GREEN TO GOLD

HOW SMART COMPANIES USE ENVIRONMENTAL STRATEGY TO INNOVATE, CREATE VALUE, AND BUILD COMPETITIVE ADVANTAGE The UNLV/JMBM Hotel Developers Conference Las Vegas, Nevada March 12, 2008 Daniel C. Esty
 Hillhouse Professor of Environmental Law & Policy  Yale University
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Book cover

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GREEN BUSINESS = BIG NEWS

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WHY ENVIRONMENT IS NOW A KEY ELEMENT OF BUSINESS STRATEGY

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Energy Prices

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Natural world drivers

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Greenoriented stakeholder s
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Evolving regulation

ENERGY PRICES
• Oil over $100/barrel • New energy efficiency logic • Conservation calculations of the past must be redone

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EVOLVING REGULATION
• Carbon controls
– EU “cap and trade” system – Changing U.S. political landscape – Emerging interest in China

• Extended producer responsibility • Waste regulations • Recycling rules • Packaging restrictions • Toxic exposures • Indoor air pollution

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NATURAL WORLD DRIVERS
Climate Change Biodiversity&Land Use Energy Water Quality & Quantity Chemicals, Toxics, Metals

Air Pollution Depletion

Waste Management Ozone Layer Oceans & Fisheries Deforestation

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NEW STAKEHOLDERS
Banks Insurers Acquirers Shareholders Employees NGOs “Plaintiff’s Bar” Regulators

Rule-makers & Investors & Politicians Risk Assessors Watchdogs
Media

Company

Industry Assoc. B2B Buyers

Business Communities Consumers & Partners Community “The Future” Competitors & Competitors (Kids)
Players in traditional economic and business analysis

Consumers CEO Peers

Suppliers

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CHANGE CREATES OPPORTUNITY
15% 14% 13% 12% 11% 10% 9% 8% 7% 6% 5% 4%

“CleanTech” Venture Capital “CleanTech” Venture Capital

% cleantech of total VC invested 3%
2% 1% 0%
1999 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006

Source: Cleantech Venture Network (2006)

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MAINSTREAMING OF GREEN BUSINESS

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NEED TO BE STRATEGIC

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ELEMENTS OF AN ECO-ADVANTAGE STRATEGY
• Issue spotting
– AUDIO analysis

• Stakeholder mapping
– Stakeholder engagement evaluation matrix

• Eco-Advantage “plays”
– Manage costs & risks – Develop upside opportunities

• Environmental management “best practices”

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ENVIRONMENTAL “AUDIO” ANALYSIS
Issue Environment 1. Climate Change 2. Energy 3. Water 4. Biodiversity 5. Chemicals/Toxics 6. Air Pollution 7. Waste 8. Ozone Layer 9. Oceans 10. Deforestation 11. Other (Industry-specific) Aspects Upstream Downstream Issues Opportunities

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TOP ENVIRONMENTAL ISSUES FOR HOTELS
Issue
Water

Aspects
• Guest use, back-of-house use, and restaurants & water features • Green house gas emissions, specifically carbon dioxide: electricity use, fuel use, transportation emissions

Challenge or Opportunity
• Opportunity for low-flow fixtures; conservation in standard operating practices • Carbon strategy based on carbon audit, targets, and ongoing reduction program

Carbon

Energy Waste Air Quality Green procurement

Lighting, HVAC, kitchen, laundry Food, packaging, oils, carpeting, linens

Systematic energy reduction program Recycling, composting, and water extraction

• HVAC Filters not maintained, mold growth in HVAC, not enough fresh air brought into the system • Large volumes of food, beverages, linens, containers, cleaning supplies, office supplies

• Diligence in quality monitoring and changing filters, HVAC Upgrade • Systematically shifting to lower environmental impact supplies • Re-conceptualizing with the environment at the center

• Increasingly required by state/local Green building authorities; offers operational savings & better customer experience

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STAKEHOLDER ENGAGEMENT EVALUATION MATRIX
POTENTIAL FOR COOPERATION HIGHER CONNECT COLLABORATE

LOWER

MONITOR

DEFEND

LOWER

HIGHER

ISSUE INTENSITY
Source: Esty and Winston (2006); based on Savage, et al. (1991)

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ECO-ADVANTAGE PLAYS
1. Cut costs 2. Lower eco-risks 3. Drive revenues
• Green consumers

• New market space

4. Promote intangible value
• Brand building

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ENVIRONMENTAL MANAGEMENT BEST PRACTICES
• • CEO commitment Environmental management systems
– – metrics incentives learn from mistakes

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Be willing to take risks

Sustainable procurement Green design (buildings, production, products) Reporting and communications Culture of concern Regulatory strategy Partnering Advisory board

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KEYS TO GOOD ENVIRONMENTAL AFFAIRS MANAGMENT FOR HOTELS

Leadership

Communications

Environmental Affairs Management

Operations

Property Programs

Metrics

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WHY ENVIRONMENTAL INITIATIVES FAIL
• • • • • • Failing to be strategic Misunderstanding the market Expecting a price premium Middle management squeeze Silo thinking Over-promising

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BOTTOM LINE
1. 2. Environmental concerns are here to stay Society’s approach to environmental protection is evolving: - Information Age tools and opportunities
- move towards “cost internalization” and market mechanisms - private sector as the engine of innovation

3.

Corporate environmental strategy is critical to competitive strength It’s not easy being green
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4.

www.yale.edu/envirocenter

www.yale.edu/cbey

www.EstyEP.com
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