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The Business of Green

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solarpanels.jpgThe cover of this week’s BusinessWeek magazine has a surreal shot of a businessman covered in vines. I guess it’s supposed to symbolize how the green movement is strangling business – thereby drawing curious readers to the cover story, Little Green Lies, which raises questions about whether being environmentally-friendly can be good business. Though a variety of things were touched on in the article, the use of renewable energy credits, or RECs , seemed to be the focus. As the author, Ben Elgin, put it:

RECs are a type of financial arrangement that companies use to justify assertions that they have reduced their net contribution to global warming. But the most commonly used RECs, which are supposed to result in a third party’s developing pollution-free power, turn out to be highly dubious.

I understand there have been some questions around the way RECs work. Certainly Dennis Canavan, the senior director of global energy at Johnson & Johnson who was quoted in the article, agrees that they are not the only solution and hopes to see them supplanted by good public policy.

Johnson & Johnson wasn’t a big part of this article, but having sat through the lengthy interviews that our folks did with Ben (at his urging), I was staggered by how he characterized the company’s efforts and how little context he included about all that it has done over the past 30 years to conserve energy and – more recently – to reduce emissions.

Johnson & Johnson is hardly a newcomer to energy conservation. Back in the 1970s, during the energy crisis, the company launched an effort to encourage its many operating units to install low-energy lighting, efficient heating and cooling systems and take on projects and initiatives to improve efficiency.

It was a pretty successful initiative – and the corporate energy group found that by encouraging energy conservation, you could also rein-in operating costs.

In 1999, amid the growing debate about global warming, the corporate energy group took this effort to the next level and set an ambitious goal to reduce emissions globally to 7% below 1990 levels by 2010. This reduction would be in absolute terms – regardless of acquisitions, business growth or the addition of more employees or new facilities.

To accomplish this, the company took a multi-faceted approach that included stepping up efforts to improve efficiencies at its facilities as well as a program that could provide funding for climate-friendly projects. RECs were also part of this approach since they encourage the production of renewable energy. In 2003, this goal was made a policy of the corporation.

The funding program is for projects that go beyond routine energy efficiency spending at the different Johnson & Johnson businesses. Since 2005, about $100 million has been invested in 50 energy projects at Johnson & Johnson facilities around the world that together reduce emissions by about 90,000 metric tons each year. These include cogeneration plants, landfill gas, geothermal biomass and solar. This all contrasts with about $1 million a year spent on RECs over the past three years. Johnson & Johnson is the largest corporate user of on-site solar power in the US according to the WRI -- and plans to open its largest solar installation site next month. In an effort to cut emissions in other ways, there are now about 800 hybrid fleet cars.

The list goes on and on…

That’s why I was particularly peeved when Ben failed to mention any of this when he pointed out that:

Johnson & Johnson has proclaimed a 17% reduction in carbon emissions since 1990, based largely on RECs. Without the credits, the pharmaceutical giant has seen a 24% increase.

That’s true… apart from the fact that Johnson & Johnson is not merely a “pharmaceutical” company …but it also fails to tell the whole story.

During that same time frame the company increased sales by 372%, bought new businesses and expanded operations throughout the world.

Perhaps the most glaring omission was how the on-site green energy investments and new, more efficient heating and cooling systems have helped the company control costs. The projects the company has completed since 1995 have saved it more than $30 million a year – and with the cost of energy going up, the return on investment for these capital projects – which averages at around 16.4% -- continues to increase.

If you haven’t heard about all of this, you’re not alone. Johnson & Johnson doesn’t advertise or send out press releases when it wins accolades or is recognized for these efforts. The company does publish an annual sustainability report that outlines what it is doing, but that’s about it.

One thing that Elgin did well in the article was to demonstrate how complex it is to balance business growth with environmental objectives. This isn’t easy to do, and requires a thoughtful, long-term and multi-pronged approach.

And that’s the thing with REC's – Dennis Canavan reminded me that Johnson & Johnson views them as just one aspect of the company’s program -- not the solution. In fact, the company has recently turned its attention to advocating for better public policy in the US to address climate change and as part of this effort, has recently joined the U.S. Climate Action Partnership Call for Action to underscore the urgent need for a policy framework on climate change.

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