follows. This research admittedly sheds light on some of the issues associated with making green claims in the current environment, but it isn’t close to being credible, “painstaking” research. Terrachoice are third parties themselves, but their research wasn’t even conducted by a respected third party — Roper, Gallup or even the guys in the suits with the briefcases on the academy awards— but probably a bunch of twenty somethings who don’t know beans more about green than the average Joe.

Macdougal also admits that he believes that most of the “sins” being committed today are likely to be inadvertent, the side effect of a fledging industry without self-regulation. Pity then, that this “research” is having the net effect of wiping out an important tool in a market-based economy loath to regulate consumer product manufacturers.

Any research that finds that 99.98% (or whatever astronomical percentage) of the world is not doing one thing or the other, in my experience, has set the bar too high; I can only surmise that Terrachoice, who has a stake in third party labeling, is likely on a witch hunt in self-interest.

The nerve of calling the world of largely well-intended marketers “sinners”! A 35-year marketing veteran, I understand the power of hyperbole —and most consumers do, too. However, as you pointed out in your April 2010 HBR blog post, most “sins” can be classified as mere missteps, and in my opinion, this is not surprising in a fledging market.

As reported, the number of green claims is rising fast, likely in response to consumer demand for greener products. Let’s hear it for a 2,550% increase in (hopefully legitimate) “phthalate-free-claims” to try to protect our children. Rather than maligning their activities and inviting the shackles of wary in-house counsel, let’s encourage this activity by first giving this growing group of green marketers credit for trying to make a difference. (Do you realize how many of these folks are putting their life savings on the line to support their efforts? One of my clients cashed in his entire IRA to support his fledging new green product.)

Let’s put the energy expended by and about this specious research to positive, not negative effect. Let’s work together to: fill in the gaps in what businesses can do to improve internally, perfect life cycle assessment and multi-attribute labeling schemes, certify industry professionals, work positively with FTC , NAD and other bodies to put out comprehensive guidelines and to enforce them, and celebrate the successes. Only by doing these things can we help green marketing live up to its promise of voluntarily skewing the marketplace to the genuinely greener goods and services.

Andrew, thanks for this post — and the opportunity to express my opinion on this. Our respective opinions won’t be agreed with by all, but hopefully airing them in this way, we’ll cause others to chime in, and ideally help trigger some positive change for our industry and economy.

------------------------------------
My response

Jacquie,
Thanks as always for your passion and strong opinions. While it may seem like it on the surface, i don't think we disagree that much. I have a few reactions/comments.

- I can't really comment on the quality of the research they've done -- i'm not sure why it's inherently lower-quality than Roper or Gallup. It seems like a fairly straightforward analysis, which i'm sure has flaws, but is directionally correct.

- I think I take the "sin" language a little lighter than you do. Terrachoice has always used this funny cartoon character, so I think it's meant to be a bit tongue-in-cheek. But, perhaps the "Goofs of Green Marketing" or something like that would be less judgment-laden.

-I’ve actually never heard someone say ‘greenwash’ interchangeably with ‘green marketing’ and I certainly don’t consider them the same. It’s like the difference between testimony and perjury. And I actually think there’s very little of what I would truly call ‘greenwash’ out there—outright lies or misrepresentation on purpose. Only one of the “Seven Sins” is that egregious, and it’s very rare.

- I certainly can't speak for Terrachoice at all, but for myself, and I certainly do not want to belittle or damage the green efforts companies are making, or their attempts to communicate with their customers. Going BPA or phthalate-free is a good thing, full stop.

But this is where I think reports like this are important. It’s because so many companies are working so hard and putting out mostly legitimate claims (even if they haven’t secured a third-party certification yet), that we need to be very careful about claims in general. One high-profile case of outright lies (like something that says it has no BPA, but does), and it casts the entire green marketing world in a bad light. For that reason, setting a very high bar which, yes, only 5% perhaps reach today, is appropriate. The number of claims is confusing to customers, so why not proceed with extreme caution and put fewer claims out there until every ‘i’ is dotted and ‘t’ crossed?

Overall, I’m certainly with you on your call to improve measurement, LCAs, and guidelines, and then make sure they’re enforced.

Thanks for your thoughts!

Andrew

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January 31, 2011

Wal-Mart Plays With Our Food

Every week, 140 million people — about the population of England and Germany combined — shop in a Wal-Mart store. Soon, all of these people will be eating healthier, and the environmental impact of their food will be lessened.

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That's because in recent months, the world's largest grocer (and company) has started to fundamentally change the food on its shelves. Wal-Mart's recent announcements continue a five-year campaign to green the supply chain, but they add in some interesting new twists as well. The entire agricultural sector, and everyone who, well, eats, will feel the ripples of these moves.

Some of Wal-Mart's initiatives increase profitability while hitting sustainability goals; for others, the societal benefits are real, but the business benefits are not as clear, at least on the surface.

Three initiatives in particular demonstrate a strategic focus on food sustainability.

(1) In October, Wal-Mart announced that it would double the amount of locally-sourced produce on its shelves. There's some legitimate debate about whether shortening distances alone really reduces the environmental footprint (a fascinating new study says that cutting back on meat is far more effective in lowering impact than buying local). But Wal-Mart says the initiative will reduce spoilage and increase shelf-life. Those changes, by reducing the total amount of food needed, will certainly reduce overall environmental impacts throughout the value chain.

As is the case with most of Wal-Mart's sustainability initiatives, this one fits the company's mission and strategy perfectly. It will reduce environmental impacts, but also reduce logistics and supply chain costs (in part because what's noticeably absent from this announcement is anything about increasing sales of organic food, which usually costs more). Wal-Mart can pass on these operating savings to customers, so it all fits nicely within the company's normal business model.

But some more recent announcements are not as clear-cut on the business side.

(2) Last week, Wal-Mart said it will both lower the prices of fruit and vegetables (saving customers $1 billion) and reduce the amount of saturated fat, sugar, and salt in its private label products. On the latter point, Wal-Mart was not the first to the table, with companies such as Kraft and Pepsi setting similar goals last year.

It's more of a stretch to fit this announcement neatly into a sustainable/profitable business framework. The sustainability benefits are real — on the green side, reducing ingredients like sugar should have sizable ripple effects up the supply chain in saved energy and water. The business benefits are in there also, but are fuzzier.

Improving health of course fits a social goal, but it also demonstrates caring for your customers, which can drive loyalty, sales, and brand value. It's also not purely cheeky to suggest that keeping your customers alive longer, and healthier, will help your bottom line.

(3) The third recent announcement falls much more clearly in the pure corporate social responsibility world. In a fascinating display of smart philanthropy, Wal-Mart is helping the hungry by helping food banks lower their energy bills. The company donated $2 million to 16 food banks to, in the company's words, "upgrade their lighting, refrigeration or heating and air conditioning with equipment that performs better, uses less energy and costs less to operate."

Wal-Mart estimates annual energy savings of $625,000, which will buy 300,000 more meals every year from now on. The $2 million donation is in reality dwarfed by Wal-Mart's own $2 billion of cash and in-kind donations to reduce hunger. But I hope that this extremely clever model of philanthropy — where you give a gift that keeps on giving — will take hold even more. Lowering the footprint and operating costs for non-profits is pure win-win.

In short, as is always the case, sustainability initiatives do not fit neatly into one box within a company. Are they for social good or to make money? The answer is, invariably, yes. Again, pressing its supply chain to do more, faster, is what Wal-Mart has always done, but in recent years the pressure has been focused on sustainability. All these food initiatives expand on that approach, but also show Wal-Mart "walking the walk" and finding opportunities for smart philanthropy to round out the story. It's a robust strategy for covering many angles on the sustainable food movement.

The benefits to all possible bottom lines are substantial. If Wal-Mart and the other companies in its supply chain succeed in reducing fat, sugar, and salt in food; improving access to food for the poor; and sourcing it locally and using less energy to do so, both the planet and its inhabitants will be healthier.

(This post first appeared at Harvard Business Online.)

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May 1, 2011

Consumers Never Liked to Pay More for Green to Begin With

A week ago, the New York Times breathlessly declared in a cover story that during the recession, "As Consumers Cut Spending, 'Green' Products Lose Allure." It's a nice headline and makes it sound like the green product and business movement is in trouble. But the story, while interesting, doesn't really change the reality for business.

First, consumers never liked to pay more for green and, second, consumer pressure is not the biggest force driving the greening of business.

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Here's the story. The Times piece focuses on the rise and (sort of) fall of Clorox' Green Works cleaning products. Launched with much fanfare in 2008, Green Works quickly became the biggest player in the niche green cleaning space, hitting $100 million in sales before falling to $60 million in the recession (which is still a very respectable number in this market space). The Times crows that "As recession gripped the country, the consumer's love affair with green products, from recycled toilet paper to organic foods to hybrid cars, faded like a bad infatuation." So green products are on their way out, right?

Not quite.

First, as the next sentence points out, "sales at farmers' markets and Prius sales are humming along now" (fyi, Prius sales jumped 70% in February as oil prices rose). So two of the three categories the Times uses to make its point are actually growing, not fading.

Second, at the end of the article, a fascinating chart shows the "green share" of household products holding steady at about 2 percent over the last few years. The conventional brands like Clorox have flattened out — even as Clorox sales dipped, the total number of entrants has continued to grow. The niche brands, such as Method and Seventh Generation, have continued to nibble away at market share and actually grew during the recession.

To the extent that the premium-priced green products named by the Times have taken a hit, consumers' disdain isn't news: Recession or not, mass consumers never loved paying extra for green.

Asking people to pay more for green is usually doomed. Green has always been most effective as the "3rd button" (as my co-author and I called it in our book Green to Gold) to press in marketing pitches, after price and quality. The Prius is the premium-priced exception that does not disprove the rule. It's is a special case, since the purchase confers a range of emotional and value-laden benefits that household products just don't have (critics call the pride of ownership smugness — and, yes, I own one).

Therefore, in the trenches of consumer product development, the real story is the pursuit of more sustainable products that, as P&G execs say, create "no tradeoffs" for customers. Why ask people to pay more?

As more companies present green products at no additional cost, Wal-Mart and others will be happy to give them more shelf space, because what's really happening with consumers is subtler than a supposedly fading infatuation with green. As the Times story indicates, there is no rise in the percentage of "true green" consumers who will pay more for sustainable products. But there is a serious rise in the number of so-called "conflicted" or "conscious" consumers, which has been building for years. These buyers, which are quickly becoming the majority of consumers, not a niche segment, want it all. They demand more sustainable products at the same or lower price. The last sentence of the Times article actually captures this phenomenon:

"Sarah Pooler, 55, said she did not normally buy green products but would pick them up if they were on sale...'Bottom line, if it's green and it's a good deal, I'll buy it', said Ms. Pooler.

And so the race is still on to provide green products at the same price and quality.

But exactly because Ms. Pooler and millions of other buyers are still waiting for that price equality, I would argue that what is and has been driving the greening of business is not consumer pressure but a mix macro-level forces and operational sustainability success stories, the countless examples of reduced packaging, lowered toxicity, and condensed versions of products(in detergents for example) that save shelf space and tons of energy in shipping and storage.

At the macro level, the greening of products and companies is accelerating because the sustainability drivers are only getting stronger. Rising resource prices, ever-increasing transparency demands about what's in every product, and continuing pressure up the supply chain from business customers are just a few of the big forces.

Does anyone in the consumer product space seriously think Wal-Mart (and other retailers) will stop demanding sustainability-driven operational and product changes just because of the recession? On the contrary, the need to lower costs in the face of rising commodity prices is making eco-efficiency even more economic.

So even if consumers develop fickle infatuations with certain products, the business world is clearly developing a deep, abiding love of — or at least growing respect for — the power of sustainability.

(This post first appeared at Harvard Business Online.)

June 21, 2011

Nissan (Finally) Gets the Pitch Right on the Leaf

As a car, the all-electric Nissan Leaf has received mostly great reviews. But as a positioning statement, Nissan has, in many marketers' eyes, missed the boat. After some missteps, Nissan may now be on the right path. An ad I pulled from Fast Company recently hits all the right marks.

The debate — or more accurately criticism — began last year with a now infamous ad showing a polar bear lugging himself from the Arctic to some guy's suburban driveway to hug him for buying a Leaf. The ad was gorgeous, no doubt, and the YouTube version has been viewed 1.3 million times, which isn't bad. But some green marketing leaders, such as Jacquie Ottman, found it a bit heavy-handed and way too focused on the hyper-green benefits vs. driving experience.

But even before getting to ads, some have pointed out that the name itself is a problem. A "Leaf" doesn't exactly speak to the same part of the male brain that car ads usally target — the caveman lobe that asks, "How will this car make me sexy and powerful?".

As one ad agency exec with a specialty in green marketing told me, "What guy is going to the pub and saying, 'Hey, I test drove a Leaf'?" As she pointed out, the print ads have focused on images like seals and kelp — it's basically the worst of green marketing, "like it's packaged in burlap."

Instead, experts suggest that the Leaf should be positioned in a much more exciting way, as the first electric car for the masses and a true innovation. This, Nissan could trumpet, is a new era of mobility!

So skip to the latest print ad, in which Nissan does something new. A fascinating, colorful graphic shows different cars on a spectrum of fuel efficiency. The axis is not, however, miles per gallon, but "miles traveled for one dollar." As the ad says in small print: "comparing miles per gallon is suddenly irrelevant."

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The traditional mpg metric has always been really odd: who thinks that way? And the government has had a devil of a time plugging (forgive me) electric cars into their normal rating system. What the heck does miles per gallon mean if you use no gallons?

But showing how far I can go for each dollar I spend? Now that's dead on. This is brilliant marketing, in tight economic times or at any time. Nissan has declared a new metric for a completely new model of transportation. Bravo.

(This post first appeared at Harvard Business Online.)

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July 6, 2011

A Swedish Burger Chain Says "Minimize Me"

Last week I wrote about how eating less meat was the best way to reduce your food's carbon footprint. But what do you do if you want to be a responsible corporate citizen and you sell fast food? Well, I think your company would look a lot like Max Burgers, based in Sweden.

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I recently spoke to Richard Bergfors, the CEO (and son of the founders) of this unusual 44-year-old "fast" food chain. With 3000 employees and about $200 million in revenue, Max Burgers is a great example of how a midsize company can carve out a profitable niche through a focus on sustainability — even in an unexpected sector.

In 2000, the company set a new strategy focused on the word "fresh." The leaders looked closely at every ingredient and reduced fat, salt, and sugar, and eliminated genetically modified organisms (GMOs) and trans fats. The menu got healthier, with multiple side options besides fries, 10 drinks with no added sugar, and a selection of darker, healthier breads. The company now sources 100% of its beef and chicken — and 90% of all its product — locally.

To explore its broader climate impact, the firm started working with Swedish thought leaders Natural Step, which, not surprisingly, identified beef as the biggest problem for the company (80 to 85 percent of the footprint). Bergfors acknowledges that industry-wide climate-friendly beef is still a long way off, so Max Burgers plants trees in Africa to offset its carbon footprint. New stores also use solar panels for 15 to 20 percent of electric needs.

But perhaps the most surprising thing this company does is try to influence its customers to buy less meat. Quick reminder: the chain is called Max Burgers. This counterintuitive strategy is the kind of heresy I love — asking customers to use less of your core product. Max Burgers accomplishes this by adding more non-meat items to the menu, prominently displaying climate footprint data in store (there's transparency for you), and suggesting customers buy chicken, fish, or veggie sandwiches periodically (a là Meatless Mondays).

In 2004, a golden marketing opportunity came along with the launch of the documentary Supersize Me, which followed director Morgan Spurlock as he ate only McDonald's food for 30 days. Max Burgers decided to launch a tongue-in-cheek "Minimize Me" campaign. A customer, much like Subway's famous Jared, ate only Max Burgers for 90 days and lost 77 pounds. Two years later, the company re-ran the promotion with multiple people competing on the Max-only diet.

The result of all these efforts is a more sustainable burger chain that's telling everyone to eat less meat, and doing so profitably. The mix of non-beef products is 30% higher than it used to be. But the profit margins are very high.

Bergfors reports that his stores are averaging 11 to 15 percent profit margins versus 2 to 5 percent at the big name competitors. He says Max Burgers is the most profitable, fastest growing chain in Sweden, expanding at 20% per year (and 5% same store sales growth) in a flat market. Granted, higher-end niche brands generally do have higher margins, but this is not an overly small company, and it doesn't seem to be sacrificing anything with its "minimize me" strategy — quite the contrary.

Of course a family run company always has more leeway to act on values (see Patagonia, the prime example). As Bergfors told me, "we've always done things a bit differently — the goal is greater than to just maximize profit." But it's still a business, and in the next breath he said, "we're profit driven and like to make a profit like everyone else...but we don't put profit first...we don't have to maximize profit and we can care for people and the planet we're living on."

But given Max Burgers' profit levels, it seems that maximizing all value, not just profits, can be darn good business.

(This post first appeared at Harvard Business Online.)

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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.

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

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

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

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

But Apple too should be doing far more.

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

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

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

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

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

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

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

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

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

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

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

(This post first appeared at Harvard Business Online.)

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February 10, 2012

Walmart Broadens the ROI for Green Power

At the recent GreenBiz Forum in New York, I was surprised by an on-stage interview with Fred Bedore, an executive from Walmart. I've followed the greening of the retail giant fairly closely for years, so I wasn't expecting a lot of new information from Bedore, Walmart's Senior Director of Business Strategy and Sustainability.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(This post first appeared at Harvard Business Online.)

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December 22, 2012

Top 10 Sustainable Business Stories of 2012

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

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

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

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

Macro Trends

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

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

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

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

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

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

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

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

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

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

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

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

Company Stories

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

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

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

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

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

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

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

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

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

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

Five Questions For 2013

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

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

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

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

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

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

So many stories, so little time... on to 2013. Happy holidays and have a safe and wonderful New Year!

(This post first appeared at Harvard Business Online.)

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

March 7, 2014

CVS Gave Up Tobacco -- Could Fossil Fuels Be the Next to Go?

The recent decision by drugstore giant CVS to stop selling tobaccoreceived a great deal of attention, as it should. It's a big deal when a US-based, public company chooses to stop selling something.

No_smoking_sign.jpg

Some have downplayed the move, calling the $2bn in lost sales "a mere dent" in the company's $123bn in revenues. But I challenge anyone to walk into their bosses' office at a big, publicly held company and say, "Hey, let's cut a couple billion from our revenue on purpose." The choice that CVS made, in a culture of relentless pressure on short-term earnings, was brave – full stop.

As others have pointed out, it was also a logical decision that was likely good for the business.

The free publicity alone was worth a great deal. And the goodwill from many customers should pay off. I realize my family makes an unscientific focus group, but when the decision was announced, my wife said: "We really should go to CVS more and give them some business." I went to a CVS that day.

More strategically, a couple of key questions come to mind. First, why did CVS do this? Perhaps they'll just save money. After all, Target stopped selling tobacco in 1996 to cut costs (from reduced shoplifting and anti-theft measures).

But I'm inclined to take CVS at face value. Here's what Larry Merlo, CVS' CEO, said about the company's core mission to provide health services: "Cigarettes and providing healthcare just don't go together."

That indicates this was a strategic decision about the future of the company. Still brave, but logical. It's a great example of what I call a big pivot – a fundamental shift in strategy and tactics to deal with some big shifts in how the world works. I usually focus more on climate changeand resource constraints as drivers of change, but health and wellness issues are extremely large forces to reorganize a company around as well.

The second big question is, what's next? What other items on CVS shelves don't fit the health care focus? Several columns in the Guardian – as well as The Boston Globe – call out the candy, soda and other fatty or sugary snacks still on offer.

It's worth considering, in a larger sense, the things many companies are doing today that don't fit with their missions. Does it make sense, for example, for companies that rely heavily on a robust middle class to fight a raise in minimum wages? A century ago, Henry Ford raised wages so more people could afford cars. And on Wednesday, apparel retailer Gap announced it would pay its employees more, raising its minimum hourly rate.

How about the use of fossil fuels in business? It may seem like a leap, but for many companies and organizations, using, supporting, and investing in climate-changing fuels goes against their missions. For CVS, we could ask, what's "healthy" about fuels that generate air pollution, which increases asthma and heart attacks, or that destabilize the climate and drive extreme weather that threatens public well being?

We can look at many stated visions for organizations and ask whether fossil fuels fit. Take Walmart's "Save money, live better" slogan. We're clearly not going to be living better with extreme weather, droughts and floods.

To Walmart's credit, the company is buying significant quantities of renewable energy (not as high a percentage of its energy use a few other retailers, such as Ikea, but still a quickly growing one). At the company's quarterly milestone meeting this week, it announced that 1,300 of its stores use renewables and Walmart de Mexico is now getting 60% of its energy from clean sources.

The company makes the case in mainly financial terms, saying it's paying less for energy, or by citing the resilience benefits. Those are great reasons, but a mission check might drive even faster adoption of new technologies.

Or consider the universities under pressure to divest from fossil fuels. Most recently, Harvard and Brown resisted calls to divest. They made seemingly well reasoned arguments: they have other means to effect change, their investment portfolios aren't so large as to influence the markets, and there may be hypocrisy in relying on fossil fuels to operate while de-investing.

A recent piece in The Nation makes a number of strong counter arguments, including the basic fact that climate change already disrupts university operations. For example, Tulane in New Orleans had to shut down for months after Hurricane Katrina.

But perhaps the most powerful argument is that climate change threatens a core mission of a university, preparing students for the world, by changing the world irrevocably. This means the universities may be training a generation for the wrong reality.

I recently wrote about three possible paths to getting us off of fossil fuels– government regulation, economics (as renewables get cheaper) and moral pressure. But there may be an important additional pathway that we can see at play in the tobacco example: changing cultural norms. Perhaps CVS has decided, about 50 years after the Mad Men era when everyone smoked, that it's just not cool anymore.

So who's going to be brave enough to say no to fossil fuels, without couching it in economic or business-case terms? Who will state clearly that this kind of energy no longer fits with what we want to be?

(This post first appeared on the Guardian Sustainable Business hub.)

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