Banking on Sustainability 

HollenderIn yogurts and yields, business and government renew faith in future

By Jeffrey Hollender

I feel more hopeful and optimistic than I have in many years. The past 18 months seems to have brought more positive change to society’s awareness and business focus on sustainability than the prior 18 years. Those positive changes do not mean that we have solved most of the challenges that face us. On our journey, if we are starting from one with the goal of reaching 10, movement from one to two represents 100 percent growth, but there is still such a long way to go.

Beyond the huge impact of “An Inconvenient Truth,” and the still-lingering effects of Hurricane Katrina, religion plays a role.

Concern about the environment has awakened tens of millions of Americans from all denominations about the need to “steward God’s creation.” Sunday sermons and other religious activities put green topics front and center. Some 135,000 congregations—counting Cath­olic parishes, synagogues, Protestant and Eastern Orthodox churches and evangelic houses of worship—have been provided with resource kits on environmental issues, including sermons for clergy, lesson plans for Sunday school teachers, and even conservation tips for church and synagogue building managers.

Another major driver is our national health and wellness obsession, coupled with chronic disease (allergies and asthma have almost reached epidemic proportions) that is out of control, and healthcare costs that threaten to cripple our economy. This makes preventative healthcare an essential solution.

Today, almost every product strives to be a health and wellness product. Natural and organic products continue to be a huge business with sales in 2005 more than $50 billion in the U.S. alone. Consumer spending within the U.S. LOHAS (Lifestyles of Health and Sustainability) market reached $209 billion in 2005, or more than $400 billion if you include socially responsible investing.

And then there’s Wal-Mart. The big news here is not the skylights in its stores, but the company’s efforts to sell 100 million compact fluorescent light bulbs and the increased fuel efficiency of its trucks. What really matters is that Wal-Mart’s obsession with the environment has shifted the thinking of senior managers at thousands of consumer packaged-goods companies all over the world.

Imagine what will happen in the coming years now that hundreds of millions—if not billions—of dollars of research and development spending has been redirected to focus on developing new environmental benefits. Some of the benefits are already beginning to flow into the marketplace, with mandates that insist on double-concentrated laundry liquid, compact fluorescent bulbs with less mercury, coreless toilet paper, reduced packaging and the elimination of toxic chemicals from household products.

Corporate America is receiving shockingly different advice than it did in the past on these matters. In November 2006, a McKinsey & Co. internal white paper warned:
“Societal pressure is escalating, and companies are finding themselves increasingly on the defensive. Companies that successfully bring society into strategy will create enormous value, as well as contribute to the greater good. They will have better growth potential.”

Changes are also being driven in no small part by local and state governments that have become true activists. Just consider that:

  • San Francisco became the first U.S. city to ban plastic grocery bags (unless they are biodegradable).
  • Portland and Multnomah County, Ore., committed to reducing greenhouse gas emissions 10 percent by 2010 compared with 1990 levels.
  • The California Air Resources Board developed regulations and market mechanisms that would reduce California’s greenhouse gas emissions 25 percent by 2020.
  • There is a bill pending in the California legislature that would require all consumer products to have websites listing all ingredients in their products.

But, perhaps the most important factor is the emerging reality that more responsible businesses outperform their peers financially. The Financial Times has reported that if you had bought stock in all the public companies in Milton Moskowitz’s survey ranking the 100 Best Companies to Work For in 1998, when it was first published by Fortune magazine, and held it until 2005, you would have made twice the annualized return of the S&P 500. If you had sold each year and reinvested in the new list, you would have made three times the S&P return.

Goldman Sachs weighed in with a report July 5 that found companies considered leaders in environmental, social and governance policies were also leading the pack in stock market performance—by an average of 25 percent.

This new environment also has led a few multinational companies to do things that would have been unimaginable just a few years ago. This is where the most hopeful and inspiring part of this transition is taking place. It is a transition that is not characterized by isolated initiatives and symbolic acts, but by real system change that represents the hope that business can understand and act in a sustainable manner.

My favorite example is the yogurt factory that Danone is building in Bangladesh, in a joint venture with the Grameen Bank, where the revenues and profits would not end up on their bottom lines, but would be reinvested in future projects, according to Fortune magazine.

The factory, at a cost of half a million dollars—and a total capital investment of $25 million if 50 more like it are built because the project is successful—would rely on local Grameen farmers to sell it milk, Grameen vendors to hawk the yogurt door-to-door and Grameen's 6.6 million members to purchase it for their kids.

“And Danone estimates that it will provide income for 1,600 people within a 20-mile radius of the plant,” Fortune states. “Biodegradable cups made from cornstarch, solar panels for electricity generation and rainwater collection vats make the enterprise environmentally friendly.”

Emmanuel Faber, Danone's former CFO, comments in the article that “profit maximization is not going to be the only way to measure value.”

And, Danone CEO Franck Riboud supports that view, but believes the project’s social benefits may some day be reported on Danone's bottom line.

“The new wave in business is—forget corporate social responsibility and philanthropy—how do you integrate this into your core business?” Riboud says. “The idea Danone has of creating a social dividend for shareholders, that's cutting-edge. No one else has come up with this interesting a model. It supports your brand, returns your capital, you're not going to lose money and you give your shareholders a vision of doing something good.”

We have a unique opportunity. It’s an opportunity that we may never have again, one that can easily pass us by. There is more interest and possibility for corporate responsibility to have the positive impact on society that we have always hoped it would have.

Seizing this opportunity will require an honest assessment of where our efforts have fallen short and the development of a holistic and systemic plan to improve as we move forward. Pictures of smiling faces and pristine rivers won’t get us there. Only a humble, honest and self- critical perspective will increase the likelihood of a brighter future.

Jeffrey Hollender is the President and CEO of Seventh Generation.