Wall-to-wall willpower

Interface Inc. Chairman Ray Anderson says he’s a man with a spear planted firmly in his chest. It’s a reminder of the heavy burden the world’s largest commercial carpet company places on the planet.

Eleven years ago customers were asking how Interface’s production processes affected the environment. Anderson, a Georgia Tech-trained industrial engineer and old-school CEO, didn’t have answers. He set about digging deeper into the textile empire he founded twenty years earlier. What he discovered hit hard and high.

Interface (Nasdaq: IFSIA) produced $802 million worth of carpets, textiles, chemicals and other flooring in 1995. To make these products, the Atlanta-based company extracted 1.2 billion pounds raw materials. And here’s the tip of the spear: 800 million pounds of these raw materials were in the form of coal and other fossil fuels; a full 75 percent of these fuels were burned as energy to produce Interface’s products, which comprise 40 percent of the world’s commercial flooring.

“By my own definition, I am a plunderer of the earth and a thief — today, a legal thief,” Anderson would later write in his 1998 business biography, “Mid-Course Correction.” “The perverse tax laws, by failing to correct the errant market to internalize those externalities, such as the costs of global warming and pollution, are my accomplices in crime.”

And someday when the earth runs out of finite resources and ecosystems collapse, Anderson lamented, “people like me may be put in jail.”

That someday hasn’t come, and Anderson says he’s doing everything in his company’s power to make sure it doesn’t.

During the past decade, perhaps no other company has undertaken as aggressive a strategy to eliminate waste, reduce petroleum consumption, sensitize stockholders and challenge other industries to follow.

Interface, with manufacturing locations on four continents and offices in more than 100 countries, has more of its divisions registered to the ISO 14000 (an Environmental Management System standard) than any other company in the commercial interiors industry. The stringent environmental standard outlines procedures for waste management and maintenance of chemicals used in manufacturing.

Through its internal QUEST (Quality Utilizing Employee Suggestions and Teamwork) program, Interface is painstakingly measuring waste — that is, any cost that goes into a product that doesn’t produce value for customers. Since 1995, Interface has reclaimed more than 66 million pounds of carpet from its customers and diverted it from landfills, according to company records. During roughly the same period, Interface has cut its solid waste disposal by 65 percent. Such results helped place Interface eighth on the 2005 ranking of the “Best Corporate Citizens” list, compiled by Corporate Knights. And at the end of the third quarter in 2005, the company reported revenues of $957.75 million.

During the past decade, Anderson has stood before about 1,000 audiences packed with corporate executives, investors and environmental activists alike. He’s spoken frankly about the spear in his chest, and his view that the economy is a “wholly-owned subsidiary of the environment.”

“What CEO, given a subsidiary that required a constant and continual infusion of capital (natural capital, in this case) just to keep it going, would keep that subsidiary very long?” Anderson often asks his audiences. “None that I know, and nature is a better manager than any CEO I know, and capable of being far more ruthless if she needs to be.”

In a recent conversation with SIJ, Anderson expounds on Interface’s sustainability efforts, the company’s global influence, and how to talk frankly with investors.

SIJ: You’ve said that in the 21st Century, the most resource-efficient companies will win. More to the point, you’ve said there’s a moral imperative for Interface and global corporations to be efficient with the planet’s resources. Would you elaborate on these beliefs?
RA: We live in a world of diminishing resources. That’s clear. It’s a finite earth and we keep taking from it. There’s less to be taken in the years ahead and demand and prices are bound to go up. So the company that can utilize a given amount of resources efficiently and go further in terms of generating revenue will win. The clearest example of that is oil, now at $60 a barrel. What about when that goes up to $200 a barrel? Frankly, that’s the day we’re getting ready for.

SIJ: And where does morality fit into this?
RA: We have a clear definition of what theft is; it’s a morally indefensible thing. Wasting the earth’s resources is stealing your children’s and grandchildren’s future. It’s probably more hurtful than any sort of petty theft.

SIJ: You’ve said that Interface’s biggest challenge is the existing laws and regulations governing commerce. That is, the current infrastructure subsidizes ‘unsustainable industrial processes.’ How are you attempting to change this?
RA: We are not very successful, obviously, as lobbyists because we are too small to have an effective voice. What we are doing, instead, is trying to change the model. We’re creating a more resource-efficient company that, frankly, is less dependent on subsidized resources like petroleum. If we’re able to operate a petrol-intensive company sustainably, then how much more effective will it be once society feels it has the license to remove those subsidies?

SIJ: In terms of changing the corporate model — Interface aims to become the world’s first environmentally ‘restorative’ company by 2020 … in other words, to do more good than harm to the planet. What are the yardsticks by which Interface is measuring its efforts?
RA: We’re measuring our own progress toward sustainability in terms of greenhouse gases that we produce, as well as our non-reusable resource usage and water usage. We call this EcoMetrics. The effect we have on our supply chain is another order of effect. That’s where the influence factor comes in. We influence our suppliers, and we influence our customers to support environmentally [sound] products and turn their backs on environmentally unfriendly products. That’s the influence factor at work.

As other companies see what we’re doing and see it as a better way to make a bigger profit, we attract those companies to the new model. That’s really how we become restorative. So the direct measure of our own progress toward sustainability is rather an indirect measure of how we’re influencing other people.

SIJ: So what other companies within the flooring industry are mimicking the kinds of ‘sustainable’ products Interface sells?
RA: In our industry, every one of our competitors has made some kind of move toward sustainability, so we can see our influence. We’ve not seen anyone take the broad, frontal approach that we’ve taken. … What’s far more important is that we influence industries far bigger than the carpet industry. And I think that’s actually beginning to happen, too, as other companies begin to feel the pressure from their own marketplace the way we felt the pressure from ours 11 years ago. We’ve had some very large companies approach us and ask how we’re doing things, and we’re very glad to help them. When the customers begin to question whether their products are environmentally sound or whether their social practices are fair, that’s the voice of the market speaking.

SIJ: What are some of the forces that are prompting these questions from customers?
RA: A lot of it falls within the realm of corporate social responsibility. The Enron debacle and WorldCom and other cases really elevated corporate ethics in a way you couldn’t miss, put it that way. And that has inspired the public to begin to question companies’ practices and ethics.

SIJ: Let’s get back to the concept of ‘EcoMetrics’ — what you’ve defined as ‘God’s currency,’ and how you’re applying it to Interface.
RA:We have looked around the world at different life-cycle assessments. And we’ve worked with Georgia Tech, right here in Atlanta, to evaluate the life-cycle assessment systems as a way to measure the various metric effects of a product throughout its life cycle. We’ve settled on a German system called GaBi4, which measures the environmental impacts in terms of about 12 different variables  (www.gabi-software.com). It doesn’t tell you how to weigh this one or that one, but it tells you how you’re doing on this one or that one. You really have to be good at all of them to do well.

SIJ: Sustainability and restorative are terms that, arguably, are still not well understood by both corporate execs and consumers. So how do you speak this language simply to Wall Street investors?
RA: The main thing we talk with investors about is the waste-elimination initiative, QUEST. This has been a big money-maker for us. It’s one of our key metrics. Cumulatively now, through 10 and 3/4 years, we’ve saved $289 million in terms of cost-avoidance from eliminating waste. We’re only halfway toward our goal of eliminating waste. That has more than paid for the rest of this effort, this climbing this mountain. … More recently, as we’ve been able to reduce our fossil fuel-derived energy, we’ve been quite open to talking about it. With $60 oil, that plays quite well on Wall Street.

SIJ: Let’s move briefly to the role of business and governments with regard to climate change. Recently, more than 150 nations agreed in Montreal to launch formal talks on mandatory post-2012 reductions in greenhouse gases. The talks will exclude the United States. For its part, the Bush administration accepted only a proposal to enter an exploratory global ‘dialogue’ on future steps to combat climate change. So in lieu of a U.S. commitment to cap its greenhouse gas emissions in the near-term, what response can we expect from U.S. corporations?
RA: American industry will respond to its marketplace. When you see General Electric announce its Ecomagination initiative that’s to double its R&D in clean technologies and expect to double its revenue in clean technologies, you can be sure it’s not out of altruism. It’s coming out of a response to a marketplace. We responded to a marketplace 11 years ago when we began this journey. Now, we’re finding it to be exceedingly good for business. Our own greenhouse gases on a total global corporate level are down 52 percent in absolute tonnage over 10 years. Our non-renewable fossil fuel-derived energy is down 43 percent. Our renewable energy is about 11 or 12 percent of our total energy usage; someday it will be 100 percent. Now all of this is reducing greenhouse gases dramatically. It’s showing it can be done. Like our friend Amory Lovins says, ‘if it exists, it must be possible.’ We’re showing it’s possible, but at the same time, we’re winning big in the marketplace because we’re doing those very things. It’s making us money, not costing us money.

SIJ: You turn 71 this year. What’s next for you personally?
RA: I’m called on to tell the Interface story about 100 times a year. I never seek an invitation. I’m just straw in the wind spreading the word. There’s an amazing movement developing in the environmental and cultural equity movement worldwide.

SIJ: If you wrote a follow-up to ‘Mid-Course Correction,’ what would you call it?
RA: ‘On course.’ We’re on course towards a zero footprint. We know where the top of the mountain is and we’re headed in that direction. It would be an update on … the progress since 1998. It would also look at what we’ve been through in our own marketplace. There has been a 38 percent decline in the office carpets marketplace from peak to trough. Our own marketplace began to decline at the end of 1998, when corporations and governments believed that Y2K was coming and started spending money to get their computers ready. We reckon that about $500 billion worldwide was spent trying to get computers ready, which took a lot of money out of circulation that might have been spent on furniture, carpets — the stuff we make. We felt it from third quarter 1998 right up through about a year ago when we finally got an upturn. In that interval, that office segment took a very steep decline. We survived it, and we might not have made it without our sustainability initiative because it’s been incredibly good for business. Not only are costs down through QUEST, but it’s dispelling the myth that sustainability is costly.

People have just been galvanized around this higher purpose. And the goodwill of the marketplace has been amazing. Those same customers who were asking us questions 11 years ago about what we were doing for the environment have since embraced the company.