Businesses Join the Green Coalition of the Willing

10/13/2008

By ERICA GIES

 

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SAN FRANCISCO — Green is no longer just for hippies. Over the past couple of years, mainstream companies have started to realize that they need to fundamentally rethink their environmental policies, and while some still see the issues in terms of compliance, risk management or marketing, others see business opportunity.

Companies in the latter category have been appointing high-level executives as corporate sustainability officers and giving their managers financial incentives to meet environmental targets.

“There’s a growing understanding that it’s largely an opportunity for profit and growth for the companies that get on the right side of things and get ahead of the issue,” said Rick Duke, director of the Center for Market Innovation at the Natural Resources Defense Council, an environmental nonprofit organization based in New York.

Interface, a U.S. manufacturer of modular carpets, is a case in point: It began greening every aspect of its business — from energy consumption to design to sales — in 1994, after its founder, Ray Anderson, read “The Ecology of Commerce” by the environmentalist and corporate critic Paul Hawken.

Among the resulting changes, the company created a senior management position, vice president of sustainability, about five years ago, which has been held for the past six months by Erin Meezan.

Meezan’s team works with all Interface businesses, each of which has its own sustainability staff, and offers technical assistance on everything from waste programs to employee engagement. It is involved in strategic planning and works on external projects and partnerships.

Meezan says she reports directly to the chief executive, Dan Hendrix, “which is pretty huge. I also have regular interaction with our chief financial officer and with our business-level presidents. I think that really helps. I’m not removed from what’s happening.”

Intel, the chip maker, is also a leader in sustainable initiatives, winning top place in the 100 best corporate citizens list published this year by the magazine and Web site Corporate Responsibility Officer.

Dave Stangis, Intel’s director of corporate responsibility since 2000, oversees a management review committee made up of the directors and vice presidents of most of the business units inside the company, “from operations, to products, to legal, to communications. “We as a group of people set strategy and policy,” Stangis said.

Both Meezan and Stangis spend time educating employees about what they can do in their jobs to help meet sustainability goals, and they say employees are generally receptive.

Sustainability officers often turn to nongovernment organizations for advice, technical help and networking support. “I don’t think any company can move itself toward sustainability with solely the people they have on staff,” Meezan said. “It’s critical for the person in charge of sustainability to have these outside resources, not just to figure out what’s going on, but to help them make the case internally.”

Many environmental organizations are eager to cooperate, harnessing the power of business to push their agenda.

Last year, for example, the Natural Resources Defense Council and other environmental groups joined 27 companies to form the U.S. Climate Action Partnership, which called for a cap on emissions and reductions of their levels by 60 percent to 80 percent by the middle of the century.

Duke, who acts as the council’s business liaison director, said the partnership had helped to advance the political debate, proving to U.S. legislators that business planners would prefer legislation to uncertainty.

Some companies are starting to take environmental policy so seriously that they are linking, or planning to link, management bonuses to performance in meeting targets for reducing a company’s use of carbon, water or energy.

Financial bonuses “definitely help to focus their minds,” said Sonia Wildash, senior research analyst with Ethical Investment Research Services, a foundation based in London that conducts research on companies to provide a basis for socially responsible investing.

If sustainability targets are not linked to financial rewards, and supply chain commitments are not factored in to purchasing decisions, “you’re not going to get any meaningful changes,” Wildash said.

National Grid, a British utility that has recently expanded to the eastern United States, is auditing its emissions in preparation for setting itself carbon “budgets” next year. Its goal is an 80 percent reduction in emissions resulting from internal operations by 2050, with compliance to be measured by an independent auditing firm.

“Internal operations” include the emissions from the company’s power generating plants on Long Island, New York, which represent 70 percent of its entire carbon output, said Chris Mostyn, a spokesman for National Grid’s U.S. unit.

The company planned to raise efficiency at the Long Island plants and try to switch them to nonfossil fuels, he said.

“We’ll take the cost of carbon into account if we’re building a new substation, if we’re installing new gas lines, if we’re ordering a new fleet of vehicles for our linesmen; everything to ordering some new stationery for the office.”

Though specifics have yet to be set, compliance with carbon reduction targets will be factored into management performance bonuses, alongside established criteria like safety and financial performance.

Joseph Kwasnik, head of climate change and corporate responsibility for National Grid, said that reducing emissions was a means to be “a more efficient company in the way we use natural resources, water, energy, anything that we use as a natural resource.

“This will not only lower emissions but also reduce the cost of our business. That should be music to the ears of our executives,” he said.

In the first year of its emissions-reduction program, 10 percent to 20 percent of top managers’ bonuses could be linked to meeting the carbon budgets, Kwasnik said. While this would be applied initially only to the heads of business divisions, they would be responsible for setting programs for their line managers, to get them on board to meet the targets.

“Executives want to do the right thing,” Kwasnik said. “But it also helps to get their focus and their management to focus if you can say: ‘Look, if you can meet these targets, you’re going to be rewarded.’ Rewarding is the capitalist tool to make things happen.”

Danone, the French food company, has an even more ambitious program. In a pilot project, about 1,000 managers across the company already have one-sixth of their annual bonuses linked to their performance in meeting environmental targets.

“We’re using the bonus to try to prepare internally and to make sure that we’re improving quicker than our competition,” said Pascal Desbourdes, vice president of executive development. “We want these incentives to show that it’s a clear priority.”

Danone is working to complete a census of all carbon emissions and water consumption by its businesses this year, prior to rolling out the carbon-reduction plan across all manufacturing operations next year.

It also aims to cut emissions by its agricultural suppliers and distributors. While specific strategies were still under discussion, Danone would “take a piece of the responsibility for the reduction,” Desbourdes said, referring to carbon emissions by the company’s supply chain partners.

In addition to incentives for compliance, a mix of factors may be needed for a successful sustainability policy, including aggressive goal setting and opening up the company culture to encourage experimentation – even if that may mean tolerating failure.

“Don’t underestimate the value of setting really aggressive goals,” said Meezan, of Interface, which aims to eliminate any negative impact it has on the environment by 2020. “By continuing to drive for zero, we’re going to look at things that we wouldn’t consider if we were only striving for 50 percent.”

Also, she said, a chief sustainability officer needed to be backed from the top. “If companies think they’re just going to hire a CSO because they need to have somebody to talk to the press and to write that part of the annual report – but the CEO is still disengaged and the board doesn’t really understand it – ultimately they’re not going to get their money’s worth.”

According to Stangis, part of Intel’s success has come from moving beyond quarterly thinking to longer term planning. The result: For an investment of about $20 million on energy conservation projects, the company had saved, over time, more than $40 million, he said. “Plus today people are caring about the 500 million kilowatt-hours we saved as well. So it turns out to be a win-win-win.”