Recently in Harvard Business Review, Michael Porter and Mark Kramer wrote about “The Big Idea” – that companies must take the lead by “creating economic value in a way that also creates value for society by addressing its needs and challenges.” Driven by win-win success stories, by a vacuum in policy leadership, and by the embrace of thought leaders like Porter, this idea has surged into the mainstream. Even in the grip of the recession, companies across the Fortune 500 – from Walmart (#1) and GE (#6) to Owens Corning (#431) and SunGard (#472) – are actively pursuing a sustainability agenda.
But for the companies that make up mainstream corporate America, environmental issues may still largely be seen as a cost center rather than a competitive edge. What will it take to show these companies that environmental innovation can be an opportunity rather than a burden? How can we spread the principles of sustainability from the Fortune 500 to the next 5,000?
Start with energy efficiency
Every company uses energy, and can do so more efficiently. The consulting gurus at McKinsey & Company calculate that by deploying an array of NPV-positive efficiency measures, commercial and industrial users could generate $732 billion in energy savings by 2020 while avoiding some 660 million tons of annual greenhouse gas emissions. In other words, we can make a lot of money and cut a lot of emissions simultaneously by using proven technologies.
But, it’s not quite as easy as it sounds. Companies fail to reap the benefits of energy efficiency for reasons that have nothing to do with what we learned in Econ 101. In the real world, managers are overburdened, useful information is hard to find, lease arrangements stand in the way of smart investments, and competition for corporate dollars is sharp.
Sometimes it takes “fresh eyes” to overcome the barriers to change. Our EDF Climate Corps program uses business students to find energy savings opportunities at participating companies. In just 10 weeks at 50 companies last summer, we found $350 million in potential operating savings. And that’s just the tip of the iceberg.
Environmental goals, combined with open networking, can be a great way to stimulate innovation that can lead to new products and greater market share. The impetus can come from the top, because when executives set rigorous goals and metrics for measuring them, they unleash innovation throughout the company. GE’s Ecomagination program, which generated $18 billion in revenue on $1.5 billion in investments, is a good example of this approach.
Innovation can also come from the bottom up, as illustrated by Toyota’s “Treasure Hunt” process, which uses operators, engineers and maintenance staff to find process innovations and energy savings.
And innovation can come from the outside. Breakthrough ideas can – and often do – emerge from bringing a new and diverse perspective to a familiar problem. Environmental Defense Fund recently teamed up with InnoCentive, a global leader in crowdsourced innovation, to work with companies to create business breakthroughs that deliver environmental results. InnoCentive’s web-based platform gives over 250,000 entrepreneurs, inventors and scientists around the world the chance to solve them. With the likes of Eli Lilly, NASA, and Procter & Gamble using the platform, it’s redefining the innovation process.
Capture operational excellence
For most companies, including those that provide business capital, environmental issues are still thought of as a liability rather than an opportunity. To build value, firms must think beyond compliance. Smart companies are positioning themselves to compete in a resource-constrained world, where efficiency and innovation trump risk management.
Working with private equity giants The Carlyle Group and Kohlberg, Kravis, Roberts & Co., EDF has developed tools that are available to any company for systematically identifying opportunity and measuring improvements in environmental and business performance. In just two years, those tools generated $160 million in operating savings for companies including Dollar General and US Foodservice.
Drive supply chain improvement
Companies will want to focus first on their own operations, but for many small and medium-sized businesses, their biggest impacts lie not within their own fencelines, but in the lifecycle of the products they buy and sell. And while smaller companies may not feel that they have the clout to create supply chain mandates, they do have ability to ask pointed questions and shop around for the best prices. Why should your company be paying for the extra energy or water or wasted raw materials embedded in products made by another company that has not yet embraced sustainability?
There are several good examples to work from. Walmart’s Supplier Sustainability Assessment questions are simple, straight-forward and a good place to start. Procter & Gamble has a similar supplier scorecard designed to track and encourage improvement on key environmental sustainability measures in P&G's supply chain. The company reports that about 40% of the completed scorecards it receives have offered at least one innovation idea.
Today, we are all feeling the stress of a pinched economy, resource constraints, volatile fuel prices and global competition. At the same time, we’re seeing examples every day of companies that have successfully turned environmental sustainability into competitive advantage. By building capturing energy and operational efficiencies, stimulating innovation through aggressive goals and creative networking, and driving lifecycle change through the supply chain, we can bring Porter’s big idea to life.