Corporate Greening

In the last post I talked about the danger of biodiversity loss and I put up a video of Thomas Friedman talking about the importance of getting involved with responsible corporations to combat climate change. I’d like to expand on that a bit in this post.

According to the Pew Center on Global Climate Change, industry represents 19% of total international carbon emissions.  That is a huge chunk of the pie.  Because of the very large role corporations play in spewing greenhouse gases into the air, it is all the more important to get them to change.  While switching the lightbulbs in your house to more efficient bulbs and driving less are very important changes that all of us need to make, the significant change will happen by cleaning up industry.  The Wal-Marts, Exxon Mobiles, General Electrics, McDonalds, and Nestles of the world.  If environmentalists, consumers, and governments can partner with some of the worst polluters in a cooperative effort, real change can take place.  Many of these corporations have been responsible for polluting our air, dumping toxic waste into our rivers and streams, and destroying wildlife habitats across the world.  They have been the evil villains for years, forever attracting the public’s outrage.  Environmentalists saw industry as something that needed to be restrained, contained, and regulated.  Industry saw the environment and environmentalists as pests; obstacles in the way of making money.  The environment and industry were opposites.  Being green and being profitable were mutually exclusive.

Why the change of heart?  Money.  The environment is beginning to be seen as a way of MAKING money, not an obstacle to it.  Environmentalists are beginning to see that industry is not going away, and greening them can be positive for everyone.  What’s more, many entrepreneurs are seeing the huge business opportunity in green industry.  Solar panels, wind turbines, green efficiency, green design.  That’s the future of business.  Applying pressure to the worst violators is important, but what will really change behavior, what will really work, is the financial gain from going green.  That’s the biggest motivator for corporations.  

Lifetime oilman T. Boone Pickens bet his personal fortune on environmental business.  Last year, he announced his “Pickens Plan,” which consisted of converting the nation’s auto fleet to run on natural gas, as a temporary solution (natural gas is much cleaner than regular gasoline), and meanwhile, he planned on building the world’s biggest wind farm in Texas.  Far from being a treehugger, Pickens believes in the huge business opportunity in alternative energy, because of the dwindling supply of oil in the world. 

Wal-Mart realized that by going green they could make more money.  By making their trucks more efficient they could save millions in fuel costs; by using less plastic in packaging, they could save more; by using less energy to heat and cool their stores, they could save more; by selling environmentally-friendly products that their customers demand, they could sell more.  Wal-Mart now has solar panels on a few of its locations, they sell fair-trade coffee, they are buying wind energy to supply hundreds of its locations in Texas, and has donated $5.7 million to supporting green job creation in the US.  There has been no shortage of public pressure and outrage directed at Wal-Mart for all of its sins.  But if Wal-Mart can alter its carbon footprint, clean up their operations, huge progress can be made. 

Clorox has introduced its environmentally-friendly cleaning products.

General Electric has bet big on wind and solar energy. 

Even some oil companies have invested in alternative energy, seeing which way the winds of the future are blowing. 

Industries have been the biggest pollutors for years.  But shaming them out of business is not a productive way of combating climate change.  As Thomas Friedman said, finding the responsible players in the corporate world, and partnering with them to bring about change, can have a huge impact.  Industry represents 19% of total carbon emissions.  If we can clean up that 19% and make money while we are at it, the world can be a better place.

Fighting For the Middle Ground

Investing responsibly can help promote the growth of socially responsible businesses and your money can go to work for you, for a good cause.  Your money will help provide the financing for social entrepreneurs to grow and expand their missions.  While there are tons of people out there who take environmental, social, educational, and civil rights factors into consideration when investing their money, for the vast majority of investors these ideas would never cross their minds.  So, until the New York Stock Exchange (NYSE) and NASDAQ are replaced by social stock exchanges (SSE) like the one in Sao Paolo (not likely anytime soon), when it comes to financing, social entrepreneurs are stuck fighting for the middle ground.  They are too business-oriented for charitable donations, and too charitable for normal investors.

            And this is the subject of today’s post.  Because of the awkward limbo social entrepreneurs often reside in, they have to piece together a mixture of financing that can be confusing, stressful, and time consuming.  Since social businesses fall in the middle ground, their sources of financing don’t fall into neat categories like “philanthropic donations,” or “government funding,” or “private investors,”  but rather, a hodgepodge of all of these.  This raises many difficulties as often times the CEO of a social business is forever chasing the next source of financing, which distracts from the mission.  Instead of managing the day to day duties, he or she is on the phone with philanthropic organizations, organizing fundraisers, or lobbying Congress for this years tax incentive – which may decide whether or not they can continue operating.  Nevertheless, this is the reality of businesses with social missions.  Unless they are selling products or providing paid services that finance their social causes, social entrepreneurs will have to deal with these hurdles.

            I will focus on the various different sources of financing, one by one, in future posts.  But here is a quick run down of the patchwork of financing options for social businesses. 

• Personal Funding – since social entrepreneurs believe in their mission, many invest their own savings in starting up.
• Government Grants – because of the social benefits of ceretain social businesses, government grants are potential sources of financing.
• Angel Investors – often times a very wealthy individual believes in a certain cause, and donates large amounts of money.
• Philanthropic Organizations – they may be reluctant to donate to for-profits, but a big source of financing for non-profits and some semi-profits.
• Venture Capitalists – they probably won’t invest in either non-profits or semi-profits, but venture capitalists are a huge source of financing for for-profits.  The most obvious example is the abundance of venture capital money in the renewable energy sector.
• Going Public – Once a social business gets big enough, it can list on a stock exchange and rapidly raise capital from individual investors.  But, this also brings risks, such as losing sight of the mission.

Since their is often a gray area of where a social business operates, many social businesses tap into two, or three, or many of these sources.  Having multiple sources of financing may allow for flexibility, but it also brings difficulty and uncertainty. 

What is a Social Entrepreneur?

What is a Social Entrepreneur? According to Ashoka International, social entrepreneurs are “individuals with innovative solutions to society’s most pressing problems.” They may come in the form of non-profits, for-profit companies, and venture capitalists, as well as any mixture of the three. Contrary to most social outreach efforts, social entrepreneurs don’t approach a problem by dispensing welfare or providing temporary relief from the problem. Instead they seek to solve the problem where it starts, at its roots. For example, instead of giving out checks to the unemployed, a social entrepreneur would seek to solve the problems creating unemployment. Through sustainable, long-term business models, social entrepreneurs can:

• Address gaps in healthcare systems.
  • Aravind Eye Clinic charges patients based on their income, allowing them to make a profit while also treating low-income patients.
• Lift people from poverty and welfare dependence through job training.
  • DC Central Kitchen, a food pantry and a meal program for the city’s homeless, provides on-site job training and future employment in the food service industry for many of the homeless they feed.
• Taylor the education institutions to fit the needs of the community.
  • Barefoot College, a non-profit in India, trains the rural poor to more efficiently develop their basic necessities, such as drinking water, sanitation, and electricity. Trainees are not formally educated and are often illiterate. Problems are solved locally, without the help of urban professionals because these trained “para-professionals” already exist within the community, making these communities self-sufficient.
• Making “green-fueled” business cost-effective and competitive.
  • Vestas, the world’s leading wind turbine manufacturer, has installed over 35,000 wind turbines in more than 63 countries, while reducing CO2 emissions by over 40 million tons per year. (This company is doing a lot of good while pulling in 291 million euros in 2007. Not bad.)
• Training the next generation of social entrepreneurs.
  • InnerCity Entrepreneurs works with its urban partnerships to provide business education, networking channels, and research to the people of these communities, people that were previously denied easy access from such resources.

The idea of social entrepreneurship is that by investing in people, you can improve the lives of millions. Whether the social entrepreneur works for profit or not, each one seeks a social return on their investment. This idea dismantles the often accepted notion that governments are responsible for the disadvantaged while private companies are responsible for profit. Social entrepreneurs teach us that responsible market-based solutions can be implemented to alleviate social problems as well as turning a profit. Perhaps the most obvious example of this is for-profit companies helping slow climate change while making money at the same time.

This blog is dedicated to the idea that many of society’s ills can be solved through entrepreneurship. By using innovative ideas, sustainable business models can be implemented and replicated across the world. Each post will give examples of how this is done.