When Green Begets Green

November 09, 1997

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Environment: CLEAN MANUFACTURING

WHEN GREEN BEGETS GREEN

Ecologically sound practices are helping the bottom line

Something odd is happening at British Petroleum, the world's third-largest oil company. Since last May, BP CEO John Browne has been publicly saying that global warming is indeed a real threat likely caused by the burning of oil. It's a maverick position in his industry, but Browne says he was convinced by an authoritative U.N. report issued two years ago linking carbon-dioxide emissions and rising global temperatures.

Browne is not abandoning his company's interests. On the contrary, he figures he's following the money. He estimates that replenishable energy sources, such as solar power, could meet 5% of the world's energy needs in 20 years and 50% by 2050--and BP should get in on the ground floor. The company has spent $160 million developing solar energy and has 10% of the world's solar-power market. "The more we thought about this, the more we found that we could improve our environmental performance...and actually get higher financial returns," says Browne.

TRUE BELIEVERS. Call it the greening of the corner office. Out there on the leading edge of the environmental movement, a handful of CEOs in traditionally "dirty" industries have decided they can make more money by embracing environmental goals than by fighting them. These executives believe that sustainable businesses--those built on renewable materials and fuels--present a tremendous opportunity as the world copes with the environmental problems that are the 20th century's legacy.

"The challenge of global sustainability could be the biggest commercial opportunity in recent history," says Stuart L. Hart, management professor at the University of North Carolina at Chapel Hill. "The levels of innovation and economic growth required will create huge opportunities for those entrepreneurs who can envision it."

Although it is hardly a groundswell, there is a growing number of executives who sense the opportunities--and they run some big companies. Monsanto Chairman Robert B. Shapiro spun off the company's chemical businesses in September and hung on to its agriculture, food, and pharmaceuticals units. His theory is there's a brighter future in meeting the world's nutrition and health needs than there is in plastics. DuPont CEO John A. Krol is keeping chemicals but still sees environmental protection as "the major business opportunity" at the end of the millennium. Most corporate environmental officers are hired from outside the company, but DuPont gave the job to Paul V. Tebo, former head of one of its nylon divisions, to ensure the integration of business and environment strategy. He reports directly to Krol.

It's not just pollution-intensive oil and chemical companies that have seen the light. Compaq Computer CEO Eckhard Pfeiffer ordered the redesign of his company's personal computers five years ago with an eye to reducing the materials and energy needed to produce them. Compaq has since won major contracts in Europe and Australia--in part because the computer maker met their stringent environmental standards.

Sonoco Products Co., one of the world's biggest packaging companies, started taking its used products off customers' hands after CEO Charles W. Coker made a dramatic pledge in 1990: "We make it, we take it back." The policy is more than a public-relations gambit: Customers love it, and Sonoco now uses recycled materials for more than two-thirds of its raw-material needs. Earnings and sales, meanwhile, have all continued to grow to record levels. "We feel a general responsibility to do the right thing," says Coker, whose grandfather founded Sonoco. "But we're also finding some good economic and competitive advantages."

Eco-efficiency, as the move toward greener business is sometimes called, has been a popular concept in Europe and Japan for several years, where tough regulations have forced companies to root out polluting processes. But consultants name only 6 to 10 big U.S. industrial companies that have grasped the concept. It requires long-range vision and a complete retooling of a company's processes. That's "really, really hard to do," warns Michael B. Rynowecer, president of BTI Consulting Group in Boston. "You have to cross just about every political and business boundary there is in an organization."

It helps that most employees would prefer to do good rather than bad. Before BP's Browne changed direction on global warming, he did an informal survey of the staff and learned they were way ahead of him. "They are a pretty good representative set--they just happen to work for an oil company," says Browne. "We concluded they wanted to be proud of what BP is doing." But the companies that have been most effective at implementing a successful environmental strategy are those with a strong commitment from the top. "These CEOs have to truly believe that this is an important opportunity for their company," says Hart. "They have to absolutely believe this in their heart and in their gut."

Among the true believers are S.C. Johnson & Son Chairman Samuel Johnson, 3M Chairman Livio DeSimone, Dow Chemical Chairman Frank Popoff, Weyerhaeuser Chairman George Weyerhaeuser, and Interface CEO Ray Anderson. "Environmental considerations for these companies have become a fundamental part of their business strategy," says Gilbert S. Hedstrom, managing director for Arthur D. Little Inc.'s environmental consulting practice. "They're saying `Don't just green your company--commercialize environmentalism."'

LONG JOURNEY. These business leaders didn't just wake up one day and decide to hug a tree. Their companies started addressing their own waste and pollution back in the 1970s and 1980s--often under government mandate. They've spent millions reducing toxic runoffs, air pollution, and solid wastes. In the process, they realized that cutting pollution can actually improve productivity.

3M's Pollution Prevention Pays program, launched in 1975, was one of the first corporate-wide efforts to avoid waste from the start rather than clean it up later. To date, 3M has eliminated more than 1.5 billion pounds of air, land, and water pollution, for a total cost savings of $790 million. That kind of payoff spurs innovations that in turn create new opportunities. Caterpillar Inc., for example, wanted to reduce the amount of paint sludge it was sending to landfills from its tractor factory in Mississippi. The engineers cut the volume of waste by removing the liquid, and then started thinking about a use for the leftover powder. In 1996 they came up with a way to turn the powder into paint. "That process ended up being much more important than what was sent to the landfills," says a company spokeswoman.

Perhaps no CEO has embraced eco-efficiency as much as Ray Anderson. He founded Atlanta-based Interface, the largest maker of commercial carpeting, in 1973. But he paid little attention to the environment until August, 1994, when he was asked to speak to the company's recycling committee. "I realized I had no idea what to say," he admits. Then age 60, he was looking for a vision for his company's future. By coincidence, he was given a book by environmentalist businessman Paul Hawken, The Ecology of Commerce, and Anderson had an epiphany: "I felt the conviction that we are part of the problem, and the problem is huge, and that business and industry has to take the lead in leading the earth away from the abyss."

It took Anderson an entire year to convince the rest of his company that Interface could still make money while saving the earth. His goal is to create zero waste and consume zero oil while making a healthy profit. Interface employees examined every process for potential environmental savings. They developed a way to make carpet using 10% less nylon and pressured suppliers to come up with greener processes. So far Anderson's "drive to zero" has resulted in cost savings of $25 million. Even better, it's attracting customers--architects like doing business with an environmentally friendly supplier. Interface's profits rose 30% last year and revenues 25%, to a record $1 billion.

Anderson's latest innovation is an "Evergreen Lease," with building owners renting carpet rather than buying it. Interface is responsible for maintaining, replacing, carting away, and recycling carpet tiles as they wear out. "We had to radically redefine our mission," says James E. Hartzfeld, Interface's research head. The new mission: Interface sells services, not products. "Durable goods are really just valued for the service they deliver," says Hartzfeld. "No one wakes up in the morning and says: `I want to own a piece of nylon."'

Anderson's entrepreneurial bent has led him to become an environmental evangelist--he was named co-chairman of the President's Council on Sustainable Development this year. Most of the green CEOs, however, are cut from more conservative corporate cloth. DuPont's Krol, for example, took over as CEO in 1995 after spending his entire career at the company, one of the world's worst polluters. That, he says, is one reason DuPont is eager to embrace a cleaner future. The chemical industry was hit with a torrent of regulations in the 1980s and had little choice but to clean up its act.

Krol's predecessor as CEO, Edgar S. Woolard, started the change at DuPont, setting an idealistic goal of zero waste, zero emissions, and zero incidents. Employees rose to the challenge: DuPont has reduced toxic releases by 74% since 1987, halved its landfill waste, and cut its $1 billion-a-year waste-treatment bill by $200 million. "About three to four years ago, our people began to see the benefits--that it went directly to the bottom line," says Krol. A second wave of innovation was unleashed as DuPonters started creating green products.

BY THE THIMBLEFUL. DuPont's agricultural division, for example, came up with a new line of biodegradable herbicides that farmers measure out by the thimbleful rather than the barrel, allowing up to a hundredfold reduction in herbicides per acre. First introduced in 1982, these less toxic products have been developed for 23 different crops, and their use has lessened by 8% the annual amount of herbicides applied worldwide. Krol sees a direct correlation: In that period, DuPont rose from the No.7 herbicide maker to No.2.

But the biggest opportunities for DuPont may come from leaving chemicals behind. With bioengineering, DuPont hopes to create products from renewable materials, such as plants, rather than fossil fuels. In partnership with Genencor International Inc., DuPont recently introduced a new polyester called 3gt that's made from cornstarch rather than oil.

It's easy to grasp the advantages of a polyester that's cheaper to make and cleaner to produce. But the benefits of eco-efficiency aren't always simple to quantify. Installing new production equipment is expensive, even if it does produce less waste, and reclaiming waste carries its own costs. Consultants warn that companies cannot look for an immediate payoff or conduct traditional cost-benefit analysis. A. Finkl & Sons Co., a Chicago-based steel forger often lauded for clean manufacturing, doesn't even bother calculating environmental savings. "We don't want to spend two months having employees figure out our spending payback," says Finkl President Bruce Liimatainen. "We just know it is right for our business."

One hard-to-measure payback is the advantage of a green reputation. "If we only offer a price and technology advantage, this maybe is something that won't last forever," says Hans W. Gutsch, Compaq's senior vice-president for the environment. "But if we do a number of things right and have world leadership, then it's difficult for competitors to chase us." Gutsch notes that many large corporate customers, such as Swiss Bank Corp., require their computers to be certified as energy efficient and their suppliers to document environmental-management processes.

Customer pressure combined with a drive to cut costs will inevitably push other CEOs to consider eco-efficiency, say consultants. "More and more companies are beginning to realize that it simply costs too much to keep polluting," says BTI's Rynowecer. It seems it is possible to do well by doing good.By Catherine Arnst in New York, with Stanley Reed in London, Gary McWilliams in Houston, and De'Ann Weimer in ChicagoReturn to top