The Power of Green
John Manno
Before launching its green works line of natural cleaners in January 2008, The Clorox Co. (CLX) says, it did a lot of homework. It researched the price, availability, brand recognition and effectiveness of the various eco-friendly cleaning products already on the market, the company explains. It also says it poured more than $20 million into the development of what was to be the first new Clorox brand in 20 years. As CEO Don Knauss noted at the time, Clorox set a 10 percent to 15 percent premium on Green Works prices to offset the cost of raw materials. By the end of 2008, the Oakland-based company says, it had scrubbed its way to a 42 percent share in the market for natural cleaners. “Until recently, many environmentally conscious folks wouldn’t touch a mainstream Clorox product, but Green Works has been flying off the shelf,” says Mark Lee, CEO of SustainAbility, a London-based consultancy.
Clorox says it marked Green Works’ first anniversary with a new product, biodegradable Natural Compostable Cleaning Wipes, and followed up with natural laundry detergent and stain remover. Clorox also made a $470,000 contribution to the Sierra Club based on 2008 calendar-year sales.
The Green Works story highlights the enormous new-business potential of corporate initiatives designed to address emerging consumer needs. For years, Lee and other experts say, companies viewed sustainable measures as a burden, but now, seeing that these efforts can produce a significant return on investment — while at the same time improving a company’s public image — a growing number of corporations are embracing eco-friendliness as a business opportunity.
Although sustainable practices are strongest among consumer goods companies, the trend extends into industries once considered by definition detrimental to the environment, says Ram Nidumolu, founder and CEO of InnovaStrat, a California-based firm that assists companies in designing and executing business strategies rooted in sustainability. Leading manufacturing, transportation and tech companies, for instance, are successfully investing in the greening of their products and practices, he adds.
Establishing sustainable practices and products — once seen as an obligation — is now boosting the bottom lines of some of the world’s largest companies.
An example is Caterpillar Inc. (CAT) — the world’s largest manufacturer of earth-moving equipment based on revenues — which identified sustainable development as a key priority in 2004, shortly after Jim Owens took over as CEO of the 84-year-old Peoria, Ill.-based company, says Doug Oberhelman, Caterpillar group president in charge of sustainability. The company generated much of its 2008 revenues of $51 billion by selling its “yellow iron” to the mining, construction and oil extraction industries, according to company earnings reports. Cat began its sustainability efforts by first looking at all phases of its operations, including energy, water use and emissions, adds Oberhelman, who last October was named Caterpillar’s next CEO, effective July 2010. Still, it took Caterpillar several years to move beyond mere cost saving and government compliance, according to the company. “In the early days of this ‘sustainable development’ moniker,” Oberhelman says, “it was not well understood. In some cases, it was viewed as a measurement exercise as opposed to a ‘How do we make money out of this?’”
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“Focusing on the positive benefits is very different from treating sustainability strictly as a cost-identification exercise,” Oberhelman explains. “Once an organization reaches a point — and we did about two or three years ago — when engineers were thinking specifically about designing products to minimize their impact on the environment, it can unleash tremendous business potential.”
A case in point was Caterpillar’s rollout last spring of its D7E tractor, the first bulldozer with an all-electric drivetrain, according to the company. It reports that the D7E is up to 30 percent more fuel efficient than previous models, has 60 percent fewer moving parts (no clutches or belts) and requires less fluid to operate. Caterpillar believes demand for the D7E will be strong given its innovative design. In the meantime, the D7E has earned the U.S. Environmental Protection Agency’s Clean Air Excellence Award. To further capitalize on sustainability, the company says, it has bolstered its remanufacturing business. Cat Reman, as it’s called, strips worn-out engines and salvages viable components — down to nuts, bolts and washers — to remanufacture and sell at reduced cost. The unit’s revenues jumped 133 percent between 2001 and 2008, Caterpillar reports.
