Green to Gold
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Green to Gold
How Smart Companies Use Environmental
Strategy to Innovate, Create Value, and
Build Competitive Advantage
Daniel C. Esty and Andrew S. Winston
Yale University Press
New Haven and London
Copyright ᭧ 2006 by Daniel C. Esty and Andrew S. Winston.
All rights reserved.
This book may not be reproduced, in whole or in part, including illustra-
tions, in any form (beyond that copying permitted by Sections 107 and
108 of the U.S. Copyright Law and except by reviewers for the public
press), without written permission from the publishers.
Set in Adobe Garamond with Stone Sans Display by Westchester Book
Services.
Printed in the United States of America.
Library of Congress Cataloging-in-Publication Data
Esty, Daniel C.
Green to gold : how smart companies use environmental strategy to
innovate, create value, and build competitive advantage / Daniel C. Esty
and Andrew S. Winston.
p. cm.
Includes bibliographical references and index.
ISBN–13: 978–0–300–11997–8 (cloth : alk. paper)
ISBN–10: 0–300–11997–6 (cloth : alk. paper)
1. Industrial management—Environmental aspects. 2. Corporations—
Environmental aspects. 3. Business enterprises—Environmental
aspects. I. Winston, Andrew S. II. Title.

For our children—Sarah, Thomas, and Jonathan (the Estys), and
Joshua and Jacob (the Winstons).
We hope you will be the beneficiaries of a future where businesses both
profit and help to create a healthy and sustainable world.
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Contents
Acknowledgments, ix
Preface, xiii
Introduction: The Environmental Lens, 1
Part One. Preparing for a New World
1 Eco-Advantage, 7
Issues and opportunities for business in an environmentally
sensitive world
2 Natural Drivers of the Green Wave, 30
Environmental problems and how they shape markets
3 Who’s Behind the Green Wave? 65
Stakeholders and the power they wield
Part Two. Strategies for Building Eco-Advantage
4 Managing the Downside, 105
Green-to-Gold Plays to reduce cost and risk
viii Contents
5 Building the Upside, 122
Green-to-Gold Plays to drive revenues and create intangible value
Part Three. What WaveRiders Do
6 The Eco-Advantage Mindset, 145
Looking through an environmental lens
7 Eco-Tracking, 166
Understanding your company’s environmental “footprint”
8 Redesigning Your World, 195
Designing for the environment and “greening” the supply chain

to particularly acknowledge the contributions of Pat Burtis, Pamela
Carter, Genevieve Essig, Jordanna Fish, Cassie Flynn, Jennifer
Frankel-Reed, Rachel Goldwasser, Kaitlin Gregg, Ann Grodnik, Lau-
ren Hallett, Laura Hess, Andrew Korn, Cho Yi Kwan, Emily Levin,
Jessica Marsden, Tiffany Potter, Marni Rappaport, Kara Rogers,
Elena Savostianova, Manuel Somoza, Grayson Walker, Austin Whit-
man, and Rachel Wilson.
Melissa Goodall and Christine Kim at the Yale Center for Envi-
ronmental Law and Policy helped shepherd this project through its
many phases and always stayed calm under fire. Special thanks to
Marge Camera at the Yale Law School, who was the first person to
read this book cover to cover while making our countless edits a
reality in digital form.
We also want to thank our agent, Rafe Sagalyn, for ensuring that
we stayed on track and our publicist Barbara Henricks for guiding
us through the media jungle. Special thanks as well to our editorial
advisor, Howard Means, for helping us set the right tone throughout
the book. We are deeply grateful to our Yale editor Mike O’Malley
and the rest of the team at Yale University Press and Westchester
Books, including Steve Colca, Jessie Hunnicutt, Debbie Masi, Cher
Paul, Liz Pelton, and Mary Valencia for bringing our vision into re-
ality.
The quality of the book was greatly enhanced by the perspectives
of a group of executives, scholars, and advisors who provided intel-
lectual support from the onset. Special appreciation goes to Mike
Porter from the Harvard Business School who, from the first days of
Acknowledgments xi
this project, has helped us think through the challenges of raising
environmental strategy to a higher level. We’ve benefited from com-
ments and suggestions from many others, including Antony Burg-

business leaders began to focus on environmental issues as
never before. Organized by Swiss billionaire Stephan Schmid-
heiny, fifty leading companies formed a Business Council for
Sustainable Development. At the same time, Schmidheiny
and his colleagues wrote a book, Changing Course, and
launched the concept of eco-efficiency, emphasizing the po-
tential economic gains from reducing pollution and better
managing natural resources. Hundreds of CEOs attended the
Rio convocation, and thousands of others were inspired to
ask how their companies could become better environmental
stewards.
Dan Esty participated in the Earth Summit as a U.S. En-
vironmental Protection Agency official. The U.N. Conference
on Environment and Development, as it was formally called,
generated unprecedented focus on threats to the natural
world from climate change to biodiversity loss. Discussions
centered on how all parts of society could act together to
xiv Preface
address the problems. Hope ran high. In the immediate aftermath, a
range of companies promised big action to reduce their environmen-
tal impacts.
In 2002, many of the same players reassembled, this time in Jo-
hannesburg, South Africa, for the World Summit on Sustainable De-
velopment. Dan attended again, this time as a representative of Yale
University. But something had changed. Little progress had been
achieved on most of the major issues identified at the Rio conclave
a decade earlier. The environmental, or “green,” call to arms of ten
years earlier seemed to have run out of steam. Many companies had
adopted environmental policies and even taken “beyond compliance”
approaches to pollution control over the previous decade. But a more

the time. Could this one-sided perspective and lack of analytic rigor
be one of the reasons a broader business commitment to environ-
mental action had not really taken hold? Were average business peo-
ple skeptical of the unremittingly positive claims of green gurus?
Where was the business-like edge and hard-hitting advice?
To see what’s really happening at the interface of business and the
environment, we’ve spent the last four years talking to hundreds of
people at companies, industry associations, and environmental
groups—and poring over the data. We haven’t shied away from the
success stories—they tell us a great deal. However, we’ve also studied
what didn’t work and why initiatives that often looked good on pa-
per have failed in fact. Companies embarking on environmental ef-
forts of their own shouldn’t have to repeat the mistakes of the past.
The result, we hope, is a thorough review of what works—and
what doesn’t—when companies fold environmental thinking into
business strategy. As we’ll show, the stakes are high—environmental
issues are real and pressing. And more and more “stakeholders” care
deeply about how companies act and are not afraid to pressure them
to do more. But the potential rewards are great too. With Green to
Gold, we hope to blaze a trail for managers and executives toward
stronger businesses and a healthier planet.
Daniel C. Esty
Andrew S. Winston
March 2006
New Haven, Connecticut
New York, New York
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1
Introduction The Environmental
Lens

money.
• Real benefits can come from seeing things in a new light.
BP AND “LOOKING FOR CARBON”
While Sony’s game systems sat in a warehouse, another very large
but very different company was counting the money it saved when
it sharpened its environmental focus and started looking at its busi-
ness in a different way.
BP’s chief executive, Lord John Browne, committed the company
to reducing its emissions of the greenhouse gases that contribute to
global warming, especially carbon dioxide. Browne told all of BP’s
business units to find ways to produce less of these gases. And they
did. After three years of what insiders call “looking for carbon,” BP
discovered numerous ways to cut emissions, improve efficiency, and
save money. A lot of money.
The initial process changes cost BP about $20 million but saved
the company an impressive $650 million over those first few years.
As of 2006, the savings topped $1.5 billion. In a low-key British way,
BP executives told us that they were floored by the outcome. Nobody
had dared imagine such an absurdly high return on investment. As
Browne has said, “We set out to do good andweended up doing
well.”
Was BP radically inefficient before this program? Far from it. The
company had just never looked at its operations with an eye toward
Introduction 3
reducing greenhouse gas emissions. Once it did, innovation flour-
ished, all to the benefit of the bottom line.
Looking at all the ways environmental issues affect a business can
frame thinking and strategy in a new way. By examining their busi-
ness through an environmental “lens,” managers can avoid expensive
problems and create substantial value. Thus, we add a fourth lesson

products to meet environmental needs. As they look up and down
the value chain, they keep environmental impacts firmly in mind.
They know that working to protect the planet also protects their own
companies—by safeguarding their assets, inspiring current employ-
ees, and attracting valuable new “knowledge workers” looking for
more than a paycheck.
In Green to Gold, we take you inside leading companies, across
industries, and around the world. We show you the real costs, hard
choices, and trade-offs companies face when they make environmen-
tal thinking part of their core business strategy. Pundits who dismiss
the natural world as an issue—or commentators on the other “side”
who underestimate the difficulties businesses face in executing envi-
ronmental strategies—do neither the business world nor the planet
any favors.
By systematically analyzing the experiences of dozens of compa-
nies, we’ve been able to extract the key strategies, tactics, and tools
that are needed to establish an environmentally based competitive
advantage. In a marketplace where other points of competitive dif-
ferentiation, such as capital or labor costs, are flattening, the envi-
ronmental advantage looms larger as a decisive element of business
strategy. Indeed, no company can afford to ignore green issues. Those
who manage them with skill will build stronger, more profitable,
longer-lasting businesses— and a healthier, more livable planet.
5
Part One Preparingfor aNew World
In the first few chapters, we lay out the context for this book,
highlighting how environmental challenges have become an
important part of the business landscape. In Chapter 1, we
introduce the “Green Wave” sweeping the business world,
and we present the logic for making environmental thinking

mega-manufacturer to double its investment in environmen-
tal products—everything from energy-saving lightbulbs to
industrial-sized water purification systems and more efficient
jet engines. Backed by a multi-million-dollar ad campaign,
Immelt positions GE as the cure for many of the world’s
environmental ills.
Bentonville, Arkansas: In a speech to shareholders, Wal-
Mart CEO Lee Scott lays out his definition of “Twenty First
Century Leadership.” At the core of his new manifesto are
commitments to improve the company’s environmental per-
formance. Wal-Mart will cut energy use by 30 percent, aim
to use 100 percent renewable energy (from sources like wind
farms and solar panels), and double the fuel efficiency of its
massive shipping fleet. In total, the company will invest $500
million annually in these energy programs. Moreover, in a
move with potentially seismic ripples, Wal-Mart will “ask”
8 Preparing for a New World
suppliers to create more environmentally friendly products: some of
the fish Wal-Mart sells will have to come from sustainable fisheries,
and the clothing suppliers will use materials like organic cotton. “We
believe that these initiatives will make us a more competitive and
innovative company,” Scott emphasizes.
By either market cap or sales, GE and Wal-Mart are two of the
biggest companies in human history. Neither company springs read-
ily to mind when you say the word “green.” But these are not isolated
stories. Companies as diverse as Goldman Sachs and Tiffany have
also announced environmental initiatives. As the Washington Post
observed, GE’s move was “the most dramatic example yet of a green
revolution that is quietly transforming global business.”
What’s going on? Why are the world’s biggest, toughest, most