Environmental Challenges as Business opportunity
The key question for a manager, “how to make money and protect the environment at the same time?”, can be answered in a variety of ways according to the setting. It not only applies to “Greening and cleaning” existing businesses, but also requires entrepreneurial creativity to turn environmental constraints into new business opportunities.
Recycling has become a multibillion dollar business with high growth rates (Nulty, 1990; Sherman, 1989). Shares for waste management companies are performing well in stock markets. Fund managers are increasingly considering environmental factors in their investment decisions. Specialized “Green” investment funds become new businesses. Providers of clean process technology are booming. A new species, “the environmental consultant”, has emerged. Advertising agencies, auditors and law firms have entered the new business (Elkington and Burke, 1989). The environment seems to have become the leading marketing argument of the 1990s. Managers grasp the environment issue as a potential competitive advantage in saturated markets. The prospects of additional new products such as phosphate-free detergents or “ozone friendly” chemicals increase with consumer awareness and national or international regulations.
Some managers may, upon reading this, have reservations and feel that environmental discussions and forthcoming regulations could pose a threat to their company rather than be an opportunity for growth. In some cases they could be right.
For example, by the mid-1980s in Izmir, on the Aegean coast of Turkey, the quantity of contaminated water dumped by local industries into the sea had become unacceptable. By the end of the 1980s the local government, with the help of the World Bank, had begun the construction of a water purification plant. All businesses discharging contaminated effluents must use this facility. In order to keep the total cost of the project within reasonable limits, it was decided that the plant would only carry out secondary purification. The primary purification would be done by each individual enterprise. While this posed no great threat to firms whose effluents were only mildly contaminated, or to large firms who could easily obtain loans to install their own water-treatment plants, it was a major threat to small, dirty firms such as tanneries. It is likely that many of these will be forced to close.
Pollution prevention pays
|• Since 1975 when the American company 3M pioneered its 3P programme “Pollution Prevention Pays” in the United States, more than 2,500 projects have been carried out leading, according to statements of the company, to savings of over US$ 500 million.
• As a result of its productivity movement the Indian BHEL corporation saved energy worth approximately 26 million rupees within two years.
• The investment to recover foundry dust and reuse it to make new moulds proved to be highly successful at Baxi partnership in the United Kingdom. Not only was the investment paid back in a mere three months, but Baxi partnership was also awarded the 1989 prize for good environmental management by the Industry and Environment Office of the United Nations Environment Programme and the Commission of the European Communities.
Other major polluters such as pulp and paper, food processing, iron and steel, aluminium, chemicals, cement manufacturing and electric power generation may face costly retrofitting and equipment changes, which may account for between 5 and 15 per cent of total new plant and capital expenditures, as a study for the United States has shown (Leonard, 1988, p. 90).
A manager would certainly like to know how his or her business will be affected as a consequence of the increasing environmental consciousness of consumers and governments. Will the environmental challenge present an opportunity or a threat to the business?
An estimated answer to this question can be reached by assessing the present state of a company by means of a quick Environmental Challenge Scan, as presented in figure 1. You may wish to draw an environmental challenge profile of your company by indicating for each of the criteria whether you are closer to the characteristics of a “Green growth” company or to a threatened company. Even though there are many more criteria to define the success of a company, the criteria which we will now discuss briefly are either a major asset or a heavy burden “in making money and protecting the environment at the same time”.
By running through this quick assessment of environmental challenges, a manager will become aware of the main problem areas of environmental management, which will be dealt with in more detail in the remaining chapters of the book. In the following, each of the evaluation criteria will be discussed.
Business environment interaction: The case of ozone depletion
Chloro-fluorocarbons (CFCs), halons and other substances damage the ozone layer in the stratosphere. Since the early 1980s, when a vast hole in the ozone layer above the Antarctic was discovered, relatively rapid international action has been taken to ban the substances harmful to the ozone layer. Already in 1987, the Montreal Protocol and related national regulations called for phased reduction of CFC production and a complete phasing-out by the year 2000. As the damage to the ozone layer proves to be more dramatic and other substances have been found that also contribute to ozone depletion, the London Amendment (1990) and the Copenhagen Amendment (1992) foresee more drastic and quicker reductions: CFCs and carbon tetrachloride have to be phased out by 1996, while production of methyl bromide was frozen in 1995 at 1991 levels.
This not only results in obsolete capacities in the chemical industry, but also caused a number of users to develop alternative solutions for the products using CFCs and halons. The many users of aerosol sprays had to look for an alternative propellant. Producers of refrigerators are still searching for an equally performative refrigerant. Enterprises have to design services to scrap refrigerators without releasing CFCs. In the production of synthetic materials (insulating and packaging foams), new blowing agents are required. For the cleaning of metal and electronic parts substitutes have to be found. The same is true for halons used in fire extinguishers. The threat of businesses to the environment backfires as a threat to companies using CFCs and halons. Those companies succeeding in developing alternative solutions will have a competitive advantage: a threat turned into an opportunity, a growth potential for innovative companies.
Sector of the economy
The sector to which an enterprise belongs is already an indicator both of the threat it poses to the environment and of the costs for enterprises associated with stricter environmental regulations (Leonard, 1988; OECD, 1991).
Table 1 relates sectors of the economy to their possible threats to the environment. The Brundtland report names the following as major polluters: food processing; iron and steel; non-ferrous metals; automobiles; pulp and paper; chemicals; and electro-power generation (WCED, 1987). Taylor et al. (1994) identify three distinct categories of sector with regard to their environmental concerns and levels of environmental management: first, dirty, damaging and dangerous such as water, energy and mining; second, wasteful and polluting such as light industry and retailing; and, third, the so-called “silent destroyers”, e.g. the professions, government and finance. There is also a recent, growing awareness that agriculture is not necessarily a clean business. Other major sources of pollution are private households and road transport. Technologies and production levels, however, vary widely throughout the world. A sectoral analysis can only be a very rough indicator of “pollution prone” activities. For example, a pulp and paper manufacturer has been able, by using advanced technology, to reduce water and energy consumption to a minimum, recycle waste water in a closed circuit, use less harmful bleaching agents for the paper, and base the production on recycling used paper. Another pulp and paper plant heavily pollutes the local river, imports high amounts of wood, and is a consumer of enormous amounts of energy. The whole area has an unpleasant odour. The latter company contributes to the persistence of a polluter image, threatening the environment and the public image of the sector, while the former has successfully reduced its threats to the environment.
The environmental friendliness of an individual enterprise is determined not only by its manufacturing processes but also by the products it yields.
- have an extended life span;
• be made of renewable materials;
• not pollute the environment;
• be energy efficient in production and use;
• require minimal packaging.
In the case of the car, for instance, it is significant to observe the changes that have been introduced as a consequence of energy costs, together with antipollution and antiwaste regulations: drastic reduction of fuel consumption by improved engine design, reduced weight and wind resistance; reduction of exhaust emissions by catalyser technology; and partial use of recyclable materials. Even if each individual car becomes more “environment friendly”, it does not necessarily mean that road transport as a whole is less threatening to the environment. We are observing an increasing number of automobiles worldwide and the distance driven per vehicle is also growing. Growth, even with Greener products, may therefore be counterproductive to environmental protection.
Management and staff commitment
The most important asset in bringing about change is management and staff commitment. In our Environmental Challenge Scan those companies which have already undertaken measures to sensitize managers and staff to the importance of environmental protection score high points. Many of these companies have attempted in their suggestion schemes or quality circles to render products and processes less harmful to the environment. These are invariably companies which have a genuine concern for the working environment.
As the environment is becoming a fashionable business topic, we find many companies paying lip service to environmental protection without taking meaningful actions to prove that they are really committed.
The chief executive officer of an automobile manufacturer proposing to build more four-lane highways in Europe to reduce traffic congestion, and thus reduce pollution by cars, is not an example of a manager committed to the environment. Divergence of statements and actions are a sign of a threatened company, whereas a company’s credibility is highly valued by staff, consumers and community. This applies also to operations in different countries. Multinational companies are tempted to adopt double standards in their subsidiaries in industrialized and in developing countries. Though companies are now detecting that these strategies are not particularly helpful in the long run, they are still being applied (Leonard, 1988).
Skill level of staff
It is not enough to be committed to the environment; a company needs to respond efficiently to the environmental challenge. Tougher environmental standards may require the installation and running of complex pollution abatement equipment, processes may have to be run with smaller tolerances and emissions will need to be analysed and monitored. Changes of products and processes will occur more often. The Green growth company will therefore be characterized by well-trained staff at all levels.
Research and development capacity
Green growth companies have demonstrated that they are able to anticipate or react quickly to changes in the market and environmental regulations.
Their growth is due to creativity in developing new products or modifying existing ones. Phosphate-free detergents, waste management services, modified chemical formulations and processes, design of recycling systems and alternative packaging are all a result of successful research and development (R&D). Companies which have short development cycles, creative, flexible R&D teams, and have access to information on clean technologies score high in our Environmental Challenge Scan.
If your company has developed specific know-how, for instance, on how to substitute or recycle materials, and/or to reduce pollution or wastes, the selling of this knowledge as a consultancy service to other companies can be a new profitable area of business.
It may take time before investments in “environment friendly” products and processes pay off. Companies may feel threatened by the fact that they will have to put money into products and processes without being able to clearly define the pay-back periods of these investments. Other investments made in the past may perhaps be written off in compliance with tougher environmental standards, rendering them unprofitable.
A Green growth company will have enough capital to enter into the Green venture or will have banks which are convinced that this company will be successful, despite or because of Green consumer pressure and environmental regulations.
Larger companies may have sufficient financial resources for expensive retrofitting in order to comply with environmental regulations, or may even discontinue a product. These companies might use their lobbying power to “soften” environmental regulations, or use the argument of job losses to receive grace periods for environmentally harmful processes and products.