Greening the Corporate Board Room

The environment is quickly gaining the attention of corporate boards across the United States.  Around a quarter of Fortune 500 companies now have a committee whose job is to make sure executives comply with environmental regulations and effectively handle conservation efforts - that is more than twice as many as five years ago, according to Ceres, a coalition of public interest organizations and investors who promote corporate sustainability.

The pressure to turn green comes from a variety of sources.  On the one hand are consumers worried about dying coral reefs, strengthening hurricanes and melting glaciers all related to the effects of global warming.  These eco-conscious shoppers are eager to give a helping hand.  They figure that green businesses might be savvier than those that have not yet jumped on the environmental bandwagon.

On the other hand are institutional investors who realize that how firms respond to environmental trends will determine their long-term performances.  The investors’ observations are increasingly influencing boards of directors, according to The Role of the Board of Directors in Corporate Social Responsibility, a study published by the Conference Board of Canada.

Finally there is a growing consensus among environmental groups that working with businesses can make a difference.  "Our initial, if informal motto was ‘sue the bastards,’ said Fred Krupp, president of the Environmental Defense Fund during an interview on Public Radio International.  "But we have found that if we can get the business community to work for our goals, that’s even more effective," he added.   This means getting engineers, entrepreneurs and corporations to focus on environmental innovation instead of battling them in the courtroom.

These three pressure points are providing results on large and small companies alike. Take California-based that rents used textbooks online to college students.  Its founders believe that since the company is reducing the demand for new textbooks, it is indirectly preserving the world’s forests.  To emphasize its green outlook, plants a tree for every textbook transaction.  So far, according to the company, it has funded over 100 acres of new trees.

Or look at Ohio-based American Electric Power, one of the largest users of coal in the United States.  To improve the company’s environmental-performance targets, its board of directors docked part of the CEO’s bonus because the firm had received too many notices of possible environmental regulatory violations, according to the Wall Street Journal.  And the Ford Motor Company, became the first US auto maker to provide a detailed climate change plan.  It pledged to reduce emissions from its new vehicle fleet by at least 30 percent by 2020.

These praiseworthy behaviors are noticed in the marketplace. The environmental magazine Plenty, for instance, released its list of the 20 businesses that had most improved life on the planet in 2008. It gave high marks to Home Depot for promoting sustainable timber harvest in the Brazilian Amazon basin.  Praise also went to Nike for introducing shoes with eco-rubber and to IBM for helping companies measure their energy usage more accurately.  Such favorable publicity has a snowball effect.  Companies praised for their environmental stewardship want to keep doing so in the future.

 Yet the environmental progress made by a company’s board of directors may not be perceived the same way by the general public. Allianz Global Investors found that 49 percent of investors were likely to invest in a company or mutual fund looking to provide solutions for environmental problems. At the same time, 78 percent of those investors thought companies that focus on environmental issues do so for the sake of public relations rather than for financial value.

Perhaps the transformation of the board room into an innovative green participant is a bit too sudden.  Companies, especially those listed on the Fortune 500 remain all powerful in the eyes of many and unlikely to change their behaviors so quickly.   Yet change is in the air.  The earth’s sustainability "has become a much more important part of every board’s activities," admitted Lester Hudson, chairman of American Electric’s Power’s governance committee, to the Wall Street Journal.  An attitude no doubt influenced by shareholders whose loud knocks on the doors of major corporations are preventing their boards from continuing to ignore the pressing needs of the environment.

For More Information: Wall Street Journal On-line

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