This is good news for companies willing to be innovators, though, as significant opportunities exist to challenge traditional ways of thinking and apply a new perspective to their supply chain operations. For early adopters, taking an environmental perspective into account is paying off in increased revenue and profits as well as customer loyalty and employee retention. The stage is set for a new era of winners and losers and the deciding factor may well be how they approach the current set of environmental and sustainability challenges.

Just a few years back, environmental management and social responsibility roles were dead-end career paths, with little or no connection to the core money-making operations of the business. Not any longer. Social, environmental, operational, and innovation excellence are four legs of the same supply chain leadership platform.

For example, companies are exploring multiple initiatives to reduce their environmental footprint. These include purchasing a higher percentage of renewables (such as solar, wind, and cogeneration) for their energy portfolio as well as investing in efficiency and conservation. The effects of these initiatives are not only bottom-line savings, but potential revenue opportunities as new commodities markets emerge for carbon dioxide and other greenhouse gases. Green leaders aren't debating the issue of global warming—in fact, many have outpaced the Kyoto Protocol to post inspiring results. Here are just a few examples:

• Since 1990, DuPont has reduced global greenhouse gas emissions measured as CO2 equivalents by 72%.
• IBM has reduced emissions 39% on 1990 levels by 2005 and saved over $800M.
• 3M has achieved a 37% reduction in worldwide emissions between 1990 and 2004.

For many companies, greening the supply chain starts with a series of compliance initiatives focused on a set of tactical requirements. But as a director at a large chemical company explained, “Compliance by itself is extremely expensive. You need to integrate compliance to be a minor piece in a broader framework of sustainability.”

Green leaders focus on more strategic engagement, both internally and externally. Once the corporate strategy is set, and the requisite goals and metrics established, it is important to work with various cross-functional groups within the organization to achieve environmental goals. A common approach by many companies is to employ lean or Six Sigma expertise to help shrink their environmental footprint. The most important aspect of this is publicly setting goals that can be tracked.

For example, computer maker Hewlett-Packard recently reported that it will eliminate 30,000 cubic feet of polystyrene computer packaging and more than six million pounds of PVC packaging from its inkjet printer business. The company will also reduce its carbon footprint by 20 percent by 2010. These are efforts that will save them money and improve the environment.

Enterprises that want to succeed in a greener marketplace must integrate sustainability thinking into their overall approach of engaging with a broad constituency of stakeholders, including investors, clients, suppliers, and employees. One of the world's largest retailers described the change in perspective as follows: “At first, it was all defensive; we created checklists of things to do. But as the program evolved, it became more about being connected as a business in society. It was then that we saw the opportunities for growth as well as the savings from these initiatives.”

Of an enterprise's traditional stakeholders, the greatest impact in the next five years will be on their supply base. It must establish requirements not only for packaging and “greener” products, but also results by suppliers in lessening their impact on the environment. Wal-Mart, for example, has established 14 Sustainable Value Networks to address key issues and opportunities for their business.

The Sustainable Value Networks are focused on finding new opportunities in deploying renewable energy, reducing waste and developing sustainable products. The key to making these networks work is the inclusion of a wide range of participants and sharing the innovations with their tens of thousands of vendors. For example, the company plans to double its trucking fleet's efficiency in the next 10 years, which will have the impact of generating $300 million in savings. But it will also drive new technologies from partners such as Eaton Corp. which can be deployed by their value chain partners to achieve savings as well.

For many of the early green leaders, partnerships have extended beyond the value chain, as shown in Exhibit 1. These partnerships include nongovernmental organizations (NGOs) such as the World Wildlife Fund, Environmental Defense, and the National Resources Defense Council (NRDC)—organizations that may have been viewed previously as adversaries. For example, Environmental Defense has worked with McDonald's to reduce the environmental impact of their packaging. More recently, the Nature Conservancy and Xerox worked together to define third-party forest certification standards to ensure that the company's paper is derived from responsibly managed forests, identifying best forest biodiversity management practices and communicating them broadly.

In leading organizations, the single most important trend is the appointment of an executive responsible for the company's sustainability initiatives. While it is rare for this person to report directly to the CEO, the two are in regular communication. Organizationally, overseeing a company's sustainability efforts means working with line-of-business as well as functional groups within the company to identify new opportunities.

To be successful, though, companies need to drive the ownership of these new initiatives throughout the organization. A new executive can help focus the efforts and set the metrics to gauge success. But that success will only be achieved when employees share that common goal and participate in developing the innovations that help that goal get realized. In order for that to happen, corporate leadership needs to continually communicate the importance of these efforts.

Unfortunately, a recent AMR Research study indicates that just 32 percent of sustainability initiatives start at the C-level. If your company's leadership team has not embraced the need to integrate environmental and sustainability criteria into the business, you will more than likely face an uphill battle.

All the hype doesn't help either. A raft of corporate PR events disguised as green initiatives have spawned the term, “greenwashing.” But the flip side is also true. Companies and their investors are clearly taking social and environmental responsibility more seriously than ever before. Notes Lawrence Jackson, Wal-Mart's recently retired President and Chief Executive Officer, Global Procurement, “(Chairman) Rob Walton doesn't sit in on many meetings. But he was there to tell us we needed to get serious about sustainability. When the guy who represents 51% of the equity in your company shows up to say something is important, you listen.”