Quote from F. Kotler’s book “Chaotica”
When the topic of the environment comes up, many business leaders primarily associate it with risks and opportunities. When it comes to risk, businesses often see their goal as avoiding costs related to accidents, consumer boycotts, or environmental lawsuits. All of this is becoming increasingly likely as the business climate grows more turbulent. In terms of opportunities, companies need to weigh the returns on their investments against the many possibilities they encounter every day.
All companies face increasing demands to conserve dwindling natural resources and reduce environmental pollution in order to adequately respond to global warming and sustain life on the planet. These demands lead to rising production and sales costs overall, regardless of the industry in which investments are made. The “green movement” is growing and having an increasing impact. Citizens and companies are motivated to consume and invest more responsibly in systems that are mindful of air, water, and energy. While most companies wish to support the green movement, technological innovations make it easier each year to demonstrate that investments in corporate environmental initiatives yield real benefits for their shareholders. However, there is a potential issue of overcapitalization. Some companies, among those that survived the global financial crisis, have sufficient funds to invest in new projects that may not provide guaranteed returns in the near term. At the same time, most companies now recognize that growing markets for cleaner energy, water, food, transportation, and so on are already seeing real advantages from business strategies and innovations based on sustainable development. General Electric is one of the companies trying to profit by addressing environmental pollution and energy supply issues.
Some investments in environmental initiatives are prudent and should be seriously considered by companies, especially since stakeholders—those for whom environmental issues are a high priority—are increasingly vocal about how business should be conducted. According to a quarterly survey by McKinsey conducted in September 2008, even more executives compared to the previous year stated that they now view environmental issues as opportunities rather than risks. Executives answered questions that are of utmost importance to the public. Environmental issues, including climate change, have taken center stage in the agendas of top executives, compared to the previous survey conducted a year earlier. Approximately half of the 1,453 executives selected environmental concerns as one of the top three issues they expect to attract the most public and political attention and to have a greater impact on the company’s shareholder value.
Since different competitors are likely to invest in green technologies in varying ways, the advantage, at least in the short term, will go to those who cut corners. In some markets, more government regulation and enforcement may be needed to provide everyone with a level playing field. The ultimate effect will be an increase in turbulence within and beyond individual industries. At first glance, companies from the United States and Europe are likely to be at a disadvantage compared to competitors from less developed countries, which may be less able and less willing to invest in “green” technologies. The West may try to use this as a justification for reducing its own investments, which could lead to environmentally harmful outcomes for everyone.
Ultimately, the value of companies is likely to change as environmental protection factors begin to impact their performance. The short-term effect on cash flows may not be significant overall; however, in certain industries, the influence of environmental factors will be substantial. As countries and companies start to more vigorously address environmental issues, including discussions about implementing potentially costly systems to reduce carbon emissions, the major shifts in the value of companies and sectors of the economy will become clearer and more predictable. A critical first step should be to assess and determine the extent of a company’s non-compliance with current or anticipated regulatory measures (such as carbon pricing, new standards, taxes, and subsidies), as well as to explore new technologies and changes in consumer and client preferences driven by their growing environmental awareness. Executives will need to understand how these changes will affect the company’s competitiveness, considering that other companies may adopt new business models and move more quickly toward “green” technologies.
To address any disruptions or chaos caused by the turbulence of environmental issues, the best companies will ultimately turn to all stakeholders, including both public organizations and private individuals, for assistance in shaping a Business Enterprise Sustainability (BES) strategy. This way, environmentally efficient “green” solutions can also yield attractive returns from “green” investments.