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New Bottom Line Volume 1.1 – Environment vs. Economy

May 14, 1992

Something very important is happening in US business, and President Bush is watching from the wrong boat.

In his tired “environment versus economy” dance around the upcoming UN Earth Summit, President Bush missed the most important new trend to hit the US economy in decades. A growing number of business leaders have recognized that economic health, whether of individual companies or the national economy, isn’t in conflict with environmental quality. It thrives on it.

No longer content to fight regulations, a growing number of companies are actually moving ahead of government (and even ahead of much of the environmental movement) in a pragmatic effort to bring a new level of environmental quality to the US economy.

3M has saved nearly 2/3 of a billion dollars on its pioneering “pollution prevention” program. Industrial groups throughout the Netherlands are in the process of cutting emissions 70-90% by the end of the decade. AT&T has declared a corporate goal of zero pollution by the year 2000.

PG&E has committed its corporate strategy to energy efficiency instead of energy generation. The Santa Clara County Manufacturers Group reports that most of their 110 member companies are running well ahead of the international schedule for eliminating CFCs, and are saving money in the process. A major Silicon Valley computer manufacturer, not content to just clean up its own house, is asking suppliers to meet its own rigorous environmental standards. Even the American Chemical Society, hardly a bastion of radical environmentalism, declared at its recent annual meeting in San Francisco that environmental improvement programs are paying off financially.

In response to the EPA Green Lights program, more than 400 companies, as varied as Boeing, Citicorp, Bell Atlantic, Hewlett-Packard, Domino’s Pizza, and the Washington Times, are taking the simple step of replacing their light bulbs with more energy efficient models. The environmental benefits are clear; carbon emissions, for example, can be reduced by four to seven percent nationwide by using efficient lighting where currently profitable.

The financial benefits may be even more striking, since the savings go right to the bottom line. Relamping a typical restaurant chain, for example, can increase net profit 5-10%. And investment in Green Lights programs typically yields returns of 20-30% and sometimes 40-50%. That’s hard to beat with anything that’s both legal and risk free.

At the national level, if we simply matched Japan’s level of energy efficiency, the United Stated would spend $230 billion a year on energy instead of the current $450 billion. That savings of $220 billion dollars a year is equivalent to more than half our federal deficit, and more than double our annual trade deficit. In fact, since more than half our trade deficit – about $66 billion – goes to buy imported oil, achievable increases in automobile fuel economy (not to mention development of mass transit) could keep that money at home too. The fact is that we now have the knowledge to make the United States far more efficient than Japan, in everything from lighting efficiency to transportation to industrial processes.

Savings of this magnitude could have unprecedented macroeconomic impact. Consider capital formation. What could your business do with the capital generated by cutting your energy bill in half? What impact would a nation of such businesses have on pulling ourselves out of the recession? It’s true that these savings could have a negative impact on some sectors, like the oil industry, but our economy has always had to adapt to technical change. Buggy manufacturers no doubt objected to the automobile.

The political and business challenge today is to formulate strategies and policies that transform the misdirected old battle between “economic well-being” and “environmental quality” into consistent and cooperative support for both. Frankly the American people want both, and will settle for nothing less.

The question is, where lies the greatest good? And how to we get market distortions like “externalities” – the pretense that environmental impact are not the central concern of every business – out of the way? The answer: watch the performance of the companies that have figured this out, and are taking the lead. These are likely to be the real winners over the coming decades.

What President Bush seems to miss – and what the smartest CEOs are increasingly discovering – is that waste is inefficient. It wastes profit, while it erodes environmental quality. As soon as shareholders figure this out, every business will have to recognize its fiduciary responsibility to total environmental quality. As soon as voters figure it out, so will every politician.

(c) 1992 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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