Environmentally-friendly business is profitable business

Many associate sustainability with expense, but companies that have embraced it are financially outperforming
 Sainsbury's Open New Energy Efficient Store In King's Lynn
Sainsbury's new Kings Lynn supermarket is one of the retailer's most energy-efficient stores. Photograph: Matthew Lloyd/Getty Images
The failure of policymakers to make binding commitments at the Rio+20 Summit resulted, at best, in a lowest common denominator agreement that delivers few real benefits. In 2010, the UK Sustainable Development Commission (SDC) was axed as part of the government's spending cuts. In the US, Republican efforts to defund the entire Environmental Protection Agency risk even deeper structural shifts.

International governments' inaction and lack of leadership is clearly worrying but, at the same time, the proactive approaches of a few leading-edge companies are encouraging. Toyota, Sainsbury's, WalMart, DuPont, Tesco, Unilever, Marks & Spencer and General Electric have made tackling environmental wastes a key economic driver. As Jonathon Porritt, director of Forum for the Future, observed, a "governance shift" is occurring in the field of sustainability, with governments stepping back and businesses stepping forward to lead the change.

DuPont, one of the early adopters, committed itself to a 65% reduction in greenhouse gas emissions in the 10 years prior to 2010. By 2007, DuPont was saving $2.2bn a year through energy efficiency, the same as its total declared profits that year. General Electric aims to reduce the energy intensity of its operations by 50% by 2015. They have invested heavily in the Eco-magination project.

Unilever plans to double its revenue over the next 10 years while halving the environmental impact of its products. In 2010, WalMart announced that it will cut total carbon emissions by 20m metric tons by 2015. Closer to home, Sainsbury's has announced its industry-leading "20x20 Sustainability Plan" which is the cornerstone of the company's business strategy. It seems to be on track. In April this year, Sainsbury's said it had achieved its target of a 50% relative reduction in water consumption.

Tesco has announced that it will reduce emissions from stores and distribution centres by half by 2020 and that it will become a zero-carbon enterprise altogether by 2050. Toyota, already in its fifth five-year Environmental Action Plan, announced that it will improve the average fuel efficiency of its vehicles by 25% in all regions by 2015 compared to that of 2005. In manufacturing, Toyota has already reduced emissions per vehicle by 47% between 2001 and 2012.

Companies such as Tesco and WalMart, are not committing to environmental goals out of the goodness of their hearts, and neither should they. The reason for their actions is a simple yet powerful realisation that the environmental and economic footprints are most often aligned. When M&S launched its "Plan A" sustainability programme in 2007, it was believed that it would cost more than £200m in the first five years. However, the initiative had generated £105m by 2011/12 according the company's report.

When we prevent physical waste, increase energy efficiency or improve resource productivity, we save money, improve profitability and enhance competitiveness. In fact, there are often huge "quick win" opportunities, thanks to years of neglect.

Environmental waste is the best proxy for identifying and eliminating economic waste. That's the secret of these companies.

However, there is a considerable gap between leading edge companies and the rest of the pack when it comes to the adoption of lean and green ideas. There are far too many companies still delaying creating a lean and green business system, arguing that it will cost money or require hefty capital investments. They remain stuck in the "environment is cost" mentality. Being environmentally friendly does not have to cost money. In fact going beyond compliance saves cost at the same time that it generates cash, provided that management adopts the new lean and green paradigm.

Lean means doing more with less. That's why lean management supports green thinking and vice versa. Nonetheless, in most companies, economic and environmental continuous improvement are separate organisational silos and sometimes even come into conflict with each other. This is one of the biggest opportunities missed across most industries. Some companies are using lean and green as simultaneous sources of improvement in various sectors of industry – from automotive and retail to textile and brewing.

The size of the opportunity is enormous. The 3% Report recently published by World Wildlife Fund and CDP shows that the economic prize for curbing carbon emissions in the US economy is $780bn between now and 2020, rising to $190bn a year by 2020. It suggests that one of the biggest levers for delivering this opportunity is "increased efficiency through management and behavioural change" – in other words, lean and green management.

The report puts the return on investment (ROI) for lean and green interventions at 233%. In my experience, this is conservative: most organisations can achieve a far higher ROI when adopting the right behavioural and managerial changes. Some 47 studies from the likes of the Economist Intelligence Unit, Goldman Sachs, AT Kearney, Deloitte, MIT Sloan, Harvard and others show that companies that commit to such aspirational goals as zero waste, zero harmful emissions, and zero use of non-renewable resources are financially outperforming their competitors. Conversely, the DARA Group found that climate disruption is already costing $1.2tn annually, cutting global GDP by 1.6%. Unaddressed, this will double by 2030.

Here is an example. A couple of months ago I worked with one of the largest sandwich factories in the world. A team of great men and women engaged in a programme to reduce physical waste using problem solving techniques. The results were staggering. No one expected to see nearly 1,000 tonnes of waste prevented in just a few weeks in a very mature industry. Add to that, they also saved 9m litres of water from going down the drain every year with interesting financial benefits.

Keivan Zokaei is principal consultant at SA Partners LLP. He is co-author of Creating a Lean and Green Business System: Techniques for Increasing Profits and Sustainability

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