^

^
l^^
i;
 The environmental revolution has been almost fer to as its carrying capacity. Increasingly, the
three decades in the making, and it has changed for- scourges of the late twentieth century-depleted
ever how companies do business. In the 1960s and farmland, fisheries, and forests,- choking urban pol-
1970s, corporations were in a state of denial regard- lution,- poverty; infectious disease; and migration-
ing their impact on the environment. Then a series are spilling over geopolitical borders. The simple
of highly visible ecological problems created a fact is this: in meeting our needs, we are destroying
groundswell of support for strict government regu- the ability of future generations to meet theirs.
lation. In the United States, Lake Erie was dead. In The roots of the problem-explosive population
Europe, the Rhine was on fire. In Japan, people were growth and rapid economic development in the
dying of mercury poisoning. emerging economies - are political and social issues
Today many companies have accepted their re- that exceed the mandate and the capabilities of any
sponsibility to do no harm to the environment. corporation. At the same time, corporations are the
Products and production processes are becoming only organizations with the resources, the technol-
cleaner; and where sueh change is under way, the ogy, the global reach, and, ultimately, the motiva-
environment is on the mend. In the industrialized tion to achieve sustainability.
nations, more and more companies are "going It is easy to state the case in the negative: faced
green" as they realize that they can reduce pollu- with impoverished customers, degraded environ-
tion and increase profits simultaneously. We have ments, failing political systems, and unraveling
come a long way. societies, it will be increasingly difficult for cor-

Strateqies for a Sustainable World

But the distance we've traveled will seem small porations to do business. But the positive case is
when, in 30 years, we look hack at the 1990s. Be- even more powerful. The more we learn about the
yond greening lies an enormous challenge-and an challenges of sustainability, the clearer it is that we
enormous opportunity. The challenge is to develop are poised at the threshold of a historic moment
a sustainable global economy: an economy that the in which many of the world's industries may be
planet is capable of supporting indefinitely. Al- transformed.
though we may be approaching ecological recovery To date, the business logic for greening has been
in the developed world, the planet as a whole re- largely operational or technical: bottom-up pollu-
mains on an unsustainable course. Those who tion-prevention programs have saved companies
think that sustainability is only a matter of pollu-
tion control are missing the bigger picture. Even if StvoTt L. Hart is a faculty member in corporate strat-
all the companies in the developed world were to egy and the director of the Corporate Environmental
Management Program at the University of Michigan
achieve zero emissions by the year 2000, the earth Business School in Ann Arbor. His E-mail address is
would still be stressed beyond what biologists re- slhart@umich. edu.

ARTWORK BY BRUCE ROGOVIN 67

 BEYOND GREENING

hillions of dollars. However, few executives realize Despite such intense use of energy and materials,
that environmental opportunities might actually however, levels of pollution are relatively low in
become a major source of revenue growth. Green- the developed economies. Three factors account for
ing has been framed in terms of risk reduction, this seeming paradox: stringent environmental reg-
reenglneering, or cost cutting. Rarely is greening ulations, the greening of industry, and the reloca-
linked to strategy or technology development, and tion of the most polluting activities (such as com-
as a result, most companies fail to recognize oppor- modity processing and heavy manufacturing) to the
tunities of potentially staggering proportions. emerging market economies. Thus to some extent
the greening of the developed world has been at the
expense of the environments in emerging econo-
Worlds in Collision mies. Given the much larger population base in
The achievement of sustainability will mean bil- those countries, their rapid industrialization could
lions of dollars in products, services, and technolo- easily offset the environmental gains made in the
gies that barely exist today. Whereas yesterday's developed economies. Consider, for example, that
businesses were often oblivious to their negative the emerging economies in Asia and Latin America
impact on the environment and today's responsible
businesses strive for zero impact, tomorrow's busi-
nesses must learn to make a positive impact. In- Increasingly, companies
creasingly, companies will be selling solutions to
the world's environmental problems. (and now Eastern Europe and the former Soviet
Envisioning tomorrow's businesses, therefore, re- Union) have added nearly 2 billion people to the
quires a clear understanding of those problems. To market economy over the past 40 years.
move beyond greening to sustainability, we must With economic growth comes urbanization. To-
first unravel a complex set of global interdependen- day one of every three people in the world lives in a
cies. In fact, the global economy is really three dif- city. By 2025, it will be two out of three. Demogra-
ferent, overlapping economies. phers predict that by that year there will be well
The market economy is the familiar world of over 30 megacities with populations exceeding 8
commerce comprising both the developed nations million and more than 500 cities with populations
and the emerging economies.' About a billion peo- exceeding 1 million. Urbanization on this scale
ple-one-sixth of the world's population-live in presents enormous infrastructural and environ-
the developed countries of the market economy. mental challenges.
Those affluent societies account for more than 75% Because industrialization has focused initially on
of the world's energy and resource consumption commodities and heavy manufacturing, cities in
and create the bulk of industrial, toxic, and con- many emerging economies suffer from oppressive
sumer waste. The developed economies thus leave levels of pollution. Acid rain is a growing problem,
large ecological footprints-defined as the amount especially in places where coal combustion is un-
of land required to meet a typical consumer's needs. regulated. The World Bank estimates that by 2010
(See the exhibit "Ecological Footprints.") there will be more than 1 billion motor vehicles in

Ecological Footprints

India
The Netherlands
United States

In the United Slates, it fakes 1 2.2 acres to supply the average person's basic needs; in the Netherlonds, 8 acres; in India, 1 acre, The
Dutch ecological footprint covers 15 times the area of the Netherlands, whereas India's botprint exceeds its area by only about 35%.
Most strikingly, if the entire v^orld lived like North Americons, it v/ould take three planet Earths to support the present world population.
Source. Donelia Meadows, "Our 'Footprints'Are Treading Too Much forf/i,"Charleston (S.C.) Gazette, Apri/ f, 1996.

68 HARVARD BUSINESS REVIEW January-February 1997

 the world. Concentrated in cities, they will double The third economy is nature's economy, which
current levels of energy use, smog precursors, and consists of the natural systems and resourees that
emissions of greenhouse gas. support the market and the survival economies.
The second economy is the sinvival economy: Nonrenewable resources, such as oil, metals, and
the traditional, village-based way of life found in other minerals, are finite. Renewable resources,
the rural parts of most developing countries. It is such as soils and forests, will replenish them-
made up of 3 billion people, mainly Africans, Indi- selves-as long as their use does not exceed critical
ans, and Chinese who are subsistence oriented and thresholds.
meet their basic needs directly from nature. De- Technological innovations have created substi-
mographers generally agree that the world's popula- tutes for many commonly used nonrenewable re-
tion, currently growing by about 90 million people sources; for example, optical fiber now replaces
per year, will roughly double over the next 40 years. copper wire. And in tbe developed economies, de-
The developing nations will account for 90% of mand for some virgin materials may actually di-
that growth, and most of it will occur in the sur- minish in tbe decades ahead because of reuse and
vival economy. recycling, ironically, the greatest threat to sustain-

will sell solutions to the world's environmental problems.

Owing in part to the rapid expansion of the mar- able development today is depletion of the world's
ket economy, existence in tbe survival economy is renewable resources.
becoming increasingly precarious. Extractive in- Forests, soils, water, and fisheries are all being
dustries and infrastructure development have, in pushed beyond their limits by human population
many cases, degraded the ecosystems upon which growth and rapid industrial development. Insuffi-
the survival economy depends. Rural populations cient fresh water may prove to be the most vexing
are driven further into poverty as they compete for problem in the developing world over tbe next
scarce natural resources. Women and children now decade, as agricultural, commercial, and residential
spend on average four to six hours per day searching uses increase. Water tables are being drawn down at
for fuelwood and four to six hours per week drawing an alarming rate, especially in the most heavily
and carrying water. Ironically, those conditions en- populated nations, such as China and India.
courage high fertility rates because, in tbe short Soil is another resource at risk. More than 10%
run, children help the family to garner needed re- of the world's topsoil has heen seriously eroded.
sources. But in the long run, population growth in Available cropland and rangeland are shrinking.
the survival economy only reinforces a vicious cy- Existing crop varieties are no longer responding to
cle of resource depletion and poverty. increased use of fertilizer. As a consequence, per
Short-term survival pressures often force these capita world production of both grain and meat
rapidly growing rural populations into practices peaked and began to decline during the 1980s. Mean-
that cause long-term damage to forests, soil, and while, the world's 18 major oceanic fisheries have
water. When wood becomes scarce, people burn now reached or actually exceeded tbeir maximum
dung for fuel, one of the greatest-and least well- sustainable yields.
known-environmental hazards in the world today. By some estimates, humankind now uses more
Contaminated drinking water is an equally grave than 40% of tbe planet's net primary productivity.
problem. The World Healtb Organization estimates If, as projected, the population doubles over the
that burning dung and drinking contaminated wa- next 40 years, we may outcompete most other ani-
ter together cause 8 million deaths per year. mal species for food, driving many to extinction. In
As it becomes more and more difficult to live off short, human activity now exceeds sustainability
the land, millions of desperate people migrate to on a global scale. (See the exhibit "Major Chal-
already overcrowded cities. In China, for example, lenges to Sustainability."I
an estimated 120 million people now roam from As we approach the twenty-first century, the
city to city, landless and jobless, driven from their interdependence of the three economic spheres is
villages by deforestation, soil erosion, floods, or increasingly evident. In fact, the three economies
droughts. Worldwide, the number of such "envi- have beeome worlds in collision, creating tbe major
ronmental refugees" from the survival economy social and environmental challenges facing the
may be as high as 500 million people, and the figure planet: climate change, pollution, resource deple-
is growing. tion, poverty, and inequality.

HARVARD BUSINESS REVIEW [anuary-February 1997 69

 1Major Challenges to Sustainability
Pollution Depletion Poverty
r
-greenhouse gases 1 -scarcity of materials 1 -urban and minority I
Developed economies -use of toxic materials 1 -insufficient reuse and 1 unemployment I
-contaminated sites 1 recycling I

-industrial emissions 1 -overexploitation of I -migration to cities H

Emerging economies -contaminated water 1 renewable resources I -lack of skilled workers •
-lock of sewage treatment 1 -overuse of water 1 -income inequality I
for irrigation I

-dung and wood burning 1 -deforestation 1 -population growth 1

Survival economies -lack oF sonitation 1 -overgrazing I -low status of women 1
-ecosystem destruction 1 -soil loss I -dislocation I
due to development 1

Consider, for example, that the average Ameri- their terms of trade have hecome less favorable.
can today consumes 17 times more than his or her Their purchasing power declines while their al-
Mexican counterpart (emerging economy) and hun- ready substantial debt load becomes even larger.
dreds of times more than the average Ethiopian The net effect of this dynamic has been the transfer
(survival economy). The levels of material and en- of vast amounts of wealth (estimated at $40 billion
ergy consumption in the United States require large per year since 1983) from developing to developed
quantities of raw materials and commodities, countries, producing a vicious cycle of resource ex-
sourced increasingly from the survival economy ploitation and pollution to service mounting debt.
and produced in emerging economies. Today developing nations have a combined debt of
In the survival economy, massive infrastructure more than $ 1.2 trillion, equal to nearly half of their
development (for example, dams, irrigation proj- collective gross national product.
ects, highways, mining operations, and power gen-
eration projects), often aided by agencies, banks, Strategies for a Sustainable World
and corporations in the developed countries, has
provided access to raw materials. Unfortunately, Nearly three decades ago, environmentalists
such development has often had devastating conse- such as Paul Ehrlich and Barry Commoner made
quences for nature's economy and has tended to this simple but powerful observation about sus-
strengthen existing political and economic elites, tainable development: the total environmental
with little benefit to those in the survival economy. burden (EB| created by human activity is a function

Emerging economies cannot afford to repeat the mistakes

At the same time, infrastructure development of three factors. They are population (P); affluence
projects have contributed to a global glut of raw ma- (A), which is a proxy for consumption; and tech-
terials and hence to a long-term fall in commodity nology (T), which is how wealth is created. The
prices. And as commodity prices have fallen rela- product of these three factors determines the total
tive to the prices of manufactured goods, the cur- environmental burden. It can be expressed as a for-
rencies of developing countries have weakened and mula: EB = P X A X T.

70 HARVARD BUSINESS REVIEW January-February 1997

 BEYOND GREENING

Achieving sustainability will require stabilizing on greening to a more external, strategic focus on
or reducing the environmental hurden. That can be sustainable development. Such a vision is needed
done by decreasing the human population, lower- to guide companies through three stages of environ-
ing the level of affluence (consumption), or chang- mental strategy.
ing fundamentally the technology used to create Stage One: Pollution Prevention. The first step
wealth. The first option, lowering the human popu- for most companies is to make the shift from pollu-
lation, does not appear feasible short of draconian tion control to pollution prevention. Pollution con-
political measures or the occurrence of a major puh- trol means cleaning up waste after it has been cre-
lic-health crisis that causes mass mortality. ated. Pollution prevention focuses on minimizing
The second option, decreasing the level of afflu- or eliminating waste before it is created. Much like
ence, would only make the problem worse, because total quality management, pollution prevention
poverty and population growth go hand in hand: strategies depend on continuous improvement ef-
demographers have long known that birth rates are forts to reduce waste and energy use. This transfor-
inversely correlated with level of education and mation is driven by a compelling logic: pollution
standard of living. Thus stabilizing the human pop- prevention pays. Emerging global standards for en-
ulation will require improving the education and vironmental management systems (ISO 14,000, for
economic standing of the world's poor, particularly example) also have created strong incentives for
women of childhearing age. That can be accom- companies to develop such capabilities.
plished only by creating wealth on a massive scale. Over the past decade, companies have sought to
Indeed, it may be necessary to grow the world econ- avoid colliding with nature's economy (and incur-
omy as much as tenfold just to provide basic ameni- ring the associated added costs) through greening
ties to a population of 8 billion to 10 billion. and prevention strategies. Aeroquip Corporation, a
That leaves the third option: changing the tech- $2.5 billion manufacturer of hoses, fittings, and
nology used to create the goods and services that couplings, saw an opportunity here. Like most in-
constitute the world's wealth. Although population dustrial suppliers, Aeroquip never thought of itself
and consumption may be societal issues, technol- as a provider of environmental solutions. But in
ogy is the business of husiness. 1990, its executives realized that the company's
If economic activity must increase tenfold over products might be especially valuable in meeting
what it is today just to provide the bare essentials to the need to reduce waste and prevent pollution.
a population double its current size, then technolo- Aeroquip has generated a $250 million husiness by
gy will have to improve twentyfold merely to keep focusing its attention on developing products that
the planet at its current levels of environmental reduce emissions. As companies in emerging econ-
burden. Those who believe that ecological disaster omies realize the competitive benefits of using raw
will somehow be averted must also appreciate the materials and resources more productively, busi-
commercial implications of such a belief: over the nesses like Aeroqulp's will continue to grow.
next decade or so, sustainable development will The emerging economies cannot afford to repeat
constitute one of the biggest opportunities in the all the environmental mistakes of Western devel-
history of commerce. opment. With the sustainability imperative in
Nevertheless, as of today few companies have in- mind, BASF, the German chemical giant, is helping
corporated sustainability into their strategic think- to design and build chemical industries in China,
ing. Instead, environmental strategy consists large- India, Indonesia, and Malaysia that are less pollut-
ly of piecemeal projects aimed at controlling or ing than in the past. By colocating facilities that in
preventing pollution. Focusing on sustainability re- the West have been geographically dispersed, BASF
quires putting business strategies to a new test. is able to create industrial ecosystems in which the
Taking the entire planet as the context in which waste from one process becomes the raw material
for another. Colocation solves a problem common
in the West, where recycling waste is often infeasi-
of Western development. ble because transporting it from one site to another
is dangerous and costly.
they do business, companies must ask whether Stage Two: Product Stewardship. Product stew-
they are part of the solution to social and environ- ardship focuses on minimizing not only pollution
mental problems or part of the problem. Only when from manufacturing but also all environmental im-
a company thinks in those terms can it begin to de- pacts associated with the full life cycle of a product.
velop a vision of sustainability-a shaping logic As companies in stage one move closer to zero
that goes beyond today's internal, operational focus emissions, reducing the use of materials and pro-

HARVARD BUSINESS REVIEW |anuary-February 1997 71

 Aracruz Celulose: A S f r a t ^ y for the Survival Economy
"Poverty is one of the world's leading pol- ing operations. Aracniz's forest practices and
luters," notes Erling Lorentzen, founder and its ability to clone seedlings have given the
chairman of Aracruz Celulose. The $2 billion company advantages in both cost and quality.
Brazilian company is the world's largest Aracruz has tackled the problem of poverty
producer of eucalyptus pulp. "You can't ex- head-on. Every year, the company gives away
pect people who don't eat a proper meal to be millions of eucalyptus seedlings to local farm-
concerned about the environment.'" ers. It is a preemptive strategy, aimed at reduc-
From the very start, Aracruz has been built ing the farmers' need to deplete the natural
around a vision of sustainable development. forests for fuel or lumber. Aracruz also has
Lorentzen understood that building a viable a long-term commitment to capability build-
forest-products business in Brazil's impov- ing. In the early years, Aracruz was able to hire
erished and deforested state of Espirito local people for very low wages because of
Santo would require the simultaneous im- tbeir desperate situation. But instead of sim-
provement of nature's economy and the sur- ply exploiting the abundant supply of cheap la-
vival economy. bor, the company embarked on an aggressive
First, to restore nature's economy, the com- social-investment strategy, spending $125
pany took advantage of a tax incentive for tree million to support the creation of hospitals,
planting in the late 1960s and began buying schools, bousing, and a training center for em-
and reforesting cut-over land. By 1992, tbe ployees. In fact, until recently, Aracruz spent
company had acquired over 200,000 hectares more on its social investments than it did on
and planted 130,000 hectares with managed wages (about $1.20 for every $1 in wages).
eucalyptus; the rest was restored as conserva- Since that time, the standard of living has im-
tion land. By reforesting what had become proved dramatically, as has productivity. The
highly degraded land, unsuitable for agricul- company no longer needs to invest so heavily
ture, the company addressed a fundamental in social infrastructure.
environmental problem. At the same time, it
1. Marguerite RigogHosi). "Stewards of the Seventh Genera-
created a first-rate source of fiber for its pulp- lion," Harvard Husinefis School Bulletin, April 19^6, p. S5.

duction of waste requires fundamental changes in new machines. A well-developed infrastructure for
underlying product and process design. taking back leased copiers comhined with a sophis-
Design for environment (DFE), a tool for creating ticated remanufacturing process allows parts and
products that are easier to recover, reuse, or recycle, components to be reconditioned, tested, and then
is becoming increasingly important. With DFE, all reassembled into "new" machines. Xerox esti-
the effects that a product could have on the envi- mates that ARM savings in raw materials, labor,
ronment are examined during its design phase. Cra- and waste disposal in 1995 alone were in the $300-
dle-to-grave analysis begins and ends outside the
boundaries of a company's operations-it includes
a full assessment of all inputs to the product and Without a framework for
examines how customers use and dispose of it.
DFE thus captures a broad range of external per- million to $400-million range. In taking recycling
spectives by including technical staff, environmen- to this level, Xerox has reconccptualized its busi-
tal experts, end customers, and even community ness. By redefining the product-in-use as part of tbe
representatives in the process. Dow Chemical Com- company's asset base, Xerox has discovered a way
pany has pioneered the use of a hoard-level advisory to add value and lower costs. It can continually pro-
panel of environmental experts and external repre- vide its lease customers with the latest product up-
sentatives to aid its product-stewardship efforts. grades, giving them state-of-the-art functionality
By reducing materials and energy consumption, with minimal environmental impact.
DFE can he highly profitable. Consider Xerox Cor- Product stev^ardship is thus one way to reduce
poration's Asset Recycle Management (ARM) pro- consumption in the developed economies. It may
gram, which uses leased Xerox copiers as sources of also aid the quest for sustainahility hecause devel-
high-quality, low-cost parts and components for oping nations often try to emulate what they see

72 HARVARD BUSINESS REVIEW lanuary-Ftbruiiry 1997

 BEYOND GREENING

happening in the developed nations. Properly exe- bioengineering of crops rather than the application
cuted, product stewardship also offers the potential of chemical pesticides or fertilizers represents a
for revenue growth through product differentiation. sustainable path to increased agricultural yields.
For example, Dunlop Tire Corporation and Akzo (See "Growth Through Global Sustainability: An
Nobel recently announced a new radial tire that Interview with Monsanto's CEO, Robert B. Sha-
makes use of an aramid fiber belt rather than the piro," by foan Magretta, in this issue of HBR.)
conventional steel belt. The new design makes re- Clean technologies are desperately needed in the
cycling easier because it eliminates the expensive emerging economies of Asia. Urban pollution there
cryogenic crushing required to separate the steel has reaehed oppressive levels. But precisely because
belts from the tire's other materials. Because the manufacturing growth is so high-capital stock
new fiber-belt tire is 30% lighter, it dramatically doubles every six years-there is an unprecedented
improves gas mileage. Moreover, it is a safer tire be- opportunity to replace current product and process
cause it improves the traction control of antilock technologies with new, cleaner ones.
braking systems. Japan's Research Institute for Innovative Tech-
The evolution from pollution prevention to prod- nology for the Earth is one of several new research
uct stewardship is now happening in multinational and technology eonsortia focusing on the develop-
companies such as Dow, DuPont, Monsanto, Xe- ment and commercialization of clean technologies
rox, ABB, Philips, and Sony. For example, as part of for the developing world. Having been provided
a larger sustainability strategy dubbed A Growing with funding and staff by the Japanese government
Partnership with Nature, DuPont's agricultural- and more than 40 corporations, RITE has set forth
products business developed a new type of herbi- an ambitious 100-year plan to create the next gener-
cide that has helped farmers around the world re- ation of power technology, which will eliminate or
duce their annual use of chemicals by more than 45 neutralize greenhouse gas emissions.
million pounds. The new Sulfonylurea herbicides
have also led to a 1-billion-pound reduction in the
amount of chemical waste produced in the manu- Sustainability Vision
facture of agricultural chemicals. These herbicides Pollution prevention, product stewardship, and
are effective at 1 % to 5% of the application rates of clean technology all move a company toward sus-
traditional chemicals, are nontoxic to animals and tainability. But without a framework to give direc-
nontarget species, and biodegrade in the soil, leav- tion to those activities, their impact will dissipate.
ing virtually no residue on crops. Because they re- A vision of sustainability for an industry or a com-
quire so much less material in their manufacture, pany is like a road map to the future, showing the
they are also highly profitable. way products and services must evolve and what
Stage Three: Clean Technology. Companies with new competencies will be needed to get there. Few
their eye on the future can hegin to plan for and companies today have such a road map. Ironically,
invest in tomorrow's technologies. The simple fact chemical companies, regarded only a decade ago as
is that the existing technology base in many in- the worst environmental villains, are among the
dustries is not environmentally sustainable. The few large corporations to have engaged the ehal-
chemical industry, for example, while having made lenge of sustainable development seriously.

environmental activities, their impact will dissipate.

substantial headway over the past decade in pollu- Companies can begin hy taking stock of each com-
tion prevention and product stewardship, is still ponent of what I call their sustainability portfolio.
limited by its dependence on the chlorine mole- (See the exhibit "The Sustainability Portfolio.")
cule. (Many organochlorides are toxic or persistent Is there an overarching vision of sustainability
or bioaccumulative.) As long as the industry relies that gives direction to the company's activities? To
on its historical competencies in chlorine chem- what extent has the company progressed through
istry, it will have trouble making major progress to- the three stages of environmental strategy-from
ward sustainability. pollution prevention to product stewardship to
Monsanto is one company that is consciously de- clean technology?
veloping new competencies. It is shifting the tech- Consider the auto industry. During the 1970s,
nology base for its agriculture business from bulk government regulation of tailpipe emissions forced
chemicals to biotechnology. It is betting that the the industry to focus on pollution control. In the

HARVARD BUSINESS REVIEW [anuary-February 1997 73

 The Sustainability Partfolia

Clean technology Sustainobility vision

Is the environmental performance Does our corporate vision direct

of our products limited by our existing us toward the solution oF social
tomorrov/ competency bose? and environmental problems?

Is there potential to realize Does our vision guide the

major improvements through development of new technologies,
new technology? markets, products, and processes?

Pollution prevention Product stewardship

Where are the most significant What are the implications for product design
waste and emission streams from and development if we assume responsibility
today our current operations? for a product's entire life cycle?

Can we lower costs and risks by Can we add value or lower costs while
eliminating waste at the source or simultaneously reducing the impact
by using it as useful input? of our products?

internal external

This simple diagnostic tool can hetp any company determine Unbalanced portfolios spell trouble: a bottom heavy port-
whether its strategy is consistent with sustainability. First, assess folio suggests a good position today but future vulnerability.
your company's capability in each of the four quadrants by A top-heavy portfolio indicates a vision of sustainability with-
answering the questions in each box. Then rate yourself on the out the operational ot analytical skills needed lo implement it.
following scale for each quadrant: 1 -nonexistent; 2-emerging; A portfolio skewed to the left side of the chart indicotes a
3-established; or 4-institutionalized. preoccupation with handling the environmental challenge
Most companies will be heavily skewed toward the lower left- through internal process improvements and technology-
hand quadrant, reflecting investment in pollution prevention. development initiatives. Finally, a portfolio skewed to the right
However, without investments in future technologies and markets side, although highly open ond public, runs the risk of being
(the upper half of the portfolio), the company's environmental labeled a "greenwash" because the underlying plant operations
strategy will not meet evolving needs. and core technology still cause significant environmental harm.

1980s, the industry began to tackle pollution pre- tion, which ultimately will limit greenhouse gases
vention. Initiatives such as the Corporate Average on a global seale. But early efforts by industry in-
Fuel Efficiency requirement and the Toxic Release cumbents have been either incremental-for exam-
Inventory led auto companies to examine their ple, natural-gas vehicles-or defensive in nature.
product designs and manufaeturing processes in or- Eleetric-vehicle programs, for instance, have been
der to improve fuel economy and lower emissions used to demonstrate the infeasibility of this tech-
from their plants. nology rather than to lead the industry to a funda-
The 1990s are witnessing the first signs of prod- mentally cleaner teehnology.
uct stewardship. In Germany, the 1990 "take-back" Although the auto industry has made progress, it
law required auto manufacturers to take responsi- falls far short of sustainability. For the vast majority
bility for their vehicles at the end of their useful of auto companies, pollution prevention and prod-
lives. Innovators such as BMW have influenced the uct stewardship are the end of the road. Most auto
design of new ears with their design for disassem- executives assume that if they close the loop in
bly efforts. Industry-level consortia such as the both production and design, they will have accom-
Partnership for a New Generation of Vehicles are plished all the necessary environmental objeetives.
driven largely by the product stewardship logic of But step back and try to imagine a sustainable vi-
lowering the environmental impact of automobiles sion for the industry. Growth in the emerging mar-
throughout their life cycle. kets will generate massive transportation needs in
Early attempts to promote clean technology in- the coming decades. Already the rush is on to stake
clude such initiatives as California's zero-emission out positions in China, India, and Latin Ameriea.
vehicle law and the U.N. Climate Change Conven- But what form will this opportunity take?

74 HARVARD BUSINESS REVIEW January-February 1997

 Building Sustainable Business Strategies
Lower material and energy consumption Develop cleon products and technology

\ Developed economies

Market economy

Reduce pollution burdens Emerging economies , Build the skills of the poor
and the dispossessed

Pollution Poverty

Megacities __

Nature's economy Survival economy

w
Depletion

\
Ensure sustainable use of nature's economy Replenish depleted resources Foster village-based business relationships

Consider the potential impact of automobiles on such as China's. Now try to envision a transporta-
China alone, Today there are fewer than 1 million tion infrastructure capable of accommodating so
cars on the road in China. However, with a popula- many cars. How long will it take before gridlock
tion of more than 1 hillion, it would take less than and traffic jams force the auto industry to a halt?
30% market penetration to equal the current size of Sustainability will require new transportation solu-
the U.S. car market (12 million to 15 million units tions for the needs of emerging economies with
sold per year). Ultimately, China might demand 50 huge populations. Will the giants in the auto indus-
million or more units annually. Because China's try he prepared for such radical change, or will they
energy and transportation infrastructures are still leave the field to new ventures that are not encum-
being defined, there is an opportunity to develop a bered by the competencies of the past?
clean technology yielding important environmen- A clear and fully integrated environmental strat-
tal and competitive henefits. egy should not only guide competency develop-
Amory Lovins of the Rocky Mountain Institute ment, it should also shape the company's relation-
has demonstrated the feasibility of building hyper- ship to customers, suppliers, other companies,
cars-wehiclcs that are fully recyclable, 20 times policymakers, and all its stakeholders. Companies
more energy efficient, 100 times cleaner, and can and must change the way customers think by
cheaper than existing cars. These vehicles retain creating preferences for products and services con-
the safety and performance of conventional cars but sistent with sustainahility. Companies must be-
achieve radical simplification through the use of come educators rather than mere marketers of
lightweight, composite materials, fewer parts, vir- products. (See the exhibit "Building Sustainable
tual prototyping, regenerative braking, and very Business Strategies.")
small, hybrid engines. Hyperears, which are more For senior executives, embracing the quest for
akin to computers on wheels than to cars with sustainability may well require a leap of faith.
microchips, may render obsolete most of the com- Some may feel that the risks associated with in-
petencies associated with today's auto manufac- vesting in unstable and unfamiliar markets out-
turing-for example, metal stamping, tool and die weigh the potential benefits. Others will recognize
making, and the internal combustion engine. the power of such a positive mission to galvanize
Assume for a minute that clean technology like people in their organizations.
the hypercar or Mazda's soon-to-he-released hydro- Regardless of their opinions on sustainability,
gen rotary engine can be developed for a market executives will not be able to keep their heads in

HARVARD BUSINESS REVIEW January-February 1997 75

 BEYOND GREENING

the sand for long. Since 1980, foreign direct invest- developing world while simultaneously increasing
ment hy multinational corporations has increased its wealth and standard of living.
from $500 billion to nearly $3 trillion per year. In Like it or not, the responsibility for ensuring
fact, it now exceeds official development-assistance a sustainable world falls largely on the shoulders
aid in developing countries. With free trade on the of the world's enterprises, the economic engines of
rise, the next deeade may see the figure increase by the future. Clearly, public policy innovations (at
another order of magnitude. The challenges pre- both the national and international levels) and
sented by emerging markets in Asia and Latin changes in individual consumption patterns will he
America demand a new way of conceptualizing needed to move toward sustainability. But corpora-
business opportunities. The rapid growth in emerg- tions can and should lead the way, helping to shape
ing economies cannot be sustained in the face of public policy and driving change in consumers' be-
mounting environmental deterioration, poverty, havior. In the final analysis, it makes good husiness
and resource depletion. In the coming decade, com- sense to pursue strategies for a sustainahle world.
panies will be ehallenged to develop clean tech- 1. The terms market economy, survival economy, and nature's economy
nologies and to implement strategies that dras- were suRgesttd to me by Vandana Shiva, Ecology and tbe Politics of Sur-
tically reduce the environmental burden in the vival (New Delhi: United Nations University Press, 1991 ].

Reprint 97105 To order reprints, see the last page of this issue.

The day Wall Street stopped asking its own questions and started asking Broadway's questions.

76 CARTOON BY ED ARNO
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