A sustainability megatrend is building, promising to transform the way many corporations do business and damage those that fall behind. The incorporation of clean and green elements into business models will increasingly separate the winners from the losers in corporate America and investors' portfolios: Going green is becoming a coveted competitive advantage.
Some big companies with big green plans
Last year, Newsweek teamed up with Trucost, which specializes in quantitative metrics to rate environmental performance, and Sustainalytics, which conducts independent environmental analysis, to rate the greenest companies in 2011. These organizations measured metrics including greenhouse gas emissions, water use, waste disposal, and acid-rain emissions in order to come up with Newsweek's third annual Green Rankings, published in October.
Let's examine the top five companies, and a few of the reasons they came in high in Newsweek's Green Rankings.
Who knew an old-school stalwart like IBM (NYSE: IBM) could rank No. 1? Climb into the wayback machine: In 1971, IBM began implementing policies to make environmental responsibility a priority. It has even been known to implement green initiatives years before regulatory agencies mandate related rules. IBM was a charter member of the Energy Star program in the 1990s. In a recent winning move, IBM required its suppliers to put environmental management and corporate responsibility policies in place, and to disclose their activities in these areas.
At No. 2 was Hewlett-Packard (NYSE: HPQ). About two years ago, HP came up with the Global Workplace Initiative, which focuses on sustainability and environmental impact reduction; many of its buildings are LEED-certified. Not only did Hewlett-Packard vow to slash greenhouse-gas outputs by 40% below 2005 levels by the end of last year, but it actually met the goal nine months before deadline.
Sprint Nextel (NYSE: S) came to market with its first environmentally friendly phone, the Samsung Reclaim, in 2009. Now, it's the only U.S. carrier that carries more than one green product for mobile phone users. It's also made some steep environmental goals for itself by 2017, such as aiming for a 90% phone collection rate for reuse or recycling and a 15% decrease in energy use and greenhouse gas emissions. That earns the company the No. 3 ranking.
Baxter International (NYSE: BAX) has gone the extra mile when it comes to a healthy footprint. In 2010, the health-care company decreased its greenhouse gas emissions by 7% (or 29% indexed to revenue), and it has slashed its total waste indexed to revenue by 30%.
Computer-maker Dell's (Nasdaq: DELL) most impressive feat is managing a recycle and reuse rate of 95.7% last year. Its most innovative feat is the use of literally earthy packaging, made from materials such as mushroom and bamboo, to protect its product shipments.
If you're like me, you're just as curious about the companies that bottomed out instead of floating to the top.
Financial services companies have enjoyed their share of vilification recently, and apparently that's just as relevant in the environmental realm. Several of these showed up at the bottom of the list, due to their investments in companies with environmentally unfriendly track records, such as coal mining and gas drilling concerns.
Specifically, T. Rowe Price Group and BlackRock were ranked as the least green, and genetic modification giant and big, bad lightning rod Monsanto came in at No. 3.
Trendsetters set the pace
Clearly, some companies are realizing that sustainability goes far beyond do-gooding; it can also boost bottom lines. Reducing waste and energy use and using other methods of conducting business more efficiently mean saving the earth and yielding long-term cost savings, too.
Investors should be concerned if their companies are falling behind the curve on this building megatrend, and not just because their companies could face public relations problems.
Costs that used to be considered "externalities," such as greenhouse gas emissions and water usage, are increasingly having material impacts on companies' financial well-being. In fact, the Securities & Exchange Commission has ruled that climate risk is literally a material issue that must be disclosed to investors.
Increased public and government attention, with fires fanned by social media and other high-powered, high-speed information channels, further underscore why companies that don't address these issues could doom their shareholders' long-term returns.
Watch the sustainability trendsetters in 2012, and also keep an eye on how other companies respond in their own business models. The most innovative and forward-looking should carve out some competitive advantage over the long haul. On the other hand, the sustainability laggards will prove costly to the Earth as well as to their shareholders.
Check back at Fool.com every Wednesday and Friday for Alyce Lomax's columns on environmental, social, and governance issues.
