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Unformatted text preview: Corporation Imagine a world in which eco-friendly and socially responsible practices actually help a company’s bottom line. By Pete Engardio UNDER CONVENTIONAL NOTIONS OF HOW TO RUN A CON' glomerate like Unilever, CEO Patrick Cescau should wake up each morning with a laserlike focus: how to sell more soap and shampoo than Procter & Gamble Co. But ask Cescau about the $52 billion Dutch-British giant’s biggest strategic challenges for the 215t century, and the conversation roams from water— deprived villages in Africa to the planet’s warming climate. The world is Unilevei’s laboratory. In Brazil, the company operates a free community laundry in a 550 Paulo slum, pro- 50 l BusinessWeekl January 29. 2007 It’s closer than you think. vides financing to help tomato growers convert to coo—friendly “drip” irrigation, and recycles 17 tons of waste annually at a toothpaste factory. Unilever funds a floating hospital that of— fers free medical care in Bangladesh, a nan'on with just 20 doc- tors for every 10,000 people. In Ghana, it teaches palm oil pro- ducers to reuse plant waste while providing potable water to deprived communities. In India, Unilever staff help thousands of women in remote villages start micro-enterprises. And re— sponding to green activists, the company discloses how much SpecialReportl carbon dioxide and hazardous waste its factories spew out around the world. As Cescau sees it, helping such nations wrestle with poverty, water scarcity, and the effects of climate change is vital to staying competitive in coming decades. Some 40% of the company’s sales and most of its growth now take place in de~ velOping nations. Unilever food products account for roughly 10% of the world’s crops of tea and 30% of all spinach. It is also one of the world’s biggest buyers of fish. As environmental regulations grow tighter around the world, Unilever must invest in green tech- nologies or its leadership in packaged foods, soaps, and other goods could be imperiled. “You can’t ignore the impact your company has on the community and environment,” Cescau says. CEOs used to frame thoughts like these in the context of moral responsibility, he adds. But now, “it’s also about growth 52 l BusinessWeelt l January 29. 2007 Sus-tam-a-bfl'l'ty l Meeting humanity's. needs wiihOUt and innovation. In the fiiture, it will be harming future generations. It s f the only way to do busrness.” an old ideal. broadly endorsed by . A remarkable number of CEOs have begun to commit themselves to the same kind of sustainability goals Cescau has pinpointed, even in profit- obsessed America. For years, the term “sustainability” has carried a lot of bag— gage. Put simply, it’s about meeting humanity’s needs without harming fu- ture generations. It was a favorite cause among economic development experts, human rights activists, and conserva- tionists. But to many U.S. business leaders, sustainability just meant higher costs and smacked of earnest U.N. corporate- responsibility conferences and the utopian idealism of Western Europe. Now, sustainability is “right at the top of the agendas” of more U.S. CEOs, especially young ones, says McKinsey Global Institute Chairman Lenny Mendonca. More Than PR 0U CAN TELL SOMETHING IS up just wading through the vo- luminous sustainability reports most big corporations post on their Web sites. These lay out efforts to cut toxic emissions, create coo-friendly products, help the poor, and cooperate with nonprofit groups. As re- cently as five years ago, such reports—if they appeared at all—were usually transparent efforts to polish the corporate image. Now there’s a more sophisticated understanding that environmental and social practices can yield strategic advantages in an intercon— nected world of shifiing customer loyalties and regulatory regimes. Embracing sustainability can help avert costly setbacks from environmental disas- ters, political protests, and human rights or workplace abuses—the kinds of debacles suffered by Royal Dutch Shell PLO in Nigeria and UnOcal in Burma. “Nobody has an idea when such events can hit a balance sheet, so companies must stay ahead of the curve,” says Matthew J. Kiernan, CEO of Innovesr Strategic Value AdviSOrs. Innovest is an in- ternational research and advisory firm whose clients include large institutional investors. It supplied the data for this BusinessWeek Spe- cial Report and prepared a list of the world’s 100 most sustainable corporations, to be presented at the Jan. 24-28 World Economic Fomm in Davos, Switzerland. The roster of advocates includes Jeffrey Im— rnelt, CEO of General Electric 00., who is betting billions to position GE as a leading innovator in everything from wind power to mic development experts. r girziignmentalists. and human rights fl activists. but lormerly too touchy Teeiy for many American’busmes? i leaders. Now. however. Its at the op1 . I oi the agenda of growing numbers 0 f U.S. CEOs. especially young ones. ‘ UNILEVER To improve people's lives—and promote its soap and detergent—the _ company sponsors a floating hosp|_tal In _ Bangladesh and free laundromats in Brazrl Who’s Doing Well by Doing Good SOME LEADERS What does it mean to say a company, its products, or its processes are “sustainable”? Here is a list of top-rated companies by industry: AUTOMOBILES The maker of the top-selling Prius hybrid leads in developing efficient gas-electric vehicles. RENAULT Integrates sustainability throughout organization Has fuel-efficient cars and factories. vomswaceu A market leader in small cars and clean diesel COMMUNICATIONS EQUIPMENT NOKIA Makes phones for handicapped and low-income consumers. A leader in phasing out toxic materials. ERIOSSON Eco-friendly initiatives include wind- and fuel-cell- powered telecom systems in Nigerian villages. IIIO‘I'OROLA Good disclosure of environmental data. Takes back TOYOTA technologies. used equipment in Mexico. U.S., and Europe. I COMPUTERS 8: PERIPHERALS FINANCIAL SERVICES HEWLETT- Despite board turmoil. the company rates high on ABNAIIRO involved in carbon-emissions trading. Finances PACKARD ecological standards and digital tech for the poor. everything from micro enterprises to biomass fuels. TOSHIBA At forefront of developing eco-efficient products. HSBO Lending guidelines for forestry. freshwater. and such as fuel cells for notebook PC batteries. 4 chemica sectors factor in social. ecological risks. DELL Among the first U.S. PC makers to take hardware ING Weighs sustainability in project tinance. Helps back from consumers and recycle it for free. developing nations improve financial institutions. HEALTH CARE HOUSEHOLD DURABLES FRESENIUS Discloses costs of its patient treatment in terms of PHILIPS Top innovator of energy-saving appliances. lighting. HEDICAL CARE energy and water use and waste generated. J ELECTRONICS and medical gear and goods for developing world. IMS HEALTH Places unusual emphasis on environmental issues SONY is ahead on green issues and ensuring quality. in its global health consulting work. safety. and labor standards of global suppliers. QUEST Has diversity program promoting businesses llATSUSl-IITA State—of—the—artgreen products. Eliminated 96% of DIAGNOSTICS owned by minorities. women. and veterans. ELECTRIC the most toxic substances in its global operations. Oil & GAS PHARMACEUTICALS ROYAL DUTcN Since Nigerian human rights woes in '90s. leads in ROCHE Committed to improving access to medicine in poor 51E“- community relations. Invests in wind and solar. nations. invests in drug research for Third World. NORSN HYDRO Cut greenhouse gas emissions 32% since 1990. NOVO Spearheads efforts in diseases like leprosy and bird Strong in assessing social. environmental impact. NORDISK flu and is a leading player in lower-cost generics. SUNOOR Tiés with aboriginals help it deal with social and GLAXO- One of few pharmas to devote R&D to malaria and ENERGY ecological issues in Canada's far north. SHITHKLINE TB. First to offer AIDS drugs at cost. IIIARIIS 8- Buys local product to cut transit costs and fuel use. FPL Largest US. solar generator. Has 40% of wind- SPENCER Good wages and benefits help retain staff. power capacity. Strong shareholder relations. HOME RETAIL High overall corporate responsibility standards IBEROROLA Since Scottish Power takeover. renewable energy GROUP have led to strong consumer and staff loyalty. accounts for 17% of capacity. Wants that to grow. AEON Environmental accounting has saved $5.6 million. SCOTTISH & Aggressively discloses environmental risk. including Good employee policies in China and SE Asia. SOUTHERN air pollution and climate change. SOME LAGGARDS Concentrating on the bottom line makes companies postpone important changes. it can also lead to poor public relations. Here are a few companies that received tower marks: ALLEGHENY ENERGY Reliance GENERAL MOTORS Trails Toyota PETROOHINA Lacks transparent Hut-HART The mass retailer on coal poses risk if U.S. passes and Honda in fuel-efficient cars. environmental programs. Safety has made great strides with greenhouse gas rules. High reliance on SUVs. record includes fatal gas leak ambitious green initiatives BANNOFONINA Hit by recent NINTENDO Slow to grapple with and benzene plant explosion (page 5?). hutthe sompanv’s corruption cases. but bank how emerging environmental. SURGUTNEFTEGAZ Plagued by “13.3? "imam tam'Sth by says it has since improved safety. and labor standards will shareholder suits. Lacks public Cr'tlc'ms 0f labor and “Show governance. affect offshore suppliers. environmental policy. SDUFC'HE praCt‘CeSA Data: Jnnovesz Strategic Value I‘d-visors January 29. 2007 | BusinessWee-k I 53 SpecialReport l hybrid engines. Wal—Mart Stores Inc., long assailed for its labor and global sourcing practices, has made a series of high-profile promises to slash energy use overall, from its stores to its vast trucking fleets, and purchase more electricity derived from renew~ able sources. GlaxoSmithKline discovered that, by investing to develop drugs for poor nations, it can work more effectively with those governments to make sure its patents are protected Dow Chemical Co. is increasing R&D in products such as roof tiles that deliver solar power to buildings and water treatment technologies for regions short of clean water. “There is 100% overlap between our business drivers and social and environmental interests,” says Dow CEO Andrew N. Liveris. Striking that balance is not easy. Many noble efforts fail because they are poorly executed or never made sense to begin with. “if there’s no connection to a company/s business, it doesn’t have much leverage to make an impact,” says Harvard University business guru Michael Porter. Sustainability can be a hard proposition for investors, too. Decades of experience show that it’s risky to pick stocks based mainly on a company’s long—term environmental or social-responsibility targets. Nevertheless, new sets of metrics, which Innovest and others designed to measure sustainability efforts, have helped convince ' soul—stirring ' CEOs and boards that they pay off. Few Wall Street analysts, for example, have tried to assess how much damage Wal-Mart’s reputation for poor labor and environmental practices did to the stock price. But New York’s Communications Consulting Worldwide (CCWJ, which studies issues such as reputation, puts it in stark dollars and cents. CCW calculates that ifWal-Mart had a reputation like that of rival Thrget Corp, its stack would be worth 8.4% more, adding $16 billion in market capitalization. Serious money is fining up be- hind the sustainability agenda. Assets of mutual funds that are designed to invest in companies meeting social responsibility cri- teria have swelled from $12 bil- lion in 1995 to $178 billion in 2005, estimates trade association Social Investment Forum. Boston’s State Street Global Advisors alone handles $77 billion in such funds. And institutions with $4 trillion in assem, including charitable trusts and government pension funds in Europe and states such as Califor- nia, pledge to Weigh sustainability factors in investment decisions. Why the sudden urgency? The growing clout of watchdog groups making savvy use of the Internet is one factor. New environmental reg- ulations also play a powerful role. Electronics manufacturers slow to wean their factories and products off toxic materials, for example, could be at a serious disadvantage as Europe adopts additional, strin— gent restrictions. American energy and utility companies that don’t cut fossil fiiel reliance could lose if Washington joins the rest of the industrialized world in ordering curbs on greenhouse gas emissions. Such developments help' explain why Exxon Mobil Corp, long opposed to linking government policies with global warming theories, is now taking part in meetings to figure out what the US. should do to cut emissions. Investors who think about these issues obviously have long time horizons. But they encounter knotty problems when try— ing to peer beyond the next quarter’s results to a future years PETRDCl-IIHA Mishaps include a gas well eruption in 2003 in southwest China that killed 243 people CHINA PH OTC/R EUTERS Writ-MART SIOIIES million compact fluorescent bulbs a year has a bottom-line benefit. Customers would OMPANIES ADOPT GREEN strategies for different reasons. By CEO H. Lee Scott it’s own admission, the changeover at Wal-Mart Stores inc. began in self-defense. Surveys showed that the retail giant's image hadtaken such a beating that some customers were staying away. So Scott huddled with environment- alists. hired consultants, and came up with goals that astonished even some activists. He vowed to u3e 100% renewable energy, drastically reduce waste through recycling, and sell "sustainable" products that are more environmentally friendly. "Wal-Mart is implementing one of the most aggressive sustainability strategies I have ever seen." says Frank Dixon, adviser to both Innovest Strategic Value Advisors and Wat—Mart. Although the effort began as image- burnishing, "we started seeing it as a business strategy,” Scott explains. Cutting energy use is saving money, and consumers appreciate Wal-lvlart's forays into organic cotton products and coffee certified to have Big Strides to Become The Jolly Green Giant earned farm workers a decent wage. Switching stores to more efficient bulbs and adding skylights for natural light has trimmed Wal—Mart's electricity bill by 11% since 2002. Using less packaging on house brand toys will save $2.4 million annually in shipping costs. Even Wal-lvlart's push to slash America's electricity use—and thus greenhouse gas emissions—by selling 100 save $3 billion, “and the expectation is that those savings would come back in terms of purchases,” says Brown University ecology professor Steven Hamburg. Whatever Wal-Mart’s motivations, many environmentalists are thrilled with the company's plans because of its massive clout. “They can have more impact than a bunch of smaller, more noble players," explains one. Wal-lvlart's commitment to sell fish certified as caught in sustainable fisheries is doing more to protect stocks than government rules could, suggests Manish Kumar. CEO of The Fishin' Co., a major supplier: “It has brought an about-face in the mindset of the entire supply chain.” Wal-lv‘lart still faces an uphill battle. A 2005 Innovest report on the company gave it the lowest rating. An update to that report will rank it higher. but far from the top. “Their failings on the social side are so strong,” says Innovest analyst Elizabeth Lipton. Wal—Mart responds that its labor and health-care policies are little different from those of competitors, and that low employee costs help keep prices down. Yet the labor issues may be difficult to lay to rest. And even on the environmental front, “they are certainly not sustainable now," says Natural Resources Defense Council President Frances Beinecke. “Their goals are bold, but they have just begun." -By John Carey down the road. Corporations disclose the value of physical assets and investments in equipment and property. But US. regulators don’t require them to quantify environmental, so— cial, or labor practices. Accountants call such squishy factors “intangibles.” These items aren’t found on a corporate balance sheet, yet can be powerful indicators of future performance. If a company is at the leading edge of understanding and preparing for megatrends taking shape in key markets, this could constitute a valuable intangible asset. By being the first fast-food chain to stop using unhealthy trans fats, Wendy’s International Inc. may have a competitive edge now that New York City has banned the additives in restaurants. McDonald’s Corp., which failed to do so, could have a future problem. Rising investor demand for information on sustainability has spurred a flood of new research. Goldman Sachs, Deutsche Bank Securities, UBS, Citigroup, Morgan Stanley, and other SHARE YOUR THOUGHTS. Sun believes sharing is the way to create better ideas. That’s why we’ve teamed up with BusinessWeek to offer you an opportunity to share your comments. join the conversation about this week’s Cover Story at businessweeksom/coverstory; '\’:'::.713.A—I'n‘ 5'22 " ." '-" __....—.u—--— . . SpecialReport l brokerages have formed dedicated teams assessing how com- panies are affected by everything from climate change and social pressures in emerging markets to governance records. “The difference in interest between three years ago and now is extraordinary,” says former Goldman Sachs Asset Manage— ment CEO David Blood, who heads the Enhanced Analytics Initiative, a research effort on intangibles by 22 brokerages. He also leads Generation Investment Management, co-founded in 2004 with former Vice-President Al Gore, which uses sustain- ability as an investment criterion. Perhaps the most ambitious effort is by Innovest, founded in 1995 by Kieman, a former KPMG senior partner. Besides con— ventional financial performance metrics, Innovest studies 120 different factors, such as energy use, health and safety records, litigation, employee practices, regulatory history, and manage- ment systems for dealing with supplier problems. It uses these measures to assign grades ranging from AAA to CCC, much like a bond rating, to 2,200 listed companies. Companies on the Global 100 list on BusumWeelds Web site include Nokia Corp. and Er icsson, which excel at tailoring products for developing nations, and banks such as HSBC Holdings and ABN-Amro that study the environmental impact of projects they help finance. Some of lnnovest’s conclusions are counterintuitive. Hewlett~Packard and Dell both rate AAA, for example; market darling Apple gets a middling BBB on the grounds of weaker oversight of offshore factories and lack of a “clear environmen- tal business strategy.” An Apple spokesman contests that it is a laggard, citing the company’s leadership in energy-efficient products and in cutting toxic substances. Then there’s Sony Corp. vs. Nintendo. Wall Street loves the latter for a hest of rea- sons, not least that its Wii video game system, the first to let us— ers simulate actions such as swinging a sword or tennis racket, was a Christmas blockbuster. Sony, meanwhile, has a famously dysfunctional home electronics arm, and was embarrassed by exploding laptop batteries and long delays in bringing out its PlayStation 3 game console. Nintendo’s stock has more than tripled in three years; Sony’s has languished. Weighing the Efforts IEWED THROUGH THE LENS 0F SUSTAIN- ability, however, Sony looks like the better bet. It is an industry leader in developing energy-ef- ficient appliances. It also learned from a 2001 fiasco, when illegal cadmium was found in Play- Station cables bought from outside suppliers. That cost Sony $85 million, says Hidemi Tomita, Sony’s corporate responsibility general manager. Now, Sony has a whole corporate infrastructure for controlling its vast supplier network, helping it avert or quickly fix problems. Nintendo, a smaller Kyoto-based company focused on games, shOws less evidence of the global management systems needed to cope with sudden regulatory shifts or supplier problems, says lnnovest. A Nintendo spokesman says it meets all environmental rules and is “always reviewing l TflYDTA Went to OYOTA NOT ONLY MAKES MORE profit than any other automaker but also enioys the best reputation for producing clean-running. fuel— efficient vehicles. Its gas-electric hybrid Prius is a public relations juggernaut and the centerpiece of a lineup with an average fuel efficiency of 28.9 miles per gallon. second only to Honda's fleet average. General Motors Corp. and Ford Motor Co.. which sell more pickup trucks and SUVs than Toyota, lag behind in fuel economy. with averages of 24.6 and 24.1 mpg. respectively, for their fleets. As Toyota prepares to motor past Ford as the world‘s second-largest carmaker. it has become a textbook case on how a green reputation delivers a competitive edge. in the five years since the Prius' US. debut, Toyota's brand value has surged by 4?%. to $28 billion, according to Interbrand. In the same period. Ford has been beset with numerous troubles. including a failure to 58 | Businesdllll'eelt l January 29. 2007 How the H brid Race e Swift meet its goals for SUV mileage gains or to exploit its well—regarded Escape hybrid. Its brand value tell ?0%. to $11 billion. How did Detroit blow it? More than anything. through inertia. For 20 years. GM and Ford earned outsize profits on supersize trucks and SUVs. And following the infamous failure of GM‘s Elli electric car, a high—tech. high-cost econo—box seemed like anything but a good bet. Detroit simply didn't see the potential for Toyota’s odd little electric-gas car when the Prius made its debut in Japan 10 years ago. When energy prices spiked, Toyota was ready with a high‘tech offering that many consumers embraced. Today. even if hybrids aren't exactly cost-effective. consumers keep buying them. From a few thousand sold in the US. in 2000. Toyota expects to move 250.000 hybrids next year. “We didn't appreciatetheimage value olhybrids.‘ concedes GM’s research and development chief. Larry Burns. “We missed that." There's an ironic side to all this. In the U.S.. GM sells more models that get more than 30 mpg than any other carmaker. And two Ford SUVs. the Expedition and Explorer. go farther on a gallon ol gas than do Toyota‘s like-size models. “Toyota's tame for hybrids allows consumers to believe every one of its vehicles is the most fuel- efficient in its category—even if it isn't." says marketing consultant Dan Gorrell. Now. GM has announced a plug—in Saturn hybrid and an advanced plug—in electric Chevy car. Both come ahead of any similar moves from Toyota. But GM has also set and missed such goals in the past. The value of green, it seems. only accrues when the rubber meets the road. —By David Kiley SpecialReport and considering” the merim ot'nevv global sustainability guidelines. Here’s another Rorschach test. Which is the best investment: ExxonMobil, BP, or PetroChina? Exxon, one of the best—perform- ing energy biggies of the past five years, seems like the obvious stock pick. PemoChina Co. is riskier but also alluring. It’s a prime supplier of fuel to booming China. has seen revenues and profits rocket, and has been a hot stock for two years. Analyst Shal'u'eza Yusof of Aber- deen Asset Management PLC rates the company a buy. Because of its access to China’s market and new reserves, he writes, one day it will be as big as today’s major oil gianm—“ifnot bigger.” explosion that killed 15 in Texas, a fine for safety violations at a refinery in Ohio, at major oil pipeline leak in Alaska, and a US. Justice Dept. probe into suspect - ‘ Browne has recently announced his retirement. BP’s shares have slid 10% since late April. Eioron’s are up around 12%. Styrofoam helps insulate a Habitat for Humanity house DOW CHEMICAL its Innovest still rates BP a soIidAAg while labeling Exxon a riskier BB. And PetroChina? InnDVest gives it a CCC. Here’s why: BP wins points for plowing $8 billion into alterna— tive energies to diversifir away from oil and engages community and emiroruriental groups. Exxon has done less to curb greenhouse gas emissions and promote renewables spots like Chad. “I would still say Exxon is a bigger l0ng~term risk,” says Innovest’s Petro- China is easier to justify. Begin with its safety record: A gas Well explo— sion killed 243 people in 2003; another fatal exploaion in 2005 spewed toxic benzene into a river, leaving millions temporarily with- out water. PetroChina has been slow to invest in alternative energy, Innovest says, and its parent company has big bets in the Sudan. make a reliable guide for picking .1 gastrointestinal rotavirus. “We wanted to G [A x o s M "H K L I "E get the vaccine to the children who needed 0 it most,” Garnier explains. I Creating medicines lor the Third World while still posting a profit required fancy 0 financial footwork. GSK has formed 14 T0 different partnerships with the World Health Organization and other nongovernmental bodies. and with philanthropies such as the Bill Er Melinda Gates Foundation. These programs provided funding for research on HEN JEAN—PIERRE GARNIER two different HlV vaccines. new treatments took over as CEO of for tuberculosis. and a pediatric vaccine GlaxoSmithKline seven against malaria. in the latter case, a years ago. the company's collaboration with the Gates Foundation - reputation on corporate social and a group called the Malaria Vaccine responsibility was at its nadir. As part of a lnitiative led to a vaccine that provides coalition of 39 pharmaceutical companies. a minimum of 18 months of protection the drugrnaker was suing Nelson Mandela‘s against malaria. lt could be on the market South African government for voiding within four years. “The commitment [of patents on prescription drugs. Mandela's top GSK] to developing a malaria vaccine priority was giving desperately sick patients is outstanding,” says Dr. Tore Godal. the access to Hl‘v' treatments. and GSK—the former head of the Global Alliance for world's largest supplier—was standing in Vaccines Sr Immunization (GAVI). the way. “It was a public relations disaster." Garnier says efforts such as these give Garnier concodes. the company several advantages over its The experience convinced Garnier that rivals. Top scientists are drawn to GSK GSK should lead the crusade to improve ln fact. GSK sells 90% of its vaccines. because they want their research to make a access to medicine. In 2001. GSK became in volume terms, at not-for-profit prices difference. Doing good. and being admired the first major drugmaker to sell its to customers in the developing world. for it, also boosts general morale at the AIDS medicines at cost in 100 countries in 2005. it set a new paradigm in the company. he says. “This creates a more worldwide. And it has granted eight vaccine industry. it chose Mexico over aligned and engaged workforce. which licenses to local companies to produce other. waalthier nations as the launch helps us outperform our competitors. generic versions of these medicines. pad for Rotarix. a new vaccine against —By Kerry Capell—l 60 | BusinessWeek | January 29, 2007 and has big projects in trouble . (roe) GEORGE CRAIG i _i i i l i i SpecialReporti portfolio managers who must post good numbers by yearend. “The crux of the problem is that we are looking at things from the long term, but we’re still under short—term review from our clients,” says William H. Page, who oversees socially responsible investing for State Street Global Advisers. TalkinggGood Fight ET KIERNAN AND MANY OTHER experts maintain sustainability fac- tors are good proxies of management quality. “They show that companies tend to be more strategic, nimble, and better equipped to compete in the complex, high—velocity global environment,” Kiernan explains. That also is the logic behind Goldman Sachs’s intangibles research. In its thick annual assessments of global energy and mining companies, for example, it ranks companies on the basis of sustainability factors, financial returns, and access to new resource reserves. Top—ranking companies, such as British Gas, Shell, and Brazil’s Petrobras, are leaders in all three categories. For the past two years, the stocks of elite companies on its list bested their industry peers by more than 5%— while laggards underperformed, Goldman says. Still, BP’s woeful performance highlights a seri- ous caveat to the corporate responsibility crusade. Companies that talk the most about sustainability aren’t always the best at executing. Ford Motor Co. is another case in point. Former CEO William C. Ford Jr. has championed green causes for years. He famously spent $2 billion overhauling the sprawling River Rouge (Mich) complex, putting on a 10-acre grass roof to capture rainwater. Ford also donated $25 million to Conservation Interna- tional for an environmental center. But Ford was flat-footed in the area most impor« tant to its business: It kept churning out gas-guzzling SUVs and pickups. “Having a green factory was not Ford’s core is- sue. It was fuel economy,” says Andrew S. Winston, director of a Yale University corporate environmental strategy project and co-author of the book Green to Gold. The corporate responsibility field is littered with lofty inten- tions that don’t pay off. As a result, many CEOs are unsure what to do exactly. In a recent McKinsey & Co. study of 1,144 top global executives, 79% predicted at least some responsibility for dealing with future social and political issues would fall on cor- porations. Three of four said such issues should be addressed by the CEO. But only 3% said they do a good job dealing with social pressures. “This is uncomfortable territory because most CEOs have not been trained to sense or react to the broader land- scape,” says McKinsey’s Mendonca. “For the first time, they are expected to be statesmen as much as they are functional busi— neSs leaders.” Adding to the complexity, says Harvard’s Porter, .(f-(ll'l'l www.businessweek.con1fextras SUSTAINABLE AND PROSPEROUS ONLINE: Champions oi the Environment Check out Innovest's interactive list of 100 companies. and see a slide Show on leaders in 10 Industries. PODCAST‘: The Story Behind the Story Executive Editor John A. Byrne talks to Senior Writer Pete Engaroio at businessweekcomx’searchfpodcastlnghtm. 64 i BusinessWeek 1 January 29, 2007 PHILIPS The company is helping make hospitals a more positive experience for children in developing nations each company must custom-design initiatives that fit its own objectives. Dow Chemical is looking at the big picture. It sees a market in the need for low—cost hous- ing and is developing technologies such as eco- ftiendly Styrofoam used for walls. CEO Liveris also cites global water scarcity as a field in which Dow can “man-y planetary issues with market opportunity.” The UN. fgures 1.2 billion people lack access to clean water. Dow says financial solutions could help 300 million of them. That could translate into up to $3 billion in sales for Dow, which has a port— folio of curling-edge systems for filtering minute contaminants from water. To reach the poor, Dow is working with foundations and the UN. to raise funds for projects. Philips Electronics also is building strategies around global megatrends. By 2050, the UN. predicts, 85% of peOple will live in developing nations. But shortages of health care are acute. Among Philips’ many projects are medical vans that reach remote villages, allowing urban doctors to diagnose and treat patients via satellite. Philips has also developed low-cost water-purification technology and a smokeless wood-burning stove that could reduce the 1.6 million deaths annually world- wide from pulmonary diseases linked to cooking smoke. “For us, sustainability is a business imperative,” says Philips Chief Procurement Officer Barbara Kux, who chairs a sustainability board that includes managers from all business units. Such laudable efforts, even if successful, may not help man- agers make their numbers next quarter. But amid turbulent global challenges, they could help investors sort longwterm survivors from the dinosaurs. I 455th Many Capell in London, john Corey in Washington, and Kenjt' Hall in Ibltyo COURTESY PHILIPS ...
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