“De-risking” has leaped into the common vernacular as home foreclosures and live streaming of oil gushing into the Gulf of Mexico dominate the news. While not uniform in its emerging application, derisking can be defined as our questioning of behaviors, products, companies and government policies that are harming our finances, our health and the environment.
A key question is whether this interest in derisking is just a fad reflective of a temporary string of bad luck or self-serving acions? Or has the world reached a critical mass of risk that requires de-risking?
The answer may lay in the emerging market research that point to consumers embracing de-risking as a key lifestyle component. And there is also growing business documentation that aligning with this de-risking trend affords an attractive revenue growth path for businesses offering de-risking solutions.
One such example is The Millennial Generation. They are heavily engaged in de-risking activities that address environmental and economic threats to their future. They use the word “cool” when they achieve a de-risking task, identify a de-risking technology or overcome Corporate America’s efforts to stop them. A perfect example is their victory in re-engineering the sourcing of music and movies away from a higher cost carbon-based system to a digital-system providing lower cost, transportability and a dramatically lower emission-footprint. The Millennial Generation intuitively sense that their economic power (and their dearth of political power) is their path for achieving change and they are flexing their economic power through collective purchases of “cool” goods and services enabled through their Internet-cloud of starfish-shaped collaboration. Patagonia and Apple are leading examples of companies The Millennial Generation point to as being “cool” that are also realizing impressive business results.
The Millennial Generation’s moms, defined as Concerned Caregivers, are not far behind the Millennial Generation’s de-risking procurement activities. Their de-risking focus is upon “wellness” for themselves and their family. Today there are 25 million Mommy Bloggers, up from 20 million only last year, that are blogging across a broad range of risk-issues including air quality, product labeling, diet and finances. Women in the U.S. are a procurement juggernaut controlling 75% of consumer purchases and they represent approximately $8 trillion in annual buying power. Evidence of the merger of their buying power and de-risking focus includes Package Facts’ recently released study entitled “Green Household Cleaning Products in the U.S.” which found green-cleaner sales revenues grew 229% between 2005 and 2009. While still only 3% of total-category-sales this rate of growth represents a doubling in size and a tripling in market share. Other examples includes Rainforest Alliance certified coffees achieving year over year doubling of their sales revenues and the Organic Exchange report that the sale of organic apparel and home textile products grew by 35% in 2009 to $4.3 billion of retail sales. Companies successfully connecting with Concerned Caregivers include P&G, Walmart, Clorox and Target.
A new de-risking leader has emerged over the last two years that I have labeled Sustainable CEOs. These business pioneers first embarked upon de-risking in anticipation of increased government rulemaking over green house gas emissions. In the process they discovered that lowering emissions can also reduce operating costs. Companies including Ford, Walmart and P&G are now pushing this emissions/cost reduction formula into their supply chain through formalized programs that require the reporting and achievement of sustainability-linked performance metrics. An emerging group of Sustainable CEOs are looking strategically at de-risking as path for revenue growth. Leaders here include 7th Generation and Timberland.
What is the market potential of “de-risking?” My current economic analysis forecasts a $10 Trillion global revenue economy by 2017 in goods and services that reduce personal and environmental risks. The major economic reason for this revenue growth is that goods and services that offer lower risk solutions are now gaining price competitiveness with higher risk goods and services. One example is the recent NREL report that 850 utilities offer green energy with the price premium charged to the consumer falling 50% from 3.4 cents per kWh in 2000 to 1.75 cents per kWh. Electricity is a classic example of de-risking’s economic potential as this industry faces escalating prices from its fossil-fueled generation while renewable energy is achieving lower prices from global technology innovations and economies of scale. Today, utility scale solar panels now cost 60% less than just five years ago and wind power is price competitive on a kWh basis against coal fired power generation.
This same downward price trend is being achieved across the fullest range of “green,” “sustainable,” “organic” or “non-toxic” products and services. A favorite example is Amanda’s, a Berkeley, California fast food restaurant serving organic and natural foods (including cheeseburgers, their #1 sales item) in a non-toxic dining environment. Amanda’s average customer meal price is $6, the same as McDonalds.
Finally, is it too much of a stretch to see in The Tea Party’s “Throw the bums out” slogan an alignment between voters and consumers frustrated by business and government leaders that view risk as something to be managed, engineered or ultimately paid for by the voter/consumer through the degradation of their environment, health and finances? In fact, this merger of consumer/voter focus upon de-risking is actually occurring in America’s communities from Republican Palm Desert, California to Democratic Gainesville, Florida. Today 1,000 cities in the United States, through the U.S. Conference of Mayors, are now committed to taking action to protect the climate with many embracing farmer markets, the financing of roof-top solar power/energy efficiency equipment through property taxes and the pursuit of economic development created by growing green industries. America’s cities are defining a new, buy-local economy that is sustainable, renewable, healthier for individuals and financially viable producing local jobs and tax revenues.
While de-risking will surely pass onto the lexicon of past clichés its implementation by consumers (and potentially voters) is a growing force for restoring the economy, environment and jobs.