In this book, I offer a pragmatic take on whether, how, why, and to what extent businesses of all sizes are addressing environmental sustainability. Like my previous books, this one has its origins in extensive interviews with hundreds of executives at dozens of companies. The goal was not to argue for or against sustainability but to understand what, if anything, these executives were doing in this realm. The many examples in this book were selected to illustrate the diverse challenges, solutions, and implications of sustainability as a potential business goal, competing with the many other business goals that managers face. Rather than prescribe a specific course action, these examples enable business managers to draw their own conclusions about what might or might not work in their specific context and how far it makes sense to go.
This book takes an entirely agnostic view on the science of climate change because it may be irrelevant whether business executives either personally embrace environmentalists’ arguments about “the challenge of our time” or if they believe it is a hoax. Companies, as entities that connect supply and demand around the world, have many stakeholders in the communities in which they operate who are interested in corporate profits, jobs, business growth, and sustainability. The business merits of sustainability are based on the fact that even the most ardent climate change skeptics in the C-suite face natural resource costs, public relations problems, regulatory burdens, and a green consumer segment. Thus, this book presents three main business rationales—cutting costs, reducing risk, and achieving growth—for corporate sustainability efforts. These three rationales underpin companies’ struggles to bridge the gap between the conflicting constraints imposed and desires expressed by customers, competitors, employees, neighbors, investors, activists, local governments, and regulators.
The intention of this book is to describe and illustrate many of the choices companies face; their efforts up and down the supply chain; the tools they use to assess the impact of those efforts, both environmental and financial; and the multifaceted conflicts and collaborations between companies, NGOs, and government agencies. All these choices have to be taken in the context of other company objectives such as profits, product and service quality, risk management, and others. The book explores effective initiatives as well as wasteful ones, and it highlights the difficulties of accounting for the full life cycle of products and processes throughout the entire supply chain “from cradle to grave.”
More than any of my previous books, this book's gestation has been long and arduous, owing to several deep gaps uncovered by this research. Our research team found that a multitude of companies claimed to pursue a variety of sustainability initiatives. Of course, when an MIT team interviews executives at a company, few would simply admit something such as, “We really don't care—we just do the minimum that our customers or regulators demand—and we put out some blurb to fend off NGOs. …” We did, however, hear some frank opinions expressed, including one from a chief supply chain officer at a leading manufacturer, who declared, “We will do what customers demand and no more.” Interestingly, two years later, that same executive asked us not to use this quote in the book, because the company was starting to change its stance. Another team of executives at a different company stated categorically, “If it reduces costs we will do it, otherwise we will not.”
The long gestation process of this book allowed us to observe that more and more (yet by no means all) companies were starting to pay attention to environmental sustainability and do something to promote it. They were committing to, and often achieving, specific environmental impact reduction goals through myriad initiatives that targeted all phases of the product life cycle. These actions were carefully analyzed and constitute the majority of this book's discussion on how companies implement sustainable practices.
At the same time, environmental journalists and NGOs were decrying the many remaining examples of pollution, habitat loss, and rising CO2 levels. Although it is easy to vilify companies as icons of cold-hearted capitalism, the picture is very different when one “walks in the shoes” of corporate executives. Keeping a company alive and growing is not simply a matter of satisfying Wall Street demands for profits. A successful company delivers something that its customers want or need while providing employment and supporting entire communities. For example, Walmart—the oft-criticized corporate behemoth—directly employs more than two million people and indirectly supports millions more. Its efficiency means that it can sell at “everyday low prices” to the one-third of the US population that visits its stores every week, and to the many more who make purchases online. The company single-handedly effected improvements in the sustainability of many products on a national scale. What was harder to understand was why companies pursued sustainability in the way they did.
The gap between companies’ bright press releases that celebrate environmental stewardship and environmentalists’ dark forecasts of planetary doom reflects a more complex reality. Sustainability is intimately connected with supply chains, the complex economic structures formed by companies that are using the global supply of natural resources to meet worldwide consumer demand.
The causes of this gap begin on the consumer side. Although a number of surveys show that most consumers say they want sustainable products, sales data show that only a small percentage are actually willing to pay more to buy sustainable products. This gap between “say” and “pay” puts companies in a difficult position. The position is made even more challenging by activists, journalists, and regulators who also demand (or command) sustainability from companies and attempt to punish transgressors.
The supply side exacerbates this gap. Most companies operate within the broad chasm between the environmental sensibilities of Western consumers and the economic priorities of developing countries that supply much of the natural, mineral, and energy resources consumed in the developed world. In the developing world (and in much of the Western world as well), the emphasis is on livelihood and economics rather than sustainability. Companies routinely violate their own country's laws, sometimes with the implicit “understanding” of the authorities, in the name of providing jobs. Thus, companies face seemingly incompatible requirements when accounting for sustainability, costs, and jobs. Most of the case studies in this book illustrate how companies are trying to navigate among these constraints and demands.
This book does not specifically address the social impacts of supply chains, such as child labor, fair pay, community welfare, or social justice issues. Nonetheless, many of the rationales and tools for addressing environmental challenges in supply chains carry over to social concerns as well. Many companies bundle their environmental and social initiatives under the general heading of “corporate social responsibility” or a broader definition of sustainability.
Chapter 1 presents case studies of the rising influence wielded by NGOs, governmental regulations, lawsuits (including retroactive actions), and growing concern by customers, employees, and investors over environmental impacts. These external, sustainability-focused forces create economic incentives for corporate environmental initiatives. Thus, rather than debate whether responding to climate change is an ethical duty or not, this chapter gives a synopsis of the wide range of sustainability initiatives that can be justified using profit-motivated, business rationales alone. In particular, the chapter outlines the merits of sustainable practices in terms of cutting costs, reducing risks, and growing the company. The chapter also places sustainability in the context of the competing objectives and challenges facing any company. Even if sustainability is a priority, it is never the only priority.
Chapter 2 traces product supply chains. These supply chains play a crucial role in sustainability because the environmental impacts of many types of products are widely dispersed across the network of companies that convert raw materials into finished goods and sell them. Paralleling the chain of companies that make a product are the stages of a product's life cycle. The chapter outlines the impacts that occur as a product moves from cradle to grave. I examine sustainability from a supply chain perspective because the vast majority of environmental impacts and risks (and the associated potential improvements) take place outside the four walls of most companies, in their global networks of suppliers or in the actions of downstream customers.
Chapter 3 examines life cycle assessment (LCA), a methodology for estimating a product's total environmental impact. The examples illustrate the complexities of accounting for supply chain environmental impacts, as well as the potential for effective “hot spot” analysis. The chapter also addresses materiality assessment, which plays a crucial role in allowing companies to make sound business decisions about which impacts to tackle.
The bulk of the book explores how specific subsets of managers in manufacturing, procurement, distribution, transportation, design, marketing, and upper management pursue sustainability initiatives within their particular domains. The wide-ranging dimensions of environmental sustainability (including greenhouse gases, energy, water, toxins, waste, and recycling)—coupled with the many opportunities to decrease impact in various parts of the life cycle—imply that companies have a very large number of possible avenues for improving sustainability rather than a single all-encompassing initiative. This leads companies to implement many different initiatives and to distribute their efforts across the organization and the supply chain.
Chapter 4 begins with sustainability improvements that occur inside the four walls of the organization, primarily in product manufacturing. These improvements focus on reductions in carbon footprint, water consumption, and toxin emissions by factories. Many of the initiatives cut costs as well as reduce environmental impact. The chapter lays the groundwork for the types of initiatives that supplier and customer companies might also take to reduce their own share of the impact.
Chapter 5 takes sustainability to the upstream supply chain; for most products, the majority of the environmental impacts and reputational risks are spread across the company's far-flung network of suppliers. The chapter looks at how companies such as IKEA and Starbucks manage deep supplier networks to reduce the risk of reputational damage. The chapter explores what companies do under challenging conditions, such as when agricultural and mineral commodities are produced in countries where environmental standards are lax and even the largest companies have little leverage.
Chapter 6 moves on to transportation and distribution, and to the very visible environmental impacts of moving materials and products around the world. The examples in the chapter show how companies can make significant reductions in greenhouse gas emissions through transportation management, vehicle efficiencies, and fuels. The chapter also considers the local environmental issues inherent in concentrated supply chain operations such as large seaports.
Chapter 7 follows the product life cycle (and the chain of companies) to the end-of-life of the product and beyond. It covers a range of measures, from postconsumer recycling to end-of-life sustainability improvements. These measures emphasize cost reduction, the recovery of value, the differential footprints (of recycled versus primary materials), and the complex economics of recycling. The chapter concludes with examples of companies or industries that are starting to “close the loop.”
Chapter 8 delves into product design and engineering changes that can markedly affect environmental impact across the full product life cycle. In particular, it examines the environmental impact during the use of a product, a phase that typically dominates the total impact of goods that consume power, fuel, or water. The chapter also covers packaging design and design for recycling.
Chapter 9 discusses sustainability-related labeling, annual corporate social responsibility reporting, and other marketing communications. Because consumers’ behavior, environmentalists’ assessments, governments’ oversight, and investors’ risk analyses play key roles in companies’ sustainability motivations, communication with these groups is essential for reaping the returns on these initiatives. The chapter outlines what kinds of communication might be productive or counterproductive, depending on the nature of the claims the company is making.
Whereas chapters 4 to 9 focus on subsets of sustainability from the narrower perspective of functional business areas, chapter 10 covers the larger management issues of introducing and coordinating sustainability initiatives across an organization. The chapter addresses management issues including initiative evaluation, culture, metrics, incentives, and collaboration with NGOs.
The later chapters shift the focus from large companies that are moving toward sustainability to those (often smaller) firms that have always explicitly prioritized it and sell specifically to consumers who value it and are willing to pay higher prices. Chapter 11 presents in-depth case studies of three “deep green” companies: Dr. Bronner's Magic Soaps, Patagonia, and Seventh Generation. These companies exemplify potential future corporate practices, if sustainability becomes more highly prized, and they show how mission-driven firms can and do exert competitive and regulatory pressure on mainstream companies.
Chapter 12 examines the gap between large, shareholder-driven companies and their green-mission counterparts. Although the deep green companies profiled in chapter 11 have all been financially successful, their environmental impact pales in comparison to the much larger companies that dominate commerce and retail shelves. So, why are there green companies and large companies but only few large green companies? Chapter 12 explores the fundamental challenges of replicating deep green practices on a larger scale.
The final chapter investigates more thoroughly the trade-off between financial and environmental performance. Although the bulk of the book offers examples that are both sustainable and profitable, companies inevitably exhaust this low-hanging fruit and must make seemingly harder decisions that pit one performance dimension against another. Even so, the chapter demonstrates that companies do have ways to push the frontier outward in order to continue to deliver higher sustainability without reducing financial performance (or to increase financial performance without reducing sustainability).
Nuanced explorations of global supply chains reveal that sustainability is not a simple case of “profits versus planet” but is instead a more subtle issue of people versus people. It pits people looking for jobs and inexpensive goods versus people seeking a pristine environment. People who are worried about how to feed their families tomorrow come into conflict with people worried about future environmental disasters. These different people in many countries, coming from diverse socioeconomic classes and varied value systems, will not make the same choices in what they buy, what they supply, and how they feel about the confluence of environmental and economic issues. The challenge for companies lies in the fact that they must bridge these wildly diverse outlooks on the world and the environment. This book aims to help companies—caught in the middle of this debate by virtue of their globe-spanning operations—to satisfy conflicting motivations for both economic growth and environmental sustainability.
As is the case with my other books, this work is based, in large measure, on primary research, including interviews all over the world with business and NGO executives. As a result, I owe deep thanks to the people who shared their time and expertise with the research team and pointed us in the right directions. Without them this book would not have been possible. The full list of individuals who helped this effort is given at the end of the book.
The people who helped with this effort directly include the main members of the research team: Dr. Alexis Bateman (now residing in California), who conducted many of the interviews; and Dr. Anthony Craig (now a professor at Iowa State) whose dissertation includes the banana case study described in chapter 3.
The contribution of Andrea and Dana Meyer of Working Knowledge in research and writing has been invaluable. The numerous hours of heated arguments with Dana helped shape the book as it tried to thread between environmental and economic concerns, while Andrea made sure that the writing worked. The editing was also shaped by Calais Harding at MIT.
Finally, my wife of 49 years (wow!)—Anat. I cannot imagine going through the past five decades with a better mate.