Sustainability For Business Advantage


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  • Sustainability For Business Advantage

    1. 1. Sustainability for Business Advantage Chris Laszlo PhD Sustainable Value Partners, Inc. July 22, 2006
    2. 2. Business approaches to sustainability corporate values | ethics | good governance Sustainability <ul><li>Environmental, Health, and </li></ul><ul><li>Safety (EH&S) </li></ul><ul><li>ISO 14001, Life Cycle Analysis, pollution </li></ul><ul><li>prevention, compliance, EH&S reporting,… </li></ul><ul><li>- EH&S and legal/ technical </li></ul>Source: Prof. Mark Milstein and SVP <ul><li>Corporate Social </li></ul><ul><li>Responsibility (CSR) </li></ul><ul><li>Social audits, philanthropy, employee </li></ul><ul><li>and community relations, CSR reporting,… </li></ul><ul><li>- HR and corporate communications </li></ul><ul><li>Business strategy </li></ul><ul><li>Supply chain innovation, sales & </li></ul><ul><li>marketing, organizational change </li></ul><ul><li>Business managers and supply </li></ul><ul><li>chain partners </li></ul>
    3. 3. Stakeholders are now a powerful force in business
    4. 4. Growth of Non-Governmental Organizations (NGOs) Source: UIA Yearbooks and SVP research
    5. 5. Example of new European environmental regulations <ul><li>WEEE – Waste Electronic and Electrical Equipment Directive </li></ul><ul><li>RoHS – Reduction of Hazardous Substances Directive </li></ul><ul><li>REACH – Registration, Evaluation and Authorization of Chemicals </li></ul><ul><li>ETS – Environmental Trading Systems for quotas of CO2 </li></ul><ul><li>ELV – End–of–Life Vehicle Directive </li></ul><ul><li>PAEI – Public Access to Environmental Information </li></ul>Source: SVP research
    6. 6. Sustainable Value The opportunity for business is value creation (not only regulatory compliance) Stakeholder Value¹ Shareholder Value + + - Unsustainable (Value Transfer) Unsustainable (Lose/Lose) - ¹ environmental, social, and economic impacts Sustainable Value Opportunities Enhanced reputation Product differentiation Motivated employees License to operate Entry into new markets Unsustainable (Value Transfer) Risks Customer de-selection Preemptive regulation Reputation damage Fines, penalties Loss of market share
    7. 7. A business strategy approach takes into account stakeholder impacts along the value chain <ul><li>Environmental impacts of suppliers </li></ul><ul><ul><li>Energy conservation </li></ul></ul><ul><ul><li>Water & solid waste </li></ul></ul><ul><ul><li>Air emissions </li></ul></ul><ul><ul><li>Toxic materials </li></ul></ul><ul><li>Social impacts </li></ul><ul><ul><li>Human rights </li></ul></ul><ul><ul><li>Community involvement </li></ul></ul><ul><li>Economic impacts </li></ul><ul><ul><li>Jobs, economic growth </li></ul></ul><ul><ul><li>Tax base </li></ul></ul><ul><li>Environmental impacts of products </li></ul><ul><ul><li>Durability </li></ul></ul><ul><ul><li>Energy use </li></ul></ul><ul><ul><li>Recycling, remanufacture </li></ul></ul><ul><ul><li>Product take-back </li></ul></ul><ul><li>Customer health & safety </li></ul><ul><ul><li>Exposure to toxics </li></ul></ul><ul><ul><li>Ergonomics </li></ul></ul><ul><li>Social innovations </li></ul><ul><ul><li>Meeting unmet societal needs </li></ul></ul><ul><ul><li>Partnerships to support schools, etc. </li></ul></ul>UPSTREAM OPERATIONS DOWNSTREAM <ul><li>Environmental impacts of operations </li></ul><ul><ul><li>CO2, NOx emissions </li></ul></ul><ul><ul><li>Hazardous materials </li></ul></ul><ul><ul><li>Energy, waste </li></ul></ul><ul><ul><li>Noise & visual pollution </li></ul></ul><ul><li>Social impacts </li></ul><ul><ul><li>Worker health & safety </li></ul></ul><ul><ul><li>Employability, diversity </li></ul></ul><ul><ul><li>Community integration </li></ul></ul><ul><li>Economic impacts </li></ul><ul><ul><li>Jobs, economic growth </li></ul></ul><ul><ul><li>Tax base </li></ul></ul>
    8. 8. Six levels of business value creation Compliance – oriented management of risks and protecting license to operate Reducing energy, waste or other process costs Creating product differentiation based on technical and environmental/social features Addressing new markets driven by customer and societal needs Developing a sustainability culture and brand identity for stakeholder preference Changing the “rules of the game” Sources of Business Value Levels of Strategic Focus Business Context Brand/ Culture Market Product Process Risk
    9. 9. Example: Sustainability goals at <ul><li>To be supplied 100% </li></ul><ul><li>by renewable energy </li></ul><ul><li>Stores 25% more efficient in 7 years </li></ul><ul><li>Fleet 25% more efficient in 3 years </li></ul><ul><li>To create zero waste </li></ul><ul><li>25% reduction in solid waste in 3 years </li></ul><ul><li>To sell products that </li></ul><ul><li>sustain our resources </li></ul><ul><li>& environment </li></ul><ul><li>20% supply base aligned in 3 years </li></ul>Source: speech by Wal-Mart CEO Lee Scott October 24, 2006 and company internal data
    10. 10. Fleet efficiency of Class 8 heavy trucks <ul><li>~38% efficient today: Engine & drivetrain. </li></ul><ul><li>Represents >100 years R&D: Engine efficiency more difficult to improve than end use efficiency. </li></ul>End-use: What happens when halving aero drag + rolling resistance? * Assuming driver utilizes engine at 95% of max efficiency due to driving habits (probably much less than 95% in reality) Source: Technology Roadmap for the 21st Century Truck Program (DOE 2000), RMI analysis Total primary energy 1.00 Idling losses Used in hauling Engine losses Driver losses Auxiliary loads Drivetrain losses Reaches the wheels Aero-dynamic drag Rolling resistance Moves the platform Hauls the freight .07 .93 .02 * .56 .03 .02 .30 .19 .11 .047 .066 1 gallon of diesel @ 65MPH
    11. 11. Cut drag + roll 50%, idling 80% => 2x MPG First, cut aerodynamic drag and rolling resistance by 50% * Assume no change in driver behavior from previous slide. Assumes steady state power out. Source: Technology Roadmap for the 21st Century Truck Program (DOE 2000), RMI analysis Total primary energy 0.47 Idling losses Used in hauling Engine losses Driver losses Auxiliary loads Drivetrain losses Reaches the wheels Aero-dynamic drag Rolling resistance Moves the platform Hauls the freight .006 .47 .01 * .017 .01 .15 .09 .06 .019 .037 .28 >50% less fuel use No change in engine & drivetrain (same 38% efficiency) Also, reduce idle time by 80%
    12. 12. Example of cotton apparel Growing soil fertility, pest mgt, boll maturation, crop rotation, harvesting Production ginning, spinning, weaving, dyeing, finishing, cut & sew Distribution packaging, transportation, inventorying Use wear and care Product Disposal What can suppliers do to address these issues? Fair labor standards Use of dyes and finishing chemicals that may be hazardous to factory workers Energy use in transportation Waste in packaging Dry cleaning chemicals Risk of allergic reactions to chemicals in cotton fabric Hot or cold machine wash Landfill Cotton by-products used in animal feed Pesticide use Fertilizer use Herbicide use GMO seeds Mono-crop Irrigation intensity
    13. 13. Interview of Lee Scott, CEO, Wal-Mart Corporation
    14. 14. THE “WHY NOT ?” PURCHASE Organic Cotton as a “Plus One” ORGANIC COTTON AT SAM’S CLUB
    15. 15. <ul><li>THE SAM’S EXPERIENCE </li></ul><ul><li>Distribution in approximately 300 stores of Capri Pant, Vee Neck Top </li></ul><ul><li>Delivered in Spring 2005 </li></ul>Sales of these two items in the USA were as strong in the Midwest as they were on the coasts, which is a good indication of how widespread this explosive “Natural Lifestyle” market is.
    16. 16. <ul><li>Product differentiation : at the same color, style, quality and price, the organic cotton seal becomes a “plus one” for consumers </li></ul><ul><li>Customer attraction : organic cotton products draw in higher-income consumers who may not otherwise shop at Wal-Mart </li></ul><ul><li>Reduced business risks : anticipates tightening environmental regulations of toxic chemicals, community and NGO opposition </li></ul><ul><li>Improved reputation : Wal-Mart’s image is enhanced with employees, local communities, NGOs and other stakeholders </li></ul><ul><li>Business context : First-mover advantage for Wal-Mart based on establishing loyal relationships with farmers and other players who hold the key to organic cotton as a scarce resource </li></ul>Business value created for Wal-Mart
    17. 17. Sustainability key messages for managers <ul><li>Sustainability is about business strategy in a new competitive environment </li></ul><ul><ul><li>A “lens” through which line managers innovate along their extended supply chains </li></ul></ul><ul><ul><li>Sustainability is not about trade-offs. Investments can have pay-backs of ≤1 year </li></ul></ul><ul><ul><li>Moral responsibility remains the foundation but not the primary motivator for action </li></ul></ul><ul><li>Sustainability solutions require collaboration with key stakeholders </li></ul><ul><ul><li>Partnering with stakeholders can reduce opposition and bring new knowledge </li></ul></ul><ul><ul><li>Effective stakeholder relationships must take into account perceptions & emotions </li></ul></ul><ul><ul><li>Managers must accept that they cannot please all stakeholders all the time </li></ul></ul><ul><li>Sustainability solutions require new organizational competencies </li></ul><ul><ul><li>Skills include assessing and managing stakeholder impacts along supply chains </li></ul></ul><ul><ul><li>Many companies lack the organizational capacity for listening and empathy </li></ul></ul><ul><ul><li>Supporting activities include social marketing, sales training, government lobbying </li></ul></ul>
    18. 18. Contact Information <ul><li>Sustainable Value Partners, Inc. </li></ul><ul><li>[email_address] </li></ul><ul><li> </li></ul><ul><li>USA - (703) 759-2744 </li></ul>