Executive Briefings

Environmental: Successful Businesses (Not Governments) Lead the Green Charge

Analyst Insight: Don't be fooled by the dismal lack of progress in government venues on climate-change agreements or environmental legislation. The smartest companies are already pushing the frontier to bigger and bolder green agendas to gain competitive advantage, with the added benefit of enhancing their reputations for true corporate responsibility.

There was widespread and justifiable disappointment in the outcome of last year's U.N. Climate Change Conference in Copenhagen. It is toothless since it is not legally binding, sets no real targets, was drafted by just five countries, has no guarantee or firm commitments on the climate funds to help developing countries comply, and won't be assessed for progress until 2015. Countries are supposed to submit updated emissions targets and action plans by Jan. 31, 2010, but don't hold your breath for much bolder commitments.

Meanwhile, under the American Clean Energy and Security Act of 2009, it is projected that regulated firms will use offsets to render the proposed cap non-binding for all practical purposes for the next decade or two-i.e., they can continue business-as-usual emissions until 2017 (according to conservative estimates from the CBO) or all the way through 2027 (according to the EPA).  In any case, the recession will likely create a glut of emissions permits for several years. The Senate's Kerry-Boxer bill is not much better and in a number of ways even weaker.

The average company can't just sit back and wait. With companies like Wal-Mart and GE having made sustainability a centerpiece of their strategies, being lean and seriously green has become mainstream; a necessity for businesses, not just for public relations and reputation, but more concretely for the bottom line.  In his last public speech as CEO of Wal-Mart, H. Lee Scott said, "As businesses, we have a responsibility to society. There is no conflict between delivering value to shareholders, and helping solve bigger societal problems."

In short, as supply chain innovation has been the common characteristic among the most successful firms, we are witnessing the same phenomena with sustainability and green practices becoming the hallmarks of the most effective, winning firms.

The Outlook

It is likely that a cap and trade bill will pass in 2010, but it will almost certainly fall well short of what's needed to truly address climate change. Sadly, progress on the international front is likely to be even more anemic. However, leading businesses will continue to increase their commitments to sustainability, based on the competitive advantage it affords them.

There was widespread and justifiable disappointment in the outcome of last year's U.N. Climate Change Conference in Copenhagen. It is toothless since it is not legally binding, sets no real targets, was drafted by just five countries, has no guarantee or firm commitments on the climate funds to help developing countries comply, and won't be assessed for progress until 2015. Countries are supposed to submit updated emissions targets and action plans by Jan. 31, 2010, but don't hold your breath for much bolder commitments.

Meanwhile, under the American Clean Energy and Security Act of 2009, it is projected that regulated firms will use offsets to render the proposed cap non-binding for all practical purposes for the next decade or two-i.e., they can continue business-as-usual emissions until 2017 (according to conservative estimates from the CBO) or all the way through 2027 (according to the EPA).  In any case, the recession will likely create a glut of emissions permits for several years. The Senate's Kerry-Boxer bill is not much better and in a number of ways even weaker.

The average company can't just sit back and wait. With companies like Wal-Mart and GE having made sustainability a centerpiece of their strategies, being lean and seriously green has become mainstream; a necessity for businesses, not just for public relations and reputation, but more concretely for the bottom line.  In his last public speech as CEO of Wal-Mart, H. Lee Scott said, "As businesses, we have a responsibility to society. There is no conflict between delivering value to shareholders, and helping solve bigger societal problems."

In short, as supply chain innovation has been the common characteristic among the most successful firms, we are witnessing the same phenomena with sustainability and green practices becoming the hallmarks of the most effective, winning firms.

The Outlook

It is likely that a cap and trade bill will pass in 2010, but it will almost certainly fall well short of what's needed to truly address climate change. Sadly, progress on the international front is likely to be even more anemic. However, leading businesses will continue to increase their commitments to sustainability, based on the competitive advantage it affords them.