Radical Transparency Revisited: What's BP's PDF?
Radical Transparency Revisited: What's BP's PDF?
Industrial ecologists use the term "partially diminished fraction," or PDF, to assess the extent to which a product somewhere along its life cycle harms ecosystems. Virtually every manmade object has a PDF impact, however miniscule -- like the palm oil in a shampoo harvested on plantations where rain forest was clearcut, or the cotton in a t-shirt that comes from farms that over-draw water in arid areas. For BP, the PDF of its oil has become massive, and growing.
In an uncanny coincidence, just weeks before the BP spill the Harvard Business Review ran a featured article proclaiming that it is no longer possible for business leaders to ignore what economists call 'externalities' like pollution. For Big Oil, that's now an understatement. Add to that the imperative for investors to avoid sustainability risks: BP's market value has tanked, shedding tens of billions of dollars. The Gulf crisis stands to stamp externalities (though not the term, hopefully) on the national consciousness with the same traumatic force as 9/11 did for terrorism.
What a difference a year makes. Last spring I dialogued with Joel Makower on whether radical transparency -- the surfacing of a company's or brand's hidden ecological impacts -- was the future for green business, as I argue in Ecological Intelligence: The Hidden Impacts of What We Buy. I had connected the dots on emerging trends in information systems and industrial ecology, and projected a future where shoppers would routinely compare eco-impacts of what they buy just as they do today with price, shifting market share so that companies would compete to upgrade their own ecological footprints. Joel, understandably at the time, argued that was a bit of a pipe dream.
Then just months later came a seismic shift, with Walmart announcing its intention to create a sustainability index, and notifying its 100,000-plus suppliers that they either share metrics on their products' ecological impacts or become "irrelevant." Andy Ruben, then head of Walmart house brands, wanted to help his suppliers understand the big picture on the disruptive technology eco-impact information systems are creating. So he asked to condense and distribute to his suppliers audio interviews I had done with the developers of the two main emerging platform prototypes: GoodGuide -- the consumer-facing comprehensive eco-rating system -- and Earthster, the open-source supply-chain eco-impact tracker.
Ruben (now head of Walmart's global sourcing for foods) also asked Gregory Norris, developer of Earthster, to pilot life-cycle analysis evaluations of seven product lines. The metrics chosen for the pilot were global warming impacts, resource use, and "disability adjusted life years," or DALYs, a public health measure of the degree of disability caused by the product at any point in its life cycle. And, oh yes, one more: PDF. No one can say if these metrics will end up incorporated into the final sustainability index Walmart plans one day to post next to price tags. But the smart money thinks so.
The momentum for radical transparency builds. In April, I attended a meeting in Washington DC on Earthster held by the EPA for a host of folks from various government agencies with a stake in sustainability. The interest was in how to find a unifying information platform that could be used, say, by the GSA to build in perpetual ecological upgrades in the course of purchasing the half-trillion dollars or so it spends yearly. A federal library is considering using Earthster 2.0 (now in development) as the model platform for a data commons on ecological impacts, creating an information utility that businesses can use as they work to assess and reduce their externalities.
It's telling that Dara O'Rourke, the founder of GoodGuide, was featured in May at a meeting in Paris at INSEAD, the prestigious European business school, for sustainability leaders from dozens of corporations, on "How sustainability will drive your bottom line." O'Rourke shared with them the workings of his prototypic shopper's guide, which aggregates more than 200 databases on the environmental, health, and social impacts of more than 65,000 products, boiling it all down to a single score on a 1-to-10 scale. GoodGuide, an iPhone and Android app, allows instant comparisons with competing brands.
This disruptive technology portends the day when brands compete on ecological merits as well as price, because those impacts will be transparent to shoppers. I was briefed on the confab by Christoph Lueneberger, one of the meeting's conveners, who heads the sustainability practice at Egon Zehnder International, a global recruitment firm. He told me, "Companies are positioning themselves in this space like surfers waiting for the next wave."
Patrick Cesceau, who recently stepped down as CEO at Unilever, echoed Walmart when he told the group, "We've got to get this right or we'll be irrelevant." That business dictum is the easy part. The hard parts are in the details: What metrics should companies use to track their eco-impacts? How transparent do you need to be? What do we really mean by "sustainability?"
There's good news for companies looking for smart allies in this race to the top. A host of resources are emerging, including:
• Environmental groups like the World Wildlife Fund and the Nature Conservancy are eager to partner with businesses -- rather than fight them -- to share their ecological expertise.
• The website www.iSustain.com offers a green chemistry software app that assesses the eco-impacts of a chemical product or process, to help companies develop greener products.
• GoodGuide Analytics, much like Google's, offers companies insights into what shoppers really care about, and what improvements will boost their standing in GoodGuide ratings (though the ratings themselves, like Google's, are independent).
• Earthster 2.0, in development now, is creating an information platform with metrics that allow companies to protect their proprietary data while going transparent with their eco-impacts to create baselines for demonstrating sustainability upgrades, and to help the businesses they supply get a solid sustainability metric for their products.
Take GoodGuide's Analytics. These metrics can be used even before a product is sold to assess ingredients or formulations of concern, or, say, nutritional performance. They also pull together everything publicly knowable about a product to understand how shoppers see them, and what issues matter most to consumers. Perhaps most telling, the analytics suggest where a company's improvements will matter most. Then, when it comes to execution of the required upgrades, Earthster might be deployed to assess where in a supply chain the problems are -- and where alternatives can be found.
It's intriguing that the Harvard Business Review article on owning externalities does not mention such actionable solutions. But I suspect in the not-too-distant future, all this will become a standard part of what every MBA should know.
Deepwater Horizon photo courtesy US Coast Guard via SkyTruth.