GM had very good intentions. On November 18, 2010, the company announced that Chevrolet, its largest brand, will invest $40 million in various carbon offsetting projects across America. It was GM’s first day back in the stock market and just in time for the beginning of sales of the electric Chevy Volt. At face value, it seemed to be an appropriate way to strengthen the company’s green image and increase GM customers’ awareness of the other important green efforts the company is making.
But is this really the case here? Or could it be that the $40 million is a waste for GM and its shareholders, including the American taxpayers? Unfortunately, I suspect the latter may be true.
Let’s look first at what GM was trying to achieve. In its press release, GM CEO Dan Akerson said, “Chevrolet’s investment is an extension of the environmental initiatives we’ve been undertaking for years because the solution to global environmental challenges goes beyond just vehicles.” He added that “this is an opportunity to connect with Chevy customers through clean energy projects that directly impact them.”
GM is certainly making an effort to green up in recent years. The company reduced water use by nearly 35 percent between 2005 and 2009 at its manufacturing facilities worldwide and decreased the use of fossil fuel at its plants by using landfill gas, hydro and solar power. It is operating 75 landfill-free facilities, more than half of its manufacturing plants globally, and is building fuel-efficient vehicles like the Chevy Volt and the Chevrolet Cruze Eco. Recently it was reported on Environmental Leader that GM recycles oil-soaked boom materials, waste from the Gulf of Mexico oil spill, into Chevy Volt parts.
But apparently GM felt it could do more. Joel Ewanick, GM’s Global Chief Marketing Officer told Joel Makower last November that “there must be more we can do… As a company that produces cars, we can go a long way to making people aware of our responsibility, both from a corporate standpoint and an individual standpoint.”
After considering various options GM decided to go with carbon offsetting projects that will offset a total 8 million metric tons of carbon dioxide emissions. This is the equivalent of the carbon dioxide emissions that will come from the 1.9 million cars and trucks Chevrolet expects to sell this year. The $40 million will be invested in projects focusing on energy efficiency, renewable energy and tree planting and will be implemented over the next three to five years by the Bonneville Environmental Foundation, a non-profit organization.
The main problem with choosing this route is that even if investing in carbon offsetting projects is an effective way to benefit the environment and communities (many argue it’s not, but for the sake of this argument let’s say it is), it won’t be as beneficial, if at all, to GM. Why? Because these clean energy/offsetting projects have nothing to do with GM’s core business.
In an article for the Harvard Business Review (‘The Link Between Competitive Advantage and Corporate Social Responsibility’), Michael Porter and Mark Kramer wrote in 2006: “The fact is, the prevailing approaches to CSR are so fragmented and so disconnected from business and strategy as to obscure many of the greatest opportunities for companies to benefit society. If instead, corporations were to analyze their prospects for social responsibility using the same frameworks that guide their core business choices, they would discover that CSR can be much more than a cost, a constraint, or a charitable deed – it can be a source of opportunity, innovation and competitive advantage.”
Companies, they explain, should not act on impulses, well-intentioned as they might be, or in reaction to outside pressure, but in a strategic manner, looking for and choosing initiatives that maximize social/environmental benefits and gains to the company. The screening process of initiatives should include questions such as – Is this relevant to the company’s operations? Does it create a meaningful value to society and the company? Does it really add a social dimension to the company’s value proposition and finally, does it strengthen the company’s competitiveness?
I really doubt if GM’s carbon offsetting initiative can pass this screening process. Is there any connection between providing energy efficiency technologies to schools or supporting wind farms and solar projects to the products GM is selling? Would these projects have any impact in any way on GM’s operations? Not really. Not only does this initiative not seem to generate any transformation in GM’s value-chain activities, but the potential to make a positive impact on its brand and enhance customers’ appreciation looks limited at best. Just think for example of the potential impact if GM chose instead to invest $40 million in retrofitting all the Chevrolet dealerships with solar panels.
Looking at successful CSR examples, from GE and Wal-Mart to M&S and Toyota, you find different stories and approaches, but with a common ground. They all chose to focus on initiatives that were tied to, and effectively integrated, their core business operations and strategy, and thus created shared value – making meaningful social impact and strengthening their long-term competitiveness at the same time.
The problem with GM’s focus on carbon offsets is not just the lost opportunity and ineffective use of its shareholders’ money (including the U.S. government that still holds 33% of the company), but also that it gives ammunition to those who still wonder if there is a justification for CSR (see Prof. Aneel Karnani’s article in Wall Street Journal ‘The Case Against Corporate Social Responsibility’ for example).
I guess GM won’t reverse their decision to go with carbon offsetting projects and look for better uses for their $40 million investment, but hopefully they will use this case as a lesson and utilize better CSR practices in the future. If they want to become green leaders in the auto industry they simply have no other choice.
Raz Godelnik is the co-founder and CEO of Eco-Libris (http://www.ecolibris.net), a green company working to green up the book industry in the digital age. He is also an adjunct professor in the University of Delaware’s Alfred Lerner College of Business and Economics.