Three Programs at SOM Address Business and the Environment

Each week at SOM brings new chances to learn about some sector of the business world. Throughout the year, numerous speakers come to the school to discuss their experiences and expertise. During the first week of February, three events highlighted the growing role the environment is playing in the ongoing transformation of global business. David Sandalow, a former assistant secretary of state under President Clinton, talked about the path he believes America must take to wean itself from oil. A roundtable of executives from General Electric, DuPont, and UTC discussed the steps their companies have taken to lessen environmental impact while making money. And Jim Butcher, head of Morgan Stanley’s office of the environment, explained the role Wall Street can play in the environment.

David Sandalow: “This is a real moment of opportunity. The momentum toward addressing this problem is pretty big.”

Sandalow, whose new book is “Freedom from Oil,” spent months talking to people on the cutting edge of renewable energy, as well as those looking for ways to supplant the internal combustion engine. He began his lecture with the observation that 11 of the 12 warmest years on record have come since 1990. A major culprit, he said, is the automobile, and through his research he determined that finding a way to make cars more efficient can have a major impact on global warming. “If you want to leave this room any distance without petroleum, you’re basically out of luck,” he said February 4 at an event co-sponsored by the SOM Business and Environment Club, and the Center for Business and the Environment at Yale (CBEY), which is affiliated with SOM and the School of Forestry and Environmental Studies. “We’re not going to solve the problem until we transform the way we drive our cars and trucks.”

Sandalow spoke of people he’s met who are finding new ways to make vehicles more efficient. There’s General Richard Zilmer, who — to reduce attacks on fuel convoys in Iraq — launched a drive to harness the abundant sun and wind of the desert to create an alternative energy supply. There’s the company in Boston that converts a conventional hybrid automobile into a plug-in version, which Sandalow says are dramatically better for the environment. And there’s the founder of Tesla Motors, which has created a fully-electric high-end sports car and aims to eventually be building electric cars for the average consumer. Sandalow said the stories of these people are important because they cast global warming not as a catastrophe in the making but as a problem worth solving. “The world’s going to need oil and gas for a good while — it’s not something that’s going to change quickly,” he said. “Positive visions motivate better than negative ones.”

Steve Ramsey: “When companies like the three here stood up and said we were going to go do this and make money at it, it really changed how the market viewed this. It gave it real credibility.

On Feb. 6, the SOM Net Impact Club hosted representatives from GE, DuPont, and UTC to discuss how each company addresses its environmental impact, and to assess the growing market for more environmentally friendly products. William Sisson, director of sustainability for the UTC Research Center, started the discussion by noting that an internal audit determined that 2 percent of greenhouse gas emissions resulted from UTC products. “If that amount is our responsibility, what do we need to do?” he said. The company has launched programs to reduce its own energy use while producing more efficient products. In ten years, he said the company has reduced absolute energy consumption by 19 percent, while decreasing water use by 49 percent, all during a time when the company’s business has doubled. He said the company just built a plant in China that received a gold LEED environmental rating. “The key is to understand the situation, set goals and measure them,” Sisson said.

DuPont has launched a similar program, pledging to reduce its own carbon footprint while building businesses around sustainability by 2015. “We aim to hold our energy usage flat, while reducing greenhouse gases,” said Judith Hochhauser Schneider, global manager for environmental markets and sustainability at the DuPont Sustainable Growth Center. “But we’ll also be market facing. We’re looking at how to create products that help customers reduce their greenhouse gases.” DuPont hopes to earn an extra $6 billion from sustainability products by 2015, while enlisting employees to find ways to improve their impact on the environment.

In 2004, GE launched its Ecomagination program, which among other things, doubles money for R&D into green products and seeks to double the company’s revenue from the sector. For years, GE fought environmentalists, said Steve Ramsey, who retired as vice president for corporate environmental programs on Feb. 1. But as shareholders, analysts, and GE’s own executives started asking tough questions about the company’s performance, things started to change. The tipping point, Ramsey said, came from a different group. “Over time, customers started asking for cleaner gas turbines, cleaner locomotives,” he said. “They were asking about wind power, about solar, about hydrogen. All things came from the customer side. We saw that we could make money on this. The changes we made had to work with the bottom line. This was not for charity.”

Jim Butcher: “China’s been the world’s largest economy eighteen of the last twenty centuries.”

The first slide Jim Butcher showed the audience on Feb. 6 as part of CBEY’s Carbon Finance Speaker Series was a photo, shot from space, of China on a clear day. “Those aren’t clouds you’re seeing,” he said, pointing to a grey haze hanging over the country’s coastline. “That’s pollution. With all the emphasis the last few years on climate change, it’s important not to lose site of this. The state of California gets 40 percent of air pollution from China.”

Butcher has headed Morgan Stanley’s environmental office since it was created a year ago. Like other industries, he said financial services have become more aware in recent years of its environmental impact, as well as the impact companies can have on their clients. Even before creating Butcher’s office, Morgan Stanley adopted measures to reduce energy use and has said any new company buildings around the world must be certified green. This year, he said, the company will be carbon neutral, consuming renewable energy when possible and buying carbon offsets for the rest. “We felt we needed to get our own house in order before we could be credible on this with our clients,” he said.

Butcher said the financial industry can now influence its clients to become better stewards of the earth. In the last couple years, he said private equity has invested billions in clean energy, while 15 percent of venture capital is now invested in the clean tech sector. But he said it’s not enough. Butcher said there’s a limited window for people to make a real difference on climate change. Take China, he said, where every seven to ten days a new coal fired plant comes on line. The task can seem daunting, but shouldn’t deter people from acting. “In a global, interconnected world, small actions can have an impact,” he said. “We need to change governments’ mindsets, stakeholders’ mindsets, shareholders’ mindsets. But most important, we need to change individuals’ mindsets.”