New Bottom Line Volume 6.1 – Pick Your Progress: Regulatory Reform? Or Regulatory Insulation?

January 2, 1997

More than 1100 new laws took effect in California New Years Day. At least one is so wrongheaded in its quest for environmental regulatory reform, that it not only harms the environment, but in the long run not even good for business. Fortunately, we also have examples of a radically different approach to business challenges with regulators. Read on.

Signed by Governor Pete Wilson (who has long styled himself “the environmental governor”) over the objections of two state environmental agencies, the new law reverses century-old water quality protection laws that made it illegal to let hazardous substances flow into California’s waters. The new law will, according to the San Francisco Chronicle, “allow polluters to avoid prosecution if they notify a governmental agency about a spill, or if the substance does not enter a storm drain or a stream and reasonable steps are taken to clean up the spill.” The incentives and consequences on which a free market must depend are gone. [Strange how get-tough-law'n'order is the recipe for the poor criminals, but a hearty apology is good enough for polluters and house speakers.]

The logic behind the law of course, was business objections that these water quality protections represented an onerous and burdensome imposition on the conduct of business. This continues the perverse logic dealt with many times in these columns: that we are somehow different creatures when we run companies or machines than when we run water into a glass at home; that demanding regulations invariably hurt business, when in fact they can spur competitiveness; that a lowest common denominator approach will produce a stronger economy than the high quality standards that drive innovation.

[Note that this "reform" wasn't aimed as much at streamlining burdensome regulations, as at actually lowering effective standards and results in the world.]

This has been the familiar litany from trade associations and lobbyists. But a few companies have charted a strikingly different course, and with amazing results that a tenacious commitment to environmental quality and efficiency can actually insulate them from much of the burden and vicissitudes of regulation.

I wrote a few months ago about the Providence (Rhode Island) Journal [The Cost of Environmental Quality and Efficiency: Straw into Gold], where a series of energy efficiency and pollution initiatives had the side effect of _eliminating_ the Journal’s production-related air pollution–also eliminating their need to worry about tougher regulations in the coming years, or their need to allocate capital for better scrubbers and the like.

A more dramatic example comes from a meeting at the US Department of Energy about a year ago to discuss new appliance energy efficiency standards. Industry representatives and DOE engaged in the familiar arm wrestling: DOE wanted to raise the standards, industry wanted to lower them. As the meeting ended, the DOE deputy secretary approached the one person who had remained both calm and silent during the tumultuous meeting, truly curious to know why.

What you’ve been discussing has nothing to do with us, he answered. What on earth do you mean? she asked. I represent Frigidaire, he explained, the US subsidiary of Electrolux. And we are already planning to build refrigerators so efficient that your proposed will not challenge us, will not even affect us. Your standards don’t concern us.

Electrolux (the world’s largest appliance manufacturer) has apparently made a hard nosed business decision to embed sustainability at the heart of business strategy. The most striking feature of their impressive annual environmental report, alongside innovative and insightful new performance metrics and a substantive review of company strategy and activities in light of The Natural Step’s four “Systems Conditions for Sustainability,” (see NBL 3.12 and 3.13) is the declaration that “Electrolux is not a ‘green’ company — it is simply a company taking prudent steps to meet business goals and build shareholder value.” It’s just that those “prudent steps” are beyond the imaginings of most environmental activists five years ago.

Electrolux is a striking example of what I’ve come to call Strategic Sustainability[tm]. A growing number of companies have shifted environment from nuisance to operational function. A small group of leaders have shifted environment from operational function to core strategic driver of everything from business strategy to product design.

Next time: more on Electrolux’s not-completely-eager embarkation on this course–which they call the best investment they’ve ever made. And in future columns, what a commitment to Strategic Sustainability[tm] might do for your business.

(c) 1997 Gil Friend. All rights reserved.

New Bottom Line is published periodically by Natural Logic, offering decision support software and strategic consulting that help companies and communities prosper by embedding the laws of nature at the heart of enterprise.

Gil Friend, systems ecologist and business strategist, is President and CEO of Natural Logic, Inc.

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