Corporations Jump on "Green" Bandwagon

By Jennifer Hopfinger
February 2, 2007 10:46 AM

"Green" corporate practices do more these days than improve a company's image with the environmentally responsible crowd -- they're also starting to boost the bottom line.

In BusinessWeek's January 29th cover story, "Beyond The Green Corporation," writer Pete Engardio examines how socially responsible and eco-friendly policies are turning into business imperatives. Because, he writes, helping countries "wrestle with poverty, water scarcity, and the effects of climate change is vital to staying competitive in coming decades" as corporate growth increasingly takes place in developing nations.

The term "sustainability," which means meeting human needs without harming future generations, is becoming a buzzword with more and more CEOs. Stricter environmental regulations are partly behind the trend, but top executives are also realizing their companies stand to gain competitive advantages while averting "costly setbacks from environmental disasters, political protests, and human rights or workplace abuses."

The companies jumping aboard the eco-friendly bandwagon include General Electric, which is investing billions in wind power and hybrid engines, Wal-Mart, which is significantly cutting overall energy use, and GlaxoSmithKline, which is developing drugs for poor nations.

Companies are also starting to listen to the growing cadre of socially responsible investors. Assets of mutual funds that invest in companies and meet social responsibility criteria have increased from $12 billion in 1995 to $178 billion in 2005, according to the article.

The trick for investors is quantifying "squishy factors" like environmental and social practices, which accountants refer to as "intangibles." However, brokerage firms are beginning to do just that by dedicating research to the area. And with good reason. "These items aren't found on a corporate balance sheet, yet can be powerful indicators of future performance," Engardio writes. In addition, "many other experts maintain sustainability factors are good proxies of management quality."

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Copyright © 2008 Donald W. Reynolds National Center for Business Journalism