Thinking Green in a Blue Economy

A few weeks ago, I keynoted a conference of leaders from the Washington, D.C. metropolitan area — corporate executives, government officials, nonprofit leaders, and at least one university president. During the Q&A portion, one corporate VP asked how to weigh the implementation of environmental initiatives that don't have attractive returns on investments. "How can I justify putting money into things that don't make business sense?" she asked.

My answer: You probably shouldn't bother.

That seemed like common sense to me, but — as I learned later — it sent a minor ripple around the room. Could this green business evangelist possibly be suggesting that one needn't engage in green initiatives that don't make financial sense? "It was liberating," one of the audience members told me later. "I don't think we expected you to say that."

Their response caught me off guard, too. I hadn't fully appreciated how much some business people were grappling with the tyranny of going green. I've since probed a bit deeper and found more than a little guilt among some senior environmental managers who feel they're not doing enough, in part because they can't make the business case for doing more. The issue is perennial, but it takes on even greater import during turbulent economic times. It's not surprising that in the current climate, companies have a limited appetite for investing in environmental improvements that don't have a discernable and solid return.

Questions about how green business will fare amid the current turmoil have been coming up almost daily as I traverse from speech to meeting to conversations with friends, colleagues, and strangers in airports, and peruse the opining online. (I also queried the 5,000 or so members of GreenBiz.com's Green Business network on LinkedIn, which I'm finding to be a highly useful tool.) The question most frequently posed: How should we think about green in a blue economy? When times get tough, should we stay the course or alter it?

It's a question that is as curious as it is logical, as it seems to ask: How much "green" is worth it?

In the past, the answer was, "Only as much as we can afford." That was because most environmental departments were seen as costs to be minimized. During previous downturns, environmental managers were usually among the first to be tossed overboard in the name of cost-cutting (or, as the 1990s euphemism put it, "re-engineering"). In many ways, environmental managers — good, earnest people committed to improving their company's environmental performance — brought this on themselves by failing to demonstrate that they could add value, not just incur costs. As my friend Rob Shelton put it years ago, most environmental managers had more in common culturally with the EPA than the CFO. That is, they could geek out with the regulatory crowd about such things as biological oxygen demand or parts per million of noxious chemicals, but they couldn't talk with their own company's bean counters about how their good, green work was cutting costs, risks, and liabilities; improving quality; and reducing recruitment and training costs by improving employee retention. As such, corporate enviro folks dug their own professional graves.

Things have changed. Here are three ways they're different:

Commitments: Many of the current generation of environmental managers inside companies — including a few survivors of those earlier times — are no longer marginalized, increasingly viewed as key players. In many cases, their companies have made commitments to shareholders, customers, and stakeholders to reduce energy use, greenhouse gases, toxic emissions, and other forms of waste and pollution. And while it's possible that a dire recession or depression could lead companies to backslide on these commitments, they would do so at their own reputational peril, especially if their competitors didn't follow suit.

Cost-cutting: Even without commitments, most companies now recognize that well-executed environmental programs lead to reduced operating costs and improved efficiencies. The pressure to do both could accelerate during tough times, and environmental departments may find themselves with increased demands, if not concomitantly increased budgets and headcount.

Customers: In many respects, WMT is the new EPA. WMT, for the non-cognoscenti, is the stock-symbol shorthand for Wal-Mart, the biggest of a growing number of retailers and other business-to-business customers that are putting demands on suppliers, requiring to take green measures seriously — not just by reducing emissions and waste but by bringing innovative and affordable green products to market.

None of this ensures that green is here to stay — after all, we're entering uncharted economic territory — and there are countervailing forces to consider. As long as credit remains tight, for example, companies will struggle to find the capital for these investments. Many promising clean-tech start-ups will be left to whither and die, unable to garner capital to execute their go-to-market strategies. Regulatory backtracking on expected carbon regulation in the name of economic recovery could defer corporate initiatives. To succeed, companies — and their environmental leaders — will need to be smarter than ever in picking and choosing projects, making sure to showcase economic "wins" whenever possible.

But the problems — climate change, energy and water shortages, growing global competition for finite resources — aren't going away. The greening of business is hardly a "nice to do." It will endure.

What about all the recent articles heralding the bursting of the green business bubble? Most are referring to green-consumer purchases — organics, hybrids, solar panels, green cleaners, and other products viewed as upscale and, therefore, discretionary. Sales of these and other products will likely dip, if not swoon, a natural reaction to belt-tightening times.

But the hand-wringing is overblown. Example: Ad Age recently reported that "The green-marketing movement is taking a hit from the economy," citing a Duke University study that concluded that chief marketing officers "are placing less emphasis on cause-related and environmental issues. In fact, marketing that is 'beneficial for society' or that minimizes the impact on the environment ranked at the bottom of five priorities listed by respondents for the next 12 months."

Moreover, said the advertising trade journal, "some backers of sustainability efforts" are "soft-pedaling their efforts or girding for a time when such messages pack less punch." For example:

Wal-Mart Stores, which made sustainability a central feature of its communications strategy in recent years, is talking about it less often lately. An analysis of news stories on LexisNexis shows an average of 73 stories monthly featuring Wal-Mart and "sustainability" in the past year but only 37 in the past month. Environmental or sustainability themes had found their way into only 12 Wal-Mart press releases through Sept. 11 of this year (and none since June), compared with 29 during the same period last year.

But simply counting news stories is misleading. Behind the scenes, Wal-Mart is preparing to roll out an ambitious scorecard system that it hopes to implement to its 60,000 or so suppliers. The system, still be devised, will rate hundreds of thousands of products on a wide range of environmental criteria. It's just one of many companies that have developed ratings systems for suppliers and their products.

The Wal-Mart example is telling. As I've stated frequently (and cover extensively in my book), most green business activities take place out of public view, a vast assortment of both incremental and more dramatic changes that aren't obvious in finished products: less-embedded energy, water, materials, toxicity, carbon intensity, and all the rest. Companies are doing these things with little or no marketing fanfare, in part because these can be difficult stories to tell; they often amount to "doing less bad," an underwhelming marketing claim, to say the least. So, companies are happy to enjoy the financial rewards, foregoing the reputational ones. A dramatic drop in press releases is hardly an indicator of diminished activity.

At the end of the day, most green business activity is — or should be — about making companies, and economies, more resilient and competitive. That seems to me to be a recipe for success during good times and bad. Green can make sense when times are tough — and even because times are tough. As such, forecasts of the death, or dearth, of green business activity are greatly exaggerated.