How Do Corporate Leaders Think About Sustainability?

Ben Mattison interviews Andrew Shapiro, Founder and President, GreenOrder, an LRN company.

Q: How is sustainability viewed today in the executive suite, and what are the trends over the last couple of decades?
I think we have seen a transformation in how business thinks about the environment. We went through a first wave, where corporations and environmentalists were basically at loggerheads. Most CEOs thought that if it was good for the environment, it was bad for business. And most environmentalists thought that if it's good for business, it's got to be bad for the environment. That was the paradigm until about 10 years ago.

Then we hit a second wave, an accommodationist period, where companies recognized the impacts they were having on the environment and the responsibility they had for dealing with those so-called externalities, and they took a more proactive stance. They began to develop programs around environmental leadership and stewardship, but there still wasn't much strategic orientation or belief that one could create value, as opposed to mitigating risk.

In the last three to five years, there has been a third wave. The most forward-thinking and progressive businesses today are seeing environmental issues as an opportunity to innovate and change how they operate their companies, how they develop new products, and how they relate to stakeholders in the marketplace. And environmentalists, too, are seeing an opportunity to collaborate with business. They are taking a more open-minded view toward the role that business can play in solving big problems.

Q: Can we talk a little bit about the different models that companies have for integrating their good intentions into their corporate structures — a chief sustainability officer or putting the responsibility in the CEO's hands or having a more junior manager? Do you have a sense of what works best?
We believe at GreenOrder that the best way to succeed in making sustainability a source of value is to drive it deep into the organization and broadly across the enterprise. It's important to have the buy-in and engagement and voice of the senior management. And there is a need and a role for specialized officer-level management in this area. You mentioned chief sustainability officers; there are a variety of different titles, but that certainly is one that is emerging as a common one in big corporations today. And we applaud companies that establish those roles. At the same time, that cannot become a kind of panacea for embedding sustainability in the organization. To the contrary, a chief sustainability officer needs to be a catalyst, a coordinator, a champion for making those values and that approach to business common throughout the organization.

In our view, sustainability, as much as it is a challenge of science and a challenge of public policy, at the end of the day is really a management challenge. What we’re talking about is changing the way people think. It's not just about "going green" — changing light bulbs, or buying carbon offsets. It's really about changing mindsets — changing how people think and how they behave in their workplace every day. And that means that you have to touch every part of the enterprise. A chief sustainability officer can be the ringmaster, or the conductor — whatever analogy you want to choose — but you really need to tap into all these different functional areas in a business in order for this to become a transformative source of value for the company.

Q: Do you think that these trends are inevitably moving in one direction? Or is it possible that this is a fad and that things could slide back to where they were five years or even ten years ago?
No, I don't think there's a fad here. There are some businesses that during the downturn showed that their commitment was not yet as robust as it should be, because they pulled back on sustainability initiatives. But I see that almost as a silver lining, because we've separated the hype from the reality. The downturn, as difficult as it has been, has actually showed us which businesses were truly committed to sustainability as a source of business value and competitive advantage, and who was simply along for the ride. In addition, we're looking at trends here that have a 50- or 100-year-plus horizon, like climate change, like energy insecurity and volatility, like changing paradigms of transparency in business. And then, maybe most powerfully, there are different expectations that consumers and businesses have of one another when it comes to social and environmental responsibility. So I think for all those reasons, we're on a trajectory here that is very real and long term.

Now, will we ever have the same degree of media focus? Will there be as many magazine covers about companies going green and the world going green as we had in, let's say, 2007 or 2008? Probably not. We may have reached some apex for the meme about "going green." But that's simply a transition point that's no different than the apex that the internet had circa 1998 or 1999. And when the downturn happened in the dotcom world in 2000 and 2001, nobody said, "Boy, is technology over!"

Q: Do you think that the changes of the last ten years are being driven simply by a change of heart in the people in these industries? Is it market pressure? Is there some regulatory pressure that's being brought to bear?
It's a combination. Certainly in some jurisdictions around the world, the existence of carbon regulation or other environmental regulation has driven things, but I think there's something bigger happening, which is that business as a force is demonstrating that sustainability is a smart way to manage a company, and it's becoming a proxy for good management. If you are energy efficient and resource efficient, you're wasting less. And if you're wasting less you are producing more with fewer inputs. You're saving money and creating value. There's almost a physics to it that's elegant and very easy to understand.

In addition, many of the businesses we're working with today are looking at sustainability for the first time as a way to drive incremental value. How do we actually grow revenue? How do we develop products that can generate higher sales and higher profit margins because we’re meeting a demand for products that are more efficient, more dependable, less polluting?

And then the last category of value is all the intangibles. People like to discount them, but we've looked at the statistics about the enterprise value of businesses versus their book value, and we know that so much of a company's value is wrapped up in intangibles like reputation, brand, expectations of growth in the future, customer loyalty. And sustainability is playing a huge role in that, because people want to engage with and buy from and work for and invest in companies that share or represent their values.

Q: You mentioned that there's a difference in the environmental regulations in different areas. Do you think there are big differences between different parts of the world in how companies are engaging with these issues? Are there big differences between sectors?
There are certainly some sectors that have taken a leadership role because they had to. What we call smokestack or tailpipe industries — the energy businesses, utilities, oil and gas, transportation, chemicals — they had to tackle these issues because of the significant impact they've had. But now you see retailers and technology companies and services companies and hospitality and all sorts of new sectors that are embracing sustainability because they're finding value there.

In terms of geography, yes, there are different approaches in different areas. The United States was certainly behind for a while in comparison with Europe. But Europe took a different approach. It was more regulation-driven. In the U.S., the green business movement has been more driven by a desire for innovation and a competitive advantage in the marketplace. So, interestingly, it's more proactive in the U.S., maybe more market-oriented, which isn’t surprising, given the different orientation of the two cultures.

Q: How much of a difference can business leaders make when you’re looking at the magnitude of the problems that we are facing?
You know, earlier in my career, I went to Yale for law school and I did a lot of journalism and lecturing, and I really thought that, in terms of making a difference in the world, areas like writing and advocacy were the way to go. I spent the first 10 years, basically, trying to work as a public intellectual in support of the things that I thought would be better for the world.

In 2000, I started GreenOrder, in part, because I came to the realization that business was the most powerful way to drive change in society. I looked at some of the leaders in the 1990s who had built interesting companies with loyal customers around the proposition that business could do good in the world — companies like Patagonia or the Body Shop or Ben and Jerry's — and I thought to myself, I wonder if the biggest companies in the world could do something similar. And I actually thought they had to, because, ultimately, the problems we're speaking about are so vast — issues related to environmental conservation and innovation, social issues, health issues, labor, wellness, human rights — that business had to get on board, create positive change, and lead the way.

I think one of the remarkable things that's happened in the last 10 years is that nobody questions anymore that business has a central — if not the leading — role to play in driving progress and change in society. It's partly because of the success of some internet companies, like the Googles of the world, who have done remarkable things in a short period. It's in part because of a lack of trust or confidence in the ability of government to do this alone. And while the nonprofit world has a key role to play, it's never going to have, on its own, the resources and the reach to make all the changes in the world that we need.

Q: Can you tell me a little bit more about GreenOrder?
GreenOrder works with CEOs and other business leaders to help them gain competitive advantage in their businesses by embracing environmental innovation. For 10 years we've been privileged to work with great companies, including General Electric, with whom we’ve developed their Ecomagination initiative, which is an investment in R&D and innovation in the environmental and clean-tech area. We've worked with General Motors, which has been fascinating, for four or five years as they've gone through difficulties and rebounded and focused very much on electric vehicles. We've been their strategic partner on the launch of the forthcoming Chevrolet Volt, which is a breakthrough vehicle for the United States. We've worked with big utilities and energy companies like BP and others. We've worked with pharmaceutical companies like Pfizer and Novartis. We've worked with retailers like Polo-Ralph Lauren and Office Depot. We've worked with technology companies like HP. We’ve worked with banks and financial services companies.

Q: Do you ever worry that GreenOrder in particular or environmental efforts more generally are being used to check a box?
There are foundational steps that every company needs to take that do amount to checking a box: rigorous compliance with environmental law and regulation; being adamant about reducing certain risks if you are a business that could have spills or other environmental hazards. But then you start looking to those other areas that I discussed earlier, like how you actually cut costs in a green way, or how you enhance or create new products that meet changing needs.

There will always be folks who are looking at this just as an easy exercise and a thing to do and then conclude, okay, that's done. But sustainability is a journey. You never become a fully sustainable company. There's probably no such thing. It's an aspiration and it's a direction to go, but the work is never done.

Q: I wonder if one of the things that's holding companies back is that it's all a little bit nebulous, and if there will be a future point at which there will be a series of metrics that are a little bit easier to measure.
We are still in early days in terms of the maturity of the tools and the measurements and the benchmarks of excellence in this area. And although things are getting better than they used to be, we have indices and rankings and reporting mechanisms and so on, there is still a fair amount of ambiguity. A CEO could well say, look, I want to do the right thing. I want to innovate. I want to lead. But how much do I invest in this relative to other things? My answer is that each business needs to figure out what’s the proper investment, based on a reasonable projection of what kind of a return you can get on that investment.

Now, of course, there are certain basics that you might want to master in the sustainability area, but I think it's good for business to look at this as a profit-generating opportunity and to ask where they can create shareholder value, because that's how we will get the virtuous circle of entrepreneurs and investors and companies saying, hey, this is real. This is core to what we do as a company, and we can win in the marketplace by investing in environmental innovation.

The smartest business leaders I'm talking to are all saying, we're not going to wait to be the fifth or sixth mover in our market. They are seeing that this is the way business is going to get done in the next hundred years.

Interview conducted and edited by Ben Mattison.

[This article has been reproduced with permission from Qn, a publication of the Yale School of Management http://qn.som.yale.edu]