How Business Saw the Light

Smart companies are using the environment not just to seem virtuous but to crush their rivals


    On a cloudless afternoon early last fall, Honda CEO Takeo Fukui stood by his company's test track outside Tokyo and watched a group of journalists take the company's environmental future for a spin. After test-driving Honda's multimillion-dollar hydrogen-fuel-cell concept car--very, very carefully--I sat down with Fukui to talk about his company's big bet on clean automobiles. As a young engineer in 1972, Fukui designed the first engine capable of meeting the 1970 Clean Air Act's emission standards without a costly catalytic converter, making Honda one of the first car companies to turn environmentalism into a competitive advantage. Today, with gas prices nearing 1970s levels and customers turning to fuel-efficient cars, it pays to be green once again. But Fukui was thinking beyond this year's balance sheets. If business continued with business as usual, he warned, "society will not let us exist."

    Fukui is not alone. From Bentonville, Ark., where Wal-Mart has embarked on ambitious pro-environment policies, to Silicon Valley, where high-tech venture capitalists are pouring hundreds of millions into renewable energy, 2006 was the year corporations began acting as if their existence--like the rest of the planet's--was tied to the environment. While Washington dithers, Wall Street is acting, driven by rising fuel prices that punish inefficiency and by the growing realization that climate change could ruin corporate leaders who continue to deny it.

    As Gordon Gekko might say today, green is good, and behemoths like GE and DuPont are carving profits out of a worldwide green-business market worth more than $600 billion. "This is a watershed moment in the business community," says Daniel Esty, director of the Center for Environmental Law and Policy at Yale University and co-author of the book Green to Gold. "The environment has become a strategic issue. It's something every company must do to stay competitive."

    The best companies can use the environment to do more than just stay competitive: they can use it to crush the competition. Here in Japan, where I'm based, Toyota is poised to become the world's leading automobile manufacturer, thanks in part to its wildly popular Prius hybrid. But what matters more than one car model is the efficiency Toyota brings to all aspects of its business, the result of a corporate philosophy that strives to exterminate waste. Today Toyota can use a single production line to make multiple vehicle types, which has helped it reduce energy use in manufacturing 30% since 2000. CO2 emissions per car are down as well, and the company has set a goal of reducing emissions worldwide in 2010 by 20% from 2001 levels. Although no one would mistake Toyota's buttoned-up leaders for Ben and Jerry, the company's green policies make its flailing American competitors look like dinosaurs. "Toyota is just killing Detroit," says Andrew Winston, Esty's Yale colleague and co-author. "They have taken on the mantle of innovation, so they sell more of every car."

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