'Going Green' Puts Business in the Red

     “Green is the new black,” according to the media. But businesses are finding it’s an easy way to put themselves in the red.


     FedEx (NYSE:FDX) planned to switch to hybrid trucks until huge costs got in the way, and companies like PepsiCo (NYSE:PEP) and Caterpillar (NYSE:CAT) could face problems of their own making from support of more government regulation.

     Still, plenty of companies are trying to “go green.” Wal-Mart (NYSE:WMT) plans to retrofit stores with skylights and has already switched store lighting to compact fluorescents and replaced freezer cases in some stores with ones that have motion activated lights.


     HSBC (NYSE:HBC) spent $900,000 to install “energy-efficient lighting,” according to a CNN.com article “Business sees green in going green,” that was published Dec. 21, 2006. Even media companies are making big claims.


     NBC Universal announced its “Green is Universal” initiative on October 23, which included “raising awareness” “through what we do in front of the cameras and behind the scenes” as well as greening the company’s own operations. That will include a week of “green”-themed programming beginning November 4.


     But it seems NBC has an odd idea of what it means to go green. NBC’s “Today” crew will jet around the globe, sending reporters to the Arctic Circle, Antarctica and Ecuador, according to its October 29 broadcast.

     “Well, the journey has begun. ‘Today’ is going to the ends of the earth to report on the changing climate … It all begins exactly a week from today,” said co-host Matt Lauer, who will be in the Arctic Circle for the November 5 simulcast.

Go Green, Regardless of Cost


     The media have created all sorts of lists of things for individuals to do, from Time magazine’s “51 Things You Can Do to Make a Difference” for the planet to Marie Claire’s judging of carbon “sins.”


     But businesses are also under media pressure to take big steps in the name of the environment. Just read what Time magazine had to say on June 7:


     “The business case for going green is increasingly clear, even without Al Gore droning on and on and on about it: where green goes, so does the bottom line.” When companies go green, the media tend to follow with positive coverage. But journalists often ignore the higher cost of “eco-friendly” choices.


     BusinessWeek magazine promoted the idea that businesses would benefit from “going green” on June 22, 2007, as did CNN on Dec. 21, 2006, and National Public Radio on May 10, 2005.


     “A new, lucidly written book, The Clean Tech Revolution: The Next Big Investment Opportunity, unpacks how businesses can follow the lead of companies such as Toyota to go green – and make green dollars – by designing, selling or funding inventive eco-friendly products and services,” wrote BusinessWeek.


     “NBC Nightly News” on August 4 focused on Seattle’s Hotel Monaco’s efforts to go green, emphasizing cost savings from recycled cooking oil.


     Continental Airlines (NYSE:CAL) CEO Larry Kellner practically got a pass from Matt Lauer in an August 23 “Today” interview, thanks in part to the company’s green efforts:


     “I want to end on another positive note, and again this is the easiest one of these interviews that we’ve done, but you were named one of the green giants by Fortune magazine,” gushed Lauer, in contrast to interviews with other airline CEOs.


     Wal-Mart also garnered a positive segment from “Good Morning America” on September 14 for going green. Bianna Golodryga’s report was enthusiastic and discussed cost savings, but didn’t mention any upfront costs associated with making the green changes.


     Like so many fads, there is another side to this green story that was mostly missing until recently.


     On October 5, MarketWatch wrote that while some green decisions “can improve margins” there are a “lot of upfront costs,” according to Sanford Bernstein analyst Ali Dibadj. For example, changes in packaging require changes in advertising and so on, explained MarketWatch.


     “Procter (NYSE:PG) [& Gamble] said one-time costs for new molds, manufacturing changeover costs, retail conversion costs and higher marketing support would hurt fiscal 2008 earnings by a few cents a share, but that the changes would eventually help retailers, consumers and its own supply chain,” the article continued.


     BusinessWeek also exposed major flaws of greening businesses in an October 29 article called “Little Green Lies.”


     The subhead said it all: “The sweet notion that making a company environmentally friendly can be not just cost-effective but profitable is going up in smoke. Meet the man wielding the torch.”


     BusinessWeek wasn’t interviewing a skeptic of global warming alarmism, but environmentalist Auden Schendler – one of the very first “corporate sustainability” advocates.

Meet the Skeptical Corporate Environmentalist


     Schendler, who works for Aspen Skiing Company, was honored by Time magazine in 2006 as a “Climate Crusader” but is now critical of efforts by corporations to go green, especially the use of “renewable energy credits.”


     “I’ve succeeded in doing a lot of sexy projects yet utterly failed in what I set out to do,” Schendler told the magazine. “How do you really green your company? It’s almost f------ impossible.”


     Contrary to what Schendler once thought, and what the media say, “many major initiatives simply aren’t money-savers. They come with daunting price tags that undercut the conviction that environmental salvation can be had on the cheap,” wrote BusinessWeek.


     Try telling that to network reporters. Bianna Golodryga’s “Good Morning America” report on September 14 praised Wal-Mart’s plans to take green steps with skylights, compact fluorescent light bulbs, more efficient trucks and toilets that use less water.


     “Even small changes can make a difference, like these freezer cases. They actually light up as customers walk by motion sensors. Each Wal-Mart store that carries this technology saves 4 percent in annual energy consumption. That doesn’t sound like much, but that figure adds up to $25,000 in annual savings per Wal-Mart store,” Golodryga said.


     But the ABC correspondent didn’t ask how much it cost to purchase the cases in the first place, or how much it would cost Wal-Mart to make all those other changes,  preventing viewers from being able to assess if it was a sound business decision or not.


     Other businesses have made green promises, only to see red problems result. According to BusinessWeek, in 2003 FedEx announced plans to begin using 3,000 clean-burning hybrid trucks a year and even won a prize in 2004 from the Environmental Protection Agency.


     But the cost of those hybrid trucks proved to be too much – 75 percent more than regular trucks – and as a result FedEx has fewer than 100 now in 2007. “We do have a fiduciary responsibility to our shareholders,” environmental director Mitch Jackson told BusinessWeek.


     Green efforts have also come back to bite some companies including PepsiCo. Steve Milloy of the Free Enterprise Action Fund and Junkscience.com shared a couple of those examples with viewers of CNBC’s “Street Signs” on October 12.


     “We’ve also seen PepsiCo, who is also lobbying for global warming regulation – their worst nightmares are coming true because now there is a backlash against bottled water,” said Milloy. He said Caterpillar could also be hurt by its push for regulation because its biggest customer is the coal industry.



Better Hire That Carbon Accountant


     One popular way businesses “go green” is through purchasing “renewable energy credits” or carbon offsetting. It has certainly proved popular among the media.

     CNN was promoting such credits on “American Morning” October 23 as the channel led up to its broadcast of the global warming special “Planet in Peril.” Correspondent Veronica De La Cruz said, “You want to think of a carbon offset like a trade. You can offset your emissions by contributing to organizations that reverse the damage you’ve done to the earth …”


     “NBC Nightly News” praised shoe company Timberland (NYSE:TBL) on the February 3 broadcast for “not waiting for the government to take action” to stop global warming and for going ahead with reducing and offsetting emissions anyway.


     But Schendler and others are skeptical about effectiveness. “They weren’t literally offsetting anything,” Schendler told BusinessWeek.


     Even former vice president Al Gore, the patron saint of the “end global warming movement,” has been criticized for his carbon offsets. A free-market think tank from Tennessee reported that Gore’s home devoured 20 times the national average in electricity in 2006, and he certainly does more flying than average Americans.


     The Tennessean defended Gore and quoted his spokeswoman who said, “[The Gores], of course, also do the carbon emissions offset.” But it turns out Gore purchases offsets through Generation Investment Management, a company he founded and chairs.


     Economist Arnold Kling also pointed out the ridiculousness of carbon offsetting back on March 6: “Subsidizing ‘good’ energy in order to justify ‘bad’ energy is like eating salad in order to justify eating dessert. It is an exercise in self-deception.”


     Even other environmentalists have said such programs are harmful “because people believe action is being taken to reduce greenhouse gas emissions when they buy offsets.” But in many cases it isn’t.


      Time magazine was skeptical about companies’ claims of carbon neutrality on October 29, but did not attack carbon offsetting programs. “Despite the flurry of green boasts and sustainability reports, hard numbers on corporate environmental performance remain frustratingly difficult to find,” wrote Bryan Walsh for Time.


     Walsh’s article explained the difficulty of calculating a corporate carbon footprint, but did not argue against carbon offsetting. Instead, it urged proper carbon measurement saying, “The big accounting firms are slowly entering the market.”


     Walsh cast it as an issue for disclosure to shareholders as well, saying “the market for carbon accounting will likely explode once companies realize they have no choice but to embrace openness.”


     Before companies hire carbon accountants, however, they might want to check in with the regular accountants about the cost of going green.