GlobeinvestorGOLD

Thursday, Nov 04, 2004
"Sustainable business, better business"
by TAVIA GRANT

The chasm between economic and environmental interests remains wide. Yet this need not be the case – executives who use sustainable business models can both save money and boost profits.

That’s the argument from Bob Willard, a retired senior manager who worked at IBM for 34 years. In his 2002 book, "The Sustainability Advantage," he argues that making money and protecting the environment needn’t be mutually exclusive. In fact, he makes a persuasive argument, and includes hundreds of case studies, on how sustainable companies are competitive companies.

Like it or not, increased regulations and growing consumer demand for sustainable products mean executives can ill afford to close their eyes to these issues. Moreover, the investment community is starting to ask questions about how companies manage risk and how they conduct business over the long term. In answering those questions, companies are starting to rethink how they do business, Mr. Willard says.

"As sustainability reporting becomes more known, companies will start to track it and if they track it they’ll manage it and if they manage it they’ll want to get better at it and if they want to get better at it they’ll see opportunities or risks they hadn’t seen before — and that’s good business,’’ he says in an interview.

So which companies are embracing this shift? In researching his next book, due next spring, Mr. Willard asked 43 sustainability senior managers, consultants, non-profit workers and academics in Canada, the U.S. and Europe to name the top 10 sustainability leaders in the world.

They are, in this order: Royal Dutch/Shell, British Petroleum, Interface, Suncor, Dupont, The Body Shop, Alcan, Husky Injection, Mountain Equipment Coop and Electrolux.

These are interesting results. Three of the top four winners are fossil fuel companies that now invest heavily in alternative energy. And Dupont, a major CFC producer in the 1980s, is now committed to reducing its own waste and getting other companies to cut carbon emissions.

Thus yesterday’s environmental pariahs are today’s sustainability leaders.

In his last book, Mr. Willard cites seven ways businesses can benefit from going green: easier hiring, higher retention, increased productivity, reduced manufacturing costs, reduced costs at commercial sites, increased sales and reduced risk. Here are just some examples Mr. Willard cites of how sustainability can be used as a competitive advantage:

Attracting and retaining high-quality staff is a huge challenge for executives — especially in the tech industry. Hiring a new person costs about $7,000 (in searching, screening candidates, interviewing and making the offer), but the cost when someone leaves and needs to be replaced is at least $25,000, he says, citing KPMG studies. The company that treats its employees well and conducts business in a sustainable manner is more likely attract talent, retain staff, have less absenteeism and increase productivity – and boost the bottom line.

3M Co.’s Pollution Prevention Pays has saved the company more than $750-million since its inception in 1975.

Husky Injection Molding used waste minimization and recycling to divert 85 per cent of its waste – thus generating $263,000 in income.

Electrolux found that its environmental product line (which included solar-powered lawn mowers) had a profit margin 3.8 per cent higher than the rest of its products.

ING Bank’s new headquarters in Amsterdam included energy-saving systems that paid for themselves in the first three months. The building, which saves $2.9-million per year, uses less than a tenth of the energy of its predecessor. Absenteeism is now down 15 per cent and productivity has increased.

In one of the more practical aspects of the book, Mr. Willard uses a hypothetical company, SD Inc., to test the cost savings and increased revenue of a sustainable company. Readers can plug in their own numbers by using spreadsheets, available on his publisher’s website, to see themselves the financial benefits of going green.

By his conservative calculations, SD Inc., which employs 120,000 and has $3-billion in annual profit, would earn an extra $1.15-billion, or 38 per cent, more in profit due to increased sales and savings. A caveat here: not all these benefits would be felt in the short-term; this is a long-term approach.

Nonetheless, there are still many barriers to executives implementing these kinds of changes, he points out. Management isn’t aware of, or doesn’t believe in, the business case. It’s uncomfortable with being accused of "green-washing." Its business model dismisses sustainability as being irrelevant to business.

"The word ‘environment’ is a sensitive one," says Mr. Willard. "It brings up all sorts of connotations with hassle and cost for most company executives. I think if they understood the environment is not just about regulations, expensive retrofits and scrubbers on chimneys, that there’s actually some business opportunity here, they would look at it differently.

The clever executives are those who spot that opportunity — and use it to their advantage.

Tavia Grant is an editor at GlobeinvestorGOLD.