By Malcolm Fox
Oct. 28, 2010
Historically, the field of sustainability combined corporate philanthropy, environmental regulatory compliance and best practices. These programs collectively served to improve brand image, manage risk and control costs, but they were largely noncore activities. Today, we are in the midst of a dynamic transition to a new, green economy, in which environmental and social considerations are becoming fully aligned as key components of corporate strategy.
With challenges as significant as climate change or water security, failure to assess and manage these risks can result in severe and sometimes crippling competitive pressures. On a positive note, mid- to long-term growth rates for many green goods and services often fall in the 10 to 30 percent range, and sometimes higher. Sustainability can be viewed as a powerful driving force for innovation and continued growth.
How should businesses navigate this new economy and go green? An effective first step is to recognize that sustainability represents a series of tools that can create value for a company beyond the obvious and traditional. If you look at your activities – supply, human resources, manufacturing, sales, etc. – through a green window, you will see unexpected risks and untapped opportunities. Green products can differentiate you in the marketplace, build brand loyalty and add pricing power. Sustainable operations can save money, but they can also attract and help retain the most desirable employees. Reducing your reliance on carbon-intensive assets or high-environmental-impact supplies can help insulate you from future regulatory and legal risks; green leadership can be viewed by the financial community as a proxy for sound and progressive management, attracting investment dollars and possibly lowering the cost of capital.
It may be advantageous to promote any green attributes of your existing product and service offerings. There are at least three types of green innovations, green versions, green alternatives and green solutions. While it’s hard to generalize, each carries with it unique marketplace dynamics.
Green versions of existing products, such as those with improved energy efficiencies or lower harmful chemical content, tend to attract less price-sensitive buyers, support pricing premiums and require limited investments.
Green alternatives for existing products, such as hybrid cars, tend to attract new customers and require more investment. They can be category killers by eroding margins and market share of non-green products.
Green solutions represent both the greatest risk and return – providing new solutions to our sustainability challenges in new product categories. New companies (and industries) are being built in fields such as carbon sequestration and energy storage. These firms will become household names in 10 years.
Green product developments are intended to promote the transition to a future of sustainable production and consumption. This requires that the market be provided with both green products and accurate, reliable information about their environmental or social peformance. Without this data, consumers and to a lesser degree business customers, will not be sufficiently informed to make educated purchasing decisions.
What's to prevent companies from making unfounded green claims (green washing)? Very little at present. In fact, greenwashing has been show to confuse the marketplace and to impede the market penetration of verifiably green goods and services.
Measuring sustainability and validating sustainability claims remains a great challenge, involving subjectivity as well as developing science, particularly when more than one attribute is being considered. (How do energy savings compare with toxic chemical reductions?) Second, there are currently hundreds of ecolabels on the market, many in each product category and some with questionable claims that serve to promote confusion and skepticism among consumers. Third, even well-meaning, multinational corporations have been known to make mistakes and there is, of course, some fraud and deception.
In the U.S., the Federal Trade Commission recently proposed clarifications to its green marketing guides to combat this and to ensure claims of organic, recyclability, etc. can be supported. It has been shown that the most valuable marketplace green claims are supported by consensus-based standards, and having those claims certified by an independent, accredited certification organization.
Finally, in this brief review, going green introduces an interesting dynamic into many businesses. By definition, the complexity of environmental and social issues extends the traditional definition of stakeholders from suppliers, customers, employees, regulators, shareholders, bankers, etc., to encompass humans, ecosystems and even future generations. This is a tension-filled perspective for many organizations – and their owners. Successful firms will accelerate their engagement as evidenced by the growth of broad-based social responsibility reports and increased participation in the health and welfare of the natural systems that support their commercial activities.
Considering the green market drivers, it’s clear that tomorrow’s successful companies will be those that demonstrate leadership today by minimizing unsustainable production and embracing the opportunities for value creation in a resource-constrained world.
Malcolm Fox is Director of Sustainability at NSF International. NSF International is an Ann Arbor, Mich.-based, independent nonprofit which pursues its public health and safety mission by developing consensus, American National Standards and providing independent testing, inspection and certification services in sustainability and related health and safety. He can be contacted at mfox@nsf.org or visit www.nsfsustainability.org.