Environmental Innovation: The Investment That Keeps On Paying

This month, guest columnist Tom Murray writes about his firm's work helping companies reap benefits from environmental innovation.

Fortunately for the economy and the planet, many firms have broadened their perspectives on environmental programs in recent years. Even in a challenging and changing economy, forward thinking Fortune 500 companies, ranging from Wal-Mart (2) and GE (5) to Owens Corning (422) and SunGard (435), are continuing to move forward with significant environmental initiatives. They have discovered that regardless of size, sector, or economic conditions, environmental innovation is an investment with a broad range of returns: cost savings, growth, and brand enhancement.

Cost Savings

In the current economic crisis, it's understandable that some executives are asking "Can we afford to go green?" But the more appropriate question is "Can we afford to leave money on the table?" Many recent examples confirm that improved environmental management is a powerful strategy to significantly reduce operating costs by maximizing efficiency and resource use.

In its first year, Environmental Defense Fund's (EDF) "Green Portfolio" project helped three private equity portfolio companies - US Foodservice, PRIMEDIA, and Sealy - capture over $16 million in annual cost savings and 25,000 tons of greenhouse gas reductions¹. Specific steps included reducing truck fuel usage at US Foodservice, cutting paper consumption at PRIMEDIA, and improving material use at Sealy. Additionally, this past summer EDF's Climate Corps fellowship program helped 23 companies - including Accenture, Cisco, Dell, Genzyme, Intuit, Raytheon, and salesforce.com - uncover efficiencies in lighting, computer equipment, and heating and cooling systems that could save $54 million in net operational costs over the project lifetimes². The bottom line is that smart businesses are making environmental management a key part of their strategy to improve efficiency, cut costs, and increase profitability.

Growth

In addition to reducing risks and operating costs, environmental strategy can fuel corporate innovation and top line growth. More and more companies, ranging from GE to smaller technology firms, are using environmental goals and metrics to unleash creativity and spur the development of new products and services. For these companies, environmental strategy has evolved from focusing on compliance in the ‘70's and ‘80's, to efficiency and footprint reduction in the ‘90s, to innovation and growth today.

GE's "Ecomagination" is a business initiative designed to increase operational efficiency, meet the growing demand for cleaner and more energy-efficient products, and drive profitable growth for GE. The program combines measurable goals for both efficiency and sales growth. The results to date have been impressive, including reducing costs by over $100 million and growing annual revenues of Ecomagination offerings by 21 percent to $17 billion in 2008³.

These growth opportunities are not limited to corporate giants like GE. Many innovative technology companies, including hybrid-electric power train manufacturer Azure Dynamics, LED lighting leader Cree, Inc., lithium-ion battery systems developer EnerDel, and super-insulating window manufacturer Serious Materials are capitalizing on the growing demand for "green" technologies to drive growth and increase market share⁴.

Brand Enhancement

Establishing a company as an environmental leader in the eyes of key stakeholders - including employees, customers, and investors - can significantly enhance corporate reputation and brand value. Timely information, as a November 2009 survey by McKinsey & Company found that a majority of executives think the economic crisis has increased expectations regarding business' role in society and that the environment remains the issue that will most likely impact shareholder value in the long-term.

Companies become market leaders by capitalizing on challenges and opportunities better and more consistently than their competitors. Increasingly, market leadership will require environmental leadership. Executives that take advantage of the opportunity to integrate the environment into their business strategy will generate a wide range of returns - including cost savings, growth, and brand enhancement - and position their firms to be the market leaders of the future. Tom Murray is a Managing Director of Corporate Partnerships at Environmental Defense Fund (EDF), a global leader in partnering with innovative companies to improve environmental and business performance.

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1. http://www.edf.org/greenportfolio

2. http://www.edf.org/climatecorps

3. http://ge.ecomagination.com/_files/downloads/reports/ge_2008_ecomagination_report.pdf

4. http://www.edf.org/page.cfm?tagID=35947