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Beyond Greening:Strategies for a Sustainable World

by Stuart L. Hart

Reprint 97105

Harvard Business Review


Beyond Greening:


fer to as its carrying capacity. Increasingly, thescourges of the late twentieth century – depletedfarmland, fisheries, and forests; choking urban pol-lution; poverty; infectious disease; and migration –are spilling over geopolitical borders. The simplefact is this: in meeting our needs, we are destroyingthe ability of future generations to meet theirs.

The roots of the problem – explosive populationgrowth and rapid economic development in theemerging economies – are political and social issuesthat exceed the mandate and the capabilities of anycorporation. At the same time, corporations are theonly organizations with the resources, the technol-ogy, the global reach, and, ultimately, the motiva-tion to achieve sustainability.

It is easy to state the case in the negative: facedwith impoverished customers, degraded environ-ments, failing political systems, and unraveling societies, it will be increasingly difficult for cor-

porations to do business. But the positive case is even more powerful. The more we learn about thechallenges of sustainability, the clearer it is that weare poised at the threshold of a historic moment in which many of the world’s industries may betransformed.

To date, the business logic for greening has beenlargely operational or technical: bottom-up pollu-tion-prevention programs have saved companies

The environmental revolution has been almostthree decades in the making, and it has changed for-ever how companies do business. In the 1960s and1970s, corporations were in a state of denial regard-ing their impact on the environment. Then a seriesof highly visible ecological problems created agroundswell of support for strict government regu-lation. In the United States, Lake Erie was dead. InEurope, the Rhine was on fire. In Japan, people weredying of mercury poisoning.

Today many companies have accepted their re-sponsibility to do no harm to the environment.Products and production processes are becomingcleaner; and where such change is under way, theenvironment is on the mend. In the industrializednations, more and more companies are “goinggreen” as they realize that they can reduce pollu-tion and increase profits simultaneously. We havecome a long way.

But the distance we’ve traveled will seem smallwhen, in 30 years, we look back at the 1990s. Be-yond greening lies an enormous challenge – and anenormous opportunity. The challenge is to developa sustainable global economy: an economy that theplanet is capable of supporting indefinitely. Al-though we may be approaching ecological recoveryin the developed world, the planet as a whole re-mains on an unsustainable course. Those whothink that sustainability is only a matter of pollu-tion control are missing the bigger picture. Even ifall the companies in the developed world were toachieve zero emissions by the year 2000, the earthwould still be stressed beyond what biologists re-

ARTWORK BY BRUCE ROGOVIN Copyright © 1996 by the President and Fellows of Harvard College. All rights reserved.

Stuart L. Hart is a faculty member in corporate strat-egy and the director of the Corporate Environmental Management Program at the University of MichiganBusiness School in Ann Arbor. His E-mail address is [email protected].

Strategies for a Sustainable Worldby Stuart L. Hart


billions of dollars. However, few executives realizethat environmental opportunities might actuallybecome a major source of revenue growth. Green-ing has been framed in terms of risk reduction,reengineering, or cost cutting. Rarely is greeninglinked to strategy or technology development, andas a result, most companies fail to recognize oppor-tunities of potentially staggering proportions.

Worlds in CollisionThe achievement of sustainability will mean bil-

lions of dollars in products, services, and technolo-gies that barely exist today. Whereas yesterday’sbusinesses were often oblivious to their negativeimpact on the environment and today’s responsiblebusinesses strive for zero impact, tomorrow’s busi-nesses must learn to make a positive impact. In-creasingly, companies will be selling solutions tothe world’s environmental problems.

Envisioning tomorrow’s businesses, therefore, re-quires a clear understanding of those problems. Tomove beyond greening to sustainability, we mustfirst unravel a complex set of global interdependen-cies. In fact, the global economy is really three dif-ferent, overlapping economies.

The market economy is the familiar world ofcommerce comprising both the developed nationsand the emerging economies.1 About a billion peo-ple – one-sixth of the world’s population – live inthe developed countries of the market economy.Those affluent societies account for more than 75%of the world’s energy and resource consumptionand create the bulk of industrial, toxic, and con-sumer waste. The developed economies thus leavelarge ecological footprints – defined as the amountof land required to meet a typical consumer’s needs.(See the exhibit “Ecological Footprints.”)

Despite such intense use of energy and materials,however, levels of pollution are relatively low inthe developed economies. Three factors account forthis seeming paradox: stringent environmental reg-ulations, the greening of industry, and the reloca-tion of the most polluting activities (such as com-modity processing and heavy manufacturing) to theemerging market economies. Thus to some extentthe greening of the developed world has been at theexpense of the environments in emerging econo-mies. Given the much larger population base inthose countries, their rapid industrialization couldeasily offset the environmental gains made in thedeveloped economies. Consider, for example, thatthe emerging economies in Asia and Latin America

(and now Eastern Europe and the former SovietUnion) have added nearly 2 billion people to themarket economy over the past 40 years.

With economic growth comes urbanization. To-day one of every three people in the world lives in acity. By 2025, it will be two out of three. Demogra-phers predict that by that year there will be wellover 30 megacities with populations exceeding 8million and more than 500 cities with populationsexceeding 1 million. Urbanization on this scale presents enormous infrastructural and environ-mental challenges.

Because industrialization has focused initially oncommodities and heavy manufacturing, cities inmany emerging economies suffer from oppressivelevels of pollution. Acid rain is a growing problem,especially in places where coal combustion is un-regulated. The World Bank estimates that by 2010there will be more than 1 billion motor vehicles in

BEYOND GREENING

68 HARVARD BUSINESS REVIEW January-February 1997

Increasingly, companies

Ecological Footprints

In the United States, it takes 12.2 acres to supply the average person’s basic needs; in the Netherlands, 8 acres; in India, 1 acre. The Dutch ecological footprint covers 15 times the area of the Netherlands, whereas India’s footprint exceeds its area by only about 35%. Most strikingly, if the entire world lived like North Americans, it would take three planet Earths to support the present world population.Source: Donella Meadows, “Our ‘Footprints’ Are Treading Too Much Earth,” Charleston (S.C.) Gazette, April 1, 1996.

United StatesThe Netherlands

India


The third economy is nature’s economy, whichconsists of the natural systems and resources thatsupport the market and the survival economies.Nonrenewable resources, such as oil, metals, andother minerals, are finite. Renewable resources,such as soils and forests, will replenish them-selves – as long as their use does not exceed criticalthresholds.

Technological innovations have created substi-tutes for many commonly used nonrenewable re-sources; for example, optical fiber now replacescopper wire. And in the developed economies, de-mand for some virgin materials may actually di-minish in the decades ahead because of reuse andrecycling. Ironically, the greatest threat to sustain-

able development today is depletion of the world’srenewable resources.

Forests, soils, water, and fisheries are all beingpushed beyond their limits by human populationgrowth and rapid industrial development. Insuffi-cient fresh water may prove to be the most vexingproblem in the developing world over the nextdecade, as agricultural, commercial, and residentialuses increase. Water tables are being drawn down atan alarming rate, especially in the most heavilypopulated nations, such as China and India.

Soil is another resource at risk. More than 10% of the world’s topsoil has been seriously eroded.Available cropland and rangeland are shrinking.Existing crop varieties are no longer responding toincreased use of fertilizer. As a consequence, percapita world production of both grain and meatpeaked and began to decline during the 1980s. Mean-while, the world’s 18 major oceanic fisheries havenow reached or actually exceeded their maximumsustainable yields.

By some estimates, humankind now uses morethan 40% of the planet’s net primary productivity.If, as projected, the population doubles over thenext 40 years, we may outcompete most other ani-mal species for food, driving many to extinction. Inshort, human activity now exceeds sustainabilityon a global scale. (See the exhibit “Major Chal-lenges to Sustainability.”)

As we approach the twenty-first century, theinterdependence of the three economic spheres isincreasingly evident. In fact, the three economieshave become worlds in collision, creating the majorsocial and environmental challenges facing theplanet: climate change, pollution, resource deple-tion, poverty, and inequality.

the world. Concentrated in cities, they will doublecurrent levels of energy use, smog precursors, andemissions of greenhouse gas.

The second economy is the survival economy:the traditional, village-based way of life found inthe rural parts of most developing countries. It ismade up of 3 billion people, mainly Africans, Indi-ans, and Chinese who are subsistence oriented andmeet their basic needs directly from nature. De-mographers generally agree that the world’s popula-tion, currently growing by about 90 million peopleper year, will roughly double over the next 40 years.The developing nations will account for 90% ofthat growth, and most of it will occur in the sur-vival economy.

Owing in part to the rapid expansion of the mar-ket economy, existence in the survival economy isbecoming increasingly precarious. Extractive in-dustries and infrastructure development have, inmany cases, degraded the ecosystems upon whichthe survival economy depends. Rural populationsare driven further into poverty as they compete forscarce natural resources. Women and children nowspend on average four to six hours per day searchingfor fuelwood and four to six hours per week drawingand carrying water. Ironically, those conditions en-courage high fertility rates because, in the shortrun, children help the family to garner needed re-sources. But in the long run, population growth inthe survival economy only reinforces a vicious cy-cle of resource depletion and poverty.

Short-term survival pressures often force theserapidly growing rural populations into practicesthat cause long-term damage to forests, soil, andwater. When wood becomes scarce, people burndung for fuel, one of the greatest – and least well-known – environmental hazards in the world today.Contaminated drinking water is an equally graveproblem. The World Health Organization estimatesthat burning dung and drinking contaminated wa-ter together cause 8 million deaths per year.

As it becomes more and more difficult to live offthe land, millions of desperate people migrate toalready overcrowded cities. In China, for example,an estimated 120 million people now roam fromcity to city, landless and jobless, driven from theirvillages by deforestation, soil erosion, floods, ordroughts. Worldwide, the number of such “envi-ronmental refugees” from the survival economymay be as high as 500 million people, and the figureis growing.

will sell solutions to the world’s environmental problems.

HARVARD BUSINESS REVIEW January-February 1997 69


Consider, for example, that the average Ameri-can today consumes 17 times more than his or herMexican counterpart (emerging economy) and hun-dreds of times more than the average Ethiopian(survival economy). The levels of material and en-ergy consumption in the United States require largequantities of raw materials and commodities,sourced increasingly from the survival economyand produced in emerging economies.

In the survival economy, massive infrastructuredevelopment (for example, dams, irrigation proj-ects, highways, mining operations, and power gen-eration projects), often aided by agencies, banks,and corporations in the developed countries, hasprovided access to raw materials. Unfortunately,such development has often had devastating conse-quences for nature’s economy and has tended tostrengthen existing political and economic elites,with little benefit to those in the survival economy.

At the same time, infrastructure developmentprojects have contributed to a global glut of raw ma-terials and hence to a long-term fall in commodityprices. And as commodity prices have fallen rela-tive to the prices of manufactured goods, the cur-rencies of developing countries have weakened and

their terms of trade have become less favorable.Their purchasing power declines while their al-ready substantial debt load becomes even larger.The net effect of this dynamic has been the transferof vast amounts of wealth (estimated at $40 billionper year since 1985) from developing to developedcountries, producing a vicious cycle of resource ex-ploitation and pollution to service mounting debt. Today developing nations have a combined debt ofmore than $1.2 trillion, equal to nearly half of theircollective gross national product.

Strategies for a Sustainable WorldNearly three decades ago, environmentalists

such as Paul Ehrlich and Barry Commoner madethis simple but powerful observation about sus-tainable development: the total environmental burden (EB) created by human activity is a function

of three factors. They are population (P); affluence(A), which is a proxy for consumption; and tech-nology (T), which is how wealth is created. Theproduct of these three factors determines the totalenvironmental burden. It can be expressed as a for-mula: EB = P � A � T.


Emerging economies cannot afford to repeat the mistakes

Major Challenges to Sustainability

Developed economies

Pollution Depletion Poverty

Emerging economies

Survival economies–dung and wood burning–lack of sanitation–ecosystem destructiondue to development

–greenhouse gases–use of toxic materials–contaminated sites

–scarcity of materials–insufficient reuse and recycling

–urban and minorityunemployment

–industrial emissions–contaminated water–lack of sewage treatment

–overexploitation of renewable resources

–overuse of water for irrigation

–migration to cities–lack of skilled workers–income inequality

–deforestation–overgrazing–soil loss

–population growth–low status of women–dislocation


Achieving sustainability will require stabilizingor reducing the environmental burden. That can bedone by decreasing the human population, lower-ing the level of affluence (consumption), or chang-ing fundamentally the technology used to createwealth. The first option, lowering the human popu-lation, does not appear feasible short of draconianpolitical measures or the occurrence of a major pub-lic-health crisis that causes mass mortality.

The second option, decreasing the level of afflu-ence, would only make the problem worse, becausepoverty and population growth go hand in hand: demographers have long known that birth rates areinversely correlated with level of education andstandard of living. Thus stabilizing the human pop-ulation will require improving the education andeconomic standing of the world’s poor, particularlywomen of childbearing age. That can be accom-plished only by creating wealth on a massive scale.Indeed, it may be necessary to grow the world econ-omy as much as tenfold just to provide basic ameni-ties to a population of 8 billion to 10 billion.

That leaves the third option: changing the tech-nology used to create the goods and services thatconstitute the world’s wealth. Although populationand consumption may be societal issues, technol-ogy is the business of business.

If economic activity must increase tenfold overwhat it is today just to provide the bare essentials toa population double its current size, then technolo-gy will have to improve twentyfold merely to keepthe planet at its current levels of environmentalburden. Those who believe that ecological disasterwill somehow be averted must also appreciate thecommercial implications of such a belief: over thenext decade or so, sustainable development willconstitute one of the biggest opportunities in thehistory of commerce.

Nevertheless, as of today few companies have in-corporated sustainability into their strategic think-ing. Instead, environmental strategy consists large-ly of piecemeal projects aimed at controlling orpreventing pollution. Focusing on sustainability re-quires putting business strategies to a new test.Taking the entire planet as the context in which

they do business, companies must ask whetherthey are part of the solution to social and environ-mental problems or part of the problem. Only whena company thinks in those terms can it begin to de-velop a vision of sustainability – a shaping logicthat goes beyond today’s internal, operational focus

of Western development.

on greening to a more external, strategic focus onsustainable development. Such a vision is neededto guide companies through three stages of environ-mental strategy.

Stage One: Pollution Prevention. The first stepfor most companies is to make the shift from pollu-tion control to pollution prevention. Pollution con-trol means cleaning up waste after it has been cre-ated. Pollution prevention focuses on minimizingor eliminating waste before it is created. Much like total quality management, pollution preventionstrategies depend on continuous improvement ef-forts to reduce waste and energy use. This transfor-mation is driven by a compelling logic: pollutionprevention pays. Emerging global standards for en-vironmental management systems (ISO 14,000, forexample) also have created strong incentives forcompanies to develop such capabilities.

Over the past decade, companies have sought toavoid colliding with nature’s economy (and incur-ring the associated added costs) through greeningand prevention strategies. Aeroquip Corporation, a$2.5 billion manufacturer of hoses, fittings, andcouplings, saw an opportunity here. Like most in-dustrial suppliers, Aeroquip never thought of itselfas a provider of environmental solutions. But in1990, its executives realized that the company’sproducts might be especially valuable in meetingthe need to reduce waste and prevent pollution.Aeroquip has generated a $250 million business byfocusing its attention on developing products thatreduce emissions. As companies in emerging econ-omies realize the competitive benefits of using rawmaterials and resources more productively, busi-nesses like Aeroquip’s will continue to grow.

The emerging economies cannot afford to repeatall the environmental mistakes of Western devel-opment. With the sustainability imperative inmind, BASF, the German chemical giant, is helpingto design and build chemical industries in China,India, Indonesia, and Malaysia that are less pollut-ing than in the past. By colocating facilities that inthe West have been geographically dispersed, BASFis able to create industrial ecosystems in which thewaste from one process becomes the raw materialfor another. Colocation solves a problem commonin the West, where recycling waste is often infeasi-ble because transporting it from one site to anotheris dangerous and costly.

Stage Two: Product Stewardship. Product stew-ardship focuses on minimizing not only pollutionfrom manufacturing but also all environmental im-pacts associated with the full life cycle of a product.As companies in stage one move closer to zeroemissions, reducing the use of materials and pro-

BEYOND GREENING



duction of waste requires fundamental changes inunderlying product and process design.

Design for environment (DFE), a tool for creatingproducts that are easier to recover, reuse, or recycle,is becoming increasingly important. With DFE, allthe effects that a product could have on the envi-ronment are examined during its design phase. Cra-dle-to-grave analysis begins and ends outside theboundaries of a company’s operations – it includes a full assessment of all inputs to the product andexamines how customers use and dispose of it. DFE thus captures a broad range of external per-spectives by including technical staff, environmen-tal experts, end customers, and even communityrepresentatives in the process. Dow Chemical Com-pany has pioneered the use of a board-level advisorypanel of environmental experts and external repre-sentatives to aid its product-stewardship efforts.

By reducing materials and energy consumption,DFE can be highly profitable. Consider Xerox Cor-poration’s Asset Recycle Management (ARM) pro-gram, which uses leased Xerox copiers as sources ofhigh-quality, low-cost parts and components for

new machines. A well-developed infrastructure fortaking back leased copiers combined with a sophis-ticated remanufacturing process allows parts andcomponents to be reconditioned, tested, and thenreassembled into “new” machines. Xerox esti-mates that ARM savings in raw materials, labor,and waste disposal in 1995 alone were in the $300-

million to $400-million range. In taking recyclingto this level, Xerox has reconceptualized its busi-ness. By redefining the product-in-use as part of thecompany’s asset base, Xerox has discovered a wayto add value and lower costs. It can continually pro-vide its lease customers with the latest product up-grades, giving them state-of-the-art functionalitywith minimal environmental impact.

Product stewardship is thus one way to reduceconsumption in the developed economies. It mayalso aid the quest for sustainability because devel-oping nations often try to emulate what they see


“Poverty is one of the world’s leading pol-luters,” notes Erling Lorentzen, founder andchairman of Aracruz Celulose. The $2 billionBrazilian company is the world’s largestproducer of eucalyptus pulp. “You can’t ex-pect people who don’t eat a proper meal to beconcerned about the environment.”1

From the very start, Aracruz has been builtaround a vision of sustainable development.Lorentzen understood that building a viableforest-products business in Brazil’s impov-erished and deforested state of EspiritoSanto would require the simultaneous im-provement of nature’s economy and the sur-vival economy.

First, to restore nature’s economy, the com-pany took advantage of a tax incentive for treeplanting in the late 1960s and began buyingand reforesting cut-over land. By 1992, thecompany had acquired over 200,000 hectaresand planted 130,000 hectares with managedeucalyptus; the rest was restored as conserva-tion land. By reforesting what had becomehighly degraded land, unsuitable for agricul-ture, the company addressed a fundamentalenvironmental problem. At the same time, itcreated a first-rate source of fiber for its pulp-

Without a framework for

ing operations. Aracruz’s forest practices andits ability to clone seedlings have given thecompany advantages in both cost and quality.

Aracruz has tackled the problem of povertyhead-on. Every year, the company gives awaymillions of eucalyptus seedlings to local farm-ers. It is a preemptive strategy, aimed at reduc-

ing the farmers’ need to deplete the naturalforests for fuel or lumber. Aracruz also has

a long-term commitment to capability build-ing. In the early years, Aracruz was able to hirelocal people for very low wages because oftheir desperate situation. But instead of sim-ply exploiting the abundant supply of cheap la-bor, the company embarked on an aggressivesocial-investment strategy, spending $125million to support the creation of hospitals,

schools, housing, and a training center for em-ployees. In fact, until recently, Aracruz spentmore on its social investments than it did onwages (about $1.20 for every $1 in wages).Since that time, the standard of living has im-proved dramatically, as has productivity. Thecompany no longer needs to invest so heavilyin social infrastructure.

1. Marguerite Rigoglioso, “Stewards of the Seventh Genera-tion,” Harvard Business School Bulletin, April 1996, p. 55.

Aracruz Celulose: A Strategy for the Survival Economy


bioengineering of crops rather than the applicationof chemical pesticides or fertilizers represents asustainable path to increased agricultural yields.(See “Growth Through Global Sustainability: AnInterview with Monsanto’s CEO, Robert B. Sha-piro,” by Joan Magretta, in this issue of HBR.)

Clean technologies are desperately needed in theemerging economies of Asia. Urban pollution therehas reached oppressive levels. But precisely becausemanufacturing growth is so high – capital stockdoubles every six years – there is an unprecedentedopportunity to replace current product and processtechnologies with new, cleaner ones.

Japan’s Research Institute for Innovative Tech-nology for the Earth is one of several new researchand technology consortia focusing on the develop-ment and commercialization of clean technologiesfor the developing world. Having been providedwith funding and staff by the Japanese governmentand more than 40 corporations, RITE has set forthan ambitious 100-year plan to create the next gener-ation of power technology, which will eliminate orneutralize greenhouse gas emissions.

Sustainability VisionPollution prevention, product stewardship, and

clean technology all move a company toward sus-tainability. But without a framework to give direc-tion to those activities, their impact will dissipate.A vision of sustainability for an industry or a com-pany is like a road map to the future, showing theway products and services must evolve and whatnew competencies will be needed to get there. Fewcompanies today have such a road map. Ironically,chemical companies, regarded only a decade ago asthe worst environmental villains, are among thefew large corporations to have engaged the chal-lenge of sustainable development seriously.

Companies can begin by taking stock of each com-ponent of what I call their sustainability portfolio.(See the exhibit “The Sustainability Portfolio.”) Is there an overarching vision of sustainability that gives direction to the company’s activities? Towhat extent has the company progressed throughthe three stages of environmental strategy – frompollution prevention to product stewardship toclean technology?

Consider the auto industry. During the 1970s,government regulation of tailpipe emissions forcedthe industry to focus on pollution control. In the

happening in the developed nations. Properly exe-cuted, product stewardship also offers the potentialfor revenue growth through product differentiation.For example, Dunlop Tire Corporation and AkzoNobel recently announced a new radial tire thatmakes use of an aramid fiber belt rather than theconventional steel belt. The new design makes re-cycling easier because it eliminates the expensivecryogenic crushing required to separate the steelbelts from the tire’s other materials. Because thenew fiber-belt tire is 30% lighter, it dramaticallyimproves gas mileage. Moreover, it is a safer tire be-cause it improves the traction control of antilockbraking systems.

The evolution from pollution prevention to prod-uct stewardship is now happening in multinationalcompanies such as Dow, DuPont, Monsanto, Xe-rox, ABB, Philips, and Sony. For example, as part ofa larger sustainability strategy dubbed A GrowingPartnership with Nature, DuPont’s agricultural-products business developed a new type of herbi-cide that has helped farmers around the world re-duce their annual use of chemicals by more than 45million pounds. The new Sulfonylurea herbicideshave also led to a 1-billion-pound reduction in theamount of chemical waste produced in the manu-facture of agricultural chemicals. These herbicidesare effective at 1% to 5% of the application rates oftraditional chemicals, are nontoxic to animals andnontarget species, and biodegrade in the soil, leav-ing virtually no residue on crops. Because they re-quire so much less material in their manufacture,they are also highly profitable.

Stage Three: Clean Technology. Companies withtheir eye on the future can begin to plan for andinvest in tomorrow’s technologies. The simple factis that the existing technology base in many in-dustries is not environmentally sustainable. Thechemical industry, for example, while having made

substantial headway over the past decade in pollu-tion prevention and product stewardship, is stilllimited by its dependence on the chlorine mole-cule. (Many organochlorides are toxic or persistentor bioaccumulative.) As long as the industry relieson its historical competencies in chlorine chem-istry, it will have trouble making major progress to-ward sustainability.

Monsanto is one company that is consciously de-veloping new competencies. It is shifting the tech-nology base for its agriculture business from bulkchemicals to biotechnology. It is betting that the

environmental activities, their impact will dissipate.

BEYOND GREENING



The Sustainability Portfolio

Clean technology

Is the environmental performanceof our products limited by our existing competency base?

Is there potential to realize major improvements through new technology?

tomorrow

today

internal external

Pollution prevention

Where are the most significant waste and emission streams from our current operations?

Can we lower costs and risks by eliminating waste at the source or by using it as useful input?

Sustainability vision

Does our corporate vision direct us toward the solution of social and environmental problems?

Does our vision guide the development of new technologies, markets, products, and processes?

Product stewardship

What are the implications for product design and development if we assume responsibility for a product’s entire life cycle?

Can we add value or lower costs while simultaneously reducing the impact of our products?

This simple diagnostic tool can help any company determine whether its strategy is consistent with sustainability. First, assess your company’s capability in each of the four quadrants by answering the questions in each box. Then rate yourself on the following scale for each quadrant: 1–nonexistent; 2–emerging; 3–established; or 4–institutionalized. Most companies will be heavily skewed toward the lower left-hand quadrant, reflecting investment in pollution prevention. However, without investments in future technologies and markets (the upper half of the portfolio), the company’s environmental strategy will not meet evolving needs.

Unbalanced portfolios spell trouble: a bottom-heavy port-folio suggests a good position today but future vulnerability. A top-heavy portfolio indicates a vision of sustainability with-out the operational or analytical skills needed to implement it. A portfolio skewed to the left side of the chart indicates a preoccupation with handling the environmental challenge through internal process improvements and technology-development initiatives. Finally, a portfolio skewed to the right side, although highly open and public, runs the risk of being labeled a “greenwash” because the underlying plant operations and core technology still cause significant environmental harm.

1980s, the industry began to tackle pollution pre-vention. Initiatives such as the Corporate AverageFuel Efficiency requirement and the Toxic ReleaseInventory led auto companies to examine theirproduct designs and manufacturing processes in or-der to improve fuel economy and lower emissionsfrom their plants.

The 1990s are witnessing the first signs of prod-uct stewardship. In Germany, the 1990 “take-back”law required auto manufacturers to take responsi-bility for their vehicles at the end of their usefullives. Innovators such as BMW have influenced thedesign of new cars with their design for disassem-bly efforts. Industry-level consortia such as thePartnership for a New Generation of Vehicles aredriven largely by the product stewardship logic oflowering the environmental impact of automobilesthroughout their life cycle.

Early attempts to promote clean technology in-clude such initiatives as California’s zero-emissionvehicle law and the U.N. Climate Change Conven-

tion, which ultimately will limit greenhouse gaseson a global scale. But early efforts by industry in-cumbents have been either incremental – for exam-ple, natural-gas vehicles – or defensive in nature.Electric-vehicle programs, for instance, have beenused to demonstrate the infeasibility of this tech-nology rather than to lead the industry to a funda-mentally cleaner technology.

Although the auto industry has made progress, itfalls far short of sustainability. For the vast majorityof auto companies, pollution prevention and prod-uct stewardship are the end of the road. Most autoexecutives assume that if they close the loop inboth production and design, they will have accom-plished all the necessary environmental objectives.

But step back and try to imagine a sustainable vi-sion for the industry. Growth in the emerging mar-kets will generate massive transportation needs inthe coming decades. Already the rush is on to stakeout positions in China, India, and Latin America.But what form will this opportunity take?



Building Sustainable Business Strategies

Lower material and energy consumption

Poverty

Megacities

Depletion

Emerging economies

Developed economies

Pollution

Reduce pollution burdens

Replenish depleted resources

Nature’s economy Survival economy

Market economy

Build the skills of the poor and the dispossessed

Ensure sustainable use of nature’s economy

Develop clean products and technology

Foster village-based business relationships

Consider the potential impact of automobiles onChina alone. Today there are fewer than 1 millioncars on the road in China. However, with a popula-tion of more than 1 billion, it would take less than30% market penetration to equal the current size ofthe U.S. car market (12 million to 15 million unitssold per year). Ultimately, China might demand 50million or more units annually. Because China’senergy and transportation infrastructures are stillbeing defined, there is an opportunity to develop aclean technology yielding important environmen-tal and competitive benefits.

Amory Lovins of the Rocky Mountain Institutehas demonstrated the feasibility of building hyper-cars – vehicles that are fully recyclable, 20 timesmore energy efficient, 100 times cleaner, andcheaper than existing cars. These vehicles retainthe safety and performance of conventional cars butachieve radical simplification through the use oflightweight, composite materials, fewer parts, vir-tual prototyping, regenerative braking, and verysmall, hybrid engines. Hypercars, which are moreakin to computers on wheels than to cars withmicrochips, may render obsolete most of the com-petencies associated with today’s auto manufac-turing – for example, metal stamping, tool and diemaking, and the internal combustion engine.

Assume for a minute that clean technology likethe hypercar or Mazda’s soon-to-be-released hydro-gen rotary engine can be developed for a market

such as China’s. Now try to envision a transporta-tion infrastructure capable of accommodating somany cars. How long will it take before gridlockand traffic jams force the auto industry to a halt?Sustainability will require new transportation solu-tions for the needs of emerging economies withhuge populations. Will the giants in the auto indus-try be prepared for such radical change, or will theyleave the field to new ventures that are not encum-bered by the competencies of the past?

A clear and fully integrated environmental strat-egy should not only guide competency develop-ment, it should also shape the company’s relation-ship to customers, suppliers, other companies,policymakers, and all its stakeholders. Companiescan and must change the way customers think bycreating preferences for products and services con-sistent with sustainability. Companies must be-come educators rather than mere marketers ofproducts. (See the exhibit “Building SustainableBusiness Strategies.”)

For senior executives, embracing the quest forsustainability may well require a leap of faith.Some may feel that the risks associated with in-vesting in unstable and unfamiliar markets out-weigh the potential benefits. Others will recognizethe power of such a positive mission to galvanizepeople in their organizations.

Regardless of their opinions on sustainability,executives will not be able to keep their heads in



the sand for long. Since 1980, foreign direct invest-ment by multinational corporations has increasedfrom $500 billion to nearly $3 trillion per year. Infact, it now exceeds official development-assistanceaid in developing countries. With free trade on the rise, the next decade may see the figure increase byanother order of magnitude. The challenges pre-sented by emerging markets in Asia and LatinAmerica demand a new way of conceptualizingbusiness opportunities. The rapid growth in emerg-ing economies cannot be sustained in the face ofmounting environmental deterioration, poverty,and resource depletion. In the coming decade, com-panies will be challenged to develop clean tech-nologies and to implement strategies that dras-tically reduce the environmental burden in the

developing world while simultaneously increasingits wealth and standard of living.

Like it or not, the responsibility for ensuring a sustainable world falls largely on the shoulders of the world’s enterprises, the economic engines ofthe future. Clearly, public policy innovations (atboth the national and international levels) andchanges in individual consumption patterns will beneeded to move toward sustainability. But corpora-tions can and should lead the way, helping to shapepublic policy and driving change in consumers’ be-havior. In the final analysis, it makes good businesssense to pursue strategies for a sustainable world.1. The terms market economy, survival economy, and nature’s economywere suggested to me by Vandana Shiva, Ecology and the Politics of Sur-vival (New Delhi: United Nations University Press, 1991).

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BEYOND GREENING


beyond greening: strategies for a sustainable worldinfo.psu.edu.sa/psu/fnm/ymelhem/psu...

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