The Environment and the Business of Business

Opening Talk:
The Environment and the Business of Business
Jeffrey Immelt, Chairman and CEO, General Electric

Notes from Wall Street Journal ECO:nomics Conference
Santa Barbara, California
March 12-14, 2008

The Wall Street Journal ECO:nomics conference opened up on the evening of March 12, 2008 with a very animated interview of Jeffrey Immelt, Chairman and CEO of General Electric.

Beginning by talking about GE’s business drivers, Immelt explained the reasons the company was engaged in the “eco”-conversation including: technology availability, global risk and the potential impact of regulations. As CEO of a global conglomerate, Immelt’s job is to get ahead of risk and generate earnings for his investors.

It was a bristly talk, with Immelt early on stating, “I don’t believe in hobbies” and “I’m a capitalist.” On Carbon Caps, “you’re either going to get ahead or get stopped.”

Advocating an 80% reduction by 2050, Immelt declared that we are already paying higher energy prices and that will continue. His appeal: this country could have a competitive edge if we don’t put our “heads in the sand.”

Articulating a number of issues, Immelt explained that 12 states have their own cap and trade systems and we can’t build coal fired power plants -- there is no regulatory tapestry for energy (this is in comparison to other industries). Immelt commented that when you really look around you can see that all industries are regulated. The current lack of an energy policy creates a particularly challenging environment for business because of the difficulty of evaluating the financial impact of business decisions.


Energy Policy Facilitates Business Decision-Making

Companies use financial business cases as a basis for justifying decisions. Caps, taxes and other charges, and price impacts, set the parameters and provide some fixed values so that variables can be evaluated (you could also think of this as the implications of selecting various scenario options). You often hear the business environment referred to as a “playing field”. There’s a context to work in and you are trying to get to a goal.

In order to define how you are going to get from point A to point B – you need to be able to figure out what point B is. In today’s unknown energy context, every product and service is fair game to question, as well as create or re-create .

Companies need to establish the constraints that they have to work with (the Carbon Cap will certainly be a significant one)– something like the boundaries of the playing field . Alternatively, it might be even better to think of business as a game of pin ball where different obstacles each get a different point value, and you have to, not only get to the goal, but also reach it in one piece - gaining as many points along the way as possible. I wouldn’t be surprised if Immelt played football – another possible analogy.

Immelt also commented that Clean Energy is the “best export story” we have going, including gas, wind, and nuclear which has been stopped in the US.


Diverse Energy Sources Required
Need to Slow Demand Growth through Efficiency & Conservation

Stressing the need for access to energy diversity, Immelt was the first to state something that all the Energy CEOs repeated. Timing generally seemed to be the reason for:

• Nuclear: All CEOs consistently expressed a perceived need for nuclear as a component of a total energy portfolio, required to deliver existing energy requirements during the transition from current fossil-based energy to future renewable sources.
• Government Regulation: Was advocated as a means to spur action. “It’s about getting ahead of risk.” A long term competitive cap is an “inevitability.”
• Carbon Sequestration: Immelt implied that this was necessary and would be figured out….
• Conservation: An absolute necessity given rising energy costs and the reality of energy availability and current technology solutions.

Patricia Woertz, Chairman, President and CEO of Archer Daniels Midland, echoed the need for diversity adding that it is a “corporate responsibility” to have an impact on the future.

Referring to GE’s Ecomagination “Commitments”, Immelt advocated for greater R&D investment, comparing energy industry R&D spend valued at 2%, to that of the health care industry which spends 8% of revenues on R&D.

Fred Smith, from the Competitive Enterprise Institute (CEI), warned not to rush in too fast, “make sure you’re thinking before you act.” He commented that the Environmental Protection Agency was a partner of theirs (which I couldn’t help thinking was a little scary). In response to Allan Murray’s re-enforcement of Fred Smith comments, Immelt asked annoyed/jokingly, “now really, tell me what you like best about today’s energy policy?”

Commenting again, that conservation and efficiency are the best things we can do immediately, Immelt highlighted the need for analytical studies to really figure out and be educated in the decision process.

Lee Scott, CEO of Wal-Mart was asked to comment and just gave Immelt a sort of ‘right on’ reinforcement of everything he had said. He joked that the one advantage that Wal-Mart has over GE was that they were used to criticism.

I personally left the room thinking “this is going to be entertaining.” I think that’s the first thing I said to another person as we walked out….

Side Note
After Immelt’s talk the audience was invited to Cordials in the Bar. It was particularly interesting to hear people’s take on Immelt’s comments. Apparently statements such as “I don’t believe in hobbies” and “I’m a capitalist” were interpreted by some to mean he doesn’t care about the environment and that he is all about the money. Personally, I didn’t take his comments that way at all. But I’ll admit it is hard for me to imagine anyone who lives on earth really not caring at all about the environment. Can anyone honestly state that they care nothing for the environment – the idea itself sounds almost absurd.

About the author; Revi Schlesinger heads RVN Consulting, a network of experts aligning to support the success of large-scale corporate sustainability integration initiatives. Continue the conversation at www.ReviSchlesinger.com/blog.html