The Triple Bottom Line Blog

In this post, I want to deviate from my usual discussion about sustainability, corporations, and profits.

I want to discuss something that rarely gets discussed in the sustainability world but which I think is going to be a subject of increasing attention. It's the fact that sustainability is really a two-sided coin. On the one side is sustainable production, which is what all of us in business like to talk about--how companies can get leaner and greener. But on the other side is sustainable consumption, which is something that we don’t talk about much.

I want to frame this issues by talking about globalization--not in economic terms, but in environmental and social terms.

One of the most interesting and important aspects of climate change is that it is a global issue with global impacts. If China continues to burn coal at the rate it needs to sustain its economic growth, Manhattan, Boston, and Miami will be threatened by rising seas, and farmers in Kansas and Nebraska will have to switch crops or move. When farmers in Brazil cut down rainforests, the temperature in Boise goes up.

There is no place to run from climate change. Polar bears living at the North and South Poles are threatened.

Globalization has also produced social impacts that are worldwide. We've thrown out most of our toys that were made in China, even after China executed the official who was in charge of product safety. (And we complain about tough government regulations here!) We import so many products from China that their product safety issues affect us directly. To some extent, the same is true for child and slave labor. China's social issues are also our issues, whether we like it or not.

And resource issues have also become global. We are due to run out of oil and a number of metals that we need to feed the manufacturing infrastructure that supplies us with everything from building materials to cutlery.

Water is the most dramatic example of the coming resources crunch. The list of areas that are likely to run out of water in the next thirty to fifty years is scary, and it is already happening right here at home. Las Vegas, the fastest-growing city in the U.S., is built in the middle of a desert, and the lake that supplies it with its water is drying up from the top and silting up from the bottom. Similar things are happening in many large areas of the world.

Andy Liveris, the CEO of Dow, has said that "water is the oil of the 21st century." The Pentagon has conducted scenario planning around the idea that the world will be engulfed in a series of regional wars fought over water in the next century.

But in this globalized world, consumption has not yet become globalized. It's well known that the United States, with only five percent of the world’s population, consumes twenty-five percent of the world's fossil fuel. We have only one fifth of the population of China, but we account for more global warming than they do (although the gap is rapidly shrinking).

Jared Diamond recently observed that the average American consumes 32 times as many resources as the average Kenyan. When you consider that a billion people live on less than $1 a day, that my lunch cost probably $20 and I am already thinking about dinner, you'd think the ratio would be even higher.

Now put this in a global context. It has been calculated that if the rest of the world were to start living at the same standard of living as people in the U.S., it would take twelve planet Earths to support our collective lifestyle. When I think about how much stuff I throw out every week, that doesn't really surprise me either. But as far as we know, we only have the natural resources of one planet Earth at our disposal.

The papers are filled with articles about how people in the West are obese, but you don't read very much about the fact that the economies of the West are also obese.

And you certainly are not likely to hear this from corporations that are in the business of selling more stuff. To the extent they are focused on sustainability, they are focused on being more efficient in manufacturing and selling us more stuff. But if you look at the numbers, the kinds of efficiencies they can make are not going to reduce our consumption to a sustainable level, not by a long shot. We can all buy hybrid cars and low-impact fluorescent bulbs, but that only slows the growth of pollution.

The fact is that we need to practice sustainability on both sides of the coin: sustainable production and sustainable consumption.

It's rare to hear companies say, "Consume less," and rarer still to hear them say, "Consume less of our products." A few years ago, McDonald's in France ran some ads saying, "If you have a weight problem, don't eat here so much." The corporate PR guys on Oakbrook Illinois found the people who were responsible and sent them to the (corporate) guillotine.

There are a handful of industries that are just beginning to address the issue of sustainable consumption.

Twenty-five years ago, when I was just getting involved in environmental matters, Massachusetts passed a law that would pay electric utilities for getting their customers to use less energy. Under the new scheme, the utilities would get paid the same, and in some cases more, if they sold less energy by convincing customers to use less, or to use it during off-peak times.

This became a national program called Demand Side Management (DSM). It has the potential to revolutionize the consumption of electricity all over the world. We need to apply this model to other areas of consumption.

Reducing our level of consumption is going to be tough for us in the developed world to swallow, and I frankly don’t know how it is going to happen. We have the strongest military in the world, now unconstrained by any opposing force. And we have proved very willing to fight to maintain our life style, with the war in Iraq (motivated at least in part by the desire to guarantee access to that country's oil reserves) seemingly just the latest example.

I think sustainable consumption will come about--if it does--through a combination of five factors:

Market forces. If you've traveled recently, you know that our standard of living is down because of the weak dollar. Imported goods are also more expensive. At the same time, the prices of gas and other natural resource will continue to climb. All of this will tend to bring our standard of living down, closer to that of the developing countries.

Regulation. China legislated only one child per family, and although I don't think we will ever go that far, I do envision more consumption taxes and possibly the rationing of various commodities. We are already going down that road with water use.

Technical innovation. Science may help alleviate the resources crunch. I'm thinking about things like genetically-modified organisms, clean hydrogen or nuclear fusion, and cost-effective water desalinization. But technology will not solve the problem. We're not quite as smart as we like to believe, and there is no technological genie waiting to grant our every wish.

International conflict. The next century will see a lot of battles over resources, and the West is destined to fight a number of wars like the war in Iraq--wars we realistically cannot win. These military defeats may be a necessary evil to wake us up to the need for sustainable consumption.

Redefinition of consumer preferences. This is the hardest one of all. It requires redefining quality of life by understanding that "Less is more." The simplicity movement needs to go from a cult to a mass movement.

I think you can see now why this topic doesn't get discussed much in business circles.

I had the pleasure of being a keynote speaker with Yvon Chouinard of Patagonia at a "net impact" event late last year. He has done as much as any CEO to make sure that his company is respectful and protective of the environment. Yet in front of 100 net impacters, he said (I am paraphrasing), "I have talked to some serious scientists, and most of them believe we have passed the point of no return. We have no hope left to save the Earth."

We all want to think we can go on living this way forever, and that our children should have more than we did. But deep down we recognize that this can't be the case except for a smaller and smaller percentage of us. Not only are there billions of people who want to escape from grinding poverty--and obviously deserve a chance to do so--but in addition the world's population is still growing. By 2050, it is projected to increase from the current six billion to nine billion, and three-quarters of this growth will be in the developing world. So we are going to have a lot more mouths to feed, hands to wash, and people without homes or hope.

I apologize if this message seems like a downer. Maybe I need to find my Prozac. But the issue of sustainable consumption isn't going to vanish just because we prefer to ignore it. I think we're grown-up enough to start talking about it. What do you think?

Labels: China, Climate and Carbon, Jared Diamond, Las Vegas, McDonalds, Patagonia, Personal Musings, Sustainable Consumption, Water, Yvon Chouinard

Perhaps you saw this week's story in The Wall Street Journal about how protesters are gearing up for the Olympic Games and what sponsoring companies are doing about it. Short version: Most companies are focusing on "going green":

Coke is playing up its water-conservation efforts on the Yangtze River and putting natural-refrigerant coolers and vending machines at all Olympic sites. Since March, Volkswagen has been planting thousands of trees in Inner Mongolia. GE is touting its role selling ecofriendly products such as solar-power and water-filtration systems for the Olympic venues.

By concentrating on the environment, companies can show they are acting responsibly and score points with the Chinese government while avoiding politically charged issues such as Taiwan or Darfur, PR executives say. Mr. [Richard] Edelman [of Edleman Public Relations] calls it a "win-win" situation.

A close reading of the article indicates that the most vehement and well-organized protests may actually be focused on human rights and other non-environmental issues. Which does mean that companies need to have that part of the sustainability agenda under control in terms of having appropriate policies, procedures, and programs in place.

But companies are right to focus on the environment for several reasons.

1. Dirty air will have an impact on the games themselves and on the athletes, whereas hman rights and other issues will be at one step removed. The human rights activists will be trying to draw connections to the games, but the athletes and spectators are most likely to be talking about the environment and will have every good reason to do so. They will not seem like agitators serving some other, unrelated interest.

2. The media will thus be talking about the environmental problems as part of the daily coverage of the overall "Olympic Story." Bad air is likely to affect the performances (think marathon), and it will be easy for the media to follow that angle and go deeper. Unlike human rights and even contaminated toys (the regime will make certain that there are no child laborers or contaminated toys within 1,000 miles of the Games!) there are easy, accessible visuals--smog, belching factories, traffic congestion--that will tell the story. It's the easiest story by far with no investigation and little explanation required. Also, bad air and possibly water (the foreign athletes may not be drinking from the taps) may well make this Olympics different from any other, and the media loves that.

3. Of course, all of this plays into the two biggest stories of the decade: China and climate change.
4. Then there is the political side of the environmental issue. Never having been to China, I have no real idea how big, strong and deep the environmental movement is there. (Elizabeth Economy's book on the subject, which my writing partner Karl Weber happened to work on, is probably a good place to start in learning about that topic.) But my guess is that the Olympics, and the presence of the international media, will give that movement plenty of cover, not to mention the international environmental activists who will be at the head of the parade. It will be hard for the government to arrest them all, if they do join hands. They would look really bad if they just arrested the locals, and even worse if they put the foreigners in the clink.

And if there are protests and arrests that just gives the media an even bigger story to cover.

5. Finally, I think the human rights activists may understand all of this, and may rally behind the environment as a wedge issue. That's what happened in Hungary--the democracy movement rallied and prevailed around environmental concerns related to the planned construction of a large hydroelectric dam. In so doing, they served their broader political goals--undermining the power and authority of an autocratic central government, and demonstrating to the public that they could affect change if they chose to do so.

For all these reasons, a green focus is a very reasonable strategy for sponsoring companies to use in dealing with the challenges of China 08.

Labels: Air, China, Communications and Marketing, Human Rights and Child Labor, Olympics, Water

I asked Andy about what topics we ought to be writing about more on this blog, and in response he sent me this email:

I always get questions on the lecture circuit about how companies in this country [i.e. the United States] can afford to be more sustainable or more responsible when they have to compete with low-cost goods and services provided by China and the rest of the developing world.

The first point I make is to refer to one of your initial posts about how globalization means that China and the others can't get away with bad practices for long if they are planning to export to us.

The second point I make is that the chickens are coming home to roost, even faster than I would have expected. Last week, for example, there was an article in The Times about how American toy manufactures are having a resurgence because of the China toy recalls. You might want to link to the piece . . . just don't quote the whole bloody thing.

(Andy thinks I have a habit of quoting too much from the stories I link to. In deference to him I'll link to the Times story, but I won't quote a single word. Read the whole thing if you like. Seems as if retailers and consumers are happy enough to pay higher prices for toys when the cheaper alternative products are coated in poisonous paint . . .)

But speaking of chickens coming home to roost, it seems as if an entire blog about sustainability could be written using nothing but stories from China. Almost two months ago, Andy himself wrote this post about the risks of being a corporate sponsor of next year's Beijing Olympics. Between Darfur, child labor, censorship, and capital punishment--not to mention rampant pollution, product piracy, and, now, shoddy manufacturing practices--it seems as if being linked with China is an increasingly dangerous corporate strategy.

At the same time, there's no doubt that China is a rising world power than no global corporation can afford to ignore. What to do?

Today I encountered this good column about the issue from consultant David Wolf. I'll quote him--sparingly enough for Andy's taste, I hope:

Several things set the Olympics apart. The Olympics is global. It covers a wide range of sports. It is a pinnacle event, meaning that in most of the sports involved you can reach no higher than Olympic champion. It occurs every four years.

But there is one more thing that, in the mind of sponsors, sets the Olympics on a higher plane than even the Superbowl, The World Series, or the World Cup. It is the unspoken conviction that the Olympics is somehow the last form of pure athletic endeavour, and that supporting the Olympics is somehow a good thing, in and of itself.

But any company (and I guarantee you, there will be a few in the coming months) that attempts to frame their support of the Olympics as some form of corporate social responsibility should be publicly ridiculed. Olympic sponsorship is a marketing exercise, pure and simple, and should be universally acknowledged as such.

It's an excellent point. Wolf goes on to stress that any company associated with the 2008 games needs to make sure it has in place a robust sustainability program focused specifically on its China practices. The best possible response to protestors who want to attack your corporation for its sponsorship of the Beijing games is to be able to point to your policies that are bringing concrete assistance to Chinese workers, children, human rights activists, and other worthy beneficiaries. Without such a response, protestations about your good intentions as a partner of China and a supporter of the Games will ring hollow.

One last point: Although many of us assume that the "commercialization" and "politicization" of the Olympic Games--along with the attendant controversies--are recent phenomena, that's simply not true. Corporate sponsorship has been a feature of the modern Olympics since their founding in 1896. And as for controversy--well, one of the sponsors of the infamous 1936 Berlin Olympics was none other than Coca-Cola.

How's that for a corporate affiliation--to be linked forever in history with the likes of Hitler, Goebbels, and Leni Riefenstahl? It might take a brand as powerful as Coke's to shrug off that kind of publicity.

So if you're a corporate manager trying to figure out how to position your company in today's interconnected, globalized world, don't feel too sorry for yourself. The problems you're wrestling with may be thornier than ever, but they're scarcely brand new . . . if that's any comfort.

Labels: China, Coca-Cola, Communications and Marketing, David Wolf, Olympics

Browse the web for any Fortune 500 company followed by the word "watch," and you will find websites devoted to overseeing the company's activities. Use an expletive following the name and sites appear detailing grievances that run from reasonable to far-fetched to demented. (If you haven't already scanned the web for hostile sites aimed at your company, you should try it soon--just be sure to have the antacids within reach before you start.)

Olympic Watch is a recent addition to the watch sites. Dubbed the "Genocide Olympics" by human rights activists who have their eyes on China--for its role in Darfur, not to mention child and slave labor, capital punishment, forced evictions, political repression, and denial of free speech--the site aims to put pressure on Olympic sponsors to speak out against the host country's human rights abuses.

Putting pressure on the authorities directly may be hopeless, but associating big corporate brands with China's denial of basic human rights, might just work. Pressure on business to leave South Africa eventually worked to end apartheid, so why not oppressive practices in China?

The time is right: People in the United States are very upset with China right now, not primarily for human rights violations, but for lead paint on toy trains, poisonous toothpaste, contaminated food and a general concern that China might just grow bigger and faster than us.

So it's a good time to turn up the heat on human rights.

Sponsoring companies will maintain they can't be held responsible for the actions of the Chinese government. But that's like saying that you can’t be held responsible for poisonous toothpaste or child labor simply because you outsourced the manufacture to a third party. If your logo is on the product, it doesn't matter that the culpable party is a separate legal entity, or even a sovereign government. Just ask Nike. Or any of the companies that are under pressure on Darfur.

Corporate managers should be aware that:

1. Your company can be held responsible, and your brand held hostage, for the egregious actions or policies of the government in any country where you do business. This is why, for example, the pressure on Google to fight for free speech in China will continue.

2. You must consider that risk when making any investment in a country with suspect environmental or social policies, or one that is engaged in bad acts, even when your activities in the country have no direct connection to the activities in question.

3. You can't expect a free pass just because the specific operation you're involved in is politically blameless or even has positive connotations like those generally associated with the Olympic movement. Controversy can become attached to any activity under the right (or wrong) circumstances. Fair? Maybe not. But that's reality.

This doesn't mean you shouldn't do business abroad or attach your name to any widely-publicized event. But when you do, do your homework. Research likely areas of controversy; track the vagaries of public opinion constantly; and be prepared to respond honestly and pro-actively to attacks.

Above all, be clear in your own mind why you are choosing to associate yourself with a particular regime and how you intend to have a positive impact on the people whose lives you will be touching. Having a clear, coherent, and believable story to tell can go a long way toward defusing the hostility you may encounter.

Labels: China, Communications and Marketing, Human Rights and Child Labor, Nike, Olympics

An excellent article in today's New York Times by David Leonhardt about the lessons to be learned from the currently unfolding story of dangerous kids' toys coming from China. (Among other experts, it happens to quote Adrian Slywotzky, a business strategy guru with whom I've worked on several books.) The key grafs discuss how HIT Entertainment, owner of the Thomas the Tank Engine franchise, and RC2, the company that makes Thomas toys for HIT, have mismanaged the crisis:

In effect, HIT has outsourced Thomas’s image, one of its most valuable assets, to RC2. And RC2 has offered a case study of how not to deal with a crisis, which is all the more amazing when you consider that the company also makes toys for giants like Disney, Nickelodeon and Sesame Street. . . .

Battening down the hatches might very well work if this were a scandal about sweatshop conditions. Fairly or not, Americans have a limited attention span when it comes to human rights problems on the other side of the world. But the prospect of lead paint in your child’s nervous system tends to focus the mind.

The fact that the executives at HIT and RC2 haven't grasped the difference shows how out of date the corporate script on outsourcing has become. In many businesses, outsourcing has simply grown too big to stay behind the curtain. What happens in Chinese factories determines how good--how reliable and how safe--many products are. So there is no way for executives to distance themselves from China without also distancing themselves from their own product.

Business people only need to look at the dismal approval ratings of the Bush administration to realize the severe limitations of a policy of "plausible deniability." Such a policy may have worked at one time--in politics and in business. No more. A corporation can no more disclaim responsibility for what happens up and down its supply chain than the White House can disclaim responsibility for the results of its Iraq policies.

Labels: China, David Leonhart, Supply Chain

Advocates of environmental and labor protections worry--with good reason--that globalization may drive a "race to the bottom" in which government regulations get watered down in the competition for world markets. But as this article in today's New York Times suggests, the process can sometimes operate in reverse. The story deals with the fallout from the recent stories of tainted foodstuffs and toothpaste being exported from China and the resulting loss of confidence on the part of foreign consumers. Key grafs:

While Beijing has strongly defended the quality and safety of its food and drug exports, and even denied that the toothpaste it exported was unsafe, government regulators at the same time have stepped up safety inspections and shut down companies accused of producing unsafe food or counterfeit drugs.

But with pressure growing from regulators in the United States, Europe and other parts of the world, and international food companies expressing concern about the risks of importing Chinese-made food and feed ingredients, Beijing is pushing for a more forceful response to the crisis.

In its announcement on Tuesday, which was posted on a government Web site, China said that the State Council had approved a new food and drug safety guarantee system on April 17 and that an outline of the program was being distributed to government agencies nationwide.

The government said in its announcement that it planned by 2010 to place new controls on food and drug imports and exports and to step up random testing on medicines. It also said that it would have information on inspections of 90 percent of all food products, although it was unclear how that would work.

There seems to be little doubt that Chinese food and drug safety standards have always been lax. But as long as only Chinese consumers were affected, the government had little incentive to act. (That's the sort of attitude that having dictatorial powers tends to encourage.) Nosy, noisy, demanding Westerners are another matter. Economic pressure from disgruntled Americans and Europeans may be having an impact on Chinese practices that domestic dissatisfaction never could.

This doesn't mean that globalization automatically leads to good results. That happens only when people care, are informed, and have mechanisms through which to act. Companies in the United States and elsewhere that are partnering with firms in China or using Chinese suppliers need to encourage these conditions. The sooner firms in China (and the rest of the developing world) can be prodded or pushed into applying world-class standards of product safety and quality, the better it'll be for the future of global trade.

Labels: China, Food and Agriculture, globalization