Benchmark progress towards sustainability

Benchmark progress towards sustainability (Value 15%; ~7-8 pages, not includingreferences and graphs)

 

Using Hart’s (1997) sustainability framework, choose two competitors in an industry of yourchoice. Evaluate their strategies as they pertain to the issues of sustainability. Using his notionof the sustainability portfolio how well are they doing? Is there someone in the industry who isthe recognized leader? What are the doing that makes them better

 

will upload and send the hart’s (1997) sustainability framework.

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The environmental revolution has been almost
three decades in the making, and it has changed for-
ever how companies do business. In the 1960s and
1970s, corporations were in a state of denial regard-
ing their impact on the environment. Then a series
of highly visible ecological problems created a
groundswell of support for strict government regu-
lation. In the United States, Lake Erie was dead. In
Europe, the Rhine was on fire. In Japan, people were
dying of mercury poisoning.

Today many companies have accepted their re-
sponsibility to do no harm to the environment.
Products and production processes are becoming
cleaner; and where sueh change is under way, the
environment is on the mend. In the industrialized
nations, more and more companies are “going
green” as they realize that they can reduce pollu-
tion and increase profits simultaneously. We have
come a long way.

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

The roots of the problem-explosive population
growth and rapid economic development in the
emerging economies – are political and social issues
that exceed the mandate and the capabilities of any
corporation. At the same time, corporations are the
only 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: faced
with impoverished customers, degraded environ-
ments, failing political systems, and unraveling
societies, it will be increasingly difficult for cor-

Strateqies for a Sustainable World
But the distance we’ve traveled will seem small

when, in 30 years, we look hack at the 1990s. Be-
yond greening lies an enormous challenge-and an
enormous opportunity. The challenge is to develop
a sustainable global economy: an economy that the
planet is capable of supporting indefinitely. Al-
though we may be approaching ecological recovery
in the developed world, the planet as a whole re-
mains on an unsustainable course. Those who
think that sustainability is only a matter of pollu-
tion control are missing the bigger picture. Even if
all the companies in the developed world were to
achieve zero emissions by the year 2000, the earth
would still be stressed beyond what biologists re-

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

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

StvoTt L. Hart is a faculty member in corporate strat-
egy and the director of the Corporate Environmental
Management Program at the University of Michigan
Business School in Ann Arbor. His E-mail address is
slhart@umich. edu.

ARTWORK BY BRUCE ROGOVIN 67

BEYOND GREENING

hillions of dollars. However, few executives realize
that environmental opportunities might actually
become a major source of revenue growth. Green-
ing has been framed in terms of risk reduction,
reenglneering, or cost cutting. Rarely is greening
linked to strategy or technology development, and
as a result, most companies fail to recognize oppor-
tunities of potentially staggering proportions.

Worlds in Collision
The achievement of sustainability will mean bil-

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

Envisioning tomorrow’s businesses, therefore, re-
quires a clear understanding of those problems. To
move beyond greening to sustainability, we must
first 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 of
commerce comprising both the developed nations
and the emerging economies.’ About a billion peo-
ple-one-sixth of the world’s population-live in
the developed countries of the market economy.
Those affluent societies account for more than 75%
of the world’s energy and resource consumption
and create the bulk of industrial, toxic, and con-
sumer waste. The developed economies thus leave
large ecological footprints-defined as the amount
of 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 in
the developed economies. Three factors account for
this 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 the
emerging market economies. Thus to some extent
the greening of the developed world has been at the
expense of the environments in emerging econo-
mies. Given the much larger population base in
those countries, their rapid industrialization could
easily offset the environmental gains made in the
developed economies. Consider, for example, that
the emerging economies in Asia and Latin America

Increasingly, companies
(and now Eastern Europe and the former Soviet
Union) have added nearly 2 billion people to the
market economy over the past 40 years.

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

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

Ecological Footprints

United States

India

The Netherlands

In the United Slates, it fakes 1 2.2 acres to supply the average person’s basic needs; in the Netherlonds, 8 acres; in India, 1 acre, The
Dutch ecological footprint covers 15 times the area of the Netherlands, whereas India’s botprint exceeds its area by only about 35%.
Most strikingly, if the entire v^orld lived like North Americons, it v/ould take three planet Earths to support the present world population.
Source. Donelia Meadows, “Our ‘Footprints’Are Treading Too Much forf/i,”Charleston (S.C.) Gazette, Apri/ f, 1996.

68 HARVARD BUSINESS REVIEW January-February 1997

the world. Concentrated in cities, they will double
current levels of energy use, smog precursors, and
emissions of greenhouse gas.

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

The third economy is nature’s economy, which
consists of the natural systems and resourees that
support the market and the survival economies.
Nonrenewable resources, such as oil, metals, and
other minerals, are finite. Renewable resources,
such as soils and forests, will replenish them-
selves-as long as their use does not exceed critical
thresholds.

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

will sell solutions to the world’s environmental problems.
Owing in part to the rapid expansion of the mar-

ket economy, existence in tbe survival economy is
becoming increasingly precarious. Extractive in-
dustries and infrastructure development have, in
many cases, degraded the ecosystems upon which
the survival economy depends. Rural populations
are driven further into poverty as they compete for
scarce natural resources. Women and children now
spend on average four to six hours per day searching
for fuelwood and four to six hours per week drawing
and carrying water. Ironically, those conditions en-
courage high fertility rates because, in tbe short
run, children help the family to garner needed re-
sources. But in the long run, population growth in
the survival economy only reinforces a vicious cy-
cle of resource depletion and poverty.

Short-term survival pressures often force these
rapidly growing rural populations into practices
that cause long-term damage to forests, soil, and
water. When wood becomes scarce, people burn
dung for fuel, one of the greatest-and least well-
known-environmental hazards in the world today.
Contaminated drinking water is an equally grave
problem. The World Healtb Organization estimates
that burning dung and drinking contaminated wa-
ter together cause 8 million deaths per year.

As it becomes more and more difficult to live off
the land, millions of desperate people migrate to
already overcrowded cities. In China, for example,
an estimated 120 million people now roam from
city to city, landless and jobless, driven from their
villages by deforestation, soil erosion, floods, or
droughts. Worldwide, the number of such “envi-
ronmental refugees” from the survival economy
may be as high as 500 million people, and the figure
is growing.

HARVARD BUSINESS REVIEW [anuary-February 1997

able development today is depletion of the world’s
renewable resources.

Forests, soils, water, and fisheries are all being
pushed beyond their limits by human population
growth and rapid industrial development. Insuffi-
cient fresh water may prove to be the most vexing
problem in the developing world over tbe next
decade, as agricultural, commercial, and residential
uses increase. Water tables are being drawn down at
an alarming rate, especially in the most heavily
populated nations, such as China and India.

Soil is another resource at risk. More than 10%
of the world’s topsoil has heen seriously eroded.
Available cropland and rangeland are shrinking.
Existing crop varieties are no longer responding to
increased use of fertilizer. As a consequence, per
capita world production of both grain and meat
peaked and began to decline during the 1980s. Mean-
while, the world’s 18 major oceanic fisheries have
now reached or actually exceeded tbeir maximum
sustainable yields.

By some estimates, humankind now uses more
than 40% of tbe planet’s net primary productivity.
If, as projected, the population doubles over the
next 40 years, we may outcompete most other ani-
mal species for food, driving many to extinction. In
short, human activity now exceeds sustainability
on a global scale. (See the exhibit “Major Chal-
lenges to Sustainability.”I

As we approach the twenty-first century, the
interdependence of the three economic spheres is
increasingly evident. In fact, the three economies
have beeome worlds in collision, creating tbe major
social and environmental challenges facing the
planet: climate change, pollution, resource deple-
tion, poverty, and inequality.

69

1Major Challenges to Sustainability
Pollution

-greenhouse gases 1
Developed economies -use of toxic materials 1

-contaminated sites 1

-industrial emissions 1
Emerging economies -contaminated water 1

-lock of sewage treatment 1

-dung and wood burning 1
Survival economies -lack oF sonitation 1

-ecosystem destruction 1
due to development 1

Depletion

-scarcity of materials 1
-insufficient reuse and 1
recycling I

-overexploitation of I
renewable resources I

-overuse of water 1
for irrigation I

-deforestation 1
-overgrazing I
-soil loss I

r
Poverty

-urban and minority I
unemployment I

-migration to cities H
-lack of skilled workers •
-income inequality I

-population growth 1
-low status of women 1
-dislocation I

Consider, for example, that the average Ameri-
can today consumes 17 times more than his or her
Mexican 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 large
quantities of raw materials and commodities,
sourced increasingly from the survival economy
and produced in emerging economies.

In the survival economy, massive infrastructure
development (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, has
provided access to raw materials. Unfortunately,
such development has often had devastating conse-
quences for nature’s economy and has tended to
strengthen existing political and economic elites,
with little benefit to those in the survival economy.

their terms of trade have hecome 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 transfer
of vast amounts of wealth (estimated at $40 billion
per year since 1983) from developing to developed
countries, producing a vicious cycle of resource ex-
ploitation and pollution to service mounting debt.
Today developing nations have a combined debt of
more than $ 1.2 trillion, equal to nearly half of their
collective gross national product.

Strategies for a Sustainable World
Nearly three decades ago, environmentalists

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

Emerging economies cannot afford to repeat the mistakes
At the same time, infrastructure development

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

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. The
product of these three factors determines the total
environmental burden. It can be expressed as a for-
mula: EB = P X A X T.

70 HARVARD BUSINESS REVIEW January-February 1997

BEYOND GREENING

Achieving sustainability will require stabilizing
or reducing the environmental hurden. That can be
done by decreasing the human population, lower-
ing the level of affluence (consumption), or chang-
ing fundamentally the technology used to create
wealth. The first option, lowering the human popu-
lation, does not appear feasible short of draconian
political measures or the occurrence of a major puh-
lic-health crisis that causes mass mortality.

The second option, decreasing the level of afflu-
ence, would only make the problem worse, because
poverty and population growth go hand in hand:
demographers have long known that birth rates are
inversely correlated with level of education and
standard of living. Thus stabilizing the human pop-
ulation will require improving the education and
economic standing of the world’s poor, particularly
women of childhearing 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 that
constitute the world’s wealth. Although population
and consumption may be societal issues, technol-
ogy is the business of husiness.

If economic activity must increase tenfold over
what it is today just to provide the bare essentials to
a population double its current size, then technolo-
gy will have to improve twentyfold merely to keep
the planet at its current levels of environmental
burden. Those who believe that ecological disaster
will somehow be averted must also appreciate the
commercial implications of such a belief: over the
next decade or so, sustainable development will
constitute one of the biggest opportunities in the
history 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 or
preventing pollution. Focusing on sustainability re-
quires putting business strategies to a new test.
Taking the entire planet as the context in which

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

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

Stage One: Pollution Prevention. The first step
for 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 minimizing
or eliminating waste before it is created. Much like
total quality management, pollution prevention
strategies depend on continuous improvement ef-
forts to reduce waste and energy use. This transfor-
mation is driven by a compelling logic: pollution
prevention pays. Emerging global standards for en-
vironmental management systems (ISO 14,000, for
example) also have created strong incentives for
companies to develop such capabilities.

Over the past decade, companies have sought to
avoid colliding with nature’s economy (and incur-
ring the associated added costs) through greening
and prevention strategies. Aeroquip Corporation, a
$2.5 billion manufacturer of hoses, fittings, and
couplings, saw an opportunity here. Like most in-
dustrial suppliers, Aeroquip never thought of itself
as a provider of environmental solutions. But in
1990, its executives realized that the company’s
products might be especially valuable in meeting
the need to reduce waste and prevent pollution.
Aeroquip has generated a $250 million husiness by
focusing its attention on developing products that
reduce emissions. As companies in emerging econ-
omies realize the competitive benefits of using raw
materials and resources more productively, busi-
nesses like Aeroqulp’s will continue to grow.

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

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

HARVARD BUSINESS REVIEW |anuary-February 1997 71

Aracruz Celulose: A S f r a t ^ y for the Survival Economy

“Poverty is one of the world’s leading pol-
luters,” notes Erling Lorentzen, founder and
chairman of Aracruz Celulose. The $2 billion
Brazilian company is the world’s largest
producer of eucalyptus pulp. “You can’t ex-
pect people who don’t eat a proper meal to be
concerned about the environment.'”

From the very start, Aracruz has been built
around a vision of sustainable development.
Lorentzen understood that building a viable
forest-products business in Brazil’s impov-
erished and deforested state of Espirito
Santo 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 tree
planting in the late 1960s and began buying
and reforesting cut-over land. By 1992, tbe
company had acquired over 200,000 hectares
and planted 130,000 hectares with managed
eucalyptus; the rest was restored as conserva-
tion land. By reforesting what had become
highly degraded land, unsuitable for agricul-
ture, the company addressed a fundamental
environmental problem. At the same time, it
created a first-rate source of fiber for its pulp-

ing operations. Aracniz’s forest practices and
its ability to clone seedlings have given the
company advantages in both cost and quality.

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

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

a long-term commitment to capability build-
ing. In the early years, Aracruz was able to hire
local people for very low wages because of
tbeir desperate situation. But instead of sim-
ply exploiting the abundant supply of cheap la-
bor, the company embarked on an aggressive
social-investment strategy, spending $125

million to support the creation of hospitals,
schools, bousing, and a training center for em-
ployees. In fact, until recently, Aracruz spent
more on its social investments than it did on
wages (about $1.20 for every $1 in wages).
Since that time, the standard of living has im-
proved dramatically, as has productivity. The
company no longer needs to invest so heavily
in social infrastructure.

1. Marguerite RigogHosi). “Stewards of the Seventh Genera-
lion,” Harvard Husinefis School Bulletin, April 19^6, p. S5.

duction of waste requires fundamental changes in
underlying product and process design.

Design for environment (DFE), a tool for creating
products that are easier to recover, reuse, or recycle,
is becoming increasingly important. With DFE, all
the 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 the
boundaries of a company’s operations-it includes
a full assessment of all inputs to the product and
examines 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 community
representatives in the process. Dow Chemical Com-
pany has pioneered the use of a hoard-level advisory
panel of environmental experts and external repre-
sentatives to aid its product-stewardship efforts.

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

new machines. A well-developed infrastructure for
taking back leased copiers comhined with a sophis-
ticated remanufacturing process allows parts and
components to be reconditioned, tested, and then
reassembled into ” n e w ” machines. Xerox esti-
mates that ARM savings in raw materials, labor,
and waste disposal in 1995 alone were in the $300-

Without a framework for
million to $400-million range. In taking recycling
to this level, Xerox has reconccptualized its busi-
ness. By redefining the product-in-use as part of tbe
company’s asset base, Xerox has discovered a way
to 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 functionality
with minimal environmental impact.

Product stev^ardship is thus one way to reduce
consumption in the developed economies. It may
also aid the quest for sustainahility hecause devel-
oping nations often try to emulate what they see

72 HARVARD BUSINESS REVIEW lanuary-Ftbruiiry 1997

BEYOND GREENING

happening in the developed nations. Properly exe-
cuted, product stewardship also offers the potential
for revenue growth through product differentiation.
For example, Dunlop Tire Corporation and Akzo
Nobel recently announced a new radial tire that
makes use of an aramid fiber belt rather than the
conventional steel belt. The new design makes re-
cycling easier because it eliminates the expensive
cryogenic crushing required to separate the steel
belts from the tire’s other materials. Because the
new fiber-belt tire is 30% lighter, it dramatically
improves gas mileage. Moreover, it is a safer tire be-
cause it improves the traction control of antilock
braking systems.

The evolution from pollution prevention to prod-
uct stewardship is now happening in multinational
companies such as Dow, DuPont, Monsanto, Xe-
rox, ABB, Philips, and Sony. For example, as part of
a larger sustainability strategy dubbed A Growing
Partnership 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 45
million pounds. The new Sulfonylurea herbicides
have also led to a 1-billion-pound reduction in the
amount of chemical waste produced in the manu-
facture of agricultural chemicals. These herbicides
are effective at 1 % to 5% of the application rates of
traditional chemicals, are nontoxic to animals and
nontarget 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 with
their eye on the future can hegin to plan for and
invest in tomorrow’s technologies. The simple fact
is that the existing technology base in many in-
dustries is not environmentally sustainable. The
chemical industry, for example, while having made

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

Clean technologies are desperately needed in the
emerging economies of Asia. Urban pollution there
has reaehed oppressive levels. But precisely because
manufacturing growth is so h i g h – c a p i t a l stock
doubles every six years-there is an unprecedented
opportunity to replace current product and process
technologies with new, cleaner ones.

Japan’s Research Institute for Innovative Tech-
nology for the Earth is one of several new research
and technology eonsortia focusing on the develop-
ment and commercialization of clean technologies
for the developing world. Having been provided
with funding and staff by the Japanese government
and more than 40 corporations, RITE has set forth
an ambitious 100-year plan to create the next gener-
ation of power technology, which will eliminate or
neutralize greenhouse gas emissions.

Sustainability Vision
Pollution 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 the
way products and services must evolve and what
new competencies will be needed to get there. Few
companies today have such a road map. Ironically,
chemical companies, regarded only a decade ago as
the worst environmental villains, are among the
few large corporations to have engaged the ehal-
lenge of sustainable development seriously.

environmental activities, their impact will dissipate.
substantial headway over the past decade in pollu-
tion prevention and product stewardship, is still
limited by its dependence on the chlorine mole-
cule. (Many organochlorides are toxic or persistent
or bioaccumulative.) As long as the industry relies
on 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 bulk
chemicals to biotechnology. It is betting that the

Companies can begin hy 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? To
what extent has the company progressed through
the three stages of environmental strategy-from
pollution prevention to product stewardship to
clean technology?

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

HARVARD BUSINESS REVIEW [anuary-February 1997 73

The Sustainability Partfolia

Clean technology

Is the environmental performance
of our products limited by our existing

tomorrov/ competency bose?

Is there potential to realize
major improvements through
new technology?

Pollution prevention

Where are the most significant
waste and emission streams from

today our current operations?

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

internal

This simple diagnostic tool can hetp 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.

Sustainobility 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?

external

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 ot analytical skills needed lo implement it.
A portfolio skewed to the left side of the chart indicotes 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 ond 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 Average
Fuel Efficiency requirement and the Toxic Release
Inventory led auto companies to examine their
product designs and manufaeturing processes in or-
der to improve fuel economy and lower emissions
from 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 useful
lives. Innovators such as BMW have influenced the
design of new ears with their design for disassem-
bly efforts. Industry-level consortia such as the
Partnership for a New Generation of Vehicles are
driven largely by the product stewardship logic of
lowering the environmental impact of automobiles
throughout their life cycle.

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

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

Although the auto industry has made progress, it
falls far short of sustainability. For the vast majority
of auto companies, pollution prevention and prod-
uct stewardship are the end of the road. Most auto
executives assume that if they close the loop in
both production and design, they will have accom-
plished all the necessary environmental objeetives.

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 in
the coming decades. Already the rush is on to stake
out positions in China, India, and Latin Ameriea.
But what form will this opportunity take?

74 HARVARD BUSINESS REVIEW January-February 1997

Building Sustainable Business Strategies

Lower material and energy consumption

\

Reduce pollution burdens

Develop cleon products and technology

Developed economies

Market economy

Emerging economies

Pollution Poverty

Megacities __

, Build the skills of the poor
and the dispossessed

Nature’s economy Depletion

w
Survival economy

Ensure sustainable use of nature’s economy Replenish depleted resources
\

Foster village-based business relationships

Consider the potential impact of automobiles on
China alone, Today there are fewer than 1 million
cars on the road in China. However, with a popula-
tion of more than 1 hillion, it would take less than
30% market penetration to equal the current size of
the U.S. car market (12 million to 15 million units
sold per year). Ultimately, China might demand 50
million or more units annually. Because China’s
energy and transportation infrastructures are still
being defined, there is an opportunity to develop a
clean technology yielding important environmen-
tal and competitive henefits.

Amory Lovins of the Rocky Mountain Institute
has demonstrated the feasibility of building hyper-
cars-wehiclcs that are fully recyclable, 20 times
more energy efficient, 100 times cleaner, and
cheaper than existing cars. These vehicles retain
the safety and performance of conventional cars but
achieve radical simplification through the use of
lightweight, composite materials, fewer parts, vir-
tual prototyping, regenerative braking, and very
small, hybrid engines. Hyperears, which are more
akin to computers on wheels than to cars with
microchips, may render obsolete most of the com-
petencies associated with today’s auto manufac-
turing-for example, metal stamping, tool and die
making, and the internal combustion engine.

Assume for a minute that clean technology like
the hypercar or Mazda’s soon-to-he-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 so
many cars. How long will it take before gridlock
and traffic jams force the auto industry to a halt?
Sustainability will require new transportation solu-
tions for the needs of emerging economies with
huge populations. Will the giants in the auto indus-
try he prepared for such radical change, or will they
leave 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. Companies
can and must change the way customers think by
creating preferences for products and services con-
sistent with sustainahility. Companies must be-
come educators rather than mere marketers of
products. (See the exhibit “Building Sustainable
Business Strategies.”)

For senior executives, embracing the quest for
sustainability 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 recognize
the power of such a positive mission to galvanize
people in their organizations.

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

HARVARD BUSINESS REVIEW January-February 1997 75

BEYOND GREENING

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

developing world while simultaneously increasing
its 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 of
the future. Clearly, public policy innovations (at
both the national and international levels) and
changes in individual consumption patterns will he
needed to move toward sustainability. But corpora-
tions can and should lead the way, helping to shape
public policy and driving change in consumers’ be-
havior. In the final analysis, it makes good husiness
sense to pursue strategies for a sustainahle world.

1. The terms market economy, survival economy, and nature’s economy
were suRgesttd to me by Vandana Shiva, Ecology and tbe Politics of Sur-
vival (New Delhi: United Nations University Press, 1991 ].

Reprint 97105 To order reprints, see the last page of this issue.

The day Wall Street stopped asking its own questions and started asking Broadway’s questions.

76 CARTOON BY ED ARNO

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