Sustainability--Seeing The Forest For The Trees

Investors seeking upside in the environmental sector for the past few years could be forgiven for thinking the concepts of “green” and “sustainable” were one in the same, all part of what consumers and corporations got for paying a premium for environmentally-friendly products.

But in the current economic climate, with C-level executives in every type of business wanting to wring every penny from their corporate processes, sustainability means finding ways to reduce, reuse and repurpose anything along their supply chain, leading hopefully to a leaner, cleaner—and greener—operation.

“We went after marketing people, we thought, to let them tell a story,” says Brandon Conard, managing director of Blue Map Inc., a San Francisco-based sustainability consulting firm, about their original approach in the end-days of the last economic boom. “Now, we’re doing the math, and (telling clients), 'You’ll save cash, AND have a story to tell.’”

“In the past, it was consumer-facing,” adds Blue Map’s director of sustainability, Oren Jaffe. “Now the focus is on back-end operations—HVAC, paperless forms, nighttime equipment settings. It’s about costs.”

Both he and Conard note that their two newest clients came to them via a CFO and a plant manager, not a CMO or PR chief.

Involving the operations team can mean a return to simpler, proven technologies.

“What’s interesting to me is that old technologies are getting sexy again,” says Jaffe. “Heat exchangers in manufacturing are an old idea, but now you’re seeing heat exchangers (being installed) in the flue of a big boiler, and heating incoming water around the flue.”

It’s Not About Offsets

Too much of what passed for “green” in the past few years focused on short-term fixes aimed at convincing customers of a firm’s eco-credentials—buying carbon offsets without examining fossil fuel consumption, or introducing recyclable product components without a clear education about how to recycle them.

“It’s an on-going process, it’s not a place you arrive at,” says Allen Hershkowitz, senior scientist with New York-based non-profit Natural Resources Defense Council (NRDC), about sustainability.

It’s not enough to introduce a green alternative product to an otherwise “brown” lineup, or to put an environmentally hazardous product in a box made of post-consumer paper. “To get closer to sustainability, you need greener practices.”

NRDC advises major league sports teams in baseball and basketball, corporate clients like Warner Music Group and Sony , and big entertainment events such as the Oscars and Tonys on how to green their processes.

Despite the “greenwashing” potential of this kind of star power, Hershkowitz freely admits it’s these clients’ high profiles and “cultural resonance” that makes them great to work with—and NRDC doesn’t get paid for the advisory work—because getting these clients’ audiences to think about sustainable processes versus “green” products means a win for everyone.

“Ninety percent of products' environmental impact happens before you open the packaging,” he says, so end-users need to be aware of everything that went into the manufacturing, packaging and distribution systems that got the item to you.

The group helped Bank of America reduce the basis weight of ATM receipts, in any particular ATM, to 20 pounds from 15 pounds, saving the company some $500,000 in storage, transportation and handling costs a year on top of the savings on paper.

Taking The Long-Term View

Integrating sustainability into corporate practices takes a longer view than a quarter or two—a challenge in public companies who want to see payback quickly. Blue Map’s Conard says his firm specializes in finding sustainable measures with a three-year return on investment horizon.

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“Some clients will push it out to five years,” he adds, making more capital-intensive projects, such as on-site geothermal or a larger-scale solar installation, more viable.

The NRDC looks out even longer. They’re working with Sony and Warner Music to find an alternative to the ubiquitous styrene CD/DVD jewel box cases.

“If it takes ten years (to find it), that’s fine,” says Hershkowitz. “You need to work within the culture of the industry.”

Even if you need to show the board results now, pick the right mix of short- and long-term projects, says Blue Map’s Jaffe, adding that it’s better to mine some other part of your own unique supply chain for instant results rather than follow the herd.

“Instead of spending your money on a Web site where you’ll fund a dubious project with carbon credits, take that money and apply it to buying high-end, recycled content paper,” he says. It will have a real impact and should resonate with your employees and clients.

Running The Numbers

A lot of start-ups are helping corporate clients find the intersection between sustainability and green with software packages designed to evaluate current processes.

Silicon Valley’s Hara, launched by SAP and Oracle alumni, has developed a software-as-a-service offering that tracks resource inputs, such as energy and chemicals, and provides suggestions to optimize their use.

They’ve already landed a big client, Coca-Cola , and green-minded venture capital firm Kleiner Perkins has anted up $6 million in funding. Another client, the City of Palo Alto, expects to save $2.2 million in energy and $400,000 in waste and water treatment costs annually, meaning the software paid for itself in three months.

“It’s about the client’s ‘organizational metabolism’,” says Hara CMO Chris Farinacci. “They need to have control of all inputs and outputs of natural resources.”

© 2009 CNBC.com