The Search for Sustainable Innovation

More and more corporations are accepting the challenge to create more sustainable, environmentally friendly ways of doing business. Today, a slew of businesses are touting their inclusion in the Dow Jones Sustainability Index as a point of pride. Since solid sustainability strategies can leave companies on better long-term footing than their rivals, investors should definitely take notice.

Creative construction
Last year, the Harvard Business Review published a study that revealed two reasons why green innovation helps companies and shareholders alike. First, sustainability can lower expenses and boost sales. Second, green initiatives can give companies a competitive advantage, an element shareholders should always look for in their companies.

The study highlighted several companies that saved considerable money, boosted sales, and/or increased consumer goodwill through eco-friendlier policies, including Hewlett-Packard, Wal-Mart (NYSE: WMT  ) , and Unilever. Just this week, the latter conglomerate announced plans to invest in a company that transforms algae into oil, in the hopes of reducing its reliance on palm oil. Since palm oil producers often decimate native plant species and local ecosystems in clearing space for palm plantations, curtailing demand for the oil could yield significant environmental benefits.

Wal-Mart's plans for a sustainability index have made a big impression of their own, and many other large companies are working on similar constructive strategies.

Bragging rights (and shareholder fights)
Meanwhile, AT&T (NYSE: T  ) , Praxair (NYSE: PX  ) , and PepsiCo (NYSE: PEP  ) are among companies sending out press releases this week to trumpet their inclusion in the 2010 Dow Jones Sustainability Indexes. These rankings analyze and track companies according to corporate, economic, environmental, and social performance.

I'm not surprised that companies are touting their appearance in Dow Jones' listings. Shareholder interest in sustainability initiatives is increasing, as the pivotal proxy season demonstrated. Last March, climate-change-related shareholder proposals filed at publicly traded companies increased 40%, to a record 95 resolutions.

By the same token, less conscientious companies may be losing their edge by falling short on sustainability issues. BP (NYSE: BP  ) was unsurprisingly removed from the index last June. The Deepwater Horizon disaster, the subsequent Gulf oil spill, and the company's painful lack of contingency plans for such an occurrence not only revealed a major flaw in BP's business, but also invited consumer ire, boycotts, and the general trashing of BP's brand.

Oracle (Nasdaq: ORCL  ) currently faces a shareholder resolution from activist investor John Harrington, after the company lost its spot on the Nasdaq CRD Sustainability Index. Harrington recently waged a successful pitch for corporate responsibility and sustainability reporting at Intel (Nasdaq: INTC  ) . Whether or not he's victorious with Oracle, skirmishes like Harrington's can help make investors more aware of how intelligently corporate managers are running their businesses.

In search of sustainable profits
Clearly, many companies are embracing sustainability initiatives to shore up their competitive advantage and consumer goodwill alike. Creating ways to do business less wastefully harnesses the strengths of a creative marketplace, and the push for cleaner, safer, better practices bodes well for the long-term success of both the businesses taking part and the shareholders invested in them.

Check back at Fool.com every Wednesday and Friday for Alyce Lomax's columns on corporate governance.

Intel and Wal-Mart are Motley Fool Inside Value picks. PepsiCo is a Motley Fool Income Investor recommendation. The Fool owns shares of and has written puts on Intel. Motley Fool Options has recommended buying calls on Intel and a diagonal call position on PepsiCo. The Fool owns shares of Oracle and Wal-Mart. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Fool has a disclosure policy.


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