Green Is Good For Business

More companies understand that they can protect the environment and prosper

By Todd S. Thomson

Historically, corporations thought keeping an eye on the environment also meant taking an eye off shareholders. That has changed dramatically in the past few years. Now there are reminders everywhere that a growing number of companies see the interests of investors and those of the environment as closely aligned. Cases in point: the celebrity-toasted hybrid car offerings from Toyota (TM ) and Honda (HMC ), the ubiquitous ads from energy companies extolling alternative-fuel research, even a simple trip to Starbucks (SBUX ).

So what explains this about-face? Simply put: profits. Most of today's environmental initiatives are not just well-choreographed PR campaigns intended to fool consumers. Instead, many corporations are going green because they've recognized the gigantic profit opportunities in doing so -- and the competitive danger of lagging behind.

Good old-fashioned cost-cutting may be the easiest way for companies to reap bottom-line benefits from initiatives that also happen to have environmental payoffs. Wal-Mart Stores (WMT ), long known for pressuring suppliers on prices, asked a supplier to slim down the packaging on a private-label brand of toys called Kid Connection. That single effort will not only enable Wal-Mart to ship 497 fewer containers a year at a savings of $2.4 million but also will spare some 3,800 trees and save more than 1,000 barrels of oil. And Chief Executive Lee Scott said recently that Wal-Mart could save $52 million a year with just a one-mile-a-gallon improvement in gas mileage for its huge fleet.

Then there's the revenue side of the equation. As the urgency of global climate change is more widely recognized, products that effectively decrease emissions are going to generate massive profits. Some of the beneficiaries of this trend may surprise you. Who would have thought, for example, that companies such as General Electric (GE ) and Boeing (BA ) would see new opportunities in a world of $70-a-barrel crude? But GE has begun selling a superefficient gas turbine that, while providing enough electricity to power 300,000 U.S. homes, produces 73,000 fewer tons of carbon dioxide emissions a year relative to a typical unit. And orders for Boeing's $150 million, 250-passenger 787 Dreamliner jet, which uses 20% less fuel than comparable models, jumped from 56 in 2004 to 235 in 2005 as oil prices soared to record levels.

Hybrid cars are probably the best-known success story. Few people, however, know when the saga began: Auto makers such as Toyota and Honda started investing a decade ago to enable their product lines to compete in a "carbon-constrained" economy. Now they are capitalizing on environmental regulation in Europe, China, and elsewhere as well as skyrocketing pump prices. Ford (F ) and General Motors (GM ), meanwhile, spent the past decade introducing new lines of gas-guzzling light trucks and sport-utility vehicles (and years lobbying against tougher emission standards) instead of innovating. The moral: Forward-thinking businesses that realize environmental standards must tighten will thrive.

Aligning revenue streams with environmental imperatives has yet another important corporate benefit: As political pressure mounts to make reduction of greenhouse gases mandatory, companies with a head start on eco-friendly technology will have the credibility to participate in, or even shape, the debate over how to further reduce emissions.

The amount of innovation necessary to stop global warming will be staggering, but it also could be staggeringly profitable for global companies. Just think: China, likely the great economic engine of the 21st century, cannot continue on its growth path unless it addresses its pollution crisis. In an early step in that direction, a group of state-owned companies recently announced a $715 million venture to develop cleaner coal-gasification technology. But imagine what China will ultimately pay for the green technology that will let it continue prospering economically (and, in turn, maintain its social and political stability).

At January's World Economic Forum in Davos, I sat among fellow CEOs, opinion leaders, and heads of state who kept pointing to environmental issues as key obstacles to everything from defusing regional tensions to enhancing global growth. That broad consensus suggests the enormous opportunities for businesses that manage to ride that environmental wave -- and the bleak future for those that get caught in its wake.

Views expressed in Outside Shot are solely those of contributors.

Todd S. Thomson is CEO of Citigroup Global Wealth Management and a director of the World Resources Institute

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