A win-win approach to people, planet and profit

ADOPTION OF GREEN INNOVATION

Dr. Boidurjo Rick Mukhopadhyay

International Award-Winning Development and Management Economist. He can be reached at boidurjo@gmail.com

Prof Bibhas K Mukhopadhyay

Professor of Management, and author of the book 'India's Economy: Under a Tinsel still Tough'. He can be reached at m.bibhas@gmail.com

"Financial performance and environmental performance can go hand-in-and. Eco-efficiency is the key to sustainability, in both economic and ecological terms. The key to eco-efficiency is innovation and productivity improvement". Responding to the green agenda remains a key challenge and also an opportunity to organizations of all sizes. It can be perceived as a challenge since a wide variety of internal and external variables can act as determinants of green innovation adoption in the market, while it could also be an opportunity when a company makes a pro-active response to the green issue, which can further their business operations to be more sustainable in the long run. A large number of organizations are now looking into their internal processes to improve their environmental profile and product life cycle from raw material acquisition stage to final use and further disposal phase of their products. A good example of green innovation would be hard and soft innovation that is related to green product and processes, including the innovation in technologies that are directed to pollution prevention, energy saving, waste recycling, green product design or environmental product management.

Proctor & Gamble (P&G), for example, had conducted life-cycle assessments to calculate the amount of energy needed to use its products, it found that detergents can make U.S. households energy guzzlers. They spend 3% of their annual electricity budgets to heat water for washing clothes. If they switched to cold-water washing instead, P&G reckoned, they would consume 80 billion fewer tonnes of carbon dioxide. The company then developed cold-water detergents as a priority. In 2005, P&G launched Tide cold water in the USA and Ariel Cool Clean in Europe. The trend has caught on more in Europe than in the US. By 2008, 21% of British households were washing in cold water, up from 2% in 2002. After cold-water washing managed to catch on globally, P&G cashed in on the trend and still maintains a high share in the detergent business being an early (green) innovator and first comer to this market.

Evidently, an early adoption of the green agenda not only could improve a business profile but also its bottom line profits. Given the importance of adopting the green agenda within corporations, a company can either adopt a re-active position and suffice the short-term market demand or choose to react with a pro-active position in order to exceed or push demands. An empirical research revealed that companies adopting a re-active position can only succeed in developing incremental eco-innovations in the short run complying with emerging market demand; whereas pro-active responses could help in making incremental as well as long-term radical eco-innovations. The latter would clearly make a deeper impact on the sectoral innovation and also technological reforms in the long run.

Environmental innovation is defined as "product, production process, service or management or business method that is novel to the organisation (developing or adopting it) and which results, throughout its life cycle, in a reduction of environmental risk, pollution, and other negative impacts of resource use (including energy use) compared to relevant alternatives".

The primary difference between environmental and other innovations is the combination of an urgent environmental problem that needs a solution but which is associated with external costs that do not enter the private costs of the polluter. Environmental innovations, includes process, product, and organisational innovations. There has been no necessary correlation established between organisational innovations and environmental impacts, but it does facilitate the implementation of technical (process and product) environmental innovations in companies.

What we usually mean when we refer to Process Innovations is something of an improvement in the production process resulting in reduced environmental impacts, e.g., material recycling. Similarly, product innovation aims at reducing environmental impacts during a product's entire life cycle, e.g., making the value chain green. Finally, service or management innovation, e.g., IBM encouraging employees to work from home leading to reductions in travel time, travel costs, and energy use.

Contemporary research that studies the correlation between environmental innovation and regulation looks at technology push, market pull factors (competitiveness and customer demand), firm internal conditions, and most importantly regulatory conditions to be the drivers which help create environmental innovations. There is also a strong belief that it is always the big firms which take on the green agenda, as Schumpeter once observed that the possibility of large firms to act in a monopolistic way increases their willingness to take risks. And thus, in the end it is this large pool of big firms which come up with varying forms of environmental innovations.

Also, importantly on this note, considering the 'win-win' proposition, that environmental regulation could induce innovation by 'making industry aware of and willing to exploit otherwise missed opportunities'. Thus, from the theory of strategic management, we can also analyse this fact and say that organizations those who will be able to rightly anticipate and correspond to these changes can develop potential competitive advantage.

To conclude with a case in a rather less explored sector – "Restaurants are the retail world's largest energy use. They use almost five times more energy per square foot than any other type of commercial building using the latest EPA carbon equivalents, that amounts to 490 tonnes of carbon dioxide produced per year per restaurant". The hospitality industry is mainly a profit-based industry, and a restaurant's cost condition counts more than its 'going green' image as profit decides their sustainability. A research shows that restaurants in the USA consume a vast volume of disposable products, water and energy, with the annual cost of electricity and gas averaging $161 dollars per seat. Minor greening actions do exist in the restaurant industry, but no specific regulatory body decides green action on the part of this sector or advocates for pro-active environmental sustainability. In other words, this mean that the institutional pressures to change from within the sector and industry is largely lacking. This also shows how important regulation is in terms of bringing organizations into green agenda.

Taiwan is a good example because the restaurant sector in this country is mainly a domestic market and therefore different from export markets, which are strictly regulated and comply with the quality standards of foreign trading partners such as Japan and the EU. Thus, greening this sector Taiwan depends entirely on voluntary participation (only). There is very little market/consumer pressure on restaurants to adopt environmental innovations, study says that one of three Taiwanese could be classified as a part of the Lohas group, a group of consumers who are concerned with health but not with environmental sustainability.

From this example in the Taiwanese restaurant industry, we can observe that the ability to empower restaurant managers, to promote environmental education and training at the individual managerial level, and to enhance learning at the organizational level should be introduced and used to justify incentives for. Additionally, Governments should drive voluntary initiatives within the restaurant industry by chalking out multiple strategies in the form of policies to build a better business environment that would support accepting/adopting green innovations. Unless enterprise faces urgent pressures from impending stringent environmental regulations and prospective high regards to cover the costs and risks resulting from investing in the new measures, the majority of restaurant managers are resistant to voluntarily adopt green measures.

Therefore, promoting awareness among the public and the consumers, and further establishing a support system for environmental improvements, verification and marketing purposes are effective ways to move towards a greener economy.