Can you over-invest in green?

Last week my colleague Tom Seal and I ran a webinar discussing the forces that influence how organisations tackle sustainability, ranging from consumer demand to government legislations all the way to supplier behaviour. At the end of the session one of the participants posed the question: "Can you over-invest in green?". A valid question given that building the business case for a green(er) product, service or even business alternative continues to represent a challenge for most procurement organisations today.

The answer to the question depends on how businesses choose to deal with the price increases that are incurred somewhere in the supply chain as a result of going green. Some will find that they can invest more in green because they will be able to pass the cost on to their consumers while others will be more conservative about introducing green offerings, fearing that they will see little to no ROI in the short term.

Striking the right balance really depends on the sector you operate in. Recent analysis conducted by Newsweek’s Green Ranking revealed that greener businesses financially outperform their non-green counterparts, especially in industries that are renowned for their particularly dirty footprints, including oil and gas, utilities and basic materials.

However, increasing evidence suggests that companies, regardless of the sector they operate in, may and should take advantage of the opportunities that are associated with green investments, such as risk mitigation. Consider the price that BP had to pay as a result of the Gulf of Mexico oil spill: over US$30 billion just for the resulting litigations. Surely not every company will suffer a reputational hit like BP did, but many will have to deal with reputational risk to some degree or other. And while reputational risk typically involves high costs, perhaps companies should make sure that that they don’t under-invest in green either.