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Environmental Shared Value Opportunities

There is a natural link between shared value and environmental issues: use less and create money. Reducing energy, materials, or natural resources used in producing a product protects natural resources. Creating environmentally friendly products that conserve or protect natural resources can attract new customers and revenues. Case studies of successful corporate initiatives along these lines abound: Wal-mart’s optimization of its transportation network, GE’s Ecomagination solutions, and Toyota’s introduction of the Prius are just a few of many examples.

The “use less” approach to identifying cost-saving opportunities with environmental benefits is appealing. Despite the efforts that have been expended on the issue, ample opportunities remain: the cost of energy used in office buildings in the US comes close to $16B a year, for example. Governments are providing other incentives as well, signaling that they support this approach through regulation and policy decisions. The recent proposed merger between two regional utilities, NStar and Northeast Utilities, received approval from Massachusetts only after the utilities agreed that the combined entity would purchase 2% of its power from a local wind power project. The persistent threat of future regulation has helped focus companies on conserving natural resources pre-emptively.

While the emphasis on this type of activity is important and warranted, it does raise the question of whether other types of environmental shared value opportunities – beyond using fewer resources – exist. Thinking creatively about a company’s environmental risks and impact might lead to shared value creation through new products, innovations in the value chain, or local community developments that support business.

I was reminded of this when reading a pair of recent articles in the Economist on the impact of natural disasters and their rising costs. The first article discussed the effect of the removal of natural barriers (e.g. flood plains, mangrove swamps, reefs) on the scale of natural disasters. Would companies think differently about how to develop a project if the potential costs of natural disasters – on the company and on the population – were taken into account? Could protecting and preserving the land on which natural barriers better protect their value chain activities in the long run? Could the value of preservation be further enhanced by using these natural barriers for other purposes (e.g. ecotourism, natural filtering wetland system)? These are more than academic questions.  As the second article points out, the earthquake and tsunami in Japan last year caused nearly 16,000 deaths and $210 billion in economic losses, and flooding in Thailand caused an estimated 813 deaths and $40 billion in economic losses.

Environmental holdings can be turned to productive assets in other ways. In the forestry industry, many companies are moving beyond viewing themselves as sellers of lumber and pulp commodities and, with their vast tracts of forests, thinking of themselves as carbon traders. This has opened up new product opportunities such as carbon credits – allowing them to capitalize on a temporarily idle asset that is core to its business.

Focusing on “use less” has yielded successful strategies for many companies. Thinking beyond the more obvious ways in which business interacts with the environment, however, can help uncover significant shared value opportunities.

Chile Hidalgo

Former Director, FSG