Going Green Can Be Good for the Bottom Line
By Yevgenia Nayberg
These days, almost every company supports the idea of a greener planet. Most
acknowledge the ethical case for building supply chains that conserve energy and cause less
environmental damage.
But according to Ozge Islegen, an assistant professor of managerial economics and
decision sciences at the Kellogg School, there is increasing awareness that it also makes good
business sense to design one’s operations around social and environmental sustainability. With
the rising cost of raw materials, shifts in stakeholder expectations, increasing complexity of
global supply chains, and new government standards (including the U.S.’s Clean Power Plan and
the U.N.’s commitments to fight climate change), reducing one’s impact on the environment is
more than just a public service—it is becoming part of the value proposition.
“Everyone recognizes that this is the direction we need to go,” Islegen says. “Now it’s a
matter of making environmental performance a part of corporate strategy. And we find that there
actually are strategic reasons to build sustainable operations. It might even give you an edge.”
Becoming an Industry Pioneer
There has always been at least one incentive for companies to focus on environmental
performance: avoiding negative publicity. And with the explosion of social media, that incentive
has only strengthened. Any news of severe pollution or lax environmental standards will spread
instantaneously—and leave a mark. Volkswagen found this out after designing engines to cheat
on emissions tests in 11 million of its diesel cars. The company is now reeling from customer
anger, product recalls, and plummeting shares, not to mention fines worth billions of dollars.
At the same time, business leaders are learning that clean operations and higher growth
can go hand in hand. Now that customers, investors, activists, and even a company’s own
employees are voicing concerns about environmental impact, a greener record does more than
simply guard against public-relations disasters. It can bolster a firm’s reputation.
Even in cases where a sustainable operations strategy drives up costs, the advantages that
come with a good reputation can go a long way towards offsetting those costs. Becoming an
industry pioneer, for example, can strengthen a firm’s appeal among potential customers and
partners, and grant that firm a prominent voice in global civil society—all of which ultimately
serves the business. The outdoor apparel company Patagonia is one such industry leader. In
2010, Patagonia helped found the Sustainable Apparel Coalition, an alliance of 30 companies
from the clothing and footwear industries.
“Companies that improve their environmental performance need not surrender
competitive advantage,” Islegen says.
1. How can becoming “green” be an advantage to a company? Justify your side.
2. Do you believe that reducing one’s impact on the environment is more than just a public service and is becoming part of the value proposition? Explain this statement and give examples of 3 companies that are into this practice.
3. Research about Patagonia and relate how it reaches to be an industry leader.