What Do Employees Really Want?
I spoke this past week to a group of senior marketing professionals from a major consumer products company. It was a half-day workshop to explore the question, "How good is 'good enough'?" That question has been at the heart of speeches and presentations I've been giving for the past couple of years, and is at the core of my forthcoming book, Strategies for the Green Economy (about which you'll be hearing much more in the coming weeks).
The question, for the uninitiated, is essentially this: Given that there's no standard for what it means to be a "green business," how can a company know that its environmental commitments, performance, and progress will be viewed as substantitive and authentic in the eyes of employees, customers, activists, the media, and others — and, in the process, insulate itself from charges of greenwashing, or worse?
I don't claim to have the answer to this question, but I offer a framework for thinking about it. And I've found that simply asking the question can lead to some pretty interesting conversations inside companies, as each individual assesses what he or she thinks is "good enough," then benchmarks that against those of colleagues, trading partners, and others.
What strikes me nearly every time, as it did at the company workshop I led last week, was how many employees have a ready answer — and how varied those answers are.
The wisdom of employees is another theme that's woven through the tapestry of my work for the past twenty years. In my 1993 book, The E-Factor, I devoted a subtantitive chapter to this. It began:
If you understand nothing else about the potential of the people in your organization to effect environmental change, know this: A growing number of them are recycling, insulating, and otherwise greening their personal lives, either because they want to or because they are being required to by state and local laws. And, with the possible exception of a recently converted nonsmoker, no one is more self-righteous than a recently converted environmentalist. They take pride in their deeds and the part they are playing in the future of their community, their nation, and their planet.But then they go to work, where they see tremendous waste and inefficiency — in the front office, on the factory floor, in the supply room, and just about elsewhere else. The trash accumulated by a handful of coworkers each day dwarfs that modest pile of newspapers they put out on the curb at home for pickup each week. The pollution prevented by the energy-efficient light bulbs they installed around the house may seem obliterated by the harsh glare of the endless banks of fluorescent lights at work, burning long after most people have gone home, controllable only by an inaccessible computer in the basement. It doesn't take a degree in the behavioral sciences to recognize the frustration and cynicism that can result. And those bad feelings can affect performance, commitment, quality, and pride.
The flip side, of course, is that when companies commit to some of these same goals — when they give their employees permission and encouragement to think and act environmentally — their efforts are often enthusiastically embraced. In many companies, environmental initiatives actually begin with line employees, bubbling up through the ranks until top management, like any astute leader, signs on to the program.
Fifteen years later, that passage still rings true. And, in many regards, not much has changed. Companies — even environmental leaders — still largely fail to tap that mother lode of inspiration and insight that walks through their doors every day. In a recent survey conducted by Zogby International, 63 percent of employees said they were greener than their company. Another recent survey, by Fresh Marketing, found that "Most employees want more education and resources on corporate sustainability" and that only one in ten "feel completely prepared."
That's a lost opportunity. No one knows more about the waste and inefficiency inside a company than those in middle and lower rungs. These are the folks on the front lines who experience such things every day: the things that get purchased but not used; the things are tossed out that should be recycled; the "standard operating procedures" that result in seemingly small, but cumulatively large amounts of wasted energy, water, and materials. They know what comes into the loading dock and goes out through dumpsters, smokestacks, and drainpipes. In many cases, these individuals would be willing to spearhead changes — if they thought anyone cared, or if they knew that that sticking their necks out wouldn't backfire in some fashion, and might even win them praise. More often than not, these employees don't bother, playing it safe or simply assuming that whatever they do won't be valued, or will simply be a drop in the vast bucket of company wastefulness.
I challenge you to ask ten colleagues, superiors, or subordinates some version of this question: "What would you most like to see our company do to be more environmentally responsible?" I'll bet you a copy of my new book that at least half of them will have some ready answer. Whether or not it's a good answer isn't necessarily the point. The mere fact that they have an answer is significant. That suggests they've been thinking about this. Chances are, at least a few of their ideas wil be good ones.
I asked this question to the group of two dozen or so marketing professionals I met with last week. They work for a major multinational consumer products company that has a long record of leadership in greening its products, facilities, fleets, and more. But hardly anyone in the group knew about their company's environmental activites, and most were pleasantly surprised when they learned all that their company was doing. Most didn't consider themselves very knowledgeable about environmental issues, but when I asked what they'd most like their company to do, nearly everyone had a good answer: set a goal of becoming a paperless office; integrate environmental performance into everyone's job reviews; subsidize employee purchases of hybrid vehicles; dramatically reduce packaging used to transport their products to retailers; create a cross-functional green team to share experiences and best practices.
What struck me about these suggestions, aside from the fact that they were all reasonable ones, was that they were not aimed at hyping their company's green deeds to the world. These were all internally focused activities, things unlikely to end up as green claims on products or in ads, press releases, or marketing materials. (This was all the more remarkable given that these were all marketing folks.) In other words, it wasn't about creating a greener image. It was about creating a greener company.
This isn't a rare instance. I've seen this in company after company. When people believe that being environmentally responsible is part of their job, wherever they sit in the company, they'll often rise to the occasion.
One of my favorite stories about employee engagement came years ago from a major Midwest book and magazine printer that made great strives to empower its 9,000 employees to root out waste and inefficiency. The company boasted a long list of accomplishments, for example, reducing the number of barrels of waste ink (which had to be collected in 55-gallon drums and shipped off to a hazardous waste disposal site) from 17 drums a month to just one — a 96 percent reduction, representing a significant financial savings.
During a tour of the company, impressed by such feats, I asked the environmental manager, "How many employees do you have working on environmental issues?"
Without missing a beat, he repled, "Nine thousand." That is, it was part of everyone's job.
Now, that's the spirit.
September 6, 2008 in Business Practices, State of the Art | Permalink | Comments (2) | TrackBack (0)
California Puts Green Chemistry Under the Microscope
There's a classic, geeky science joke that "Chemists have all the solutions." That's starting to appear true from an environmental perspective, though it remains to be seen whether those solutions will actually come to market.
Green chemistry, a common-sense discipline that's less than twenty years old, has been emerging in recent years from the lab and into the marketplace, making inroads in conventional chemical companies and creating opportunities for upstarts. As I've noted in the past, this has been taking place at a slow, almost imperceptible pace, with relatively little fanfare, considering the implications. And there's a long way to go before green chemistry fulfills its catalytic potential to transform the way we make things, doing so in a way that reduces risks to both human health and the environment. But new attention is being paid to the discipline, and that's encouraging.
Green chemistry, a seeming oxymoron, is defined by two of its pioneers, Paul T. Anastas and John C. Warner, authors of the 1998 textbook Green Chemistry: Theory and Practice, as
the utilization of a set of principles that reduces or eliminates the use or generation of hazardous substances in the design, manufacture, and application of chemical products.
Or, as a recent report from a California state advisory panel nicely put it:
The science of green chemistry addresses pollution prevention at the molecular level.
The Green Chemistry Initiative Science Advisory Panel, convened by the California Environmental Protection Agency, was formed in 2007 to "generate ideas that could fill information and safety gaps about chemicals, develop overall policy goals, and identify and recommend policy options." The group issued its findings recently (download - PDF), a 190-page tome that offers no fewer than 38 recommendations, from regulatory to educational to informational, about how to make green chemistry the rule, not the exception.
The need for green chemistry is obvious. There continue to be substantive gaps in understanding the health and environmental effects for the great majority of the 83,000 chemical substances listed in the TSCA Inventory, the registry created under the federal Toxic Substances Control Act (TSCA) of 1976. And over the past twenty years, more than 20,000 new substances have been added to the Inventory, as global chemical production continues to grow at about 3% per year, doubling every 25 years. As has been well documented since the publication 46 years ago of Silent Spring, many of these chemicals come in contact with people — in the workplace, in homes, through the use of products, and through air, water, food, and waste streams — and many enter the earth's ecosystems at some point during their life-cycle, some remaining persistent for decades.
The California panel identified three gaps which, it says, are critical to making green chemistry mainstream:
- a Data Gap, in which manufacturers and businesses currently can sell a chemical or product without disclosing sufficient information about its potential health or environmental hazards.
- a Safety Gap, in which public agencies often are unable to efficiently regulate known hazards in an integrated, comprehensive manner, or require producers to accept greater responsibility for the lifecycle impacts of their products.
- a Technology Gap, with insufficient private or public investment in green chemistry research, development, education, and technical assistance.
Together, says the panel, these gaps have produced "a flawed market for chemicals and products in the U.S." in which the health effects of many chemical exposures are poorly understood; hazardous chemicals and products are competitive in the market; the majority of the costs of health and environmental damage related to chemical exposures and pollution are carried by the public; broad investment in green chemistry across the chemical industry sector is inconsistent; government has limited authority and information with which to adequately assess the risks of most chemicals; and there is very little attention given to green chemistry in high school, college, or university curricula.
That needn't be the case, and the report's recommendations show that it will take both "supply-side" options — initiatives in education, research, economic incentives, etc. that will help to facilitate the creation and dissemination of greener chemicals, processes and technologies — and "demand-side" options — chemicals policy elements that will drive demand for these greener chemicals, processes and technologies, by better informing the market, providing a level playing field on which greener options can fairly compete, and creating a regulatory climate that drives both the development and the adoption of greener alternatives.
The California report recommends a wide scope of remedies, from education about green chemistry starting in K-12 and continuing through graduate programs in both chemistry and business; to establishing Green Chemistry Science and Technology Innovation Centers across the state; to creating awards and design competitions; to launching a California Chemistry Research Challenge; to establishing "one or more independent non-profit institutes to identify, develop, and test safer alternatives."
That's just on the supply side. On the demand side, the panel recommends that the state develop a comprehensive "map" of the flow of chemicals in California; require chemical manufacturers and users to systematically identify and consider safer alternatives; provide retailers with access to guides for selecting greener alternatives to toxic products, via a retailer clearinghouse; develop a "green scorecard" for chemical products that lets both producers and consumers know which products truly are greener than others; and incorporate green chemistry criteria into state procurement processes.
There's more — as I said, 38 recommendations in all. It's a blueprint not just for promoting green chemistry in California, nationally, or even globally, but also for how enlightened environmental thinking at the state level can circumvent or overcome the inexcusable failings of national leadership.
Of course, it's not just up to government, however enlightened. What strikes me as a big problem is the opposition of the chemical industry toward basic policy steps that would level the playing field for green chemistry. Case in point: a bill introduced in the California legislature in June would require manufacturers to disclose information about ingredients for certain consumer products. That's one of the California panel's 38 recommendations, following the observation that "existing product labeling requirements and material safety data sheets reveal very little about the chemical components of common products, whether in formulations (i.e., chemical mixtures) such as cosmetics or household cleaners, or in finished goods like toys, clothing, and automobiles."
Mandating disclosure of consumer products like air fresheners and household cleaners would likely spur manufacturers to eliminate hazardous chemicals for more benign ones, a key tenet of green chemistry, thus accelerating demand for green chemistry at a large scale.
One problem: the chemical industry has lined up squarely against the bill.
Chemists may have all the solutions, but they don't seem to want to use them. And it's no joke.
August 17, 2008 in Clean Tech, State of the Art | Permalink | Comments (4)
Carbon-Free Energy, Cutting Poverty in Half: Mr. Gore, Meet Mr. Edwards
In recent weeks, former vice president Al Gore challenged Americans to commit to producing 100 percent of electricity from "renewable energy and clean carbon-free sources" within 10 years. And former senator John Edwards launched a Half in Ten campaign "to reduce poverty in the United States by 50 percent within 10 years." Two bold, audacious goals. Same starting dates. Same decade-long trajectory.
So, is there any chance that Messrs. Gore and Edwards might possibly join forces?
Not likely, based on what I've seen and heard to date. That their respective laudable and ambitious goals could possibly be synergistic seems beyond the grasp of these two leaders and their acolytes.
I've covered this topic — the job-creation potential of clean technology and renewable energy — repeatedly over the years (see posts in 2004, 2005, 2006, 2007, and 2008). While the job-growth trajectories may not have been as rapid or steep as anticipated, there's no doubting the rich potential opportunities, especially at the local level. All solar is local, to paraphrase Tip O'Neill, as is all wind, geothermal, wave, tidal, and biomass energy. That is to say, renewable energy has the potential to create jobs in every metropolis, town, and village — and every congressional district.
Why are two campaigns with identical 10-year horizons proposed by two former presidential candidates of the same age and political party (and from adjacent states) being treated as unconnected, separate efforts? Why aren't the initiatives to bolster our environmental, energy, and economic security joined at the proverbial hip? I don't have an answer; let me know if you do.
This is a problem on many fronts. First and foremost, it is a lost opportunity to connect the dots between growing markets for clean renewable energy and the need to create American jobs for the underclass sufficient to raise their standard of living above the poverty line. Beyond that, it evokes the criticism of the "environmental movement" levied in The Death of Environmentalism, the 2004 paper (Download - PDF) issued on the eve of the last presidential election. Adam Werbach, in his a speech on the topic that fall at the Commonwealth Club of California, charged that environmentalism, "an ideology focused on the inter-relationship of all things, came to be an ideology of things" such as seal pups, redwoods, clean air, Yosemite, clean water, and toxic waste. He continued his indictment of environmentalists:
Some of the things they have been taught not to think of when they think of the environment are AIDS in Africa, the tax code, highways, homeless people, asthma, good jobs and the war in Iraq. Each of those things — "environmental" or not — are stripped by American environmentalism and its sister ideology, liberalism, of their native habitat, their context, and their web of connections. They are single "issues," each requiring its own movement and experts.
Four years later, not much has changed. We're still not connecting the dots.
It's not for lack of dots. There are countless competent, influential organizations working in these arenas: Green for All and the Apollo Alliance, on creating green jobs for the underclass; the American Council on Renewable Energy, on rational, national energy policy that gives renewables their due; Gore's own Alliance for Climate Protection; Edwards' Half in Ten, the Association of Community Organizations for Reform Now, the Coalition on Human Needs, and scores of other groups working on poverty issues; and literally hundreds of other organizations. I've checked the websites of all of the above-named groups. None of them mentioned both the Gore and Edwards challenges.
Even Edwards himself doesn't seem to have connected the dots. I encountered the former senator at a reception in San Francisco a couple weeks ago, following an on-stage interview in which he had talked up his anti-poverty crusade. I asked him whether he'd considered joining forces with Gore's campaign to jointly accomplish their respective goals. He listened intently and responded, in effect, that it sounded like a good idea.
It is. Why doesn't anyone seem to get that? Sen. Obama? Sen. McCain? Isn't this year's presidential allegedly dominated by energy prices and the stumbling economy?
Anyone else? Opportunity is knocking, and the time is short.
August 2, 2008 in Clean Tech, State of the Art, Sustainability | Permalink | Comments (8)
GM and the New Plug-In Infrastructure
This week's announcement by General Motors that it has joined with more than 30 utility companies across the U.S. to work on issues related to electric vehicles got a great deal of media play. But the coverage only began to scratch the surface of the complexity of bringing plug-in electric vehicles to market in mass quantities.
In reality, the GM-utility conversation isn't entirely new. It began in January, at a Vehicle Electrification Workshop held at GM's research center in Warren, Michigan. I had the privilege of attending the meeting, which was facilitated by my colleagues at the sustainability strategy firm GreenOrder. The meeting included more than two dozen utility executives, including a team from the Electric Power Research Institute, the industry-funded consortium that served as the co-convener of the meeting.
It was an eye-opener, to say the least. It turns out that building the infrastructure for the plug-in electric vehicle isn't simply a matter of, "Here's a plug, here's a socket. End of story."
First of all, not everyone has a socket — a secure place to park their car and recharge it. Those living in apartment buildings, for example, lack this ability. Even where a plug exists, it may not have sufficient amperage to handle the load. (I'm a good example: I have a socket in my garage, but it's on the same circuit as my bedroom. If you plug in a power-hungry appliance in the garage, TiVo gets grumpy.)
But that's the least of it. Building the plug-in infrastructure involves a mind-numbing array of technical challenges. Among them:
There's much more. There's the need for public education, which requires understanding consumer habits and market expectations. There may need to be new financing mechanisms for customers, especially if plug-ins, as expected, cost more to buy, at least for the first decade or so. There will be infrastructure costs for cities, building owners, and others to build charging stations. What policy measures or subsidies will we need to incentivize them to do so? Will EVs get preferential treatment at toll booths, parking lots, and in HOV lanes? (Will today's Prius-style hybrids eventually lose their current preferential status?) What happens to fuel-economy ratings — will they need to be revised or rethought?
I'm just getting started, but you get the point.
It's not just GM, of course. Every car company large and small that wants to be a player in the EV market will likely need to hew to whatever standards are created — or risk being incompatible with the mainstream, the automotive version of Betamax. GM, in its wisdom, decided it wanted to be at the table where those standards were created.
All of this may seem somewhat futuristic, but it isn't. The first-gen plug-in hybrid vehicles (not counting the relatively small number that have been retrofitted by hobbyists and EV fanatics) will hit the market in 2010 — a scant two years from now — from GM, Nissan, Toyota, Volkswagen, and others. Given the slow pace of gaining consensus — not to mention building a national infrastructure — the GM-utility partnership could play a key role in advancing the conversation, building some, if not all, of the many pieces we'll need for our petro-free transportation future.
July 24, 2008 in Business Practices, Clean Tech | Permalink | Comments (8)
Greenwashing (cont.) and the Need to Loosen Up
Jeffrey Hollender, the founder and CEO at Seventh Generation, published a counterpoint to my recent post, How Bad Is Greenwashing, Really? I encourage you to read it here.
I just responded on his site, and thought I'd share the conversation here. To wit:
Jeffrey,
Thanks for your comment. I've long admired your outspokenness on the topic of the green marketplace, and your willingness to be, as you describe yourself, an inspired protagonist.
I don't disagree with some of your points, but I think you missed mine. It wasn't about companies that can't handle criticism. And it wasn't about condoning companies that are being misleading or dishonest. As you well know, I have been an outspoken critic of greenwashing myself over the past twenty years.
But there is a tremendous amount of green activity going on in the world of business that doesn't fall into either category, and it deserves more than a little consideration and a knee-jerk response.
Nearly every big company these days is taking a hard look at its products, processes, and operations through the lens of environmental impacts, and many are making changes that reduce their impacts significantly, even though the changes may represent a small, even tiny, part of their operations. They are doing these things for a range of reasons — to cut costs, increase sales, attract and retain employees, reduce risks, and improve their reputations, among other reasons. Frankly, their motivations are unimportant, as far as I'm concerned. What's important is that they are engaged as never before.
The challenge most big companies face is how to make gradual changes without being pilloried for not being "good enough." Incrementally, after all, is how big companies change. Smaller, privately held firms like Seventh Generation can move much more quickly and boldly, especially when they have leaders as enlightened as you. But unfortunately, such companies are few and far between. The overwhelming majority of companies, especially big public ones, move much more slowly. Nonetheless, many are moving in a green direction, making changes both big and small. Yet I'm not aware of a single one that claims to be green.
Let's look at two of the examples you cite.
General Motors has created a promising technology that it plans to introduce in 2010. It is widely anticipated by most environmentalists and transportation experts as a viable and attractive solution to reducing the use of oil. GM is currently scrambling to unload its gas guzzlers and is working on selling its Hummer division. The company executives I've talked to are simultaneously humbled and hopeful about their future and are changing direction. I can assure you that no one at GM, from their chairman down, has claimed that they are green, or even close. I checked the website of Procter & Gamble's Pure Essentials and didn't see any green claims. Yes, calling it "natural" is dubious at best, but it's hardly hardcore greenwash. Meanwhile, P&G has set a goal of selling $20 billion in sales of products with what it calls a "significantly reduced environmental footprint version of previous alternative products." (More on that here.) This may not fit your standard of "good enough," but it's hardly disingenuous. Now, I'm not for a second claiming that either company is "green" — or even "good." Both have a long, long way to go, in my book. But both represent sea changes for companies with mega-billion-dollar worldwide impact. And my sense is that it is just the beginning, not the end, of their efforts in this regard.
(Full disclosure: GM is a client of GreenOrder, a sustainability strategy firm with which I am affiliated; I have no business relationship with P&G.)
It's not just GM and P&G, of course. There are dozens of other big companies trying to navigate similar paths — making changes while maintaining their market share and brand images, and doing it under the watchful eye of Wall Street, which has been anything but supportive of these efforts.
So, how should we view these companies? As polluting scam artists who should be scolded for deigning to talk about their efforts? Or as companies trying to shift directions, even if it's slower and more incremental than most of us would like? Do we beat them up or cheer them on?
I vote for the latter — always, of course, remaining watchful to make sure that their rhetoric doesn't get too far ahead of reality. In short, I think you — all of us — should loosen up a bit and give these companies some room to move — some rope on which to hang themselves, if you prefer. Transparency, as you point out, is key. I couldn't agree more.
Yes, there are more than a few companies that just don't get it — that are trying to put green lipstick on a pig by making environmental marketing claims that far outweigh the size of their efforts. (This includes many smaller companies, who all too frequently claim that we can "save the earth" by buying their organic socks, hemp soaps, or whatever. They're all good people making quality products, but their green marketing claims are sometimes outlandish, to say the least.) But for every company that doesn't get it, there are many more that are moving forward, however imperfectly. To dismiss every big company effort and statement as a "corporate disinformation campaign" needlessly tars both the leaders and the laggards with the same brush — and insults every earnest environmental professional in those companies who are trying — often against significant odds — to move the needle inside his or her company.
Like you, I'm concerned about the pace of change. I wish it were faster, and we need to keep the heat on companies to take bolder, more audacious actions. This is no time to celebrate small, symbolic measures.
But like it or not, we can't make the societal changes we need without the big guys. Seventh Generation is an admirable company, a true leader, but it alone can't address the significant environmental challenges we face. If the world's largest companies don't join in — well, your two decades of leadership will be all for naught.
Finally, since you brought it up — gratuitously, I might add — let me raise the Clorox issue, about which you've criticized me privately several times over the past few months. But since you've raised it publicly, I feel compelled to respond in kind. I did a small consulting project for Clorox for three months during 2007, acting as a sounding board for their outreach efforts in the run-up to the release of their Green Works cleaning line. My engagement, as I understood it, was to ensure that their messages were authentic and wouldn't overreach. I have done no work for them for nearly a year, and have disclosed my brief involvement with them whenever I've written about them.
If you'd like, I'd be happy to reveal to you offline the exact amount of money I received for these efforts, but to put it in perspective, it's a small fraction of the amount of money Seventh Generation paid me during the 1990s, when you were licensing a version of my green consumer newsletter.
Were all the laudatory things I wrote over the years about you and Seventh Generation (or were quoted as saying in the press) genuine, or just a symptom of my "clouded judgment"? You make the call.
Respectfully,
Joel
July 20, 2008 in Green Marketing | Permalink | Comments (9)
How Bad Is Greenwashing, Really?
Is greenwashing really as bad a problem as some are making it out to be?
I've been thinking about this question a lot recently, as the G-word crops up more and more frequently in articles, blogs, reports, and conversations. Of course, the answer depends a lot on one's view of the potential for big companies to improve their environmental performance — and talk truthfully about it — and whether the pace of corporate change is sufficient to address the magnitude of the problems we face. Like "beauty" (and "green"), "greenwash" is in the eye of the beholder.
The definition of greenwashing has changed in recent years. In the early 1990s, the term was used to describe deliberate and cynical attempts by companies to mislead the public about their environmental commitment and performance. In its seminal 1992 publication, The Greenpeace Book of Greenwash (download - PDF), the activist group described "the growth of citizen movements against environmental degradation in many countries," which, by the late 1980s, "had gained sufficient strength and exposure to become a potential threat to the political power and financial health of TNCs" — transnational corporations.
TNCs could no longer deny their role in environmental degradation. Instead, they embraced the environment as their cause and co-opted the terminology. While little changed in practice, the greenwash counterstrategy was born. Since the birth of greenwash, industry has devised a far-reaching program to convince people that TNCs are benefactors of the global environment.
Arguably, that's no longer the norm. Most companies are thinking seriously about their environmental impacts and risks, and what they should do about them. Most are doing something, though the majority are engaging in what I call "Random Acts of Greenness" — a few tweaks to their products, facilities, policies, or practices, but nothing that could be construed as systemic change. For the preponderance of companies, "going green" these days means a series of incremental changes that reduce, over time, their worst environmental impacts while, perhaps, garnering P.R. points.
Today, the 10th edition of the Concise Oxford English Dictionary defines greenwash as "disinformation disseminated by an organization so as to present an environmentally responsible public image." The U.S.-based watchdog group CorpWatch defines the term as "the phenomena of socially and environmentally destructive corporations attempting to preserve and expand their markets or power by posing as friends of the environment." In other words, deceitful behavior.
Such definitions pose more questions than answers. What, exactly, is a "socially and environmentally destructive corporation"? Is that nomenclature reserved for the worst of the worst, or do most big companies qualify? Should "disinformation" — the deliberate dissemination of false information — be ascribed to a less-than-perfect company talking about its genuine efforts to improve its performance? If so, how good does that company need to be to, in effect, have permission from activists and other watchdogs to talk its walk? Should only "good guys" be allowed to have that conversation?
The answers to such questions are of more than academic interest, or should be. These days, greenwashing is applied by some to just about any environmental statement from any large company. That's left many companies confused and conflicted, unwilling to talk about what they're doing right, however imperfect, for fear that such communications will brand them with the G-word. As a result, many companies I've talked to have clammed up, keeping their green initiatives largely to themselves, enjoying the other business benefits these efforts bring — reduced costs, decreased risks, improved quality, increased employee satisfaction, etc. — but foregoing the reputational benefits.
It's not just activists who aren't giving companies much slack. Case in point: In April I spoke to the annual conference of the Society of American Business Editors and Writers, a national association of business journalists. At a session on green business, reporters from some of the leading publications and news services — the Associated Press, Bloomberg, Dow Jones, Reuters, the New York Times, and dozens of others — posed questions for me and my fellow panelists. More often than not, the questions started out with some version of, "Given that 90 percent of what companies say is greenwash . . . ." If these gatekeepers of business information for the mainstream media don't give companies much green cred, why should activists, bloggers — or anyone else?
So, the question remains: Is greenwashing really all that bad?
Truth in advertising is vital for any marketplace, including the green one. The U.S. Federal Trade Commission is re-examining its standards for truth in green advertising, along with the Canadian Standards Association, which recently released new green labeling guidelines. A U.K. study issued in May found that the number of complaints about ads that made green claims in 2007 was more than four times higher than the year before. Does that mean things are four times worse than before, or that four times more people are paying attention? The study doesn't say, though its authors acknowledge that "Most greenwash is due to ignorance and/or sloppiness rather than malicious intent."
Meanwhile, a small army of academics and activists are on the case, pointing out eco-hypocrisies both large and small — see examples here, here, here, and here. Clearly, the audience is listening.
Put it all together and it's not the travesty some would make it out to be. The rise of environmental marketing claims indicates that companies are engaged as never before — perhaps not sufficiently, but engaged. Companies are jumping on the green bandwagon in growing numbers, and they're starting to tell stories about themselves and their products. That's a good thing: storytelling is the first step toward transparency. Like all marketing, there's a tendency to resort to hyperbole and cliché. And that needs to be policed, no less so than safety claims by toy companies or nutritional claims by food companies.
As last year's Six Sins of Greenwashing report unveiled, there's a lot of sloppiness out there — a great deal of unsubstantiated claims as well as those that address only part of a product's environmental impacts, sometimes a relatively small part. But there was almost no outright deceitful behavior — fewer than 1% of all claims examined in the study were patently false.
So, is greenwashing — "disinformation disseminated by an organization so as to present an environmentally responsible public image" — on the rampage? I think not. Dubious marketing claims are problems that need addressing, but it's part of the growing pains of a new market. The rise of green marketing claims is a testament to how quickly being seen as green has become of importance to companies. Isn't that what all of us wanted to see happen?
Greenwashing represents the naturalizing of green as a meme. It demands scrutiny by all of us, and action against the egregious actors. But, in the end, as the saying goes, it's all good.
July 6, 2008 in Green Marketing, State of the Art | Permalink | Comments (9)
Energy Help: A Primer for Smaller (and Bigger) Companies
As fuel and electricity prices have ratcheted up, so, too, have the queries about what to do: where can companies, especially smaller ones, go for help?
On the one hand, that's a big, vague question. Where you go depends on what business you are in, where you're located, what you need, and how much, if anything, you're able to spend. On the other hand, there's a lot of help out there, much of it low-cost or free, if only you know where to look.
Below are just a few of the resources aimed at small and midsize companies. They will be of help largely to U.S.-based companies — apologies to those elsewhere, though there likely are analogs to these resources in other countries. This is by no means comprehensive; indeed, it probably only scratches the surface. But it points to a handful of approaches and resources that appear to be well-kept secrets for the vast majority of companies I hear from.
- Manufacturing Extension Partnerships. This is a national network with hundreds of specialists who understand the needs of manufacturers. The network sits within the U.S. Commerce Department's National Institute for Standards and Technology. There are 59 MEP centers in 443 locations in every state and in Puerto Rico, providing manufacturers with an array of services that focus on growth, productivity, and efficiency.
From the MEP site:
MEP center specialists provide an array of services to companies, from initial assessments prioritizing opportunities for improvement, to implementation projects guiding companies through process improvements, productivity increases, and growth. Centers provide companies with access to training resources as well as specific project assistance. Some engagements are short-term classes or basic projects. Other companies engage in multiple projects with their local field specialist — as one improvement project often leads to several others.
- Industrial Assessment Centers is another federal program, this one under the U.S. Energy Department, that provides manufacturers with an in-depth assessment of a plant site — its facilities, services and manufacturing operations.
The program is administered by Rutgers University, which coordinates teams composed mainly of engineering faculty and students from 26 participating U.S. universities. The teams conduct energy audits and provide recommendations to manufacturers to help them improve productivity, reduce waste, and save energy. Recommendations from industrial assessments have averaged about $55,000 in potential annual savings for each manufacturer, according to DOE.
- U.S. EPA voluntary programs include some 200 programs to help companies reduce their environmental impacts and costs; someone once told me that the agency doesn't know the exact number of such programs (only select programs are listed at the link above).
The best known among these are Energy Star, which helps companies measure their energy performance, set goals, and track savings; National Environmental Performance Track, which recognizes company facilities that have strong environmental programs and records; and Climate Leaders, which works with companies to develop comprehensive climate change strategies. Other programs cover everything from laboratories to landfills. BSR recently published a directory of EPA's climate-related voluntary programs (Download - PDF).
The programs vary widely in terms of what they do (and how well they do it), but several offer some kind of technical assistance or mentoring; for example, Performance Track's mentoring program allows participants to seek guidance from other members.
- State and county programs. Of course, it's not just the feds. Nearly every state, county, and large city has one or more programs to help companies, particularly smaller ones, reduce energy, waste, water use, and other things. Some, like the Green Business Programs in each of the nine San Francisco Bay Area counties, reward companies that have reached some level of environmental achievement and performance; many of these provide consulting to companies to help them reach those goals. Some of the programs are run by nongovernmental groups — for example, Minnesota Waste Wise, run by the Minnesota Chamber of Commerce, which offers technical and informational services to help companies reduce waste.
A great number of these programs provide financial or technical assistance to companies to implement energy efficiency and renewable energy programs — everything from tax deductions to loans to subsidies to rebates. There's a comprehensive directory of them here.
- Local energy utilities. Last and certainly not least are local utilities, a growing number of which offer consulting and technical assistance to companies in their service area, including audits to identify opportunities for savings. For example, Seattle City Light, the city-run utility, offers facility assessments to help companies monitor, manage, and control their electricity and other utility costs. In the Midwest, Alliant Energy offers business energy audits that cover the full spectrum of energy-using appliances. Even smaller utilities are stepping up: tiny Muscatine Power and Water, which serves the Iowa town of the same name (population: 23,000) offers audits.
There are still other resources, notably the growing number of local green business networking organizations, such as those in Austin, Cleveland, Philadelphia, Rochester, San Francisco's East Bay, Washington, D.C., and the states of Colorado and Wisconsin, among many other places. These vary widely in usefulness. Some are loose networks aimed at providing fertile ground for job-seekers and consultants, others focus on strategies to help eco-entrepreneurs market their businesses, while still others have organized mentoring programs in which companies can learn from their peers. (A few, based on my experience, aren't much more than drinking clubs, though none of the ones mentioned here.) Some trade associations also offer peer-to-peer mentoring programs, too, though only a handful are aimed specifically at providing assistance on energy and environmental issues. (About a decade ago, I authored a guide to such programs, available here.)
And, of course, you can always hire a consultant.
Bottom line: When it comes to optimizing your company's energy use, there are fewer and fewer excuses for doing nothing.
June 22, 2008 in Business Practices, Climate Change | Permalink | Comments (5)
The Latest Reports: Solar Utilities, Carbon Offsets, and the Emperor's New Clothes
The spring rains have yielded a bumper crop of new reports on the business of green. I've been a bit behind in fielding them, given my travels and last week's highly successful Greener by Design conference. Here are five of the latest:
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My colleagues at Clean Edge have just released the Utility Solar Assessment (USA) Study, making the case that solar power has the potential to reach cost parity with retail-electricity rates in most regions of the U.S. in less than a decade — but only if electric utilities step up to the plate. The free report (Download — PDF), published in partnership with Co-op America, provides a robust roadmap for electric utilities to accelerate the growth of solar energy. Incorporating the latest technology, market, and policy breakthroughs, and interviews with key industry players and experts, it shows how a coordinated effort among regulators, the solar industry, and utilities can enable solar to reach 10 percent of U.S. electricity generation by 2025. At present, the combination of solar photovoltaics (rooftop systems turning sunlight into electricity) and concentrating solar power (utility-scale installations that harness sunlight to create steam to run generators) contribute only 0.06% of total U.S. electricity generation.
The USA study also includes a to-do list for three key stakeholders: utilities, solar companies, and policymakers. Suffice to say, there's plenty of work cut out for everyone.
- Clean Air-Cool Planet and Forum for the Future have just published Getting to Zero: Defining Corporate Climate Neutrality (Download — PDF), a joint project "developed in the absence of any hard and fast standards for climate neutrality, and out of growing concern that the real value of the concept could be lost in a stream of inflated claims."
The challenge of defining "carbon neutral" has long been problematic, as I've frequently noted (see here and here, for example). For example, there's no agreed-upon definition of how much of a company's carbon footprint it needs to offset (is it responsible for the gasoline that fueled the chain saw that cut down the tree that created the paper packaging for the company's widget?) or what's needed to offset it (can the company simply write a check to plant trees somewhere, or does it have to do more?).
Getting to Zero attempts to make sense of all this, laying out the boundaries, providing definitions, and recommending company approaches. Among the recommendations:
Embrace a stretching boundary. The key tension surrounding any claim of neutrality remains reconciling the absolute nature of the claim — implying zero net impact — with a practical boundary-setting process. In the spirit of the term, we recommend that companies accept that claiming neutrality implies some responsibility to consider and address broader value-chain emissions. This is not to suggest that companies accept legal responsibility for the direct emissions of others, but rather that indirect emissions be explicitly considered as part of the neutrality process.
This may seem overly geeky to some, but it's nothing less than Gospel to those who have been grappling with such issues, and CACP and the Forum deserve our thanks for having placed a stake in the ground on this important topic.
- Another Forum for the Future report, "leader business 2.0: hallmarks of sustainable performance" (yes, all lower case, per Brit style), which claims to showcase "today’s best examples of business and sustainability." The free report (Download) offers a framework that can help businesses approach sustainability in a systematic way, by separating out ten areas of general business activity — what the authors call "hallmarks": vision and strategy, governance and embedding, products and services, marketing, supply chain, external affairs, stakeholders, environment, community, and reporting.
It's a fairly typical list — albeit, with a U.K. perspective — and the report offers brief case studies for each of the ten categories.
- Arthur D. Little has published a brief paper on "Sustainable Performance," subtitled "A Case of the Emperor's New Clothes?" The free report (Download — PDF — registration required) argues that, by continuing to focus on traditional business objectives and paying little more than lip service to environmental issues, many companies risk losing out on the opportunities presented by sustainability — "not least the opportunity to run a more competitive business and to attract the attention of investors who increasingly recognize environmental performance as an indicator of long-term success."
ADL's survey of 99 publicly listed, large Nordic companies — widely regarded as among the most environmentally responsible of corporate citizens — found some surprising things, for example, that sustainability reporting is varied and not standardized and, as a result, not transparent; that there is little comparability even within industries, since companies tend to focus on their own, absolute measures; that few companies have quantified targets, or relate targets for improved sustainability to business objectives; and that few companies have clearly articulated strategies, and even fewer follow up or report on how they perform against their own targets.
The report offers sage advice for companies in any region:
Any company that wants to realise the opportunities presented by sustainability needs to develop an effective strategy for sustainable business development and performance reporting. This includes companies that may be tempted to complacency by an existing reputation for good corporate citizenship. Where some form of environmental reporting is already in place, companies need consider whether they really do meet the standards of international best practice, whether there are still opportunities for improvement, and what they can do to catch up with the world leaders in sustainability and environmental reporting.
- The Conference Board has published a paper in its Executive Action series, Company Approaches to Green Products and Services: What's Working and What's Not. Unfortunately, the document is available only to Conference Board members, but they've been nice enough to share a copy with me, so I'll provide some highlights.
In essence, the 10-page report, written by Bill Blackburn, a Conference Board Senior Research Fellow, is an up-to-date primer on green products, from basic definitions to explanations of life cycles to the basics of green marketing. Blackburn knows from where he speaks: The former head of environment at Baxter International, he is author of The Sustainability Handbook, an authoritative reference for environmental managers. Blackburn's insights are complemented by the findings of a research panel, whose members include Aveda, Coca-Cola, J.C. Penney, Xerox, and others.
Among the "best practices" Blackburn suggests:
- Train and periodically update the company's design and marketing workforce, including their management, on the social and environmental issues and trends that are relevant to the company and the type of products and services it offers.
- Consider the issues and trends relevant to suppliers, wholesale customers and end consumer.
- Support two-way communications to ensure marketing reconnaissance and feedback from other key stakeholders and information sources are shared.
- Stay up to date on green product and service successes and failures of other companies, especially peers.
- Inventory current products and services to see which ones may be considered green.
- Identify potential areas where developing new green products or services might be productive; involve outside experts and/or new personnel to help stimulate the discussion.
- Periodically evaluate your progress in greening and promoting your products and services, and how well they stack up against the competition.
June 17, 2008 in Business Practices, Clean Tech, Climate Change | Permalink | Comments (1)
The Greening of Design, from A to D
The greening of design is gaining interest, and I'm not simply talking about our fast-approaching conference on the topic, Greener by Design. Last week, Business for Social Responsibility and the design firm IDEO released a new free report (download - PDF) showing how companies are infusing sustainability into their design processes in ways that have led to innovative products that offer value to consumers.
The report offers an "A-B-C-D Approach to Making Better Products," as the subtitle promises. And while the real-life process may not be quite that alphabetic, or simple, the report offers a useful framework for how to think about product design and development through the lens of environmental sustainability, including some key questions that never seem to get asked.
The report begins with the observation that product design challenges are becoming increasingly more acute, due to companies' need to extend their product relationships up and down the value chain, including upstream sourcing and downstream recovery; increased regulations and demands for product transparency; the growth of global product recalls; and the wider range of factors companies must consider in product design and management, such as toxicity, recyclability, and renewability.
As the report's authors note, many of these factors "lie outside the expertise of traditional designers and product managers." Moreover, companies developing sustainable design practices are recognizing that success in green product design involves going beyond integrating new tools into traditional design practices. It involves a whole new way of thinking about products.
The report outlines the "sustainable design intelligence" needed for an organization to design better products and create lasting business and customer value, including the aforementioned "A-B-C-D" approach that breaks sustainability into four behaviors:
- Assessing material impacts of projects and design capacity in an organization
- Bridging functions and people to make valuable, tractable product redesigns
- Creating generative internal and external learning projects
- Diffusing lessons and accountability mechanisms that build literacy and affect better decision making around the organization
They write:
Leading companies are transitioning away from a "pipeline" model of product development, in which groups throw and receive designs "over a wall" without understanding the upstream and downstream implications. The alternative, more "integrative product design" process featured in this report draws together disconnected groups and helps them strategize development of the competencies needed to improve products. It empowers eyes and ears around the organization to identify and manage sustainability issues emerging on the horizon.
What's the upside of all this? The report outlines a range of business benefits: better product performance, strengthened market position, improved compliance, reduced risks, increased organizational agility, improved morale and productivity, and "serendipitous innovation," such as when green thinking uncovers unnecessary complexity that adds costs, or when suppliers identify better-performing, cost-improving options.
The report offers examples of how the A-B-C-D framework has worked in companies like Clorox, Herman Miller, and Nike. Some of these stories have been well-covered elsewhere, but in the context of the BSR-IDEO framework, they take on a new dimension.
Part of what these companies' stories have in common is that they managed to break out of the siloed product design process, building cross-functional teams that go beyond technical and customer specifications to engage a broader swath of the company. That's a big barrier for many companies, where design specifications is left to engineers, designers, and a handful of others, often without regard to sustainability commitments and goals. (We'll be having a session at Greener by Design on how big companies have managed to cross that chasm.)
In the end, the biggest need for companies in aligning their product design process with their sustainability goals may be to redesign the company itself: its ability to share knowledge and insights across brands, divisions, business units, and job functions in a way that brings the best and brightest ideas to the table.
And maybe even to redesign the table itself.
June 3, 2008 in Business Practices, State of the Art | Permalink | Comments (2)
Going Down Under, Down Under
My life often takes me to amazing places, no more amazing than the Great Barrier Reef, where I've just taken two dives. I'm not an experienced diver, though my two dives off the coast of Cairns, Australia, nonetheless rank high in life experiences. Hovering over almost any spot of the reef yielded an abundance of life, the level of action growing the longer one stays and looks.
My too-brief Australian adventure took place en route to Wellington, New Zealand, from where this is being written. I'm here for World Environment Day, which, for the initiated, is a United Nations-sponsored event, celebrated since the mid 1980s each June 5, hosted by a different city. Wellington is this year's host and the theme — "Kicking the Carbon Habit" — seems as fanciful as it is formidable. In typical U.N. fashion, it is relatively uncontroversial, meaning no swipes at Big Oil or Big Coal, no carping at Big Auto or Big Finance, no finger-pointing at Big Mining or Big Timber, no blaming of countries, political leaders, or pretty much anyone else. We're all here to be part of the solution.
Everything else down here should be so uncomplicated. Unfortunately, Australia and, so a lesser extent, New Zealand, seem to be going through the same throes of change as their brethren in Japan, North America, Europe, and elsewhere. High energy prices are roiling national politics, leading legislators to propose short-term gas tax rollbacks to ease prices at the pump. Administration officials, scientists, and activists are debating the extent to which the country should cut its carbon emissions — and who should pay for it. Critics charge the national government is giving short shrift to clean energy, while solar, geothermal, and wind energy companies are vying with one another over who will get the spoils of the country's growing appetite for clean energy. Meanwhile, the local media are having a field day finding hypocrites amid the ranks: legislators touting fuel efficiency but driving gas-guzzlers; corporations touting their green credentials but leaving their office lights burning brightly all night; the frivolity of government ethanol mandates amid rising food prices.
In other words, it feels just like home.
It's not entirely, of course. New Zealand, for example, is in many ways a shining beacon of sustainability, relatively speaking. Last year, Prime Minister Helen Clark announced her intention that New Zealand become the first carbon-neutral country, proclaiming: "I believe New Zealand can aim to be the first nation to be truly sustainable across the four pillars of the economy, society, the environment and nationhood. I believe we can aspire to be carbon neutral in our economy and way of life." New Zealand will have to do (friendly) battle with Costa Rica, Iceland, and Norway — all of which have made similar declarations.
Suddenly, it's no longer feeling that much like home.
Much like my dive, it seems that the longer you stay in one place, the more you can see.
June 2, 2008 in Sustainability, Trendwatching | Permalink | Comments (2)
Office Buildings As Peaker Plants
My speaking schedule last week took me to Toronto, to a conference of commercial building owners and developers, along with a corps of product and service purveyors that do business with them. It was a good time to talk about the future of office buildings, looking beyond LEED and other green-building considerations to examine the role of buildings in a cleaner energy future.
First, a little context. I've long maintained that the same constellation of forces that are requiring us to re-examine our energy generation and use — worldwide growing energy demand, depleting oil stocks, constrained and fragile electric grid, climate change, and all the rest — is fueling a wave of non-energy companies into the energy business. I'm not referring to the hundreds of solar, wind, biofuels, and other clean-tech start-ups you've been reading about. I'm talking about some of the world's biggest companies that are finding themselves, largely for the first time, in the energy business. These new energy companies aren't traditional oil, coal, nuclear, or natural gas companies, or energy utilities in the traditional sense. Rather, they represent companies as diverse as the electronics firm Toshiba (making fuel cells for laptops) to livestock processor Tyson (partnering with ConocoPhillips to convert beef, pork, and poultry fat into biodiesel).
To a large degree, the trajectory of energy technology mirrors that of information technology. Consider: the first computer systems consisted of a central computer hardwired to a lot of "dumb" terminals — so called because their principal purpose was to draw information from a big, smart mainframe. Then PCs came along and were able to do useful things themselves, as well as to talk to mainframes and to other PCs. Now, of course, everything talks to everything else — our computers with a billion other computers, as well as with our televisions, phones, and, soon, our cars, refrigerators, and wristwatches — and can do so wirelessly.
Energy systems are developing along similar lines. Most of us still live in systems where a central "mainframe" power plant feeds energy to "dumb" terminals — our homes and businesses. Increasingly, some homes and businesses are becoming smarter, as we install solar and other renewable systems to generate power, selling excess energy back to the grid. In the not-too-distant future, major appliances like refrigerators and heating and air conditioning systems will be "talking" to the electric grid, making adjustments or perhaps powering up or down during the course of the day in response to shifting energy demands and rates. Our plug-in electric vehicles and hybrids will store electricity in their increasingly more powerful batteries, and will sell extra power back to the grid when needed. We'll be able to make energy transactions from our vehicles, PCs, PDAs, and cell phones. And much of this will take place wirelessly.
All of these activities require switches, routers, microprocessors, and software — the essential ingredients of computing networks and the Internet — meaning that companies like IBM, Intel, Cisco, and Microsoft will be increasingly in the energy business. (Mahvash Yazdi, the Chief Information Officer at Southern California Edison, one of California's large electric utilities, told me last year that when her company's service territory is fully retrofitted with "smart" meters that can be read wirelessly, SCE will be able to collect data from 5.3 million electric meters every fifteen seconds. That's a phenomenal amount of data and computing power.)
So, where do buildings come in? Consider that electric utilities maintain "peaker plants" — power plants that are turned on during times of high "peak" demand for electricity. In many cases, peaker plants are older, dirties plants that have been replaced by cleaner, more efficient ones, but kept around "just in case" electricity demands require that they be turned on; some peaker plants are used for only a few hours a year. Suffice to say, peaker plants are subobtimal — imagine keeping an old gas-guzzler in your garage and keeping insurance paid up for a vehicle to be used just a few days a year when relatives are in town — and are often the subject of citizen opposition — whether to build new ones or keep old ones operating.
But suppose there was another way? That's where commercial buildings come in.
Imagine the scenario: it's 4 pm on a hot summer day. Air conditioners are blasting, both in offices and in homes. The local utility has maxed out its available power and needs to add more to meet demand, which is expected to rise further before the day is out, as people go home and turn up their AC, among other things.
But rather than firing up a standby power plant, the local utility, by prearrangement, selectively and briefly turns off the large air conditioning or refrigeration units in large office buildings, warehouses, big-box stores, and other large facilities in its service area. It does this for staggered five minute intervals per hour — imperceptibly to the occupants — thereby reducing overall demand sufficient to avoid adding new generation capacity.
In this scenario, these dynamic, demand-responsive buildings serve as virtual power plants — buildings as peaker plants.
The building owners, for their part, get a special rate or credit for allowing the utility to do this — and may even be able to override the utility's control in special conditions — so it's pretty risk-free. Perhaps they'd get free energy upgrades — for lighting, hot water, heating and air conditioning systems, and other energy-intensive equipment — for being willing to participate. For the utility, such investments will likely be far cheaper than the $40 to $50 million price tag for at least one recent peaker plant — which doesn't include the plant's onoing operating costs. And that's assuming the utility can get the community to let them even build one.
There's a business opportunity here for enterprising souls able to aggregate several million square feet of commercial space in a given service area, then "sell" those relationships to the local utility as a virtual peaker. Based on local utility tarrifs and state laws, the entrepreneur might even be able to get tax credits or other incentives available to build new power plants. More than likely, however, such arrangements will need a spate of new regulations and laws that provide incentives — to building owners, utilities, and third-party entrepreneurs — to allow buildings to serve as peaker plants.
I'm sure there are 1,001 other barriers — reluctant building owners, technical challenges, and so on — but none of them seem insurmountable. What will it take for such sensible efficiency measures to trump the construction of new, fuel-sucking, emissions-generating power plants?
Something to ponder this summer as you crank up the AC.
May 18, 2008 in Clean Tech, State of the Art | Permalink | Comments (6)
Exxon, the Rockefellers, and the Future of Big Oil
Last week, the Rockefeller family made an historic challenge to Exxon Mobil Corp., the company founded by John D. Rockefeller in 1870 (as Standard Oil), and in which dozens of family members still hold stock. The challenge came in the form of a shareholder resolution to require an independent chairman of Exxon's board of directors, so that the company can better maximize long-term shareholder value in a rapidly changing energy environment.
Making the board chair independent of the CEO may seem a technical governance matter, but it has great significance. The family argued that having a board that was independent from the day-to-day operations of company management would enable Exxon to better assess the risks and opportunities that are altering the energy and environmental landscape — and that Exxon might alter its business strategy based on a different set of assumptions than those under which the company has been operating.
Research conducted by my colleague Ron Pernick and me at Clean Edge in 2006 looked into Exxon and its set of assumptions about our energy future. Exxon has long adopted a stance that renewable energy will be a negligible part of the energy mix for the foreseeable future, and that operational and market conditions will remain static and relatively unchanging. At the time, we wondered, given the realities of our increasingly volatile global energy marketplace — growing demand, declining production, global security issues, climate change, rising food costs, and other business, social, and environmental challenges — whether Exxon's narrow view would leave the company at risk from competitors and less able to seize new opportunities and adapt to shifting market conditions.
We found some of Exxon's assumption flying in the face of the facts — for example, that only 2% of the world's energy will come from renewable sources by 2030, despite estimates by the Renewable Energy Policy Network that already attribute 4% of the world's energy to new renewable sources. The company consistently underestimates the annual growth of solar, wind, geothermal, biofuels, and other alternative energy resources. Moreover, company statements — as underscored by its actions — is that they are waiting for a major breakthrough in renewable energy technology, at which point it will deploy its significant resources in bringing that technology to market.
There is good reason for the Rockefellers and other shareholder to be concerned about this strategy. By placing nearly all of its emphasis and focus on oil and gas, Exxon risks losing out on the new markets for renewables and places the company strategy within an outdated model of energy markets. As the renewable energy market has developed, it has become clear that our energy future won't be based on a single breakthrough, but on dozens, even hundreds, of smaller ones — new technologies, products and services, and business models. Everyone from GE to Goldman Sachs to Google seems to get this, and are investing accordingly.
So, diversifying investments more aggressively into clean-energy research and development would position Exxon to be better able to adapt to changes, capitalize on anticipated carbon trading schemes and expected developments in the regulatory environment, hedge its bets, and build new business opportunities as alternatives to petroleum-based technologies gain market traction.
Instead, the company seems to be biding its time, waiting for renewable energy markets to develop rather than jumping in to help build them. As a result, rather than taking a proactive role in advancing these technologies, Exxon runs the risk of either not having sufficient access to a viable partner when it finally decides to enter the renewables market in a substantive way, or of arriving too late and losing first-mover advantage, if not significant market share. Most of the other majors — BP, Chevron, Shell — have at least some robust renewable energy programs in place — wind, solar, geothermal, fuel cells, tidal power, and more — albeit relatively small ones in terms of revenue. But at least they're gaining experience and partners in the renewables space.
There are billions of dollars being invested by some pretty smart people in the notion that there's a Moore's Law of energy — that is, that innovation can make clean energy both ubiquitous are cheap. They're betting that energy can follow the path of microprocessors, hard-disk storage, and wireless telecommunications, where costs have plummeted as technology has steadily improved — and carbon can, in effect, be taken out of the energy equation. If even some of these bets pay off, Exxon's assumption — that oil and natural gas will remain the dominant energy sources for decades to come — could put them at a competitive disadvantage. Hence, the interest of long-term, multi-generational shareholders like the Rockefeller family.
It doesn't take much to roil the markets, as Exxon found out last week. At the same time that it revealed gusher-level profits, it's stock took a dive. The reason: Exxon's oil production was down 10 percent, continuing a yearlong decline. It's unclear whether the company will continue to have difficulty finding sufficient new reserves to replenish the billions of barrels it is pumping out of the planet, but if the trend continues, Exxon could find itself in trouble.
It's not too late. By changing strategies, Exxon stands to capture a better foothold in the evolving energy market and a significant percentage of revenues that would otherwise be lost.
Experts believe that the most viable technologies for the near term — such as cellulosic ethanol, next-generation solar technology, and plug-in hybrid technology, along with copious amounts of energy efficiency — represent the future of energy. With the likelihood of such events as a carbon tax or carbon caps within the next decade, the conditions for market acceptance of lower-carbon solutions become more attractive. The concept of negawatt programs is gaining traction, with power companies investing in conservation (average cost of $350/kilowatt) over coal ($1,000/kilowatt). The emergence of small, lightweight, long-running lithium-ion batteries has helped create a market for notebook computers, cell phones, and other portable devices. Efforts to scale that technology for use in automobiles could do for that industry what improved batteries did for computer and phone companies, building a market for hybrid, plug-in, or electric vehicles with great efficiency, acceleration, and range — at the same price or cheaper than today's gas-powered vehicles.
It's not just technologies that are changing. So are markets. For example, until relatively recently, the distribution of gasoline has been controlled by entities with an interest in keeping alternatives out of the infrastructure — the oil companies. But Wal-Mart and other independent retailers with large fuel distribution networks are largely impartial to the type of fuel they carry, and their market reach to consumers can accelerate the growth of alternative products and infrastructure. Large fuel purchasers like the Defense Department are actively creating conduits for the market acceptance of oil and gas alternatives by encouraging economies of scale and increased R&D. There are other disruptive technologies on the horizon that could gain market acceptance, further dampening demand for oil and gas. By waiting for a single "breakthrough" technology, Exxon is overlooking that this sector is engaged in an iterative process that is building a new approach to energy applications; waiting for the perfect solution is a potentially dangerous approach, from a business strategy perspective.
The modern history of innovation suggests that being big is no assurance of survival. Consider that six of the thirty multinationals included in the Dow Jones Industrial Average 20 years ago are gone today (Allied-Signal, American Can, Bethlehem Steel, Texaco, Union Carbide, and Woolworth), and a seventh, AT&T, exists in name only, the original entity having been scattered into multiple companies. Several others — Eastman Kodak, IBM, Sears, and Westinghouse — look radically different today than then. In many industries, the dominant players not that long ago are gone. Burroughs, Data General, Digital Equipment, NCR, Sperry, Univac, Wang — all leading computer manufacturers of the 1970s and 1980s — are cases in point.
The Rockefellers' efforts are aimed at ensuring that Exxon doesn't follow this path, and that it will overcome its stubborn, decidedly non-green, outlook toward one that recognizes the realities of a world in which carbon and climate become significant business considerations.
Will the strategy work? The odds are long, but we'll know more after the company's annual meeting on May 28. If history is any indicator, Exxon is likely to downplay dissent in favor of its own hellbent course.
May 5, 2008 in Business Practices, Clean Tech, Money Matters | Permalink | Comments (9)
The 2008 Shareholder Season
Some of the most important voting of the year doesn't involve candidates or political parties. It's taking place between shareholders and the companies they own.
It has become an annual rite of spring: a bumper crop of shareholder resolutions filed by activist investors aimed at compelling companies to address any of a wide range of social and environmental issues. This year is no different.
A new report on the 2008 season — the majority of companies hold their annual meetings in the spring — has been published by As You Sow (Free download). And while its intended audience are foundations, whose endowments typically include large stock holdings, the report offers insight for anyone interested at the state of the art of shareholder activism.
First, some background. Shareholders file all sorts of proxy proposals at annual meetings. Many have to do with corporate governance — such issues as selection of directors, appointment of auditors, and approving company stock plans. There are also social proxy proposal, frequently introduced at annual meetings by activist pension funds, especially those representing public employees and schoolteachers; universities (remember how schools divested investments in companies doing business in South Africa during Apartheid?), labor unions, foundations, and large faith-based institutional investors (what I lovingly refer to as "Little Sisters of the Immaculate Investment").
Over the past decade of so, shareholder proposals from such organizations have grown, from just over 200 in 1999 to 368 last year, according to As You Sow's "Proxy Season Preview." Environmental topics have historically accounted for the largest category of social proposals filed, covering such issues as greenhouse gas emissions, recycling, water, forestry, genetically engineered food, nuclear waste, oil production, protected lands, and environmental justice.
Many of these proposals never come up for a vote, but that's part of the process, As You Sow explains.
The goal of shareholder advocates is to change a company's practice or policy. Most shareholders prefer to do this through a "good faith" dialogue with the company. Shareholders file proposals if a dialogue is not going well or the company is unresponsive. Filing a proposal can often bring the issue to the company's attention and lead to a dialogue or change in policy or practice, in which case a proposal is no longer warranted and ultimately withdrawn.
Even when votes are held, success doesn't always require a majority vote. While most social and environmental proposals receive votes in the single digits, a significant number have received 20% to 50% in the last few years. "These votes are comparable to or better than traditional governance proposals and serve as further evidence that social, environmental, and reputational risks are being viewed as legitimate concerns in their own right by mainstream investors," says the report.
Because of this, proposals tend to be repeated year after year, largely in hopes of garnering bigger and bigger support. Indeed, says As You Sow, many of last year's top issues will dominate this year's crop of proposals, though 2008 will also see a slew of new proposals and shareholder campaigns. Major issues include global warming (50+ proposals covering climate change, greenhouse gas emissions, energy, and related issues), sustainability (35+ proposals), and animal welfare (25+ proposals).
One topic entering the picture is "toxic TVs." On February 19, 2009, all television signals in the U.S. will convert to digital broadcast, rendering millions of analog TVs obsolete. This so-called Digital Deadline is likely the largest government-mandated planned obsolescence in U.S. history. Tens of millions of TVs are expected to be discarded as consumers purchase new digital sets rather than obtain a low-cost converter which will allow current sets to function. Absent a responsible recycling system, this flood of TVs will add to the growing electronic-waste stream, much of which is sent to unsafe overseas recycling facilities. As You Sow filed a proposal at Best Buy asking the company to study the feasibility of using its stores as a take-back venue for e-waste and to give special consideration to have infrastructure in place for the digital switchover next year.
If nothing else, the "Proxy Season Review" is a good primer on environmental topics companies are being asked, or forced, to confront. Historically, a handful of leadership companies break ranks with their corporate brethren, taking a bold stance on a topic that has become a sore spot with investors and activists.
What topics and companies will be the talk of the 2008 proxy season? What will be the next domino to fall?
We should all take stock.