Posted: January 11, 2010
2010 Sustainable Opportunities Summit: Agents of Change
The path toward innovation and profits includes embracing sustainability (Special Section)
Jared Diamond, author of the Pulitzer Prize-winning "Guns, Germs and Steel" and other books, says some businesses deserve every bit of their tarnished reputations. But his work in recent years has led him to conclude that others are "among the world's strongest positive forces for environmental sustainability."
Writing in the New York Times in December, he reported that "the embrace of environmental concerns by chief executives has accelerated recently for several reasons. Lower consumption of environmental resources saves money in the short run. Maintaining sustainable resource levels and not polluting saves money in the long run. And a clean image - one attained by, say, avoiding oil spills and other environmental disasters - reduces criticism from employees, consumers and government."
He hit the story on the head. And while he cited the case of Wal-Mart, Coca-Cola and Chevron to back up his argument, he could just as easily have named ProLogis, the Denver-based developer and manager of distribution facilities in North America, Europe and Asia.
From its headquarters along Interstate 70, the company has steadily set higher bars in the belief that lessening the demand for water, energy and other resources in its buildings can benefit both ProLogis and its customers.
By late 2010, the company aims to reduce water use needed for landscaping at its new projects by 50 percent. It also has set a goal of using at least 20 percent recycled content in construction of new buildings, and diverting 75 percent of construction waste from landfills and incinerators.
Two years ago, ProLogis also embraced the LEED (Leadership in Energy and Environmental Design) standards for buildings in the United States, and similar building-standard programs for its facilities in Europe and Japan.
Sarah Martinez, the sustainability analyst for ProLogis, says meeting the LEED standards increases building costs 1 percent to 3 percent. Part of that cost is documentation. It is, however, money well spent. "There's high value in that third-party certification," she says.
The bottom line is implicit in this LEED certification. Part of what it can do is guide installation of systems that use less energy. ProLogis doesn't pay those bills; tenants do. But lower operating costs make properties worth more. For similar reasons, ProLogis has worked at retrofitting lighting - the single largest consumer of electricity at its 35 million square feet of green-rated facilities in the world. Tenants sometimes pay for these retrofits, realizing savings even during the course of a lease. But other times ProLogis will pay for them, as a way of making a property more attractive.
Other companies have also been taking action to create lower-impact buildings, services and goods.
"The train has left the station," says Graham Russell, executive director of CORE.
At CORE's Sustainable Opportunities Summit in March, "acceleration" will be the underlying theme. Russell observes that many Fortune 500-type companies have embraced changes to reduce use of energy and other resources. "The question is, how do you drive it down and outward into the smaller-sized companies in the business community?" he says.
To many, Wal-Mart has been a surprising leader in this new effort. In 2008, then-chief executive Lee Scott gave more than 1,000 suppliers in China a directive: Increase energy efficiencies of products supplied to Wal-Mart stores by 25 percent in three years.
A trio of authors took note of this directive in an article titled "Why Sustainability is Now the Key Driver of Innovation," which was published in the Harvard Business Review in September 2009.
Profits and social responsibility should not be considered mutually exclusive, says Ram Nidumolu and his co-authors. "We've been studying the sustainability initiatives of 30 large corporations for some time. Our research shows that sustainability is a mother lode of organizational and technological innovations that yield both bottom-line and top-line returns."
They cite FedEx, Cisco, Clorox and other household brand names in making the case that doing what's better for the environment is no burden. Complying with looming environmental regulations - such as the reduction of greenhouse gases - should be seen as an opportunity, just as Wal-Mart has done, to create new business models.
New York-based energy analyst Peter Fusaro also sees accelerating change - and he sees the Front Range as being in a good position to take advantage of that change.
"My message is that you need intellectual capital to make this leap," says Fusaro, the founder and managing director of the Global Change Foundation. "You can't just put out a couple of press releases. You need to have people in the trenches taught how to be solar installers or start a clean-tech venture fund."
The Denver-Boulder area is among a handful of hubs for innovation in the United States, says Fusaro, a plenary session speaker at the March CORE conference. He also sees the United States as still the most important innovator in the world economy.
Colorado's clustering of National Renewable Energy Laboratory, several universities and other research institutions creates a synergy rivaled in few other places, Fusaro says. Others are Boston and New York, California's Bay Area, and then the Texas cities Austin and - this surprises most people - Houston.
For Fusaro and warriors on behalf of an energy transition, the process has been frustratingly slow. Businesses have been slow to embrace the changes, says Fusaro, who has been engaged in energy issues for 35 years, in part because energy remained relatively inexpensive. In fact, for all the talk about reducing emissions, global emissions of carbon continue to rise. "We have talked about it, but we haven't done it yet."
But Fusaro believes that sustained higher energy prices, along with heightened environmental concerns, will provoke change quickly now. He also notes a very important benchmark: the Environmental Protection Agency planning to monitor the greenhouse gas emissions of the nation's 13,000 largest emitters. Even if climate-change meetings in Copenhagen produce nothing material, he's convinced that the time for national and global agreement on emission reduction is drawing closer.
If flow of venture capital to clean-tech ventures has slowed in the last two years, the sector has continued to grow. That makes it distinctly healthier than insurance, real estate and most other sectors. "This is the one that has the legs to stand on, taking technology out of the laboratories and university," Fusaro says.
Lack of a global agreement about how to stall the increase in greenhouse gas emissions should lower expectations somewhat, although he's convinced some kind of meaningful U.S. and global action is on its way. That will accelerate the technology development and transfer even more rapidly.
He sees North America - and Colorado - as being crucial in that transition.
"Most clean-tech ventures are in North America," he says, including Canada in the mix. "A lot of the innovation to come will be created here. Risk in Asia is something that people are not very comfortable with, because of losing faith. We're risk-takers. Our whole economic system is based on risk."
The authors of "Why Sustainability is Now the Key Driver of Innovation," published in the Harvard Business Review in September 2009, offer the following advice:
≥ Don't start from the present.
"It's better to start from the future. Once senior managers establish a consensus about the shape of things to come, they can fold that future into the present."
≥ Ensure that learning precedes investments. "Smart companies start small, learn fast and scale rapidly.
≥ Stay wedded to the goal while constantly adjusting tactics: "Although directional consistency is important, tactical flexibility is critical."
≥ Build collaborative capacity. They urge new alliances with other businesses, nongovernmental organizations and governments to create "new mechanisms for developing products, distributing them, and sharing revenues."