Corporate Green Movement

Updated About encyclopedia.com content Print Article Share Article
views updated

Corporate Green Movement

Introduction

The pursuit of environment-friendly corporate policies in the past decade, and most particularly in the past several years, has been referred to as the “corporate green movement.” Corporate green policies serve several business-related purposes for companies. Paramount among them is to increase profits and shareholder value through a combination of energy cost cutting and the cultivation of a positive public image that directly and indirectly enhances product sales. As public concern over the issues of global warming, air pollution, biodiversity loss, and environmental degradation increases, companies want to be seen as part of the solution rather than as part of the problem.

Although certain social critics may dismiss corporate green policies as self-serving and cosmetic, it seems clear that significant improvement in environmental quality will not be possible without the active participation and, in some cases, the leadership of private industry. Even when corporate efforts are best characterized as lip service to environmental causes, they constitute an acknowledgement of the public’s concerns that shows how the terms of the debate over green policies have changed in company boardrooms. Furthermore, the green policies have an important economic benefit that comes from energy efficiencies and reduced energy costs that benefit both corporate customers and consumers.

Historical Background and Scientific Foundations

In February 2008, Jeffrey Immelt, the CEO of General Electric (GE), the largest corporation in the United States, surprised industry watchers when he said that the future of GE lay in a campaign to “define the cutting edge in cleaner power and environmental technology.” Behind these words was a plan that he outlined to double research and development on cleaner technologies to $1.5 billion and double sales of greener products to $20 billion per year by 2010. Alongside this effort, GE will decrease emissions of greenhouse gases by 1% by 2012 instead of increasing them by 40% as current trends with present technology would predict. Immelt’s announcement has been accompanied by an animated television advertising campaign featuring sleek rail locomotives, fuel-efficient jet engines, and a chirping tree frog in a leafy forest illustrating how this heavy industry giant and corporate bellwether will achieve these goals.

With a market capitalization of nearly $400 billion and the world’s most widely owned stock, GE’s new policies add considerable heft to the global corporate green movement. During the 1990s under former CEO, Jack Welch, GE symbolized a management philosophy that placed shareholder value above all other goals. Immelt’s presentation indicated a broadening of the company goals by emphasizing its obligations to multiple stakeholders and interests, including protecting the global environment.

This change in corporate strategy for GE and the many other companies that are espousing green policies does not constitute a fundamental change in the basic objective of earning profits for shareholders. However, it recognizes an important change in the global market in which there is increasing demand for products that lessen greenhouse-gas emissions and slow climate change. GE, in particular, is in a position to dominate and lead this developing market. For example, GE is one of the world’s biggest manufacturers of lightbulbs. As such, its new compact fluorescent bulbs will likely replace a considerable proportion of its current incandescent lightbulbs.

The lightbulb example is also telling in that the compact fluorescents also dramatically reduce electricity consumption and costs; an efficiency that has economic as well as ecological benefits. As GE produces more efficient products, it produces greater efficiency and profitability for its corporate customers and improves the standard of living for consumers, who can spend more of their incomes on things other than energy costs.

Another example of an economic benefit to corporations derived from selling greener products comes from the automobile industry. General Motors invested heavily in the production of energy-inefficient SUVs and small trucks, while rival Toyota foresaw that the future lay in cars with reduced fuel use and lower emissions. As gasoline prices began to rise to unprecedented levels in the United States, something which could have been predicted based on trends in energy supply and demand, it becames ever more economically practical for consumers to purchase fuel-efficient vehicles.

The corporate green movement constitutes the “privatizing” of policy on the environment in an era of relatively weak U.S. government action. This privatizing is exemplified in the emergence of informal networks of important nongovernmental organizations, big corporations, and state and local governments that want to address environmental and other social problems. For example, a group of major U.S. financial institutions—including Citigroup, Bank of America, HSBC, and J. P. Morgan Chase, among others—has set an environmental standard referred to as the “Equator Principles,” under which participating institutions agree not to extend loans for a project without a detailed environmental assessment outlining its contribution to sustainable development and other community objectives.

The corporate green movement also serves the purpose of defending the image of corporations in an era of scandals symbolized by the Enron fiasco. In order to maintain trust in a brand, companies try to avoid activities that appear self-serving and wasteful, instead engaging in socially beneficial activities above and beyond making high quality products. Trust in a brand is the basis for its economic value and consequently a company’s revenue. Sometimes these socially beneficial activities appear to be in direct opposition to a company’s core business interests, as in Shell Oil’s global project to lower environmentally damaging emissions in polluted cities around the world.

In the global economy, information about corporate activities is also globalized. In dealing with such abundant information, companies must protect their brands and their ability to operate globally. Thus, while the corporate green movement is cosmetic to a significant degree in an appeal for better public relations, the ultimate impact of the policies will be to change the discussion around what kinds of activities companies should pursue relative to the environment and other social issues. If the movement produces less environmental damage and greater economic efficiency for the companies themselves and for consumers, then its ultimate impact on the quality of human life will be no less positive, notwithstanding its corporate image-enhancing value. In any case, making a secret of green policies would not likely promote the cause of protecting the environment.

WORDS TO KNOW

CARBON FOOTPRINT: The amount of carbon dioxide (or of any other greenhouse gas, counted in terms of the greenhouse-equivalent amount of CO2) emitted to supply the energy and materials consumed by a person, product, or event.

GREEN: Environmentally friendly or safe; non-polluting or not adding to global warming.

GREENHOUSE GAS: A gas whose accumulation in the atmosphere increases heat retention.

STAKEHOLDERS: A group of people holding investments, shares, or interest in a commercial enterprise.

SUSTAINABLE DEVELOPMENT: Development (i.e., increased or intensified economic activity; sometimes used as a synonym for industrialization) that meets the cultural and physical needs of the present generation of persons without damaging the ability of future generations to meet their own needs.

Issues and Impacts

The preceding discussion shows how the corporate green movement is in part a response to the information age in which corporate activities are extensively examined in the public media. This examination leads not only to a need for better company management of environmental and social issues, but also to a re-examination of companies’ long-held assumptions about how they should conduct business. For example, investors are becoming increasingly informed and demanding regarding how companies are responding to potential economic threats arising from environmental change. Recently, a large labor union with major investments in securities managed by Wells Fargo wanted to know whether the bank is making loans to companies that could be adversely affected by greenhouse-gas regulations, whether the bank is taking advantage of investment opportunities in technologies for alternate energy, or whether it is advising clients on environmental issues that could affect them and their businesses. The union’s idea was to push the bank into taking strategic advantage of global climate change.

Environmentally aware investors are calling upon corporations to prove that the economic implications of climate change are entering into their business decisions in order to mitigate various kinds of investment risks posed by global warming. In doing so, investors are not engaging in so-called social investing, in which companies are pressured into activities bearing on social issues that are tangential to core businesses. Rather, the investors are acting as owners who are pushing the companies to be smarter about minimizing risk and capitalizing on opportunities arising from climate change.

In response, companies are trying to show how their activities are preparing them to prosper in a more environmentally conscious business climate. For example, TXU, a company that has been criticized for planning to build coal-fired energy plants, has allocated almost $2 billion to new technologies and has posted information about this investment on its Web site. Other companies

make the point that although their investment in greener technology is considerable, they are being criticized by environmentally active investors simply because they have not reported on these investments sufficiently. This confirms the point made earlier that improved public relations regarding corporate green policies, far from being self-serving propaganda, is essential to maintaining investor confidence that companies have the foresight to respond to the risks and rewards of climate change.

Thus, in response to criticism or questioning by activist investors, companies such as banks may point to large investments in renewable energy projects and green building construction in the past several years. However, they may not have issued public statements heralding their green policies, even though their investment record appears to demonstrate that they are addressing climate change risks and opportunities. Activist investors are insisting that they need proof that companies are proactive in preparing for regulatory, reputational, and physical risks arising from climate change. The result is accelerated discussion and activity about corporate green activities, which is likely to continue until such time as the public is reassured that companies’ efforts are adequate to forestall serious environmental consequences from global warming.

The public’s devotion to this issue is still not completely solid. In a recent poll of MBA students at various U.S. business schools, only one in five said that they would turn down an attractive job offer from a company with a poor environmental effort. Also, consumer comitment to purchasing green products is patchy, given the current state of the economy and the cost of switching over to green products. As reported in a recent Wall Street Journal article, the greenest house may be the one that a homeowner currently has, given the dollar cost and carbon footprint of removing old materials and making and shipping “green” replacements.

Primary Source Connection

The following news article reports on the issue of “going green” in the face of an economic downturn. Although it proves costly to adapt a business to use renewable energy, many claim that the savings return on energy efficiency more than makes up for the expense of the process of going green. In all, even during a slow economy, analysts anticipate that green technology and industry’s embrace of alternative and renewable energy will continue to grow—mainly because of the high cost of oil. When the article was written in 2007, crude oil traded at about $80 per barrel. By mid-May 2008, the cost of a barrel of oil had risen to more than $120.

EVEN AS ECONOMY LAGS, CORPORATE ‘GREEN’ PUSH MAY ADVANCE

US companies from General Electric to Wal-Mart have spent the past several years announcing initiatives on everything from efficient buildings to alternative energy to leading-edge technologies to combat global warming. Now, with the economy slowing, some of those projects look iffy.

In the past, companies shelved environmental initiatives when profits shrank. This time, despite some slowing in momentum, corporate America’s “green” campaign will survive, analysts predict. The reason: In a world of $80-a-barrel oil, there is a business case for saving energy.

“In a downturn, some would back away from their current commitments,” says Dan Esty, a professor of environmental law and policy at Yale University in New Haven, Conn. “There could be stress in the next year or two, but I’m confident that investment in the environment will be higher.” He estimates that 80 percent of corporations’ green plans will go forward.

To date, the amount spent on such initiatives has been relatively modest. In 2005, US businesses spent some $3.5 billion in the U.S. on renewable energy, says Allison Hannon of the Climate Group, a London-based nonprofit with offices in New York that is dedicated to reducing greenhouse gases. This compares with about $132 billion invested that year in conventional oil and gas, according to the American Petroleum Institute.

But spending on green projects is expected to accelerate. Mr. Esty estimates the total investment in the environmental area ranging from venture capital to actual investments will come to $100 billion in 2007. In March, for example, Bank of America announced it would commit $20 billion to green projects over 10 years. And last month at the Clinton Global Initiative, which is a project sponsored by the former president, Florida Power & Light announced it would spend $2.4 billion on energy-efficiency projects and install 300 megawatts of new solar-energy projects through 2012.

The challenge for business is that many economists think that by the middle of next year, the economy could be operating at a slower pace.

“Traditionally, in a slowdown people sharpen their pencils and cut things that are nice to have, feel good, or make you look good versus things that contribute to the bottom line,” says Kenneth Simonson, chief economist at the Associated General Contractors of America in Arlington, Va. “Until now, the environmental changes have been an extra expense, but sometimes they pay off over a number of years.”

Even executives who have announced green projects admit that some spending might be tempered at least over the short term depending on the economy.

“The investment can be rheostated,” says Michael Chesser, chairman and CEO of Great Plains Energy, based in Kansas City, Mo. “In other words you can speed up or slow down, depending on how you see your demand going over the next couple of years.”

Great Plains, which operates Kansas City Power & Light, spent $164 million in 2006 on 100 megawatts of wind energy. It is now deciding whether to go ahead with another 100-megawatt wind-energy project—enough electricity for 33,000 homes—in 2008.

In fact, economic uncertainties make energy efficiency a less expensive way to go, says Mr. Chesser. “When you build a major baseline plant, that’s a commitment. It takes five years to build, and it’s a big risk if the economy goes south,” he explains. “With energy efficiency, you don’t have that. It has a lot of flexibility.”

Still, energy efficiency costs money. In south Florida, Florida Power & Light is now testing a system on 50,000 homes that allows consumers to see the difference in their bills as the thermostat on the air conditioning goes up or down. To expand the pilot project to 4.5 million customer accounts, the company will spend $500 million.

Some investors view the downturn as an opportunity. Those burned by the real-estate slump or worried about slowing earnings growth should take a serious look at the long-term prospects of green companies, says Ms. Hannon of the Climate Group.

“Clean-tech funds are showing massive returns,” she says. “When you look at the growth of renewables, it is projected to represent 20 percent of our energy supply by 2020. This is a massive opportunity.”

One of those viewing a slowing economy as an opportunity is Environmental Capital Partners, which announced last month that it had raised $100 million to invest in mid-size green companies.

“A downturn is not so bad as long as it’s within reason,” says Chris Staudt, a principal of the newly opened New York-based firm, which is looking to make equity investments of $10 million to $25 million. “It could make companies we want to invest in more reasonably priced. And as companies get less expensive, we will be able to put on less debt, which can be dangerous for a company in a downturn.”

Even in a downturn, Mr. Staudt believes green businesses will thrive. “Environmental sustainability is a sea change. You can no longer do business without taking the environment into account.”

Ron Scherer

SCHERER, RON. “EVEN AS ECONOMY LAGS, CORPORATE ‘GREEN’ PUSH MAY ADVANCE.” CHRISTIAN SCIENCE MONITOR (OCTOBER 15, 2007).

See Also Electronics Waste; Green Movement; Hybrid Vehicles

BIBLIOGRAPHY

Web Sites

Fujifilm. “The Fujifilm Group Green Policy.” Revised on April 1, 2006. www.fujifilm.com/about/sustainability/green_policy/outline/index.html (accessed March 2, 2008).

Google, Inc. “The Google Green Policy.” January 1, 2008. http://www.google.com/corporate/green/energy/http://www.google.com/corporate/green/energy/ (accessed March 2, 2008).

Google, Inc. “Powering a Clean Energy Revolution: At Google, We’re Committed to Helping Build a Clean Energy Future.” 2008. http://www.google.com/corporate/green/energy/ (accessed March 2, 2008)

New York Times. “Companies Pressed to Define Green Policies.” February 13, 2007. http://www.nytimes.com/2007/02/13/business/13climate.html (accessed March 2, 2008).

U.S. News and World Report. “Green Isn’t Gold for MBAs.” January 15, 2008. http://www.businessweek.com/bschools/content/jan2008/bs20080115_911253.htm?chan=bschools_bschool+index+page_finding+a+job (accessed March 2, 2008).

Wall Street Journal. “The Price of Going Green.” February 29, 2008. http://online.wsj.com/article/SB120424591916201491.html (accessed March 2, 2008).

Washington Post. “Corporate Green.” May 11, 2005. http://www.washingtonpost.com/wp-dyn/content/article/2005/05/10/AR2005051001182.html (accessed March 2, 2008).

Washington Post. “The Equator Principles.” Updated January 25, 2008. http://www.equator-principles.com/index.html (accessed March 2, 2008).

Kenneth Travis LaPensee

More From Encyclopedia.com


You Might Also Like