I’m pleased to announce that the Final Report summarizing the Turning the Ship Roundtable is now available in .pdf form. We’ve also taken all of the articles and substantive comments that were posted on this blog and compiled them as an appendix to the report, also available for download as an indexed .pdf file.
You can download both the report and the compendium of articles by clicking here.
Since the report is now complete, we have disabled the comments feature on this blog to cut down on spamming. If you have a comment about an article or need any additional information about the Turning the Ship dialogue, please don’t hesitate to contact me directly at briankuehl @ clarkgroupllc.com
Again, my sincere thanks to everyone who contributed to this project and to those who gave their time and energy to make this dialogue a success.
I hope this note finds everyone well!
All the best,
2007 Harvard Loeb Fellow
Partner, The Clark Group, LLC
By Brian Kuehl, 2007 Harvard Loeb Fellow and, The Clark Group, LLC Partner
On Tuesday, March 13, we held our first roundtable discussion on sustainability and U.S. business. You can find the agenda for the discussion and the list of participants by clicking here.
Needless to say, we had a great discussion. In the coming weeks, I’ll be posting a summary report from the roundtable including top-line recommendations and a basic rundown on the day’s conversation.
In the meantime, let me post a heart-felt thank you to the roundtable participants, the audience at the roundtable, and to all of the people that have contributed to this project over the past months. In the past five weeks, we have posted 20 articles and received a great number of insightful comments on those articles. This blog has been received over 10,000 hits during that time frame including over 4,500 unique hits from individual computers.
Moving forward, it would be tremendously helpful to hear from you and to learn how you think we should proceed from here. Has this blog/discussion been helpful? Should the blog remain active? Should we attempt additional roundtable disucssions in the future? Feel free to either e-mail me directly at briankuehl @ clarkgroupllc.com or by posting a comment to this blog.
Please continue to check this space and in short order we’ll try to post the summary report for the roundtable.
Again, a big thanks to everyone who has contributed to this project over the past months.
All the best,
Click on the article title to jump directly to the article. We encourage you to leave comments or add information to the articles by clicking the “comment” button located at the end of each article.
NEW: Water, Water Everywhere and Not a Drop to Drink: Adding Water to the Sustainability Equation, Betsy Otto, American Rivers
NEW: Sustainable Infrastructure Solutions, Chris Lotspeich, The Second Hill Group
NEW: Living Buildings and the Competitive Advantage of High Performance, Brandon Smith, Cascadia Region Green Building Council
Green Chemistry: Turning the Ship, John C. Warner, University of Massachusetts Lowell, Center for Green Chemistry
Life Cycle Assessment: A Tool for Sustainable Manufacturing, Tom Swarr, United Technologies Corporation; Jim Fava, Five Winds International
The Quest for a Manufacturing Model that is Sustainable, Mike Bertolucci, Interface Research Corp.
Sustainable Investing and Portfolio 21, an interview with Carsten Henningsen, Progressive Investment Management
Green Energy 3.0: This Time, It Is Different, Jackson W. Robinson, Winslow Management Company
Green Insurance Products, Stephen G. Bushnell, Fireman’s Fund Insurance Company
Providing Incentives to Coffee Suppliers to Produce High Quality, Sustainable Coffee, Ben Packard, Starbucks Coffee Company
Talking Until You’re Green in the Face: Environmental Communications Comes to the Fore, Don Millar, The Element Agency
On the Power of Purchasing and the Potential of 1%, Terry Kellogg, 1% For The Planet
Promoting Green Products and Services: Cure for Asthma and Global Warming?, Arthur B. Weisman, Green Seal, Inc.
Power of Local Government Dollars, Michelle Wyman, International Council of Local Environmental Initiatives, USA (ICLEI-USA)
The Green Wave
Climate Change as a Driver of US Market Behavior, Truman Semans, Pew Center on Global Climate Change
Ford Motor Company and the Green Wave, Dan Esty, Yale Center for Environmental Law and Policy
Has the Era of Green Business Finally Arrived?, Joel Makower, GreenBiz.com
Turning the Ship: Environmental Transformation of the U.S. Economy, Brian Kuehl, Harvard Loeb Fellow and The Clark Group, LLC
By Betsy Otto, Senior Director, Healthy Waters Campaign, American Rivers
You know the old joke: “Buy land, they’re not making any more of it.” Well, the same might be said about water. Only one per cent of the total water resources on earth are available for human use. Seventy per cent of the world’s surface is covered by water, but 97.5 percent of that is salt water. By 2025, UNESCO estimates that two-thirds of the world’s population - about 5.5 billion people - will live in areas facing moderate to severe water stress.
In his famous 1960s essay, Garrett Hardin coined the term “tragedy of the commons” for his notion that free access and unrestricted demand for a finite resource ultimately dooms the resource through over-exploitation. Water has always been artificially cheap to end-users. It’s priced well below its value because we think of it as infinite, a virtual free good. When it’s gone, however, it’s priceless. We have the geographic good luck to live in a water-rich part of the globe so we take plentiful fresh water for granted.
Even in the dry western U.S., we have long borrowed from far-away mountain snow packs and rivers to fill swimming pools in San Diego, irrigate golf courses in Phoenix, and fill industrial pipelines in El Paso. These dry cities consume far more than the 10 inches or less of rain they actually receive in a year. It is simply not sustainable. Even in the East water shortages are becoming a serious problem. Some regions in the U.S. have seen groundwater levels drop as much as 300 to 900 feet over the past 50 years. A recent Government Accounting Office (GAO) report noted that most state water managers expect either local or regional water shortages within the next 10 years under average climate conditions. Recent climate change reports suggest anything but average conditions.
Water, Energy, and Climate Change
We have been living beyond our water means, and climate change is going to make the problem worse. Global warming is disrupting natural water cycles, mainly the form, amounts, and timing of precipitation. The recently released International Panel on Climate Change (IPCC) report notes that more intense and longer droughts are occurring, particularly in the continental interior and the Southwest. Paradoxically, the frequency of heavy precipitation events has also increased, bringing massive flood damage and disruption. Precipitation in the mountainous West will shift away from winter snow – nature’s time-release water system – to rain. Putting in new dams to catch more of the winter rain is not the answer. That requires huge expenditures of capital, energy, materials, and thus, adds to greenhouse gases. Endangered salmon can’t swim through a dam. Rainstorms are more erosive than snowfall, carrying heavier loads of sediment that bind with pollutants and are expensive to remove from water supplies. We will have to adapt to the coming changes, but we can make it easier on our ourselves – and cheaper – if we start getting serious about using less water.
There is a very powerful water-energy nexus, but it is not well understood. It consists of two interrelated feedback loops: first, huge amounts of energy are required for basic water and wastewater treatment; and, second, enormous amounts of water are required to make energy. It takes a great deal of energy to develop, pump, treat, and distribute water for municipal, commercial, and industrial use (we’ll put aside for the moment, the enormous water-energy demands of agriculture). It takes a great deal more to deliver and treat wastewater before it is disposed. California water agencies currently spend more than $500 million per year in energy costs alone. In the United States, municipal water and wastewater systems use 75 billion kilowatt hours — 3% of total U.S. consumption of energy, as much as the entire energy-intensive pulp and paper sector.
The second feedback loop is in the water required to make energy. The electricity industry is second only to agriculture as the largest user of water in the United States. Electricity production from fossil fuels and nuclear energy requires 190,000 million gallons of water per day, or 39 percent of all freshwater withdrawals in the nation.
So, what does all this mean for business? As more water is required to meet our growing energy demands, water sources for cities, commercial buildings, and industry will be further strained. The Electric Power Research Institute (EPRI) estimates that energy use for water supply and treatment in the U.S. industrial sector is expected to triple between 2000 and 2050 because of growth projected in inudstrial activity. It takes more energy to pump water from greater depths or greater distances as water tables drop and communities and industry have to look around for other sources. So every time any sector uses a little less water, we save not only water, but also energy and greenhouse gas emissions, and we help to prevent even more extreme climate disruptions to our water.
Businesses that reduce water use will save in water, wastewater, and energy expenses, and they will minimize their exposure to water supply shortages and future price spikes. New water technologies and processes offer a significant new market for business – everything from EPA-certified water efficient appliances and plumbing fixtures to low water-use industrial processes, and green building approaches like grey water reuse, green roofs and rain gardens.
The Good News: Water Efficiency Works
The Pacific Institute estimates that 317 billion gallons of water, or 39 percent of California’s 2000 water use levels, could be cost-effectively saved in the commercial, institutional, and industrial sectors every year. Investment payback on many water efficiency methods can be less than one year. Water efficiency not only reduces water demand, but postpones investment in infrastructure expansions, protects water quality and natural water levels and flows, as well as providing other environmental benefits.
Business can take steps to reduce water use in many ways:
• Intel operates semiconductor fabrication and assembly/test facilities in seven countries around the world. Water is a primary production input used to clean silicon wafers during fabrication and packaging, and ultra pure water must be used. Several of Intel’s plants operate in locations where water resources are limited. In Albuquerque, NM, Intel used an integrated water management system to increase water purification efficiency and to improve water reuse. The site has offset over 50% of its freshwater needs through water reuse.
• Abbott’s bulk pharmaceutical manufacturing plant located in Puerto Rico took various steps to maximize reuse of 2.5 million gallons per day of treated wastewater from the facility’s on-site treatment plant. Reclaimed water is now used within various plant systems that require large amounts of water, and collectively, these steps have reduced groundwater withdrawals and wastewater flows by over 1.3 million gallons per day.
• Southern Company’s electric generating plant in Cobb County, Georgia had a plant chemistry sample once-through cooling system that used 200,000 gallons of county water per day. A new system was installed that uses condensate water as the cooling water and river water as the “heat exchange” water. Plant water use was reduced by 140 gallons per minute, a savings of over 75,000,000 gallons per year, enough to supply 2,000 Cobb County homes’ annual drinking water needs. And at a cost of $2.10 per 1,000 gallons, the new system resulted in a savings to the plant of over $150,000 per year.
• Johnson Controls worked with St. John’s County, Florida to upgrade the county’s water metering technology. A development boom required hook-up of 3,500 to 4,000 new customers per year to the water utility, but physical reading of water meters was no longer feasible. Through a performance-based contract, Johnson Controls committed to a $7 million dollar loan to replace 18,000 aging meters with a new fixed-based, radio-read system connected to a central control room.
• As part of a broad green infrastructure program to minimize stormwater flows into its overburdened sewer system, the City of Chicago provides grants of up to $5,000 to homeowners and commercial building owners to install green roofs (roofs with plants that absorb rainwater and cool the building). Starting with 20,000 square feet of its own City Hall building in 2001, the city now has three million square feet under green roofs – more than any other city – and 24 companies have responded to the demand to install green roofs. Monitoring data show that the city hall green roof is as much as 30 degrees cooler in summer than surrounding conventional roofs.
• U.S. EPA recently launched its new WaterSense water efficiency labeling program for appliances, landscape irrigation products, and plumbing fixtures, based on the highly successful EnergyStar program. EPA estimates that if all U.S. households installed water-efficient appliances, the country would save more than 3 trillion gallons of water and more than $17 billion dollars per year, and reduce the need for costly water supply and treatment plant investments.
Barriers to Change
So, if investment in water efficiency provides such an obvious payback, why aren’t more businesses doing it? There are several reasons. First, water costs too little. In many places there is little awareness of the growing scarcity of water or the impacts of large withdrawals and discharges into municipal sewers because there is no price signal to conserve. Water and sewer charges in much of the country are priced below even basic O&M costs because it is politically difficult to raise rates and over time receipts fall behind expenses. And that doesn’t even include the burgeoning cost to replace aging infrastructure (the American Society of Civil Engineers recently downgraded the nation’s water infrastructure from a “D” to a “D-“). Some utilities even have disincentives to conserve, charging industrial and commercial customers “declining block” volume discounts for withdrawals and waste discharges.
So a first step is for more utilities to structure rates to encourage efficiency and conservation. Then, if we begin to capture the other “externalities,” like energy costs and global warming, through carbon taxes or cap and trade schemes, water efficiency efforts should get a boost.
The second reason that water efficiency is not as widespread as it should be is the lack of knowledge and training by engineers and other technical professionals within utilities and companies themselves. Many engineers and water experts were (and still are) being trained like it was still the good old days when energy and water were cheap and limitless and their use had no consequences. They don’t even think to do manage water differently, and they aren’t trained to know how.
Finally, there may be regulatory barriers that need to be overcome. For example, an industrial plant that succeeds in reducing water use by 80 percent but still discharges the same amount of pollutants in its waste will have a hard time meeting its water discharge permit without the benefit of the extra water dilution. Industry will need to look for ways to reduce the pollutant concentrations in its processes, and regulators will need to be willing to reconfigure permits to allow higher concentrations in exchange for the environmental benefit of reduced water withdrawals.
At the end of the day, if more businesses invested in water efficiency, the effects would be huge for not only for the individual enterprise but also for public infrastructure and even the global environment. We have an opportunity to make a difference by using water more carefully. It’s smart business and it’s good for the planet.
By Chris Lotspeich, founder and Principal at Second Hill Group
The built environment is where most sectors of commerce most directly impact the Earth. Every business has a building, and must pay overhead to keep the roof up. Buildings account for roughly 40% of U.S. energy use and pollution. Industrial facilities contribute roughly another 30% of these impacts. This discussion explores best practices in sustainable infrastructure—here defined as commercial and industrial buildings and facilities—and considers the barriers to growth and wider adoption of these approaches.
Sustainable infrastructure performs the same functions and serves the same purposes as conventional structures, but with a smaller ecological “footprint.” Because it is more resource-efficient and incorporates fewer toxic materials and better ventilation, sustainable infrastructure provides healthier indoor and outdoor environments.
Optimized design and operation reduces environmental impacts throughout a facilities’ life cycle and across the supply chain of materials, components and operations. Cutting-edge practices are represented in high-performance installations that deliver energy and water services such as light, comfort, lavatories and production output at reduced cost and pollution. The best facilities mimic natural systems in their resource efficiency, elegant frugality, innovative design, and invigorating interiors that foster greater occupant health and productivity.
The most exciting developments in this field are the expanding range of exemplary installations of all types and applications; the continued adoption of green design into mainstream practice, exemplified by the rapid market penetration and sustained triple-digit growth of the LEED green building standard; and the growing acknowledgement of the compelling economic benefits and strong business case for sustainable infrastructure. The next two years will see more of the same.
Green design is hot, and it’s not just for buildings anymore: industrial facilities are reaping the benefits, and even earning LEED certification. Factories and similar installations are often energy- and resource-intensive, providing larger-scale opportunities for improvement than commercial buildings. These advances do not require new technology, but instead careful attention to design integration. Among the most impressive recent examples is Texas Instruments’ new microchip factory in Richardson, Texas that reduced energy use 20%, water use 35% and emissions even more, yet cost one-third less to build. Similar examples of leapfrog improvement have been demonstrated in other industries ranging from wineries to refineries.
The green building industry is perhaps the most successful example of an industry reorganizing itself for dramatic performance improvements without a government mandate. In the late 1990s a broad coalition of stakeholders formed the U.S. Green Building Council (USGBC). Interest in environmentally-friendly design and construction was not new and numerous innovative projects existed. But there was no consensus about what building techniques and technologies were “green” and no standard guide to the most effective and broadly replicable approaches.
In 2000 the USGBC created the Leadership in Energy and Environmental Design (LEED) rating system, which provides a menu of design features and accepted best practices that earn points toward certification. Within three years 6% of new commercial buildings in the U.S. had applied for LEED certification. Applications continue to grow by about 200 percent annually.
Today LEED represents the thickening wedge of new ideas entering the market mainstream. It defines the most effective approach for first-time practitioners of sustainable design. LEED evolves and expands but is not perfect. Some applicants try to reach the lowest score needed for certification and no more. Most folks in the industry still have little experience with green techniques. Yet LEED has unquestionably changed the game for the better.
The rapid market penetration of this innovative approach has been driven not so much by environmental considerations as by the added value of better buildings. Green buildings need not cost more than conventional versions, and can even cost less with excellent design. LEED buildings cost an average 2−7% more to build, ranging from little or no extra cost for lower-scoring buildings to 20% more for the highest-scoring examples. The primary variable in initial cost is the skill and attention of the design-build team. Typically 85% of a facility’s life-cycle cost is for operations and maintenance. On average green design cuts O&M costs in half due to energy and water savings, so additional up-front costs are soon paid back. There is evidence of a “green premium” boosting sales and leasing revenues, but the data varies on a case-by-case basis.
The most compelling financial result is an average 5% increase in occupant worker productivity (in cases up to 16%) in a wide range of contexts. This is the most valuable, though least predictable, green building benefit. Labor costs are roughly one hundred times higher than energy per square foot, so a 1% productivity increase would pay the entire annual energy bill.
Best practice buildings use local, renewable and nontoxic materials; are tailored to their specific location and purpose; maximize use of available daylight and climatic conditions; and use only as much fuel as is necessary to provide a pleasant, healthful interior environment. Comfortable, passive structures that draw all their energy from earth, water and sun exist in every climate.
The Challenges with Standard Buildings
Why do standard buildings perform so poorly in comparison? The primary obstacles to improvement are organizational rather than technical, economic or legal. If a camel is a horse designed by a committee, then most facilities are camels. Buildings are manufactured products designed and built in a collective production process comprising a sequence of discrete steps: conception, architectural and engineering design, construction, occupancy, and demolition. Participants come from different disciplines, departments, and companies, each with their own self-interest. Most participants engage in only one or two steps in the process and rarely meet all other participants, even those whom their decisions affect. No one alone determines the outcome, yet everyone influences the result.
Consider four participants in a standard building process: owner, architect, construction contractor, and tenant. Most owners are concerned with minimizing capital costs and complying with building codes rather than specifying environmentally beneficial standards, particularly for a structure they intend to lease or sell. Even if the architect can do green design, she has little incentive to work harder for her low bid or fixed fee to sell the idea to clients who don’t ask for it. The contractor seeks maximum profit from his low bid and therefore has an incentive to install the least expensive equipment regardless of how inefficiently it operates. The tenant has little say in the matter and is stuck with high utility bills. The result is a relatively inefficient building that costs more to own and operate.
Even within the same company, managers from different departments face competing incentives. Quite often one department (e.g., production) funds a new facility from its budget, while another (e.g., facilities) pays the utility bills from a different pot of money. If a project manager’s bonus is tied to completing construction on time and under budget, she is more likely to cut corners and slash initial costs—even if that means buying cheaper, lower-quality heating, cooling and lighting systems that cost someone else more to run.
Much of this wasted energy and money results from minimizing first cost instead of cost of ownership in fast-track design and construction. High-efficiency design and equipment can cost more up front. Penny-wise, pound-foolish shortcuts and cost-cutting degrade performance and increase energy bills for a facility’s lifetime. Design firms often use outdated rules of thumb and copy old plans to save time and effort, and rarely measure and improve the performance of previous designs unless asked. Mechanical systems are sized for peak loads that rarely occur, and often lack the ability to efficiently vary their output to heat or cool the facility in real time. This frequently results in oversized equipment that runs inefficiently at partial loads.
Efforts improve infrastructure after it is built are hindered by nonsensical financial hurdles. Upgrades are commonly held to higher return on investment (ROI) standards than are purchases of new equipment. Most facilities cap retrofit payback periods at two years or less—effectively a 50% ROI at least, compared to 10%–15% ROI (or up to a 7 year payback) requirements for new capital assets. These standard practices undermine competitiveness and shareholder interests. Even if a facilities manager improves efficiency and reduces his utility bill, his reward might include a reduction in his budget the following year.
A Better Way
These obstacles can be overcome with management strategies that align the incentives of design-build process participants to reduce total cost to facility owners and occupants. These include specifying environmental and cost performance criteria; rewarding greener design and operation; integrated design workshops that gather process participants as a first step; and increased awareness of proven best practices.
It is possible to produce a good, environmentally efficient building without any individual championing the cause. But success in green building is more likely when an entrepreneurial leader shapes the design-build process. This person is usually the owner, but it could also be a project manager, an environmental expert, or an architect—a change agent with the credibility and authority to steer the process and work in a new way with a wide variety of people, the majority of whom have little or no experience with green design because it is not yet common practice. These champions are pursuing not just product innovations—the buildings themselves—but innovations in the process and in organizational behavior. And they achieve these by making a few important changes, most of which do not involve fancy new technologies.
One of the most effective techniques is a charrette, an integrated design workshop convened at the earliest phase of a project. In this setting, participants from every stage of facility design, construction, occupancy, and even demolition or recycling come together to learn about new approaches and technologies, and to explore how their decisions affect one another and the performance of the building. Guided by the owner and expert consultants, the group can identify opportunities for improvement and obstacles to progress, overcome resistance to unfamiliar technologies and techniques, and work to align conflicting incentives.
Implementation plans should define the desired outcome and quantify it wherever possible. Specify premium-efficiency equipment, oblige participants to satisfy LEED criteria, and require building system performance to exceed benchmark metrics for energy and water efficiency, renewable and nontoxic resources, and other aspects.
Owners can change the way designers and builders are compensated to reward green design, acknowledging that it usually takes more time and effort than standard practice. Performance-based fees reward measured savings in the building’s operational costs compared with conventional designs.
Integrated whole-systems design yields particular leverage. Careful attention must be paid to the interactions between the component parts of the facility’s systems. High-tech windows with special coatings and gas insulation cost more than conventional glass but better maintain interior temperatures, saving on more expensive cooling and heating capacity. Efficient lighting emits less heat, reducing air conditioning requirements. Using larger ducts and pipes, which cost a bit more up front, reduces friction in the flow of air and fluid, enabling the use of smaller fans and pumps. The result is a heating and cooling system that is less expensive both to build and to run. Life-cycle costing or cost of ownership analysis helps preserve design integrity and focuses on long term value rather than myopic component-level cost cutting.
Considered individually, many of these changes are incremental improvements. Taken together, they add up to radical product and process improvements. Entrepreneurial leaders in sustainable design identify the key leverage points in the building and in the process where a coordinated suite of small changes will yield the greatest synergy. Sustainable infrastructure does not result from business as usual. But business as usual is getting greener, one facility at a time.
Chris Lotspeich is founder and Principal at Second Hill Group, an independent consulting and research practice on business, environment, energy, and security issues. Chris was a 2002–2003 Batten Fellow at the Darden School of Business at the University of Virginia. From 1994 to 2001 he was a Senior Associate at Rocky Mountain Institute in Snowmass, CO, where he worked on six continents and led numerous resource efficiency surveys at industrial facilities and on a Navy warship.
By Brandon Smith, Chief Operating Officer, Cascadia Region Green Building Council
When most people think of saving the environment, they think of saving the Amazon from slash and burn farming or preserving habitat for species facing extinction. What they should be thinking about are buildings because buildings are the largest single contributor to environmental degradation and, therefore, the single largest opportunity to reduce our environmental impact. Buildings are the nexus for massive sectors of the global economy including energy, water, transportation, forest products, plastics, minerals and metals.
In the US, buildings account for:
Building design significantly dictates the ongoing impact of society’s use of energy, water and materials. As Winston Churchill said, “We shape our buildings; thereafter they shape us.”
This paper will explore high performance green building in the following ways:
The most successful companies building and managing green buildings are integrating green building strategies into their corporate DNA, so it is not ancillary to what they do, but actually guides their decisions and future strategy. More information about the benefits of high performance green buildings can be found at www.usgbc.org.
The Emergence of LEED®
LEED® (Leadership in Energy and Environmental Design) is a voluntary, independent, third-party, environmental rating system for buildings developed by the non-profit, US Green Building Council. LEED® measures a building’s performance in the areas of energy, water, materials, indoor environmental quality, and site characteristics. The LEED® rating system has made significant inroads into the construction industry faster than ever thought possible. How did this happen? Why has LEED® been so successful?
The success of LEED® can be attributed to two factors:
Moving from Early Adopters to Mainstream
In less than a decade the commercial construction and real estate industry has transformed from one that was indifferent and even hostile to environmental metrics to one that is scrambling to understand them and how to position itself to seize an opportunity whose significance is only beginning to become apparent. Is green building really more than a trend? How successful has LEED been, and what is next? Most importantly, how can forward thinking companies position themselves now to create a competitive advantage, not despite, but because they are positively impacting the environment?
While at the end of 2006, LEED® represented less than 5% of new commercial construction, consider that LEED® was only launched in 2000, and that the typical commercial construction timeline is 2 – 5 years from design to completion of construction. While the first version of LEED® was developed for the new construction market, versions have now emerged for operations of existing buildings and tenant improvements, making certification available to the largest segments of the built environment. There are currently 735 commercial LEED® certified buildings and 4,927 more seeking certification .
All 50 states in the US have buildings participating in the LEED® program. Building types include condominiums, bank branches, hospitals, schools, office buildings, retail outlets, government facilities, mixed use projects and many more. Various LEED® initiatives including legislation, executive orders, resolutions, ordinances, policies, and incentives are found in 53 cities and 17 states in the U.S. , and green building continues to be published with greater frequency in mainstream publications like The Wall Street Journal, The New York Times, USA Today and The Washington Post.
Between 2002 – 2006, the amount of LEED® registered space has seen a net increase of 838% over 4 years from the 2002 level of 80 million square feet to the 2006 level of 750 million square feet . Green building is clearly entering the mainstream and doing so quickly. The fact that green building is primarily market driven and not chiefly a result of federal legislation and incentives implies that the recent growth is more than a passing trend. Companies, organizations and governments are realizing that green building is a smart financial decision and the growing momentum is creating economies of scale, which are lowering the costs of green building products and services and enabling green building practices to become more widespread.
The Cutting Edge – Living Buildings
While LEED® has been an extremely effective tool for shifting the design and construction industry toward more sustainable buildings, LEED® certified buildings, even at the highest level, are by no means truly sustainable if sustainability means the balance of human and natural systems. LEED® has been and will continue to be an extremely important and useful tool for shifting the market, but it is not a representation of true sustainability in the built environment. So, what is next?
In November 2006, the Cascadia Region Green Building Council launched the Living Building Challenge, which “is attempting to raise the bar and define a closer measure of true sustainability in the built environment.” The Living Building Standard requires that a building:
The Living Building Challenge has already unleashed significant creativity and innovation on the part of developers, architects and engineers striving to meet the challenge, and a number of projects around the US are targeting Living Building status. If we are to truly reconcile the existence of the built and natural environments, we must move to the Living Building model and beyond. In so doing, we will also create more valuable buildings both financially and for society at large since a Living Building will not burden society with the externalities of pollution, environmental degradation, and the over-consumption of resources.
Barriers and Opportunities
The most significant barriers to green building are separation of capital and operating budgets for institutional owners, perception of cost/risk, lack of education, and, most importantly, the failure to recognize and account for the increased value of green buildings.
With institutional owners like universities and government agencies, one often finds a strict separation of capital and operating budgets. The capital projects department cannot invest in high performance strategies with higher first costs even if there will be a significant return on investment because this department cannot access any of these operational savings for the construction budget. The most successful models addressing this issue have set up a loan scenario where the capital projects department can invest in high performance features with the loan being repaid through operational savings.
The most crucial driver in the private sector is the value equation for green buildings and the way that the financial community recognizes or fails to recognize the value of these projects. One often hears that green building costs more, which may or may not be true, but the question not being asked is “What value am I receiving for these expenditures?” Developers do not put in granite countertops or marble floors because they are the lowest cost option, but because they add value to a project. Also tied to this question of value is the perceived risk of high performance green technologies and strategies, which do not conform to “business as usual.” Increased risk means higher cost of capital and “fear-based” premiums from project teams who are unfamiliar with a certain product or technology. These issues point the lack of education about green building strategies and technologies, many of which have been used for decades in other countries. As the real estate and construction community becomes more familiar with green building, the perceived risk of these strategies will be reduced and their adoption increased.
Related to the question of value is the consideration of who is receiving the value - the developer, the tenant, the lender, the investors, society at large or some combination thereof? To address this issue, it is crucial that building owners consider the structure of leases. Who benefits from productivity gains, energy and water savings and to what extent? If a developer invests in significant energy saving measures, then they need to participate in those savings to recoup that investment. However, the tenant also needs to benefit from the savings or they will have little incentive to conserve energy and water. Triple Net and Gross Net leases do not effectively address this issue.
Perhaps the largest opportunity to make significant change in the sustainability of the built environment lies with the real estate finance community. There is overwhelming anecdotal evidence and an increasing amount of research to support the idea that green buildings have more value than conventional ones due to lower operating costs and healthier indoor environments. To address this issue more formally, a significant effort is underway called the Green Building Finance Consortium (GBFC). GBFC is a group of leading corporations, real estate companies, and trade groups whose mission is to enable the private real estate sector—corporations, investors, lenders, and developers—to appropriately recognize the value and risk of investment in green buildings. The implication of this current gap in market knowledge is significant. Companies that understand the value proposition of green building before the general market can position themselves to be leaders in the field and adjust their portfolios to take advantage of an impending market shift that is already past the tipping point. The soon-to-be quantified recognition of the financial value of green buildings by the market will cause many of the other barriers to fall away and lead to the more widespread adoption of green building strategies. Companies that position themselves to take advantage of this shift now, will be prepared and benefit from the market transition as opposed to being negatively impacted.
The Way Forward
What can companies who own and manage real estate do today to strategically position themselves to take advantage of the green building market, incorporate green building practices into their businesses, and promote widespread adoption of green building?
By John C. Warner, Director, University of Massachusetts Lowell, Center for Green Chemistry
Green Chemistry has been around for nearly 15 years now. In the early 1990’s a group of scientists at the EPA, championed by Paul Anastas, put forth a bold new approach to pollution prevention. The general recognition was that, while various laws and regulations were serving the public to
protect human health and the environment, there was not a lot known or
understood about the “science” of pollution prevention from the
perspective of design. It was observed that many technologies were
being developed and applied to protect the environment by controlling
the exposure of hazardous materials.
Up until this time however, the unspoken assumption was that chemistry HAD to necessarily be hazardous and dangerous, and the only way to accomplish pollution prevention was to incorporate procedures to trap and contain these hazardous and dangerous chemicals. Back when I was an 18 year old undergraduate student considering various career choices, I once asked a chemistry professor “Is chemistry dangerous? If I go into the field of chemistry, will I be placing myself at risk?” I remember their answer crystal clear 26 years later: “Yes, and if you are asking yourself questions like that, perhaps you should choose a different career.”
The 12 Principles of Green Chemistry:
Green chemistry challenges this basic assumption. Green chemistry suggests that materials CAN be made that are inherently safe and non-toxic.
Green Chemistry looks at the risk equation [Risk = Hazard x Exposure]
and identifies the design chemists as taking a primary role in
pollution prevention by designing materials that are benign in the
first place, thus reducing or eliminating the need for exposure
controls. For sure, it is not going be easy. But once recognized as in
fact possible, the unleashed creativity and entrepreneurial spirit of
chemists and materials scientists can certainly accomplish this task.
The 12 principles of green chemistry were written as a set of
guidelines for molecular designers. Consideration of these principles
during the design stage of the innovative process allows chemists to
anticipate down stream, “real world” implications of their choices.
Scientists in industry and academia working in the field of green chemistry have risen to the challenge of designing safer products and materials. Early on, industry recognized the enormous financial benefits to adopting green chemistry technologies. A quick and naïve glance at green chemistry technologies might make this seem surprising [we have been somewhat conditioned in our society to equate pollution prevention with added expense]. But when one considers all of the tangential costs
associated with dealing with hazardous materials, it becomes
immediately obvious that the benefits are quite real and tangible.
Using hazardous materials has a cost impact on:
Worker Health and Safety
New Employee Recruitment
The US Environmental Protection Agency has administered a recognition program for the past 11 years called “The Presidential Green Chemistry Challenge”. This program celebrates technologies from corporations and individuals that demonstrate the integration of green chemistry into market savvy products. As of this writing there have been over 55 awards given out. The reader is directed to the website of the American Chemical Society’s Green Chemistry Institute to learn of these technologies.
The question that must be asked then is: “What is taking so long?” If the
demand from consumers and regulatory agencies is increasing at a steady
pace, why are technological developments not keeping pace? The answer to this question in part, is somewhat simple and shocking. Most
scientists are not trained to make nontoxic and environmentally benign
products. PhD Programs around the country [and the world] in chemistry
and the materials sciences are for the most part void of any training
in toxicology or mechanisms or environmental harm. To be sure, there
are subdisciplines within the sciences where students are trained to
assess and measure impacts of hazardous materials on human health and
the environment. But these students go on to careers in environmental
protection, and health and safety operations and are ultimately
responsible for dealing with and containing hazardous materials after
they become present. Green Chemistry focuses on training the actual
molecular designers, who have an opportunity to avoid creating the
hazardous materials in the first place. We have a long way to go; there
are a lot of inventions that are going to be necessary for us to get to
a truly sustainable world. But we have to start somewhere.
Emerson said, “Build a better mousetrap and the world will beat a path to your door”. I think we are in this type of a situation. For both ethical and economic reasons, nontoxic and environmentally benign products are clearly preferable. Society is demanding safer products. Industry wants to make safer products. Students passionately want to learn how to
design safer products. We just need to equip these students with the
skills they need, stand back and let them invent a sustainable world.
Green Chemistry Textbooks:
Green Chemistry: Theory and Practice, by Paul Anastas and John Warner, 1998, Oxford University Press
Introduction to Green Chemistry, by Albert Matlack, 2001, CRC Press.
Green Chemistry: A Teaching Resource, by Dorothy Warren, 2002, Royal Society.
Ionic Liquids: Industrial Applications for Green Chemistry, by R. Rogers and K. Seddon, 2002, ACS Books.
Green Chemistry: An Introductory, Text by Mike Lancaster, 2002, Springer-Verlag
Handbook of Green Chemistry and Technology, by James Clark and Duncan Macquarrie, 2002, Blackwell.
Agricultural Applications in Green Chemistry, by William Nelson, 2005, ACS Books.
Green Organic Chemistry, by Ken Doxsee and James Hutchison, 2003, Brooks/Cole
Green Reaction Media in Organic Synthesis, by Mikami Koichi and Giuseppe Bertola, 2005, Blackwell.
Green Chemistry, by Pietro Tundo et al., 2007, John Wiley
Representative examples of international Green Chemistry organizations:
American Chemical Society’s Green Chemistry Institute
Royal Society’s Green Chemistry Network
Australia’s Centre for Green Chemistry
Canadian Green Chemistry Network
Italy’s Interuniversity Consortium
India’s Green Chemistry
Legislative Actions in Green Chemistry
HR 1215: Green Chemistry Bill
Michigan Executive Directive 2006-06
Representative Stories of Green Chemistry and Economic Benefits in the Press
“Green Chemistry Takes Root” USA Today
“Making it Easier to BE Green” Boston Globe
“Chemistry Goes Green” E.Journal.Com
“The Right Chemistry” American Prospect
“Green Chemistry: Back To The Future” CBS News, Christian Science Monitor
“Green Chemistry Hitting the Market” NPR’s Marketplace
Radio Shows on Green Chemistry
2006_09_19 Open Source with Christopher Lydon, “Green Chemistry”
2006_10_27 Environmental News with Meghna Chakrabarti, “Bay State Seeds Green Chemistry”
2007_02_06 Corporate Watchdog – Sanford Lewis, “The Promise of Green Chemistry”
By Peter Liu, Initial Founder and Vice Chairman of New Resource Bank
When friends learned that I was working to start a bank, I was most often asked these two questions: “When do I get a toaster?” and “People can start a bank?” While the first is a joke that’s a bit dated, the second actually reflects what a good number of people think about a bank. A bank is just there…often times “since 1890” or since a long time ago.
Banks in the U.S. are major aggregators of money…with over $17 trillion of federally insured deposits at last count. People in the U.S. have more bank accounts than brokerage or internet accounts combined. The “everyday, safe and conservative” qualities of banks can still carry a big punch. At the same time “everyday” is changing as we speak. A bank branch with a big vault or safe is very much part the “since 1890” aspect of banking. But the growth of ING Direct from zero to $40+ billion in deposits through an online business model represents exciting change.
In the early 21st century, activists pressured big banks to review their environmental impact actions and strive for “less bad” (e.g. re-examine their financing of rainforest destruction and adopting the Equator Principles). Today, we think it’s high time that banks work to promote “more good”: financing businesses and projects that make a difference. This is opportune as the green and sustainability movements have now evolved into markets as exemplified by organic and clean tech.
The New Resource Bank very much focuses on “more good.” Starting from our first office in San Francisco, we set out to provide a new standard in customer service and finance efficient and sustainable resources in our community. We do so by providing differentiated financing to green businesses and by taking “green” to our community clients.
Since our opening in September 2006, we have been able to roll-out several innovative programs to finance sustainable resources. We introduced a “more money at a lower cost” program for green buildings. Loans for buildings that are designed and built to a green leadership standard will enjoy lower interest rates (1/8th percent) and higher loan to value. This will result in significant enhancement to a developer’s return for building green. In partnership with SunPower, we have also introduced an easy one-step residential solar financing program so home owner can own solar by simply paying a monthly bill close to or less than their current electric bill. Additionally, we are also providing growth financing to innovative companies such as Michelle Kaufmann Design, which is commercializing revolutionary green modular housing units and NextEnergy, which is rapidly growing solar system integrators.
Focusing on entrepreneurs is second nature to us as we are founded by leading entrepreneurs. Our 240 founding investors have helped build leading companies such as Sybase, Lotus Development, Hambrecht and Quist, Ofoto and Silicon Valley Bank. These core members of the New Resource Community also provide us with great green business expertise. Founding shareholders like Bob Epstein (co-founder of Sybase and Environmental Entrepreneurs) and Hal Harvey (Environmental Program Director of the Hewlett Foundation) have been instrumental in promoting policy change that fosters the market for clean technology. Other shareholders like Ray Anderson (founder of Interface Inc.), Jonathan Rose (pioneering builder of sustainable communities) and Paul Dolan (former President of Fetzer Vineyards and co-founder of Mendocino Wine Company) have built and managed successful companies that are pioneers in sustainability.
We also learn about green through our own every day actions. For example, our building has been designed and built with extensive use of efficient, renewable and recycled resources. We are currently applying for a LEED-CI (Leadership in Energy and Environmental Design) certification that is tracking Gold.
In comparison to our entrepreneurial core, the banking sector is led today by mega-banks that are formed from successive mergers. Asset and cost rationalization are the keys to making such mergers work, not inventing new businesses. Striving to deliver growth significant and fast enough leads to growth by acquisition. Creating uniformity among a super regional or multi-national platform also causes the mega-banks to standardize operations and underwriting. This also hinders the customization needed to serve an emerging business community. Community banking indeed has been an antidote to mega-banking. Our hopes for New Resource Bank is to redefine community banking by serving not just a “zip-code” community but one that also shares common interests and values in sustainability.
“Everyday transformation?” We hope so. By switching an everyday function such as banking, our clients’ checking, savings or business deposits will help finance sustainable resources. This is just one part of many wonderful “everyday” possibilities. What’s next? Properly inflating our tires to save million of gallons of fuel?
Companies have traditionally set environmental goals to reduce wastes from manufacturing operations year to year- less is better. However, goals based on pounds alone can not distinguish between a large operation and a sloppy operation. Life cycle assessment is a tool that takes a holistic view of the full product system, from extraction to final disposal, or preferably reuse or recycle, to understand how to deliver the desired functionality with the minimum impact. The genesis of life cycle assessment can be traced to Coca Cola Company studies of packaging conducted in the late 1960’s and early 1970’s. Harry E. Teasley, Jr. conceived of a study that would quantify the energy, material, and environmental consequences of the entire life cycle of a package from the extraction of raw materials to final disposal to better understand the potential impacts of a proposed switch from returnable glass bottles to disposable plastic bottles.
Improved methodologies and data access
There has been considerable progress in advancing the methodology since those early studies. Today, instead of mechanical calculators or cumbersome decks of computer punch cards, practitioners can choose from among numerous user- friendly commercial software packages that greatly simplify building LCA models, e.g. SimaPro and GaBi. Reduced cost packages are typically available for students and educators. Simplified programs, such as BEES are available free online. The National Renewable Energy Laboratory and its partners have created the U.S. Life-Cycle Inventory (LCI) Database. This summer, the Swiss Center for Life Cycle Inventories will be releasing ecoinvent v2.0, a compilation of some 3,500 unit processes. Impact assessment methodology is being developed to include more impact categories. Land use in LCA has just been added as a new subject category in The International Journal of Life Cycle Analysis. The UN Environmental Programmes, in partnership with the Society for Environmental Toxicology and Chemistry launched the life cycle initiative in 2002 to identify available data sources and impact assessment methodologies, assess needs for further development, and provide guidance for expanding the sound and consistent application of LCA methods. Despite these advances, there is a sense that LCA has had limited application in policy or business decision making processes.
Application in making difficult decisions
There are numerous efforts underway to expand the role of LCA in guiding difficult decisions to balance the conflicting goals of economic development, environmental protection, and social equity. Green building initiatives lead the way in using life cycle measures to influence purchasing decisions in an attempt to create market pressure for more sustainable manufacturing. The US Green Building Council is evaluating how to incorporate LCA into the LEED rating system. Green Globes is an on-line tool for designers and property owners and managers assess and rate existing buildings against best practices and standards.
Companies are exploring ways to use LCA methods to create competitive advantage. The Product Sustainability Roundtable is a group of global corporations that meets 2 -3 times per year to informally benchmark product- oriented environmental management practices. Participants represent multiple functions from within the companies to share what works- and what does not- in efforts to integrate life cycle thinking into practice.
BASF is using technical conferences, third- party reviews, and offering training sessions and consulting services to brand its eco- efficiency analysis. The company worked through a cross sector partnership to create a center of excellence in Latin America, the Espaço ECO Foundation to promote implementation and dispersion of the eco-efficiency analysis.
The UNEP/ SETAC life cycle initiative has launched its Phase II programs to more effectively link LCA studies of production systems with corresponding sectors of consumption- such as buildings, transport, food, and energy. The program recognizes that there cannot be sustainable manufacturing without sustainable consumption, and seeks to build institutional capacity to make better use of the tools and methodologies that already exist.
EU initiatives around integrated product policy, such as the Waste Electrical and Electronic Equipment Directive and the Energy- using Products Directive or are another strong incentive for companies to develop practical methods to address these emerging requirements. The European platform on life cycle assessment is designed to support business and policy making decisions.
There is progress on better integration of economic and social factors. A SETAC working group is developing a code of practice for life cycle costing. Researchers are developing quantified measures for the social dimension modeled on the WHO’s disability adjusted life years (DALYs). Quality- of – life adjusted years (QALYs) are determined using quantified measures longevity, health, autonomy, safety and security, equal opportunity, and participation. Furthermore, a working group on identification of social impacts has begun within the UNEP/ SETAC Initiative. Sustainability impact assessment methodology is being developed to better understand the complex trade- off of costs and benefits resulting from international commerce.
Opportunities and barriers
In a recent editorial, Jacqueline Aloisi de Larderel, former Director Division Technology, Industry and Economics , UNEP suggested that LCA and life cycle management are approaches that could help society develop policies for long lasting economic growth built on sound environmental practices that preserved critical life supporting ecosystems. She cited the need for “validated metrics, for more transparent and reliable data collection and, in general, for consistency.”
The application of LCA and life cycle thinking to the complex problem of sustainability attempts to provide both an objective measure of “What is” and a sound, scientific basis for deciding “What should be.” The conflicting demands of metrics to support learning and continuous improvement and metrics to support accountability and compliance may be the primary obstacle to successful integration of LCA into business and policy decision- making.
This conflict can be illustrated by the early studies at Coca Cola. LCA helped justify the transition from reusable glass bottles to single use disposable plastic bottles, because reduced transport impacts associated with lighter weight helped offset the impacts of plastic bottles. Yet most of us environmental advocates would argue you should select reusable packaging over disposable packaging. Other LCA studies on packaging showed advantages of steel cans over aluminum cans, but aluminum took over the market because consumers preferred the convenience of the pull tabs, a feature that steel cans could not match.
Rapid innovation continues to throw out new externalities. CFCs eliminated toxic and flammable refrigerants, but damaged the ozone layer. Automobiles eliminated the health risks of horse manure, but imposed new health effects from air pollution. Sustainability is a complex issue characterized by uncertainty and ignorance. Flexibility to adapt as we learn is critical to effective integration of LCA methods into routine practice. LCA is its present form can give us information on the various trade- offs between lead- free and traditional lead- base electrical solders. However, LCA cannot tells us how the market will find new uses for lead no longer used as solder.
The need for flexibility and dynamic modeling conflicts with the normative perspective of corporate responsibility. External stakeholders want standardized metrics with verifiable audit trails to support corporate environmental claims. Common measures that facilitate comparison are necessary for accountability. Attempting to extend these accountability requirements into internal business decision- making processes development practices is not compatible with the current pace of change in the global economy. It is important that we do not become so focused on finding the “right” answers that we forget to make sure we are asking the “right” questions. A more productive approach for the integration of LCA is to extend the flexible, learning- based metrics out to inform social and economic policy. This would require a level of trust between the civil society and business that is significantly higher than what currently exists.
We — civil society and business — are in this together. How do we promote an atmosphere of trust where we can openly share information to create the “lasting economic growth built on sound environmental practices that preserved critical life supporting ecosystems” envisioned by Jacqueline Aloisi de Larderel?
BASF Eco-efficiency Analysis
BEES (Building for Environmental and Economic Sustainability)
EU Integrated Product Policy
European platform on life cycle assessment
Green Globes Environmental Assessments for Buildings
International Journal of Life Cycle Assessment
NREL U.S. Life Cycle Inventory Database
Product Sustainability Roundtable
Sustainability impact assessments
Swiss Center for Life Cycle Inventories
UNEP/ SETAC Life Cycle Initiative
US Green Building Council LEED
By Mike Bertolucci, President, Interface Research Corporation, Emeritus
Sustainable manufacturing: oxymoron or emerging reality? It is a question Interface has been struggling to answer for more than 12 years.
No doubt the linear, Take-Make-Waste model of the prototypical company of the 20th Century based on the assumption of limitless resources and sinks into which to dump wastes and products at the end of their useful lives is a preamble to environmental collapse. And, the engine which is driving atmospheric greenhouse gas increases at an unprecedented rate.
For some “the sky is falling”, for others “the sand is cool around their neck”. For a growing number of companies the opportunity to deliver value to their shareholders and indeed for future generations is at hand.
In 1994, Ray C. Anderson the then founder and CEO of Interface was struck by what he calls “a spear in the chest”, an epiphany of sorts after reading Paul Hawken’s The Ecology of Commerce. Ray describes Interface’s climb up the metaphorical Mt. Sustainability in his book, Mid Course Correction published in 1998. I came along in the middle of that time line to help carve out the technical transformation needed to materialize that dream. Ray and I along with a team of others, created a vision of what a truly sustainable company might look like and what the requirements on material sourcing and manufacturing processes would be, in fact what a prototypical manufacturing company of the 21st Century would look like and how it would operate.
First it would generate no more waste or emissions than could be rapidly assimilated in nature and would therefore not create toxic pools doing harm to the biosphere.
It would not be extractive of limited and finite resources for its material and energy demands to produce its products and grow at a rate compatible with the demands of its shareholders and environment within which it operates.
It would be cyclic in all its material flows, recycling its own products and others compatible with its business requirements, and it would drive its manufacturing processes with renewable energy, either directly sourced or supported through green energy offset programs, also called renewable energy credits (REC’s).
This manufacturing company would be sensitive to the needs of its associates and the communities in which it operates.
If done correctly it should be constantly reducing its environmental footprint, driving toward zero, growing market share with its products and reducing all operating costs related to virgin raw materials, energy consumption and transportation. Inescapable corollaries to these objectives are the growth in renewable energy use and the reduction in green house gas emissions over the full life cycle of it products (Creation to Resurrection).
One paradigm from the 1st Industrial Revolution (which we are trying to overthrow) is operative in the Interface Model: “What gets measured gets done”. Our metrics are the backbone supporting our manufacturing teams’ creative charge up the mountain over the last 12 years.
Globally, Interface has cumulatively avoided over $300 million in waste through our QUEST, (Quality Using Employee Suggestions and Teamwork), programs.
Reduced the total energy consumption per square meter of modular carpet tile production by 41 %
Reduced the total absolute tons of green house gas emissions of our world wide operations by 56 %
Diverted over 90 million pounds of carpet from landfills through our ReEntry recycling initiative.
All while increasing the value of our company to its shareholders as its stock price has rebounded from under $2.00 per share in 2003 to over $16.00 in Feb. 2007.
End of story? Of course not. Our drive toward creating a sustainable company and reaching the top of Mt. Sustainability by 2020 is only half over. Wish us luck.
1. What trends do you see in the field of “sustainable investing”? Where has the field come in the past five years and where do you see it going in the next five years?
The term “sustainable investing” is being used in many different ways. For investors, it has become very confusing to know what is “green” and what is “greenwashing.” The trend we are seeing is an increase in the number of companies racing to tell us how much they care, and what they are doing to improve our planet. Through detailed research, we distinguish the companies that are truly backing up their words with action from the companies that are greenwashing. This is one way we try to help investors navigate the confusion.
The first place to start is with a clear definition. For us, sustainability is simply “securing people’s quality of life within the means of nature.” This working definition acknowledges the limits of nature and society’s dependence on nature. It recognizes the fundamental challenge we face in meeting human needs without undermining nature’s ability to support our economy into the future. The primary issue is the limited biocapacity of the earth’s ability to provide the ecosystem services necessary to maintain the products and services we depend on.
The next step is applying this definition with specific evaluation criteria. Portfolio 21’s detailed evaluation criteria identify companies that truly recognize the enormous opportunity that exists to save money by saving natural resources and prosper by providing the products, services and technologies that are needed to create a sustainable society. These companies are developing cleaner and more efficient energy solutions, products designed to be reused and rebuilt, and processes that eliminate the need for toxic inputs while producing little or no waste.
The business and investment case for environmental sustainability has become increasingly clear and corporations that are embracing it are strategically positioned to prosper in the 21st Century.
2. There are clearly more sustainable investment options than ever before. Are there third-party verification processes that exist to help investors decide where to put their investment dollars?
The most helpful resource for investors is The Social Investment Forum, a national non-profit organization specializing in the field. Their website, www.socialinvest.org, has a lot of educational information including a directory of investment services.
3. How do sustainable investment funds perform compared to investment funds that don’t take into consideration social or environmental questions? Are there differences in short-term and long-term performance for these funds?
From our own experience, since Portfolio 21 started more than seven years ago, the fund has outperformed the markets as defined by the S&P 500 Index as well as the global MSCI World Equity Index. This competitive performance has certainly added to investor support for an investment approach based on the understanding that adaptation to changing global environmental investment risks is inevitable. The earlier this thinking is integrated into business practices, the more natural capital we will be able to retain for future generations, and the greater the economic stability we will be able to achieve. We believe companies that prove this understanding by innovating with environmental sustainability strategies have a real competitive advantage today and are poised for further leadership and innovation in the future.
4. What are the investment criteria and holdings of Portfolio 21? What makes it different from other sustainable investment options offered today?
Portfolio 21’s investment criteria seek companies that recognize environmental sustainability as a fundamental human challenge and a tremendous business opportunity. Our unique selection criteria allow us to identify and invest in companies that understand their ecological risks and opportunities and are taking positive action to integrate sustainability strategies in their business models. These companies see the real opportunities and future successes in understanding the ecological crisis and figuring out how to use environmental sustainability principles as core components of an intelligent business strategy.
Over 70 percent of the holdings are international and some of the most innovative holdings include: Swiss Re, East Japan Railway, Dell, Electrolux, Vestas Wind, Herman Miller, Whole Foods, and Interface.
There are six key components of our criteria:
Impact of Products/Services
The company understands the ecological impact of its products and/or services and has taken steps to significantly reduce those impacts. Priorities include:
Corporate behavior is driven by what is profitable and offers a competitive advantage for shareholders. Sustainable business strategies offer companies the ability to meet these objectives by designing ecologically superior products, using renewable energy, and developing efficient production methods.
6. Are there market or policy options that could encourage the growth of sustainable investment opportunities in the United States?
Sustainable investment strategies will continue to grow, by definition, because they will continue to offer the most competitive solutions. Countries with progressive environmental policies will offer the leadership and competitive edge for companies residing in those countries. The fact that Portfolio 21 invests less than 30 percent of its assets in the United States illustrates the leadership is coming from Europe and Japan and that the U.S. is lagging.
By Reid Lifset, Editor, Journal of Industrial Ecology, Associate Director, Yale School of Forestry and Environmental Studies
In his famous book on conservation, The Sand County Almanac, Aldo Leopold urged that we “think like a mountain”. As the pioneer in wildlife management and the U.S. wilderness system, Leopold was drawn to articulate the connection between people and the land. In modern technological society, that metaphor must be extended—we need to think like an ecosystem.
The emerging field of industrial ecology seeks to do just that. Seeing the efficacy with which natural systems cycle resources, industrial ecology explores the “biological metaphor,” asking in what ways can environmental goals be accomplished through lessons drawn from nature.
The field dates its self conscious beginnings to a 1989 article, “Strategies for Manufacturing” in Scientific American by Frosch and Gallopolous. The leadership of Frosch, then the head of R&D for General Motors, was soon complemented by workshops and books organized by the U.S. National Academy of Engineering and prescient support from the AT&T. Equally important was the joining of an extensive Northern European community of researchers, managers and activists working on similar concepts under the rubric of cleaner production.
The result is a growing global research community that systematically examines local, regional and global materials and energy uses and flows in products, processes, industrial sectors and economies. It focuses on the potential role of industry in reducing environmental burdens throughout the product life cycle from the extraction of raw materials, to the production of goods, to the use of those goods and to the management of the resulting wastes. Industrial ecology encompasses:
• material and energy flows studies (”industrial metabolism”)
• technological change and the environment
• dematerialization and decarbonization
• life cycle planning, design and assessment
• design for the environment
• extended producer responsibility (”product stewardship”)
• eco-industrial parks (”industrial symbiosis”)
• product-oriented environmental policy
The field began to take on an institutional identity with the establishment of the Journal of Industrial Ecology, a peer-reviewed international quarterly owned by Yale and published by MIT Press as well as a professional and scientific society, the International Society for Industrial Ecology.
Given this august parentage and the ambitious agenda, the name of the field, “industrial ecology” may seem odd, even oxymoronic. Indeed, the name is intended to be evocative—and provocative—in several ways. The underlying idea is that the entities that have been major sources of environmental damage can be converted into agents for environmental improvement. Industries design and produce goods, and so they possess the tools and technological expertise needed to create environmentally informed products and manufacturing processes. That is what motivates the word “industrial.”
The word “ecology” is intended in at least two senses. First, it refers to the fact that the flow of industrial resources can be compared to the flow of resources in nonhuman, “natural” ecosystems—with the implication that the industrial flows can become just as efficient.
The second reason for the word “ecology” is to place human industrial activity within the context of the larger ecosystems that support it. Traditionally, manufacturing has been regarded as beginning when raw materials enter a factory and ending when the finished product is shipped. But industrial ecology expands that view to include an understanding of the sources of the raw materials, the effects of their extraction, and the fate of products after their useful lives have ended, what is increasingly called the product life cycle perspective.
Much of industrial ecology is motivated by an impulse to approach environmental problems from a systems perspective, so as to avoid gaps and unintended consequences. This impulse is often manifested in careful, even fierce attention to the quantification of stocks and flows of materials and energy at many scales. Materials flow analysis (MFA) provides a foundation for examining carefully and comprehensively the biophysical phenomena and human activities that are at the core of environmental problems. This tracking of resources is yet another dimension of the biological metaphor—borrowing approaches from ecosystem ecology and biogeochemistry.
The pursuit of a systems approach is embodied the frequent and conspicuous use of a life-cycle perspective, i.e., examining products, materials, services and facilities from “cradle to grave”. This in turn results in strategies more often associated with European and Japanese environmental policy than in the US: extended producer responsibility (product take-back), design for environment, eco-labeling, green procurement, and environmental supply chain management. On the scientific side, life-cycle assessment (LCA) is the tool that is used to characterize the resource inputs and outputs of pollution and waste across an entire life cycle.
In actual fact, a great deal of the practice of industrial ecology has revolved around environmental assessment—investigating the relative environmental merits of products, technologies, choices of materials and so on. This has generated a rich, albeit complex, body of knowledge and technique regarding “green” choices.
Mostly recently, industrial ecologists have worked to extend the core concepts in the field. A growing cadre of researchers now use input-output analysis, a form of economic analysis originally developed by Nobel Laureate Wassily Leontief, to capture, in a more thorough way, the indirect effects of production and consumption choices. The use of input-output analysis holds out the promise of making LCA and related forms of green assessment more comprehensive and thus more reliable, because it can incorporate resource use and pollution effects throughout the entire economy, rather than just a particular production/supply chain. These analytical advances are likely to change our understanding of what makes for a green product and lead to some surprises.
In a different vein, one stage of the product life cycle, consumption, is attracting greater attention as policymakers and researchers realize that consumption drives much of the economic activity that in turn produces our environmental challenges. In some ways, this represents merely an elaboration of long standing approaches in the field; after all consumption is part of the product life cycle. At the same time, efforts to understand what constitutes sustainable consumption require a larger dose of social science than has traditionally been part of this field.
The study of consumption seeks to go beyond bromides and platitudes above over-, unequal and unfulfilling consumption to meld an understanding the social drivers of what we buy and use with a careful quantitative analysis of the environmental implications of those choices. For examples of what this has yielded, see the special issues of the Journal of Industrial Ecology on consumption and on priorities for environmental product policy.
Perhaps the most conspicuous success story in industrial ecology to date is an industrial district in Kalundborg, Denmark. The area is home to a cluster of industrial facilities that exchange by-products, or what would otherwise be called wastes—including petrochemical gases, cooling and waste water, steam, and scrubber and fermentation sludge—in a network of cooperative relations that began in 1972 and has grown ever since. Kalundborg thus became a prime example of “industrial symbiosis.” The term is an explicit analogy to the mutually beneficial relations found in nature.
For several years, Kalundborg was both an icon and a lonely example of one. Early attempts to replicate the networks of by-product exchanges and resource sharing in the US and elsewhere foundered, but more recently industrial symbiosis has gained traction. Important examples in Australian minerals industry and a Chinese sugar-paper-alcohol complex have been documented.
Perhaps more important, China has adopted the notion of the circular economy (循环经济xun huan jing ji) —the term connotes the cycling of resources and closing of materials loops so central to industrial ecology—as a central tenet of its environmental policy. This strategy encompasses initiatives at many scales from the individual firm to networks of firms to entire cities or provinces. It includes programs to stimulate the application of industrial symbiosis to the multitude of industrial parks that are the location of much of China’s rapidly growing industries. Similar efforts to create “eco-industrial parks” in Korea, Taiwan and Thailand are underway.
The organizers of this forum asked me to address the barriers to industrial ecology. In some cases, they are legal as when some forms of recycling or by-product reuse are made prohibitively expensive by regulation. More challenging, however, are the social, psychological and political obstacles. Taking a systems view of environmental problems is often daunting and doesn’t lend itself to sound bites. Many of the changes impose costs on industry or consumers and thus generate political opposition. Equally important, over a decade’s worth of research and debate have made it clear identifying what is “green” product or technology is fraught with both values and technical ambiguities. “Good science” does not provide a ready or uncomplicated answer to many of these questions.
The elements of industrial ecology are increasingly well known throughout the world. Most environmental professionals have heard of design for environment, LCA, or eco-industrial parks. Those concepts have been adopted by related frameworks and promoted under other names. In that sense industrial ecology, like a species in a dynamic ecosystem (or perhaps a set of self genes to push the metaphor in another direction) has succeeded in spreading its seed widely.
In 1979, with the country still reeling from the effects of the oil price spikes in the mid 1970’s, President Carter installed a solar hot water system on the White House roof, and the nation was excited about alternative energy. By 1986, the price of oil had fallen dramatically, and no one noticed when the presidential solar panels were removed.
In 2000, investors staggering from the dotcom crash turned to alternative energy as the next big thing, sending the price of many solar and fuel cell company stocks soaring. By 2003, oil prices had again fallen dramatically, investors moved on, and the highflying stocks crashed – and some burned.
Then in 2006, with oil prices sky-high again, politicians, investors, and even farmers began touting the benefits of alternative energy again. So as we enter 2007, with worldwide oil prices having moderated slightly and hovering around $60, even strong advocates of green energy have to ask: is it any different this time?
While there’s plenty of political uncertainty ahead of us, at Winslow we believe the outlook for alternative energy is indeed different this time, and it is here to stay. We see a wide-ranging and compelling list of reasons new to this cycle, both for continued elevated oil prices, and for long-term confidence in alternative energy, regardless of the price of oil:
As New York Times columnist Thomas Friedman often points out, developing viable alternative energy sources that reduce reliance on oil will reduce payments to governments hostile towards America, while encouraging reform within those governments by reducing their oil revenue. In addition, a May 2006 Times article pointed out that national oil companies, which do not grant access to international oil companies, own 77% of the proven oil reserves – oil that we cannot depend on being able to access.
While some American businesses, communities, and individuals have voluntarily cut their emissions, it has not been enough. Both grassroots and political momentum is building towards a regulatory approach of reducing emissions. Seven states are current participants (as of December 2006 – hopefully this number grows over time) in a regional plan to reduce emissions, 28 states have established renewable energy standards, and the first carbon tax was passed in the U.S. in November, when the voters of Boulder, CO approved a carbon tax for all consumers of electricity generated by fossil fuels.
A New Direction
A recent issue of The Economist echoed the fears of many, comparing current interest in alternative energy to the dotcom boom, pointing out that venture capital investments have more than doubled from $30 billion in 2004 to an estimated $63 billion in 2006. At the same time, the current energy system leaves us vulnerable on many fronts – to shortages, to increased and increasing prices, to hostile governments, and to perhaps the biggest threat, a changing climate. We feel that these supply, demand, price, trade political, safety, and climate factors point to an undeniable need for a new direction.
As we examine our global energy situation today and the alternatives, both bad and good, is it any wonder that the demand for green energy is attracting so much interest and capital? We don’t think there has ever been a stronger investment story for alternative energy – increasingly cheaper, undeniably better, and more important than ever before.
By Stephen G. Bushnell CPCU ARM, Director Product Development, Commercial Business, Fireman’s Fund Insurance Company
The Front Edge in Insurance:
Fireman’s Fund Insurance Company is on the front edge of financial protection for green buildings as the first and only insurance company to develop a series of commercial insurance products, risk management tools and policyholder information addressing the special risks and recognizing the superior features of green buildings.
Green buildings have moved into the mainstream due largely to the profound value proposition they bring (energy efficiency, superior indoor air quality, lower absenteeism, higher retail sales, tenants willing to pay higher rents) and their significant environmental benefits (lower green house gas generation, water conservation, reduced pressure on landfills). We fully expect that Green construction will become the “standard” over the next two years as building owners recognize the benefits and municipalities mandate green construction (as have Boston and Washington D.C., among others).
Fireman’s Fund® understands that green buildings have physical features that may not be fully covered by traditional property insurance policies (vegetative roofs, alternative power equipment and water systems) and has crafted the coverage green building owners need to fully protect their investment. The coverage form also includes coverage to divert debris from landfills following a loss and costs to completely flush out the building following post-loss reconstruction. Many green buildings use their alternative power generation equipment to sell excess power back to the grid; we provide coverage for the loss of this income if the equipment is damaged in a loss as well as the cost to purchase replacement power while the equipment is being replaced.
The commissioning process that certified green buildings undergo directly addresses the most common causes of property loss we pay: electric fires, HVAC fires and plumbing leaks. Commissioning means these systems are not only more efficient, they are safer. Accordingly, we offer our Certified Green Building coverage at a reduced price.
We take this a step further with our Building Commissioning Expense coverage. Following a loss we will pay for the building owner to hire a professional engineer to commission the repaired or replaced building systems. The building is more efficient and safer. As an additional benefit, we will pay for the engineer to “test and balance” the HVAC system to optimize its performance.
Green Building owners have made significant capital and emotional investments in their properties. They deserve proper protection and an insurance partner who understands their commitment.
Barriers to Growth:
Insurance companies typically face legal and regulatory barriers as they introduce new coverages. That was not the case for these “Green” products. State Departments of Insurance recognized the value and quickly approved the coverage filing. The market has enthusiastically received the coverages. The Green Building Community is excited that a major insurance company recognizes the value of their work. Green and traditional building owners need coverages that both protect their investment and offers them the opportunity to become greener.
As a large commercial insurer, our obstacles lie in the prospect of the increased risk of obsolete buildings and the unpredictable catastrophe exposure of climate change.
The proliferation of green buildings, supported by the demands of tenants for green space, poses a real risk of obsolescence for traditional buildings. In addition, climate change experts hold that a majority of traditional buildings in the US must become carbon neutral (through energy efficient/green energy generation upgrades or purchase of renewable energy certificates – RECs) if we are to avoid irreversible climate change.
Fireman’s Fund offers a solution for these traditional buildings – our Green Upgrade coverage. Following a loss, we will use green, energy/water efficient products and components in the repair or reconstruction of the building. Other insurance coverages will only replace with “like kind and quality” materials, essentially returning the building to its pre-loss traditional state. If the building suffers a total loss, we will rebuild as a “certified” green building (based on USGBC’s LEED Rating System), including the costs to hire a LEED Accredited Professional to assist in the redesign and the cost of the LEED registration and certification fees.
Stephen G. Bushnell is the Director Product Development for Commercial Business at Fireman’s Fund Insurance Company
By Ben Packard, Director of Environmental Affairs, Starbucks Coffee
New Approach to Purchasing
After years of traveling to coffee-growing regions around the world, we have come to deeply appreciate the care that goes into producing high-quality coffee. These visits are always worthwhile, especially when we have been able to engage directly with farmers, observe their best practices, gain insight about their short- and long-term challenges and identify ways that Starbucks can contribute to the sustainability of their business and community. More important, they have helped to raise our awareness about the need for a more sustainable approach to coffee production – one that touches on every essential aspect of the supply chain – from farming to processing to exporting.
The Conservation Principles for Coffee Production, a set of multi-stakeholder criteria launched in 2001, became the original platform that Starbucks used to evolve and eventually develop a more holistic set of coffee-buying guidelines that is now known as Coffee and Farmer Equity (C.A.F.E.) Practices. These guidelines were designed to ensure the sustainable supply of high-quality coffee; achieve economic accountability; promote social responsibility within the coffee supply chain; and protect the environment.
C.A.F.E. Practices encompasses various sustainability measures that are defined by 28 criteria, extending to both the farming and processing of coffee. The criteria, which serve as the basis for a comprehensive scorecard, fall under four focus areas: product quality; economic accountability; social responsibility; and environmental leadership.
Thousands of participants – from our largest coffee suppliers to many small-holder farms and cooperatives – have applied and been approved as C.A.F.E. Practices suppliers since 2004. When suppliers apply to C.A.F.E. Practices, they must undergo a third-party evaluation to verify the degree to which their practices are aligned with the criteria.
In 2004, Starbucks opened a Farmer Support Center in Costa Rica, which has allowed us to work more closely with farmers and suppliers on their sustainability measures and coffee quality. Shortly thereafter, suppliers in that region began applying and were approved under C.A.F.E. Practices, and the number has kept growing ever since.
The coffee market has always been prone to ups and downs, mostly related to the balance between supply and demand. Back in 2001, coffee prices fell to a record low of $0.42 per pound ($0.91 per kilogram), and fluctuated near the bottom for several years. These particular market conditions created a climate of economic instability that had an impact on many farmers and their communities. Today’s market conditions are greatly improved, evident by recent prices of coffee traded on the New York “C” market (the worldwide reference used by coffee traders). In fiscal 2006, world coffee prices averaged $1.04 per pound ($2.29 per kilogram).
We believe that with any product there is an inherent link between quality and price. Through our close working relationships with coffee farmers and suppliers, we have always emphasized the importance of quality as the best, most sustainable driver of higher prices
paid. We understand that coffee farming, like any business, must be profitable to be sustainable. Furthermore, we know that when coffee farmers do not earn enough to cover their production costs and/or provide a reasonable income; they may switch to other crops or perhaps stop growing coffee altogether. In fiscal 2006, Starbucks purchased 294 million pounds (133 million kilograms) of coffee and paid an average price of $1.42 per pound ($3.12 per kilogram).
Starbucks commitment to pay premium prices for premium quality coffee has not wavered over the years. It is an approach that not only serves the short- and long-term economic interests of coffee farmers and suppliers; it also serves Starbucks interests by creating an incentive for farmers to improve quality and increase production that in turn contributes to a more sustainable supply of high-quality coffee which we depend on to support Starbucks continued growth.
To help assure that the farmer receives an equitable share of the price paid by Starbucks, a requirement for economic transparency is included in our coffee contracts, including all of our contracts with suppliers participating in C.A.F.E. Practices. This provision stipulates that our suppliers must provide credible evidence of payments, usually in the form of receipts indicating payments made at all levels along the coffee supply chain, including prices paid to farmers. In fiscal 2006, 98 percent of our coffee contracts included an economic transparency clause requesting documentation of payments made to various participants in the supply chain. In 95 percent of these contracts, economic transparency was required to the producer level.
Requiring coffee suppliers to provide evidence of payments was almost inconceivable several years ago, especially given the diffused and complex nature of the coffee supply chain and the historical lack of record keeping. However, since Starbucks instituted this requirement, a notable change has started to take place in the specialty coffee industry, with more serious attention now being focused on assuring that farmers receive an equitable share of the purchase price. We believe this ultimately benefits coffee farmers and other key suppliers who add value along the supply chain.
While we are encouraged by the progress to date, institutionalizing this new requirement has come with certain challenges:
• Standardized Economic Tracking Mechanism for Entire Coffee Industry
Currently, the coffee industry does not have a standardized mechanism in place that allows all parties across the coffee supply chain to easily submit evidence of payment in a consistent, uniform manner. We receive different forms of documentation – from a simple receipt for the coffee cherries that the farmer delivered to the mill to full purchase agreements that include more levels along the coffee supply chain. These documents not only differ in quality, they reflect variations in currency, industry standards and laws, units of measure and are prepared in many different languages.
• Continued Emphasis on Relationships, Communication and Training
As our demand for coffee grows and our already complex supplier network expands, we understand the importance of staying in touch with and training our suppliers so they understand how to complete the application forms for C.A.F.E. Practices, manage the required verification process, and adapt their practices to improve their scores. We must also seek efficiencies on our end that enable us to respond more quickly to the needs of our suppliers.
• Verifiers and Improved Systems Needed
Our plan to buy more sustainable coffee in the future can only be realized if our network of approved suppliers participating in C.A.F.E. Practices grows. The process of approving more suppliers will involve conducting a great number of inspections by third-party verifiers. At the end of fiscal 2006, we had 143 trained and approved verifiers in the field, which was 43 more than the previous year.
Going forward, we expect that more verifiers will be needed to keep pace with the increasing number of verifications that will be required. We see the need for more trained verifiers as an opportunity, and we are encouraged by the interest farmers have shown in becoming approved C.A.F.E. Practices suppliers. And because of this, verifiers will need to be responsive to the increasing demand of more inspections.
• Extending C.A.F.E. Practices to Africa and Asia Pacific
Increasing our focus on C.A.F.E. Practices in Africa and Asia Pacific has proven to be difficult, as expected. In both Africa and Asia Pacific, Starbucks has been working to introduce C.A.F.E. Practices to coffee farmers, processors and suppliers. Progress has been slowed by realities of local coffee industries, lack of financial transparency, minimal understanding of C.A.F.E. Practices among local suppliers, and too few trained verifiers.
We realize there may be a need to consider regional guidance for C.A.F.E. Practices to make the criteria more relevant to unique conditions in Africa and Asia Pacific. Also, the need for more locally based support through regional Farmer Support Centers has been confirmed. In Kenya, Starbucks has been collaborating with the African Wildlife Foundation (AWF) on various sustainability initiatives as a first step toward advancing C.A.F.E. Practices in Africa.
Given our optimistic mindset at Starbucks, we choose to view the barriers outlined above as opportunities for improvement. The amount of time, energy and resources needed to implement and manage C.A.F.E. Practices across such a complex, diverse and sprawling supply chain is considerable – and at times more than we anticipated.
When we first introduced C.A.F.E. Practices, we were inspired and motivated to help create a better future for coffee farmers and their communities, based on a shared interest to sustain the production of high-quality coffee. We did expect the process to involve challenges, but these challenges have not changed our vision. In fact, our vision – and commitment – has only deepened.
Ben Packard is Director of Environmental Affairs for Starbucks Coffee
On February 5, Kirk Koepsel who worked with the Sierra Club in Wyoming posted a comment on this blog. He was a dedicated conservationist who committed his life to the cause that he loved.
I just received news that he passed away last night after suffering a massive heart attack while playing hockey. My heart
goes out to Kirk’s friends and family who will miss him dearly. May
his dedication and conviction be a motivation for all of us in our own
Environmental Communications Comes to the Fore
Today’s broadened concern about the environment has created new opportunities for smart businesses to communicate in a way that connects much more deeply with target audiences than traditional advertising and marketing ever has before.
With every opportunity, however, comes barriers and this one is no different. The barriers to successful environmental communications include the seeming inability of traditional ad agencies to communicate effectively about meaningful values combined with self-styled green police using blogs to hold companies to account.
But the biggest barrier is probably the old-school thinking of the companies themselves. A recent Financial Times article referred to green communication as a matter of “corporate hygiene” – a mindset as stuck in the past as a horse and buggy is compared to a hybrid car.
We advise clients to think in terms of opportunity not obligation, in other words, provide authentic examples of environmental progress, then play offense. This thinking needs to replace defensiveness.
It is also imperative that the communications provide an honest representation of what the company is doing – the public, and even activist interest groups, do not expect perfection nearly as much as they look for sincerity and progress.
This mindset is a reflection of the fact that the audience for green communications has changed – it’s no longer a narrow, highly motivated niche but a mainstream swath of the public. Naturally, this means a different message and a higher profile for green attributes.
Understanding this new, broader audience gets to the central point of green marketing today – environmental values should stand at the center of a company’s brand and overall image.
British Petroleum (BP) is a great example with their “Beyond Petroleum” campaign. They got out early, put their alternative energy research and development front and center but didn’t pretend they are something they aren’t.
We took the same approach with a Canadian client, Epcor, a power and water producer. We zeroed in on the great work they do cleaning up water pollution at a high profile site. This got them important notice from green activists as an innovative and sound approach to the environment on this specific issue, building credibility for future work.
The main thing for businesses today is to move quickly, be authentic and then do what we call “greening their brand” – putting an important, values-based message front and center.
Don Millar is President of The Element Agency a communications, advertising and online firm specializing in environmental communications from offices in New York, Vancouver and Mexico City. email@example.com.
By Terry Kellogg, Executive Director of 1% For The Planet
At its best, the field of environmentally preferable purchasing can take credit for the birth and development of the natural and organic product market, projected to reach global sales north of $100 billion next year. On a micro level, it can now boast of significant success stories like the Toyota Prius and EPA’s Energy Star program. The broader LOHAS (Lifestyles of Health and Sustainability) market paints an even more compelling picture: estimated at $230 billion in the US alone.
Even with double digit compound annual growth rates for more than a decade, however, the LOHAS market is still seen as largely untapped. Its remaining potential exists because more than 30% of Americans seem ready and willing to support companies whose values are perceived to be in line with their own. And to this day there are many categories with underdeveloped values-oriented offerings.
Stories about the LOHAS market over the next two years will be headlined by more mainstream (Wal Mart and GE have already perked up) entrants. These players will underscore the market’s transition from a niche opportunity to a powerful segment that no company can afford to ignore.
But this market is not cut out for companies with unexamined practices looking to make a quick buck where flush demand coupled with relatively thin offerings has created very attractive margins. The interplay between conscious consumers and companies hoping to gain their preference has already helped to establish very high expectations for performance standards across a wide range of initiatives. Ignorance of these expectations could spell disaster for a new entrant.
In looking for a way in, some companies will take a piecemeal approach to reducing their own ecological footprint or developing a more sustainable product line. There is a tremendous amount of information available to guide such decisions and almost without exception, case studies illustrate a strong correlation between environmental gains and positive business results, particularly in the early stages of adaptation.
Even for the well-informed, however, there remains the challenge of moving effectively beyond low hanging fruit. Today’s paradigm offers a finite supply of cash positive investments that yield solid environmental gains. Positioning ahead of the curve requires an appetite for risk that too few companies are ready to embrace. Thus the critical requirement for additional investments aimed at changing today’s paradigm.
A subtly different way to approach the LOHAS market is to ask: how can we as a company maximize our potential to affect change on a macro scale, and how can we do it in a way that best supports our long-term business interests. Looking through this lens, opportunities will emerge that tightly knit sustainable business practices with overall business strategy. Theses initiatives will garner the internal resources required for success; and their success will ensure both their longevity and the opportunity for similar efforts down the road. Many such initiatives will be the same as those surfaced through a purely internal assessment of options. But overall, they are more likely to maximize returns to both the environment and the sponsoring enterprise.
1% For The Planet (1%FTP) is an increasingly attractive initiative for many companies. Members of 1%FTP – companies that commit at least one percent of their sales (or the sales from a brand) to environmental causes every year – have grown in number from 90 to nearly 500 in less than two years. They hail from nearly every sector imaginable, and range in size from billion dollar publicly-traded entities to pre-revenue start-ups and family owned businesses. They are attracted to the network for a wide range of reasons including connectivity – with other members, with causes they care about and with committed consumers.
1%FTP is a tool that can help address important barriers that still exist in the LOHAS arena. Because it’s a program that has the potential to be adopted widely (unlike labeling schemes limited to certain sectors) it also has the potential to become recognized and acted on widely. One Percent also reflects the kind of clear and powerful commitment that easily resonates with a wide audience. This helps address the challenge of effectively communicating what can be confusing initiatives that lack relevance to enough people.
As a tool to affect change, it is hard to match the potential embodied in purchasing power. But for the market to work effectively in this regard, a spectrum of meaningful choices must be available with enough information to drive consumer decision-making. The growth of the legitimate LOHAS segment speaks to the steady erosion of these barriers. One Percent works to align and reward committed companies and activists, two powerful macro-societal change agents. In doing so, 1%FTP places a significant amount of potential power in the hands of a consumer base that appears ready and eager to use it.
Terry Kellogg is the Executive Director of 1% For The Planet. Prior to joining 1%, Terry ran Timberland’s Environmental Stewardship department and worked for the renewable energy retailer Green Mountain Energy. Terry began his career in environmental work at the Greater Yellowstone Coalition in Bozeman, MT.
We have just fixed a technical glitch that was preventing comments from posting to the blog. Our apologies for the confusion. If you have posted a comment, it should now appear linked to the blog. If you have not posted a comment yet, now is your chance to do so! As noted above, we encourage everyone to provide additional examples and information to this blog to allow it to be as robust as possible. Thanks for your input and, again, our apologies for the delay in publishing these initial comments. All the best, Brian Kuehl
By Arthur B. Weissman, Ph.D., President and CEO, Green Seal, Inc.
Almost like the Arctic ice breaking up, the public’s awareness of global warming and its responsibility for causing it has broken through dramatically in the past year. Soon people may realize that the products and services they purchase can affect the climate, their health, or the rest of the living world. At that point, the continuing effort to promote green products and services may indeed succeed in making the world more sustainable.
For several decades, a small group of quasi-governmental or private national organizations around the world has been quietly promoting a green economy by identifying green products and services. The tools they have employed typically include developing environmental leadership standards, certifying products and services that meet the standards, licensing use of a seal or logo to certified products and services, and working with institutional purchasers to green their procurement and operations. In the United States, Green Seal, Inc., has been active since 1989 as the national program (although it is a non-profit organization). There are now around three dozen such programs around the world, organized through the Global Ecolabeling Network.
Recent Developments and Directions
In the past few years there has been a veritable explosion of interest in certain institutional and industrial sectors in green products, services, and operations. Environmental standards that received little attention for years suddenly became adopted as the de facto product standards by government agencies and other large purchasers, causing industry to scramble to meet the standards. For example, Green Seal’s standard for institutional cleaning chemical products was adopted by Massachusetts for cleaning its facilities, then by other States and even US EPA, and last year New York State required all its elementary and secondary schools to be cleaned by products meeting the Green Seal standard or its Canadian equivalent.
Concomitantly, these large public and private institutions are increasingly looking at their entire operations, including their purchasing and facilities management, from an environmental and energy perspective. In these assessments, the institutions seek available environmental standards to ensure that the products and services they buy and their operational practices are environmentally responsible. We have had direct experience in evaluating purchasing and facilities management at the World Bank, University of Miami, and other institutions. They can collectively exert a significant pull on the market in a more sustainable direction.
Lately, this kind of greening of institutions and the supply chain through adoption of environmental standards and criteria has extended to large retailers. Initially certain retailers like Home Depot and Lowe’s adopted environmental standards and certification for particular commodities like wood, primarily under pressure from advocacy groups. Now, however, they are increasingly embracing green standards across a range of different categories. The world’s largest retailer, Wal-Mart, has committed to greening its product line by using environmental criteria or metrics assembled in a scorecard to evaluate each product along with traditional measures of price, performance, and availability.
The big question is whether the use of environmental standards and certification will successfully transition to the consumer world. Programs like Green Seal were originally intended for consumers, but it was too difficult in the 1990s to break into the consumer market. Nor is it clear even now whether consumers will truly pay attention to environmental and social considerations in their purchasing on a regular basis. If they did, consumers could collectively cause an enormous pull toward sustainability. Consider it like an anti-SUV movement – something like the current fad for hybrid cars magnified many times.
In the meantime, we continue to work primarily in the institutional realm to make products and services more healthful and environmentally responsible. The health angle on everyday products and services is extremely powerful, and could potentially reach to the consumer level. In the janitorial industry, for example, there is growing awareness of the effect of building materials and chemicals on human health, particularly with respect to respiratory systems. Cleaning chemicals themselves are now implicated in the asthma epidemic in schools nationwide, as some products still contain powerful respiratory irritants and asthmagens.
In fact, New York State is sponsoring an update and revision of Green Seal’s environmental standard for cleaning chemicals to ensure that it protects sensitive and vulnerable populations such as children. We will be working at the frontier of science and its applications to the marketplace in this revision project, because the science behind asthmagenicity and related effects is still uncertain. We are including nationally-recognized pediatric health experts and experts from such agencies as the Center for Disease Control. At the end, it is hoped that the revised standard will identify the current environmental leadership products in the market and also those that are specially formulated to protect the most sensitive and vulnerable populations.
Another highly significant area to which these tools could be applied is energy and climate change. The Federal government’s Energy Star program may be able to guide the consumer market for goods and appliances, and a likely cap-and-trade policy may take care of industrial output. In between, institutional buyers and facilities will need guidance on reducing their energy and carbon impact. For example, a current evaluation Green Seal is conducting for The Pentagon includes finding efficiencies in its lighting systems and heating, ventilating, and air-conditioning systems. Just this one enormous building can yield tremendous savings, but consider the result multiplied thousands of times. Directing institutions to energy-efficient, low-carbon-impact products, services, and systems could be the next frontier for our programs.
Green Seal and its sister programs have faced enormous hurdles over the years, especially from U.S.-based multinational companies that saw us as a threat to their marketing hegemony. While some countercurrents remain in industry, their blatant opposition from the 1990s is largely past, thanks to the greening movement in Europe and other forces. Still, promoting green products and services in the U.S. economy and getting environmental standards and certification incorporated on a larger scale are a challenge.
As much as industry, corporate America, and governments at all levels are beginning to embrace green practices – from green building construction and maintenance to green operations and green procurement – on the whole they continue not to consider the environmental effects of their actions. This is largely due to cultural norms and traditional practice, rather than conscious opposition. After all, we are all engaged in a kind of cultural revolution in trying to consider and incorporate the environmental aspects of our economic activities, after centuries of paying scant attention to them (externalities largely unchecked). Institutions tend to take time to change course and incorporate new paradigms, and that is what is happening now. For some of us the progress is excruciatingly slow, especially given the magnitude and severity of the world’s environmental problems, including loss of species and biodiversity, deforestation and other habitat loss, climate change, and pervasive toxic pollution.
The wild card may be the consumer market. It is a market where tens of millions of dollars are required to establish brand recognition; where sellers continue to emphasize appearance, price, and superficial performance above all other characteristics; where consumers say one thing and buy another (many more profess to buying green than actually do so); where service providers like hoteliers fear to do anything to compromise what they call guest satisfaction. Yet, if everything aligns correctly, the consumer market can much more quickly make changes for the better. In fact, let us declare for once and all that no green product should perform less well than comparable leading brands if the green products movement is to take hold. The reason the hybrid car is selling is not just that it is environmentally preferable but also that it saves on fuel and drives well. Nor can we expect consumers to pay more for green products out of altruism or abstract concerns. That might be the exciting result of large retailers promoting green products: they can control costs in the supply chain by creating the needed economies of scale.
If industry makes green products that perform as well and are price-competitive, is the battle won? Perhaps – if we know for sure which products are green. And that is where we come back to environmental standards, certification, and labeling programs. Independent, credible groups like Green Seal are striving to provide the technical and evaluative framework for the greening of the economy. The time is growing more ripe – and more urgent – for both consumers and institutions to embrace this framework.
Arthur B. Weissman, Ph.D. is President and CEO of Green Seal, Inc.