The ecosystems upon which we all depend provide benefits of incalculable worth — including clean air and water, minerals, timber, oil, and fertile land. These natural resources are often available to companies at little or no cost. In addition, the extraction of these resources threatens the viability of other environmental riches that may not be of immediate benefit to the corporation, such as biodiversity.
Companies that fail to treat these environmental riches with due respect, and that jeopardize the long-term viability of the gifts that our ecosystems provide, can cause great harm. We believe that companies that, among other things, acknowledge the long-term sustainability challenges of their industry, maximize energy efficiency, use alternatives to fossil fuels, use recycled materials, reduce use of toxic chemicals in manufacturing, and produce less solid and hazardous wastes, will benefit not only the environment but themselves by increasing their potential efficiencies and reducing their potential liabilities.
The following are the five major themes by which we assess the strength of corporations’ relationships with the ecosystems that support their activities.
While other issues are also important in this regard, these five are those which we believe we can most meaningfully and consistently assess.
Renewable and Alternative Energy Sources
Without doubt, the greatest and most difficult environmental challenge of our time is how to produce cheaply and efficiently the energy needed for economic development without harming the environment. Burning fossil fuels is ultimately unsustainable because it produces the greenhouse gases, including carbon dioxide, chiefly responsible for global warming. Yet, as of 2006, the world was consuming some 85 million barrels of oil daily, not to mention huge amounts of coal and natural gas, and global energy consumption was sharply on the rise. Equally convenient and inexpensive alternative sources of energy are simply not available at this time. But the future of our planet as we know it depends upon developing these renewable, sustainable alternatives. Corporations have played a tremendous role in creating this problem and have the potential to play an equally large role in its solution. They have the resources to develop and market alternative clean-fuel technologies. We are particularly optimistic about wind, solar, and tidal power. We have questions about such alternatives as clean-coal and ethanol, and very serious concerns about nuclear power.
Corporations have the capability to reduce their own carbon emissions. We applaud the work of the Carbon Disclosure Project and those companies that report their carbon emissions, thereby creating a framework for accountability that allows society — including investors and corporate managers — to quantify and reduce these harmful emissions. Companies can also play an important role in helping consumers increase their energy efficiency. We therefore look for companies that are aggressive about the energy efficiency of the products and services they provide.
In addition to the significant opportunities corporations have to be part of the solution to climate change, and to benefit financially from the transition to an alternative fuel-based economy, companies that fail to address these risks may face substantial financial risks of their own by failing to adequately prepare for the onset of a carbon-constrained world, or to protect themselves from the significant, and growing, physical risks posed by climate change, such as increasing storm intensity and erratic weather patterns.
We therefore seek corporations that are substantial users, producers, or developers of resources, products, and technology that reduce the risks of climate change and increase the use of sustainable alternatives to carbon-based fuels — and we avoid many of the oil, coal, electric utility, and automobile companies whose products are contributing most heavily to climate change. We also recognize, however, that government must play the central role in making a transition to sustainable energy sources and that corporations and the marketplace alone cannot solve this problem.
Eco-Efficiency and Resource Conservation
Efficiency, whether it is in energy or materials usage, is simply good business. Investments made in eco-efficiency bring some of the clearest and most immediate benefits to both the financial and environmental bottom lines. It is essentially little more than sound financial management for companies to take the relatively obvious and simple steps toward efficiency in their use of energy and natural resources that will bring them into a more harmonious relationship with the ecosystems within which they operate. We consequently view a company’s record in eco-efficiency and resource conservation as a key indicator of the quality of management.
Recycling, Safer Technologies, and Lifecycle Design
Environmental organizations stress the necessity of incorporating recycling and reprocessing into the lifecycle of product design. Starting with the selection of environmentally benign materials, going through minimization of the environmental effects of product packaging and use, and ending with product takeback and recycling, lifecycle design can lighten the environmental footprint we all leave as consumers. For example, those companies willing to invest in the research and development necessary to eliminate toxics are providing a long-term benefit to both workers and the environment. Companies have been notably successful in finding nontoxic alternatives to volatile organic compounds used as solvents. Finding equivalent substitutes for paints, coatings, and adhesives is a greater challenge. Although balancing costs with benefits is often a challenge in such investments, we believe that the long-term benefits of such decisions generally outweigh short-term costs.
We therefore seek out companies that make major use of recycled materials in their manufacturing processes, that are working to solve the challenges of product takeback and recycling, that have found nontoxic substitutes for toxic chemicals used in manufacturing processes, and that are in other ways willing to invest in making their products and services compatible with the ecosystems they affect. We believe that these companies provide substantial long-term benefits to ecosystems, as well as to their employees and customers.
Pollution Control and Abatement
A company’s minimum obligation to its local communities and the natural environment is to assure that no substantial harm is done by its current operations. For industrial firms, for example, this means cleaning wastewater before it is discharged and capturing volatile organic compounds before they escape into the atmosphere. For electric utilities, this means installing scrubbers to prevent particulates and sulfur dioxides being released. For chemical companies and refineries, this means preventing spills and leaks, and disposing of hazardous wastes appropriately. These basic steps help prevent immediate harm and through today’s investments avoid tomorrow’s problems. We recognize that pollution prevention often requires expensive capital expenditures that force management to make short-term financial sacrifices. We believe, however, that these investments can often pay long-term returns to communities, neighbors, and companies themselves that more than compensate for their short-run costs. We therefore favor companies that have a record of handling today’s pollution challenges effectively and without regulatory controversy, while developing more sustainable practices for tomorrow.
Long-Term Environmental Sustainability
Despite the tremendous progress toward increased awareness of the need for compatibility and partnership between society and ecosystems, a surprising number of corporations still deny or ignore the need to manage their long-term environmental risks appropriately. Some oil companies still deny the reality of climate change. Some forestry companies still destroy the rainforests of the world. Some manufacturers still build toxic chemicals into their products. It is of substantial concern to us when companies lag behind on such fundamental matters of long-term environmental sustainability.
On the positive side, a handful of companies have had the foresight to think systematically about their environmental footprint and to pioneer long-term sustainability models for their industries. A carpeting firm rethinks the fundamental environmental implications of its operations. A food retailer acts as a pioneer for the markets for organic or Fair Trade foods. A furniture manufacturer rethinks the environmental implications of the basic manufacturing materials it uses. We recognize these initiatives as having the paradigm-shifting implications necessary to achieve true long-term environmental stability.