™

Bridge Paper

Environment, Ethics,
and Business

R. Edward Freeman
Jeffrey G. York
Lisa Stewart

Featuring a Thought Leader Commentary™

with Jan van Dokkum, President, UTC Power
 © 2008, Business Roundtable Institute for Corporate Ethics

www.corporate-ethics.org

Distribution Policy: Bridge Papers™ may only be displayed or distributed in

electronic or print format for non-commercial educational use on a royalty-
free basis. Any royalty-free use of Bridge Papers™ must use the complete
document. No partial use or derivative works of Bridge Papers™ may be
made without the prior written consent of the Business Roundtable Institute
for Corporate Ethics.

A PDF version of this document can be found on the Institute Web site at:
http://www.corporate-ethics.org/pdf/environment_ethics.pdf

Bridge Papers™ Uniting best thinking with leading business practice.

Contents

Foreword ..................................................................................2

Introduction .............................................................................3

The Environment: It’s Everywhere .............................................4

Gambling with the Future ..........................................................4

Barriers to Conversation ...........................................................6

1. Regulatory Mindset
2. Cost/Benefit Mindset
3. Constraint Mindset
4. Sustainable Development Mindset
5. Greenwashing Mindset

The Basics of Business: What Do You Stand For? ...................... 10

Values and the Environment: Adopting an Innovative Mindset .... 11

Shades of Green ...................................................................... 12

1. Light Green Principle

2. Market Green Principle
3. Stakeholder Green Principle
4. Dark Green Principle

Thought Leader Commentary™ with Jan van Dokkum ............. 16

About the Authors ................................................................... 20

Foreword

The Business Roundtable Institute for Corporate

Ethics is an independent entity established in
partnership with Business Roundtable—an association
of chief executive officers of leading corporations
with a combined workforce of more than 10 million
employees and $4 trillion in annual revenues—and
leading academics from America’s best business schools.
The Institute brings together leaders from business and
academia to fulfill its mission to renew and enhance
the link between ethical behavior and business practice
through executive education programs, practitioner-
focused research, and outreach.
Institute Bridge Papers™ put the best thinking
of academic and business leaders into the hands of
practicing managers. Bridge Papers™ convey concepts
from leading edge academic research in the field of
business ethics in a format that today’s managers can
integrate into their daily business decision making.
Environment, Ethics, and Business is an Institute
Bridge Paper™ based on the experience and research
of R. Edward Freeman (with Jessica Pierce and
Richard H. Dodd). Originally featured in the book
Environmentalism and the New Logic of Business: How
Firms Can Be Profitable and Leave Our Children a
Living Planet, published in 2000 by Oxford University
Press, this paper explores various mindsets and barriers
to combining business, ethics, and the environment.
Freeman proposes an innovative mindset for integrating
the three concepts and suggests a series of models for
business use in providing leadership for one of today’s
most pressing global issues.
The accompanying Thought Leader Commentary™
with Jan van Dokkum argues the case for urgency in
addressing the need for integrating ethics, business
practice, and a concern for the environment.

 Business Roundtable Institute for Corporate Ethics

Introduction
Today’s challenge to business leadership business and ethics. Profits are routinely
is ensuring profitability while doing juxtaposed with doing the right thing,
the right thing using environmentally as if making an ethical decision means
sustainable methods. It is possible for profits must be reduced.3 Sometimes
business leaders to make money, engage difficult choices which distribute harms
in ethical leadership, and participate in and benefits to communities and
preserving the environment for future employees are qualified as “business
generations. It is possible to fit these decisions,” signaling that business and
ideas together, but it is not easy. ethics are not compatible.4
Environmentalists and business In a similar way, environmental
leaders have traditionally seen themselves considerations are frequently viewed as
at odds. But the concepts of business, barriers to profitability. They are viewed
ethics, and the environment can be as necessary evils, costs to be minimized,
aligned to create innovation rather than or regulations with which to comply.
legislation and litigation.1 There are no The environment is rarely considered
magic solutions; however, asking the central to business strategy unless
right questions is a step in the right there is some regulation that constrains
direction. business goals, a mess to clean up, or a
Instead of showing the myriad public issue which pits executives against
ways that business, ethics, and environmentalists. Historically, business
environmentalism conflict and lead to people neither have been encouraged
impossible choices, it is more useful nor discouraged to get involved with
to ask, “How is it possible to put these environmental concerns. Models
ideas together?”2 In today’s world, all and theories of business traditionally
three issues require serious consideration. have been silent on the subject of
Businesses must continue to create the environment. Silence, however,
value for their financiers and other is no longer an option in the face of
stakeholders. Business leaders can no society’s recognition of the potential
longer afford the ethical missteps that environmental price of corporate profits.
led to the epidemic of scandals in the last An increasing number of
decade. To leave a livable world for future citizens consider themselves to be
generations, business leaders also must environmentalists. Governments are
pay attention to environmental matters. increasing their cooperative actions
Yet most of the methods, concepts, to address worldwide environmental
ideas, theories, and techniques used in concerns such as global warming
business do not put business, ethics, and and biodiversity. And interest groups
the environment together. Neither ethics are beginning to propose solutions
nor regard for natural systems is typically to problems that involve business
central to the way we think about decision-making outside of and beyond
business. government regulation.
Business language often is oriented We desperately need some new ideas,
toward seeing a conflict between concepts, and theories that allow us to

BRIDGE PAPER™: Environment, Ethics, and Business 

think about business, ethics, and the Today there is not a single aspect of
environment in one complete breath. the world that can escape the scrutiny
We need successful business models to of environmental analysis, and business
inspire us. To find solutions, we need to activities stand at the crux of many
see these issues joining together rather issues. Some of the issues that today’s
than conflicting. executives need to understand to be
environmentally literate include: air,
The Environment: It’s water, and land pollution; the production
and disposal of hazardous wastes; solid
Everywhere waste disposal; chemical and nuclear
spills and accidents; global warming and
Early one morning in March 1989, the greenhouse effect; ozone depletion;
the super tanker Exxon Valdez ran deforestation and desertification;
aground on Bligh Reef in Prince biodiversity, and overpopulation.
Williams Sound off the coast of Alaska. Conflicting media reports circulate
In the days following the accident, daily about the state of the earth.
every action or inaction by Exxon Scientists debate whether global warming
executives, government officials, and is or isn’t a problem, whether it is or is
environmentalists was subjected to not caused by solar storms, and whether
unprecedented public scrutiny.5 it is or isn’t related to the emission of
Sixteen years later, Hurricane Katrina greenhouse gases and so forth. Although
made landfall in New Orleans. The storm there is a scientific majority consensus
was only the third strongest in United that the environmental crisis is real, the
States history, but with a death toll of voice of dissenters is amplified through
at least 1,300 and an estimated cost of the hope that there is no real problem.
$70 billion, it was the costliest storm People want to know the truth about the
in U.S. history.6 Many scientists and environment, and they get disturbed by
governmental organizations, including so many conflicting reports.
the United Nations, have linked the The truth is that there is no one
deadly storm season of 2005, including truth about the environment. The factors
Katrina, to environmental issues such as involved are too complex, and we lack
global warming and wetland erosion.7 An critical knowledge about causes and
Inconvenient Truth, a documentary about effects. In truth, we have not lived in
the environmental crisis, has amassed ways that respect and preserve natural
over $6 million in box office sales, and systems.
a recent Time magazine cover declared
that when it comes to the natural
environment, readers should “Be worried. Gambling with the
Be very worried.” In the same issue, 85% Future
of American respondents agreed that

global warming is happening, and 87%
Let’s assume an optimistic scenario
supported governmental action in the
that implies the gloomy forecasts are
marketplace.8 Environmental concerns
all wrong. Maybe there is enough land
have become mainstream and are here to
for landfills for generations to come.
stay.

 Business Roundtable Institute for Corporate Ethics

Maybe global warming is a simple air and water be cleaner and to assign
weather pattern that will reverse in five the associated costs to states, localities,
years. Perhaps many of the chemicals and businesses. Thirty plus years of
we believe to be toxic may well be environmental regulation in the United
harmless. The destruction of forests may States have led to “environmental
be insignificant and worth the benefits gridlock.” Disagreement and contention
of development. Someday, clean and exist at three important levels:
healthful water may be plentiful. And it • First, there isn’t any one truth
may be that technology will be invented about the state of the environment.
that will compensate for whatever Many individual, scientific “facts”
damage has actually been done to the are disputable. By their very nature,
earth. issues such as long-term effects
of certain chemicals and the state
If the majority of people value of the bio-sphere are cast in the
future, and thus, uncertain. There is
the natural environment, why widespread disagreement about the
have most responses to the scientific answers to environmental
questions and about how the
environmental crisis been at questions should be stated.9
best ineffective? • Second, there is still disagreement
about appropriate public policy
among those who agree on the
Should we be willing to bet the science involving a particular issue.
futures of our children and grandchildren Even if we agree that greenhouse
on this optimistic scenario? If the gases lead to global warming, we
optimistic outlook is wrong or even may well disagree that limiting
partially wrong with respect to global carbon dioxide emissions to
warming, then the world will become 1990 levels by 2012 will solve the
uninhabitable for future generations. problem.
It is logical to assume there is an • Third, there is fundamental
environmental crisis; the consequences disagreement about the underlying
of being wrong are too great to bet values. Should we live with nature?
otherwise. Should we become vegetarians
What is not logical to assume is to improve our ability to feed
that the current solutions offered to the the hungry and use land more
environmental crises, such as increased efficiently? Should we recycle
regulation, eco-efficiency, doing more or consume green products, or
with less, and constraining the growth should we build an ethic of “anti-
of business, are the only or even most consumption,” saving the earth
viable solutions. If the majority of people rather than consuming it?
value the natural environment, why have These three levels of disagreement lead
most responses to the environmental to gridlock, especially in a public policy
crisis been at best ineffective? The main process that purports to base policy on
response mode has been to marshal the facts rather than values (Exhibit 1).
public policy process to legislate that

BRIDGE PAPER™: Environment, Ethics, and Business 

 Exhibit 1. Environmental disagreement and resulting inactions.

Overlay these three levels of inability to entertain new ideas, in other

disagreement on a litigious system words, our mindsets. Psychologists have
of finding, blaming, and punishing found that in situations of uncertainty
polluters of the past, and the result is a people rely on their biases, beliefs, and
conversation about the environment that assumptions to make decisions. This is
goes nowhere fast.10 neither good nor bad; it’s just how people
There is another possible mode of work. Because of this, it is easy for us to
response to the environmental crisis, get locked into our own set of beliefs.
one that has been proven to be the If we are stuck in a particular mindset,
most efficient method humans have it makes it hard to have a discussion,
found to meet their needs and create much less to innovate. There are at
value: business strategy. If business least five mindset frameworks which
activity can take place systematically in fail to recognize that the integration of
environmentally sustainable ways, then business, ethics, and the environment is a
the environmental crisis can be addressed real possibility.
in lasting, innovative, and effective ways.
Regulatory Mindset
The regulatory mindset views the
Barriers to environment as a part of the business-
Conversation government relationship to be spelled
out in terms of regulation or public
To rethink business in a way that policy. It discounts the possibility and
incorporates ethical and environmental wisdom of voluntary initiatives that
considerations, we must be on the stem from environmental values or
lookout for barriers that may prevent the desire to respond to environmental
us from engaging in tough issues. Most preferences. Over the last 30 years, we
of these barriers stem from our own have seen an accelerated increase in

 Business Roundtable Institute for Corporate Ethics

environmental regulation. From 1870 to bottom line (people, profits, planet) and
1970, approximately 25 environmental full life cycle analysis. By considering the
regulations were enacted in the United actual cost of a product through its
States; today over 120 have been
enacted.11 The exponential increase in …when you focus strictly
environmental regulation demonstrates
the belief that laws, measurements, and on costs and benefits,
government supervision will resolve our opportunities for innovation
environmental crises. For advocates of
the regulation solution, the dominant are missed.
paradigm is that government is the
responsible entity for resolving our entire lifecycle, many companies have
environmental issues. unearthed savings from environmental
While recent concern with the action. Whether the cost savings are
environment typically meant the passage driven by reduced risk, better use
of laws and their attendant regulations, of materials, or higher retention of
the debate today goes far beyond a employees, environmental issues must
regulatory mindset. Regulation lags be considered with a broader mindset
the discovery of real problems, and than the traditional cost/benefit mindset.
regulation inevitably entails unforeseen The cost/benefit mindset assumes that
consequences. Our question for the environmental measures always incur
regulatory mindset is: Are you confident additional cost, an assumption that
that government, as it currently works, leads to inaction. Many companies
will create a sustainable future? are discovering that by adopting
Cost/Benefit Mindset environmental values, they are reducing
costs.
The cost/benefit mindset views cleaning
In 2004, the industrial and consumer
up the environment, or making products
product giant 3M began celebrations for
and services more environmentally
the thirtieth anniversary of its Pollution
friendly, as having costs and benefits.
Prevention Pays (3P). 3M reports the
Thinking in traditional business terms,
program’s cost savings at $1 billion
one should go only as far as the benefits
and pollution prevention at 2.2 billion
outweigh the costs.
pounds.12 The environmental question
There are several problems with
is about waste reduction, not increased
this view. The first is that when you
expenses. By focusing on costs and
focus strictly on costs and benefits,
benefits, managers are inevitably led to
opportunities for innovation are missed.
ask the wrong questions.
The argument is similar to the quality
The second problem with the
approach. By focusing on the cost of
cost/benefit mindset is that it assumes
quality, managers make wrong decisions.
one particular set of underlying
By focusing on quality processes such as
values: economic values. Many
Six Sigma or lean process engineering,
environmentalists, executives, and other
human innovation takes over and drives
thinkers have questioned the priority
quality up and costs down. Multiple tool
of our current ways of thinking about
sets have evolved including the triple

BRIDGE PAPER™: Environment, Ethics, and Business 

economics. All value is not economic to a narrow view of economics endangers
value. Does the last gorilla have just an our free society.
economic value? What about the beauty
Sustainable Development Mindset
of the Grand Tetons? Human life is rich
and complex and not reducible solely to It may seem strange to lump what is
an economic calculation. It is degrading supposed to be a way to save the planet
to all to think we only value people and Earth with mindsets that prevent
things in simple economic terms. environmental progress. Obviously, not
all goals of sustainable development act
Constraint Mindset
as barriers, but some ideas of this concept
This mindset argues that the main simply miss the mark. The Brundtland
purpose of business is to create and report, the basis of the Rio Earth
sustain economic value, and everything Summit in 1992, called on governments
else, from ethics to the environment to to redefine economic activity to become
meaningful work, is best viewed as a side sustainable. The report defines this as
constraint. The business of business is “development that meets the needs of
purely business. the present without compromising the
A more thoughtful analysis of ability of future generations to meet
“economic value creation” shows that it their own needs.” At first glance, the idea
is impossible to separate the “economic, of sustainability is quite appealing and
political, social, and personal” aspects seems inarguable. Even if we believe this
of value. When Starbucks grants full to be a good definition and goal, it is a
benefits for part-time employees, when little disturbing that some may view a
Johnson and Johnson recalls Tylenol, nearly 20-year-old report as cutting edge
thinking on a matter as important as the
environment. Two problems surface from
Human life is rich and the resultant mindset.
First, we wonder if “sustaining” the
complex and not reducible same opportunities for future generations
solely to an economic is really our goal. Do we want them
to have better choices? Framing the
calculation. environment in this manner leads to
the concept of “do more with less” and
when Body Shop employees volunteer to “constrain all growth.” As sustainabilty
help the homeless, when Mattel donates thought leader William McDonough
money to the part of Los Angeles points out in Cradle to Cradle, while
destroyed by riots—all of these actions these may be noble ideas, they are not
imply that it is possible for a company strategies for long-term success and
to be driven by economics and ethics. are inherently at odds with the goals of
No one is arguing that economics is commerce. Slowing down the system
unimportant, but the reduction of all that has led to our current problems
human value creation/value-sustaining will not solve them; in fact, it leads to a
activity to economic measures misses the false sense of security that is even more
mark. Business does more than create dangerous.
economic value, and reducing capitalism A second problem with this view is

 Business Roundtable Institute for Corporate Ethics

that it leads quickly to the regulatory known as companies exaggerating trivial
mindset discussed earlier. Based on environmental changes to products,
the idea of sustainable development, services, and processes—pervades
the United Nations Environment many discussions of the environment.14
Programme (UNEP) consistently calls Characteristic of this mindset is the
on governments to maintain an intrusive view that business could never act on
role in the process of value creation.13 values other than profit maximization,
If we have learned anything from the and that whenever a company engages
collapse of state socialism, it is that in something that looks like it might
governments and centralized approaches be good for the environment, people
do not work very well. Ultimately, a should be deeply skeptical. In reality,
worldwide regime of environmental this mindset asserts that the company is
cooperation could become a worldwide probably trying to make money, create a
hegemony of democratic public relations smoke screen, avoid some
future cost, or engage in other narrowly
self-interested schemes. In this view,
If we have learned many corporate environmental programs
are cleverly disguised attempts to appear
anything from the collapse sustainable, while really operating in an
of state socialism, it is that environmentally destructive mode.
Many times the assumption is that
governments and centralized “business is bad,” especially with groups
approaches do not work very of people who are deeply committed to
environmental values but who have little
well. real contact with the inner workings of
business.15
freedom. Decisions on the future of It is true there are attempts to
entire industries and companies could greenwash, and such claims should be
become a matter of governmental beliefs closely examined. The assumption that
about what is “sustainable development.” all business attempts at environmental
Since there is no one truth about the action are suspect, however, is simply
environment, it is necessary to adopt a incorrect.
radically decentralized approach which People should be skeptical of
focuses on shared values, as well as a grand environmental claims, whether
conversation about those shared values. If they are from business, government,
such an approach is not adopted, then we environmental groups, or scientists. The
will see increased social and regulatory arena is very uncertain and complex. The
pressures aligned against business greenwashing mindset makes innovation
growth as part and parcel of our failure impossible, so it is impractical in seeking
to integrate business, ethics, and the solutions. Of course, businesses want
environment. to make money, but it doesn’t follow
that the environment be left out of
Greenwashing Mindset the equation or that profit is the only
The greenwashing mindset—otherwise value that counts. An alternative view
that many leading business leaders

BRIDGE PAPER™: Environment, Ethics, and Business 

are adopting is one in which values, At one level, this emphasis on
including environmental ones, are the values cuts against the traditions of
driving force of business. business. It has often been assumed that
business promotes only one primary
The Basics of value—profits. Profits are important
as they are the lifeblood of business,
Business: What Do but there is more. Businesses can and
You Stand For? often do stand for something more
than profitability. Some, like IBM,
From the start, many new ventures stand for creating value for customers,
are incorporating concerns for the employees, and shareholders. Others,
environment into their core strategies. like Merck, stand for the alleviation
Method, a company founded in 2001 by of human suffering. Still others, like
two young entrepreneurs, with roughly Mesa Petroleum, may well stand for
$300,000 in start-up capital, assumed creating value for shareholders only,
from the beginning that incorporating but even those companies must do so
ecological and human health concerns within the confines of the law and public
into its strategy was simply good expectations that could be turned
business. In 2006, the company had
45 employees and revenue of over $40
million. The home cleaning products Businesses can and often do
startup describes its mission as “People
against dirty.” According to the website,
stand for something more
dirty “means the toxic chemicals that than profitability. Some, like
make up many household products; it IBM, stand for creating value
means polluting our land with non-
recyclable materials; it means testing for customers, employees, and
products on innocent animals…these shareholders.
things are dirty, and we’re against that.” 16
There is a revolution afoot in
business; it is a revolution with “values” into law. Many smaller companies can be
at its core. Sparked by the never-ending a direct reflection of their leaders’ values,
quest for competitive advantage and which may include environmental values.
the recognition of the roles of values Patagonia, a privately held outdoor
and quality, business today is turning to clothing and equipment company, was
values. Standards have been raised. Not founded in 1970 by Yvon Chouinard,
only are businesses expected to provide an avid mountain climber and surfer
products and services that are “better, who began the company by making
cheaper, faster,” but the “better” is now and selling pitons, the pins used by
increasingly expected to incorporate climbers to secure their ropes.18 The
sustainable business practices among company evolved over time to a clothing
other rising demands. Companies that line targeted at a variety of outdoor
can deliver in this new competitive space enthusiasts. Chouinard maintains a rabid
are moving ahead of the competition.17 personal commitment to sustainable

10 Business Roundtable Institute for Corporate Ethics

practices (he lives in a house made Many businesses have discovered that
entirely of reclaimed materials) and has articulating some bedrock, foundation,
led his company down a similar path. In or basic value has enormous benefits.
1994, Patagonia differentiated itself when The business becomes focused around
it shifted to all organic cotton, becoming these values. Everyone, from executives
the only clothing manufacturer of its to mail clerks, begins to believe in them
size and distribution to do so. Through and innovate because of them, or they
this and a variety of other environmental are attracted to the firm because of
initiatives, the company has maintained these values. In short, business strategy
a commitment to reducing its natural just makes more sense in the context of
footprint, not for cost reduction or values.
preferential marketing (of which it
does reap the benefits) but because of Values and the
the culture that has grown around its
founder’s love for and commitment to Environment:
the natural environment. Adopting an
The typical strategy process involves Innovative Mindset
thinking about these questions: (1)

What businesses are we in? (2) What
The logic of values provides the very
is our competitive advantage in these
engine of business. Far from the
businesses? (3) How can we sustain
inhibiting mindsets which we mentioned
competitive advantage? What product/
earlier, an innovative mindset is central
market focus should we take? What
to thinking creatively about business.
needs to change in order to be successful?
The innovative mindset is a perspective
Some set of these questions goes into
that believes there is not one solution to
every level and division of the company.
the environmental problem but many
If this values revolution in business
solutions to any problem. It is the belief
is to set the stage for an effective
that new problems require new solutions.
strategy, we first must ask a necessary
Furthermore, it is the declaration that
question: “What do you stand for?” By
through the ingenuity of entrepreneurial
articulating an answer to this question,
innovation, driven by deeply held
thereby setting forth a statement of
environmental values, business can create
the core values of the organization, the
a better set of opportunities for future
strategy questions mentioned earlier
generations. By clearly declaring the
will have a context in which they can be
values of the company, the guiding goals
answered.19 For instance, if you stand
can become transparent to employees.
for human dignity and a basic idea of
When employees believe in values,
human rights for all, then there are
they are moved to innovate to realize
probably some markets you will not serve
those values. When the organization is
and some products and services you will
committed to realizing the values, there is
not provide. If you stand for quality,
little that is sacred other than the values.
cleanliness, and value, you will forego
People will try new ideas if they may
certain business opportunities because
help them to realize what is important.
you cannot produce quality service in a
It is easy now to see how thinking
clean environment or at a price that gives
about the environment and ethics is
good value.
BRIDGE PAPER™: Environment, Ethics, and Business 11
compatible with the values revolution. strategy, moving from light green to dark
By clearly stating and understanding green, but keep in mind, each shade has
the core beliefs that an organization its own logic. It isn’t necessary to move
has or wants to adopt about ethical from one shade to the next. Each shade
issues such as honesty, integrity, dignity offers its own way to create and sustain
of individuals, or caring about others, value by bringing together business,
policies that are straightforward and ethics, and the environment.
easily implementable can be designed. By
clearly thinking through a position on Light Green Principle: Creates and
the environment, whether to comply with sustains competitive advantage by
the law or to leave the earth better than ensuring your company is in compliance
with the law.
we found it, we can begin marshaling the
resources to realize these basic beliefs. The logic of light green relies on
Business leaders can begin to meet the public policy process to drive its
the challenge of leadership—being strategy. It is a mistake, however, to think
profitable, doing the right thing, that simply because every company has
and helping to save the earth—by to obey the law, that no competitive
understanding and articulating an advantage is possible.
answer to the question, “What do we First, countries with strict
stand for?” Many companies are doing environmental standards seem to gain
this today, and it works. From huge an edge in global marketplaces—they
Wal-Mart to little Ben and Jerry’s, from become more efficient and have better
oil and chemical companies to retail technology.20 Secondly, within an
boutiques, articulating what they stand industry, companies can actively pursue
for on the environment is the first step public policies that fit with their special
to an ecologically sustainable world, competitive advantage. By innovating
one that can be passed along to the next with technology and expertise, a
generation. company gains an advantage over a
competitor that cannot comply as
Shades of Green efficiently. Ironically, light green thinking
creates the possibility for competitive
There are many ways businesses can
advantage through lobbying to support
adopt strategies that are environmentally
regulations that the competition must
friendly; however, none are simple.
scramble to meet but are non-factors
All of them must still compete in
for your organization. This level rewards
the arena of “better, cheaper, faster”
leaders who set the standards and go
while incorporating environmental
beyond legal compliance.
principles into the business strategy.
At least four primary “shades of green” Market Green Principle: Creates and
exist, each of which has its own logic sustains competitive advantage by
and many interpretations. The shades paying attention to the environmental
include: (1) light green; (2) market preferences of customers.
green; (3) stakeholder green; and (4) Market green strategies are based on
dark green. These shades can be viewed “the greening of the customer,” a fast-
as development phases of a company’s growing yet controversial phenomenon.

12 Business Roundtable Institute for Corporate Ethics

Today’s customer-focused, market- Stakeholder green is a shade darker
driven company cannot afford to miss than market green. It applies market
the fact that many customers prefer green logic to a variety of key stakeholder
environmentally friendly products groups such as customers, suppliers,
given a similar cost. Again, it is easy employees, communities, shareholders,
to see that creating and sustaining and other financiers. There are many
competitive advantage is still a matter different ways to slice the stakeholder
of “better, cheaper, faster.” The Internet pie. Companies can seek to maximize the
has made customers more informed benefits of one group, or they can seek
about every aspect of a product, to harmonize the interests of all groups.
including its potential environmental Stakeholder green gets its color from
harms. Companies that can meet these responding to the needs of some or all
environmental needs will be the winners. stakeholder groups.
Customer perceptions about a company’s Stakeholder green strategies are
“shade of green” will be crucial, but most based on a more thorough adoption
importantly, the products and services of environmental principles among all
must perform. aspects of a company’s operations. Many
Market green logic just applies good, companies have adopted a version of
old fashioned, “know-the-customer” stakeholder green by requiring suppliers
thinking to the environment, and the to meet environmental requirements
customer doesn’t even have to be an and by setting strict standards for the
extreme environmentalist. While Whole manufacturing process. Perhaps the
Foods Markets successfully appeals to most powerful example has been the
a demographic that values organic and recent adoption of a stakeholder green
local produce, Coastwide Laboratories, mindset by the largest retailer in the
an industrial cleaning products company, world. Wal-Mart recently announced a
has appealed to its customers through variety of environmental goals, including
offering its “Sustainable Earth” formulas. cutting greenhouse gas emissions by
Market green logic roots competitive 20% and constructing stores that are
advantage in customer needs and the 30% more energy efficient. While these
ability of the customer-driven company measures consider the impact on the
to deliver on these needs. There is communities in which Wal-Mart locates,
nothing unusual except giving up the other measures are impacting suppliers,
costly belief that environmentally for example, rewarding those who can
friendly products always entail higher reduce packaging.21 Paying attention
costs and competitive disadvantages. to recyclable material in consumer
Market green logic can apply in the packaging, educating employees on
industrial as well as the consumer sector environmental issues, participating
and to services as well as products. in community efforts to clean up the
environment, and appealing to investors
Stakeholder Green Principle: Create who want to invest in green companies
and sustain competitive advantage are all a part of stakeholder green.
by responding to the environmental This shade is different for it does not
preferences of stakeholders.
prescribe one set method or a focused
set of actions. It requires, instead,

BRIDGE PAPER™: Environment, Ethics, and Business 13

anticipating and responding to a broad “cradle to grave.” 23 These companies
set of issues related to the environment are seeking to design products that
and is more complicated than the earlier can be reduced to reusable materials,
shades. The logic of stakeholder green is with whatever is not reused harmlessly
similar to the logic of quality processes. decomposing into nutrients for the
Unless quality processes permeate a earth. There are a number of viable
company at all levels, they are doomed frameworks, but what is important is a
to fail. There are different levels of deep commitment to environmental and
commitment to stakeholder green, just as business values, not the particular tool
there are different levels of commitment the company uses. Dark green logic is not
to quality, but any effective commitment anti-business, though many people will
must be pervasive. believe that it is. Humans create value for
each other, and “business” is the name we
Dark Green Principle: Create and sustain have given that process. Dark green logic
value in a way that sustains and cares for simply says that the belief that we must
the Earth. respect and care for the Earth is one of
Dark green is a shade toward which the deep values we share. Exhibit 2 gives
few companies strive. Being dark green examples of all four shades of green.
commits a company to being a leader in There are more than four shades of
making environmental principles a green. Managers can invent their own
fundamental basis of doing business. shade for their company. These four
To most business people this principle shades provide a framework which can
will sound idealistic or fanciful, which help define what is possible for one’s
merely emphasizes how much we have own company. In practice, dark green
ignored the environment in our ways of may not be for everyone, while light
thinking about business. Intuitively, most green may well be more universal. Even
people know that this principle should be in such cases it is useful to recognize the
obeyed. We teach our children to care for dark green mindset as a real possibility, a
their things and the things that we share, perspective that serves as an effective tool
such as our homes and the land. It is for business leaders who wish to align
not a large stretch of the imagination to their firms’ activities with environmental
expect that the same values are possible values.
in business. There is no optimal shade for
Companies have adopted many everyone; variation is good. Imagine
frameworks in their quest to achieve dark a world in which there are thousands
green. Interface Carpet and Starbucks of enterprises, each trying to realize
Coffee have successfully adopted The competitive advantage through
Natural Step, a set of principles that do environmental means. Undoubtedly,
not allow removal of non-renewable many of these innovations will fail, but
substances from the earth and do many others will succeed, and many
no harm to the biosphere.22 Other still will lead to different and even more
companies, such as Nike, Ford Motor important innovations. It is only
Company, and textile maker DesignTex, through a large scale process of many
have adopted to some extent the design small innovations that real, lasting
idea of “cradle to cradle” rather than change can occur. This modest, workable

14 Business Roundtable Institute for Corporate Ethics

 Exhibit 2. Shades of green and their examples.

Light Market Stakeholder Dark

• Customer preference • Responding to and • Environmental

• Compliance with
for green products coordinating the principles fundamental
environmental
drives strategy needs of stakeholders to business strategy
regulation drives
strategy • Give up principle that drives strategy
• Discounts value of green costs more (customers, investors,
independent action community, etc.)

• Some competitive • Competitive • Competitive • Aligns with fundamental

advantage can be advantage obtained advantage gained principles of founders,
gained through through through reputation employees, and
differentiation and and relationship customers leading to
efficiency gains
innovation benefits high commitment

• Example: Through • Example: Method • Example: Whole • Example: New Belgium

Home products Foods has a Brewing Company has
its 3P program, 3M
is able to easily leverages a “Declaration of a fulltime sustainability
comply with new preference for non- Interdependence,” “goddess” and is
chemical legislation toxic cleaners to outlining multiple the world’s first 100%
while competitors succeed against stakeholder wind-powered brewery;
relationships conversion to wind
must exert resources industry giants like
Proctor & Gamble and (including the planet), power funded by
Unilever which defines their voluntary reduction in
success employee bonuses

approach can lead to incremental It is clear that if business leaders

lasting change, rather than pinning all incorporate consideration of the natural
of our hope on revolutionary pollution- environment into the strategic process,
solving technology or a “perfect” set of real progress can result. The challenge is
regulations. for companies to formulate their own
In light of the best evidence environmental principles and discover
available, it is difficult to believe that our their own innovative answers to creating
environment is secure or that our current an economically and ecologically
institutions, as well meaning as they sustainable future.
may be, are doing all that is necessary.
Free enterprise is the most efficient and
effective system mankind has discovered
for solving problems.

BRIDGE PAPER™: Environment, Ethics, and Business 15

A Thought Leader Commentary™ with
Jan van Dokkum, President, UTC Power

Q: Before joining UTC Power, you were

involved with the traditional electric
power industry. What prompted the
career change?

Jan van Dokkum: My motivation for the

transition was the opportunity to develop
and launch innovative, efficient energy
technologies that have minimal impact
on the environment yet still provide the
reliability our society demands.
I’m a true believer that global climate
change is an immediate concern, so I
manage my career accordingly. I am Jan van Dokkum
thrilled to be at UTC Power, a world
leader in providing environmentally conventional power generation because
responsible power solutions. We develop of the high efficiency of onsite generation
and produce fuel cells for onsite power, and create little or no criteria pollutants
transportation, space and defense such as NOx, SOx, and particulate
applications, as well as renewable energy matter. Our onsite power products also
systems and combined cooling, heating, save water compared to conventional
and power systems for the distributed power products, which is becoming
energy market. UTC Power products increasingly important in many parts
are much more in line with my personal of the world. In short, it’s a much more
vision for protecting our natural resources sustainable approach.
and lessening the now inevitable effects
of global climate change. Q: UTC Power provides products and
The traditional power grid doesn’t services that help other companies
capture the efficiencies we can achieve become more sustainable. What do you
by generating power onsite with see as the barriers to change?
new technologies. For example, with
conventional central power plants, nearly Van Dokkum: The biggest hurdle is
70% of the energy can be lost to the simply reluctance to entertain new ideas.
atmosphere as waste heat and through Leaders get comfortable with a specific
transmission and distribution losses. business model and don’t want to change.
On the other hand, combined cooling, There is also what I call “sustainable
heating, and power solutions can recover window dressing.” Some people will
waste heat and convert it to usable hand out business cards on recycled
energy. UTC Power’s fuel cells generate paper, but if you go behind the doors
less carbon dioxide than of their operations, you see no change.

16 Business Roundtable Institute for Corporate Ethics

 There’s no real conservation inside their Van Dokkum: It is 100 years of
buildings, no removal of materials of experience with internal combustion
concern, no forethought on product engines. Again, change is difficult.
recyclability. If you are really going to be However, excitement about fuel cell
green, you consider the entire lifecycle buses is building around the world as
of your operation. It has to be part of concern increases over environmental and
your culture to find every opportunity to health issues caused by diesel emissions.
reduce or eliminate your impact. The world market for buses is estimated
In our business, we are seeing these at about 250,000 per year—a staggering
barriers falling fast. Two years ago, number. While nearly all of the buses
companies felt they had time to study purchased today are diesel, heavily
options and decide to act…or not. Now, populated urban areas recognize that
the “do nothing” or “business-as-usual” zero-emission fuel cell buses can play a
approach has become unacceptable to key role in addressing their pollution and
their stakeholders. We have companies health problems.
coming to us saying they must do Buses and other fleet vehicles are
something about their energy use or their the perfect avenue to introduce fuel
environmental footprint or both. Because cell power plants into the marketplace.
the impetus to act is so intense, they are Because the vehicles return to a central
much more open to new ideas. station each night, they can fill up
More companies are proving it is with hydrogen without the need for an
possible to make money and actively help extended hydrogen infrastructure.
to slow the degradation of the planet We are pleased with how our fuel
for future generations. Within these cell power system has performed during
companies, the push for change comes revenue service in buses in California,
from the top—it’s all about leadership. Connecticut, and Belgium. Our
UTC Power has great success customers have been impressed with the
working with organizations whose performance and fuel efficiency of the
leaders are visionary about how their power plants, and passengers enjoy the
business affects the environment. comfortable, quiet, and odor-free ride of
They are concerned about where their the bus. We are proving that reliable fuel
companies need to be 30 or 40 years cell buses are a reality now.
down the road. It’s the vision of the This technology is a natural bridge to
leadership that moves them toward using other transportation applications, with
power solutions like ours. the ultimate goal being its widespread
use in automobiles. Of course, the hurdle
Q: You commented recently that the use is developing the hydrogen infrastructure
of hydrogen fuel cell buses for public to support this transition.
transit offers a number of noteworthy
benefits: smoother acceleration at low Q: The Shades of Green model outlined
speeds, higher fuel efficiency, greatly in this paper details several benefits and
reduced air-polluting emissions, and challenges for companies in adopting
quiet operation. What are the obstacles environmental business strategies. How
to moving forward in this arena? would you characterize UTC Power
along this spectrum?

BRIDGE PAPER™: Environment, Ethics, and Business 17

 Van Dokkum: We are at Stakeholder Much of this went toward projects that
Green, with our eye on the very tough directly benefit the environment.
target of Dark Green. We definitely We’re also involving our suppliers.
get our color from anticipating and Last year, more than 1,000 key suppliers
responding to our stakeholders’ needs. representing approximately 40% of
Our goal is to lead in sustainability, not UTC’s product spend completed self-
only with our products and services, but assessments against our baseline EH&S
also with the way we run our everyday expectations. Eighty-one percent have
operations throughout our entire value met these criteria already.
stream.
This approach comes from being Q: As an emerging technology company,
part of United Technologies Corp. UTC Power is often in the unusual
(UTC), a $54 billion company with a position of designing products and
large presence across the globe. UTC’s creating markets simultaneously. How is
products include some familiar names, collaboration with industry, government,
including Carrier air conditioners, Otis and policymakers essential to this effort?
elevators, Pratt & Whitney aircraft
engines, and Sikorsky helicopters. Van Dokkum: At this point in our
UTC continually proves it’s possible industry’s evolution, it’s important
to provide stakeholders with a balance to have government involvement.
of environmental, social, and economic Incumbent technologies, such as internal
value. Our performance has been combustion engines for transportation
outstanding, with total shareholder and the electrical power grid, have a huge
return at 24% in 2007, and cumulatively head start and, in many cases, the rules
388% for the decade ended December of the game are written to support their
31, 2007. We have achieved these continuation. Our society is comfortable
results while maintaining principles of with these technologies and has
good corporate citizenship, including depended on them for many generations.
the highest ethical and environmental Because we are not yet producing
standards. products at high volume, we are often
From 1997 to 2006, UTC reduced faced with an initial cost disadvantage
absolute energy use by 19% and water compared to traditional, less sustainable
use by 49%, while doubling revenues. We power generation methods. Our
voluntarily began eliminating materials customers may have more up-front
of concern from our products in 2001. expense, but there is a much greater value
Finding safe, effective substitutes that are long term, especially when external costs
also acceptable to our customers has been like the impact of global climate change
a challenge, but we have achieved 44% and the quality of the air we breathe are
elimination in new products. Our goal is considered. We work side-by-side with
to eliminate materials of concern in new government and policymakers to make
products by the end of 2010. sure there are proper incentives to help
Since 1997, UTC has invested with initial costs for clean technologies.
more than $26 billion in customer- Until the playing field is leveled, there
and company-funded research and has to be some help to allow new, better
development, $3.6 billion in 2007 alone. technologies to win.

18 Business Roundtable Institute for Corporate Ethics

 When governments promote more
sustainable methods by enacting new
environmental policies, it results in
action from people still following the
“Regulatory Mindset” discussed in
this paper. But I have to say, I believe We cannot put all the
regulations are a necessary stopgap responsibility for resolving
solution. This is especially true when the
rules are written around business models our environmental issues
of incumbent technologies. on the government. We can
One example is paying utilities
simply to generate power and transmit it
drive change through personal
through their lines instead of rewarding choice.
them for making investments in their
business. Under this current structure,
there is no incentive for utilities to invest
in alternative solutions because it reduces
their traditional revenue. Governments
can help advance the concept of
decoupling so utilities get paid for their
capital investment and expand this
definition to include energy-efficiency
projects. This is a long but vital process
to ensure rapid adoption of onsite power
technologies. UTC Power’s job is to
bring these barriers to the attention of
governments and engage with them and
other stakeholders on workable solutions.
We cannot put all the responsibility
for resolving our environmental issues
on the government. We can drive
change through personal choice. With
individuals making the right decisions
and governments providing support for
the use of environmentally responsible
technologies, we can look forward to a
bright future.

BRIDGE PAPER™: Environment, Ethics, and Business 19

ABOUT THE AUTHORS

Environment, Ethics, and Business LISA A. STEWART is Program Man-

R. EDWARD FREEMAN is the Aca- ager for the Business Roundtable In-
demic Director of the Business Round- stitute for Corporate Ethics. Prior to
table Institute for Corporate Ethics. He joining the Institute, Stewart planned
is Elis and Signe Olsson Professor of and managed executive education pro-
Business Administration at The Darden grams both nationally and internationally
School and heads Darden’s Olsson Cen- for Executive Education at the Darden
ter for Applied Ethics, one of the world’s Graduate School of Business Adminis-
leading academic centers for the study of tration at the University of Virginia.
ethics.
Freeman has written or edited 10 Thought Leadership
books on business ethics, environmental Commentary™
management, and strategic management. JAN VAN DOKKUM is president of
His book, Environmentalism and the UTC Power, a company of United Tech-
New Logic of Business, How Firms Can nologies Corp. He assumed his current
be Profitable and Leave Our Children a position in October 2002.
Living Planet, helps executives meet the Prior to joining UTC Power, van
challenge of being profitable while being Dokkum was with Siemens for 17 years
environmentally responsible. He has where he served as president and chief
also authored more than 40 Darden case operating officer at Siemens Power
studies. Freeman serves on the advisory Transmission & Distribution, Inc. from
board of the Institute for Practical Ethics 1997.
and Public Life at the University of Van Dokkum is a member of the
Virginia. U.S. Department of Energy, Hydrogen
Before joining The Darden School in and Fuel Cell Technical Advisory
1986, Freeman taught at the University Committee. He serves on the board of
of Minnesota and The Wharton School. directors of WestStart-CALSTART and
He has received teaching awards at all is chairman of the California Fuel Cell
three schools. Partnership.
JEFFREY G. YORK is a research as-
sistant at the Batten Institute at the
University of Virginia’s Darden School
of Business and a PhD candidate in
Entrepreneurship, Business Ethics, and
Strategy. He holds a bachelor’s degree
in Journalism from the University of
Georgia and an MBA from the Univer-
sity of Tennessee where he focused in
new venture analysis. His work is focused
on studying the fusion of environmental
opportunities with entrepreneurial solu-
tions.

20 Business Roundtable Institute for Corporate Ethics

notes
1. Arguments presented in this paper were originally developed in R. Edward Freeman, Jessica Pierce, and Richard
H. Dodd, Environmentalism and the New Logic of Business (New York: Oxford University Press, 2000). In this
paper we have refined and expanded these initial ideas.
2. ����������������������������������������������������������������������������������������������������������������
There are multiple conflicts which are a result of the conceptual schemes we (as a society) have traditionally
brought to bear on these issues. We need a new conceptual scheme that considers the possibility that these ideas
can fit together. An argument about what may be possible is fundamentally different from arguments which assess
and judge what has been and is the case. By focusing on the possibility of how these ideas might work together, we
hope to escape some of the morass which usually encumbers more academic arguments in business.
3. �����������������������������������������������������������������������������������������������������������������
For a review of literature on business ethics see Patricia H. Werhane and R. Edward Freeman, “Business Ethics:
The State of the Art,” International Journal of Management Reviews 1, no. 1 (March 1999): 1–16.
4. �������������������������������������������������������������������������������������������������������������
These “business decisions” are moral in nature. The idea that business and morality have nothing to do with
each other is called “The Separation Thesis.” If business is thought to be amoral and separate from ethics, and if
ethics is thought to have nothing to say about the underlying process of value creation in society, then we have a
logical explanation for why “business ethics” often appears as a joke. The Separation Thesis has long outlived any
usefulness which it may have had. See R. Edward Freeman, “The Politics of Stakeholder Theory,” Business Ethics
Quarterly 4, no. 4 (1994); and “Stakeholder Capitalism,” The Financial Times, 26 July 1996.
5. �������������������������������������������������������������������������������������������������������������
For additional information, see Patricia Bennett and R. Edward Freeman, “The Exxon Valdez Oil Spill,” UVA-E-
0085 (Charlottesville, VA: Darden Business Publishing, 1996); or Art Davidson, In the Wake of the Exxon Valdez,
(San Francisco: Sierra Club Books, 1990).
6. �����������������������������������������������������������������������������������������������������������
Associated Press, “Death Toll from Katrina Likely Higher than 1,300,” February 10, 2006, http://www.msnbc.
msn.com/id/11281267/ (accessed March 14, 2007); Kathleen Pender, “The True Cost of Katrina,” San Francisco
Chronicle, September 27, 2005, http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2005/09/27/
BUGADEUAO01.DTL (accessed March 14, 2007).
7. �����������������������������������������������������������������������������������������������
United Nations Environment Programme, UNEP Annual Report 2005, http://www.unep. Org/Documents.
multilingual/Default.asp?DocumentID=67&ArticleID=5125&1=en (accessed March 14, 2007).
8. ���������������������������������������������
Jeffrey Kluger, “Global Warming Heats Up,” Time 167 (March 2006): 36–39.
9. ���������������������������������������������������������������������������
For more information on this argument, see Norman Myers and Julian Simon, Scarcity or Abundance?: A Debate on
the Environment (New York: W.W. Norton, 1994).
10. ��������������������������������������������������������������������������������������������������������������
Combine this argument with the trend in many countries toward the devolution of government and an increasing
disenchantment with government as the solution rather than market mechanisms, and note that the level of
gridlock increases exponentially.
11. ������������������������������������������������������������������
P. T. Anastas, “Meeting the Challenges of Sustainability through Green Chemistry,” Green Chemistry (April
2003): 29–34.
12. ��������������������������������������������������������������������������������������������������
3M 2004 Annual Report, 17, http://media.corporate-ir.net/media_files/NYS/MMM/ reports/2004ar.pdf
(accessed March 6, 2007).
13. United Nations Environment Programme, UNEP Global Environment Outlook 2000, http://www.unep.
org/geo/geo2000/ (accessed March 14, 2007); UNEP Annual Report 2004, http://www.unep.org/Documents.
multilingual/Default.asp?DocumentID=67&ArticleID=4722&l=en (accessed March 14, 2007); United Nations
Global Biodiversity Outlook 2006, http://www.biodiv.org/doc/gbo2/cbd-gbo2.pdf (accessed March 14, 2007).
14. For an example of this mindset, see Sharon Beder, Global Spin: The Corporate Assault on Environmentalism (Devon:
Green Books, 1997).
15. For a more careful analysis of this idea see R. Edward Freeman, “The Business Sucks Story,” The Darden Graduate
School of Business Administration Working Papers (1996).

BRIDGE PAPER™: Environment, Ethics, and Business 21

16. www.methodhome.com (accessed March 14, 2007).
17. This shift to values is not always in moral terms. Many executives see these values as a tool leading to profits. For
additional discussion on this topic, see R. Edward Freeman and Daniel R. Gilbert, Jr., Corporate Strategy and the
Search for Ethics (Englewood Cliffs, NJ: Prentice Hall, 1988), Chapter 3.
18. www.patagonia.com (accessed March 14, 2007).
19. The question “What do you stand for” is also known as “enterprise strategy” and is traceable to Peter Drucker. See
R. Edward Freeman, Strategic Management: A Stakeholder Approach (Boston: Pitman Publishing Inc., 1984).
20. See Michael Porter, On Competition (Boston: Harvard Business School Press, 1998).
21. Daren Fonda, “How to Seize the Initiative: Retailer The Greening of Wal-Mart,” Time, March 26, 2006; http://
www.time.com/time/archive/preview/0,10987,1176989,00.html (accessed March 14, 2007).
22. Brian Nattrass and Mary Altomere, The Natural Step for Business: Wealth, Ecology & the Evolutionary Corporation
(British Columbia, Canada: New Society Publishers, 1999).
23. William McDonough and Michael Braungart, Cradle to Cradle: Remaking the Way We Make Things (New York:
North Point Press, 2002).

22 Business Roundtable Institute for Corporate Ethics

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