10. Critical Trends Shaping the Future

Unlike fleeting trends that have influenced business management, environmental stewardship has many self-sustaining characteristics of other important, and even common, elements of business and operations strategies. Some familiar improvement themes are tied to names such as total quality management (TQM), design for manufacture (DFM), concurrent engineering, and shared services. Since these ideas were first introduced decades ago, they have had a significant impact on businesses and how they operate. They eliminated duplication of effort; significantly shortened cycle times for many business processes; increased quality and avoided scrap and rework; and significantly improved manufacturing cost through efforts to standardize parts, simplify product assemblies, and focus on process outcomes rather than activities. Relentless global forces supported such broad-based transformation: Entire industries became more efficient and learned to compete more effectively, and barriers to global trade continued to fall at the same time. Even today, concepts of hypercompetition, globalization, ever-shortening product lifecycles, and rapidly changing consumer preferences continue to drive businesses to be more cost-competitive, more quality conscious, more responsive, and faster to market.

Environmental stewardship ties businesses and their whole industries to common global imperatives, just as these other themes and concepts have in the past. Now, however, the driving forces are even more compelling to continue growth in the green movement.

Irreversible damage to the planet from greenhouse gas emissions and global climate change, uncontrollable risk from energy and raw material price fluctuations, water stress, and sophisticated expectations from environmentally aware consumers are external factors that will continue to drive businesses to improve their impact on the environment. Until the effects of global climate change show signs of a new global equilibrium that the world’s population is content to live with, the imperative to reduce greenhouse gas emissions will remain important for all enterprises. And with some carbon emission reduction targets set to be achieved as far out as 2050,[1] the longevity of this global imperative is clear. Population growth and industrialization only make the imperative more pressing.

Although no natural resources are in danger of immediate global depletion, their supply is limited. By some estimates, such as one from BP’s Statistical Review of World Energy published in 2008,[2] the world has as many as 1,238 billion barrels of oil in proved reserves. This equates to about 40 years of uninterrupted oil supply (excluding sources such as the Canadian oil sands). Forty years might look like an immeasurably long time when most businesses construct detailed plans and allocate funding for initiatives over a time horizon that ranges from 1 to 5 years. Even detailed strategic planning rarely considers a horizon of 40 years for most industries, except for scenario envisioning–type planning[3] and large capital investments that can be amortized over many years. However, considering that many large businesses routinely formulate strategic objectives and construct roadmaps for high-level planning purposes that extend 3 to 10 years into the future—and some businesses even articulate strategic visions that extend 20 years—40 years starts to appear much shorter indeed.

One resource in shorter supply is our ability to burn fossil fuels without causing further, irreversible global warming and the associated unwanted climate and weather change. Perhaps as the global economy moves toward a higher use of renewable energy and away from fossil fuel consumption, estimates for the supply of oil might change from decades to centuries, and modern society’s dependence on fossil fuel will decrease. Between now and that time, businesses that improve their energy efficiency and find ways to transition to sustainable energy sources will benefit from more reliable energy supplies and more stable prices.

With copper, lead, mercury, nickel, gallium, tin, zinc,[4] and phosphorous [5] due to run out (albeit arguably) within 50 years, by some estimates, oil clearly is not the only natural resource that faces depletion within our—or our children’s—lifetime. Substitute materials for some of these resources are difficult to find, especially for certain applications. The fact that these minerals are projected to reach depletion within ten years of the depletion timing for oil points to potentially significant supply chain constraints ahead unless enterprises continue to improve their role as environmental stewards. When all businesses work toward the common objective of conserving and recycling natural resources that are headed for depletion, their global availability will increase. Also, businesses that explore alternative materials and find different approaches to meet customer needs by using abundant resources will inevitably benefit from a continued, unconstrained supply chain and a more stable cost structure.

By the time enterprises find alternatives to using scarce natural resources, convert their energy supply to renewable sources, and learn to optimally manage water where supplies are scarce, consumers will also have learned to more fully recognize value from companies that innovate to protect the environment. Sometimes consumer behavior will be driven by positive reinforcement led by businesses—for example, products are increasingly favored when the environmental impact is communicated through advertising- or standards-based labeling. Other times, negative consumer behavior such as protests and boycotts will redirect certain business activity. Inevitably, both proactive positive reinforcement and reactive negative redirection toward improved environmental stewardship will be reflected in shareholder and stakeholder value.

Many discussions of corporate social responsibility already focus as much attention on environmental stewardship as they do on ethics, human rights, and financial transparency. This new importance of environmental stewardship won’t likely diminish. It may still be a challenge to see a chief green officer (CGO) or chief sustainability officer (CSO) sitting at the table with every company’s CEO, CFO, CIO, and COO, but it’s not entirely an alien concept either, as businesses increasingly assign green responsibilities at higher management levels.

Only a handful of companies have actually designated a CSO who has a direct reporting relationship to the CEO, but that fact itself can be misleading when assessing the trend. Most major corporations with a global presence already have green, or sustainability, executives at senior or middle management levels.[6] Georgia-Pacific is one company that created such a role in its organization when it announced a new CSO in 2007. This role has responsibility for overall efforts internally to develop and implement sustainability strategies, goals, measurement, and reporting. The CSO also represents the company in external sustainability discussions with customers and other external groups.[7]

Numerous other companies have appointed leadership in a CSO or similar role across all the major industries. A few of these companies include Google, Dow Chemical, DuPont, Owens Corning, Home Depot, HSBC Group, General Electric, and SAP. The CSO role is also becoming more common in companies that want to profit from going green and consciously guard and even grow the value of their brand. The rise in popularity of the CSO role in so many large enterprises is a clear indication that companies realize that sustainability and efficiency go hand in hand.[8] Peter Williams, IBM’s CTO for Big Green Innovations, has noted, “There are still opportunities to improve the integration of priorities for these emerging leadership positions with existing business priorities so that there is more direct responsibility and authority to change manufacturing activity, supply chain operations, and product content. Chief sustainability officers today rarely have direct operational responsibility for things like the supply chain and manufacturing, which is where some of the biggest impacts can be made, so it’s vital that the CSO is able to work effectively with senior executives in those areas.”[9]

Government has the power to incite businesses to follow long-range plans that they might not otherwise devise themselves. The automobile industry has a history of legislated efficiency and emissions requirements that have been credited with pollution control, reduced smog in urban areas, and lower incidences of acid rain. In a similar way, government incentives are accelerating the development, launch, and consumer acceptance of more environmentally friendly automobiles that consume hybrid fuels, alternative energy, and electricity. Creative examples include laws that allow environmentally friendly vehicles access to commuter lanes without multiple passengers onboard.[12] Electric automobiles consume energy that can originate from numerous sources, including “clean coal technology,” nuclear power, solar power, wind power, or hydroelectric power. The automobile industry is only one example of where government intervention is helping to make progress along with market forces.

Legislation is also making environmental stewardship easier for other businesses around the world. Examples include electronics companies, with “take-back” recycling programs; the real estate industry, through efficiency and energy-consumption proposals; electric utilities, by setting targets for supply percentages from renewable sources; and food producers, with well-established beverage-container recycling programs.

Carbon credit trading may also require more government regulation, cross-border cooperation, and global standards for enforcement. As different countries begin to participate in such programs, with efficient enterprises able to “sell” their carbon credits to those with higher greenhouse gas emissions, government enforcement and penalties could become an issue. In an alternative scenario, enterprises could reduce their emissions and approach “carbon neutrality” more quickly, with carbon credits ultimately losing their economic value. Such programs then would be less prominent than many people currently expect.

For now, though, carbon credit trading programs represent a clear and growing trend. For all European Union countries, the approach the Kyoto Protocol laid out has been adopted for CO₂ trading under the European Trading Scheme (EU ETS). In the United States, the California Air Resources Board in 2008 adopted the most comprehensive global warming plan in the country, outlining how individuals and businesses would meet a 2006 law that made the state a leader for global climate change. The plan requires California’s utilities, refineries, and large factories to transform their operations and cut greenhouse gas emissions. At the heart of the plan is a carbon credit market that gives major polluters potentially less expensive ways to cut the amount of their emissions.[13] The U.S.’s Chicago Climate Exchange (CCX) operates as a cap-and-trade system for all six greenhouse gases, supporting emissions registry and reduction. Here members make a voluntary but legally binding commitment to meet reduction targets. When an organization exceeds reduction targets, it can sell or keep the surplus; when targets are not met, the company must purchase contracts.[14] In 2009, the Environmental Defense Fund identified and mapped 1,200 companies in key manufacturing states that are poised to benefit from U.S. legislation that limits, or caps, global warming pollution.[15]

In his 2008 campaign, U.S. President Barack Obama made energy independence and efficiency one of his key platforms. President Obama’s plan, even before taking office, included such measures as investing $150 billion over ten years to create five million “green collar” jobs, and ensuring that 25 percent of the nation’s electricity comes from renewable sources by 2025.[16] After taking office in the midst of a global recession, his administration continued with an agenda that addresses environmental issues in ways that past administrations have not. More pervasive policies that are less cavalier toward dependence on fossil fuels should be anticipated as a result.

Examples do exist in which government has already played a role to ensure that long-term trends stay on course, some with quite remarkable outcomes. In some cases, macro-level models designed to encourage and achieve environmental sustainability have proven successful. Brazil’s transition from using fossil fuels to using renewable energy is one such example. In the 1970s, Brazil was importing roughly 80 percent of its oil. By incrementally increasing the amount of ethanol into the economy between 1975 and 2006, Brazilian President Lula de Silva was able to declare energy independence in 2006. Because Brazil achieved energy independence by replacing fossil fuels with renewable sources, the country significantly lessened its global carbon footprint contribution as well. Of course, government intervention played an important role in the transformation: The Proalcool Program ordered sugar companies to increase production and required the state-run oil company, Petrobas, to make ethanol available at its fuel stations.[17] The feasibility of adopting a similar model in other countries remains a valid question, but notable sources such as The Washington Post have suggested Brazil as a model for the “road to energy independence” in the United States.[18] Brazil is not the only country that uses renewable resources to meet a significant amount of its energy needs. As of 2007, Iceland has supplied more than 82 percent of its primary energy needs from geothermal and hydropower sources.[19]

The seeds for similarly ambitious goals are already being sown elsewhere. Google’s philanthropic arm has offered a $4 trillion program (the Clean Energy 2030 plan) to significantly reduce dependence on fossil fuels in the United States by 2030.[20] Separately, the Institute for 21st Century Energy, an affiliate of the U.S. Chamber of Commerce, offers a “Blueprint for Securing America’s Energy Future” that makes more than 75 policy recommendations.[21] Perhaps aspiring to adopt an economic model that relies on more renewable resources is worthy of debate after all and could strengthen a long-term trend that is already important to businesses worldwide.

Over the long-term horizon of 50 years or more, different natural resources will certainly become scarce at different points in time. The models to address those shortages will no doubt depend on prevailing circumstances. Supply shortages will inevitably be resolved by discovering ways to use resources more efficiently and identifying more abundant alternatives that allow for a similar customer experience. In some cases, the world will learn to live without some resources and the products that are produced from them. As these scenarios unfold, governments, industries, and companies will need to identify new ways of working together toward collaborative solutions. Without informed and deliberate collaboration, other scenarios that might emerge would involve significant yet transient economic power shifts to regions where scarce commodities are mined, legislated protectionism, and the potential to socialize private assets for a higher degree of government control and price stability.

A 2008 survey of automotive industry leaders found general agreement that, by 2020, vehicles will have the capability to communicate with their environment in multiple ways: vehicle to vehicle, vehicle to transportation infrastructure, and vehicle to homes and businesses.[22] Vehicle-to-vehicle communication is actually not difficult to imagine: Some existing designs already allow vehicles to detect nearby hazards with sensors, and rear-mounted video surveillance makes moving a vehicle in reverse safer. Hypothetically, a system might allow one vehicle to analyze the route plan of another and statistically predict the potential for its driver to “swerve” across lanes to exit a highway at the appropriate off-ramp. Vehicle–to–transportation infrastructure communication is also easy to imagine: Vehicles could detect road and driving conditions, such as snow and rain; traffic conditions, such as congestion and construction; other obstacles, such as accidents; and availability of commuter lanes. With this information from the infrastructure environment, onboard computing could propose alternative routes and minimize time, fuel consumption, and greenhouse gas emissions. Vehicle-to-home and business communication is also easily envisioned: Onboard systems might some day be capable of identifying the closest service station with the lowest fuel price; they already can identify nearby restaurants, retail stores, and entertainment locations while driving.

The possibility of more deliberately and creatively managed demand for resources such as electricity and water is also foreseeable when considering existing technology, instrumentation around the world, and expected scarcity. Parts of the United States have already experienced forced “rolling blackouts” in urban areas such as Southern California in recent years.[23] Some argue that such events can be avoided with improved power management and related policy changes. Public announcements in some urban areas routinely ask energy consumers to help “smooth electricity demand” by using household appliances in the evening instead of during peak business hours. In the future, messages to consumers could be focused differently to drive alternative behavior, with incentives put in place to encourage more use during daytime hours, when solar power generation is the highest.

Food is another resource whose associated transportation consumes energy, with inefficient distribution and use leading to waste. As pointed out in Section 7.2 of Chapter 7, “Instrumenting the Planet for an Intelligent, Sustainable World,” up to 30 percent of the food in developed countries simply goes to waste—in the United States alone, that amounts to $48 billion annually. In another illustration, 75 percent of the apples sold in New York City come from the West Coast or overseas, even though the state produces more apples than city residents consume.[24] Reducing waste such as this is clearly not a one-dimensional issue; it must include not only information technology advances, but also innovative collaboration approaches across companies and geographic borders, government action, and consumer preference changes.

Chapters 5, “Transformation Methods and Green Sigma,” and 6, “Applying Green Sigma to Optimize Carbon Emissions,” showed how a relatively small set of sensors can provide input into a management dashboard to control and improve environmental performance. Using Green Sigma or other approaches, companies can improve greenhouse gas emissions, better manage water, and reduce raw materials waste. Chapters 7, “Instrumenting the Planet for an Intelligent, Sustainable World,” and 8, “Technology That Supports Instrumenting the Planet,” showed that vast networks of environmental sensors and instrumentation can be networked together to provide necessary input into intelligent computer models; companies can then use those insights to improve environmental impact in virtually any industry. A few examples include transportation management, electricity management, water management, and wind farm management.

In a 2008 speech, titled “A Smart Planet: The Next Leadership Agenda,” to the Council on Foreign Relations in New York City, Sam Palmisano, IBM’s chief executive, observed that all things are becoming intelligent as “the digital and physical infrastructures of the world are converging.” He outlined a world transformed by the impact of rising globalization and sees an era of increasing connectivity in which more systems and objects will “speak” to each another.[25] Saul Berman, IBM’s global lead partner for the strategy and change services consulting practice, reinforced this theme in a 2008 interview, noting that as the world becomes more interconnected, new risks and opportunities will arise. Competitive implications accompany this fact. Berman commented, “There’s a viral spread of information, which creates a widening gap between those who apply the information correctly and those who do not have the same information.”[26]

Many companies are already recognizing long-term trends and making appropriate investments to respond and win in the marketplace. In one trend, Australia has announced that it will ban incandescent light bulbs in favor of compact fluorescent light (CFL) and light emitting diode (LED) technology; Venezuela and Cuba are working to phase them out as well. California is taking similar steps, along with others. This trend has prompted General Electric to invent the covered GE Energy Smart CFL bulb, protected with more than a dozen U.S. patent applications, whose profile is virtually identical to that of a standard incandescent light bulb.[27] This kind of product innovation not only helps solve the light fixture retrofit problem, but also gives the manufacturers of light fixtures the flexibility to preserve existing designs or develop new ones that accommodate either old or new bulb profiles—or both. In fact, with some countries and states working to eliminate incandescent light bulbs altogether, this type of invention has ready-made markets where legacy light fixtures cannot conveniently accommodate existing CFLs because of their nontraditional profiles. Other businesses are responding to this “here to stay” trend. Some hotels that have retrofitted the lighting in their guest rooms to be more efficient also tether the new, more expensive CFLs to the lamp, to discourage theft.

In the hotel industry, one survey of more than 700 people conducted by A Closer Look, Inc., [28] in 2007 found that 75 percent of respondents chose the hotel where they stay partly based on whether it follows “green practices.”[29] Another survey of best practices from the Coalition for Environmentally Responsible Economies,[30] allows companies to “communicate their environmental preferences to the hotel industry.”[31] This kind of market intelligence is becoming available in virtually every industry. Combining this with industry best practices, companies that are well positioned with respect to environmental stewardship can identify and take advantage of opportunities to build better, differentiated brands.

Even before the green movement started, hotels in some countries, such as Cambodia, interfaced the electricity in each room with the room key so that no electricity can be consumed when guests are not in the hotel. The room key essentially becomes not only a security device for the door lock, but also a protection device that prohibits energy waste. In developed countries, an analogous approach in which motion-sensitive light switches limit energy waste is becoming more common.

In the electronics industry, numerous examples can point to companies developing consumer products that improve their environmental stewardship and help them compete more effectively. Motorola’s fully recyclable MOTO W233 Renew mobile phone, partly manufactured from recycled water bottles, is the “world’s first carbon-neutral mobile phone,” certified as such by Carbonfund.org after an “extensive product lifecycle assessment.”[32] This product comes from a company that is a leading environmental steward. Motorola has previously been among the Citizen’s Advisors top ten Corporate Citizens in Environmental Stewardship.[33] Its recyclable phone fits nicely with Motorola’s existing recycling program, discussed earlier in Chapter 3, “Green Strategy Supports Operational Improvements” (Section 3.1.1). Electronics companies are also differentiating themselves by setting—and, in some cases, already achieving—aggressive carbon-neutral and emissions-reduction targets at the enterprise level.

According to a 2008 IBM survey of 125 executives from the automotive industry in 15 countries, fuel efficiency and eco-friendliness will represent the two largest changes in vehicle-buying criteria by 2020. The survey also found that, by 2020, automobile fuel will likely be 65 percent sourced from fossil fuel (compared with 95 percent in 2008) and that 88 percent of materials that make up an automobile will be recyclable. This aligns well with the finding that, in 2020, every vehicle is expected to have some level of hybridization and that lithium-ion batteries will dominate.[34] As in other industries, the automotive industry will undergo significant change over a long time horizon, to improve the environmental impact from its processes and products. The dominant automotive companies are already positioning themselves with product innovations, process-efficiency improvements, and branded awareness campaigns to compete effectively.

Leading in environmental stewardship will help companies win in the marketplace not only because customers can more easily accept their products and services, but also because the companies can be more cost-competitive and can reduce excessive waste that they might have needlessly consumed for decades. The list of companies taking action to improve operational efficiency grows steadily; those that have already achieved benefits are often taking further steps to make additional improvements. For example, Raytheon strives to integrate environmentally friendly behavior into daily practice. As a result, it has reduced hazardous waste by 85 percent per billion dollars of revenue since 1998—the company reduced hazardous waste 20 percent in 2007 alone.[35] Also in the aerospace and defense industry, Lockheed Martin pledged to reduce its greenhouse gas emissions 30 percent per dollar of revenue by 2010, using 2001 as the baseline. Lockheed Martin Space Systems took a further step to purchase about 10 percent of its energy from wind and solar sources.[36] Similarly, Honeywell is working to reduce its greenhouse gas emissions 30 percent and to increase energy efficiency 20 percent by 2012, using 2004 as the baseline year.[37] All these efforts improve environmental impact, as well as reduce bottom-line costs and increase profitability.

However, companies must pay attention to whether such pronouncements are made in absolute terms or in terms of revenue dollars. When expressed in terms of revenue dollars, total emissions can still increase even when stated reduction targets are met, where revenue growth is sufficiently high. Of course, any kind of waste reduction represents a step in the right direction, but standards for setting targets and reporting progress toward them are not yet in place across companies and industries.

Companies around the world are making environmental stewardship a top priority and using it to transform every aspect of their businesses. The green movement is driving changes in product and service offerings, business partnerships and alliances, infrastructure and office space, equipment and plants, information technology and computing capabilities, and organizational capabilities and governance. Governments are also working to facilitate the transformation to a more sustainable planet by providing incentives to adopt green practices and technology, providing funding to develop more efficient technology, and legislating new policies that enterprises must follow. Trends are now firmly in place, with drivers of those trends strongly aligned so that long-term prominence of the green movement can continue until environmental stewardship is a natural a part of everyday business activity. Perhaps Colin Harrison, who leads a number of environmental strategy activities from IBM’s corporate headquarters, is right when he remarks that “changing the light bulbs will not be enough” and that humankind in the late twenty-first century “will probably pity us for our addiction to fossil fuels.”[38]