Industrial Evolution

Bill McDonough has the wild idea he can eliminate waste. Surprise! Business is listening
Bloomberg Businessweek, APRIL 8, 2002
Michelle Conlin and Paul Raeburn


Fabric You Can Eat

Steelcase subsidiary Designtex wanted to make an ecologically safe fabric and hired environmental designers McDonough and Braungart to tackle the effort. Highlights of the project:

-- 60 chemical companies were invited to join the project. All declined except for one, Ciba-Geigy.

-- Ciba-Geigy's 4,500 dye formulas were evaluated for heavy metals, toxins, and carcinogens.

-- 16 passed the test--enough to make the fabric.

-- Under the new manufacturing process, which turns the textile mill into a water filter, the effluent is safe enough to drink.

-- Fabric trimmings, which before were labeled hazardous waste, are now used as mulch.

-- McDonough and Braungart are opening the new manufacturing secrets to any company that wants them.

Data: Susan Lyons, William McDonough & Partners, and Michael Braungart

Fabrics you can eat. Buildings that generate more energy than they consume. Factory with wastewater clean enough to drink. Even toxic-free products that, instead of ending up as poison in a landfill, decompose as nutrients into the soil. No more waste. No more recycling. And no more regulation.

Such a world is the vision of environmental designer William McDonough. You might think he's half a bubble off level--until you realize that he's working with powerhouses like Ford (F ), BP (BP ), DuPont (DD ), Steelcase (SCS ), Nike (NKE ), and BASF (BF ), the world's largest producer of chemicals, to make it happen. And in the process, he's actually helping them produce substantial savings. "This is not environmental philanthropy," Ford Motor Co. CEO William Clay Ford Jr. said in 1999 when he hired McDonough to lead the $2 billion renovation of the Ford Rouge plant outside Detroit. "It's sound business."

Over the past 15 years, McDonough, former dean at the University of Virginia's architecture school, and his business partner Michael Braungart, a top European chemist and a founder of Germany's Green Party, have been busy launching what they call a new industrial revolution. The problem that has long obsessed them: How do you manufacture products safely that are of comparable quality as the original stuff without stifling productivity or cutting profits? Their solutions--which have already had some remarkable success--are fast turning front man McDonough, 51, into one of Corporate America's leading gurus of green growth. His and Braungart's ideas are sure to spark even more debate with the publication this month of their new book, Cradle to Cradle.

Indeed, there's a growing awareness among CEOs of the unsustainability of manufacturing as it's done today, using so many potentially dangerous chemicals and producing so much toxic waste. Nearly every item you use--from the car you drive to the computer you surf with to the CD player you use at the gym--contains chemicals that often haven't been tested for human safety. When these substances first hit the manufacturing plant, they are labeled as hazardous. But once they turn into consumer products, the warnings disappear. The average mass-produced water bottle or polyester shirt, for example, contains small amounts of antimony--a toxic heavy metal known to cause cancer. A pair of shoes has rubber soles that are loaded with lead. You can throw the shoes away. But their environmental footprints can last decades.

Sure, no one has been killed by a sneaker. But McDonough and Braungart have been devising manufacturing processes in which factories don't contribute to greenhouse gases and consumer products don't emit carcinogenic compounds. Says Peter J. Pestillo, chairman of auto-parts maker Visteon Corp. (VC ): "Bill is getting us to believe that if we start early enough, we can avoid environmental problems altogether rather than correcting them little by little."

What's more, Cradle to Cradle, the duo's manifesto on their eco-effective strategies, will hit the stores just as momentum grows behind critical new regulation in Europe. Two years ago, the European Union passed "end-of-life" legislation, which requires auto makers to recycle or reuse at least 80% of their old cars by 2006. But end-of-life rules won't stop with autos and are already aimed at computers and electrical gear. "Any idea which takes hold in Europe is less than a generation away from taking hold here," says Pestillo, who is working with McDonough on a toxin-free car interior.

Pressure, too, is growing on executives to find alternatives to the standard industry practice of pumping toxic waste into the air, junking valuable materials in landfills, and complying with thousands of complex regulations. McDonough believes companies can innovate their way out of regulation. He has been so persuasive that Ford, who is trying to remake the auto company his great-grandfather founded into a model of sustainable business, has put him in charge of transforming the carmaker's hulking Rouge plant. McDonough is attempting to turn this icon of dirty manufacturing into a showcase clean factory, flooded with natural light, topped with a grass roof, and surrounded by reconstructed wetlands that keep storm water from going into the public system. These wetlands alone will save the company up to $35 million. "It's not about doing things that don't make economic sense," says Timothy O'Brien, Ford's vice-president for real estate. "These things are saving us money. We're already at work on establishing Bill's guidelines in the rest of our real estate portfolio."

McDonough and Braungart have also helped develop a material for Nike sneakers whose soles safely biodegrade into soil. Already on the market are Nikes that are virtually free of PVC and volatile organic chemicals. The pair have also helped BASF devise the concept for a new nylon that's infinitely recyclable. And for Steelcase Inc., they have created a fabric with the company's Designtex Inc. subsidiary that is so free of toxins that you can eat it (table). Lufthansa is now putting the fabric on the seats of its planes.

One of McDonough's first achievements was in Zeeland, Mich., where he built a nearly transparent factory for Herman Miller Inc. that is bathed in sunlight and whose solar heating-and-cooling system helps cut energy costs by 30%. McDonough says productivity at the factory is up 24%, enabling the company to increase annual sales by $60 million a year with the same number of employees. And the factory only cost $15 million to build. Herman Miller is taking McDonough's ideas one step further this year by implementing a protocol whereby its engineers will be required to use materials in new furniture that have either very low or zero toxicity.

Certainly, the movement toward sustainable business practices is just beginning. And there are plenty of companies that genuinely work at changing but merely wind up replacing one harmful practice with another. The obstacles to moving toward McDonough's methods are monumental. Experts note it's often difficult to determine up front the business case for doing such things. Often, it requires companies to make a leap of faith that changing will not only be good for the environment but actually save them money. And of course, many attempts can and do fail. "It's absolutely legitimate skepticism," says Sloan School of Management professor Peter Senge. Still, given the world's depleting resources and the specter of regulation, Senge believes it's not a matter of if companies will turn more in this direction, but when. "There's a growing awareness that we are on a path that can't continue. Do we really think a billion and a half Chinese are going to generate a ton of waste every two weeks like Americans do? It will never happen. There's no place to put it."

McDonough's system tackles these problems by creating two manufacturing loops. In the first, carcinogens are designed out of the process in favor of safe ingredients that can become biological nutrients. The second loop allows the use of potentially harmful substances--what McDonough calls "technical nutrients." But in contrast with current practices, McDonough designs systems that allow these technical nutrients to be disassembled or reused indefinitely--so they never enter the ecosystem. Taking nature as the inspiration for his operating system, waste becomes food--either literally for the soil in the first loop, or figuratively for new products in the second.

As it functions today, says McDonough, industry is based on a linear, cradle-to-grave model that creates unnecessary waste. In fact, 90% of materials extracted for durable goods become garbage almost immediately. By completely remaking the industrial process--from the way factories are built to the choice of materials--McDonough is showing companies how to reinvent production from "cradle to cradle." By following nature's laws, growth can be good, McDonough believes. A system centered on depletion and pollution can be transformed into one based on regeneration and nutrition. "I don't care if you drive around in a car visible from the moon," says McDonough. "If it's all made of reusable materials and tires that become safe food for worms, and it is powered by solar energy--then hey, no problem."

Until recently, the reigning solution to environmental ills has been recycling, but McDonough believes doing less of a bad thing doesn't make it good. Recycled products are still full of toxic chemicals. "We feel good when we recycle plastic bottles containing heavy metals and carcinogens into clothes," says McDonough. "But guess what--you're still wearing cancer."

That's not to mention another downside: Recycling still creates waste. McDonough calls it "downcycling"--that is, turning waste into a different product of lower quality. But that product, too, eventually winds up in a landfill. It all adds up to a costly way of doing business. Complying with federal environmental regulations alone eats up an estimated 2.6% of gross domestic product, according to the Environmental Protection Agency.

A few companies are already escaping some regulation by using McDonough's loop. BASF, for example, has designed a carpet called Savant that the company will take back and make into new carpet when you're done with it---with a guarantee that it won't be tossed into a landfill. (Note: Here in America, Ray Anderson's Interface carpet company uses the same business model) In McDonough parlance, the carpet is a "product of service." Explains Ian Wolstenholme, BASF's sales and marketing manager for carpets: "It's like an ice cube. We can freeze and unfreeze it as many times as we like." And the carpet has the added advantage of giving BASF a potentially lifelong link to customers.

Perhaps part of McDonough's success with CEOs is that he doesn't bash them. He has the more charitable view that most executives, like technophobes at the birth of the Internet, suffer from environmental illiteracy. Patagonia Inc. Chairman Yvon Chouinard recalls that he didn't know that the polyester the outdoor outfitter used in its clothing contained antimony until McDonough told him so in their first meeting three years ago. Chouinard thought he had been doing the noble thing by avoiding cotton, which is full of pesticides. "Society is going along sort of ignorant of the damage we're doing, so it takes somebody like McDonough, who is asking the questions and seeking the answers, to offer people the choice," Chouinard says. Patagonia is now developing clothing with a new, antimony-free polyester.

Chouinard and others credit McDonough with fusing two seemingly opposing world views--environmentalism and capitalism. As a person, he's also a seeming contradiction--preppy and crunchy at the same time. At a recent opening of a documentary about his and Braungart's work, The Next Industrial Revolution, McDonough ascended the stage at New York's Guggenheim Museum like a Zen master in a bow tie, staring in silence at the crowd for several minutes before speaking. When he does speak, his sentences often sound like haikus. "What do you want to grow?" asks McDonough. "Health or sickness? Stupidity or intelligence? Do you want to love children for all time or destroy them?"

For years, many environmentalists thought the answer to that question was to restrain growth by scolding people about their wasteful ways. But even as they did so, it seemed as if SUVs and subdivisions just kept proliferating. If McDonough is right, conspicuous consumption may even one day turn out to be politically correct.

By Michelle Conlin and Paul Raeburn in New York
http://www.businessweek.com/magazine/content/02_14/b3777086.htm

Save The World, Inc.

For Love or Money?
VIEWPOINT April 3, 2009, 3:00PM EST
For Love or Money
Is forming a nonprofit the way to solve social ills, or is it more efficient for business to do it?

TIM DELANEY
President and CEO
National Council of Nonprofits
Washington, D.C.

As a nonprofit you have an opportunity to get foundation dollars. Foundations are required to spend at least 5% of their assets every year on either internal operations or contributions to nonprofits. But with asset values down so much, it's becoming harder to get funding.

Sometimes there's no direct link between the issue and a sustainable business model. Take human rights in China, for example. I don't see a way to take that on through a for-profit model. Whereas I can see setting up a nonprofit where you get a foundation and some individuals to invest their dollars knowing they will not get a [monetary] return on it.

As a nonprofit you have the ability to wear the white hat. I started a nonprofit center on leadership ethics and public service. If it had been a for-profit consulting firm or law firm, there may have been pressure to give the client the answer they want instead of the right answer.

WILLIAM FULBRIGHT FOOTE
Founder and CEO
Root Capital, a nonprofit investment fund
Cambridge, Mass.

If you can use a for-profit model, you should. There's going to be a Darwinian flush on the nonprofit side as the financial meltdown causes funding to be reduced. So if you don't have to be out with your hat in hand, you are in a better position.

Business has the ability to scale. If you can bring the engine of business and real capital to bear, you can really move the needle. You can unlock billions and even trillions of dollars to address problems that are so huge. There just isn't that kind of money in the philanthropic world.

You have to be a starry-eyed romantic to think you won't have the dilemma of profit vs. the public good [if you use the for-profit model]. But the answer is to build awareness so that you have real consumer demand and shareholder pressure for ethical sourcing and environmentally responsible production.

—As told to Amy Barrett


SOCIAL ENTREPRENEURS April 3, 2009, 3:00PM EST
BusinessWeek Magazine
Making a Profit and a Difference aren't mutually exclusive. Five entrepreneurs show how it's done

As the economy reels, enterprising individuals who apply business practices to solving societal problems are gaining support from public and private sectors
By Stacy Perman

Social entrepreneurs—enterprising individuals who apply business practices to solving societal problems, such as pollution, poor nutrition, and poverty—are now 30,000 strong and growing, according to B Lab, a nonprofit organization that certifies these purpose-driven companies. Together, they represent some $40 billion in revenue.

The idea of blending a social mission with business is not new. One of the founding forces behind the movement, the Ashoka Foundation, since its inception 1981 has granted multiyear living stipends to support more than 2,000 fellows dedicated to finding answers to a host of social ills through business ventures. Indeed, the concept of building a profitable business model in which doing good is an intrinsic part of the business and not just a philanthropic sideline has been gaining ground in recent years. Sally Osberg, president and chief executive of the Skoll Foundation in Palo Alto, Calif., another guiding force within the social venture community, says the number of institutes, universities, and organizations that are now tapping into social entrepreneurship has mushroomed since former eBay (EBAY) President Jeff Skoll established the foundation in 1999.

Now, as the economy reels, both the government and the private sector are looking for inventive ways to bring back prosperity, and many are counting on these entrepreneurs as a powerful tool for change. "Social entrepreneurship correlates to this growing realization that entrepreneurs are the key to a vibrant economy and to solutions that are badly needed," says Osberg. It's not all pie in the sky, says Bo Fishback, vice-president for entrepreneurship at the Kauffman Foundation in Kansas City, Mo. "Many social entrepreneurs have shown they can accomplish their mission," he says. "They can deliver on the social good and report a cash flow."

Not surprising, then, that they've caught the attention of such venture capitalists as those at Acumen Fund, a nonprofit that invests in companies that try to alleviate poverty, and Bay Area Equity Fund, which backs businesses aiming to make social or environmental improvements to San Francisco's needier neighborhoods. (See these additional resources for entrepreneurs seeking funding sources that back social ventures.) President Obama has even suggested starting a new government agency to help socially conscious startups gain more access to venture capital.

WHO YOU LIKE BEST
In January, we asked readers, staffers, and members of the social venture community to nominate candidates whose trailblazing companies, in operation for at least a year, aimed to turn a profit while tackling social ills. The 200-plus nominations we received included such entrepreneurs as Alex Mittal, whose Philadelphia-based Innova Materials makes antimicrobial products for private industry, then uses revenues from these efforts to develop water purification systems for the developing world. Kirsten Tobey and Kristin Richmond, founders of Revolution Foods, deliver nutritious lunches to more than 100 schools (that's 20,000 meals a day) in low-income areas in San Francisco and Los Angeles. Rachel Sterne, another social entrepreneur, encourages those living under repressive regimes to post their own reportage at her profit-sharing Web site, Groundreport.com. You can take a look at each of the 25 ventures we profiled in our slide show, then vote for the business you feel holds the most promise.

Some attribute social models pioneered by small outfits to the social responsibility efforts espoused by large corporations. For instance, about three years ago, Wal-Mart Stores (WMT), the world's biggest retailer, launched a program to promote sustainability, urging its many vendors to produce ecofriendly products while encouraging its consumers to buy them. General Electric (GE) made its green mark manufacturing high-efficiency incandescent light bulbs, and such manufacturing giants as Clorox (CLX) have begun to roll out their own lines of "green" cleaning products. In March, Cadbury (CBY), manufacturer of England's top-selling chocolate bar, announced a deal to use 15,000 tons of Fair Trade certified cocoa from Ghana by the end of this summer for its popular Dairy Milk bar. The company said the move would improve the standard of living of thousands of Ghanaians by tripling the sales of cocoa farmers there.

One of this year's finalists, Daniel Lubetzky, founder of $25 million Peaceworks, which works as a catalyst for peace by encouraging joint snack-food ventures among people of different backgrounds in volatile regions around the world, says it is not enough to impose an artificial business model on a social issue. Lubetzky, who was awarded a $1 million grant from the Skoll Foundation in 2008, says that doing good alone will not ensure success. "I had an earlier company that totally tanked," he says. "I didn't understand the product line well, but I was passionate about the mission. The failure taught me that one can't advance a social mission if the business model doesn't sell. You can't just sell a social mission. You still have to come up with the best product with the best prices." Given the current economic climate, that rings particularly true.

For a look at all 25 businesses, flip through this slide show. More elements of this special report are available here.

Perman is a staff writer for BusinessWeek in New York.
http://www.businessweek.com/smallbiz/content/mar2009/sb20090330_541747.htm