by: Joel Makower
According to the gospel of sustainability, successful companies will dematerialize -- that is, do more business with less stuff. For example, by selling the service that a product delivers instead of the physical product itself, some companies already are finding they can grow revenue while reducing physical throughput -- and the accompanying environmental burdens.
So, in a world where a service can outcompete a product, both ecologically and economically, one would think that the service sector would reign supreme, and green. Maybe not.
Over the past few years, the service sector has come under increased scrutiny for its environmental policies, practices, and performance. While the sector -- a wide swath of the economy that encompasses finance, insurance, and real estate; wholesalers and retailers; transportation, utilities, and communications -- lacks the belching smokestacks and drainpipes of its industrial brethren, it is far from benign. Service-sector businesses can be gluttonous consumers of resources and can generate vast quantities of waste, some of it quite toxic.
Consider some recent trends and developments:
- Investors are pressing large retailers to disclose more information about the environmental footprint. This past week, in response to shareholder requests, two leading big-box retailers and the nation's largest shopping mall company agreed to significantly expand reporting and disclosure on energy-efficiency performance, including greenhouse gas emissions.
- The pressure on financial institutions has been growing, too with some banks and insurance companies adopting aggressive sustainability policies. A recent report, Shaping the Future of Sustainable Finance: Moving the Banking Sector from Promises to Performance, ranked the financing policies of 39 international banks across 13 issue areas, from climate change to human rights. Individual financial institutions, from Citigroup to HSBC to Goldman Sachs, have adopted aggressive sustainability policies, often under pressure from activists.
- The health care industry, under increased scrutiny for everything from mercury pollution to medical waste, has been cleaning up its act, implementing such initiatives as green building standards for hospitals and green supplier networks.
- Even sports teams, musical events, and the tourism industry are waking up to green practices.
Why bother with such "soft" companies, compared to oil, gas, chemical, forestry, heavy industry, and other seemingly more polluting companies? For starters, the sector comprises fully 80% of U.S. gross domestic product, according to a recent Reuters account. Beyond that, the environmental impacts of the service sector deserve attention for three key reasons:
- The sector's environmental problems are poorly understood and woefully under recognized. For example, we have virtually no understanding of the complex set of energy and environmental trade-offs directly tied to distribution and transportation systems. The actions of the real estate sector, which accounts for 12% of GDP, can affect land use, biodiversity, air emissions, and stormwater runoff. There are similarly significant impacts from the health care, hospitality, and retail sectors, and from academe.
- The sector has tremendous upstream leverage. Consider McDonald's. It feeds some 47 million people daily and requires more than 2 million pounds of potatoes every 24 hours. It can create an environmental market where none exists (for non-GMO potatoes, for example), or pass customer signals concerning environmental preferences back to manufacturers.
- The sector has powerful downstream links to consumers. Daily interactions with large numbers of customers create unparalleled opportunities to assess attitudes and educate customers about the environmental impacts of their behavior. The communications clout of service sector firms can be substantial. For example, some 25 million customers visit one of Starbucks' 7,300 retail outlets every week. Its potential to communicate rivals that of many media organizations.
Among the realizations of those examining this universe is that service-sector companies behave very differently from manufacturing ones, environmentally speaking. On the one hand, they tend to have more scattered work sites, use smaller quantities of chemicals on an intermittent basis, and generate relatively small waste streams. At the same time, they can be responsible for significant quantities of climate-change gases and other pollutants by being large users of transportation -- planes, trains, automobiles, and trucks. They also can be large generators of packaging waste.
Tracking and measuring such impacts, whether you're a government regulator, an environmental activist, or a corporate EH&S director, can be tough, if not impossible. And that can make it difficult to foment improvements.
To date, there is little comprehensive research on the environmental impacts and best management practices of service sector industries, let alone for the sector as a whole. Clearly, this is a huge topic that will need a great deal more investigation.