Joel Makower: Two Steps Forward

Earth Day and the Polling of America 2011

It’s become a rite of spring: a bumper crop of data, surveys, polls, and analyses about the green market space. Each year, as Earth Day comes into view, a picture emerges about U.S. consumer attitudes toward green business and green shopping. It’s a murky picture at best.

As I have done for the past several years (see 2007, 2008, 2009, and 2010), I’ve waded through the latest tranche of data — nearly a score of research reports from major agencies (Gallup, Harris, Ogilvy), boutique firms (BBMG, Cone, Shelton) and some lesser-knowns (Mambo Sprouts Marketing, anyone?) — that has come out over the past several months. It’s a tedious, mind-numbing exercise, to be sure. But it’s my self-appointed duty.

Here are three conclusions I’ve harvested from the latest crop.

1. Consumers are taking a harder look at companies, but they’re not impressed. The notion of green business is starting to be eclipsed by the larger notion of sustainable or responsible business, which encompasses social and environmental issues, as well as overall ethical behavior.

As they scan the marketplace, consumers seem underwhelmed. According to the Cone Shared Responsibility Study, three-quarters of Americans assign companies a “C,” “D,” or “F” grade on how well they are engaging consumers around critical social and environmental issues. That’s unfortunate, given the steady parade of progress that we report each week on GreenBiz.com — major commitments and achievements by big companies — though little of this makes it into the mainstream media.

Sustainability seems to be growing as a concept, even though not everyone groks the term. According to the Hartman Group, 15 percent more consumers are now aware of the term “sustainability” compared to three years ago (69 percent in 2010 vs. 54 percent in 2007), though only 21 percent can identify a sustainable product and even fewer, 12 percent, can name specific companies as “sustainable.”

That’s worth repeating: About four out of five consumers can’t identify a sustainable product and nearly nine in ten can’t name a sustainable company.

All of which points up two big problems: One, “sustainability,” for all its use by companies, remains a mystery to many people. And two, companies haven’t yet figured out how to tell their stories in compelling and credible ways.

Companies’ walk-talk gap remains vast — but not in the way many consumers think. The reality is that companies are walking far more than they’re talking — that is, doing more than they’re saying.

That was evident in the Sense & Sustainability study by the public relations firm Gibbs & Soell. It found that 29 percent of executives believe that a majority of businesses are committed to “going green,” compared to only 16 percent of consumers who believe this. Closing that 13-point gap would be a good start, though it would mean that more than two-thirds of the populace still remains unconvinced.

Suffice to say, there’s a vast chasm of credibility. Citizens want to be heard by companies and want to hear what companies are doing, but they don’t necessarily trust companies on either count. According to Cone, 84 percent of Americans believe their ideas can help companies create products and services that are a win for consumers, business, and society. But only 53 percent feel companies are effectively encouraging them to speak up on corporate social and environmental practices and products. That represents a big opportunity for smart companies to differentiate themselves.

To be sure, it’s a risky proposition. Cone found a whopping 92 percent of consumer saying they want companies to tell them what they’re doing to improve their products, services and operations. But nearly as many — 87 percent — believe the communication is one-sided — that is, companies share the positive information about their efforts, but withhold the negative — and 67 percent say they are confused by the messages companies use to talk about their social and environmental commitments.

The takeaway: Companies must walk a tightrope of credibility. They need to get much better at talking about their sustainability commitments and achievements, as well as listening to customers’ ideas and concerns, all the while managing the public’s inherent skepticism about companies’ authenticity in this arena.

2. Consumers aren’t as green as they claim. Talk about a walk-talk gap: Even in a good economy, consumers profess a higher level of interest in environmental shopping and living than they actually demonstrate in their actions. For example, at the beginning of 2011, a survey by Opinion Research for the paper company Marcal revealed that 80 percent of Americans planned to be greener this year. That’s typical of consumers’ irrational exuberance of green shopping, as I’ve noted in the past.

Research by the Natural Marketing Institute, which tracks the so-called LOHAS (Lifestyles of Health and Sustainability) market space, found that four out of five of the consumer segmentations it tracks are “much more involved in the sustainability marketplace and lifestyle than they used to be,” as NMI’s Gwynne Rogers told me earlier this year. Only one segment, the “Unconcerneds,” representing 17 percent of the marketplace, are holdouts.

The high numbers from some research firms belie a continued reluctance by consumers to actually shop their talk. (But it doesn’t stop hyperbole: NMI’s research recently led one green marketing author to tout that “83 percent of consumers … are some shade of green.”)

Consider the countervailing evidence. Brand Sustainable Futures, a report by Havas Media and MPG, found that while sustainability remains a key issue for consumers worldwide, only 5 percent of U.S. consumers always consider environmental/social aspects when making purchase decisions, deterred by confusion, lack of clarity and perceived higher prices.

True, you’d expect only a small sliver of consumers to “always” shop green and responsibly. And you might get to 80 percent if you consider anyone who’s ever made at least one such purchase — a less-toxic cleaner, an energy-efficient appliance, an organic food, or a “natural” cosmetic. But there’s a vast space in the middle, which is what most of the market segmentations attempt to measure and analyze — nearly all of which I find wanting.

Research by the polling firms, as opposed to those selling market research services, seem to be more sober:

• Harris Interactive found a one-year drop in the number of Americans who say they are "going green." U.S. adults “are now less likely to engage in various green behaviors in their daily life,” says Harris, including purchasing locally grown produce, locally manufactured products, and organic products; using less water; and composting food and organic waste.

• Gallup found the widest margin in nearly 30 years in Americans prioritizing economic growth (54 percent) over environmental protection (36 percent). “Americans for the most part have given the environment higher priority since Gallup first asked this question in 1984.”

Here are two noteworthy demographic findings I came across:

• Older men are more skeptical about green marketing, according to the advertising insight firm Crowd Science. People over 55, and men in particular, are almost twice as likely to hold the opinion that shopping for green products makes no difference.

• Lesbian, gay, bisexual and/or transgender (LGBT) adults are accelerating their personal commitment to environmental issues at a higher rate than their heterosexual counterparts, found Harris Interactive. A majority (55 percent) of LGBT adults, say they "personally care a great deal about the current state and future of the environment," compared to just 33 percent of heterosexual American adults.

The takeaway: There’s still a lot of bluster on the part of consumers about their willingness to make good, green choices in the marketplace. The reality comes down to a small handful of products where consumers believe there either is sufficient value proposition (energy savings, health) or acceptable tradeoffs (higher prices, inconvenience). But don’t fall for some marketers’ everyone-is-going-green hype.

3. Consumers aren’t getting any smarter. You’d think that, after all these Earth Days, there’d be a greater consciousness among consumers, and greater confidence about the environmental choices they make. But that just doesn’t seem to be happening.

For starters, there’s climate change. Public confusion about the climate — Is it changing? Whose fault is it? What can be done? — has been well documented. A report by the Yale Project on Climate Change Communication found that 63 percent of Americans believe that global warming is happening, “but many do not understand why.” The study also found important gaps in knowledge and common misconceptions about climate change and the earth system.

It concluded that many Americans lack some of the knowledge needed for informed decision-making in a democratic society. For example, only 57 percent know that the greenhouse effect refers to gases in the atmosphere that trap heat. Meanwhile, “large majorities incorrectly think that the hole in the ozone layer and aerosol spray cans contribute to global warming, leading many to incorrectly conclude that banning aerosol spray cans or stopping rockets from punching holes in the ozone layer are viable solutions." (Ozone-destroying chlorofluorocarbons have been banned from aerosols in the U.S. for a third of a century, since 1978.)

The Shelton Group, while tracking attitudes toward energy efficiency, found several data points indicating that “more Americans than in previous years 1) think that they're doing more than they really are, 2) think that they're doing all that they can, or 3) think that they've done enough already. All three of these perceptions are troubling because they increase resistance to taking on the more substantial home improvements that truly reduce energy consumption.”

The takeaway: Companies have their work cut out for them getting consumers smarter and more motivated about environmental issues. As it stands now, some consumers are losing interest.

All in all, I like the conclusions of BBMG, which recently released a report on The New Consumer — its coinage for that portion of the U.S. adult population it describes as “values-aspirational, practical purchasers who are constantly looking to align their actions with their ideals; yet tight budgets and time constraints require them to make practical trade-offs every day.” BBMG estimates about a third of Americans fall into this category, but only one in three “strongly agrees that it’s important to purchase products with social and environmental benefits, even in a tough economy.”

Let’s see: one in three of 33 percent equals about 10 percent of the population. That seems a more realistic appraisal of who’s really committed to green shopping and lifestyles. By and large, says BBMG, the New Consumer represents U.S. demographics but skews younger, female, and educated. That, too, feels about right.

Says BBMG:

New Consumers are looking for brands that deliver “total value” — products that work well, last longer, cost less and, hopefully, do some good. They want brands that deliver the “triple value proposition” — uniting practical benefits (e.g., cost savings, durability and style), social and environmental benefits (e.g., local, fair trade and biodegradable), and tribal benefits (e.g., connecting them to a community of people who share their values and aspirations).

The jury is out as to whether a third of Americans shop with their tribal members in mind. But I’ll take it on faith that consumers are seeking something to give them meaning and fulfillment during these tough times.

Problem is, no one’s sure exactly what that is.

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Clean Tech’s First Decade

Ten years ago, Ron Pernick and I started a company to help companies, public agencies, and investors better understand and tap into the emerging world of clean technology. This week, that company, Clean Edge, published its 10th annual assessment of the clean-tech marketplace, so it seems an appropriate time to step back and take a broader look.

At the time Clean Edge was born, the term “clean tech” was nascent. As Ron explains: “Clean tech was virtually unknown in the mass media, in business circles, and among politicians. At the time, there was one clean-tech institute in India and the United Nations used the term sporadically, but decided, in a move that only a bureaucrat could love, to use the term ‘environmentally sound technologies’ or ESTs, instead.”

In April 2001, Clean Edge published “Clean Tech: Profits and Potential” (download – PDF), one of the earliest efforts to define the space. We divvied the sector into four major buckets: energy, transportation, water, and materials. We made some predictions about market growth. We proffered some thoughts about what it would take for that growth to happen.

Eight months later, in January 2002, we published the first of what would be an annual assessment of the clean energy marketplace, the part of the clean-tech world that was growing most quickly. They include annual forecasts of the decade ahead, providing growth estimates for various energy technologies.

The most recent of these, Clean Energy Trends 2011, has just been released. You can download the free report here.

Looking back 10 years, some of those forecasts, however bullish, proved to be a tad sheepish. Example: We forecast in 2001 “the markets for clean energy technologies growing from less than $7 billion today to $82 billion by 2010.” The most recent Clean Edge report puts the 2010 market value of just three clean-energy technologies — biofuels, solar photovoltaics, and wind power — at $188 billion. Hey, what’s $106 billion among friends?

But the gist of what we wrote in 2001 was on the money: the political, social, and technological context for the forthcoming clean-tech boom, and the potential barriers and wildcards that could slow or accelerate the development of clean tech. The latter included government support, or lack thereof; the vagaries of economic swings; the potential for incumbent companies (and their lobbyists) to resist change — or suddenly jump in; the need for standards that would accelerate market uptake; the infrastructural changes needed to support some of these technologies; the acceptance of clean technologies by customers, both institutional buyers and individual consumers; and activists’ role in “keeping the heat on companies, governments, and others to develop and promote clean technologies.”

All of those remain critical components of a robust clean-energy future.

The clean-tech marketplace has matured, and it’s changed. A decade ago, clean technology was the domain of mostly start-up companies. A few oil companies — BP, Exxon, Shell — dabbled in solar, fuel cells, or wind power — but few other large corporations had even dipped a toe into the clean-tech waters. Today, it’s difficult to find a large company that doesn’t have a clean-tech play.

Want proof? Consider: What do the following companies have in common?

3M, Agilent, Audi, Autodesk, BASF, Best Buy, Bosch, Caterpillar, Dow Corning, Dupont, Eaton, Firestone, General Electric, IBM, Intel, ITT, Johnson Controls, Kyocera, LG, Mitsubishi, National Semiconductor, PPG, Praxair, Sanyo, Sharp, Texas Instruments, United Technologies, Waste Management, Xerox.

The answer: They’re all in the solar business — variously making materials, components, or systems to produce solar electricity; or offering services to design, manage, or sell solar energy systems to companies or consumers. (A few of these have offerings that aren’t yet in the marketplace, but soon will be.) They're not just installing panels on their roofs and selling the excess energy into the grid. They're actually in the solar business.

Not one of these companies is a traditional energy company or utility.

Solar’s just one example. Big companies are in all of the clean technologies we identified in 2001. (Of course, there also are more early-stage companies than ever before. For example, there are more than 200 VC-backed or pre-VC solar start-ups alone, according to one report.) Examples include Google's investments in Silver Spring Networks and V-Vehicle, Daimler's investment in Tesla Motors, GE's investment in A123, and Norsk Hydro's investment in Norsun. But these represent just the tip of the iceberg.

Big-company investments will accelerate. In the coming years, as more start-ups need expansion capital in order to scale, they will turn not to venture capitalists but to major corporations, with their healthy balance sheets and large cash reserves. Big companies will overtake VCs (and banks) as the leading funder of clean-tech startups.

The other major trend, of course, is the global nature of clean-tech markets. China has outpaced the U.S. and other countries as the low-cost providers of clean-tech hardware such as solar panels and wind turbines, and is becoming one of the largest markets for clean technologies, along with India, Brazil, and other growing economies. (Depending on who you ask, China is either underhyped or overhyped as a clean-tech player.) As such, the largely U.S.-centric marketplace we saw in 2001 has become truly global.

All of this is only just beginning: the scale-up of technologies, the entry of big companies, the explosion of startups, the expansion of global markets. There’s lots more to come.

And Clean Edge — which now convenes one of the industry’s leading annual clean-tech events, publishes clean-tech stock indices for Nasdaq, and produces authoritative research (some free and some not) — continues to show the way, as evidenced in this week’s 10th anniversary report. I’ve stepped back from day-to-day involvement in Clean Edge (though I remain a not-so-silent partner) and have enjoyed watching from the sidelines as the company grows in lockstep with the industry it helped define.

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Autodesk and the Future of Sustainable Design

If you start with the premise that many of the solutions to our global sustainability challenges require smart design and systems thinking, it doesn’t take long before you find your way to Autodesk. The 29-year-old design software company has made a series of impressive moves into the sustainability realm over the past few years. It’s one of those largely unheralded companies creating the tools used by architects, designers, manufacturers, and — most recently — cleantech entrepreneurs to produce the next generation of greener, cleaner, more efficient products.

Over the past year or so, I've had the opportunity to meet with or interview several members of Autodesk's sustainability team as well as its CEO, Carl Bass, on a number of occasions. Along the way, I have become increasingly impressed with how the company hasn’t merely expanded its offerings to help design professionals achieve sustainability goals, but has also set out to elevate the sustainability knowledge and capabilities of design students and professionals, from high schoolers to seasoned engineers.

Autodesk makes a suite of 2D and 3D design software tools commonly known as CAD, for computer-aided design. Its flagship product, AutoCAD, along with the more advanced tools that integrate with AutoCAD, is the standard design software in architecture, engineering, and construction firms; manufacturing environments, such as industrial machinery, tool and die, automotive, and consumer products; and media and entertainment companies. (Autodesk software has been used in the special effects of dozens of movies, from “Alice in Wonderland” to “X-Men.”)

Starting a few years ago, as green building grew from the margins to the mainstream, Autodesk began integrating components to help architects, engineers, and designers perform “whole building” analysis, optimize energy efficiency, even aim for carbon neutrality. It developed Building Information Modeling, or BIM, software, which allows architects, engineers, construction professionals, facility managers, and owners to break down barriers and bridge communication between design and construction teams, with the goal of optimizing buildings and creating predictable outcomes. Autodesk began using its own facilities as a living laboratory to gain real-world experience. “The idea is to use our own operations as a testing ground for prototyping new products, new features, new workflows that would serve our customers and rapidly green, in this case, existing buildings,” Emma Stewart, senior program lead for the Autodesk Sustainability Initiative, told me.

No Green Button. Those efforts created a gateway into sustainability for Autodesk that has spread beyond buildings to designing everything from products to cities.

Sarah Krasley, a product manager in Autodesk’s Manufacturing Industry Group, works with the company’s industrial customers to help embed sustainability. “We have customers in building products,” she explains. “We have customers who are designing apparel. We have customers that are designing consumer packaged goods. The myriad of sustainable design objectives across those industries is vast, and we realize that there is no green button. That is, there’s not one simple sustainability tool that you can put into a CAD system and solve everybody’s problems. So we’re doing a lot of exploration at where sustainable design comes up in the workflow, and where it’s most meaningful.”

One outcome of that exploration was a partnership announced last fall with Granta Design, a developer of materials databases, that combines Autodesk's Digital Prototyping technology with Granta's materials information technology to enable industrial designers, mechanical engineers, and others to more easily create products through sustainable design.

At the other end of the spectrum is a partnership with CDP Cities, a project of the Carbon Disclosure Project, which has worked to standardize carbon reporting and risk management. Now CDP is working to do the same with municipalities, from Beijing to New York. Autodesk partnered with CDP to standardize the software platform for how cities are tracking, managing, and reducing their carbon risk over the next 40 years, explains Stewart. “So all of a sudden, Mayor Bloomberg and his team are able to look out at New York City and understand the resource flows of energy, waste, water in a way they’ve never done before, and map that against the way sea level will rise over the next 40 years, and then make financial decisions accordingly.”

Class Acts. The city-level partnership exemplifies one of the things I find most interesting about Autodesk: It invests in educating the marketplace, seeding future customers with free or low-cost versions of its software. This isn’t unique to the sustainability space, but sustainability may be where it’s needed most. To limit sustainable design to the relatively small population of engineers, designers, and architects who already “get it” misses a vast opportunity for both the company and the planet.

Autodesk has more than 1.5 million students in its Education Community, which allows students, both undergrads and grads, to download and test-drive free software and other tools. The idea is that students learn their craft using Autodesk software and, of course, want to use it in their professional lives, too.

Those students, it seems, hadn't been learning much about sustainability in their studies. “The thing that kept coming up as we made new software innovations is that there are a lot of people who are not even familiar with the terminology around sustainable design, and are not familiar with how to take these high-level concepts and break them down into steps that are actionable,” Dawn Danby, Sustainable Design Program Manager at Autodesk, explains. “If we’re going to start building new solutions for doing all kinds of energy analysis or materials analysis, people need to understand why this stuff matters and have a context for it. We’re very aware that the hundreds of thousands of mechanical engineers every year who are being released into the marketplace are about to make very significant resource decisions.”

In response, Danby and her team last year launched the Autodesk Sustainability Workshop, a series of free online instructional videos. They’re short, clever works, produced by Free Range Graphics, the team that created Annie Leonard’s wildly popular viral video, The Story of Stuff, and its growing spinoff projects. Danby herself stars in the segment on Whole Systems Design, with sustainability education guru Jeremy Faludi leading most of the others. It’s a terrific public service and a fun way to learn, even for us non-designer types. (Autodesk also sponsored AskNature.org, a free portal for architects, designers, and engineers on bio-inspired design, produced by the Biomimicry Institute, on whose board I sit.)

Seeding the Market. And then there’s the company’s Clean Tech Partner Program, which aims to pretty much give away suites of software — about $50,000 worth — to hundreds of cleantech start-ups. Entrepreneurs submit an application, explain what they’re doing, and get a complete suite of Autodesk software for a nominal fee. The program started two years ago in the U.S., then spread to Europe and, most recently, to Japan. Again, the idea is to seed these startups with Autodesk tools, with the hopes that they’ll become paying customers as they grow.

“In the short term, [sustainability] is the most pressing problem we face as a society, and I think it's important that we do things to help solve the problem,” Autodesk CEO Carl Bass told me recently. “And I think a lot of the innovation is going to come from small companies.” Along the way, Bass has become a frequent speaker at cleantech conferences and an articulate advocate for cleantech entrepreneurs. (You can watch excerpts from an interview I did with Bass, below. I’ll be interviewing him again, onstage at the Green:Net 2011 conference in San Francisco, on April 21.)

As I said, much of these activities remain unheralded in the wider world of green business; Autodesk isn’t typically one of the companies that springs to mind when people name sustainability leaders. In some ways, that’s what I like most about Autodesk: a company that quietly is building the foundation for a sustainable future, creating tools and partnerships that are fundamentally changing the way things are designed and built. We may never see buildings or products that boast anything along the lines of “Autodesk Inside,” but in some respects, our sustainable future could well be labeled exactly that.

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Storytelling and the Power of One Great Idea

A couple years ago, at a meeting of the GreenBiz Executive Network — my company's membership-based learning forum for chief sustainability executives — we began the meeting by asking each attendee to present “one great idea” from their company. It was an ice-breaker of sorts, a way for everyone to weigh in on something they were doing that was exciting, different, making a difference.

We budgeted 45 minutes for this. Five and a half hours later, we got to the second item on the agenda.

It wasn’t merely that the members were verbose. It was that each “great idea” spurred a lengthy period of questions and comments. We could have cut it short, hewing to our original agenda, but we didn’t. The conversation served perfectly the network’s mission: to allow executives at some of the world’s largest companies to learn from one another in an open, safe environment.

Since then, “One Great Idea” has become part of the GreenBiz brand. At last month’s three GreenBiz Executive Forums, we instituted a series of 15-minute, one-person stand-up presentations (yes: à la TED Talks) using that title. They covered a breadth of topics and presenters: from 25-year-old technology wunderkind Alexis Ringwald, who has three startups under her belt; to Johnson Controls’ Clay Nesler, giving the inside scoop on the greening of the Empire State Building; to Ina Pockrass, who aims to nearly singlehandedly prod the dental industry toward greener practices. There were corporate presenters from Adobe, BASF, Campbell’s Sopu, IBM, Intuit, Method, Microsoft, Nike, and others. And innovators like Jim Kors, creator of the world’s first 3-D printed car. Each democratically allotted 15 minutes.

(You can view videos of many of their presentations here.)

They were, I believe, a resounding success. At least, that’s what the audience told us. And it highlights a need in the green business arena: Nearly everyone, it seems, has One Great Idea. The question is how to bring them to the fore, let alone to share them as widely as appropriate.

John Davies, vice president and senior analyst at GreenBiz Group, and the leader of the GreenBiz Executive Network, gets credit for the One Great Idea coinage. “I think asking people for One Great Idea makes them focus in a way that is different from their day to day work,” he told me the other day. “When people are asked to make a presentation, they tend to throw out a number of ideas and hope some of it connects.”

Instead, says Davies, One Great Idea is more like the challenge of desert island discs or books. “It's asking for that one legacy idea, one thing that others might benefit from and you might be remembered for. I think the approach works because people think more about sharing the idea, communicating it clearly, and not just pulling out a tired slide deck.”

Granted, doing a One Great Idea presentation can be challenging. When we prepped speakers for our State of Green Business Forums, we found that, despite the title of the session, some were prone to throw everything into the hopper. I recall one speaker, a senior corporate executive, saying, “Wow, 15 minutes. It usually takes me 30 minutes to get through everything. I’ll have to talk fast.”

No, I pointed out. “This isn’t about getting through everything. This is about one great idea. Just one.” Even with this admonition, a few of our speakers tried to shoehorn in their life’s work or their usual dog-and-pony show. But most rose to the occasion. And when it works, it’s a beautiful, powerful thing.

The idea of presenting One Great Idea shouldn’t be unique to sustainable business, of course. But it plays a special role here. Sustainability is multifaceted and complex, and many people — including many professionals — quickly find themselves overwhelmed by all of the moving parts. The to-do list for sustainability is long and — by definition — never-ending. It’s easy to get paralyzed by the enormity of it all.

One Great Idea helps in two ways. First, it gets us focused on a single tactic, technique, or takeaway. Second, it involves a story. And in sustainability, the power of storytelling is huge. It allows us to combine the technical and the personal, head and heart, creating something both credible and compelling. It’s simply the best way we know to spread an idea.

So, what’s your One Great Idea? How are you sharing it with those who could benefit? I’d love to know.

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California’s Bold Move to Legitimize Sustainable Business

A bill introduced in California’s state Senate last week holds enormous potential to give sustainable business a push by making it — well, legal.

Under current law in California and most other states, companies can be sued by their shareholders or investors for taking environmental or social measures that negatively affect shareholders’ financial returns. The proposed bill would enable a new form of for-profit corporation, encouraging and expressly permitting companies to pursue other things besides simply making money.

This is no small matter. The legal issue of fiduciary responsibility has long been seen as a barrier to companies taking more proactive social and environmental measures. In many cases, it has given companies a fig leaf to avoid taking substantive measures to, say, clean up pollution or avoid sourcing from sweatshops. Indeed, the requirement for companies to put profits above all else has been blamed for much of society’s ills — at least the kind allegedly propagated by business. And the alternatives have been a cold cup of tea: to become a nonprofit organization, a hybrid model championed by social entrepreneurs, or some other legal entity frowned upon by capital markets. That pretty much guarantees that these "good" companies are destined to remain small.

For years, groups of socially responsible investors, social and environmental activists, and others have tried to change this state of affairs, with little success. Maryland and Vermont recently enacted measures to allow “for-benefit” companies, such as those advocated by the nonprofit group B Lab, and a few other states are considering them. However well-intentioned, these laws are limited in scope in that they focus principally on smaller, privately held firms.

Getting large publicly held companies to change has been all but impossible, which is why SB 201, the Corporate Flexibility Act of 2011 (download - pdf), introduced in California’s State Senate on February 8, is of such significance. It would authorize and regulate the formation and operation of a new form of corporate entity known as a “flexible purpose corporation.”

Under SB 201, “Any company establishing in California will be permitted to negotiate to include a social and environmental mission that is given equal weight, perhaps even greater weight, than profits,” Susan H. Mac Cormac, who co-led a working group that helped draft the bill, told me recently. “We have given additional protection to boards and management if they do that. We also have a metric for shareholders to enforce the social and environmental mission, just the same as shareholder value.” It’s a model, she says, that can be used by both public and private companies.

SB 201 differs from the “for-benefit” statutes in at least one significant way: It doesn’t proscribe what a company must do. The Maryland and Vermont laws, in contrast, spell out the requirements of a “benefit corporation” — a checklist that hews largely to B Labs’ model for sustainable business.

There are good arguments for both approaches. On the one hand, a set of criteria sets a standard for what a company must do to be “beneficial.” On the other, it lets legislators and regulators set those criteria, a process that often ends up muddled or worse. Unfortunately, traditional California corporations are not able to amend their articles to “embed” environmental and social criteria without considerable risk, thereby creating an issue for California corporations seeking “B Corporation” status.

Cormac, who co-chairs the 550-lawyer Business Department as well as the Cleantech Group at the law firm Morrison & Foerster, has been working on these issues for the better part of a decade. As co-chair of the California Working Group for New Corporate Forms, she and a small team spent nearly 18 months deliberating and drafting this proposed new division of the California Corporations Code. Along the way, the group solicited comments from an advisory committee comprised of members of the California legal and communities.

"We have the conservative folks behind us from the chamber of commerce," she says. "We have a lot of support and have spent a lot of time working with folks to get it right."

Cormac admits that big corporations aren’t likely to quickly adopt this new legal form should it become law. “The companies that could easily do this are the ones where there’s a really strong link between their profitability and their sustainability — the Methods or Revolution Foods of the world,” she says.

Even if SB 201 passes, it will be just one step in a longer journey to transform mainstream business to pursue environmental and social goals as aggressively as they do financial ones. To gain traction, these companies will need the support — or the demands — of institutional investors, such as large pension funds, embracing flexible purpose corporations. It will take leadership companies, government agencies, universities and other large buyers of goods and services to adopt policies giving procurement preference to these companies. And it may well take preferential tax treatment for flexible purpose corporations, or other policy mechanisms, such as fast-track permitting or reduced oversight.

All of which is only one part of the puzzle, says Cormac. “I’ve looked at every part of the system, and it’s not just corporate structure that ties it to profitability. It’s executive compensation with stock options. It’s the analysts on Wall Street and the quarterly reports, and a whole confluence of factors that lead to this unholy emphasis on shareholder value.”

I asked Cormac how she and her law firm would benefit if SB 201 became law. After all, she heads the corporate division of one of America’s larger law firms.

“This is pro bono,” she says. “We have no skin in this game.” To back it up, she explains that she is working working with law schools at Stanford, Berkeley, and UCLA to establish free legal help for companies that want to set up flexible purpose corporations. "This is a passion, not a business opportunity."

For now, it’s all about getting this bill passed — it needs to pass the gauntlet of two committees, then the full Senate, then the State Assembly and getting Governor Jerry Brown to sign it. It’s looking good, says Cormac, but we’ve all seen “sure things” blow up at the last minute.

This will take everyone’s best efforts — letters of support and all of the other usual tools of the trade. (You can send letters to Senator Mark DeSaulnier, State Capitol, Room 2054, Sacramento, CA 95814.) And it will take mainstream companies and investors standing up to be counted.

Without such a law, we’ll be stuck with business as usual — companies hamstrung by their legal obligation to put shareholders’ financial returns above all. But if bellwether California can get this passed, it will make it legally possible, once and for all, for companies to truly integrate the triple bottom line.

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The State of Green Business 2011

Today, we publish our fourth State of Green Business report, GreenBiz.com's annual effort to take the pulse of what and how the world of sustainable business is doing.

It's an interesting time to take this accounting, to say the least. In society, environmental issues seem to have faded from view, at least in the U.S., thanks in large part to the recession. "Saving the earth" has taken a back seat to simply saving the day. The politics of the moment seem to have made clean air, clean water, biodiversity, and planetary survival a controversial thing — something we can afford only in "good times." Consumers continue to sit largely on the sidelines, taking small (but, for them, meaningful) actions, like recycling, employing reusable shopping bags, and buying energy-efficient products.

And climate change, that inconvenient truth, has conveniently faded from view as an issue of national import.

It's a different story in the business world. In fact, it's hard to find a big company these days that isn't engaged in environmental issues in a meaningful way. Indeed, a dramatic shift is occurring in business: Companies are thinking bigger and longer term about sustainability — a sea change from their otherwise notoriously incremental, short-term mindset. And even during these challenging economic times, many have doubled down on their sustainability activities and commitments.

Exactly how and why is the story we tell in the State of Green Business 2011, a free downloadable report. As in the past, we identify ten key trends and measure the greening of the U.S. economy through 20 indicators, from carbon intensity to cleantech investing to corporate reporting.

The verdict? As always, it's mixed. Of the 20 indicators, 7 were found to be "swimming" — that is, making progress; 2 are deemed "sinking" — losing ground; and the other 11 are "treading" — just hanging on.

The bigger picture, though, is more positive. From the introduction:

During 2010, we saw a steady march of progress, with some of the world’s biggest companies and brands putting a stake in the ground in the name of environmental (and sometimes social) sustainability. Some are companies that hadn’t previously been visible in these ways. Others, it turned out, had been quietly taking action, walking more than talking, only recently discovering that modesty is no longer an asset in a world that increasingly demands transparency. Still others have only recently elevated sustainability to a level of importance, hiring their first senior executives to oversee and coordinate sustainability commitments and goals.

Some of the areas we found encouraging were energy efficiency (it now takes less than half the energy to produce a dollar of GDP than in 1970); green office space (the square footage of commercial green buildings continues to grow, a bright spot in an otherwise dismal real estate market); packaging intensity (the amount of packaging needed to produce a dollar of GDP has declined steadily since we began measuring it five years ago); and paper (every year, we use less paper per dollar of GDP and recycle more of it, nearing the point where all the paper that can reasonably be recycled is being collected).

But it's not all good news. Electronic waste recycling continues to grow, but so does the amount of e-waste coming into the waste stream); carbon intensity (the amount of energy-related greenhouse gases produced per dollar of GDP went up last year after dropping steadily); organic agriculture (it's growing, but still represents less than 1 percent of all U.S. cropland). On many of our indicators there was only a hint of progress, far too little to make a difference.

As always, a mixed bag. That's the way of the green business world.

What's encouraging about this year's report is the momentum we see, embodied in the stories my colleagues at GreenBiz.com bring every business day. While not every story is earth-shattering, the corporate commitments and achievements continue to grow every year in both size and scope. During 2010, for example, we saw major corporate commitments from Procter & Gamble and Unilever; major commitments to buy electric vehicles by GE and other companies; a new wave of water footprint assessments by several large companies; zero-waste accomplishments by GM, Kraft, and others; a new generation of green chemistry coming from Dow, BASF, and others; plant-based plastics being used by several major consumer packaged goods companies.

I could go on (and on). These aren't stories you would have seen two or three years ago, and that's the point. The state of green business is moving forward — sometimes way too slowly, but there's progress at every turn.

That's our story. Please read the report and let me know if you agree.

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Why Dow is Putting Nature on the Balance Sheet

Today’s announcement by Dow Chemical that it will launch a multi-year effort to measure and track the business value of ecosystem services represents a small step for a company, a giant leap for critters of all kinds.

Dow isn’t the first company to make the link between the services nature provides and their value to a company’s bottom line. But its new initiative — a five-year partnership with The Nature Conservancy — goes beyond the academic. Its aim is to create a set of tools and methodologies other companies can use to integrate the economics of ecosystem services in business decision making.

For the uninitiated, ecosystem services refers to the $33 trillion or so worth of “free” deliverables provided to us by a healthy planet, including clean water, breathable air, pollination, recreation, habitat, soil formation, pest control, a livable climate, and a bunch of other things we generally take for granted. As I’ve written about for years (see here, here, here, and here), such benefits aren't valued by companies, since they don’t directly pay for them; they don’t appear on a company’s balance sheet. But that doesn’t mean they aren’t critical to a company’s financial future.

Ecosystems have value, when you consider what a company would have to pay to replicate their services if they weren’t otherwise available. And as ecosystems get stretched and diminished — whether by human activity, changes in climate, or natural cycles — they can impinge not just on profits, but a company’s very ability to operate.

Under the agreement announced today, Dow and TNC will work together to examine how Dow’s operations rely on and affect nature. The aim is to advance the incorporation of the value of nature into business, and to take action to protect the earth’s natural systems and the services they provide business and society. One key objective is to share all tools, lessons learned and results so that other companies, scientists and interested parties can test and apply them.

Dow and its foundation are committing $10 million to this collaboration over the next five years.

What’s going on here? Why has this venerable chemical giant suddenly decided to put a price tag on nature?

“We have been on a sustainability journey for close to 20 years,” Neil Hawkins, Dow’s Vice President, Sustainability & EH&S, told me last week. “We had our first set of sustainability goals that ended in 2005. We’re halfway through our 2015 sustainability goals. They’re very focused on some of the areas you’d expect — EH&S performance, the whole life-cycle of our products, and delivering products that actually help the world solve major challenges.

“But the one area that we don’t explicitly address is ecosystem services and biodiversity. It’s an area we felt we needed to get better in. We have a long history in conservation, and probably have done as much conservation as most companies. But we needed a thoughtful, economic approach that builds directly into our business decision making the value of nature to Dow — be it water, wetlands, forests, etc. And also the value we’re providing, because we have a lot of land holdings and a lot of facilities worldwide.”

For example, Hawkins explained, consider water. Dow uses a lot of water in the production of its materials and chemicals. "Most places in the world don’t have a mechanism for understanding the value of the water from the point of view of pricing. But there are implications to Dow if we don't have the supply of water we need at the right time and the right place." If a plant is in a water-challenged region, finding ways to improve the water availability for everyone, including Dow's plant, can be a valuable opportunity. “There might be value in Dow’s making investments far away from our plant in order to secure more reliable supplies of water,” he said.

“Water supplies don’t just come from rivers on site. They’re also impacted by the ecosystems upstream, like forests,” explained Michelle Lapinski, Director, Corporate Practices at TNC. “Forest cover in a watershed significantly influences water quality and quantity. Trees naturally hold back water during rain events and release it slowly, preventing flooding and providing water during dry periods – and regulating the supply and quality of water better than many facilities can. By evaluating ecosystem services, a company like Dow may decide to invest in forest restoration to ensure continued water flow for their business, and others who rely on it.”

Of course, some of these decisions go beyond a single company’s — or even a group of companies’ — ability to control. It’s a societal matter, not a corporate one. That’s where a group like The Nature Conservancy comes in. “We work in a number of cities in water supply,” Glenn Prickett, TNC’s Chief External Affairs Officer, told me. “In Bogotá, Quito, and São Paulo, we’ve worked with combinations of bottling plants, hydroelectric facilities and local water utilities to help each of them understand the value of the water they’re getting from the watershed in terms of what it would cost to install their own reservoir or filtration plant if they didn’t have the water they need in the quantity and quality they’re currently getting it. That becomes the benchmark. Then there’s an economic case for them to provide some amount of money up to that value toward a common effort to protect and restore that watershed. So, we’ve set up water funds in those cities where different entities pay into the fund to work with upstream landowners to protect and restore forests in the riparian areas. That’s an example of how a company can do a very clear valuation and be part of a larger societal effort to maintain the resources.”

These are complex calculations, the stuff of doctoral dissertations, being applied to the down-and-dirty world of business activity in faraway places. As such, the Dow-TNC partnership will likely make only a small dent in understanding how to integrate the value of nature into business decisions, and in only a limited number of scenarios, let alone have the valuations appear on corporate balance sheets. But there’s significant potential here to bring the scientists together with the bean counters — and have them translate all of this complexity into a language meaningful to those who set corporate strategy. As Lapinski put it: “Businesses talk in dollars and numbers and scientists and conservationists talk about beetles and birds. We’re trying to take beetles and birds and put them into dollar numbers so that companies can value nature just as any other asset.”

Of course, the implications of this go well beyond accounting. I asked Hawkins how he would measure the success of this five-year collaboration.

Success, he said, would be, “if, at the end of this, we’re able to fully integrate this into our business decision making as we site facilities, as we make changes to existing facilities, as we look at our product development — if we can build in an economic valuation of nature and how we touch nature. If we can create environments and markets where business naturally is doing valuations and reaching the best economic outcomes while still meeting their growth objectives — I think that becomes a longer-term goal.”

TNC’s Prickett weighed in: “To me, most fundamentally, success comes if businesses start to see conservation — that is, helping to restore healthy ecosystems — as a source of cost reduction and revenue enhancement. This is business, not just a philanthropic exercise in corporate responsibility or regulatory compliance.”

It’s a first step, to be sure, but an important one. And it will take more than just one chemical company and one NGO, however well-funded, well-staffed, and well-intentioned, to bring this into the mainstream.

“You’ve got to have some companies that are willing to try this, to take it on, to partner and collaborate with another organization with similar interests,” says Dow’s Hawkins. “And that’s really at the core of this agreement: How do you take that first step to make this a reality by building it into a company and into a business and, hopefully, into a broader economic approach?”

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