We wish we could say that finding Eco-Advantage will be easy. But like excellence in any form, you have to work for it. We know this runs contrary to the message in many of the books and articles about “green business.” Ever since a few leaders like 3M demonstrated the .Payoffs of eco-efficiency, going green has been portrayed as a sure thing. Unfortunately, not every environmental effort produces win-win results.

Developing innovative products, bringing them to market successfully, keeping customers happy, and other elements of business success are difficult enough. Adding an environmental dimension opens  up new opportunities but adds another layer of complexity to the management challenge. Gaining an edge means learning new skills, operating in new ways, and working through some hard trade-offs. In truth, the story is even more subtle. Some initiatives “fail” by traditional measures but create intangible value for a company. It’s often hard to tell when hard-to-measure returns are worth pursuing.

We dig into real-world experiences in all their complexity, highlighting pathways to success but also analyzing initiatives that didn’t go as planned or absolutely flopped. We’ve extracted lessons, both positive and negative, from these case studies so that those now seeking Eco-Advantage don’t need to start at square one.

Who’s Riding The Green Wave?

Defining a leader in financial performance is fairly straightforward. Pick your metric—stock performance, cash flow, or net income—and find the companies with the best or the most. Determining who the environmental leaders are proves far harder. Reliable data are often not available. Companies tend to measure performance in their own ways, if at all. No set of commonly accepted standards has yet emerged. Fundamentally, the environmental arena lacks the structure and rigor provided in the financial realm by the Financial Accounting Standards Board.

We began our research by trying to identify leading companies using the information available.  We drew on the environmental and sustainability scorecards generated by the analysts at Innovate Strategic Value Advisers, Sustainable Asset Management (which Dow Jones uses to produce its sustainability index), and others in the field of socially responsible investing. We combined these rankings with our own data, including a survey of executives. After narrowing a field of 5,000 companies to 2oo, we examined concrete measures of environmental impact such as emissions and energy use. This process generated a list of leaders we call “Wave Riders“. While they are unavoidably incomplete, these rankings provided a starting point for our in-depth company reviews and interviews.

This list is a snapshot from early on in our research. Would the rankings today be different? Of course. A prime example is BP, which sits atop the international WaveRiders list. In the past few years, the company has had some serious breaches in safety and operations that have called into question its environmental and social leadership. Or look at Ford and General Motors (GM), which have been slammed by a seismic shift in consumer demand away from trucks to smaller cars. The key point is that we used this list as a way to identify which companies to focus on, not as a definitive pronouncement on which companies will lead the pack.

We explored several dozen of these top companies in detail, seeking a diversity of industry, geography, and perspective on critical environmental issues. Aware that perception plays a large part in the rankings, we added to the mix a few companies that were too small td be noticed generally but were well-known in industry circles—outfit such as the Swiss textile manufacturer Rohner Textil. We also sought out leading companies that tend not to trumpet their environmental friendliness, like furniture maker Herman Miller or cell phone giant, Nokia. Finally, we made a point of speaking to some companies, like GE and Coca-Cola, that were not considered leaders at the time but now are either expressly seeking Eco-Advantage or have elements their operations that are top-notch and worth studying.

Some industries are so well represented that it would have been repetitive to spend time with all the companies. Other stories are too unique to yield guidance for the typical business. Patagonia, for example, is arguably the most environmentally focused company in the world, but it’s owned almost entirely by the founder, Yvon Chouinard, who prides himself on putting values ahead of profits. Indeed, he often jokes that he never wanted to be a businessman.

We did not shy away from companies facing significant environmental challenges due to the inherent demands of their industries. Many of the WaveRiders are still big polluters—some of the biggest in the world. But they have smaller footprints than others in their industries. We believe that relative position matters. As long as the demand exists for energy, chemicals, and metals, we think it’s valuable to highlight those who do these dirty jobs best. But calling them leaders doesn’t mean that their work is done. In many ways, it’s just beginning.

The Bottom Line

Have WaveRiders been hurt by their focus on environmental matters? Much ink has been spilled trying to prove or disprove the connection between environmental and financial performance. We don’t want to add to wild claims in either direction, but when we examine the stock performance of the publicly held WaveRiders versus the market overall, the trend is clear (see chart). These companies have easily outperformed the major indices in the past 10 years.

A word of caution: Correlation is not causation. The relative stock market success of our WaveRiders might well be a function of high- quality management generally rather than any specific green focus. Indeed, a number of studies have demonstrated that environmental performance is a powerful indicator of overall management quality.