The next nylon?

By Nicholas Varchaver, Fortune senior writer

In 1931, Time reported that DuPont had invented what the magazine called "castor oil silk." The "fibre is as lustrous as real silk," Time wrote, "[and] stronger and more elastic than rayon fibres." Still, Time's writer pooh-poohed its prospects. Castor oil silk, as such, never caught on, but by the time DuPont had found an economical way to manufacture the material - and assigned it the more euphonious name "nylon" - seven years later, America's women had the promise of sheer stockings, its soldiers could launch themselves from airplanes with parachutes, and DuPont had a megahit. Then and now, such innovations take years. And the biggest challenge often is not the original invention but finding a way to mass-produce it cheaply.

To hear Holliday tell it, bio-PDO - which the company has been working on since 1993 - just might be DuPont's green nylon. Its most promising use is as a fiber that will be marketed for clothing and carpeting under the brand name Sorona. "Because of its natural stretch recovery, because of its good dye-ability, because obviously it's made from a bio product, it could have some real runway to it," says Holliday, who whipsaws between unalloyed enthusiasm and an apparent fear of making a rosy prediction that would raise the hackles of the SEC's disclosure police. "You look at the size of the polyester and nylon markets, and you're talking tens of billions each. Now I'm not predicting that, but, you know, maybe."

In November the company opened a new plant in Tennessee to make bio-PDO, and Holliday says he expects to announce plans for a second factory within 12 months. To make bio-PDO, DuPont genetically engineers corn sugar to create traits that give the final product qualities like stain resistance (as opposed to adding a separate chemical to achieve it). Sold as part of a joint venture with Tate & Lyle, the British-based corn refiner that makes the Splenda sugar substitute, bio-PDO is already in brisk demand, says Holliday.

Other DuPont projects are in much earlier stages. When it comes to biofuels, for example, DuPont has placed three simultaneous bets. Its seed unit is using genetic engineering to allow corn to yield more ethanol. Meanwhile, DuPont is partnering with the U.S. Department of Energy and an ethanol company called Broin to find an economical way to produce higher-energy cellulosic ethanol, which in this case would be made from the parts of a corn plant other than the kernels and the cob. Finally, DuPont is teaming with BP (Charts) on a new fuel called biobutanol that would have even higher energy content and could function in current engines and infrastructure. DuPont and BP will launch a market test in England later this year.

In truth, the products generating that $5 billion aren't those bio wonders; they're more prosaic things, such as the chemical coatings used on photovoltaic solar panels. The company has also adapted Kevlar, best known as the material in bulletproof vests, as a lightweight construction material in airplanes to save fuel. (Airbus's giant new A380 uses it.) And it's making energy-saving electronic parts and materials for flat-panel displays.

Then there's Tyvek. DuPont had long sold it to keep moisture out of houses (and let vapor out). But Ellen Kullman, a DuPont executive vice president who heads two of the company's five divisions, encouraged the company's R&D team to find new energy-saving uses. DuPont scientists figured out that wrapping window frames with Tyvek could prevent air from escaping; add aluminum, and it's an attic insulator. All told, DuPont says, a new house that uses Tyvek in those multiple roles can save 15 percent on energy costs. Good for homeowners, good for the environment - and good for Tyvek sales. None of these products are made of green materials, but their energy-saving effect far outweighs that of any niche pure-green product.

Even when it comes to resolutely nongreen products such as Teflon, DuPont looks for ways to make them with less harm to the environment. Says the VP for fluoroproducts, Cynthia Green, who manages to be simultaneously charming and fierce: "My team knows that when they walk into my office with an idea about a new product, it'd better have a reduced environmental footprint, or they can walk right out. Because [if it doesn't] I'm not listening!"

Achieving new respect

DuPont's sustainability strategy has never felt more timely. Wall Street has taken notice, sending DuPont stock up more than 25 percent in the past six months. In large part, that's because the company has been demonstrating new financial discipline: It has lifted its return on invested capital by seven percentage points in the past three years.

Wall Street is even showing some respect for the green story. "No question - its biofuels pipeline is real," says Deutsche Bank's Begleiter. "It's still relatively small from an earnings contribution standpoint, but I think everyone is quite excited about biobutanol and the potential for the integrated, corn-based refinery."

That appears to have made life a bit easier for Holliday. "At the beginning of last year," says J&W Seligman analyst Richard Rosen, "he was probably feeling a lot of pressure" as DuPont's board, which has been very patient, got an earful from restive major investors. Holliday seems to have weathered the storm, at least for the moment, and can point to strong results in 2006.

But one year does not make a legacy at a 205-year-old company, and it's too soon to know whether Holliday is the man who saw the future - or perhaps saw it too early. Top of page