Andrew S. Winston described his tour lasting over a week in Beijing as a “shocking” travel. He felt surprised at the enthusiasm of Chinese enterprises in low-carbon operations. He said that rather than working as a professor at Yale, he now specializes in providing consultation services regarding environmental protection to enterprises.
In Beijing, the only paper he could was is China Daily. After reading news in the paper for some days, he concluded: The concern of China about a low-carbon economy is now unprecedented, and even surpass America’s. As a full-time consultant for environmental protection, he undoubtedly holds great interest in China. He told Journalist: This (environmental protection consultation) is big business in China!
When the book Green to Gold was first published, Andrew S. Winston didn’t expect that the book would bring him to a completely new field. Before writing the book, he interviewed executives from many enterprises, e.g. Sony, Wal-Mart, and Du Pont.
Chad Holliday, CEO of Du Pont, said: “No enterprise can afford to disregard the green tide that is sweeping over the business world. Green to Gold will teach you how to construct a core sustainability strategy and make profits from the strategy. ”
How can enterprises targeting the pursuit of maximum profits maintain a proper balance between environmental protection and profit? After a a dozen of years of research and discussion, and based on years of experience and interviews with hundreds of enterprise leaders around the world, Professor Andrew S Winston and Daniel C. Esty, one of his colleagues at Yale University, provided a type of practical and feasible “green to gold” model and method for business executives around the world to solve the problems of environmental protection.
In 2010, his new book Green Recovery was published, and the cover of the book reads: There had been not any other book telling you how to make your company more cost-effective and efficient in such a detailed way. He said: this book can better help enterprises to welcome the carbon age from the perspective of management, and it does ask you to follow any trend but can actually help you to lower the cost of your enterprise.
In the interview, when he learnt that the financial media paper 21st Century Business Herald was running a low-carbon weekly, he said; “Even the Wall Street Journal has not done this. Now Americans are too conservative. I will write about the great attention placed on the low-carbon economy by the Chinese media in a special column when I return to America.”
After ending his travel in China, he wrote an article in the special column of the Harvard Business Review: “CEOs and NGO leaders in Beijing regard low-carbon economy as a new topic. But confronted with the massive investment of the Chinese Government in new energy resources; they have to take such a development route. At present, they are learning best practices from America and the western world, but what we should remember is that the Chinese are best in taking a fast following strategy.”
Yet, he also admitted that many enterprises had misunderstood “low-carbon operation”. For instance, “low carbon” had long been interpreted as increasing operational costs.
How can the Value Chain Become More Low-carbon?
21st Century: Usually, a modern enterprise is merely a participant in the value chain. Who is the one that needs to change the most to make the entire value chain low-carbon? Supplier, distributor or consumer?
Andrew S. Winston: During the process of writing the two books, I interviewed many large enterprises and almost all of them agreed that only consumers can change the whole supply chain. However, to change the consumption habit of consumers and to even provide appropriate education to consumers are the obligations of enterprises. Consumers should gradually become aware that: we pay more attention to the sustainable production process and meanwhile we are willing to pay for that.
21st Century: However, no enterprise can give orders to consumers. How can such a situation be changed?
Andrew S. Winston: In fact, the key to making the whole value chain low-carbon does not rest with consumers. The biggest controversy lies in whether distributors are willing to help their suppliers benefit from environmental protection.
Take Wal-Mart as an example. Wal-Mart receives about 150 million customers coming in their supermarkets each week. Wal-Mart hopes to continuously attract customers with lowest prices. Customers always want to have both the cake and eat it. They are not willing to pay a higher price for environmental protection.
Now, Wal-Mart realizes that environment-friendly products are not the most expensive, but investment is required to change the operating approach. Wal-Mart has achieved success in doing so: it has helped one of its suppliers to reduce its energy consumption by 50%. What Wal-Mart prefers is: We help you to reduce the cost and you offer us lower prices. Although sustainable production methods may reduce costs, Wal-Mart always hopes that its consumers may save more because this may help it to attract more consumers.
Yet, this cannot boost the enthusiasm of suppliers because no one is willing to reveal all profits to the end consumers after an investment. The biggest challenge is not whether consumers are willing to pay more or not, but whether intermediary businesses like Wal-Mart are willing to share some profits with suppliers for sustainable development.
That means the key to the problem is whether distributors are willing to share some profits with suppliers, or are they going to hold all cost saving in their own account.
21st Century: If we say when Wal-Mart puts forward a request, all its 70,000 suppliers should listen carefully. Then, many Chinese manufacturers are only a link, just a low-end link of the manufacturing industry chain of the world. “How can the whole supply chain become more low-carbon” seems a topic beyond their capacity. What can these Chinese enterprises do?
Andrew S. Winston: Small and medium enterprises across the entire value chain may not have enough influence to change this situation. Besides installing suitable energy-conserving facilities, they may also use the trend of large enterprise to achieve their own low-carbon development. The world economy after the economic crisis can hardly avoid a round of reshuffling. Many large enterprises are reorganizing their entire industrial supply chains. It is doubtless to say that those companies with better environmental images will get more opportunities.
Office Depot has persuaded one of its own large customers to change delivery orders from ‘the next day’ to transportation once a week. It not only saves gasoline and logistic expenses, but also improves the enterprise’s Office Depot image to its customers. And I know that many Chinese enterprises have participated in the reform of Office Depot and they have seen the benefits.
Positive Effect Brought by the Publication of Carbon Footprints
21st Century: Many enterprises are not willing to publish their own carbon footprints, worrying about disclosing any business secrets to competitors. Is it necessary for enterprises to have such considerations?
Andrew S. Winston: If they worry that a carbon footprint may disclose business secrets, the financial information published by listed companies are more dangerous. It is easier to learn the operation of a company with financial information: assets balances, cash flows and net profits.
In fact, the transparency and openness of information are new requirements brought about by technical advancement. People have the right to know what material their food, appliances and clothes are made from and how many resources are consumed. In particular, young people have increasingly high requirements for the transparency of information and enterprises should make a gradual adaptation to such requirements.
Carbon disclosure will not change the actual competitive power of an enterprise. The key competitive strength of an enterprise lies in its own design, production, innovative power and talent.
21st Century: Can carbon disclosure bring benefits to enterprises?
Andrew S. Winston: Carbon disclosure will not disclose the business secrets of an enterprise but can improve its competitive strength. As it turns out, many large companies are selecting suppliers on the basis of carbon footprint standards. When enterprises participated in CDP (carbon disclosure projects), CEOs of large enterprises hope to classify and evaluate suppliers based on their capacity of responding to environmental problems.
Disclosure of a carbon footprint is not merely the requirement of consumers and downstream and upstream purchasers, but it will also gradually become a compulsory requirement of governments. For instance, the U.S. Government will require large enterprises to publish their carbon footprints from January 1 of next year.
The understanding of its own carbon footprint may also help an enterprise to find the most effective low-carbon solutions. For example, P&G has discovered new market space because it understands its carbon footprint. Through the investigation of their carbon footprint, P&G discovered that 85% of the energy customers consume was not used to run the washing machine to wash clothes, but to heat the water. Hence, P&G developed Tide cold water detergent and saw revenue of over USD 2 billion in the first year. The example of P&G may prove that: The first step for an enterprise in low-carbon development is to have detailed data, and CDP is undoubtedly a wise choice.
The Self Supply of New Energy Resources is a New Development Trend
21st Century: Currently, the supply of new energy resources is not stable for Chinese companies. Faced with an energy crisis, what can enterprises do in terms of selecting an energy strategy? Should they choose the unstable new energy resources or the fossil fuels whose price keeps on rising and is not environment-friendly? Andrew S. Winston: I have been watching the Chinese news these past two days, and there are many reports about the environment and resources. There are many discussions on the insufficiencies of conventional resources to support present development. The Chinese Government also begins to realize that green is the only channel to sustainable economic development.
Each company should treat the environment as its own property. As a matter of fact, profit and the environment are the same concept because natural resources are natural assets and they are the main power supporting our economy.
China has set a bold investment objective in terms of new energy resources. Not only in targets in the production of new energy resources, but also discussions on how to make conventional energy clean, e.g. each piece of coal can be utilized thoroughly to reduce waste. Many factories making bricks and cement are discussing ways to enhance energy efficiency.
To Chinese enterprises, the most important new trend is: There will be more and more chances to use new energy resources. But it does not mean that each company should depend on the central power grid to provide clean energy. Every building may have its own power supply and can self-installed new energy supply facilities, such as solar energy, wind power and geothermal heat. This will be a brand-new model for the supply of commercial energy.
The supply of new energy resources may be unstable now, or we can say that the market of new energy resources is not stable. The cost curve of conventional energy and that of new energy resources will converge in the near future; this is a reality in many countries.
21st Century: What advantages do Chinese enterprises have in the global trend of low-carbon economies?
Andrew S. Winston: First, this trend will become a reality in the future, and there is no other option. Meanwhile, Chinese enterprises have natural advantages in using new energy resources to reduce economic costs and environmental costs. China will build solar energy from small-scale production into a large industry within three years, helping all enterprises using solar energy in the world to reduce their cost.
Like all new business models, low-carbon operational scales also need to be expanded to reduce costs. The massive market and low manufacturing cost and labor cost in China are always the natural advantages all Chinese enterprises cannot afford to neglect.
Of course, incentive measures from the Government are also required for enterprises to use new energy resources and hence achieve low-carbon operation on a large scale. Germany has established a large solar energy market because its government has provided certain security payments, which significantly reduced the return periods of enterprises’ investments in new energy resources.
(Source: 21st Century Business Herald)