Red, Yellow and Green

Beyond RoHS, WEEE and other environmental Directives, there are broader macro-forces taking place that - like the Quality movement a quarter century ago - will re-define electronics manufacturing and create "winners" and "losers".  While they are more often discussed in executive suites than in "compliance" meetings, we shouldn't be fooled: they are seismic and sometimes controversial events that will impact our companies and our jobs. The purpose of this and future articles is to explore these macro-forces and to encourage the creation of value from these macro-forces.

If you follow worldwide environmental laws, you know they are multiplying like legislative rabbits: the EU's Energy-using Products and REACH Directives...California's Global Warming Solutions Act...hazmat legislation in South America...and many more. While that is great for a consulting company like the GoodBye Chain Group, it is the kind of opportunity that reflects a world situation we'd rather not have.

Red is Danger
Most of us are too busy to read beyond the headlines. But we understand the implications of 6.3B humans here today and another 3B arriving in the next few decades...the diminishing of tin, cheap oil, fresh air and other resources that we rely upon...the fact that "body burden" studies indicate that you and I probably have 70 or more industrial chemicals in our bodies - even if we don't work in industrial settings...and the enormous build-up of waste in a world where gravity traps virtually all matter and there is no "away".

Downplaying this Code Red situation is getting harder, if not impossible. To cite several recent examples:
-- Reports from the Inter-Governmental Panel on Climate Change outlining the consensus conclusion of >600 scientists in 40 countries: namely, that the average global temperature is warming and - with greater than 90% likelihood - human activities contribute to it
--  An Organization for Economic Cooperation and Development (PECD) report stating that 1° C rise will result in the disappearance of 60% of German alpine ski areas
-- The UK-commissioned Stern Report, in which the former Chief Economist of the World Bank predicts a 20% drop in global GDP if global warming measures aren't taken - whatever the portfolio of human vs. natural causes
-- Millennium Eco-Assessment Report from the UN predicting the widespread disappearance of species and related impacts on the global food chain

Yellow is Caution
Each of the above reports contains multiple indicators of deteriorating natural systems. In that regard, they are similar to financial indicators that point to deteriorating corporate systems.

If we assume that the reports are largely Chicken Little rants - or we push them far into the background while we concentrate on registering for WEEE and developing China RoHS Information Disclosure Tables, - we risk upsetting the relative predictability upon which our governments, economies, companies and personal lives depend. And we risk a world with future scenarios that corporate executives, risk managers and shareholders need to consider.

What will happen to our headquarters, factories, sales offices and data centers that are located too close to flooding coasts, if sea levels continue to rise as predicted? What will it do to our quarterly sales goals if there are riots in countries where we assemble our products? How will we get our supplies and ship our products, if the price of oil is too high or the availability of renewable energy is too low?  What will happen to our profits, if there are fewer people with less discretionary income to buy what we sell?

Discussions of these scenarios are taking place today within more and more companies like Alcoa, Dupont, Philips and many others. The common thread is an approach that links the need to reduce the likelihood of those scenarios with the opportunity to generate future revenues. In that vein, I can testify that we at the GoodBye Chain Group are increasingly asked not only about how to comply with environmental legislation, but also how to create value from the macro-forces driving our industry.

Green is Go
Despite any individual's personal beliefs about any one environmental issue, the reality is that more and more of the most powerful nations and most influential corporations are "going green".

The list of "green" activities is extensive and, in some cases, unimaginable even a year or two ago. Who could have imagined, for instance, that at the January, 2007, World Economic Forum in Davos, Switzerland, 71% of the attendees - primarily C-level executives - would support a mandatory cap-and-trade carbon emissions system to reduce climate risks and associated business risks?!

Plus, to cite a few diverse examples out of literally thousands we have viewed over the last few years:
-- The world's largest tidal wave farm is expected to generate 3M of electricity in 2008 off the coast of Scotland
-- Panasonic announced that it has become the world's first company to eliminate lead in display panels for all its plasma TVs - a development that could impact companies relying on the RoHS exemption for "Lead oxide in plasma display panels (PDP) and surface conduction electron emitter displays (SED) used in structural elements...."
-- According to the EPA, the US Air Force is now the 3rd largest purchaser of renewable energy in the US. #1 is Wells Fargo Bank. Electronics companies in the top 25 are Cisco (#11), IBM (#16) and Sprint Nextel (#20)

Plus, a few years ago, who could have predicted that - in 2006 - the US would have added more wind energy capacity than any other nation? Or that Texas would not only be the #1 wind-generating US state, but that it is projected to double capacity by 2015? Or that Bank of America would set aside $18B for helping companies to finance the production and use of Design-for-Environment-related products, services and technologies, as well as $1.5B for green construction and energy efficiency at its own facilities?

Who would have predicted the steep increase in consumer support for greener products and in corporate marketing of those greener products? To cite just a few examples:
-- Toyota has increased production of its hybrid Prius, one of the most successful new cars in a generation, while GM announced at the Detroit Auto Show its Chevy Volt, a plug-in hybrid concept car
-- Outlets for organic, locally-produced products are multiplying and profiting. Gaiam Inc., e.g., grew revenues over 47% from 2005 to 2006.
-- At Japan's 8th Eco-Products Exhibition, more than 150,000 visitors viewed "green" products from 572 exhibitors, including Sony, Casio and other leading electronics firms
-- One of the world's largest companies - Wal-Mart - has publicly committed to zero waste and 100% renewable energy goals

This increased support at the citizen as well as consumer level reflects the old axiom that - in a democracy - politicians cannot be too far ahead of their constituency or they will soon be out of a job. In this context, it is worth noting that Massachusetts Democratic Governor Deval Patrick won election last November promoting "sustainable" technologies as a new cornerstone of the state's economy. And California's Republican Governor Arnold Schwarzenegger has already implemented a very green agenda and was easily re-elected.

What Does It All Mean?
The "greening" of business is at the heart of solving all those red-level dangers - as it should be. Partly because business contributes its share to many of those problems, but more importantly because - within business - is the talent and resources to make positive change while generating positive cash flow.

Will it require adjustments? Sure. In fact, I'd argue that it will require a higher level of adjustment than we have seen in the last quarter century, as "Total Quality Management (TQM)" continues to evolve into "Total Quality Environmental Management (TQEM)" and becomes as much a requirement for manufacturing as TQM is today. Furthermore, it will increasingly become a critical criterion for judging executive leadership and compensation. And it will become a critical data point as younger engineers, MBAs, marketers and other functionally-trained individuals look for employment.

Will it cost? Of course. For instance, we will see a sharp increase in companies internalizing costs that - like WEEE management - have previously been imposed on us as taxpayers. It many cases, it will drive us crazy because - as corporate employees - we will wring our hands at the extra costs while - as citizens - we will be thankful that WEEE management isn't coming out of the taxes we pay.

Will money be made? Lots. Over the last year two years, the GoodBye Chain Group has presented the business case for Design-for-Environment activities in webinars, public workshops and customer implementations. It is a case, by the way, that not only spells out the kind of cost-saving opportunities that companies have been garnering for decades, but also the kind of revenue-generating opportunities that companies are realizing today and expecting tomorrow. Poster child for this business case: GE, which expects to generate $20B by 2010 in sales from products that mitigate environmental risks.

Summary
There are many historical parallels to this current period of transition. The one I like says that 2007 is similar to the early 1500's, when "the world is round" was becoming a fact of life. Businesses started building bigger ships with taller masts and a ton of other adjustments that made some companies a lot of money and drove other slower, blinder, more resistant companies out of business.

Today, "the world is green" provides a similar choice. Those companies that ride the environmental horse in the direction it is going will prosper. Those that resist will likely go out of business. Those that "wait-and-see" run financial, market and competitive risks that may prove too difficult to overcome.

GCG specializes in environmental compliance activities that create value and stimulate innovation. Harvey Stone can be reached at harvey.stone@goodbyechain.com; +1 505 989 8943.