The Business Case For Going Green

At a glance

A a bi-product of studying Green Management and Corporate Sustainability in Milan, I tend to analyse situations with a pair of not rosy but vivid green tinted glasses to them. One of the most salient takeaways from the course,wider reading and discussions that took place was the resounding fact that, for organisations and firms, no matter how big or small, local or international, embracing a green strategy can in addition to improving environmental and social goals, considerably improve bottom-line results and generate some serious cash money in the long term.  

Albeit many CFO’s/Wolves of Wall Street and the Jordan Belfort’s of modern society,  may be initially skeptical to this, raising their eyebrows and tell you to piss off at the above, it is increasingly acknowledged by the business world that protecting the environment is no longer a burden for companies. Harnessing this into core business practices can demonstrate the benefits of natural capitalism and recognising the value of our planet’s resources. Instead, for firms that are able to embrace circularity, conservation and protection, the earth as a natural resource can provide a marketplace for success and competitive advantage against industrial competitors and improve triple bottom line results!

(Triple Bottom Line = Environmental, Economic, Social, coined by a bloke called John Elkington circa 1995)

Case in point – Larry Fink, CEO of Blackrock, the world’s largest asset management fund, earlier this year proclaimed in his annual letter (treated as gospel) to fellow CEO’s warned that companies who are not accountable for societal changes are a risk for their shareholders highlighting a key turning point in the attitude towards social responsibility and green strategies.

So, how can this happen? By adopting an eco-advantage culture and integrating it into the daily mechanics of any said business. Easier said then done? Think again!

Creating an eco-advantage culture has motivated businesses across the world to decrease costs, their waste and consumption. The adaptation of such a strategy lends itself to manifest and increased focus on innovation in design and processes as well as approaching problems with dynamism to existing business models. For example, companies with excessive pollution demonstrate evidence of waste as they are not utilising fuels efficiently. Therefore, by innovating and overhauling their energy usage systems, adopting renewable energies and technologies, strategizing on how they may be able to close their energy system and become more green, they are able to make gains elsewhere by reducing their costs, reducing their negative impact and increasing productivity with newer technologies.

In focus

Motivations

Having contextualised the essentials, I’ve broken down what I’ve learnt from reading (see recommendations below) and believe there to be the two overarching reasons and valid justifications on why acting in a green and sustainable fashion can be bountiful for economic performance.

Increase revenue

The first being that sustainable green practices can increase business revenue. How?

1. Adopting a green strategy gives you better access to markets, which may prove particularly lucrative in areas such as the public sector (e.g. Governments analyse the environmental performance of all vehicles prior to purchasing and initiating large contracts with a specific company with the best carbon efficient cars on offer)
2. It nurtures the differentiation of  products and services on offer. When you are able to support your offering with credible information, statistics,evidence and transparency, consumers are undeniably likely to pay more for your products! On top of this, when a business continues to differentiate, imitation from competitors is less likely to happen as you are constantly evolving your business model (Think of when Toyota in 2012 announced all models would be available with Hybrid engines, Patagonia’s own grown Organic Cotton, Hourglassvegan beauty etc etc). We only have to turn our heads to the example of the theorganic and ethical food industry to see how supermarkets are able to increase their revenue streams by offering superior products to meet customer’s desires whilst also reducing their social and environmental impact!  The rise in organic food sales by 6% to a whopping £2.2billion this year as it’s the sixth year of consecutive growth, is just one example. The expansion of vegan product ranges and categories including wine in UK supermarkets is substantial and no doubt rising profit margins as well as encouraging in-house food developers to innovate into untapped areas and think outside the meat/dairy box. 
3. In the more sophisticated, higher technology cases; you can sell the green technology you have invented to others. This could range from pollution control technology to innovative decomposable materials for toiletries or clothes that embrace circularity and renewability. (For companies that sell this on it also does wonders for their sustainability profile and reputation as they are collaborating with competitors to work towards a common agenda and UN’s 2030Sustainable Development Goals). As a natural biproduct, this builds intangible brand value for businesses, increases their brand assets and connects an organisation to not only their customers but employees, wider stakeholders, and reputation of stewardship. Any company that can maintain a promise creates ‘brand stickiness’and attracts new customers who return time and time again.
4. Embarking on a genuine green strategy can raise revenues as it attracts talented like-minded individuals whose careers are not only driven by financial imperatives but also wanting to make a positive impact on our planet! As an asset, talent can improve firms bottom line with their ‘green aura’ which creates a sustainability advantage, allowing an organisation to be efficient in economic downturns and can increase motivation when all may not seem right in the world.(See point on Stanford experiment below for hard evidence)

Decrease costs

The second overarching rationalisation of why it pays to be green by adopting aneco-advantage culture is that ultimately, it decreases costs.

1. A. It enables you to identify and mitigate risks for both your organisation and wider stakeholder network. For any business there are always an expansive range of risks but a green strategy can help you limit these. A primary example is environmental risks across the supply chain (both upstream and downstream),reducing liabilities in energy, toxic spills, waste etc etc can enable an organisation to avoid penalty costs and increase speed to market. Failing to identify and mitigate such risks through an environmental lens can have fatal consequences. Take the BP Deepwater Horizon 2010 Oil Spill, caused by multitude of failings including safety check short cuts cost the company a whopping environmental fine of $18.7bn which we can all deduce was not forecasted into their annual budget. This is not including the value lost to the company following their rebrand to ‘Beyond Petroleum’ in the quest for a new more wholesome image.  A second example is Mattel in 2007 , the company behind Fisher Price, Barbies and Hot Wheels cars had to recall over 21 million items (its 17^th time in 10 years) due to the fact their toys were covered in lead paint. This blunder also had financial penalties of $2.3million but it’s the long term reputational damage caused by the ineffective risk identification of the organization. This reverts back to my early commentary on Larry Fink and how, if you are not sustainable, responsible and accountable for the on goings of your organisation, ultimately you are a risk to your shareholders.
2. As a result, mitigating your risks can decrease your long term costs. Adopted across multiple industries one of the first places to address the glaring dangers is within your supply chain. Green public purchasing policies are now becoming common with legislation and auditing standards on supply chains with organizations benchmarking performance in this area; it is very in fashion to have a squeaky clean supply chain and it makes for great brand storytelling, making it a whole lot easier for your PR team! Sustainable supply chains is an expansive topic but a quick example is Walmart, the US multi-national retailer valued this year at a mere $500billion. By introducing their ‘Common Sense’ Scorecard system, it inputs rigid processes, auditing and regulations for all of its first tier and second tier suppliers. Failing to adhere to these protocols and standards gets you not only a slap on the wrist but the ultimate penance of being struck off the supplier list if these issues are not addressed, and who really wants to lose a contract with Walmart and it’s 11,500+ stores globally?
3. A green strategy is also synonymous with reduced costs as it cuts opportunity costs and increases efficiency. Really this is a vast area which spans multiple areas of your business, thinking of the basics like IT, office activities,building facilities (energy/lighting/heating), your café. It then spans intothe operational side of firms, looking at design of products, services,sourcing and procurement, manufacturing , logistics and transport, marketing and sales and accounting. The list really is endless and all the little things can amount to a huge positive impact – especially for organisations the size of IBM or Unilever. Incremental changes could be going paperless or selecting green energy supplier which reduces various GHG emissions. Take implementing new IT rules as a simple example, for if the programming of all office computers were set to turn off by a certain time/hibernating automatically and eliminating screensavers for an office of 1000 people can contribute positively! (Did you know that a computer left on for 24 hours a day emits 1500pounds of CO2 emissions!) A concrete example of how this can be fruitful is the software company Adobe implemented an ‘Adobe Goes Green’ programme investing$1.4million a new green IT system in their headquarters, but actually gained $390,000 in energy rebates which in addition to lowering their costs only took 9 months to payback the investment! 
4. All of the aforementioned efficiency increases and reduction in costs can lend itself to lowering the cost of capital within businesses. Cumulative savings lowers costs and have the potential to increase borrowing opportunities. This in turn could increase shareholder investment as they review and analyse their portfolio as they wish to invest in reliable, less volatile and low risk organisations (again reverting back to Larry Fink’s sentiment and dismissal of investor short termism). A prime example of this is the rise of socially responsible investing and sustainable value creation. As an extremely brief summary this looks at long term investment strategies which incorporate ESG factors (Environmental Social andGovernance criteria) into investment decision making. One brief example is screening against investing in companies that are involved in oil, nuclear power, tobacco, etc etc. 
5. Acting in a green and sustainable fashion can reduce the cost of labour. This point is validated by the rise in talent attraction and performance with organisations that have a green image are those likely to be the young and educated young professionals want to work for ethical firms. This is supported by a StanfordUniversity survey whereby  97% percent of the MBA students in the sample were willing to forgo financial benefits and a pay cut of 14% to work for an organization with a better reputation for corporate social responsibility and ethics. I am absolutely not saying that we all pick our graduate scheme/Linkedin applications based on who has the lowest GHG emissions or best recycling policies BUT I would like to think as readers of this article are mostly friends of a similar age and background that they would prefer to work for a company that engages in socially responsible projects as opposed to those that avidly promote fracking, plastic pollution and are ignorant to sustainability in its entirety.

On balance…

My points on how a green strategy can increase revenue and reduce costs of course must be balanced by the notion that yes, such endeavours require investment which often go beyond the scope of resources of some smaller organisations and demand the seducing and convincing of senior executives to come around to this idea. (If you can provide concrete savings to a CFO on a balance sheet, this maybe the first stepping stone). Resources and organisational capabilities may allow some firms to apply their financial,t echnical and human resources for social participation and innovate in the longterm. For example, Cadburys invested £45 million to identify and understand thesocial and environmental issues integrated along their cocoa supply chain inorder to seek sustainable solutions. A large scale dedicated green strategy requires structure in audit assessments, manufacturingtools, and optimising facilities.

I acknowledge whole heartedly, a start-up or small business must focus on staying afloat, generating revenue and even attracting orders before it needs to even think about emissions auditing, areas of negligence or its supply chain contracts. However, if this is inbuilt into core business values from the offset, it has intangible long term value. I’m also not suggesting every company must go and invest in blockchain technology to increase transparency in their supply chains.

Adopting green policies and practices takes time and is not something that can happen overnight, just like with a change in lifestyle, diet  or exercise regime!

Case studies

Finally, I thought it best to compile some examples of how being green can be lucrative!Embarking on a business strategic imperative and model that incorporatesa sustainable and green agenda manifests and can come to fruition in variousguises. It may start incrementally, for example, by doing old things in a newway and then translate into developing new things and doing them in a new way.This could subsequently result in a shift in the core of a business to thenconceive an entirely new business model and exciting and enticing valueproposition for your customers.

Regardless of whether I’ve convinced you or if you wish you had scrolled through thegossip column of the Daily Mail instead; I thought it best to support my viewwith a few concrete examples that show how adopting a green strategy of anyscale has huge impact!

Patagonia – The infamous Californian based clothing brand mainlyfocused on high quality outdoor clothing and in recent times has become astaple for casual wear. From the outset when it was founded in 1972 it embarkedon its journey with the mission ingrained into it’s DNA to ‘Buildthe best products, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.’ In addition to growing its own organic cotton, admirable supply chain efficacy  and donating 1% of all profits to grassroots environmental groups, Patagonia also stands out in a sea of greedy fast fashion retailers thirsty for more money induced by consumer events such as Black Friday. For example, in 2011, their Black Friday advertisement in the New York Times promoting a jacket with the tagline ‘Don’t buy this jacket’ sought to give platform to the mission statement and principles of reducing waste, repairing items, reusing them, recycling them and reimagining the endless possibilities. Subsequently their in-store sales went up by 76% the day before and annual sales in the following two years grew almost 40%.

Unilever – Under the leadership of sustainability maverick Paul Polman, their Sustainability Living Plan was introduced. This agenda wants to double revenues and halve the organisation’s environmental impact. Let it be clear this is no simple feat for a the world’s largest consumer goods company whose revenues in 2017 boasted $ 62.62 billion.

However, what they did realise was that their current activities with such a large impact on communities, natural resources globally were no longer sustainable. In an investigation, they found that in the year 2012, they lost $200m in mitigating the damages of natural disasters alone and that the cost of inaction would render all profits eradicated in 30 years. The intricacies of their plan can be summarized that by 2020, they aim to help 1billion people to save water, double their nutritional portfolio, halve GHG’s and halve the water usage in consumer phase. Additionally they are focused on sustainable sourcing and intend to have 100% sustainable agriculture by 2020, in the process creating livelihoods for 500,000 small scale farmers. This is a tangible example that no dream is too big, in 2017 the company witnessed profits rise by  9% despite challenging conditions but it is undoubtedly so that by reducing waste and focusing on efficiencies they have minimalized losses in areas where it is possible to do so! Had this plan not been adopted it could be speculated their profit margins could be smaller.

Interface – the world’s largest carpet manufacturer, under the leadership of Ray Anderson, a pioneer of sustainability, transformed its entire business model from a carpet seller to a company that provides floor covering services. This theme of servicing your business bountiful opportunities and contributes to movement towards a zero impact economy as it reduces waste of natural resources as it closes the loops manufacturing through its redesign of production according to biological material models! By quite literally rolling out this new carpet strategy, it cut the company’s long term material requirements by 90%. Interface congruently experienced a doubling in revenues between 1993-1998 for which is accredited the value of their green strategy. Additionally through this time, their profits tripled and the number of employees increased by 73%!

Heralded for their programmes such as ‘Mission Zero’ aiming to have zero impact by 2020 and introducing 100% recycled nylon and 100% recycled vinyl carpeting and developing their own polyurethane material.

Procter & Gamble– The US FMCG company with 2017 revenues of $60billion of course is gigantic in scale and has implemented many green programmes. However, one tangent of this that has proved particularly lucrative is the green by design mantra for many of their subsidiaries and vast array of product categories. It was reported that in 2012, P & G had generated $50 billion cumulative sales alone from sustainable innovation products by 2012. By analysing in depth the product life cycle and the total impact of current products/services, the company began to redesign existing lines in order to meet customer requirements, decrease their impact on the earth and subsequently increase revenues!

FedEx – The world’s largest express transportation company in a bid to have-greater energy efficiency, and reduce it’s dependence on fossil fuels introduced hybrid fleets of vehicles back in the 2000’s as well as developing new software programmes to decrease route time and increase fuel efficiency. Parallel to this, they developed solar energy systems for the organisation. Their development and growth of energy saving expertise drove them to create their own stand-alone consulting business. FedEx were able to cut their fuel consumption by 36%and increased their capacity by 20%. They strive to continue their EarthSmartmission and in 2017 introduced new zero-emission all-electric Nissan e-NV200  and investing in artificial intelligence to increase efficiencies throughout the organisation.

CISCO – The multi-national technology company that began in specializing in IT equipment, learnt that in 2005 the logistics of recycling was costing the business over $8 million a year. The VP of their Supply Chain operations at the time, Dan Gilbert acknowledged the organisation was ‘missing a trick by making ‘recycle’ our default setting. While it was green to recycle it was actually better and greener to reuse products as much as possible. Cisco underwent major upheaval and now is one of the most awarded sustainable international organisations. It reuses or recycles over 99% of returned electronic equipment worldwide which while a decade ago had in 2008 made net contribution of $100 million to Cisco’s shareholders! 

Final thoughts

Establishing and embracing a green strategy focused on sustainability and social responsibility can boost a company’s triple bottom line and create long term value added as well as intangible brand value. The success of goals that look beyond profit maximization and incorporate a genuine commitment to stakeholders, sustainable living, embracing circularity and making incremental steps towards zero impact on earth can be spotted across the globe. I whole heartedly acknowledge this isn’t  a strategy that happens overnight and there is no black and white approach to a review of core business practices. Many of my examples were huge conglomerates with the resources to invest in innovation and transform their businesses but for start-ups, independent organizations or even a pop-up market stall,  the little things and eliminating inefficiencies really accumulate in cost saving over time as well as heightening levels of social responsibility!

I hope this piece imparts my belief that the possibilities are truly endless and being green can really turn into gold.

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