Interview with Monsanto: growth through global sustainability

Sustainable development is the term for the dual imperative—economic growth and environmental sustainability—that has been gaining ground among business leaders since the 1992 United Nations Earth Summit in Rio de Janeiro. As Shapiro puts it, “We can’t expect the rest of the world to abandon their economic aspirations just so we can continue to enjoy clean air and water. That is neither ethically correct nor likely to be permitted by the billions of people in the developing world who expect the quality of their lives to improve.”
 

Monsanto—with its history in the chemicals industry—may seem an unlikely company to lead the way on an emerging environmental issue. But a number of resource- and energy-intensive companies criticized as environmental offenders in the 1980s have been the first to grasp the strategic implications of sustainability.
 

Monsanto, in fact, is seeking growth through sustainability, betting on a strategic discontinuity from which few businesses will be immune. To borrow Stuart L. Hart’s phrase, Monsanto is moving “beyond greening.” In the following interview with HBR editor-at-large Joan Magretta, the 58-year-old Shapiro discusses how Monsanto has moved from a decade of progress in pollution prevention and clean-up to spotting opportunities for revenue growth in environmentally sustainable new products and technologies.
 

Why is sustainability becoming an important component of your strategic thinking?
 

Today there are about 5.8 billion people in the world. About 1.5 billion of them live in conditions of abject poverty—a subsistence life that simply can’t be romanticized as some form of simpler, preindustrial lifestyle. These people spend their days trying to get food and firewood so that they can make it to the next day. As many as 800 million people are so severely malnourished that they can neither work nor participate in family life. That’s where we are today. And, as far as I know, no demographer questions that the world population will just about double by sometime around 2030.
 

Without radical change, the kind of world implied by those numbers is unthinkable. It’s a world of mass migrations and environmental degradation on an unimaginable scale. At best, it means the preservation of a few islands of privilege and prosperity in a sea of misery and violence.
 

Our nation’s economic system evolved in an era of cheap energy and careless waste disposal, when limits seemed irrelevant. None of us today, whether we’re managing a house or running a business, is living in a sustainable way. It’s not a question of good guys and bad guys. There is no point in saying, If only those bad guys would go out of business, then the world would be fine. The whole system has to change; there’s a huge opportunity for reinvention.
 

We’re entering a time of perhaps unprecedented discontinuity. Businesses grounded in the old model will become obsolete and die. At Monsanto, we’re trying to invent some new businesses around the concept of environmental sustainability. We may not yet know exactly what those businesses will look like, but we’re willing to place some bets because the world cannot avoid needing sustainability in the long run.
 

Can you explain how what you’re describing is a discontinuity?
 

Years ago, we would approach strategic planning by considering “the environment”—that is, the economic, technological, and competitive context of the business—and we’d forecast how it would change over the planning horizon. Forecasting usually meant extrapolating recent trends. So we almost never predicted the critical discontinuities in which the real money was made and lost—the changes that really determined the future of the business. Niels Bohr was right when he said it is difficult to make predictions—especially about the future. But every consumer marketer knows that you can rely on demographics. Many market discontinuities were predictable—and future ones can still be predicted—based on observable, incontrovertible facts such as baby booms and busts, life expectancies, and immigration patterns. Sustainable development is one of those discontinuities. Far from being a soft issue grounded in emotion or ethics, sustainable development involves cold, rational business logic.
 

This discontinuity is occurring because we are encountering physical limits. You can see it coming arithmetically. Sustainability involves the laws of nature—physics, chemistry, and biology—and the recognition that the world is a closed system. What we thought was boundless has limits, and we’re beginning to hit them. That’s going to change a lot of today’s fundamental economics, it’s going to change prices, and it’s going to change what’s socially acceptable.
 

Is sustainability an immediate issue today in any of Monsanto’s businesses?
 

In some businesses, it’s probably less apparent why sustainability is so critical. But in our agricultural business, we can’t avoid it. In the twentieth century, we have been able to feed people by bringing more acreage into production and by increasing productivity through fertilizers, pesticides, and irrigation. But current agricultural practice isn’t sustainable: we’ve lost something on the order of 15% of our topsoil over the last 20 years or so, irrigation is increasing the salinity of soil, and the petrochemicals we rely on aren’t renewable.
 

Most arable land is already under cultivation. Attempts to open new farmland are causing severe ecological damage. So in the best case, we have the same amount of land to work with and twice as many people to feed. It comes down to resource productivity. You have to get twice the yield from every acre of land just to maintain current levels of poverty and malnutrition.

Now, even if you wanted to do it in an unsustainable way, no technology today would let you double productivity. With current best practices applied to all the acreage in the world, you’d get about a third of the way toward feeding the whole population. The conclusion is that new technology is the only alternative to one of two disasters: not feeding people—letting the Malthusian process work its magic on the population—or ecological catastrophe.
 

What new technology are you talking about?
 

We don’t have 100 years to figure that out; at best, we have decades. In that time frame, I know of only two viable candidates: biotechnology and information technology. I’m treating them as though they’re separate, but biotechnology is really a subset of information technology because it is about DNA-encoded information.
 

Using information is one of the ways to increase productivity without abusing nature. A closed system like the earth’s can’t withstand a systematic increase of material things, but it can support exponential increases of information and knowledge. If economic development means using more stuff, then those who argue that growth and environmental sustainability are incompatible are right. And if we grow by using more stuff, I’m afraid we’d better start looking for a new planet.
 

But sustainability and development might be compatible if you could create value and satisfy people’s needs by increasing the information component of what’s produced and diminishing the amount of stuff.
 

How does biotechnology replace stuff with information in agriculture?
 

We can genetically code a plant, for example, to repel or destroy harmful insects. That means we don’t have to spray the plant with pesticides—with stuff. Up to 90% of what’s sprayed on crops today is wasted. Most of it ends up on the soil. If we put the right information in the plant, we waste less stuff and increase productivity. With biotechnology, we can accomplish that. It’s not that chemicals are inherently bad. But they are less efficient than biology because you have to manufacture and distribute and apply them.

 

I offer a prediction: the early twenty-first century is going to see a struggle between information technology and biotechnology on the one hand and environmental degradation on the other. Information technology is going to be our most powerful tool. It will let us miniaturize things, avoid waste, and produce more value without producing and processing more stuff. The substitution of information for stuff is essential to sustainability. Substituting services for products is another.
 

Scientists at Monsanto are designing products that use information at the genetic or molecular level to increase productivity. Here are three that are on the market today.
 

The NewLeaf Potato. The NewLeaf potato, bioengineered to defend itself against the destructive Colorado potato beetle, is already in use on farms. Monsanto also is working on the NewLeaf Plus potato with inherent resistance to leaf virus, another common scourge. Widespread adoption of the product could eliminate the manufacture, transportation, distribution, and aerial application of millions of pounds of chemicals and residues yearly.

 

 

Why use all this to protect potatoes from insects and viruses when built-in genetic information lets potatoes protect themselves?

 

B.t. Cotton. In ordinary soil, microbes known as B.t. microbes occur naturally and produce a special protein that, although toxic to certain pests, are harmless to other insects, wildlife, and people. If the destructive cotton budworm, for example, eats B.t. bacteria, it will die.
 

Some cotton farmers control budworms by applying to their cotton plants a powder containing B.t. But the powder often blows or washes away, and reapplying it is expensive. The alternative is for farmers to spray the field with a chemical insecticide as many as 10 or 12 times per season.
 

But Monsanto’s scientists had an idea. They identified the gene that tells the B.t. bacteria to make the special protein. Then they inserted the gene in the cotton plant to enable it to produce the protein on its own while remaining unchanged in other respects. Now when budworms attack, they are either repelled or killed by the B.t.
 

With products like B.t. cotton, farmers avoid having to buy and apply insecticides. And the environment is spared chemicals that are persistent in the soil or that run off into the groundwater.
 

Roundup Herbicide and No-Till Farming. Sustainability has become an important design criterion in Monsanto’s chemically based products as well as in its bioengineered products. Building the right information into molecules, for example, can render them more durable or enhance their recyclability.
 

Roundup herbicide is a molecule designed to address a major problem for farmers: topsoil erosion. Topsoil is necessary for root systems because of its organic matter, friability in structure, and water-holding capabilities. The subsoil underneath is incapable of supporting root systems. Historically, farmers have tilled their soil primarily for weed control and only to a minor extent for seed preparation. But plowing loosens soil structure and exposes soil to erosion.
 

By replacing plowing with application of herbicides like Roundup—a practice called conservation tillage—farmers end up with better soil quality and less topsoil erosion. When sprayed onto a field before crop planting, Roundup kills the weeds, eliminating the need for plowing. And because the Roundup molecule has been designed to kill only what is growing at the time of its initial application, the farmer can come back a few days after spraying and begin planting; the herbicide will have no effect on the emerging seeds.
 

The Roundup molecule has other smart features that contribute to sustainability. It is degraded by soil microbes into natural products such as nitrogen, carbon dioxide, and water. It is nontoxic to animals because its mode of action is specific to plants. Once sprayed, it sticks to soil particles; it doesn’t move into the ground-water. Like a smart tool, it seeks out its work.

 

Explain what you mean by substituting services for products.
 

Bill McDonough, dean of the University of Virginia’s School of Architecture in Charlottesville, made this come clear for me. He points out that we often buy things not because we want the things themselves but because we want what they can do. Television sets are an obvious example. No one says, “Gee, I’d love to put a cathode-ray tube and a lot of printed circuit boards in my living room.” People might say, “I’d like to watch the ball game” or “Let’s turn on the soaps.” Another example: Monsanto makes nylon fiber, much of which goes into carpeting. Each year, nearly 2 million tons of old carpeting go into landfills, where they constitute about 1% of the entire U.S. municipal solid-waste load. Nobody really wants to own carpet; they just want to walk on it. What would happen if Monsanto or the carpet manufacturer owned that carpet and promised to come in and remove it when it required replacing? What would the economics of that look like? One of our customers is exploring that possibility today. It might be that if we got the carpet back, we could afford to put more cost into it in the first place in ways that would make it easier for us to recycle. Maybe then it wouldn’t end up in a landfill.

 

We’re starting to look at all our products and ask, What is it people really need to buy? Do they need the stuff or just its function? What would be the economic impact of our selling a carpet service instead of a carpet?
 

Sure. Information technology, whether it’s telecommunications or virtual reality—whatever that turns out to be—can eliminate the need to move people and things around. In the past, if you wanted to send a document from one place to another, it involved a lot of trains and planes and trucks. Sending a fax eliminates all that motion. Sending E-mail also eliminates the paper.
 

I have to add that any powerful new technology is going to create ethical problems—problems of privacy, fairness, ethics, power, or control. With any major change in the technological substrate, society has to solve those inherent issues.
 

You referred earlier to using information to miniaturize things. How does that work?
 

Miniaturization is another piece of sustainability because it reduces the amount of stuff we use. There are enormous potential savings in moving from very crude, massive designs to smaller and more elegant ones. Microelectronics is one example: the computing power you have in your PC would have required an enormous installation not many years ago.
 

We’ve designed things bigger than they need to be because it’s easier and because we thought we had unlimited space and material. Now that we know we don’t, there’s going to be a premium on smaller, smarter design. I think of miniaturization as a way to buy time. Ultimately, we’d love to figure out how to replace chemical processing plants with fields of growing plants—literally, green plants capable of producing chemicals. We have some leads: we can already produce polymers in soybeans, for example. But I think a big commercial breakthrough is a long way off.
 

Today, by developing more efficient catalysts, for example, we can at least make chemical plants smaller. There will be a number of feasible alternatives if we can really learn to think differently and set design criteria other than reducing immediate capital costs. One way is to design chemical plants differently. If you looked at life-cycle costs such as energy consumption, for instance, you would design a plant so that processes needing heat were placed next to processes generating heat; you wouldn’t install as many heaters and coolers that waste energy. We think that if you really dig into your costs, you can accomplish a lot by simplifying and shrinking.
 

Some people are talking about breakthroughs in mechanical devices comparable to what’s being done with electronic devices. Maybe the next wave will come through nanotechnology, but probably in 10 or 20 years, not tomorrow.
 

I am not one of those techno-utopians who just assume that technology is going to take care of everyone. But I don’t see an alternative to giving it our best shot.
 

Business leaders tend to trust technology and markets and to be optimistic about the natural unfolding of events. But at a visceral level, people know we are headed for trouble and would love to find a way to do something about it. The market is going to want sustainable systems, and if Monsanto provides them, we will do quite well for ourselves and our shareowners. Sustainable development is going to be one of the organizing principles around which Monsanto and a lot of other institutions will probably define themselves in the years to come.
 

It’s not hard. You talk for three minutes, and people light up and say, “Where do we start?” And I say, “I don’t know. And good luck.”
 

Maybe some context would help. We’ve been grappling with sustainability issues here long before we had a term for the concept. Part of our history as a chemical company is that environmental issues have been in our face to a greater extent than they’ve been in many other industries.
 

My predecessor, Dick Mahoney, understood that the way we were doing things had to change. Dick grew up, as I did not, in the chemical industry, so he tended to look at what was coming out of our plants. The publication of our first toxic-release inventory in 1988 galvanized attention around the magnitude of plant emissions.
 

Dick got way out ahead of the traditional culture in Monsanto and in the rest of the chemical industry. He set incredibly aggressive quantitative targets and deadlines. The first reaction to them was, My God, he must be out of his mind. But it was an effective technique. In six years, we reduced our toxic air emissions by 90%.
 

Not having “grown up in the chemical industry,” as you put it, do you think differently about environmental issues?
 

Somewhat. Dick put us on the right path. We have to reduce—and ultimately eliminate—the negative impacts we have on the world. There is no argument on that subject. But even if Monsanto reached its goal of zero impact next Tuesday, that wouldn’t solve the world’s problem. Several years ago, I sensed that there was something more required of us than doing no harm, but I couldn’t articulate what that was.
 

So I did what you always do. I got some smart people together—a group of about 25 critical thinkers, some of the company’s up-and-coming leaders—and sent them off to think about it. We selected a good cross-section—some business-unit leaders, a couple from the management board, and people from planning, manufacturing, policy, and safety and health. And we brought in some non-traditional outsiders to challenge our underlying assumptions about the world. My request to this group was, “Go off, think about what’s happening to the world, and come back with some recommendations about what it means for Monsanto. Do we have a role to play? If so, what is it?”
 

That off-site meeting in 1994 led to an emerging insight that we couldn’t ignore the changing global environmental conditions. The focus around sustainable development became obvious. I should have been able to come up with that in about 15 minutes. But it took a group of very good people quite a while to think it through, to determine what was real and what was just puff, to understand the data, and to convince themselves that this wasn’t a fluffy issue—and that we ought to be engaged in it.
 

People came away from that meeting emotionally fired up. It wasn’t just a matter of Okay, you threw me an interesting business problem, I have done the analysis, here is the answer, and now can I go back to work. People came away saying, “Damn it, we’ve got to get going on this. This is important.” When some of your best people care intensely, their excitement is contagious.
 

So now we have a bunch of folks engaged, recognizing that we have no idea where we’re going to end up. No one—not the most sophisticated thinker in the world—can describe a sustainable world with 10 billion to 12 billion people, living in conditions that aren’t disgusting and morally impermissible. But we can’t sit around waiting for the finished blueprint. We have to start moving in directions that make us less unsustainable.
 

How are you doing that?
 

There’s a quote of Peter Drucker’s—which I will mangle here—to the effect that at some point strategy has to degenerate into work. At Monsanto, there was a flurry of E-mail around the world, and in a matter of four months a group of about 80 coalesced. Some were chosen; many others just heard about the project and volunteered. They met for the first time in October 1995 and decided to organize into seven teams: three focused on developing tools to help us make better decisions, three focused externally on meeting world needs, and one focused on education and communication.