GREENING OF THE GREENBACK
Recycled carpets, eco-fleeces, organic yogurt and even a greener Google search – US industry is responding to the environmental crisis in unexpected ways. We meet America’s sustainable business leaders – the innovators who have reduced their energy bills, redesigned their processes and rethought their business models, in an effort to prove that you can be green and still make a greenback.
GREENING OF THE GREENBACK
In a huge, unassuming warehouse on the outskirts of Atlanta, Georgia, a businessman in his 70s is sitting on a pile of old carpet. There are more piles of carpet arranged around him, crammed into every corner of the building, almost as far as the eye can see. Despite the man’s relaxed pose, it’s not magic carpet – but what Ray Anderson hopes to do with it has a kind of magic about it.
Anderson is chairman and founder of Interface Global, the world’s biggest supplier of “modular carpet” – that is, replaceable carpet tiles – to businesses around the world. And thanks to a series of innovative recycling processes, this old carpet around us – some originally made by Interface, some by rival manufacturers – is destined to be turned into new carpet, and resold.
“We tell our customers: ‘We want that stuff back,’” explains Anderson. “‘Don’t you even dare let it go to the landfill. Even our competitors’ products – don’t let them go to landfill either.’”
For Interface, recycling nylon and fibre for carpets – a process it calls ReEntry 2.0 – isn’t a green gimmick. It’s part of a serious attempt to eliminate the company’s impact on the environment by 2020 – by reducing waste, reducing the company’s reliance on virgin resources, and offsetting the rest.
If that goal – christened “Mission Zero” – sounds unusual for a $350m, Nasdaq-listed company, it’s because it is.
Figures about the environmental impact of US industry have so many noughts on the end as to seem almost meaningless, but let’s try a few anyway. In 2009, it was estimated that US industry threw away around 14 billion tonnes of waste; in 2008, US industry emitted around 1.4 billion tonnes of C02 into the atmosphere (total US emission were 5.8bn tonnes). And given the failure of the Copenhagen’s Climate Change conference in Decemeber 2009, the burden rests more heavily than ever on US business to ‘step up’ where World Governments have failed to.
Anderson, himself a self-confessed former “serial polluter”, believes that’s a mess that has to be fixed.Yet the environmental figures that Anderson quotes for Interface – what it calls its EcoMetrics – are staggering in themselves. The company, he says, has already diverted 80,000 tonnes of used carpet from landfill sites. Its total energy usage, he says, is down 44% per unit of production; his fossil-fuel-derived energy down 60%. Net greenhouse gas emissions are down 71% against a 1996 baseline – even while the company has grown.
And critically, according to Interface, that commitment to sustainability helps the company to survive – by having an impact on the bottom line.
Since 1995, according to Interface’s website, it has saved more than $405million – more than its entire market capitalisation today – by redesigning its processes as part of its efforts to climb what Anderson calls “Mount Sustainability”.
Not surprisingly, the company now uses its green credentials as a key differentiator as part of its carpet sales – and has even set up a green consultancy arm, known as InterfaceRAISE.
And Interface has demonstrated that going green can be profitable – despite the financial crisis and making a net loss of US$0.5m in the first six months of 2009, Interface has recovered well and reported a net profit of US$9.5m for first 6 months of 2010.
Throughout the crisis of 2008/09, the company gained market share in the carpet industry. “Costs are down, and our products are the best they’ve ever been. Whatever business is out there, we will get our share and more.”
For today’s business leaders, that financial and environmental story begs an inevitable question. Do we follow the example of Interface, and integrate sustainability into our business models – running the inevitable risks that technology innovation brings? Or do we wait, do nothing, and run the opposite risk: being left behind?
To help answer that question, it’s worth taking the example of Google, a company that knows a thing or two about embracing change.
Most businesspeople use Google every day – but few know how much energy is used in every Google search they make. Google, however, does – and has gone public with the information. The average query, the company has said on its official blog, uses about 1kJ of energy, and emits about 0.2g of carbon dioxide into the atmosphere.
That doesn’t sound like much, but with the number of Google searches a day in nine figures at least, the energy it uses a year will be measured in terajoules(one million million), and its CO2 in tens of thousands of tonnes. Those are two reasons why, three years ago, the company appointed an “energy tsar”, Bill Weihl, to help reduce the energy use of probably the most famous company in the world.
The company had worked out that its data centre operations – in other words, its warehouses full of servers running the Google searches we rely on so much – accounted for a significant proportion of its carbon footprint. Further, it realised that cooling systems , such as fans, pumps and air conditioning, were responsible for a huge part of that.
The solution, according to Google, was to redesign the data centres – getting construction companies to build them to Google’s own specifications.
The technology it ultimately chose was to add evaporative “cooling towers” - which used the evaporation of water to cool data centres more efficiently than using fans or air conditioning. Through this and other design changes, it reduced the proportion of energy it spends on powering and cooling data centres to about 16% of the total it spends running data centres and servers - compared to an industry average of 49%. And it did that even though the servers were more energy-efficient in themselves
The design changes make long-term financial sense, says Weihl – but perhaps would not if you focused exclusively on capital cost. “If you’re going to build a facility like that,” he explains, “it’s going to be around for ten years or so. It makes sense to think: ‘Should I spend an extra $5 now and save $50 over the life of the facility?’ - which is a pretty common trade-off we are faced with.”
The problem with most businesses is that there isn’t enough joined-up thinking on budgets to make that happen, says Weihl. “The guy who is building buildings may say, well: ‘I could spend an extra 10% on a building, and save 10 times as much over the next five years in operational expense, but that’s not in my budget. I’m not in a position to make that trade-off.’ So they don’t.”
Green gurus, in fact, have for many years been recommending the kind of long-term thinking that Google is demonstrating now. For example, in their 1999 book Natural Capitalism, Paul Hawken, along with Amory and Hunter Lovins – some of business’ best-known environmentalists, whose book was recommended as a “very big deal” in a speech by the then outgoing president, Bill Clinton – advised that businesses use “whole-system design” in an effort to get more from the natural resources they pay for and consume.
As well as offering fertile ground for debate between environmentalists and traditional economists – claiming that if businesses accounted for a combined $33 trillion of “ecosystem services” on their balance sheets, they would see the long-term economic loss caused by degrading the environment – the book was also intended as a rallying call to ordinary businesses: integrate sustainability into your processes, and reap the benefits of going green.
In Natural Capitalism, the authors cite the case of a company whose chief designer redesigned a pumping loop at one of its company’s plants in China. The standard design of pump required a total of 95 horsepower – but the designer in question looked at the problem afresh. He decided to use fatter pipes, which meant that he could use smaller pumps and pump motors – which were not only more energy-efficient, but cost less in the first place.
Second, he redesigned the layout of the system by laying out the pipes first, before installing the rest of the equipment around them – meaning there were fewer kinks and bends in the system than in a typical installation.
As a result of the two changes, the designer had created a seven-horsepower pump – an astonishing 92% saving that went directly on to the company’s bottom line.
The name of the designer? Jan Schilham, the chief engineer at Interface Global – whose then boss, Ray Anderson, had put the company on the path to sustainability after earlier being inspired by one of Hawken’s books.
In economic terms, it’s arguable that what Interface and Google were doing was in fact very simple – taking a long-term overview of simple economic problems, and finding the best economic solution.
But clearly, there is something else going on too – and that is a change in the way people are starting to think about why they do business. And to see it more clearly, take a look at the example of a third American company – one that has more experience than most in climbing Mount Sustainability.
The offices of Patagonia, manufacturers of environmentally friendly clothing and gear for the outdoor sports industry, are a bit like a combination between a ski lodge and a college campus dormitory. There’s a homely, cosy atmosphere, with lots of groups meeting together informally – not altogether unlike the culture you might expect at the Googleplex.
It helps that, at Patagonia, practically everyone is a surfer, mountaineer or other outdoor sports nut, who understands their customers intimately: Jen Rapp, who works in PR, has climbed El Capitan, a vertical climb in Yosemite National Park, more than once. But the air of laid-back calm at the company goes hand in hand with a firm commitment to the business of sustainability.
“We often think of ourselves as outdoor manufacturers – but behind that veneer, we’re a group of environmentalists who are striving to prove to the rest of the business community that building sustainability into your model is not just business-neutral: it’s business-positive,” says Rob Bon Durant, the company’s marketing director.
But that culture didn’t come about by accident. It came from a set of core values championed by the company’s charismatic founder-owner, the French-Canadian climber Yvon Chouinard.
In his business memoir Let My People Go Surfing, Chouinard explains how, in the recession of 1991, a cash crisis nearly brought the company to its knees. Chouinard and his management team had let growth continue unbridled – to the extent that although sales rose by 20% in 1991, it left the company with piles of unsold stock, because it was significantly less than the growth they had planned.
Chouinard realised that the company had become unsustainable – and one of the reasons was that, at heart, the company didn’t know why it was in business. Was it just to make money, or was it something bigger than that? After all, Chouinard had always prided himself on being a maverick, a business leader who didn’t quite play by the rules.
During crisis talks, a new strategy emerged. As climbers and outdoor types, he and his staff shared respect for the environment – but sold products made from virgin resources and fossil fuels. So it was time to integrate their respect for the environment into the company – making it the essence of its culture, its business model and its brand.
Putting the strategy into effect, Chouinard took groups of staff out into the woods for mini-lectures on the new philosophy. He then adopted a more sustainable approach to both the environment and business growth. In business terms, that meant controlled growth of just 5% a year. In environmental terms, it meant a change in business model: it started making jackets from recycled polyester, in 1993; and moved entirely to organic cotton in 1996.
That change was a risk: but as Bon Durant admits, moving into organic cotton could have been “terminal for the business”. “We had to go to our factory partners and show them how to work with organic cotton, at a time when all of this was trailblazing – because the use of conventional cotton was mortifying to us; we couldn’t be part of it. We had seen the bubbling selenium columns and high cancer rates among factory workers.”
Happily, customers embraced the change. “We actually grew the business,” says Bon Durant, “and today we do tens of millions of dollars in organic cotton.”
It worked, perhaps for a very simple reason – at its core, making money is about persuading people to give it to you. At Patagonia, both staff and customers are essentially are outdoorsy people who care for the environment; both bought into Patagonia as a sustainable brand.
Of course, organic cotton costs more than ordinary cotton; there is also a 20% to 40% premium, Bon Durant says, on a recycled polyester fleece. But Patagonia can justify higher prices by speaking honestly to its customers about its environmental work. That’s why it goes as far as to put details of more than a dozen products’ CO2 emissions on its website – in a part of the site known as the “Footprint Chronicles”.
As customers buy into the brand, says Bon Durant, so Patagonia becomes a sought-after place to work. The company gets thousands of requests from under and postgraduates to conduct research about the company, he tells me, that it has to turn most of them down.
Other companies can vouch for the energising effect on staff of being a more sustainable company. Gary Hirshberg, CEO of Stonyfield Farm – America’s biggest organic dairy company, now owned by Danone Group – says his company links part of its profit-sharing bonuses to employees to environmental goals – and has an environmental “Mission Action Plan” designed to engage staff further. And he says it works.
“The benefit to our company,” he adds, “is that our employees don’t view our mission as remote company-speak. They are motivated to think about and act on our mission when they’re on the job. That translates into a level of commitment and a loyalty I’m sure is the envy of other companies.”
It’s not just staff and customers who are party to the changes – it’s regulators, investors, suppliers and everyone else who has an effect on your business.
“You're not just getting a better reputation,” he goes on. “You are eliminating waste, which turns into profit. You are eliminating toxicity, which turns into reduced liability and now regulatory oversight; you don’t need to have those embarrassing conversations with the various health and safety authorities, because you can take off your masks now. You are not doing anything that will harm the workers or the neighbours.”
“This isn’t a throwaway generation, facing business today,” agrees Bon Durant. “People have sustainability, or a portion of it, built into their DNA. And so it is going to be a question that is constantly asked.”
As I am interviewing Ray Anderson, businessman and green guru, in his office in Georgia, USA, he reaches over and grabs a piece of paper and a pen. He starts telling me about an ecological economist called Herman Daly who, he says, has a “delightful way” of representing the relationship, as he sees it, between the economy and the environment.
“Daly draws a simple picture,” he says. “He draws a square and a circle: one of those is the environment, the other is the economy. Which is which?”
I look at the piece of paper, in which the square is drawn completely inside the circle. “You know what an economist will say every time?” says Anderson. “This is the economy,” the circle, “and that’s the environment.” (the square within the circle)
But Anderson and Daly think that’s wrong. “This is the environment” – he says, pointing to the circle – “and that’s the economy” – the square. “The economy is the wholly owned subsidiary of the environment.”
Warming to his theme, Anderson goes on to tell me that, in his view, the economy depends on the environment to survive. Nature provides sunlight, photosynthesis, air, water, energy, pollination, flood control, insect control, nutrient cycling, more; take away any of these services, and the economy will collapse. “Nature,” he says, “is the golden goose that lays all the golden eggs.”
It’s the viewpoint of a confirmed environmentalist – a man who, when I ask him how the future will pan out, believes there is going to be “an awful lot of pain to humanity before all this gets sorted out, and humankind comes to grips with its limitations, and the limitations of the Earth”.
But later, reflecting for a moment, he adds something to that. “You know, there is one glimmer of optimistic focus in this. You will never meet an ex-environmentalist. Once you get it, once a person gets it, they cannot un-get it. It’s like a ratchet – it only moves in one direction. And that ratchet has been picking up speed in the past five years.”
Looking at the business world, that’s a fair analysis of what has been going on. It’s no longer just those outdoorsy types, for example, who buy organic products: “We know that over two-thirds (69 %) of US adult consumers buy organic products at least occasionally, and about 28% of organic consumers - about 19% of adults – are weekly organic users,” explains Hirshberg.
Governments, too, are acting with more confidence when it comes to setting environmental taxes and targets. Imagine you run an energy company in the state of California. Whereas in the 1970s you made money simply by generating more power to meet demand – encouraging consumption and energy emissions – now the playing field has been reversed. Under a system called “Decoupling Plus,” incentives reward you not for burning coal, but for meeting energy-saving goals.
Thanks in part to the rapid growth of the internet, business models are changing too. Imagine you’re a car manufacturer, and you make money from the replacement of proprietary parts that aren’t built to last. If so, you’re probably well aware of the potential threat to your business from “open-source” eco-car designers – who are not only designing products they hope will be more environmentally friendly than yours, but are also sharing their work with other designers, potentially encouraging the universal interoperability of car parts.
In the past decade, Natural Capitalism co-author Amory Lovins points out, there have been increasing numbers of businesses whose models are based on leasing services based on products rather than selling products themselves. Xerox, which turned around its business by moving from selling photocopiers to providing document management services, is a case in point; companies like Zipcar and Flexicar offer to lend you a car whenever you need one as an alternative to car ownership. ““I find these ideas spreading kind of under the radar,” Lovins says.
Some businesspeople, of course, will see those changes as a threat. But the green gurus see it as an opportunity – and the more you commit to the goal of reducing waste and emissions, they gurus say, the greater the rewards.
“In everything we do, we have an impact on the planet,” says Hirshberg. “That’s true for individuals and even truer for businesses.
“Any business leader who doesn’t get this by now is turning down the largest, most lucrative opportunity of this young century: reducing waste and increasing energy efficiency. Companies that figure out how to do both will not only reduce their costs and boost their profits, they’ll win tremendous public support as well.
“So, there's a wonderful simplicity that comes to your business when you're ultimately producing almost everything with almost nothing. Making no waste, doing no harm, and doing good – at the expense not of the planet, but of your competitors.”
As for Anderson, he’s focusing his efforts on taking that message out to a wider audience than the carpet industry.
“If we somehow influence the entire global carpet industry to become totally sustainable,” he says. “it would not be a drop in the bucket. The carpet industry is $25bn, maybe, worldwide.” Walmart and General Electric, he points out, are worth four to eight times that.
“So this industry is minuscule in the grand scheme of things; but if we can create an example that demonstrates a better business model in this industry, in the time of global climate change, maybe we really can extend that influence beyond our own borders.”
If you’re a businessperson looking for a way to innovate out of this present economic crisis, it seems the answer might be right under your feet.