Across the pond

Joel Makower looks at the environmental performance of US business, and decides that despite what Europeans might think, it isn't all bad

It’s tempting to look across the pond and view the environmental performance of US companies with a sceptical eye. After all, these are companies better known for employing lawyers and lobbyists to fight environmental regulations than for employing business strategists and visionaries capable of turning global environmental challenges into business opportunities.

These are the companies that put up millions of dollars to re-elect George W Bush, a man seemingly destined to dismantle 40 years of environmental progress. How could these firms possibly be doing anything right for the planet? But if you take a deeper look, there’s considerable hope. Increasingly, American companies are finding that – even without government mandates – there are compelling reasons to take a proactive stand on environmental policies and practices. The reason: Customers, competitors, shareholders, and activists have stepped in where government has feared to tread, providing ample justification for at least some companies to act.

Consider climate. With the US opting out of the Kyoto Protocol, it seems unlikely companies would voluntarily rein in their greenhouse gas emissions. But it’s not that simple. According to an independent study released in late 2004, many US companies are moving ahead with GHG reduction programmes in the absence of federal requirements.

According to a report by the Sustainable Energy Institute, a US-based NGO, these company actions are driven by a combination of:

  • increased corporate focus on sustainability, deriving from anticipated benefits in both public image and profitability;
  • shareholder pressure on businesses to provide a more aggressive response to climate change and disclose GHG emissions reduction activities, as well as the financial risks they are exposed to from climate change;
  • pressure from insurers to address climate change and disclose GHG emissions reduction activities;
  • state-level regulations mandating GHG reductions; and
  • state lawsuits against heavily polluting power companies.
  • Largely as the result of such pressures, SEI says, multinational US-based companies desire a global programme on GHG emissions that allows international trading of allowances over an approach in which the US goes it alone. In other words: not necessarily Kyoto, but not necessarily nothing.

    Follow the money

    The most compelling case for environmental action comes from Wall Street, not Washington. A succession of studies by financial analysts show that companies with above-average ratings in environmental and social performance outperform corporate laggards in terms of total shareholder return. And new reporting and disclosure laws enacted following the collapse of Enron and other US corporate scandals are expected to play a key role in pushing companies toward stronger environmental reporting – and performance. For example, the Sarbanes-Oxley Act requires that a system be in place inside public companies to monitor operational risks that could materially affect financial performance. If it becomes likely that these factors will have a material impact, they must be disclosed.

    This law alone is expected to play a major role in getting US companies aboard the train to Kyoto. Studies have found that most of America’s biggest carbon dioxide-emitting companies are not yet adequately disclosing the financial risks posed by climate change and are failing to deal with global warming issues in other key corporate governance areas. Large institutional investors and activists have taken notice and are using shareholder resolutions and other tools to press companies to report their greenhouse gas emissions and, hopefully, do something to reduce them.

    Harnessing market forces

    Like their counterparts around the world, US environmental activist groups have become smarter and more strategic in recent years, with notable success. For example, while it used to be fashionable to fight the logging of old-growth forests by chaining oneself to a threatened tree (sometimes for weeks, months, or even years), several activist groups have learned to leverage the power of market forces to persuade companies to change their logging practices.

    To do that, activists recognise that the power lies at the end of the supply chain: among the retail suppliers of wood, paper, and other forest-derived products. So, the protests have come out of the woods and into the shopping malls. Major office supply and DIY retailers have become the target of boycotts, protests, advertising campaigns, and shareholder actions. The result: major retail chains such as Staples, Office Depot, and Home Depot have committed to monitor the logging practices of their suppliers and, whenever possible, source goods from well-managed forests.

    Banks are another source of market leverage for activists. For example, Citigroup, the world’s largest financial services company, has been a prime target. Activists cited its link to a succession of high-profile, environmentally undesirable projects, including the Three Gorges Dam in China; Maxxam Corporation’s logging of redwood trees in California; mining in the Amazon rainforest; and the Chad-Cameroon oil pipeline, which is seen as a threat to both rainforest and indigenous peoples.

    Rainforest Action Network began a campaign against Citigroup in 2000, staging a demonstration at the bank’s annual meeting. That autumn, RAN launched boycotts of Citigroup’s college student credit cards and on-campus job recruiters. By 2001 students were attending a training camp where they learned “ways to transform the corporate financial sector”. And during the 2002 Johannesburg Summit RAN paid for a full-page ad in the International Herald Tribune condemning then-CEO Sanford Weill as one of the “largest financiers of global warming and deforestation projects”.

    It wasn’t long before Citigroup engaged in a months-long dialogue with RAN, eventually leading to a pact between the two. Among other things, the banking giant agreed to evaluate project loan applications “where the borrower’s proposed use of proceeds would directly fund activities that Citigroup determines could adversely impact a critical natural habitat”; and ask Citigroup customers seeking loans related to logging or processing of forest resources “to represent to Citigroup that it will comply with all applicable laws including national and local laws regarding illegal logging”.

    Making waves

    When NGOs and companies aren’t fighting, they’re increasingly co-operating. In 2003, a group called Business for Social Responsibility brought together a group of major marine cargo companies with their shipping customers to find ways to reduce the environmental impacts of ocean-going freight. Some retailers and manufacturers – companies like Hewlett-Packard, Home Depot, IKEA, Mattel, and Nike – have come to recognise that transporting products across oceans, from factory to store, may be among their largest impacts. But they had no way of measuring it, or of pressing suppliers to make improvements.

    BSR helped the cargo companies and their customers develop a system for measuring and reporting the environmental impacts of shipping. The result, launched in 2003, is an environmental performance survey, which sets forth questions shippers want to know of carriers, as well as an agreed-upon means to calculate and report the results. Already, a corps of companies have put the system to work to measure and reduce their climate emissions.

    Meanwhile, groups like Environmental Defense, World Wildlife Fund, and the Natural Resources Defense Council are helping companies reduce their paper consumption, increase use of green materials, develop more fuel-efficient vehicles and reduce the environmental impacts of products in the design phase. Such partnerships show what can happen when suppliers and customers really talk about how to jointly address issues of mutual concern. And they create the inevitable win-win effect that keeps both parties – and their constituencies – happy.

    Reality check

    Despite all these good-news stories, there’s still plenty of challenges – and for every leadership company there’s a handful of cheats and laggards. Lobbyists and lawyers continue to press politicians and judges to reduce their companies’ regulatory burdens – always in the name of saving jobs or growing the economy. For most
    environmentally enlightened souls, it’s a false choice, but it seems to have the desired regulatory effect.

    Still, the momentum is clearly shifting. Sustainability-related conversations in boardrooms and in conference halls are becoming more common, and more sophisticated. Action, presumably, will follow. All of this would happen much faster with a modicum of political leadership at the national level. But that’s not likely for at least four more years. So, in the time being, expect US companies to find ways, slowly but surely, to find their own path to sustainability – and, with luck, exceed the world’s low expectations along the way.

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