Climate change has been a wake-up call that only the smartest businesses are willing to hear.
I became head of BP America in the mid-1990s, when the company was undergoing a metamorphosis brought on by climate change. More than just changing its culture around an environmental issue, BP decided it would change course entirely.
This was the beginning of “Beyond Petroleum.” Everything changed in BP, starting with a fundamental shift in corporate strategy from an oil based company to one more involved with natural gas (through the acquisition of Amoco) as well as solar panel and biofuel research and development.
From my years as an oilman to my current role helping companies and future business leaders understand sustainability, I’ve learned a few lessons about business, the environment, and the true meaning of “going green.” Here are my top six.
Lesson #1: It’s a Thankless Job–But Every Company Has to Do It
I always start my classes by saying that corporate sustainability is about doing well by doing good. It is not about altruism. This statement seems obvious to those of us already steeped in sustainable business, making it easy to forget that most people still see the dynamic as “planet vs. profit.” And so it bears repeating, early and often: we’re making money while helping the environment. To do that, a company has to define its core business, and then take a step back: how will trends like climate change legislation and a better-educated consumer affect that core business? For existing companies, the first step is to be very open to the fact that changes are happening in the first place.
Here’s the catch, though: once you’ve stuck your chin out and made a big deal about your “greenness,” even a small stumble can make you a real target. Environmental groups even admit that they will target the “greenest” companies because they will buckle under the pressure to prove themselves environmentally sound. You really set yourself up for a more difficult time if you take the high road, and you have to be willing to recognize that risk.
To illustrate: BP was declaring that it was “beyond petroleum.” Well if the core of your business is in petroleum, what does that say? Taking such a position can lead to questions about the core of the business–and these questions can come to a head as we saw last spring in the Gulf of Mexico.
But there are huge benefits that outweigh the risks. The biggest benefit? Sustainability is an enormous opportunity to think more broadly about corporate strategy. For example, as of the mid-1990s, BP was an oil company. With the acquisition of Amoco, it became an oil and gas company. The thinking was, if the world is going to change and we’re only an oil company, we had better diversify the portfolio to include gas, solar, wind, biomass and other fuels.
The implications of BP’s decision played out in every corner of the organization, right down to how we hired people. Back in the 1990s, oil companies were considered the dinosaurs; BP’s change in direction was very forward thinking and it made a big difference in recruiting talented people.
Lesson #2: Go Big or Go Home
Another key learning is that if you take a position on one issue, you have to take a position on all of them. For example, if you take a stand on climate change, you’d better raise your game with respect to water, ecosystems, and even social issues such as human rights. Because of globalization, we’re at a point in our evolution where a company’s ecosystem is its operating environment. So if you are building up reputational equity on sustainability, you have to raise the bar on all issues that play a role in that system.
For example, Shell, a competitor of BP, had its own set of problems in the 1990’s, from Greenpeace attacks over North Sea drilling operations to human rights controversies in Nigeria. Companies have to figure out how to handle these circumstances based on the wider strategy around sustainability. At BP, we continued to operate in South Africa during apartheid despite the enormous pressure from the global human rights community. But we decided that by staying we had a lot more leverage for good than we would had we left.
Lesson #3: This Is Going to Hurt. A Lot.
The planet is under stress. By addressing this problem, companies get paid in terms of improved efficiency, reputational equity, market and new product opportunity and brand enhancement–all of which contribute to increased shareholder value.
For most organizations, the lowest hanging fruit is eliminating waste. Ultimately, though, the planet will need to have an educated consumer base to buy the sustainably oriented products, practices and services companies will offer. As consumer sentiment toward sustainability grows, government regulation tightens and enterprise suppliers “green” their processes and products, those organizations which answer the demand for sustainability will be successful.
But we’re going to go through a long period of austerity where we all will have to change what we buy and when we buy. In this way, the economy (i.e. with too much debt) and the world’s ecology are inextricable. People are simply going to have to consume less stuff. There are major growth opportunities in the economy that can be described as reducing cost and reducing waste at the consumer level. Companies will have to be aware of that paradigm and build strategies around it.
Lesson #4: There is Early-Mover Advantage in Sustainability
When BP began to shift its strategy, it was reading the societal tea leaves. This was a huge boon to the company in terms of its environmental reputation worldwide, at least until recently.
Why? Because there is first-mover advantage in being at the table to craft the regulatory environment that will impact the entire industry. A company is invited to the table in the first place because of its reputation: because BP had actively moved to diversify its oil-only approach, it had credibility to engage in dialogue about how the industry should operate in the new eco-conscious era.
Global corporations competing across many regional markets face a patchwork of regulation and need some standardization across boundaries–that’s why some companies are pushing for climate change regulation, to make a more level playing field. And a lot of companies will benefit because they make products that will benefit from change.
Being an early mover also helps mitigate operational risks. Even the SEC requires disclosure on climate change-related risks when publicly traded companies report their financials–knowing how to calculate those risks and influence the way they are reported is a major advantage.
Lesson #5: Where There’s Crisis, There’s Opportunity
In my experience, it’s all about creating opportunities out of the global environmental situation we find ourselves in. For example, the emergence of the middle class and their consumption aspirations in places like India and China will put tremendous pressures on the global ecosystem and the global economy. It’s important that we recognize that and figure out ways to relieve the pressure moving forward without demanding that people in emerging economies abandon their hopes for better lives.
Ultimately, it’s in an enterprise’s best interest to get ahead of the sustainability curve. Why? Because if we get into a situation where we face a scarcity of natural resources due to ballooning populations, further environmental degradation and overconsumption, an outcome might be a totalitarian approach where centralized governments decide how to ration resources like water and energy. That’s not good for business.
Lesson #6 : We will need new ways of thinking
Right now, the best tool companies can use to measure their impact and set a new strategy is comprehensive cradle-to-grave lifecycle analysis that shows how a product is sourced, used and disposed of. Companies have to look across that whole supply chain for weaknesses, and exposure to environmental risks.
At the Erb Institute, this is part of what we call “systems thinking.” It’s not new, but it is revolutionary for the average line manager. When I was coming out of school the main analytical tool was “discounted cash flow analysis.” Systems thinking is a lot more complex, but it all comes down to the same thing: how much should a company invest in time, talent, and treasure now to ensure that there are long term benefits flowing back in. Today we need to be very expansive in defining those benefits to include those that flow from nature’s capital, for the time is coming when we will be held to account for them, by the government, consumers and society as a whole.
At its heart, sustainability strategy is also about long-term ROI. Because it’s about ensuring that there is a long term after all.
Steve Percy is the former head of BP America and a current visiting professor at The Erb Institute for Global Sustainable Enterprise at the University of Michigan. During his time at BP, Percy was the public face of the company’s sustainability initiatives. Percy served on President Clinton’s Council on Sustainable Development and was a lead author of the Millennium Ecological Assessment; he also has provided Board-level leadership to companies involved with bio-fuels and advanced environmental remediation techniques.