Harvard Business Review Blog: Top 10 Sustainable Business Stories of 2012

It was an odd year for green business, and it began with some mixed signals about how far companies were coming on sustainability. A GreenBiz report indicated that progress had slowed or
even regressed, but MIT and BCG also declared that sustainability had
reached a “tipping point” with more companies putting sustainability “on the
management agenda.”

In reality, both views were right. Corporate sustainability lost some of its
sexiness from previous years, as it grew more entrenched in day-to-day business.
Some parts of the agenda — eco-efficiency and resource conservation for example
— are widely accepted now, and it’s rare to find a big-company CEO who doesn’t
have sustainability on his or her radar.

The mega forces driving sustainability deep into business — such as climate
change, resource constraints, and transparency — are getting stronger. We may
not be keeping pace with these pressures, but leading companies continue to
evolve more sustainable strategies and tactics. Let’s look at some top macro-
and company-level stories.

Macro Trends

1. Historic drought and Hurricane Sandy sweep away (some) climate
denial

For many people this year, climate change moved from
theoretical to painfully real. Mega weather took many lives and cost over $120
billion in the U.S. alone ($50 billion for the drought, $71 billion for Sandy). After Sandy raged across the
eastern coast, Businessweek blared on its cover “It’s Global Warming, Stupid.” New York Mayor Bloomberg,
a Republican, endorsed President Obama in the election, titling his open letter,
“A Vote for a President to Lead on Climate Change.”

As bad as Sandy was, the relentless drought across the middle of the country
may prove more convincing in the long run. Corn yields per acre fell 19%, food prices rose, and
water disappeared — the Mississippi River may soon struggle to support
commerce. Individual companies are feeling the bite: analysts at
Morningstar estimate that input costs at Tyson Foods will rise by $700 million —
more than its 2012 net income.

Over one-third of the world’s
largest companies surveyed by the Carbon Disclosure Project are already seeing the impacts of climate change on their
business. So with life-and-death consequences and vast costs, we must
have moved quickly to tackle climate change, right? Sort of…

The year ended with the failure, yet again, of the international
community to come to some agreement on climate change. But country-level and
regional policy moved forward: Australia passed a carbon tax, South Korea approved carbon trading, and California just began its own trading experiment.

Many countries also committed serious funds to build a clean economy: Saudi Arabia pledged $109 billion for solar, Japan declared that a $628 billion green energy
industry would be central to its 2020 strategy, and China targeted $372 billion to cut energy use and
pollution.

In the U.S., a backdoor approach to climate policy took over. The
Obama administration issued new standards to double the fuel economy of cars and
trucks, and the National Resources Defense Council (an NGO) proposed
using the Clean Air Act to reduce emissions from power plants by
25%.

2. The math and physics of planetary constraints get
clearer

Arithmetic had a big year: Nate Silver’s nearly perfect
predictions of the election gave him the oxymoronic status of rock-star
statistician. The math and physics of sustainability got some serious
attention as well.

Writer and activist Bill McKibben wrote a widely-read piece in Rolling Stone about
climate math — how much more carbon emissions the planet can take — and followed
it up with a national awareness-building tour. Based on similar numbers, both McKinsey and PwC UK calculated how fast we must reduce
the carbon intensity of the global economy (PwC’s number is 5% per year until 2050).

And on the resource constraint front, Jeremy
Grantham, co-founder of the asset management
firm GMO ($100 billion invested), continued his relentless
numbers-based assault on the fallacy of infinite resources. In his November newsletter, he demonstrated exactly how much
of a drag on the U.S. economy commodity prices have become.

Nobody can really deny that, in principle, exponential growth must stop
someday. Grantham, McKibben, and many others are making the case that someday
has arrived.

3. The clean economy continues to explode

The rapid
growth of natural gas production (the biggest energy story of the year) and the
high-profile failure of one solar manufacturer (Solyndra) have confused people about the prospects for clean tech. In
reality, the clean economy is winning. The share of U.S. electricity coming from
non-hydro renewables doubled to 6% in the last 4 years. On May 26, Germany set a world record when it produced 50% of its
electricity needs from solar power alone. In a mini political tipping point, six
Republican senators publicly supported an extension to the wind production tax
credit in the U.S. (which will expire in days), and got an earful from a Wall Street Journal editorial.

It wasn’t just energy. One auto analyst declared 2012 the “Year of the Green Car,” with more high-MPG models,
500,000 hybrid sales in the U.S., and plug-in
sales up 228%. To cap the year, the pure electric Tesla Model S was selected as the Motor Trend Car of the
Year.

Company Stories

This year, there were countless eco-efficiency stories about companies saving millions of dollars and developing new tools to
make buildings, fleets (Staples and UPS, for example), and manufacturing much
leaner. Aside from that overall theme, the following stories grabbed me because
of their connection to larger trends.

4. The green supply chain gets some teeth: Walmart changes incentives
for buyers

This year, Walmart finally added a key element to its
impressive green supply chain efforts. The retail giant’s powerful buyers, or
merchants, now have a sustainability goal in their performance targets and
reviews. For example, the laptop PC buyer set a goal that, by
Christmas, all of the laptops Walmart sells would come pre-installed with
advanced energy-saving settings. It was by no means a hiccup-free year on
sustainability issues for Walmart, with deep concerns about corruption in its Mexican
operations. But the subtle change in buyer incentives is a big deal.

5. Transparency and tragedy raise awareness about worker
conditions

Early in 2012, Apple took some serious heat for the working conditions at Foxconn, the giant company that
assembles a huge percentage of our electronics. Later in the year, tragedy
struck Dhaka, Bangladesh when a fire at
the Tazreen Fashion factory killed or injured hundreds of people. The
company that owns the factory serves Walmart, Carrefour, IKEA, and many others
(but in fact, some companies didn’t even know that Tazreen was a
supplier). It’s unclear if any of these human and PR disasters will
affect the companies downstream, but transparency and knowledge about the lives
of the people who make our products will continue to rise.

6. Data gets bigger and faster: PepsiCo and Columbia speed up
lifecycle assessments

The rise of Big Data was an important theme in business in
general this year, but especially in sustainability. And nowhere is good data
needed more than in the onerous and expensive task of calculating a product’s
lifecycle footprint. PepsiCo has had great success with the method, finding
ways to reduce cost and risk for key brands, but execs wanted to apply the tool
across thousands of products. To make the exercise feasible and affordable, they
turned to Columbia University, which developed a new algorithm for fast carbon footprinting. This isn’t
just a wonky exercise: As PepsiCo exec Al Halvorsen told me, “the real reason
you do an LCA is improve the business, to put more efficient processes in place,
and innovate in the supply chain.”

7. Sustainability innovation opens up: Unilever, Heineken, and EMC
ask the world for help

This new world of social media, where
everyone has a voice, can be tough on companies. Consumers can gather around a
green issue and pressure companies to change their behavior. Some notable
change.org campaigns this year challenged Universal Pictures (about its green
messaging around The Lorax), Crayola (recycling markers), and Dunkin’ Donuts (Styrofoam cups). But companies can also
use “open” innovation tools to generate new ideas and invite the world to solve
problems together.

Unilever, which has my vote for leader in corporate sustainability right now,
held an online discussion or “jam.” Then the company posted a list of “Challenges and wants” and asked for ideas on solving
big issues such as how to bring safe drinking water to the world’s poorest
regions. Unilever has received over 1,000 ideas and is “pursuing
6 to 7 percent of these with internal teams.” Other notable open innovation
models this year included Heineken’s
$10,000 sustainable packaging contest (which yielded some very fun
ideas like a roving tap truck) and EMC’s eco-challenge with InnoCentive on e-waste.

8. The economy gets a bit more circular: M&S, H&M, and Puma
experiment with closing loops

On the heels of Patagonia’s “Don’t Buy This Jacket” campaign (one of my top 10 stories from last year), British
retailer M&S began a program called “Schwop” that asked customers to bring back old clothes
every time they bought new ones. This month, H&M also rolled out a global clothing collection and recycling effort.

Puma, after making last year’s list with it’s Environmental P&L, kept the
momentum going and announced a new “InCycle” collection with biodegradable
sneakers and shirts, and recyclable jackets and backpacks. Remanufacturing has
been around a long time, but closing loops is getting more popular every
year.

9. Dematerialization gets sexier: Nike’s knitted shoe shows off
sustainable style

Keeping the apparel theme, um, running, check out
Nike’s new shoe
with FlyKnit technology. The upper part of the shoe is constructed
from a single strand, which greatly reduces waste and lightens the shoe
dramatically. It’s a great thing when a more sustainable design also coincides
perfectly with customer needs. Enough said.

10. Zero becomes more the norm: DuPont, GM, and John Elkington show
the way

The idea that organizations should send zero waste to
landfill was once a niche idea, but it’s quickly becoming the ante to enter the
waste management game. Announcements on waste may not be exciting, but they
demonstrate how companies can turn a cost center into a source of profit.
DuPont’s Building Innovation Products business reduced its landfill waste from 81 million pounds to zero in three
years. GM announced that it would ramp up its already extensive waste
reuse and recycling efforts, which are now generating $1
billion a year. And a plug for a fellow writer: In a new book,
sustainability thought leader John Elkington made the case that the future would
belong to the “Zeronauts,” the
“new breed of innovators determined to drive problems such as carbon, waste,
toxics, and poverty to zero.”