The Business Strategy of Sustainability
Andrew J. Hoffman
Holcim (US) Professor of Sustainable Enterprise Associate Director, Erb Institute for Global Sustainable Enterprise University of Michigan
Mid-America Regulatory Conference June 15, 2009
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"Scientists make meaningless or ambiguous statements. Advocates and media translate statements into alarmist declarations. Politicians respond to alarm by feeding scientists more money…[the accepted evidence is] entirely consistent with there being virtually no problem at all."
Dr. Richard Lindzen, Massachusetts Institute of Technology, 2006
“Global atmospheric concentrations of carbon dioxide, methane and nitrous oxide have increased markedly as a result of human activities since 1750 and now far exceed pre-industrial values determined from ice cores spanning many thousands of years. The global increases in carbon dioxide concentration are due primarily to fossil fuel use and land-use changes, while those for methane and nitrous oxide are primarily due to agriculture.”
The United Nations Intergovernmental Panel on Climate Change, 2007
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“The debate is over. There's no longer any debate in the scientific community about this. But the political systems around the world have held this at arm's length because it's an inconvenient truth, because they don't want to accept that it's a moral imperative."
Al Gore, Former United States Vice President, 2006
“Over the past 2 hours, I have offered compelling evidence that catastrophic global warming is a hoax. That conclusion is supported by the painstaking work of the nation's top climate scientists.”
James M. Inhofe, United States Senator, 2003
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“[Global warming is] Satan's attempt to redirect the church's primary focus…I believe the church must quickly get serious about denouncing the accelerating effort to promote the alleged catastrophic of human-caused global warming.”
Jerry Falwell, 2007
“I have not been one who believed in the global warming. But I tell you, they are making a convert out of me as these blistering summers. They have broken heat records in a number of cities already this year and broken all-time records and it is getting hotter and the ice caps are melting and there is a build up of carbon dioxide in the air.”
Pat Robertson, 2006
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Market Shift
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The Third Wave
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The Third Wave
Equity
Economy
Environment
• • • • • • • •
Climate change Resource prices Globalization Economic competitiveness Information technology Income inequality National security Religious morality
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Sustainability Risk
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Sustainability Risk
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2 Questions… and why they’re the wrong ones.
1. How much will it cost? 2. Does it pay to be green?
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Report Data Sources
Study based on: • 100 question survey of 31 companies.
Advanced Micro Devices, AEP, Air Products, Alcan, Alcoa, Baxter, BP, Calpine, Cinergy, DTE Energy, DuPont, Entergy, Exelon, Fairchild Semiconductors, GeorgiaPacific, Holcim, IBM, Intel, Interface, Maytag, PG&E, Rio Tinto, Rohm and Haas, SC Johnson, Shell, Staples, Sunoco, TransAlta, United Technologies, Whirlpool, and Wisconsin Energy
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Report Data Sources
Study based on:
• 100 question survey of 31 companies. • 6 Case studies:
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Why take Action?
Once begun, how important are the following measures of success in undertaking your climate-related strategy? (Rate their level of importance: 1 = not important; 3 = neutral; 5 = important).
Energy efficiency
Operational improvement
Cost savings
Anticipating and influencing climate change regulation
Protect the global climate
Elevating corporate reputation
Social responsibility
Improving risk management
Identifying new market opportunities Enhancing human resource management and corporate culture
Accessing new sources of capital
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2
3 Average Response
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Why take Action?
Once begun, how important are the following measures of success in undertaking your climate-related strategy? (Rate their level of importance: 1 = not important; 3 = neutral; 5 = important).
Energy efficiency
Operational improvement
1. Increase Profits 2. Pending Government Regulation
Cost savings
Anticipating and influencing climate change regulation
Protect the global climate
Elevating corporate reputation
3. Enhance Corporate Reputation
Social responsibility
Improving risk management
Identifying new market opportunities Enhancing human resource management and corporate culture
Accessing new sources of capital
1
2
3 Average Response
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5
Why take Action?
1. Increase Profits
2. Pending Government Regulation 3. Enhance Corporate Reputation
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Why take Action?
1. Increase Profits
– Uncertain energy costs
$/bbl
$160 $140 WTI $120 $100
Crude Oil Price
2. Pending Government Regulation 3. Enhance Corporate Reputation
$80 $60 $40 $20 $0 May-83 May-87 May-91 May-95 May-99 May-03 May-07
Source: Bloomberg
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Why take Action?
1. Increase Profits
– Increasing energy costs – Investor interest
$200 $180 $160 $140 $120
Growth in SRI Funds in U.S. $ billions, 1995-2005
2. Pending Government Regulation 3. Enhance Corporate Reputation
$80 $60 $40 $20 $0
1 2 3 4 5 6
$100
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Why take Action?
1. Increase Profits
– Increasing energy costs – Investor interest Global New Investment in Clean Energy – Greentech sector
$12.0 $10.0
2. Pending Government Regulation 3. Enhance Corporate Reputation
$6.0 $4.0 $2.0 $0.0 $6.5 $5.1 $0.6 2002 $0.9 2003 $1.9 2004 2005 2006
Note: Includes buyouts, excludes projects
$8.0
$10.6 $7.9
2007
2008 YTD
Source: New Energy Finance
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Why take Action?
1. Increase Profits
– – – – Increasing energy costs Investor interest Greentech sector Growing consumer demand
“In the 1980s, energy efficiency was number ten, eleven or twelve in consumer priorities. In the last four or five years, it has come up to number three behind cost and performance, and we believe these concerns will continue to grow.” Casey Tubman, Brand Manager of Fabric Care Products, Whirlpool
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Why take Action?
1. Increase Profits
– – – – Increasing energy costs Investor interest Growing greentech sector Growing consumer demand
2. Pending Government Regulation 3. Enhance Corporate Reputation
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Why take Action?
2. Pending Government Regulation
[If you believe that federal standards on climate change are imminent] when do you believe these standards will take effect?
2005-2010 2010-2015 2015-2020 Beyond 2020 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Percentage of Respondents
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Why take Action?
1. Increase Profits
– – – – Increasing energy costs Investor interest Growing greentech sector Growing consumer demand
2. Pending Government Regulation 3. Enhance Corporate Reputation
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A Market Transition
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A Market Transition
“The future is already here. It‟s just unevenly distributed.”
William Gibson (1948 - )
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A Market Transition
“The key is both influencing the rules of the game and timing your shift to a new carbon-constrained strategy. It‟s knowing what the next technology for energy production is, and shifting when the market is ready to reward it. We‟re not going to get out of the oil business in the near term.” But, you have to ask, “What is the iPod® for energy? Is it out there? You have to be on watch.” David Hone, Group Climate Change Advisor, The Shell Group
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“This „telephone‟ has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us.”
Western Union internal memo (1876)
“Who the hell wants to hear actors talk?”
H. M. Warner, Warner Brothers (1927)
“I think there is a world market for maybe five computers.”
Thomas Watson, chairman of IBM (1943)
“We don't like their sound, and guitar music is on the way out.”
Decca Recording Co. rejecting the Beatles (1962)
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“This „telephone‟ has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us.”
Western Union internal memo (1876)
“Who the hell wants to hear actors talk?”
H. M. Warner, Warner Brothers (1927)
“I think there is a world market for maybe five computers.”
Thomas Watson, chairman of IBM (1943)
“We don't like their sound, and guitar music is on the way out.”
Decca Recording Co. rejecting the Beatles (1962)
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“This „telephone‟ has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us.”
Western Union internal memo (1876)
“Who the hell wants to hear actors talk?”
H. M. Warner, Warner Brothers (1927)
“I think there is a world market for maybe five computers.”
Thomas Watson, chairman of IBM (1943)
“We don't like their sound, and guitar music is on the way out.”
Decca Recording Co. rejecting the Beatles (1962)
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“This „telephone‟ has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us.”
Western Union internal memo (1876)
“Who the hell wants to hear actors talk?”
H. M. Warner, Warner Brothers (1927)
“I think there is a world market for maybe five computers.”
Thomas Watson, chairman of IBM (1943)
“We don't like their sound, and guitar music is on the way out.”
Decca Recording Co. rejecting the Beatles (1962)
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“I‟d put my money on the sun and solar energy. What a source of power! I hope we don‟t have to wait until oil and coal run out before we tackle that.”
Thomas Edison (1931)
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Climate Cost Abatement Curve
Source: Enkvist, Naucler, & Rosander. “A Cost Curve for Greenhouse Gas Reduction.” McKinsey Quarterly, no. 1 (2007): 1–7
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A Market Transition
Market Shift
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“To be truly radical is to make hope possible, not despair convincing.”
Raymond Williams (1921-1988)
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“When others show fear, be aggressive.”
Warren Buffet (1930 - )
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Thank you
Andrew Hoffman Holcim (US) Professor of Sustainable Enterprise University of Michigan 734-763-9455 ajhoff@umich.edu http://www.andrewhoffman.net
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