Warren Buffett said, “It takes 20 years to build a reputation and five minutes to ruin it.”1 A single indelible magazine image, such as that of a very young Pakistani boy sewing a Nike soccer ball for reportedly 6 cents per hour,2 can change public sentiment overnight. The 1996 image on the cover of Life magazine led to a “Boycott Nike” campaign, and the company lost more than half its market capitalization in the ensuing year.3 It took Nike six years of demonstrated concerted corporate social responsibility efforts to regain the lost value.
Leading the campaigns to publicize and vilify corporations’ environmental (and social) impacts are the many nongovernmental organizations (NGOs) spawned from the environmental movement. Examples include the World Wildlife Fund (1961), Greenpeace (1971), Rainforest Action Network (1985), and Conservation International (1987). These NGOs and countless others believe in the potential fragility of the environment—and they see the potential fragility of companies’ brands as a means of pressuring companies to change.
“When Greenpeace reaches for its toolbox, it tends to find only one tool, and that's a mallet,” said Scott Poynton, founder of The Forest Trust, “and it tends to beat people over the head with it. … But it works, in the sense that it starts the process of change.” He added, “I always say, people won't change unless they're uncomfortable. So, my view of Greenpeace is that they're serious agents of discomfort.”4
On Haxby Road in the British city of York in 1932, the Rowntree factory reverberated with the sound of 500 women's voices singing My Girl’s a Yorkshire Girl.5 The factory belonged to chocolatier Seebohm Rowntree, and his workers—65 percent of whom were women—were singing while they worked. The women's voices rang out in unison as rich milk chocolate flowed from large vats onto confectionery-filled converter belts. Rowntree let them sing—indeed, encouraged it—based on the then-recent findings of industrial psychologists that music in the workplace improved productivity, alertness, and team interaction.6 To that end, Rowntree also instituted employee suggestion boxes. One of the suggestions he received was for the company to make “a chocolate bar that a man could take to work in his pack up.” To make the new chocolate bar more affordable for the working class, Rowntree's used long thin wafers enrobed in a layer of chocolate, reducing its costs by using less chocolate while keeping the traditional chocolate bar format.7 Introduced as “Rowntree's Chocolate Crisp” in 1935, the four-finger wafer added “nicknamed KitKat” on its packaging and in ads in 1937.
When the J. Walter Thomson ad agency created KitKat's first television advertisement in 1957, the agency keyed into the idea of the “snap” of a breaking bar and combined it with previous ads showing KitKat as “the best companion to a cup of tea.”8 The tagline, “Have a break, have a KitKat” emerged and remains to this day. The “Gimme a Break” jingle that aired in 1986 quickly became firmly implanted in consumers’ minds, so much so that a 2003 study found it was still one of the most common “earworms”—songs that people can't get out of their heads.9
Nestlé S.A. acquired Rowntree in 1988, when Rowntree was the fourth-largest chocolate manufacturer in the world.10 By 2013, Nestlé had invested more than £200 million in the Rowntree business, making the York factory one of the world's largest and most successful confectionery factories, as well as the site for Nestlé's global research center for confectionery.11 In 2010, Guinness World Records certified that KitKat was the world's most global brand, sold in more countries than any other that year.12
On March 17, 2010, Greenpeace released an online video parody of the KitKat commercial.13,14 The 60-second clip opens with a bored office worker feeding papers into a shredder. Then, the screen turns red with the text, “Have a break?” Next, the worker opens a KitKat wrapper, but instead of KitKat's fingers of chocolate, he finds an orangutan finger—complete with tufts of orange hair. Two coworkers watch in horror as the worker crunches into the finger and blood dribbles from the corner of his mouth and onto his keyboard.
The video urged viewers to “give the orangutan a break” and “stop Nestlé buying palm oil from companies that destroy rainforests.”15 It closed with video of an orangutan in a tree, followed by an image of a single tree in a cleared field, symbolic of the deforestation wrought to make way for palm oil plantations. For a Facebook campaign, Greenpeace remade the candy bar's label to say “Killer” instead of “KitKat.” Greenpeace used the power of social media to attack fast, far, and wide. In a matter of weeks, 1.5 million people had watched the YouTube video.16 “Greenpeace's online campaigns … are some parts coordination, some parts opportunity, and most importantly rely on people's support (through social media),” said Laura Kenyon, an online marketing and promotions specialist at Greenpeace International.
Nestlé first attempted to control the damage to the KitKat brand by demanding that YouTube pull the video for infringement of trademarks and copyright.17 But attempts at censorship merely attracted more views of the video and an avalanche of consumer emails demanding that the company change its palm oil sourcing practices.18 The company was featured on buycott.com, a website and mobile app that helps consumers “organize your everyday consumer spending so that it reflects your principles.”19 More than 20,000 members joined the boycotts against Nestlé.
The attacks surprised Nestlé, according to Poynton, not just because they were graphically hard-hitting but also because the company thought it had already been addressing the issue. The company had adopted a “no deforestation” policy when directly sourcing palm oil, committing that its palm oil would “not come from areas cleared of natural forest after November 2005.”20 In 2009, the company had even joined the Roundtable on Sustainable Palm Oil (RSPO),21 a collaborative industry group formed in 200422 to transition palm oil into a sustainable commodity market.23
José Lopez, who was responsible for Nestlé's manufacturing at the time, voiced frustration with the campaign, saying that “you would have to ‘look through a microscope’ to find the palm oil in the snack.”24 Furthermore, Nestlé neither produced palm oil nor owned any farms near orangutan habitats, nor had it ever ordered the clearing of rainforests to increase production of palm oil. But one of its suppliers had. Chapter 5 delves into Nestlé's attempts to address the issue by canceling that supplier's contracts and why that response initially failed. “These cancellations did not really give the rainforests a break,” Greenpeace wrote.25 Keeping the pressure on, activists dressed as orangutans stood outside Nestlé's headquarters in Frankfurt, Germany. Other activists raided Nestlé's annual meeting later that year and even unfurled a banner inside the meeting itself.26
Although the effects of the campaign on KitKat sales are not publicly known, the company did agree to Greenpeace's demands to identify and remove any companies in its supply chain with links to deforestation after only eight weeks.27
Whereas Greenpeace tried to disrupt demand for Nestlé's products, NGOs also attack the supply side. In India, community groups accused the Coca-Cola Company and its subsidiaries of depleting and contaminating local water supplies.28 Several protests, with as many as 2,000 people, picketed the gates of a 40-acre bottling plant in Plachimada in 2002.29 In 2003, the high court of the Indian state of Kerala ordered the company to shut down its water wells, forcing Coke to close the plant. In August 2005, two months after Coke reopened the plant under a new license, organizers marched on the gates again, leading to four injuries and 43 arrests.30
As of 2017, the plant remained closed. In February 2011, the Kerala assembly passed the Plachimada Coca-Cola Victims Relief and Compensation Claims Tribunal Bill. The bill empowered a tribunal to decide a $48 million lawsuit against the company for alleged environmental and soil degradation, and for water contamination caused by overextraction of ground water. In 2014, a second plant in India—the Mehdiganj plant in the state of Uttar Pradesh—was ordered to close by the local Pollution Control Board.31
In the spring of 1969, residents of Woburn, Massachusetts, a small town 12 miles north of Boston, filed a petition with the mayor, attesting that water from city wells G and H was “very unpotable, very hard, and has a strong chemical taste.”32 They demanded the wells be shut down.33 No action was undertaken until 1979, when the Department of Environmental Quality Engineering found that the two wells contained unacceptably high levels of “probable carcinogens” as defined by the US Environmental Protection Agency (EPA).34 Anne Anderson, whose son had died of leukemia, discovered that six other children had died of leukemia within blocks of her home, a co-occurrence in time and distance that had a 1 in 100 chance of happening, according to the US Centers for Disease Control (CDC).35 Anderson, her pastor Reverend Bruce Young, and 20 others formed a group and hired attorney Jan Schlichtmann to sue W. R. Grace and Company and Beatrice Foods, the companies allegedly responsible for the ground water contamination.36
The case spawned nearly two decades of publicity. A 60 Minutes television exposé, titled “What Killed Jimmy Anderson?”37 aired in 1986. The 1996 nonfiction book A Civil Action spent more than two years on the best-seller list38 and became a 1998 movie starring John Travolta as Schlichtmann playing opposite legendary actor Robert Duvall. The legal proceedings stretched for nine years after the story began39 and ended with an $8 million settlement.40 Moreover, the US EPA, building upon Schlichtmann's work, brought an enforcement action against the companies and forced them to pay $69.5 million in cleanup costs.41
As this example demonstrates, NGO activism and community activism can feed off each other, with NGOs trying to foment community action and community action attracting NGO attention. By 2000, there were more than 6,000 national and regional environmental movement organizations in the United States, as well as more than 20,000 local ones.42 NGO and community action, in turn, can lead to stricter regulations (see the section “Growing Regulatory Restrictions”). The Woburn case encouraged Massachusetts to pass its own “Superfund” act to force landowners to clean up toxic sites and to establish a statewide cancer registry to aid in the detection of pollution-induced cancer clusters.43
Minnesota Power provides electricity to 145,000 customers in northeastern Minnesota, including some of the nation's largest industrial customers, namely paper mills.44 In 2004, the company relied almost exclusively on coal to supply that electric power, and in 2005 it started investing millions of dollars to reduce emissions and improve efficiency of those coal-fired plants. Yet, in 2008, the US EPA cited Minnesota Power for Clean Air Act violations. The company responded that the instances where it exceeded limits were part of routine maintenance projects and therefore not subject to the requirements. The EPA and the company continued to trade legal arguments for the next six years.
The Sierra Club grew frustrated with the government's slow settlement negotiations with Minnesota Power.45 The NGO dug through government-collected public data consisting of 3.5 million emission data points posted over a period of five years and found 12,774 deviations in the opacity46 readings.47 In March 2014, the Sierra Club threatened Minnesota Power with legal action,48 claiming the company had violated the Clean Air Act by exceeding limits on particulate matter emissions. According to Michelle Rosier, the Sierra Club campaign organizing manager, “These serious violations call into question whether Minnesota Power is willing or able to operate its plants within the national safety guidelines for public health.”49
Minnesota Power did not dispute the data but instead pointed out that its plants were operating within permitted limits 99.7 percent of the time.50 Furthermore, opacity does not always indicate the release of any pollutants, because opacity “can be based on the weather—you put hot steam in cold air and it is going to have a higher opacity,” said Pat Mullen, the company's vice president of marketing and corporate communications.51 Even the government agreed: “This type of monitoring is quite complex and just because deviations are reported does not necessarily indicate that there are violations,” said Katie Koelfgen, manager of the Minnesota Pollution Control Agency (MPCA) land and air compliance section.52
Despite the weakness of the Sierra Club's case, four months later, Minnesota Power reached a settlement with the EPA, agreeing to pay $1.4 million in civil penalties and to spend more than $500 million on emissions controls.53 Al Rudeck, Minnesota Power's vice president of strategy and planning, explained the settlement: “From a reputation standpoint, it's never easy to see your name out in the paper this way. We take a lot of pride in our environmental stewardship. It's a bitter pill to swallow in terms of coming to settlement, but we felt it was in the best interest of our stakeholders.”54 Although environmentalists hailed the $500 million in mandated upgrades, the settlement included the $350 million that Minnesota Power had already invested since 2005. “Many of the emission control measures were implemented during the six-year discussions to resolve the [EPA's] Notice of Violation,” the company stated in a press release.55 The Sierra Club used a similar tactic against two utilities in Wisconsin in 2012 and 2013, winning settlements of $1.1 billion in environmental upgrades and $3.4 million in fines from the utilities.56
NGOs have brought countless other legal actions against companies, ranging from DuPont to Shell, which have cost these companies millions of dollars.57,58 Affected groups and NGOs can use civil lawsuits to recover both compensatory and punitive damages. Moreover, some NGOs use these suits and their settlements to fund more legal action.59 “Historically, there has been an uptick in citizen suit filings when there is something of a slowdown in enforcement,” said Matthew Morrison, an environmental lawyer based in Washington, DC, and a former counsel for the EPA.60
NGO campaigns against companies can last years. The campaign against Nike's low wages at Asian suppliers61 involved several NGOs and media outlets and lasted more than a decade.62 ForestEthics’ Victoria’s Dirty Secret campaign against the paper procurement policies of Victoria's Secret for its product catalogs63 lasted two years and was joined by CampusActivism.org, Voice for Animals, Portland Independent Media Center, Treehugger, and many others.64 The campaign ended only when the company agreed to use more recycled paper in its catalogs.
The moral of these stories is that targeted companies cannot expect that campaigns will quickly “run out of steam.” When activist organizations decide to wage a campaign against a corporation, they typically raise funds and prepare for the long haul. According to Robert Beer, former director of the SmartWood program of the Rainforest Alliance, “They [the NGOs] all have different techniques, but they have critical mass. They have funding, funding for a particular cause, and they're pretty sophisticated in terms of understanding how to use the tools that are available to them. I think oftentimes businesses don't appreciate just how sophisticated they are. Then they walk into a firestorm.”65 Furthermore, the campaigns usually intensify over time as other groups join the crusade.
Nor do the activists stop when they achieve their stated goal. In their quest for true sustainability, their “goal posts” keep moving and the hurdles for companies keep growing higher. “After many of the world's leading electronics companies rose to the challenge of phasing out their worst hazardous substances, we are now challenging them to improve their sourcing of minerals and better managing the energy used throughout the supply chain,” said Greenpeace campaigner Tom Dowall.66
Outside activists are not the only stakeholders motivating companies to consider environmental stewardship initiatives. Unlike NGOs, a company's economic stakeholders are directly aligned with the financial interests of the company—consumers, distributors, retailers, employees, and shareholders all benefit from the success of the company and bear risks if the company fails or is disrupted. This natural alignment can make the sustainability arguments of the company's economic stakeholders more persuasive for corporate managers than outsiders’ arguments. Some of these insiders may believe that the threat of NGO attacks, regulatory change (see section “Growing Regulatory Restrictions”), or consumer backlash owing to environmental damage (see section “Vulnerability Is in the Hands of the Brand Holder”) could hinder the success of the company.
Surveys by environmental groups and others find that more than half of consumers globally67 and almost half in the United States68 claim they would pay more for sustainable products. Yet, in 2012 Robert McDonald, Procter and Gamble's CEO at the time, suggested that only 15 percent of consumers were actually willing to pay more—and even then only a little more—for environmentally sustainable products.69 As one commentator70 suggested: “Green marketers have known this for a long time. Consumers will consistently tell surveys that they are willing to pay more for socially and environmentally superior products. But when they are alone in the shopping aisle and it's just them and their wallet, they rarely fork out more for ‘green.’”71 A 2014 study by the European Food Information Council confirmed this by concluding that although consumers understand sustainability, this understanding does not yet translate into changes in food choices.72
Although a cause-marketing agency reported that 91 percent of global consumers claim they are likely to switch brands to one associated with a good cause given comparable price and quality,73 they often don't do so in practice for four possible reasons: First, consumers may not think other products are comparable, and other purchase criteria (e.g., a product's cost, features, and performance, or the retailer's location and service) are often more important than environmental issues. Second, consumers face costs or risks in switching to a different brand or retailer with which they are not familiar, especially in the case of complex products. Third, in a busy, media-saturated world, consumers may be unaware of a particular NGO campaign. Finally, some consumers may be “free riders”—they advocate boycotts in the hopes others will take part, while they continue to buy from the same company as always.74 In fact, after growing rapidly through 2010, sales of green household cleaners and laundry products declined at a compounded annual rate of 2 percent from 2010 to 2014.75
Even though mainstream consumers were not buying green products in volume, surveys found that millennials (those individuals born in the 1980s and 1990s) may be more willing to pay for sustainable products than older consumers.76 “We do not see this as a trend that will fade. Higher customer expectations are a permanent part of the future,” said Mike Duke, Walmart's president and CEO, in 2009 in prepared remarks.77 Yet, until retailers’ sales data corroborate environmentalists’ survey data, companies may be reluctant to invest in large-scale change or incur higher operating costs for environmentally sustainable products.
Up until 2009, Ralph Lauren, the luxury apparel maker, had been untouched by the kind of public shaming campaigns waged against Nike and other apparel makers. Yet, the company faced pressure on sustainability issues that year when one of its customers, the retailer Kohl's, asked all of its suppliers for a sustainability scorecard. Kohl's had specific questions about environmental impacts, which required Ralph Lauren to conduct its first internal accounting of environmental issues. The retailer's demands did not end there. Each year, Kohl's asked increasingly complex and detailed scorecard questions. As a result, Ralph Lauren ramped up its internal auditing to meet those demands.78
As of 2013, Kohl's measured the sustainability practices and improvements of its 300 top suppliers on a quarterly basis and held annual supplier roundtable discussions on responsible practices.79 Kohl's encouraged its suppliers to ask their suppliers about such practices, too. “We have a sizable group now asking their own suppliers sustainability questions. This is where we wanted it to go,” said John Fojut, vice president of corporate sustainability at Kohl's Corporation.80
Kohl's demands of its suppliers arise from its concerns about consumer behavior. “Instead of having to react and adapt to someone else's priorities—like when some companies got surprised by the rising tide of consumer concern about social responsibility—[we're all discovering it's better to] get ahead of the curve and come together to agree on what's important and what progress we want to drive,” Fojut said.
Girl Scouts of America and their famous cookies came under scrutiny in late 2007 by two of their own.81 Earlier that year, 11-year-old Rhiannon Tomtishen and 12-year-old Madison Vorva were researching orangutans to earn a Bronze Award for their troop when they stumbled upon the connection between the loss of orangutan habitat and the growth of palm oil plantations. After eliminating palm oil from their own diets, they were horrified to learn that palm oil was the second most common ingredient in Girl Scout cookies, which they were about to start selling.82
The girls began a five-year “Project Orangs” campaign to raise awareness of the issue.83 Their campaign, however, encountered resistance from Girls Scouts USA's Amanda Hawmaker, who was in charge of cookie sales. Hawmaker argued that palm oil is needed to maintain taste, avoid crumbling, and delay cookie spoilage. Changes to the recipes could jeopardize sales, which could, in turn, jeopardize all the camps, field trips, and charities funded by cookie sales.84
Despite initial resistance, the girls achieved some progress after several years of campaigning. In the fall of 2011, Girl Scouts USA committed to buying Green Palm certificates (see chapter 5) in 2012 and to source sustainable palm oil by 2015. Acknowledging the role of the girls’ campaign, Hawmaker said, “It is not our consumers who drove us to make this decision or expressed concern on the issue.”85 The Girl Scouts example demonstrates that even organizations with a wholesome image, which NGOs would be hesitant to target, are vulnerable—in this case, to campaigns by their own members.
Whistleblowers such as Mark Felt (Watergate),86 David Weber (US Securities and Exchange Commission),87 and Cheryl Eckard (GlaxoSmithKline),88 are three among many who, over the years, have exposed what they believed were unethical or criminal practices within their own organizations. Thus, while some attacks come from external organizations, risks may lurk within each organization's rank and file, if employees believe that their own organization's behavior is objectionable.
The higher prevalence of environmental consciousness among younger generations89 means that a company's environmental reputation may affect its ability to recruit talent. “We know that it makes a hiring difference when we're out recruiting at universities. People ask about sustainability, and our recruiters do talk about our packaging, so it is a draw for talent,” said Oliver Campbell, director of procurement at Dell.90 A Rutgers University study of worker priorities found that nearly half of college students (45 percent) said in 2012 that they would give up a 15 percent higher salary to have a job “that seeks to make a social or environmental difference in the world.”91 Naturally, such responses to surveys may or may not correlate with actual behavior, but they may be an indicator.
The concrete jungle of New York may be a long way from the real jungles of Malaysia and Indonesia, but New York State Comptroller Thomas DiNapoli has campaigned on behalf of the New York State Common Retirement Fund to change companies’ palm oil sourcing activities in order to reduce deforestation. In 2013, DiNapoli filed a shareholder resolution requiring Dunkin’ Donuts to address the environmental problems associated with palm oil production. He subsequently withdrew the resolution when Dunkin’ agreed to better reporting, sustainable sourcing, supplier compliance, and to support a moratorium on deforestation.92 DiNapoli won similar concessions from Sara Lee Corporation in 2010 and J. M. Smucker Company in 2013. “Shareholder value is enhanced when companies take steps to address the risks associated with environmental practices that promote climate change,” he said.93
The New York State Common Retirement Fund is among a growing number of institutional investors concerned about environmental or social issues. Some of these institutions, such as NGO-affiliated and religious institutional investors, are pushing for environmental protection for ethical reasons (“doing good”). Others may be motivated by financial concerns (such as reducing the perceived risks and costs of unsustainable business practices).
At the very least, these investors seek better disclosure of potential risks lurking in companies’ supply chains; the top five types of environmental proposals pushed by activist shareholders all call for reporting.94 The CDP (formerly the Carbon Disclosure Project), which represents 822 institutional investors with $95 trillion in assets under management, induced thousands of public companies to disclose carbon, water, and waste impacts, and to report on their efforts to reduce these impacts95 (see chapter 3). An analysis of 700 companies over a five-year period found that companies’ perceived environmental risk was more affected by shareholders’ environmental resolutions than by NGOs’ attacks,96 although it is unclear how many of these investors’ actions were themselves motivated by NGOs’ activities.
From the birth of the American nation in 1776 up until 1963, a total of five environmental protection laws were passed. The subsequent 40 years saw 27 new major environmental laws enacted—with the number jumping to 51 when occupational health and safety laws that restrict corporate activities are included.97 Beyond accelerating the enactment of new laws, existing laws have been made more stringent. For example, passenger car emissions limits in the United States have been tightened from a limit of 3.1 grams of nitrogen oxides per mile in 1975 to 0.07 grams by 2004—a 98 percent reduction.98
As of 2016, most governments in the developed world have introduced and toughened regulations on corporate activities. Many of these regulations target specific air, water, and solid waste pollutants. Reports of man-made climate change have motivated governments to start regulating greenhouse gas (GHG) emissions from a wide range of sources. GHGs include CO2 from the burning of fossil fuels plus a host of other gases such as methane, nitrous oxide (from fertilizers), refrigerants, and other gases with some CO2-equivalent (CO2e) effect on preventing heat from escaping the atmosphere. In 2007, the US Supreme Court ruled that emissions that cause climate change are subject to EPA regulations under the Clean Air Act, pending scientific findings that GHG emissions endanger public health and welfare.99 The EPA's 2009 “endangerment finding”100 established just that and led to further emissions regulations for power plants, industrial plants, and automobiles.101
The trend of rising regulation evident in developed countries may be taking hold in developing nations as well. The growing middle class in these countries is increasingly demanding clean air, water, and food, as well as preservation of the natural environment, which leads to more regulations and stricter enforcement. In April 2014, China started to combat its rampant pollution problems with some of its biggest policy changes in 25 years.102 There was even speculation that the Chinese government might tax gasoline to finance electric cars.103 Regulations, however, vary widely in their scope, rigidity, and associated costs.
Regulatory requirements range from disclosure demands, to “soft” requirements, to market mechanisms for inducing companies to act, to strict “thou shalt” laws that affect how companies manage sustainability (see chapter 10). Environmental regulations can even be applied retroactively.
In the 1940s, Hooker Chemicals and Plastics received permission from Niagara Power and Development Company to dump industrial waste into a never-finished canal in Niagara Falls, New York. Using accepted, legal practices of the time, Hooker drained the canal, lined it with heavy clay104 and, during the 1940s and 1950s, dumped more than 21,000 tons of chemical waste into it.105 Hooker then sealed the dump with yet more clay and dirt. In 1953, the Niagara Falls Board of Education bought the site for $1. Hooker disclosed the presence of the waste to the School Board and included an explicit indemnification clause in the deed for the land.106
Despite knowledge of what was in the ground, the Niagara Falls Board of Education then built an elementary school on part of the land and sold other parts for residential development. Construction removed some of the clay cap and breached the clay walls of the waste pit. In the 1960s, residents began to complain of odors and residues, especially when water levels rose after rains.107 The neighborhood also experienced explosions caused by the leaching of chemicals into backyards and swimming pools. Love Canal, named for its 1892 promoter, would become one of the most infamous US environmental disasters.
In the late 1970s, testing of Love Canal uncovered a witches’ brew of toxic materials in the ground, in basement sump pump water, in the air in houses, and in nearby streams. About 200 families in the immediate vicinity were evacuated. Subsequent studies revealed high rates of miscarriage, birth defects, mental illness, and various diseases among Love Canal residents, especially those living in wetter parts of the development.108 Eventually, the government agreed to evacuate a total of 950 families who lived on and around the former landfill and to clean up the site.
Love Canal and other similar sites triggered the passage of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) of 1980 (aka “Superfund”).109 The law tasked the EPA with forcing responsible parties to pay for, perform, or reimburse the government for cleanups.110 Love Canal residents, the state of New York, and the federal government each filed lawsuits against Occidental Petroleum, which had bought Hooker Chemical in 1968, 15 years after Hooker had sold a permitted and properly disclosed dump site to the government.
Many legal scholars argue that the main responsible parties were the school board and the City of Niagara Falls, which failed to act with due caution.111 Furthermore, Occidental Chemical's main defense was that it would be wrong to assess Hooker's actions in the 1940s and 1950s based on what is now known about toxic chemicals. The lawyers said Hooker's disposal techniques were “state of the art” at that time.112 “You cannot be judging the conduct of people 40 years ago—when half of them are gone and they can't explain anything—by today's standards,” said Thomas H. Truitt, the company's chief lawyer.113
Interestingly, CERCLA seems like a retroactive or ex post facto law that the US Constitution expressly forbids.114 Several court cases have examined the constitutionality of CERCLA's retroactive aspects, such as United States v. Olin (1997)115 and United States v. Monsanto (1988).116 The US courts skirted the debate by finding that “the statute is not a punishment but rather a reimburse obligation, meaning that the statute is not retroactive and therefore not unconstitutional.”117 The US Supreme Court, however, has ruled that the Superfund law does not override state law if a state has a statute of repose in place. Statutes of repose (which have stricter deadlines than statutes of limitation) bar legal actions against an actor after a specific time period stipulated by the state has passed.118 As of 2015, CERCLA continues to be applied to so-called brownfield sites, which are contaminated by long-past industrial uses. In total, Occidental Petroleum paid settlements totaling $249 million.119,120 Between 1990 and 2015, the EPA collected more than $6 billion from multiple corporations to fund ongoing and future cleanup efforts.121
Other laws have similar retroactive aspects, albeit with some caveats. The WEEE (Waste Electrical and Electronic Equipment Directive) of the EU makes producers in an industry individually responsible for end-of-life products made after the introduction of the directive, but collectively responsible for end-of-life products made before the introduction of the WEEE.122 Both CERCLA and WEEE demonstrate that staying within the letter of the law does not always indemnify a company from future liabilities when impacts are discovered, or, most importantly, when future laws are enacted.
The Hebrew prophet Ezekiel argued, “The son will not bear the punishment for the father's iniquity.”123 Yet these examples show that corporations can inherit liability for damages wrought by their predecessors. Moreover, even acting within the bounds of existing laws may not indemnify a company against future liabilities. These two issues create a unique open-ended legal risk.
In March 2017, a two-liter bottle of Coca-Cola sold for $1.59 at a Stop & Shop supermarket, twice the price of the retailer's own store brand.124 Although Coke's formulation or ingredients may justify some price premium, much of that higher price arises from the trust and goodwill that customers feel for the Coca-Cola brand. The Coke brand name contributed about $23.5 billion in revenue to the company in 2013, making the brand worth roughly $54.9 billion, according to Forbes.125 BusinessWeek estimated that brand reputation contributes more than 50 percent of the market capitalization of Coca-Cola, Disney, Apple, McDonald's, and others.126 Internally, many of these companies place significantly higher estimates on their brand's worth.127 The fragility of trust and goodwill make these companies vulnerable.
Examples of companies whose value has plummeted due to consumers’ loss of trust in the brand abound. On September 17, 2015, German Chancellor Angela Merkel was pictured with top Volkswagen officials at the opening of the Frankfurt auto show. The next day the US EPA issued a notice of violation to VW over emissions cheating; the company's market value dropped 45 percent in short order.128 Although EU regulators may have rigged vehicle emissions testing conditions to favor the finances of domestic automakers over EU urban pollution levels, such use of loopholes can become a noose around the manufacturer's neck if the “cheating” generates outrage.129
When toy maker RC2 recalled its iconic “Thomas and Friends” train sets due to lead in the paint, its market value was cut in half. One parent wrote: “Any trust I had with your firm is gone. I do not want any replacements. I want a refund. You have endangered my children.”130
At 9:45 p.m. on April 20, 2010, a blowout preventer supplied by Cameron International failed on an underwater oil well in the Gulf of Mexico. A Halliburton employee on the rig above the well was having a coffee and cigarette break at the time instead of monitoring the well.131 High-pressure oil and gas rose up through the pipes and exploded when it reached the drilling platform, which was owned and operated by Transocean.
The explosion killed 11 workers, injured 17, set the surrounding ocean on fire, and started an 85-day televised saga during which more than 200 million gallons132 of oil poured into the Gulf of Mexico for the entire world to see. Oil contaminated a thousand miles of beaches, marshes, and fragile ecosystems from Texas to Florida, causing environmental damage that is not yet fully understood.133 Fishermen, shrimpers, and tourism businesses suffered millions of dollars in lost business and community impacts.
The well was jointly owned by MOEX Offshore, Andarko Petroleum, and British Petroleum (BP). However, BP was the majority owner of the well, the overall project manager, and the most well-known company associated with the disaster because it touched consumers directly through its retail outlets. Although Deepwater Horizon was the name of Transocean's vessel, the name became synonymous with BP and this environmental disaster. It is often overlooked in this saga that BP did not blunder into the Deepwater Horizon disaster on its own.
No single decision or company caused the explosive blowout, according to an MIT analysis.134 Transocean, for example, provided a very poorly maintained rig and a crew who chose to disable basic safety precautions. Halliburton provided shoddy guidance and later tried to hide its culpability. Cameron supplied the failed blowout preventer. BP's leaders did err on the side of saving time and money instead of ensuring safety.
The true environmental and economic costs of the disaster may never be known, but it clearly took a heavy toll on BP. In 2012, the company agreed to pay $4.5 billion in penalties—including $1.26 billion in criminal fees—as part of a guilty plea.135 As a result of that plea, the US EPA banned the company from US government contracts “until the company can provide sufficient evidence to the EPA, demonstrating that it meets federal business standards.”136 BP's final settlement cost the company $18.7 billion.137
BP's public image may take a very long time to fully recover. Following the disaster, the company's stock price plummeted from a high of $60.57 per share five days before the explosion to a 14-year low of $27.02 two months after it. By 2014, the company's stock price still hovered in the $40s and then sunk further, to the $30s, in 2017. BP gas station owners in the United States debated whether changing the brand name would help them recover lost sales (reportedly between 10 and 40 percent).138
BP's suppliers, on the other hand, did not suffer the same decline in market value. Cameron, Halliburton, Transocean, MOEX Offshore, and Andarko took only short-term financial hits. In fact, Halliburton's stock climbed through the end of 2010,139 and by October 2013, its stock had reached a price nearly 50 percent higher than its pre-disaster peak. Consumers can't directly boycott Halliburton or Transocean. Companies that operate in the business-to-business (B2B) space are “behind the scenes” and out of the public spotlight. Even more so than consumers, corporate customers make procurement decisions that are based on cost, quality, capacity, and other fundamental operational factors. The environmental practices of many B2B suppliers tend to adhere to minimum regulatory compliance and the explicit requirements of their customers, “but no more,” as one B2B executive declared during a 2015 interview at MIT.
NGOs can damage the brand image of consumer-facing companies because, unlike corporate customers, consumers tend to be more emotional and more easily mobilized through popular media and activist campaigns. It is not surprising, then, that 81 percent of nearly 1,000 supply chain executives surveyed in 2014 cited brand image concerns as a motivation for investing in corporate social and environmental responsibility.140 A key rationale for proactive action to forestall attacks is the speed with which attackers can mobilize and damage a brand before the company can react.
“In the Information Age, customers have more access to information,” said Robert Grosshandler, founder of iGive.com.141 “They're more educated. They're no longer hidden from how their food is produced or how their iPods are made. And, because of things like social media, like-minded people more easily find each other, have their say, and effect change. There's a level of transparency that wasn't there before.”142
Such attacks also support NGOs’ goals of attracting donations by targeting high-profile companies. However, for every famous Nike or Nestlé campaign that affects company behavior, there are a hundred other campaigns that most people have never heard of, few care about, and that have almost no influence on either purchasing behavior or NGO donations. This may be the reason why activist organizations, such as Greenpeace, have resorted to more sensational physical disruptions of corporate events in an effort to increase publicity. Given the capricious nature of the media, there is always the chance that some heretofore-ignored campaign could go viral and lead to widespread media attention, new regulations, or investor activism.
In a 2008 talk at the Sustainable Brands Conference, Bill Morrissey, vice president of environmental sustainability at Clorox, noted that “my environment” is more important than “the environment” to consumers.143 And within the “my environment” category, consumers might consider whether the product goes “in me,” “on me,” or “around me.” Companies that make food products face a higher scrutiny by consumers than companies that make, say, cosmetics and personal cleaning products. This may explain, for example, the recent growth of organic and “natural” food sales in the United States, which, while still a tiny fraction of total food sales,144 more than tripled between 2004 and 2014 to $39 billion. And “on me” product companies, in turn, are more vulnerable than companies making less-personal products such as office supplies.
Consumer perceptions related to more distant “the environment” concerns depend on empathy. NGOs know that furry animals sell environmental causes better than scaly lizards. Deforestation for the development of palm oil plantations threatens thousands of unique species of plants, insects, and animals in the Indonesian rainforests,145 but Greenpeace chose the orangutan to personify the threat. And the symbol for the World Wildlife Fund is the lovable panda, not the endangered snail darter fish.
The examples in this chapter show that companies’ motivations for environmental responsiveness vary. Different companies operate in different echelons of the supply chain, deal with diverse consumer segments, face disparate vulnerabilities to activist attack, and are subject to varied regulatory exposures. This book examines the role of sustainability in business, focusing on supply chain management because, as shown throughout the book, environmental sustainability is a supply chain management issue. PricewaterhouseCooper's 2013 Global Supply Chain Survey found that two-thirds of supply chain executives believe that sustainability will play an increasingly important role in global supply chain management.146 But what is that role?
Although many companies espouse sustainability as a high priority, that high priority competes with other high priorities such as quality, cost, service, innovation, and growth.
High on the Darling Escarpment in the eucalyptus forests west of Perth, layers of Australia's iconic red earth cover layers of aluminum-based minerals known as bauxite. In 1961, Alcoa signed a number of 50-year government agreements (covering more than 7,000 square kilometers) to commercialize these bauxite deposits.147 The company then built an entire supply chain in Australia to handle the mining, refining, smelting, and processing of that aluminum. In February 2016, Alcoa celebrated mining one billion metric tons of bauxite in Western Australia. Yet that prodigious volume of production came with a significant environmental footprint extending across all phases of aluminum production.
Alcoa's Huntly Mine, the second largest in the world,148 is a ramifying web of mining cuts and wide dusty connecting roads spanning hundreds of square kilometers.149 Each year, Alcoa logs another 600 hectares of forest and strips away the topsoil and overburden. Then, it blasts through the cap rock layer to reach and excavate the underlying layer of bauxite. Giant dump trucks, two stories in height, carry 190-ton loads of ore to a central rock-crushing facility. Up to 1.7 tons per second of crushed ore then travel down 23.4 kilometers of conveyor belt to the refinery.
The next stop for Alcoa's bauxite is visible from space as a giant red sore on the otherwise green plains between the Darling Escarpment and the Indian Ocean. The Pinjarra Alumina Refinery mixes the raw bauxite with a hot caustic solution to chemically synthesize and extract aluminum oxide (alumina) from the ore.150 During the multistage process, four tons of bauxite become two tons of white alumina powder that will eventually be smelted into one ton of aluminum. Millions of tons of bright red waste residue sit in vast containment fields that span a nearly 3-kilometer by 3-kilometer area. Yet alumina—which has the same molecular structure as sapphire—is not aluminum.
Metal traders jokingly call aluminum “congealed electricity.” A typical aluminum smelter has row upon row of hundreds of giant pots, each with hundreds of thousands of amps of electricity coursing through an 1,800°F molten mixture of alumina and cryolite flux. The cost of all that electricity is so high that aluminum makers often find it cheaper to ship the millions of tons of alumina to sources of inexpensive power rather than to smelt the aluminum near the source of the bauxite. One of Alcoa's 50-year agreements was for coal fields in southeastern Australia near Melbourne. Alcoa built the Port Henry smelter close to these inexpensive sources of power. This included what became a strip mine for brown coal (lignite) near the seaside town of Anglesea. As Alcoa's aluminum production volumes grew, the company built a coal-fired power plant on the site of the Anglesea coal mine, which subsequently provided 40 percent of the power demand for the Port Henry smelter.
In addition to Alcoa's footprint on the lands around the bauxite mine, alumina refinery, and those associated with power production, such as the Anglesea coal, Alcoa's demand for heat, power, and vehicle fuel leads to emissions of millions of tons of greenhouse gases and other pollutants into the air. Coal, and brown coal especially, has a higher carbon footprint than most other fossil fuels. Moreover, the very high sulfur content of the Anglesea coal made the power plant the third largest sulfur emitter in Australia.151
Even beyond the power and transportation impacts, Alcoa cannot help emitting greenhouse gases. Even if the company switched all of its refineries, smelters, and transportation to carbon-neutral sources (including, for example, hydroelectric, geothermal, biofuels, or solar), aluminum smelting still releases more than 1.65 tons of carbon dioxide per ton of aluminum because the electrolytic process consumes the large carbon anodes needed to conduct electricity into the molten alumina mixture.152 Moreover, chemical reactions between the carbon anodes and fluoride compounds in the cryolite create perfluorocarbons (PFCs). Although survey data suggest that many smelters produce only a fraction of a kilogram of PFCs per ton of alumina, these particular PFCs are 6,500 to 9,200 times more potent than CO2 as a greenhouse gas.153,154
“Because we are an extractive industry, sustainability needs to be front and center on the agenda,” said Kevin Anton, Alcoa's first chief sustainability officer.155 This manifests itself in three categories of initiatives at the company. First, Alcoa has worked to improve its carbon footprint, energy efficiency, water efficiency, and PFC emissions. Some 40 percent of the cost of aluminum is electricity consumed by the smelter.156
Between 2005 and 2015, Alcoa improved its production efficiency by 4.2, percent, saving money and reducing the company's greenhouse gas emissions by 25.9 percent.157 In 2011, it ran 650 initiatives to reduce energy consumption and emissions that led to cost savings of $100 million, while meeting its GHG targets. PFC emissions occur when the alumina concentration in the pot drops and the electrochemistry of the reaction shifts from making aluminum to deleterious reactions between the carbon anode and fluoride compounds in the melt. Better process control of this so-called anode effect both saves Alcoa money and reduces these emissions. All such activities, which simultaneously save money and reduce environmental impact, are known as eco-efficiency initiatives.
Second, in celebrating the one billion metric tons of mining milestone, Alcoa Mining President Garret Dixon said, “We're very proud of this achievement and also our decades-long, internationally recognized land rehabilitation program—one of the most critical parts of the mining process which sees jarrah forest ecosystems restored.”158 Alcoa's published timeline of mining history in Australia highlights the company's decades of evolving efforts, spanning dozens of environmental mitigations, accomplishments, and awards.159 The company has found techniques for preparing, resculpting, and landscaping the mining pits to increase the health of newly replanted forests. It has developed a program for the seasonal timing of new mining activities and careful shifting of removed topsoil (and the native seeds it contains) from new mine sites to rehabilitate old mine sites. These activities—which mitigate environmental damage, can forestall NGO attacks, community disapproval, and regulatory restrictions—are examples of what are known as eco-risk management initiatives.
Third, Alcoa highlights and markets the environmental benefits of using aluminum (which has one-third the weight of steel) to its industrial customers. For example, Alcoa sells various alloys of aluminum to vehicle makers as an environmentally superior alternative to steel, because each 10 percent reduction in vehicle weight improves fuel efficiency by 8 percent.160 The company also touts the recyclability of aluminum, which helps reduce end-of-life waste and, at the same time, amortizes Alcoa's environmental impacts of primary production across a longer multiproduct lifetime.161 These activities, which target “green” customer segments, are known as eco-segmentation initiatives.
Yet, for all Alcoa's efforts to mitigate environmental impact, the company has to make sufficient profits and grow in order to remain a viable business. And because aluminum is a global commodity, Alcoa must remain cost competitive, which means using cheap power, such as Australia's brown coal, as one element of its strategy. In the same year (2010) that Alcoa reported “green light” status on its efforts to reduce CO2 emissions,162 it also inked a long-term deal with an Australian power producer for low-cost brown-coal-fired electricity that shocked environmentalists. “If power stations like Loy Yang are still operating in 2036, it will be all over for the climate,” said Environment Victoria campaign director (and current CEO) Mark Wakeham.163 At the same time, Victoria Premier John Brumby commented that the deal “secures jobs for Victorians.”164 This statement exemplifies one of the deep tensions that the environmental movement faces: Industry not only provides goods that consumers depend on but also provides jobs that communities rely on.
Overall, Alcoa sees itself as one of the “good guys” and cites many sustainability-related awards, such as its 15-consecutive-year tenure on the Dow Jones Sustainability Index (DJSI) of companies recognized for corporate responsibility and sustainability.165 The company supports the Paris climate change agreement166 and was among 13 well-known companies (including Apple, Walmart, GM, Coca-Cola, and UPS) that signed President Barack Obama's climate pledge to tackle environmental issues in their respective industries.167 “If the product side wasn't there, maybe we wouldn't have the right to operate,” said Alcoa's Anton. “But we do make products that make the world better and help build our social license to operate.”168
The Alcoa example, as well as others in this book, shows that to be viable, companies must overcome three fundamental hurdles. The first hurdle is the marketplace. Alcoa has to be competitive and attract a sufficient volume of sales among its target customers. This means offering products and services that customers would want to buy, at a price that these customers are willing to pay, with a cost structure that allows for sufficient profit.
The second hurdle is the regulatory bright-line, which is defined by the clearly demarcated boundary between legal and illegal actions in all the geographies in which Alcoa has suppliers, facilities, or customers. To avoid government censure, companies must comply with all the myriad rules and regulations that often cover every aspect of their businesses.
The third, but less well-defined, hurdle is maintaining a “social license to operate.”169 In other words, in addition to the written laws of the land, companies must adhere to unwritten social norms of local communities, even though such norms may be ill-defined and constantly evolving. Protests against existing operations and resistance to new facilities can come from communities, NGOs, and other activist groups, and can result in business impacts, such as lost sales, short-term limits to growth, investor resolutions, and regulations that may limit the company's opportunities in the long run.
John Fojut, of the Kohl's Corporation, found that the retailer's suppliers fall into three categories of thinking about sustainability. “They either consider [sustainability] part of their core values, or they see it as something that gives them competitive advantage, or they just see it as something they have to comply with,” he said.170
For companies with “green” core values, such as Seventh Generation, Patagonia, or Dr. Bronner's (see chapter 11), environmental sustainability and financial performance align naturally, because their target customers are willing to pay more for responsibly produced goods or, in some cases, even accept lower product performance for the cause.
In contrast, for most mainstream companies, this strategy may be “too green,” because they face customers with different priorities on the balance of product cost, product performance, and environmental impacts; or they have investors who are unwilling to sacrifice financial performance for the sake of environmental performance. These companies have to balance whether and how to pursue environmental initiatives, weighing resources and management attention against many competing demands (including, for example, product innovation, employee benefits, marketing, and expansion). As a result, most of these companies focus on environmental initiatives that are aligned with their shareholders’ performance goals, such as increasing profits, mitigating risks, or gaining market share.
Large companies such as Walmart, Unilever, Nike, IKEA, Toyota, and Starbucks face significant challenges when implementing sustainability at scale. Walmart, for example, is actively engaged in promoting sustainable fishing practices. A Stanford University report predicted the collapse of wild seafood sources by 2050 without changes in fishing practices.171 In 2006, to ensure the sustainability of its seafood supply chain, Walmart committed that by 2011 it would purchase only seafood certified by the Marine Stewardship Council (MSC). However, Walmart soon discovered that its $750 million per year seafood business vastly exceeded the global capacity of MSC-certified seafood suppliers. Yet, the company did not want to restrict its volume of seafood sales because that would merely cede market share to other less-sustainable retailers, an outcome that would serve neither the interests of Walmart nor the fisheries.
The company compromised on its 2011 goal and bought fish from non-MSC fisheries. At the same time, the retailer encouraged these noncertified suppliers to participate in Fishery Improvement Projects (FIPs),172 with the intent of reducing overfishing and steering those suppliers toward MSC guidelines. But progress has been slow. A Science study found problems in two out of three FIPs in the developing world, and yet, one of the authors of the study said, “We don't want retailers backing away from these commitments—these are positive steps.”173
Walmart worked with The Sustainability Consortium (TSC) and invited other major seafood buyers, representatives of suppliers, environmental groups, and academics to create a set of eight principles for alternative seafood certification programs known as Responsible Fisheries Management (RFM).174 “When the Alaskan seafood industry wanted to move away from MSC to the RFM program, we respected their right to make that decision, but [they] still needed to respect our decision to source seafood from fisheries in a sustainable way,” said Jeff Rice, Walmart's senior director of sustainability. Such debates between pragmatism and ideology would have delighted Voltaire, the French philosopher, who quoted the Italian proverb il meglio è l’inimico del bene: “the perfect is the enemy of the good.”
Unilever's CEO Paul Polman pledged: “Our new business model will decouple growth from environmental impact. We will double in size, but reduce our overall effect on the environment. Consumers are asking for it, but governments are incapable of delivering it. It is needed for society and it energizes our people—it reduces costs and increases innovation.”175 Whereas simple efficiency improvements call for reduced resource consumption and emissions per unit of product or per dollar of sales, real sustainable growth requires an absolute reduction in environmental impacts across the entire company's processes and portfolio of products while growing its business.
The dual role of businesses’ supply chains in creating both economic growth (including jobs) and environmental impact highlights a fallacy in the environmental activist-touted struggle of “profits versus planet.” The environmentalists’ narrative ignores the role of businesses and their supply chains in both employing people and delivering improved standards of living to humanity, especially to the billions of people who have yet to enjoy the plenty that modern industry can provide.
During Walmart's efforts to buy more sustainable seafood, Greenpeace contended that Walmart was not doing enough,176 whereas Alaskan fishermen and state officials complained that Walmart was asking too much of them.177 Thus, the real conflict is not “profits versus planet” but rather “(some) people versus (other) people.” Therein lies the challenge. Even the most environmentally responsible companies must manage their supply chains to satisfy growing demand and provide jobs in the process.
The following chapters examine how companies have addressed the many competing priorities advocated by their shareholders, employees, customers, and communities in ways that balance environmental sustainability with profitable growth. Some environmental initiatives are undertaken because they align with the economic goals of the company. Thus, eco-efficiency initiatives—those that reduce costs—are launched when their financial returns exceed the company's hurdle rate. Eco-risk initiatives—those that reduce the risk of NGO, media, community, or regulatory attacks—can be justified in the same way that other risk management and insurance costs are. Finally, eco-segmentation—those initiatives that offer new green products to market segments willing to pay for them—are justified either as growth opportunities or as real options to ensure the company is not blindsided by future demand shifts or new regulations.
Some relatively small, usually private, companies do go beyond such considerations and are dedicated to environmental sustainability, selling to a segment of the market that is willing to pay a higher price or even compromise on quality to buy a sustainable product. This book describes several of these firms because they may offer insights into the future practices of mainstream companies if that future brings tightened regulations or changes in customers’ preferences.
Throughout, this book discusses the business challenges created by environmental pressures in an era of growing economic pressures rooted in both competition and uncertainty. Companies need ways to assess, select, and manage long-term investments in sustainability while also managing their growth opportunities, as well as short-term challenges, such as margin compression, revenue stagnation, political unpredictability, and countless other immediate business pressures.