The Right Green Metrics — And the Wrong Ones

Who’s greener: a computer manufacturer with revenues of $61 billion planting a tree for every computer sold, or the world’s largest retailer with revenues of $380 billion demanding environmental transparency and performance improvements from all of its suppliers? Although it’s tough to compare “greenness” across industries, to us, the answer is clear. One company is decreasing its carbon footprint — undoubtedly a worthy effort — while the other is influencing its entire supply chain to do the same, integrating green into multiple aspects of its business, and fostering innovation across the marketplace. This second approach — with its greater impact and lasting effects — should be the model for all green businesses today.

But according to Newsweek and their recent Green Ranking of America’s Biggest Companies, the answer is different. Dell is Newsweek‘s second greenest company while Wal-Mart is fifty-ninth. What’s going on here?

Ultimately it comes down to how we define “green.” And getting that right is critical. We need to make sure that companies compete around the right metrics — metrics that will lead us to a vibrant, greener economy. Newsweek‘s Green Ranking — done in collaboration with several environmental research groups — takes a thorough approach to quantify the environmental impact of companies’ operations. Few have done this in the past as comprehensively, and the group deserves credit for the endeavor.

The Newsweek list, however, defines “green” largely in terms of a company’s efforts to reduce its impact (e.g., buying green power, recycling, building greener facilities, etc.). We believe it’s time to move beyond this approach and begin defining “green” by how well a company is aligning sustainability with its core business by solving society’s environmental challenges and creating shareholder value while doing so.

The Newsweek evaluation of each company breaks down into three sub-scores: environmental impact (e.g., how much waste, pollution, runoff, and toxins it produces), green policies and performance (e.g., what systems are in place to continuously reduce its impact), and reputation (e.g., how well it communicates its initiatives). This methodology centers on measuring who is doing less bad, when we really need to focus on who is creating more sustainable value in the market.

We see three factors that can help identify the companies that have the greatest potential to create value by improving environmental quality and performance:

1. Innovation: We need to move beyond the 1990s definition of “green = impact reduction” and understand that true sustainability will come from companies developing solutions that move us towards a more prosperous, low-carbon economy — from smart grid and renewable energy to cleaner mobility and water reuse programs. As an example, under its ecomagination initiative, GE invested over $1.4 billion in cleaner technology research and development and generated $17 billion in revenues in 2008 from ecomagination offerings. For Newsweek, which focused on its internal operational impact, GE is far from being a top green company (Newsweek ranked them 82nd), but their analysis does not tell the full story about GE and many other companies that use the lens of sustainability to innovate and therefore change the business world as a whole.
2. Integration: We’ve worked with many of the companies ranked by Newsweek and can say that in our experience, the most long-lived and effective green strategies are those that are integrated with the core objectives of an organization. Tree-planting programs tend to be suspended when the media buzz dies down and budgets get pressured. But product development efforts, new revenue opportunities, and business efficiency programs are tactics that stick because they create real business value. Organizationally speaking, sustainability resources should not be deployed in cost-center silos, but rather be fully integrated into R&D, operations, supply chain, marketing, sales, and HR departments.
3. Influence: It’s one thing to green your own operations, but it’s ultimately more powerful to collaborate with your suppliers and customers to advance green across your business. By developing home energy measurement dashboards and piloting programs where people can compare their energy use with their neighborhood average, Google (Newsweek‘s #79) is trying to influence fundamental consumer behaviors. To test the project, the tech giant has partnered with eight utilities, reaching over 10 million people and sending a clear signal across the industry.

Newsweek and their Green Rankings partners deserve credit for taking a hard look at the environmental impact of companies, advancing the dialogue in this space, and inviting companies to compete around green. But we believe it’s even more important that companies compete around the factors that will create long term, sustainable value (in all senses of the word “sustainable”). Rankings like this will only be effective at driving true sustainability when they measure a company’s ability to innovate, integrate, and influence — not just their ability to reduce, reuse and recycle.

Nicholas Eisenberger is the Managing Principal at GreenOrder, an LRN Company. GreenOrder is a strategy and management consulting firm that has helped leading companies turn sustainability into business value since 2000. Mateo Bueno is coordinating the development and launch of the EcoStrategy Alliance, a GreenOrder and LRN solution. The EcoStrategy Alliance is an enterprise-wide platform providing access to leading sustainability tools, experts, and peer-to-peer collaboration.