Andrew Winston

The Fallacy of the China Defense

Tue, 19 Mar 2013 09:11:57 -0500

[Note: I'm taking a small blog hiatus for a couple months to work on my next book. More on that later.]

For anyone who doesn't want to reduce carbon emissions, China seems like a great scapegoat. The defenders of the status quo argue that U.S. companies will be at a disadvantage if we tax carbon or invest in clean energy because "China's not doing anything."

(Beijing pollution)

U.S. Senator Marco Rubio recently offered up a perfect example of this idea: "There are other countries that are polluting in the atmosphere much greater than we are — China, India, all these countries that are still growing. They're not going to stop doing what they're doing." And New York Times op-ed writer Joe Nocera used the China Defense last week in his latest pro-fossil-fuels piece: "the Chinese are far more concerned with economic growth than climate change."

But there are three little problems with this logic:

1) It's not true.

China recently demolished this fallacy when leaders announced they would implement a carbon tax. And when the new Premier spoke on Sunday, he belied Nocera's assertion with a speech that, in the Times words, "laid out a vision of a more equitable society in which environmental protection trumps unbridled growth." These policy shifts are a very big deal for all 7 billion of us sharing the climate. And it's just the latest in a series of Chinese commitments, which include the following:

July 2010: 5 trillion yuan, or $800 billion, alternative energy plan over 10 years (this is like the part of the U.S. stimulus plan that funded clean tech, but times 10).

August 2012: $372 billion to cut pollution and energy use.

August 2012: 40% increase in solar target (21 gigawatts by 2015).

January 2013: Wind power is now the number 3 source of energy in China (passing nuclear).

Is China still growing and emitting more carbon? Of course. Is it planning to build another 363 coal plants? Yes. So the world is not black and white. But even with lots of coal and oil investment, there's no way you can say China is doing nothing on clean tech.

2) Science doesn't care.

The math and physics of climate change are getting clearer by the day. As those tree-huggers at McKinsey and PwC UK have calculated, we need to decarbonize at a rapid rate — about 5 percent less carbon per dollar of GDP every year until 2050. This has to happen no matter who goes "first," and is basically the argument put forth by Grist writer David Roberts recently. We have to try, no matter what anyone else is doing. And, by the way, the impacts of doing nothing will keep growing — Hurricane Sandy and the ongoing drought in the Midwest are just the beginning. The costs of inaction are rising, which brings me to...

3) We should want to go clean anyway.

One of Sen. Rubio's other comments, the most common specious argument against acting on climate change, was that restricting carbon would "devastate" the economy. This is, to borrow a phrase, malarkey.

Even putting aside the literally trillions available through energy efficiency, there's a vast upside from creating new industries. According to the bank HSBC, the clean economy will be a multi-trillion dollar market soon. After all, we're reinventing the world's largest industries: energy, transportation, and buildings. Most other major economies get this and are investing heavily in the clean economy. But no country has gone as fast as China, which has grown its share of solar manufacturing to 50% in avery short time (with nearly as impressive a performance in wind).

I could keep going with counterarguments — like shouldn't we lead because we're, well, leaders? But even if science doesn't care and the whole "China isn't doing it" argument is a lie, I'm partial to number 3: We make money doing it and it's good for us. That's enough for me.

(The majority of this post first appeared at Harvard Business Online.)

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The Inside Story of Diageo's Stunning Carbon Achievement

Sun, 24 Feb 2013 15:29:23 -0500

This is the exclusive, short story of how Diageo North America, with creativity and guts, both in operations and in the senior ranks, achieved the holy grail of carbon emissions reductions. They did it without using carbon offsets — and about 38 years earlier than they had to.

Here's what scientists are telling us: the world must cut carbon emissions by at least 80 percent from 1990 levels by 2050 to (we hope) avoid the worst of climate change. This level of change seemed like a pipe dream to many, including me... until I spoke last fall to Roberta Barbieri, the global manager for environmental sustainability for Diageo, the $17 billion spirits company. Imagine my shock, as we talked about setting aggressive goals on carbon emissions, when she casually mentioned that Diageo's North American division — a group with $5.58 billion in sales and 14 production and manufacturing facilities — had already cut emissions 80 percent.

The first thing I said was, "Excuse me?!," followed quickly by, "when can I come and talk to you?"

It all started in 2008, she told me later, when top Diageo execs had their minds set on doing something big. First, for perspective, they ran the numbers on what it might cost to go entirely carbon free. The back-of-the-envelope calculation was daunting (hundreds of millions of dollars) and included ideas like building bioenergy plants to power some of their largest distilleries — an option that would achieve large reductions, but was in no way cheap. They settled on a still-aggressive goal of 50%, made it public, and, remarkably, crossed their fingers.

At about this time, Richard Dunne, an environmental exec, entered the picture and took responsibility for meeting the target in North America. He had a strong suspicion that building an expensive bioenergy plant was not the only way to get there. His team implemented a rigorous process of collecting ideas for emissions cuts and estimating the costs. Then they sorted the results on a massive spreadsheet, ranking ideas by net gain on environmental improvement and then by financial investment. By looking at the largest carbon reduction options first, they could group ideas into three big buckets: 1) low/no cost (the no-brainers); 2) some operating expense increase; and 3) more significant capital expenditures (like the bioenergy plant).

Executives initially thought that only major capital projects would reduce emissions significantly. But Dunne's process revealed a surprising number of no-brainers. As a result, Diageo North America achieved a 50% carbon reduction by 2012, mainly with a mix of no- and low-cost initiatives. These project range from easy efficiency efforts like lighting retrofits, boiler upgrades, and installing variable speed drives; to larger, but still economical, changes, such as switching fuels (from oil to natural gas) and cutting back from two boilers to one in a small distillery.

Reaching the 50% reduction in North America years ahead of schedule was a pleasant surprise. But Diageo still needed to go further: the economics on reductions in other regions were not nearly as good, so North America needed to close the gap to help the global organization reach its 50% goal by 2015. But even with the expensive bioenergy plant beckoning as a solution, something even more unusual happened at a Canadian distillery, one of the company's largest.

Gene Ruminski, Diageo's North American sustainability manager, proposed that the Canadian distillery contract with its utility to supply natural gas harvested from a landfill - a net zero carbon solution that would reduce the carbon footprint for North America by another whopping 30%. But there was a big catch: energy costs would go up more than $1 million per year. This expense was more than the single plant could justify.

But then a senior exec, the president of Global Supply and Procurement, got wind of the idea (important point here: this exec sits on the company's internal sustainability council). With his global perspective, he realized that even though the landfill gas solution would increase operating costs for this one plant, it was actually a relatively cheap way to deliver a large reduction in emissions. So he gave the go-ahead and some financial leeway to the plant manager who had to take the annual million-plus hit to his bottom line. As it turns out, the plant's ongoing cost-cutting initiatives had already identified many millions of savings, so Diageo reduced the plant's target for total cost savings to allow for this massive carbon-reducing project.

This is an amazing story, with a few important lessons:

1) Companies still have much more room to cut energy, water, and waste than they realize. Even a well-run company can find enormous savings from easy, low-cost stuff.

2) Big goals force you to look for big ideas, meaning you can, as Diageo's Roberta Barbieri says, "do more than just turning off the lights."

3) Leadership matters. With a more strategic attitude, you can invest in longer-term value, both tangible and intangible. Flexibility is crucial, as the top exec had to give the plant manager leeway on his savings targets to meet the environmental goal.

This last point is really critical. Shifting subtly away from an attitude of "maximize profits this quarter at all costs" does not mean you leap right from capitalism to communism; it just means you take into account a broader definition of value to the organization and community. Flexible thinking about value frees you up to find unique solutions. As a clean tech and impact investor Charles Ewald said to me recently, "the gap between 'capitalism' and so-called 'philanthropy' leaves a lot of room for creativity."

I congratulate Diageo for getting creative, finding that chasm, and driving a spirits truck right through it.

(This post first appeared at Harvard Business Online.)

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A New Algorithm for Fast Carbon Footprinting

Mon, 07 Jan 2013 09:34:00 -0500

(Happy New Year all...I forgot to post this one last Fall...)

Low-cost carbon footprinting is a Holy Grail for the sustainability world. But how do you measure your footprint at multiple levels — from products to business lines to the whole enterprise — quickly and cheaply? Over the last few years, PepsiCo has been working with partners at Columbia University to solve this interesting and complex business problem. The results of this partnership, what the team is calling a "Fast LCA" process, are emerging. And they're encouraging.

To understand this initiative better, I recently spoke with two PepsiCo executives working on sustainability, Al Halvorsen and Robert ter Kuile, and the academic brain trust at Columbia led by adjunct professor Christoph Meinrenken. Here's what I learned about three major issues:

1. Why do carbon footprints matter for your business?

Understanding your carbon footprint is a required skill of 21st-century business. Customers, consumers, employees, and investors (like the increasingly influential Carbon Disclosure Project, backed by institutions with $78 trillion in assets) want to know your contribution to — and actions to solve — this global challenge.

But it's not just about reacting to pressure.Knowing your footprint helps you get proactive, spot risks and costs along your value chain, and identify opportunities to innovate. Getting smart about green data makes money. In essence, carbon is a proxy for energy cost and waste, and good carbon management is a proxy for good operational execution.

2. In layman's terms, what have Columbia and PepsiCo accomplished, and how?

The detailed methodology behind this advancement is complicated: for the math and data wonks out there, see this short but dense article in the Journal of Industrial Ecology.

But for even layman like me, the problem is clear: To use carbon data to reduce costs and risks throughout the value chain, you need know the footprint of every single product that contributes significantly to your bottom line or brand. Conducting a detailed lifecycle assessment (LCA) is, to put it mildly, a resource-intensive exercise.

As Meinrenken and the Columbia team suggest in their Journal article, a full LCA for even a relatively straightforward consumer product like a can of soda would require data on

"...the masses of three packaging materials and five ingredients, transportation distances of all materials to the plant, amounts of four types of energy, transportation distances to stores, refrigeration times in stores and at home... and then all materials and activities have to be paired with respective EFs (carbon emission factors), bringing the total count of individual [data] inputs to approximately 100 for a single product alone."

LCAs for an entire product portfolio would require thousands of often hard-to-get data points. It's tough to justify this level of investment. PepsiCo's ter Kuile put it succinctly: "there's no way to look at all of our products at this level of detail in any reasonable time frame."

So what has Columbia done? I'm not doing it justice fully, but it's about algorithms and shortcuts. They start with internal operational data from existing SAP and Oracle databases - bills of materials (packaging, ingredients, and so on) on every single product, as well as shipping, energy, and water data for every plant. But instead of collecting an exact carbon emissions number from every supplier of those materials, they use statistically generated emissions factors (EFs), which provide good estimates on carbon for common inputs like sugar or corn. Modeling EFs is what saves the most time.

Other shortcuts draw assumptions on systemic issues like transportation distances, refrigeration time in transit or in the home, and recycling rates, all of which influence the footprint.

Then the model does something critical: it runs a sensitivity analysis to identify the inputs where variation could cause a meaningful change in the ultimate calculation. Thus the model helps managers zero in on data that's worth spending more time to get right. Let's say the model assumed that soda in France sits in the store refrigerator for two days instead of four. Does that number impact the total footprint very much? If so, managers can do more research and find better numbers (that is, more "primary" data).

(Note: for another interesting take on this process that likens the whole thing to a "Facebook-inspired carbon calculator," see Allison Moodie's piece on Greenbiz.com.)

Finally, the model makes assumptions about elements like packaging that may be common across many products. This is where it gets even more interesting for PepsiCo since it allows execs to explore "what if" scenarios. Which brings me to #3:

3. What's the business value for PepsiCo and all companies with broad product portfolios?

As PepsiCo's Halvorsen told me, "the real reason you do an LCA is improve the business... to put more efficient processes in place and innovate in the supply chain."

To see how this works in practice, let's go back a few years to the beginning of the PepsiCo/Columbia working relationship. The team produced a fascinating study on Tropicana orange juice, which concluded that the biggest contributor to the carbon footprint was not manufacturing or transportation, but natural gas-based fertilizer. For essentially no cost, PepsiCo could eliminate a third of Tropicana's carbon footprint — and all the potential cost and risk associated with it — by switching to non-fossil-fuel-based fertilizer (their test farms are a few years into their experiment).

This exercise was so helpful, PepsiCo's executives wanted to gather this level of strategic knowledge across the business for all products. To test Columbia's new fast LCA model, they submitted data on two different parts of the business: the beverage business in China and the snack business in Brazil.

What makes this story interesting is what PepsiCo can do with the information at the product and business unit level — and it's not to get an exact number of grams of carbon per bag of chips, which is fairly meaningless to consumers anyway. The real goal here is to pose "what ifs" and find the quickest, most profitable way to reduce impacts and improve efficiency.

These execs want to ask questions such as, "If we reduce packaging in one product, what does that do for other products that use the same packaging elements? What do we save in carbon, material, and money?" They've begun this process, but it's still the early days. Over the next year, I hope to report on some operational changes that were made and measured.

A final thought on what's required to make this happen: To avoid the old "garbage in, garbage out" problem, you need good data. PepsiCo knows a lot about its business — from the precise formulations of every product (to estimate supply chain impacts) to the exact production rates for each facility (to accurately allocate energy use for every product). In essence, the innovation here is combining really good, so-called "big data" with really good algorithms.

There's a lot at stake here in dedicating scarce resources well. Getting carbon footprints right is a critical step on the path to healthy brands, higher profits, and a livable planet for all of us.

(This post first appeared at Harvard Business Online)

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Transparency May Lose Battles, But It Will Win the War

Mon, 10 Dec 2012 09:08:24 -0500

Now that the long national nightmare of 24/7 presidential election coverage is well behind us, we can get around to discussing some other important voting results. In particular, I've been thinking about a result that got much less attention than it deserved: the defeat of Proposition 37 in California.

The ballot initiative would have required food companies to put a label on packaging if they usedgenetically modified organisms (GMOs). While on the surface Prop 37 was a heated debate about science, food, and health, in some sense the real battle was over transparency.

The debates on Prop 37 were loud and hard-fought (see some links to a range of opinions on the matter here). Most of the largest food and chemical companies were against this law and, logically of course, the well-known organic food brands were for it.

I don't want to debate the complicated science on GMOs. Instead, my point is that, in the long run, it may not matter that this ballot initiative didn't pass. If companies think the defeat of Prop 37 will stem the transparency tide, they will be sorely disappointed. And further more, it's not good for these big brands to be against transparency. The battle creates an enduring image of stonewalling: When companies fight so hard, it's easy for consumers to wonder, regardless of the science, "If GMOs are safe, why hide it from me?"

It's not like food companies are against all labels; they mostly embraced "front-of-package" labeling initiatives when they could promote the (supposed) health benefits of their products. But with GMOs, it was a very different story.

Even if the food companies believe that science is on their side, they're facing an uphill battle. One principle of a sustainability mindset, as my co-author and I described in our book Green to Gold, is that "Feelings are Facts." Meaning all the science in the world won't matter in some situations, especially when it comes to food.

This reality — that perceptions often matter more than facts — may be hard for science-driven companies or people to take. I'd certainly prefer that we make decisions based on the preponderance of evidence (climate change anyone?). But this particular proposed law was not about adjudicating the safety of genetically modified food (here's the actual language of the bill); it was about giving people information so they could make their own decisions.

For that reason, I'm a bit surprised at the outcome (53 percent voted against it), especially since we're all used to looking at food labels. Imagine trying to eat a healthy diet without having nutritional labels, which make no judgments. Even though sugar has no nutritional value, for example, listing the grams of sugar on packaging doesn't actually judge whether you should consume it. The label leaves that decision up to consumers. The fears of a GMO label being a judgment that would force food companies to find substitutes, I think, are overblown (people already eat a lot of what they know is bad for them, let alone stuff that just might be).

Regardless, I'd like to see companies affected by the rising demand for more information — that is, pretty much all organizations — use the opportunity to communicate with consumers and business customers about what's in every product, what they believe to be true about the ingredients, and what science they have to back it up (see SC Johnson's transparency site as one very good move in this direction).

Perhaps, as some moderate voices have said, Prop 37 was poorly constructed. But either way, its defeat is a blip in the arc of history. The power of big data, openness, and transparency is a relentless tide that's only getting stronger.

Even if current law doesn't mandate disclosure, there will be workarounds as companies likeGoodGuide provide more information about products, in real time, on any mobile device. This is just one example of how the world is becoming more open every day. Instead of playing little Dutch boy putting fingers in the proverbial dike, companies should get proactive and embrace the change.

(This post first appeared at Harvard Business Online.)

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The Challenge of Climate Math

Fri, 16 Nov 2012 13:06:52 -0500

A nerd hasn't been this popular since, well, ever. Nate Silver, the creator of the election poll statistical hub FiveThirtyEight was declared the clear winner in the Presidential election. And on Fox News, election math was at the center of one of the most bizarre on-air moments in memory.

The numbers discussion then seeped over from polls to other politically charged topics such as climate change. David Frum, President George W. Bush's speechwriter, tweeted this gem: "Horrible possibility: if the geeks are right about Ohio, might they also be right about climate?"

This awakening about the math (and physics) of climate change has coincided with climate activist Bill McKibben's "Do the Math" tour, an awareness-raising series of events criss-crossing the country this month. The tour was inspired by McKibben's incredible essay in Rolling Stone magazine, "Global Warming's Terrifying New Math."

In this article, McKibben lays out 3 fundamental climate numbers: to stay below (1) 2°C of warming(the limit the world's scientists have said might help us avoid the worst of climate change), we can only burn (2) 565 more gigatons (a billion tons) of carbon dioxide, which will force a battle with the fossil fuel industry since it has (3) 2,795 gigatons in reserve. These are important numbers to wrap your head around, but what do they really mean for countries and companies? How fast do we have to change?

To answer these tough questions, we can turn to two of the world's best number crunchers, McKinsey and PwC (full disclosure: I have a consulting partnership arrangement with PwC US). Last week PwC released its Low Carbon Economy Index 2012 report, which calculated one simple, powerful number: In order to meet the 2°C warming target, we will need to reduce the global carbon intensity (how much carbon it takes to produce every unit of energy or GDP) by 5.1% every year until 2050. For perspective, in 2011 carbon intensity improved just 0.8%.

This number provided another view on some similar math from McKinsey, which concluded that the ratio of global GDP per ton of CO2 would need to rise tenfold by 2050.

OK, so the math is not pretty, but it is what it is. And it's not like the world is ignoring the challenge entirely. Here are some numbers that make me feel better:

$2.2 trillion: The size of the "climate economy" by 2020 according to the bank HSBC

$372 billion: China's budget for energy conservation and anti-pollution measures over the next few years

$260 billion: Global clean energy investment in 2011

$109 billion: Saudi Arabia's planned investment in its solar industry over 20 years

50%: the portion of Germany's entire electric demand satisfied by solar energy during one sunny day in May, a world record

These are great macro stats. But the brutal logic of the McKibben, PwC, and McKinsey numbers applies at the microeconomic level as well. Meaning, I believe, companies need to acknowledge the math and shoot for a 5% reduction in carbon per year.

It's not so crazy. The early leaders have a good start. Dow Chemical has reduced energy costs $9 billion since 1994. Walmart has improved the fuel efficiency of its distribution fleet by 69% since 2005. A large consumer products company — which tells me it will be going public with this story very soon — has already cut carbon in its own operations by 80%.

Of course, the entire private sector will not achieve these results on its own. We will need strong global policies and a price on carbon. But given how profitable many organizations are finding the low carbon quest to be, they shouldn't wait.

While it's a myth that companies make all decisions on ROI calculations (what was the exact return on that Super Bowl ad?), we do claim to love hard-nosed numbers. Let's not let politics or fear of the size of the task ahead get in the way of today's climate math.

Climate data has trumped politics in the past. According to Sunday's op-ed by Cass Sunstein, the Harvard professor and co-author of the great book Nudge, Ronald Reagan embraced aggressive action to solve the problem of ozone depletion because he believed the cost-benefit analysis. Basically, it was cheaper to act than not to. Similarly, the math on climate action is getting better every day as the costs of inaction rise. As Sunstein points out, Hurricane Sandy will likely cost the country $50 billion (New York's Governor Cuomo has already asked for $35 billion in federal aid).

Climate math is simply a constraint on the imaginary formula that is business as usual. But constraints drive innovation. We in the business community respect numbers and the best companies love challenges. Let's prove it.

(This post first appeared on Harvard Business Online.)

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The Fantasy of the "Sad Green Story"

Thu, 08 Nov 2012 10:16:40 -0500

(Note: This blog is co-authored with my colleague Jigar Shah, a partner at Inerjys and a board member of the Carbon War Room, where he served as its first CEO. Jigar also founded SunEdison, helping to create the multibillion-dollar solar services industry.)

To get back to some non-election topics...A couple weeks ago, New York Times columnist David Brooks wrote an op-ed entitled "A Sad Green Story" about the (supposed) travails of the green movement over the last 10 years. The idea that the clean technology sector is failing, or that it's a bad investment, is common enough in the business world and pundit class. But it's patently false. So what is Brooks talking about and what's really true here?

Brooks focuses in part on whether Al Gore has made money on clean tech — a total distraction that has no bearing on the reality of climate change or the growth of clean tech. What's more important is Brooks' absurd logic that an entire sector of the economy is a "sad story" because some government-supported companies struggle, go under (Solyndra), or get acquired (battery maker A123). And how can Brooks tear down the government's involvement in promoting the deployment of American green innovation while providing no tangible idea of how he would do it better?

Most of us watching or working with the clean tech sector agree that government shouldn't try to pick winners (see Jigar's take on Solyndra's failure here), but we can propose a plausible model of how the government might play a more productive role. This ranges from providing a roadmap for remaking the multitrillion-dollar energy sector, to providing leadership by example (and scale) when purchasing new technologies.

For proof of how crazy all of this criticism of clean tech is, we need look no further than a recent Times-reported story on natural gas. Natural gas is a booming industry. But as the paper of record reports, it turns out that one key part of the natural gas value chain — that is the step of actually digging it up — is struggling financially. Small, scrappy entrepreneurs like Exxon Mobil are, according to its CEO, "losing our shirts today... Were making no money. It's all in the red."

This is exactly the same economic story that Andrew described a few weeks ago about the solar industry. The manufacturing end of the chain, experiencing a glut of supply, is losing money. But downstream users of the product, solar panels in one case or natural gas in the other, are doing very well. The financial struggle for some companies in both solar and natural gas is a sign of a boom, not a bust.

So we assume David Brooks and other green skeptics will soon write about the "sad brown tale" of the (also) highly subsidized industry of fossil fuels, which, since some people are losing money, must be shut down and mocked. We'll hold our breath.

Brooks' column is also filled with fantasies and misstatements that would be easy to correct with a simple Google search. As Andrew mentioned in his previous blog post, the percentage of our electricity coming from green energy has doubled in just four years — that doesn't seem like much of a sad story. Brooks also dismisses the idea of green jobs with no data to back up his position. Of course there are green jobs — there are 100,000 people working in solar in this country today. And, not for nothing, but the fastest growing green jobs markets are in politically red states. (We'll stop there and let climate blogger Joe Romm tear apart some of the more subtle Brooks fallacies.)

From a practical perspective, green technology is succeeding in part because we have oil prices that are stuck near $100/barrel, and water challenges that are creating deep competition between agriculture and oil and gas in places like Colorado. At some point Brooks and others will also have to acknowledge what the U.S. military, particularly the Navy, has already determined: future conflicts will arise over resources like oil and water; climate change is a security threat; and pursuing a renewable energy future is a safe, logical path.

In the end, fact-free attacks on all things green need to stop. Like in all industries, some paths are profitable and some are not. But we'll only find out what works if we invest in new growth sectors and not act like the sky is falling — or that there's some devious green investing cabal secretly making money — when some companies fail. Sad business stories become happy ones through persistence and overcoming failure. Not understanding that is Brooks' greatest fantasy.

(This post first appeared at Harvard Business Online.)

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston)

Should Companies Care If Hurricane Sandy Was "Caused" By Climate Change?

Mon, 05 Nov 2012 07:00:35 -0500

(Catching up on re-posting pre-storm and storm week posts...happy voting day)

Hurricane Sandy has killed more than 100 people in the U.S. and the Caribbean, and caused billions of dollars in damage. The scene around my Connecticut home is not pretty, with downed trees and power lines everywhere. It's a serious time, and a time for some serious questions. Why did this happen? And from a business (or any) perspective, does it matter whether this megastorm was caused by climate change? I'd say no... and yes.

First, the "no" part...

Regardless of the cause, the cost to society of extreme weather has been rising for decades. The insurance giant Munich Re recently released a new report on the rapid increase in weather-related losses. In North America, the number of severe events has quintupled over the last 30 years. And while the report does indeed make the climate change connection directly, on some level it doesn't really matter for business. The problems and costs of extreme weather are the same either way.

Take the example of one of my clients, a Fortune 200 consumer products company. As the VP of global risk management told me, the most expensive events in company history in every weather category (flood, earthquake, hail, wind, etc.) occurred in the last few years. After making $50 million in insurance claims in 2011 alone, the company's insurance rates will certainly rise. But that's a side issue; the real problem is the constant threat to business continuity. At one of its large manufacturing plants in Asia, a drought stopped production for 3 weeks.

This kind of disruption is only going to grow. In the Thailand floods of November 2011, both the hard-drive industry and the automotive sector experienced serious supply chain problems. As Edmunds reported, car production dropped by 600,000 units and, in particular, "only a few critical Thai-built parts laid Honda low."

In a deeply unpredictable world, the challenge for multinational businesses is how to build resilient, flexible enterprises that rely on natural resources a great deal less than today (meaning fewer fossil fuels, less water, reduced waste, closed loops on key resources, and so on).

Smart companies will be examining supply chains and operations very closely for risks associated with water shortages, floods, storms, and resource constraints. Risk assessment is going to get much sexier and much more important to global organizations. Their leaders will also seize the opportunity to offer products and services that help other companies and society deal with a world of weird weather. Think drought-resistant crops, new insurance products, distributed energy systems (so homeowners won't care if the power goes out), and perhaps boats for getting around Wall Street.

OK, now on to the "yes" part of the discussion.

First, the necessary disclaimer: Scientists say that no single storm can be tied to something as large-scale and long-term as climate change (see the active debate going on here). But in the words of NASA scientist James Hansen, we're "loading the dice" and increasing the odds of extreme events by heating the oceans and putting more moisture into the atmosphere. The devastation around New York City is exactly what was predicted to happen more frequently.

But let's get real about business impacts. If you're going to really assess risk to your operations now and in the future, you have to understand how climate change will increase the likelihood of severe events and what it will mean for your value chain. Not doing so would be costly, stupid, and irresponsible to your shareholders.

Companies are waking up to the immediate impacts. The most recent report from the Carbon Disclosure Project (CDP), compiled with the help of PwC (full disclosure: my consulting firm has a partnership with the U.S. arm of PwC), shows that most global companies acknolwedge climate-driven risks. Fully 37% of those reporting to the CDP — most of the world's largest companies — say that climate change is already creating business risk (up from 10% in just two years). Another 43% see risk to the business within the next 10 years.

So as companies wake up to this challenge, they are starting to talk about adaptation and the expense of getting ready for a hotter, dryer or wetter (depending on the location), more resource-constrained world. But adapting is just not good enough.

We really have to stop kidding ourselves that we can ride this out. We have to adapt, of course, but we also need to get going on a low-carbon agenda very quickly to mitigate the risk as much as possible. If you really listen to the scientists, the "business as usual" emissions path were facing over the coming decades could seriously destabilize the planet, which, I hate to state the obvious, supports our economy and way of life. The normal curve of expected possible outcomes is starting to include real risk to our species.

If you bring this level of threat down to the industry or company level, it causes you to rethink your business. As one tech executive said to me recently, "nobody's really going to care what operating system they have if they don't have food." Meaning, we better reduce the odds of disaster or our businesses won't matter much.

To those of you who fear that the cost of going low carbon will be too high, I have to ask: how expensive are storms like Sandy to business and society? In reality, tackling climate change is not an expense, but a very smart investment. It's a multitrillion-dollar business opportunity, or what Richard Branson calls "the greatest wealth-generating opportunity of our generation."

In short, this debate is about direction and speed. In terms of what direction your company should head to prepare for a riskier future of extreme weather, it doesn't really matter whether Sandy was caused by climate change or not. But how do we determine how fast we need to move in that direction? To answer that question, climate change does truly matter. It matters a lot.

(This post first appeared at Harvard Business Online.)

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston)

Hurricane Sandy=Climate Change? Some big names are believing it.

Fri, 02 Nov 2012 10:28:16 -0500

[Note: With power out and limited connectivity, I've gotten behind on re-posting blogs that I've written elsewhere like HBR ...I'll put a few in a row up over the next few business days.]

This is just a quick blog to recognize that the devastation from Hurricane Sandy has had one important silver lining -- many mainstream voices, especially in the business community, seem to be waking up to the connection between extreme weather and climate change. (My take on this is on my Harvard Business Review Blog here, and I'll post it here next week.)

Two news items have given me real hope.

1) Businessweek blares on its cover, "It's Global Warming, Stupid"
After the required caveat that no single storm is "caused" by something as long-term as climate change, the business magazine declares, "Clarity, however, is not beyond reach" and explores how scientists are increasingly willing to draw the connection. Bravo Businessweek.

2) Mayor Bloomberg's titles his endorsement of President Obama, "A Vote for a President to Lead on Climate Change."

In his own words, "The devastation that Hurricane Sandy brought to New York City and much of the Northeast -- in lost lives, lost homes and lost business -- brought the stakes of Tuesday’s presidential election into sharp relief...Our climate is changing. And while the increase in extreme weather we have experienced in New York City and around the world may or may not be the result of it, the risk that it might be -- given this week’s devastation -- should compel all elected leaders to take immediate action."

Bloomberg then cites Obama's work on fuel-efficiency and increased controls on mercury emissions which restricts coal burning...and highlights how Romney has reversed himself on climate change since his days as Governor.

This is clearly noteworthy that a well-respected moderate has made climate change the deciding factor in his vote for President, especially since the topic did not come up in the debates for the first time since 1984.

The media, the business world, politicians...all are waking up to the deep connections that today's events have to longer-term trends and the actions we all take. I have hope that we will mobilize fast enough now.

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @GreenAdvantage)

How Walmart's Green Performance Reviews Could Change Retail for Good

Wed, 10 Oct 2012 07:54:50 -0500

Walmart's efforts to green its supply chain are about to get much more effective. Sustainability will now play a role in its merchants' performance reviews, which help determine pay raises and potential for future promotion. This is a big deal: these merchants are high-level managers responsible for multibillion-dollar buying decisions. They're the people who determine which products appear on the shelves of the world's largest retailer.

Some quick background: Walmart deserves praise for its industry-leading sustainability successes, such as improving its fleet fuel efficiency by 69% and becoming the nation's leading commercial buyer of solar energy. The company's most important sustainability initiative — the pressure it puts on its 100,000 suppliers to improve their environmental performance — has changed how thousands of products are made, packaged and sold.

For the past five years, Walmart has built sturdy scaffolding around what could be a world-beating green supply chain, including:

Developing Sustainable Value Networks, which bring together major suppliers with cross-functional internal teams to tackle issues from packaging to waste to energy use.
Asking 100,000 suppliers to answer and provide data on 15 environmental impact questions.
Building the Sustainability Consortium (TSC) with many of the world's largest consumer products companies and big retail competitors. TSC created metrics to evaluate suppliers and their products on environmental and social performance, and Walmart has integrated these metrics into its own supplier Sustainability Index and scorecards.

But greening its supply chain has been a tough task. Suppliers have repeatedly voiced one critical and legitimate complaint: Walmart's merchants don't really take sustainability into account when they make buying decisions. This flaw in Walmart's green supply chain program has threatened to undermine the foundations of a highly-touted and important initiative.

In essence, the suppliers and other stakeholders have told the company, according to Walmart's Sustainability director Jeff Rice, "It's great to ask your suppliers questions, but it only matters if you do something with the information." In their view, the company has continued to choose the products it sells primarily on price.

But now, in addition to Walmart's long-standing, laser-like focus on cost, its merchants will have to consider sustainability in their buying decisions — or risk a weak performance review. And all because of a simple shift in incentives.

Jeff Rice gave me a great example of how this change is already working, in the form of how Walmart selects the personal computers it sells. Laptops use a lot of energy over their lifetime, and a big driver of energy use is the default setting on power management. These settings determine how fast (if at all) the computer goes to sleep or when the screen dims. Using the index scorecards I mentioned above, Walmart's laptop buyer identified energy use as the biggest determinant of the computer's total lifecycle footprint and emissions.

The buyer then discovered that only 30% of the laptops sold at Walmart ship with the advanced energy-saving settings in place. To compound the problem, the company's research shows that most consumers leave such settings at factory default. So the laptop buyer set a new goal for herself: to increase the percentage of laptops sold with the advanced power settings from 30% to 100% by this Christmas. This single product shift will reduce CO2 emissions by hundreds of thousands of metric tons and save customers money on their electric bills.

Rice told me that performance evaluations for buyers only include a handful of targets, and all are discussed thoroughly at annual reviews. Sustainability performance won't determine the entire evaluation, of course, but it's high profile enough that it should affect behavior.

Incentives matter and cultures shift over time. Hard-won operational changes like modifying performance reviews may not be sexy, but the results can be profound. And when it's the world's largest retailer changing its buying criteria, the ripples will likely be felt around the world.

(This post first appeared at Harvard Business Online

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The Supposed Decline of Green Energy

Fri, 28 Sep 2012 16:06:08 -0500

Here's a surprising new fact about energy in the United States: the percentage of our electricity coming from the greenest sources — that is, the non-hydroelectric renewables such as solar, wind, geothermal and biomass — has doubled in just four years to nearly 6 percent. (Thanks to climate uberblogger Joe Romm for uncovering this data from the Energy Information Agency).

(Thanks 350.org for this image)

This significant win for clean energy has gone mostly unnoticed in the press. If anything, the story has been the opposite: recent reports herald the decline of wind, and for a year the media has made a big deal out of the demise of solar panel manufacturer Solyndra.

Given this negative drumbeat, it's not surprising that the business world tends to perceive renewable energy as an altruistic, rather than fiscally prudent, investment. But this view is dead wrong. The renewable energy industry is growing very fast... and not because it's a philanthropic effort.

Let's look at the plight of solar panel manufacturers again. Every growing industry experiences painful shakeouts driven by rising competition. In the case of solar, vast investments in production capacity in China have quickly brought down the cost of panels — a jaw-dropping 65 percent slide in just 18 months. This is good news for people buying solar, but it's not great for many manufacturers. By lowering the "China price," the world's low-cost manufacturer is doing to solar what it did to the apparel and electronics sectors: driving higher-cost producers (usually in the West) out of business.

Aside from China's role specifically, all of this should look familiar to any students of business history. Adam Shor studies the solar sector for the Electric Power Research Institute. As he put it to me, "Show me a mature industry with more than five big players." In the most oft-cited parallel example, a century ago there were hundreds of car manufacturers.

But all of this context misses a critical point that most businesspeople are overlooking: problems for manufacturers do not equal problems for the entire sector.

Jigar Shah, a well-known clean tech entrepreneur and former CEO of the Carbon War Room, gave me this perspective: Solar cell manufacturers account for only three percent of the roughly 100,000 U.S. jobs in the solar sector. Another quarter make other components and the rest, making up a large, growing and local job base, work elsewhere in the value chain. Thus the fastest growing players are young companies that sell, install and service solar: soon-to-be household names like SunEdison (which Shah founded), SunRun, Sungevity, and SolarCity. In a lengthy article on these solar entrepreneurs, The New York Times recently reported that Sungevity, for example, has seen its revenues explode 16-fold in just two years.

So back to this doubling of the share of electricity. Once technologies take off, doublings can happen pretty fast — just ask the investors in the Internet, mobile or social media. Will renewables' share double every 4 years? As Shah pointed out to me, the solar business is growing 30 percent per year (see the Solar Energy Industries Association site for general info in the U.S. solar market). Here's a math check: doubling every 4 years requires 19 percent annual growth.

The power of exponential growth and economic tipping points work wonders: in just three more doublings in share, non-hydro renewables would provide nearly half of our electricity needs — more than we get from coal or natural gas today.

The scale and pace of change I'm describing is not a fantasy — it has already happened elsewhere. Portugal transformed its electric grid from 17 percent renewables to 45 percent in just five years (as of 2010). And in the first half of 2012, renewables provided over 25 percent of Germany's electricity. On one sunny day this past May, Germany set a world record by generating 50 percent of its peak electricity needs solely from solar power. Shah predicts that next spring, the number will be closer to 70 percent.

It was easy to write off renewable energy as a side show at one or two percent of total electricity generation. But it isn't good business to ignore it now, as the economics get better and better. Making the assumption that solar or all green energy won't work because one company didn't pan out is absurd. In 2000, were all technology investments poor bets because Pets.com went under?

The cost of using renewable energy, either through power purchasing agreements that cost nothing up front or through direct investment, is dropping fast. This reality changes the calculus on green energy for homeowners, governments and corporations alike. Upfront costs are falling, which makes the ongoing variable cost of renewables — that is, zero — even more attractive. Better yet, zero is a predictable cost, which CFOs love.

In recent years, several corporate energy managers have told me that when they run the numbers on renewables, the payback just isn't quick enough.

I'd suggest running the numbers again.

(This post first appeared at Harvard Business Online and on Bloomberg - see the active commentary on either.)

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter@GreenAdvantage)

Politicians Who Deny Climate Change Cannot Be "Pro-Business"

Sun, 09 Sep 2012 21:46:44 -0500

It finally seems to be dawning on many Americans that there's something to this climate change thing. The historic drought has been hard to ignore. While belief in a long-term trend because it's hot out right now is a bit ridiculous, it's a start.

You can see a shift in how the media covers weather. The statement "because of climate change..." is often stated clearly without caveats such as, "what some scientists think may be a warming planet." You see it in the UN calling for action to help the hungry cope with rising food prices "in an age of increasing population, demand and climate change."

And you see it in the growing number of mega-corporations — including America's Alcoa, Coca-Cola, Cisco, HP, J&J, Nike, and P&G — signing on to the "2 Degree Challenge Communiqué," a call for the world's governments to take strong action to slow greenhouse gas emissions.

Climate change is basically accepted as fact the world over. But you wouldn't know it watching our political conventions (or at least one of them). So while the world seems to be waking up to a fundamental, existential threat to our species (and not to "the planet," which will be fine with or without us), the US policy debate remains mostly deaf, dumb, and blind.

Climate change has become a political "third rail," harder to talk about than changing Social Security or Medicare. We didn't hear any mention of it at the GOP convention, except as a punchline, and we didn't hear much at the DNC convention...except for one quick, but important, remark from President Obama. Former President Clinton mentioned energy efficiency and Vice President Biden said the words "clean energy" once. But then President Obama, after duly noting the chance to create more natural gas jobs, spoke about building wind turbines and reducing dependence on foreign oil. Finally, he stepped firmly on the third rail: "Climate change is not a hoax. More droughts and floods and wildfires are not a joke; they are a threat to our children's future."

This is great, but let's not get too excited. One line does not a policy make.

Still, Obama's admission that climate change is real (a low bar for showing leadership these days) is light years from Governor Romney's dismissive attitude. His convention speech mocked President Obama for his earlier promise to "begin to slow the rise of the oceans." Romney offered instead to "help you and your family" — as if the health and state of our entire planet has nothing to do with the health of our families.

Here's what makes the general silence on climate and the mocking from the self-identified pro-business party so absurd: tackling climate change is the smartest thing we can do for both our public health and our private sector. Reducing carbon emissions from our power plants, cars, and factories cleans the air and saves a lot of money. At the macro level, the burning of coal alone costs the U.S. about $350 billion per year in health (asthma, heart attacks, and so on) and pollution costs. At the micro level, from companies down to households, the opportunities to get lean and save money are vast.

But more strategically, tackling carbon is an immense economic opportunity. Here's billionaire and entrepreneur Richard Branson on the upside potential:

"I've described increasing levels of greenhouse gases in the atmosphere as one of the greatest threats to the ongoing prosperity and sustainability of life on the planet. The good news is that creating businesses that will power our growth, and reduce our carbon output while protecting resources, is also the greatest wealth-generating opportunity of our generation. [There is no] choice between growth and reducing our carbon output."

This quest will drive innovation and create millions of jobs for some lucky companies and countries. Is this multi-trillion-dollar opportunity something we really want to miss out on? The other major economies are not sitting this one out. Germany is quickly moving its electric grid to renewables. China is committing hundreds of billions of dollars to energy efficiency and much more to the clean economy in general.

But let's say you don't buy the argument that fighting climate change keeps us competitive globally, saves trillions of dollars, and generates new wealth. Then how about the overwhelming national security rationale? Using less oil, for example, reduces funding to petro-dictators around the world. The former head of the CIA, James Woolsey, puts is very bluntly: "Your gas money funds terrorism."

On this score the difference between the parties is stark. The DNC's platform includes the words "climate change" at least 18 times and lists it as an "Emerging Threat" along with cybersecurity, biological weapons, and transnational crime. While "emerging" may not be the word I'd choose, it's leaps and bounds beyond the GOP' s party platform, which mentions climate change just once...and again, only to mock it. Their platform complains that the Obama administration has elevated "climate change" (with the sarcastic quotation marks) to the level of a severe threat to our security.

But let's be clear: it's not the Democrats or even President Obama specifically that declared climate change a national security threat. That would be the Pentagon in its Quadrennial Defense Review —two years ago.

A strong plan to tackle climate change through government policy, business innovation, and citizen action is not just something that's not optional; it's preferable. Moving away from carbon to a cleaner economy makes us healthier, more profitable, and more secure.

My work is not political — I try to help companies create business value from sustainability and green thinking, so I normally avoid these kinds of discussions. But the discrepancy in party positions on this most critical issue has become too extreme to ignore.

There's blame on both sides, but let's not pretend the two parties neglect climate change equally. Yes, it's a shame that most Democrats will not stand up and proudly stand behind many of the positions in their own platform. But the GOP's denial of climate science, and all the risks and opportunities it presents, is surreal.

Their views and policies on climate won't help our businesses deal with, and profit from, the largest market shift we've ever seen. And they won't help prepare our country for the hard realities of life in the 21st century.

(This post first appeared at Harvard Business Online and on Bloomberg - see the active commentary on either.)

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter@GreenAdvantage)

Your Competitive Position Is Always Eroding

Thu, 06 Sep 2012 18:44:29 -0500

Note: I've been out on a leave of absence -- thanks to those who wondered why my blog and twitter feed had gone quiet. I'm back and have some new blogs coming in the next week...but I discovered that I never posted this one from HBR from the spring...

Whenever I share stories about "green" business strategy, someone inevitably asks me whether pursuing sustainability is against a company's best interests. The question is understandable, but unfortunately it's based on deep misconceptions about how businesses need to operate in a world of constant change.

Here's a concrete example: I often talk about how Xerox (along with all its printer-making peers) ishelping customers print less. As part of the fast-growing "managed print services" sector, the company shows organizations how to reduce the number of printers they use. The shift helps customers reduce their environmental impacts and costs by cutting back on paper, energy, and waste.

To me it's a clear story of serving customers better, but recently an executive at one company I was working with asked me, "Doesn't pursuing those green goals reduce Xerox's profits and eliminate jobs?"

There are a couple core answers to this question: First, as Xerox's CEO Ursula Burns replied when I asked her basically the same question, "Maybe, but someone else doing it is much worse." In short, if your company doesn't implement green, customer-friendly solutions, someone else will, and you'll be cannibalized from the outside rather than proactively innovating from within. But a second reason has become increasingly clear to me lately, and it is fundamentally important to the way that we understand sustainability in a business context.

I think many of us harbor a dangerous misconception (perhaps even a cognitive bias?) about the nature of "business as usual" — namely, that there is such a thing. It's taken as a given that when we're considering any change — in business or in our personal lives — that we compare it against a world where things stay as they are.

But the reality is that any company's competitive position is always eroding: the status quo is on a downward trend. As the great guru on innovation Clayton Christensen has said, we base our thinking on "an assumption that the status quo in the business will maintain itself into the future. You're comparing the upside generated by this innovation with the present state of affairs. But the present status quo...is on a declining trajectory of performance which will accelerate over time."

As Christensen's warning implies, this misconception is dangerous in strategic contexts because it makes us miscalculate the risks and rewards of preparing for different futures. But we have to consider — where will our customers be in five, fifteen, thirty years? How will our competition evolve to meet those new needs? How will systematic pressures like rising commodity and energy prices, or water and resource scarcity, affect our business and our customers? These are the kinds of questions we need to ask and plan for.

Consider the printing business again. Customer expectations are changing fast, along with competitive actions to meet them. Even without sustainability pressures, change would be the norm. Xerox and its brethren are always competing to offer the highest print quality in dots-per-inch or fastest printer speed. But the sustainability lens offers a deeper understanding of market forces. No printer company — whatever the dpi of their printers' output — would stand a chance against those who go beyond normal product innovation to the whole business model. The competitors that help customers reduce their footprint and cost will win. Seeing the business through a sustainability lens provides an increasingly critical way of understanding those ever-evolving market needs and future business models.

So, to circle back to answering the main question, in a competitive world of scarce, more expensive resources and rising customer demands, green goals are not at odds with a company's "best interest" — they're one in the same.

The companies that don't pursue deep, sustainability-driven innovation that challenges business models will become irrelevant. "Change or die" has always rung true, but now big-picture sustainability forces are creating conditions for much deeper, much faster changes to the status quo.

In the end, it's better to create the new, sustainable norm than to wait for it to crush you.

(This post first appeared at Harvard Business Online.)

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter@GreenAdvantage)

Kaiser Permanente Links Climate Change to Health Care

Mon, 18 Jun 2012 07:58:30 -0500

Kaiser Permanente (KP), one of the largest health care providers in America, has a clear mission: improve health. In a surprising and welcome twist, KP is publicly recognizing that climate change threatens that mission. This health care leader is showing how an authentic, mission-driven connection to global issues can drive change.

The topic of climate change has become so politicized, it's rare to hear company representatives and CEOs admit that they're taking a course of action specifically in response to a climate-related threat. But that's starting to change, even in sectors you might not think have a direct stake in climate change.

KP is not a minor player in a health care industry that accounts for 16% of U.S. GDP and 8% of greenhouse gas emissions. With $44 billion in revenues, KP runs hospitals, clinics and health plans, serving more than 9 million members in nine states (and Washington, DC). The "company" is technically a not-for-profit, but in my experience that matters little to medical device and pharma companies that experience KP as a very, very large customer with large demands.

The company has made increasing commitments to renewable energy as part of its aggressive greenhouse gas (GHG) reduction goals (30% by 2020). KP is buying both carbon offsets and significant onsite energy — 11 megawatts of solar and 4 megawatts of fuel cell generation, for example.

All of this is surprising since the health care sustainability agenda has mostly focused on supply chain issues, reducing exposure of patients and workers to toxic chemicals, green building, and general eco-efficiency. Why are they doing so much on renewable energy?

I spoke recently with Kathy Gerwig, KP's Environmental Stewardship Officer, to find out. I expected a more typical answer about achieving GHG reduction goals or doing the right thing. What I got instead was one of the most straightforward statements about the role of climate change in public health and in corporate strategy.

As Gerwig put it, "there's credible evidence of significant climate change that will impact our ability to provide quality health care."

She laid out four broad categories of the health effects:

Severe weather: Hurricanes, wildfires, floods, and heat waves all injure and kill people. Hospitals — and all businesses for that matter — need to prepare for these extremes.
Respiratory diseases: Air quality in general deeply affects health. This is, as Gerwig says, mainly about the short-term consequences of not dealing with burning fossil fuels and the changing climate.
Infectious diseases: As the planet warms, bugs like mosquitos can survive and thrive further north, spreading diseases to new areas. According to the UN, previously untouched areas like the southern U.S. and Mexico will face malaria, yellow fever, and dengue by 2050.
The "what we don't know" bucket: While the science is clear that climate change is a serious problem, we still don't know a lot about how it will play out (this is not the same as saying the science is so uncertain that we shouldn't do something). "What we know so far about the repercussions of climate change isn't good," Gerwig says, "such as water shortages and increased wars over resources, and all the health issues that go along with those."

KP is not laying low on the other areas of the health care sustainability agenda, with many impressive initiatives, such as its sector-leading supplier scorecard. But KP is demonstrating a larger view of the company's place in society and in the battle to salvage a healthy, stable climate.

We need all sectors to man the barricades and take positions. Setting a 30 percent absolute GHG reduction goal by 2020 is in line with what scientists tell us we need to do, and it's unusually aggressive. But integrating sustainability and climate change into the health care mission of the organization is the real story here, and its one that companies should emulate quickly.

(This post first appeared at Harvard Business Online.)

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3M's Sustainability Innovation Machine

Thu, 24 May 2012 23:22:36 -0500

Planes are now held together by tape, not bolts. It's really, really strong tape, but still. Who knew the maker of Post-It Notes could help keep aircraft aloft?

This somewhat frightening factoid is just one of the fascinating things I learned in a recent visit to the St. Paul, MN, headquarters of the perennial innovation leader, 3M. During my daylong visit, I observed a quiet, longtime sustainability leader plugging away, creating new products that will help the world save energy, water, waste...and lots of money.

For good reason, the $30-billion company has long been held up as a role model of how to manage innovation. In the sustainability realm, 3M pioneered what now seems like an obvious idea: avoiding pollution before having to clean it up. The company's simply named Pollution Prevention Pays (3P) program has saved many billions of dollars over 36 years.

The environmental results of its near obsession with eco-efficiency are frankly astonishing. In the last two decades, 3M has slashed toxic releases by 99% and greenhouse gas emissions by 72%. It's the only company that has won the EPA's Energy Star Award every year the honor has been bestowed.

3M's sustainability leadership has come mainly from its eco-efficiency success, but these practices are increasingly the norm in business. So I was happy to observe abundant evidence of the company pivoting to make sustainability a driver of business growth as well.

Before my presentation at an employee event, I listened as CEO Inge Thulin and senior execs from each of the major divisions laid out their strategies. Thulin spoke about sustainability being "embedded...in our new vision" of growth and innovation. Other execs bragged about the high percentage of their division's sales coming from sustainability and "energy preservation."

But most importantly, I heard about some great new products and technologies. When you're describing a company that launches an average of 20 new products every week, it's hard to pick favorites. But here are a few examples of what sustainability innovation looks like:

The world's highest reflectivity mirror film, which can take sunlight from a roof and carry it deep into a building — the length of a football field, in fact — all while losing less than half of the light. I saw this technology paired seamlessly with some regular fluorescent lighting and working well in an interior conference room. As one exec said, somewhat heretically, "Why build solar panels to convert sun to electricity to then turn on lights if you can do this?" (Note: I'd do both!)
Pipe linings: Every year, due in large part to 250,000 water main breaks, our cities lose 1.7 trillion gallons of treated water (equal to the total water use of the 10 largest cities). To help solve this problem, 3M launched a product that sends a machine down into pipes to apply a fast-setting lining which structurally reinforces them, without having to go to the significant expense of digging them up first.
An industrial paint application product/service that reduces toxic solvent use by 70% and is saving customers, mostly auto repair shops, $2 billion from simpler paint operations and reduced waste. It's also a sizable business for 3M.
3M's Novec Fluids, which provide cleaning, coating, cooling, and fire suppression for the electronics industry (chip manufacturing, datacenters, and so on) in a non-flammable, non-ozone-depleting way. It's also remarkably safe for users and technology — you can safely dip an iPhone in the stuff.

3M is a refreshingly humble company: every estimate or "boast" is carefully and conservatively calculated to not overstate the case. For 36 years, the company has used only first-year savings to tally the benefits of pollution prevention projects — that's an effective discount rate of, well, infinity. And with the water-pipe-lining technology, the payback calculation for customers includes only labor savings and overall construction efficiency. A more thorough accounting would add in the significant water and energy savings, as well as reduced impacts on local economies (traffic and business disruption).

But there are signs of a feistier attitude brewing. The new CEO is making sustainability, growth, and innovation a powerful trifecta. With Novec Fluids, the team is not only working with key customers and early adopters, but it's also pushing the market toward greener options by advocating for tougher government standards and regulations. This kind of pro-environment lobbying is an advanced sustainability strategy that only real leaders can pull off.

Finally, I toured the company's relatively new innovation demonstration center. It's a customers-only, hands-on science museum that proudly demonstrates all that 3M can do through cool combinations of its 46 base technologies.

Bottom line: sustainability is deeply integrated in 3M's innovation pipeline, which is the engine of the company. The company's core new product development process includes key sustainability questions and criteria for designers to address.

Many companies start talking about sustainability efforts before they've really made significant changes to the company or its products. Although 3M may have the opposite problem — getting too little brand and marketing value out of its efforts — it is usually smarter to execute first, and then tell your story. In 3M's case, it's nice to see the engineers at this quiet company just out there doing it.

(This post first appeared at Harvard Business Online.)

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter@GreenAdvantage)

Andrew Winston

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The Fantasy of the "Sad Green Story"

Should Companies Care If Hurricane Sandy Was "Caused" By Climate Change?

Hurricane Sandy=Climate Change? Some big names are believing it.

How Walmart's Green Performance Reviews Could Change Retail for Good

The Supposed Decline of Green Energy

Politicians Who Deny Climate Change Cannot Be "Pro-Business"

Your Competitive Position Is Always Eroding

Kaiser Permanente Links Climate Change to Health Care

3M's Sustainability Innovation Machine