CHAPTER 8

The Death of Green, or
Is Your Marriage Sustainable?

AT A GLANCE

THE GLOBAL “GREEN” MOVEMENT has offered many solutions for the growing resources crunch. Many companies already have sustainability projects and green products. Why invent another strategy?

Once upon a time, there was a group of change makers that, it seemed, had figured it all out. Long before the awakening of the majority, this tiny minority saw the overfishing of the ocean at a distance and decided to act on it. They took on the challenge of the disappearing economy to a new level and attacked it head-on with new products, new processes, and new services. They wrote numerous books and spoke at many conferences. They pushed for industry-wide changes and gave birth to one unified answer to the resource challenge: the “green” economy.

I used to be one of them.

“Used to” is the crucial element here. For over a decade, I worked with countless companies on a range of sustainability risks and wrote articles and books on how to turn them into opportunities. All those years, it was a real pleasure and honor to work on projects that were much more than skin deep. Like many of you, I watched the rise in importance of everything “green” in media of every kind and attended the never-ending list of events that all seemed to suggest that “green” was the new black. The companies were courageous, the projects had impact, and the discoveries were potent. Yet in the bigger scheme of things, I could barely see any change in the mind-sets, behaviors, and outputs of the majority of companies worldwide. Green—as the answer to the challenge of the overfished oceans—was not working. Increasingly, something simply did not add up.

What comes to mind when you hear the phrase “green product”? Let’s make it a bit more tangible. Imagine an “eco-shoe”… what do you see?

Most likely, some ecologically sound raw materials would come to mind—recycled or biodegradable, organic or nontoxic. Would this product be beautiful, aesthetically pleasing? When I ask this question at conferences, executive education sessions, and company meetings, most people shake their heads in an emphatic no. What about functionality—would it perform on par with a traditional shoe and have as much research built into it? Again, most people don’t think so. And what about the price? Here we also have an agreement: green products are expected to cost more. The outrageously pricey organic lipstick that runs down your face in five minutes, the green car of the future that would hardly claim a proud spot in the owner’s garage, a sad-looking organic apple twice the price of its conventional counterpart—the list goes on. If we sum it up, in the eyes of an average consumer, green products are ugly, underperform, and are expensive. Why in the world would we ever think that somebody is there to buy them?

The myth of “green” has been spreading like wildfire with the helping hand of marketing research. As far back as 2006, a National Consumers League and Fleishman-Hillard survey of US consumers reported the social responsibility of a company as being the number-one determining factor of brand loyalty, with 35 percent of respondents placing it on top, well ahead of product price and availability, each of those receiving a bare 20 percent of respondents’ votes. Three years later, Deloitte reported that while much of consumer behavior was still dictated by price, quality, and convenience, a whopping 95 percent of American consumers said that they were willing to “buy green,”¹ while a BBMG survey² that combined a national poll of 2,000 consumers with ethnographic interviews supported the Deloitte findings: nearly 7 in 10 Americans (67 percent) agreed that “even in tough economic times, it is important to purchase products with social and environmental benefits.” A year later, it became clear that concerns for the environment were not limited to the consumers from developed economies—the 2010 World Economic Forum report suggested that such concern was as strong in the emerging economies as well, “and in some areas stronger as they are often more directly affected, for example water pollution.”³ Sounds convincing, right?

The trouble in the research paradise started showing up when the announced “willingness to pay,” as economists call it, failed to realize in practice. Customers promised one thing and did another. Take, for example, public utility. Despite strong support for the “green electricity” idea in consumer polls, few utility companies have been able to attract any significant consumer following once the product was offered. The story of Massachusetts’s public utilities is a perfect illustration of this phenomenon. Massachusetts’ electric utilities have offered programs like National Grid’s GreenUp that let customers choose clean-energy sources for their power supply, for a premium. But in spite of an extensive marketing campaign, which included putting inserts in bills, sending online newsletters, hosting booths at events, and posting on Facebook to promote the options, there have been few takers. Barely 6,000 of the 1.2 million Massachusetts customers, or less than half of 1 percent, have signed up for GreenUp.⁴ It turns out people do what they do, not what they say. Surprised?

In their painful discovery, Massachusetts’s electric utilities were not alone. For a number of years, market data and academic research alike have signaled that the prevailing idea of green is dead. In a 2011 Forbes magazine article, Gregory Unruh puts it this way:

Consumers and the public… expect sustainability as a baseline condition of business. They don’t expect to pay for it…. Green marketers have known this for a long time. Consumers will consistently tell surveys that they are willing to pay more for socially and environmentally superior products. But when they are alone in the shopping aisle…, they rarely fork out more for “green.”… It’s a problem that established companies face when they add a new sustainable product to the portfolio. It immediately prompts the question “Well if this new product’s green, what does that say about the rest of your line?”⁵

Many corporate executives see this response as a slap in the face for taking the path toward sustainability. They are, in a way, being punished for going green.

In 2010, four professors from Villanova University and SUNY Albany discovered during the course of their research that even financial markets are willing to punish for sustainability misdoings while they balk at paying a premium for going green.⁶ The researchers found that being listed on a sustainability index doesn’t improve share prices. However, when a company is thrown out from the index, the market inflicts a strong punishment—an average 1.2 percent of share-price loss following the delisting.

Consumer and market research has consistently confirmed academic research of this kind: Trendwatching.com put the death of green as one of its 11 most important trends for 2011, speaking of the plateauing number of consumers searching for “green” products, with the mainstream starting to question the value of going green:

• While 40 percent of consumers say they are willing to purchase green products, only 4 percent of consumers actually do when given the choice. (Source: Journal of Marketing, September 2010.)

• Fifty-eight percent of global consumers think that environmentally friendly products are too expensive, while 33 percent of global consumers think that environmentally friendly products don’t work as well. (Source: GfK Roper, September 2010.)

• While the volume of green products available to US consumers increased by 73 percent between 2009 and 2010, only 5 percent of products were not found to include some “greenwashing” claims. (Source: Terrachoice, October 2010.)⁷

Greenwashing—a practice of deceptively spinning data to create the perception of an environmentally and socially friendly company—has been a fertile ground for mistrust and aversion to green, which seemed to grow through 2010 and 2011. Data from 2012 is even more worrisome. An Advertising Age headline says it all: “As More Marketers Go Green, Fewer Consumers Willing to Pay For It.” What the magazine is referring to is the surprising results of the annual Green Gauge survey by GfK suggesting that while 93 percent of consumers reported they had personally changed their behavior to be more into conservation, they were becoming less willing to pay extra for green products.

The survey of 2,000 US consumers, fielded last summer, finds five- to 12-point drops in the percentage of consumers willing to pay more for eco-friendly cars, biodegradable plastic packaging, energy-efficient light bulbs, electricity from renewable resources, or clothing made of organic or recycled materials. Much of the fault for the consumer pushback lies with marketers for over-hyping green products and making overly aggressive claims. “You have this kind of heightened distrust,” said Diane Crispell, consulting director at GfK. “Consumers have become hypercritical. You see it with green and health claims.”⁸

That is exactly why Volkswagen decided not to sell its Golf TDI BlueMotion in the United States. At 106 mpg, the car is a beacon of efficiency and eco-friendliness. Yet VW sees more potential in Europe, “where gas prices are double those in America, because consumers are more willing to pay up front for efficiency.”⁹ Green is dead?!

There is no question that my portrayal of the green economy is oversimplified, generalized, and exaggerated. It is also very clear that the challenges that the vast majority of green products are trying to address are very real, worthy, and urgent. But if, with the help of bad marketing, “green” has become synonymous with overpriced, over-hyped, half-baked products, that kind of green deserves to die. Simply put, no market exists for such products. Even more so, this approach undermines consumer trust and kills the chances for any kind of green to be successful. Environmentalists, who for a long time paid attention to environmental sustainability at the expense of financial sustainability, have to learn a hard lesson: both are necessary. Gernot Wagner, an economist and author at the Environmental Defense Fund, made this point into a powerful plea: “Don’t stop recycling. Don’t stop buying local. But add mastering some basic economics to your to-do list. Our future will be largely determined by our ability to admit the need to end planetary socialism (where the entire society pays for the actions of individual consumers). That’s the most fundamental of economics lessons and one any serious environmentalist ought to heed.”

Clearly, not all companies deal with the resource crunch in the same way. Throughout the first decade of the 21st century, as mainstream attempts at green started showing the fundamental flaw of placing a premium on the environmental, health, and social performance of business, a new wave of solutions appeared. A significant number of pioneering companies realized that it was time to put the existing green tactics to well-deserved rest and build an entirely new approach. And for a while, it seemed to be enough.

AFTER ALL, SUSTAINABILITY MEANS running the global environment—Earth Inc—like a corporation: with depreciation, amortization, and maintenance accounts. In other words, keeping the asset whole, rather than undermining your natural capital.

MAURICE STRONG
ENTREPRENEUR AND FORMER UNDERSECRETARYGENERAL
OF THE UNITED NATIONS

From Bolt-On to Embedded Sustainability

It was the fall of 2009, and amid the raging economic crisis, Chris Laszlo and I were as busy as ever. Chris, a friend, a former LaFarge executive, author of an outstanding list of books, and sustainability strategist extraordinaire, had been my partner on a number of projects and a real source of practical inspiration. That fall, we got together to share what was happening in our respective fields of work, as projects seemed to grow in size, number, and complexity. After a few days of heated debates, our consensus was palpable: something was shifting. We just needed to put our finger on it.

One intense year of research and practice later, the initial hunch had grown into a new framework, a body of writing to guide our work. It was clear: what was happening behind the closed doors of the most innovative companies worldwide was a significant transition in managing social and environmental risks. We saw this transformation as a move from “bolt-on” to “embedded” sustainability. Here was the best way we could make sense of this transition: what the small army of managers practicing the “green at a premium” format were doing, in essence, was simply “bolting on” social and environmental efforts to the existing strategy and operations, leaving them to hang there as a barely relevant appendix or a poorly fitted Band-Aid. But a handful of managers were doing something different: choosing to embed sustainability into the very DNA of what they did, incorporating environmental, health, and social value into core business activities with no trade-offs in price or quality. The Nissan Leaf, for example, a 100 percent electric car named World Car of the Year 2011, offered features at a price found on most gasoline-powered cars. Combined with the emerging infrastructure to recharge electric cars, Nissan’s multibillion-dollar investment was driven by the quest for industry leadership and mainstream customer buy-in, not selling eco-cars to environmentalists. Leading companies such as Unilever, General Electric, and Erste Bank shared Nissan’s approach, which goes beyond green.

Unlike the omnipresent bolt-on efforts, embedded sustainability requires a fundamental shift across every dimension of the business system.

In essence, what the pioneering companies figured out was that the most productive way to move forward with social and environmental pressure on business is to stop fighting and rather turn these demands into a strategic advantage. The secret is integrating a new mind-set—a new way of looking at things—into all stages of company life, which in turn allows you to invent solutions without a quality compromise or green premium. Quite the contrary, embedded sustainability solutions are designed to drive down the costs or attract new revenues, making companies even more competitive. Sounds good, doesn’t it?

Table 1. Bolt-on versus embedded sustainability: key dimensions.

You can find this and many more concepts in the book I coauthored with Chris Laszlo in 2011, titled Embedded Sustainability: The Next Big Competitive Advantage. I am thankful to Greenleaf Publishing and Stanford University Press for their permission to use it here.

Yes, it does. The concept of embedded sustainability continues to serve me—along with many companies around the world!—and I stand by the spirit of this work. For the vast majority of companies that took it on board, embedded sustainability brought about real results, driving profits and mitigating risks. The problem is, there are just too few such companies around. After decades of powerful discussions and endless developments on the why, the what, and the how of sustainability in business, the concept is still not embedded in the minds of even a small portion of managers in the world. What is going on here?

It’s all About My Marriage

I have been working at the intersection of strategy, change management, and sustainability for nearly 15 years. Most of the time, my job has been to help companies with strategic risks and opportunities stemming from the declining resources, which, in turn, have led to new expectations from consumers, investors, regulators, and the public at large, all happening in the context of radical social media–fueled transparency. You would think that in the course of 15 years, this job would have become easier. Yet that is hardly the case: today, managers meet me with the same amazing mix of horror and boredom in their eyes as they did a decade ago. And when I ask my executive audiences to imagine being invited to a meeting about their company’s sustainability strategy, the comments are consistent across the globe: such meetings are always a pain to endure.

Why do we have to go to such great lengths to explain and convince, excite and activate, business leaders’ desire to work on managing ever-growing sustainability risks and opportunities? What is it that makes this so hard to swallow? Is it the fatigue and intellectual allergy to one more hyped-up management trend? Or is there something deeper? These questions were driving me crazy for a number of years—until one day at a management gathering, an amazing scene made the answer painfully clear. So let me set it up for you.

Imagine that you are having a wonderful dinner at your favorite restaurant. The night is great, the food is inspiring, the company is pure joy. On the way out, you bump into a former neighbor of yours—a great guy you shared beers and football talks with. You exchange pleasantries and a few updates about life and work. “How’s your marriage?” you ask amid the flowing conversation. “Sustainable” comes the answer.

Smiling now, aren’t you? So what is this smile about?

Sustainability, as a word in the English language, can hardly claim a place on the list of the most energizing and positive concepts around. It is simply not a good vision to strive for, as reaching sustainability does not make for a great achievement. We do not want marriages that are only sustainable. Similarly, building companies and societies that are merely sustainable is simply not good enough. We crave a much more powerful and captivating vision.

No wonder our managers are having trouble getting excited about it. The failure of the green movement to inspire and capture the minds of the business majority can be explained by poorly thought-out products and services. Yet even if all the troubles we explored with our eco-shoe discussion went away, the issue of language would be here to stay. Sustainability is simply not powerful enough. Our marriages, our companies, and our communities are better than that. We need an entirely new language—one that reflects an entirely new economy emerging right before our eyes. And that language is already here, moving beyond green into a much more alluring territory.

From Green to Smart

While green is dying and sustainability is struggling to inspire, something much deeper and more fundamental is happening in the market. As the rules of competition are beginning to shift, so are the winning strategies. As companies approach their products, services, and processes, a new way of thinking produces new results. You don’t see a lot of it, but the stirrings are frequent enough and striking enough to suggest that something entirely new is ready to be born. The sprouts are everywhere. Puma, Tennant, and SeeChange Health are among them.

Remember the eco-shoe we met at the beginning of the chapter? Here is a completely different take on the same industry. When Puma, a German multinational beloved for its athletic wear, went out of its way to create a new, more resource-intelligent package for its shoes, it did not call it “green”—or “ecological,” for that matter. The Clever Little Bag is a different kind of packaging that protects the shoes while doubling as a reusable shopping bag. The logic was simple: why do we expend a significant amount of paper for a shoe box; ship it to the store, where it is put into even more paper—the shopping bag; and then see it all in the trash only a few minutes after the purchase makes it home? Is there a more intelligent way? It turns out there is!

The goal was simple: Puma was going for nothing less than the smartest shoebox in the world. It partnered with design studio FuseProject and spent 21 months to develop a complete understanding of the entire value chain, generate over 2,000 ideas, observe factory behaviors all around the globe, and produce more than 40 packaging prototypes, all with the goal of reducing material and fabrication costs. The result was a new concept in packaging—a bag you can use again and again.

The Clever Little Bag delivers value to the company by protecting the shoes during transportation and storage—and also delivers an add-on value to the customer by offering a reusable bag to take to school or store the shoes in. The bag requires 65 percent less paper to produce when compared with the original packaging; reduces water, energy, and diesel consumption in manufacturing by over 60 percent; and cuts CO₂ emissions by 10,000 tons a year. As a smart product, it is beautiful, functional, and cheap, all at once. Moreover, it is a remarkably efficient marketing device. “If the packaging is so smart,” an average shopper might reason, “imagine what’s inside.”

Figure 7. Puma’s Clever Little Bag goes from green to smart.

Founded in 1870, Tennant Company, for much of its existence, had completely ignored resource depletion and other environmental considerations related to its products and operations as a factor of competitive differentiation. For the Minneapolis-based producer of floor-cleaning equipment and technologies, it all changed in 2002, when Chris Killingstad, the company’s CEO, attended one of his first trade shows that year: “When I walked into the room, I saw hundreds of different machines that looked exactly the same, except for their colors. I realized that we had to do something to differentiate ourselves.” In the mind of the company leadership, the global resource crunch emerged as a clear opportunity; yet there was something particularly fresh in Tennant’s approach. Killingstad puts it this way: “We will not skew to a Patagonia or Seventh Generation model. Our goal is not to fill a green or eco niche; it’s about achieving profitable growth within the industry. We aspire to substantially grow our business. This will require continued innovation and the absence of trade-offs—in price or performance—for our customers.”¹⁰

With the bar set so high, Tennant went about delivering a number of ingenious solutions, perfecting the process of innovation one product at a time. A real breakthrough came about when Tennant scientists traveled to Japan. Hospitals there had developed a way to turn ionized tap water into an effective sanitizing agent. When an oxygenation and electrolysis process was applied to tap water, the breakdown of the molecules created an acidic solution that could kill bacteria. When Tennant’s scientists began to study this idea further, it turned out that the process produced a second by-product that acted as a strong cleaner. Violà—a chemical-free technology was born and disrupted the entire cleaning industry.

With the new approach, operators of cleaning equipment had only to put water in their tank and go. And at the end of the process, what was left to be thrown out was essentially only dirty tap water. Moreover, the new technology used water more efficiently, reducing water use by up to 70 percent, whereby the operator could fill up less often and clean faster. Not only did the process get easier, but also it reduced the amount of money customers spent on chemicals and related costs, such as the cost of training. It also did not leave any chemical residues on floors, greatly reducing the potential risk of slip-and-fall accidents—which accounted for around 20 percent of insurance costs in retail environments, suggesting an opportunity for cost savings for Tennant’s clients.

Tennant introduced the new ec-H2O technology platform at an industry trade show in fall 2007. With multiple benefits for the cleaners and the users of cleaned surfaces (that would be all of us), the company has been enjoying steady growth in the revenues of ec-H2O, starting at $17 million in 2008 and jumping to $96 million in 2010 and beyond. That is taking it from green to smart!

What does a sane insurance company—or any company, for that matter—strive for, day after day? Selling more, indeed. Growth has become the mantra for any rational manager, programmed into our heads everywhere we turn, from classrooms to newsrooms to board-rooms. So why would you go out of your way to bring your revenue per customer down—encouraging, if not pushing, a growing list of discounts and perks on every consumer?

There is no question that SeeChange Health is not your regular company. SeeChange Health took the concept of health insurance on its face value—and started focusing on health. The result: careful design of “value-based benefits” for all employers offering health insurance. So where is the value? SeeChange Health’s insurance aims to increase the health of employees, increase productivity for the employers, and decrease costs for everyone, by rewarding healthy actions with hefty financial returns. Less sickness means fewer materials and resources used for recovery—yet, somehow, less becomes more. Fast Company named SeeChange Health number 20 on its “The World’s 50 Most Innovative Companies of 2013” list. Here is how the magazine’s J. Lester Federer explains this choice:

The simplest way to lower healthcare costs is also the hardest: encourage healthy behavior. That’s the premise behind the insurance policies of SeeChange Health, which… offers customers many discounts—depending on how healthy any one person works to be…. Before selling its own policies in 2010, it managed plans for larger insurers (which it still does). In one case, it incentivized 45% of diabetics to drop an average of 9 pounds, which led to a 19% drop in costs over two years. The company is now adding 2,200 members per month. In 2012, it says revenue increased sevenfold, to $54.2 million. That’s healthy growth.¹¹

I’d say.

My favorite consumer-behavior wizard, Trendwatching.com, has been speaking about this new wave of products with relentless clarity since 2011: “When it comes to ‘green consumption,’ expect a rise in products that are not only eco-friendly, but superior to polluting incumbents in every possible way. Think a combination of eco-friendly yet superior functionality, superior design, and/or superior savings.”¹²

Following this invitation, solutions similar to Puma’s Clever Little Bag, Tennant’s ec-H2O technology, and SeeChange Health’s value-based insurance are sprouting up around the world, whispering of the new economy that is fighting to be born. The era of green is over. It is time to put niche green products and processes to much-deserved rest and start working on the new business-as-usual paradigm—finding remarkable win-wins in the process. It’s time to discover—and benefit from—the Overfished Ocean Strategy. Our changing market and our society itself are simply no longer tolerant of anything less.