Big green forecast
U.S. companies have begun to embrace sustainable investment practices
If past is prologue, then to forecast where businesses will be in tackling environmental protection, humane labor practices, biodiversity, water supply and other sustainability challenges, we have to look back.
Fifteen years ago, a relative handful of niche companies such as Ben & Jerry’s, Timberland, and Tom’s of Maine were integrating the social consciences of their founders and, even in some cases, their spiritual values, into the capitalist model. But these companies were far outside the mainstream of American corporate culture, throwbacks to the idealism of the 1960s, and represented a tiny fraction of American corporate power.
Fast-forward 15 years to a single week in May 2007. Citigroup, one of the world’s largest financial conglomerates, announced that it will commit $50 billion over 10 years on investments and project financing to reduce global carbon emissions, including development of alternative energy and clean technologies. NewsCorp, one of the word’s largest media companies and led by the ultraconservative Rupert Murdoch, announced that it will become carbon “neutral” by 2010. And IBM, the venerable computer giant, announced it would spend $1 billion to become more energy efficient across its global operations. All in a single week! In each case, these decisions were driven by bottom-line economics and the recognition that sustainability is a core business issue.
These three corporate giants are part of a stampede by major corporations to go green. Dozens of Fortune 500 companies—Alcoa, SunMicrosystems, BP America, Interface and Pacific Gas & Electric, among them—have urged federal legislation to cap or reduce U.S. carbon emissions and have made substantial investments to improve their environmental performance. General Mills and Wal-Mart are reducing the size of their packaging, thus saving large quantities of raw materials and the energy required to process them. Dell is tripling its recycling of electronic products and supporting federal legislation to mandate recycling of electronic products.
Indeed, hundreds of companies have spent billions of dollars to understand and reduce their impacts on biodiversity, water quality, energy use and climate risks. In one especially remarkable instance, the board of American Electric Power, a major producer of coal-fired energy, has made it clear that Mike Morris, the company’s CEO, will be held accountable for delivering on AEP’s commitments to integrate carbon capture and sequestration technology, addressing environmental health and safety issues with its coal suppliers, and preparing the company to thrive in a carbon-constrained economy. What happened at AEP is a model for a process that must become standard operating procedure. Senior management, including the CEO, board members, investors and company critics, hammered out a comprehensive set of sustainability goals for the company. It was then approved by shareholders and adopted as part of the company’s strategic plan.
Investors, too, are helping to shift the tide toward greater corporate transparency and accountability on a variety of sustainability challenges. It would have been inconceivable 15 years ago that, in 2007, 55 of the nation’s largest institutional investors representing $4 trillion in assets would become part of Ceres’ Investor Network on Climate Risk, scrutinizing how the companies they invest in are managing the financial risks and opportunities of climate change. Climate change is the mother of all sustainability issues and will have an impact on every economic sector, whether from new regulations, physical impacts or growing demand for climate-friendly technologies. Thus, climate risk is embedded in every business and investment portfolio, which is why more Wall Street analysts are beginning to factor corporate response to climate risk into their evaluations of the companies they cover.
Who would have imagined 15 years ago that more than 1,200 corporations would sign on to the Global Reporting Initiative, the gold-standard of corporate sustainability reporting, so that outside stakeholders could evaluate, using a standard set of metrics, corporate performance on a variety of sustainability challenges, metrics that management can also use to set specific sustainability goals and measure their progress.
As the evidence for climate change has mounted dramatically, more and more corporate boards have started to take the issue seriously, ensuring that management, often focused on quarterly results, take a long-range view of how climate change could affect the bottom line.
In short, corporate concern about sustainable business practices, once taken seriously by a handful of prescient companies, is hitting both Wall Street and Main Street. Clearly, some corporations joining the movement to go green are doing so because they see a market trend and don’t want to miss the wave. Others see a public-relations opportunity, while still others have leadership who genuinely see corporate responsibility and sustainability as integral to the corporate strategy. Whatever the motivation, the trend is welcome.
But it is far too early to declare victory. We have started to move the mountain, but just barely, and it remains to be seen whether we are moving fast enough to avert environmental and economic disaster. The growing corporate consensus on the need for action is a necessary, though not sufficient, condition for success, and rhetorical commitment to sustainability must be translated into measurable goals and results. Neither the private sector nor government alone can bring about change on the scale needed to ensure a prosperous future. In my view, governments, companies and consumers all have essential roles in achieving a sustainable planet.
And we must be clear that what we are seeking is lasting prosperity, a goal that speaks to every citizen, stakeholder and corporate leader. Too often sustainability issues are presented as either-or propositions. We can have clean air, but only at a loss of jobs. We can cut greenhouse-gas emissions, but only at a huge hit to the corporate bottom line. These are false choices. It is becoming increasingly clear, even in the most conservative corporate boardrooms, that the imperatives of the environmental and economic bottom lines are one and the same. DuPont, for example, has saved billions of dollars over the past decade by reducing energy use and greenhouse-gas emissions.
In short, what we are asking of the corporate world is this: Engage with a wide variety of stakeholders to examine impacts and find solutions, disclose your exposure to climate and other sustainability risks, and act. It is not enough to do one of these; they are an inseparable package.
If we are to create lasting prosperity by 2022, sustainability reporting must become as routine as corporate financial reporting. Indeed, it should become an integral part of such reporting, and sustainability strategies must become more than an adjunct or afterthought, or relegated to the PR department.
By 2022, will corporate America have risen to the challenge? It has taken many years to achieve the level of corporate engagement in environmental and social issues we have today. But it will take enormous commitment by corporate leaders, NGOs, local, state and federal governments, investors and other stakeholders if sustainability is to be recognized as the core economic issue that it is. There is strong momentum in this direction and for more and more companies to incorporate the values of sustainability into their corporate DNA. The stakes are high. Our future prosperity, indeed the survivability of our planet, may well depend on it.
Lubber’s essay was reprinted from greenmoneyjournal.com’s 15th Anniversary issue, which included multiple essays that look at what the next 15 years will bring when it comes to green investing and the business world.