Why Do Companies Go Green?

What’s more important? Looking good or doing good?

An increasing number of businesses are responding: Why not do both?

Recent articles, including a McKinsey & Co. global survey report and a column in The Economist, have laid out the advantages that many organizations seek, and some organizations find, when they commit to environmentally friendly and sustainable practices. There are a variety of approaches to sustainability, and some of them depend upon the industry in which the company competes. For example, companies in the energy, transportation and extractive (or mining) industries have a greater incentive to be environmentally sensitive than firms in some other lines of work. However, regardless of why an organization decides to investigate and invest in sustainable practices, more are finding and documenting bottom-line benefits—despite the recent economic downturn.

The McKinsey report defines sustainability as “a combination of environmental, social, and governance issues also known as corporate social responsibility (CSR) or corporate responsibility.” To many corporations, sustainability issues include short-term practices as well as long-term strategies. So it’s not surprising that organizations will have different approaches, and varying goals, in this realm.

A big reason to go green is to impress employees, potential employees and the business world. Also referred to as “corporate reputation,” it’s the imprimatur of a business that does the right thing by saving energy, reducing its carbon footprint, using recyclable or environmentally friendly products or processes, and investing in the planet’s future. Recognizing that certain resources—such as water and fossil fuels—will be increasingly scarce is a big part of long-term strategies.

But another, and growing, reason to go green is that it can save money in the short term and long term. In 2010, according to McKinsey, the “looking good” motive for going green was surpassed by the motive of putting more greenbacks into the bank. Reducing energy use in operations, reducing waste from operations and reducing water use are among the most common win-win practices that are in use globally. Add improving corporate reputation, responding to regulatory constraints, managing risks and increasing market share, and sustainable practices are definitely on the rise.

In many organizations, human resource professionals and line managers who have direct involvement with scarce or expensive resources have primary responsibility for practices and policies that boost sustainability. However, the McKinsey survey noted, “larger shares of executives say sustainability programs make a positive contribution to their companies’ short- and long-term value.”

This is a good thing. Organizations that find ways to use these green practices to increase employee engagement and create value might find additional competitive advantage.