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"Green" vs. "Sustainability"

Words matter. Anyone in business knows that the right words sell products and attract investors.

They also know that - like torpedoes - the wrong words can damage the corporate ship.

These days... when hundreds of CEOs call on governments to impose mandatory restrictions on greenhouse gases, and hundreds of scientists warn us that extinction rates could be 1,000 to 10,000 times greater than those in the fossil record... two words - "Green" and "Sustainability" - are relentlessly marching their way onto corporate websites and into executive speeches.

Far more impressively, those words are becoming cornerstones in the longer-term corporate strategies of General Electric, Wal-Mart and other industry leaders - most of whom have been called many things by their critics and competitors, but "tree-hugger" was never one of them.

The point of this article is to issue a yellow light of caution for companies implementing strategies to increase their financial performance and competitive advantage within the new business landscape. "Green" and "Sustainability" are often thrown around carelessly. They are not synonymous. And, as strategic cornerstones, they can lead companies down different paths toward different financial futures.

Green
Green energy. Green tech. Green buildings. Green products. Green manufacturing. Green supply chains. To date, "green" is the run-away candidate for "Most Frequently Used Adjective of the Decade".

But what does "green" actually mean?

At the surface level, "green" means environmentally friendly, i.e. in one or more ways, it places less burden on our declining natural resources. It is often a "less bad" activity, whereby fewer toxins are released or less energy is consumed. And it reduces the rather staggering degree to which we use our air, waterways and land as sinks for our personal, industrial and governmental waste.

To cite a few green examples:

• In the past, Macy's used more than 43M laminated paper bags that contained no recycled material and were not recycled. Shortly, it will begin using bags that are made from 30% recycled material and are 100% recyclable.
• In the next two years, Bridgestone Firestone's South Carolina plant will migrate its entire fleet of forklifts to hydrogen fuel-cell forklifts.
• Partly due the use of carbon fibers for 50% of its primary structure, Boeing's 787 DreamLiner has 40-50,000 fewer fasteners and gets 20% more fuel efficiency. (It also racked up more than $100B in advance orders).

Are these steps in the right direction? Absolutely. Should every company on the planet regardless of size, industry or geography be taking similar steps that they can afford? Absolutely. Is being "green" good for increasing sales, attracting investors and placating regulators? Absolutely.

But, like any fad or bubble, there is more to the story than meets the eye...gets captured in a sound byte...or is "covered" in a full two minutes during a presidential debate.

Aspects of Green
Many green activities are low-hanging fruit easily copied by competitors and commoditized by the market.

They may overlook social issues that can smear brands and cut into earnings. Imagine opening the newspaper one day and learning that your organic cotton clothing was stitched together by 13-year olds in a sweatshop.

In some cases, they are narrowly defined, poorly conceived and contain very serious trade-offs. Governmentally regulated lead-free soldering in electronic products is a perfect example. It reduces the amount of highly toxic lead in the biosphere. But it is no environmental free lunch, because it requires substantially more energy to generate the higher temperatures needed for melting the lead-free solder.

Furthermore, what happens when businesses "rush-to-green" and do not take a wide-angle view of their actions? The likelihood goes up that there will be unintended consequences that come back to haunt those businesses (and their investors). Case in point: the nasty backlash that is brewing about corn-based ethanol as a bio-fuel. Why? Because we now know that it is a contributing factor - along with droughts, US Farm Bill mandates and other factors - to millions of people in 33 countries being on the brink of starvation.

In a broader vein, two studies in the Feb. 29, 2008 (1, 2) issue of Science indicate that - when rainforests, grassland or food cropland is converted to bio-fuels of any kind - the net result could be increased greenhouse gases. Citing one study: "Using a worldwide agricultural model to estimate emissions from land use change, we found that corn-based ethanol, instead of producing a 20% saving, nearly doubles greenhouse emissions over 30 years and increases greenhouse gases for 167 years. Biofuels from switchgrass, if grown on US corn lands, increase emissions by 50%." (2) Those highly publicized studies cannot be good news for companies and investors who were betting on those particular bio-fuel horses.

So, given the above, what is the yellow light message for Boards and Executives? Implementing green activities is a critically important part of the macro-shifts now taking place within the business landscape. But think it through carefully. Implement it tactically. Resist the temptation to make it the centerpiece of your longer-term corporate strategy. Instead, make it a foundational piece of a broader "sustainability" strategy, as discussed below.

Sustainability
Within a business context, "sustainability" has long implied that corporate revenues, markets and brands, as well as the corporation itself, can last over time.

In today's world with our increasing human footprint and decreasing natural resources, it carries both broader and narrower meanings.

On the broader level, it references something that we have yet to fully grasp: namely, in a world that is so inter-connected with so many moving and often volatile parts, we could lose many of the economic, political and social gains of the last few centuries if the climate destabilizes, water wars erupt and/or a dozen or two other inter-related variables trigger a catastrophic chain reaction.

On the narrower level, "sustainability" is the only strategy for ensuring long-term corporate health. It is the only perspective that is wide enough to take in today's business landscape constraints and drivers and long enough to account for unintended consequences. As such, it is a very practical decision-making tool that Boards and Executives can use.

Bottom Line
"Sustainability" is far more encompassing than "green". "Yes", it addresses environmental issues. But it also speaks directly to the financial and economic issues that lie at the heart of any company. And it tackles head on those explosive political and social issues that can blow up a sales forecast in an Internet minute.

As such, sustainability addresses two fundamental characteristics of today's business landscape, i.e. more than ever before in history:

1. Everything is directly connected to everything else
2. The self-interest of any given business is directly tied in one way or another to the global common interests of every government, corporation and person

Furthermore, "sustainability" is the only way to address the complexity, volatility and ever-broadening spectrum of risk when operating within global markets... relying on global energy supplies... and depending on global supply chains.

What Does It Mean for Business Strategy?
On the one hand, a green business strategy may not hold up as a long-term, sustainable business strategy.

On the other hand, a sustainable business strategy will include a very wide range of "green" activities.

It will incorporate innovative business models that open new markets and generate new revenue.

And it will actively seek out innovative technologies, products and services that not only lower costs, liability and regulatory pressure, but that also shift business models and alter the competitive landscape.

In that regard, we are already seeing a growing array of non-toxic glues and flame retardants...breakthroughs in chip design...major advances in medical sutures and wound-healing - all of which utilize ingenious, commercially-available design solutions that reflect the rapidly-growing practice of commercial and industrial biomimicry.

One other point worth noting: a sustainable business strategy will adopt a level of systems thinking that has largely been absent until recently.

From the Board room to the shop floor, savvy businesspeople will ask tough, but relevant questions that future articles will address in greater detail, e.g.: "From where in the world do we source the materials we use?" "What extraction, processing or transportation methods are used in sourcing those materials?" "What is the likelihood that our business would suffer, if millions of political or environmental refugees poured into countries where we build products? "Is the water table dropping in those countries, and, if `yes', could that harm our suppliers and disrupt our supply chain?" "How many years will it be until declining stocks of natural resources result in rising costs for those resources?" "What if the next `Hurricane Katrina' cripples a major customer market or a key operational center?" "Is there any human injustice - and corporate scandal - lurking in the shadows?"

Are companies today incorporating sustainable strategies? Yes.
Can they go further? Yes.
Will other companies follow suit in order to sustain their markets and revenues? Yes.

What about your company?

--Harvey Stone

(1) Joseph Fargione, Jason Hill, David Tilman, Stephen Polasky, and Peter Hawthorne, "Land Clearing and the Biofuel Carbon Debt", Science 29 February 2008: 1235-1238
(2)Timothy Searchinger, Ralph Heimlich, R. A. Houghton, Fengxia Dong, Amani Elobeid, Jacinto Fabiosa, Simla Tokgoz, Dermot Hayes, and Tun-Hsiang Yu, "Use of U.S. Croplands for Biofuels Increases Greenhouse Gases Through Emissions from Land-Use Change", Science 29 February 2008: 1238-1240