Business Savvy

Making Room on the Shelves for a New Generation of Greener Goods

The American supermarket has always offered a virtual cornucopia of goods, but never before has the selection been quite so eclectic, or so green. Scan the shelves today and find toothpaste that contains no saccharin, preservatives or dyes and comes in 100 percent recycled paperboard packaging; vegetable-based, biodegradable, chlorine-free laundry detergent; a colorful array of organic yogurts and ice cream that comes in unbleached paper pints. Flip through a catalog for flashlights and radios that generate their own electricity, or fleeces made from the soda bottles you may have recycled on your very own curb. Pick up the phone to call Grandma, and your long distance company automatically donates money to a worthy nonprofit.

© Tom Eckerle

Only 30 years ago, “green business” was a sleepy backwater, presided over by relatively moribund firms that catered to a small cult of “health fanatics.” The products themselves were poorly marketed, expensive, and often ineffective in use. But the new generation of companies—including Tom’s of Maine, Seventh Generation, Stonyfield Farms, Ben & Jerry’s, Real Goods, Patagonia and Working Assets—was smarter than that. They aimed their products at mainstream consumers, and went head-to-head in quality with established supermarket brands. In time, they were able to compete in price as well, breaking down one of the last consumer resistance barriers. The result has been incredible growth of a category that barely existed 30 years ago. This is now a $7.9 billion industry, with a large and devoted consumer base.

The bewildering array of exhibitors that gather each year for the “Eco-Expos” on either coast are proof-positive of this retail phenomenon. The Expo-West, held in Anaheim, California this past March, boasted over 2,400 booths showcasing natural products from organic textiles to pet shampoos, and drew 30,000 attendees. “People come thinking it’ll be a cottage industry,” says Susan Benanati, vice president of marketing for New Hope Natural Media, which organizes the event. “And they get blown away.”

The Novelty of It All

The sheer novelty of the new products has helped secure their place in the mainstream marketplace. Once there, the results have been impressive. Stonyfield Farms, the nation’s fastest-growing yogurt company, is now number five in the country, according to Food Processing. But CEO Gary Hirshberg recalls a time when, fresh from milking the cows, he would literally kick the manure off his boots and walk into meetings with retailers. “We found our way onto the shelves with a combination of chutzpah and naivete,” says Hirshberg, still somewhat amazed. “The reason we got there is that they saw we were offering something different, a little curious and even weird to them. They didn’t buy into our politics or even care.”

But the popularity of such “curious” products is sweeping the politics along, to the great good fortune of local communities and the environment. Stonyfield, for instance, awards grants to dairy farmers to promote sustainable agriculture, prints environmental messages on yogurt lids, and donates 10 percent of profits to efforts like organic farming associations and environmental radio. Stonyfield also began the daunting task of reducing its contribution to global warming, and is now offsetting 2,000 tons of carbon dioxide, 100 percent of its emissions, with reforestation projects.

Now a printed guide, Stonyfield’s Carbon Cookbook is distributed to help other businesses make similar environmental choices. The White Dog Cafe in Philadelphia, Pennsylvania is the first restaurant in the Chefs Collaborative, a growing coalition that encourages restaurant owners to buy directly from local farmers, to use it to measure and offset its carbon emissions as well. The Cookbook is one more proactive tool for owner Judy Wicks, who already buys alternative power, ensuring that 44 percent of the cafe’s electricity comes directly from windmills. Restaurants, she feels, are an especially effective business medium for reaching outside the choir of established activists to deliver an environmental message.

“We like to say we use good food to lure innocent customers into social activism,” Wicks half jokes. Besides great locally and organically grown meals, the cafe serves up eco-tours, which this year will take customers into the countryside with a regional planner to examine the effects of urban sprawl; an annual Farmer Sunday Supper, each course of which is dedicated to a local farmer who discusses issues that affect the farm; and table talks, which feature speakers on issues from biotechnology to globalization. “By being outspoken about what we believe in, we develop a community of like-minded people who share our values,” says Wicks.

And that community is making its presence known. “Our customers don’t just like our ice cream—they like what our company stands for. They like how doing business with us makes them feel,” write Ben Cohen and Jerry Greenfield in Ben & Jerry’s Double Dip, a written testament to the popularity, and profitability, of socially responsible business. “Our experience is that you don’t have to sacrifice social involvement on the altar of maximized profits. One builds on the other.” The concept of being a values-led business has grown from an outlandish dream for idealistic entrepreneurs to a reality whose roots are cemented firmly in the marketplace.

From Market Niche to Mainstream

This retail phenomenon is perhaps nowhere so obvious as in natural food stores, once an anomaly on the retail landscape, but now within a short drive of most Americans, and doing $1 million in business. They’re also dealing in much more than just granola. In 1999 alone, according to SPINS data, environmentally friendly paper products like toilet paper, paper towels and coffee filters experienced tremendous growth in natural stores, jumping 20 percent in sales. Likewise, personal care items like feminine products and baby diapers leapt 26 percent and household cleaners, near 30 percent.

Once content to let customers swing by the natural food store down the street to pick up alternative items, supermarkets have since realized that people began buying their household staples there, too. The result is the invasion of natural products to mainstream grocery aisles, a concerted effort from retailers to lure wayward shoppers back. “People who buy natural products are no longer a handful of consumers committed to environmental ideals,” says Laurie Demerritt, vice president of marketing for the Hartman Group. “That dedicated group of individuals is diffusing into the marketplace.”

Last year, a Hartman survey of 26,000 consumers revealed that close to a third had purchased organic foods or products in the last three months, 60 percent were open to the idea, and only 10 percent were disinterested. This represents a dramatic change from just two years prior, when 40 percent would not even consider broadening their shopping horizons. Despite the burgeoning interest in natural products, brand loyalty hasn’t necessarily followed suit. Over 80 percent of the organic food buyers surveyed couldn’t name a single brand, while some nam

ed mainstream products like Cheerios.

This response has been eye-opening for environmentalists, who are amazed to learn how far green thinking has penetrated into mainstream shopping, and it’s also meant an open door for new companies trying to work their way in. The recognition will come, assures Demerritt. In the meantime, people continue to put their money for products they see as better for them—and as time passes other attributes will likely become important as well.

Corporate Consciousness

Armed with the proper tools, shoppers are already making this transition apparent. The Council on Economic Priorities’ Shopping for a Better World ranks brand-name products according to social-conscious categories like hiring practices, corporate giving and environmental policy, assuring consumers that their purchase of toothpaste or breakfast cereal is truly reinforcing positive values. The book, which has sold over a million copies since its first printing in 1988, has found its listings translated directly into marketplace behavior. Four out of every five of the book’s readers say it has influenced their choices in the supermarket enough to switch brands.

In turn, companies are realizing that people will pay more for a product they can believe in. According to the 1999 Roper Starch Green Gauge report, people will spend nearly eight percent above and beyond the cost of the item for energy-efficient major appliances, and six percent more for electricity-saving home computers. They will shell out close to another six percent for biodegradable plastic packaging, recycled-paper products and cars that are a third less polluting.

And while it would be foolish not to cash in on the growing consumer consciousness and higher price premiums that frequently go hand-in-hand, environmental improvements often save corporate headquarters money, too. Reducing use of raw materials saved Xerox $45 million in 1998, as more than 72,000 tons of old machines were recycled or refurbished by the company. A recently introduced 97 percent recyclable photocopier not only exceeds all standards for energy efficiency, but is expected to save $1 billion through long-term remanufacturing of reusable parts.

Anheuser-Busch, the world’s largest beer brewing company, is expecting to save 500 million gallons of water and $60 million a year by reducing utility usage. BankAmerica, the largest small business lender in the U.S., saved $7.1 million by reconditioning and reissuing more than 35,000 pieces of equipment, everything from typewriters to ATMs. Perrigo, a leading manufacturer of store brand pharmaceuticals, improved indoor air quality and saved $35,000 a year simply by switching to environmentally benign cleaning products for its facilities.

And renewed corporate commitment to environmentally preferable goods and services has only served to strengthen their growing market. Imagine, for instance, the potential effect on supply when McDonald’s, the world’s largest food retailer with over 24,000 restaurants, spends more than $3 billion on recycled-content products, from playground equipment to tray liners, as it has since 1990. Or when the U.S. federal government, the single largest consumer in the world, mandates that federal agencies identify and purchase products that create less of a burden on the environment, as a 1998 Executive Order requires.

A Chair at the Table

As added incentive, shareholder money is increasingly being funneled toward the companies with the best social and environmental records. Socially responsible investing (SRI) allows people to divert financial support from companies with questionable corporate practices and reward those that act responsibly. According to the Social Investment Forum, more than $2 trillion is invested in the U.S. in a socially responsible manner, up 82 percent from 1997. That’s one dollar of every eight under management in the United States.

Even Greenpeace, famous for dramatic direct-action stunts like scaling buildings to hang banners and blockading whaling vessels with rubber rafts, has taken to the boardroom. In March, the international nonprofit bought 4,400 shares of oil giant Royal Dutch/Shell, and proposed in its annual shareholder meeting that Shell build a solar panel factory capable of producing five million panels a year, enough to equip 250,000 homes with a two-kilowatt system. Greenpeace’s appeal was not to the company’s social conscience, but to its bottom line. A report commissioned by the environmental action group estimates investment in the solar factory would garner a 15 percent return, more than the average profit of Shell’s activity in oil and gas.

“It’s not about whether you own stock A or B, but making stock A or B better companies.” says Patick McVeigh, executive vice president with Trillium Asset Management. Trillium not only screens for the good and bad actors in the environmental community, but advocates on the part of its investors, most recently joining in the successful effort to pressure Home Depot over the use of old-growth lumber. “Pulling money is a last resort,” says McVeigh. “If we are invested we feel we have a responsibility to insure they are operating in fashion we’re comfortable with, and will raise our voices if they’re falling short.”

The collective voice of socially responsible investors resulted in 220 shareholder resolutions filed in more than 150 U.S. companies in 1999. Some 54 directly requested environmental improvements, such as the long-term phase out of chlorine-bleached paper, an immediate halt to drilling in the Arctic National Wildlife Refuge, and detailed reports on emissions of greenhouse gases.

Last year, of the more than 175 separate socially screened mutual funds in the U.S., 79 percent included screens for environmental criteria. One of the newest, Portfolio 21, raises the bar even higher by investing money only in those companies that incorporate sustainability into the core of their business practices. A year of research and 1,500 company analyses later, a narrow field of 30 made the rigorous cut. Astropower, which produces solar energy cells that are more efficient and cheaper to run than its competitors; and Sony, which has scored breakthroughs in energy efficiency and plans to make every product environmentally sensitive by the end of 2000, are two which meet its standards.

Hewson Batzell, CEO of Innovest, a New York City investment advisory firm, believes that regardless of the industry sector, the companies with the best environmental performance have the best financial future. “If you’re a nice person it doesn’t matter,” Batzell says, “but you will ultimately be ahead of competitors, and be able to make strategic moves faster.” So far the numbers are proving him right. From 1997 to 1999, the assets from all of the socially responsible investments grew at twice the rate of all assets in the United States.

Taking a Natural Step

“We’re at an interesting place,” says Carsten Henningsen, chairman of Portfolio 21. “It’s a place where ecology and economy come together, where doing what’s right for the planet also becomes a financial advantage.” A fresh focus on product design, energy efficiency, materials consumption and waste management is making it clear

that environmental considerations are more than just green business, they’re good business. Perhaps this is the biggest revolution in business today—the one that’s sweeping established corporations in all industry sectors.

The most wholehearted of these companies follow a philosophy called The Natural Step, developed by Swedish cancer doctor Karl-Henrik Robert in 1989. The Natural Step, which has since become an international movement, offers a framework for incorporating sustainable practices into existing cycles, revolutionizing business from the floor of the board room to the floor of the shop. It acknowledges that there are important economic benefits to be gained by learning to operate in harmony with nature, and significant consequences to hitting her limits.

International furniture-maker IKEA was the first major corporation to adopt The Natural Step 10 years ago. For a $7 billion company with over 40,000 workers and 150 stores in 28 countries, this is no minor goal. And the effects of completely realigning a large corporation with environmental goals (from the common-sense approach of building longer-lasting products with stricter standards and incorporating green principles into store design to training thousands of employees in environmental awareness) is not minor, either. “It is not enough to be friendly toward the environment,” says Anders Moberg, IKEA’s president. “We must adapt to it.”

The principle of adapting to and imitating the cycles of nature has also inspired a shift from flat product sales to a continuous flow of services, focusing on the customer’s needs while inspiring a higher quality and durability of goods. Interface, one of the best examples, has created a carpet that uses 35 percent less material with twice the life span. In a new leasing arrangement, the company owns the carpet but replaces tiles as they wear out, both reducing 97 percent of the resource flow and tripling profits.

Electrolux, Swedish maker of solar-powered lawnmowers and extremely water-efficient home appliances (its dishwasher uses less than four gallons per cycle), has likewise given away 7,000 washing machines to homes on the Swedish island of Gotland. The company instead charges for each load of laundry washed, promoting more efficient behavior, and ultimately conserving water and energy.

The success stories are setting an example none too soon. Every year, another 50 trillion pounds of waste is created by the U.S. alone, less than two percent of which is recycled. Add in wastewater, and the total tops 250 trillion. Every hour 5,000 acres of forest cover disappear and every second, 750 metric tons of topsoil are lost. Over the past century, the surface of the Earth has warmed one degree, aided by the 6.5 billion tons of carbon that are each year converted to a greenhouse gas. And this century, population will once again double, but resources per person will drop by one-half to three-fourths.

Until recently, “these issues were not mere straws but wet hay bales that would break the backs of the whole team of camels,” says Paul Hawken, author of Natural Capitalism.

But Hawken predicts we are on the verge of another industrial revolution, one based on the value of natural resources as well as economic ones. “For every company that has publicly committed to this path, a dozen more are watching and studying,” says Hawken. “Their success, and every move they make toward sustainability, will greatly influence and determine the future of this planet.”

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Unfortunately, not all environmental claims can be taken at face value. Americans are more likely to conduct business with companies that support strong causes like environmental protection, reveals a Cone/Roper report. A majority of 61 percent would like to see those ethics communicated in the companies’ marketing, and so many are putting it there, regardless of their ability to back it up. Earth Day 2000’s “Don’t Be Fooled” report (www.earth-day2000.org) highlights the worst of this past year’s “greenwashers” (see sidebar), companies that make false or misleading environmental claims. The practice has become so well documented in recent years that the term “greenwash” now shows up in the Concise Oxford English Dictionary.

And being a “true blue green” company is no guarantee of success. Three of the most environmentally sound toilet papers have all been “recycled” in recent years, falling victim to low consumer demand. Just as they started to achieve recognition, Ashdun Industries’ CARE products bowed to the marketing clout and instant retail dominance of mainstream competitors like Proctor and Gamble’s Brawny paper towel. Two independent and “green” magazines, Buzzworm and Garbage, also found it too tough to compete. “The readership of all the environmental magazines in the world combined isn’t a fraction of that of TV Guide or People,” says E‘s own publisher, Doug Moss. “While a majority of Americans are self-proclaimed environmentalists, few connect caring for the planet with consumer-driven lifestyles.”

That may soon change. Struggling enterprise may find solace in growing support systems like the Social Venture Network, and its Social Venture Institute, founded by Hirshberg in 1996 to mentor green businesses. They may find solidarity in the membership list of Businesses for Social Responsibility which has more than 1,400 affiliates, including American Express, General Motors, Time Warner and Wal-Mart.

And they may take comfort in the new generation of business leaders, led in part by the student-driven network of business graduate students, Net Impact. By reassessing the traditional career path of corporate leadership, these future CEOs plan to make social values an integral part of the new economy—an economy which, according to Managing Director Daniel O’Connor, “situates business within the context of an evolving humanity, not as an end in itself, but as a means to a better way of life for all.”

JENNIFER BOGO is associate editor of E.