How Leading Companies are Pioneering Innovation in Carbon, Water and Waste

Sarni began the webinar by providing a broad overview of sustainability in business, discussing the drivers and how sustainability is a business opportunity.  He defines sustainability according to the definition provided by the Dow Jones Sustainability Index (DJSI):

A business approach to create long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental and social developments.

Mr. Sarni notes that this interpretation resonates with C-level employees as it focuses on how sustainability creates value for enterprises. The three buckets that represent the value of corporate sustainability efforts are as follows:

1. Revenue – new products/services resulting from sustainability as well as increased brand value
2. Risk Management – transparency and reporting, supply chain and license to operate
3. Reduced Operating Costs – resource efficiencies; materials, energy, water

According to Mr. Sarni, 2009 is the year that sustainability went mainstream, despite the pervasive economic challenges.  Mr. Sarni states “Sustainability is a business opportunity, it’s not just a matter of compliance and risk management, any more.”  Furthermore, sustainability reflects a shift in thinking among corporate leadership and represents a new paradigm.  Previously, raw materials were perceived as abundant, a limitless sink for waste existed and companies were able to be inefficient.  However, the new paradigm reflects that environmental and social performance matters, not just for you [the business], but for your supply chain. This shift in thinking is reflected by the all of the buzz surrounding “green” rankings.  Most recently, Newsweek released an issue {IMAGE} that provided a ranking of the greenest companies. The ranking was compiled by a number of reputable organizations, including KLD, CorporateRegister and Trucost, and gathered publicly available data to develop a Green Score derived from the categories of:

• Environmental Impact
• Green Policies
• Reputation
• Greenhouse Gas Emissions

Along with this theme of rankings, Mr. Sarni noted that sustainability is no longer “voluntary” so much as the normal course of business.  The Global Reporting Initiative is considered the ad hoc standard for reporting.  At the heart of this report are carbon, water, and waste. As a side note of interest, the webinar stated that a survey performed by the AT Kearney group in Q1 of 2009 (in the midst of the recession) found that companies with a commitment to sustainability tended to outperform their peers.  Over a 3 month and 6 month period, the companies had a stock performance 10% and 15% better respectively.  This study came at a time when people were wondering if companies would retain their commitment to sustainability.  The study demonstrates a tangible value to sustainability performance.  The question then arises, what did these companies do better?  Mr. Sarni points to four common sense factors:

• A focus on long term health versus short term gain
• Strong corporate governance
• Sound risk management practices – 5 to 10 year outlook
• History of investing in “green innovation” – thinking about how to embed sustainability in R&D activities and modify product/service offerings going forward

After providing this overview of sustainability as a business opportunity, the webinar delved into how innovation plays a role and provided prominent examples.

Innovation

With regards to innovation, sustainability is about setting new guidelines – employees do not need to engage in out of the box thinking, but in the box thinking – specifically, how to do with less water/packaging/etc.  That is, how to operate within the creation of new constraints. Mr. Sarni brings up the economic concept of creative destruction, which details waves of transformation that accompany radical innovation and thus sustains long-term economic growth while changing or destroying existing companies.  He posits that sustainability is ushering in a new wave of creative destruction, and cites the examples of Monsanto and DuPont, two companies that have traditionally focused on chemicals that are now diversifying into other areas, such as drought tolerant seeds and bioplastics respectively.  He also cites examples of companies that are using biomimicry, such as Interfaceflor (carpet tiles) and Sto, a European paint manufacturer that had developed a paint that wicks water away, similar to leaves of plants.  To further this wave of innovation, the World Business Council for Sustainable Development and several industrial partners such as Xerox have created the Ecopatent Commons.  The Ecopatent Commons asks member businesses to take any patents that are sitting on the shelf and do not specifically provide a competitive edge, and place them in the commons where other members can determine what they might leverage for a commercial product.

Carbon

Mr. Sarni begins his examination of sustainability in specific hot button topics with a look at carbon.  The drivers of innovation in this area appear to be pending regulations, whether those put forth by the U.S. Environmental Protection Agency (a regulatory framework and reporting requirement for carbon emissions greater than 25,000 tonnes) or those advanced by Congress (e.g., Waxman-Markey bill which recently passed in the House, the Kerry Boxer proposal to reduce emissions 20% by 2020 and 80% by 2050, or the ongoing Kerry Graham Lieberman push for climate legislation).  Currently the Carbon Disclosure Project, 475 individual investors managing tens of trillions of assets, provides a mechanism for voluntary reporting by distributing a questionnaire that drives participating business to look at their carbon footprints and ways to reduce the footprint.   Additionally, the Greenhouse Gas Protocol has become the de facto accounting standard for carbon emissions, allowing businesses to account for Scope 1 (on-site combustion), Scope 2 (electricity usage) and Scope 3 (carbon indirectly generated throughout the supply chain) sources. The webinar then takes a look at how all of these reporting and accounting protocols have enabled businesses to have a greater understanding of their carbon footprint, and in turn fostered innovation to reduce emissions.  It notes that a major effort is the Global e-Sustainability initiative, a recognition that the global carbon footprint of the IT and communications center is 2 – 3%.  The initiative looks at ways to minimize this via utilizing technology for smart grids, smart buildings, smart logistics, smart motors, etc.  Cisco is moving into telepresence with high definition video conferencing and offering web-based energy management.  Other non-IT examples of innovation among businesses regarding carbon include the following:

• DuPont – diversifying into green products (ex. insulation), active in the Chicago Climate exchange
• BASF – providing ecoefficiency analysis by quantifying the sustainability performance of the use of their chemicals in products
• Calera Corporation – patent for a cement manufacturing process that mimics calcium carbonate in a marine setting. During the creation of cement, C02 is removed from water the process sequesters 1/2 ton of C02 for every ton of cement manufactured
• Serious Materials – producing energy efficient windows and drywall, which have a low carbon footprint to manufacture

In addition to these product innovations, companies are thinking about their carbon footprints in new ways.  For example, PepsiCo is experimenting with providing carbon labels on products to inform consumer purchase behavior.  Additionally, the company investigated the carbon involved in the manufacture of specific product lines, such as Tropicana orange juice.  The webinar provides detail and examples of this process for determining a product’s carbon footprint.

Water

For the hot-button topic area of water, Mr. Sarni starts out by discussing the similarities and differences between water and oil.  Some of the fundamental differences are reflected by the fact that water is simply ‘borrowed’, rather than used, and that it is a basic human right.  The drivers of addressing this area are: projected water shortages going forward, exacerbated by climate change; local interests stemming from companies coming into communities and depriving them of water by diverting it for business uses.  As a result, companies are beginning to evaluate their water footprint, identifying both direct sources (water used) and indirect sources (water utilized upstream in the supply chain).  Subsequently, the concept of water neutrality as also emerged.  The Water Footprint Network has developed a framework for defining water neutrality.  To enact this framework, companies must undertake three steps:

1. define, measure and report one’s water footprint
2. take all action that is “reasonably possible” to “reduce the existing operational water footprint”
3. reduce the residual water footprint (the water that remains after step 2) by making a reasonable investment in est. or supporting projects that focus on the sustainable and equitable use of water. (essentially, water offsets)

A notable effort by companies in the realm of water is the CEO Water Mandate.  CEO’s are recognizing water is a critical issue, and that furthermore, they have a responsibility to make water-resource management a priority.  Some notable members of the mandate are: Coca Cola, Nestle, Dole, PepsiCo, SAB Miller, Levi Strauss and Company, representing interests as diverse as the beverage industry, water management companies, and clothing. Water considerations additionally have the potential to have huge brand implications.  For example, Nestle recently took a reputational hit for selling powdered infant milk in countries that don’t have access to clean water. Examples of innovative corporate responses to the issue of water scarcity include:

• Tennant – developed a floor cleaning machine that doesn’t use toxic chemicals and utilizes ionized water.  Additionally, it uses less water
• Vestergaard Fransden – the “life straw” product – a ceramic filter that the user puts in contaminated water and begins to drink.  The water is cleaned on the spot
• NanoH20 – uses nanotechnology for reverse osmosis to result in the desalinization of water
• AquaSciences – uses reverse osmosis to collect moisture out of air.  The present day application is disaster relief.

As water becomes an issue, carbon can be used as a model.  The Carbon Disclosure Project is initiating a Water Disclosure Project.  Companies are adopting a corporate water strategy, wherein they align water with energy and climate risks, look at their water footprint, consider the regulatory and perception risks, and governance issues.

Waste

Unlike carbon and water, waste is a very visible issue with huge social implications.  The vast majority of companies grossly underestimate their waste amounts and costs.  Even an efficient company has an annual cost of physical waste of at least 25% of their gross income.  The most efficient factories waste more than 50% of raw materials, labor and invested capital.  However, businesses again have an opportunity as waste reduction is often complex but rewarding. The webinar focuses on the following examples of innovation:

• Nike – Experienced a return on investment of $40 million in annual savings after a $3 million original investment.  Furthermore, the company treats waste as a product opportunity.  The Nike Trash Talk shoe is created out of waste material.
• Companies are also attempting to achieve zero waste.  Subaru has a factory in Indiana that gets close to achieving this concept via the use of LEAN manufacturing and other techniques.
• Many companies are embracing and finding value in take back programs, such as Patagonia, Hewlett Packard (recycling printer cartridges, early adopter of taking back computers and components, now an industry standard practice), Nike (accepts all brands of athletic footwear for transformation into athletic surfaces)
• Sprint – offering an environmentally friendly phone, the Reclaim phone, made of bioplastics and recycled materials.  The company recently announced that it is moving towards greener packaging
• Wal-Mart – placing pressure on suppliers to remove waste from supply chain, which will in turn drive lower prices and brand value for Wal-Mart.  Examples: concentrated detergent; Corn Flakes – no air, extra cardboard or plastic; stackable milk containers.

The webinar concludes with a question and answer session from the participants.  It is available on demand for playback. The SB Boot Camp will continue through the end of February.  The 90-minute courses are being held live on Fridays, 10:00 am PST/1:00 pm EST.  Each seminar is also available on-demand for archival viewing. In addition to sustainable innovation, topics covered include: green consumers, integrating CSR with brands, sustainable brand strategy, sustainable product design, collaborative supply chain partnerships, stakeholder engagement in company sustainability, using new media to build community, using business metrics to monitor and improve organization environmental and social impact, avoiding greenwashing, and communications design.

Posted by Abhijit Khanna Filed under 1sdn, Business Sustainabilty. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry