03 Jun 2013
"Going Green" is Critical to Future Business Growth
Editor’s Note: Debra Zeyen recently spoke
at Fortune’s “Brainstorm Green” conference in Laguna Niguel, California.
From a brightly lit stage, I squint at an audience filled with CEO’s and executives from over 240 companies, including some of the world’s largest. Fortune has gathered these top business leaders—whom they describe as “the smartest people we know”—to work on innovative approaches to corporate sustainability, energy, cities and the economy.
I’m here to talk to them about the Ocean Health Index.
Looking into the faces of this upscale high-powered group of executives, I see a lot CEO’s. Bob McDonald (Procter & Gamble), Kendall Powell (General Mills), Rosalind Brewer (Sam’s Club), Dan Akers (General Motors), John Donahoe (eBay Inc.), and Clarence Otis Jr. (Darden Restaurants). Joining them are heads of product development, brand, international business growth, and strategic development– these are the people in charge of their companies, their profits, their share holder value, and their brand.
I wonder, what brought them here?
Responsive to Customers and Investors
Hannah Jones of Nike revealed one clue when she commented that in a recent study of 17-year olds, sustainability was a factor in purchases. In the United States at least, customers are making choices about what to buy based on the reputation of the product for being produced in an eco-friendly way. The biggest swing in that practice is among young people, the future consumers. If young customers care about the sustainability of products, future purchasing loyalty goes to the company with the most obvious product solutions.
Bob McDonald talked about the importance of P&G’s Tide Coldwater providing the same cleaning abilities of Tide, but in cold water. According to McDonald, if every household used cold water to wash their clothes, the worldwide energy savings would equal about 4 percent of total US energy use. For the consumer, this everyday product has been revamped in way that saves energy and money.
Investors also care. Abby Joseph Cohen of Goldman Sachs did research in the mid-2000’s that showed that investors pay attention to a company’s carbon energy intensity and related measures. Goldman found that there’s a premium in being more sustainable and that a “cleaner” company had a higher price/earning ratio and lower cost of debt capital. While the value of sustainable practices declined somewhat during the financial crisis, Cohen anticipates a rebound in interest as the economy improves.
Supply chain of the Future
Another reason for attending the conference became obvious as several CEOs forecast shifts in their supply chain. Dan Akers of General Motors expects oil to become less dominant as a fuel in the US as our own natural resources begin to be exhausted. He forecasts that with the enormous supply of natural gas that lies below the US continent, natural gas will be the fuel of the future. With that in mind, GM is tackling the difficulty of transitioning to new fuels. The Volt is a model that allows drivers to use electricity and gas. Since the average driver in the US drives about 38 miles a day and the Volt can travel almost that far without reverting to gas, the Volt offers an alternative to gasoline-dependent models. In addition, GM has already developed a motor that can run on either natural gas or oil-based gasoline – depending on what is most available.
A UPS truck sat parked out front at the conference. It's an all-electric delivery truck, and part of the future of UPS. The cost and availability of oil is clearly a concern for the company. UPS has 100 all-electric trucks in California and projects the reduction of diesel-fuel use by 126,000 gallons a year. The company runs more than 2,500 alternate fuel vehicles in the US.
These vehicles are a response to predicted changes in the supply chain of the future. They're also a significant shift in the move towards “sustainable business practices." Businesses are also reacting to the prospect of a burgeoning carbon market, with pricetags attached to the carbon footprint of trucks and other vehicles. We no longer consider sustainable practices to be just “the right thing to do"--they are in fact driven by necessity in order to stay in business. Sustainability has entered the mainstream of running profitable businesses that have potential for future growth.
Ocean Health Index
Now it was my turn. With sustainability a goal for many businesses, the Ocean Health Index provides both an analytic framework and the first comprehensive metrics of our ocean use. Based on the best global data available, the Index provides scores for the current status and the likely future trend of important natural resources such as seafood from wildcatch and marine aquaculture; jobs and livelihoods from marine industry; tourism; and natural products such as medicine, aquarium fish, and algae. The Index reflects the importance of habitats such as mangroves and seagrass meadows to the biodiversity and productivity of our coastal waters. It connects clean water and biodiversity to businesses such as tourism and fishing. In other words, it provides a report to marine businesses on how business practices can either harm or improve the availability of resources they need to thrive.
So how can businesses use the Index? In the first quarter of 2014, the computational framework of the Index will be made available as desktop software. We call this version “the Toolbox.” The Toolbox will become available to every business and government agency, making it possible to test “what if” scenarios, comparing the impact of actions on 10 different categories of ocean health. Businesses can forecast how current practices impact the over 100 components of the Index and then see how a new practice would impact those same components.
The Index in this user-friendly form is a confidential and practical business tool that can inform strategy:
*The Index can be used to test scenarios like these: "if our country protects coral reefs, how will that impact our ocean health score, including food production, tourism, jobs and biodiversity?" "If we no longer remove mangroves to build new hotels, what will be the impact on scores for tourism and shoreline protection?"
*The Index points to regions and goals that score poorly or well. Such information can help governments or businesses evaluate an area's suitability for different types of activities and investment.
*Because Index scores are updated annually, they can be used to monitor progress toward achieving an optimal mix of benefits and assessing whether a strategy is working in a sustainable manner.
The Index is a first. Until now, we had no way to assess our sustainable use of ocean resources. We had no metric by which to manage our largest natural asset. Now we do.
The bigger the business, the bigger the impact. When McDonalds or Walmart changes their choice of products to sell… the impact is felt around the world. Rosalind Brewer, CEO of Sam’s Club (a subsidiary of Walmart), reported on the Walmart Sustainability Index. First, Walmart’s suppliers are encouraged to develop a report based on 15 original questions to assess their performance. Next, Walmart and Sam’s Club buyers and their leadership teams review Index scores and discuss them with their suppliers during buying meetings, the start of the year, line reviews, supplier summits, top-to-top executive meetings, KPI reviews and joint business planning sessions. Every buyer, merchant and key global sourcing team in U.S.-based Walmart operations and Sam’s Club now has performance objectives pegged to sustainability. And by 2017, Walmart will buy 70% of the goods sold in U.S. stores only from suppliers that use the Index to evaluate and share the sustainability of their products.
What’s the bottom line?
I returned home from the Fortune Brainstorm Green feeling rather awe-struck. I’ve been in the business world for over 30 years – and this was a first for me. I felt that the “green movement” had emerged from the world of “do-gooders.” Concern for sustainable practices has moved from second-class consideration to the mainstream of business--because it’s critical to future growth. The connection between the supply chain and the potential for a business to excel is evident to the CEO. The demand for sustainable products is part of the fabric of future consumer purchases.
As a species, we’ve realized the direct connection between growing a business and assuring thriving ecosystems. Innovation and leadership will only increase the velocity of the movement. To me, “Brainstorm Green” felt like a momentous shift in what drives sustainable business practices.