Virtue Rewarded

When former Vice President Al Gore shows up at Wal-Mart headquarters, you have to wonder what's going on. As it turns out, Gore had been invited to visit the retailer in July to introduce a screening of his documentary about global warming, An Inconvenient Truth. An odd-couple pairing — Gore and a company known for its giant parking lots? Certainly. But also one of the many recent signs that "corporate social responsibility," once seen as the purview of the hippie fringe, has gone mainstream.

In the 1970s and 1980s, companies like Ben & Jerry's and The Body Shop pushed fair-labor practices and environmental awareness as avidly and effectively as Cherry Garcia ice cream and cocoa-butter hand cream. They were widely admired but rarely imitated.

Today, more than 1,000 companies in 60 countries have published sustainability reports proclaiming their concern for the environment, their employees, and their local communities. Giant corporations from BP to General Electric have launched marketing campaigns emphasizing their focus on alternative energy. Wal-Mart, too, has announced new environmental goals — hence the Gore visit. The retailer has pledged to increase the efficiency of its vehicle fleet by 25 percent over the next three years, cut the amount of energy used in its stores by at least 25 percent, and reduce solid waste from U.S. stores by the same amount.

Changing Expectations
The sudden burst of idealism can be traced to several sources. First among them: the wave of corporate scandals. "Enron was sort of the tipping point for many CEOs and boards. They realized that they were going to continue to be the subject of activist, consumer, and shareholder focus for a long time," says Andrew Savitz, author of The Triple Bottom Line and a former partner in PricewaterhouseCoopers's sustainability practice. "People are now very interested in corporate behavior of all kinds."

Second, thanks to the Internet, everyone has rapid access to information about that behavior. Word of an oil spill or a discrimination lawsuit can spread worldwide nearly instantly. "If you had a supplier using child labor or dumping waste into a local river, that used to be pretty well hidden," says Andrew Winston, director of the Corporate Environmental Strategy project at Yale University and co-author of Green to Gold. "Now, someone walks by with a camera and blogs about it."

High-speed communications are empowering stakeholder groups and nongovernmental organizations (NGOs) such as Greenpeace, Human Rights Watch, and Amnesty International as they gather information and organize campaigns. The ease of long-distance communication also makes it easier to generate momentum for class-action lawsuits, another trend capturing executives' attention.

Real concerns about resource constraints, driven by the rising costs of such crucial commodities as steel and oil, are a third factor spurring executives to action. Wal-Mart chief Lee Scott has said he discovered that by packaging just one of the company's own products in smaller boxes, he could dramatically cut down its distribution and shipping costs, reducing energy use at the same time. Such realizations have driven the company's re-examination of its packaging and fleet efficiency.

Critics of corporate social responsibility, or CSR, have long held that the business of business is strictly to increase profits, a view set forth most famously by the economist Milton Friedman. Indeed, in a recent survey of senior executives about the role of business in society, most respondents "still fall closer to Milton Friedman than to Ben & Jerry," says Bradley Googins, executive director of Boston College's Center for Corporate Citizenship, which conducted the survey. "But they see the Milton Friedman school as less and less viable today," due to the change in expectations of business from nearly every stakeholder group. In a study conducted by the center in 2005, more than 80 percent of executives said social and environmental issues were becoming more important to their businesses.

"This debate is over," says Winston. "The discussion now is about how to build these intangibles into the business."

Not a Giveaway
Enter the CFO. While chief executives are proclaiming their new environmental initiatives with much fanfare, CFOs, as guardians of their companies' financial welfare, are left to account for the impact of these programs on the bottom line.

It's a tricky position when it comes to Wall Street. A program like GE's Ecomagination initiative, which aims to double the company's technical investment in energy-efficient and environmentally friendly products by 2010 and improve its energy efficiency by 30 percent by 2012, is striving for results far beyond the attention span of a typical analyst — and beyond the tenure of a typical finance chief. "There is a dilemma of being caught between reporting to the market every quarter and dealing with these longer-term issues," says Googins. If the CEO is pushing socially responsible programs but investors are looking at quarterly results, what's a finance exec to do?

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