Shift to Environment Strategy ‘Imperative’

Over the last two years a dramatic, swift change in thinking has convinced the corporate leadership community that environmental strategy must be part of core business strategy, Dan Esty, professor of environmental law and policy at Yale University said. “I would now argue this includes most CEOs of most forward-looking companies,” Esty said during a talk presented by student-led Net Impact at Harper Center November 30. “This changes the top-tier issues in the strategy domain for companies.”

Smart executives have come to understand the environment is not just about regulations, costs, and risk management, he said. “There is a very big and potentially substantial profit opportunity that goes with the emergence of an issue set that society is going to invest a lot of money in responding to,” Esty said. “This is not just a trend; it’s an imperative.”

Four critical drivers behind the awakening of big business to environmental strategy are soaring energy prices, the evolution of regulation, natural world changes, and new stakeholders in the issues, he said. “There are a whole set of new actors that think they have a right to talk to you as a businessperson about your environmental performance,” Esty said. “Jack Welch only became interested in environmental strategy when his HR people told him General Electric was losing the top talent, because people did not want to go to a company with such an ugly reputation around its environmental attitudes.”

The “sea change in attitudes” in both parties in the 2008 presidential campaign has been driven by a Democratic Congress, 27 states with greenhouse gas regulations or renewable portfolio standards, and more than 600 mayors who have committed their cities to meeting the targets of greenhouse gas emissions under Kyoto protocol, he said.

“The business community has itself stepped up and is now asking for regulation,” Esty said. “These are not ‘hippie’ businesses run by people coming out of the woods in Oregon. These are the biggest and some might say hardest-edged businesses in our society. It’s DuPont, Dow, Duke Energy, BP America. You don’t hear President Bush say anymore, ‘This is bad for business or the economy,’ because the biggest powers in business have cut that argument right out from under him.”

One primary driver is the American public, which polls show has redefined environmental issues very dramatically over the last few years, he said. Esty attributes this shift to Al Gore’s environmental advocacy, awakening by Hurricane Katrina to the possibility of climate change, deteriorating foreign policy related to fossil fuels in Iraq and elsewhere, and local air pollution.

“You may not like Al Gore, but he has done a phenomenal job on this,” he said. “It’s turned out that he was a really good environmental advocate and not a very good politician. Remember how stiff he was? He’s lively, funny, and engaging. I sometimes quibble with the details, but he has told a story that is compelling and has been taken on board. I think the American public has said, ‘It’s worth investing here in solving this problem.’”

Four core elements creating a competitive advantage by focusing on the environment or sustainability are lowering costs by using less materials and energy, reducing risks by recognizing harmful products, driving revenue by developing competitively priced products that meet performance expectations of consumers, and maintaining best practice principles as with any other part of business, Esty said.

“If you look out at the leaders in this environmental space, we found no examples of companies that didn’t have a CEO that believed it,” he said of research for his book “Green to Gold: How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage.” “It’s very hard to have it grow from the grass roots up.”

Sustainable products and environmental impact are part of the market today, said second-year student Doug Neal, co-chair of Net Impact. “These issues are on consumers’ minds,” Neal said. “They have a positive impact on sales and profits of companies. We’re seeing that reflected in how companies like GE and Wal-Mart are leading the field today. There is a new generation of business leaders attuned to what is happening with these issues in the business world. They want to learn more on how their careers can have more impact on the environment.”

– Mary Sue Penn