Corporate Green

By David Ignatius
Wednesday, May 11, 2005

The chief executive of America's biggest corporation did something astonishing this week: He staked his company's future on its ability to, in his words, "define the cutting edge in cleaner power and environmental technology."

The greening of General Electric was announced by its chief executive, Jeffrey Immelt. He said that by 2010 GE would double its research spending on cleaner technologies to $1.5 billion annually and double its sales of environment-friendly products to $20 billion annually. Meanwhile, GE will reduce its emission of greenhouse gases by 1 percent by 2012; without this action, emissions would have increased 40 percent. The company is promoting this effort with the slogan "Ecomagination," but that's about the only thing wrong with it.

GE is a corporate bellwether. It's the nation's largest company, with a market capitalization of $381 billion. It's also the most widely held stock in the world. Its former CEO, Jack Welch (who recently published a book with the very un-green title "Winning"), was a symbol of the management style of the 1990s, which emphasized shareholder value above all else. Immelt this week made himself a symbol of a new CEO style that emphasizes a company's obligations to a range of stakeholders and interests including the global environment.

Make no mistake: Immelt has the same basic goal Welch did -- to earn money for shareholders. But he recognizes that the global marketplace is changing. The world wants to buy products that reduce emissions of greenhouse gases, and thereby slow the process of climate change. GE has the technology and products to dominate this evolving market. In that sense, it's as simple a business concept as selling light bulbs to a world that wants light.

The GE announcement is the most dramatic example yet of a green revolution that is quietly transforming global business. We tend not to see it clearly in the United States, in part because the Bush administration opted out of the Kyoto Protocol, which took effect in more than 140 countries in February. But if you're GE and you do billions of dollars of business in Europe (where all 25 members of the European Union ratified Kyoto) you already have to comply with global environmental policies, regardless of what the Bush administration says. What Immelt did was to apply the rules that shape GE's operations abroad to the company as a whole.

What's happening is that policy on the environment and many other key social issues is being privatized. Informal networks are emerging that link influential nongovernmental organizations, giant corporations and governments that want to solve social problems. These networks develop new rules that become industry standards. The United States may drag its heels, or criticize these efforts, but its public naysaying is becoming irrelevant to the process of change.

A good example of these self-enforcing rules is an environmental benchmark for financial institutions known as the Equator Principles. Participating companies agree not to lend money for a project unless the borrower completes a detailed "environmental assessment" that explains how it will meet criteria for sustainable development and other social goals. These principles have now been adopted by nearly all the major global financial institutions, including Citigroup, Bank of America, HSBC and J.P. Morgan Chase.

Nobody wants to be the next General Motors, the once-mighty automaker that was reduced last week to junk-bond status. GM bet its future on fuel-wasting SUVs and small trucks, even as Toyota was betting that the world would want cars with lower fuel consumption and reduced emissions. Today Toyota can't make enough of its fuel-saving hybrid car, the Prius.

The green revolution is partly defensive. In an era of corporate scandals symbolized by the Enron debacle, CEOs understand that their brands are precious equity. To maintain trust in a brand, it isn't enough anymore to make good products. Consumers trust companies that are responsible citizens; they mistrust companies that appear selfish or wasteful. Even the global energy companies, once symbols of corporate arrogance, have begun to change. Shell has embarked on a global project to reduce harmful emissions in the world's most polluted cities.

"Corporate leaders recognize that it's not just the economy that's globalized -- information and civil society are globalized, too. Companies need to protect their brands, and their global right to operate," says Jonathan Lash, president of the World Resources Institute, who has worked closely with GE and other companies on environmental issues.

The changes announced by GE and other firms are partly cosmetic -- a bid for better PR -- but maybe that's the point. These days, you have to be seen as doing good to do well. As Immelt put it this week, "green is green."

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