The green office myth
How does sustainability sit with current management strategies?
Sustainability can make executives do strange things. On May Day last year, Yahoo founders David Filo and Jerry Yang were helped into plastic, leaf-covered Sumo suits and set about running into each other on the lawn outside the company's head office.
Christina Page, Yahoo's director of climate and energy strategy or self-confessed "carbon beancounter", admitted at a panel session at Stanford University earlier in the year that it might not work for every company. But the Sumo contest, providing a rematch for Filo and Yang since they last sparred in 1999, was a way of rewarding the company's workers for hitting a 20 per cent energy reduction target for Earth Week 2007. It was a start to a larger process: "Yahoo committed to becoming carbon neutral by the end of 2007," she noted. "We looked at IT, employee commuting and we looked at air travel."
The company invested in a bus to make the trek down Highway 101 each day from San Francisco, where a lot of its employees live, to the Yahoo campus in Sunnyvale. Fitted with Wi-Fi, the Green Guzzler bus is meant to tempt workers out of their cars and into more carbon-efficient shared transport. "We don't make our employees fight traffic," said Page.
To get to carbon neutrality, the company bought a stack of carbon offsets. However, the company did not declare how much it spent on them in its 2007 annual report. Yahoo's stated commitment to carbon neutrality is symptomatic of a move by many corporations to sign up to the agenda of sustainability. It also shows how companies have, to a large extent, picked the ground on which they fight the war for sustainability. As Rocio Diaz-Chavez, a researcher in the Centre for Environmental Policy at Imperial College, London, points out, just in the environment of biofuels, "There are a hundred different definitions of sustainability."
The best definition for sustainability that we have was put together more than 20 years ago. The Brundtland Commission to the United Nations came up with its definition of sustainability as "Meeting the needs of the present without compromising the ability of future generations to meet their own needs".
The Brundtland definition is at least short. But can you build a business strategy on it? We have no idea of what abilities future generations might have: they might have robots that can extract all manner of materials from landfill. Or the survivors might be digging for scraps on those same mounds.
With such a paucity of detail, corporate-sustainability advisors have been able to define their own approaches to the subject. Terms like 'change', 'innovation' and 'transformation' permeate the rhetoric of sustainable business. It is almost as if the ideas that underpinned former bandwagons such as business process re-engineering have simply been welded onto the concept of sustainability. This time around, there is a sense of urgency because of the rate at which industrialisation grew through the 20th century. "You need two planets to sustain current consumption patterns," claims Jeana Wirtenberg, director of external relations at the Institute for Sustainable Enterprise at Fairleigh Dickinson University.
So, it is not surprising that sustainability has a side helping of hype. The PR company behind the promotion of a white paper written jointly by BT and Cisco described its content, an approach called Shareholder and Social Added Value (S2AVE) written by six academics, as "mind altering". The work, however, was perhaps not as mind-altering as the publicity. The academics in fact argued: "The steps to achieving S2AVE do not rely on extensive re-engineering of the corporate structure, but require conviction and vision". The writers made a different grandiose claim: "The business opportunity presented by sustainability is - in many respects - equivalent to the highly disruptive innovations enabled by the Internet. Despite some major setbacks, the Internet's evolution has created immense value from business models which barely ten years ago were utterly inconceivable. We believe sustainability to offer opportunities on an even larger scale."
Although the drive towards sustainability started with the idea that it is all about resource consumption, much of the focus in the corporate world is how this affects, and often helps, the bottom line.
In a lecture at Gresham College earlier this year, David Blood, managing partner of Generation Investment Management, a fund that specialises in companies with 'sustainable' business models, explained the rationale: "The best CEOs and business leaders recognise that actually thinking about sustainability, integrating it into business strategy, is about driving profitability. It is about driving revenues, and it is about driving competitive position."
Perhaps more importantly to CEOs and upper management is the way in which managing for sustainability can change the perception of a company not just among customers but among investors. Blood used the example of Wal-Mart to describe how it has tried to adopt a more environment-friendly attitude - a tall order given the company's reputation in the US - and in the process become more attractive to investors.
"They are doing some truly remarkable, thoughtful things. They are doing it because they think they can drive their costs down and they think it is the right thing to do and they believe that climate change is an important subject."
Blood continued: "Twenty-five years ago when I started in finance, this would have been impossible. But we think it begins to illustrate...that capitalism is at a crossroads, and that increasingly these factors will drive how businesses operate, how businesses will be evaluated. If you were a research analyst or an investor in Wal-Mart five years ago, and you did not recognise or see that the context of this business was changing, you would have made a very bad investment decision."
Wal-Mart's sustainability strategy
A study conducted by Deloitte for the US Grocery Manufacturers Association found that, of 306 shareholder proposals to boards, nearly half of them were related to sustainability topics.
Despite more turmoil in the stock markets recently, Wal-Mart is apparently sticking to its strategy. Wal-Mart vice chairman Mike Duke told the company's suppliers in China to expect random inspection of their factories as part of a plan to get suppliers to sign up to environmental standards. Even if you thought your company could get by without looking at sustainability, think again. Sooner or later, big customers are going to force you to do it or they will look elsewhere for business.
"The green motive and the financial motive are going together," said Peter Williams, CTO of IBM's Big Green Innovations initiative at the Stanford event. "IBM has been trying to reduce its environmental footprint for the last 35 years. And now, more recently, that work is a source of ideas for products and services that we can sell." What customers are looking for will determine the flavour of sustainability that business adopts. The focus within companies is often a lot narrower than the banner of sustainability would, at first glance, suggest.
"Within IBM, our primary focus is on two things: reducing energy consumption and reducing the use of fluorocarbons that we use to make semiconductors. Externally, it is a matter of understanding where the market is. Today it is about carbon. But water will become a focus in the next two years," Williams reckons.
Page agrees: "A lot of our programmes focus on energy efficiency, because that is a no-brainer."
There are two strands to sustainability in the way that business has, so far, adopted it. One is behavioural; the other technological. It is why the word 'innovation' so often accompanies sustainability in white papers and discussions.
Joseph Stagner, executive director of sustainability at Stanford University says: "The power of behaviour informs the development of technology. It allows us to be more sustainable without shivering in the dark to do it."
However, Williams points out that simple changes can often yield big benefits. At IBM, they found that putting cables into ducts used for air-conditioning was bad news for efficiency. "Get the cabling the hell out of the ducts and it works better. It's not just fancy gizmos, look at the basics."
Similarly, changing company policies can have a more dramatic effect than simply buying into technology that has a green label, not just for internal sustainability statistics but for a company's external image.
Graham Titterington at Ovum went to an event organised by an IT vendor to showcase its work to reduce carbon-dioxide emissions but noticed a disconnect between the image the vendor wanted to present and reality.
"One of the delegates, who had travelled from Düsseldorf to Amsterdam, had been told that he had to fly there as it was not company policy to reimburse train fares - despite the fact that in this case there is no direct air service and flying was both considerably more expensive and slower. As this journey involved two relatively short flights, the fuel consumption per passenger was probably about ten times that of the rail option," says Titterington.
"Every company is trying to maximise the revenue potential of jumping on the green bandwagon...However, a bit of joined-up thinking would help to keep the cynicism in check," concludes Titterington.
Williams says the whole company has to take into account the idea of sustainability: "If you are not organised right, if the accountability is not right, it doesn't mean anything." Where organising for sustainability can get sticky is when you get down to details. It is not worth trying to make savings in one area if the net effect is simply to push up consumption elsewhere. This is where footprinting comes - analysing the full lifecycle of that product from the point where ores are dug out of the ground to its final destination in recycling centres and landfill. But the analyses are complex and may involve estimates that later turn out to be wrong.
"Footprinting can lead to analysis paralysis," says Williams, but he insists there are easy hits. "If the kids are leaving the lights on I don't need a footprint to tell them to turn them off. I just cut their pocket money if they don't: it works brilliantly."
Sustainability and profits
Sustainability can run into trouble when its demands run counter to the principles that underpin the business. These can be fundamental conflicts. If your business is to make mobile phones then encouraging users to upgrade every year is far less sustainable than finding softer - but probably less profitable - ways to give users new features (see 'Throwaway Society', p32). Or the conflict can be more subtle. Consultants at Deloitte point to a tension between lean manufacturing practices and sustainability. Conventional wisdom argues that you keep inventory to a minimum by only having raw materials and components delivered when absolutely necessary. But this approach lowers the loading of individual trucks that supply the products, which increases carbon emissions per product made. Similarly, establishing manufacturing or distribution in China or eastern Europe may work out cheaper in terms of staff and property costs, but push up carbon emissions because the energy is supplied from coal-fired power stations.
Who wins those arguments comes down to the degree to which a sustainability officer's advice trumps that of a manufacturing or operations manager at board level. But, ultimately, the people in those sustainability jobs see their functions being absorbed into traditional roles as companies give environmental-cost considerations equal weight to those of more traditional financial measures.
Williams says: "Companies try to make [sustainability] some kind of exotic side issue. But you see it working when you see the carbon footprint given the same status as inventory. My focus within IBM is to work myself out of a job." Page agrees: "This field won't stay static, I would expect in five years our roles to become mainstreamed."