Being Green Helps Company Earn More Green
By Andy Kerr
Column #35 - Go to next column
Length: 750 words
First published: 20 November 1997, Wallowa County Chieftain
Several new studies show that environmental protection doesn't cost American business money, but rather helps increase profits.
A report written by executives from over 40 companies, including DuPont and Swiss Bank Corp., for the World Business Council on Sustainable Development found that actions that boost environmental performance (reduce pollution, etc.) can give companies a competitive edge, regardless of their size or the business they are in.
Closer to home, a study by Michael Russo of the University of Oregon and Paul Fouts of Golden State University finds that companies that go beyond minimal compliance with environmental laws yield higher returns on assets than those companies that drag their feet or pollute. In peer-reviewed article published in the Academy of Management Journal, the authors evaluated the environmental performance of 243 companies using a five-point scale. Many were Fortune 500 companies and the sample represented a wide variety of industry sectors. For each point increase in environmental performance, a firm reflected a 1.6% higher return on assets.
The exact link between environmental performance and profit is not clear. Russo noted, "Environmental performance causes something, which causes something else, which causes increased performance." The WBCSD report noted that a direct link between environmental performance and financial profit was "not readily apparent."
Nonetheless, "It pays to be green," notes Russo, a professor of management at the UO's College of Business. "While in many cases regulations drive up costs, our study found that on balance, environmental stewardship has a positive effect on the bottom line. The benefits outweigh the costs."
A recent article in Business Week notes that "A handful of CEOs in traditionally 'dirty' industries have decided they can make more money by embracing environmental goals than by fighting them." The article reviews such legendary polluters as Monsanto and DuPont.
Moving toward global sustainability could result in "the biggest commercial opportunity in recent history," says University of North Carolina Professor Stuart Hart.
A combination of consumer pressure to produce greener products and business pressures to cut costs will drive companies to reduce the use of both non-renewable energy and materials.
The emerging field of industrial ecology is being developed to meet the challenge. One company's waste products can be another firm's raw materials. The easiest way to deal with toxic, hazardous and other waste is to not produce it.
The smarter firms are considering the entire life-cycle of their product including the period from when the consumer buys it to when it is disposed of.
According to Russo, the key is trying to anticipate environmental problems rather than simply react to regulations promulgated to correct them. In most cases, when industrial processes are redesigned to reduce pollution, efficiency also improves. By getting ahead of the curve, a company can reduce the risk of costly spills or other problems that can play hell with profits.
Some companies are touting their superior environmental performance to consumers. The data is mixed on whether consumers will pay significantly more for green products. There is no question that, price and quality being similar, they'll choose a green product over a brown one, if they are so informed.
Green companies may also have a competitive advantage in attracting the best employees. There is a psychic paycheck in knowing that what you do for a living isn't killing off the Earth.
Environmental protection regulations are still necessary because there will always be lousy business managers who will try to cut corners in belief that it will increase profits. Regulations that require companies to reduce or eliminate pollution have the effect of transferring the costs of pollution from society and the environment to the polluting company and eventually the consumer.
In every regulatory battle, the usual hue and cry of business is that it is too expensive and they can't afford it. The Environmental Protection Agency recently conducted a review of past regulatory efforts and found that both the agency itself and business significantly overestimated the cost of compliance.
In most regulatory disputes, a few companies aren't complaining. While Ford, Chrysler and General Motors are whining about reducing emissions from their products, Toyota will soon market a gasoline-electric hybrid that gets twice the mileage (over 60) and emits half the carbon dioxide, the biggest contributor to climate change. It also cuts the various NOx emissions that cause smog. The price of this new vehicle will be competitive, unlike the feeble attempts at low-emission vehicles that the American Big Three auto makers have attempted thus far.