Sustainability has taken root as a new priority in the corporate landscape. The usual paraphernalia has come with it: sustainability reviews and reports, sustainable practices and products, and-at the top of the tree, the latest addition to the executive C-suite-the chief sustainability officer.
It might look like just another corporate fad. To understand why it's not-and to find out why CFOs should care-it's best to ignore the jargon and instead check the shelves of a supermarket in India's sun-drenched southern states of Tamil Nadu and Andhra Pradesh. Alongside the other detergents is one, Surf Excel, which prides itself on producing less lather than its competitors, while ensuring clothes are just as clean. More lather means more rinsing, which requires more water-and water is one thing that consumers in southern India can't afford to waste.
The region's growing population has put an ever-greater strain on its water resources and each year brings a fresh crisis as reservoirs shrink and the two states feud over their shared rivers and canals. Surf Excel's manufacturer-the global food and hygiene products giant, Unilever-claims that the less-sudsy detergent saves two buckets of water per wash, which could add up to a yearly saving of 14 billion liters.
Henry King, science and technology leader for sustainability at Unilever's Colworth office in the U.K., says that Surf Excel was born out of a project to assess the company's "water footprint." Unilever's two main businesses rely on access to vast amounts of water-not so much at Unilever's own facilities, but upstream and downstream in the product life-cycle as farmers grow crops and the company's 150 million consumers wash their hair, their bodies, their clothes: "It's a critical aspect of our business. So we went looking for regions and markets where there was some degree of water stress, markets where our products have a big impact on consumption and where we therefore had the potential to ease the strain by making changes to our own operations or to consumption elsewhere in the supply chain," King says.
Surf Excel is just one of those changes-Unilever is also growing tomatoes in California and tea in Tanzania using innovative water-saving techniques-but it helps sum up what sustainability is about: Ensuring that the world's growing population and ravenous markets don't put more strain on the planet's resources than it can bear. It's as much about water, agriculture, metals and minerals as about the more familiar problems surrounding oil (see accompanying story).
The implications for companies are three-fold, says Andrew Aulisi, the Washington-based director of the markets and enterprise program at the World Resources Institute: "If you're a CFO, you're facing extra regulation, you might be running into issues of physical scarcity, and then you've got changing consumer attitudes and behavior-so the issue is, what does this mean for your costs, what does it mean for your revenues and market opportunities, what does it mean for your company's products?"
Those aren't easy questions to answer, especially for global companies which might source raw materials in one part of the world, manufacture in another and sell products somewhere else entirely. As an example, Aulisi points to PepsiCo, which buys a lot of corn, sugar and other agricultural commodities to make its drinks and snacks. Requirements to preserve native forests in many parts of the world are restricting the expansion of agricultural land-and the growth in demand for biofuels is providing competition for the existing space. The result over the past couple of years has been an increase in the cost of raw materials, says Aulisi. Pepsi isn't the only one feeling the pinch--or are price spikes limited to agricultural commodities.
"I could give you a hundred examples like that. The growth in population-coupled with a consumption increase driven by the emergence of a huge new middle-class in countries like China and India-is creating supply and demand constraints that we haven't seen before," he says.
This global gear-shift has an impact at the local level. Los Angeles' baseball team, the Dodgers, is overhauling its stadium in an attempt to bring in shoppers and diners during the long periods when no game is on but, like many other construction projects, it's seeking to do so in an eco-friendly way, says Cynthia Hughes-Doyle, a senior associate in the sustainability consulting practice at Santa Monica, Calif.-based building cost consulting firm, Davis Langdon, which is advising on the project. The kind of solutions employed might be as mundane as smaller fans, and alternative transport links to the city's population centers - but, increasingly, making buildings sustainable has become the order of the day: "It's all you hear about, all you read about. One of the big drivers has been the dramatic rise in construction costs, which is more to do with materials costs than labor. As China and India have become bigger global players, you have more people competing for the same amount of resources," she says.
There are opportunities here, too. DuPont's sustainability program focused initially on reducing the company's own usage of natural resources, but expanded dramatically two years ago with the announcement of a series of revenue targets that will reshape DuPont's business. By 2015, the company aims to double to at least $8 billion the revenue it derives from non-depletable resources-shifting away from petroleum-based products, for example; by the same date, DuPont aims to earn $2 billion annually from products that provide its customers with energy savings. In doing so, the company is capitalizing on what it sees as growing demand for more sustainable products, says Linda Fisher, DuPont's Wilmington, Del.-based chief sustainability officer.
"We started to realize that we could reduce our footprint to zero and the impact on the environment-and the value to the shareholder-would be nothing compared to what we could do by bringing products to the market that would make the entire value chain more sustainable. We went from just being a responsible corporate citizen to looking for ways of making this an engine of growth," she says.
Coming up with the targets took a year, as Fisher and her team met with each of the company's 20 strategic business units and tried to agree on goals that would be achievable but would still stretch the business. She concedes that the project initially provoked some concern within the company, but says that some businesses are now coming to her and asking for the goals to be expanded so that they can get credit for products which didn't contribute to the original set of targets: "Within more and more of our market segments, there is a pull for sustainable products, so our businesses are seeing our goals as a valuable component of their marketing and communications with customers," she says.
A similar kind of process is under way at Unilever, says King. The company's sustainability office has been meeting with brand and marketing execs to encourage them to look at Unilever products from a sustainability perspective, and find messages that connect with customers who are increasingly seeking more environmentally-responsible options.
The WRI's Aulisi says that the sustainability agenda has made some headway within companies, but argues that there is much further to go: "Ten years ago, if you went to a company and told them that sustainability matters to their bottom line, they'd have dismissed you. Today, the same companies will say: 'Ok, I'm listening, I think you might be onto something here.' But we still need to translate environmental issues into numbers that people can actually make a decision on. I think that's where people are stuck right now, but there is definitely a growing willingness to figure it out."
As companies increasingly bump up against new regulation, supply constraints and new customer attitudes, Aulisi says that sustainability will break out of the box in which it currently exists to become an integral part of good strategy-a logical and necessary response to a changing world. If so, it might still help to avert the more alarming scenarios that some experts have forecast.
The increasing scarcity of vital resources has begun to reshape the geopolitical map. In one example, a former Pakistani prime minister predicted--before the recent terrorist attack on Mumbai--that a dispute over water rather than the territory of Kashmir would bring India to blows with its neighbor. In another, China has been actively buying up mining rights in Africa in an attempt to secure its own access to metals like cobalt and copper, increasingly scarce in China, says Armin Reller, a professor at the University of Augsburg, Germany. In the relatively near future, the most gloomy prognosticators have suggested that resource wars could be fairly commonplace-or that resource-rich nations could use their power to coerce others.
"We should find a way to share," says Reller "Of course, this is the idea of a dreamer. But, as a professor, I still have the freedom to dream."
Rare Indium, the Most Boring Element Now Stars in Making Flat Screen TVs
No-one is quite sure how much indium is left on the planet-and, not so long ago, no one would have cared, says Armin Reller, a professor at the University of Augsburg, Germany: "If you take a text-book from the 1970s, you'll find indium described as one of the most boring elements of the periodic table."
A lot has changed. In the 1980s, scientists discovered that indium had impressive conductive properties when used in combination with other materials-and it's now an essential ingredient in flat-screen TVs and other devices that use liquid crystal displays, like laptops and cell phones. As demand for indium has increased, so has the price. In 2002, a kilogram of indium could be bought for less than $100. During 2007, the average price was $795 per kilo, according to the latest U.S. Geological Survey.
But it's not just a question of price. As the world's wealthy consumers grow in number and new technologies emerge which also use indium, the Earth's stocks of this mineral-and other suddenly popular resources-could run out. There are even question-marks about the lifespan of relatively common metals, like copper.
Nanosolar, a San Jose, Calif.-based company, relies on indium and a mix of other metals to make wafer-thin solar cells-an emerging and much-hyped market for which the six-year old start-up is one of the pioneers. If solar cells can be shrunk down to the thickness of film, they can be manufactured and installed far more cheaply and easily, finally making solar a real competitor to oil and gas, the company argues - and Time magazine, which named Nanosolar's thin film cells one of its 50 best inventions of 2008, evidently agrees. It could be a massive market. So is there enough indium around to sustain its growth?
Jim McNicholas, Nanosolar's CFO, says there is. "The indium market's known to be constrained, but it's a supply-demand thing. Historically, there's never been a market for it, so it wasn't mined, but as industries come along which need it that will change," he says. Indium is as abundant as silver in the Earth's crust, he says, so while there might be occasional bottlenecks and price spikes as demand exceeds supply, there's more than enough to sustain Nanosolar's business into the future. As such, the company's risk management strategy for indium focuses on making sure that revenues could withstand a huge spike in prices and that supplies are guaranteed in advance.
That may not be enough. Some researchers have predicted that indium stocks could run out completely within a decade, although the University of Augsburg's Reller cautions that making such predictions is a dangerous game-once, after a magazine attributed to him a prediction that hafnium would run out in 2017, it provoked a major reaction from IBM, which had recently begun using the mineral in a new range of chips. So Reller has become loath to talk dates, but he argues that companies need to respond in any case: "Among the resources that we will depend on for the future - water, oil, other fuels - I'm certain that we're underestimating the importance of metals. We use metals for practically every technology that serves our basic needs - and our demands are only going to increase."