When Michael Marks opened his first stall in a Leeds bazaar in 1884, his successful slogan was: “Don't ask the price, it's a penny.”1 His real success, however, came after he partnered with Tom Spencer in 1894. Marks and Spencer (M&S) grew rapidly thanks to continued retailing innovations2 such as displaying stock on trays instead of behind the counter, buying directly from suppliers, emphasizing quality, and selling British goods under the St Michael brand (honoring Michael Marks).
Unfortunately, 110 years later, that illustrious history could not prevent a 73 percent fall in its stock price and an unwelcome buyout offer from rival retailer Philip Green. Rather than sell the company, the board installed Sir Stuart Rose as M&S's new CEO.3 One of Rose's main strategies for reversing the company's fortunes was to align it with the growing environmental movement, turning it into a sustainability leader. In the summer of 2006, he took his top 100 executives to see former US Vice President Al Gore's movie, An Inconvenient Truth.4 According to Rose, the executives’ comments were, in a nutshell, “That was fantastic! What can we do?”
For M&S, that was just the start of a journey involving more than 100 different initiatives designed to whittle away at the retailer's many environmental impacts. Like many other business initiatives, sustainability projects face myriad “change management” challenges. Such projects involve coordination among internal stakeholders, balancing competing goals, justifying funding, and influencing the corporate culture. Furthermore, many environmental projects involve external supply chain elements, which only add to the challenge. As with any corporate initiative, a significant piece of the puzzle is in maintaining the momentum while simultaneously coping with internal and external changes.
The sixth century BC Chinese philosopher Lao-Tzu is quoted as having said: “A journey of a thousand miles begins with a single step.”5 Sustainability endeavors, like other efforts that target quality, innovation, diversity, or any other corporate goal, are journeys. For organizations undertaking this journey, that means making decisions regarding the destination, navigation, and actions along the way. Yet the motivation to begin the journey (see chapter 1), its origin, and the direction of that first step (chapters 4 through 8) may be markedly different for different companies even if they share similar end goals. The impetus for a company's sustainability efforts could be anything from a CEO's conviction, to a desire to reposition the organization, to a viral video attacking the company, to a customer's new mandate or the success of green competitors.
When Doug Conant took the helm as Campbell Soup Company's new CEO and president in 2001, his first objective was to transform the company from a poor performer to a strong competitor and then to a leading enterprise.6 To start out, Conant restructured the $8 billion company through both voluntary and involuntary departures of 300 out of its top 350 corporate leaders.7 Initially, the turmoil spooked investors and the stock slumped from $33.56 at the start of Conant's tenure to a low of $20.40 by May 2003.8 However, as the new management structure took hold and performance improved, the stock rose to $41.88 by 2007. Nonetheless, Conant was not yet satisfied with his turnaround legacy at the 145-year-old company.
Like Sir Stuart Rose of M&S, Conant decided that his next major transformation of the company would focus on converting sustainability from the internal musings of a few employees into a full-fledged corporate program that would boost morale and employee engagement.9 He began with a major internal assessment of environmental impacts and with recruiting the right person to lead the charge. That person was Dave Stangis, who in 2008 became Campbell's first vice president of corporate social responsibility.10 Starting off big and bold, the company committed to reduce the water and GHG footprints of its entire product portfolio by 50 percent by 2020, relative to a 2008 baseline.
With support from the board and the CEO, Stangis created the Sustainability Leadership Team, comprising senior executives in charge of functional areas such as supply chain, procurement, and agriculture.11 The team created the “Sustainability 2020 Plan” and drove savings across the company. Dozens of initiatives were undertaken across the supply chain in areas such as agricultural process improvements, efficiency in factory operations, renewable energy, waste reduction, recycling, sustainable packaging, and logistics improvements. Between 2008 and 2015, these efforts collectively reduced GHG emissions by 23 percent and water usage per ton of food by 24 percent.12 The various initiatives also saved the company more than $43 million across its manufacturing network.13
The key for Campbell's implementation of so many multifaceted initiatives was Conant's ongoing support during a time of change for the company. “In today's environment, with people getting pushed and pulled in so many different directions, if you really want to get traction with a CSR or sustainability effort, you have to lead from in front. The CEO has to make it a priority,” Conant said.14
The importance of senior executive support for any corporate project has been echoed across many companies. EMC's Kathrin Winkler, agrees: “Disruptive change requires the CEO's active leadership.”15 She argues that without the support of EMC executives, sustainability initiatives would not have been embraced as fully as they were by business operations. Nevertheless, as important as top management support can be to large-scale change, many organizations begin their sustainability journey from the bottom up—at times in spite of the opposition or ambivalence of top executives. In fact, a 2010 Economist survey found that only 54 percent of sustainability efforts came from the top.16
In 2007, a group of about 40 environmentally conscious employees at online auction giant eBay shared pizza in the cafeteria at the company's San Jose headquarters and decided to start a “Green Team.”17 Their efforts went mostly unnoticed by senior management as the team pushed isolated initiatives such as installing recycling bins, solar arrays, certifying buildings through LEED (Leadership in Energy and Environment Design), and encouraging greener commuting choices. The Green Team operated without support from then-CEO Meg Whitman. According to Lori Duvall, eBay's global director of green, environmental initiatives were “just not [Whitman's] thing”18—a stance exemplified by Whitman's opposition to excessive environmental regulations during her failed 2010 California gubernatorial campaign.19
After Whitman retired in 2008, the Green Team convinced the company's procurement department to install the largest commercial solar array in San Jose, the heart of Silicon Valley.20 John Donahoe became eBay's CEO and brought with him the idea that eBay was inherently green, because it was “the world's largest recycler,”21 enabling millions of used products to find new homes.
In September 2013, eBay unveiled a new data center in Utah that included the single largest non-utility fuel-cell installation in the United States.22 The company estimated that the fuel cell power would reduce carbon emissions by half relative to emissions from grid power.23 In addition to allowing the data center to operate independently from the electrical grid, the fuel cells further cemented eBay's reputation as a green leader among technology companies.24
“I think it's because those grassroots efforts showed both the desire and advocacy of employees for eBay to care about this,” said Caitlin Bristol, global manager of green for eBay. “The scale at which it was growing made it imperative that the corporate and executive team have a group and a person, particularly on the operations side, that could help to strategically funnel that good energy in the same direction,” she added.25
Mark Buckley joined Staples in 1990 as vice president of facilities and purchasing. In that role, he pushed for some of the company's earliest sustainability efforts, such as starting to recycle paper and cardboard. “We convinced the company to basically sell all the compactors that we had purchased,” Buckley said. In their place, Staples installed bailers so that the stores could “bail cardboard and paper, backhaul them to the mill and turn it into a revenue stream.”26
Eco-efficiency initiatives like that fit with Buckley's deep personal passions, but he wanted to go further and create company-wide change beyond his functional responsibility. The challenge, Buckley said, was to frame environmental initiatives in the business language that his superiors and coworkers would understand. When the company considered upgrading lighting fixtures to save on electricity in one high-cost region, Buckley exploited the opportunity and sought approval for bigger changes. Instead of a one-off project for only the sites with the highest ROI, Buckley pitched a system-wide upgrade with long-term, system-wide cost savings, a framework he knew would resonate with the CFO.
He used the same approach to propose initiatives in which environmental improvements aligned with existing executive sentiments. In all these early “wins,” Buckley said he was careful to frame them as cost-saving projects with an added environmental benefit, instead of focusing primarily on the environmental gains. This common-sense eco-efficiency approach paid off when Staples became motivated to embrace sustainability on a larger scale.
In 2002, Staples was facing the sharp end of a two-year-long environmentalist campaign spearheaded by the NGOs Dogwood Alliance and ForestEthics. The NGOs had criticized Staples for selling paper sourced from old-growth forests. The campaign included 600 demonstrations, a public service announcement featuring the popular music group REM, and a “Staples destroys forests” banner flown over Fenway Park during a Boston Red Sox game only 20 miles from Staples’ corporate headquarters.27 The company felt it had to act. Staples executives made the obvious choice and offered Buckley the newly created position of vice president of environmental affairs.28
Buckley knew he had to convince Staples’ entire workforce that sustainability was worth their time. “In reality, there are always people within an organization that don't understand the connection between environmental stewardship and core business goals and strategies,” he explained.29 “It is important to create a culture where environmental stewardship is part of everyone's job every day. … My advice for a large organization is to focus on creating a cultural evolution versus a paradigm shift.” The latter, he said, is like flipping a switch. “A cultural evolution will affect broader and more long-lasting change, but it does take time.”30
As a result of Buckley's efforts, environmental sustainability began to find its way into many of Staples’ programs. These ranged from requiring suppliers to use less-wasteful packaging, to saving cardboard by building custom boxes for each “break-pack” delivery (see chapter 8). One of Buckley's famous cultural successes came when Mike Payette, the company's fleet equipment manager, personally traveled around the United States in 2007 to install fuel-saving speed limiters on Staples’ fleet of delivery trucks (see chapter 6).
Staples went from being attacked in 2002 to proudly proclaiming its various sustainability achievements in 2014, including 76.5 million ink and toner cartridges recycled globally, 75 percent renewable energy used for US operations, and the launch of Staples’ own green product line, Sustainable Earth Brand, across Europe and Australia in 2012.31
To a veteran corporate manager, a sustainability program is just one more project clamoring for a slice of the organization's limited attention, capital, and human resources. “Employees are precious resources, allocated sparingly to initiatives,” said Keith Sutter, senior product director for the sustainability arm of Johnson & Johnson.32
Gauging the business value of environmental initiatives often begins with a materiality assessment of the company's supply chain from raw materials to end-of-life (see chapter 3) to identify extensive usage of natural resources, significant environmental risks, or opportunities to serve green customer segments.
Once the areas of biggest impact or opportunity are identified, companies can use any combination of the three main categories of business rationale introduced in chapter 1 to evaluate, justify, and prioritize environmental initiatives. Although each of these three types offers its own respective value to the business, all three help with the company's brand. In particular, eco-risk mitigation is aimed at protecting the brand while eco-segmentation can enhance the brand in the eyes of green customers. Even eco-efficiency helps by creating easy wins on impact reduction that can be reported to consumers, NGOs, and investors.
As mentioned in chapter 1, eco-efficiency initiatives are those justified by reducing costs such as fuel, energy, water, materials, and waste disposal, while at the same time contributing to environmental sustainability. Companies can evaluate these initiatives using standard cost-benefit metrics such as ROI or payback period. At Unilever, for example, a waste-reduction initiative might be proposed because it contributes to the company's sustainability goals, but it will be evaluated on the same financial standards and required hurdle rate as any other proposed Unilever program.33 Some companies bias their financial ROI calculations through either a relaxed hurdle rate or the addition of an artificial “shadow cost” of environmental impacts (see the section titled “Environmental Impacts in Financial Terms”).
The term eco-efficiency was introduced in 1992 by the World Business Council for Sustainable Development.34 Because these types of changes bring bottom-line results, they are the “low-hanging fruit” of corporate sustainability efforts. Justifying sustainability in business terms beyond cost reductions, however, means quantifying other kinds of value to the business.
Eco-risk mitigation initiatives are those activities that explicitly aim to reduce the likelihood and magnitude of business disruptions caused by environmental issues. Thus they can, in principle, be evaluated in the same way as insurance or other business risk-reduction initiatives. Sustainability initiatives can mitigate a variety of risks including: NGO attacks (leading to business disruptions); unfavorable media coverage (causing reduced sales); investor actions (triggering changes in the board and senior management); and disruptive government regulations (resulting in higher costs, direct business restrictions, and even plant closures).
BlackRock—an investment firm with $4.89 trillion in assets under management—views climate change as creating several risks that investors (and companies) can no longer ignore. In BlackRock's assessment, the first of these are increased physical risks, which are based on predictions of the effects of climate change on weather, productivity, and economic growth. These risks are especially salient for companies that depend on specific agricultural products, such as Starbucks with coffee or AB InBev with barley and hops. Next are technological risks, in which various green technologies or know-how might impact the economic or competitive landscape of industries such as power generation and transportation. Third are regulatory risks, which might affect the costs of doing business—or even the permissibility of the business—in countries that have strong environmental political movements or that are experiencing high impacts. Last are social risks, as manifested either by changing consumer preferences or by pressure group activities to avoid high-impact products or companies.
Unfortunately, unlike the case of insurable events such as natural disasters and accidents, risk managers have scant reliable actuarial data for quantifying the likelihood of NGO strikes, consumer preference changes, or adverse regulatory changes. Even the possibility of physical damage from environmental impacts involves speculative extrapolations. As a result, the few available insurance policies have limited scope and high costs.35 Thus, companies are left to manage these risks themselves using “just-in-case” or scenario-based justifications for risk mitigation.
In the early 1990s, BASF learned of the potential toxicity dangers of using bromine-based flame retardants in its polyamide plastic line. If incinerated, the material could produce highly carcinogenic dioxins in the smoke. The company took decisive action. “Less than six months after receiving an initial heads-up from management, the product was completely pulled from the market,” said Carles Navarro, president of BASF Canada.36
Although it was “the right thing to do,” the company's sales suffered. “There was literally nothing to offer our customers,” said Navarro. Customers complained, and competitors that still sold polyamide with the toxin-generating flame retardant gained market share. It took two years for BASF to find a safe flame retardant that did not adversely affect the chemical and physical properties of the plastic. The company's strict eco-risk mitigation strategy meant it lost, but neither consumers nor the environment gained from BASF's caution, as competitors’ toxic products captured market share. BASF, though, was not subject to reputational costs or attacks by environmentalists and the media during the period when it did not have the product on the market.
Exposure to environmentally motivated actions by activists or the media is particularly acute for three types of companies. The first are brand-name consumer-facing companies that rely on brand equity. Because consumers do not perform their own due diligence, they rely on NGOs and the media, who know that readers will identify with stories about brands they know, leaving these companies vulnerable to NGOs’ antics and media campaigns. The second type are companies with “in me” or “on me” products, in which consumers may have heightened concerns about toxicity or safety (see chapter 1). Third are companies with many deep-tier suppliers that have labor-intensive processes, natural resource intensive processes, or operations in countries with lax governmental oversight. In insurance terms, all these companies face higher potential losses or higher likelihoods of environment-related attacks, which, in turn, justifies more investments in environmental risk mitigation measures.
The decision by brand-sensitive companies to invest in eco-risk mitigation has a relative dimension: NGOs are more likely to target environmental underperformers. NGO and media environmental performance scorecards can give rated companies some indication of their risks relative to their peers, which can influence a company's materiality assessment and eco-risk mitigation priorities. In essence, companies want to avoid being the “nail that sticks up” for publicity-eager NGOs. Such analysis can provide guidelines for minimum-required and maximum-reasonable investment (assuming that eco-risk mitigation is the sole green investment criterion).
Eco-segmentation initiatives are aimed at the green segment of consumers and seek revenue growth from price premiums and/or market share expansion from products explicitly designed or manufactured to minimize environmental impact. Paul Polman, CEO of Unilever said, “Our experience is that brands whose purpose and products respond to that demand—‘sustainable living brands’—are delivering stronger and faster growth. These brands accounted for half the company's growth in 2014, growing at twice the rate of the rest of the business.” They were also more profitable, according to Unilever.37 US retailer Target reported a similar experience, with sustainable products producing superior growth even if not every customer was flocking to them.38
These investments, however, are not risk-free. The plunge into the green marketplace invites scrutiny from NGOs, media organizations, and consumer groups on the prowl for companies “greenwashing” their offerings (see chapter 9).
Another business rationale for introducing a line of green products—even if it does not lead directly to significant short-term growth—is for companies to experiment with the technology and learn about the green customer segment. In that sense, such eco-segmentation efforts include eco-risk management elements, ensuring that the company is not caught unprepared if government regulations or consumer preferences shift to require more sustainable products and services.
“We all enjoy the illusion of infinite supply and pay virtually nothing. We must acknowledge the true costs of protecting, treating and delivering water, and develop models that reflect that cost. We must begin to value water as the essential and precious resource it is,” said Coca-Cola's CEO Muhtar Kent.39 “If companies were to have to pay for the costs they created, it would actually wipe out profit,” explained Richard Mattison, CEO of the sustainability research firm Trucost.40
To reflect the hidden environmental costs (externalities) of impacts, such as CO2 emissions or water consumption, Nestlé and Unilever, among others, ascribe a “shadow price” to the environmental impacts in their ROI calculations. The shadow price is the estimated price of a good or a service for which a market does not exist, and thus true monetary values are unknowable or very difficult to calculate. Nestlé, for example, estimates the shadow price of water as $1 per cubic meter in wet locations and up to $5 per cubic meter in dry ones.41
PUMA, the German sportswear company, took the shadow price concept a step further and developed an “environmental profit and loss statement” in 2010. The EP&L estimates PUMA's costs to the planet (as if the Earth itself were a supplier) by accounting for the ecosystem services crucial to the business and its supply chain. The EP&L allows for year-over-year comparison in terms of a single metric that expresses the company's environmental performance in familiar financial terms.
To price these hidden costs, PUMA, working with Trucost, had to estimate two types of variables: the amount of PUMA's direct and indirect environmental impacts (the analysis went as deep as Tier 4 suppliers) and the environmental cost of a unit of each type of impact. PUMA found out that it generated a lot of waste—31 garbage trucks’ worth of material waste for each 100,000 pairs of sneakers.42 It also identified significant negative externalities across its supply chain, including greenhouse gas emissions, air pollution, and changes in land and water use. Next, Trucost estimated the shadow price of a unit of each type of impact. For example, it estimated that each ton of carbon dioxide cost £66, owing to its impact on human life, and that each hectare of destroyed tropical rainforest (related to PUMA's leather supply because Brazilian ranchers sometimes clear the rainforest to make room for cattle)43 cost £1,352.44
PUMA's 2010 report detailed a total environmental impact of €145 million. “The total results revealed that if we treated our planet as we treat any other service provider, PUMA would have to pay €8 million to nature for services rendered to our core operations such as PUMA offices, warehouses, and stores in 2010 alone,” said Jochen Zeitz, executive chairman of PUMA and chief sustainability officer of PUMA's parent company, Kering. “An additional €137 million would be owed to nature from PUMA's external supply chain partners that we share with numerous other companies.”45 At the level of products, Trucost and PUMA estimated that the typical pair of PUMA suede sneakers came with an unpaid environmental cost of €4.29, about 5 percent of the retail price.
“The raw material stage is really essential,” according to PUMA's Seidel, “because that is where over 50 percent of the impact comes from.”46 For example, the procurement team used the EP&L approach to select recycled cotton instead of organic cotton because that optimized the combined financial and environmental costs, according to Seidel.
More broadly, the CDP reported in September 2016 that out of 5,759 companies responding to its climate change and supply chain information requests, 517 disclosed using an internal price for carbon as an accounting or risk management tool. Specifically, 147 companies embedded the carbon price in their systems, and 37 companies reported that such pricing affected their decisions.47 Sprint Corporation, for instance, gives green initiatives somewhat relaxed financial hurdle rates, thus putting an implicit price on environmental impacts.48
“The constitution is not a suicide pact” was a sentiment used by Justice Robert H. Jackson in his dissent of a 1949 US Supreme Court free-speech case, Terminiello v. Chicago, meaning that there were considerations more important than even the US constitution—the bedrock of the US government.49 In business terms, one can use a similar argument that even when a company is aware of the environmental costs of its operations, corporate self-preservation and the need for profits and growth rule its decision-making.50
PUMA's EP&L revealed the high environmental costs of some materials, such as the leather used in its popular sneakers and the cotton in its athletic apparel. As a result, the company wondered whether it should eliminate such high-footprint materials,51 but even for a business trying to be more environmentally conscientious, market imperatives prevail. “At the end of the day, we are a business and we have to make products that consumers want to buy,” said Seidel. “In essence, if consumers want to buy leather shoes and if consumers want to buy cotton T-shirts, then there's no real way for us to change the consumer's behavior.” And while PUMA still tries to minimize its environmental impacts, Seidel smiled, “we're not specifically targeting the Greenpeace member as a solid consumer.”
Other companies see similar issues in the trade-off between financial health and environmental sustainability. “We want to be on the leading edge and not necessarily the bleeding edge,” said Scott Wicker, chief sustainability officer at UPS. “That roughly means we want to be out there leading the way, but we don't want to kill the business in the process.”52
In addition to taking many eco-efficiency steps, which are easy to justify financially, UPS dabbled in innovation initiatives in order to familiarize itself with sustainable technologies. UPS’ 2013 truck fleet included more than 3,000 “compressed natural gas, liquefied natural gas, propane, hydraulic hybrid, electric, bio-methane, ethanol, composite vehicles, and hybrid electric vehicles.”53 These vehicles represented just 3.3 percent of UPS's vehicle fleet, because they can cost twice as much as traditional diesel trucks.54 UPS justified the added expense as a set of experiments in ways to reduce the company's long-term reliance on petroleum.55
Wicker further told Bloomberg Brief in 2012 that although the company supports the development of jet-engine biofuels, he could not foresee them being used in the near future, because at the time they cost seven times as much as traditional jet fuel (see chapter 13). As biofuels became more affordable and available, UPS began utilizing more of them. For example, in July 2015, UPS announced a three-year biodiesel contract to help the company reach its goal of displacing 12 percent of the petroleum-based fuels in its ground fleet by 2017.56
This tension between economic growth and environmental impact goes beyond business. It also affects governments, especially (but not only) those in the developing world. Most governments understandably respond to the needs of their populations by focusing on economic growth and increased standards of living, rather than on environmental issues.
A 2008 global survey of 1,192 corporate executives suggests that many CEOs in the developed world believe that a reputation for corporate social responsibility increases a company's attractiveness to potential and existing employees.57 The reason is that millennials are “the most socially conscious generation since the 1960s,” according to a Harvard Business Review article on employee engagement.58
The effects of this are evident during recruitment, especially at “green” companies (described in depth in chapter 11). Patagonia, for example, receives an average of 900 applications for every job it posts,59 significantly more than the average of 250 applicants per corporate job.60 This gives the company a competitive advantage over less attractive rivals in being able to hire the best and brightest. David Bronner, CEO of Dr. Bronner's Magic Soaps, a natural care products company, said, “Because of the activist mission, we've attracted some amazing people and been able to increase our professionalism and expertise in business management—financial reporting, inventory control, sales.”61
Good workers aren't the only ones companies want to attract and retain; they want to attract and retain suppliers as well. Husband and wife team Craig Sams and Josephine Fairley founded Green & Black's in 1991 with a passion for making chocolate sourced from fairly paid workers of sustainably managed cocoa farms.62 The company collaborated with its supply chain partners in a way that acknowledged the mutual dependency of all stakeholders. The return on that investment came when demand for organic cocoa surged. The farmers responded in kind. “At a time when getting good-quality organic cocoa was practically impossible for most people, we sat with it piling up,” said Sams.63
Milton Friedman said, “One of the greatest mistakes is to judge policies and programs by their intentions rather than their results.” Measuring the results of sustainability initiatives is a key part of managing them; audits and external certifications to ensure veracity are therefore essential. Moreover, the measured, validated results can then be used effectively in marketing campaigns and labeling (as discussed in chapter 9).
When Dell Inc. set out to reduce its environmental impact, it started with a blank sheet of (presumably recycled) paper. “We really stepped back and said, ‘What do customers want?’ We did a lot of tracking on [corporate] customer RFPs [request for proposals] and customer inquiries. We also did some market research with our customers to understand what the demands were. We spoke with a lot of our NGOs, government policymakers, and industry analysts before we wrote the plan,” said David Lear, vice president of corporate sustainability. The 18-month materiality assessment combined internal review, dialogue with customers, and stakeholder collaboration, to create its “2020 Legacy of Good” plan in 2012.64
The resulting plan included 21 broad goals. Dell then created specific internal metrics to measure progress on each. In addition to metrics for the life cycle carbon emissions of individual key products, Dell measured the recyclable content used in the manufacturing of its computers; the recyclability of its packaging; the weight of electronics recovered for resale or recycling; and the fraction of renewable energy used by the company.65 For each goal, Dell set a target based on a measurable performance indicator. For example, Dell aimed to recycle two billion pounds of electronic waste of any type or brand by 2020.
Other companies choose other metrics, befitting their biggest environmental “hotspots” and their materiality assessment. Rising awareness of climate change is motivating many companies to focus on carbon footprint indicators. In 2005, Walmart announced a 10-year target of reducing 20 million metric ton of greenhouse gas emissions from its global supply chain,66 a target the company achieved on November 17, 2015.67 Nestlé set a target of reducing direct water withdrawal per ton of product by 40 percent between 2005 and 2015,68 achieving a 41 percent reduction in 2015.
Regardless of the issue of importance, a sustainability goal typically includes a metric (e.g., carbon footprint), a scope for that metric (e.g., manufacturing's carbon footprint), a target value or increment (e.g., 20 percent reduction), and a timeframe (e.g., from a 2010 baseline to a 2020 goal). To ensure progress toward their goals, companies set quarterly and annual key performance indicators that assess managers’ performance.
Baxter Inc., the medical products and pharmaceuticals giant, began measuring GHG emissions in 1997 by subdividing aggregate emissions into more than a dozen KPIs. First, Baxter divided its GHG emissions into the Scope 1, Scope 2, and Scope 3 designations of The Greenhouse Gas Protocol.69 Recall that Scope 1 emissions come from the organization's directly owned and controlled internal operations; Scope 2 emissions come from indirect sources such as purchased electricity, energy, and heat for internal operations; and Scope 3 emissions include all other indirect sources, be they suppliers, common carriers, service providers, distributors, and the use of products sold.
Baxter then realigned those three categories of sources to the structure of its supply chain to create three categories of activities: upstream (Scope 3), Baxter internal (Scopes 1 and 2), and downstream (Scope 3). In turn, each of the three categories included two to eight subcategories that could be separately measured and managed by the respective corporate functions. Managers in areas such as procurement, facilities, transportation, and others had responsibility for the specific KPIs that they could potentially influence.70
“We like metrics, tons of numbers,” said Carlos Brito, CEO of the world's biggest beer company, AB InBev.71 The company has a very competitive culture both at the plant and at the employee level. A system called Voyager Plant Optimization (VPO) is at the heart of the company's efforts to measure and improve all performance dimensions of producing beer and other beverages.72
In the context of sustainability, the company described VPO as “the centralized framework we use to benchmark our water and energy use, quantify performance gaps, identify and disseminate best practices and monitor our progress.”73 Using VPO, AB InBev can see the difference between its highest-performing plants and the rest. That lets the company both estimate the magnitude of the opportunity for improvement and focus on uncovering high-performance practices for replication by others.
For example, when AB InBev's team in China wanted to improve water and energy efficiency, they used VPO to find 700 good practices documented by other teams in the company's network of 130 breweries and soft drink facilities. As a result, the team achieved the company's largest region-wide reduction in water and energy consumption between 2009 and 2012 (38 percent and 30 percent, respectively). Moreover, the Chinese team also created some new effective practices of its own. For instance, the team drilled down into energy and water data to continuously benchmark utility usage across brewery departments. That practice was documented in VPO and subsequently adopted by plants in other regions.74 Through monthly reporting and ranking of performance, regular team calls, and annual meetings to share and develop new ideas and expand the VPO practice database, AB InBev achieved or exceeded its three-year global environmental goals for 2012.75
Most managers believe that financial incentives drive behavior. In fact, the World Business Council for Sustainable Development (WBCSD) recommends incentive payments for achieving environmental targets.76 For example, SC Johnson, the $10 billion home goods company, pegged part of the discretionary bonuses of 125 managers to their use of the company's “Greenlist” of low-impact ingredients (see chapter 9). The company policy requires improving the Greenlist rating of all product reformulations and rewards managers for pushing those reformulations.77 Between 2001 and 2014, the fraction of the company's ingredients ranked in the “better” or “best” categories climbed from 18 percent to 44 percent.78 “Just making it explicit and incentivizing performance had a great benefit,” said Chris Librie, director of global sustainability at SC Johnson. “We would not have been able to achieve this if it had not been part of the objectives of senior people.”79
According to Anca Novacovici, founder of Eco-Coach, “If sustainability is to become part of business operations and be successful in the long-term, it must be evaluated and tied to compensation at the executive level as well as organization-wide.”80 Unfortunately, as many HR professionals know, the problem with incentive systems is that they sometimes work too well. For example, Cisco had to scrap $2.5 billion of surplus materials in 2001 partly because managers maximized their incentives to deliver products quickly to customers and ignored the risks of ballooning inventories.81 An improperly built incentive program can drive employees to act in their own short-term self-interest rather than in the broader, long-term goals of the organization. Incentive programs typically have elements of individual, team, and corporate performance to help balance these various goals.82
Companies vary in both whether and to what extent they link incentive pay to environmental targets as one of the company's many performance objectives (including margin growth, market share growth, quality, innovation, customer satisfaction, employee engagement, etc.). For example, Procter & Gamble does not include environmental sustainability achievements in its managers’ bonuses. Intel links only 4 percent of employees’ annual variable compensation to environmental goals,83 whereas at Alcoa, “20 percent of our variable compensation plan was tied to achieving significant aspects of our sustainability targets,” said Kevin Anton, chief sustainability officer at the aluminum maker.84 At SC Johnson, only about 25 percent of the bonus-eligible top managers have a bonus objective linked to Greenlist.85
Interestingly, some environmentally committed companies disagree with the use of financial incentives for sustainability. “Achieving our environmental sustainability targets is not tied to our compensation,” said Steve Lovejoy, senior vice president of Starbucks Global Supply Chain organization. “It [sustainability] is what we believe in, what we signed up for, and what we are expected to do. Our CEO and our company have made public commitments on sustainability and we intend to meet them.”86 In 2014, nonprofit Ceres surveyed 613 publicly traded companies and found that 76 percent did not use financial incentives to guide sustainability pursuits.87 In 2012, a Glass Lewis report found different results: 42 percent of evaluated companies linked some executive pay to sustainability, up from 29 percent in 2010.88
Government regulations affect companies’ sustainability initiatives both at the level of what the companies tackle and how they tackle it. The four main categories of regulatory approaches described in this section span a spectrum from mild nudges to strict prohibitions. Although many regulations have a scope limited to the geographic jurisdiction of a particular government, others span the globe and the supply chain, such as the US Lacey Act, which prohibits trafficking in illegally harvested animals, plants, and wood products from anywhere in the world.89
Many countries require companies to disclose the ingredients in food products, the fuel efficiency of cars, and the energy efficiency of appliances (see chapter 9) to consumers. Environmental disclosure requirements are the least onerous level of regulations—they focus on disseminating corporate information to investors and other stakeholders. For example, a 2014 EU directive requires large companies to report “on environmental, social and employee-related, human rights, anti-corruption and bribery matters.”90 In the United States, the Dodd-Frank Act mandates disclosure of companies’ use of so-called conflict minerals (four metals linked to funding warlords in the Congo). The US Securities and Exchange Commission (SEC) issued guidance about disclosure related to climate change,91 though enforcement has been minimal as of the end of 2014.92 Although disclosure requirements do not directly force companies to change products or practices, they can expose a company to scrutiny by NGOs, the media, investors, and community groups.
The second category of regulation—performance-based standards—is exemplified by the US Clean Air Act.93 The law regulates air pollutants from mobile, stationary, and area sources through performance-based standards. These standards, based on available technologies and compliance costs,94 vary widely. In some cases, the standards require using “reasonably available” technologies, while in other cases they mandate the “best available control technology.” For example, the standard for automotive plants is tied to the top-performing 12 percent of comparable plants.95 The US Congress also enacts stringent standards when it wants to push technology development through regulation. For example, the EPA's 2014 Tier 3 motor vehicle standards set high requirements for tailpipe and evaporative emissions for 2025, even though these could not be achieved with then-available technology.96
The Clean Air Act has often been referred to as one of the most successful federal environmental laws.97 Its success was the result of a combination of clearly defined performance targets, real enforcement, and steep penalties for noncompliance. (Yet the law also added an estimated $21 billion a year in costs to industry and reduced productivity gains in heavy industry by an estimated 4.8 percent.98)
A third category of regulations set up financial incentives to change supplier and customer behavior. The simplest such mechanism is a tax on the objectionable product or activity. British Columbia, for instance, enacted a tax on the purchase and use of fuel within the province. An Irish tax on disposable plastic bags practically eliminated their use at retail outlets.99 Taxes increase the cost of using a resource, thereby creating stronger incentives for eco-efficiency. Similarly, refundable deposits, such as those on bottles (see chapter 7), create incentives for customers to act sustainably. Such incentives, however, do not ensure a specific level of impact reduction.
In contrast, cap-and-trade is a government-mandated, market-based mechanism, which can regulate the total volume of environmentally impactful activities. Companies are granted an initial allowance for the regulated activity, such as the amount of CO2 they are allowed to emit. Those that want to increase their volume of the regulated activity must buy more allowances from other companies who are willing to reduce their volumes. Naturally, companies that can easily reduce their volumes will do so and sell their surplus allowances for a profit. Companies that have especially valuable applications for the regulated activity might willingly pay a high price for more allowances.
Unlike a carbon tax, the cap-and-trade system is flexible—the price of carbon emission allowances rises automatically during periods of strong economic performance and plunges during downturns. A tax, although simpler to administer and understand, provides less flexibility.
Finally, the regulations, which are part of a cap-and-trade system, might stipulate a pattern of reductions, with each allowance permitting steadily less emissions, creating steadily increasing pressure to reduce the impact. Cap-and-trade has been the cornerstone of the European Trading System (ETS), the main tool used by the European Commission to combat climate change; it regulates about 45 percent of the EU's GHG emissions.100
Although the system helped reduce European emissions somewhat, the carbon market crashed in 2013 (the spot price of carbon plummeted from €25 per ton in early 2008 to only €3 per ton in 2013101). This was the result of giving too many permits to favored industries and companies to begin with, as well as the 2008 economic downturn and several other regulations and policies that required companies to reduce their emissions, creating a glut of permits just as the economy was tanking.
The fourth and most stringent form of regulations mandate a strict prohibition. For example, the EU's RoHS (Restriction of Hazardous Substances) restricts the use of lead, mercury, cadmium, hexavalent chromium, polybrominated biphenyls, and polybrominated diphenyl ether in electrical and electronic equipment.102 Prohibitions related to toxic materials affect product design, manufacturing, end-of-life handling, and disposal of hazardous waste.103 Other regulations, such as the US Endangered Species Act (ESA), restrict land use, especially the conversion of land to industrial use.
In 2014, the US Fish and Wildlife Service invoked the ESA to declare 1,544 acres of land in St. Tammany Parish, Louisiana, as “critical habitat” for the dusky gopher frog.104 The ruling potentially precluded all development on the land in order to conserve and recover the frog population numbering only 100 adult frogs. The Poitevent family, the area's largest landowners, sued, arguing the designation would cost them as much as $36 million dollars.105 In August 2014, a district court in New Orleans sided with the Fish and Wildlife Service, preventing the family from developing their land. In July 2016, the 5th US Circuit Court of Appeals reaffirmed the decision.106
By 2017, 1,448 animal and 944 plant species were listed as endangered or threatened in the United States.107 Many supply chains depend on large plots of land in specific locations for agricultural products (e.g., palm oil), minerals (e.g., ore outcrops), infrastructure (ports and roadways), and industrial parks. Environmental regulations such as the ESA and analogous regulations in other countries can prohibit land development, regardless of the economic consequences.
IKEA took 12 years to fully implement the IWAY supplier code of conduct—a task that required identifying hotspots of environmental impact often deep in the supply chain—and building a professional staff of 80 auditors. As companies struggle with increased scrutiny and a concomitant desire to increase their scrutiny of suppliers, many find that they lack the reach, understanding, and expertise to evaluate and manage the environmental practices of their suppliers on their own.
Walmart is a mammoth corporation.108 It is the third largest employer in the world; only the US Department of Defense and the Chinese People's Liberation Army are larger. Walmart's size and economic footprint have long made it a target for criticism in a variety of arenas—worker pay, cost-cutting mandates on suppliers, and its impacts on local retailers—but activist attacks on the retailer's environmental practices never gained much traction. Despite that, the company began a campaign for sustainable environmental practices, possibly after a confidential 2004 report hinted that negative press might be curtailing revenue growth.109
In October 2005, Walmart's then-CEO Lee Scott vowed, “We can't let our critics define who we are and what we stand for.”110 The following July, Scott invited former US Vice President Al Gore to speak to 800 Walmart executives, managers, suppliers, and partners,111 and used the opportunity to announce near-term concrete goals for Walmart's environmental commitment. The mega-retailer sought to reduce each existing store's and warehouse's carbon impact by 20 percent by 2015. During that same period, Walmart aimed to double the fuel efficiency of its transportation fleet of more than 7,000 semitrailer trucks.112
Given the broad scope of its goals and its scant experience in the environmental arena, Walmart reached out to the Environmental Defense Fund in late 2005.113 EDF is a Washington, DC-based NGO, founded in 1967 with a mission to identify practical and long-term solutions for environmental challenges. The two organizations did not publicize the relationship at first; the New York Times finally reported on it four years later.114 EDF's relationship with Walmart resembles that of a lobbyist pushing policy in Washington, according to Michelle Harvey, the senior manager who leads EDF's on-site partnership.
The partnership intensified in 2007, two years after its inception, with EDF opening an office across the street from the retailer's Bentonville, Arkansas, headquarters. As of 2014, the office housed three full-time EDF employees (including Harvey), all of whom are granted access to Walmart's headquarters. Harvey and her colleagues attend meetings inside Walmart, where they present EDF's concerns.
EDF's Bentonville personnel spend roughly 20 percent of their time meeting with Walmart employees, Harvey said, largely to build relationships and understand the challenges the company faces. That understanding, she said, helps EDF appropriately target its initiatives. EDF realized that about 90 percent of the retailer's environmental footprint takes place in its supply chain115 among the 100,000 suppliers of the 140,000 types of products on its supercenters’ shelves.116 Through these relationships, EDF learned, for example, that buyers could affect supplier practices only during contract negotiations, which happen during a specific window each year for each product category. Sometimes this means that Harvey will talk to a buyer about an issue, despite understanding that the buyer may not act on it until many months later.117
While Walmart was using its clout to improve the environmental sustainability of its suppliers,118 it also continued to improve its own environmental practices. In 2012, the company announced that it recycled more than 80 percent of the waste produced in its domestic stores. The company's favorability rating in 2012 reached 25 percent—about double its 2007 level119—according to YouGov's BrandIndex, which bases its ratings on 1.6 million annual US consumer interviews.120 That improvement in public perception coincided with the company's ability to open stores in long-resistant communities around Chicago and Los Angeles.121 The same year, the company's stock price surged to an all-time high of $75.81 per share after four years of stagnation.122
Whereas Walmart engaged EDF for its broad environmental expertise, other companies seek a partner focused on a specific area in which the company lacks expertise or visibility. After Greenpeace waged a graphic viral video campaign against Nestlé's KitKat candy bar (see chapter 1), the Swiss company sought to understand and manage its palm oil supply chain. Because the company bought refined palm oil on world markets from large vegetable oil intermediaries rather than directly from palm oil growers or processors, it had little visibility into the oil's origins. The complex network of palm oil refiners, traders, and palm fruit mills hid the identities and practices of palm oil farmers in distant countries, such as Indonesia and Malaysia, from view in Nestlé headquarters on the shores of Lake Leman in Switzerland.
So, in 2010, Nestlé partnered with The Forest Trust (TFT), a leading NGO dedicated to deforestation and sustainable forestry issues. First, TFT worked with both Nestlé and Greenpeace, helping each understand what the other was willing and able to do. Later, TFT constructed supply chain maps for “almost all” of Nestlé's products that contained palm oil in the bill of materials.123
The following year, TFT helped the company implement a set of responsible sourcing guidelines for palm oil. Nestlé relied on TFT to visit the sites and negotiate with palm oil suppliers, with whom Nestlé had no direct relationships. Speaking generally, Scott Poynton, TFT's founder, said that his group uses its corporate partner as leverage to get a supplier to change its practices. “We bring the commercial power of the buyer,” he said. “That's the change agent. That's the grease in the wheel.”124
After concluding its supply chain work, TFT helped Nestlé communicate its improved sustainability to consumers.125 To verify the claims, TFT employees personally visited palm oil field sites, as well as used local partners to audit the plantations. “We get our people out in the bush and have a look and report what's going on,” Poynton said. Through these efforts over a two-year period, Nestlé changed from a Greenpeace-labeled pariah to having Greenpeace post an article thanking Nestlé for changing its policies.126
Following its partnership with TFT, Nestlé subsequently worked with other NGOs on 12 other commodities with complex supply chains, including soy, sugarcane, and cocoa.127 Despite TFT's lack of involvement in those other efforts, Poynton said, “We think, well, this is absolutely terrific.”
The challenge for companies seeking an NGO partnership is to find a compatible one that addresses the right problem, in the right way, at the right scale. After Greenpeace's attack on Nestlé's palm oil buying practices, Nestlé chose to partner with TFT instead of Greenpeace for several reasons. First, Nestlé felt the attack was unfair and unfounded, given its indirect connection to palm oil and its low-volume use of the ingredient. Second, Greenpeace has more of a reputation for aggressive campaigns against corporations rather than for fostering partnerships to improve environmental practices. Lastly, TFT had the expertise Nestlé needed in order to get deep into the global palm oil supply chain.
A report by EDF and the Global Environmental Management Initiative suggested that an NGO engagement includes three stages, not unlike any outsourcing arrangement.128 First, the company crafts the overall design of the partnership and develops partner selection criteria. The parties can then negotiate a cooperation agreement with a clear plan, milestones, and cross-functional teams at different levels of management. The final stage measures and communicates the project's benefits. Although the arrangements, the scope of the effort, and the number of participants may vary, the report encourages businesses to align their strategy with the intended business outcomes.
NGOs also face partner selection and partnership management challenges tied to the NGO's own brand image. Many company–NGO partnerships, while based on mutual collaboration, may include some company payments to the NGO. Such payments can raise ethical concerns and lead to criticisms of “greenwashing” (see chapter 9), reflecting poorly on both the NGO and the company. Some have criticized EDF as being too close to Walmart.129 While EDF proclaims that it “does not take any money from corporations or corporate-run philanthropies with whom we work,”130 the group accepted $66 million between 2005 and 2013 from the Walton Family Foundation (owned by the founder's family, which still has a large stake in Walmart). It represented a significant portion of EDF's operating budget.131
According to TFT's Poynton, the group warns its corporate members that the Trust will drive them through a bumpy ride if they are serious about reforming their practices, and he won't allow his group's brand to be used to “greenwash.” In one case, he said, a large financial firm joined TFT, claiming it required sustainable practices in the businesses the firm funded. Less than a year later, Poynton said, TFT leadership decided the financial company was not serious and kicked it out of the TFT membership. “Basically, they just turned around and said, ‘We'll give you $100,000 as a donation if we can stay members.’” Poynton said. “We said, ‘We don't take donations. Yes, we're a charity, but we don't take donations. We work with companies to change their practices.’”132
In that respect, engaging with NGOs is different from engaging with traditional suppliers. It is more like engaging with the news media. Companies pay media outlets significant advertising dollars, yet any perceived influence of the company on the news media's coverage of the company may invite criticism. Thus, the culture in the mainstream media world is to separate the news and opinion coverage from the commercial advertisement business.
Similarly, a reputable NGO partner will often exhibit a strong sense of independence and will push back against a company's wishes. Greenpeace, for example, at one point attacked the RSPO and its member companies, with which it had been working closely, because the group's updated guidelines fell short of Greenpeace's expectations.133
An NGO's reputation also affects the reputations of sponsoring firms. In 2010, the Sustainable Forestry Initiative (SFI), a forestry certification program, was attacked by another NGO, ForestEthics, for “greenwashing” and being a shill for the paper industry.134 In its report, ForestEthics claimed that the SFI was controlled by major paper and pulp companies and, among many other faults, “does not require any work to restore forests that are essential for the survival of rare wildlife.”135 Companies such as 3M, whose paper products were certified by the SFI, also came under fire.136 In the years following the attack, 24 companies, including HP and AT&T, abandoned the SFI as a paper certifier.
Companies often employ multiple NGO partnerships to tackle the variety of environmental challenges they face. The types of partnerships may include one-on-one collaborations for tailored help on specific issues; an intra-industry collaboration to address an industry challenge; and/or an inter-industry collaboration spanning multiple areas. These collaborative models are not mutually exclusive, and many companies employ more than one in order to advance their environmental practices internally and across their supply chains.
Starbucks works with Conservation International to evaluate and improve its coffee supply chain; with the National Coffee Association for industry-wide sustainability issues;137 and with Fair Trade International on matters pertaining to workers’ rights across industries. Issues that are unique to specific business units are typically handled by direct partnerships with NGOs that have deep expertise in the specific areas under study, such as Starbucks’ procurement team's partnership with the World Cocoa Foundation to improve the ethical sourcing of cocoa.138 Starbucks also works with many other NGOs, environmental organizations, and industry groups.139
In contrast, IKEA engages its NGO partners mostly for their operational expertise. The global furniture company contracts with WWF and the Forest Stewardship Council to help its suppliers improve logging practices in accordance with the IWAY program. The company also solicits feedback on its sustainability ideas from representatives of several organizations, including Oxfam and Greenpeace. “We want them to challenge us and we want them to bring their competence to the table so the project can succeed,” said IKEA's Jeanette Skjelmose. But, she said, IKEA would never allow its NGO partners to get between the company and its suppliers by outsourcing the audit function.140
When environmental challenges exceed the scale of the company or threaten to increase the costs of doing business or restrict operational capabilities, companies tend to work within industry alliances to pool resources and level the playing field. In other situations, they also work across different industries to increase leverage, pool innovation, achieve economies of scale, and include outside perspectives. For example, Nestlé, Coca-Cola, SAB Miller, and other companies joined forces with the International Finance Corporation (the World Bank's private investment arm) to form the 2030 Water Resources Group to highlight the many dimensions of the water scarcity problem and find the least costly ways of tackling it.141
Unlike one-time projects, sustainability is a relentless quest, similar to the quest for quality, security, or resilience. Frequently, companies make public multiyear commitments spanning 5, 10, or even 20 years. In managing such long-term journeys, companies face many challenges that make it difficult to stay the course. Furthermore, sometimes the course needs changing, too. Eco-culture initiatives attempt to instill environmental awareness and encourage sustainability practices across the company.
Sustainability is more likely to take root in the organization if it is aligned with the company's overall mission or brand goals. Thus, eco-efficiency initiatives that save money on fuel, energy, and packaging fit well at Walmart and its overarching goal of “everyday low prices.” At Starbucks, efforts to ensure the sustainability of its 120,000 coffee growers (see chapter 5) fit with maintaining its brand image as a caring company. At a more tactical level, the minimalist parts count and low material consumption of the Flyknit design (see chapter 8) support Nike's focus on innovation. Yet, even if sustainability goals align with broader corporate goals, companies might still face various hurdles.
Stonyfield Farm started in 1983 as a small organic yogurt maker in New Hampshire serving mostly New England supermarkets. From the very beginning, it committed itself to a wide variety of environmental causes. By 2013, the company had grown significantly, reaching consumers as far away as California. To grow, Stonyfield hired many new employees, some of whom were not wedded to the same organic and eco-conscious values as the company's founders and early employees. “Our employees are no more interested or knowledgeable about environmental issues than the general population,” said Nancy Hirshberg, the company's vice president of natural resources.142
To achieve its increasingly ambitious environmental goals, however, the company needed the active participation of all of its employees. Thus, the company launched the Mission Action Program (MAP) in 2006 to help employees understand the why and how of Stonyfield's environmental mission. “They learned about our company's impact on the environment and ways that they could help reduce environmental burdens both at work and in their personal life,” wrote Hirshberg in a 2009 case study.143 The program delineated Stonyfield's 11 environmental areas of focus,144 ranging from milk production to “Stonyfield Walking Our Talk” (SWOT). The latter category encompassed small internal changes such as installing skylights in warehouses. Such actions resulted in minor changes to the company's environmental impact but reminded workers of the company's constant commitment.145
The program initially focused on the 10 percent of Stonyfield employees who managed operations, which were responsible for 95 percent of the company's carbon emissions.146 In 2007, MAP grew to encompass the entire company. “From production line workers to executives, everyone had an opportunity to learn about global environmental issues, with a focus on climate change,” wrote Hirshberg.147 In 2008, Stonyfield went a step further and tied employee bonuses to the company's environmental performance.
One of the biggest challenges that Gary Hirshberg, Stonyfield's CEO at the time, faced was getting Stonyfield workers to think beyond eco-efficiency and instead use “truly sustainable thinking.” He believed that this kind of internal mentality provided the organizational “personality” that helped the company attract “clients, customers, investors, and others outside the organization.”148
In 2001, the French food conglomerate Danone acquired Stonyfield but has mostly stayed out of Stonyfield's daily operations and even tried to learn from its environmental practices. Stonyfield's organic milk and sugar are significantly more expensive than Danone's conventional ingredients, noted Hirshberg, “but my net margins are actually the same as or better than theirs.”149 This, he said, is because Stonyfield spends very little on advertising, relying instead on word-of-mouth marketing. The key, he believes, is the trust that Stonyfield's customers have in the company. “The flip side is that if we break that trust, we're toast.”150
Similarly, British chocolate brand Green & Black's was able to keep its corporate social responsibility culture not only during a period of rapid growth but also after being acquired by Cadbury in 2005.151,152 As described earlier, Green & Black's was founded on organic, fair trade, and sustainability principles. Green & Black's culture was even strong enough to influence Cadbury to pursue its own fair trade initiatives. In January 2010, while under Cadbury management, Green & Black's announced plans to use 100 percent Fair Trade chocolate across all chocolate bars and drinks.153 According to Josephine Fairley, at a 2010 celebration dinner for outgoing Cadbury CEO Todd Stitzer, the retiring CEO turned to the Green & Black's founders and said, “I want to thank Craig Sams and Jo Fairley for showing Cadbury the way with fair trade.”154 In 2011, Cadbury announced an investment of more than £3 million over eight years in the Dominican Republic to support its pledge to expand its fair trade supply base.155
The company's progressive culture continued to be a business driver for its management even when Cadbury was acquired by US food giant Mondelez International Inc. in 2010.156 In fact, Mondelez announced during a September 7, 2016, conference that the first of the three pillars of its growth strategy includes expanding the Green & Black's brand and adding many more sustainable snacks to its product line.157
On June 16, 2017, Amazon announced its acquisition of Whole Foods. Whole Foods is an upscale, progressive, and environmentally conscious food retailer. Amazon's success, by contrast, was based on relentless efficiency, low costs, and driving employees hard. While betting against Jeff Bezos, Amazon's CEO, is a fool's errand, the integration of the two cultures will provide an interesting case study in the power of sustainability commitments to survive corporate acquisitions.
In 2007, Dell pledged to recycle two billion pounds of electronic waste by 2020, as described in chapter 7. By 2014, the company reported reaching one billion pounds. However, as Dell collected and analyzed data about recycled computers, it became apparent to Deborah Sanders, Dell's global director of consumer and commercial recycling, that the company was going to miss its 2020 target. “If you look at the desktop market, it is either flat or declining slightly, versus the rise of mobility products that continue to increase,” said Sanders. The shift from heavy desktops to slim laptops and tablets meant Dell was in danger of missing its weight target, even though the number of units being recycled was on track. This prompted managers to not only increase their efforts by adding more donation points, but also to encourage consumers to return old equipment of any brand (not just Dell's), in any condition, to one of the more than 2,000 Goodwill locations across the US that were equipped to accept the used electronics.158
EMC Corporation tried to future-proof its goals through a careful definition of its metrics. “We at EMC believe that metrics need context,” said EMC's Winkler.159 Technological progress implies that although a new storage unit or server may be somewhat more energy-intensive to produce, it will likely have significantly more memory, higher processing speed, and higher I/O speed. Consequently, EMC normalizes footprint metrics to be per gigabyte, per input/output operations per second,160 and per employee, rather than per product unit.161 For example, EMC was one of the first companies to offer solid-state drives for enterprise storage systems; these drives use as much as 98 percent less energy per operations per second than older drives. They also use 38 percent less energy per terabyte of storage.162 Not only do these metrics insulate EMC from future hardware technology changes, but they are also the same type of metrics used to improve the quality of EMC's products and are tied to the day-to-day decision-making of EMC employees.
Apple's success in eliminating many types of toxic materials from its products caused increased environmental pressure on other technology manufacturers. If Apple could eliminate brominated flame retardants (BFR) from its computer equipment, why couldn't others in the industry do the same? Nevertheless, when EMC's engineers tested Apple's BFR-free circuit board materials, the substitutes failed. The nontoxic substitutes that worked in consumer electronic products did not have the technical performance and reliability required for EMC's enterprise products, which are used in mission- and safety-critical systems in data centers, health care, aviation, and finance.163
The challenge of eliminating toxins from EMC products fell to Richard Murphy, vice president of global supply chain engineering. Even though the initial efforts to find substitutes failed, Murphy convinced his team to keep going, incorporating the lessons from the failures and trying again. It took two years of repeated attempts before the company found a BFR-free circuit-board material that met its strict specifications. When Murphy finally found a workable BFR-free solution, he faced another challenge. The new material required investments on the part of suppliers, meaning that it would have a high initial cost.164
By analyzing historical pricing trends for new technologies, Murphy was able to convince both EMC's suppliers and executives that as volumes increased, prices would decrease—and that it would happen soon enough to matter. “I won't say I wasn't elated when our supplier told us that the market for this new material was blossoming,” said Murphy. Similarly, eliminating phthalates—chemicals used to make plastics softer and more pliable—from cables and cords followed the same development path: appearing technically challenging and economically risky at first but then fostering a market for the new material with commensurate declines in price and supply chain risks.
Murphy suggested two important lessons for companies faced with similar challenges. First, “projects that don't work the first time aren't failures. Rather, they're ‘delayed successes,’” he said. Second, “when it comes to changing the industry, companies can't go it alone.” For new materials and processes to become economically viable, the industrial ecosystem has to buy into the change, which involves using eco-alignment initiatives to convince suppliers, competitors, and customers. As more customers specify systems with the new sustainable feature, as more suppliers develop expertise and make it available, and as more OEMs use it, the economies of scale are likely to bring costs down.
Naturally, such a strategy has to be implemented slowly, bringing the entire ecosystem along. One of the lessons from Tesco's failed labeling effort (see chapter 3) is that charging ahead with a substantial change without preparing the groundwork for suppliers, customers, and service providers along the supply chain can lead to defeat and retreat from the efforts.
After Marks & Spencer's CEO Stuart Rose convinced his top executives of the importance of sustainability, he challenged his team165 to formulate a sustainability plan called “Plan A” (“because there is no plan B”).166,167 Unlike Sir Terry Leahy's drive to label every Tesco product with its carbon footprint, Rose went about it very differently. Rather than focus on complete LCAs of products—something that involved the entire supply chain—Plan A focused on multiple social and environmental issues across its own business. To keep the program moving forward, Rose created and chaired a committee so that “Plan A was part of the drumbeat, and every week I would raise the subject—the fact that I was the person chairing it meant that the senior managers at M&S had to come,” Rose explained.168
When Rose presented Plan A to the M&S board, he didn't get much enthusiasm: “One-third of them probably thought I was batty, and probably only 10 percent or so wanted to do it.”169 Some investors protested the planned five-year £200 million potential hit to margins, but Rose stood his ground. In January 2007,170 the company officially announced Plan A with 100 interlocking environmental pledges on a wide range of environmental and social sustainability issues organized into five pillars: climate change, waste, natural resources, fair partnerships, and health and well-being. Rose pledged to “complete Plan A without passing on any extra costs to our customers.”171
In the beginning, M&S centralized authority on the assumption that the Plan A team would be the “most proficient and knowledgeable about sustainability to make sure that money was being spent in the right place,” said Mike Barry, the firm's director of Plan A.172 But centralization prevented employees from taking ownership of environmental initiatives. They were left “with a little begging bowl, needing to always ask for permission to invest it in A, B, and C, and we'd say yes or no. And they ended up doing Plan A grudgingly,” he added. The whole idea of Plan A—doing multiple small changes where possible—was incompatible with central control. Moreover, employees did not fight for savings. “Their suppliers came along and said, ‘Oh, yes, sustainable cotton, it costs 10 percent more,’ and the buying group would say, ‘Fine,’ because there's a central pot of money to bail us out,” Barry said.
To remedy the situation, the company decentralized decision-making and gave budget authority to thousands of people across the business.173 “Now that it's their own budget, when a supplier starts with a 10-percent uplift, they say ‘No, it's going to cost us nothing more,’ and the supplier comes back and says 8 percent, and eventually, you'll get down to 2 percent or 3 percent. Because they own the budget, they are much more responsive to making sure that we're doing sustainability in a cost-effective way rather than in a subsidized way,” Barry explained.
Decentralization gave employees license to identify a wider variety of opportunities. Barry asserted: “Once you wrap up this warm, emotional, save-the-planet banner around them, you empowered people as individuals to spot these multiple small sources of saving—a bit of energy there, a bit of waste there—that all have a relatively small dollar sign next to them, but when aggregated under the Plan A umbrella, suddenly you've got that magical $150 million of savings.”
Rose tied the annual bonuses of all M&S executives, down to the level of store managers, to meeting Plan A targets.174 “Our store managers love a bit of healthy competition, so linking their bonus earning potential to their energy, water and waste performance, and issuing internal store league tables is very effective,” said Munish Datta, head of facilities management and Plan A.175 Plan A also became a way to identify high-potential employees who volunteered to be sustainability champions, signaling their ability to inspire others and lead change. The initiative was further embedded into the corporate culture through the company's leadership development course, in which employees work on current Plan A areas that need fresh thinking.176
Tracking progress required developing a Plan A management information system (MIS), because although sales data were available in real time, environmental performance data could be a year out of date.177 The new MIS enabled monthly progress reviews of Plan A by the operating committee.178
M&S also changed how it calculated costs and returns on projects in several ways. It added an internal carbon price to projects;179 it started using life cycle costing to reflect the lifetime costs of energy and maintenance; and it modeled how a project in one part of the store might affect other parts of the store (e.g., the effect of efficient lighting on heating and cooling).180
Unlike many of the companies in this book, M&S excluded suppliers’ carbon emissions from its footprint estimates and carbon neutrality goals, even though suppliers account for 60 percent of the company's carbon footprint. It reasoned that it would not be cost effective to quantify emissions for its more than 35,000 product lines.181 Instead, M&S created a series of platforms to allow suppliers to share and implement best environmental and social management practices across all food factories. In concert with this, the company has been moving incrementally with a 2020 goal to have every product have at least one “Plan A quality,” such as by meeting fair trade, sustainable raw materials, animal welfare, or healthier food standards.182 By 2017, the company was well on the way with 79 percent of the items it sells having a Plan A story to tell.183
Rather than mandating a supplier code of conduct, Rose met privately with the CEOs of M&S's largest suppliers, explaining Plan A's rationale. “Showcasing the business case for action is so much more powerful in terms of galvanizing change across the supply chain than any amount of documentation and codes of practice,” argued Carmel McQuaid, head of sustainable business at M&S.184
To encourage best practices among suppliers, M&S set up a knowledge exchange for its 2,500 suppliers, which included working groups on specific issues such as refrigeration. Along with online systems, M&S hosts in-person sustainability conferences in the United Kingdom for suppliers, with the entire M&S board present to explain why Plan A matters, thereby signaling the plan's primary importance to the company.185
M&S's footprint reduction calculations also excluded the carbon emitted by customers while using or disposing of merchandise. Instead, the company created initiatives for specific hotspots such as: a “Think Climate, Wash at 30ºC” campaign to educate consumers about washing their clothes at lower temperatures; carrying only appliances rated A or above according to the EU energy efficiency label standards; and creating a clothing recycling program called “shwopping,”186 whereby M&S offered discounts in return for donated clothing.
Barry explained that “the average consumer's got 15 seconds at the point of purchase.” Thus, instead of certifying and labeling each product, M&S pursued broad company-level certifications, such as being the first retailer to be certified on the Carbon Trust's Triple Standard on carbon, water, and waste,187 as well as being the first major UK retailer to gain the ISO 50001 energy management certification.188
Plan A began with 100 commitments in 2007. These were a mix of internal social and environmental commitments, rather than extended supply chain commitments. By March 2010, the company had achieved 62 of the goals, was “on plan” for 30, and was “behind” or “on hold” for the remaining eight goals. M&S then added 80 new commitments to Plan A with an overall goal “to become the world's most sustainable major (multiline) retailer by 2015.” Indeed, Forbes listed M&S as the top retailer among its lists of “The Most Sustainable Companies 2015.”189 In 2014, the firm announced a third version called “Plan A 2020” with a refreshed list of 100 commitments.190
Although Rose had warned shareholders that he planned to put £200 million into Plan A over a five-year period, eco-efficiency savings on energy and waste made the plan cost-positive in just two years.191 By 2013, Plan A was adding £135 million annually to the retailer's profits.192 In 2012, Decision Technology's annual Brand Personality survey found that Marks & Spencer had become the seventh “most green” brand in the United Kingdom, and the brand toward which Britons reported the most positive sentiment.193
In many ways, Marks & Spencer's branding success was the result of focusing its efforts on its own operations. However, to have a real impact on environmental sustainability, one has to include both upstream and downstream supply chain components, where most of the impact takes place. Even M&S's goal of having at least one Plan A quality for each product is quite modest when one considers all types of cradle-to-grave impacts. To achieve true environmental sustainability, every product needs several Plan A qualities.
Although many mainstream companies, such as M&S, pursue sustainability as one element among many other corporate initiatives (e.g., quality, value, and innovation), some generally smaller companies put sustainability at the very heart of their identities. These overtly “green” companies (and their environmental practices) may offer a glimpse into a possible future influenced by stricter regulation, greater activist pressure, or greater consumer interest in (and willingness to pay for) sustainable products.