The Power of Green

By Paul Rogers Before launching its green works line of natural cleaners in January 2008, <a href="http://www.nyse.com/about/listed/clx.html" target="_blank">The Clorox Co.</a> (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. <BLOCKQUOTE> Establishing sustainable practices and products — once seen as an obligation — is now boosting the bottom lines of some of the world’s largest companies. </BLOCKQUOTE> An example is <a href="http://www.nyse.com/about/listed/cat.html" target="_blank">Caterpillar Inc.</a> (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?’” <BLOCKQUOTE> <h2>MORE ON GREEN ROI</h2> <a href="greencat" target="_self" class="actionlink">From Trash to Treasure</a> <a href="greentransparency" target="_self" class="actionlink">Your Sustainability Story</a> <a href="ibm" target="_self" class="actionlink">Green ROI Tool</a> <a href="mcdonaldsgreen" target="_self" class="actionlink">McDonald’s Sustainable Suppliers</a> </BLOCKQUOTE> “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. <PAGEBREAK> Like Caterpillar, <a href="http://www.nyse.com/about/listed/cat.html" target="_blank">Fedex Corp.</a> (FDX) says that it has taken a comprehensive and business-focused approach to sustainability. The world’s top express delivery service by annual revenues (a reported $35 billion in 2008) says it is making its fleet of 655 aircraft and 51,000 vehicles more fuel efficient. FedEx says it began replacing its 90 narrow-body <a href="http://www.nyse.com/about/listed/cat.html" target="_blank">Boeing Co.</a> (BA) 727s with wider Boeing 757s in August 2008. The bigger planes carry 20 percent more cargo yet require 47 percent less fuel on a per-ton basis, says Mitch Jackson, director of environmental affairs and sustainability at FedEx. Additionally, FedEx says it has pushed since 2004 for stricter fuel standards on commercial trucks and for government incentives to defray the capital costs of cleaner vehicles. The company partnered with the Environmental Defense Fund, or EDF, to develop and deploy the first commercially viable hybrid delivery trucks. FedEx and EDF worked closely with manufacturers to develop and test the hybrid electric delivery vehicles. Both EDF and FedEx say they are keeping the technology nonproprietary to encourage other companies to purchase hybrid vehicles. Gwen Ruta, EDF’s vice president for corporate partnerships, asserted in 2008 that “FedEx leadership has helped make hybrid truck technology a reality. There is tremendous momentum in the hybrid truck market today, with more trucks on the road and more companies buying hybrids every day.” <h2>Creative Alternative Energy</h2> Jackson describes Memphis-based FedEx’s approach as “practical environmentalism.” “We don’t want to be in the category of doing initiatives just because we think they sound good but aren’t going to be sustainable over the long term, since they’re really not material to the business,” he says. In addition to purchasing renewable-energy credits and participating in the EPA’s voluntary Green Power Partnership, the company notes, it is making a major push to generate its own renewable power — by building the largest solar rooftop system in the country at its hub in Woodbridge, N.J. Scheduled to be completed this winter, the massive installation consists of about 12,000 solar panels spread across 3.3 acres, FedEx says. The company adds that the system is designed to produce 2.6 million kilowatt-hours of electricity per year, the equivalent of heating 236 households for an entire year and enough to meet 30 percent of the hub’s annual needs. Meanwhile, <a href="http://www.nyse.com/about/listed/kft.html" target="_blank">Kraft Foods Inc.</a> (KFT) has come up with a most unlikely source of alternative energy. The company reports that at its two cheese plants in upstate New York, anaerobic digester systems convert whey — the watery by-product of cheese-making — into biomethane. That energy, Kraft Foods says, provides 30 percent of the plants’ natural-gas needs. The conversion also cuts down on the cost of waste disposal and the carbon emissions associated with waste hauling, according to the company. In a similar effort, Kraft Foods says, it burns spent coffee grounds at coffee plants in Germany and England to create steam energy that provides nearly a third of the facilities’ necessary heating. <BLOCKQUOTE> <h2>MORE ON GREEN ROI</h2> <a href="greencat" target="_self" class="actionlink">From Trash to Treasure</a> <a href="greentransparency" target="_self" class="actionlink">Your Sustainability Story</a> <a href="ibm" target="_self" class="actionlink">Green ROI Tool</a> <a href="mcdonaldsgreen" target="_self" class="actionlink">McDonald’s Sustainable Suppliers</a> </BLOCKQUOTE> <h2>Working With Conservation Groups</h2> A more prevalent sustainability strategy in the consumer-goods industry relates to the sourcing of raw agricultural materials. Companies are increasingly collaborating with conservation groups such as the Rainforest Alliance, which helps businesses source from Rainforest Alliance Certified™ farms that meet strict standards on sustainability — a hallmark for eco-conscious consumers. Kraft Foods, the largest U.S. food company in terms of revenue (a reported $42 billion in 2008), is also the largest buyer of Rainforest Alliance Certified coffee and cocoa, says Abby Ray, a spokeswoman for the New York City-based nonprofit organization. In 2008, Kraft Foods increased by half its year-over-year purchase of coffee beans from Alliance Certified farms, says Steve Yucknut, Kraft’s vice president for sustainability. Eight Kraft Foods coffee brands, including Yuban in the U.S., now bear the Rainforest Alliance’s recognizable frog seal, he notes. When Kraft Foods relaunched its Kenco brand of coffee products in the U.K. in 2008 to highlight the certification, Yucknut says, the move helped generate double-digit revenue growth. As a key seller of instant coffee and espresso in Sweden, the company saw its sales double after it began marketing the products with the seal, Yucknut reports. “The relationship,” he says, “has been a great business success.” In addition to its value as a marketing tool, Yucknut says, the collaboration plays a vital role for Kraft Foods in the sourcing of agricultural commodities. Criteria for Rainforest Alliance certification include farming practices that reduce water pollution and soil erosion, prevent deforestation and support biodiversity, as well as provide decent wages and housing for farmworkers and their families, Ray explains. Kraft Foods shares these goals, Yucknut says, noting, “Taking care of farmers’ livelihoods ensures the stability of our supply chain and our long-term viability.” <PAGEBREAK> <a href="http://www.nyse.com/about/listed/ul.html" target="_blank">Unilever PLC</a> (UL), the London-based conglomerate whose brands include Dove, Lipton, Slim-Fast, and Vaseline, undertook its first sustainable-agriculture initiative in 1995, says Gavin Neath, senior vice president of sustainability. The project entailed translating the concept of sustainability into a set of indicators related to several of the company’s key crops. These indicators included soil health and soil loss, pest management, biodiversity, and social and human capital, Neath explains. In 1996 the company published its first environmental report. Thanks to such efforts, Unilever was named food and beverage sector leader in the Dow Jones Sustainability Indexes for 11 consecutive years, according to the company. In 2005, Neath says, Unilever instituted Brand Imprint, a policy under which multidisciplinary teams evaluate the economic, social and environmental impact of every one of the company’s brands. Their reports are given to the respective marketing teams as fodder for brand strategy, he says, adding that sustainability sells. “Consumers are increasingly looking to buy from companies or brands that they see as being ‘responsible’ or ‘ethical,’” Neath points out, “so there is a business case for having a sustainable approach.” Unilever also works with the Rainforest Alliance. The company announced in 2007 its commitment to having the conservation group assess the farming practices at Unilever’s 32,000-acre tea estate in Kericho, Kenya. Once the estate met the standards for Rainforest Alliance certification, the first certified Lipton tea bags hit store shelves in Europe later that year, Neath says, generating positive consumer response. The Rainforest Alliance Certified seal, he adds, also proved instrumental in Unilever’s winning a contract to supply tea for <a href="http://www.nyse.com/about/listed/mcd.html" target="_blank">McDonald’s Corp.</a> (MCD) in several European countries. <BLOCKQUOTE> <h2>Boost Your Green ROI</h2> 1. Approach green projects as opportunities to develop new products and reach new markets, rather than as mandates. 2. Consider launching new sustainable goods and services  in emerging markets, where the need  is often highest. 3. Form genuine partnerships with respected environmental and social groups, and have them certify your products. 4. Tap into  employees’ interest:  They are the ones who will carry out the  initiatives and spread the message. 5. Challenge yourself to develop products that require less water, fuel and consumables and to come up with new ways to create alternative energy. Sources: AccountAbility, InnovaStrat Inc. and SustainAbility </BLOCKQUOTE> <h2>Measuring Success</h2> Every company that excels in sustainability, no matter the industry, has organizationwide commitment to the cause, says SustainAbility’s Lee. It isn’t enough, he insists, simply to create a series of socially and environmentally conscious initiatives and follow through on them; CEOs and other top executives must also establish sustainability as a metric by which every division within a company is measured. “Companies now face new economic challenges, social pressures and environmental threats. There is a new normal — and it’s not business as usual,” says Sunil Misser, chairman of AccountAbility, a global research and advisory firm that promotes sustainable development. “Businesses typically experience three stages in the sustainability life cycle: committing to compliance, integrating sustainability into the business DNA and changing the game. The performance leaders of tomorrow will have to do all three successfully.” There’s also the question of how to measure ROI from sustainability ventures. Until now, says Lee, most corporate measures of ROI have taken the form of medium- to long-term assessments of operational efficiencies (such as reduced energy and water use) and reputational benefits (from becoming known as an earth-friendly company or having fewer incidences of labor-rights violations). But increasingly, he explains, companies are examining short- and medium-term benefits to their bottom lines, particularly those related to new markets that may be tapped by sustainability initiatives. And it’s not just consumers who are demanding sustainable practices. Sustainability demands on the part of business-to-business customers are growing now too, says Lee. Sustainability clearly has become a “differentiator,” as FedEx’s Jackson puts it, in the B-to-B world. “Companies want to do business with other responsible companies,” he says. “We certainly do.” <BLOCKQUOTE> <h2>MORE ON GREEN ROI</h2> <a href="greencat" target="_self" class="actionlink">From Trash to Treasure</a> <a href="greentransparency" target="_self" class="actionlink">Your Sustainability Story</a> <a href="ibm" target="_self" class="actionlink">Green ROI Tool</a> <a href="mcdonaldsgreen" target="_self" class="actionlink">McDonald’s Sustainable Suppliers</a> </BLOCKQUOTE>

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The Power of Green

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The Power of Green

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Establishing sustainable practices and products can boost your bottom line.

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Sustainable practices and products can boost your bottom line.

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