For those in California, the past 2 weeks have been filled with stories about Palo Alto beginning its plastic bag ban (last week) and San Jose struggling to pass legislation. Many other municipalities around the nation on are the same track, trying to find a solution to the plastic bag problem. As I outlined in a recent post, the entire grocery industry is tuned into this issue and is eager to take a stand.

Of course there are other stakeholders involved, not the least of which is the plastics industry. In parallel with their efforts to block legislation, they are working with government to encourage more recycling. A recent article in the Sacremento Bee  discusses the “Got Your Bags?” initiative - designed to remind people to use reusable bags - as well as a renewed attempt to encourage recycling of plastic bags. In fairness to the plastics industry, the 2007 law that mandated stepped up recycling efforts has had little impact, in large part because there was no funding for an awareness campaign to encourage recycling.

For their part, grocers are increasingly realizing that it’s in their best interest - financially as well as environmentally - to encourage the use of reusable bags. Disposable plastic and paper costs them from $30-$60K per store, which represents 10-20% of a store’s annual net income. Finding ways to lower this cost, in particular ways that are deemed a reward rather than a punishment by their customers, is simply smart business for grocers.

Having been a solution provider to virtually every industry on earth, I have come to recognize that the grocery industry as a whole is relatively conservative. New technologies, solutions, and business models are simply not embraced and adopted overnight. And frankly, until recently, I believed the same could be said about sustainability (see recent blog post). So I was pleasantly surprised during last week’s Food Marketing Institute Sustainability Summit to see the strides that grocers are making towards more sustainable operations.

Yes, it’s easy to find grocery chains with new LEED buildings, improved lighting and more efficient refrigeration. But what is truly heartening is the extent to which real progress is being made among the products on store shelves. Many grocers are looking to expand their selection of organics, some with private label offerings. And many are taking a hard look at their sourcing policies in important areas like sustainable seafood practices. Futhermore, several leading grocers are helping their customers understand which products are environmentally preferable through shelf tags. In my view, more responsible sourcing combined with improved customer education are critical steps towards enabling more responsible consumerism.

Another area of increasing activity among grocers is around the “bag issue”. Based on at least 30 conversations that I had with grocers during the Sustainability Summit, it’s clear that grocers realize that they need to go beyond providing a discount for use of reusable bags. Nearly every grocer has a committee looking at new programs that they can put in place to significantly impact the use of reusable bags at their stores.

Clearly, leaders in the grocery industry have begun to recognize that their responsibility extends to the products on their shelves and the buying behaviors of their customers. With this new mindset, we can expect great strides to be made by the grocery industry over the coming months and years.

On the eve of the Food Marketing Institute’s Sustainability Summit, I feel compelled to point out the importance of adopting sustainable products and processes by grocery retailers.  Certainly some have heeded the call and have made sustainability a hallmark of their operations. But too many grocers continue to hold on to the outdated belief that they are simply a middle man between product manufacturers and their customers.

Increasingly, the evidence points to the fact that consumer buying habits are a reflection of their values. The widely publicized Cone Survey shows that fully 90% of Americans consider themselves “conscious consumers”. Not only do they want to purchase products from manufacturers that reflect their values, they want to buy from retailers who reflect these same values. The entire value chain - from raw materials to packaging and production to the point of sale - is under scrutiny by the increasingly conscious consumer. As the Hartman Group so effectively tells us, it’s not just what they buy, it’s where they buy it.

If you don’t believe me, take a look at what Greenpeace is doing to Trader Joe’s.  With its website and series of email campaigns entitled “Traitor Joe’s”, Greenpeace is exposing Trader Joes’ irresponsible seafood sourcing practices. How long can a grocery retailer - already hit with reduced consumer spending amid historically razor thin margins - afford to maintain unsustainable practices? The answer is obvious, and it’s equally obvious that grocers need to get ahead of the game by rapidly adopting more sustainable practices throughout their operations.

By the way, if fear is not motivation enough, the fact that sustainability-minded consumers spend significantly more than the average consumer at the grocery store should be enough to move smart grocers in the right direction.

The more I read, listen, and learn, the more I realize how unbelievably wasteful our current economy is.  The examples are plenty, and the statistics are staggering.  Consider this: in the normal course of business, over 1 million pounds of resources are extracted, used, and cast aside as waste per year for each American in the U.S. economy.  This does not count the weight of the water that’s also involved.  So again, over 20X the body weight of each American flows through the economy each day!  And the vast majority of these resources - once a part of our natural capital - are cast aside as waste.

Why is this? What’s happening here? First, we’ve already established that historically capitalism has not really accounted for the cost of natural capital.  So it was easy to waste, because costs are minimal.  Second, recycling has been a low priority, so the vast majority of products are made with “virgin” resources.  Third, wealth as we’ve defined it results from pushing these single-use resources through factories and disposing of them at an ever more rapid pace.  In the end, at the pinnacle of capitalism, we are generating waste streams that simply boggle the mind.

I don’t think any of us regret that the industrial revolution occurred - tons of good has come from it and from capitalism, even the old wasteful capitalism - but it’s clearly time to re-define progress.  It’s time to trim the fat. It’s time to expose the waste that is rampant in virtually all aspects of our economic lives (efficiency of gasoline engines, % of electricity wasted from the grid, excessive energy use in poorly designed buildings…the list is virtually endless) and profit from finding ways to reduce it. Successful companies in the 21st century will factor in the real cost of natural capital and innovate ways to make our limited resources more productive.

All of us who have studied economics have heard the term “externalities”. Conceptually it’s pretty simple - as defined in Wikipedia, an externality is “an impact (positive or negative) on any party not involved in a given economic transaction.” You can read more about it on http://en.wikipedia.org/wiki/Externalities. The word itself has a sort of dismissive feel about it, but in fact this term has come front and center in the new eco-aware economy.

Natural Capitalism talks about how externalities - both in the form of valuable resources that are consumed in the production of goods as well as pollution, waste, and other by-products of industrial processes - somehow got lost in the “story of capitalism”. In other words, as amazing and powerful as capitalism is, capitalism as we have known it over the past 100 years somehow manages to disregard the huge toll we take on our planet when we consume valuable resources (trees, clean water) and dispose of products at end of life (toxic chemicals, non-recycled paper and metal).

So the new capitalism will need to incorporate these externalities into the true cost of doing business. We will see a rapid rise in the cost of resources. We will see a price tag placed on pollution. We will see companies forced to incorporate the cost of handling their products at end of life. Once market forces begin to incorporate these costs, we will be on the fast-track towards a sustainable economic system.

A few months ago I wrote about the possibility of a carbon tax in California in my post “What Gets Measured Gets managed”. You can check it out at http://www.ecounit.com/blog/?p=17. Well, the speculation is over and it’s now official - northern california will impose a carbon tax on its largest corporate carbon emitters. For more info you can read this overview: http://www.treehugger.com/files/2008/05/bay-area-carbon-tax.php

I am naturally suspicious of government regulations, but I’m willing to chalk this up to “a step in the right direction” given the immediacy of the climate crisis. Let’s watch this one closely…

During my quest to understand where all this is headed, I ran across Natural Capitalism which is essentially a manifesto for the new green economy. I will not endorse the entire book until I’ve read it in its entirety, but the first couple chapters have me intrigued. Clearly, others have thought about how capitalism - and all of the positive energy that it unleashes - can co-exist with a healthy respect for our environment.

Similar to my thoughts on the less is more economy, the authors of Natural Capitalism discuss how “resource productivity” will be the force that drives the next industrial revolution. Whereas human productivity (making the same amount of things with fewer people) was the primary source of progress thus far, the new economy will be driven by our ability to do more with the same amount of raw inputs. In other words, in the new economy we will be able to do more with less - make more, faster, better, safer products with the finite resources available to us.

They support this line of thinking with some interesting facts, namely the almost disgusting level of waste/inefficiency in the current economy. The evidence is everywhere (the U.S. economy actually utilizes something like 37% of the energy that is produced…the rest is wasted at various points of storage, distribution, etc…). A factoid from the book that I found interesting is that in the U.S. economy, the weight of all materials used to produce the goods that the average American consumes in 1 year is 2 million pounds! I’m not sure how much weight I actually consume, but it’s certainly not 2 million pounds…making the rest waste.

There is more to the story, and I intend to uncover it and share the key points on this blog. In the meantime, take a look around you and become more aware of the waste that you produce even at a personal level. Many new opportunities will come to those who help make our use of resources more efficient.

For those of you who read about the “less is more” economy, I found a great example. Check out TerraCycle at www.terracycle.net. They are a product company whose raw materials are empty juice packs and power bar wrappers. They recruit average consumers to collect and send in this “trash” which they turn into saleable products and containers. Very cool. As consumer begin to *prefer* these types of products, then we’ll truly be in the less is more economy.

Since my last post I have thought hard about what a new picture of progress might look like. On the surface it’s easy to believe that we just need to develop some new technologies and buy more hybrids and we’ll be well on our way towards a green future. True, first steps are critically important. But even these first steps are tiny when you consider the scale of what’s in front of us. To use an old consulting term, we truly need a paradigm shift if we’re going to continue to improve our quality of life while simultaneously respecting the planet.

The environmental optimists attempt to rally the masses with promises of new, high-paying jobs in this new green economy. They sit side-by-side with the environmental realists who implore us to reduce, reuse, and as a last resort recycle…a message which is hard to dispute when you really think about the unsustainable nature of our consumption habits. But the naysayers make a strong argument that this message of reduce, reuse, and recycle will certainly take us down a path to economic failure.

And that’s where the waters get a little muddy. As the naysayers will tell you, “reduce” sounds a lot like “recession”. And it’s a fair question: can you really reduce consumption while simultaneously growing the economy? I’ve been trying to marry these ideals of reduce, reuse, and recycle with the only outcome that we can all agree is a positive one: a better quality of life. Can the 2 really co-exist, and if so, what’s it look like? What is that picture of progress?

Progress as it’s been defined in recent decades can be summed up in the words “better, faster, cheaper.” The next big thing necessarily had at least one of these attributes. In the 1980s the Japanese showed us how to build cars better, faster, and cheaper. Today computers get better, faster, and cheaper at an unbelievable rate. When products meet these criteria, the economic engine continues to hum right along. And as a result, we consume resources at an increasing rate.

So what will progress look like in the coming years? I am certain that consumers will continue to want better, faster, and cheaper. But as they become more aware of the impact their choices have on our planet, a new attribute will become critically important to their buying decision. That attribute is “less”. To make the same product, with all the same attributes and perhaps even better ones, while using less resources. The eco-aware consumer will pay more for these products…allowing the economy to grow while reducing our resource consumption.

An example should help to paint this picture. Today’s TVs are purchased based primarily on size and resolution. But as the problem of ewaste continues to gain in importance, manufacturers will increasingly develop designs and processes that allow for efficient recycling of materials and decreased reliance on toxic materials. Improved design will allow my 45 inch plasma TV to be recycled into a 52 inch super-plasma in the next generation…increasing my quality of life without draining resources.

It is certainly true that “reduce” will mean that some industries will fade away and jobs will be lost. But that is a part of capitalism that we’re all familiar with. Because “reduce” does not mean that we need to survive with less stuff - it just means that the stuff we want will utilize less resources - there will be new sectors in the economy with demand for new skills and workers. In order to get there we need revolutions in design, in material science, and in processes. There will be much dislocation, and many new opportunities, in the less is more economy.

Corporate America continues to make strides towards a more transparent economy, led by long-time eco-conscious companies like Patagonia and even companies not typically thought of in this vein such as Xerox. Two recent announcements highlight this trend. Patagonia launched the Footprint Chronicles which shows the cradle-to-cradle footprint of several of their products. For their part, Xerox announced a new sustainability calculator that measures the impact of using their products, including a feature that suggests opportunities to optimize usage.

For all the criticism that corporate America gets for its environmental record, we need to recognize and embrace meaningful change when it occurs. And a first and critical step towards sustainability is transparency and awareness. These companies know that the steps they’re taking will not necessarily translate into higher revenues or profits in the near-term. Xerox may find that fewer of their printers are needed in the average office. And Patagonia may find that their environmental record does not run as deep as their brand might suggest.

Indeed, in the area of sustainability, the more we peel back the onion the more issues arise. During the process of discovery, there is little purely good news. Patagonia provides a perfect example: as they examined the cradle-to-cradle impact of one of their “recycled” shell jackets, they found that it contains a harmful toxin in the coating. Bad news? Egg on face? Well, somewhat…but it sure is a better outcome for all parties than continuing to bury our heads in the sand.

I applaud these steps by corporate America. This is what we must do. We need to start by discovering, because only then can we take action.