The Regulation Opportunity: How to Profit from Increasing Environmental Regulation

Companies that place importance on environmental compliance are generally better run and costs are more fully understood.

In today's "green" world, it's hard to miss all of the hype and discussion around environmental initiatives and increasingly demanding regulatory environment. From global warming, to the Kyoto Protocol, to carbon footprints, increasing awareness of the environment is all over the news and the current darling of the media. Over the past eight years, we've seen a relatively laissez-faire approach to the environmental protection and very few regulations have been introduced, enacted, or enforced. In fact, many would argue that we've seen environmental regulation rolled back to its lowest levels in the past 30 years.

Looking forward however, I believe it is safe to say that with a new administration coming into Washington, and the amount of attention given to the environment, sustainability, and conservation, we're sure to see much more stringent environmental regulation in the upcoming years. However you feel about environmental regulation from a personal perspective is irrelevant as we look forward to the next eight years and consider how you will be impacted as a manager and manufacturer through increasing environmental legislation.

A prime example of the changing landscape is seen through the recent passing of California's AB32, the Global Warming Solutions Act. This landmark law mandates that California will reduce state carbon emissions to 1990 levels by the year 2020 -- a nearly 30% reduction from today's levels. To achieve this end, there are 31 new regulations affecting all aspects of business including scoping of cap-and-trade mechanisms, mandated use of renewable energies, and transportation and emission related changes, to name a few. California has always been a pioneer with respect to environmental regulation, and many of the laws on the books today were developed and first implemented in California before being rolled out across the nation. It is the hope of California legislators that this new law will become a model for other states and other countries. As the saying goes, "as goes California, so goes the Nation."

Environmental pressure continues to mount on an international basis, as well. World leaders just met in Ponzan, Poland to discuss global climate change and a new regulatory environment to curb human caused changes, and another World summit is to occur next year in Copenhagen. Like it or not, more stringent environmental regulation is a virtual certainty.

Again, it is unimportant how you feel about these laws on a personal level. Changes are coming, and the real question remains, how will this affect you and your business and operations? Furthermore, how can you prepare for these changes, and how can you become more competitive and profitable as a result? While there are many complexities and uncertainties that management must face with respect to these inevitable changes, increasing environmental regulation should be viewed as an opportunity to improve company performance and profit.

Before going into specifics, at a very high level, you should be "regulation agnostic" as you consider pending regulation and resulting actions and response. That is to say, it shouldn't matter what new regulations come down the pike. If you are running your business as efficiently as possible and are effectively tracking costs and metrics, it should be relatively easy to comply with any new twist that is thrown at you. In fact, institutional investors view strong environmental corporate governance as a proxy for quality management. Conversely, poor environmental practices are usually a sign of inefficiency. A "green" company is generally one that is just a well run and stays ahead of its competition through logical business practices.

At a seminar that I attended recently, one highly-regarded speaker rightly commented on the economic downturn, unemployment, and environmental issues by suggesting that managers should "fire waste, not people."

Below are five key areas of your business that can positively benefit from having an environmental plan or vision in place. The ranking and magnitude of benefit from the five categories below will depend upon each specific company and specific industries-each situation is unique.

An environmental vision and plan can help to mitigate increasing environmental regulation by improving:

  1. Revenue -- Companies that are green, and are perceived by the consumer as green, have increased customer loyalty and attract higher rates of sales. Communicating and delivering environmental responsibility drives sales.
  2. Cost Structure -- Companies that place importance on environmental compliance are generally better run and costs are more fully understood. After all, if you can't measure it and track it, you can't improve it. Having an environmental strategy helps to trim the fat, reduce waste, and improve the overall operating cost structure.
  3. Public Relations -- The importance of public perception should not be underestimated. Customers will actively punish companies they feel are not thoughtful with respect to the environment. A strong environmental vision instills confidence in your brand and product. Developing a good reputation is imperative...and valuable.
  4. Government Relations -- If you are a leader in your industry with respect to environmental compliance and cooperation with regulatory agencies, you will invariably be treated as a good corporate citizen. Not only will you have garnered regulatory "good-will" through your actions, but you will be considered a key stakeholder who can help shape regulation in the future. You will be a credible participant in the regulatory process.
  5. Employee Relations -- Do not take for granted your most important asset--your talent. If your managers and rank-and-file employees have faith in leadership's operating practices and policies and feel that they are not only good for business, but also good for the environment, then you have achieved much. Employee satisfaction correlates directly with the sound environmental practices.

In a free market system, regulation is usually thought of as a bad thing. Yet, if viewed through the right lens, with the right tools in place, regulation can be realized as an opportunity to improve. Increasing regulation is a fact of life, and regulation can be used as a means to impose efficiency and organization. At the most basic level, regulation provides opportunity to develop meaningful and measurable metrics and continuously improve operations. More importantly, increasing environmental regulation is an opportunity for management to inspire. Developing an environmental vision and program is an opportunity to instill confidence in employees and investors.

Note: In my next article, I will develop each of the five areas that can benefit with a thoughtful environmental vision. Additionally, I am soliciting participation from IndustryWeek readers, and it is my hope that you will share some of your stories, approaches, and solutions with respect to management practices and environmental regulation. I will highlight your examples in future articles. It doesn't matter if you are a manager, senior leadership, or a line employee, all input and perspectives are valuable. Interested readers can fill out a brief, confidential survey at www.birndorf.com/survey.htm.

Steve Birndorf is an independent sustainability consultant who creates meaningful environmental visions and plans for corporate clients. He has worked for such firms as Coca-Cola, Intel, Disney, Nestle, Dreyer's, Genentech and Network Appliance. www.birndorf.com.

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