Raking in the Green

Going eco-friendly can reap company profits.

It has long been a concern among corporations that going green costs millions, leading to reluctance to make changes that would benefit the environment. However, research out of George Mason University (GMU) has found that companies who fear the so-called green goblin can make eco-savvy changes while offsetting and even eliminating the extra cost involved in running an environmentally-friendly company.

“This study was part of much bigger study led and sponsored by the Organization for Economic Cooperation and Development (OECD). They represent the thirty wealthiest nations on the globe,” says lead researcher Nicole Darnall, PhD. She is Assistant Professor of Environmental Science and Policy and Assistant Professor of Public and International Affairs at GMU.

Seven OECD countries participated in this study, examining more than 2,600 manufacturing facilities in seven different nations. Darnall, who specializes in corporate sustainability, environmental policy innovation, and the role of external stakeholders in the environmental governance of corporations and government, was the lead researcher for the U.S. team. “We were looking to tackle some of the really pressing questions related to the environment and business that otherwise had not been addressed,” she tells demo dirt.

“The results of the study are two-fold: they show that environmental regulations do in fact harm firm profitability. "This has been the argument for not advancing climate change policy or any other major environmental policy since the 1990s. There has been no new law passed since 1990, primarily because of the cost associated with additional regulation,” Darnall explains.

The second finding, she says, showed that companies can make a profit despite the additional expenses incurred when going green.

“A very important point almost never considered is that for companies that are proactive towards the environment, and that make green strides beyond what the law requires, the cost of regulation can be offset or eliminated. It can be profitable for companies to go green,” Darnall maintains.

“This study confirms what we know will be true for many companies. We all have been so lazy as to not explore just how easy it is to become more eco-efficient,” says Dr. Norman Miller, professor at the Burnham Moores Center for Real Estate in San Diego.

Miller focuses on the real estate economics of the green movement, particularly the costs and benefits from occupancy and ownership of real estate.

It is rare to find a company that starts off green, Darnall adds. “Companies rarely are born into this, they usually are converted. Companies are looking to streamline internal efficiencies. If they are looking to save money, doing right by the environment is a very good place to start,” Darnall contends.

Cutting costs internally, she says, is the first place to start. “Companies can save a lot of money and still save energy, and usually still produce the same product. If they look internally first, then they come to realize the market opportunities exist afterwards. They look at their water bills and electric bills, for example,” Darnall says. “They just won’t do it because most environmental costs are bundled into a company’s overhead, and the manager views costs as being fixed.” That, she says, is a big mistake.

For instance, Darnall says, the company 3M undertook a successful energy conservation program in the year 2000, challenging 150 company sites to reduce energy consumption. Since then, Darnall explains, 3M has saved $190 million by reducing energy consumption by a mere 4% per year.

“And this was a modest change; there were no people sitting in the office with their lights turned off,” Darnall adds.

While the study found that frequently extra costs arise when going green, Darnall adds that many times it costs nothing additional to be environmentally responsible, citing MA-based Walden Paddlers, Inc. as a company that is both eco-friendly and dollar-savvy. “Their kayaks are produced from 100% recycled materials. They are one of the industry’s biggest producers, and the cost of their kayaks is less, and they are using recycled materials, which costs less than using virgin plastic.”

“I think the GMU study continues the work of Bill McDonough and books like Cradle to Cradle. Triple bottom line strategies have increased dramatically as companies try to practice what they are now saying matters to them, being socially responsible.” Miller tells demo dirt. “They often find by accident new profits such as re-use for output they once gave away, for example, grease from a fast food outlet.”

“On one hand, yes, in some instances marketing a greener product costs more, but companies that are innovative and exploit opportunities that are already there do well,” Darnall adds.

And, companies that are truly green reap profits from customers who are willing to pay more be kind to the earth. “Consumers are willing to pay thirty dollars more a night to stay in eco-friendly hotels, pay 20 percent to 50 percent more for organic produce, and are willing spend $3,000 to $8,000 for hybrid cars,” Darnall explains.

Miller points out that while consumers demand green products, true change starts up high. “The green movement definitely includes a response to tree huggers and socially responsible types but often we find it starts at the top, a new sense of conscience on the part of a CEO or top managers.”

And for those who aren’t eco-friendly, just the profits may become the driving force for them to change. “There are many out there who do not care but are realizing that green can be profitable and once they start in this direction they will keep thinking about new ways to profit or save money,” Miller adds.

How much of those extra consumer dollars is to offset cost and how much is just taking advantage of conscientious customers?

“With consumers’ interest in green products, we have received an explosion of greenwashing, when companies claim to produce green products when in fact they are not green,” Darnall says. “This is pervasive in environmental advertising, and has led to the FTC [Federal Trade Commission] fast-tracking its review on green marketing.”

The green market, Darnall adds, is a largely unregulated area, making it a primary target for consumer deception. “We will have to get a handle on companies that are producing green goods. How do we determine what is green? We have a few eco-labels that exist," she explains. "But, a USDA Certified Organic label on a product from Fiji does not account for energy consumption to transport the product to the US. Consumers are limited in their ability to assess the product's comprehensive environmental impact. They are not looking collectively, and this causes big problems, and fuels consumer deception."

It will be up to the federal government to help, she adds. Since parts of the eco-puzzle are scattered, and no comprehensive eco-seal exists yet, “consumers don’t have the information to make informed decisions,” Darnall says.

“There is a small group of researchers such as myself, advocating for an environmental label with common metrics, similar to a nutritional label, to measure solid waste, hazardous waste, water usage, carbon footprint, and more,” Darnall explains. “Imagine how it would revolutionize the consumer market. Even having companies be required to report their environmental impacts would change their decision making, and make the information widely available for public consumption.”