At the CEF Gala Dinner last night, Núñez was honored for leading Walmart Brazil’s unprecedented efforts to protect the Amazon rainforest as award namesake, the late C.K. Prahalad, was recognized for his thought leadership on sustainability strategy.

More than 200 executives and sustainability industry leaders filled the Samsung Hall at the Asian Art Museum in San Francisco to honor Walmart Brazil and CEO Héctor Núñez with the C.K. Prahalad Award for Global Sustainability Leadership. Members of C.K.’s family, including his wife, daughter, son-in-law and grandson were in attendance at the Corporate Eco Forum’s Gala Dinner to witness the inaugural award to recognize Walmart Brazil’s historic work to preserve the Amazon rainforest.

“Nowadays sustainability is not just mandatory – it is crucial,” said Núñez as he accepted the award on behalf of the 80,000 Walmart Brazil employees who took his vision “from a PowerPoint presentation” to reality.

In June of 2009, Walmart Brazil convened a Sustainability Summit to introduce new mandates across their supply chain to protect the Amazon. At the Summit, Walmart announced historic plans to address some of the thorniest environmental and social problems in the world. Walmart Brazil will now ensure that its supply chain uses: no companies that employ slave labor; no soybeans sourced from illegally deforested areas; and no beef sourced from any newly cleared Amazonian land. The new mandates also call for a 70 percent reduction in phosphates in detergent and a 50 percent reduction in plastic bags by 2013.

Walmart Brazil recruited the presidents of the Brazilian operations of twenty major suppliers, including Cargill, Johnson & Johnson, Kimberly Clark, The Coca-Cola Company, 3M, Diageo, P&G, and Sara Lee, to sign an agreement on-stage at the Summit to meet these goals. The Brazilian Minister of the Environment and the head of Greenpeace in Brazil both spoke at the Summit and congratulated Walmart Brazil for its aggressive leadership.

“The planet works as a physical and biological system – and the heart of that system is the Amazon,” said Tom Lovejoy, the world-renowned conservation biologist who presented Núñez with the award. Lovejoy applauded Walmart Brazil’s work to curb the two biggest drivers of Amazonian deforestation -  soy and cattle operations. Deforestation accounts for approximately 70 percent  of Brazil’s greenhouse gas emissions.

“By taking extraordinary action to protect the Amazon, Walmart Brazil and Héctor Núñez have carved out a place in history as both pioneering environmentalists and savvy business strategists,” said MR Rangaswami, founder of the Corporate Eco Forum. “We created the Prahalad Award to honor the companies and individuals who best demonstrate that sustainability is the key driver of innovation. We can and must do a better job of integrating the principles of sustainability into core business strategy and Walmart Brazil, under Héctor Núñez’s leadership, has proven that it is not only possible, it is also smart business.”

Núñez closed his remarks by urging his fellow corporate executives to drive progress because government solutions will take a long time to enact.

“We need to act fast to prevent greater impact from climate change… Walmart is not looking back… We’re looking forward to a better future.”

Launching a major sustainability initiative is a long, challenging and – ultimately – rewarding process. Elizabeth Sturcken provides details on how EDF worked with Walmart to develop its green supply chain framework.

Corporate sustainability work is not for the faint of heart – nor the attention-span challenged. Elizabeth Sturcken understands. After 13 years at Environmental Defense Fund (EDF), Sturcken has experienced the highs, lows and protracted timelines involved in creating environmentally-responsible programs at major corporations.

Called “America’s most economically literate green campaigners” by The Economist, EDF doesn’t take money from the companies with whom it works, but expects them to work together to create real and meaningful environmental results.

For the past several years, EDF worked closely with Walmart to develop its Greenhouse Gas Supplier Innovation Program. The groundbreaking program aims to eliminate 20 million metric tons of greenhouse gases from the lifecycle of Walmart’s products and its 100,000-member supply chain by helping suppliers reduce carbon emissions, costs, and – eventually - the environmental impact of their products when they reach consumers.

Greening the supply chain represents a significant opportunity for many major corporations. In fact, Ford, Kaiser Permanente and Procter & Gamble have debuted their own sustainable supply chain initiatives in the past month.

To learn more about the behind-the-scenes workings involved in developing a sustainable supplier program, The EcoInnovator spoke with Sturcken, Managing Director of Corporate Partnerships at EDF, about the unique value of the supply chain framework, the challenges and surprises of collaborating with Walmart, and her advice for other companies interested in executing a major sustainability initiative.

The Eco Innovator: What is significant about Walmart’s supply chain program?

Elizabeth Sturcken: The Greenhouse Gas Supplier Innovation Program is something only Walmart can do. It is innovative and bold because if you look at the big picture of Walmart’s world, and where the company has the biggest potential for positive impact, it is in its supply chain. It isn’t that Walmart doesn’t need to focus on reducing its own operational impact, but there is a limit to what they can do in terms of becoming more efficient with their fleet and stores. The supply chain represents a really big opportunity.

The program is also quite smart in its approach. It prioritizes the biggest pollution reduction opportunities first. We used a model to estimate which Walmart products have the most carbon embedded in their lifecycles. After identifying the footprint of each product, we overlaid sales data to prioritize the product categories that would deliver the biggest emission-reduction impact.

It is impressive that when a small packaging change on a single product is combined with “Walmart scale,” it is possible to have a really big impact on the global market because the change ripples out to other retailers and similarly packaged products.

The supply chain program represents a giant step forward. It will make a significant impact on carbon reduction today without having to wait for legislative support. When the current U.S. presidential administration took office, I thought green policies would rise to the top of the national agenda. In fact, I believed that in many ways, corporate efforts would become less important.

But as the U.S. continues to struggle with climate policy, I realize that corporate initiatives are needed more than ever. We need to act now if we hope to achieve the emission reductions scientists say are needed to avoid catastrophic climate change.

The good news is that Walmart’s supplier program is just one example of how there are many opportunities for companies to enact sustainable initiatives in a “business positive” way. The changes enacted will not just benefit the environment; they are good for the company, its suppliers and its customers. Clearly, the program delivers wins up and down the value chain.

The Eco-I: How did the EDF become involved in Walmart’s climate strategy?

ES: The EDF and Walmart began to talk about sustainability in 2005.  We emphasized the need for Walmart to make a climate commitment and we stressed our willingness to be a part of the process and help shape the company’s climate goals.

Contrary to what its size might indicate, Walmart is a very fast moving company. We quickly realized that EDF needed to be in the room when environmental discussions took place. We then placed two EDF staff on the ground in Bentonville, Arkansas - EDF is still the only environmental group with an office in the city - so that we could be at the table when decisions were made.

The Eco-I: What was the genesis of the supplier program?

ES: In October 2005, CEO Lee Scott made a speech on 21st Century leadership. In the address, Scott laid out three aspirational goals for Walmart:  Zero waste, self-sustainable products and 100 percent renewable energy. The task then became to find the interim goals and action plans that would bring these goals to reality.

However, conspicuously absent from Walmart’s list of targets was an overall climate goal. The company had created goals for its fleet and operations, but not an overall carbon reduction commitment.  (Earlier this month, Walmart issued its most recent sustainability report which detailed the company’s sustainability progress on a variety of fronts.)

Walmart’s challenge – one shared by most companies – was that as the company grew, its carbon footprint grew. Few executives want to do anything to hinder growth. So it became critical to understand how to decouple growth from carbon emissions.

It was around this time that Walmart had an “aha moment.” The company realized that whatever it did internally to reduce emissions was going to have a miniscule impact when compared to what it could do by engaging its supply chain. Walmart realized that if it shared all the learning it had absorbed while optimizing its own operations, it could help its suppliers greatly reduce their carbon footprints.

From that moment, we began a long – and, at times, frustrating – road to try to find a goal and program that was environmentally rigorous and meaningful while also meeting the business criteria that Walmart needed to meet.

The Eco-I: How were the goals and specifics of the program determined?

ES: We’ve found that when setting goals, it is important to hit the middle ground between “aggressive” and “achievable. Purely aspirational goals are challenging because they are defeating if you never reach them. Companies need goals that spur the best innovation, and inspire collective energy to focus on achieving them.

Once a clear goal is established, companies and industries will rally around it – even when regulatory action is involved. Consider the sulphur dioxide caps enacted as part of the 1990 Clean Air Act to reduce acid rain. The U.S. met its reduction goal three years ahead of schedule and did so at only one-fourth of the estimated compliance cost. As a result, acid rain levels have declined 65 percent since 1976.

EDF and Walmart worked together in an iterative way to set the company’s climate goal: eliminating 20 million metric tons of greenhouse gas emissions from its supply chain by 2015.  In this case, the specific number that we decided upon is less meaningful than the shift in perspective we are aiming to achieve. (In my opinion, the supply chain program will deliver a reduction beyond 20 million metric tons.)

The process to arrive at the actual number involved a series of forecasts. We first looked at what the projection for emissions would be over the next five years, broken out by Scope 1 emissions – Walmart’s own direct emissions – and Scope 2 emissions – the emissions that mainly result from purchased electricity and heat. The 20 million metric ton-figure essentially equates to 1.5 times the forecasted difference between the level to which emissions are projected to grow, and what they are currently. It is a very highly theoretical process – a solid educated guess. Our goal was to arrive at a figure that inspired action and pushed innovative thinking while not sounding so large as to seem unattainable.

Arriving at a specific goal is not a one-size-fits-all process. For manufacturers, operations are important. For tech companies, customer usage matters. For Walmart, the supply chain was the critical factor. The key is for each company to find its biggest lever and use it to have the greatest impact.

The Eco-I: What was the most surprising part of working through the creation and launch of this program?

ES: Risk aversion tends to be the ultimate driving force in big companies. Staying safe is where these enterprises are usually most comfortable. However, I am continually surprised at how open Walmart is to engage on environmental issues. The executives are great at thinking creatively and out-of-the-box. I give the company a lot of credit for its innovative brain trust.

That said, the Walmart emissions goal was four years in the making. There were a few times we made it to the five-yard line but couldn’t get the touchdown. We worked with one CEO, then another, to convince each one that enacting this program was the right thing to do. The process takes time.

In the end, Walmart’s sustainability team deserves congratulations for its steadfast efforts to push the initiative along. Any CEF member company will know the amount of time and effort it takes to achieve a commitment like this – everyone from executive management to mid-level management to the rank-and-file employees must be on board. And that’s when the internal champions at Walmart have to do all the hard work–EDF can only watch from the sidelines and cheer them on.

The Eco-I: What has been the reaction of suppliers to the announcement?

ES: The reaction has very positive. The suppliers want clarity about what they’re working towards. Walmart is being clear about what the program means for suppliers, how it will impact their businesses and what exactly is being asked of each supplier. There is a lot of back-and-forth communication anytime a major new program is enacted – and this is no exception. It can’t just be Walmart telling its partners, “Thou shalt do this…”

The company is also offering a variety of other support mechanisms and communication resources for its suppliers.  EDF recently hosted a webinar to help suppliers fill out the sustainability assessment. Seminars have been conducted for suppliers to discuss the initiatives. EDF is pulling together “Solutions Labs,” including one in Fayetteville, Arkansas, for suppliers to come together for a day and discuss the most pressing issues on the program so that Walmart can get visibility into the biggest challenges suppliers face when they try to comply with the goals.  The University of Arkansas’ Applied Sustainability Center has a whole series of events designed to address supply chain issues. And Walmart has an internal program to assist international suppliers comply with the changes as well.

The Eco-I: What advice do you have for other companies looking to establish major sustainability programs?

ES: My best piece of advice is this one:  Keep a relentless focus on the end goal and work to align internal champions to get there.

It is critical that senior executives and the sustainability team can continue to infuse energy and creative thought into the goal-making process in order to keep it moving forward. There needs to be consistent internal energy to make a commitment like this – and then even more energy to go on and achieve it.

The good news is that the hard work is well worth the effort. At EDF, we’ve seen these commitments pay off time and again. At times, an external NGO like EDF can help maintain the necessary momentum. Few large organizations have the in-depth domain expertise and manpower needed to drive major sustainability initiatives; a third-party expert can help fill that void.

An outside partner often brings in new ideas that open executives’ eyes to what is possible. I think the best thing EDF does is put “green glasses” on a company’s business which allow its leaders to see opportunities they’ve never seen before.

The Eco-I: How does it feel to have played a role in the development of the program?

ES: I recently attended a conference where Patagonia co-founder Yvon Chouinard delivered a thought-provoking observation: “Leading an examined life in business is a pain in the ass.”

After thirteen years at EDF, I know where he’s coming from. If a company really wants to engage in impactful environmental efforts, it ain’t easy. But there are an abundance of business opportunities than can deliver environmental benefits if companies can overcome the organizational barriers, financial barriers and general lack of creative thinking which hinders progress in most enterprises.

In the end, success comes from being the best company possible – an organization truly focused on innovation, quality and creativity. It is clear that Walmart has a commitment to be that kind of company. And though Chouinard is right about the pain of the process, I can attest to the wonderful feeling that accompanies the launch of such an important and potentially impactful program. We’ve got a long way still to go but I’m extremely proud.

The rules of sustainability success are changing. Here’s what companies need to know now in order to remain leaders in the next era.

For the past several years “sustainability” has been a buzz word that has entered the business lexicon.  And like “strategy,” sustainability means many things to many people. But most business executives recognize now that sustainability is more than a fad.  They understand that sustainability unites cost savings, revenue, innovation, customer demand, employee values and stakeholder requirements, while benefiting the planet and society at the same time.  They also understand that over the next five years sustainability will become increasingly more important to business.

Today, many companies are looking at their peers for cues about what constitutes sound sustainability strategy today. However, this copycat strategy is dangerously short-sighted.

The “winning” sustainability strategy of tomorrow will be much different than that of today. Remember the beginning of the Internet era in the mid-1990s? At first, any company with a Web site looked like they were able to compete online. Benchmarking the competition meant counting clicks and pursuing revenues. But executives who rested on their laurels with the slick online marketing brochures and a basic e-commerce offering on their website received a rude awakening in just a few short years.    The real winners, like Apple and Amazon.com, leveraged the Internet to deploy entirely new business models and reshaped the future of business.

The next phase of evolution in sustainability strategy will be as disruptive as that of the Internet. New benchmarks will separate the winners and losers.  We see five sustainability developments that will shape the concept of winning at sustainability tomorrow:

1. Danger – an ever-increasing severity of critical environmental challenges surrounding  greenhouse gases, water, biodiversity, toxics, population  and so on
2. Awareness – rising concerns from consumers and citizens (number of citizen organizations now exceeds 1 million worldwide)
3. Transparency – a radical increase in the magnitude of efforts to understand, measure, and create accountability for impacts including the Walmart-initiated index and the Good Guide
4. Collaboration –greater efforts to collectively address key challenges by government, advocates, academia, business, and more
5. Economics – monetary value being applied to things not valued today, including carbon, waste, and  ecosystem markets

What do these developments mean for your company?  If your company is essentially managing risk and receiving positive PR for things you would have done anyway or only deploying initiatives that are easy to achieve and provide high visibility, then you are “in the pack” today.  Tomorrow, however, you will most likely be scrambling to meet higher standards at higher cost.

What will tomorrow’s winners look like?  We believe they will exhibit the following six characteristics:

1. Sustainability is fully integrated into the business and the culture
2. Collaborating with value chain partners and key societal stakeholders to change the “rules of the game”—what is “good for the world” becomes “good for business”
3. Shifting supply chain and supplier strategies from a “compliance mentality” to a “race to the top”
4. Sustainability will be built into all products/services - not just niche ones – in order to create less waste and more value
5. Engaging in green innovation with a wide range of external partners
6. Scaling “next practice” innovations across operations and the value chain by developing wholly new business models, many of which replace products with services and solve the end-of-life dilemma

Is your company on the path to winning tomorrow?  To find out ask yourself how well you are doing in building the four critical competencies needed for sustainability success tomorrow:

1. Leadership Mindset – Are your executives working to drive both financial AND sustainability results?
2. Sustainability Intelligence – Are you learning to understand key sustainability trends and what they mean to your stakeholders?
3. Engaged Innovation – Are you learning to create win-win green solutions in partnership with stakeholders?
4. Scaling Solutions – Are you beginning to maximize the impact of sustainable innovations across your business system?

If your company is one of a small number of winners today that is making money through sustainability and preparing for the future, then you are well positioned to prosper tomorrow where you will anticipate and exceed tomorrow’s higher standards AND create business value in the next era.

If you are not on the path to winning tomorrow then increasingly you are setting yourself up for a rude awakening.  As happened during the Internet era, there will be winners and losers in the coming age of sustainability. Those who position themselves today stand to reap enormous benefits tomorrow - and can achieve a competitive advantage along the way.

The untimely passing of one of corporate sustainability’s most important advocates challenges us to bring his innovation-driven sustainability strategies to reality.

The field of corporate sustainability lost one of its greatest thinkers last week: Dr. C.K. Prahalad.

“C.K.” - as we all knew him - had only recently turned his laser-sharp focus to sustainability strategy. After decades of interaction with Global 500 CEOs as one of the world’s most well-respected management strategists,  C.K.’s passing brought an abrupt end to what would surely have been a successful mission to innovatively expand sustainability agendas in boardrooms and executive suites across the globe.

I was extremely fortunate to know C.K. as a CEF advisor, a mentor and a friend. His ability to distill an incredibly complex issue into a clear opportunity was unmatched.

As we began work on our Harvard Business Review article, “Why Sustainability is Now the Key Driver of Innovation,” C.K. reviewed our months of research, our 85-page report, and our countless emails. His response? “I think we have a five-step process here.” And with that, we were able to translate our in-depth insight into a practical roadmap for eco-innovation.

I believe C.K. expanded the field of corporate sustainability in three significant ways.

1) Moving Green from Defense to Offense – C.K. was a key voice in reframing the sustainability discussion, changing the focus from one of a cost center to one of a business opportunity. By presenting green business innovation as a means to achieve a competitive advantage, C.K. captured the attention of senior executives and convinced them of the business value in sustainability initiatives.

The HBR article received critical acclaim and moved the “green” conversation to the top of many C-level agendas for the first time. As the economy emerged from the recession, C.K.’s thought leadership gave companies a new strategic vision and a roadmap to follow to achieve it.

2) Speaking the Language of Business – Not only did C.K. have extensive personal connections with top executives at the world’s largest companies, he spoke their language. He did not communicate green benefits in the language of environmental and social advocates. Instead, he talked “bottom line,” business value,” “competitive advantage” and “innovation” – terms that made business sense to his audience.  C.K. broke through the communication barrier via countless meetings, books, speaking engagements and as a professor.

At the CEF’s annual meetings in 2008 and 2009, C.K. moderated panels of renowned CEOs (access video of C.K.’s 2008 CEF panel here). Whether onstage or offstage at the forum, C.K. focused on the critical issues and  pushed himself, his panelists and everyone he met to think differently, to develop new strategies and creative solutions, and to push forward a more sustainable business agenda.

3) Underscoring the Importance of the “S” in “CSR” – C.K.’s 2004 book The Fortune at the Bottom of the Pyramid attempted to convince big business that third-world populations could be a lucrative market. His truly global perspective allowed C.K. to put a different lens on sustainability in developing countries.

At the CEF Annual Meeting in 2008, C.K. said, “Most discussions in the U.S. about eco-issues and innovation tend to be very U.S.-centric. When we talk about China or India, it is mostly accusing these countries of polluting the Earth instead of saying ‘Maybe there is a solution there – and not just a problem.’”

C.K. reminded us that the large populations in the developing world will play a key role in the future success of any sustainability efforts. His global influence and presence helped advance the discussion of green business in all corners of the world – which in turn will improve the lives of all people.

As a tribute to C.K., I hope we all will continue to work on these three areas in our day-to-day efforts to make business more sustainable - but C.K. would not be happy if we stopped there. He would want us to approach situations with open minds, and to develop innovative “next practices” to help sustainability initiatives create new business value.

To honor C.K.’s work, the Corporate Eco Forum is creating the “C.K. Prahalad Global Sustainability Leadership Award.”  We will present the award at the CEF annual meeting to the company and CEO who best represents what C.K. embodied.

We are thankful for C.K.’s invaluable contributions to the field of sustainability and to the CEF. He will be greatly missed.

We welcome your comments on C.K. Prahalad’s innovative contributions to business strategy in the box below. A special Web site will soon be established for those wishing to share their thoughts or to send condolences to his family. The Web address has yet to be determined, but please send e-mails to Prahalad.family@gmail.com.

For those unable to attend the viewings, the Prahalad family will organize a memorial service in Ann Arbor in the coming weeks. The timing and venue will be announced shortly. Also, in lieu of flowers, the family will soon announce a list of charitable foundations to which donations can be made.

e3bank is making a big bet that sustainability will be the key to its business success. Everything about this new company—from infrastructure to product and service offerings—is being built on the triple bottom line foundation of people, planet and prosperity. CEF Deputy Chair and Director of Research Jeff Hittner spoke with the President and CEO, Frank Baldassarre, and the Chairman, Sandy Wiggins, to discuss their new venture.

Jeff Hittner:
Can you two contrast the business model of e3bank with that of a traditional bank?

Sandy Wiggins:
e3bank is being built from the bottom up on the basis of the triple bottom line. All of our products and services need to deliver triple bottom line returns. For example, we will use building performance as part of our underwriting criteria because we believe that LEED buildings pose a lower risk from an investment standpoint. This means customers can receive certain financial benefits, such as lower interest rates, for this type of construction.

Jeff Hittner:
A lot of people may wonder why you chose to open a bank. Why not focus on clean-tech and sustainable development through venture capital, for example?

Frank Baldassarre:
If you’re a clean tech investor, maybe you invest in 2 or 3 companies over the course of a year – which is great – but with e3bank, we can do 500 projects a month. We’ve analyzed the deployment of a lot of clean tech and energy efficiency solutions and what we found holding them back was scale. Local businesses and individuals couldn’t purchase and install solar panels without financial help. Of course, we want to be profitable too. That’s a big part of our business. We see these investments as an opportunity to be financially successful.

Sandy Wiggins:
We also view the decisions the bank will make around the deployment of capital as the biggest opportunity we have to make an impact. The carbon footprint of our bank-specific operations is only a small piece of how we can benefit communities.

Jeff Hittner:
So will you turn down loan requests if the customer has yet to incorporate a broader triple bottom line perspective?

Sandy Wiggins:
The short answer is maybe, but we want to be as inclusive as possible. We think of this in terms of positive reinforcement – as a way to encourage our customers to be more sustainable. We have the capabilities to help them address the triple bottom line in their ventures.

Jeff Hittner:
We’ve seen a lot of businesses struggle to find a model in which to successfully engage their customers on the topic of sustainability. Can you describe some of your intended efforts?

Frank Baldassarre
One of our objectives is to be as inclusive as possible when trying to move our customers up the ladder of awareness of the triple bottom line. We will engage our customers on what they need to do to make their business models more sustainable.

Sandy Wiggins:
Yes, initially people will self-select themselves to be customers. But we also want to create change around the flow of capital and how people make decisions with regard to their money. Every business interaction becomes a point of education for customers. Our soon-to-be-launched website will enable customers to check their spending instantly – similar to Quicken or MS Money – but unique in that it will provide triple bottom line analysis. Heating bills, for example, will include a comparison of monthly cost with that of a house of similar square footage, in a similar region of the country, and advise customers if they are outside the norm of expenditures. We’ll provide details on energy audits and steps for improving energy efficiency.

Frank Baldassarre:
And we’ll provide ‘impact statements’ for our customers on their triple bottom line performance as part of their regular correspondence from e3bank.

Jeff Hittner:
You are very focused on providing sustainable insights into the purchasing habits of customers. Will that transparency extend to your investments as well?

Sandy Wiggins:
Definitely. We will be very focused on being transparent with our customers when it comes to where their savings are being reinvested. Customers will be able to click on a Google map to see where e3bank is deploying their assets. We want them to see the investments we’re making in the community – with their money.

Jeff Hittner:
What’s one of the biggest challenges you are focused on – besides addressing the rapid regulatory changes in your industry?

Sandy Wiggins:
We’re working hard on developing a simple set of metrics that are relevant and tangible to our customers. For example, tracking carbon mitigation or avoidance over total loan assets, or tracking living wage impact of our loans on the community. We want our customers to see the impacts of their business and those of e3bank.

Jeff Hittner:
Do you feel confident that you will find enough green business opportunities locally to support your financing model—or do you expect to take in a number of requests from outside the local area?

Sandy Wiggins:
Actually the local business opportunity is staggering. The requests we’re already fielding give us confidence that this will not be a problem at all.

Jeff Hittner:
Sandy, Frank, thank you for your time today. We look forward to the launch of e3bank in the coming months.

Jeff Hittner shares his insights on current trends in sustainability and what’s in store for him and CEF going forward.

Q:
Welcome to CEF, Jeff. What convinced you to make the jump from leading IBM Global Business Services’ Corporate Social Responsibility Consulting practice?

Jeff Hittner:
My five years at IBM gave me an invaluable education in business sustainability issues—both the opportunities and the challenges for companies. And I’ve had the opportunity to work with many organizations that have earned the right to be called sustainability leaders. I saw CEF as a unique chance for me to apply what I’ve learned to help speed up the process of corporate sustainability innovation and help scale successful business solutions to environmental challenges.

Q:
What are some of the things you’re most looking forward to working on?

Jeff Hittner:
As is the case with politics, sustainability is bringing together some very strange bedfellows—sometimes even the staunchest of competitors—to drive corporate sustainability success. I am excited to play an honest broker role in helping to facilitate these kinds of opportunities and relationships.

Q:
Can you talk a little bit more about these collaborations?

Jeff Hittner:
Absolutely. There are many great examples out there already. The Beverage Industry Environmental Roundtable—a collaboration of more than a dozen companies including Coca-Cola, Diageo, Nestle, Anheuser-Busch InBev and PepsiCo—are working together to collect and share data and best practices related to water conservation and resource protection. They’ve established a common framework for information exchange on water stewardship, reduction and reuse.

In the electronics industry, the Electronics Industry Citizenship Coalition (EICC) was created so that companies like IBM, HP and others could create a consistent mechanism to exchange resources and programs that improve labor practices. It used to be that a contract manufacturer in China or South America would find it incredibly inefficient to comply with varying codes of conduct coming from several different customers at the same time. Now, assessment tools, educational resources, and audit results are available to all association members, who span four tiers of the supply chain. This degree of openness enables competitors to actually harmonize their approaches to creating an ethical supply chain.

Q:
In your previous role at IBM, what were some of the biggest areas of focus for your clients in sustainability?

Jeff Hittner:
Many companies are finding that their biggest sustainability impacts and issues come from their supply chain—so they’re focusing in increasingly sophisticated ways on specific areas of their supply chains. Client interest in sustainable procurement strategy and logistics strategy has grown, as has a focus on weeding out environmental inefficiencies in the manufacturing process.

We’ve also seen a lot of new interest from the public sector side. Major cities and small towns alike are looking at their financial situation and asking themselves “Can we qualify for stimulus money to create green efficiencies in our community?” They see an opportunity to reduce operating costs – while simultaneously winning grants for improving their municipalities.

Q:
And is there a role for business to play here?

Jeff Hittner:
Definitely. Plenty of companies are developing services to support these city sustainability goals. An early focus has been on reducing the energy and carbon footprint of buildings, but it’s much broader as well. There’s a lot of inefficiencies because systems and infrastructure are outdated and don’t communicate with each other. Companies that can integrate data on everything from vehicle maintenance, to water and energy supply, traffic, office HVAC and lighting systems, etc can find better ways to reduce costs, environmental impact and improve performance.

Q:
And did you find gaps in any areas that you expected businesses to have a better handle on?

Jeff Hittner:
Without a doubt, the biggest surprise was the lack of deep knowledge around customers’ sustainability expectations—a major gap in several companies. We had done several surveys of business executives globally and found that in 2008 only 24% understood their customers’ sustainability concerns well. This past year that number increased to 35%.

Q:
So businesses are moving forward with new products and services around sustainability and they don’t know what’s important to their customers on this topic?

Jeff Hittner:
Precisely. It’s similar to those Wild West, early days of the Internet. Companies would call up to request consulting services for help developing a corporate website. We’d ask them “Do you know what your customers want from you on the web?” The resounding answer would be “No, we just know we want a website, and fast!”

Q:
So sustainability is still in the Wild West stage then?

Jeff Hittner:
I would say corporate sustainability is still in a momentum building stage. There are definitely corporations and leaders that have been focused on it for decades. For example, IBM has had an environmental policy in place since 1971 and Japan’s oldest corporations date back nearly 1500 years thanks to a cultural ethos that always considered harmony with society and the environment essential to strategy.

But if you look at the issue of standards, for example, there’s still a lot of confusion and competition. A survey last year by the Carbon Disclosure Project identified 34 different ways to calculate carbon emissions among the Financial Times 500 companies. You’ve got “direct trade” and “fair trade,” the Forest Stewardship Council and the Sustainable Forest Initiative, standards that focus only on product use versus those that cover product lifecycle, and so on.

And in terms of sustainability data collection and information flows, we’re seeing just the tip of the iceberg in terms of what’s needed. More companies are realizing that to make optimal, strategic business decisions that incorporate sustainability they’ll need better data from operations, suppliers, business partners, customers, even external non-profit organizations and natural eco-systems themselves.

Q:
Are we seeing progress in this area of data collection?

Jeff Hittner:
New tools and services are also fast emerging to help collect information. Digitized sensors can gather and transmit information about real-world conditions instantaneously. A company called Pachube, for example, lets organizations freely share and monitor real-time environmental data across a global network of shared sensors. Look at where this is heading… with sensors being installed on buses and buildings to measure pollution. In Paris, a prototype watch is being worn by citizens to transmit anonymous ozone and noise pollution through their cell phones with data being shown freely on maps on the web.

Q:
Getting back to CEF, how do you see the organization’s mission evolving going forward?

Jeff Hittner:
In the short term, the focus is on creating our most successful, high caliber annual meeting yet. But as for the mission, I don’t think that’s going to change too dramatically. We are driven 100% by our members and their needs. We want to continue to focus on bringing them together in an environment where they feel comfortable sharing their concerns, their successes and their frustrations. Where new ideas and innovations are incubated. Where new relationships and collaborations are forged. I think in the future you’re going to see us develop several more avenues to facilitate exchanges between the members.

Q:
Thank you, Jeff.

Innovation plays a key role in the success  of all company initiatives - including environmental stewardship.

“I believe in being an innovator” – Walt Disney  

The passing of Roy E. Disney in December 2009 led me to thinking about the legacy of his uncle, Walt Disney. Walter Elias Disney (along with his brother) formed what ultimately became the Walt Disney Company, which created the first animated short film with a synchronized soundtrack of music, dialogue and sound effects in 1928’s “Steamboat Willie,” produced the first full-length animated feature, “Snow White and the Seven Dwarfs,” created a multiplane camera used in such films as “Pinocchio,” “Fantasia” and “Peter Pan,” re-conceived theme park design in Disneyland, and developed audio-animatronics with the “Great Moments with Mr. Lincoln” attraction at the 1964 New York World’s Fair, among other innovative, imaginative creations. So, it’s clear that he did believe in being an innovator.

But, what is innovation? Merriam-Webster defines innovation as “the introduction of something new” or “a new idea, method, or device.” We can also use another Walt Disney quote to illustrate innovation: “I do not like to repeat successes; I like to go on to other things.”

Both the definition and the quote are pretty broad in scope, which is probably why innovation is such a powerful force in enduring. It is also necessary in all aspects of a business – product development, operations, customer service, to name a few.

Innovation is also important in environmental stewardship or sustainability. That is why it is one of the four building blocks for Practical Environmentalism. In fact, there was an excellent article in the September 2009 edition of the Harvard Business Review, entitled “Why Sustainability Is Now the Key Driver of Innovation,” by Ram Nidumolu, C.K. Prahalad, and M.R. Rangaswami. I am pleased that they highlighted some of FedEx’s environmental innovations, including efficiency programs, the FedEx Office Print Online service and our FedEx Solutions consulting services. However, these are only examples that the authors used to recognize the value environmental stewardship can play, rather than simply being a cost to the organization. A key takeaway is that innovation is necessary - critical, in fact.

So, it’s certain to me that innovation is a powerful ingredient at enduring or sustaining in business, including environmental stewardship. It is also powerful in general since everyone can innovate. In fact, it’s most effective when team members in an organization look for opportunities to innovate and better those areas that they oversee and know best.

Think about it – Walt Disney didn’t create the innovations listed above. He visualized, challenged, questioned and, ultimately, empowered his team to create and perfect them. I agree with Walt Disney’s two quotes above. Here’s one from him with which I disagree, however: “I only hope that we don’t lose sight of one thing - that it was all started by a mouse.” The company’s success wasn’t started by a mouse, but by the innovative spirit of Walt Disney and his team in creating Mickey Mouse and all the other innovations they unveiled. We can all learn something by that.

Happy New Year. Here’s to new beginnings…through innovation.

An excerpt from a new book underscores the impact that pricing carbon will have on business operations and management strategy.

Within the next decade, $1 trillion (with a “t”) in carbon emission-reduction costs will hit our economy. The first edition of The Post-Carbon Economy prepares you to survive and thrive when these staggering costs hit your organization.

The primary assertion of The Post-Carbon Economy is that by putting a firm price on a ton of CO2 emissions, the economics of virtually every product and service changes, along with your ability to compete. For example, our back-of-the-envelope calculation shows that at the arbitrary price of $50 per ton of CO2e, the producer cost of a bottle of $6.00 retail-priced liquid detergent jumps by about 12 cents. That may not seem like much to you. But when the producer cost for the bottle is $2.00, that’s a 6 percent hike in production costs. Not trivial.

Right now we do not know what price the U.S. government will set on a ton of CO2 emissions. But we can make certain cost assumptions based on strong research. It is a fact that energy expenses in most manufacturing and service industries run about 2 percent of total costs. Production costs for manufacturers rise by between 1.0 percent and 2.5 percent for each incremental per-ton charge of $10. In some cases, that effectively doubles the cost of the company’s energy. For service businesses, the total cost increases are less, 0.5 percent to 1.0 percent. Yet there are some wild exceptions, including cement makers, who suffer a steep 13 percent increase for each $10/ton. We do know that the U.S. government’s proposed cap-and-trade programs will involve free allowances of some portion of companies’ carbon caps. Resources for the Future calculations show that free allowances of about 15 percent of a firm’s emissions from fossil fuel and electricity use will be sufficient to avoid adverse impacts on shareholder value.

Our argument in The Post-Carbon Economy hinges on four interrelated observations. First, when carbon emissions costs are priced by the U.S. government, putting them on par with capital and energy and labor costs, the economics of our businesses and lives are changed forever, and our economy goes post-carbon.

Second, your ability to compete in the Post-Carbon Economy will largely hinge on how carbon efficient you are, since one way or another, these new carbon emission costs will undoubtedly enter your business as well as that of your competitors here and abroad.

Third, your best hope to find your way to carbon efficiency is to switch from a traditional allocation-based costing regime to activity-based costing with a focus on carbon-what we call “Activity Based Carbon Costing” or ABCC.

And fourth, since you already manage your business by processes, the best way for you to manage to compete on carbon efficiency is by managing each of your seven major business processes most carbon efficiently.

Here is the Post-Carbon Economy in one sentence: Once carbon is priced, your carbon efficiency will determine your competitiveness, ABCC will be your secret weapon, and a business process orientation will keep you managing to your optimal carbon competitive advantage.

There are 7 key business areas that forever change once carbon emissions are priced.
1. Corporate Facilities & Data Centers
2. Finance & Accounting
3. Human Resources
4. Customer-Facing Functions: Sales, Marketing, Distribution & Service
5. Product Design, Research & Development
6. Manufacturing Including Supply Chain
7. Energy Procurement & Generation

Click here to read details about each business process, and visit www.postcarboneconomybook.com to find out how to contribute your  company’s case studies to the second edition of The Post Carbon Economy.

This article is an excerpt from The Post Carbon Economy by Amit Chatterjee, CEO and founder of Hara Software,  and Jay Whitehead, president and publisher of CRO Magazine.

A new CEF research report provides a comprehensive guide to the best resources for demonstrating green business value to internal skeptics.

In today’s challenging economy, executives face more pressure than ever to sharpen their business cases for eco-related initiatives. CFOs and others who control the purse strings want hard, dollars-and-cents justifications, whether for existing programs or proposed new spending.

For many “low-hanging fruit” energy-efficiency projects that promise fast payback and big ROI—such as certain types of lighting or HVAC retrofits—it’s relatively easy to crunch the numbers that will lead to a green light. But what about cases where the bottom-line benefits are less obvious, and the skeptical CFO demands “proof”? How, for example, do you calculate the financial benefit of phasing out a chemical that governments may not ban for years to come—if ever? How do you put a number on the ROI of an employee eco-training effort that could create a more innovative culture? How do you estimate the worth of a brand-enhancing leadership play, such as being the first company in one’s industry to pledge carbon neutrality?

A new CEF report, “Show Me the Money,” arms executives with the tools to help better show green business value to other decision makers within their organizations, whether advocating for discrete projects, multi-project initiatives, capital investments, changes in process/product design or product mix, eco-friendly purchasing or green supply chain initiatives. Topics include:

• Overcoming shortcomings in traditional accounting and financial analysis
• Linking green factors to cost and sales drivers
• Identifying and choosing key metrics
• Translating eco-related factors into dollars and cents for inclusion in ROI and cost-benefit analyses
• Using non-financial techniques to quantify costs & benefits
• ROI success stories

The heart of “Show Me the Money” is a comprehensive table detailing resources to help you monetize green costs and benefits. Resources in four categories are identified:

• General guidance on environmental management accounting and total cost assessment
• Models for ROI analysis and project evaluation
• Monetizing risk
• Monetizing value of eco to brand

Below is an excerpt featuring one of the report’s recommended resources, HDR Inc.’s “Sustainable ROI Model”—a methodology to monetize all potential internal and external sustainability-related costs and benefits for ROI analysis and project evaluation.

HDR, Inc.’s Sustainability ROI (SROI) Model
HDR, Inc., a large international architectural, engineering and consulting organization, developed the SROI model to measure the financial value of social, environmental and economic impacts of projects or programs aimed at the sustainability triple bottom line. The SROI model helps both public and private sector decision makers evaluate projects competing for limited funding. Its approach draws heavily on stakeholder input, which lends credibility to the controversial process of assigning monetary values and assessing probability associated with key variables.

The example above shows how a standard financial ROI valuation would not reflect full impacts and benefits. The difference between the values shown for the financial ROI (the blue curve) and the sustainable ROI (the gray curve) is the value of “green.”

The SROI approach consists of the following steps:
1. Identify all potential cash benefits using life cycle costing, then calculate a financial return on investment (FROI).
2. Identify all potential non-cash benefits to a company and external benefits to society, using structure and logic maps to reveal all variables.
3. Quantify inputs and assign a monetary value to each, using the best-available third-party research, contingent valuation and other means.
4. Assess statistical probability of various outcomes and assign a probability distribution for each variable.
5. Validate assumptions with stakeholder groups and build consensus.
6. Calculate the ROI for a range of possible alternatives, using a Monte Carlo simulation to account for the various values and variables.

For more information about HDR, Inc. and this model, contact John F. Williams, SVP, HDR, Inc., at john.williams@hdrinc.com or visit www.hdrinc.com

For a copy of the full CEF report, “Show Me the Money,” including details on additional models and tools for demonstrating the business value of sustainability initiatives, projects and investments, email CEF Founder M.R. Rangaswami at mr@corporateecoforum.com.

With the U.N. climate summit in Copenhagen just weeks away, executives should consider the meeting’s possible outcomes and their implications for global businesses.

As world leaders announced at the recent APEC Forum that Copenhagen would be scaled down to a “political binding” agreement, it was at one level a very pragmatic acknowledgement that little has been resolved to move forward with the original agenda while leaving open when and if key issues will be resolved.

One key stumbling block has been when the U.S. would finally set its own emission targets. The Senate ended speculation about passing climate legislation this year and are looking at early next year for floor debate, which postpones any U.S. emission target to be ready for Copenhagen in early December.

Other countries, such as China and many developing nations, have said repeatedly that without a U.S. target, they were not going to negotiate meaningfully. As importantly, behind the scenes, questions about emission targets and financing for developing countries still haven’t been resolved. One piece of good news, at least politically, is that the U.S. and China have put forth new bilateral announcements in the last week about collaboration on energy efficiency, renewable energy, shale gas, cleaner coal, electric vehicles and clean energy research efforts.

Still, if the intent of Copenhagen was to create a comprehensive global agreement toward moving the world to a low-carbon economy, the current retrenchment leaves potentially even more questions and uncertainties for companies.

One of the best tools to think about and understand uncertainties and possible outcomes is scenario planning. Created by Royal Dutch Shell in early 1970s, scenario planning is now widely used by companies to help develop corporate strategies, create new innovation, and increasingly environmental strategies. As an early practitioner since 1991, I have used scenario planning for environmental issues with companies such as PG&E and Nissan, with the Clinton Administration to create the nation’s first sustainable 1996 National Energy Plan, and most recently, while leading Morgan Stanley’s global environmental efforts, I used it extensively with senior management and business units to identify key corporate risks and new environmental business opportunities.

There are at least four key areas that need to be resolved before an agreement can be reached beyond Copenhagen’s initial political agreement.

First, what will be developed country emission reduction targets? Europe has agreed to a 20% reduction in emissions by 2020 (and higher to 30% if a global agreement is eventually reached) and a limit of two degrees Celsius globally. The U.S. Senate is debating whether to agree for a 20% reduction in the current Kerry-Boxer bill or scale back toward the House’s 17% target. Given the Senate delay, it is possible that  various new versions of a Senate bill will emerge by early next year.

Another issue is financing for the many developing countries to make agreed-upon reductions and have sufficient technology transfers to meet a global agreement.

A third issue is developing country commitments, not just China and India, but all developing countries to meet a comprehensive treaty parameters. Finally, many legal analysts worry over the shape of such a massive treaty.

So, what might be possible scenarios for beyond Copenhagen and implications for business? There are at least four to think hard about for your business. A surprise outcome in Copenhagen and the follow-up meeting next year in Mexico City would be a comprehensive binding global agreement, including targets for all countries, a two degree global goal, and agreement to sort out details in advance of a completion date, say, 2012-2013. For companies, this would set in motion a very complex set of international variables and questions around broader competitiveness and cost issues, customers, jobs and emission goals far beyond the current Senate debate.

A second scenario would be a protracted delay future, in which participants come back repeatedly over the next four years and make incremental improvements, such financing details and country commitments, and eventually end in a comprehensive framework by 2012-2013.

This outcome would pose at least two concerns, among many, for companies.  It will be tempting for most companies to simply ignore, even forget, that UN negotiations are still going on. But if a comprehensive framework agreement emerges and sets up future obligations and requirements, it will be important to pay attention to the details and analyze if it affects you in significant ways and start preparing early. The worst case is that you suddenly find yourself in 2011 realizing you actually need two to three more years to get up to speed to effectively compete with key global competitors. Secondly, domestic country low carbon policies and efforts, such as Congress finally passing climate legislation in 2010, will likely dominate your attention, including any bilateral agreements we’re now seeing between the U.S. and China. But the danger is that an eventual global agreement may trump some domestic-focused business decisions in the interim, which may prove costly and difficult to reverse.

A third scenario may seem like a surprise to some, but consider how fast climate science and global changes are happening. Arctic sea ice is melting faster than scientists have calculated to date. In Asia, this is the second consecutive low snowfall year for the Himalayas, which provide water for nearly 1.6 billion people. Increasing weather volatility, such as a trend of unusually high temperatures and extreme rain patterns in the U.S., is surprising to many scientists. What is often not acknowledged by policymakers is that the world’s climate and eco-systems are non-linear systems, with complex feedback loops and interactions, while international negotiations typically proceed in a linear, cause-effect fashion. Given recent scientific evidence and more rapid climate-related feedbacks, it would not be too surprising to see a third scenario that has climate events – whether more significant weather volatility or massive sea ice melts – drive international negotiators back toward completing a comprehensive global agreement.

For companies, this is an outcome in which you have difficulty planning for, especially given the complexity of manufacturing sites and locations, supply chains, customers and most highly networked companies. But, not thinking about potential disruptions and what they might be for your specific company, would be a serious strategic error – even if this outcome doesn’t occur. From my past experience, just taking the time to think about what climate disruptions might happen to your company can often yield unexpected new insights and opportunities.

Finally, a last scenario to think about is a world in which delays never seem to end. A political agreement is signed in Copenhagen, in which all agree to a two degree global goal and a future date to complete negotiations – but, future meetings fail to provide a comprehensive agreement until some unknown point in time beyond 2012 when countries realize that it’s imperative to have a truly global agreement to reduce emissions. For companies, this is more of where we are today, with the focus still on the Senate climate bill deliberations and worry over possible EPA regulatory threat under the Clean Air Act if the Senate delays. However, you’re still left with the dilemma of global emissions continuing to rise, different country-by-country regulatory standards emerging, and the prospect of ever increasing future costs to comply with an eventual agreement.

As we now adjust to a post-Copenhagen world, even more uncertainties abound for most companies. There may even be a few surprises. Some countries, for example, may make some shocking large emission reduction numbers or energy efficiency announcements in coming months. The number and types of bilateral deals between major countries, beyond the recent U.S. and China announcements, may divert attention. But no matter what outcome unfolds, scenario planning can help you to be more prepared – and less surprised – in refining your environmental strategies while helping the world move toward a low carbon future.
Jim Butcher, former head of Morgan Stanley’s global environmental efforts, now leads his own consulting firm, Entegra, and can be reached at butcher@entegraconsulting.com and 505-466-6895.