Making Money by Being Green

Companies find it pays to be green

02-01-2001 // Annetta Miller and Susanna Laurenti

Less than a decade ago, carpet manufacturer Interface, Inc. was excreting hundreds of gallons of wastewater and about 900 tons of pollutants each year. Then in the mid-1990s, the company began experimenting with new ideas—from spinning polyester out of discarded soda bottles to running looms with solar power—to cut waste and decrease harmful emissions by more than half. In six years, such innovations saved the firm about $114 million.

At one time, Interface’s efforts might have been considered uncommon in corporate America. Not any more. Recent research shows that environmental stewardship not only decreases operating costs but also attracts customers and can enhance stock prices. "In general, environmentally sound companies are financially healthier companies," says University of Oregon professor Michael Russo, coauthor of a study comparing companies’ environmental performance to profitability.

Russo, together with Paul Fouts of Golden State University, followed 243 Fortune 500 companies for two years, keeping an eye on their environmental records. The researchers found that firms with the highest returns on their assets had built reputations of going above and beyond their competitors in pollution control or waste reduction. Similarly, another recent study at Vanderbilt University found that eight times out of ten environmentally sound companies outperform their higher-polluting counterparts. One reason: "If you’re less wasteful, you’re probably running a lean operation," says Russo.

The green-begets-green phenomenon is also in evidence on Wall Street. When the nonprofit Alliance for Environmental Innovation examined the link between social and environmental achievement and financial performance in 1998, it concluded that firms that outperform their peers environmentally also outperform them on the stock market—by as much as two and a half percentage points. In another study, ICF Consulting, headquartered in Virginia, found that companies with high marks for environmental citizenship were less risky investments than those with lower marks.

Such studies are not without their skeptics. Some economists point out that the link between environmental performance and profitability may exist partly because companies with good environmental records are better managed and have more resources to launch environmental programs. Other experts maintain that more research is needed to determine exactly how different categories of environmental performance affect profits and stock prices. But many businesses that once were indifferent to the idea of improving their environmental efforts are now eager to learn how it can improve their bottom lines.

For example, such firms as Sunoco, Bank of America, Polaroid and General Motors now regularly take consult with the Coalition for Environmentally Responsible Economies (CERES), which is made up of environmental groups, investment institutions, labor unions and others. "We point out that if a firm does a good job up front evaluating environmental issues, they can protect themselves from cost overruns, fines, lawsuits and other obstacles that cost money down the road," says Senior Financial Analyst Julie Tanner of the National Wildlife Federation, which is a member of the CERES board.

In some cases, companies now believe so strongly in the cost-effectiveness of environmentalism they have revamped their business approach. Xerox Corporation, for example, now leases many of its products instead of selling them so it can recycle parts and reduce pollution. "The materials therefore circulate longer, requiring a minimum of new material and generating a minimum amount of waste," notes a report on Xerox’s efforts by Worldwatch Institute, a Washington, D.C., think tank.

For his part, Interface CEO Ray Anderson is convinced it pays to be green. "We’re saving money and winning business," he says. Not long ago during a sales meeting at a hotel resort in Hawaii, for example, Interface workers came up with a way to cut the hotel’s propane and water consumption by half. The epilogue: Interface was later awarded a million-dollar contract to supply the resort’s carpets.

Business writer Annetta Miller lives in New York City. Susanna Laurenti is a writer for the Boca Raton News.

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