How EDF Harnesses Market Power

walmart-truckGreg Andeck manages Corporate Partnerships for the EDF Innovation Exchange, a dynamic global network facilitating the widespread adoption of environmental innovation in business. The EDF Innovation Exchange is also a 3P sponsor.

At Environmental Defense Fund (EDF), we look for market based solutions to environmental problems. As the guy in charge of managing our partnership pipeline process, I’m constantly on the lookout for new win-win environmental and business solutions we can pioneer with companies. I’m often asked how we identify the companies that we partner with. And increasingly the word I use is LEVERAGE.

Examples of Leverage
We didn’t partner with FedEx just because it was a big company; we partnered with it because it has 36% market share in the package delivery industry. This meant that it was in a prime position to leverage its supply chain – in this case to build the first ever hybrid delivery truck (see Marc Gunther’s recent post).

Similarly, EDF has two project managers in Bentonville not because Walmart is the second largest US company by revenue, but because it has 71% market share in big box retailers and 17% grocery share. For some of its suppliers, Walmart represents a third of their business or more. They’re not going to do everything that Walmart asks them to do, but they’ll sure try. They can’t afford not to.  The most highly visible example of this was Walmart’s effort to drive the detergent business towards a concentrated, less resource intensive product.  Nearly every large retailer now offers a similar product.

Although both of these examples focus on influencing a company’s suppliers, the same can be true in the opposite direction –  leveraging a company’s size to offer customers environmental solutions.  We worked with one of the largest fleet management companies – PHH Arval – to develop the first-of-its-kind service that helps large companies with car fleets reduce their greenhouse gas emissions.  All of PHH Arval’s major competitors now advertise a greenhouse gas management program.

Why Leverage Works

To identify opportunities for leverage, I like examining market share data, as opposed to revenue, because it’s a rough metric for the ease of moving a market. Simply put, companies with large market share are in a powerful position to positively impact their supply chain (which for many companies represents their largest footprint) or customer base.

But just as important is the copycat effect of competitors. Although they hate to admit it, companies often track their larger competitors’ strategic initiatives to keep them from gobbling up even more market share. The end result is that they’re all working to stay one step ahead of one another in the sustainability arena. At EDF, we use this competitive, race-to-the-top behavior to our benefit and as a built-in way to achieve market-driven replication of our project results.

The key to realizing these industry-transforming results is making sure that the findings and innovations that arise from our partnerships become public.  We guarantee this by including IP-sharing terms in our partnership agreements and by not taking money from our partner companies.

The Opportunity for Change
In our experience, we’ve seen that innovation spreads quicker in concentrated industries with a handful of large players than in a fragmented industry with hundreds of small companies.  This is why I believe attempts to increase energy efficiency in the trucking and real estate sectors have been so difficult – those industries have literally thousands of players, each holding small slices of the pie.  By my count, there are fewer than 75 companies in the US with over 10% market share in their respective industries. These companies are sitting on an incredible opportunity – by virtue of their leverage potential – to spark true environmental change within their industry and make their shareholders a bit richer in the process.  The opportunity is working with them to realize it.

Image credit: aforero on Flickr

Greg leads EDF's Corporate Partnerships "Innovation Pipeline" to identify and develop groundbreaking environmental initiatives with leading U.S. companies.He manages teams of researchers and works with companies to find "sweet spots" where new technologies or processes can transform industries and solve pressing environmental problems.Prior to joining EDF, Greg worked on a range of environmental policy issues as Environmental Fellow to U.S. Senator Barbara Boxer (D-CA) and as Legislative Assistant with the Solar Energy Industries Association, a national renewable energy advocacy organization. He holds a M.E.M. degree from the Nicholas School of the Environment at Duke University, and a B.S., Natural Resources from Cornell University.

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