Wal-Mart’s Latest ‘Green’ Move Gives Pause To Explore Sustainability Rationale
Jim Prevor’s Perishable Pundit, May 10, 2007
First Tesco USA announced that it would install the “…largest roof-mounted solar installation in California, and possibly the world” on the roof of its distribution center currently under construction in Riverside, California.
Now, Wal-Mart has announced that it will have installed solar power panels on 22 locations including distribution centers, Wal-Mart stores and Sam’s Club stores in California and Hawaii.
Not only do California and Hawaii both have lots of sunshine, they also offer potentially lucrative tax credits to those who install various renewable energy efforts on their properties.
In addition, if so called “carbon caps” are imposed, solar panels may produce valuable “carbon credits,” which companies can trade or sell.
There is nothing wrong with solar power, but the noise around sustainability is getting so loud it is hard to think clearly.
Most of this is just PR, and every once in a while some little tidbit leaks to prove it. For example, Tesco, a company that every day is busy talking about alternative energy and carbon footprints, was caught sending CDs and DVDs back in forth from the U.K. to Switzerland, burning carbon every mile, to take advantage of some tax loophole.
Clear thinking on sustainability initiatives can be achieved by dividing these initiatives into three categories:
- INITIATIVES THAT PRODUCE A POSITIVE ROI. Putting solar panels on the roof can produce profits — sometimes directly, sometimes indirectly, as a result of tax credits. The same applies to utilizing bio-diesel fuel, designing facilities to use passive solar energy — skylights and what not.
Since things that produce a higher return than one’s cost of capital are profitable, everyone ought to do them — regardless of one’s opinions on global warming, carbon neutrality, etc.
Companies that promote that they are doing this kind of “green” initiative are just trying to get publicity points for doing what they would do anyway.
- INITIATIVES THAT PRODUCE A SUFFICIENT “REPUTATIONAL DIVIDEND” TO BE PROFITABLE. Many things a company does are done not because they produce an immediate obvious ROI but because doing them provides a form of advertising that enhances one’s reputation in a way that encourages any number of good things: It may make customers want to shop with you, employees want to work with you, the town leaders want to cooperate with you, etc.
An example of this is a substantial local business supporting the town hospital or library or volunteer fire department. Although these expenses may be officially deemed “charitable,” in reality a large local employer who didn’t do these things would get a bad name in the community. People wouldn’t want to work there, theft would rise, consumers would shop elsewhere, etc.
Equally, environmental initiatives impact the image of a company in the community. The impact may vary with the clientele. Whole Foods would face a consumer boycott of it wasn’t perceived to be doing good things for the environment. Tesco is probably going for the JetBlue effect — trying to find a way to offer a mainstream offer such as Wal-Mart does but with just enough ‘coolness’ so that more upscale earners will feel comfortable shopping.
In any case, if a company thinks that by engaging in “sustainable’ activities and promoting that fact, it can gain sufficient goodwill that its business will benefit more than the cost of the initiatives, then, of course, the business ought to do it.
It is important to note, however, that these activities are being undertaken because they increase profits — not decrease them.
- INITIATIVES THAT LOSE MONEY FOR A COMPANY’S SHAREHOLDERS. Ninety-nine percent of the sustainability initiatives fall into categories 1 or 2 and thus are entered into in order to increase corporate profits. They should be done irrespective of global warming and other environmental issues.
The hard issue is whether companies should lose money to enhance the environment. So far, no CEOs have come out and said they are doing this. It is morally problematic, at least in a publicly held company, because it is not the executive’s money to give away. After all, if a corporation has extra money that it can afford to lose, why not pay it out as dividends to shareholders and let them decide if and to what they might like to donate it?
But, of course, if so-called sustainability initiatives are just another way for a company to maximize profits, it is sort of odd that there should be so much fuss around the issue.