Those crazy Europeans -- the ones Bush and Rumsfeld like to dismiss as "old Europe" -- have for some reason been paying attention to the requirements -- and security -- of living systems as a key factor in industrial policy. US companies, with some notable exceptions have been slow to take notice, and may pay the price at the bottom line.
A recent article in The Nation -- "New Power for 'Old Europe'" -- summarizes a series of related initiatives from the European Union, including their proposed REACH (Registration, Evaluation and Authorization of Chemicals) regulation:
"REACH is the first effort to secure environmental data on some 30,000 chemicals that have been on the market in the United States and around the world without any significant testing of their toxicity on human health and the environment. These include an array of highly toxic substances that were effectively grandfathered into the market by TSCA [the Toxic Substances Control Act of 1976]."
"The REACH directive," author Mark Schapiro further observes, "represents an upheaval in the basic philosophy of chemical regulation, flipping the American presumption of "innocent until proven guilty" on its head by placing the burden of proof on manufacturers to prove chemicals are safe --what is known as the 'precautionary principle.' REACH adds extra bite with a requirement that toxicity data be posted publicly on the new agency's Web site. Thus, test results that were once tightly held by chemical companies will suddenly be available to citizens and regulators across the globe. That prospect foreshadows trouble for US chemical producers."
The U.S. chemical industry and government have been hard at work to block REACH, with arguments we've heard before on such issues as fuel economy, global warming, pesticide regulation, and more: disruptive impacts, too expensive, restraint of trade, etc. The cosmetics industry, the auto industry and others are in various degrees of denial and combat.
Similarly, the global electronics industry has been slow to respond to the EU's product take back and product content directives, which come into force in mid-2005 and mid-2006 respectively. WEEE (Waste Electrical and Electronic Equipment ) will require producers of electronic and electric equipment to accept and properly recycle "end of life" equipment. RoHS (Restriction on Hazardous Substances) will ban the manufacture or import of equipment containing lead, mercury, cadmium, hexavalent chromium, polybrominated biphenyls or polybrominated diphenyl ethers.
Some companies have embraced the inevitable, diligently investing time and money in reaching goalposts that the EU is still moving. Hewlett Packard, for example, has made "design for environment" a key part of product design strategy, and has created a joint venture with mining giant Noranda to field an efficient -- and hopefully profitable -- take-back system, mining the exceptionally rich ores of modern society's high tech detritus.
Others have taken a "do as little as possible, as late as possible" strategy -- a strategy based on a pervasive and deeply wrong-headed assumption: that designing and delivering better, more efficient, less toxic, more recyclable products would necessarily cost more money and yield less profit. The bottom line impact of losing access to the European market aside, the assumption is patently -- and demonstrably -- false.
Why does it persist? Let me offer some perspective on both the barriers and the opportunities -- and how companies that understand the ecosystem drivers behind these new regulations can potentially get out ahead of them.
First, there's the great power of "we've always done it this way," with its impact on habits (of thought as well as of action), on cost analysis methods, on capital budgets. What's worse, changing what "we've always done" engages the tacit admission that "what we've always done" may not have been as good as we could have done. This is hard on the human psyche and murder on corporate lawyers.
Second, change is not easy, and is inescapably multi-dimensional -- change in technology, processes, roles, ways of thinking, and more - can demand investment, in time and money, that conflict with other perceived needs.
Third, business is hampered by analytical methodologies that fail to accurately capture and value the full spectrum of costs and benefits. Boundaries of consideration are typically drawn too narrowly, whether to exclude factors that are considered "someone else's problem," or because it's simply easier to do it that way. Multiple benefits and synergistic impacts are commonly ignored, because familiar financial analysis tools commonly ignore them.
What can be done about it? Here are four steps to consider. (You'll find an expanded discussion of each of these steps here, including links to references.)
- Understand the drivers. No CEO wants his or her business led around by the nose by regulators. No one wants the strategic diversion or the expense of changes that can't be planned for. But the European directives -- both past and future -- are predictable, not random. Those who understand what's driving the EU directives could have seen WEEE and RoHS coming, and can start aligning their future design trajectory with the future regulatory trajectory, eliminate a random factor in their product development cycle, and shift budget from lawyers and lobbyists to engineers and marketers.
- Drop the assumptions. Face the facts. The notion that better environmental performance necessarily reduces financial performance is all too often rooted in habit, not evidence.
It's easy to make design improvements that cost more -- just add "green" criteria on to an existing design. It's more challenging -- and more profitable -- to integrate "green" into the design process, by including stakeholder expectations and the system conditions for sustainability into the design specification from the very beginning.
- Design what works -- before it's demanded. The need to integrate "green" will happen eventually; the biochemistry of living systems isn't likely to change in our lifetimes. The only question is how soon the need will arise, and with what degree of pain. Some companies will take the initiative, follow the guidance of 3.8 billion years of nature's R&D, and design products and processes that are both compatible with the inescapable requirements of living systems -- and profitable to boot.
- Steer by the logic, not the thresholds. Much of environmental regulatory policy, for the past three decades, has focused on a political/scientific process of setting acceptable thresholds for problematic materials -- always a compromise, usually a painful one; always uncertain and unsettled, and ripe for litigation. The biological logic provides a simpler, clearer, more predictable decision path -- and one that can make compelling business sense as well.
Which, as radical as it may sound, is in fact the most prudent course of all.
Gil Friend, systems ecologist and business strategist, is president and CEO of Natural Logic, Inc. -- offering advisory services and tools that help companies and communities prosper by embedding the laws of nature at the heart of enterprise. Sign up online to receive his monthly column via email.
Copyright 2005, Gil Friend. All rights reserved.
[Natural Logic will soon be offering a series of daylong workshops on the theme, "Industry Valuations: Impact of New Global Environmental Requirements." These workshops, designed for CFOs and investment analysts, will be offered in collaboration with our ally Technology Forecasters. Information on dates and locations is available on the company's Web site.]