Some of us believe environmental sustainability can be a central element of the revival of the American economy. Some think this idea is mushy-headed, idealistic nonsense that should be rejected by hard-nosed business leaders. Wal-Mart, perhaps the best-known example of a company that has done well by doing good, provides evidence of how green business can lead to greenbacks.
After the retail giant’s reputation took a hit, first for not providing employees with enough benefits and then from environmental groups that accused the corporation of polluting, CEO H. Lee Scott Jr. set about transforming the company’s image. His mission: remake Wal-Mart into an environmentally conscious corporation.
Management decided to stock Wal-Mart shelves with energy efficient light bulbs, concentrated liquid laundry detergent and other products labeled as sustainable. New products involved less packaging, and the retailer’s fleet of trucks now operates with improved fuel efficiency thanks to new loading techniques that make better use of space.
According to a January 24 article in the New York Times, “Wal-Mart now saves $3.5 million a year just by recycling loose plastic and selling it to processors.”
Wal-Mart’s new ethos came out further in that article, which included a quotation from Scott speaking in January to members of the National Retail Federation: “As businesses, we have a responsibility to society … Let me be clear about this point. There is no conflict between delivering value to shareholders, and helping solve bigger societal problems.”
Improving Wal-Mart’s reputation has extended beyond its own profit margin. By placing environmentally friendly products on its shelves over other, less sustainable goods, it has pressured suppliers such as General Electric to rethink their product lines too. “There was a time where people in business believed all they had to do was run their business,” The Times quoted former Wal-Mart CEO David D. Glass as saying. “But it doesn’t work that way anymore. There is an accountability that goes way beyond that.”
According to Steven Hamburg, chief scientist at the Environmental Defense Fund, “We need to recognize that there’s more than one measure in the success of a corporation.” Also the author of a 1994 report criticizing Wal-Mart’s environmental efforts, Hamberg said a corporation must rate its operations along three metrics: 1) financial success; 2) carbon and energy savings; and 3) the ability to achieve social goals. “These multiple metrics make economic sense,” he noted. “The key is to take an integrated approach to changing the way we do business.”
As for corporate concerns that selling long-lasting sustainable goods will reduce revenues, Hamburg said in fact, Wal-Mart is likely to benefit from transitioning to products that operate more efficiently. These goods allow Wal-Mart to grab a larger part of the market share, while products that have less packaging take up less shelf space, allowing retail stores to stock other goods in their place. Then there are the cost savings. Customers may buy fewer light bulbs, but that means they have more money in their pockets, and Hamburg says Wal-Mart is likely to see those savings come back in other ways.
Companies such as McDonalds and PepsiCo also are adding sustainability principles to their routine business operations. The Lenfest Center for Sustainable Energy at Columbia University’s Earth Institute has been helping Pepsi measure and reduce its carbon footprint on products like Tropicana Orange Juice and Gatorade.
While it’s true some of this push toward environmentalism is clearly public relations, many companies are starting to see resource conservation and waste reduction as simply sound business practices.
In many respects, receptivity to these ideas goes back to the quality management principles companies such as Wal-Mart, GE and many Japanese companies adopted in the later part of the twentieth century. Sustainability is a natural extension of that long-standing effort to reduce waste and rationalize production. Total Quality Management and environmental sustainability share an abhorrence of waste and overly short term perspectives in business and production.
Not only are major corporations using sustainability principles to revive their bottom line, the new administration is hoping to use these ideas to revive America’s now dormant economy. As mentioned in an earlier piece, a number of elements of the Obama administration’s economic stimulus package would facilitate the development of a green economy. The $819 billion stimulus package passed by the House last Wednesday set aside $18.5 for energy efficiency and renewable energy, including $2 billion for research and development, $6.2 billion for building weatherization programs, $1 billion to support workers training programs in green job generation. A focus on innovative, renewable technologies appears in both the House and Senate bills, which could reach as high as $900 billion.
If you take even a middle-range perspective, it is obvious that an economy based on less waste and more renewable resources will be more efficient. However, the business world tends to operate on quarterly cycles and government typically focuses on the next election. The “realists” that run our world may not be that interested in the longer term focus sustainability management requires. When one looks society-wide, over an extended period of time there is no trade off between economic growth and environmental protection. However, a particular business at a particular point of time may find that such a trade off is quite real. It is government’s job to change the incentive system – largely through tax deductions and credits – so that businesses can make the investments needed to reduce waste and consumption. Larger companies like GE, PepsiCo and Wal-Mart have the resources to do this on their own, but many smaller companies and even smaller local governments cannot do this without financial assistance. Public policy is required to provide the means to move toward sustainability.
In the long run, we will only succeed if sustainability principles become the norm, as routine as best accounting practices or the use of computers in the workplace. It will simply take its place along side other best management practices and principles. We’ll know we’re getting there when you start describing sustainability principles to a manager and she says, “Oh, that’s just the way we do business around here. It’s nothing special….”