New War on Waste

You say you want a revolution? Eco-minded thinkers and industrialists are remaking the way we make things

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The key to sustainability is making the market work for the environment instead of against it. For too long, capitalism has not put a proper value on the services nature provides, such as water supply and climate control, nor has it accurately measured the costs of the damage industry can do to the environment. But putting a larger price tag on pollution can quickly alter behavior. Anticipating the global movement to combat climate change, BP, the British oil giant, decided in 1997 to reduce its carbon emissions to 10% below 1990 levels by the year 2010. To reach that goal, the company let each of its units trade the right to emit specified amounts of carbon (a system similar to one that may be set up among nations under the Kyoto Protocol). This has allowed managers to use their internal market incentives to cut carbon emissions as deeply and efficiently as possible. Result: BP hit its target this year--seven years ahead of schedule--at no net cost to the company.

More than 100 corporations, including General Motors, Bristol-Myers Squibb and British Airways, now release data on their environmental and social performance according to protocols spelled out by the Global Reporting Initiative, a collaboration of nonprofit organizations and companies based in Boston. In the 2001 report by Baxter International, a Deerfield, Ill., medical-products maker, the company detailed how reductions in energy and water use and improved waste disposal and recycling over the past seven years cut costs by $53 million last year. That savings amounted to nearly 10% of its 2001 net income.

For investors who want independent analysis of corporate environmental performance, Innovest, a research firm based in New York City, assigns bond-style ratings. A report on the automotive industry gave high marks (AAA) to Toyota and Honda for their work in setting environmental standards for their factories--and their suppliers. Porsche (CCC) trailed all 13 competitors that Innovest studied, partly because of a poor showing on fuel-economy standards.

Innovest's ratings are of particular interest to a growing class of fund managers, including pioneers Amy Domini of Domini Social Investments and Reto Ringger of Sustainable Asset Management, who limit their investments to companies that meet certain environmental and social criteria. Assets in U.S. socially screened funds surpassed $2 trillion last year, a 36% increase since 1999 and a rate of growth 1.5 times as fast as the average of other professionally managed U.S. funds, according to a Social Investment Forum study.

Other independent groups are emerging to certify that companies' boasts about particular products are true. "It's getting more and more complicated to 'greenwash,'" says Reid Lifset, a faculty member at the Yale School of Forestry and Environmental Studies. The Environmental Protection Agency's "Energy Star" label for efficient consumer appliances is the best-known program. Beyond that, Green-e, based in San Francisco, certifies energy that comes from such renewable sources as sun or wind, while Green Seal, of Washington, blesses various consumer products from air conditioners to paper towels.

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