How to turn environmental compliance into a competitive advantage

  • March 2, 2012

A popular theory in the business world is that three decades of burgeoning environmental controls and regulations have strangled the economy and undermined our economic competitiveness. Given the buzz, it’s no wonder executives often prefer to do the bare minimum or delay regulatory compliance as long as possible.

But what if adhering to the planet’s highest environmental standards actually created a competitive advantage by allowing agile, mid-size firms to zoom past their monolithic competitors? And what if compliance led to reductions in manufacturing and distribution costs? Being proactive and viewing compliance as an opportunity instead of an obligation could be just what the doctor ordered to heal our ailing economy.

“Adhering to the highest environmental standards can inspire innovation and the development of cutting edge products, because it can force everyone in the organization to coalesce around ways to meet the most stringent requirements,” says Dr. Gregory Theyel, associate professor of Business Management at California State University, East Bay. He teaches undergraduates and graduates about environmental, social and economic sustainability and helps companies with business development and the introduction of sustainability into their daily practices.

Smart Business spoke with Theyel about creating a competitive advantage by treating environmental compliance as an opportunity instead of an obligation.

Why should executives consider adhering to the highest global standards?

First movers often have the upper hand in the marketplace, and developing a product that adheres to the highest environmental standards can allow you to sell it anywhere on the planet without changing the design or manufacturing process to meet disparate regulations. Plus, proactive companies have more time to adapt to new regulations and grab market share by appealing to green-minded customers and touting their environmental stewardship. Meanwhile, the laggards stymie production, efficiency and profits when they wait until the eleventh hour to find new vendors or secure alternate manufacturing materials.

How can companies spot opportunities to benefit from environmental compliance?

First, interact with stakeholders to find out what they care about and anticipate their needs. Second, observe social change and stay connected to the community, because environmental laws usually begin as social movements before giving rise to new policies and regulations. For example, after environmental concerns surfaced following the Fukushima disaster in Japan, Germany decided to shut down its 17 nuclear power stations by 2022. The law has spawned a spate of new ideas for producing environmentally safe power across the European Union. Finally, stay in touch with regulators and engage in the law making process to give you a preview of pending legislation and the chance to influence the regulatory process by sharing information and ideas with political leaders and committee members. Regulators often seek input and solutions from the business community when evaluating new laws.

How can companies use open innovation to solve sustainability issues and reduce operating expenses?

Don’t focus on just R&D or fixing a single problem; invite everyone into the discussion and rethink your entire innovation process and business model. By attacking the problem holistically, you may uncover opportunities to sell ancillary services, reduce production costs, boost margins or enter new markets. For example, when an electronics manufacturer needed to find a substitute coating for its wiring products, it brought in customers and members of the supply chain to brainstorm solutions. In the process, they created an environmentally safe, yet more pliable material that not only opened the door to new markets, but also reduced manufacturing costs by facilitating the consolidation of several production lines. This company didn’t focus on meeting the minimum standards; it was successful because it seized the opportunity to rethink how it does business.

How can executives orchestrate an attitudinal shift?

The idea is to weave compliance and innovation into the culture of the organization and ensure that everyone is looking out for new ideas and the advent of environmental regulations. Start by asking employees to interact with stakeholders and participate in industry associations, and by hiring employees with collaboration skills so everyone is capable of nurturing relationships and developing strategic alliances across the entire supply chain. The idea of excluding outsiders is old school; successful companies remove the barriers to innovation by inviting everyone into the process. They even collaborate with competitors when it benefits the entire industry, such as for infrastructure development or standard setting. Finally, examine every component and step in the manufacturing and distribution process to identify chemicals and activities that are harmful to the environment. Once you’ve created a list, stay ahead of new regulations by investigating alternative systems and solutions. In the process, you may uncover ways to reduce waste, negotiate lower prices for raw products, substitute nontoxic chemicals or consolidate distribution simply by viewing compliance as an opportunity instead of an obligation.

Dr. Gregory Theyel is an associate professor of Business Management at California State University, East Bay. Reach him at gregory.theyel@csueastbay.edu or (510) 885-3078.

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