 Balancing green, when to embrace sustainability in a business and when not to. That's the title of a new book by my guest today, Professor Yosti Sheffi of MIT. Professor Sheffi, welcome. Thank you very much. Nice to be here. Just by way of quick introduction, Elisha Gray, the second professor of engineering systems at MIT and also director of the Center for Transportation and Logistics. Tell me what was behind the writing of this book, what was the genesis of it for you? The genesis is that I started the research about five years ago, assuming that the business should lead the way in sustainability and came to pretty much the opposite conclusion. That not only business cannot really do it, it should not really do it. And let me explain because this is not a traditional view, especially in Cambridge, Massachusetts. So the issue is that sustainability is really a supply chain issue. So companies that don't make anything, like Cisco or Apple or Microsoft, they can be very sustainable unless you consider the entire supply chain. Apple is very sustainable unless you consider Foxconn as part of their supply chain. So and also there's something on the customer side. So we need to look at it as a supply chain issue. If you look at the supply chain issue, even companies who are trying to change the operation and be sustainable and we can talk about it in a minute, they have to worry about the entire supply chain where beyond tier one, they don't really have any visibility. Not only they don't have visibility, even if they found out who is the supplier of tier three, four, five, six, they have no leverage with the supplier. They have no commercial relationship with the supplier. The supplier is not going to do what they want them to do. On the outbound side, customers can do what they want to do. Very hard to influence customers to act in a certain way. Companies have developed a sustainable product, like a sustainable detergent that you can wash clothes in relatively cold water. People are not using it. The market share is minuscule of this product. So when you consider the supply chain, you realize that companies cannot really be as sustainable as politicians, NGOs, the media ask them to be. But there's some awareness of this in the form of the so-called carbon footprint. Companies have at least been trying to get their arms around the idea of that, which does incorporate supposedly, theoretically, the entire supply chain. Or is that not the case with the thinking of a lot of companies? It's not the case. And let me explain why it's not the case. But before I do this, my argument is companies cannot and probably should not do too much. So let me explain what they should do. There's three things there's no reason not to do. And companies are doing it. One, some reduction in energy consumption also saves cost. So there's no reason not to do it. Companies are changing light bulbs, doing incremental things. There's no reason not to do it. And also putting regulators on trucks, so limit the speed, save fuel. They also reduce cost. So when you do think that reduced cost, there's no reason not to do it. And companies are by and large doing it, especially if there's a good rate of return on this. The other reason to do it is that you want to avoid risk. You don't want to be the nail that sticks out. Because once you're being branded as a corporation that doesn't care about the environment, doesn't care about people, doesn't care about whatever, you'll be attacked by NGOs. And this can lead to all kind of reduction in sales and reduction in value. So you don't want to be the nail. You need to do the minimum of your industry. And lastly, you want to hedge because it could be that the situation will change. Right now, customers are not willing to pay for it. That's the number one thing. If you want to be corporation to be sustainable, you need the customers to demand it. You need the customers to say, I will buy only sustainable product. Guess what? Every company will do it. But we don't do it. Furthermore, for companies that make sustainable products, side by side with, we call it regular product, they find out that usually in vast majority of cases, sustainable product costs actually more. And people are not willing to pay for it. When you do questionnaires and interview, people say, of course they'll pay for sustainability. When they come to the supermarket shelf, nobody does. I should say nobody, maybe 5% do and only a little bit. And by the way, if you question this, think about how many people buy it Amazon. How many people who care about the environment buy it Amazon and get the big boxes that fill all the landfills. And how many people say, I'm not going to take the two days or two hours delivery. But I'll consolidate all my buying and want every two weeks I'll buy it Amazon and make one delivery. Nobody does that because we are not willing to give up the convenience, we're not willing to pay, we're not willing to give up convenience. But the last reason that companies should do it is the situation may change. There is some evidence that millennials and younger people care more about the environment. Right now they don't have the money actually or the spending power, but as they grow old they'll have more spending power and maybe the situation will change. So some companies do experiments. They'll start a small environmental friendly product line. Even if they lose money on it, companies like Clorax that started a $40 million line of environmentally responsible product is nothing for an $8 billion company, but they understand the chemistry, they understand the suppliers, they understand the market. Even if they lose money on it, it's a hedging strategy. So these are the reasons to do it. But beyond this, beyond these companies should do what they do, which means good PR and not too much more until the market will change. But the awareness of it seems very important. On one hand, let's say that big box comes from Amazon. You look at that and you can immediately see there's a sustainability issue there. What's invisible to the customer is what's happening at that factory thousands of miles away. They don't see it. So they don't think you're not being sustainable because you're being produced at Foxconn in Taiwan or something like that. But my point is that even when it's evident, people are still buying at Amazon. Even when it's evident. Yeah. Unless it's a product that is specifically advertising itself as a sustainable product, then it had better be a sustainable supply chain or else people would really get upset. Even then, the issue is how much truth is in the label? There are about close to 500 labels, green labels out there. Some of them are real. Some of them are not. I mean, there are some labels, mostly government labels that you can rely on. But there have been so many cases of somebody slapping in a green leaf or a green frog and it means nothing. And sometimes they've been called on it. There have been some, especially in California, there have been some cases that companies lost money. But by and large, it's relatively wild west. I would say that exhibit A to bolster your argument is the fact that you can buy bottled water shipped from Fiji or France. What could be less sustainable than the concept of... Let me tell you something. I wrote an article in the Wall Street Journal about the, how do you say, lack of smartness in having the ban on plastic straws? Well, an article in the Wall Street Journal because it's make-believe because the United States, first of all, is responsible for about 1% of the plastic in the oceans. That was the idea. 1%? About 1%. Most of the plastic in the ocean come from Asia when they throw stuff into the... From the production facilities, of course. So we're still to blame because they're producing for us. Doesn't matter, but I'm talking about banning plastic straws in the United States. Plastic straws are about 0.3% of all the plastic, all the plastic, not the plastic that goes into the ocean. Banning this is meaningless. So just to give you an idea, in a conference in Hong Kong two weeks ago, the economist which prides itself on pushing sustainability, a British, European publication, they're all for sustainability. Had bottled water and a line, and a sign that says, in order to support the environment, we have banned plastic straws, so you drink your water without plastic straws. Now you look at the bottle. The bottle says, this water, the conference with Hong Kong, was flown from Wales. So that's what I mean. It's a cover. If the economists really wanted to do a sustainable conference, they would have looked at the supplier, they've investigated, they find out who is doing what, they chose a sustainable supplier. They don't. They just put a sign and now they are all full of feeling virtuous because they are sustainable. That's exactly what companies are doing. My issue is, if you care about sustainability, you shouldn't do these things. Another example, Puma was, in all the papers, the Guardian made a big deal out of it. They started the environmental profit and loss statement and they published, the date made so many euros per garment. They take from the earth, four euros, five, six, 10 euros. Every one of their products. You look at all the products, what's the product with the highest carbon footprint? Leather shoes, leather sneakers, because the cows produce a lot of methane. So we asked the head of supply chain in Puma, so what do you do about it? He said, nothing, customers still won't leather shoes. He said, so what's the exercise about? I mean, that's what I mean, unless the customers will drive corporate behavior, it ain't happening and it shouldn't happen because you cannot ask companies to go on a line and work against their own customer. So to the question, sustainability, cost or investment, a very complex answer which you address in your book, balancing green, when to embrace sustainability in a business and when not to, Professor Yossi Sheffi, thank you so much for joining us today to talk about that. Sounds like a fascinating work. Thanks again for being with us. Thank you very much. Appreciate it. I have been speaking with Professor Yossi Sheffi of MIT. Thank you very much for watching.