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Product Lifecycles Next on Corporate Energy Agenda

Gwen RutaI’m convinced that the principles of environmental sustainability have gained a firm foothold at today’s leading companies. Why? Because even in the grip of the worst recession in 30 years, companies across the Fortune 500 list – from Wal-Mart (1) and GE(6) to Owens Corning (422) and SunGard (435) – are actively pursuing sustainability agendas.

At the same time, legislation to cap greenhouse gas emissions is making its way through Congress and the world community is preparing to hammer out a new climate treaty in Copenhagen this December.

So are we done? Not by a long shot.

While many on the biggest companies “get it,” there remains “the next 50,000” – those companies that make up mainstream corporate America that don’t yet get environmental sustainability or worse, haven’t even heard of it. So where must we go from here to spread environmental sustainability from the Fortune 500 to the next 50,000?

Building an energy efficiency movement

Every company uses energy and could do so more efficiently. A 2009 McKinsey study found that we can get 4 to 5 gigatons of greenhouse gas reductions through cost-positive building and vehicle efficiency. In other words, we can make a lot of money and cut a lot of emissions simultaneously using proven technologies.

Unfortunately, it won’t be as easy as it sounds. Companies fail to reap the benefits of energy efficiency for reasons that have nothing to do with what we learned in Econ 101. In the real world, managers are overburdened, useful information is hard to find, lease arrangements stand in the way of smart investments and competition for corporate dollars is sharp.

Even if energy prices rise under a future climate cap (estimates range from 25 to 50 cents per household per day), it likely won’t be enough to overcome organizational barriers. But to stabilize the global climate, we simply must harvest these savings. We need to build a new business movement for energy efficiency – one based not on cardigan sweaters but on smart economics and a new generation of business leaders that will cut through organizational red-tape to find real savings.

Stimulating innovation

A cap on carbon, if enacted, will go a long way to stabilize carbon financing and provide a level playing field for investors in low-carbon innovation. Capital will flow to support advances in clean vehicles, renewable energy and carbon sequestration. But not all progress comes from start-ups with angel investors. We must also stimulate environmental innovation within the corporate structure.

The impetus can come from the top because when executives set rigorous goals and metrics for measuring them, they unleash innovation throughout the company. GE’s Ecomagination program, which has reduced costs by over $100 million while building clean tech solutions, is a good example of this approach. Innovation can also come from the bottom up, as illustrated by Toyota’s “Treasure Hunt” process, which uses operators, engineers and maintenance staff to find process innovations and energy savings.

Capturing operational excellence

For most companies, including those that provide business capital, environmental issues are still thought of as a liability rather than an opportunity. To build value, firms must think beyond compliance. Smart companies are positioning themselves to compete in a carbon constrained world, where efficiency and innovation trump risk management.

More and more tools and best practices are available for systematically identifying opportunity and measuring improvements in environmental and business performance. We must build those tools into standard business investment decision-making and move toward a world where environmental management is synonymous with asset management.

Driving lifecycle improvement

Companies will want to focus first on their own operations, but for many small and medium-sized businesses, their biggest impacts lie not within their own fencelines but in the lifecycle of the products they buy and sell. And while smaller companies may not feel that they have the clout to create supply chain mandates, they do have ability to ask pointed questions and shop around for the best prices. Why should any purchaser pay for the extra energy or water or wasted raw materials embedded in products made by another company that has not yet embraced sustainability?

Today, we are all feeling the stress of a pinched economy, resource constraints and future regulatory mandates. At the same time, we’re seeing examples every day of companies that have successfully turned environmental sustainability into competitive advantage. By building an energy efficiency movement, stimulating innovation, capturing operational excellence and driving lifecycle change, we can bring the next 50,000 companies along on the ride.

Gwen Ruta is the vice president of corporate partnerships at Environmental Defense Fund. She spearheads its work with multinational companies to develop innovative, business-based solutions to environmental challenges and drive change through the corporate value chain.

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