Evaluating externalities to drive sustainability
As the WRI reports in its recent working paper, "Aligning Profit and Environmental Sustainability: Stories from Industry," other companies are also finding ways to value the cost of environmental impacts to drive sustainability and growth.
• Natura, the Brazilian cosmetics company, is reducing the environmental impact of its supply chain by including in its supplier selection criteria the estimated cost of various suppliers' environmental footprints. Natura estimates the financial cost of purchased products' impacts, such as carbon dioxide emissions, waste generation, water use and more. By reflecting these impacts into product costs, the company is able to select the suppliers that not only deliver the most cost-effective product, but have the lowest environmental impact. This helps Natura keep costs down and meet its commitment to sustainable sourcing.
• Greif, an industrial packaging products and services company, does not price environmental impacts directly, but does take a lifecycle view of its products' footprints in its business planning. For example, Greif expanded its business to include remanufactured and reconditioned shipping containers, after finding them to have a lower environmental impact while better meeting the needs of customers.
Using policy to account for environmental costs
While some companies are taking the lead in developing their own ways of factoring environmental impacts into financial decision-making, public policies that put a price on environmental impacts would help all companies account for environmental externalities. These policies include those that put a price on greenhouse gas emissions or water use, as well as policies that create demand for more efficient products like vehicle fuel efficiency standards or building codes.
While the impact of policies like this will vary across businesses, some companies are already benefiting. Environmental regulations, high energy prices and a price on carbon in Europe, for example, have helped Siemens grow its portfolio of environmental products, including things like wind turbines, highly efficient combined cycle power plants and efficient trains. Siemens has not only helped its customers reduce 332 million tons of carbon dioxide emissions -- equivalent to about 40 percent of Germany's annual emissions -- but it generated $44.6 billion in revenue from its environmental product portfolio in fiscal year 2012.
Alcoa is another example. The aluminum manufacturer found that the U.S. Corporate Average Fuel Economy standards are driving demand for lighter vehicle materials. The company is well-positioned to provide these materials as a result of its R&D investments. It recently invested $300 million in an Iowa facility in order to provide lightweight aluminum for the 2014 vehicle model year.
Factoring environmental impacts into business decision-making is critical to helping companies minimize their footprints in commercially smart ways. It's encouraging to see corporate leaders starting to account for environmental externalities, but to really mitigate environmental and financial risk, we need more action. We look forward to tracking the innovations that help more companies incorporate environmental costs into their financial and product planning.
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