The business case for more sustainability
Morgen Witzel | Wednesday, 16 July 2008
There is a green revolution under way in business. After years of scepticism, big companies are starting to see the need for change. They are acting to cut waste, cut carbon emissions, find sources of renewable energy and develop sustainable business models. So, at least, argues Peter Senge in his latest book, The Necessary Revolution.
Senge, an academic at Massachusettts Institute of Technology, is best known for The Fifth Discipline, one of the most overblown and over-hyped business books of the 1990s. This book is far better: it is better written and more powerful. On the evidence presented here, the case for business sustainability is overwhelming.
Never mind being green, never mind saving the planet (although Senge and his co-authors think these things are important); they believe businesses have a duty to society, and that they must help protect the interests of future generations.
The Necessary
Revolution
How Individuals and Organisations Are Working Together to Create Sustainable World
Peter Senge, Bryan Smith,
Nina Kruschwltz, Joehaur and
Sara Schley
Doubleday $29.25
But more than that, the case for sustainability is at heart a business case.
Reducing a company's carbon footprint, for example, reduces environmental damage, but it also cuts waste, reduces costs and makes the business more efficient. Renewable energy is not just better for the planet than fossil fuels, it is also often cheaper, say the authors. In 2006, Google announced plans to switch to renewable energy. In part this change was because of the personal beliefs of the founders, but Google is also a huge consumer of electricity and needed to cut costs.
Back in 2002, General Electric began investing in alternative energy technologies when oil was $25 a barrel. Today, with prices nearly six times that and still rising, GE is seeing the fruits of that investment as demand soars for alternative technologies.
There is also the issue of customer demand. GE's customers were becoming increasingly concerned about sustainability. The authors quote chief executive Jeffrey Immelt: "When society changes its mind, you better be in front of it and not behind it, and this is an issue on which society has changed its mind. As CEO, my job is to get out in front of it because if you're not out in front of it, you're going to get [ploughed] under."
Critical too, in the view of the authors, is the need to be proactive. The leaders of the sustainability revolution do not wait for legislation to tell them what to do; indeed, they may be helping to make the law, setting standards for greenhouse gas emission, water pollution and so on. These trend leaders have a powerful competitive advantage.
Although the authors never say so directly, it seems clear that the business case for sustainability is so strong that the personal beliefs of the CEO and the board do not really matter. Even the most adamant climate-change denier must recognise where the market is going.
Home Depot, the American DIY chain, demands that all its wood products come from suppliers who can provide evidence of sound forest management practices. Home Depot is also one of the biggest buyers of wood products in the US. Forget the environment: this is business.
It is a powerful argument, and one the authors make over and over again, with plenty of examples of good practice among businesses. But if the argument is so powerful, why are more people not listening? The authors do not have a solution to that problem.
When Google announced its renewable energy initiative, one leading New York analyst downgraded the company despite clear indications that the move would cut costs. His view was that Google was no longer focusing on the priorities. This is not uncommon. So, investing in sustainable business means lower share-price growth and lower dividends, and that in turn means lower bonuses for executives. The authors acknowledge this problem, but, again, have no remedy for it. So long as short-termism remains rampant, not everyone is going to accept the business case for sustainability.
Ultimately, the authors may be prophets without honour. Their arguments are compelling and there are plenty of examples of businesses already leading the way. But business leaders are like cats: unwilling to be herded, and inherently suspicious of change.
Despite the claims of Senge that a revolution is under way, it is unlikely that the majority will put the arguments of this book into practice on a meaningful scale.
FT Syndication Service
Senge, an academic at Massachusettts Institute of Technology, is best known for The Fifth Discipline, one of the most overblown and over-hyped business books of the 1990s. This book is far better: it is better written and more powerful. On the evidence presented here, the case for business sustainability is overwhelming.
Never mind being green, never mind saving the planet (although Senge and his co-authors think these things are important); they believe businesses have a duty to society, and that they must help protect the interests of future generations.
The Necessary
Revolution
How Individuals and Organisations Are Working Together to Create Sustainable World
Peter Senge, Bryan Smith,
Nina Kruschwltz, Joehaur and
Sara Schley
Doubleday $29.25
But more than that, the case for sustainability is at heart a business case.
Reducing a company's carbon footprint, for example, reduces environmental damage, but it also cuts waste, reduces costs and makes the business more efficient. Renewable energy is not just better for the planet than fossil fuels, it is also often cheaper, say the authors. In 2006, Google announced plans to switch to renewable energy. In part this change was because of the personal beliefs of the founders, but Google is also a huge consumer of electricity and needed to cut costs.
Back in 2002, General Electric began investing in alternative energy technologies when oil was $25 a barrel. Today, with prices nearly six times that and still rising, GE is seeing the fruits of that investment as demand soars for alternative technologies.
There is also the issue of customer demand. GE's customers were becoming increasingly concerned about sustainability. The authors quote chief executive Jeffrey Immelt: "When society changes its mind, you better be in front of it and not behind it, and this is an issue on which society has changed its mind. As CEO, my job is to get out in front of it because if you're not out in front of it, you're going to get [ploughed] under."
Critical too, in the view of the authors, is the need to be proactive. The leaders of the sustainability revolution do not wait for legislation to tell them what to do; indeed, they may be helping to make the law, setting standards for greenhouse gas emission, water pollution and so on. These trend leaders have a powerful competitive advantage.
Although the authors never say so directly, it seems clear that the business case for sustainability is so strong that the personal beliefs of the CEO and the board do not really matter. Even the most adamant climate-change denier must recognise where the market is going.
Home Depot, the American DIY chain, demands that all its wood products come from suppliers who can provide evidence of sound forest management practices. Home Depot is also one of the biggest buyers of wood products in the US. Forget the environment: this is business.
It is a powerful argument, and one the authors make over and over again, with plenty of examples of good practice among businesses. But if the argument is so powerful, why are more people not listening? The authors do not have a solution to that problem.
When Google announced its renewable energy initiative, one leading New York analyst downgraded the company despite clear indications that the move would cut costs. His view was that Google was no longer focusing on the priorities. This is not uncommon. So, investing in sustainable business means lower share-price growth and lower dividends, and that in turn means lower bonuses for executives. The authors acknowledge this problem, but, again, have no remedy for it. So long as short-termism remains rampant, not everyone is going to accept the business case for sustainability.
Ultimately, the authors may be prophets without honour. Their arguments are compelling and there are plenty of examples of businesses already leading the way. But business leaders are like cats: unwilling to be herded, and inherently suspicious of change.
Despite the claims of Senge that a revolution is under way, it is unlikely that the majority will put the arguments of this book into practice on a meaningful scale.
FT Syndication Service