With the release of the 2008 Sustainable Business 20 List (SB20), two firms stand at the threshold of joining the "Core List" of companies, knighted for their continual leadership on the path towards a sustainable society.
Green building company Interface, Inc. (Nasdaq: IFSIA) and renewable energy company Ormat Technologies, Inc. (NYSE:ORA) have been named to the SB20 List in each of the last three years. If they are nominated a fourth time in 2009 they will join an elite list of companies with SB20 Core status, admired internationally not only for their ongoing sustainability initiatives, but also for their strong management and balance sheets.
The list of Core companies, who have made the SB20 list at least four times, includes:
- Canon (NYSE: CAJ)
- Electrolux (ELUXA.ST)
- Green Mountain Coffee Roasters (Nasdaq: GMCR)
- Herman Miller (Nasdaq: MLHR)
- Novozymes (NZYM.CO)
- Precious Woods (PRWN.SWX)
- STMicroelectronics NV (NYSE: STM)
- Vestas Wind Systems (VWS.CO)
- Whole Foods Market (Nasdaq: WFMI)
Before Green Was Golden
The "Green" movement has taken off over the last two years. Whether it’s primarily a marketing trend with an expiration date or a permanent shift in corporate sensibility has yet to be seen. But one thing is for certain: the list of contenders for SB20 recognition has grown.
When Progressive Investor–a green investment information service of SustainableBusiness.com–first attempted to develop a list of 20 outstanding companies seven years ago, the leaders were easy to pick out from the crowd–and they were mostly large corporations based in Japan and Europe.
Companies like Canon (Japan) in electronics and Electrolux (Sweden) in appliances were early adopters in their respective industries and were already far along in analyzing the lifecycle impacts of their products. Swiss Re (Switzerland) led the charge in the insurance industry, recognizing the dangers of climate change early on.
In the U.S., furniture manufacturer Herman Miller had eliminated endangered wood from its products as well as waste to landfills, and Chiquita made news when it decided to shine up its tarnished image by certifying banana plantations both environmentally and socially.
There were few smaller, green companies on the public markets seven years ago. Whole Foods, United Natural and Green Mountain Coffee were tiny, rapidly growing stocks at that time, as was Horizon Organic, which was bought by Dean Foods. These organic/natural foods companies were the first green industry to gain acceptance.
Over the past few years, the movement has spread to other industries with more companies following suit, and it has become more challenging to decipher which companies have made the most progress towards and the deepest commitments to sustainable business practices-a good sign indeed.
Interface, Inc. (Nasdaq: IFSIA)
Atlanta, GA
Market Cap: $730 million
P/E: 16.3
52 Week: $11-$20.55
Share Price: $11.59
Dividend Yield: 1%
www.interfaceinc.com
An outstanding role model through its efforts to radically reduce its environmental impact, Interface embodies the term "sustainable business." Championed by Founder and Chairman Ray Anderson, who’s epiphany in 1994 drove a "stake through his heart" after realizing the damage his company was doing to the environment, he promised Interface would "be the first company that, by its deeds, shows the entire industrial world what sustainability is in all its dimensions: people, process, product, place and profits–by 2020–and in doing so, to become restorative through the power of influence."
Since then, Ray has traveled the world preaching the word of sustainability while pushing Interface toward Mission Zero. The website says, "The climb to the top of Mount Sustainability is an arduous, but rewarding, journey. Every foothold gained begins with a self-questioning analysis of our processes and materials and the determination to achieve even better results with less, and ultimately, no impact on our environment."
One of the world’s largest floor covering companies, Interface is the largest producer of modular carpet for corporations, governments and institutions. Modular carpet fits perfectly with the company’s sustainability strategy because it vastly reduces waste. When a section gets stained or wears out, Interface simply replaces (and recycles) the affected tiles, instead of the entire carpet. Tile is installed without adhesives or fasteners; the backing is made from recycled materials.
Interface now benefits from the growing adoption of carpet tile in the nonresidential real estate market and the accelerating trend toward green building. The company uses bio-based alternatives with ever-higher percentages of post-consumer waste that are composted or recycled into new products. These materials are now used in 25% of its floorcoverings, up from 0.5% in 1996. Its pioneering closed-loop manufacturing process eliminates waste and emissions.
Interface says, "For many companies, the first and most difficult step on that climb is not on the mountain itself, but rather admitting that the mountain exists. We see the mountain and we’re climbing it."
Interface has laid out a path to sustainability on Seven Fronts:
- Eliminate Waste: Eliminate all forms of waste in every area of business
- Benign Emissions: Eliminate toxic substances from products, vehicles and facilities
- Renewable Energy: Operate facilities with renewable energy sources – solar, wind, landfill gas, biomass and low impact hydroelectric
- Close the Loop: Redesign processes and products to close the technical loop using recovered and bio-based materials
- Resource-Efficient Transportation: Transport people and products efficiently to reduce waste and emissions
- Sensitize Stakeholders: Create a culture that integrates sustainability principles and improves people’s lives and livelihoods
- Redesign Commerce: Create a new business model that demonstrates and supports the value of sustainability-based commerce.
Interface views existing laws and regulations governing commerce–which subsidize unsustainable industrial processes–as its biggest problem.
"We will need the cooperation of government and other industrial partners to shift taxation away from economic and social benefits, (labor, income and investment) to detriments, (pollution, waste, and the loss of primary resources)," the company says.
Waste is anything that doesn’t provide value to the customer, according to Interface. Their unique definition of waste–which includes overuse of materials and inventory losses in addition to the usual off-quality goods and scrap–has reduced waste sent to landfills by 66%, saving them over $372 million since 1996. And they have reduced the energy used to make carpet by 45%, while increasing renewable energy to 27% of operations. Water use in production is down 75%.
While most companies take the easier route of benchmarking greenhouse gas emission reductions below 2002 or 2005 levels, the Interface baseline is 1996. Through improved efficiencies, process changes, and direct renewable energy purchases, emissions are down 33% from 1996 levels. They also offset emissions by another 49% from credits at its landfill gas project.
After a handful of years spent restructuring, Interface is profitable again and has strong prospects going forward. The company has successfully diversified beyond commercial markets into education, hospitality and other non-office segments. The first quarter of 2008 was the best in its history–sales rose 8% during what has historically been their slowest quarter and during a tough period in the construction industry. The company reported continued profit growth in 2Q08.
Ormat Technologies, Inc. (NYSE:ORA)
Reno, NV
Market Cap: $1.95 billion
P/E: 42.3
52 Week Low/High: $38-$57.93
Share Price: $46
Dividend Yield: 0.4%
www.ormat.com
Founded in 1965, Ormat is an Israeli-US company and the world leader in geothermal energy.
It designs, builds and owns geothermal plants and sells the electricity in geothermally active countries, primarily the U.S., Guatemala, Kenya, Nicaragua, the Philippines and Indonesia, but has over 800 megawatts (MW) of power in 21 countries. Its Kenya plant supplies a significant amount of the nation’s electricity.
Ormat is the key partner in a consortium to develop geothermal energy in Indonesia, which is a global hotspot for geothermal.
It also designs, manufactures, and sells power units for geothermal plants, for recovered energy power generation, and for remote generators. Its power units are modular plants with a capacity of 200 kW to 130 MW; they use locally available heat sources such as geothermal, biomass, solar and recovered energy. It also sells the electricity for plants it constructs.
Recovered energy is one of Ormat’s special strengths–it provides services to recover waste heat from energy intensive operations such as cement production and compressor stations along interstate pipelines–a cost-effective way to generate additional capacity efficiently.
This is not an easy business to enter, according to Progressive Investor–the technology and expertise are significant barriers to entry. Ormat, the only vertically integrated company in the field, is profitable and showing strong growth; it projects sales of $330 million for 2008.
The geothermal market is just taking off with boundless potential for Ormat. 2008 first quarter year over year revenues rose 12.4% to $69.4 million. The $10.1 million in net income is a substantial improvement–Ormat reported a net loss of $5.8 million for the first quarter 2007.
"Ormat is the best developer of geothermal power resources in the world–with the best team, technology, and track record," said Rafael Coven, an SB20 judge and Managing Partner of Cleantech Indices LLC.
More on the SB20 List
The 2008 SB20 List was selected with the assistance of judges Andrew Brengle, Senior Research Analyst, KLD Research & Analytics; Rafael Coven, Managing Partner, Cleantech Indices LLC; Matt Patsky, Managing Partner & Elizabeth Levy, Research Analyst, Winslow Green Growth Fund; Patrick McVeigh, President, Reynders, McVeigh Capital Management; and Ton Rennen, Senior Sustainability Analyst, Triodos Bank NV.
More information about companies on the SB20 List is available from Progressive Investor.
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