Joel Makower: Two Steps Forward

ULE 880: A New Year’s Report

Today marks another significant milestone in the development of ULE 880 – Sustainability for Manufacturing Organizations, the company-level standard we’ve been developing in partnership with UL Environment. Indeed, a great deal has been going on behind the scenes the past few months, so it’s time for an update.

First, a brief refresher. For more than a year, my team at GreenBiz Group has been engaged with UL Environment to develop and commercialize a company-level standard for sustainability — that is, environmental, social, and corporate governance issues — to be used as a tool for companies, government agencies, and other stakeholders. (I’ve previously provided a history of the project here.)

Last July, we released a draft of the standard for public comment. More than 700 individuals — representing companies, nonprofits, government entities, consultants, trade associations and concerned citizens — registered to review the draft. A subset of them submitted more than 1,500 individual comments on specific segments and indicators in the standard. Both numbers represent record stakeholder engagement in Underwriters Laboratories’ 116-year history.

In November, we convened a subset of stakeholders — roughly 20 representatives of major companies, accounting firms, consultancies, advocacy groups, and government agencies — to provide input to address some of the reviewers’ more challenging comments — ones where there was a wide range of conflicting opinion, for example. And at every step, the ULE-GreenBiz team waded through the feedback, making anything from minor tweaks to major adjustments along the way.

The fruits of those labors are being published today: ULE ISR 880. ISR stands for “Interim Sustainability Requirements,” part of the argot of UL’s standard-making process. If this were software, it would be the pre-release version.

The ISR will be used to pilot the standard with a small group of companies, which we’ll be announcing in the next couple months, and is also being made public for another round of comment. With the combination of additional comments and real-world piloting, the UL Environment-GreenBiz team will finish a final revision and issue the final ULE 880 standard this summer.

A lot has happened to the standard since its debut last summer. I can only summarize it here. The complete rundown can be found in a 256-page “response paper” published today. It provides details of the key comments and how they were addressed by the ULE-GreenBiz team, and includes a lengthy supplement that excepts some of the 1,500-odd comments.

Among the key issues:

• One Size Fits All. By far the most consistent feedback point was whether ULE 880 is applicable across all manufacturing sectors, specifically in the area of performance.
• Organizational & Product-Level Indicators. Many stakeholders expressed concern about how and whether to integrate more product-specific indicators into ULE 880.
• The Weighting of Domains. In the first publicly available draft of ULE 880, we sought to recognize social and environmental impacts equally, and highlighted governance as an area of particular emphasis in promoting sustainability within an organization. Stakeholders expressed a variety of competing opinions regarding the weighting across domains and indicators.
• Organizational Boundaries. We received a number of comments related to setting the boundaries of an organization for the purposes of certification.
• Baseline Years. The initial draft of ULE 880 attempted to treat the establishment of a baseline year on an indicator-by-indicator basis. In other words, an organization could have a baseline year of 2003 for a greenhouse gas inventory, but have a baseline year of 2006 for a water inventory. Many stakeholders pointed out how difficult and unmanageable such a mechanism would be for certification purposes, and suggested simplification. The simplest approach, they said, would be to establish a single baseline year for the scope of the standard, yet one arbitrary baseline year would potentially “penalize” companies by not rewarding them for work conducted prior to that date.
• Compliance and Regulation. Throughout the stakeholders comment process, many wanted greater understanding and explanation about how ULE 880 would address compliance and regulation.

I won’t address here how the ULE-GreenBiz team addressed each of these issues in the latest version of the standard — you’ll have to read the ISR, which can be downloaded on ULE’s CSDS, the online tool that we’ve used to collect stakeholder feedback. It’s free, though you’ll need to register. (If you registered previously as a reviewer, you’re already good to go.)

Much of these questions (and several others not mentioned above) point out the incredible complexity of creating a standard of this type. The ULE-GreenBiz team has navigated a thicket of such complexities since we set out on this course, and we feel confident that we’ve come up with practical and pragmatic solutions consistent with our original mission and values.

All told, it’s been a tremendous effort — not just on the part of our respective teams, but on the hundreds of individuals who devoted considerable time and effort to this. We were gratified, even surprised, by the passion and commitment with which people responded to the draft standard — clearly, hours of work for some of them. To all who participated, our sincere thanks.

What’s next? During the coming weeks and months, we’ll be announcing the companies that will be piloting the standard inside their own operations, as well as those that will begin to use it to assess their suppliers. We’ll also be announcing the first of the “Big Four” accounting firms that will sign on as independent auditors for the standard, along with several other parts of the system being built to support ULE 880.

For now, I encourage you to read the ISR document and let us know what you think.

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The 10 Most Hopeful Green Business Stories of 2010

There's a lot to be said for viewing the year just passed through the rear-view window.

Toyota's hybrids hit the wall, so to speak, in terms of being seen as a paragon of safety. BP spouted all too vividly the perils of the petro-based economy. The bigger peril, climate change (or global warming, or whatever it's called) became, somehow, a non-issue, politically speaking. Indeed, the political climate in the United States turned against pretty much all things environmental. Meanwhile, toxic substances and gender-bending chemicals found their way into everything from mattresses to baby bottles. I could go on.

But please, kind readers: Step away from the ledge. There's much to be hopeful about.

I've just finished an annual ritual, combing the past year's stories — all 2,139 of them — published on GreenBiz.com and its sister sites in order to identify significant trends in the world of sustainable business. I do this each year in preparation for our annual State of Green Business report, the 2011 edition of which will be released on February 1, the eve of the first of three State of Green Business Forums we'll be staging this year. The report identifies 10 key trends and 20 key indicators that show how, and how much, companies are transforming their operations in environmentally responsible ways.

Doing this review is tedious and time-consuming, but also heartening. There was much to celebrate over the past 12 months. Here, in no particular order, are 10 stories we published that I believe represent significant, hopeful developments:

GE To Boost Electric Vehicle Fleet By 25K

General Electric is by no means the first or only company to make a significant pledge to buy large quantities of electric and plug-in vehicles, though its recent commitment is one of the largest. In doing so, large fleet buyers like GE (and Enterprise, Frito-Lay, UPS and others) are proving that there is a mainstream market for these vehicles — that they're not just the playthings of well-to-do techies and greenies. And GE's initial purchase of 12,000 vehicles from General Motors, including the Chevy Volt, was a strong vote of confidence for the re-emerging U.S. automaker.

Procter & Gamble Packages Up a New Green Vision

For two decades, the world's largest consumer packaged goods company pretty much out stayed of the green marketplace. Its few forays were either ill-conceived (such as early 1990s commercials claiming that diapers were compostable) or focused solely on money-saving benefits (such as its successful Tide Coldwater detergent). But that changed in dramatic fashion with a series of long-term goals which, if met, would bring the company's factories to be 100 percent renewably powered, use 100 percent renewable or recycled materials for all products and packaging, and send nothing to landfills. Those bold goals are mid-century but the company set 10-year interim benchmarks that would set a trajectory for how products are designed and manufactured going forward. P&G still won't necessarily be overtly marketing green, but it could demonstrate that significant green commitments aren't incompatible with mainstream products and profitability.

Interface to Conduct Life-Cycle Analyses on All Products

The sustainability-minded carpet maker said it would complete something called "Environmental Product Declarations" or EPDs — detailed documents explaining the life-cycle impacts — for all of its products by 2012. EPDs analyze products from their raw material stage to disposal and are certified by independent third parties. In doing so, Interface took the lead on a growing trend of product transparency — not just for carpets, but for a wide range of other goods whose ingredients had previously been protected as trade secrets. We'll be hearing more about EPDs in the future, as more companies follow Interface's lead and make product transparency a core ingredient in their operations.

Levi's, Outdoor Industry Join Forces for Product Footprint Tool

Transparency doesn't come without a great deal of investigation and quantification, the metrics of which are still in their infancy. Those metrics took a leap forward, at least for one industry, with the emergence of the Eco Index, a project of the Outdoor Industry Association, a trade group of apparel, footwear, and equipment manufacturers. The Index, a web-based tool, provides guidelines, indicators and metrics aimed at enabling companies to score individual products related to their materials, packaging, manufacturing and assembly, transportation and distribution, use and service, and end of life. This is a terrific example of industry collaboration to solve collective challenges and get all players speaking the same language and using the same yardsticks. The presence of leadership companies like Levi's and Timberland will help ensure that the Index isn't intended for just a small circle of niche players.

Walmart Sows Major Sustainable Ag Commitment

Sustainable agriculture hasn't generally been the domain of large food growers or retailers, residing principally in the world of locavores, farmers markets, and natural food stores. But the world's largest retailer is helping to bring it into the mainstream with a commitment to support local farmers and their communities. Specifically, Walmart pledged to sell $1 billion in food sourced from 1 million small and medium farmers and provide training to farmers in sustainable farm practices, all while increasing these farmers' income. And while $1 billion over five years represents a tiny fraction of Walmart's annual grocery revenue — more than $250 billion in 2009 alone — it signaled that sustainable ag has matured into a mainstream means of production.

Eastman Bets on Bigger Profits from Greener Chemicals

Large chemical manufacturers have been turning gradually to green chemistry in recent years, but Eastman Chemical Company's goal — to derive two-thirds of revenue from new products that have sustainability benefits relative to other products on the market — represents a new direction for the 90-year-old Fortune 500 firm. Eastman also laid out some broader goals, such as working with customers to help them meet sustainability plans, using sustainability as a key factor in identifying growth opportunities, and using its internal Innovation and Sustainability Council to manage investments and determine priorities. It's not a 180-degree turnaround for the company, which claims to already derive one-fourth of its revenue from greener alternatives, but it sends a message that a fundamental shift is underway for an industry long linked to some of humanity's and the planet's worst health impacts.

Nike Shrinks GHG Footprint to 2007 Levels and Dumps Carbon Offsets

Amid political squabbling over whether curbs on carbon emissions would harm the economy, Nike reached a milestone, and did so profitably. The world's leading maker of athletic footwear and apparel announced it had dialed back its greenhouse gas emissions to 2007 levels. And it did this despite having announced in 2009 that it would stop buying carbon offsets and concentrate instead on reducing emissions through curbing business travel and reducing the embedded energy in materials and energy used in its manufacturing process. None of this, it seemed, hurt the bottom line. While Nike's fiscal 2010 revenue dropped 1 percent from the previous year, "We've never been more profitable," reported Nike President and CEO Mark Parker in the company's 2010 annual report, adding: "Gross margins came in at 46.3 percent for the year — that's a record." Nike has proved that addressing climate change can go hand in hand with scoring points with investors.

Half of General Motors' Plants Achieve Landfill-Free Status

This is the latest milestone in a decade-long effort GM has undertaken, getting 76 of its 145 plants worldwide to be "zero-waste." On average, 97 percent of the waste at these 76 sites gets recycled or reused to make new car parts, while 3 percent is incinerated to generate energy. The car maker is hardly the only company these days pursuing a waste-free goal, though it's been doing it longer than most. What's most remarkable about its achievement is that the company didn't put the brakes on its zero-waste efforts during its financial woes, bankruptcy, and multiple management changes, showing that eliminating waste can be and enduring and profitable pursuit.

LG to Spend $18B Cutting Carbon, Making Greener Products

The Korean industrial company was just one of several Asian manufacturers to make significant commitments last year to clean technology and greener products. Panasonic unveiled a three-year plan called "Green Transformation 2012," which it said will lay the groundwork for it to become the world's leading "Green Innovation Company" by 2018, Panasonic's 100th anniversary. Hitachi, which reached its century milestone in 2010, said it would put environmental innovations at the core of the company's operations for the next 100 years. Samsung said it spent $865 million during 2009 to develop greener products and make its manufacturing sites more efficient as part of a multi-pronged efforts to become one of the world's most environmentally friendly companies. And NEC Corp., Japan's largest PC maker, unveiled plans to invest $1.1 billion over eight years in battery and smart grid technologies. LG, for its part, said it would spend nearly $18 billion over the next decade cutting its carbon footprint by 40 percent and developing greener products. The ultimate impact of these efforts won't be known for years, but collectively, they made it loud and clear that Asian firms view green and clean innovations as their path forward to growth and profitability.

Intel Adds Sustainability to Corporate Charter

This was a largely unreported yet landmark achievement. Nearly all corporate charters, at least for large companies, mandate that management keep their eye focused solely on the financial bottom line, with no regard for environmental or social impacts. Indeed, diverting profits to invest in reducing those impacts could be seen as a violation of management's fiduciary responsibility to shareholders and subject the board to lawsuits or worse. Intel's board sought to change that, amending its charter to require that its Corporate Governance and Nominating Committee "Reviews and reports to the Board on a periodic basis with regards to matters of corporate responsibility and sustainability performance, including potential long- and short-term trends and impacts...." It was the highest elevation to date of the triple bottom line as a matter of shareholder concern.

That's my list. What's your most hopeful green business story of 2010? Feel free to weigh in below.

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The State of the States on Clean Energy

As America enters the next chapter of its political history, with a newly minted Congress and a hobbled presidency, national leadership on climate and energy issues continues to remain a pipe dream. One side wants to accelerate business as usual: more oil drilling, “clean” coal and nuclear plants, letting “the market” determine which technologies win or lose. The other side wants to accelerate a new generation of technologies, including renewables, a more intelligent grid, and a strong emphasis on efficiency, with ample subsidies ensuring that these technologies take hold.

So far, business as usual seems to be winning out.

Not that renewables haven’t made progress. A decade ago, the growth of solar and wind power was measured in kilowatts. Today it is measured in megawatts, even gigawatts. But solar and wind, despite massive investments and technology breakthroughs, represent a tiny fraction of grid power. Green energy use — measured as a percentage of all U.S. electricity generation, grew from 2.11 percent in 2003 to just 3.36 percent in 2009, according to the State of Green Business 2010 report, published by GreenBiz.com.

The reason? There are many. It begins with the lack of a comprehensive national climate or energy policy and includes a myriad of roadblocks, barriers, and speed bumps that have made the route to a low-carbon economy frustratingly slow and, for investors and entrepreneurs, needlessly perilous.

National leadership probably will be lacking for the foreseeable future, and even the incumbents are bemoaning the state of affairs. Peter Darbee, chairman of the California utility giant PG&E, recently told the San Francisco Chronicle, “America has gone backwards in terms of our commitment on climate change. It’s a terrible disappointment.”

Blaming “Washington” for all this is an easy cop-out. Fact is, much of the nation’s energy policy happens at the state level. And while national leadership would no doubt help, there are a myriad of rules and regulations at the state level that can accelerate the growth of efficiency and renewables. Together, these policies empower energy customers — consumers and businesses alike — to use solar and other renewables to meet their electricity needs, and otherwise create an environment in which alternatives can flourish.

So, I was pleased to see the publication last week of two research reports rating the states on next-gen energy policy. The first, the U.S. Clean Energy Leadership Index, is a subscription publication produced by Clean Edge, a company I co-founded (though I was not involved in the publication’s creation). It assesses and ranks more than 80 different state-level indicators.

Each state’s overall Leadership score is comprised of three subscores: Technology (such things as a state’s overall clean electricity generation, green buildings, and alt-fueled vehicles); Policy (including renewable portfolio standards, renewable fuel standards, efficiency grants and rebates, and net metering laws); and Capital (including venture capital investments, utility energy efficiency program budgets, and green pricing programs). All told, these 80 indicators show how, and how much, states are positioning themselves for a low-carbon future. The index is weighted and data is normalized by state GDP, population, total sales, and other factors.

In Clean Edge’s analysis, California ranked first, followed by Oregon, Massachusetts. Washington, Colorado, New York, Illinois, Connecticut, Minnesota, and New Jersey, among the top-10 states. However, Iowa led the U.S. in utility-scale clean electricity generation as a percentage of total electricity, receiving more than 14 percent of its in-state generation in 2009 from wind power; no other state exceeded 10 percent electricity from large-scale clean-energy sources. And Michigan, with its recent focus on electric vehicle and automotive battery technologies, led in clean-energy patents, “a key indicator in the human and intellectual capital area of the Index’s capital category.”

Subscriptions are geared toward corporations, economic development agencies, investors, policy makers, technology innovators, foundations, and other key stakeholders actively involved in the clean-tech marketplace.

Meanwhile, another report, titled Freeing the Grid, was issued by a quartet of nonprofit groups focused on renewable energy. This annual report — from the Interstate Renewable Energy Council, Network for New Energy Choices, North Carolina Solar Center, and Vote Solar — focuses much more narrowly on two aspects of state policy: net metering (a billing arrangement in which customers that generate more renewable energy than they need for their own use can sell it back to the grid at market prices), and interconnection (the technical rules and procedures allowing customers to “plug in” their solar or wind generating equipment to the grid).

Net metering and interconnection rules are seen as two of the most important enablers of clean-energy policy. And lacking any national laws allowing — or requiring — utilities to make interconnection and net metering ubiquitous and easy, each state must concoct its own scheme for doing so. The result is a messy patchwork of differing rules and regulations, but it's the best we've got.

Like Clean Edge, this group assesses and grades states, albeit across a narrower set of two dozen policy-related criteria. There was good news: 37 states received "A" or "B" grades for their net metering policies, up from 13 states in 2007, while 20 states received top marks for interconnection practices, a tremendous improvement over just one "B" grade awarded in 2007. Massachusetts and Utah led the pack, receiving exceptional "A" grades in both departments.

This is geeky stuff, to be sure, but these rules and regulations represent the foundation upon which a robust clean-energy industry can grow and prosper. Without these policies in place, the industry is doomed to limp along as it has over the past decade, and whatever clean-energy leadership the U.S. can still reasonably claim will quickly fade away.

Can state leadership on renewables overcome the lack of a national policy? It’s hard to know. But from where things stand today, it’s pretty much the only way next-gen energy will win out over business as usual.

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Can General Motors Save the Planet?

Today is a watershed day for General Motors — and I’m not talking just about the historic and record-breaking initial public offering marking the company's return to the stock market, and away from majority ownership by the taxpayers.

Today, Chevrolet, the company’s largest brand, announced it would invest $40 million in 8 million tons of carbon offsets — equivalent of roughly a year’s worth of driving the cars it will sell next year.

It may not be the most innovative move — dozens of other companies have made significant investments in planting trees, building renewable energy plants, weatherizing buildings, and other things that reduce energy and greenhouse gas emissions. But it’s a bold move, both in its size and its timing.

Consider: On a day when of America’s most iconic companies has come back to life as a public company after going through bankruptcy and government bailout, its first gesture is an environmental one.

Clearly, something different is going on here.

I’ve had a opportunity to track GM’s road to this announcement over the past few months, through the window of my relationship with the consultancy GreenOrder, and through my friend Sue Hall, founder of the Climate Neutral Business Network, which shepherded the project through GM. Last week, I attended a small brainstorming session convened by Hall at GM headquarters in Detroit to look at how the announcement and its messaging were shaping up, and to provide feedback.

And over the weekend, I spoke with Joel Ewanick, GM’s vice president of marketing, the principal driver of this initiative, as he was — well, driving a Chevy Volt from Detroit to Los Angeles, where today’s announcement was made, at the L.A. Auto Show.

First, the basics. GM today stated its intention to “invest $40 million in various clean energy projects throughout America” with the aim of offsetting 8 million metric tons of carbon. The company estimates that the goal equates to the emissions in 2011 from driving the 1.9 million vehicles Chevrolet is expected to sell in the United States over the next year. Chevy will be making the investments through third-party organizations such as the Bonneville Environmental Foundation, a nonprofit organization based in Portland, Ore.

The project began with Ewanick, who joined GM in May by way of Nissan and Hyundai. “When I first started, we began talking about the direction the company was going to take, and fact that there was a real need over the long haul to balance our portfolio,” he told me about 1,700 miles through his 2,300 Detroit-Los Angeles trek, just outside Moab, Utah. “For at least the past 25 years, we’ve been heavily dependent on trucks. We haven’t put as much emphasis on fuel-efficient sedans. And our Japanese and Korean competitors did.” The company had begun to turn the corner, creating the electric-gas Volt, a 42 mpg Cruze, greening up its operations — roughly half of its manufacturing plants worldwide are now zero-waste facilities — and taking other efforts.

“But we said, ‘There must be more we can do.’ We need to show that we’re no longer that company that’s going to send a legion of lobbyists to Washington to say climate isn’t important, because it is. As a company that produces cars, we can go a long way to making people aware of our responsibility, both from a corporate standpoint and an individual standpoint. And that’s where this whole thing started.”

“This whole thing” took a variety of twists and turns. A wide range of bold and audacious ideas were tossed around by Ewanick and other members of the senior leadership. The idea of offsets rose to the top, though the company understood that offsets can be a dicey proposition, for several reasons. One, they’re not that easy to explain to the general public. Two, they’re complicated and controversial as to whether they really reduce emissions. And three, GM’s demand for offsets might be sufficiently large that it could outstrip supply.

In the end, the notion of offsetting a year’s worth of driving got the green light. GM acknowledges that it doesn’t know exactly how it will achieve its goal — that is, where it will invest money to buy, at an average of $5 per ton of offsets, enough quality projects that it will truly reduce emissions, and not simply write a check for something called "renewable energy credits" and be done with it. The projects it has eyed include providing energy-efficient technology such as smart energy sensors and solar panels to schools, supporting wind farms and solar projects that help family farms increase their revenues per acre, and capturing flammable methane from community landfills to deliver clean energy to the grid and improve local air quality and safety.

Pulling all that off might be relatively simple, compared to explaining all this to the American masses.

I asked Ewanick, “What did you hear in the research that convinced you that offsets were the way to go, that people would understand what they were and that this would move the needle on people’s perceptions of GM as a result?”

“It’s going to be a difficult challenge,” he conceded. “A lot of people don’t understand this issue -- that we can do something about CO2 by doing other things, by finding more efficient ways of producing energy, weatherizing schools or finding things we can do with the methane gas [from landfills].

“In our research, we found that people don’t believe in ‘being green.’ But if you ask them if they do things that help the environment, just about everyone we talked to said, ‘Of course.’ A lot of people feel they’re doing good things by buying more fuel-efficient cars. Others recycle. But the unifying thought that happens is that they feel helpless as individuals, that what they do as individuals doesn’t really make that much difference. There’s no way to make people feel collectively that they’re making a huge difference. So, here’s a way through Chevrolet where we can say, ‘Collectively, you and us are making a huge difference.’ And we can quantify that difference and they don’t feel helpless.

“They constantly told us, ‘As an individual, I can only do so much. Companies need to do more, the government needs to do more.’ They said that ‘If a company did something good for the environment, I would support them.’”

GM plans to push the story out to the mainstream, seeking that support. Full-page ads will show up soon in major U.S. daily newspapers. Starting Sunday and over Thanksgiving week, TV watchers will see a series of commercials touting the carbon commitment. Additional ads will follow, though less intensively. There's a new website devoted to the initiative.

“It’s a really great time to do it over Thanksgiving,” said Ewanick. “Families are home together. There’s a lot of conversation at the dinner table. With any luck at all, maybe Chevrolet will be part of that conversation. People can talk about what we’re doing.”

Can General Motors truly change the conversation on carbon and climate? It’s an audacious, almost unfathomable notion, particularly when you think about where GM has come from: suing state carbon regulators, lobbying against federal action, stonewalling activists, selling Hummers, and all the rest.

I, for one, will be anxious to see how that works. Certainly, there will be critics on both sides -- environmentalists who blindly charge greenwash, because that’s what they do; and conservatives who will rail against this somehow as a misuse of taxpayer bailout money — because that’s what they do.

Personally, I wished the company’s messaging had taken this head-on. I would have preferred that GM had said, “America, you invested in us. Now that we’re back, we’re returning the favor. We’re going to invest in schools and communities around our 3,100 showrooms. We’re going to put people back to work -- not just making greener cars, but making greener buildings and greener energy. We're going to invest in a more sustainable future, in clean air, in energy independence. We’re going to turn the tables on that old adage: ‘What’s good for GM is good for America.’”

As he cruised along U.S. 191, passing some of America’s finest scenery, I asked Ewanick what success looked like -- “What’s the story you’ll get to tell five years from now if you get this right?”

He responded, “We’ll look back and say, ‘Finally a car company stepped up and signaled to the world that cars are part of the issue when it comes to CO2.’ And as the car industry grows around the world, that we got together and started doing initiatives like this together. In the end, it can’t be just Chevrolet. A lot of our competitors need to join us on this.”

Can GM really move the needle on climate change — and on its own image as a responsible company? It’s a long, long journey, filled with potholes at every turn. The destination is far off, at times elusive.

But for at least a day, we should celebrate what’s at minimum a symbolic shift by America’s largest automaker, and very possibly much more than that.

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Sustainability Still Wins Elections

Sometimes, the voters get it right. For sustainability advocates, desperate to find something positive in this week's election, here's one: Proposition 23, the California voter initiative to undo America's most aggressive climate program, was soundly, roundly defeated.

It wasn't even close: More than 60 percent of California voters chose to stay the course on California's nation-leading green-economy march. The opponents of climate action didn't just lose, they were trounced.

Prop. 23, for the uninitiated, aimed to reverse California's sweeping greenhouse gas legislation, known as AB32, signed into law in 2006 by Governor Arnold Schwarzenegger. It requires a reduction in state greenhouse gas emissions to 1990 levels by 2020. The law will engage a broad-based effort by just about every business entity in the state, along with government at all levels -- and, of course, individuals in their roles as shoppers, drivers, and homeowners — in dramatically reducing California's climate impacts.

Reaching the law's mandates involves a low-carbon fuel standard for vehicle fuels as well as regulations for tires, engine oils, paints, window glazes, and vehicle insurance. It involves new regulations that affect housing, trucking, refrigerated vehicles, cargo vessels, rail freight, chemicals, and many other parts of the economy. It is, simply put, the most comprehensive climate legislation enacted, at least in the U.S.

Which is why some big companies hated it. Fossil fuel companies in particular. Valero and Tesoro, two Texas oil companies, provided the majority of funding in support of Prop. 23. The proponents took the stance that California simply couldn't afford to address climate change during a recession, with state unemployment at more than 12 percent. Proposition 23, had it passed, would have mandated that AB32 efforts be back-burnered until the economy greatly improved — until such a time that unemployment hit 5.5 percent for four consecutive quarters. That is to say, until never.

Proposition 23 was significant for one principal reason: It was the first time that action on climate change had been put to the voters.

And the voters spoke, resoundingly: Californians overwhelming agreed that this is no time to stop California's leadership on energy efficiency, renewable energy, clean technology, and greenhouse gas reductions.

And they shook off the claims that this would be a job-killer, agreeing instead that AB32 represented a tremendous opportunity for the state to build on its existing foundation as a leader in new technologies, companies, and industries. Indeed, it was the new-economy companies, investors, and entrepreneurs -- and the occasional large company, like HP — that stood on the side of climate action.

"Evidence says 'As goes CA so goes the nation,'" Sunil Paul, a clean-tech investor and entrepreneur, and creator of an initiative called the Gigaton Throwdown, told me last week. "It's true not just for food -- McDonalds to California cuisine — but for environmental laws. Environmental regulation in other states and at the federal level often starts here in California. But so can dismantling the laws. California policy instability in the early 1990s lead to the collapse of the U.S. wind turbine business and those anti-clean energy attitudes took root elsewhere in the country."

Another clean-tech VC, Rodrigo Prudencio of Nth Power, put it this way: "Prop. 23's biggest impact on California's clean-tech economy would not have been in the direct impact of killing AB32 — only a few cleantech companies rely on a price of carbon in their economics," he told me. "Rather, it would have been the surreptitious attack on the many laws and regulations that underpin California's environmental leadership, many of which, arguably, could be sidelined by passage of Prop 23. The proposition was a legitimate Trojan horse."

In this case, the big wooden horse of economic recovery was quickly seen for what it was: an diversionary insurgent effort by some of the biggest contributors to climate change to maintain the status quo in order to protect their narrow interests.

And so it went: Californians said, in effect: "Climate change is both a threat and an opportunity. The threat is to our homes, communities, and children. The opportunity is to reinvent our economy toward a low-carbon future — even if it takes significant changes in our economy and our lives. The promise of a green economy, and all of the companies and jobs that will create, is greater than the risks of change."

And just in case you think Californians were smoking something, consider that another initiative, Prop. 19, which would have essentially legalized marijuana, was similarly quashed by voters. Today, the sweet smell in the air is that of rational, progressive thinking.

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Is TerraChoice Greenwashing?

I’ve been holding back on laying into the third and latest Sins of Greenwashing report — in part because I’m feeling too much like a broken record — but I’ve got to weigh in.

The report, if you’re not familiar with it, is published by TerraChoice, a Canadian-based environmental marketing agency. (Earlier this year, it was acquired by UL Environment, a division of Underwriters Laboratories. GreenBiz is engaged in a partnership with UL Environment that is wholly unrelated to TerraChoice.) TerraChoice’s report aims to take stock of the state of greenwashing — that is, false and misleading environmental marketing claims made by companies — based on a survey it conducts in 24 stores in the U.S. and Canada. This year’s survey covered nearly 5,300 products that made some kind of environmental claim. All told, more than 12,000 claims were evaluated.

TerraChoice uses a seven-part screen to judge the claims. Any product that failed to pass any one of the seven screens — “sins,” as TerraChoice calls them — was deemed to be greenwash.

The verdict: 95% of the products failed the test. Nearly everyone, according to TerraChoice, is a sinner.

This, believe it or not, is an improvement over last year, when over 98% (of about 2,200 products) were greenwash, according to TerraChoice. In 2007, the first year of the report, 99% (of about 1,000 products) failed. That, it could be said, is progress.

So, what’s my beef? Simply put, the report may be as much of a greenwash as the products and companies it is criticizing.

Want proof? I put the report to its own test. Here is my assessment of the report weighed against three of TerraChoice’s seven “sins.”

• The Sin of No Proof “is an environmental claim that cannot be substantiated by easily accessible supporting information or by a reliable third-party certification,” according to TerraChoice. By that measure, the report fails the test. Its findings do not include supporting information — it offers only high-level, unsubstantiated findings — and were not vetted or verified by an independent third party. You have to take the authors' word for it. Any marketer who takes that approach with their products is dubbed a greenwasher by TerraChoice.

• The Sin of Vagueness is committed when a claim "is so poorly defined or broad that its real meaning is likely to be misunderstood by the consumer.” You know: generic, meaningless words that sound good but lack a legal or generally agreed-upon definition, like "natural" or "nontoxic" — or "greenwash." So, is it an overly broad misuse to cry “greenwash” if a company, say, made a valid marketing claim but failed to adequately back it up? (Fully 70% of all products examined by TerraChoice committed this sin.) After all, "greenwash" was originally coined to describe much more egregious practices — e.g., the "dissemination of misleading or false information designed to make an organization or product appear more environmentally friendly than it actually is" or "the unjustified appropriation of environmental virtue," to cite two reasonable definitions. Neither describes the aforementioned “sinner” that simply failed to provide adequate proof of a valid claim. Hence, TerraChoice is using the same kind of sensational but vague terminology it rails against in its report.

• The Sin of Irrelevance results from an environmental claim “that may be truthful but is unimportant or unhelpful for consumers seeking environmentally preferable products.” This irrelevance cuts both ways. Did TerraChoice apply the greenwash label to companies whose product claims are factually true but insufficiently substantiated? We don't really know, because TerraChoice won't say, but to the extent that it did, this seems unimportant and unhelpful to consumers trying to make good, green choices. In a word: irrelevant.

The tally: I’ve found reasonable grounds that the TerraChoice authors violated at least three of the seven screens it set for green marketers. According to its own rules, a commission of even one “sin” qualifies as “greenwash.”

I’ll admit to some subjectivity here, but that’s partly the point. Many of these things aren’t clear-cut, despite TerraChoice's seemingly definitive pronouncements. For example, I’m guessing that SC Johnson’s Greenlist labels have been deemed by TerraChoice to be greenwash, because they’re self-certified, not verified by an independent third party. True, but SCJ’s Greenlist program — an environmental classification system designed to systematically measure, track, and reduce environmentally problematic ingredients across the company's entire product line — has won a Presidential Green Chemistry Award and accolades from environmental and industry groups. It does not mislead or cover up. I don’t consider it to be greenwash. I’m pretty sure TerraChoice does, however, because it likely commits one of its “sins.”

I say I'm “pretty sure” because TerraChoice won’t say. There are no names named about what specific sins were committed. (See “Sin of No Proof.”)

I asked Scott McDougall, TerraChoice’s president, why his company — which is so critical of those who fail to be accountable or transparent — is itself unwilling to name companies or products, or give examples of companies or products that fail to meet its test?

“Our desire is to be constructive, to improve the understanding and quality of claims-making and to focus on shared lessons,” he responded. “It is already difficult enough to get media to use the study this way. To name names would distract entirely and would encourage, we suspect, a witch hunt.” He placed the burden on others — the U.S. Federal Trade Commission, for example — to “identify culprits.”

Naming “culprits” is one thing. Giving concrete and instructive examples that illustrate what TerraChoice considers greenwash is another. Even anonymous or disguised real-life examples would help readers understand what greenwash looks like, and would provide a level of confidence that what TerraChoice calls greenwash meets some reasonable standard. (Did I mention that the word has no legal definition?)

It’s also worth pointing out that there’s more than a little self-interest going on here: TerraChoice (and UL Environment) is in the business of both creating green product standards and selling claims verification services to product manufacturers. As such, the company is not an innocent, independent bystander here. It has a vested interest in fanning the flames of what it dubs the “significant problem” of greenwash. To the extent that marketers get spooked, they’ll need TerraChoice’s help.

Of course, I don’t really consider the “Sins” authors to be greenwashers. I know McDougall and the other principals behind the report and consider them to be earnest, ethical, and committed individuals. The “sins” they have committed, at least by my reckoning, don’t brand them as evil. They are, at worst, publicity-seeking entrepreneurs seeking to differentiate their brand in an increasingly competitive environmental marketplace.

That is to say: They are green marketers.

I’m afraid that those who read TerraChoice’s report won’t be quite so charitable when it comes to rendering judgment on the universe of green-marketing “sinners” that have been universally tarred by TerraChoice’s brush.

I wouldn’t blame shoppers for ending up more confused and cynical than ever. And I wouldn’t be surprised if some companies thinking about touting their green innovations and achievements decide to go back into their shells, keeping mum.

And that would be the biggest sin of all.

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Newsweek's Green Rankings: What They Mean ... and Don't

Today, Newsweek releases its 2010 Green Rankings, its second annual effort to rate and rank the largest companies in the U.S. and the world. Dell and HP switched places for #1 and #2, and after that, who really cares?

The other 498 companies, that’s who.

A couple weeks ago, when about 30 senior sustainability executives gathered in Milwaukee for a meeting of our GreenBiz Executive Network, I asked members how many knew their company's 2009 Newsweek Green Ranking. Damn near every one could cite it blindly. The rankings, it seems, have become a major metric in corporate America.

But it’s important to put the rankings in perspective ahead of what I expect will be another surge of horserace-type analysis: who’s ahead, who’s behind, who’s catching up, who’s falling back. As these things often are, there is both more and less going on here than meets the eye.

This year’s 2.0 release represented an opportunity for Newsweek and its partners to tweak the methodology from last year’s maiden voyage. Not that there was a lot that needed tweaking. As I wrote a year ago, the rankings “may well be the best effort yet to rigorously and comprehensively assess the mainstream corporate marketplace.”

Indeed, the basic methodology remains pretty much unchanged. Newsweek’s rankings assess the 500 largest publicly held companies, determined by a combination of market cap, revenue, and number of employees. Each company gets a Green Score derived from three separate metrics:

• an "Environmental Impact Score," compiled by Trucost, based on more than 700 metrics of company performance, including greenhouse-gas emissions, water use, and solid-waste disposal; 

• a "Green Policies Score," from MSCI's RiskMetrics Group, reflecting an analytical assessment of a company’s environmental policies and initiatives; and

• a "Reputation Survey Score," resulting from a survey of CEOs, corporate environmental officers, and academics conducted by CorporateRegister.com.

The first two — Environmental Impact and Green Policies — each account for 45% of the total score, with Reputation making up the final 10%.

So, who won? Dell edged out HP for the top spot this year, changing places from last year, when HP was #1. In fact, the top five companies — rounded out with IBM, Johnson & Johnson, and Intel — were exactly the same as last year, except in a slightly different order. Nike and Applied Materials kept their place among the top 10, joined this year by Sprint Nextel, Adobe Systems, and Yahoo! That last of those, Yahoo!, may have been the biggest gainer, with the Internet portal moving up 60 slots to #9, from #69 last year. Meanwhile, the #500 company of 2009, Peabody Energy, didn’t budge; the world's largest private-sector coal company remained dead last in 2010.

This year, Newsweek added a second ranking, of the top 100 global companies, using the same methodology. The top 10: IBM, Hewlett-Packard, Johnson & Johnson, Sony, GlaxoSmithKline, Novartis, Deutsche Telekom, Panasonic, HSBC Holdings, and Toshiba. Some of the top companies in the U.S. ranking didn’t make the list because their size didn’t put them in the top 100 globally. For example, Nike and Intel, for all their heft, just weren’t big enough to qualify among the world's 100 biggest companies.

As I said, all of this needs some perspective. Four key points:

• The differences among the top-ranked companies are pretty minor — and in some cases razor thin. After all, the overall rankings cram 500 companies into a 100-point scale. The top 19 companies all scored 90 or higher, and the top 87 companies scored 80 or higher. Only the bottom 5 received fewer than 30 points.

• The methodology changed a bit between this year and last, so year-over-year comparisons aren’t really possible. (This shouldn’t be as much of a problem going forward.) No doubt, this won’t stop companies from scrutinizing how they and their competitors fared over the past year, but unless there were wild swings in standings, such analyses won’t be meaningful.

• The work that goes into some of the rankings’ components is subjective, meaning that individual judgment calls are turned into numeric scores that ultimately determine a company’s ranking. Given the closeness of the scores, one misinterpretation by an analyst having a bad day could make a material difference in a company’s score and ranking. That subjectivity is important to keep in mind, especially given that less than 1 point separates the top four companies — Dell, HP, IBM, and J&J.

• All of the scores are relative, not absolute. That is, companies are judged not on how well they do, but on how they fare in comparison to their peers. So, Dell’s top score of “100” doesn’t mean it is perfect any more than HP’s “100” score did last year. It just means that of the 500 companies assessed, it scored the highest.

I have no doubt that such subtleties will be lost on most people, who will view the rankings as Gospel, especially when comparing competitors — e.g., declaring that Dell (#1) is better than HP (#2), Pepsi (#135) is better than Coca-Cola (#141), UPS (#62) is better than Fedex (#105), McDonald’s (#79) is better than Wendy’s (#313), Wells Fargo (#41) is better than Bank of America (#124), and Walmart (#51) is better than Target (#61). There’s great sport in all this, but there can also be both unearned gloating by the winners and needless self-flagellation by the losers, especially when the differences are fairly small.

But the differences can be real — and instructive. Consider the HP-Dell flip-flop. I asked Kathy Deveny, Newsweek’s Deputy Editor, who headed up the project for the magazine, to break down what happened with those two companies.

Here’s what she told me:

• Dell’s Environment Management System score both increased and surpassed HP’s this year. Dell’s Product Impact score also increased, while HP’s score slightly decreased. The Product Impact component of the Green Policies Score is weighted very heavily for tech companies, giving Dell a boost.

• There was no change to either Dell’s or HP’s Climate Change scores. However, Dell’s score already was higher than HP’s. The climate component is also weighted heavily for tech companies.

• Finally, Dell’s Environmental Stewardship score increased dramatically (by 22 points) this year, whereas HP’s also increased, but only by 6 points.

So, both companies did better this year than last. But Dell’s Green Policies Score increased by 3 points, whereas HP’s increased only by 1 point, allowing Dell to slip by HP. And the rest is history.

“It was a complicated process last year and we made it even more complicated this year,” concedes Deveny, referring to the adjustments in how metrics were normalized, calculated, and weighed. There was also a harder push to get the companies to review their data before the final scores were calculated; about 40% did, roughly double last year. An analysis was added in assessing financial services companies to include the ecosystem damage of their investments.

“When you do these kinds of rankings you have a choice between doing something that’s really easy to understand but kind of superficial, or doing the most comprehensive job you can and making it pretty complicated,” Deveny told me. She explained that the process of comparing 500 companies across different industries wasn’t easy given that they used data sets created in different units: Trucost tracks environmental impacts as dollar amounts, MSCI uses a 1-100 scale based on 70 measures of policy and initiatives, and CorporateRegister.com conducts a survey of experts.

Said Devany: “For a mass-market publication like us, it was a conundrum: Do we make it simpler, but not as good, or as comprehensive as possible but really complicated so that some people don’t understand it?” She said they chose the latter path, adding, “The burden is on us to explain it.” She said this year the magazine has put an expanded methodology section online.

But here’s the real bottom line: There appears to be a correlation between high-scoring companies and well-performing stocks, according to Cary Krosinsky, vice president of Trucost. His analysis found that the top 100 companies in this year’s Newsweek rankings outperformed the Standard & Poor's 500 Index (on an equally weighted basis) by 6.8% for the 12-month period ending September 1, 2010. That, as they say, is real money.

Correlation isn’t causality, of course, but Krosinsky’s findings are encouraging. It’s one thing for a company to know that its sustainability measures are helping lift its stock price. But it’s altogether another thing when its shareholders know that.

In the end, making that link may be the biggest contribution the Newsweek's ranking make to the field of sustainable business.

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