September 11, 1992
The environment and economy relationship is squarely on the table. This is evident in the activity of a growing number of businesses and the focus of new investment funds. But traditional ideas of “environmental business” have significantly undervalued the present and future impact of the industry.
Today’s column reviews four key realms of environmental business activity that should be of interest to both managers and investors: waste management and cleanup; environmentally friendly consumer products; environmentally efficient business processes; and environmentally sustainable infrastructure. It’s not just regulation and cleanup any more.
Wall Street has typically seen environmental industry as waste management, clean-up and remediation of hazardous waste, and pollution control. Most of the major brokerage houses’ environmental investment funds have concentrated on this narrow “fix-it” definition; much of the new opportunity in environmental quality has been below their radar.
Cleanup spending is also an important source of employment — an estimated 2 million Americans earn a living doing some kind of environmental cleanup work. But cleaning up the past is just band-aid, not the solution. And it’s not where all the action is for environmental business development, and investment, in the future.
For consumers, environmental business means environmentally friendly products. Businesses that incorporate environmental factors into their products, packaging, and manufacturing processes — and avoid the trap of greenwashing — will reap significant benefits at point of sale. As awareness continues to grow, we will also see an expanding market for energy efficient lighting and appliances, water conserving showerheads (one vendor sold 2 million units in 1991) and toilets, often encouraged by utility incentive programs.
And with consumer preference likely to get stronger, as today’s environmentally aware young people become employed consumers, environmental quality will continue to be a significant driving force in consumer markets.
Production efficiencies from environmental quality in the use of energy, water and materials may hold even more promise for American business than environmental markets.
Pollution prevention is one new buzzword. Since processes that cause pollution also waste raw materials, managers are finding that they can save money by preventing pollution in the first place, while increasing efficiency. Employees at Procter & Gamble’s Lima OH facility cut detergent outflow into local waterways from 6,000 to 320 pounds per day, once they realized that 90% of the problem came from spillage on the packing line floor — pure waste. The examples are not always so dramatic, but the dual benefit is being generated in plants all over the country.
Demand Side Management, another important new concept, emphasizes meeting the needs of energy consumers by making their consumption more efficient, instead of building expensive new generating capacity. This year the utility industry is spending an estimated $2.5 billion on DSM, and the number is expected to climb. (In 1990 the national estimate was between $1 and 2 billion; PG&E alone plans to spend $1 billion on DSM 1993-95.) The spin-off economic activity in audits, engineering, design, software and new equipment, as well as energy savings, will be substantial.
Other trends to watch: Total Quality Environmental Management applies “total quality” principles to environmental concerns; Design For Environment takes environmental factors into account at the earliest stages of product design; Industrial Ecology looks for synergetic benefits modelled on natural ecosystems, using one plant’s “wastes” as another plant’s raw materials.
TQEM or DFE may not show up “on the books” of the GDP; these internal business activities may not be specifically accounted for. But we will see their impact, as they free resources for more productive investment.
The biggest economic impact of “environmental business” may be in infrastructure. An ecological perspective sees transportation, for example, as systems, not just roads and bridges. Perhaps we’ll have the wisdom to choose systems that intelligently integrate rail, mass transit and private vehicles to enhance mobility, conserve energy, minimize impact on land and water. The potential is huge: the US will spend hundreds of billions of dollars in the coming decades on transportation infrastructure — $150-plus billion on rail in the LA basin alone. Those clever enough to link transportation infrastructure with urban planing and design, will build communities, not dependent on the private automobile, that provide quality of life and access to service more conveniently accessible on foot, bicycle or public transport — like many European cities, or like Peter Calthorpe’s new towns in Yolo County.
Other key eco-infrastructure opportunities to watch: Comunication infrastructure that reduces unnecessary travel. Water and sewage tratement. Restoration of damaged ecosystems.
It’s a rare opportunity to be poised on the threshold of a new era in global business… but we are. Our businesses face the opportunity to open new global markets, and the challenge of being in them at all. We will need to compete on efficiency, as well as products. We will open job opportunities in waste management, energy efficiency, infrastructure redevelopment, environmental restoration, in maintenance of service of new technologies, and in training. And savvy investors will pick the winners of the coming decades, and ride them up. It’s a recipe for prosperity, for the individuals, companies and national economies that choose to recognize it.