Leaders in the Clean-Tech Economy
Sustainability is more than just a fad— but that doesn’t make it easy.
October 7 2013 by Dale Buss
Sodexo includes as a “sustainability” goal developing its people and promoting “diversity” in its own workforce. “We bundle our goals together where we think we can impact society and the human beings we serve,” explains George Chavel, president and CEO of the Gaithersburg, Maryland-based food-service giant. At Kering, the France-based owner of Gucci and other lifestyle brands, boosting “biodiversity” of its own workforce, as well as “fighting violence against women” and “empowering” them worldwide are “sustainability” goals. “In all areas of the social path, we have a specific responsibility to do something,” says Marie-Claire Daveau, chief sustainability officer. “We think it’s the social path of sustainability.”
Pressure to blur the distinctions between “green” initiatives and other elements on a progressive wish list can come from the outside, but John Grace blames CEOs and boards if they give in to it. “They’re trying to cobble together every ‘good’ that they do under one umbrella,” says the New York-based president of Brand Taxi, a globally renowned branding consultant. “But in the long run, they’ll be found out. Truth is the ultimate arbiter.”
Some CEOs are recognizing this situation. “‘Sustainability’ is becoming somewhat confusing; the definition got a lot broader than it was when people were just talking about the environment,” said Dan Hendrix, CEO of carpet manufacturer Interface. “So we’ve actually kicked around not calling it ‘sustainability’ anymore.”
High Stakes for Auto Industry
No one is in the sustainability spotlight like automotive CEOs. Their industry transformed the globe and it remains the most environmentally impactful, so the sustainability stakes are high in just about everything they do and so is the outside interest.
Nowhere else can forming and executing “sustainability” strategies be so frustrating and muddled. Automakers are whipsawed by crucial yet sometimes conflicting consumer expectations, long product cycles, promising but complex technologies and the ever-higher bar set by stiffening government environmental mandates.
Yet with practically every decision they make—from engineering and design to manufacturing practices to future-product planning and marketing—car-company CEOs must peer through some sort of sustainability prism or risk going awry.
“Sustainability is woven into our global strategies,” General Motors CEO Dan Akerson said at a conference earlier this year. “Every decision we make is: I want to know what it’s going to do to us in 2023, 2033, 2043, so that somebody isn’t looking back to me like I kind of, in my weak moments, look back to prior management and say, ‘What the hell were they thinking?’”
Interestingly, the general public credits automakers as “green” even while CEOs struggle with how to go in that direction. Toyota placed No. 1, Ford No. 2, Honda No.3, Nissan No. 5 and Volkswagen No. 7 among companies across all industries in the latest version of Interbrand’s closely watched Best Green Brands survey of consumers. “What may have started in the periphery, today lives at the heart of the business and brand strategies of the world’s most successful auto companies,” observes Andrew Martschenko, a senior director of strategy at Interbrand’s New York office.
Automakers used to try to trump each other with breathless touts of the horsepower and handling of their new sheet metal, but now the brand-building drumbeat focuses on out-greening one another. No sooner had Ford’s Executive Chairman Bill Ford Jr. pledged recently to cut the company’s carbon-dioxide emissions another 30 percent by 2025—on top of a 37-percent drop since 2000, for example—than a VW executive in Germany was promising the company would become No. 1 globally in sustainability via ambitious energy-efficiency gains in manufacturing under a program called Think Blue.
Giving such prominence to a sustainability ethos also is causing problems for the industry, and electric vehicles provide the best illustration. One of Akerson’s predecessors as CEO of GM, John Smith, was pilloried for killing the original mass-market battery-powered car, the EV1, in 2002. Now, just about every auto brand has an EV or a “plug-in hybrid” like the Chevrolet Volt, but they can’t travel substantially further on a charge than the EV1 did 20 years ago, and they remain very pricey.
So mainstream American consumers have been rejecting all-electric vehicles en masse. Yet auto brands are forced to treat EVs as the lynchpin of their future lineups by an Obama administration that has invested heavily, both financially and politically, in the commercial success of the segment. Federal tax credits of up to $7,500 are meant to lubricate purchases, and popular culture keeps propping up the idea that all-electric cars are the most responsible way to travel.
The pressures are immense on CEOs, and some are drinking the Kool-Aid. Akerson is striving to cut the sticker price of the Volt by $5000 to try to boost its potential mass-market appeal. Already in 2013, an electric-vehicle price war of sorts has erupted as Nissan and Ford have slashed stickers on their money-losing EVs in a last-ditch effort to woo reluctant consumers.
Meanwhile, shedding what he called “German angst” about making paradigm-busting decisions, BMW CEO Norbert Reithofer told shareholders at the annual meeting in May that the company is embracing “electro-mobility” because “being the spearhead of change means taking a calculated risk. The future belongs to those who dare to take bold actions.” So BMW has begun producing an i3 all-electric car and plans an i8 plug-in hybrid, with Reithofer’s promising that “we will earn money with [the i3], too.”
On the other hand, German luxury rivals Audi and Mercedes-Benz have remained much more conservative about EVs. Ford wasn’t an early producer of EVs. Toyota essentially has gotten out of the all-electric business and is concentrating on bolstering the dominance of its Prius brand in the conventional-hybrid segment.
In addition, no automotive CEO is more skeptical of EVs than Sergio Marchionne. His conglomerate was among the slowest in the industry to delve into the segment, and for good reason: For every all-electric version of the Fiat 500 that U.S. dealers sell, he told an industry group in May, the company loses about $10,000.
“Doing that on a large scale would be masochism to the extreme,” Marchionne complained. “My fear is that regulators are rushing precipitously into embracing electric vehicles as the only technological solution” to environmental concerns.
Ironically, so far—and perhaps astonishingly in the future—those CEOs who are fixated on EVs may be denying the auto industry faster adoption of a basket of other technological approaches that could bring about true, long-term sustainability that American consumers would embrace.
For one thing, new methods are boosting the mileage of conventional gasoline engines by double-digit percentages. A new generation of fuel-efficient “clean diesel” vehicles are catching on with consumers. And the growing revival of domestic production of hydrocarbons means that relatively clean-burning natural gas actually may become the preferable automotive-propulsion system of the next few decades.
Even Akerson has acknowledged this opportunity. “I think we have a moment in time to really change the calculus for this country on so many dimensions,” he said at the green conference. “We’ve been given a gift called shale [because] we sit on more BTUs of energy than Saudi Arabia does.” And “natural-gas engines … exist today,” he said.
“We have this moment,” GM’s CEO concluded, and “it has to be grasped.”