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Green Is Beautiful—A Commentary by Daniel Esty '86

The following commentary was published in CIO Magazine on January 1, 2007.

Green Is Beautiful
Helping the planet doesn't have to hurt your bottom line. Environmentally responsible IT can improve efficiency and generate new revenue streams.
By Daniel C. Esty

Whether your business thrives or dies in the coming decade may depend on how well it manages environmental issues. In a world of high-priced oil, tightening greenhouse gas emission controls and dwindling natural resources, no company can afford to ignore the environment as an element of business strategy.

Research into companies that are leaders in environmental management shows that information technology is critical to making green initiatives pay off. Thus, furniture maker Herman Miller has constructed a database to rank the environmental attributes of every component in its products and is moving to eliminate highly polluting inputs. Everyone from megalithic Wal-Mart to tiny Rohner Textil (which makes fabric) is testing the power of data to drive financial and environmental results. Meanwhile, a handful of other leading companies have saved millions of dollars and created new revenue streams by bringing IT to bear on their environmental challenges.

GE, for example, has deployed its digital cockpit, a $10 million system that supplies metrics on environmental performance, resource use, safety and compliance. With it, the company's violations of wastewater emission regulations fell by more than 80 percent in the past decade, and GE saved tens of millions of dollars through environmental, safety and productivity improvements.

GE achieved these results by using information to uncover better ways to do routine things, and by demanding that the changes pay for themselves. Now GE has a platform for its "ecomagination" marketing campaign and for its push to provide environmental goods and services, such as high-efficiency jet engines and turbines and water transport systems.

Beyond Energy Efficiency
Information technology's power to collect, analyze and extract information will have market-changing effects. Marrying information-age tools such as data mining and advanced modeling techniques to environmental challenges holds potential to propel some companies ahead of their competitors because they can "see" through data where their industry is headed.

Curbing energy consumption is the low-hanging fruit for every company going green. While you shouldn't underestimate these opportunities for saving money, more revolutionary potential is waiting for companies that use IT to track, monitor and redesign their business environment. Envisioning products from supplier to end-user (and beyond, as companies under EU-mandated reclamation programs are discovering) delivers big profits.

For example, HP was losing out on the market for remanufactured toner cartridges. Rather than leave recycling to others, HP analyzed its value chain and then launched its own recycling and remanufacturing business. The company's recent troubles notwithstanding, remanufactured toner cartridges provide a high-margin business that reuses 11 million cartridges each year and brings in $100 million in annual revenue.

Meanwhile, technology is supplying environmental data to a degree once thought impossible. Biomonitoring and more sensitive measurement tools can identify—at trace levels—virtually every chemical or emission found in the environment, whether in a polar bear in the Arctic Circle or in the breast milk of a woman in Ohio. It may not be long before all emissions sources are almost completely mapped, if not fully understood—and then the producers of these emissions will be called to account through regulation or the court of public opinion. By providing systems to track and manage corporate environmental performance, CIOs have a key role in mitigating the risks and identifying the opportunities that environmental challenges present.

How to Be Green
CIOs can employ the following environmental strategies to prepare for the business challenges ahead:

* Know your product. The Dutch government in 2001 seized 1.3 million Sony PlayStations at the start of the Christmas season because they contained illegal levels of the toxic metal cadmium. Sony had to replace all cables manufactured by an obscure supplier, at a cost of more than $130 million.

Sony executives vowed never to be caught unaware of environmental risks again. Other companies have since caught on. When my colleague Andrew Winston and I were writing our book Green to Gold: When Smart Companies Use Environmental Strategy to Innovate, Create Value and Build Competitive Advantage, one of Dell's key environmental executives, Don Brown, told us that his company ensures every component has been thoroughly analyzed. "If there's a problem when we hit the dock in the EU," he says, "we can answer any questions with data and avoid holding up 10,000 units in customs."

* Install an environmental management system (EMS). Such systems support a company's processes for monitoring and managing their environmental initiatives. When a good system is in place, managers know their business better, find ways to squeeze out waste, make processes run more efficiently and avoid potential pitfalls. Packaged EMS platforms have already been developed.

* Capture data and create metrics. Data is almost always a precursor of environmental improvement. Just one data tracking law—the 1986 EPA Toxics Release Inventory program—started many companies down the path to environmental leadership. Once companies had to report details about their emissions, many realized that valuable chemicals were going up the smokestack, and that reducing waste would lead them to use raw materials more efficiently.

To obtain such benefits, track both relative and absolute metrics. It's tempting to show progress in relative terms, but some problems are absolute. Reducing greenhouse gas emissions relative to sales might indicate improvement. But if sales increase significantly, the problem is still getting worse.

In addition, capture data at multiple levels within a company and throughout your value chain. The ability to drill down by country, division, site and even production line can help isolate problem areas or highlight leading-edge performance. Doing this doesn't have to be expensive. Good measurement often goes hand in hand with tight operational control.

The opportunity to turn green to gold exists, if companies take advantage of environmental data. Protecting the planet can also protect your company by safeguarding its assets, inspiring employees and attracting workers who want more than a paycheck. CIOs will be at the heart of this transformation.

Daniel Esty is the Hillhouse Professor and director of the Center of Business & Environment at Yale University. He can be reached at cbey@yale.edu.