Andrew Winston

How to Beat the NEXT Recession

Tue, 30 Jun 2009 22:51:17 +0000

[My new column on Harvard Business Online]

We're in the midst of the worst decline in auto sales history — yet Toyota can't make the newest model of its hybrid gas-electric Prius fast enough. According to the New York Times, the world's largest automaker has received 80,000 pre-orders already, one-fifth of the company's Prius sales goal for the year. On the heels of the depressing GM and Chrysler bankruptcies and layoffs, Toyota has instituted overtime production in its Tsutsumi plant in Japan.

This news comes on the heels of one of Honda's latest entries in the hybrid market, the significantly revamped Insight, becoming the bestselling car in Japan in April — not the bestselling hybrid, but the bestselling vehicle — racking up over 10,000 sales at $19,000 a pop.

The era of niche eco-vehicles is over. With Toyota and Honda experiencing their first losses in decades, the vast success of the green parts of their product portfolios must be very welcome — a life boat in troubled times.

It's educational to think for a minute about when the foundations of these successes were built. Toyota started development on the first generation of Prius, not one, but two recessions ago. Sixteen years ago, on the heels of the early 90s downturn, Toyota started designing what it thought would fit the demands of the 21st Century. Early in the process — and even though oil was only $17 per barrel — the team decided that a critical focus should be "environment." And while I can't say exactly when Honda decided to completely retool their earlier Insight model, how long after the early 2000s recession could it possibly have been?

[See the rest here]

Can Small Changes Save Your Business, and the Planet?

Fri, 26 Jun 2009 16:33:00 +0000

[From my column on Harvard Business Online]

At a recent executive education program on sustainability, I spoke about the many tactical ways to reduce environmental impacts and save money quickly in areas such as facilities, fleet, IT, telework, and waste (these are the main topics in a free special report I put out recently on green cost cutting). To fit the current economic climate, my focus was specifically on short-term, quick wins. After I finished my talk, an interesting challenge came from one of the program faculty: Given the scale of environmental challenges we face, shouldn't we be talking more about systematic, disruptive changes in how we do business?

After the session, one of the attendees, Mike Desso, Head of the Operations Environmental Sustainability Council for Nestle USA, told me he wanted to ask the group a simple question: "Has anyone here done all the things Andrew suggested?" His point was basically that there are still many simple things companies can do — so why debate whether we're doing the "big" things when we haven't even acted on all the "small" ones yet?

The whole discussion got me thinking a lot about the perceived trade offs between incremental and systematic approaches or, similarly, between incremental and disruptive change. The question is not an idle one given the legitimate concern about whether traditional eco-efficiency approaches will be enough to tackle large-scale environmental challenges.

It would appear on the face of it that incremental approaches won't get us there. So after some thinking, I come down conclusively and firmly...in the middle. In essence, none of these ideas of change and innovation — incremental, systematic, or disruptive — are independent. Instead, they're pieces of the same strategic and tactical puzzle. Arguably, the concepts are inextricably linked: Don't incremental changes spur thinking about — and if they save money fast, perhaps even fund — the larger shifts we need?

See the rest here.

Why This Is the Right Time to Go Green

Mon, 08 Jun 2009 23:44:40 +0000

[New post on Harvard Business.org here]

The green movement may be at risk of slowing down, especially within the business community. Many business people hold on to an outdated view of green: the misconception that environmental practices always cost a lot of money. So logically, in this economy they're asking, "Is this really the time for green? Can we really afford it now?"

At same time, most of the global discussion about getting the economy on track focuses on the macro picture — large stimulus packages at the national and industry level. But how can the economy as a whole get on its feet if individual companies don't as well?

I believe that these two questions — can we still go green and how do we revive the economy — are heavily intertwined. In this time of austerity, sustainability is perhaps even more relevant and will provide a path out of this mess. One of the core pillars of going green is doing more with less — saving physical and financial resources. So while the instinct may be to pull back from green initiatives in hard times, that would be shortsighted and a huge mistake.

Not only should companies not put their green efforts on hold, they should accelerate them in targeted ways to save money quickly and prepare for the future. Those who navigate these tricky waters the best will emerge from the downturn in better shape than their competitors.

See the rest...

Fuel Economy Standards are Only Half a Solution

Fri, 29 May 2009 01:49:02 +0000

In a remarkably bold regulatory move, the Obama administration is setting new, aggressive fuel efficiency standards for cars and trucks. The new goal will be 39 miles per gallon by a 2016 (which is around the corner in car model development time). This is big environmental news this week and for good reason. But as important wide-reaching as this kind of rule is, it seems like only half a solution.

The arguments against the ruling are of course being vociferously proclaimed from the usual suspects. But it's not easy to write them all off. It will cost more to make the technological changes, all at a time that the U.S. automakers are on life support. I tend to think the claims of expense from new standards that force innovation are generally overstated by alot...but it won't be costless to producers. The total cost of ownership to customers should go down with these kinds of fuel efficiency improvements, but that only matters if they buy the cars. And this brings us to the real problem -- what's the incentive for consumers. This concern, voiced by the industry and others, is far harder to dismiss. Unless gas is over $4/gallon, or we pay consumers to buy greener cars, why will they buy these new vehicles?

I've wondered since the car bailout packages why we didn't just take that money and commit to buying greener vehicles. GM wants $20 billion -- ok, we'll put $20,000 towards 1 million Chevy Volts as fast as you can make them. The government could buy them for government vehicles (imagine every FBI agent with a Volt -- if the bad guys saw one, I guess they'd know an agent was coming, but then again, they wouldn't hear it coming).

Remarkably, the industry is not responding quite as negatively as you'd think to all of this. they're happy not to face California's rules -- and then 49 other state regs. One national standard is preferable. And a very optimistic piece in the Wall Street Journal says "Car Makers Expect to Hit Fuel Goals."

But will they really hit the goals without the demand side pushing for it? It seems like a good time to have an even tougher conversation about what we can do to help consumers buy green. We have a remarkable consensus brewing that we need to move off of fossil fuels. The report from retired generals and admirals that just came out in the last few days was astonishing. As BusinessWeek reported, these military leaders believe fossil fuel, if it included the costs of transport and security, would run the army (and all of us) hundreds of dollars a gallon. Only 10% of the oil supporting the troops is actually moving the vehicles -- the other 90% went to "other vehicles delivering and protecting fuel and forces." As the report sums up, "This is the antithesis of efficiency." In a telling passage, the article reported:

"Our energy posture is not sustainable. It can be exploited by those who want to do us harm," retired Air Force Lieutenant General Larry Farrell, a co-author of the report, said in an interview. Finding a suitable alternative fuel and scaling it up to the size of the U.S. economy "is a 30-year project," Farrell said. "We've got to get started now."

It seems that starting with cars and trucks now would be a good idea then -- at the very least, maybe it frees up fuels for uses that are harder to avoid like flight and military. But we won't get there if people don't buy the cars. And why would they at $2 a gallon? With even the military saying we need some massive shifts, can we actually talk seriously now about giant subsidies to car buyers or, better yet, a tax on gas that puts a $4 floor on the price? Without those demand-side measures, we have only half a solution.

[This first appeared on Huffington Post]

Why Business Leaders Need to Get Over Al Gore

Wed, 20 May 2009 17:21:05 +0000

[A new post on my Harvard Business column -- some interesting commentary there]

I saw an interesting piece by Michael Graham Richard on treehugger titled, "Let's Put This Meme to Rest: Global Warming ≠ Al Gore" (thanks to Will Sarni for tweeting it to me). It seems like a perfectly obvious point, but one that I agree needs to be repeated. And it's a point that I've been making in subtle, and not-so-subtle ways, everywhere I can in recent months.

I speak to business people from a very wide range of sectors and quite often to groups that are self-identified as conservative. I find myself facing real skepticism on climate change (and real dislike of Mr. Gore). I don't really spend time debating or presenting the science, though. I just try to impress on business people to accept one irrefutable point: climate change is now a political and business reality, regardless of what you think about the scientific merits. (By the way, it is actually a reality reality also — see this unheralded story about some of the first climate refugees — but never mind.)

Unfortunately, in the United States in particular, the discussion on climate change has gotten wrapped up in political affiliation. And that's due in large part to the role Al Gore has played. He's done more than anybody on the planet to raise awareness of this serious issue. But for many Americans who don't like Gore or his political party, his role as the unofficial spokesperson for climate change has tainted the discussion. It's something I understand, but wish people could get past. Why are we unable to separate the medium from the message? After all, Attila the Hun could give the Gore's Inconvenient Truth presentation and the information presented would still be true.

But at any rate, from a strategy perspective, none of this really matters — and that's what I'm consistently trying to convey to business people

See the rest of this column here

The Genius of Biomimicry

Fri, 08 May 2009 14:17:31 +0000

[This post appears on Harvardbusiness.org in my new weekly column/blog...]

I recently went to the Fortune Brainstorm Green conference in California — a who's who of green business leaders, thinkers, and practitioners. One of my favorite sessions included the dream team of Ray Anderson (Interface Inc.), Paul Hawken (author of the seminal Ecology of Commerce and Natural Capitalism), and Janine Benyus, the real focus of the session. Benyus is famous for coining the term "biomimicry," which I'll let her describe: "Biomimicry is a practical methodology to solve problems by looking to nature." But what does this really mean?

Here's one quick example that I use in my talks: the Speedo swimsuit that Michael Phelps and other Olympians won medals with in Beijing is called the "shark suit," and for good reason. It was designed to mimic the way sharks move through the water. At the panel, Benyus mentioned that Airbus planes also mimic sharkskin to cut through the air more efficiently. She has many more examples of products we use in our lives every day that are borrowed from the 3.8 billion-year-old laboratory of nature.

I believe that biomimicry is one of a small handful of very important ideas that will change the way business is done. And it seems to be catching on. Benyus pointed out that any investment in this kind of research was mainly from the military or aerospace sectors until recent years. But, she said, in one study of worldwide patent databases, between 1985 and 2005, inventions inspired by "biomimetics" increased by a factor of 93.

So how do companies apply this thinking?

See the rest of this blog here...

Free excerpt from my new book, Green Recovery

Tue, 05 May 2009 15:48:14 +0000

Hi all,

I just wanted to let you know that I have a new book coming out this summer called Green Recovery. It focuses on going green in hard economic times. It lays out ways to get lean quickly, which can help companies survive today and preserves capital to invest in people and innovation. This plan can prepare companies to emerge from the downturn in a much better competitive position.

My publisher is making a core part of the book available for free now. You can download my special report here:

www.tinyurl.com/WinstonReport

This pdf includes the introduction and the core chapter on getting lean. The other chapters on how the green wave is evolving, and how to get smart, get creative, and get (your people) going will be out by August in the full book.

Fyi, below is some information on the book.

Please download the report and spread the word.

Thank you for all your support.
Andrew

Green Recovery
Get Lean, Get Smart, and Emerge from the Downturn on Top
(Harvard Business Press)
Andrew Winston
August 2009

With the economy in the grip of a brutal recession, many companies are sidelining their green business initiatives. They’re making a big mistake. In Green Recovery, Andrew Winston shows how no company can afford to wait for the downturn to ease before going green.

Green initiatives ratchet up your company’s resource efficiency, creativity, and employee motivation. They save energy, waste, and money, preserving precious capital — and give precise focus to your innovation efforts and strategic priorities.

Part manifesto and part how-to guide, this concise and engaging book provides a roadmap for using green initiatives to deliver short-term gains and position your company for long-term strategic growth. You’ll discover how to:

• Get Lean: Amp up your energy and resource efficiency to survive tough times
• Get Smart: Use environmental data about products and supply chains for competitive advantage
• Get Creative: Rejuvenate your innovation efforts by asking heretical questions such as “How might we operate with no fossil fuels?”
• Get Going: Engage and excite employees to solve the company’s, the customer’s, and the world’s environmental challenges

Green Recovery is your guide to establishing your competitive positioning in these difficult times and emerging even stronger into a vastly changed economy.

Is Bjorn Lomborg Dangerous or Helpful?

Mon, 27 Apr 2009 16:12:59 +0000

The beginning of this post is here, the rest is on Huffington Post here...

This weekend, the New York Times gave Bjorn Lomborg -- the self-proclaimed "skeptical environmentalist" -- more air time. Lomborg wrote an op-ed that railed against those who want to cut greenhouse gas emissions dramatically. He offered his opinion on a better solution: "make low-carbon alternatives like solar and wind energy competitive with old carbon sources."

As usual, Lomborg sets up a false straw-man to knock down. He says "we are often told that...we must cut emissions immediately and drastically." Then he worries that people just don't get that we actually need to make renewables cheaper. Really? So none of the major environmental NGOs, or country delegations to global climate negotiations, have thought of that? So to tackle obesity we shouldn't just talk about weight, but also about exercising more and eating right? So insightful...

Lomborg has a long habit of tilting at windmills that he mostly imagines. His most famous argument is that we shouldn't prioritize climate change over other pressing social priorities like poverty alleviation -- as if they're all separate. The poorest people in the world are energy poor and don't have access to clean water -- the two biggest environmental challenges of our time. He's always setting up false tradeoffs to establish his more "reaonsable" middleground.

I will say that one overarching aspect of his arguments is important. Of course we should constantly ask ourselves, "What's the cheapest way to solve that problem, and where should we allocate scarce resources?"...

More on HuffPo -- please go there to comment...

Customer Service -- the Good and the Bad

Thu, 23 Apr 2009 15:32:04 +0000

Ok, I'll admit upfront that this isn't a green posting exactly. But I was thinking about customer service after an interesting comment at the Fortune Brainstorm Green event i just went to in California (more posts to come). One attendee said he had seen analysis on companies with high customer service scores (by some independent organization that ranks customer service) vs. those with lower marks for pleasing customers. Through this decade, apparently, the higher group started having a significant advantage in stock market performance. To stretch the analogy to green, perhaps companies that get the intangibles right -- including some aspects of connecting to customers around social and environmental issues -- will be rewarded. The context of this comment was in a session on investing in greener companies and the higher performance (and lower risk) of greener stocks. The session included the always funny and interesting Matt Kiernan, founder of Innovest and one of the true experts on green investing.

But anyway, I was in customer service mindset when I drove my Hertz Prius back to LAX and had two diametrically opposed customer experiences within 5 minutes.
A few blocks from Hertz is the gas station, AM PM Arco, right on La Cienega and W. Century Blvd. Everyone stopping there was filling up a rental. When you pull up to the pump, there are no instructions and you can't put any money in. A helpful gentleman pointed to a central payment station. But that didn't take credit cards. So you have to go in, wait in line, give them a credit card...which they keep and make you come back in for. When I came back in and waited for register, I got to the 'wrong' one and had to wait for the other guy with my card (handing it over was not possible I guess). So nobody was rude exactly, but the only helpful part of the process was the homeless guy out front making a living helping people negotiate this byzantine process.

So cut to 10 minutes later at Hertz. I get on the courtesy bus #26 driven by John, the single best bus driver I've every had. He paused the bus before we left the Hertz parking lot and asked if everyone was sure they hadn't left anything in their cars. Then he told us what to do if we realized we left something in the car later, or even left something in the bus -- "call us and i'll turn my bus around and come back to your terminal." He offered candy to everyone and helped every person on and off the bus. It was remarkable. I actually sent an email through the Hertz website to commend him.

Yes, it's sad when people doing their job well is so noticeable, but we've come to that. It's relatively easy to be remarkable in this environment, so why not? (see the work of Seth Godin and the "purple cow" concept for more on this.

So, a strange Earth Day-week post from me. I'm sure there's a green connection here (like being remarkable, which truly green-focused companies generally are -- think Patagonia -- pays off), but I won't stretch too far to find it.

Quick announcement...Twitter

Tue, 21 Apr 2009 22:10:40 +0000

Hey all,
I've decided to try and get hip and try out this Twitter thing.
Just started today while at the Fortune Green event in California. Really interesting conversations happening here.
If you're on Twitter and want to follow me, my screen name is GreenAdvantage.
www.twitter.com/Greenadvantage

Andrew

Rising Transparency -- One Way to Avoid Massive Market Failure

Thu, 02 Apr 2009 14:38:03 +0000

Last week, Hernando de Soto (the insightful Peruvian economist and author of The Mystery of Capital) wrote one of better pieces I've seen about the financial meltdown and all these "toxic assets." In the Wall Street Journal, De Soto made the compelling case that "the real problem is not the bad loans, but the debasement of the paper they are printed on." The $50 trillion in bad paper, he says, is far more than the $1 trillion in subprime mortgages that supposedly started all of this.

To put the magnitude of the derivative financial creations in perspective, de Soto describes simply the scale of all assets in the world: $100 trillion of tangible goods (land, buildings), $170 trillion of semiliquid asssets (mortgages, stocks), and $1 quadrillion of new derivatives (mortgage-backed securities, collateralized debt obligations, and so on). Let me repeat that. One quad-rill-ion -- as in one thousand trillion. First, I've never heard anyone use figures like that outside of my 5-year-old making jokes about wanting infinity or googol more minutes to play a favorite game before bedtime.

Ok, shocking numbers aside, de Soto outlines six prescriptions to avoid this kind of market failure in the future. In short, the answer is making sure "property" is not some financial figment, but something definable and trackable, something we can guarantee the value and legitimacy of. The first two guidelines he provides are why I'm writing about this.

First, he says, "all documents and the assets and transactions they represent or are derived from must be recorded in publicly accessible registries." Second, "the law has to take into account the 'externalities' or side effects of all financial transactions..." This sounds an awful lot like themes of sustainability and business. Internalize the externalities and get much more knowledgeable and open about your impacts. I couldn't agree more. The solution de Soto recommends hinges on a renewed commitment to transparency so there's no "back-room" financial market that regulators and, more importantly, investors can't see.

Transparency is one of the driving forces keeping the green and sustainability waves moving (it's a theme I touch on in my new book, Green Recovery, coming out this summer, so I'll return to this topic over the coming months). I believe that we're rapidly entering an era of radical openness, driven both by regulation -- see the EPAs recent announcement that it plans to "ask" 13,000 facilities in the United States to share data on carbon emissions -- and the rising demands of employees and customers, particularly the younger ones. The new level of transparency will make any of us old enough to remember a world before MTV uncomfortable. But the Facebook and MySpace generation will have no problem with it -- in fact, they'll be expecting it.

A renewed transparency drive may be partly fueled by the latest emotional issue of the day -- executive pay and bonuses. I don't really believe in government-mandated 90% tax brackets for bonuses, no matter how repugnant the payments may seem. But I do think the government can set standards for openness. Let's list everyone who got bonuses at these firms and how much they made. Let the court of public opinion (and that of peers and co-workers) be the judge.

I'm going to make a seemingly unlikely prediction: companies will increasingly reveal all salaries and bonuses (far beyond sharing the pay to a few top executives as required by the SEC). The most responsible companies already do this to some extent -- Seventh Generation has a public commitment to keeping the CEOs salary below 14 times the lowest salary. The biggest companies will, painfully, follow suit (about sharing, not about the 14x multiple) over the coming years as it becomes clear that the more open they are, the more trustworthy they'll be.

Imagine what openness about salaries and bonuses might do for some other thorny issues, such as equal pay for women and minorities. Wal-Mart is facing a highly publicized class action suit about its treatment of women. Will complete openness about pay generate more of these kinds of claims, or help companies avoid these problems? I have no idea, but I certainly hope it's the latter since the transparency is coming, like it or not.

How do you prepare for this new open world? It's not easy, but some of those old grandmotherly maxims seem to gain some force: don't say anything about anyone that you wouldn't be comfortable with that person hearing...or don't do anything you wouldn't want on the cover of the paper...or the standard Golden Rule certainly comes to mind. No doubt there will be some real challenges in handling increased transparency, but my hopeful view is that it will drive more ethical, sustainable behavior.

In this view, those who can't meet the standard will struggle. But those companies that are proud of their operations will be fine talking about what's in their products, how products are made, how much energy they use, how much they pay people, who else is involved in the production, and what their executives receive in compensation. They will also attract and retain the best people who trust their employers. And they will build a more loyal base of customers that feel the authenticity. Sorry for all the unbridled optimism in such a pessimistic time, but maybe it's time to look on the bright side of some of these massive changes in the works.

This post first appeared at Harvard Business Online.

What's Your Heresy?

Tue, 03 Feb 2009 14:21:39 +0000

Can a plane fly with no jet fuel?

Ridiculous, right? But the aviation industry is starting to ask itself this very question. In early 2008, Virgin Airlines and Boeing launched a test flight where one engine ran partly on biofuels, in this case coconut oil. I've done some work with Boeing and heard their environmental execs tossing around ideas like these for a plan they call Project Heresy. I love it.

Imagine creating space for disruptive innovation where no question is dumb. It's the "no-left turns" approach (after UPS' catchy phrase for its GPS-enabled route minimization that included avoiding left turns to save idling time). Of course, now might not seem like the best time to look for next-generation ideas, given the economic climate. But even if the focus in the green realm turns mainly to getting lean this year, there is still opportunity for rapid innovation. Here are a few more heretical questions:

Can we send no waste to the landfill?

What a pain that sounds like. It's so much easier to just cart it all away. But Subaru and a few others have found that they can reduce landfill waste not just a lot, but to zero. The last trip to the dump from Subaru's Lafayette, Indiana plant was May 4, 2004. It's a longer story for another time, but through the old "reduce, reuse, recycle" mantra, the company has easily paid for the effort through savings, brought toxic emissions per unit down 55%, and reduced CO2 per unit by 20%. All these benefits stemmed from a focus on getting lean and reducing waste and from asking a seemingly wacky question.

What does our business look like if oil goes to $500 per barrel?

At first, the idea of a ten-fold increase in the price of oil sounds ridiculous. But we went from $14 to $140 in less than 10 years, so it's possible. We're facing a medium and long-term constraint on energy and other basic resources. Some diehards are holding onto the notion that there will always be enough, but the Wall Street Journal and other sober business sources have been hitting a theme very hard all year - supply will not keep up with demand in the coming years. That means we either substitute out (by asking, "Can we drive or fly without oil?") or deal with very high prices, which brings me back to my heresy about $500 oil. But whether or not you believe prices will rise again, asking the question makes you think differently, perhaps creating the mental space for real innovation. If your products can help your customers reduce costs or avoid environmental challenges, you'll find a market. Which brings me to...

Can we clean the floor with no chemicals?

Ok, this one is a bit more particular to a specific industry. I'm referring here to the question that the mid-sized commercial cleaning company, Tennant, asked itself a few years ago. It's a story I've been telling a lot, but in short, Tennant developed a process that allows their floor-cleaning machines (the small Zamboni-like machines you see janitors pushing around) to use just tap water. The technology works and avoids chemicals. Instead of just getting more efficient, Tennant found a way to avoid the chemicals entirely, thus allowing customers to avoid a major environmental and safety concern.

Heretical ideas have swept industries many times. If someone in the advertising, television, or music businesses had asked 10 years ago, "What if people stop watching commercials?" or "What if people think music should be free?" they would've been laughed out of the room. Then Tivo and Napster asked those questions. Of course, one turned out to be illegal, but their innovations laid the groundwork for others, like iTunes. And the television business is in the middle of a painful transformation away from traditional 60 second spots.

Environmental pressures will force much bigger changes than these in many industries in the coming years. Are you ready? What's your heresy?

This post first appeared at Harvard Business Online.

Green to Gold in Paperback...

Sun, 25 Jan 2009 15:04:00 +0000

Hi all,
Just a quick note to my blog readers...
The Green to Gold paperback is available now. We've revised, updated, and added some stories throughout. We also included a FAQs at the back and a new preface with themes/ideas we've seen growing over the last couple of years.

If you haven't gotten it yet, or haven't bought it for your entire office, here's your chance!

Here are links to Amazon and Barnes & Noble...

Thanks for all your support and interest in my ideas/writing.

Best,
Andrew

2009: The Year of Light Green

Wed, 14 Jan 2009 14:37:55 +0000

It's always fun to predict what's going to happen. The risk of being spectacularly wrong is very high, but that's what makes the exercise so entertaining. 'Tis the season for dwelling, quickly, on what we learned last year -- de-leveraging is really painful and when gas prices are high, people want smaller cars -- and for pontificating about what to expect in 2009.

For my predictions, I'll stick to my area of knowledge, the greening of business. Over the past two years "green" has become part of nearly every serious business discussion. But what will happen now in this damaged economy? It would be silly to suggest that the intensity of the focus on green will continue unabated. But we'll see a form of what I'll call "light green" this year.

Some of the green pressure on companies will lessen, but I believe that the underlying forces driving the green wave will continue over the coming years - from volatile commodity prices (which will rise again aggressively after the recession) to a rise in transparency to tougher questions from key stakeholders (such as your business customers, consumers, and employees). Those big picture trends will continue over years, but here now are a few specific predictions for 2009.

"Light Green" will focus primarily on cost reduction...

Going green drives innovation and creates value in four fundamental ways: cost reduction, risk mitigation, revenue growth, and brand value enhancement. But for 2009, the top priority will be the first one, lowering costs (primarily through so-called "eco-efficiency"). Few companies will have the stomach for deep investments in R&D to create new green products.

...but, companies (and banks in particular) will also broaden the definition of "risk"

If we learned one thing in 2008, it's that the business and financial communities are not so great at measuring and accounting for risk. It's in our nature to overestimate some risks and drastically underestimate others (like the possibility that housing prices could actually drop). On climate change, we're realizing that the risk of inaction is too great.

Citigroup, JP Morgan and Morgan Stanley launched the Carbon Principles early in 2008. In short, this agreement committed the companies to look very hard at any coal investments and ask tough questions about how climate change and a cost on carbon would affect the risk profile. And at the end of '08, other financial and insurance giants -- including HSBC, Munich Re, Standard Chartered, and Swiss Re -- created the Climate Principles. These guidelines are admittedly aspirational, but they also increase awareness of the impact of climate change on all aspects of their businesses, including their investment portfolios.

Leading companies (read: Wal-Mart) will continue pressing suppliers.

To be a bit cynical for a moment, greening the supply chain is perhaps the easiest path to take in hard times. After all, you basically push the problem and cost onto others, and if you're as big as Wal-Mart, you get your way. To be less cynical, the companies that have learned to take a value-chain perspective have discovered real value in lower costs and better products. So why go back if you've discovered a better way of doing business? Wal-Mart and others clearly believe that reducing environmental impacts up and down the chain creates value for all. The retail giant convened a historic meeting in Beijing, China in October 2008 (see my first-hand account of the meeting here). Wal-Mart's top execs made it very clear that the green agenda was not going away and, in fact, that it was accelerating. Of course global recessions can put a damper on anyone's plans, but there are few indications the big guns are pulling back on supply chain pressure.

Innovation will become even more important.

This may sound like a contradiction to my "cost reduction will rule" prediction. But innovation is about more than just flashy new products; it's also central to reducing costs in a smart way. But beyond getting lean, 2009 will be a good time to truly rethink business models and ask new heretical questions. Innovation guru Clayton Christensen recently told the Wall Street Journal that the economic downturn "will have an unmitigated positive effect on innovation." Say what? By his counterintuitive logic, tight times "force innovators to not waste nearly so much money."

So use 2009 to seek out green innovation opportunities. Find ways to drastically reduce energy and other resource use both in your own operations and through your products (that is, help customers reduce theirfootprint). Even if investment dollars remain scarce, be ready to run with good ideas when cash frees up. We may look back at the end of 2009 and see that staying green during the recession, at least in mindset, not only drove creativity, but even saved some companies.

Yes, 2009 will be a tough year. But the Green Wave, albeit a bit diminished, will roll on. The smartest companies will continue to pour the foundations for a new form of capitalism - one that takes into account the resource constraints we face. After this recession, when capital is more readily available, green investments will begin in earnest again. Sustainable business will no longer be a side pursuit, but the core focus of successful companies.

This post first appeared at Harvard Business Online.

Exxon Goes Green?

Fri, 09 Jan 2009 21:44:00 +0000

I never thought I'd say it, but I agree with Exxon on an environmental issue. The CEO, Rex Tillerson, called for a carbon tax yesterday. As the Wall Street Journal reported...

Rex Tillerson said that a tax was a "more direct, a more transparent and a more effective approach" to curtailing greenhouse gases than other plans popular in Congress and with the incoming Obama administration...Mr. Tillerson has become an unlikely member of a club that includes former Vice President Al Gore, consumer advocate Ralph Nader and President-elect Barack Obama's designated head of the National Economic Council, Larry Summers.

Does "wow" cover it? While skeptics may believe that Tillerson is just throwing the idea out there because he knows it won't happen politically, I'm not so sure. I think he means it. And not just because it's by far the most efficient method to reduce emissions, which pretty much every economist of any political stripe agrees with (for example, Bush's former chairman of the Council of Economic Advisors, Greg Mankiw, is a big proponent...see here and here).

But I think Tillerson knows that a carbon tax would likely be cheaper for Exxon than a cap-and-trade, or at least not as specifically targeted. The wrangling over a cap-and-trade system - who will pay for permits, who's included in the "cap", and so on - will be ugly. But you can bet that energy and utility companies will face the most traumatic changes and restrictions. A tax, on the other hand, would wind its way through the economy to the places that the supply and demand curves dictate (those with "inelastic" demand are more likely to pay the price). Basically, even if it's taxed at the pipeline or refinery, the actual cost could be passed on to consumers. But isn't that the point? A tax or a cap should reduce consumption, which won't happen without a higher price signal. Only when gas hit $4 a gallon, did people demand more energy-efficient cars.

At any rate, while many say a tax is nearly impossible to pass, especially in a recession, maybe now's the best time. All bets seem to be off in D.C. these days. Conservative economists are ok with $1.2 trillion deficits and some Republican congressmen have indicated support for energy taxes (and lower income taxes - a policy called 'tax shifting' that other countries have used for years).

It's ideological anarchy out there right now. Maybe while the slate is clean and the economy is at rock bottom, we can explore those hard-to-pass, but ultimately superior, policies. I can dream, can't I?

This post first appeared on Huffington Post.