(FORTUNE Magazine) – WHEN AMERICANS first demanded a cleanup of the environment during the early 1970s, corporations threw a tantrum. Their response ran the psychological gamut from denial to hostility, defiance, obstinacy, and fear. But today, when it comes to green issues, many U.S. companies have turned from rebellious underachievers to active problem solvers. Who's in the vanguard of this revolution -- and who's lagging behind? Most important, what can consumers, investors, and plain old earthlings learn from how the corporate leaders approach and tackle their environmental challenges? To find out, FORTUNE spent three months examining the environmental records of America's biggest manufacturers -- public and private companies with annual sales of $400 million or more. (Yes, service companies pollute too, but we limited our survey to manufacturers because the government collects most of its data on them.) To measure relative ranking, we scored companies from zero (worst) to ten (best) in 20 different performance categories. These included things like the percentage reductions a company achieved in emissions of toxic chemicals as well as the comprehensiveness of its written environmental policies, goals, and employee incentives. We supplemented this green index, which concentrated on the period from 1987 to spring 1993, with interviews at more than 100 companies, plus scores of discussions with government officials, environmental groups, and other experts (for more, see methodology box). The results are displayed in the three boxes on this page. (A more extensive scorecard follows this article.) Because FORTUNE chose to highlight only the leaders, the laggards, and the most improved companies, a number of the household names we examined -- companies like Procter & Gamble, General Motors, and Ford -- do not appear on our lists. Even so, among the blue chips that did make our cut, there are a host of surprises. Start with this one. Dow Chemical, a company whose name was once synonymous with napalm, Agent Orange, and fearsome opposition to what former chairman Paul Oreffice called ''nitpicking, ridiculous regulations,'' is now among America's top ten environmental champions. Four times a year, eight environmental advocates from around the world gather at the company's Midland, Michigan, headquarters and spend 1 1/2 days with senior managers and board members. ''This is something environmentalists have been asking for -- the ear of top management,'' says Anthony Cortese, former dean of environmental programs at Tufts University and one of the members of Dow's Environmental Advisory Council. So far, however, Dow is the only major U.S. corporation that regularly lends its ear to such a high-level group. At the plant level, Dow managers increasingly carry on this same kind of consultation with local environmental groups. They have an incentive to do so: Their salaries and bonuses are pegged to, among other things, how well environmental goals are met. Last year Dow added an environmental category to every employee's job appraisal form. Dow also recently put David T. Buzzelli, its senior environmental officer, on its board of directors. No other company contacted for this story has gone that far. Says Joanna Underwood, who runs Inform, an environmental research group, and is also a member of Dow's advisory council: ''The message from Dow is that the environment is not a side business but an essential part of business.'' In 1986, Dow launched its WRAP (Waste Reduction Always Pays) program and quickly began proving that acronym true. At a latex plant in Midland, for example, teams of workers and supervisors made a few simple changes in pipes and production equipment and improved housekeeping techniques -- like making sure valves were shut. Result: They eliminated 60% of the waste that had been going to landfills, saving $310,000 in annual fees. More efficient latex production -- another benefit from those changes -- saved an additional $420,000 a year. Since WRAP was unwrapped, some 200 teams have discovered similar savings throughout the company. ONE OF THE FORCES propelling corporate America's cleanup drive has been the so-called Toxic Release Inventory (TRI). Since 1986 the EPA has required that all the plants of some 10,000 U.S. manufacturers report the annual releases from their facilities into the air, ground, and water of 317 toxic chemicals (such as asbestos, freon, and PCBs) and 20 toxic chemical categories (lead compounds, for example). Some 200 chemicals will be added to the list over the next few years. None of these releases, which are tallied by the companies themselves, necessarily violates any U.S. regulation, though other laws -- the Clean Air Act, for example -- may put restrictions on the same emissions. The main idea behind TRI is to provide the public with an annual environmental benchmark. As William K. Reilly, former administrator of the EPA, notes, ''TRI has been a powerful tool for reducing emissions.'' Dow's TRI releases per dollar of sales -- a common measure used by environmental groups to avoid penalizing large companies -- are now among the lowest in the U.S. chemical industry. The primary reason is that Dow wisely phased out the practice of injecting hazardous waste underground before the tally began. Meanwhile, competitor and industry sales leader Du Pont has yet to abandon underground injection. Since 1987, Du Pont's TRI releases have increased three out of five years; Dow's emissions have fallen 32% since 1988. Dow's overseas goals are also aggressive. In 1991 the EPA asked U.S. companies to sign up for a voluntary campaign to reduce their use of 17 chemicals to 33% by 1992 and 50% by 1995, with 1988 as the base year. When Dow joined the so-called 33-50 program in 1991, its foreign businesses also took on the same goals -- and even went further. Dow Europe, for example, has targeted 60 chemicals as well as the 17 on the 33-50 list. During the past 20 years, furniture maker Herman Miller has found a way to recycle or reuse nearly all the waste left over from the manufacturing process: Fabric scraps are sold to the auto industry to reuse as lining for cars; luggage makers buy Miller's leather trim for attache cases; stereo and auto manufacturers use vinyl for sound-deadening material. Headquarters is powered by a cogeneration facility that turns wood scraps into energy and shaves $450,000 off the gas bill. Miller even has a thriving secondhand furniture business, which buys back its old furniture and refurbishes and resells it. That's how the company reduced solid waste 80% since 1982. How about the other 20%? Herman Miller has hired an outside consulting firm to help it meet the corporate-wide goal of zero waste to landfills by 1995. Says environmental manager Paul Murray: ''There is never an acceptable level of waste at Miller. There are always new things we can learn.'' To its credit, IBM has kept aggressive environmental goals front and center despite a terrifying slide in profits, stock value, and reputation. Tops on its hit list are ozone-depleting chlorofluorocarbons (CFCs), widely used in the computer industry as solvents and cleaning agents. In 1989, when the deadline for eliminating CFCs was the year 2000 (it's now 1995), the computer giant set a worldwide goal to phase them out by the end of 1993. IBM invented various replacement technologies for the ozone depleters, such as water-based solvents. By year-end 1992, the company's CFC use had plunged 83%. Big Blue was also one of the first major corporations to embrace industry's four-tiered approach to waste: reduce, reuse, recycle, and landfill as a last resort, which shifts the focus to generating less waste in the first place. Here's what has happened to hazardous waste at IBM from 1987 to 1991: 44% less is generated, and 72% of what is produced is recycled on-site. ''You know a company is aggressively trying to reduce waste when it has strong employee reward programs,'' says Inform's Underwood. Every year IBM recognizes employees for technical innovations that help the company meet its environmental goals. Among the 16 winners last year was an employee in Boca Raton, Florida, who developed an energy-efficient personal computer. His prize: $50,000. This award-winning project demonstrates IBM's commitment to the EPA's year- old Energy Star program, which proposes to cut the energy consumption of personal computers 50% to 75%. IBM and competitors like Apple have agreed to design and manufacture at least one personal computer by 1993 that will meet this goal. The EPA estimates that converting two-thirds of all PCs to meet Energy Star standards will save 26 billion kilowatts annually by the year 2000, equivalent to the electricity consumed each year by Vermont, Maine, and New Hampshire combined. AMERICAN Telephone & Telegraph is also steering an impressive environmental course. In 1990 the telecommunications giant established goals for reducing air emissions, CFCs, solid waste, and hazardous waste. Under the direction of David R. Chittick, AT&T's vice president of environment and safety, the company had either surpassed its goals or was ahead of schedule for meeting them by the end of last year. To engineer ozone-depleting emissions out of its operations, for instance, AT&T invested $25 million to develop an array of alternative technologies. One, called Low Solids Spray Fluxer, eliminates the need for CFC solvents that clean the excess flux from electronic circuitboards. Now AT&T is selling this technology to some 25 other companies, among them IBM. Sometimes AT&T gives its ideas away. Last year engineers developed an alternative for 1,1,1-trichloroethane, another ozone-depleting solvent used to clean circuitboards. The company refers to the discovery as the ''cantaloupe'' technology because it contains a synthetic extract that appears naturally in that melon as well as other fruit. AT&T is sharing cantaloupe, which has helped reduce its 1,1,1 emissions to practically zero, with competitors for free. In fact, AT&T managed to eliminate virtually all its ozone-depleting substances by May 15, 1993, a year and a half before the company's goal, and 2 1/2 years ahead of the worldwide ban. Now AT&T doesn't have to worry about the new law that requires companies to put warning labels on all goods that contain or are manufactured with ozone-depleting substances. The company figures that the cost of tracking and labeling all the tiny components and switching systems that it once manufactured with CFCs would add up to hundreds of thousands of dollars. The early phase-out also saves AT&T $25 million annually in supply costs, since taxes on CFCs have helped send the price rocketing from about 80 cents per pound in 1986 to over $11; the substitutes average 50 cents per pound. AT&T has embraced Total Quality Management (TQM) principles to solve the most universal office pollution problem: too much paper. First, the company established a corporate paper reduction goal of 15% by 1995; then it created a corporate TQM team to figure out how to meet it. Following classic TQM techniques, the team identified AT&T's heaviest paper users, euphemistically called fat rabbits. The fat rabbits in turn formed TQM teams to help meet the company-wide goal. The internal information management unit, fat bunny No. 2 behind copying centers, gobbled up about a quarter of AT&T's total paper use for such things as marketing and financial reports. The department's TQM teams suggested such simple ways to decrease paper consumption as eliminating cover pages and using electronic rather than printed media. Within a year the department was consuming 22% less paper. The long-distance division compressed the spacing on some 12 million bills to major customers of its Pro Wats and CustomNet lines. The result: three million fewer sheets of paper per year and lower postal rates for a total saving of some $4 million annually. Sun Co., parent of Sunoco, leaps onto the most improved list for being the first major company to sign the Coalition for Environmentally Responsible Economies (Ceres) principles. This corporate code of conduct on the environment was formulated in 1989 by a coalition of environmental and investor groups, including the National Wildlife Federation and the California Public Employees' Retirement System (Calpers). The code begins with the belief that ''corporations must not compromise the ability of future generations to sustain themselves'' and goes on to say that the signatories will ''update our practices constantly in light of advances in technology . . . and environmental science.'' Among the ten Ceres principles: protection of the biosphere, sustainable use of natural resources, environmental restoration, and management commitment to sound environmental policy. Sun completes an annual Ceres report, which the organization summarizes for the public. Companies like Du Pont, ARCO, and General Electric have vehemently resisted shareholder resolutions to adopt the principles. ''After the resolution failed at our annual meeting last year, I stuck with the Ceres people and let them know we wanted to sign up,'' says Sun CEO Robert H. Campbell. The major obstacle was the wording of certain principles that, says Campbell, ''gave our lawyers headaches.'' He fixed the problem by leaving the lawyers at home when he and his negotiating team hammered out a redraft of the original principles with slightly different wording. Sun's TRI releases, the toxic emissions compiled annually by the EPA, are among the lowest in the petroleum industry, and Sunoco gas stations were the first outside California to install pumps for methanol, which produces lower levels of smog-forming compounds than regular gasoline. Still, Sun needs to work harder to develop solid waste reduction and recycling programs. The computer industry led all others for having the most companies on the best and most improved lists. In the battle for the bottom, more companies from the oil and paper industries were in contention for the laggards list than from any other industry. Several aerospace companies just missed being named to the laggards list, but Boeing made it. Why? The company's written environmental policy is as weak as camomile tea and only two sentences long. In 1988, Boeing signed up for the EPA's 33-50 program. Though this is one of the few numerical goals the aerospace company has committed to, its releases of the targeted chemicals have so far not achieved 1992 goals. Boeing's TRI emissions since 1987 have also been heading north. DU PONT and Monsanto have comprehensive environmental principles and are working to meet aggressive goals. Both chemical companies have CEOs who are committed to environmental achievement and publish annual reports that detail progress as well as setbacks. So how did Monsanto and Du Pont wind up on the laggards list? The chemical giants could be compared to an old car that sits unused for years. Even when tires and other new parts are added, it still fails to keep pace with new models. Du Pont sat on the opposite side of the environmental debate for years, its performance defined more by adroit lobbying efforts to kill legislation than by innovative approaches to pollution prevention. For example, Du Pont successfully delayed the phase-out of CFCs for 15 years because it was the world's largest producer of the ozone destroyers. As the inevitable deadline approached, the company stepped up its promotion of substitute HCFCs, which are less potent but still ozone depleting, instead of developing alternatives that do not harm the environment. On the toxic release front, Du Pont dawdled during the 1970s and 1980s while other companies acted. But when the first TRI report hit the street in 1988, revealing Du Pont and Monsanto as the country's largest polluters, these two got religion. Still, their efforts have not been enough to offset the massive amount of toxic chemicals they release. In 1991, Du Pont emitted 254 million pounds of poisonous junk. As Jack Doyle, senior analyst at the nonprofit environmental group Friends of the Earth, says, ''That is more than twice as much as the combined releases of Dow, BASF, Ciba-Geigy, Union Carbide, and Hoechst chemical companies.'' Corporate America is finally making progress in solving the nation's pollution problems, but there is still a long way to go. A report on TRI numbers by the research group Citizens Fund notes that the chief executives of the 50 companies emitting the most pollutants live in zip codes where releases of toxic chemicals are either zero or a fraction of those in areas where their plants are located. Until CEOs no longer fear setting up residence in the same zip codes as their plants, pollution prevention should remain at the top of corporate America's agenda.

BOX:

THE 10 MOST IMPROVED Ciba-Geigy Hewlett-Packard Johnson & Johnson S.C. Johnson & Son Minn. Mining & Mfg. Nalco Chemical Polaroid Shell Oil Sun Union Camp

THE 10 LEADERS AT&T Apple Computer Church & Dwight Clorox Digital Equipment Dow Chemical H.B. Fuller IBM Herman Miller Xerox

THE 10 LAGGARDS American Cyanamid Boeing BP America E.I. Du Pont de Nemours General Electric International Paper Louisiana-Pacific Maxxam Monsanto USX

CHART: NOT AVAILABLE CREDIT: NO CREDIT CAPTION: ENVIRONMENTAL SCORECARD THE 10 LEADERS THE 10 MOST IMPROVED THE 10 LAGGARDS