Sunday, March 27, 2011

Doing Good Can Lead to a More Sustainable Business

So much of the news is dispiriting, that when there is good news it stands out.  And there was some good news for the environment—and for the long-run sustainability of the business in question—this week.

Scotts Miracle-Gro, the world’s largest marketer of branded consumer lawn and garden products, launched new initiatives involving product changes and consumer education efforts to improve water quality and conservation in the U.S.   Water quality and scarcity is already an urgent problem around the world, and a fertile investment area with few publicly-available vehicles in which to participate. 

Scotts will phase out phosphates from its lawn fertilizers by the end of 2012.  Phosphates lead to algae growth and have been accused of choking lakes and rivers.  Scotts will also focus on more efficient ways to use nitrogen in its products through enhanced science and technology efforts.  Nitrogen is vital for plant growth, but excess nitrogen in the environment, particularly from runoff that ends up in the Gulf of Mexico, has created a vast “dead zone” in the Gulf.  Aquatic and marine dead zones can be caused by an increase in chemical nutrients (particularly nitrogen and phosphorus) and a decrease in oxygen in the water, known as eutrophication

Excessive use of chemicals and fertilizers by homeowners is a significant problem, and Scotts is trying to do something positive about it, along with the contamination and wasteful use of water.  

This is an example of a market-leading company that has decided to use its prominence to  lessen the negative consequences of its products and to help the environment have a fighting chance.  It also is sound business through good publicity and by making it more likely that the company will be around longer. 

This is a concrete illustration of the concept of “sustainability.”  It goes beyond socially-responsible investing, which has an undeserved stigma that investment returns must suffer when businesses do good as well as simply maximize their short-term profits.  It has to do with the products a company sells, the ethical conduct of its managers, and the effects of its operations on the broader society.

More forward-thinking executives—and investors—should orient their thinking along these lines.

Steve Lehman

S & P 500:  1314
Russell 2000:  824

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