The Globe and Mail

November 20, 2002 - Page C2 of the print edition
Green: The colour of profit
By HARVEY SCHACHTER

In "The Sustainability Advantage", former IBM senior manager Bob Willard, who lives in Whitby, Ont., provides the first systematic quantification of the business case for including environmental stewardship in your bottom-line thinking.

"The return on investment from aggressively improving company-wide sustainable development knowledge and initiatives can make other traditional investment opportunities seem trivial. Whatever company captures these benefits soonest will have a significant competitive edge," he says.

He looks at the advantage in seven areas, offering countless examples from corporations that have taken each path. He then calculates those benefits for a hypothetical computer company, SD Inc., a composite of the top five companies in that domain when he wrote the book (IBM, Hewlett-Packard, Compaq, Dell and Xerox), with revenues of $44 billion and 120,000 employees:

Easier hiring of the best talent: The author explores the advantages that companies have — particularly with today's young talent — if they are viewed as environmentally conscious. Polls suggest that about 20 percent of job candidates would be positively influenced by this, and Mr. Willard assumes for each of them recruiting costs would be cut by 5 percent, through better word-of-mouth referrals and a higher acceptance rate, leading to an $840,000 saving for SD Inc.

Higher retention of top talent: A bigger saving would come from improved retention of existing staff, if they found the workplace meaningful. If one-fifth of the 1,200 people who leave SD Inc. each year stayed as a result of its sustainable development mindset, the company would save $38 million, which would flow straight to the bottom line.

Increasing employee productivity: A powerful corporate mission is considered both a magnet and a motivator. Individual productivity should therefore rise somewhat because of the appeal of the company's environmentalism — staff in different areas of the company should work better together because of the shared mission, and the improved workplace conditions from retrofitting lighting and air flow should also have a positive effect.

On individual productivity alone, he estimates a $360-million benefit, based on an average 5 percent increase in the work force, which is lower than the 9 to 23 percent higher returns found in mission-oriented visionary companies in the classic study, "Built to Last."

Over all, using similarly cautious estimates, he anticipates a $756 million productivity benefit, equivalent to gaining an extra 12,600 employees.

Reduced manufacturing expenses: Companies that take aim at reducing their manufacturing waste in raw materials, energy, packaging and transportation end up with huge financial savings. Choosing a modest 5 percent saving, SD Inc. gains $330 million by reducing waste.

Reduced expenses at commercial sites: Similarly, he calculates the hypothetical company can save about $132 million through energy efficiencies, water conservation and other environmental initiatives at its non-manufacturing sites.

Increased revenue/market share: Numerous studies show that if all other factors are equal, consumers would prefer to do business with environmentally conscious companies. SD Inc., by differentiating itself in the marketplace through its sustainable development mindset, might generate 5 percent more in revenue, adding $2.2 billion to the pot and resulting in another $150 million in profit.

Reduced risk, easier financing: In 1992, Ikea had to stop worldwide production of its top-selling Billy bookshelves because a lacquer was emitting excessive formaldehyde gasses. Environmental regulations can easily sideswipe companies, so one committed to sustainable development will face lesser risks and probably attract easier financing. Mr. Willard assumes a $16.5 million gain from this.

"The benefits are there for the taking. Smart executives will take them before their competitors do," he concludes, urging companies to view their sustainable development activities as a profit centre.

His book presents its arguments clearly and conservatively. For most executives, it will be an economically beneficial eye opener.

The above review was copied with permission from The Globe and Mail web site.