McKinsey Quarterly

Fred Krupp on the benefits of monitoring resource use

Ten years ago, a lot of business executives realized that environmental concerns were real business challenges. But mostly, they were protecting themselves against downside reputational risks. Today, an increasing number of businesses have figured out there’s not only the downside to be protected against, but there’s tremendous upside profits to be made by serving a market that’s increasingly interested in green goods and services. And costs can be dramatically slashed when companies operate in a way that’s more efficient.

Ten years from now, what I see is an Internet-connected world where the behaviors of companies—including how products have been produced—are so transparent that those businesses who are truly good citizens will be rewarded in the marketplace. And those companies that haven’t paid a lot of attention, and maybe are operating in some ways that are sloppy—or even wrong—well, they won’t be able to PR-spin their way out of it. The ability of citizens to see what’s actually happening is very powerful.

The revolution in big data and sensing technologies will be very important in using resources more efficiently because it lets companies know what’s happening with their inputs. So not only can a company such as GE monitor the efficiency of its jet engines, but anyone who operates car or truck fleets can monitor—and optimize—fuel efficiency.

In the farms around the United States, it’s becoming possible to monitor how much fertilizer is being wasted and just running off with the rainwater. This allows us to optimize crop yields—important for farmers and consumers—as well as fertilizer use, which would help us minimize the “dead zone”1 that develops at the bottom of the Mississippi River and in the Gulf of Mexico.

Meanwhile, the World Resources Institute has launched a website2 that monitors deforestation by using millions of bits of data that are produced every minute from satellites circling the planet. This will be very important to make sure our forests aren’t being wasted. And as it becomes possible for individual citizens and citizen groups to use monitoring and sensing technology to monitor air pollution in real time, the transparency in the data will drive pollution levels down.

Ultimately, what gets measured gets managed, and there are examples of problems where better measurement would help a lot. One area is natural gas. Right now, the system is leaking natural gas into the atmosphere, the industry doesn’t have good, regular measurements of how much methane is escaping, and methane is a very potent greenhouse-gas warmer. By requiring companies to do regular leak-detection and -repair programs, we can keep natural gas in the pipes, use it more efficiently, and stop one big source of global warming. Similarly, shale gas is a bounty for the United States and has helped the US economy without a doubt—but the environmental downsides of shale production are equally obvious. We need to learn how to extract this resource in ways that protect citizens living near the wells and the atmosphere.

People ask if I’m optimistic. I say instead that I’m hopeful. Optimism is a prediction that everything’s going to end well. Hope is a verb with its sleeves rolled up. I am hopeful that there are enough positive trends happening that if we work at it, and apply ourselves, we can solve these problems.

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