Two Steps Forward

The State of Green Business, 2015

Report cover design by GreenBiz Group creative director Daniel Kelley.

The 2015 State of Green Business report is just out, our eighth annual assessment of the environmental performance of companies around the world, along with the trends to watch in the year ahead. We produce the report in partnership with Trucost.

I’ll be the first to tell you, the forward-looking stuff is a lot more fun to read, because the backwards look at actual company performance is a tad distressing, if not depressing.

I’ll spare the details here. You can download the free report here. (An interactive iPad edition, also free, will be launched next week.)

Here’s the gist: The report’s indicators measuring companies’ progress in greenhouse gas and emissions, air pollutants, water use and solid-waste production are all leveling off or even declining. Even bright spots of earlier years — cleantech patents, for example — aren’t what they used to be.

And still. It’s a good time to be in the sustainability business. The potential for transformational change continues to be a renewable resource. 

Consider water. It long has been a subject of concern, seen as a risk factor in many parts of the world, but bemoaned because it is underpriced in most markets, hamstringing investments in efficiency measures and advanced technologies such as water recycling or desalination. Despite such obstacles, companies are finding innovative ways to measure and manage water risks, and making the finances pencil out.

Another example: Corporate pledges to reduce or eliminate deforestation, made increasingly over the past year and given a boost last fall in the New York Declaration on Forests, signed by 34 mostly global companies. Cargill, General Mills, Johnson & Johnson, Kellogg’s, Nestlé, Procter & Gamble, Unilever and Walmart were some notable brands to sign the declaration, which also calls for concrete action to restore hundreds of millions of acres of degraded land.

Shifting moral ground

The push to reduce deforestation was driven in large part by companies procuring palm oil, a major ingredient in many processed foods and a particularly vexing source of deforestation; old-growth forests in Indonesia and Malaysia have been ravaged by the rise of palm oil plantations. During 2014, many of the world’s biggest food companies, from Danone to Dunkin’ Donuts, committed to palm oil purchases from sustainable sources.

Granted, few of these companies decided to do this simply because it was the right thing to do. Most were brought to the table under pressure from activists and institutional investors, who continue to drive corporate behavior changes on many fronts. Still, tipping points seem to come more swiftly these days, as companies are quicker to recognize when the moral ground has shifted under their corporate feet.

Palm oil and deforestation are just part of a larger move by companies to track and trace their supply chains across a range of commodities. Some of this is enabled by technological advances — cheaper and smaller sensors, for example; the increasingly ubiquitous Internet of Things, which allows almost anything to communicate with almost anything else; and new technologies and tools that enable companies to more easily and effectively assess risks, revise strategy and implement solutions.

But it’s not just about increasingly higher tech. As companies have maxed out on addressing the easy, low-hanging fruit — the things they control inside their operations, such as facilities and fleets, which have attractive financial paybacks — they are finding that the bigger impacts lie in their supply chains, sometimes thousands of miles and several intermediaries removed from their direct control or influence. That’s creating new, deeper levels of awareness — and, in some cases, action. But it’s only just beginning. Most companies have yet to fully understand their supply-chain sustainability impacts, let alone how to address them.

Three key stories to watch

Amid all this is the rethinking of corporate sustainability goals — specifically, whether the ones companies choose are actually making a difference. Up to now, no one really has known. Companies typically devise their own goals based on what they think they can accomplish. Years later, many companies achieve those goals and tell the world about it.

But that old model is beginning to be questioned. On what basis are the goals chosen? Are they enough to actually address the company’s share of the problem? If not, why not? (And if not, are they greenwash?)

Increasingly, companies will be asked — by activists, investors and others — to provide the scientific rationale for their sustainability goals. As they are, companies could find that for all their good intentions, commitments and achievements, they’re simply missing the mark. Will they be held accountable if they are? It’s a story we’ll be watching.

A bigger, related story is whether and how companies step up to the plate (to use an American baseball idiom) on the world’s most pressing sustainability issues. Arguably, companies collectively have been nibbling at the edges of challenges such as climate change, food security, ecosystems preservation, resource efficiency and the like. Whether and how they take on the big problems will be another critical story to watch.

One measure of company engagement going forward will be companies' proactive involvement on political issues that could accelerate the transition to a low-carbon and more sustainable economy. Can companies afford to sit on the sidelines, letting the political process unfold — or worse, playing defense against changes that might roil the status quo? Or will they start lobbying, individually and collectively, for carbon pricing, for example, or for removing the various roadblocks to accelerating deployment of renewable energy and other clean technologies? That’s a third story we’ll be tracking.

Put it all together and 2015 will be an interesting year on multiple fronts. Chief among them will be the launch of the new sustainable development goals in New York this fall, along with the United Nations climate talks in Paris in December. Both will be a test of corporate engagement and resolve in driving the kinds of change many of their CEOs publicly call for, if not always back up in action.

I encourage you to read the report for much more detail and analysis.

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