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Can Corporations Lead When Governments Don’t?

Alan Miller's picture

The past week saw the final demise of proposals for U.S. legislation to address climate change, and a sense of gloom pervades discussion about prospects for a similar effort by the new Congress next year. Among major corporations, however, one can still find many examples of impressive environmental initiatives and investments. The same week, for example, General Motors (GM) announced two costly steps predicated on consumer demand or regulatory pressure for environmental performance. The more highly publicized news was that GM would begin accepting orders for its long awaited hybrid electric car, the Volt. The Company attracted less fanfare for another product with more immediate environmental benefits, the introduction of a new climate friendly refrigerant for auto air conditioning – replacing a chemical with a global warming potential (GWP) of 1400 with one that has a GWP of 4, a 99.7% improvement over current emissions. (It is worth noting that auto air conditioning has become so popular that its one of the only features available as an add-on to the Nano in India).

 

 In June, General Electric announced that the performance of its “eco-imagination” initiative, a commitment to develop and market a growing range of green products, was meeting revenue targets and outperforming revenue growth in the company as a whole. Consequently, the company plans to double its investment in the initiative over the next five years.

 

Meanwhile Coca Cola announced a reduction in carbon emissions of over 11 percent relative to 2007, a major reduction in water intensity, and the introduction of a fully recyclable plastic bottle. In May, Ernst & Young published the results of a survey of 300 global business leaders showing nearly three-fourths plan to increase spending on climate change initiatives in the next five years.

 

 I have several thoughts on what these and many similar announcements mean in the context of the larger effort to address climate change. First, many corporate leaders are way ahead of the political process in appreciating the seriousness and urgency of the climate problem. They understand the long lead times required for changes in the global economy, the business risks of severe disruption in specific regions and sectors, and the huge potential for win-win investments in improving their efficiency and producing products that combine better performance with fewer GHG emissions.

 

Increasingly they also want to be perceived as the kind of company consumers feel good about and will pay a premium to buy from. Second, these efforts are increasingly relevant to emerging markets as well as in the industrialized world. In order to sell to WalMart and other major international retailers, requirements to report energy consumption and comply with environmental performance standards are becoming increasingly common. As Chinese, Indian and Brazilian consumers become more affluent, they can be expected to demand green products too. Third, as positive as such developments may be, they are no substitute for meaningful international and domestic policies. Government leadership remains essential to incentivize and reward private initiative, without which markets cannot operate effectively. The consumer demand behind green initiatives is sadly lacking in many market segments such as extractive industries – witness this year’s oil spill and coal mine disasters. Finally, innovation usually requires management time, some financial flexibility, and a longer time horizon – typically scarce resources for smaller companies (particularly in emerging markets). Sadly, there is no substitute for good environmental policy in big and small markets.

 

Comments

Submitted by Anonymous on
The premise of this article, that corporations will do the right thing when governments don't is disingenuous. The reason the proposed climate change legislation failed in the U.S. Congress is because of pressure from corporate lobbyists/campaign donors. There may be a handful of corporations that choose to do the right thing however most of these corporate initiatives are nothing more than public relations smokescreens if not outright lies.

Submitted by Anonymous on
Buying green products and pestering your congressman/woman would be good ways to get both corporations and the politicians to change their ways. It is sad that due to the economic downturn not many families will have the luxury to pay extra for green products. I think that environmental disasters will in the long run cost more and more, meaning that the economy will get to be even worse - looks like a possible downward spiral unless government steps in. These are some hard decisions to make and few, if any, politicians will make them just so they can save their seat in congress or the senate. Even if they make the decision, there's a good likelihood that their short-sighted constituents boot them out in the next elections and the incumbent overrules all the good things that were done.

I completely agree that relying solely on voluntary corporate initiatives will not be sufficient to address climate change as stated in my blog. On your other points I agree in part: while many major US corporations supported climate change legislation, others did not and probably contributed to its demise. I largely disagree on your reference to greenwashing; while it does happen, I think increasingly companies are in different ways choosing voluntarily to do "right things" because it makes good business sense.

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