In article in Harvard Business Review [6/94] "It's Not Easy Being Green," by N. Walley and B. Whitehead of McKinsey & Co., argue against the conventional wisdom concerning the expected continued positive growth of environmental technologies. They point to "skyrocketing" environmental compliance costs that cannot generate a positive financial return. By measuring environmental compliance investments as an equivalent of the price per share of the value of the company, the analysts point to very high numbers. Because companies have demands on available resources to achieve compliance with existing, known technologies, they may have fewer dollars to invest in new environmental technologies.

The authors argue that environmental compliance expenditures are not strategically focused on the corporate bottom line. Instead, spending for compliance and environmental technologies are isolated from decision making about the core business leading to investments that are not cost-effective.

Business Strategies for Environmental Technologies

Walley and Whitehead assert that to achieve cost-effective environmental solutions managers must search for technologies which give smarter solutions to current problems and which don't steal capital from key business activities. For example, the writers assert that long-term increases in efficiency of production processes, which would produce fewer residuals to manage with 'end-of-pipe', e.g., dark green technologies, would give Dupont a 15% or $3/per share return on investment. The strategic approach for the company is not to seek new, breakthrough environmental technologies for specific compliance problems, but to preserve shareholder value while avoiding enforcement actions.

This approach will require developers, marketers, and suppliers of environmental technologies to look beyond management of specific residuals toward the company's bottom line. There are three ways to do this, the authors say. They divide environmental technology issues into three categories: operational, technical/organizational, and strategic.

1. Operational Issues The first step is to understand what is being spent on environmental compliance and why. The second step is to insure that maximum environmental impact is being achieved with minimum cost.

2. Technical Issues The second step is to be able to allocate emissions and costs by process and business unit. Few companies are able to do this much less target new environmental technologies where they will do the most good. A strategy for change is to conduct "opportunity-based" environmental audits rather than "compliance-oriented" reviews.

3. Strategic Issues The impact of management decision making at this level can put the company's core business at risk if a wrong choice is made. A key question is whether to lead, follow, or lag behind other firms in the industry. If a firm lags it could be hit with fines or other sanctions from enforcement actions brought by regulatory agencies. If it leads, it could incur pollution control costs which reduce its competitiveness compared to other companies.

Barriers to Venture Capital for Environmental Technologies

The National Environmental Technology Applications Center (NETAC), a joint project of US EPA and the University of Pittsburgh, in a November 1993 study identified four key barriers to access to venture capital for environmental technology companies. Briefly, these are

1. Unpredictable commercialization pathways As noted earlier too many federal and state agencies have the power to change the rules for environmental compliance during the technology development phase. By the time a technology to address a specific problem is ready for market, the conditions which define compliance may have changed making the technology irrelevant.

2. Lack of management experience Investors reject deals when technologists with no prior business experience head start-up companies. Strong technical expertise does not necessarily translate into marketing skills. Firms which include partners who have good business skills, in addition to technical expertise, are more likely to attract investors.

3. Potential Liability Some venture capital firms prefer to invest solely in proprietary products which are then sold to environmental services companies. This strategy is adopted in order to avoid any involvement with specific compliance issues or site cleanup liability issues. Similarly, large companies with successful environmental technologies developed for internal use hesitate to market them. They fear they will be sued because of their "deep pockets" if the technology does not work under a specific set of regulatory conditions.

4. Lack of adequate data on performance Companies with new, untried environmental technologies are often at a disadvantage in terms of developing performance data for their products. Few firms are willing to risk being put out of compliance by using an untried technology. Developers get caught in a classic "Catch 22" in that they do not have performance data and no one is willing to take the risk of using a technology without such data.

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