Save the Planet, Make Money: Green Is the New Black

Going green has gone from a catch phrase to a business imperative. In the past five to 10 years, sustainability and environmental stewardship have become as important as the concept of corporate social responsibility a decade earlier.

Green is now part of the culture at many corporations -- for reasons that go beyond politically correctness. In fact, strategies built around sustainability can create critical advantages for companies that want to protect their reputations and their bottom lines.

Environmental sustainability is a priority with private equity and corporate senior executives, according to a poll released this week by PwC US. The survey found 88% of the 175 participants believe sustainability will become a more important factor in business and investments in the next two years. Another 22% responded that they are in the early stages of developing a sustainability strategy for their organizations.

According to a 2010 survey of more than 750 CEOs by Accenture and the United Nations Global Compact, 93% viewed sustainability as important to their future success, and 72% said it could strengthen their brands and build trust with customers, clients, and government regulators.

No matter what you think about global warming, there's no argument that sustainable business practices can drive profitability. Costs go down when you reduce energy consumption, and companies don't have to pay as much to remove waste when they generate less.

Corporate sustainability strategies deliver a wide range of commercial and operational benefits for many of the world's leading companies, according to a major new survey of senior global executives released in April. The survey was commissioned by KPMG and conducted by the Economist Intelligence Unit; it questioned more than 370 senior executives at large companies worldwide.

The survey confirmed the main driver behind the development of sustainability strategies remained the desire to enhance brand reputation or comply with environmental regulations. However, the benefits that resulted from such strategies covered a wide range, with 32% claiming sustainability helped them attract and retain customers, 31.5% citing increased profitability, and 25% stating that they had developed better quality products and services because of sustainability efforts.

There's plenty of similar research.

A 2009 study by A.T. Kearney, a global management-consulting firm, tracked companies with and without sustainability strategies for six months. Most companies committed to sustainability outperformed industry averages by 15% -- a performance differential that translated to an average of $650 million in market capitalization per company.

And earlier this year, A.T. Kearney released another sustainability study that analyzed 57 of the leading global companies and 1,000 of their suppliers across a broad cross-section of industries. The bottom line: More than 50% of large businesses and 25% of their suppliers have seen cost savings because of carbon management activities.

Most companies (86%) saw commercial benefits from working closely with suppliers to improve performance and mutual return on investment, up from 46% in 2009. This jump is evidence of how sustainable procurement practices are addressing climate change and could have a major impact on the supply chain, which for most companies accounts for at least 50% of carbon emissions.

PepsiCo (NYSE: PEP), for instance, found more than $60 million in energy savings opportunities and a 16% reduction in per-unit energy use across its beverage plants through its carbon management strategy and proprietary energy assessment tool. It also shared its strategy with suppliers, creating a "mutual return on investment," said Walter Todd, Vice-President of Operations, PepsiCo UK & Ireland.

Lauren Koopman, PwC Director, US Sustainable Business Solutions, called environmental sustainability "a long term value creation lever" for private equity firms and corporations, because initiatives such as energy and resource efficiency, fuel savings, and waste reduction can cut costs significantly.

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