Carbon Advantage, Competitive Advantage


BusinessWeek, 2nd January 2008

By Dave Douglas

Business is about competition. Successful companies win customers and take market share from rivals.

Climate change is different. Ultimately we'll either all win or all lose. If the effects of climate change end up depressing the global economy, no one's quarterly results are going to look good. On the other hand, if we collectively get to a more sustainable global economy, we'll all have the opportunity to compete and succeed in growing markets.

Collaborative Movement

You can sense this when you talk to corporate sustainability leaders. They exhibit an openness to sharing ideas, swapping stories, and growing their networks of colleagues in other companies. Those of us who deal with corporate sustainability on a daily basis know we're in uncharted territory and that we're all learning as we go. We understand it's in our own best interest if the overall economy becomes more sustainable.

Which brings me to my concerns over carbon neutrality, the term often used to describe the goal of corporate efforts to lessen companies' impact on the environment. No company can reduce its greenhouse gas (GHG) emissions to zero, so the idea is that Organization A pays Organization B to plant trees, increase energy efficiency, create green energy, or do something else with a positive impact on GHG emissions, thus offsetting Organization A's own carbon emissions (BusinessWeek, 3/26/07).

A Missed Opportunity

But carbon neutrality misses the point. It's good for companies to invest in others' good deeds, but right now it's absolutely critical that companies invest in creating more sustainable versions of themselves. More than ever, we need the innovation that comes from competition and open markets. We need companies that view climate change not as a threat but as an opportunity—and are pursuing it with the enthusiasm that big opportunities engender. We need companies to go beyond carbon neutrality to something I call "carbon advantage."

You can create a carbon advantage for your company in two ways: First, you can use efficiency and resource reduction to provide a fundamental cost advantage in your operations and products. Second, you can use innovation in green products and services to offer customers a competitive advantage, thus differentiating your offerings.

A Virtuous Business Cycle

The good news is that there's lots of advantage to be had. Companies that have created more eco-friendly goods—such as carmaker Toyota Motor (TM) and carpet maker Interface (IFSIA)—are increasing their market share and improving their business performance.

But more important, there's increasing evidence we're on the edge of a new, virtuous business cycle: Companies seeking sustainability look for sustainable products and services, which provides further opportunities for sustainable companies. As a result, products and services that can help customers improve their own sustainability will be in increasing demand, creating the opportunity for major shifts in market share and net reduction in business impact on the environment.

Sustainability Begets Sustainability

Keep your eyes open and you'll see more examples of companies achieving competitive advantage through more sustainable products, services, and operations. Consider General Electric (GE), which noted in May that revenue for its portfolio of eco-focused products surged past $12 billion in 2006, while the value of the order backlog rose to $50 billion. Chief Executive Jeff Immelt has said that the company's Ecomagination campaign has turned into a sales initiative unlike anything he's seen in his 25 years at the company.

Wal-Mart Stores (WMT) sees the possibility of competitive advantage through increased efficiency and lower cost by reducing product packaging throughout its supply chain. Boeing (BA) knows the efficiency advantage of its new 787 Dreamliner can bring savings today, and the value of that efficiency will only grow as awareness of environmental impact grows. At Sun Microsystems (JAVA) we've seen the eco-advantage in sales of our energy-efficient Niagara servers, and as our customers ramp up green IT procurement, this advantage should grow.

Let's not get too hung up on carbon neutrality when carbon advantage can take us so much further. At the end of the day, when companies compete on sustainability, the planet will be the big winner.

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