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(originally published by Booz & Company)


Green Is a Strategy

Five steps to “differentiated” sustainability for a full embrace of environmentalism.

In 2004, when General Electric Company CEO Jeffrey Immelt presented a plan for a green business initiative to 35 top executives at the company, they voted against it. Perhaps it was inevitable: GE had a spotty environmental record up to that point, and its leadership had consistently declined to voluntarily address high-profile problems, such as the company’s role in polluting New York’s Hudson River with PCBs from an upstate electronics plant. But Immelt refused to take no for an answer and overruled his team. Today the initiative, called Ecomagination, is one of the most widely recognized green programs in the corporate world.

By the end of 2008, Ecomagination had delivered US$100 million in cost savings to GE’s bottom line while reducing the company’s greenhouse gas emissions by 30 percent. The program has yielded a portfolio of 80 new products and services — including energy-efficient MRIs, locomotives, and lightbulbs — generating $17 billion in annual revenue. Going green “has been 10 times better than I ever imagined,” Immelt told journalist David Magee (as reported in Magee’s book Jeff Immelt and the New GE Way: Innovation, Transformation and Winning in the 21st Century [McGraw-Hill, 2009]).

Like a handful of other companies — Dell, Kaiser Permanente, and Nike, among them — GE views going green as an essential strategy in a global commercial landscape increasingly contoured by environmental policies, regulations, and attitudes. These companies recognize that consumers’ concern for the environment has morphed into buying behaviors that are at least somewhat recession-resistant. A 2008 survey of 6,000 global consumers, conducted by public relations firm Edelman, found that 87 percent believed it was their “duty” to contribute to a better environment and that even in a recession, 55 percent would pay more for a brand if it supported a cause in which they believed. In turn, retailers and manufacturers are demanding greener products and supply chains. In 2007, Wal-Mart Stores Inc. announced that it would begin a transition in its U.S. stores toward selling only concentrated laundry detergents, which use much less water and therefore require less packaging and space for transport and storage. By 2009, this changeover was complete, with every major supplier in the detergent industry involved, including Procter & Gamble (Tide), Dial (Trend), Sun (All), and Church & Dwight (Arm & Hammer).

Government actions are also driving the shift to green initiatives. In the 2009 stimulus package, the Obama administration and the U.S. Congress earmarked $70 billion for the development of renewable and efficient energy technologies and manufacturing. The European Union has set targets for reducing emissions to 20 percent of 1990 levels by 2020. And in a September 2009 address to the United Nations, Chinese President Hu Jintao said his country would generate 15 percent of its energy from renewable sources within a decade. In part because of the urgency expressed by government, venture capital money is pouring into renewable energy projects. In 2008, as much as $4.1 billion in seed money was contributed by private investors to 277 so-called clean-tech startups, which was 52 percent more than the year before, according to data from the National Venture Capital Association, PricewaterhouseCoopers, and Thomson Reuters. Employees are also encouraging their companies to formulate and pursue sustainability campaigns. In a 2008 National Geographic survey, more than 80 percent of U.S. workers polled agreed that it was important to work for a company or organization that makes the environment a top priority.

As is the case with most corporate priorities, going for green makes sense in financial terms. For many years, the widespread adoption of solar energy systems was hampered by the high cost per kilowatt-hour of using photovoltaic (PV) cells compared with other energy sources. But as the price of traditional energy skyrocketed, low-cost thin-film technology (which had existed since the 1970s) was commercialized and began replacing first-generation crystalline silicon PV installations. A similar transition is taking place today: Third-generation PV technologies that promise to combine cost-effectiveness with higher productivity are under development. In general, the savings that can be captured in green initiatives are proving to be meaningful, even in small increments. Since 2006, U.S. health-care provider Kaiser Permanente has recovered $4.8 million from its IT budget by purchasing only hardware and software registered with the Green Electronics Council’s electronic product environmental assessment tool (EPEAT), which evaluates electronic products on the basis of their environmental attributes.

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