Introduction
For much of American history, business treated the environment as a storehouse of commodities and a repository for waste. When people complained about pollution, corporate defenders argued that environmental degradation was the price of progress. Even after the passage of the nation’s pioneering environmental laws in the early 1970s, most companies grudgingly complied with antipollution requirements while still hoping that concern about the environment would prove a fad. The business community largely supported the effort by President Ronald Reagan to undo the 1970s regulatory system. However, in the late 1980s and early 1990s, some corporate leaders rethought their approach to environmental issues. In 1989, DuPont CEO Edgar Woolard called for a new “corporate environmentalism.” Other executives acknowledged the need to go “beyond compliance.” A few business leaders even wrote manifestos about greening the economy.Footnote 1
Observers noted the shift. Fortune published a cover story about “the new crusade” in 1990—one of many media reports on the corporate environmental awakening. BusinessWeek sponsored a Symposium on the Environment, and The Economist added an environmental editor to its staff. A pioneering analyst of green business, Joel Makower, launched a newsletter devoted to the subject in 1991. Management professors wrote texts about environmental strategy. Publishers brought out specialized books covering everything from green accounting to “how to communicate your company’s environmental commitment.”Footnote 2
The corporate interest in going beyond compliance in the late 1980s and early 1990s was not ephemeral. Although the nation’s environmental politics have alternated between pro- and anti-regulation since the Reagan administration, concern about sustainability has become common in the business community. Now almost every major corporation issues annual sustainability reports. A host of trade organizations focus on sustainability, from the U.S. Green Building Council to the Sustainable Apparel Coalition. Many MBA programs train managers to reduce their environmental footprints. The sustainable-business bookshelf now has hundreds of volumes, and green consulting is booming.Footnote 3
The new thinking led to significant change. In a quest for eco-efficiency, many manufacturers have dramatically reduced how much energy they use and how much waste they produce per unit of output. Some retailers have pressured their suppliers to do the same. Many companies have redesigned their products—and a few have worked to develop more sustainable business models.Footnote 4
Yet the corporate commitment to sustainability only goes so far. Many business leaders still resist efforts to enforce higher standards of environmental protection. Big multinational brands have done more to change their operations than small and medium-sized enterprises. Corporations typically have improved in a few ways while continuing in many other ways to degrade the environment: In the words of one advocate of green capitalism, they have reduced their unsustainability, not fundamentally rethought their approach to business. Indeed, many managers in a recent survey reported feeling “sustainability fatigue,” a phrase that makes clear that sustainability still is not a core corporate mission. Even the heads of the greenest companies acknowledge that they are far from sustainable.Footnote 5
Clearly, something changed in the late 1980s and early 1990s—but just as clearly, those new circumstances were not sufficient to transform business. What drove the rise of corporate concern about sustainability, and why did those drivers fall short? Although journalists began to ponder the greening of business in the 1990s, few scholars have addressed those critical questions.Footnote 6
The foundational study still is management professor Andrew Hoffman’s From Heresy to Dogma, published in 1997 and expanded in 2001. Hoffman used organizational theory to analyze how stakeholders pressed business to improve environmental performance. He also discussed the influence of a variety of forces, from events to policy change. However, Hoffman only considered the oil and chemical industries. Unfortunately, his work also has remained an outlier in the management literature on sustainability, which largely has ignored history.Footnote 7
In contrast, a growing number of historians now are writing about business and the environment, from Christine Rosen to Geoffrey Jones, Ann-Kristin Bergquist, Bartow Elmore, and Hartmut Berghoff, among others. Several case studies explore the environmental commitments of specific firms in the last thirty years. A few overviews also offer important insights, especially the concluding chapters of Jones’s pioneering history of green entrepreneurship from the early nineteenth century to today, Profits and Sustainability. Jones cites six factors to explain the recent corporate concern about sustainability, but he does not explain in detail how those factors changed business strategy in the critical period of the late 1980s and early 1990s. He also omits many important drivers of change. His analysis of the impediments to reform similarly is suggestive but incomplete.Footnote 8
This article is both more wide-ranging and more fine-grained than the work so far. It considers many sectors of the economy, and it focuses on the new incentives in the late 1980s and early 1990s for going beyond compliance. CEOs sometimes had personal reasons for making environmental protection a priority—demanding children, especially—but they still needed to make “the business case.” They had to explain how changing circumstances compelled a rethinking of risk, competitive advantage, market opportunities, and more. That all was a matter of incentives.Footnote 9
Incentives are equally critical in assessing the limits of corporate environmental initiatives. The spurs to reform did not affect all firms equally. The beyond-compliance effort always was restricted to a minority—and it only addressed some problems. Even companies with the most compelling reasons to change ultimately did not have adequate incentive to become truly sustainable.
Because this article takes a macro view, none of the research is archival. Instead, the key sources are reports by the first journalists to specialize in green business, as well as published materials by executives and consultants. Most of those sources have not figured in previous work by historians. Trade books by management scholars also were useful, though that requires explanation. The best guides to sustainable business from the 1990s and 2000s continue to be cited, but their value for historical research is not their strategic insight: They often include miniature case studies based partly on unpublished material, especially interviews, so they can shed light on why corporate thinking changed.
In addition to making a historiographic contribution, this article offers a fresh way of thinking about the challenge of building a sustainable economy. At one extreme, critics of capitalism dismiss all corporate talk of sustainability as “greenwashing,” a way to distract people from the fundamental destructiveness of the system. At the other extreme, the boosters of green business take for granted that sustainability is the inevitable next stage in the evolution of the market. Neither view is historically grounded. For anyone not dogmatically committed to the critic or booster camp, however, a historical analysis of the beyond-compliance movement helps clarify the obstacles to greening capitalism.Footnote 10
The Many Drivers of Reform
The corporate sustainability push was overdetermined, with perhaps a dozen major drivers. Disasters were important—so were changes in the environment itself. Political developments mattered, not just in the United States but globally. Companies acted in the expectation that they would need to meet more demanding standards—and they stuck to their new course even when expected regulations failed to materialize. Like earthquakes, legislation from the 1970s and early 1980s had powerful aftershocks. Environmental activists adopted new strategies. Even a few books were breakthroughs.
Of course, the drivers of change did not come into play all at once. Firms responded to different factors at different times—or not at all. However, the companies that sought to become greener followed similar paths. Executives felt the need to reconsider long-standing assumptions. Often, market forces then reinforced their decision to go beyond compliance.
For many business leaders, the first alarm sounded on December 2, 1984, when the gas methyl isocyanate leaked from a Union Carbide plant into the city of Bhopal, India. Because the leak happened just before midnight, most residents were asleep, and the result was the worst industrial disaster ever. According to Indian officials, more than 2,500 people died and 200,000 were hurt, though others claimed the toll was much higher. The images of the aftermath were sickening: corpses piled up in the streets, hospital beds with people struggling to breathe, mothers cradling blind children. “The air was poisoned,” a Time correspondent wrote, “and the world gasped.”Footnote 11
“Bhopal was the environmental equivalent of Pearl Harbor,” one of the first sustainable-business consultants argued in 1995. “Literally overnight,” another commentator wrote, “it became clear to business executives and the general public that corporate environmental practice had to change.” That commentator exaggerated, because the deeper implications of the disaster took a few years to sink in. Obviously no one wanted to end up like Union Carbide. CEO Warren Anderson was arrested when he flew to India. The company was immediately sued in the United States for $15 billion in damages—a sum significantly more than its assets or annual revenue. The stock plummeted, and Standard & Poor’s warned that Union Carbide bonds were a credit risk. Wall Streeters speculated that the company might be compelled to seek bankruptcy protection. Even if the company survived, its reputation might never recover. Bhopal also cast a pall over the chemical industry as a whole. Because Union Carbide operated a methyl isocyanate plant in Institute, West Virginia, citizens and government officials demanded reassurance that American facilities were safe. However, the concern went beyond the risk of horrific accidents. Media reports tied the Bhopal calamity to the slow but sinister disasters of hazardous-waste dumps and industrial pollution. Was the United States doing enough to prevent long-term harm from environmental contamination?Footnote 12
That question led to action. In 1986, Congress required chemical-plant owners to disclose what they produced so that nearby communities could prepare emergency response plans. The right-to-know law also mandated that all manufacturers—not just chemical companies—report annually on their toxic emissions. In the hope of preempting additional regulations, the Chemical Manufacturers Association launched the Responsible Care initiative in 1989: Members promised to uphold a set of safety and environmental principles, though companies decided for themselves how to fulfill their promise. Responsible Care soon became a model for environmental self-regulation programs in other industries.Footnote 13
The requirement that manufacturers make a public accounting every year of their emissions was a particularly strong kick in the pants. Because many companies had no idea how much pollution they produced, the Toxic Release Inventory (TRI) results often were shocking, both in absolute terms and in comparison with competitors. Many CEOs were embarrassed. Monsanto’s Richard Mahoney told his staff that the company’s first TRI numbers were appalling: “They’re not acceptable to me and they won’t be acceptable to the public.” Mahoney then committed to reducing air emissions to 10 percent of 1987 levels by 1992. Other executives made similar pledges. Companies with poor records often endured public shaming. Corporate watchdogs and environmental organizations used the TRI data to compile annual rankings of the nation’s worst polluters, and those rankings received a lot of publicity. AT&T CEO Bob Allen confessed to shareholders that making two worst-polluter lists was “like turning on the TV and seeing your next door neighbor profiled on ‘America’s Most Wanted.’” By 1993, however, AT&T topped Fortune’s first list of environmental leaders.Footnote 14
The 1989 Exxon Valdez oil spill in Prince William Sound, Alaska, also unnerved many business leaders. Although no one died, the accident ultimately cost Exxon billions of dollars. The company paid $300 million to commercial fishers, cannery workers, and small-business owners. That did not spare Exxon from lawsuits seeking huge punitive damages: The federal government sued, and the state, and a host of companies and individuals. Activists urged a consumer boycott. The intangible consequences also were steep. So many people called Exxon to vent their rage that the company had to provide counselors to traumatized telephone operators. In Fortune’s annual survey of the nation’s most admired corporations, Exxon fell from sixth to 110th. For many Americans, the company became the embodiment of corporate greed.Footnote 15
The scale of the financial loss and the intensity of the public reaction both were shocking. The Exxon Valdez spill was neither the biggest in American history nor the first to make horrid headlines. A 1979 accident in Galveston Bay, Texas, spilled more oil. The blowout of a Union Oil platform off the coast of Santa Barbara, California, in 1969 helped to make the environment a powerful cause. However, the responsible companies did not pay nearly as dearly as Exxon. The difference spoke to a profound change in social expectations. Because the development of Alaska’s oil fields came after a pitched battle in the early 1970s over the potential environmental impacts, everyone assumed that companies would be on their best behavior there. However, the lesson transcended the circumstances: Now, apparently, every business needed to meet higher standards.Footnote 16
The rise of concern about climate change in the late 1980s was another shock. Although scientists had begun decades before to explore the potential impact of fossil fuel consumption on the atmosphere, global warming finally became a pressing public issue in 1988. NASA scientist James Hansen made headlines that summer by telling a Senate committee with “99 percent confidence” that the earth was getting hotter. Heat waves and drought seemed to confirm Hansen’s assessment. Soon, most Americans had read or heard about the greenhouse effect. In 1989, journalist Bill McKibben’s The End of Nature and atmospheric scientist Stephen Schneider’s Global Warming: Are We Entering the Greenhouse Century? dramatized the potential for calamity. Time even named the “endangered Earth” Planet of the Year instead of honoring a man or woman. In a feature story about climate change, the magazine argued for a carbon tax to encourage a shift away from fossil fuels.Footnote 17
The shadow of climate change was darker because of the just-concluded controversy over chlorofluorocarbons (CFCs) and the ozone hole. In 1987, after more than a decade of international debate, the Montreal Protocol began a global phaseout of the ozone-destroying chemicals. A few manufacturers already had devised CFC substitutes, especially for use as refrigerants, but the denouement still was disruptive. Some chemical companies lost business. The phaseout also challenged other firms. CFCs were critical solvents in the production of electronics, for example, so companies in that field were abruptly forced to find alternatives. Was the fate of CFCs a portent? The climate change issue similarly created “stroke of the pen risk.” Forceful government action to prevent a climate disaster might suddenly devalue assets, outmode product lines, or compel operational changes. Although new regulation might be years down the road, some executives concluded that they needed to consider how to reduce their greenhouse emissions.Footnote 18
The delayed impact of the 1980 Superfund legislation was another driver of change. The law appeared to apply only to past conduct—it created a mechanism for cleaning up the nation’s worst toxic waste sites, including many that had closed decades before. However, Superfund proved to be a powerful warning about the future. Because companies faced liability for cleanup costs even if they had broken no laws when they disposed of wastes in the past, many managers feared that mere compliance with present-day regulations would not protect them from future liability if social expectations changed again. If they really wanted to minimize risk, they concluded, they needed to find ways to produce less waste.Footnote 19
That conclusion was reinforced by administrative and judicial decisions in 1989 and 1990. First, the Securities and Exchange Commission ruled that companies needed to disclose potential Superfund liabilities, not just actual obligations. That meant that their stock might become less desirable even if they ultimately did not have to pay cleanup costs. Second, a court ruled that banks could be liable for cleanup costs at sites operated by companies they had financed. Banks decided as a result that they needed to do more to evaluate the environmental record of would-be borrowers. For managers, both decisions suggested that they needed to go beyond compliance if they wanted to ensure adequate access to capital in the future.Footnote 20
Together with the Bhopal and Exxon Valdez disasters, the Superfund legislation rewrote insurance rules. In many industries, companies decided that they needed substantially higher liability coverage. However, insurers became wary. Some stopped issuing policies to firms in high-risk industries. Others excluded pollution damages from basic coverage—businesses instead had to get a separate policy for environmental liability. Premiums skyrocketed. A 1988 study found that the increases were as much as elevenfold. Commentators also predicted that insurers soon would require clients to uphold environmental codes of conduct. Beyond the higher costs of getting and keeping coverage, companies had to worry that insurers would deny claims if they judged that companies failed to exercise due diligence. In the late 1980s, disputes between insurers and businesses over environmental damages led to a spate of lawsuits. All of those changes gave businesses new incentive to go beyond regulatory compliance.Footnote 21
By the late 1980s, the 1976 Resource Conservation and Recovery Act (RCRA) also had changed the economics of waste. The legislation outlawed cheap but potentially destructive methods of disposing of hazardous waste—a new regulatory category—and created a costly permitting system. Simply doing the paperwork to comply with the new disposal regulations took time and money. At first, businesses could not avoid the added expense. However, RCRA ultimately gave managers a bottom-line reason to find ways to produce less hazardous waste: The effort might cut costs. Several companies responded by creating eco-efficiency programs, including Chevron’s Save Money and Reduce Toxins (SMART), Dow Chemical’s Waste Reduction Always Pays (WRAP), Westinghouse’s Achievements in Clean Technology (ACT), Texaco’s Wipe Out Waste (WOW), and Allied Signal’s Allied Signal Against Pollution (ASAP).Footnote 22
RCRA similarly pushed businesses to reduce the more mundane types of waste. Because the law set tough standards for landfills, more than two thirds of the nation’s dumps had closed by 1988, and landfill fees rose steeply. In many communities, officials worried about exceeding their landfill capacity. The new challenge of dealing with nonhazardous waste was symbolized by the fate of the Mobro garbage barge in 1987. For six months, the Mobro motored up and down the Atlantic coast and into the Caribbean trying to find a facility willing to accept its load of trash from Long Island, which hoped to conserve landfill space by exporting some of its garbage. The forlorn barge quickly became a subject of black humor. However, the punch line was serious: With landfills regulated by RCRA, communities and companies no longer could expect any form of waste disposal to be easy.Footnote 23
In the political realm, Reagan’s failure to undo the environmental initiatives of the 1970s was itself a powerful prod to reform. That is harder to see now than in 1989. In hindsight, the Reagan years began a decades-long stalemate. Although environmental protection remains a federal responsibility, legislative efforts to address new or unresolved problems have failed again and again. However, in the late 1980s, no one foresaw that Republicans and Democrats would become hopelessly at odds over environmental issues. Just the opposite occurred: Commentators saw the resistance to Reagan’s anti-regulatory agenda as a sign that environmentalism had become a fundamental fact of American life. Many business leaders concluded that they would need to become greener to ensure the continued goodwill of society.Footnote 24
The first years of George Bush’s presidency strengthened that conviction. As a candidate in 1988, Bush had broken with Reagan by vowing to become “the environmental president.” He promised action to halt global warming, which was just becoming a public issue. “Those who think we are powerless to do anything about the greenhouse effect forget the ‘White House effect,’” he proclaimed. Although Bush did not fulfill his promises, his administration initially seemed intent on protecting the environment. Bush chose conservationist William Reilly to head the EPA—and the agency began to act more vigorously to enforce antipollution regulations. In 1990, Bush signed a major revision of the Clean Air Act, which used market mechanisms to address the problem of acid rain.Footnote 25
The twentieth anniversary of Earth Day in 1990 also suggested that the environmental movement had become too powerful to resist. For the first time since 1970, a national organization led the Earth Day effort, and the 1990 celebrations often were huge. More than a million people gathered just in New York City’s Central Park. The media provided “saturation coverage” to the environment before and after the anniversary. Membership in many environmental organizations reached all-time highs in the early 1990s. Earth Day 1990 also sparked enthusiasm for green consumerism. 50 Simple Things You Can Do to Save the Earth, a pamphlet published early in 1990, sold more than five million copies.Footnote 26
For business leaders, Earth Day 1990 offered three compelling reasons to make sustainability a priority. The inaugural Earth Day led to “the environmental decade,” and the twentieth anniversary promised to inspire a new round of legislation. Indeed, the 1990 events argued that environmental concern no longer had boundaries: Unlike in 1970, people celebrated across the globe, not just in the United States. Because Earth Day 1990 focused on what individuals could do, the market for green goods seemed likely to explode. To reach that market, however, companies might need to demonstrate their eco-commitment in every way, not just by offering new products. The enthusiasm of young Earth Day participants also suggested that businesses might need a green reputation to attract talented employees. That mattered especially in the burgeoning high-tech sector, where skilled workers were key assets for firms.Footnote 27
The growing cohesiveness of Europe also challenged American corporations to become greener. Even before the European Community (EC) became the European Union in 1993, many member nations had stricter eco-standards than the United States. At the 1990 BusinessWeek Symposium on the Environment, the EC’s chief environmental officer predicted tougher regulations to come, from a carbon tax to restrictions on packaging. He also predicted the creation of a European environmental agency. A 1991 manifesto about “the environmental revolution” in business argued that other European environmental measures were likely. The EC might even “adopt green tariffs to keep out underpriced goods from more polluting jurisdictions.” Beyond the direct impacts on multinational corporations, European initiatives were important as bellwethers: New regulations there might inspire similar action in the United States.Footnote 28
The articulation of the concept of “sustainable development” was another catalyst for reform. The term became prominent in 1987 with the publication of Our Common Future, a bestselling report by a United Nations commission led by former Norwegian Prime Minister Gro Harlem Brundtland. Before then, business leaders often felt that any discussion of business and the environment would end with the 1970s argument about “the limits to growth.” Our Common Future dramatically reset the terms of debate. Although sustainable development might require new business methods, the way forward no longer seemed to demand a choice between prosperity and environmental protection. “You don’t have to close up shop to save the planet” was the liberating takeaway.Footnote 29
Sustainable development soon became a political program, not just a compelling idea. In 1990, a group of executives from around the world formed the Business Council for Sustainable Development to prepare for the pathbreaking 1992 UN Conference on Environment and Development in Rio de Janeiro, Brazil. They offered a plan of action to ensure that business would play “a vital role in the future health of this planet.” “Eco-efficiency”—a term the council popularized—required “profound changes in the goals and assumptions that drive corporate activities.” Corporations now needed to work with a new set of stakeholders, including community and environmental organizations. In the words of a Dow executive, “the degree to which a company is viewed as being a positive or negative participant in solving sustainability issues will determine, to a very great degree, their long-term business viability.”Footnote 30
Like Our Common Future, Paul Hawken’s Reference Hawken1993 manifesto The Ecology of Commerce was critical in legitimating the idea of sustainability. Although a successful entrepreneur, Hawken blamed business for “destroying the world.” Yet he argued that business could be reinvented, and his radical call to build a sustainable economy became a surprise hit. As one executive wrote, The Ecology of Commerce gave people “permission to be both a capitalist and an environmentalist.” For some readers, indeed, Hawken’s book was life changing. Ray Anderson, head of the carpet manufacturer Interface, described it as “a spear to the chest.” Anderson soon committed his company to climbing “Mount Sustainability.”Footnote 31
Although environmental groups were accustomed to battling corporations in legislative halls and courtrooms, Reagan’s staunch opposition to regulation led some organizations to take direct action against individual companies. In 1987, the Rainforest Action Network (RAN) pressured Burger King into forswearing beef raised on newly deforested lands in Central America. RAN then attacked Mitsubishi as a prime mover of Asian deforestation. To shame DuPont as a polluter and ozone destroyer, Greenpeace activists hung huge protest banners at the company’s headquarters and research lab in 1988. Although the protests received little media coverage, DuPont executives took notice. That same year, the Citizen’s Clearinghouse for Hazardous Waste urged consumers to boycott McDonald’s until the company stopped putting burgers in polystyrene clamshells. Schoolkids collected clamshells to send to McDonald’s headquarters. As one commentator wrote, the group’s “Ronald McToxic” caricature quickly became “an anti-brand name.” The Earth Island Institute went after StarKist by releasing horrifying footage of dolphins caught in tuna fishing nets. StarKist agreed just before Earth Day 1990 to buy only dolphin-safe tuna, and Bumblebee and Chicken of the Sea soon followed. In every case, activists hoped to force industry-wide change by making an example of a high-profile company. Even when the target companies did not meet their demands, the campaigns often convinced executives that they needed to lessen their company’s environmental impact.Footnote 32
The Council for Environmentally Responsible Economies (CERES) took a different approach. Formed in 1989 by activists and socially conscious investors, CERES took inspiration from earlier shareholder campaigns to stop firms from doing business in apartheid South Africa. After the Exxon oil spill, the group sought support for the Valdez Principles, which aimed—in the words of cofounder Joan Bavaria—“to inject the earth ethic into corporate management.” In addition to using resources sustainably, eliminating pollution, and making safe products, the principles committed companies to putting an environmentalist on the board of directors, issuing an annual environmental report, disclosing environmental risks, and paying for damage to the environment. Many religious groups joined the campaign, along with the Sierra Club, Friends of the Earth, and the National Audubon Society. So did the AFL-CIO’s industrial-union department. However, the most notable support came from the pension funds of the city of New York and the state of California. The result was a slew of shareholder resolutions in the early 1990s to compel endorsement of the Valdez Principles. Although the resolutions were unlikely to pass, a few corporations agreed to some of the CERES demands, especially the reporting requirement.Footnote 33
The willingness of two pension funds to support CERES spoke to a growing recognition among institutional investors that a company’s environmental performance could dramatically affect profitability. Liability costs were the most obvious risk. Some investors also saw a poor environmental record as a sign of inefficiency generally: “Pollution spells mismanagement.” In response, a handful of organizations began to gather corporate environmental data. The Investor Responsibility Research Center—a nonprofit funded by university endowments, insurance companies, pension funds, banks, and foundations—established an Environmental Information Service in 1992 to provide subscribers with profiles of the “key environmental challenges and opportunities” of every Standard & Poor’s 500 company. “This is not so much a moral or ethical issue as one that potentially affects the bottom line,” the center’s director argued.Footnote 34
In conjunction with the Toxic Release Inventory, the demands of investors started a transparency revolution. Although only a handful of companies accepted the Valdez Principles, many business leaders understood that they would face increasing pressure to issue environmental reports. To devise templates for voluntary disclosures, nine prominent multinational firms created the Public Environmental Reporting Initiative in 1993. A year later, the consulting firm SustainAbility claimed that more than one hundred companies worldwide were issuing eco-reports, and the number soon went much higher.Footnote 35
Although corporate sustainability initiatives mostly were efforts to avoid potential problems, the rise of green consumerism promised to create opportunities for forward-thinking companies. Observers began to notice the trend in the late 1980s, and the potential became even more striking in the months before and after Earth Day 1990. In addition to the astonishingly successful 50 Simple Things You Can Do to Save the Earth, a raft of green-consumer guides came out. Three eco-magazines debuted: Garbage, Buzzworm, and E. The media hyped the growing number of shoppers interested in environmentally friendly products, from unbleached coffee filters to cat litter made out of recycled newspaper. What once seemed a concern only of hippies now was becoming mainstream. “This is not just a small market niche of people who believe in the ‘greening’ of America,” a Harvard Business School professor argued in the New York Times. “It is becoming a major segment of the consuming public.” Advertising and marketing trade periodicals also touted the new green consumer. So did business consultants. According to one market researcher cited by Adweek, “environmentalism is the megatrend of the ’90s.”Footnote 36
The response was shallow but wide. Because many consumers told pollsters that they would pay more for greener goods, some executives saw a chance to sell at higher margins. Others hoped to win public acclaim—or feared losing market share if they ignored the trend. Market observers estimated that manufacturers made green claims for between 10 and 25 percent of all product introductions in 1990. Supermarket chains tried to lure the environmentally conscious by stocking stuff that used to be found only in “natural food” stores. Retailers highlighted their greenest merchandise. The new goods mostly differed only in one way from the competition: They did not have a problematic ingredient, or they were easier to recycle, or they had less packaging. However, a few companies did more to meet the challenge of sustainability.Footnote 37
Even shallow initiatives sometimes led to deeper change. Marketing executive Rick Fedrizzi’s experience at Carrier is the most remarkable example. A new CEO wanted the company to sell an eco–air conditioner—his model was an “eco-lightbulb” that was only different from standard lightbulbs because of the recycled paper and soy ink used in the packaging. Fedrizzi doubted that would work. What truly would make air conditioners more environmentally friendly? Because Fedrizzi knew little about environmental issues, he needed to bone up, and he found inspiration in Paul Hawken’s The Ecology of Commerce. He met with a handful of outside experts in sustainable design before talking with Carrier engineers about what they could do to improve the company’s products. Then Fedrizzi devised a rating system to highlight the improvements. This air conditioner was made with fewer materials, that one used less energy, this one was quieter. The project gave Fedrizzi the vision, knowledge, and contacts to cofound the U.S. Green Building Council, which developed the Leadership in Energy and Environmental Design program.Footnote 38
As Fedrizzi discovered, some environmentalists had decided by the early 1990s that business was not the enemy, and their willingness to work with corporations made the other drivers of change more powerful. Again and again, well-intentioned executives realized that they did not know enough about sustainability, but where could they find help? Business schools largely had neglected the subject. Green consulting still was in its infancy. That left environmentalists. Although the idea of reaching out to environmental groups was a nonstarter in many boardrooms, some companies made the effort. The resulting conversations did not always prove useful. However, the best working relationships with environmentalists enabled businesses to solve problems or seize opportunities. Fortune even suggested in 1990 that alliances between environmentalists and corporations might be “the wave of the future.”Footnote 39
The game changer was a partnership between McDonald’s and the Environmental Defense Fund (EDF). In 1989, EDF reached out to the company, which still was a target of anti-plastic activists. Because McDonald’s ruled fast food, working with the company might set a precedent for the industry. EDF also hoped to increase the eco-awareness of millions of McDonald’s customers. The company saw a chance finally to end its nagging trash headache. Unlike the Citizen’s Clearinghouse for Hazardous Waste, EDF was committed to finding market solutions for environmental problems. To minimize the potential downsides of collaboration, the two sides formally negotiated the terms of a joint task force that would address all aspects of waste generation and disposal, not just alternatives to the polystyrene clamshell. EDF worked for free—and McDonald’s could not use the organization’s name in ads. After months of deliberation, the task force made forty-two recommendations, some with far-reaching impact. A requirement that the company’s suppliers use corrugated boxes made with 35 percent recycled material, for example, helped create a market for McDonald’s paper waste. Everyone was satisfied. “We went about finding environmental solutions,” a McDonald’s executive said, “and we discovered efficiencies we never saw before.” EDF president Fred Krupp proclaimed that the company had “scored an environmental touchdown.”Footnote 40
The partnership won popular acclaim, though both sides had critics. The decision to replace the clamshell with plastic-lined paper provoked the most ire. A few pro-business commentators attacked McDonald’s for caving to elitist demands. In contrast, some environmentalists argued that EDF had sold out: The new sandwich wrap still was problematic. However, the media mostly saw “a lesson in environmental progress.” Even the hip magazine Rolling Stone heralded “the greening of the golden arches.” In a January 1991 poll, consumers picked McDonald’s as the most environmentally responsible fast-food company.Footnote 41
In addition to consulting with companies, several environmental organizations worked with business leaders to spread the green gospel through publications and conferences. The World Resources Institute (WRI) stood out. It invited a former Fortune 100 CEO, Bruce Smart, to become a senior fellow in 1989. A year later, Smart moderated BusinessWeek’s 1990 symposium on the environment, which WRI cosponsored. Then Smart edited a WRI book about corporate environmentalism. Published in 1992, Beyond Compliance: A New Industry View of the Environment gave dozens of executives a chance to report on their efforts. In the foreword, WRI president James Gustave Speth argued that companies pushing to become greener deserved “encouragement and support” (while laggards should get a “vigorous shove” forward). Although government direction and grassroots pressure were necessary to create a sustainable economy, Speth concluded, “only the corporate community can efficiently provide the necessary organization, technology, and financial resources needed to design and implement change on the scale required.” The contributors to the volume certainly agreed.Footnote 42
Although the initial push to go beyond compliance came largely from new social and political expectations, market forces gave the effort momentum. Even resistant executives often came to appreciate that the business case for sustainability was stronger than they thought. The sustainability push also affected companies that did not intend to change: Their competitors or their business customers forced their hand.
The learning process within companies was critical. When CEOs promised dramatic reductions in toxic emissions, the announcements often seemed rash. Conventional wisdom held that improving environmental performance would increase costs. If that always were true, going beyond compliance would be a competitive disadvantage. Although a company might gain in the long term by avoiding legal liability or loss of good will, the short-term expense would hurt profits. However, companies discovered that seeming burdens could be blessings. In the most celebrated example, the electronics industry found that the alternatives to using CFCs as solvents saved money. Once managers realized that pollution prevention might in fact pay, they became more aggressive in pushing the effort. Often, they drew lessons from the trendy practice of Total Quality Management (TQM). TQM advocates argued that putting the customer first required a top-to-bottom emphasis on quality—and rethinking every aspect of a company’s operations could lead both to better customer satisfaction and bigger profits. The environmental version of TQM promised similar benefits. In some companies, “zero emissions” or “zero waste” became as powerful a mantra as “zero defects.”Footnote 43
The challenge of reducing hazardous waste especially inspired innovation. Unlike air or water pollution, companies could not deal with the problem by installing end-of-pipe technology. Instead, employees had to go back to the drawing boards, with just two possibilities. Option A was redesigning production processes. Option B was devising ways to neutralize the hazards or—better yet—transform wastes into profitable commodities. In many companies, engineers at first argued that neither option was technically or economically feasible. However, the necessity of thinking outside the box often led unexpectedly to win-win solutions. The new production processes sometimes yielded more material while also reducing waste. Treatment might cost substantially less than disposing of untreated waste. DuPont, Westinghouse, Allied Signal, and other companies even concluded that they could turn their new waste-reduction expertise into a sizeable consulting business.Footnote 44
The new environmental consulting divisions were part of a growing business-to-business market for green materials. “Our customers are feeling the pressure and they are saying to us, ‘Can you give us more environmentally safe products,’” DuPont’s CEO told the New York Times in 1990. Other companies received similar requests. Although the rise of green consumerism garnered much more media attention, the business market arguably was more important in establishing sustainability as a key corporate concept. Selling to business customers was comparatively straightforward. The only issue was the effect on the bottom line: Would a company’s new offering reduce environmental risks or costs? If the answer was yes, the eco-product could command a premium or create profitable new markets.Footnote 45
Green thinking also spread because companies watched their competitors. If eco-efficiencies gave one firm an edge, other firms felt pressure to keep up. The same was true for green products and services. If they succeeded, they often inspired imitation. In the early 1990s, Xerox began to take back copiers and use the old parts to “remanufacture” new machines. It also encouraged customers to return used copy cartridges. The moves saved hundreds of millions of dollars in 1995 alone—and Xerox expected to do even better by designing equipment for efficient reuse. Several manufacturers soon followed Xerox’s lead. Beyond the immediate financial benefits, the initiatives may have helped to mute calls for mandatory take-back legislation.Footnote 46
The effort to go beyond compliance led some companies to press their suppliers to change, too. That was especially true with packaging. To meet a stretch goal of zero waste to landfills, General Motors (GM) gave its roughly 10,000 suppliers instructions about how to box parts more eco-efficiently. “We had never told our supply base what to send us,” the executive in charge said. “We just tried to deal with what they gave us.” But that laissez-faire approach no longer made sense at a time of rising waste-disposal costs. Some suppliers eagerly complied, some resisted the new requirements, and many needed to be educated and cajoled. The effort contributed to a dramatic decline in landfill use. In 1991, when GM first measured the amount of trash per vehicle produced, the average was eighty-eight pounds; by 1994, that figure dropped to fifteen.Footnote 47
The consumer-products manufacturer S. C. Johnson went further. In 1991, the company hosted a two-day environmental symposium for its key suppliers, with big-picture speeches and technical sessions on issues from the benefits of recycling to the hazards of volatile organic compounds. The company then launched a newsletter to keep suppliers up-to-date on its efforts to become greener. S. C. Johnson brought everyone together again in 1994. The goal from the first was to win supplier support for changes in raw materials, packaging, and production processes. “Partnering together,” the inaugural newsletter proclaimed, “we can and will have a measurable impact on improving the condition of the environment.”Footnote 48
The pioneering green consultants also strengthened the sustainability movement. To win clients, they needed to convince executives that farsighted environmental management provided a strategic advantage. The principals in boutique sustainability firms often made that case in books and articles. John Elkington—the lead partner in SustainAbility, founded in 1987—wrote a series of important works, from The Green Capitalists to Cannibals with Forks, which introduced the idea that corporations needed to serve “the triple bottom line” of environmental sustainability, social responsibility, and financial profitability. Bruce Piasecki’s consulting firm launched a journal, Corporate Environmental Strategy, in 1993, and Piasecki wrote two books on that subject. The prominent management-consulting company Arthur D. Little also was aggressive in arguing that future business success would require sophisticated new thinking about the environment. In 1990, the company touted “The New Environmental Stewardship” in its Prism magazine, which devoted considerable space to the topic for years afterward.Footnote 49
The Limits of Voluntary Action
By the mid-1990s, the environmental calculus had changed for many firms. The legal and reputational risks of business as usual loomed larger. Tougher regulations seemed likely—and preemptive action might pay. The new economics of waste disposal rewarded eco-efficiency. Investors were considering environmental performance. Consumer and business-to-business demand for greener products were growing. For the first time, managers had powerful reasons to view sustainability as a basic consideration.
Yet the incentives to go beyond compliance were not powerful enough. The business case was strong in some sectors of the economy but weak in others. That also was true within industries: Market leaders typically had more to gain than their weaker competitors. Even for companies eager to do better, only some green initiatives were likely to pay off. Several drivers of reform were self-limiting.
The uneven force of the new incentives was clear from the first. Bruce Smart’s pioneering Beyond Compliance volume celebrated the efforts of companies in only a handful of industries: chemicals, oil, electronics, power generation, and household products. That made sense. Large manufacturers, utilities, and raw material refiners felt the most pressure to meet new expectations. They topped lists of polluters and waste generators, were often targeted by activists, and faced the greatest risk of legal liability. Retailers had much less cause for worry—so did small businesses, from family farmers to local builders.Footnote 50
Even the exceptions underscored the limited scope of the reform effort. The best example is Walmart. After a false start in the early 1990s, Walmart became the first big retailer to focus on sustainability in 2005. By then, it was the nation’s most controversial company, under attack by labor unions, small businesses, and environmentalists. It was likely to benefit from eco-efficiencies because of the scale of its operations, including its massive trucking fleet. With its unprecedented market power, it could force suppliers to bear the cost of meeting higher environmental standards, and it worried that continued growth would require luring new customers who valued more than “everyday low prices.” All of those considerations meant that Walmart had much more at stake than other retailers.Footnote 51
The developments of the late 1980s and early 1990s only made some problems a higher priority. Obvious environmental degradation became more costly. Toxic emissions might give a company a black eye, and disasters might threaten bankruptcy. However, the potential costs of inaction were much less if a harmful practice might not have visible consequences until far into the future. That was more true if the victims would have difficulty figuring out who to blame. As a result, even companies that made public commitments to sustainability had mixed records. DuPont, for example, accepted the necessity of reducing both emissions and waste generation but still kept secret the environmental hazards of a chemical used to make Teflon, one of its iconic products. The search for eco-efficiencies similarly addressed only some problems. Many efforts to reduce pollution, waste, and resource consumption still were not win-win. Greenhouse gas emissions are the most important example. Because no one paid anything close to the full environmental cost of using fossil fuels, cutting emissions often lowered profits. Executives sometimes were willing to take the hit in anticipation of government regulation or rising public pressure to address climate change, but that kind of proactive commitment never became the default decision.Footnote 52
Businesses also continued to have little incentive to develop truly sustainable ways of meeting basic needs. Even the most eco-conscious consumers mostly wanted improved versions of what they already bought, not radical alternatives. Companies could meet that demand without outmoding existing products, fundamentally changing business models, or selling new visions of the good life. They might need to change production processes or find greener suppliers of raw materials, but they did not need to do anything really risky. That was critical. Although start-ups might try to disrupt markets, few established firms were willing to gamble on sustainability. Even talking about the need to rethink product lines could be problematic. When Ford chairman Bill Ford Jr. expressed doubts in a 1999 interview about the long-term viability of the gas-guzzling SUV, he was rebuked by the company’s board of directors.Footnote 53
If green consumerism had lived up to the Earth Day 1990 hype, more companies might have become innovators. However, consumers in fact were a limited force for reform. Some buyers assumed that eco-products were inferior in quality, whereas others were turned off because they viewed the environment as a hippie or radical cause. To make everyday goods greener, manufacturers often had to charge more, and many people could not afford the higher cost. Many other shoppers were “convenient environmentalists.” They considered the environmental impact of their purchases, but only if everything else was basically equal. When offered a choice between comparable cans of tuna with and without a dolphin-safe logo, one commentator argued, “Tie goes to the dolphin.” But greener options would lose if they did not measure up by the traditional standards of “price, performance, and ease-of-use.” At best, then, the green market was a niche. Who would pay more? Some eco-products had qualities beyond their greenness that might command a premium. Others became status symbols, at least in certain circles. For everything else, the market depended on the willingness of consumers to put the environment first. However, numerous studies in the last three decades suggest that diehard green shoppers comprise at most 15 percent of the population—and possibly much less. Even boosters now acknowledge that selling sustainability often is a losing strategy: Manufacturers and retailers need to emphasize the “private benefits” of their goods, not the planet-saving virtues.Footnote 54
For different reasons, the eco-efficiency drive also had limits. The opportunity to save money while reducing environmental impacts often came from regulatory changes. When government action made waste disposal more costly, previously uneconomic alternatives suddenly were worth a second look. Managers also had a stronger incentive to try to avoid waste altogether. Once companies adapted to the new requirements, however, the search for win-win initiatives became less rewarding.Footnote 55
The shortcomings of the beyond-compliance movement were not due to insincerity. In many companies, executives truly sought to become greener, but they were constrained by basic flaws in the workings of capitalism. The problem of externalities was especially damaging: The prices of goods did not include many of the environmental costs of their manufacture, use, and disposal. As a result, pollution often paid, and green products often cost more. Although the drivers of reform in the late 1980s and early 1990s reduced the disjunct between corporate success and environmental well-being, the disjunct remained.
The academic literature about sustainable business implicitly acknowledges that point, but without reckoning with its implications. For decades, scholars have debated whether firms can profit by becoming greener, and “definitely not” and “yes, always” arguments have given way to the view that sustainability efforts are sometimes profitable and sometimes not. Now books about management strategy ask “When Does It Pay to Be Green?” They tell readers “When to Embrace Sustainability in a Business (and When Not To).” The mixed results have a variety of causes—and one of the most important, rarely highlighted by business school professors, is that many of the rules governing the market still work against sustainability. That means voluntary reform never will be sufficient. To build a sustainable economy, the rules need to change.Footnote 56
The most prescient commentators in the 1990s were less shy about discussing the market’s flaws. “Business has only a narrow band in which to modify its environment-affecting activities,” the World Business Council for Sustainable Development argued in 1996. “Too little action, and a company may not be complying with regulations. Too much, and it may be spending money in ways that weaken its competitiveness. Many companies that are driven more by values than strict profit considerations will go ahead and spend some of that money to move ‘beyond compliance.’ But there are tight limits, even for such companies; a business that does not make money soon ceases to be a business.” In addition to the problem of externalities, the council discussed other structural disincentives to sustainability, from the privileging of short-term returns to the failure of accounting and reporting systems “to adequately convey potential environmental risks and opportunities.” Consultant John Elkington was blunter. “However much we may wish it otherwise, sustainable corporations and industries will not evolve spontaneously,” he wrote in 1998. “Instead, their development will require well-directed government intervention and focused market pressures.” That remains true today.Footnote 57
