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September 15, 2008 | Andrew Winston | Jump to: Comments (0) | Post A Comment

Green Business and "Compliance" -- the Government is the Least of Your Worries

For many years, environmental strategy - if you could even call it that - was about complying with environmental regulations. All you had to do was make sure your facilities didn’t spew too much pollution into the air or water, or your products didn’t contain any banned substances, and you could call yourself a good green corporate citizen.

Then the phrase “beyond compliance” came into vogue to describe environmental actions that weren’t required by law. I never really liked this phrase, because it implied that anything above the bare minimum was not only voluntary, it was probably some form of philanthropy.

Today, legal compliance is an incredibly narrow view and is step zero in going green. Most execs certainly see the need to do more than what the government is asking. And many forces are coming to bear on companies, making green a profitable (not optional) path. I’m not just talking about forces such as the shocking rise in energy and commodity prices over the last couple of years. Even the biggest eco-skeptic sees that resource efficiency is good business. No, I’m thinking about a much broader sense of “regulation” which puts compliance in a whole new light.

Companies are facing mandates from a range of stakeholders, with the government often being just a bit player. I’m not saying that government doesn’t matter — in these heady political times, who ends up in the White House will make an enormous different to a range of industries. But other forces are strong and growing no matter who wins in November.

Customers are remaking some markets by setting their own standards. Mega-retailers are in the process of creating their own environmental screens that determine what they’ll carry on their shelves. The lead dog here has been Wal-Mart (as usual), which set tough restrictions on heavy metals in toys. The surface coating for any toy that wants space on Wal-Mart’s shelves can hold no more than 90 parts per million of lead…a stunning 85% lower than the federal regulatory standard. So if you’re a toymaker, only complying with the law won’t get you very far.

Other retail giants are phasing out any products with a range of chemicals that some studies indicate are dangerous to human health. Toys “R” Us, Target, and Sears are eliminating, respectively, BPA in baby bottles, phthalates in plastic toys, and PVC plastic (on the phthalates, the government followed industry’s lead recently). For these big brands, the logic for setting tight standards is impeccable. When a lead scare runs through the toy business, it doesn’t just affect the manufacturer (such as Mattel); the retailer gets hit hard as well.

If companies don’t want to research and establish their own standards — an expensive and tough process — they can mirror current government programs. Verizon recently set energy performance standards for suppliers of its telecom equipment. Execs describe the program as a commercial product version of Energy Star, the consumer product-focused federal program.

Even better is to go beyond what the government is asking. Take the case of environmental regulations about air pollutants from diesel trucks. The new 2007 federal standard was the strictest yet, but the laws include phase-in, or “grandfather,” periods. Manufacturers have some time before every truck needs to meet the new standard - that is unless they want to sell to Home Depot. The retailer has quietly told suppliers and distribution companies that its whole fleet must soon meet the 2007 standard. The company is forcing a faster changeover in mobile infrastructure than the government is asking for.

Pseudo-regulation goes further than clear mandates from business customers. What about more subtle, harder-to-measure “standards” consumers might have, or what current and prospective employees demand? What about banks that set their own standards on carbon output from the investments they make (Bank of America does this)?

If your biggest customers, your end users, your employees, or other influencers set tough new standards - specifically measurable or not - then to get shelf space or mindshare, you have no choice but to acquiesce. Clearly, the definition of “compliance” is getting a lot broader. The government will always play a critical role and its restrictions will only get tighter, but other players and their demands may matter far more to your business.

So if your company proudly says it will do everything it can to comply with the law, it’s fair to ask…Whose law?

This post first appeared at Harvard Business Online


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