Build a Business that Positively Impacts the Environment and the NASDAQ.

By Pedro Noyola

Building a sustainable business are you? That’s cool… But what does that actually mean? Does that mean that your business will outlast you and that a premier college bowl game will be named after it? Or does it mean that you will live hand-to-mouth, but save a bunch of endangered guinea pigs? I’ve got a crazy idea. Why don’t you try to do both? Build a business that positively impacts the environment and the NASDAQ.

Too often it is assumed that profits and environmental sustainability are mutually exclusive. I would argue that they do not have to be, and in fact, should not be. However, for this to be the case, the environmental motive must harmoniously coincide with the profit motive. Because if they are not, when push comes to shove, corporate managers will err on the side of profit. That is not because they are bad people. It is because they have bills to pay, kids to feed, and an evolutionary instinct for self-preservation.

I think there are a few companies who get this balance just right. For example, Telogis, a telematics company, is a SaaS company that helps companies track their fleet assets, optimize routes, and communicate with remote workforces all while reducing carbon emissions and petrol consumption. WaterSmart, like Opower, provides a white-label customer engagement solution that helps utilities manage their capital expenditures.

How did these companies do it? Are they better people than the rest of us who are imbued with altruistic super powers? I am sure that they are fantastic members of their communities, but probably not. The founders of these companies just chose to focus their entrepreneurial spirit, ambition and zeal on problems that had environmental consequences. They created solutions that allowed their clients to improve their businesses and earn their annual bonuses. Basically, they looked at the world the way that it is, not the way they felt it should be, and delivered products that aligned environmental and profit motives. According to the New York Times, the average consumer will not pay a premium for a product just because it is green. Well guess what, that average consumer picks up her lunch pail, goes to work, becomes the average corporate procurement director and is not any more willing to pay a premium for a green enterprise product.

It will take the concerted effort of many more entrepreneurs to tackle all of the impending environmental crises, but armed with biodegradable elbow grease and strong value propositions, I believe that we are capable.

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5 Responses to “Build a Business that Positively Impacts the Environment and the NASDAQ.”

  1. Thanks for the comments, Pedro. I completely agree that, for a cleantech company to survive long term, their environmental goals must work with their profit formula, not against them. This is more or less true for all “shared value” or companies – you can’t serve two masters if they hate each other. I think this makes a strong argument for targeting efficiency measures and items on the left side of McKinsey’s famous “Cost of Carbon Abatement” curve (where efficiency measures have a negative cost and hard-technology advancements have a high cost.)

    But what about the technologies that we really want, but are currently NPV negative, like solar, wind, and nuclear? Should we stop trying because gas and coal are more aligned with the company’s profit formula? Do we make a long term bet, optimistic that the cost of these technologies will decrease and change the NPV box in our excel sheet from red to green? Do we give up on profit altogether and make a 501(c) organization? None of these seem like terribly good ideas, but I’m keeping my fingers crossed that a few optimistic entrepreneurs will continue to chase after the unprofitable technologies that the environment needs… and pray for subsidies along the way.

    • By Anonymous

      Pedro persuasively makes the case for entrepreneurs to develop business models that have a compelling profit formula and sustainability impact that are independent of each other. However, as Steve notes, barriers prevent many sustainable products or services from being competitive under current conditions (e.g. biodiesel production after the advent of hydraulic fracturing). Furthermore, the most attractive sustainable impact business models enter large markets, with low capital intensity and high profit margins. Many of these models have already been implemented and grown to significant scale, making future entry by entrepreneurs into these markets more difficult.

      For this reason, the question becomes what disruption must occur to facilitate entrepreneurs pursuing less attractive “sustainable” business models? Of course, government regulation could cause such disruptions through carbon pricing mechanism, residential energy efficiency requirements or sustainable waste disposal legislation. Given the fact that few governments have implemented such laws, another solution is required. Unfortunately, the implication of this logic is that the current generation of “sustainable entrepreneurs” may have to live “hand to mouth” until macro conditions (e.g. water or fuel shortages), a new technology or government intervention cause consumers to pay a higher price for their unsustainable behavior.

      • By John Macomber

        Another source of disruption or innovation [in b-school-speak] could be from entrepreneurs who use advances in technologies in sensors, batteries, and water additives coupled with business models made possible by advances in information, communication, and coordination technology to develop large and predictable cash flowing businesses that attract a lot of investment capital at relatively low expected rates of return and thus bring ideas to new markets, smaller markets, more difficult markets. Demand-response in electric use, catastrophe bonds, for-profit waste composting, collaborative consumption in car sharing, district scale heating & cooling, and byproduct synergy circular economy Kalundborgs are all examples. In the classic BSSE sense they “aren’t good enough” solutions yet….but they will become so and that will disrupt the status quo.

  2. By Anonymous

    The post mentions that “the environmental motive must harmoniously coincide with the profit motive.” I too believe this is one way in which we can effectively incent private capital to invest in businesses that positively impact the environment.

    However, perhaps the short-term profits available to many environmentally friendly business ventures are actually inhibiting investment in projects that may have less certain outcomes — but over the long-term aim to deliver more complete solutions to our global environmental problems (i.e. projects like those referred to in the comment above as “the technologies that we really want, but are currently NPV negative, like solar, wind, and nuclear”).

    In other words, if society invested that capital in ventures that sought to completely abate carbon emission (rather than investing capital in the many different ventures that go after what I would call “short-term fixes” like the telematics business described above), we might be able to more quickly solve our long-term carbon emission problem.

    Society could certainly bear higher carbon emissions levels in the short-term if it meant we could sooner make the discoveries and innovations necessary to take our carbon emission levels practically to zero over time (e.g. the proliferation of electric vehicles fueled completely by a nuclear, solar or wind power grid). This of course would ultimately put out of business many of the clean-tech businesses in existence today [and that’s the objective – to render them unnecessary, mission accomplished – John M].

    Therefore, I would suggest we focus on figuring out how to get more capital invested in these long-term “complete solution” projects, many with a negative NPV, because we will be better off over the long-term. This is obviously much easier said than done given the misalignment of interests across society, and government and regulatory agencies will likely need to play a larger role in providing capital and incentives to the private sector in order to make sure these long-term “complete solutions” for tomorrow are properly invested in.

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