Green Business

Originally published in Thrive Magazine (Malaysia)

reproduced with kind permission.

From Movement to Market

Around the country and around the world, more companies and investment funds are walking their talk on tackling global climate change, because increasingly, businesses are finding that going green can be profitable. Jee Wan finds out more.

“Going Green” is no longer simply taking an “environmentally friendly” mind-set. It is now a full-fledged profit play. It does not just merely mean a cleaner environment; it also means a sustainable economy, which requires a stable and healthy economy. To deliver a more sustainable economy we need to do more with less by making better use of resources, increasing investment, promoting stability and competition, developing skills and rewarding work. Sustainable development requires us to take a long-term view of the economy, rather than adopting short term fixes.

A new study by international consulting firm McKinsey finds that half the necessary cuts in greenhouse-gas emissions can be achieved at a net profit. The study showed that investment in energy efficiency of about US$170 billion annually worldwide would yield a profit of about 17%, or $29 billion. The Financial Times reported: “Diana Farrell, director of the McKinsey Global Institute, said: ‘It shows just how much deadweight loss there is in the economy in energy use.’ She said the most inefficient sector was heavy industry in China, with the second residential housing in the US, where homes are large, poorly insulated…” ¹

And smart businesses will grab such opportunities. Below are some companies that are now tapping the green market and raking profits out of it.

Wal-Mart

As part of its company-wide sustainability goals, Wal-Mart is committed to being supplied 100% by renewable energy, creating zero waste and selling environmentally-friendly products. The company is moving toward these goals by using sustainable sourcing practices including energy efficiency, waste reduction, renewable energy and lifecycle management. These initiatives are making Wal-Mart a more sustainable company and helping create a favourable environment for green job creation.

For example, Wal-Mart recently announced its first substantial purchase of wind energy in the U.S. The wind power will supply up to 15% of the retailer’s total energy load in approximately 360 Texas stores and other facilities.

The renewable energy will come from a Duke Energy wind farm under construction in Notrees, Texas, and is expected to begin producing electricity for Wal-Mart by April of 2009.

The wind purchase is another example of Wal-Mart’s ongoing commitment to become a more sustainable company and serves as a complement to its solar project announced last year. In May 2007, Wal-Mart announced it would equip up to 22 locations in Hawaii and California with solar panels. Wal-Mart estimates the solar power systems are helping to reduce greenhouse gas emissions by 6,500-10,000 metric tons per year.

By integrating wind power into its electricity load, Wal-Mart is building on its diversified energy portfolio and creating more opportunities for advancements in clean energy through research and innovations. This power purchase in the deregulated market territory in Texas is expected to support the creation of green jobs at the West Texas facility. Wal-Mart will use the results of its wind power purchase to explore additional ways to achieve its goal of being supplied by 100% renewable energy.

This step will also lead to the creation of green jobs in Texas.  This is one example of the dozens of projects Wal-Mart is implementing across its operations with green job creation potential.

The steps they take to help them meet these goals are not only good for the environment — they are good for their business, too. For instance, by increasing the fuel efficiency of their trucks they will dramatically reduce their carbon emissions and their dependence on non-renewable energy, and save millions of dollars at the pump.

Wal-Mart has pledged to eliminate a quarter of the solid waste currently produced by its U.S. facilities. When the company took up an environmental impact team on its suggestion that Wal-Mart bundle for resale the plastic that it used to send to landfills or incinerators, the company saved $28 million a year. The company realised another $2.4 million of cost savings by asking the supplier of its private-label Kid Connection line of toys to eliminate unneeded packaging. Wal-Mart now ships nearly five hundred fewer containers each year, reducing shipping costs and saving 3,800 trees and a million barrels of oil in the bargain.

Their efforts to develop new markets for sustainable technologies have moved beyond logistics and operations and onto their store shelves. One great example is a project developed through a partnership with Unilever that explored how they could dramatically reduce the packaging on All® detergent. In February 2006, Unilever unveiled All Small-and-Mighty®, an innovative product that is three-times concentrated and contains enough detergent for the same 32 loads as a 100-ounce bottle. With this product, Unilever estimates yearly savings of 11.5 million pounds of packaging waste and 864,000 gallons of diesel fuel.

Beyond the money and energy savings lies the potential to create new markets for these products, which happens when their competitors begin selling the products as well. Ultimately, this competition within markets can lead to significant savings in cost, CO2 emissions and packaging that are far greater than what they could do alone.

Patagonia, Inc.

Legendary climber, businessman and environmentalist Yvon Chouinard is the founder and owner of Patagonia, Inc. based in Ventura, California. What makes Patagonia stand out from its competitors lies in their clothing and gear, and their exceptional mission:

“To make the best product, cause no unnecessary harm, and use business to inspire and implement solutions to the environmental crisis.”

Decades before recycling became a common practice, Patagonia was already reusing materials. Along the way, their conscience has rubbed off on others, from smaller enterprises like Clif Bar to larger ones such as Levi Strauss and the Gap (Charts, Fortune 500) and Wal-Mart (Charts, Fortune 500). Throughout his business, the biggest lesson Chouinard learnt is that reaching the summit has nothing to do with where you arrive and everything to do with how you got there. The same applies to business. The point is not to focus on making money, but focus on doing things right, and the profits would come. And so they did for Patagonia. People often referred to his store, and the other 22 like it, as Patagucci and Pradagonia, for the simple reason that Chouinard detests trendiness, and instructed Patagonia designers to ignore the current fashions.

In 1977 the company created its breakthrough product, a jacket made of polyester pile that repelled moisture while retaining heat. Although it was stiff and ungainly, it worked like a charm in environments where looking odd was preferable to getting hypothermia. Even so, Patagonia continued to refine the jacket. Working with fabric manufacturer Malden Mills, they created a finer, softer version called Synchilla. Their sales exploded, and the company became known for the “fleece jacket”. Later, when Patagonia discovered it could make Synchilla using discarded soda bottles, Chouinard saw a way to reconcile his expanding business with his angst over manufacturing’s destructive effects, by conducting an “environmental assessment” of all materials. He started to question: Could recycled materials be used in a product? Could the product itself be recycled? Which materials caused the most harm to the environment, and which the least?

The conventionally grown cotton, an environmentalist’s nightmare crop, was one of his main concerns as it heavily depended on disruptive pesticides, insecticides and defoliants. So Chouinard wanted to do something about it. In 1994, he gave his managers 18 month to make changes and suggest an alternative. The obvious choice was to use organic cotton. Because it was rare at the time, it cost about 50% to 100% more. A nightmare for Patagonia of course, for a fifth of its business came from cotton products. This was definitely no small risk. There was pushback from the ranks; suppliers defected. Chouinard was persistent, and delivered his ultimatum: Do it, or we never use cotton again.

Well, the gamble paid off. Patagonia’s business started seeing further success – its cotton sales rose 25% and, more important, it established an organic cotton industry so that other companies could cross over. This led to an increase in demand, and a reduction in prices; this created even more demand. And in 2006, Wal-Mart became the world’s largest purchaser of organic cotton.

But this wasn’t good enough for Chouinard. He was ecstatic over Wal-Mart’s green initiatives. He wanted to go even further this time, to be rid of organic cotton (because organic cotton is still considered bad), and decided to make clothes out of polyester instead.

Used polyester clothing can be recycled into more clothes continuously (like we do with aluminium cans).

In the early 2000s, the Japanese fabric company Teijin, a partner of Patagonia’s, invented a process by which used polyester can be almost endlessly recycled. Patagonia makes a line of polyester base layers known as Capilene and encouraged customers to send back their worn-out underwear. (It now also accepts products made from fleece, nylon and organic cotton.) According to Chounaird, by recycling polyester, they used 76% less energy than they would to make it out of virgin petroleum.

Gradually, chlorine disappeared from Patagonia’s wool products, replaced by a patented slow-wash technique. And instead of adding antimicrobial silver, a groundwater pollutant, to its underwear lines, it used a product made of crushed crab shells for odour control. As much as a company would like to save mother earth, they are still left with an inconvenient truth: No matter how careful the choice of materials or methods, all companies leave a footprint. This is Chouinard’s conundrum. In his book, Let My People Go Surfing,  he wrote, “Patagonia will never be completely socially responsible. It will never make a totally sustainable, nondamaging product. But it is committed to trying.”

Patagonia now earns over $240 million a year from worldwide sales, allowing its owner to seriously leverage his concern for the natural settings Chouinard’s spent a lifetime enjoying.

Stonyfield Farm

Gary Hirshberg, husband of Meg Hirshberg and father of three teenage yoghurt-eaters, is Chairman, President, and CE-Yo of Stonyfield Farm, the world’s leading organic yoghurt producer, based in Londonderry, New Hampshire. He is also the author of Stirring it Up: How to Make Money and Save the World. He said in a conference in February 2008, “Sustainable practices are much more profitable than not.”  At Stonyfield, they continually implement innovative energy efficiency measures. This explains why their energy use per pound of product produced had been decreasing even though their production of yoghurt and other products increased every year. Between 1995 and 2005, they reduced their facility energy use and the associated CO2 emissions per pound of product by one-third.

Efficiency gains at their facility and CO2 reductions had come from many initiatives including designing their processes to incorporate heat recovery, installing energy efficient motors and lighting, implementing energy efficient building practices, refrigeration system changes and fuel switching. Through improved efficiency, Stonyfield had saved over $1.7MM and 46 million kWh which is enough energy to power 4,500 homes for a year, and prevented over 14,000 tons of CO2 from entering the atmosphere.

Stonyfield manufactures millions of cups of yoghurt annually. They are keenly aware that their packaging choices are extremely important. Therefore, over the years they have devoted significant effort to identify ways to reduce the environmental burden due to their packaging. Recycling is very important, but it can be more environmentally advantageous to reduce the amount of material generated in the first place. After examining their options (including glass, polycoated paper, and plastic), they chose a lightweight plastic. Glass, although widely recycled and made from recycled material, was rejected because the environmental costs of transporting the heavy material outweigh the benefits.

The energy (fossil fuels) used over the entire life of the glass package for its manufacture and transport exceeds the energy that goes into the manufacturing and transporting of a plastic container.

Over the past several months, Center for Sustainable Systems (CSS) analysed a variety of lid closure options for Stonyfield’s yoghurt packaging. And foil closure was chosen because it met all of the product quality attributes and dramatically improved the environmental performance of their packaging. And by switching from their plastic closures to a single foil closure they used 16% less energy, 13% less water, and created 6% less solid.

All these efforts could help not only in improving the current global warming situation, but it helped the business as well. Quoting from his book, Stirring It Up, “Stonyfield has grown by more than 27% a year for the past eighteen straight years, compared with 5 to 7% for the yoghurt industry as a whole. In 2006, our sales topped $260 million; in 2007, we were on track to exceed $300 million. It’s largely due to our focus on sustainability – the art of replacing myopic efficiency with sensible methods that boost profits while benefiting nature rather than destroying it.”

Airtricity and Scottish and Southern Energy

Airtricity is a world leading renewable energy company developing and operating wind farms across Europe. It is a generator and supplier of electricity and currently supply green electricity to over 38,000 customers in Ireland. According to Eddie O’Connor, CEO of Airtricity, “There’s only 40 years of oil and 60 years of gas left [in the world] so we have to start doing something about it. There’s a growing recognition in the market about carbon dioxide and green issues. The message is getting out to the general business community. Carbon tax will tax polluting fuel and will predispose people to buy their energy from renewable sources.”²

In May 2007, Airtricity, the world’s fastest-growing wind developer, announced plans for a European supergrid — a network of 2,000 offshore wind turbines in the North Atlantic. The grid would initially supply 10,000 megawatts to 8 million homes. Ultimately, Airtricity envisions a wind grid stretching from Spain to Sweden, with an output equal to that of 30 nuclear reactors. The supergrid wouldn’t eliminate the CO2 thrown off by Europe’s power plants, but it would reduce it by 60 million tons per year — the equivalent of taking 15 million cars off the road.

Founded just seven years ago, Airtricity is reaching heights. It is on track to bring in $657 million in annual revenue by 2010; it currently operates 16 wind farms in the United States, the United Kingdom, and Ireland, and its five-year project timeline will ramp it up to a potential 7,000 megawatts in capacity, equal to the output of 14 U.S. coal plants.

If any of its grid projects get to completion, even if Airtricity is only a minority partner, Harvard Business School professor Richard Vietor said, the company will be catapulted into the ranks of the world’s top green energy players. Airtricity CEO Eddie O’Connor said that there’s a fortune to be made here. Airtricity already has a team pushing plans for an even larger supergrid of 1 million megawatts to be based across the Great Plains states. Airtricity estimated that the first stage of the European super-grid will cost more than $25 billion over 10 years, and the company is currently lobbying for government approvals. But there is no shortage of opportunity for hundreds of other wind producers to start banding together, since scale is what is needed most to lift wind out of the “alternative” market. ³

Currently, European governments are discussing whether to pour additional tens of billions of dollars annually into building green-energy infrastructure. Although the industry is able to sell solar cells and modules today as fast as it can make them, analysts predict capacity will almost double in 2009.

Rajendra Pachauri, chairman of the UN Intergovernm ental Panel on Climate Change, recently walked “into the lion’s den”, as he put it, when he told oil executives in Houston that they need to lead the way in cutting greenhouse gases. Reuters reported:  “The world will be moving to a low-carbon future, therefore companies that take the lead will meet with success in both business and in the eyes of society,” Pachauri said. “Those who don’t will be left behind. I think that’s becoming more and more apparent.’ “◊

References

• 1 The Christian Science Monitor. Business begins to see Profits in Going Green: 2008. Retrieved December 6th December, 2008, from http://www.csmonitor.com/2008/0221/p04s01-wogi.html
  
• 2 Airtricity Press Release, Seeing Green, 5th June 2003.
  
• 3 Fortune Magazine. Patagonia: Blueprint for Green Business: 2008. Retrieved from http:// money.cnn.com/magazines/fortune/fortune_ archive/2007/04/02/8403423/index.htm
  

Other references

• Hirshberg, Gary. 2008. Stirring It Up: How To Make Money and Save The World. New York.
  
• Hyperion.
  
• Patagonia: Blueprint for Business, Fortune
  
• Magazine, 4th February, 2007.
  
• Website: http://www.patagonia.com/usa
  
• Website: www.stonyfield.com/EarthActions

Thumbnail image courtesy of lxrichbirdsf.

Tweet This Post