World is Green

Jim Butler from Hotel Lawyer gives a set of reasons and trends for Hotels to go green.

Rule #1: Get the best consultants and advisors early.

If you are going to get serious about GREENING your hotel future, the first thing you need to do is tap some of the best GREEN resources you can find, and do it from the outset.
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For more discussion about GREEN resources, including many of The Hotel Developers Conference™ speakers and a rich library of reading, please see the rich assortment of articles in the Green Hotels topic at www.HotelLawBlog.com, particularly, “Green Hotel Lawyer: Why should you do GREEN hotel development, and HOW do you do it?”

Living buildings that produce more power than they consume - sustainable design

Kip Richardson, Director of Business Development for Ankrom Moisan Associated Architects, kicked off the day of educational sessions with a presentation entitled, “Beyond LEED: The Cutting Edge of Sustainable Design.” Richardson described some of the reasons why it is  important to take a sustainable approach to hotel design and construction.
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Richardson provided a glimpse into the future of hotel design, saying that within five years, hotel buildings may produce more energy than they consume and consume more waste than they produce. These “living” buildings will capture and treat rainwater and have zero net impact on the environment.

Hotel Financing for Green Hotels
While “green” may be the current hot trend, it will not trump other value-determining business fundamentals such as location and brand identity, panelists said. Being a green hotel developer does not necessarily guarantee funding success.

“Before you can be a green hotel developer, you have to be a hotel developer who knows how to get a deal done,” Muldavin said.

The opportunity is growing.

Nytimes writes about a new book called “Nudge” which uses behavioural science in understanding many decisions made by humans. Some experiments show that price feedbacks work. This takes it further.

“Getting the prices right will not create the right behavior if people do not associate their behavior with the relevant costs,” says Dr. Thaler, a professor of behavioral science and economics. “When I turn the thermostat down on my A-C, I only vaguely know how much that costs me. If the thermostat were programmed to tell you immediately how much you are spending, the effect would be much more powerful.”

It would be still more powerful, he and Mr. Sunstein suggest, if you knew how your energy consumption compared with the social norm. A study in California showed that when the monthly electric bill listed the average consumption in the neighborhood, the people in above-average households significantly decreased their consumption.

Economics Times interviews Martin Stuchtey, a global expert on climate change, and partner with McKinsey.

Excerpts:

We have done 160 studies over the last 12 months on climate change. Very few are for CSR and sustainability guys. Most of them are being funded straight out of the boards, and typically we talk to the head of strategy when we discuss them. It is not about making the CSR story headlines today; it’s about making your business viable in the long-term, to make your business fit for the low-carbon economy.
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Almost all of them agreed that there is a huge upside to managing this transition.We were surprised to see that almost 30% of the carbon reduction in our own cost curve actually has a negative cost — you actually profit from it! For many companies 60-70% of their emissions can be reduced at net zero cost.
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We estimate the market (carbon trading) to be about $1.0-1.6 trillion by 2030, which is about the size of today’s oil market!

It’s a new commodity market that has to be developed from scratch, and that means infrastructure — you need a world carbon bank, lots and lots of certification bodies, many controls. Without that, it is going to be very difficult, and you can’t only rely on local governments coming back with their fuel economy standard or taxes on this or that.
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Then there is green urbanisation. New cities are coming up, new SEZs are coming up. Can we really start focusing on these? Renewable energy and generation have already seen a big leap. In both solar and wind, I think we can be the front runners, as is the case in bio-fuels. We feel that 10-20% of the top companies will profit from it, and position themselves completely on the cost curve. Overall, Indian companies see it more as an opportunity rather than a threat. In the next 12-18 months, you will see a big change.

Roger James in the Business Spectator:

There was a time when green beer was something strange they did with the brews in Irish pubs on St Patrick’s day. Not any more. Green beer is now a deadly serious marketing strategy, with Foster’s and Lion Nathan releasing products which they say reach the consumer being fully carbon offset in their production, packaging and distribution. Foster’s even goes to the trouble of printing its labels using inks made from vegetable oils.

Will consumers change their beers, perhaps even their brand, in response to this? There is no doubt that being carbon neutral, having carbon offsets or reducing your carbon footprint are all issues that have recently sprung to the fore in business, in marketing and in the community.

A new target market for a new beer.This initiative raises a lot of questions about green marketing strategies.

Will consumers select beers based on their green credentials? A question for Seth Godin I guess. Here’s my take. Consumers may change products like dish washing liquids or even clothes based on their green credentials. Cars come into this category too. However, beers are different. They are personal, taste based and connect to past preferences and habits. Lion Nathan and Fosters may be better off spending their green dollars on other initiatives.

Here’s a thought: what if your most popular beer is made “green”; would that make a difference? Will it get more customers to choose that beer, bring in a new customer?

What if the company developed a greener supply chain and manufacturing systems and built their overall green image. Will that create a blanket of goodwill on all their products? Is that better?

What is a better strategy? New green products, green old products or green the company?

Forum for the Future in the UK has released a report titled “Leader Business Strategies” which explain how sustainability fits into business strategy.

When I started this blog, my aim was to understand, look at examples and provide a convincing case of how sustainability is a business strategy. This reports really takes the lead in providing a framework to take this forward.

I have suggested before that we can look at sustainability as a risk reduction strategy (cost cutting, bottom line focus) or a growth opportunity strategy (new markets, top line focus).

David Bent, a Principal Sustainability Advisor for the Forum of the Future and the report’s author suggest that  the shift has happened from risk to opportunity. In fact, David is an e-mail subscriber of this blog.

He writes, “In the past companies have asked us “What should our sustainability strategy be for our business?” Now they’re asking “What should our business strategy be, in the light of sustainability?”
The report summary (Download - PDF) explains why business needs to look at sustainability and framing the issue in a demand-supply equation. It also explains the eco-system issues as capital depletion and how that can detrimental to future business. More importantly, with change in consumer behaviours, and new opportunities for competitors it is becoming imperitive for a new operational model which incorporates the sustainability aspects.

The report suggests a practical model revolving around technologies, markets and contexts or what can be called the larger business eco-system.  And an approach to implement based on planning, managing and experimenting.

The full report can be downloaded here and the summary here.

In an interview David suggests the growing opportunities for SMEs to use sustainability as a business strategy and he sees a good future for companies which take sustainability seriously.

“I feel sympathy with the fact that SMEs don’t have lots of time and resources,” says Bent. “But there are smaller businesses that are experimenting and making it work. Cafédirect, which started off with three people and one bag of coffee, has transformed the UK market tremendously. What we’re trying to get across is that there needn’t be a trade-off between profit and being sustainable. Finding the right way is the task of strategic management.”

Bent has faith in the UK’s entrepreneurs, those who “create the disruptive change”, to spot the market gaps and make them their own. “They become leaders because they can spot opportunities,” reasons Bent. “What will guide them through this growing terrain is if they ask the question: ‘How can we build up our capabilities so that we are better positioned than our competitors to deal with problems like climate change, energy efficiency and social need and make money out of it?’”

The last question that David asks is the crux of the issue. How do we see these problems as opportunities and solve them?. History has provided proof that people who can solve important problems and create a good business model can profit immensely from it.

Heather Clancy writes in ZD Net’s Green Tech blog about monitoring carbon and advice from Michael Meehan, founder and CEO of Carbonetworks.

Meehan, who hails from Victoria, British Columbia, figures there are five steps companies need to climb on their way to getting a better grip on their carbon position:

1. Measure actual carbon emissions and document where it’s coming from. What’s true for one division may not be true for another.
2. Understand how your carbon position relates to core business values. In other words, how would reducing your company’s footprint affect profitability?
3. Gauge the financial liability/value associated with your company’s greenhouse emissions.
4. Assess the impact of various reduction strategies across the entire company. Sometimes, something that may seem like a great idea for one division may have a detrimental effect on the company as a whole.
5. Link up with verified offset providers to take action.

Joshua Margolis and Hillary Anger Elfenbein, writing in the January 2008 edition of the Harvard Business Review (subs req. free for the month) on social responsibility inform us that after a meta-survey of 167 surveys over the last 35 years they find that there is a low correlation between doing good and doing well in business sense.

They write:

While doing good doesn’t appear to destroy shareholder value, we found only a very small correlation between corporate behavior and good financial results (the exception being public misdeeds, which had a discernible negative impact). Moreover, the minor correlation that does exist could well be explained by deep pockets - a history of strong financial performance may simply give a company the wherewithal to contribute to society. Indeed, of the various forms social responsibility can take, cash contributions to charities have shown a stronger correlation with success than have socially responsible corporate policies or community projects.

They suggest:

1. Corporate misdeeds are costly to companies - if people find out.
2.  Doing good is unlikely to cost shareholders.
3.  Profitability should not be the primary rationale for corporate social responsibility.

It is interesting to read this.  Now to be sure the HBR headline reads that CSR. However, what I would like to call ‘Sustainable Business’, how does that fare?

Karl Weber writing in the Triple Bottom Line blog makes some important comments.

First of all, the authors say they found no conflict between doing business responsibly and achieving strong financial results. “Doing good,” they say, “is unlikely to cost shareholders.”…After all, if CSR is (in effect) cost-free, why not make an effort to do the right thing? What is the upside to behaving ruthlessly if it is not even rewarded in the marketplace?
…The fact that Margolis and Elfenbein do confirm such a correlation is, of course, welcome to CSR advocates. And without having access to the original study (which doesn’t yet appear to be available online), it’s impossible to know whether specific factors might explain why the correlation is only a small one.

…The authors might argue that no one, including CSR skeptics, is actually in favor of “public misdeeds,” which means that the CSR movement shouldn’t be credited for any positive impact from avoiding them. I’d challenge that logic. If companies that espouse CSR do a better job of avoiding scandalous behavior, that’s not a mere coincidence.

Stopping the negative consequences do connect to corporate financial performance.

To understand whether any specific circumstances create the scenario where CSR is valuable Vinay Nair, a Wharton finance professor and his colleagues at Columbia University studied whether being charitable — such as donating money to medical research or to organizations that promote economic self-sufficiency — helps a company’s financial picture.

Concentrating only on charity they found that “Corporate philanthropy and profits are positively related only in industries with high advertising intensity and high competition,” the researchers say, citing as examples the beverage and retail industries. In low-advertising industries, such as computer chips and business-to-business services — “there is actually a negative association between philanthropy and profits.” Clearly this helped to serve as a differentiation in a competitive industry.

In thier study they excluded good deeds that could also have the effect of boosting a company’s productivity and, in turn, its profits. For instance, a company’s decision to operate an environmentally friendly plant could increase efficiency. Likewise, a company that offers flex time and good maternity leave benefits may reap the benefits of a more loyal and productive workforce. And I think this is where the companies need to concentrate.

Corporate good deeds need to combine business strategy and sustainability to make a difference. Or else, shareholders will be at loss.

Dave Douglas in a Op-Ed in Business Week writes about the carbon or sustainability opportunities available for companies. Dave is the vice-president for Eco Responsibility at Sun Microsystems and like other Sun executives he writes a blog which makes for good reading.

Dave writes about the growing interest in Carbon Neutrality, which is impossible in actual reduction of carbon to zero. What we can do is increase efficiency and buy green energy and offset the rest.

Dave writes that working only for carbon neutrality is a missed opportunity.

It’s good for companies to invest in others’ good deeds, but right now it’s absolutely critical that companies invest in creating more sustainable versions of themselves. More than ever, we need the innovation that comes from competition and open markets. We need companies that view climate change not as a threat but as an opportunity—and are pursuing it with the enthusiasm that big opportunities engender. We need companies to go beyond carbon neutrality to something I call “carbon advantage.”

You can create a carbon advantage for your company in two ways: First, you can use efficiency and resource reduction to provide a fundamental cost advantage in your operations and products. Second, you can use innovation in green products and services to offer customers a competitive advantage, thus differentiating your offerings.

This has been my learning and the theme of my writing for some time now. I believe that there is a great top-line opportunity in this area rather than just risk reduction, cost savings or bottom line increases only. This is where sustainability and carbon become a business strategy.

Incidentally, it seems that Business Week’s subtitle on carbon offsets missed the point and Dave clarified his position again on this weblog. Business Week seems to have changed the sub title now. It just shows the exact point that Dave was trying to make - to move away from just Carbon neutrality and concentrate on carbon opportunities.

SustainAbility, the organization, along with the International Finance Corporation (IFC), has come out with a “case study + sustainability strategy building steps” report called Market Movers: Lessons from a Frontier of Innovation, where they analyzed in detail 4 companies in the emerging markets of China, India, Brazil and Sri Lanka and how their sustainability focus has influenced their business success.

The report goes on to draw some lessons from their experiences and to make recommendations as to how other emerging-market businesses might create value from sustainability. The report identifies a number of ‘ingredients of success’ – factors that contributed to the strong results in all four case studies and helped them overcome some of the constraints that many emerging-economy companies face. The five ingredients are:

Leadership: the role of the chief executive or chairman in pushing through a strategy based on sustainability.

Integration: the embedding of sustainability elements in corporate strategies from the very beginning.

Innovation: using sustainability as a source of innovation.

Differentiation: having the courage to be different.

Quality of relationships: business benefits from strong relationships with stakeholders – suppliers, customers, employees.

The reports using a nice little matrix which provides sustainability parameters like environmental performance, social and governance performance and the business benefits of these startegies. As the case studies show, each company has used a different mix of sustainability parameters for generating business value.

A very interesting read. However, it is important to remember the following advice from the authors.

While we recognise that any measure of the value added either to their bottom line or to society by businesses’ sustainability strategies is necessarily imprecise, it is none the less real for that. In all our cases there is a close correlation between sustainability and business success, even if there is no irrefutable evidence of causation between the two. The entrepreneurs who built up these companies invariably attest to it.

The Age on a South Korean carbon consulting company called Eco-Frontier.

LIM Dae-woong has a job that will be familiar to an increasing number of Australians. As a carbon consultant, Mr Lim is in hot demand from governments and businesses scrambling to prepare for coming emissions constraints, and from investors on the scent of big profits in emerging markets.

And, as with Australia, South Korea is nearing the starting blocks when it comes to setting targets for curbing greenhouse gases, and laying groundwork for carbon trading.
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Some wins can be had, even for small companies such as Eco-Frontier, which employs about 90 staff. It teamed up with London-based Climate Change Capital to outbid Japan’s Mitsubishi and Mitsui to secure carbon credits gained from cutting output of the potent greenhouse gas HFC23 at a Chinese plant. The plant will now reduce its annual carbon dioxide emissions by 4.25 million tonnes and deliver a 100% return on investment.
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The plant in Malaysia will burn oil palm residue, which would otherwise rot and release methane gas. The $100 million plant would have a payback period of seven to nine years, a rate that will be cut by about half once the derived carbon credits are sold.

In Mr Lim’s experience, companies — Korean or otherwise — tend to treat environment issues as cost issues, rather than profit opportunities. “Many people in the environment departments just hide,” he said.