How to profit from sustainability: 3M, Ricoh tap the B2B market
With more than half of Fortune 500 companies striving to reduce their greenhouse gas emissions, there’s a growing B-to-B market for products that help them do so — and an increasing number of product makers pursuing it.
3M, Ricoh, HP, GE's Ecomagination, Johnson & Johnson are just some companies that have tapped into the sustainability goals of their business brethren and pursued this market with products that reduce electricity use, fuel use and natural resource requirements.
Driven by a steady increase in consumer and investor demand for environmentally responsible products and operations — and sometimes by government regulation, as is the case for military contractors — manufacturers' point of view on sustainability is morphing from corporate social responsibility to seizing opportunity.
Such sustainability products include Ricoh printers that stop drawing electricity when in sleep or warm up mode, and 3M Glass Bubbles, very small but tough glass microspheres with hollow insides sold to make polymers for injection molded parts for such things as autos and aircraft, making them lighter and thus more fuel efficient.
"Our top priority is to help our customers find ways to address their sustainability challenges," said Michele Whyle, 3M's former director of global sustainability, in an interview. She said the Glass Bubbles significantly reduce the weight of composite materials used in airplanes and autos.
Trucost, the environmental data analysis firm that tracks corporate sustainability, noted that "a growing number of companies are recognizing that the development of environmentally preferable products can generate win-win opportunities," writing in the State of Green Business 2016 report produced with GreenBiz Group. Trucost said that the percentage of the U.S. Fortune 500 companies that reported making investments in green R&D or product development increased from 44 percent in 2010 to 61 percent by year-end 2014.
James Salo, senior vice president for strategy and research, said that companies that "generate profit" from either selling green products or by saving money through using such products account for more than half of the U.S. Fortune 500 companies.
"The market is growing because of the growth in the number of companies that have established targets for reducing GHG emissions," Salo said. The two measures almost mirror one another; as of the start of 2015 (or year-end 2014) just over half of the U.S. Fortune 500 companies also had GHG emission reduction targets, Trucost found. Moreover, just under half of the 1,600 largest global companies have GHG emissions reduction goals.
Another new product answering this market is 3M's Thinsulate window films which use radiant heat and or coolness in a room to maintain a room's temperature, thus allowing an office building to use less electricity for heating and air conditioning.
Although the company would not disclose sales of individual products, 3M officials said the company is selling all of the Thinsulate window films it is producing.
Product development with a sustainability screen
A growing number of companies include sustainability criteria in the process of product design or product development.
Ricoh puts its product design assessment through six sustainability criteria that include energy efficiency, resource efficiency, pollution prevention, comfort or lack of exposure for the user, usability that reduces environmental impact and whether it was made in corporate socially responsible way.
The process seems to have resulted in helping Ricoh win the EPA's 2016 Energy Start Partner of the Year Award, which noted its manufacture of energy efficient products and offering sustainable solutions.
HP, Autodesk, Levi Strauss, Lockheed Martin, GE's Ecomagination division and Johnson & Johnson are others — from an obvious range of industries — that infuse sustainability considerations into product design.
Lockheed Martin started using a Life Cycle Consideration metric in its product design that looks at operational efficiency, material selection for the product and chemical use.
"We estimate that approximately 87 percent of our total environmental impact is directly associated with product use," the company stated in its sustainability reports.
It may have been driven to use this metric by its biggest customer, the U.S. Department of Defense, which gives preference to sustainably produced goods in its procurement process through a Sustainability in Government Acquisitions screen for its purchase of products and processes.
But even for non-military contractors, it is not altruism driving sustainability product development.
Energy efficiency is a $63.6 billion global market, according to Navigant Research, and the largest segment of a $1.4 trillion advanced clean energy market.
Some industries in hot pursuit of green
Salo of Trucost said the food and beverage industry is the most involved in selling green products. Trucost found that 66 percent of food and beverage companies reported generating profits from sale of green products — organic or sustainably grown food and beverages — or from the use of sustainability products, such as technology that cuts water use.
But the industry second most widely involved in generating profits from green product sales or use is less obvious: telecommunications and telecom equipment. Salo said 63 percent of telecom companies reported generating profits from selling or using sustainability products.
Motorola was the first telecom company to manufacture telephones and transmission equipment using recycled materials, but now AT&T, Verizon, Sprint and others are in the business.