Business and the green theology.

For nearly a generation, business has been forced to swallow billions of dollars in environmental costs. As a result, many CEOs are sounding a call for more reasonable regulation and a more scientific assessment of environmental impact.

The Austrian Nobel economist Friedrich von Hayek once wrote that we live in an age in which people believe in magic. This is most evident today in what passes for environmentalism in public discourse. Ignoring all counterevidence, the allegation that CFCs destroy the ozone layer is used to phase out a substance with unsurpassed thermal qualities. No answer is forthcoming why the ozone hole is in the Antarctic when most CFCs are discharged in the industrial North. The assertion that the Northern Spotted Owl is a species distinct from other owls common in the area and that it is endangered is used to close down large sections of land used by the timber industry. A furious campaign of fear waged against radiation and nuclear waste disposal has effectively blocked nuclear power development, despite its being one of the most environmentally benign and safe ways to generate electricity--as the French and Swedes have demonstrated. Despite mounting evidence that the models and even the physics underlying the global warming theory are fundamentally flawed, producers of carbon dioxide and other "greenhouse gases" are subjected to economic harassment.

In June, at the Earth Summit in Rio, national governments were called upon to endorse something called the Earth Charter, and a more specific Agenda 21 which embodies the principles "which must govern behavior of peoples and nations." The goals include: eradicating poverty, reversing the destruction of renewable resources, and changing the system of incentives and penalties for economic behavior. It's clear that environmental concerns are sandwiched between proposals for global redistribution of income and resources.

What is going on here? The natural desire of most people to safeguard clean water and clean air has been used to create a paranoia that posits that technological development is incompatible with the safety of the Earth's allegedly fragile ecosystem. There are virtually no products of industry which are not sinful according to the green priest. Herein lies the dilemma for CEOs today. If one genuinely wants to provide products and services that protect or at least do not harm the environment, how does one separate the legitimate concerns of the consumer and the customer from the demands of the self-styled and unelected advocates of deindustrialization? In most cases the price mechanism would perform this task. Customers willing to pay an environmental premium for "friendly" detergent send a signal to Procter & Gamble and Unilever. But what happens when market forces--not to mention property rights--are subverted by regulation and government fiat, which is the weapon of choice among the greenshirts?

The result is a staggering economic burden with no corresponding environmental benefit. Accoring to Kenneth Chilton, deputy director of the Center for the Study of American Business at Washington University, "Americans have spent nearly $1.4 trillion (in 1990 dollars) in higher taxes and higher product and service prices for environmental programs during the past 21 years. The cost of these programs will rise to $1.6 trillion (in 1990 dollars) over the next 10 years. On a more personal basis each taxpayer/consumer is paying $450 a year for the current array of environmental programs."

This is not to say that progress has not been made. Air is cleaner, and more bodies of water support fish today than two decades ago. But it is evident to most objective observers that command-and-control techniques to which the green theologians are attached (in some cases more so than to their commitment to the environment) are not cost-effective. Furthermore, outlawing all environmental risk and tightly constraining business has the perverse effect of injuring the environment--as the legal gridlock over Superfund attests. (Business is not clean on this either. A subindustry of consultants and waste treatment specialists who have a vested interest in expensive solutions lobby Congress against changing the current approach.)

Participants at the CE roundtable are also troubled by a public and Congress that are cowed by those enthralled by a coercive theology and who do not shrink from using whatever means necessary to justify the end: absolute protection of natural resources at the expense of development and economic growth.

"We need to get loads of media coverage, so we have to offer up scary scenarios, make simplified, dramatic statements, and make little mention of any doubt we may have," Stephen Schneider, director of the Center for Atmospheric Research and a visible global-warming proponent, has been quoted as saying. "Each of us has to decide what the right balance is between being effective and being honest."

Despite lashing out at such cynicism, many CEOs have proved eager to board the environmental bandwagon--particularly when being green means making green. To the most creative, it seems, will go the spoils. Recycling heads the list of profit-making activities. And many companies are developing or using renewable sources of energy that will defray U.S. reliance on fossil fuels.

"The greening of the marketplace represents an extraordinary opportunity, perhaps the biggest opportunity for enterprise and innovation the industrial world has ever seen," says Richard Mahoney, CEO of St. Louis-based Monsanto. "Those companies that can make the most of it will flourish. And those that don't will become industrial fossils." But first, care of the environment must be liberated from the druids of deindustrialization.

PLEA FOR SANITY

Richard J. Mahoney (Monsanto Company):

As a CEO in charge of a chemical/biotech company, I want to persuade the public of the folly of falling in love with the "green theology." My company has decided to argue for a sane environmental policy that will allow us to reap some benefits without incurring many costs.

Frances Cairncross, an economist and environmental writer, tackles this subject in her book, "Costing the Earth." In it, she uses the phrase "the greenery" to describe this new "religion" everyone is talking about. From a business perspective, she says the greenery will impose costs, yet it also represents an extraordinary opportunity.

In my experience, opportunity usually comes disguised as hard work. For the last few years, we at Monsanto have sought to turn potentially out-of-control costs--spawned by numerous environmental regulations--into an advantage. One way we do this is through an incentive system. I recently presented an award to a group that found a commercial use for a variety of the company's byproducts. The prize was $25,000--donated to any environmental cause.

Monsanto has been working on four levels to succeed in "going green." The first level involves the bottom line: How can we be environmentally correct and financially secure?

I asked my people to calculate how much we spend on raw materials and energy coming in the front door, and how much waste goes out the back door in a container. The difference is millions of dollars in lost raw material and energy.

So we set targets to recover that money. Some waste is governed by the laws of God and physics. But the rest required re-engineering of our production processes, because the only way to eliminate these costs is to stop making waste. Disposing of byproducts efficiently and safely is a short-term view. In the long term, you have to stop producing them.

After slashing some costs through streamlining production, we tried to find advantages for our industrial customers. Some of them are just now learning about environmental compliance. So we've been teaching them how to measure costs and do cradle-to-grave product analysis.

Such procedures will be mandatory soon. Businesses will be accountable for the fate of all their products. In Europe, for example, a company that supplies plastic for car dashboards is also responsible for the disposal of those dashboards.

Monsanto also strives to provide environmental services. The development of biotechnology is a natural outgrowth of this type of troubleshooting. Our first commercial use of biotechnology in agriculture was the engineering of cotton that resists insects. Insecticides are harmful, so instead we used biotechnology to grow cotton plants that are immune to bugs.

The fourth area--and one in which we've had little success so far--is pricing. The public has said time and again that there's no price too high to pay for a clean environment. But we've never tested that on a commercial level.

Industry has been eating sizable environmental costs over the last several years. All the productivity gains, all the empowerment gains, all the good management gains, have been nullified by these costs.

We're trying to persuade other companies around the world that it's time to test the waters on cost by charging the public for environmental remediation. I suspect the price tags of environmental requirements will come as a surprise to many people.

I hope we can tee up this issue so people either say, "OK, I believe that's an environmental problem, and I'm prepared to pay that price," or "I won't pay that price." In any case, when we simply bury these costs, we do our shareholders and consumers a disservice.

Phil Ruffin (Ruffin Companies): I don't think the consumer is ready to pay the price. I think if you say, "This item is environmentally friendly, but will cost you a nickel more than this other product"--you probably won't sell it.

John W. Rowe (New England Electric System): I think that's all the more reason to try. Because the only way I can think of to make the consumer understand the costs is to make the costs explicit.

Here's an example: There are a lot of suggestions floating around about instituting a carbon tax--a tax on the carbon content of every carbon-burning product sold. For my company, a carbon tax would be a cheap and coal-friendly way of dealing with the air pollution problem. The more costly alternative is to suppress the use of coal through regulation.

I think a tax as little as $2 a ton is enough to do the trick. But here's the rub: People think more prudently when they are voting on a tax they may have to pay out of pocket. When consumers express their opinions on a regulatory scheme, they tend to blindly approve the measure because they believe it won't cost them anything.

Mahoney: I'm a great fan of the public when it is informed. It's our job, I think, to tell it the facts of life. Not by lecturing from ivory towers--because that hasn't worked--but by clarifying for consumers the economic choices involved in the production, marketing and purchase of products and services. Business must raise the public consciousness. It must make the consumer decide whether the advertised threats to the environment are concrete or just the scare of the month.

The new environmental playing field is integral to our business planning. Those companies that can make the most of it will flourish. And those that don't will become industrial fossils.

OPPOSITE WORLDS

Harry E. Teasley Jr. (Coca-Cola Nestle Refreshments): I'd like to talk about the green movement from a packaging perspective.

I see two competing world views. The first is the green opinion: It says our environmental problems are in large part related to market failure, and that economic freedom is not compatible with environmental values and objectives.

Generally, people holding this view believe in and rely on political solutions to address environmental problems. They believe information can be--and should be--centralized, and that processes and products should be managed through collective central planning via command-and-control regulations. They believe there is one best solution, and their worldview is solution-oriented-an attempt to dictate the outcome of the game.

On the other side of the fence are so-called free-market environmentalists. They don't believe the market has failed. They do, however, maintain that private property rights, individual action, and economic freedom are essential to safeguard environmental values. And their strongest belief is that the market is a superb regulator in driving efficient use of resources. They say competition and innovation drive marketplace adaptation.

The proponents of this worldview then, see the interaction of business and the environment as a process rather than something with a single, correct outcome. They believe in the wisdom of the market-place, rather than forced, governmental solutions, which seem to be the rage today.

In the last few years, thousands of proposals have flooded in to regulate packaging, recycling, and solid waste disposal. Here's one: Plastic packaging should be banned because it's made from a nonrenewable resource.

However, if you do a systems analysis of glass bottle production, you may find there are more hydrocarbons used to make that glass bottle than all the hydrocarbons in a plastic bottle. They're just used differently--for example, to melt sand instead of make plastic.

Another poorly thought out proposal: Ban multilayer packaging because it is nonrecyclable. In fact, multiple layers are more durable and energy efficient.

Some also maintain government should dictate the materials and packages for specified products. All of you are familiar with 12-ounce beverage cans. When I joined the Coca-Cola company, a three-piece can weighed 164 pounds a thousand. Then Coors developed one of the first aluminum cans. Steel developed a two-piece can. There was a constant process of innovation.

The package now weighs 35 pounds a thousand--an 80 percent reduction. That

packaging evolution took place in a market economy where competition drove efficient use of resources. It would be difficult for government to achieve through regulation what the market did through competition.

Mahoney: On the cost side, meanwhile, most people feel that if we just set business to the task, going green would not only be inexpensive, it would be free. The public chants this mantra, but eventually I think people will realize it is a fallacy.

I think it's a matter of time lines. If we wait long enough, the public will come to the right conclusion. But in the interim period we can't piddle away our time fighting irrational environmentalism.

SLAP A LABEL ON IT

J.P. Donlon (CE): Perhaps businesses should tell consumers what portion of a product's cost is tax and what portion is its environmental cost, as they do with the energy-saving number on appliances. Would a labeling approach accelerate the process of changing public opinion?

Mahoney: I'm in favor of anything that informs the public of the trade-offs on hidden costs.

Teasley: In a way, we're doing that now. We label products when we price them. Price is more than a transfer mechanism. It contains information about the resources that went into that product.

If a recycled product costs 30 percent more than a nonrecycled product, one must ask why. Is it processing energy? Is it the use of more capital? Is it a materials cost?

Consumers should know that if a product costs more, it probably is generating a demand on resources and producing environmental impacts that are greater than those of a nonrecycled product. Everything relates to price.

CATERING TO THE PUBLIC

Russell Banks (Grow Group): The difficulty is that the public feels entitled to almost anything it wants. Activists exploit that feeling by manipulating the media.

Couple that with the fact that business is not held in high regard, and the result is that nothing we say is believed by the public. We face an uphill battle to convince the public we operate with integrity.

Pierson M. Grieve (Ecolab): If anybody understands environmental abuse by the media, it's our company, because we've been victimized almost every spring by undocumented assaults on allegedly dangerous lawn-care chemicals. The reports aren't true, but they get plenty of attention from the media anyway.

Well, as Nixon said, they won't have us "to kick around anymore" because we've left lawn care for the relatively safer climes of highly toxic cleaning agents.

REGULATION BLUES

Banks: The image problems of business aside, there are other issues we need to address. Let's start with Superfund.

Superfund legislation requires private polluters to disclose to the public their waste releases to air, water and land, and how they plan to repair the damage. The legislation also aims to fund the cleanup of abandoned hazardous waste sites. But I think these laws are more detrimental to business than almost anything else involved with the environment.

Mahoney: Superfund may be the most poorly crafted piece of legislation in history. Sadly, the law is up for reauthorization.

Legislators rank environmental issues based on their political priorities, then they plan how to spend their time and energy. Superfund is a high-ranking issue only because the public made it one. Consumers worried about health risks put Superfund first or second. The legislation is supposed to save us from environmental disaster.

Banks: Superfund is a solution I think the public would like. It requires business and government to come up with regulations that assign responsibility for past mistakes. The idea is to blame a private enterprise or corporate executive. But to go back 15 or 20 years and try to undo the past is difficult, if not impossible. Besides, when a business has to pay for legal and consulting support, it faces an uncontrollable cost.

Mahoney: Here's my solution: Agree on the sites to be cleaned up. Forgive what happened in the past, just pump in money to clean up the mess. Then cap the sites near groundwater so the chemicals can't contaminate it.

We should also ante up to develop technology to solve these problems.

But the bottom line is that companies would like to be done with this whole cleanup business.

Russell W. Maier (Republic Engineered Steels): I've spent 30 years in an industry where every ton we produce creates half a ton of waste. But of that half-ton these days, we recycle two-thirds.

Nevertheless, I think the public and the government will continue to load us down with increasingly stringent requirements. We can't win that fight. When we had 750,000 steel workers and 10 times that many supporting people in our industry, we had a lot more clout when we went to Washington to talk about environmental legislation.

Now, with only 250,000 steel workers, we're brushed aside. We have to recognize the green tide remains on the rise.

LIFE CYCLES

Marvin L. Mann (Lexmark International):

Like most of your companies, Lexmark tries to be environmentally friendly. In one approach, we've tried to focus on the complete life cycle of our consumable products. We have examined our ability to reuse material, to extend its life and, therefore, reduce the amount of material needed to do the job.

Ultimately, we need to recycle. As mentioned earlier, that's hard work. But it's amazing how it helps to reduce the negative environmental impact and also cut our costs.

Here's an example: We produce laser printers for desktop computer applications. We decided we would make the ink cartridge last three times longer. One result: Our cost to produce that item is three times as much as our competitor's. But our product reduces the amount of waste that goes into the dumps.

We also began to recycle packaging. We now ask our customers to return old products to us, so we can reuse the materials and packaging.

Each of these procedures saved us money. That's not always the case. But generally, the things we do reduce the impact of our products on the environment and give us a better product.

Donlon: It sounds like you come out ahead. Have you quantified the changes in profit margins on your green products?

Mann: Yes. For example, we also recently changed the packaging of our laser cartridge. That move saved us a million dollars a year in the U.S. alone. And the package took up less space in the dealers' shops and stores.

We don't add up all the numbers for a grand total, but we do derive a cost advantage, and sometimes a price advantage. For the most part, we don't get a premium price because of the changes. And we shouldn't: After all, we save money putting them together. But we do capture some market share.

Maier: We are also looking to make changes. In the last several years, we identified 400 waste streams. We pointed out their origins to our employees who, in turn, try to eliminate them or convert them into recyclable material.

We still take a lot of stuff to the dump. But not everything. For example, we found we couldn't sell our slag because our people were throwing wooden pallets into it. We went to the source of the problem and stopped the pallet disposal. Now we have a saleable product.

HANGING TOGETHER

Peter H. Coors (Coors Brewing): Russ, you mentioned the image problems faced by business. I agree that we are portrayed--unfairly--in an unfavorable light. I don't think anyone in business gets up in the morning, kisses his wife goodbye, and says, "See ya, hon. I'm going to pollute America today."

We are tarred with that brush, but I suspect everyone here today can tell me chapter and verse the things they are doing to safeguard the environment.

However, we may be our own worst enemy because of our inability as CEOs to get a grip on this problem. And if that isn't enough, we must also fight the command-and-control people who push a one-size-fits-all solution to environmental problems that plague society today.

In response to such activists, Coors got together with some other companies two years ago and set up a small task force. We intend to define sound environmental policy and make it stick to the wall. We also want to eliminate the plethora of legislation that is choking us.

The problem is that everyone has an agenda. In our industry, for example, the aluminum people have one agenda, while the glass people have another. The plastics people have an agenda. And we all run around trying to have our particular agenda exempted from legislation. Ben Franklin warned us once: "Hang together or you're going to hang separately." Right now, I have the feeling we are hanging separately.

But member companies of the Coors task force hope to rise above our separate intersts. The alliance is small, but we plan to do battle in the solid waste arena this fall.

Here's what we're up against: On my last trip to Washington, I met with a legislator who said, "Logic has no bearing on environmental issues. We're not concerned about what the facts are. We're concerned only about what our constituents want."

In other words: Men of integrity, good men and women in Washington, are going to vote for environmental legislation not because it makes economic sense, but because they feel they have to go green in the political scheme of things.

James D. Cockman (Ocean Fresh Express International): If we cut across some of the clutter in the industry and find a way to unify ourselves and talk to the public honestly, we can win. If we don't, the winners will be some jokers in Washington.

Politicians are concerned about the environment only because the public says, "We've got an environmental problem--do something." But when government sticks its nose in, costs seem to skyrocket.

Leslie G. McCraw (Fluor): I'd like to comment on that. I was in Washington recently, and I was discussing an issue with a senator that had nothing to do with the environment. He said, "I see your point, but if we could position this thing as an environmental issue, then we could get more people to support us."

I was astounded that he wanted to put an environmental spin on what was essentially a nonenvironmental issue.

WHAT HAPPENED TO SCIENCE?

Alan D. Weinberger (The ASCII Group): I think that one-track mentality does exist--in Washington and elsewhere. But I also believe part of the problem is the lack of scientific analysis of the environment.

I just came back from Russia, where I met with some senior government leaders. Now that the chains of communism are broken, no one there wants to see government exert heavy-handed control in areas where scientific analysis hasn't determined that a real problem exists.

Elsewhere in the region, Eastern European countries now look to the U.S. for leadership. They are looking on as our government takes control of environmental issues. I think America has a responsibility to lead the world in this area, but leadership should be based on sound analysis not expanding bureaucracy.

Donlon: The "Agenda 21" charter of the Earth Summit in Rio called on the UN to get its constituent nations to approve a supranational body which would compel all members to abide by the summit's principles. But that would mean a loss of some national control. Wouldn't that inhibit the market?

Teasley: It depends. If the charter embraces market ideas and principles, fine. If it embraces a different set of tenets, that would present a problem.

Rowe: We're all in favor of letting the market work without excessive regulation. But the hole in the free-market armor is that environmentalists can always say this environmental or resource cost isn't reflected in the prices of products.

Nonetheless, I think we have to let the market work and, in the process, it will deliver our environmental protection.

William D. Rutherford (Societe Generale Touche Remnant): When it comes to the environment and forces of the marketplace, I think the answer is: You do what you can. This may sound overly simple, but as business we must respond to the market, rather than expect the market to respond to corporations.

TRAINING THE WATCHDOGS

Grieve: On a broader basis, there are four groups working to define environmental issues and public policy: the public, the media, the government and environmental activists. All legislation is influenced by public opinion. Public opinion, in turn, is largely influenced by what people read and see in the media. Unfortunately for business, the media have already decided to champion the environmental cause as formulated by "environmentalist" groups.

Robert L. Westbrook (Anchor Hocking Plastics): The critical problem today is that public opinion on environmental issues is much closer to what the media suggests it should be than what the business community thinks it should be.

Grieve: We have to reach out to the public and give it the facts, providing balance to media coverage.

Rutherford: I think we're dealing with perceptions here. Perceptions are difficult to change. Needless to say, there is a strong institutional bias that green is good.

Barry N. Naft (AWD Technologies): Whatever the perception, you also must realize that business slowed down spending for environmental compliance during this recession. Look at the stock market for the environmental service companies. Their earnings are all way down over the last three or four quarters.

That's because U.S. industry has said, "Hey, we can't afford it. We're spending 2 to 2.5 percent of our GNP, and we can't compete worldwide." I think Washington has to stop and listen to that message. We can't change the public's view on environmental issues: Green causes are so firmly embedded in popular culture that there are even cartoon shows about environmental heroes. In sum, business faces a tough row to hoe.

CLASS WARFARE

Rutherford: Right now, the environment is mostly an upper-middle-class issue. Third World countries look upon environmental legislation as a tax that developed countries use to keep them down.

McCraw: I disagree with that statement. Fluor operates in 88 countries, and I am amazed at the sensitivity to environmental issues in a lot of those nations.

I was in Santiago recently, and government officials only wanted to talk about the environment and the amount they were going to allocate to clean up the ocean. This is neither a class issue, nor one that is uniquely American. The green movement is taking hold around the world.

Joseph C. Farrell (Pittston): The green movement is here. So let's do what we probably should be doing anyway even if there were no green movement: Cut costs and save money. And if we can, we will take advantage of the movement. Let's go with the flow and see if we can help ourselves.

A word of caution about the great costs involved. A $536 million NAPAP study concluded that acid rain is not killing forests, lakes and streams, yet Congress passed the Clean Air Act which will cost $25-30 billion.

Cockman: That's true. Government always steps in to fill the void, and somehow, business always seems to pay the bills.

POSITIVE OR NEGATIVES?

Donlon: In the long term, will green marketing be positive or negative for your company?

Cockman: I think it will be positive because business will be forced to respond and innovate.

Lou Allen (Lou Allen and Sons): I agree. Time and common sense will eventually change the public's perceptions of business. And businesses will continue to develop new "green" products. I think that costwise, the situation will get worse before it gets better, but in the long term, green marketing will be good for business.

Herbert L. Koelling (UARCO): First, however, we have to understand and operate within the current legislation whether we like it or not. We must try to influence the law when we can. We must continue to give the customer what he thinks he wants. And eventually the bottom line will benefit.

Times are tough for business now, but the pendulum will swing in the other direction.

Teasley: I think the discussion, debate and controversy surrounding environmental issues is good for business. It forces us to think about our processes and our products. It forces us to be more efficient.

But problems begin when that public discussion turns into government regulation that is not based on good science, good facts, or the dynamic processes of the market.

From a business perspective, that's where the green movement goes bad.