Caring for the environment is not just about meeting any regulations that may be in force. Innovations that a firm makes in response to environmental regulations, or out of a sense of environmental responsibility and stewardship, can lower the total cost of a product or improve its value. Costs can be lowered through innovations which allow a firm to use its inputs more productively, and value can be improved by reducing the environmental impact of the product for users.
Pollution equals inefficiency. Pollution is a form of economic waste. When a firm creates environmental impacts by releasing pollutants, harmful substances, or wasted energy, this signifies that resources have been used incompletely, inefficiently, or ineffectively. These wastes represent externalities that a firm imposes on other members of society, who must bear the resulting consequences and costs.To remedy the consequences of externalities, firms must incur additional costs, such as handling toxic wastes, their treatment, and their disposal.
Over the life cycle of any product, their always exists resource inefficiency. In most firms, this inefficiency manifests itself as process waste, scrap, etc., but when considered over the entire life cycle of a product these inefficiencies extend to include packaging, pollution caused by the product in-use, and disposal of the used product. Inefficiency is introduced when customers have to incur costs to deal with these unwanted environmental impacts from using the product.
Innovating improvements that address environmental impacts fall into two main categories: processes and products. Innovations made to processes to address environmental impacts can provide the following benefits:
- material savings resulting from more efficient and effective processing, substitution, reuse or recycling of production inputs
- increases in process yields
- superior utilization of the by-products of production
- conversion of waste into more valuable forms
- lower energy consumption during production
- reduced material handling and storage costs
- savings from safer workplace conditions
- elimination or reduction of the cost of activities involved in handling waste, transportation and disposal
- product improvements resulting from process changes made to reduce environmental impacts
Innovations made to products to reduce environmental impacts can have the following benefits:
- higher quality and more consistent products
- lower product costs
- more efficient resource use by products
- lower packaging costs
- safer products
- lower disposal costs for customers
- higher product resale and product value
Too often, firms see “going green” as simply meeting environmental controls and regulations imposed by government. If, however, adverse environmental impacts are seen as the inefficient and ineffective use of resources, even when regulations are being met, firms will be better motivated to improve their environmental performance.
Firms that can innovate solutions which reduce environmental impacts and improve resource productivity will improve their competitiveness as a result. While it is possible to take a minimalist approach and do only what is necessary to meet any environmental regulations that may be in place, the days are numbered for this type of thinking. Increasingly, customers globally are becoming more discriminating about the environmental consequences of products and services they use, and are seeking innovative suppliers who have found ways to reduce the environmental impacts associated with their product or service.