Erb Institute Landscape Survey: Corporate Environmental Responsibility by Erb Institute

S U S TA I N A B I L I T Y L A N D S C A P E S U RV E Y:

CORPORATE ENVIRONMENTAL RESPONSIBILITY

Introduction............................................ 3

SUSTAINABILITY LANDSCAPE SURVEY:

CORPORATE ENVIRONMENTAL RESPONSIBILITY

The Dimensions of Corporate Environmental Responsibility................. 4 Primary Impacts of Concern............................................. 6 Established Change Drivers................. 20 Emerging Change Drivers.................... 24 Near-Term Disrupters and Game Changers................................... 26 Long-Term Developments.................... 30 Conclusion........................................... 33

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INTRODUCTION This landscape survey is a companion piece to a series of toolboxes created by the University of Michigan’s Erb Institute to inform and aid a wide variety of current and future sustainability practitioners. In contrast to the deep-dive toolboxes, this document is a high-level survey of a broad sustainability topic. Think of this survey as more of a “what it is” rather than a “how to” for key environmental issues such as climate, water and circular economy. The other toolboxes then provide frameworks for response to these issues, once identified, and approaches to manage environmental issues in company strategy and operations.

Economic, environmental and social aspects of corporate performance are increasingly viewed as integral to a company’s value to investors, reputation with customers and other key stakeholders, risk profile and ability to attract and retain talent. To some stakeholders, these aspects are as important as financial performance and good governance.

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THE DIMENSIONS OF CORPORATE ENVIRONMENTAL RESPONSIBILITY All companies affect the environment in multiple ways. It’s unavoidable. Some impacts are positive, and some are negative; some impacts are mild, and some are profound. And impacts come from myriad sources both inside and outside the company. Because of this breadth, creating an easier way to see the situation can be helpful.

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We can group these impact sources into four categories:

processes—the impacts created by sales and marketing, administration, operations, manufacturing, supply chain and logistics

places—the impacts created by companyowned or -controlled buildings and land

products—the impacts created by products (or services) and their constituent components, from manufacture, through their lifetime use and including their endof-life treatment

The Dimensions of Corporate Environmental Responsibility

people—the impacts created by company employees in commuting and at-work activities

Graphically, we can represent any one business’s environmental responsibility situation as:

PEOPLE Employees Contractors Owners

PROCESSES Manufacturing/Operation Supply Chain Management Administration HR

PLACES

VISION & STRATEGY

Buildings Land

PRODUCTS Finished Goods Delivered Services

In a company of size, this is an enormous total number of impact sources to investigate and manage. And environmental impacts don’t exist in isolation—there are significant interplay and trade-offs among them. For example, a company may increase its greenhouse gas (GHG) emissions by pursuing a recycling program: Recycling some materials can be energy intensive (more GHG emissions), and, if the logistics of collecting and transporting the material to the

recycling facility add to the energy needed for other waste streams, that can add GHG emissions as well.

As mentioned before, however, not all environmental impacts are bad. This survey focuses on the six primary environmental impacts that concern us.

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PRIMARY IMPACTS OF CONCERN The six primary impacts are biodiversity, deforestation, greenhouse gas emissions and climate change, water quality and availability, chemicals and toxic substances, and waste.

THIS SECTION OF THE SURVEY LAYS OUT FOUNDATIONAL INFORMATION FOR EACH IMPACT, INCLUDING: a description of how companies identify the existence and scope of the impact, and a review of currently available solutions to mitigate the impact and/or adapt to its effects.

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As a practical matter, though, there is a great deal more to it. In addition to identifying, scoping and finding solutions to issues, companies must also • develop and implement strategies (see the toolbox on “Strategy Implementation”) and

• engage a wide variety of stakeholders throughout the process (see the toolbox on “Stakeholder Engagement”),

• track and report progress (see the toolbox on “Metrics and Reporting”).

Primary Impacts of Concern

• focus efforts on relevant issues (see the toolbox on “Materiality Assessment”),

To be clear, the environmental circumstances associated with each company are unique. Keep that in mind as you read this survey. But let’s explore some of the primary, common issues that companies face when pursuing environmental sustainability.

BIODIVERSITY A species-diverse planet depends on maintaining a delicate balance in the natural environment. Air, water, sunlight, darkness, sound— these must be treated gently. Business activity can disrupt that balance by degrading the natural environment: Air and water pollution, GHG emissions that spur climate change, and disruptions in natural light and sound patterns are among the impacts created by businesses that degrade our world.

IDENTIFICATION Identifying biodiversity impacts created by business requires specializing in land use, biology, chemistry and other technical skills. The aim is to identify specific impacts—both positive and negative—that can be traced back to land use, materials sourcing, manufacturing, transportation and logistics, and administration and management activities.

Examples of positive biodiversity impacts from business actions include: • creation of new or maintenance of existing habitats through specialized water management practices • improved soil and loam integrity through sound soilmanagement practices in agricultural or forested areas

Examples of negative biodiversity impacts tied to business include: • coral reef bleaching and die-off tied to increased ocean acidification from excess GHG emissions • decrease in insect populations because of decreased habitat acreage and air and water pollution Because of the technical skills required to identify biodiversity concerns, companies usually partner with academics, nongovernmental organizations (NGOs) or other experts. Companies may take a narrow approach, looking for one or two suspected impacts after a cursory screen, or their identification process may be more broad-brushed, such as looking for all impacts within a specific geographic area.

MITIGATION The scope of impacts and actions that affect biodiversity is broad; so is the solution set for mitigating negative biodiversity impacts. Almost any action a company takes to improve air and water quality, manage land prudently, reduce GHG emissions and lessen its entire environmental footprint will help protect (if not improve) natural biodiversity.

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For example: • Re-siting buildings and infrastructure away from bird and wildlife habitats protects species that depend on these habitats for shelter, food and water. Primary Impacts of Concern

• Reclaiming runoff water from buildings and land to reduce water withdrawals from sources that wildlife rely on improves species headcounts in the area. • Reusing or recycling waste output to divert solid waste from landfills increases the amount of land available to remain in a natural state and reduces GHG emissions, which represents a direct positive land use impact and an indirect positive impact on the progression of climate change. A useful method to protect biodiversity from negative business impacts is for companies to treat all aspects of the natural environment as an input resource, a practice referred to as recognition of “ecosystem services.”

Services provided by the ecosystem include: •

supporting services, such as photosynthesis and soil fermentation

•

provisioning services, such as agriculture and potable water

•

regulating services, such as climate regulation and water pH

•

cultural services, such as the benefits of natural beauty

This approach is most useful in changing behavior when the company assigns economic values to the withdrawals from and impacts on the natural environment that are associated with its operations and value chain. Essentially, the company prices ecosystem services based on the costs of performing that same service using financial capital.

Once the company has an indication of the services’ economic value, it can either internalize the price of the impacts and spend that amount to change its own behavior or the behavior of its value chain partners in many areas (such as land use, water withdrawals and GHG emissions) or

invest that financial capital in external programs fostering biodiversity (such as habitat protection programs and water quality management schemes).

CASE STUDY: PUMA

The apparel and footwear giant Puma has partnered with consultancy TruCost to assign a value to its reliance on ecosystem services, using a process called natural value accounting. For 2016, Puma calculated this value from operations and supply chain activities to be €457 million.1 According to Puma, this is the amount it would have to pay if the environment billed it for providing clean water and air, restoring soils and the atmosphere, and decomposing waste. Puma broke down this valuation sufficiently to learn that: • Most of its impact is caused at the raw material levels. Most impacts come from its fabric and component suppliers. • GHG emissions have the highest impact in comparison to other impact categories. With this information in hand, Puma has decided to invest in: • working with experts to set sourcing targets for sustainable materials • collecting environmental data further upstream in its supply chain • training suppliers in environmental responsibility • creating science-based targets for GHG emissions reductions2

1 http://about.puma.com/en/sustainability/environment/environmental-profit-and-loss-account 2

Ibid.

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DEFORESTATION

Primary Impacts of Concern

Forests are an essential, valuable environmental asset. They add space and natural beauty, and they serve as a source of air purification and a tool to reduce atmospheric carbon dioxide—an important benefit. Deforestation is a legitimate concern globally, as it eliminates all these environmental benefits and releases sequestered carbon dioxide into the atmosphere when felled timber is burned. The effects, which are both regional and global, can last a long time. Companies that are committed to environmental responsibility must address deforestation impacts in their direct operations and in their supply chains.

IDENTIFICATION Companies in the paper, fiber and some agricultural sectors (such as ranching and palm oil product) impact forests directly. They have an easier identification task than most other companies, whose forest effects are mostly embedded in goods and services they purchase or in the manufacture, lifetime use or end-of-life treatment of their products. For the direct-impact company, identification requires mapping operational activities to forested areas and assessing whether those activities negatively impact the timberland. For example, Domtar, one of the world’s largest paper companies, identifies all forests from which it sources raw materials and investigates the actions taken there relative to forest health. Domtar does this regularly and has a robust forest stewardship program (visit https:// www.domtar.com/en/how-we-work/sustainability-domtar/ forestry-and-fiber).

Most other companies affect forests indirectly, through purchasing goods and materials (such as paper products, apparel, furniture and fixtures) that are used in many areas of the business. Their identification task is somewhat more difficult, as it usually involves mapping their supply chain far upstream to look for forestry effects in suppliers’ suppliers. For example, is paper that is consumed by the company’s professional services firms (such as lawyers, accountants and consultants) having negative impacts on forests? Companies may complete this investigation through direct supplier assessments or by acquiring data from commercially available third-party ratings.

MITIGATION Taking action to stop clear-cutting and other negative aspects of forest management mitigates the negative effects of business activity on healthy forests. These actions are usually taken at the site(s) of the most prominent impacts. Sometimes they are taken on a company basis, but increasingly they are driven by cross-industry, issue-focused

collaborations, such as the Roundtable on Responsible Palm Oil (RSPO) (https://rspo.org). In fact, mitigating the effects of palm oil sourcing is one of today’s biggest deforestation concerns. It is also one of the most intractable, as the worldwide demand for palm oil continues to increase.

CASE STUDY: McDonald’s McDonald’s, the fast food giant, uses enormous quantities of palm oil in certain food production processes. In 2011, McDonald’s joined with the World Wildlife Fund (WWF) to analyze and score the company’s palm oil operations in Asia, South America and Africa (areas where it uses large quantities of palm oil). Simultaneously, it joined RSPO, which had existed since 2003.3 McDonald’s committed to purchasing 100 percent certified responsibly sourced palm oil by 2015. This meant changing methods for sourcing and procuring its palm oil. As of 2016, McDonald’s had achieved 95 percent of its sourcing goal by adhering to one or more of the four main protocols for responsible sourcing of this commodity.4 It scores a 9 out of 9 on the RSPO palm oil buyer’s scorecard. According to the RSPO, it leads the way in commitments but falls short on verifying that all palm oil is sourced responsibly.

3 http://wwf.panda.org/?202073/WWF-welcomes 4

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GREENHOUSE GAS (GHG) EMISSIONS AND CLIMATE CHANGE

Primary Impacts of Concern

Depending on which study you read, business activity is responsible for anywhere from 30 to 40 percent of total worldwide GHG emissions. So, if climate change is to be addressed through reductions in global GHG emissions, corporations must identify and quantify those emissions for

which they are accountable and then design and implement strategies to mitigate those emissions. And for most companies, it’s also important to add a third dimension: create and implement strategies to adapt to the inevitable effects of climate change.

IDENTIFICATION AND QUANTIFICATION Companies most often identify, quantify and classify sources of GHG emissions using a tool called a GHG emissions inventory. The GHG Protocol (www.ghgprotocol.org), which is a joint venture between two NGOs—the World Resources Institute and the World Business Council for Sustainable Development—has developed a set of standards for creating this inventory: • The Corporate Accounting and Reporting Standard is a framework used to measure GHG emissions created from company-owned and -controlled sources that use electricity, fuel and/or steam. • The Corporate Value Chain (Scope 3) Accounting and Reporting Standard is a framework used to measure these emissions and the additional emissions created throughout the company’s entire value chain.

These two consensus-based standards create a reliable identification and quantification scheme for the six Kyoto Protocol GHGs (carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorinated compounds and sulfur hexafluoride) that emanate from various sources in a company and its value chain. The standards are also used to guide companies’ carbon footprint reporting practices. For purposes of best identifying, quantifying and reporting GHG emissions impacts, the two standards characterize GHG emissions according to “scope”: • emissions that come directly from burning fossil fuels in company-controlled activities (Scope 1) • emissions that come indirectly from purchasing electricity and steam from outside sources for heating and cooling (Scope 2) • emissions that come indirectly from sources in the company’s entire value chain (Scope 3)

CASE STUDY: A U.S.-based apparel brand wanted to better understand the extent of GHG emissions throughout its operations and value chain.5 The project team, together with outside experts, (a) mapped the company’s entire value-chain processes (upstream suppliers and downstream resellers and retail) and (b) chose a base year for which to collect data. Team members and consultants contacted direct suppliers (primarily Asia-based contract manufacturers), managers of owned/operated retail stores, department stores and third-party logistics providers to collect electricity, fuel and steam consumption data where it was available.6 When actual consumption data was not available for a given activity, spending data was collected for that activity. Once all of this data was assembled, it was run

through a proprietary input/output database that “translates” the consumption and spending data into estimates of GHG emissions. (These databases were developed in the late 1950s by Carnegie Mellon University scientists and economists and are now very refined and reliable; they are updated regularly.) These estimates were then tallied by scope according to the rules of the standard, and a total GHG emissions inventory was calculated. That inventory revealed that 98 percent of total GHG emissions were found in Scope 3 (indirect) activities. Conversely, only 2 percent of overall GHG emissions could be attributed to company direct fuel burn and purchased electricity, steam, heating and cooling. This finding is consistent with what has been found in other manufacturing companies.

In this survey, we use the term “value chain” when referring to activities occurring both before and after a company’s operations. We use the term “supply chain” when referring to activities occurring only before a company’s operations.

Because of the complexity of estimating GHG emissions over the life of its apparel and how the apparel is treated at the end of life, the company chose not to include these activities in its calculations.

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Although each business and its value chain have unique components, we can represent the typical corporate valuechain-associated GHG emissions graphically:

CO2

purchased electricity, steam, heating & cooling for own use purchased

CH4

Ngoods 2O and services

heating & cooling for own use

capital HFCs goods

fuel and PFCs energy related activities

facilities

SF6

company

purchased goods and services

Primary Impacts of Concern

CH4

CO2 CH4 NO HFCs steam, PFCs SF electricity, N22O purchased HFCs HFCs SF66 SF6 CH4 CO2 CO2N2O CH4 CHHFCs PFCs SF6 PFCs PFCs N2O 4 purchased heating & cooling electricity, for own usesteam, Scope CO2 CH4 2 N2O HFCs PFCs SF Scope 1 6 transportation processing of for own use CO2 CH N2O heating & cooling HFCs PFCs SFand 4 6 distribution INDIRECT sold products DIRECT CO2 N2O CH4 HFCs N2O PFCs HFCs SF PFCs SF 6 6 CO2 CHpurchased N2O steam, company HFCs PFCs transportation SF6 processing of electricity, 4

transportation processing of capital and and distribution soldfuel products and distribution products goods energysold related activities

facilitiescompany CH4 electricity, N2Osteam, HFCs PFCs SF6 purchased transportation processing of facilities purchased capital fuel and use of sold sold products end-of-life and distribution heating & cooling for own use transportation processing of purchased goods capitalenergy related fuel and purchased electricity, goods steam,and INDIRECT products treatment of and distribution sold products INDIRECT and goods activities energy related business transportation waste services purchased steam, purchased electricity, steam, heatingpurchased & electricity, cooling for own usegoods electricity, steam, sold products services activities travel and distribution generated in business transportation waste company & cooling own for useown heating & cooling for ownheating use purchased electricity, steam, heating & for cooling use use of sold end-of-life company operations travel and distribution generated in facilities purchased electricity, steam, heating & cooling for own use use of sold end-of-life products transportation processing of treatment of purchased fuel and operations steam, for own heating & cooling use facilities capital purchased electricity, steam, purchased electricity, company products treatment of and distribution sold products sold products purchased capital & coolingfuel goods and waste goods energy related vehicles forand owntransportation use heating & cooling for own use heating business transportation processing of purchased electricity, steam, sold products goods and goods energy related services generated activities business transportation waste travel transportation processing of and distribution in transportation processing of distribution and sold products heating & cooling for own use transportation processing of services activities

CO2

purchased electricity, steam,

Scope 3

company travel and distribution generated in and distribution sold products operations and distribution sold products processing andtransportation distribution sold productsof company

end-of-life

use of sold

facilities operations assets transportation processing of leasedtreatment employee and distribution sold products purchased electricity, steam, heating & cooling for own use usevehicles of soldcompany end-of-life products ofinvestments company capital fuel andtransportation transportation processing ofsold products and products distribution commuting assets company employee processing of investments heating &purchased cooling for own use leased assets sold franchises vehicles treatment of company leased products facilities

company goods and goods energy related business and distribution sold products transportation waste commuting and distribution sold products sold products facilities facilities purchased capital business fuel and transportation processing of company services activities transportation waste travel and distribution generatedfacilities in fuel and purchased capital purchased fuel and capital transportation processing of company goods and goods energy related and distribution sold products facilities purchased capital fuel and travel and distribution generated in operations and distribution sold products and energy related goods and goods goods energy related company assets employee investments facilities purchased capital fuel andleased use of sold leased assets services activities end-of-life company franchises goods and goodscompany goods energy related operations company servicespurchased leased assets employee services activities investments facilities capital fuel and processing of transportation commuting leased assets franchises goods and goodsactivities energy related facilities treatment of vehiclesproducts services activities company company vehicles use of sold end-of-life purchased capital fuel and energy commuting and goods related sold products and distribution capital fuel and goods services activities sold products facilities facilitiesof use of sold business end-of-life transportation use of soldtreatment end-of-life products goods and energy use of sold servicesgoodscapital waste activities end-of-life purchased fuelrelated and goods energy related purchased capital fuel and products products ofend-of-life and distribution generated in related travel productstreatment treatment of goods and goods energy use of sold sold products services activities treatment of activities business company goods and goods energy related transportation waste services activities sold products operations use products of sold sold products end-of-life treatment sold productsof leased assets company investments employee leased assets franchises business waste in business generated transportation wastetransportation facilities travel business services activities and distribution transportation waste of sold products use of soldleasedend-of-life end-of-life solduse products use of sold treatment end-of-life leased assets employee investments vehicles assets franchises andindistribution generated in wastein travel commuting travel and distribution generated purchased capital fuel and business transportation operations travel and distribution generated products treatment of products treatment of sold products products treatment ofcompany commuting use of sold end-of-life operations operations goods business goods and energy related transportation waste company travel sold products sold products and distribution generated in company vehiclescompany business sold products transportation waste operations products treatment of business waste services transportation activities and distribution generated invehicles travel business transportation waste travel vehicles vehicles and distribution generated in operations company sold products travel generated in operations travel operations and distribution generated in and distribution company company business vehicles transportation waste use of sold leased assets employee end-of-life investments leased assets franchises operations vehicles operations vehicles company and distribution generated incompany travel products commuting treatment of vehicles investmentsoperations vehicles leased assets employee leased assets franchises sold products company Downstream activities Upstream activities Reporting company business leased assets employee waste investments leased assets employeetransportation investments leased assets franchises leased assets franchises commuting leased assets employee investments vehicles leased assets franchises leased assets employee leased assets franchises travel commuting and distribution generated in commuting leasedinvestments assets employee investments leased assets franchises commuting

Source: GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standards

An internal report was issued to management, providing a baseline from which the company could focus its efforts to reduce its carbon footprint through actions directed at suppliers and resellers. For example, the company set targets for GHG emissions reductions over time from activities associated with its retail stores. Retail stores that are under company control represent the best opportunity for achieving targets on time and at budget. Retail stores that are run under contract by others are more challenging because the company is not in complete control of activities on the premises or energy purchases.

Notably, targets associated with transportation activities (both upstream and downstream) and those associated with Asian suppliers have been extremely hard to meet. Transportation has proved problematic because the company’s “fast-to-market” business model requires that most product travel by air from manufacturing sites to regional warehouses; GHG emissions from air are especially problematic because they have intense climate change attributes, and there are few low-emissions air freight options. Asian suppliers have indicated they don’t have the money or technical ability to change manufacturing processes.

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MITIGATION

Primary Impacts of Concern

Companies can take many actions to reduce their GHG emissions. Again, every company’s situation is unique, but some commonalities exist based on industry, geography and company size. For true success, it’s imperative that mitigation efforts extend beyond companies’ four walls into their supply chains. But companies’ willingness and ability to deploy solutions through their value chains varies, as

the case study above demonstrates. Most companies now require suppliers to at least identify the efforts they are making to reduce emissions. Many companies score their suppliers on their GHG emissions reduction efforts and achievements (their score can even influence their ability to win future business). But few companies offer suppliers incentives to make improvements.

Some of the most popular solutions to reduce GHG emissions that are applied both to company operations and to the activities of value-chain partners include the following. Electricity—demand-side reduction:

Fuel—demand-side reduction:

• smart metering

• high-efficiency boilers and heaters

• high-efficiency heaters, motors, fans, machinery; “auto off” when unused

• transportation efficiency algorithms (such as GPS telematics, “right turn only” practices)

• LED or high-efficiency lighting; “auto off” when unused

• “no idling” rules and practices

• LEED® for new buildings or operation of existing buildings

• hybrid/all-electric transportation equipment

• increasing natural light

• battery-powered/fuel-cell-powered materials handling equipment

• sophisticated HVAC controls; “auto off” when unused

• air travel substitution (such as telepresence)

• IT hardware meeting EPEAT, U.S. EPA Energy Star® or similar standards

• employee carpooling/public transportation subsidies/ flexible work schedules

Electricity—supply-side non-fossil fuel alternatives:

Fuel—supply-side non-fossil fuel alternatives:

• direct solar, wind and geothermal inputs

• biofuels and biomass

• cogeneration • proprietary and/or third-party energy supply management that source from solar, wind, hydro, geothermal and/or nuclear power • renewable energy certificates (RECs)/carbon offsets

• hybrid/all-electric transportation

Steam—demand-side reduction • high-efficiency boilers • leak repair and management

Steam—supply-side non-fossil fuel alternatives • biomass and biofuel

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ADAPTATION Adaptation represents an additional step beyond identification, quantification and mitigation. For most companies, this is primarily an exercise in risk management, although some opportunities lie here as well.

Primary Impacts of Concern

Corporate environmental responsibility includes both acknowledging that we face inevitable effects of climate change and finding ways to adapt to those changes. Companies continue to devise ways to adapt to risks associated with sea level rise, extreme weather events, flooding and drought, ocean acidification and other inevitable effects of climate change. The first step is to assess corporate and value-chain assets for near- and long-term vulnerability to issues such as sea level risk, extreme weather conditions, drought and flood. Then, companies choose and implement adaptation strategies appropriate to their circumstances (such as urgency, time horizon and budget).

Risks that require adaptation are as diverse as you can imagine, and designing and executing adaptation strategies is a highly complex endeavor.

However, the most common risks to which companies must adapt include: • “stranding” of hard assets because of sea level rise

Common adaptation strategies in a corporate setting include:

• supply and distribution disruptions from extreme weather events

• physically “hardening” assets (such as raising them up, shielding or enclosing them, to make them less vulnerable)

• reduced/disrupted employee and customer availability related to extreme weather events

• relocating assets to less vulnerable locations

Some opportunities exist as well, mostly from creating improved business practices:

• duplicating key assets (such as finding additional sources of supply) to mitigate risk Companies often tailor their approach to geography, because many impacts associated with climate change are local or regional in nature (such as local/regional flooding from sea level rise and drought associated with changing climate patterns).

• increasing the useful lives of strategic assets • reaping efficiency gains from replacing older assets as a part of a “hardening” strategy • creating second- and alternative-sourcing policies and procedures, which can establish new supply relationships • designing and implementing new models of work and distribution that simultaneously address adaptation risks and improve employee and customer experiences

NOTE: Work on climate change adaptation in the built environment—a critical element of adaptation strategies—often entails strong collaboration with government, utility and infrastructure planners, because the assets involved may be owned and maintained by these entities.

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WATER QUALITY AND AVAILABILITY

Primary Impacts of Concern

Another common environmental issue companies face is their effect on the availability and quality of water in places they or their suppliers operate. Unlike with GHG emissions, though, the tasks of identifying and mitigating water impacts are local or regional in nature. So companies must undertake

a scan to see where water impacts exist, determine whether each impact is sufficiently material to address and, if so, design and implement mitigation solutions.

WATER QUALITY We have known for decades that many discharges from business activity pollute clean water. By now, the ability to identify and assess for pollutants is a mature science. In developed countries, local, regional and national regulators and their corporate compliance counterparts regularly look for and test sources of discharges. The intent is to stop any unpermitted discharge and remediate any negative effects of

discharges. Companies face steep penalties for uncorrected violations, so most companies have personnel dedicated to identifying and remediating discharges (such as property managers, building engineers and operations managers). Companies may supplement these internal resources with external, third-party resources.

NOTE: In the developing world, consistently good water quality is not a given. In fact, some two-fifths of the world’s population does not have access to potable water on a regular basis. Water issues in areas of the developing world can present special challenges for companies that are intent on understanding and improving their water quality impacts. For example, regulatory regimes policing water quality may not exist or may receive little enforcement effort. Technical resources may not be available. Enforcement offices may require bribes in exchange for relaxed fines or other penalties. Other problems include difficulties in assessing water quality, frequent/seasonal changes in water quality, difficulties in pinpointing sources of pollution and incomplete record-keeping. These challenges can make the process of identifying, scoping and mitigating water quality issues in the developing world especially expensive and difficult. WATER AVAILABILITY Corporate water consumption can withdraw unsustainable amounts of water from rivers, lakes, catchment areas and aquifers. Companies are obligated to manage their businesses to minimize water withdrawals, as water availability is extremely scarce in some regions (unlike GHG emissions, water issues are local/regional; see the

Coca-Cola case study, on the next page). To be responsible water stewards, companies must focus on minimizing their withdrawals from specific water sources—groundwater and aquifer sources that are a shared resource with other businesses and local communities.

IDENTIFICATION Like they do with GHG emissions, companies often identify water impacts by creating an inventory of their water withdrawals. The end product is a detailed “water footprint,” which can be determined using the Water Footprint Network’s Water Assessment Tool (http://waterfootprint.org/ en/resources/interactive-tools/water-footprint-assessmenttool). A water footprint can be completed on a full-enterprise,

partial-enterprise or product level and can rapidly identify where companies need to focus. For example, a detailed water footprint completed for Coca-Cola’s European operations in 2011 resulted in a fascinating, publicly available report.7

7 Visit www.coca-colacompany.com/stories/setting-a-new-goal-for-water-efficiency and navigate to “Understanding Our Water Footprint.” The report can be accessed in PDF format there.

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MITIGATION Once companies have an idea of where water issues exist, they can adjust processes, practices and products accordingly. Common actions include: • re-siting facilities in less water-stressed areas

• fixing leaks

• changing the timing of withdrawals in areas with seasonal water shortages

• updating plumbing fixtures • reformulating product(s) • catching and reusing runoff water (from buildings, hardscape and landscape)

Primary Impacts of Concern

• re-engineering water-dependent processes

• working with value-chain partners to reduce their own withdrawals (these withdrawals are considered “embedded” in the customer company’s water footprint)

CASE STUDY: Coca-Cola India contains roughly 17 percent of the world’s population but only 4 percent of the world’s water. India has been one of CocaCola’s fastest-growing markets for the past several years. In 2014, however, Indian officials shut down a Coca-Cola bottling plant in northern India based on excessive groundwater withdrawals. The officials said that the bottling company had breached its “license to operate.” Other Coca-Cola bottling plants in India have also come under fire for excessive water withdrawals and polluting clean water sources. In response, Coca-Cola India has taken several steps to reduce its withdrawals and be a better water steward. First, engineers scoured bottling plants for leaks and process inefficiencies. Solutions were implemented rapidly. For example, some plants now use high-pressure air rather than water to clean bottles. In addition, Coca-Cola’s philanthropic foundation in India has partnered with local NGOs to help optimize dam siting for water retention. According to Coca-Cola, these efforts have created 13 billion gallons of water storage potential, benefitting nearly 500,000 villagers. You can read more here: www.coca-colacompany.com/ stories/how-coca-cola-india-made-water-a-top-priority and judge the company’s efforts for yourself.

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CHEMICALS AND TOXIC SUBSTANCES

Primary Impacts of Concern

Just as chemicals are essential to many processes and products, sound chemicals management is essential to an environmentally responsible enterprise. Many chemicals, besides being health hazards, are toxic to the environment. Whether introduced directly into the environment through spills, leaks or vaporization or indirectly through leaching from disposed items, these chemicals can damage natural resources and degrade biodiversity. Environmentally responsible companies must seek to minimize these chemicals, especially toxic substances and volatile organic

compounds (VOCs), both in their production processes and as ingredients in their products. Moreover, the world of chemicals generally is highly regulated in developed countries. Some regulations, such as the EU’s Restriction of Hazardous Substances (RoHS) Directive and its progeny around the world (including China RoHS), require disclosure of the existence of chemicals on toxic registry lists and may also ban entry of those chemicals into their jurisdiction (see www.rohsguide.com for a summary).

IDENTIFICATION A company’s first task in sound chemicals management is to scientifically identify offending substances and distinguish them from safe substances. Toxic substances are then subject to elimination or another mitigation strategy. The identification work can present a technical challenge, and only certain companies have scientists or others with the necessary skills on staff. Other companies must rely on outside expertise,

which can be expensive. In either case, internal resources must assist in collecting and managing information. To understand the ingredients in products, life-cycle assessments (LCAs) are frequently used to “red flag” chemicals that raise concern from an environmental standpoint.

The LCA process includes: • creating an inventory of all inputs and outputs for the given product (or product family) • evaluating the environmental impacts associated with each input and output • interpreting the results of the evaluation relative to the assessment’s object (such as “eliminate all known toxic substances”)

This is an analysis of all processes associated with a product’s production, operation and end-of-life treatment. It depends on strong, trusting working relationships with suppliers, who can help identify ingredients in the products they sell to the company undertaking the analysis. Because trade secrets or proprietary formulas may be involved, however, non-disclosure agreements (NDAs) may need to be negotiated and signed before information is released.

MITIGATION Solutions exist to minimize or eliminate toxic chemicals in processes and products. One of the most interesting is bio-substitution, which uses a natural substance in place of a chemical. Commercial databases of effective substitutes for numerous chemicals exist and can be relied on to specify non-toxic ingredients that are similarly effective.

Another means of eliminating toxic substances from consumer and commercial products is to design them without toxic substances as ingredients. Protocols such as Design for the Environment (DfE) and Cradle to Cradle® help product designers create products without offending chemicals and/or substitute them with chemicals that break down into natural components with time.

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Primary Impacts of Concern

CASE STUDY: Interface Interface, the world’s largest manufacturer of commercial carpeting, states that its mission is “to be the first company that, by its deeds, shows the entire industrial world what sustainability is in all its dimensions: People, process, product, place and profits— by 2020—and in doing so, we will become restorative through the power of influence.”8 Interface used the “biomimicry” solution created by Janine Benyus and the Biomimicry Institute to design carpeting products using biological, non-chemical components: face layer, middle layer, glue and backing. In addition to eliminating many toxic chemicals, the process employs significant amounts of recycled material. For example, one line of carpet tiles, TacTiles®, uses adhesive squares rather than glue to connect tiles. Some carpet products come under the NetWorks® program, which collects and recycles commercial fishing nets. Parts of the recycled nets become components in carpet. Learn more by visiting www.interfaceglobal.com/Sustainability.aspx.

WASTE Businesses create an enormous amount of solid waste. Significant portions of this waste are paper and paperboard, but metals, glass, cement from construction and other materials also are created as a part of business activity. The proper disposal of waste products represents a real challenge from a corporate environmental responsibility standpoint. Companies become waste managers when the materials they use in their products are unpacked, incorporated into products or operations and then face end-of-life treatment. Some examples are outrageous, such as the apparel company that must meet Chinese regulations that require it to buy and install “sizing rings” on every garment produced and exported from China, even though most of its retail

customers require that sizing rings not be on incoming merchandise (what is the strategy for properly disposing of the sizing rings?). Some examples are seemingly more straightforward, like the packaging on incoming materials (the company can divert this material into a recycling waste stream). The goal is to minimize overall waste and divert waste destined to landfills, through the “reduce, reuse, recycle” paradigm. Some companies are so intent on being responsible that they have declared themselves “zero waste.” More information about zero waste is included in the section of this survey titled “The Circular Economy, Systems Thinking and Industrial Ecology,” on page 31.

www.interfaceglobal.com/Company/Mission-Vision.aspx

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IDENTIFICATION

Primary Impacts of Concern

Companies must first establish a baseline of their solid waste output, particularly for the part of the waste stream that goes to the landfill. This baseline enables the company to track its progress in reducing overall waste (“total waste”), diverting waste destined to the landfill into recycling or reuse programs (the “diversion rate”) and recycling what can’t be diverted (the “recycling rate”).

REUSE TOTAL WASTE

RECYCLE LANDFILL

This graphic makes the situation seem much simpler than it usually is. To identify overall waste and quantify it in a useful way, company operations, maintenance, supply and inventory management personnel must work as a team with the company’s waste management contractor(s) to calculate the gross tonnage or cubic volume of the solid waste. This is usually done on a location-by-location basis for company operations and inventories (which include inputs from suppliers). Note that many regulations worldwide govern how commercial waste is to be handled. These include everything from mandatory recycling laws to “extended producer responsibility” (EPR) regulations (such as the EU’s Waste Electrical and Electronic Equipment Directive—see “Regulations and Rules,” on page 21) that hold manufacturers accountable for the disposition of products they bring into a market at the end of their useful lives.

MITIGATION Reduce, reuse and recycle. The first goal of responsible waste management is to minimize the amount of overall waste leaving the company. This can be accomplished by reducing what comes into the company—working with materials and packaging suppliers to reduce nonessential items.

For example: • reducing or eliminating multi-level product and bulk packaging (such as reducing the amount of shrink overwrap on bulk-level packaging) • dematerializing item-level packaging (such as reducing trim area, bulk, thickness) • reformulating products to reduce water as an ingredient

Protocols like DfE and Cradle to Cradle® can be helpful in mitigation. Their use can eliminate the problematic waste at the beginning, so the company invests more in design and less in remediation.

When reducing or eliminating the existence of something isn’t possible, it’s often possible to reuse that item by • leasing, rather than purchasing (creating a second life for the off-lease product), • contracting for closed-loop pallet systems or • making certain outputs resalable to those who can use them as inputs (such as grinding up waste rubber for use in playground or sports ground surface material).

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Finally, if it’s not possible to reduce material or repurpose it for reuse, then it should be recycled according to the material’s proper recycling protocol.

• have a clear, consistent recycling policy • deploy an easy-to-use recycling infrastructure (such as bins, signs and consistent, reliable waste removal) and • train its personnel in the protocol’s purposes and practices. The company should understand that recycling is not benign: Many materials require high amounts of energy to be recycled properly; if that energy is generated using fossil fuel sources, significant GHG emissions may be created.

Primary Impacts of Concern

This requires that a company

The trickiest situation in waste management comes when it’s time to recycle an item that is comprised of different materials that require different end-of-life treatment. Individual components may be unmarked, proprietary and/ or unidentifiable by the entity responsible and in control at that point (such as the consumer, a commercial waste hauler, and a company disposing of obsolete furniture and fixtures). For example, electronic equipment is comprised of diverse materials, all of which require different end-of-life treatment. Without proper identification of each component, responsible parties are challenged to divert a component to the correct waste stream. To overcome this hurdle, product manufacturers can clearly identify each component in a way that ensures proper end-oflife treatment (this usually involves making a mark or imprint on the component). But knowing the exact material used is an essential precursor to identifying and correctly marking individual components, as in this example.

CASE STUDY: Herman Miller Herman Miller, one of the world’s largest manufacturers of office furniture, takes sustainability seriously. Some years back, when getting ready to design new, modern lines of furniture, company leadership required (a) that 75 percent of new products be able to be disassembled in five minutes or less, using common handle tools, and (b) that all recyclable materials in those products be easily diverted to recycling once the product is taken apart. Managers set out to fulfill this goal with the Aeron® chair line, but they immediately realized that the product necessarily would contain multiple types of materials, many of which could not be identified easily for recycling purposes. Plastic parts were purchased from suppliers that did not know their ingredients (such as seat back material and seat arm material). When these suppliers were asked for more information, they could not provide it because the supplier of the underlying component material would not divulge its chemistry. Herman Miller established a direct relationship with this chemicals company (a supplier to its supplier) and, after nearly two years of trust-building and negotiating legal confidentiality agreements, the chemicals company divulged its secrets. Herman Miller then had its supplier stamp the proper recycling mark onto the chair components so that the Aeron® chair could meet the recycling mandate. Learn more by visiting www.hermanmiller.com/our-values/environmental-advocacy/design-for-the-environment.

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ESTABLISHED CHANGE DRIVERS MANY FACTORS DRIVE COMPANIES TO IMPROVE THEIR ENVIRONMENTAL FOOTPRINT. ESTABLISHED CHANGE DRIVERS FOR IMPROVING CORPORATE ENVIRONMENTAL IMPACTS INCLUDE: financial considerations

stakeholder demands

regulations and rules

risk mitigation

standards and certifications

opportunity creation

In any one company’s case, it’s usually a complex combination of these factors that compels action. Let’s consider, however, how each individual driver can create behavior change.

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FINANCIAL CONSIDERATIONS changing lighting systems to high-efficiency or LED lighting immediately reduces utility costs, and these projects usually are approved rapidly. Companies focusing on the financial side of things also can seek to increase revenue through addressing environmental issues—new products and new markets can be explored based on positive environmental attributes of the company, its practices and/or its products.

Established Change Drivers

For-profit companies are motivated by revenue and profit maximization. Environmental responsibility issues will get the most attention if they can be demonstrated to (a) garner new revenue or (b) improve or protect profitability. Many companies focus first on the profitability part of the equation, seeking to cut costs whenever possible. In these situations, environmental responsibility solutions that have up-front cost savings are the first to get the go-ahead. For example,

NOTE: All environmental challenges and opportunities, especially those that may have slightly longer payoffs (because their up-front costs are steep, and/or their cost reductions are spread out over time), are usually subject to thorough return-on-investment (ROI) analyses. Those that fit within a company’s ROI protocol (for example, payback within 24 months) are advanced. Others are deferred. In some companies with a strong appetite for “doing the right thing,” even initiatives that don’t meet the strict payback criteria might get the go-ahead. Or a company may use a longer payback threshold for environmental responsibility projects (such as giving the go-ahead to a project with a five-year ROI). Also, remember that financial drivers interact with other drivers—such as regulations, stakeholder demands and certification requirements—that may accelerate or deter investing in change initiatives.

REGULATIONS AND RULES The corporate world is awash in environmental regulations. These laws and rules usually are strong incentives for behavior modification when market and other forces don’t propel change.

As Michael Porter and Class van der Linde (1995) pointed out, environmental regulation can spur corporate response in one of six ways:

Regulations can send signals to companies about their resource inefficiencies. These signals might even include areas of potential technological improvement. Certain regulations focused on information and data collection can raise corporate awareness. This knowledge can inform the company’s response. Regulations can reduce uncertainty about the value of investing in environmental responsibility.

4. 5.

Regulations can create pressure for change merely because they exist. Regulations can create a level playing field for all entities they cover. This eliminates many inequities that the market leaves unresolved. Regulations can be key to addressing incomplete behavior change. Companies that might otherwise “go halfway” are required to meet common goals.9

Michael E. Porter and Class van der Linde, Toward a New Conception of the Environment-Competitiveness Relationship, Journal of Economic Perspectives, vol. 9, no. 4 (Fall 1995), 99-100. THE UNIVERSITY OF MICHIGAN’S ERB INSTITUTE | BUSINESS FOR SUSTAINABILITY

In corporate environmental responsibility, regulations exist in each of the primary impact areas we outlined above. A few examples:

Established Change Drivers

• The EU’s Waste Electrical and Electronic Equipment (WEEE) Directive is a strong regulatory framework for the post-use treatment of household and commercial electrical equipment and electronics within the member states.

• California’s AB32 regulation creates a system of identifying and managing sources of GHG emissions within the state. • The U.S. Clean Water Act regulates discharges into certain waterways and lakes throughout the country, creating a complex system of permitting, waivers and penalties for non-compliance.

STANDARDS AND CERTIFICATIONS The existence of standards—based on industry, subject area or geography—can drive behavior change in the corporate sector. This is true of the many environmental standards and certification schemes that exist today. Some environmental responsibility standards are process focused, such as the GHG Protocol Standard (a framework for accounting and reporting GHG emissions). These standards enable companies to take actions consistent with their peers and others, eliminating uncertainty or a sense of unfair advantage. Other standards are outcome focused, such as the Electronic Production Environmental Assessment Tool (EPEAT®) for IT and electronics, which requires incorporating energy-efficiency and impact-minimization componentry. Products can be EPEAT® certified according to the standard, which requires mitigation of many negative environmental attributes. EPEAT® certification has created a market demand for these eco-friendly products that might not have existed without the standard. Certifications often drive corporate environmental responsibility. Some of these certifications are overarching, aiming to encompass the entire enterprise. In the environmental area, ISO 14001 is the most recognizable enterprise- and factory-level certification scheme. This

plan-do-check-act paradigm requires adherence to certain principles, robust documentation of processes and products and a conformity assessment that is based on audit or selfassessment. It is applicable to any company, in any industry and any geography. The primary benefits of adhering to ISO 14001 come from adopting a universal framework for managing and documenting environmental impacts. Visit www.iso.org to learn more. Environmental-claim certifications at the product level are everywhere. Some have been developed by NGOs (these tend to be more reputable), and others are commercial in nature (and some of these are suspicious). The list of these certifications is too long for this survey, but you should know that their existence often motivates companies to comply, achieve the certification and market themselves or their products on that basis. However, the proliferation of certifications can cause confusion for manufacturers and consumers. Is the certification really “greenwashing”? How transparent is the process behind the certification? Such questions have made the situation so challenging that there is now a rater for ratings (including certifications).

STAKEHOLDER DEMANDS Customers, investors, lenders, business partners, current and future employees, the media, regulators, suppliers— these stakeholders in a company are increasing their vigilance about corporate environmental performance and demanding improvements. In 2016, environmental concerns were the number-one subject for proxy proposals in U.S. Fortune 250 companies.10 Social media has exponentially expanded the ability of stakeholders throughout the

world to identify and relay to others acts of environmental irresponsibility. Companies now must engage with these diverse stakeholders to listen to their concerns about environmental performance and include them in their assessments of which areas to address and when to address them. Significant reputational and other risks can come to a company that ignores its stakeholders’ concerns.

10 See www.proxymonitor.org/Forms/2016Finding2.aspx.

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RISK MITIGATION All companies have an innate tolerance for risk, including the risks associated with environmental concerns.

manufacturing process to eliminate certain toxic substances when it learns that the chemicals are the subject of an investigation and possible future ban by local regulators. Established Change Drivers

These risks, which may change in relevance over time, include:

NOTE: Companies are increasingly focused on

• financial risks

risks embedded in their supply chain, including those associated with environmental impacts. Supply managers work closely with compliance teams, legal departments and outside experts to understand the scope of environmental risks in certain geographic areas, industries or suppliers. An increasing number of third-party tools can help companies assess vulnerability to environmental and other risk issues (most of these are software services that analyze and report on risks).

• legal and regulatory risks • reputational and brand risks • supply risks • physical risks For example, a company may manage its reputational, brand and supply risks by avoiding sourcing from countries with little or no environmental regulation. Or it may redesign a

OPPORTUNITY CREATION It is certainly not all gloom and doom. Companies have innumerable opportunities to create strong, positive environmental outcomes from their business activities. Some of these opportunities come from internal sources, but many come from collaboration with industry peers, NGOs and even regulators. Opportunities that create economic value and strongly positive environmental outcomes are especially welcome.

Examples of opportunities in the corporate environmental responsibility arena include: • creating net-positive environmental impacts, such as those that might come from reclaiming runoff water to irrigate nearby areas subject to frequent drought • creating new relationships or mining existing relationships that lead to iterative and game-changing innovation (such as ride-sharing initiatives) • creating new markets and/or new products based on healthy environmental product attributes

CASE STUDY: Clorox For example, in 2008, Clorox launched its Green Works® line of household cleaning products. Although these environmentally friendly products sat on shelves right next to legacy products (and there were initial concerns about cannibalizing sales of those products), the line was well received. By seizing on an opportunity to offer customers an environmentally friendly alternative, Clorox created new value for itself and its value-chain partners. And the customer demand for these products created a sufficiently strong “pull” for the eco-substitute ingredients to establish a viable commercial market for those ingredients. Although Green Works® products are still a niche player in the competitive world of cleaning products, the company remains committed to the line.

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EMERGING CHANGE DRIVERS While many drivers of corporate environmental responsibility have been around for a long time, some likely long-lasting ones are just emerging. Here are three significant developments.

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UNITED NATION SUSTAINABLE DEVELOPMENT GOALS

Emerging Change Drivers

Businesses have rallied around the Sustainable Development Goals (SDGs) as a framework for guiding their work in sustainability. Six of the goals focus on environmental responsibility, from clean water and sanitation to energy, oceans, life on land and more. Each goal lists a concrete set of targets to be met by 2030. While not all goals directly affect business activity, many goals present opportunities for companies to improve themselves and engage with other stakeholders to pursue more environmentally responsible outcomes. For more information, visit www.un.org/ sustainabledevelopment.

On September 25, 2015, 193 countries adopted a set of 17 goals that are successors to the eight Millennium Development Goals. The new goals seek to end poverty, protect the planet and ensure prosperity for all as part of a new sustainable development agenda. Each goal has specific targets to be achieved over the next 15 years. For the goals to be reached, everyone needs to do their part: governments, the private sector, civil society and citizens around the world.

COP21 (PARIS CLIMATE ACCORD) Starbucks, Nike and General Mills) had signed on to a letter urging then-U.S.-President-Elect Trump to maintain the country’s commitment. The Association of Chief Climate Change Officers (ACCO) lists over 100 organizations as members that are currently working on climate change issues consistent with the accord’s framework and goals.11 These examples show that any business with a global supply chain is paying attention to the accord’s goals and the activities that support their achievement.

The 2015 Conference of the Parties (COP) in Paris was the twenty-first gathering of those working toward creating an equitable system that addresses climate change in a meaningful way. The meetings generated what is commonly referred to as the Paris Climate Accord, agreed to by 194 nations and effective as of November 4, 2016. Despite the United States’ high-profile defection from this committed group, the global business sector has remained strongly in support of the framework and goals that the accord created. Nearly 400 businesses (including global brands such as

EMERGENT CLIMATE CHANGE IMPACTS The fact that our climate is changing is now beyond debate. Data regarding flooding, drought and extreme weather events all point in a troubling direction. Many of these impacts are considered more severe than predicted and are happening earlier than had first been predicted. And much attention is being paid to the fact that global GHG emissions have already exceeded 400 ppm—a key threshold of concern. To the business community, these impacts represent current risks to their long-term sustainability. Whether it’s a concern about stranded assets because of sea level rise or agricultural ingredients being unavailable because of flood or drought,

companies are highly cognizant of their role in understanding and adapting to these impacts. And they know they need to take action now, irrespective of policy and public funding shortcomings. For example, companies that are partners in the “We Mean Business” coalition (www.wemeanbusinesscoalition. org) have publicly announced over 1,100 commitments to climate change. These investments are significant and are legitimizing climate change as an area that deserves everyone’s attention now.

11 https://accoonline.org/organizational-members-partners THE UNIVERSITY OF MICHIGAN’S ERB INSTITUTE | BUSINESS FOR SUSTAINABILITY

NEAR-TERM DISRUPTERS AND GAME CHANGERS Corporate environmental responsibility is mostly a long game—steady, methodical improvements around policies, practices and products. But the arc toward true environmental responsibility success could bend more radically if certain disrupters take hold. These disrupters don’t accelerate what we’re doing now; they’re completely radical approaches to solving problems. Let’s look at three.

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NON-FOSSIL FUEL SOURCES portfolios would drastically decrease all GHG emissions along the company’s operations and supply chain. With the addition of an all-electric vehicle fleet, a company with a transportation division would reduce GHG emissions even more. Including non-fossil fuel sources could also increase a company’s social equity, giving consumers a reason to purchase the product and feel good doing it, thus increasing sales and further investment in environmental initiatives.

Near-Term Disrupters and Game Changers

Various non-fossil fuel sources—solar, wind, biomass, hydro, geothermal, nuclear—have been prevalent for the last 40 years, but it was not until the last decade that the economic viability, and consequent popularity, of many of these made them the disrupters they are today (the exception being nuclear, for which the economics are generally unfavorable). As with any carbon-reducing technology, the environmental benefits of non-fossil fuel sources for corporate energy needs are clear. Deploying corporation-wide renewable energy

CASE STUDY: Nike Nike, the global apparel and footwear giant, has order-fulfillment warehouses around the world. In siting, designing and operating its massive European Logistics Campus at Laakdal, Belgium, Nike focused on mitigating fossil-fuel-related impacts. As part of this effort, in 2005, Nike chose to install six large windmills on the site to generate electricity for much of the facility’s needs. This choice of non-fossil fuel energy eliminated the equivalent of powering 5,000 households by electricity annually. Read more about Nike’s environmental efforts on pages 21-50 of its FY14/15 Sustainability Report: https://sustainability.nike.com/reports.

ADDITIVE MANUFACTURING (3-D PRINTING) In the age of efficiency and hyper-connectivity, few technologies show as much promise as additive manufacturing (AM), also known as 3-D printing. AM is a process of manufacturing by which products are fabricated from the ground up, using a three-dimensional digital file to guide a mounted robotic arm that “adds” each layer of material onto the next until completion; this is a stark contrast to the fabrication of most current production techniques. There are many benefits to this process, which has the potential to alter current industry standards and create adaptive capacity for businesses’ supply-chain efficiency and sustainability.

Because it uses materials efficiently through the layering process, AM decreases a company’s consumption of new materials and, consequently, its waste disposal. This would in turn reduce a company’s environmental impact. Much of this waste reduction is not only in raw materials, but also in auxiliary processing products such as coolants and cutting fluids, which can be hazardous if released into an ecosystem, not to mention costly to dispose of properly. By eliminating the need for such products, a company further decreases its environmental footprint, thereby mitigating any risk, longterm or otherwise.

CASE STUDY: Boeing Boeing’s recent partnership with Norwegian titanium manufacturer Norsk Titanium uses the firm’s additive manufacturing process to construct complex mechanical components for Boeing’s Dreamliner 787.12 The aircraft, the company’s largest and most energy-efficient passenger plane to date, uses parts that are manufactured through Norsk’s proprietary rapid plasma deposition (RPD) process, which is similar to current AM standards, though likely tailored to titanium application. This AM partnership is unique in that Norsk’s components are Federal Aviation Administration approved for safety and structural integrity13, mitigating ongoing concern about increased costs associated with quality and build failure in AM processes. Such advancements in AM will drive innovation to form a process that is both economically feasible and scalable moving forward.

12 www.cnbc.com/2017/04/11/boeing-looks-to-trim-costs-with-first-ever-3d-printed-plane-structure.html 13 http://www.norsktitanium.com/media/press/norsk-titanium-to-deliver-the-worlds-first-faa-approved-3d-printed-structural-titanium-components-to-boeing THE UNIVERSITY OF MICHIGAN’S ERB INSTITUTE | BUSINESS FOR SUSTAINABILITY

Near-Term Disrupters and Game Changers

AUTONOMOUS MACHINERY/MOBILITY Like 3-D printing, autonomous machinery is one aspect of production and supply-chain management that has experienced rapid growth, as more and more sectors look to increase efficiency with emerging technologies. This can be seen in many operations around the world, where manufacturing and logistical industries are becoming more

automated as artificial intelligence (AI) computing power begins to propagate and develop applications. On the firm level, autonomous machinery and mobility offer many sustainable advantages that a company can use to reduce both cost and impact in the near term.

CASE STUDY: Amazon/Kiva In a large-scale paradigm shift, Amazon acquired Kiva, a warehouse automation company, and the world took notice. Kiva’s robotic fulfillment system uses autonomous bots, like large Roombas, to lift and move pallets of product to a designated location, where the human operator picks the item(s) to be shipped. Since the acquisition in 2012, Amazon has added 15,000 bots annually to its warehouses, alongside 230,000 workers.14

The environmental gains from autonomous mobility are likely to be massive. First, autonomous driving technology could reshape infrastructure, making lanes narrower and thus requiring less area for highways15, subsequently giving firms freedom to draft new designs to take advantage of the changing landscape, which could cut both energy and materials costs of production over time, given the right designs. Second, efficiency in travel—both time and route— would decrease the number of cars on the road at one time, cutting the amount of GHG emissions significantly;

GHG reductions would be even more significant if the cars being used were electrically powered. Moreover, the energy use itself will be much more efficient, due to the optimized routes, further mitigating potential GHG emissions, either at the power plant or in the engine. With a tangible impact on the environment, autonomous machines are a near-term disrupter that can be harnessed to increase efficiency, drive innovation and fundamentally change the world’s environmental landscape for years to come.

14 www.businessinsider.com/amazons-robot-army-has-grown-by-50-2017-1 15 www.chicagotribune.com/news/columnists/ct-driverless-cars-urban-design-kamin-met-0219-20170217-column.html

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Near-Term Disrupters and Game Changers

CASE STUDY: General Motors General Motors Company’s (GM) purchase of Strobe Inc., a small light detection and ranging (LIDAR) research firm, is one indication of where the market is heading. LIDAR uses a pulsed laser to find range over distances and is a key component in autonomous machinery. Many viewed this purchase as a way to accelerate GM’s autonomous mobility division.16 Before acquiring Strobe, GM in 2016 also acquired Cruise Automation, an autonomous technology startup, for $1 billion, moving further into vertically integrating its driverless car efforts.17 Such a diligent shift in strategy and resources shows sustainable thinking on the executive level, likely as much for the economics as for the environment.

Of course, along with environmental benefits, autonomous machines will also bring important consequences for the future of work, as well as many other social impacts. As we consider goals for sustainability—flourishing economy, environment and society—it is critical to understand the relationships among these different areas of sustainability as new strategies are enacted. Autonomous vehicles and automation provide a worthwhile case for considering these issues. The environmental benefits are significant, but when many companies have a primary social contribution through employment, the negative social impacts of automation through loss of jobs may be considerable. The challenge

remains: How can business operate to the benefit of the environment and society? And how do we balance potential conflicts in each domain? There are no easy answers, but a critical first step for future business leaders is to recognize and understand these complex relationships and consider the potential consequences of different business strategies in each domain.

Keep watching for developments in non-fossil fuel sources, AM and autonomous machinery and mobility. They likely will be more than mere iterations in sustainability.

16 www.manufacturing.net/news/2017/10/gm-buys-laser-firm-bid-speed-autonomous-car-research-2 17 www.recode.net/2017/10/9/16446768/general-motors-acquisition-lidar-sensor-startup-strobe-self-driving THE UNIVERSITY OF MICHIGAN’S ERB INSTITUTE | BUSINESS FOR SUSTAINABILITY

LONG-TERM DEVELOPMENTS Current disrupters are already changing the landscape of corporate environmental responsibility, but equally profound paradigm shifts will play out over longer periods. Some of these are not yet easily accessible to most businesses, and some just take time to take hold.

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NEW BUSINESS MODELS finance and sustainable investors—to new types of corporate entities. For example, in over 20 U.S. states, companies can incorporate as a “B corporation.” This form of incorporation is a hybrid; it has the financial structure of a corporation, but the legal structure protects owners and directors from shareholder lawsuits based on claims that financial returns were not maximized because investments were made in areas such as environmental responsibility. For more information on B corporations, visit www.bcorporation.net.

Long-Term Developments

Entrepreneurs, venture capitalists, innovators, social entrepreneurs and risk takers often seek to avoid some of the encumbrances that go along with “traditional” business models. And while many of these existing models have the advantage of mature legal and financial structures, today’s changing world is offering those looking to improve sustainable outcomes in business new business models that can help them achieve their goals. These range from new financing tools—such as microfinance, single-project low-cost

CASE STUDY: Cascade Engineering Cascade Engineering, a privately held diverse manufacturing and engineering company headquartered in Grand Rapids, Michigan, is one of the world’s largest B corporations. Specializing in plastic injection molding of large parts, Cascade employs 1,600 people in 14 U.S. locations, with additional European operations in Budapest, Hungary. Cascade is a nationally recognized proponent of sustainable business practices that emphasize the key role business can play in building financial, social and ecological capital. Here’s how Cascade states its values: “Cascade Engineering is committed to: PEOPLE—Continuously improving safety, morale and learning through employee involvement PLANET—Going beyond environmental compliance through improvements, prevention and protection PROFIT—Exceeding customer expectations through continuous quality, cost, delivery and management systems improvements” And here’s how Cascade describes its choice to be a B corporation: “As a certified B Corp, we’re working to be the best—in the world and for the world. Using business as a force for good, B Corps meet rigorous standards in social and environmental performance, transparency, and legal accountability. We’re proud to be part [of] a growing community of more than 2000 Certified B Corps from 50 countries and over 130 industries, working together to redefine what success in business really means.” For more information, visit http://cascadeng.com/what-we-believe.

THE CIRCULAR ECONOMY, SYSTEMS THINKING AND INDUSTRIAL ECOLOGY The notion of a circular economy is formed around the idea of a zero-waste economic system, in which materials, emissions and energy losses are minimized or eliminated by improvements in processes or the development of “upcycling” techniques. In contrast to the traditional “linear”

economy, in which inputs become outputs and then become waste, the circular economy is organized so that all matter and energy is used in one way or another.

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The circular economy relies on certain specialized theories:

Long-Term Developments

• Systems theory views a system as an entity with intertwined parts that interact with each other, all toward the goal of regeneration through positive and negative feedback. Complex, non-linear systems are broken down to their base to understand supplies, flows, feedback loops and their interactions. • Biomimicry mines the natural world for ideas on how to deal with human-centric issues. Biomimicry plays a key role in systems theory in the circular economy, where systems in nature, such as the water cycle

and the cell cycle, can be studied to understand the mechanisms of each step and how they catalyze the next step. • Industrial ecology studies materials and energy as they flow through industrial systems. This field focuses on waste products of individual processes and how they can better fit into the greater system, either through remanufacturing or deconstruction and reprocessing.

CASE STUDY: Nike Once again, Nike’s design and operation of its Belgian campus stand out as contributors to systems thinking. Nike recently increased the campus’s processing capacity and reviewed all systems, allowing the company to •

collect 30 million shoes to be mined for their key materials to be used in the “Nike Grind” circular system.

•

redesign manufacturing systems to accommodate a mix of virgin and upcycled materials, which require substantially different treatments.

Through this approach, regenerated materials from the Nike Grind program were used to create 71 percent of Nike footwear and apparel.18

CHANGING VALUES The impact of changing values on business behavior is more than anecdotal. From millennials insisting the companies they work for disclose and remedy their shortcomings, to consumers in emerging markets gaining access to social media that informs about trends and problems, forces in the markets for products, experiences and employment favor corporate environmental responsibility. This phenomenon involves a generational-shift dimension and a separate

transparency-action dimension. Younger generations worldwide ache for a cleaner planet with equal access to resources, and many people worldwide, regardless of age, see unprecedented environmental degradation or climate change effects and demand change. Policy-makers, governments, NGOs and businesses are all affected by this change in values.

18 https://about.nike.com/pages/sustainable-innovation

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Regenerated materials from the Nike Grind program were used to create 71 percent of Nike footwear and apparel.

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CONCLUSION Environmental responsibility is one part (out of three) of a company’s sustainability challenge. It’s also one opportunity for a company to improve performance, reduce risk, burnish brand, increase revenue and attract high-caliber talent. It’s a complex task to address these challenges and exploit the opportunities—work must cover GHG emissions, water, chemicals and waste, at a minimum. And, for true sustainability, the work must extend beyond the company’s four walls. Evidence shows that for most companies, environmental impacts in a company’s value chain dwarf those arising from its operations. So it’s key to have strong, collaborative relationships with suppliers and other value-chain partners that can help identify and mitigate negative impacts and help design processes, products and services that add value to the bottom line and protect the natural environment.

Fortunately, numerous solutions—policies, practices, tools and other resources—can help a company meet its environmental responsibility challenge. Standards such as the GHG Protocol’s standards for GHG emissions accounting and reporting help companies both identify the sources of their impacts and quantify these impacts. Other standards and certifications, such as EPEAT for electronics, can act as a “North Star” for goal-setting based on consensus approaches. And sustainability practitioners are sharing knowledge, best practices and tales of failure to teach others where to begin, what to shoot for and the art of persistence.

Fortunately, numerous solutions— policies, practices, tools and other resources—can help a company meet its environmental responsibility challenge.

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AUTHOR: CONTRIBUTING EDITOR: Robert W. Kuhn, Kuhn Associates Sustainability Advisors LLC February 2018

Sara Soderstrom, Ph.D., Assistant Professor of Organizational Studies and Program in the Environment