Why It Pays to Become a Rule Maker
In the past, companies did the best they could to comply with environmental regulations. But some leading companies are finding that a more effective approach is to help develop better rules.
For two decades, business leaders have argued that corporations could promote sustainability effectively by pursuing win-win profit opportunities. But during that time, the health of the natural environment has worsened. In response, top managers in some leading companies have been pioneering a different approach to sustainability, one that radically alters businesses’ traditional economic role. It treats businesses as not simply players in a competition structured by governmental and societal rules; instead, they are rule makers.
DuPont’s response to warnings that chlorofluorocarbons (CFCs) caused major damage to the ozone layer that shields the planet from harmful UV rays provides an early example of this approach. Given that DuPont was the leading producer of these chemicals, DuPont managers were understandably concerned about how regulation would impact their own business and that of their customers. Yet once evidence emerged that CFCs were creating a hole in the world’s ozone layer, DuPont got behind a worldwide phaseout of these products and helped shape new regulations.
Why would a company support regulation that would ban its own products? To be sure, ethics and responsibility played a role, but so did a desire to influence the regulatory process. After initially opposing the ban, DuPont executives realized that limits on the supply of CFCs would cause prices to rise, motivate consumers to move to better alternatives and raise DuPont’s profits. “This is an industry where you make money at the beginning and the end of a life cycle,” explained Michael Parr, North American advocacy manager for DuPont’s chemicals and fluoroproducts business. By engaging with government on the structure of the phaseout, DuPont helped bring an end to one profitable product life cycle and spawn another.
Twenty years later, DuPont is playing a familiar role — this time backing the phaseout of hydrofluorocarbons (HFCs), which are coolants used in air conditioners and refrigerators. The company’s scientists developed HFCs to replace the hydrochlorofluorocarbons (HCFCs) that, in turn, replaced CFCs back in the 1990s. Although HFCs helped stabilize the ozone layer, researchers have found that they have high global warming potential that contributes to climate change.