Companies are increasing their sustainability-related investments (aka green or socially responsible investments). What's driving so many companies to step up?
Simply put, sustainability makes money. There are six strategies where environmental sustainability contributes to the bottom line - some obvious, some not.
These strategies are a combination of operational focus and a business's ultimate business goal. Companies' can focus strategic investments on the product/service bundle they sell or on the process used to create that bundle. Either type of effort can have one of three goals: differentiation, cost reduction or risk management (see chart below).
The first goal is using greenness for differentiation - to set a company's product and/or services apart from the competition. It's easy to think of products and services that are marketed as green - think Toyota Prius or organic lawn care - because companies spend money to make sure customers know that their products are different.
Some companies differentiate themselves through processes that are greener than those of their competitors. Ecoconscious consumers of Fat Tire beer can tell you that it is brewed with wind power. Fans of locally grown food know that the transportation-related carbon footprint is relatively low.
The second goal, cost reduction, is not as noticeable as differentiation, because companies do not typically advertise cost reduction efforts. Process-focused initiatives like energy savings and recycling are seldom sexy, but they increase environmental sustainability and cut cost. Albertsons has reaped large savings by converting many of its stores to zero waste.
Products too can be designed to cut cost and reduce environmental impacts. Burt's Bees removed PVC shrink wrap from lip-balm products to improve its environmental footprint. To maintain a tamperproof seal without the shrink wrap, the company extended the paper label and perforated it where it overlaps the tube's cap. This reduced cost by reducing materials and removing a step from the production process.
Product-focused risk-reduction strategies often involve efforts to identify and eliminate ingredients or materials that might pose risk. The Girls Scouts and General Mills suffered reputational setbacks when several Scouts publicly called attention to the use of palm oil that was farmed in ways that harm primates. To head off the possibility of similar embarrassments, Unilever and others are working either to eliminate palm oil from products or to use palm oil that is environmentally certified.
Risk-reduction goals minimize threats to profitability related to emissions, product liability and loss of goodwill. Risk reduction has been a focus of environmental management since its inception; but companies are finding that risk reduction and cost reduction go hand in hand. By outsourcing procurement and management of chemicals to a firm that specializes in chemical management, Delta Airlines reduced its hazardous-materials liability while saving 30 percent on costs of chemicals.
Research consistently shows that environmentally superior firms perform as well as or better than their peers when it comes to financial returns. The six strategies to green profits explain how these companies achieve environmental and financial outcomes simultaneously.