It's a Sustainable World After All
Chief executive officers of multinational companies should regard climate change and looming energy shortages as business opportunities (BusinessWeek.com, 4/24/08), particularly in emerging markets, says Barbara Kux, a member of Royal Philips Electronics' (PHIA) group management committee. Kux, who chairs the company's sustainability board and is also the company's chief procurement officer, makes a distinction between emerging countries, which are getting richer, and developing countries, which will remain poorer.
Kux, a Swiss national based at Eindhoven in the Netherlands, is consistently ranked one of the most influential women in business. Here are edited excerpts from a recent conversation:
You believe that climate change is not necessarily a threat to major businesses but rather could be an opportunity?
It's a fantastic opportunity because it takes great technology and new solutions to cope with it. Today 70% of carbon dioxide (CO2) emissions are coming from so-called mature markets. But the developing and emerging markets are going to increase in importance simply because of pure demographics. The International Energy Agency estimates emerging markets will account for three-quarters in the rise of CO2 emissions up to 2030.
How are you helping position Philips to take advantage of these trends?
We have established sustainability as a green business opportunity. When I took over the chairmanship of sustainability in 2004 we asked, what are the topics and issues that have a high relevance to society at large where Philips has technological capabilities? Of course, the whole area of energy efficiency is a big one.
In addition, we created an interesting matrix. One axis was the human development index (HDI), which doesn't just measure [countries'] gross domestic product but also well-being by education and health levels of the population as well as purchasing power. The other axis was the ecological footprint of various countries. As a result, you can conclude there are three kinds of economies: developed economies, with 15% of global population; emerging economies, with 44% of the population; and developing economies, with 41% of the population.
We need products for each. For developed economies, we want to help them keep their high human development index and even improve it with cleaner technologies. For emerging economies, we want to help them leapfrog existing technologies with clean technologies. The developing economies need lower-cost technologies.
What does all that mean in terms of your product offerings?
We have our lighting solutions, which are on average 40% more efficient than older-generation incandescent lighting. Lighting, by the way, accounts for 19% of total energy use of the planet. This is a very concrete example of how climate change is not a threat.
What's the technological key to how your lighting systems use 40% less power?
In old lighting technology, 90% of electricity is wasted as heat produced by the lightbulb. So there has been a continuous drive to make lightbulbs that produce light, not heat. To that end we have developed the compact fluorescent lightbulb, designed to replace incandescent bulbs. And we've made considerable progress in light-emitting diode technology, which is very different from either incandescent or fluorescent lighting.
In general, did you develop new technologies when you took over the sustainability effort or use already existing ones?
Both. We have green technologies not only in lighting but also in health care, where we have a magnetic resonance imaging (MRI) scanner that uses 30% less energy than its predecessor. We also have consumer products that use 36% less energy or more. All our businesses are embracing products and solutions that consume less energy.
From a consumer's point of view, don't more efficient products cost more money, and might that be a disincentive for people to buy them?
Absolutely not. If the devices use 30% less energy, your energy bill is lower. Yes, maybe the upfront investment is a little bit higher for energy-efficient lighting, but the return is much better over the long term.
At the Eiffel Tower in Paris two years ago, we were able to reduce the energy cost by 30%. The lighting at night is more beautiful, but it uses less energy and costs less.
What percentage of Philips products now are more energy-efficient than when you started as head of sustainability?
In 2004, our revenue from green products was 1 billion euros. By 2006, it had grown by more than 30%. And in 2007, it was 5.2 billion euros ($7.8 billion). Today, green products account for 20% of our total revenues.
Are European CEOs ahead of their U.S. counterparts in seeing climate and energy challenges as a business opportunity?
I wouldn't say it's more European than American.
But doesn't it seem that American CEOs spend more time on disputing the assertion that we face climate or energy challenges?
Perhaps, but there are great examples of American companies that are working on finding the right technologies and the right solutions. There are a number of large companies but also niche players. I look at it more on a global scale.
The Dow Jones Sustainability Index, which we use, is a very sophisticated way to measure the sustainability performance of global companies. It measures not only your efforts in green business areas but also how you deal with your supply base and your employees.
What's another example of how Philips has found a green business opportunity in the emerging or developing worlds?
We have developed solar-powered portable lighting for rural areas where you have almost no energy at all. In addition, we have developed a wood stove because open fires are widely used in many emerging countries, specifically in rural India and China. So we developed a product that does a better job of controlling fire emissions, and we're in the process of launching it.
We're already seeing India and China emerge as major consumers of petroleum and coal in ways that are not very green. Might they be able to develop but use less energy?
They need to leapfrog existing technologies and use better solutions. If you have lighting technology available with 40% less energy use, using the old technology doesn't make a lot of sense.
As head of procurement, how do you buy components and materials in a more environmentally positive fashion?
We want to make our supply base more economical, of course, but we also want to make it closer to some of the growth economies. It's a combined effect: We lower the costs compared with more mature markets, and we establish a supply base for growth in emerging markets.
Are you demanding that suppliers themselves adhere to higher standards?
Absolutely, our suppliers have to adhere to our sustainability declaration, which also covers labor conditions in addition to environmental standards, for instance. We give them a self-assessment tool so they can assess their levels.
We have also started audits, some of which are done in-house, but we also use an external company, Société Générale Surveillance (SGS), to make it more objective.
Where are we overall in the business world's effort to respond to climate change and energy shortages?
We are not the in early stages any more. We're in the roll-out stage. Just do it.