Is the Greening of Business for Real?

"There is one and only one social responsibility of business," economist Milton Friedman wrote in the New York Times Magazine in 1970, "to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game."

Such thinking defined the stereotypical us-against-them tension between businesspeople and environmentalists for decades. Corporations rolled along, crushing any person, place, or endangered frog standing in the way of quarterly returns, while groups like the Sierra Club tried to put on the brakes, lobbying state and federal governments for regulation and educating consumers about business excesses.

Green-conscious companies such as clothing manufacturer Patagonia (annual revenue: $260 million), commercial carpet maker Interface ($1 billion), and Whole Foods ($4.6 billion) long ago proved that a business can thrive by paying attention to the environment as well as to Adam Smith's "invisible hand" of financial self-interest.

Back then it pretty much took a mountaintop epiphany for a CEO to see the benefits of going green. No more. Now, with energy costs soaring, supplies of raw materials becoming more tenuous, and regulations -- particularly in regard to climate change -- transforming business, companies are finding ingenious ways to reduce their risks and costs and increase their profits. A sequel to the 1987 movie Wall Street might find bare-knuckle trader Gordon Gekko imploring, "Green is good."

Wringing More Money From Less

Today companies are taking steps that "didn't make sense three years ago," says Daniel C. Esty, an environmental law professor at Yale University and coauthor of Green to Gold (Yale University Press, 2006), which discusses the competitive advantages a company can reap by adopting environmental strategies. Among the most "head-slappingly obvious" steps a business can take, he says, is to reduce energy use and boost efficiencies. For example:

• Office Depot says it saved nearly 66 million kilowatts of electricity due to energy-efficiency efforts in its warehouses and stores in 2006, trimming its electricity bill by $6.2 million.
• Coca-Cola, PepsiCo, and Nestle have all responded to rising energy and shipping costs (and critics' charges of waste) by reducing the amount of plastic in their beverage bottles.
• Ikea's customer-boggling "flat pack" boxes save the retailer 15 percent per item per year in transportation costs, the company reports.

After the low-hanging fruit has been plucked, businesses seeking ways to cut energy costs quickly look beyond their walls, says Elizabeth Sturcken, managing director of Environmental Defense's corporate partnerships program. "A company's real power," she says, "is with its supply chain."

As much as three-quarters of a company's carbon footprint comes from the way it manages the flow of goods, energy, and other resources from start to finish. A recent report from the industry group EyeforTransport found that a whopping 94 percent of supply-chain professionals consider green issues a priority. Among them, 59 percent are improving or plan to improve energy efficiency, 42 percent are redesigning warehousing and distribution networks, and 39 percent are measuring and/or reducing greenhouse-gas emissions.

Climate Horizons

Saving energy is not enough, though, says Esty. To stay alive, every company must also anticipate higher energy costs and the prospect of new regulations 5, 10, and 15 years down the line.

When more than 150 companies, including Unilever, Coca-Cola, and Royal Philips Electronics, signed a United Nations-sponsored climate declaration that commits them to setting and reporting carbon-reduction goals, they saw it as good business -- and a chance to promote a market-based plan instead of having more-onerous rules imposed on them.