Notwithstanding the present economic situation, environmental
issues are a top concern of corporate executives. Every day seems
to be Earth Day in the nation’s boardrooms.
The motivation for this corporate behavior is, for
understandable reasons, mixed. It involves anticipating or
preempting future regulatory action, mitigating liabilities,
reducing costs, maintaining customer goodwill and brand integrity,
recruitment of the best and the brightest employees and enhancing
profit margins through development of new services and
products.
The late Peter Drucker Peter Drucker , the dean of management consulting,
argued in his book Managing in a Time of Great Change
(1995) that “a business that does not show a profit at least equal
to its cost of capital is irresponsible; it wastes society’s
resources.” He also believed that “every organization must assume
full responsibility for its impact on employees, the environment,
customers, and whomever or whatever it touches.”
Nobel Laureate economist Milton Friedman argued that such social
concerns were contrary to the primary function of business. The
title of his famous 1970 article in the New York Times Magazine
was “The Social Responsibility of Business Is to Increase Its
Profits.” He believed the duty to maximize profits was the essence
of the fiduciary obligation owed to stockholders. He did, however,
recognize the imperative to obey the law and “ethical custom.”
Arguably, the “ethical custom” which Friedman noted has changed
over the last four decades. Certainly, the laws have.
Social and political realities as well as the beliefs and
behaviors of customers and even stockholders, both individual and
institutional, are driving companies to be greener and cleaner
whether they like it or not. The market and society appear to be
demanding this behavior.
Forest L. Reinhardt, professor at the Harvard Business School,
argues that one reason firms pursue “corporate social responsibility” or CSR is for
risk-management considerations, i.e., “the social license to
operate” under limited liability protections accorded to firms by
society.
FOR SEVERAL YEARS NOW companies such as DuPont, GE, Dow,
Anheuser-Busch, Wal-Mart, S.C. Johnson and many others have been
developing and implementing environmental policies, products, and
services. This Earth Day finds more and more companies traveling
the same path.
Google, Inc., a voracious user of power, expects to spend tens
of millions of dollars this year on research, development and
related investments for renewable energy such as solar, wind and
geothermal energy with a goal of producing 1 gigawatt, enough to
power San Francisco (MarketWatch.com, November 27, 2007). It calls
the program “Renewable Energy Cheaper Than Coal” and hopes to meet
its goal “in years, not decades.”
Marriott International is
pledging $2 million to protect 1.4 million acres of the
Brazilian rain forest while inviting guests to offset hotel stays
with contributions to the cause. The inn keeper is also furnishing
rooms with 47 million Bic pens made from preconsumer recycled
plastic, committing to reducing fuel and water consumption by 25
percent “per available room” within the decade, installing solar
power in 40 hotels, and extending recycling to in-room guest trash.
Ninety percent of Marriott hotels already recycle.
Marriott will buy one million “room-ready” towels, which will
eliminate an initial wash cycle, saving 6 million gallons of water
a year. It also seeks to migrate to recyclable carpets, compostable
key cards, and “green meetings” to increase recycling and minimize
packaging.
Enterprise Rent-A-Car, the nation’s largest car rental company,
is putting its foot in environmental waters by opening four “green branches” in Atlanta with 60
percent hybrid or other fuel-efficient models. However, it will
cost customers an extra $5 to $15 a day for a hybrid. Presently, it
only has 4,000 such vehicles out of a fleet of 1.1 million.
Hertz Global Holdings Inc. has spent $68 million to add 3,500
Toyota Prius hybrids by this summer, and Avis now offers 2,500
hybrids.
Xerox has reduced its greenhouse gases (GHG) by 18 percent
since 2002 by cutting emissions from cars and improving building
equipment, thus exceeding its goal six years in advance. It is now
stretching to reach a new target, a 25 percent decrease by
2012.
XEROX IS JUST ONE OF many companies that, for a variety of reasons,
are anticipating customer and regulatory pressure, abroad and at
home, and going on a carbon diet. This pressure will increase with
a new president in the White House. All three candidates support
various “cap-and-trade” bills to control GHG emissions.
American firms have been making steady progress in reducing GHG emissions relative to
the nation’s economic growth. Overall emissions have grown by 16
percent from 1990 to 2005, while the U.S. economy has grown 55
percent over the same period.
Boeing’s new 787 Dreamliner jet, unveiled last July, is selling briskly due in part to its environmental
and fuel efficiency features. It is the world’s first large
commercial airplane made mostly of lightweight carbon-fiber
composites and a lot less aluminum. Quieter on takeoffs and
landings, it uses 20 percent less fuel and carbon than any previous
commercial jet and consumes about one gallon of fuel, per seat, per
100 miles of travel. According to Boeing, this is less than a
typical sedan and a half to a third that of an SUV.
Even the publishing world is getting into the environmental
game. In 2006 Random House announced its intention to increase its
use of recycled paper tenfold. Recently, Simon & Schuster
announced plans to eliminate the use of paper with fiber
from endangered and old-growth forest areas. By 2012 the company
wants at least 10 percent of its purchased paper to be derived from
forests certified by the Forest Stewardship Council (FCS), a third
party which verifies sustainable forestry practices in the
field.
Thomas Nelson, Inc., has published a Bible consisting of only
recycled and FCS-approved paper.
Coca-Cola Co., a business in which water supply and quality are
of paramount concern, has articulated its goal to become “water neutral” through
water recycling, reuse and treatment. It is donating $20 million to
the World Wildlife Fund to assist the company in its water
conservation efforts in seven major river basins around the world
and to verify the program’s progress.
The Wall Street Journal (June 6, 2007) quoted E.
Neville Isdell, the company’s chair and chief executive, as saying
that while the water efficiency program could well produce savings,
the company’s goals are primarily about preserving goodwill. “If we
do not act responsibly, society will not give us the social license
to continue to operate,” said Mr. Isdell.
Over the previous five years, Coca-Cola cut its water usage to
2.5 liters for every liter of final product, down from 3.1
liters.
ENTREPRENEURS AND VENTURE CAPITALISTS are starting to move into the
environment in a very big way. In the first nine months of 2007
alone, U.S. venture capital firms invested a record $2.6 billion in clean
technology — a 46 percent jump compared to the $1.8 billion
invested in all of 2006.
The Economist of March 1 ran a story entitled, “From
geeks to greens,” which described how executives are switching from
the computer industry to clean-technology firms. The article
described how several high-flying executives shifted toward
greenery. Elon Musk, a co-founder of PayPal, is now chairman of
Tesla Motors, an electric-car start-up.
Evidently, there are elements in common between solar panels and
microchips. An early successful venture in the new green world is
SunPower, a solar-energy firm spun out of Cypress Semiconductor. As
of March its stock market value was nearly $6 billion.
Making money and creating incentives for environmentally
friendly behavior is a theme running through many corporate
initiatives. Coca-Cola recently invested $2 million in a startup called
RecycleBank, with hopes of “turning trash into cash.”
RecycleBank was the brainchild of Ron Gonen, its
thirty-something chief executive who came up with the idea while
studying for an MBA at Columbia.
Basically, RecycleBank signs up customers who receive a special
container embedded with a computer chip. According to
Fortune magazine’s Marc Gunther, “every time the recycling
truck comes for a pickup, it records the weight of the bin and
transmits it wirelessly to an online account. Homeowners accrue up
to $35 worth of credits a month based on the amount of recycling
they do.”
These credits can be turned into coupons redeemable at more than
300 retailers including Starbucks, Whole Foods and Rite Aid.
“So the homeowners save money, cities save money as disposal
costs go down and Recycle Bank wins by collecting a share of the
cities savings,” says Gunther.
RecycleBank serves over a 100,000 customers in Pennsylvania, New
Jersey and Delaware. In Wilmington 90 percent of residents reduced
garbage going into the landfill by 40 percent. With “tipping fees”
at $70 a ton, that yields of savings of $800,000, half of which the
city shares with RecycleBank.
This Earth Day finds many more companies moving into a wide
variety of environmental services, products and markets. It seems
to be worth their while thus encouraging more of the same.
Incentives matter: this is a fundamental principle of free market environmentalism.
Making money through the provision of environmental amenities
creates powerful motivation for conservation and cleaner
technologies to the benefit of all.
