Environmental Business Strategies

Whether the E nvironmental B usiness S trategies are to Create Competitive Advantages or to Address New Constraints Mhd Alaa Al Khourdajie University of Greenwich – Syrian Virtual Univeristy BA H Business Administration 01/12/2008 “ ”

Table of Contents:

Setting the Statement

The Environmental Crises

The Climate Change Science

The Business … The Environment!

The Shifting Market – Is it Getting Green?

An Environmental Business Strategy, How?

The Green Competitiveness vs. The Green Constraints

The Green Closing Statement

The Climate Change crisis has topped the list of the environmental challenges that have emerged in the last few decades. It has become the most threatening and alarming one the humanity has ever faced. Most scientists agree that the environmental crises in general and the Climate Change in specific are caused primarily by the human activities stemmed from the Industrial Revolution that had been empowered under the carbon-based economic systems.

The Environmental Crises’ impacts are becoming more apparent in our daily life, because of which the sustainable management of resources and stewardship of the natural environment have become urging issues that aim at giving the natural world a stronger voice in the human affairs. Under this scope the Environmentalism had significantly surfaced the social movements in the last century.

As a matter of fact, the business world revolution, the most practical form of the Industrial Revolution, had the biggest stake in causing the crisis. And in response to the Environmentalism, adopting Environmental Strategies has turned to be a must. Dealing intelligently with this challenge, business leaders had thrived to turn the risks and the costs associated with the crisis into benefits and opportunities through the creation of the Environmental Business Strategies (EBSs).

The statement mention in the beginning of the presentation is to discuss and argument the fundamentals of the EBSs that have been widely debated in the business world community nowadays; Will the EBSs help the business leaders accomplished what they aim at?. This presentation is to summarize this argumentation that has been addressed in details on two separated essays.

The Environmental Crises

We entered the 21 st century with 10 environmental crises on the list:

The Climate Change

The Energy Crises

The Water Crisis

Biodiversity & Land Use

Chemical, Toxic, and Heavy Metals

The essays had dealt specifically with the Climate Change crisis, since it’s the most urging and fast improving one. Moreover, the solutions entitled to solve this crisis will indirectly help in resolving the others.

Air Pollution

Waste Mismanagement

Ozone Layer Depletion

Ocean and Fisheries

Deforestation

Since the beginning of the 20th century, especially in the last 30 years, Earth’s temperature has risen 1.4°F (0.8°C), introducing what so called “The Global Warming Era” that has negative impact on the people (humanity) and the Earth’s ecosystems. At least other 2°F (1.1°C), and possibly more than 11°F (6.4°C), are projected temperature growth in the next 100 years.

The problem has gone far beyond rising temperature, what we are facing is more accurately described as “Climate Change” . This catch-all includes rising sea levels, changing rainfall patterns, more severe droughts and floods, harsher hurricanes and windstorms, among other impacts that could threaten the habitability of the blue planet Earth.

Figure 1 below is to illustrate how the Natural Warming process has turned into an Amplified Warming process, the main ecological reason causing the Climate Change, because of the increasing CO2 concentrations in the atmosphere resulted from burning the fossil fuels for energy .

Figure 2 is to illustrate the correlation between the changes in carbon dioxide concentrations (in blue) & changes in temperature (in red).

Both Figures 1 and 2 are images courtesy of the Marian Koshland Science Museum of the National Academy of Sciences located in the US.

The Business… The Environment!

With thanks to Industrial Revolution, the businesses worldwide had found a big room for fast yet harsh improvement. Most of the businesses’ activities in most industries have a big stake in causing the crisis through their irresponsible practices that are running through all the value chains, ranging from delivering the raw materials and the products, the production processes, to the high emission rates of a product during its life cycle.

The practices are broken down into three interrelated categories that are either a reason or result of these practices:

The Consumerism Trends

The International Regulatory Framework

The Businesses’ Industrial activities

All these categories are running through any business’ value chains

Consumers have become part of the challenge, through structural and habitual consumerism trends that have spread, with thanks to globalization, to all over the world turning it into a place full of wasteful heavy consumers using and consuming products with high emission rates. The real needs have shifted from being real to become fake ones attached directly to the self-esteem and ego regardless the environmental performance of a product or service.

John Grant defined this trend : "is a consumption trend or movement that people want to jump on simply because others already have jumped on and they don’t want to miss it." (The Green Marketing Manifesto, 2007 : 15)

A quite environmentally-deregulated world has created a good atmosphere for businesses to practice their irresponsible activities. Amid the fast growing markets’ developments, the increasing competition, and the so called “customers delighting ” through creating new gaps in their needs in order to make their life “easier” in someway, the regulations had no big hand over framing these movements and developments with respect to the environment.

In addition to the common interests between the regulators and the businesses that are created in the “small world of lobbyists”.

“ Green issues and Marketing can work against each other. One wants you to consume less, the other more. One rejects consumerism, the other fuels it. But they aren’t always opposed ” said John Grant, (The Green Marketing Manifesto, 2007 : 1)

Every company leaves a mark on the world through the products it makes and the services it offers. The more resources it uses or pollution it produces, the bigger its footprint. As mentioned before, the fast growing markets worldwide had pushed the businesses to compete for higher market shares, higher profits, and longer existence with no respect to the environmental sustainability and responsibility.

This dilemma is increasingly becoming a market shift, all the previously mentioned categories are becoming green:

Investors and shareholders begin to consider the environmental issues as relevant to their capital asset decisions.

Consumer Markets are beginning to shift as sales of energy-efficient technologies like green buildings, cars, and appliances grows.

More and more international regulations and treaties are set to address the environmental issues.

With the increasing public awareness toward the environmental issues, we have reached a tipping point through the changing global consumers’ behavior in relation to the green issues.

One of the models that has helped in this consumer behavior shift is The 3Rs :

Reduce: your irresponsible and unnecessary consumption activities

Reuse: others’ products or stuff, to make the maximum of them

Recycle: your expired products through the nearest recycling point, and reuse them again

For instance the Ethical Consumerism Report, issued every year by The Cooperative Bank in UK, has illustrated in its 2007 report figures the increasing spending on green products by the British Consumers

Becoming more aware of the increasing impacts of the crises on the public and the world, government and regulators have issued international regulations that address this challenge in the mean of global treaties, standards and protocols, by which each country worldwide should govern its consumers and industrial activities.

For example: The Kyoto Protocol, the most famous regulatory mean, is an international agreement under the UNFCCC (United Nations Framework Convention on Climate Change), adopted on 1997 in Kyoto city. By which, the ratified countries are required to reduce their greenhouse gases' emissions to specific levels.

Business has no choice responding to the crisis, not only because the businesses’ practices worldwide has a major stake in causing the crisis, but also the crisis will definitively has negative impact on the business world itself.

Moreover, the previously mentioned shifting trends, has resulted in creating new stakeholder map that has new players in the green market, and businesses have no choice to respond to these new powerful players.

Do the businesses worldwide have to respond to the greening calls?. Well the answer would be: definitely it's not a choice anymore, it is a must. The below illustration by John Grant aims at showing how businesses are being forced by the new stakeholders into adopting green strategies:

In response to this market shift, c ompanies must stay on the top of the environmental issues through understanding where the science stands, and where in their value chains' the impact on the environment lies. N ew responsible business models have been created, tested, and implemented, to face these challenges . The Environmental Business Strategies are there to characterize these models and have control over their implementation and improvement.

The business world and the natural one are linked together. The environment provides critical support to our economic system; it is not a financial capital, but a natural one. That's why the environmental Business Strategies have become an essential element of the corporate strategy in the modern world, by providing the business with the ability to deal with the environmental challenges.

Thinking of implementing Environmental Business Strategy must be on series of graduate steps, with come actions that are required now and others that reflect the extent to which the company seeks to strategically address the issue.

Andrew J. Hoffman and John G. Woody have identified, in their book Climate Change: What's Your Business Strategy?, three steps of building environmental strategy:

Know you carbon exposure

Take actions to reduce your carbon exposure and assess business opportunities

Influence the policy development process.

Another model, created by Daniel C. Esty and Andrew S. Winston, called the Eco-Advantage Toolkit . Which suggests that executing any business strategy well requires a range of things to go right from planning and analysis to execution and managing softer cultural issues.

The toolkit consists of three actionable tool categories:

Eco-tracking: helps companies look at the consequences of their products all along the value chain using certain tools such as the AUDIO assessment and the Life-Cycle Assessment.

Eco-design: Redesign is the second section that promotes measuring the environmental impacts in the design phase of each product, using tools such as DfE; Design for the Environment.

Eco-Culture: The third leg that supports building corporate culture promotes environmental thinking and innovation.

The question of “Whether the Environmental Business Strategies Are to Create Competitive Advantages or to Address New Business Constraints” has been widely debated in the business world community nowadays. It is important issue because it concerns fundamental environmental and economic questions about the effectiveness of such strategies. Actually it is the first strategic argument that must arise in every successful CEO mind when it comes to build and implement a new EBS.

This presentation is to summarize this debate and argumentation. It will tackle the most recent concerns over the EBSs from two points of view, the Pro-EBSs party that express the Green Competitiveness, and the Con-EBSs party that points out the Green Business Constraints.

The Green Competitive Advantages are to be characterized as:

reducing the environmental costs generating revenue and intangible value improving resources efficiency managing environmentally driven risks meeting customer green needs through green innovations. save the business from regulatory burdens Help address the newly green niche market Creating new market space Green Short Cuts

While the Green Business Constrains are all around the myths of

cannot be an add-on to business profitability and development the blurred results Unattractive to the economic realities market immaturity Result in imbalanced Waste Management System high risk entitled Conflict the business aims and objectives Affect the product performance Green expensive products and services Highly competent staff Green Washing

Daniel C. Esty and Andrew S. Winston have indentified four board competitive advantages attached to the EBSs. Under each one, they have listed a number of strategic models, by which, if properly implemented, the competitive advantage will be achieved.

The Green Competitiveness vs. The Green Constraints Driving revenues by designing and marketing products that are environmentally superior and meet customers’ desires.

The Green Competitiveness vs. The Green Constraints Cutting operational costs and reducing environmental expenses- like waste handling and regulatory burdens throughout the value chain.

The Green Competitiveness vs. The Green Constraints Identifying and reducing environmental and regulatory risks in the operations especially in the supply chains to avoid costs and increase speed to the market.

The Green Competitiveness vs. The Green Constraints Create intangible brand value by marketing the overall corporate greenness.

The Green Competitiveness vs. The Green Constraints Green to Gold Plays Toolkit

Argumentation Methodology: The Competitive Advantage The Pro Argument The Con Argument Response to the Con Argument

Eco-Efficiency: Cost Reduction

Win/win strategies that aim at:

Getting the same outputs with lower inputs

Improving Resources Productivity

Through having a second look at the production processes and the materials used in a product.

Such strategies may generate other forms of waste from the inputs, in other words, there are still extra inputs, so such strategies are not, necessarily, efficient enough to reduce the amount of inputs used in the production. Endless cycle of environmental problems could generate each other, because of searching for one answer that solve one problem There are certain tools that help to systematically identify and design out environmental problems before they crop up: Life Cycle Assessments, and Design for the Environment

Eco-Expenses Reduction: Aims at cut the environmental costs and save the business from the regulatory burdens through the time and money spent on managing the environmental issues. As well as helping in increasing the speed to market. Precisely meeting the regulation and professionally managing the environmental issues are not attractive to the economic realities and Keep companies far from generating the needed profits to overcome the costs. Cost Reduction Environmental sustainability depends on long-term economic success. Successful environmental companies always find the incremental solutions that steadily improve their environmental performance, while minimizing the burden in other areas. Some progress is much better than no progress

Value Chain Eco-Efficiency: Reducing the value chain costs by cutting the environmental and financial expenses of production’s processes and distribution channels through redesigning and re-engineer them.

Value chain and product life cycle effects can always be surprising:

Reduce usage of one resource might use more from another one.

Product redesign (or production processes redesign) might change its performance in unseen ways.

Cost Reduction To minimize the odds of the environmental strategies, Keep few points in mind: First, walk before you run. Second, take a systematic view on the new initiatives and analyze the life-cycle consequences. Third, be careful about forecasting the gains, in other words, be realistic.

Eco-Risk Control: Helps companies assess the environmental trends in the related markets in order to identify potential dangers, and set the required internal and external processes and procedures to overcome them. Moving people (employees and stakeholders) into new ways of thinking might create a conflict of the business’s aims and main objectives. Layering the environmental concerns into the mix can lead to overload. Assessing & Overcoming Risks Overcoming such conflicts comes through addressing the environmental intent in the board vision statement. The environmental intent should be broken down into bite-sized chucks of objectives, action plans, and measurable results, along with related rewarding and bounce systems. It is a matter of an inner culture of the whole corporate

Eco-Design: Helps meeting customers’ environmental needs by lowering their footprint and costs of using the product that can justify the price premium, also it helps overcome the Green Expectations When customers faced with actual product attached to a higher price tag they often don’t buy, regardless how good its environmental performance. Also forcing customers may be resistant to change their behavior. Revenue Generation Don’t pitch only the green attributes of a product. The environment is the third ‘button’ pressed. Moreover, trying to reform customer behavior might be difficult. Sometimes companies must find a middle ground for their environmental initiatives

Eco-Sales and Marketing: Helps reaching the always-expanding, green attributed, niche market, and generating high volume of sales with big market share. In addition to, building Product Position and Customers Loyalty on Green Attributes. Requires companies to recruit passionate and knowledgeable environmentally oriented staff in all departments, and set high budgets for the new environmental issues. Revenue Generation Successful Eco-Sales and Marketing campaigns must be built on thinking from across the company, through training and development of the current staff. Environmental managers can guide the process but the line managers must own the initiative, and find ways of promoting the new green attributes.

Eco-Defined New Market Space: Lend a hand for companies to promote the environmental innovation that would result with high-end products to be introduced into the markets, and generate high environmental benefits and profits. The green attributes are still blurred for wide range of the different industries and business sectors. And the EBSs still lack the ability of clearly defining them. They are still entitled with high risk. Revenue Generation Eco-Defined New Market Space initiatives must address a market need in order to pay off. Eco-products must hold up the promise of capturing new markets, while making the world a better place. It a matter of a thorough market analysis, just as any other type of strategy….

Eco-Intangible Value: Help companies creating higher brand values that have market power, commanding higher prices, sell more, and develop closer relationships with customers and employees. Become a Green Shortcut for the newly green Egos. The increasing pressure from the environmental stakeholders had, sometimes, derived companies to focus on achieving the green reputation or claiming it, rather than the actual green responsibility. “Green Washing” Intangible Value Bring the forest, not just the trees, into focus Tools like Life Cycle Assessment and AUDIO analysis can help companies must understand where they are environmentally vulnerable Partnering with NGOs and experts to get outside perspectives on how the public perceive the company can be also very important for the progress

"Climate change is shaping up to be the biggest environmental strategy issue the business world has ever faced. The potential effects are both board and substantial. The need to rethink strategy with an eye on climate change impact and regulatory constraints is fast becoming a corporate imperative."

Daniel C. Esty and Andrew S. Winston (Green to Gold, 2006 : 39)

In Conclusion;

I believe that if we fail to meet our obligations toward the environment, we will be sacrificing our present and future. All the lessons above say the same thing: “You can’t ignore the core environmental issues that accompany any business”. Green initiatives success stems from expertly handling all environmental risk, building sustainable and professional business culture, identifying a customer need, keeping costs down, and meeting performance and price expectations.

My closing statement is:

” “ The Earth is created to serve us through its resources. Up using these resources, and ignoring the minimal Earth needs, would end up with the Earth inability to serve us anymore. Now it is the time for the humanity to serve the Earth.