L. Hunter Lovins

Describing an encounter with a Pakistani diplomat who voiced such an argument, she says, “I told him, ‘I know it’s not fair! But if you don’t address these issues, it’s your country that’s going to bear the brunt. You’re going to ruin water and food crops in your own country and miss out on economic opportunities, too. But if you want to ruin Pakistan, go ahead! I don’t care!’”

It’s the sort of straight shootin’ Lovins is known for and that her students love. In combination with stories about meetings with the Prime Minister of England, visits with Prince Charles and regular chats with Al Gore, Lovins’ schtick certainly makes class more interesting than the average university lecture.

After class, Sustainable Industries’ Amy Westervelt grabbed a cup of chili with the coauthor of “Natural Capitalism,” co-founder of the Rocky Mountain Institute (RMI), and president and CEO of consulting firm Natural Capitalism Inc. and its nonprofit counterpart, Natural Capitalism Solutions, to dig beneath Lovins’ cowgirl image and find out what she has been up to since leaving RMI in 2002.

SI: Your name is most often associated with the book “Natural Capitalism” and your work at the Rocky Mountain Institute. Where have you seen that work go in the last five years?

HL: When I left RMI, I felt we had put forth this concept of sustainable business, but not really a proof of that concept. Now, I think we’ve got proof. We’ve moved beyond the triple bottom line to something I call the integrated bottom line, which is actually a fundamental shift in thinking.

With the triple bottom line, you’ve got these two other areas—social and environmental—that become costs and drag down profit. Now, those things are integrated into the sustainable business model, and they provide cost reductions and better management, which positively affect a company’s bottom line. We’ve got a new breed of business leaders right now that realize the economy exists to serve people. John Mackey at Whole Foods is a good example; for these people, profit is not the only reason to be in business. SI:Why do you feel there is more proof of the concept that sustainability can improve profits now than there was in 2002?

HL: I still feel that no company today can be said to be sustainable. We don’t even really know what the definition is. What does that word mean? Even the leaders of the “sustainability” movement are still wrestling with it. But, I think we have proven that integrating environmental and social responsibility can be profitable. And, there’s been a shift amongst CEOs as well—a lot of CEOs now are asking, “What is my legacy?”

In terms of quantifiable progress, Goldman Sachs (NYSE: GS) produced a report recently that stated that companies that are leaders on social and environmental issues perform 25 percent better financially. Behaving responsibly has become a sort of surrogate for good management. And, if you want other points of proof, Swiss RE announced recently that if companies don’t take their carbon footprint seriously, they won’t insure them. Ceres is telling the Securities and Exchange Commission they want mandatory disclosure of companies’ carbon footprints.

STMicroelectronics (NYSE: STM), a chip maker we have worked with, announced that they wanted to go carbon neutral by 2010 with a production increase of 40 percent. Figuring out how to get there has driven corporate innovation and taken them from the No. 12–ranked chip maker to No. 6. They have grown their market share and increased shareholder value. Wal-Mart (NYSE: WMT) is another example. And Nike (NYSE: NKE), opening up their supply chain, showed an aggressive and honest commitment from the company to do something about their performance, and it has bought them a lot of reputational insurance.

SI: With the surge in popularity and success of “green” business, have you also seen an increase in greenwashing?

HL: Yes, but I think greenwashing is good. Hypocrisy is the first step to real change. If a company makes a claim about something, then you can hold them accountable, and as they make small steps to bring their performance in line with what they’re marketing, to avoid a backlash for greenwashing, they actually see the benefit of that improved performance, and it becomes something they integrate into their business for real. General Electric (NYSE: GE) is a classic example. When they announced “ecomagination,” it was profound greenwashing. They basically took their existing products and stuck an “eco” badge on them. But then they saw that these “green” products had twice the sales volume of the regular products, and all of a sudden a company without a green bone in its body has one—attached to its wallet. GE pledged by 2012 it would cut emissions by 1 percent in absolute terms, and by last year it had cut emissions by 4 percent, without even really trying. And it saved them a lot of money.

SI: What’s the next step, then?

HL: The integrated bottom line is not the conventional mental model yet, and businesses still worry about sustainability costing money rather than saving money. There will come a point when people just get it, and it will be this 30-years-in- the-making overnight success. We just still have to get over this hump of whether environmental and social initiatives belong in the cost center or the profit center.

It is obvious we’re in serious trouble with climate change. We’re in danger of losing every major ecosystem; scientists are downright scared. But we have to balance despair with the fact that we have the answers, and you can actually make a lot of money solving the problems.

Nick Stern wrote this great essay recently about how carbon represents the biggest market failure of all time. We need to unleash a new energy economy, and we can’t just do it through government mandates. The companies that get it right and address these problems first will be the billionaires of the future.