- Email: [email protected]
Integrating environment policy with business strategy
Integrating Environment Policy with Business Strategy Colin Hu tchinson
BUSINESSES, ESPECIALLYLARGECORPORATIONS, are the most powerful organizations in the world. As such, they bear a heavy responsibility for the type of world we live in and that our children will inherit. Several large companies recognize both their power and their responsibilities, Enlightened self-interest leads visionary companies to accept their wider responsibilities, The damage being inflicted on h u m a n health and the biosphere causes concern to us all. One in seven children in London suffer from asthma. Ten of the warmest summers this century have occurred in the last 15 years. Worldwide we strive to provide food for a population growing by 7 million every m o n t h while we lose 2 million tons of topsoil in the same period. The world fish catch has been steady since 1988 but the per capita catch is declining. Only 0.03% of the world's water is easily accessible fresh water and water scarcity is a severe problem in m a n y countries and a seasonal problem in others. The world grain harvest is not keeping pace with rising population and world grain stocks are declining. 1 Radical change is necessary if lasting solutions are to be found, and government, business, and individuals all have a part to play. The future is about sustainability. Companies are competing for the future but can only do so if they are farsighted, regenerate their core strategies, innovate, and use new ways of thinking to transform their organizations. 2 This article is about the contribution that business can make and is based on the principle that corporate responsibility is in four broad areas: economic, social, resource use, and ecological. 3 See Figure 1. Examples are used to illustrate that it is realistic to expect a significant contribution to come from business. First, however, a description of a sustainable society is provided in order to offer a vision as a framework for action. ~
Pergamon 0024-6301(95)00061-5
Vision of a Sustainable Society Numerous books and articles have contributed ideas about a sustainable society4--societies which improve quality of life without destroying the earth's LongRangePlanning, Vol. 29, No. 1, pp. 11 to 23, 1996 Copyright© 1996 Elsevier Science Ltd Printed in Great Britain. All rights reserved 0024-6301/96 $15.00+0.00
Step is taken up by Paul Hawken, a successful entrepreneur with natural-foods wholesale and mail order businesses in the USA. 8 He advocates the application of ecology in business and endorses the message of The Natural Step. In the case of toxic substances, for example dioxin, they both recommend asking six basic questions: 9 O Is dioxin natural? No E3 Is dioxin stable? Yes O Does it degrade into harmless substances? No O Does it accumulate in bodily tissues? Yes O Is it possible to predict the acceptable tolerances? No O Can we continue to place dioxin into the environment? No, not if we want to survive.
carrying capacity. Figure 2 develops the four responsibilities of business: social, economic, resource use, and ecology and amplifies them as indicated. 5 Against each heading some indicators of sustainability are provided. Business organizations are uniquely placed to contribute to achieving this vision. They are forward looking, optimistic, respond to objectives, are actionorientated, accept the idea of risk and need measures of success. We need to create a world 'that is aesthetically pleasing, biologically stable, and economically productive'. 6 An important contribution to our perception of what is required comes from the work of The Natural Step in Sweden. 7 We have created an industrial system that is linear, wasteful and toxic, and need to change it to one that is cyclic, resource-conserving and healthy. In order to move towards a sustainable society, businesses of every kind need to work with people and with the principles of ecology. The Natural Step has established four systems conditions applicable to business: 0
Stored deposits: less use of underground mineral deposits,
0 Alien compounds: less use of persistent, nonnatural substances. 0 Eco-systems: capacity.
allowing
greater
diversity
and
0 Metabolism: reduced rate of use of energy and materials. The powerful message emanating from The Natural Integrating Environment Policy with Business Strategy
These six questions can be used to test whether it is responsible to continue manufacturing or using potentially toxic substances. The questions test corporate ethical integrity in ways that are consistent with the voluntary commitments many companies have entered into by joining the CBI's Environment Business Forum or signing the ICC's Business Charter for Sustainable Development. 1°
An Environment Policy on its Own is Not Enough Two thousand companies w o r l d w i d e have declared their environment policy making statements such as: O We are committed to environmental goals. O We comply with current and anticipated legislation. El We conduct regular reviews/audits of all operations. O We take environmental factors into account in decisions. O We apply the precautionary principle. O We manage energy, resources, and wastes responsibly. O We recycle materials wherever possible. O We set high standards of health and safety. O We play our part in community initiatives. O We contribute to charitable causes. O We train employees in environmental matters. O We require our suppliers to meet our environmental standards.
Economics as if People, Environment and Resources Matter Government
Business
Technology
• Democratic • Authorative • Legitimate
• Cyclic, Resourceconserving, Healthy • Enpowering Profitable odified
• • • • •
Free~
/
Benign Economical Efficient Durable Appropriate
Population
Materials
• Stabilized • Healthy
. . • •
- Peaceful
"~ Democratic & | ttisfying Human I Communities 1)
Values
ELEMENTS OF A
Re-used Recycled Conserved Sustainable
I Conservation
SUSTAINABLE SOCIETY
~
Sources
of Physical Resources
~ue:~ Effimcntly : T r nan ~ tai~ln' t:oV~ a r de:
Food • Sustainable yields • Near to markets • Organically grown
© Colin Hutchinson, 1994 Vitality & Renewal, Adamantine
Water Ecology • Life support systems safeguarded • Diversity of species protected
Biodiversity Respected and Valued
• Supplies of clean, f r e s h w a t e r f o r all • Economical use . Pollution prevented
O We report progress on achieving our environmental goals. ~3 We use an effective environmental management system. There is no doubt that some companies have achieved a great deal by implementing policies such as these and saved large sums of m o n e y by improving energy efficiency, resource usage, and waste reduction. Monsanto, Dow Chemicals, and 3M are outstanding examples of companies which have achieved dramatic savings. 11 The reduced impact on the environment is described by firms like these in their environmental reports. The growing number of environmental reports indicate a healthy trend, but the standard of reporting varies and few of them make a direct link between environmental performance and their business results. 12 Environmental performance and business results are seldom linked in annual reports. Calls for this to happen have been made by the World Business Council for Sustainable Development (WBCSD) 13 and the Advisory Committee on Business and the Environment.~4 The WBCSD is urging the financial sector to support sustainable development and has put forward eight recommendations: O Stop discounting the future. [] Accept longer pay back. O Acknowledge potential value of eco-efficiency. [] Finance investments in developing countries. [] Build in hidden or ignored environmental costs. [] Note that environmentally sound resources often cost more. O Prefer resource uctivity.
efficiency over labour
prod-
[] Assess environmentalrisks. The WBCSD asks w h y financial market goals are often at odds with the goals of sustainable development. A study has been initiated to see h o w the financial sector could encourage companies to develop sustainable products and processes and provide long term capital requirements. These ideas are directed at the financial markets but they are also relevant to financial departments of companies and indeed to those responsible for corporate strategic planning.
The Level of Penetration of Environmental Management The extent to w h i c h companies in different sectors of industry and commerce have adopted environmental Integrating Environment Policy with Business Strategy
management principles varies. Some sectors are heavily involved, others moderately but many have ignored the environment. Three categories have been identified by Bernard Taylor: 15 0 High penetration: Damaging, dirty and dangerous El Moderate Penetration: Wasteful and polluting [] Low Penetration: The silent destroyers
The highest level of penetration is in the industries with the greatest imprint on the natural environment because they are the most exposed. Industries which are wasteful and polluting are in the second category because they have some impact and are moderately exposed to stiffer regulations. Many of these companies have discovered that they can save considerable sums of money by cutting wasteful practices and reducing pollution, especially at source. The third category are the laggards, and many of these organizations believe that environmental matters do not concern them. They fail to realize h o w they are implicated or the contribution they could make to environmental solutions (see Figure 3). The service sector of the economy, the silent destroyers in the diagram, employs two-thirds of the working population in developed countries, their employees earn as much if not more than those in the other sectors and they depend on the other sectors (as well as each other) for their business. They could make a significant contribution to environmental management, as has been indicated by the WBCSD. For example they could consider whether it is appropriate to do business with organizations which are environmentally irresponsible. They could find ways in which to tailor their services so they contribute to a sustainable future--a few are beginning to do so as we shall see. They might also consider the potential risk of losing some of their larger clients who require their suppliers to demonstrate responsible environmental management practices. In this respect many large service organizations like banks, building societies and accountancy firms occupy very large buildings whose imprint on the local environment is considerable. Guidelines for responsible management of buildings are available from various sources. 16
Why Some Companies Go Further The reasons w h y some companies take matters further and integrate their environment policy with their business strategy warrants more study than it has yet been given. A few cases will illustrate h o w varied are the circumstances which lead to deeper involvement and the consequences of this for both the company and the environment. Some of the reasons w h y companies have become more deeply involved in environmental management are given below:
DAMAGING DIRTY & DANGEROUS
WASTEFUL & POLLUTING
SILENT DESTROYERS
Q A logical extension of an early statement of vision and values (e.g. Merck committed to advancement of medical science and service to humanity. 17)
D An integral part of the company's core ideology (e.g. P & G 'More from less'--a long established principle.) Long Range Planning Vol. 29
February 1996
O Compatible with the mainline business (e.g. BT 'It's good to talk'--BT TV advertising. During the rail strikes in summer 1995 they encouraged teleconferencing rather than struggling with difficult journeys to attend meetings.) O The cost structure of the business required a fundamental change in approach (e.g. Rank Xerox: their practice of leasing copying machines meant that they remained on the balance sheet leading to an unacceptable capital/revenue ratio. This led to investigation of h o w their capital assets might be better used by reuse and recycling of components. Later this led to modifications in their choice of materials and manufacturing processes. 50% of their machines now contain remanufactured components. 18) O By announcing a tough environmental goal for the c o m p a n y just prior to stricter USA regulation (e.g. Monsanto--pledged in 1986 to reduce worldwide air emissions by 90% by 1992 and achieved it. ~9) O After being exposed by an environmental group (e.g. Norsk Hydro--environmentalists climbed the fence, took soil samples and disclosed the results in the media. The results were challenged and denied, hlitially, but very soon Norsk Hydro confirmed, with their own analysis, that the soil on their premises was contaminated. Since then Norsk Hydro have been a leader in disclosing information about their environmental impacts and management practices. 2°) O After a disastrous accident (e.g. Union Carbide-the Bhopal accident is now famous: Methyl Isocyanate, a poisonous gas was released in 1984 resulting in the deaths of 2,600, and a further 300,000 are expected to suffer long term effects. Robert Kennedy, CEO of Union Carbide, has admitted that 'people don't trust us'. The Bhopal accident led to more stringent application of the chemical industry" s Responsible Care programme. 21) O A n e w market initiative which is compatible with the main line business (e.g. The Cooperative Bank--lO0% increase in personal bank accounts, 20% increase in retail deposits after their ethical advertising campaign in 1992. 22) O Niche products have been developed or promoted by Johnson Mathey (catalytic converters for car exhausts because they mine platinum), Volkswagen using more recyclable components, BP with its solar energy division and NPI's Global Care Unit Trust. These are well k n o w n but many more are being developed and will emerge in due course. 0 Company launched with an environmental misIntegrating Environment Policy with Business Strategy
sion (e.g. Body Shop--from the start in 1976 they adopted an ecological stance, choosing natural ingredients, avoiding animal testing, minimizing waste and reusing packaging. 23) In each case there were at least two factors which led to serious involvement with the environment. The first was the particular circumstance summarized above, the second was the role played by a top executive w h o became the champion for the initiative and w h o influenced the board and carried the initiative through the organization. These champions take on this role for a variety of reasons, including their values, the influence of family and friends and especially the influence of their own children or grandchildren for w h o m they want to leave a healthy natural environment.
Three Starting Points The examples given above are, broadly speaking, of one company acting on its own initiative and concerned with its own business performance. This is effective and appropriate but not the only option. Three approaches are explored in more detail: O The firm acting alone. 21 An industry-wide initiative. Q Industrial Symbiosis: exchanging resources between industries and working with the local community.
The Firm Acting Alone Several examples are available but in this paper we look more closely at the evolution of environmental strategy in different sectors, namely health and household (Procter & Gamble), electronics (Rank Xerox), and banking (The Cooperative Bank).
Procter a n d Gamble 24 Procter and Gamble celebrated their 150th anniversary in 1986 and in a speech at the time their Chief Executive, John G. Smale, said: Our commitment must be to continue the vitality of this company.., so that this company, this institution, will last through another 150 years. Any c o m p a n y which aims to do that in our changing world sets itself an enormous challenge. Procter and Gamble's long-standing ideology includes product excellence, honesty and fairness, continuous selfimprovement and respect and concern for the individual. P & G have never shied away from ambitious goals: 'We like to try the impractical and impossible and prove it to be both practical and possible'. Their work on environmental matters demonstrate a logical
extension of these principles as well as the integration of environment policy with business strategy. Their Environmental Progress Report (1995) 25 gives details of the integration of environmental quality throughout the business, h o w they are organized to achieve this and their future environmental goals. In 1995 they broadened the scope of their reporting and merged their Europe Environment Report with their North American counterpart The Environment. The environmental achievements of P & G include: • being the first company to bring recycled plastic bottles and refill packs to the laundry detergent market, w h i c h helped to eliminate 80 million cartons a year; • applying Total Quality Management to pollution prevention; • getting consumers, manufacturers, retailers, environmentalists, and government officials at all levels to work together to seek environmental solutions; • recognizing that consumer decisions are based primarily on performance but environmental attributes of products are also important, and customers need accurate, science-based information; • helping to form the Global Environmental Management Initiative; • declaring European environmental goals for 1995/6--reduce packaging usage by 20% compared with 1989/90 levels; increase post-consumer recycled materials to 37% of all materials; achieve $100 million savings through waste reduction, or 35% reduction of waste per production unit compared with 1991/2; • establishing appropriate structures within P&G, namely a Professional and Regulatory Services Group, an Environmental Science Department and Product S u p p l y Environmental professionals using Total Quality Environmental Management (TQEM) methods and processes throughout P & G worldwide.
Rank Xerox For many years Rank Xerox leased all their copiers to their clients. This created a disproportionately large asset on the balance sheet relative to their revenue. It became important to consider h o w to make more use of these assets. They explored ways in which to reuse and recycle copiers and their components and to manufacture them to make this easier. Today they sell copiers as well as leasing them and have broadened the base of their business into document handling generally. As Paul Allaire, President and Chief Executive of Xerox Corporation, says: [Our environment] policy applies to every aspect of our business
operations--including most emphatically the way we design our products,z6 At Xerox 'protecting Planet Earth begins with a commitment which extends from products and services to where our customers work and live'. Environmental health and safety concerns take priority over economic considerations. The goals include product design, minimization of waste, use of recycled materials and returning components to productive use after their initial lifecycle (see Figure 4 and Box 1). As a result of implementing their environmental policies alongside their business strategy Rank Xerox (Europe) and Xerox Corporation have w o n several environmental awards and have: 27 • eliminated CFCs by 1993; • offered customers in Europe the choice of re-manufactured or n e w document processing machines; • developed the idea of'Design for the Environment'; • designed the 10 series copier so that 51% is reprocessed, 46% recycled and 3% sent to landfill; • reduced their total waste stream--only 19% goes to landfill; • employed 200 people in Asset Recovery operation at Venray; • reduced the value of purchased virgin materials by $50 million in 1994; • introduced automatic power saving which cuts energy consumption by 95% w h e n machines are not in use; • provided a closed loop process for cartridge recovery; 200,000 toner and copy cartridges were returned in 1993, rising to 400,000 in 1994; Long Range Planning Vol. 29
February 1996
Box 1 RANK XEROX E n v i r o n m e n t a l Product S t e w a r d s h i p Rank Xerox concept of product stewardship is a proactive way of approaching our company's responsibility towards the environment, which reflects customers requirements in the 90s and maintains an environmental focus on every stage of the product life cycle.
E~ Design for environment--like an umbrella encompasses the whole life of RX products starting from design through procurement to end-of-life reprocessing and ensuring that more and more components of our equipment are interchangeable and compatible.
El Purchasing and procurement--Our vision is to work with our suppliers to achieve full reprocessing capability-we are working towards applying Rank Xerox Environmental principles and standards in purchasing of equipment, parts and components.
El Manufacturing processes and operations~Rank Xerox manufacturing operations are energy efficient, reduce waste to a minimum and have eliminated or reduced to the minimum the use of harmful materials.
El Integrated Supply Chain (ISC)--Delivery to customers is achieved using minimal packaging and Just In Time (JIT)--which reduces storage and waste. About 50% of all equipment is returned to one of RX Asset Recovery Operations (ARO) for further reprocessing. The integration of the ISC into this process provides reliable return rate, and forms a closed loop for supply and return process.
Q Customer operations~Customer use and service is a real focus of RX Product Stewardship. Our customers have a large choice of environmental papers, and participate in different take-back schemes, enabling Rank Xerox to recover end-of-life equipment and used packaging from customers premises.
El Remanufacturing operations provide fully guaranteed 'as new' performance of Rank Xerox equipment--the same assembly lines and testing equipment are utilized for remanufactured and newly manufactured machines. El After maximizing the reuse of parts and components, Rank Xerox is recycling as much of the remaining material as possible both internally and through external certified recyclers.
Waste minimization, including energy savings, form another 'umbrella' relevant to all domain of RX business activity. Through '3Rs' policy RX strives to minimize waste to landfill. This approach is not only responsible with regard to pollution prevention and resource conservation, but is highly cost effective over the whole Rank Xerox product life-cycle.
• manufactured injection-moulded print cartridges with 25% of the feed stock from recovered cartridges;
• exceed air, water, soil, and noise pollution regulations.
per-
The trigger for action was the cost structure of the business and a desire to make better use of the copier machines w h i c h remained company property. As this issue was explored it became clear that reducing waste, reusing assets and recycling machine components made sense for the business and for the environment. Pierre van Coppernolle, Director of Environment, Rank Xerox (Europe) has said that the two most significant environmental challenges are communicating with employees and keeping abreast of regulations worldwide: 'The more aware our employees are of environmental issues, the better this is from a customer viewpoint, therefore training is becoming an essential component of our programmes'.
• design and produce environmentally friendly products;
The Cooperative Bank, as their name implies, have been committed to a participative style of management from their early beginnings. Their Mission
• introduced a returnable pallet scheme with annual savings of $150,000; • developed 'Corrupad' as a packaging material using 100% recycled board, w h i c h is recyclable, and saving $3 million; • involved staff at all locations in environmental activities; • demonstrated that concern for the environment does not mean sacrificing quality. Rank Xerox intend to maintain their business performance and: • continue improving their environmental formance--make zero use of landfill; • cut energy consumption by 30% by 1997;
Integrating Environment Policy with Business Strategy
The Cooperative Bank
Statement has 8 Clauses, one of w h i c h is on Quality of Life: To be a responsible m e m b e r of society by p r o m o t i n g an environm e n t w h e r e the n e e d s of local c o m m u n i t i e s can be met n o w a n d in the future.
Their Ethical Policy, developed with the support of their customers, was re-affirmed in 1992 and explicitly states that they will not invest in or supply financial services to any regime or organization which: • oppresses the h u m a n spirit or denies h u m a n rights;
Criteria Demonstrating Integration of Environment Policy and Business Strategy These companies (and others) have achieved effective integration of their environment policy and their business strategy. Based on their actions the following checklist has been developed. Every c o m p a n y will not take action in each of these areas, but those companies which want their environmental responsibility to be an integral part of h o w they run their business are likely to agree with most of the following:
• are involved in m o n e y laundering, drug trafficking or tax evasion;
[3 A board statement of commitment to integrating environmental management with business strategy, explaning h o w the organization fits into a sustainable society and the measures needed to achieve this.
• manufactures tobacco products;
Q Health and safety of employees, customers and the community is given priority over profits.
• manufactures or sells w e a p o n s to countries which have oppressive regimes;
• are involved in animal experimentation; • are involved in producing animal fur; • are involved in blood sports. By contrast they will: • encourage customers to be proactive about the environment; • do business with those with compatible values; • continue to strengthen their customer charter. The Cooperative Bank have had an Ethical Policy since 1992 and a strengthened environment policy since 1995. They believe that their improved results in 1995 compared with 1994 are strongly influenced by these policies, and showed: • retail deposits up by 20%; • n e w personal accounts doubled; • market share increased (helped by improved services); • revenue up by 7%; • trading surplus up by 20%; • profits before tax up by 84%; They provide a good example of h o w it is possible to develop ethically and environmentally sound strategies in the service sector and enhance the business at the same time.
C3 Environment/ecological policy influences the design of products and services in direct and explicit ways. t3 Purchasing policy avoids scarce resources, endangered species and support for oppressive regimes. [3 Environment policy has a direct influence on manufacturing processes, maintenance practices and emissions. [3 Reduce, re-use and recycle are the operating principles at all sites to avoid waste, recover resources and reduce pollution at source, with a zero waste goal. [3 Emissions are monitored and measured at all sites and improvement targets are set alongside business objectives. [3 Toxic substances are given special care and there are demanding targets to reduce usage and cut emissions. [3 Products (as appropriate) and packaging are recovered after use for re-use and recycling. [3 Environmental savings are an integral part of accounting and budgeting procedures in all departments. [3 Relevant environmental training is provided for employees--Environmental performance of managers is an integral part of the appraisal and reward system. [3 Continuous environmental improvement is as important as improved business performance. [3 The
hidden
(usually
unaccounted)
Long Range Planning Vol. 29
costs
of
February 1996
environmental damage (environmental cost accounting) is being explored, with a view to inclusion in financial reports. It is interesting to note that large organizations which have not integrated their environment policy with their business strategy may still make demands on suppliers to meet stated standards. The supplier, however, can only meet these criteria by first achieving this integration!
I n d u s t r y - w i d e Initiatives An initiative to achieve sustainable w o r l d w i d e development of the forestry and paper industries is taking place. The first difficulty is to define 'sustainable' because it is used widely to mean sustainable yields by those interested in the timber. They argue that timber yield is the only measurable and economically useful yardstick. Those w h o see forests as a complex ecosystem wish the whole habitat to be sustainable and argue that there are many benefits from forests other than their timber yield. These include absorption of carbon dioxide, prevention of erosion, diversity of species and long term effects on rainfall. Gradually the latter argument is beginning to prevail and four quality indicators are emerging28: 0 Authenticity: natural w o o d l a n d characteristics, range of tree sizes and ages, diversity of species, resilience to storms and extreme weather conditions. D Health: of trees and other species, including those which are typically ignored. 0 Environmental benefits: contribution to clean air and water, prevention of soil erosion and flooding, stored carbon in mature trees. Q Social and economic goods: amenity value, use as a tourist attraction, farming of timber, nuts, fruit, game and pharmaceuticals. Increasing attention is being paid to these issues in North America and Europe but there is considerable lethargy in tropical countries. In Asia there are strong demands for Westerners to get their own house in order, Africa has reacted slowly, while in South America reactions have been mixed. Other stages in the process involve the timber trade, paper and pulp production and customer demand for timber and paper products. The International Tropical Timber Organization is slowly responding to market pressure, but lacks strength and vision, while in the UK a group of businesses has formed the '1995 Group' to take matters forward.
C o m m u n i t y - w i d e Initiatives As a result of thoughtful and creative development over 20 years a whole c o m m u n i t y has become involved in a system of industrial symbiosis. The Integrating Environment Policy with Business Strategy
result is that many environmentally harmful practices have not only ceased but the firms involved have derived benefits. 29 Kalundborg is a city in Denmark of 50,000 people which has established a system of INDUSTRIAL SYMBIOSIS. Starting in a small w a y in the 1980s several companies n o w cooperate with each other, through negotiated deals, and have achieved a remarkable exchange of resources, reduction of wastes and emissions, and use of recycled materials. Originally the scheme was started for cost reasons but continues to develop in ways which reduce the environmental impact of the businesses involved. It is seen as a 'sensible thing to do' and widely appreciated in the community where the factories, the farmers and municipal authorities are all represented on the local environment council. The Kalundborg coal-fired power station (500 employees) is the largest in Denmark and produces most of the electricity for the region. Since 1980 it has supplied district heat to the city and steam to the oil refinery (250 employees) and Novo Nordisk, a pharmaceutical and biotechnology business employing 1200 people. Combined heat and power (CHP) schemes have enabled householders to discontinue using 3500 individual oil burning domestic heating systems. Residual heat from the power station is used by the Power Station's fish farm producing 200 tons of trout and turbot annually for the French market. 330,000 tons of treated sludge from the fish farm is used as fertiliser annually on nearby fields. There is still excess heat available and a 40 acre greenhouse is being considered. Desulphurization at the power station removes 95% of the sulphur dioxide, which is washed with lime-water to produce 250 tons of gypsum every 24 hours. This is used by Gyproc (155 employees) to make plaster board for the building industry. This is less expensive than imported gypsum. 3,000 tons of pure sulphur are produced each year and used by yet another firm which manufactures sulphuric acid. By extracting the sulphur the gas emissions from the oil refinery are n o w virtually sulphur-flee. The oil refinery's cleaned flue gas is sold to the power plant, which has been adapted to burn coal or gas. This has reduced the power plant's coal consumption by 30,000 tonnes annually. The oil refinery has been able to reduce its flare to a 'pilot light'. The power station has eliminated its use of ground water by getting some of its copious requirements for cooling water from surface water supplied by a local water utility and some from waste and treated water from the oil refinery. Some of this is returned to the refinery, and other companies in the neighbourhood, as steam. The power station produces 50 tons of ash per hour, and 99% of this is removed by filtration and used in making cement, building roads and for reclaiming land.
Novo Nordisk buys steam from the power station and surface water from the local utility. They make enzyme products from potato flour and corn starch and large quantities of biomass containing nitrogen are p r o d u c e d as a by-product. This is used on nearby fields to replace commercial fertiliser.
Achieving Strategic Change Our world is changing, probably faster than ever before. The trends that are shaping our future include expansion of knowledge, rapidly improving information systems, environmental pollution, and the rate of use of some renewable resources (eg water, timber and fishing) exceeding sustainable yields. Trends like these contribute to social and economic turbulence. Against this background there is little doubt that business organizations need to be adept at managing organizational and individual change. Indeed, as the most powerful organizations in our society, they are well placed to lead the w a y and help create sustainable societies. Fortunately there are some valuable research findings, useful insights and proven successes which help to identify some of the best ways in w h i c h organizations can change their strategy and become more effective. Tom Peters says: trust people, treat them as if they are responsible and they will behave responsibly, and accept the fact that control is inappropriate in decentralized, networking organizations. 3° As a sequel to Peters, Peter Senge has described h o w to develop a learning organization. He maintains that competitive advantage in the future will be with those organizations w h i c h can make use of the ability of people at all levels to learn and apply their learning. He emphasizes the importance of a shared vision, the use of systems thinking, team development and proficiency achieved through life-long learning. 31 The Elmwood Institute offers a guide to ecological auditing and sustainable business. They are strong advocates of deep ecology, w h i c h means living an ecologically sustainable life style as well as managing in accordance with its principles. They describe practical ways in w h i c h to understand, develop and implement the concept of ecomanagement. 32 The problems we face are systemic and require systemic or ecological thinking and a shift in values from expansion to conservation, quantity to quality and domination to partnership. The book offers checklist guidelines for action on energy, materials, product design, manufacturing, recycling, marketing and sales, managing wastes, as well as finance, transport and international business relations. Paul Hawken, a successful entrepreneur in his own right, says that business needs to listen to ecologists. Business needs to re-imagine its world along sustainable principles which favour local or regional pro-
duction over international or national production. Business also needs to take responsibility for its effects on the environment, use local capital to grow and develop, use production processes that are human, worthy, dignified and intrinsically satisfying, and create durable products for long-term utility whose ultimate disposal will not be harmful. 33 There is also the research carried out by Collins and Porras into visionary companies w h i c h achieve lasting success. 34 They say that visionary companies preserve their core purpose, stimulate progress, identify and remove misalignments which are inconsistent with the core process, have Big Hairy Audacious Goals (BHAGs), are ideological (ie their core values and their purpose are clearly stated). They avoid the tyranny of 'OR' but use the genius of 'AND'. This means that they do not get hung up on false dichotomies such as either we help the environment or we make a profit. They find ways to help the environment and make a profit. Visionary companies move from charisma to democracy, and they painstakingly build the characteristics of the organization. In 1993 the RSA initiated a project on Tomorrow's Company and published their final report in 1995. This advocates the inclusive approach which involves developing effective stakeholder relationships. Successful companies of the future will be those which have earned a 'licence to operate'. 35 The ideas contained in works like these have been developed into a self-administered questionnaire. This can be used by managers at any level to assess whether they use old or n e w ways of thinking and what they should do in the future. The dual assessment of current and desired ways of thinking define the gap which needs to be closed as part of the business's strategic development. This shift in thinking is essential for companies that wish to achieve effective integration of their business strategy and environment policy (see Box 2).
Transformation in Progress The shrewd corporate planner will keep a close eye on developments in several companies, not just competitors. They will also monitor the trends in legislation, regulations and fiscal measures in the UK, Europe and worldwide. Stricter regulation has been the single most important influence on companies w h i c h have developed environment policies. Understanding h o w grass roots values and behaviour are changing in our societies is important even if some effects take time to develop. Some examples of less k n o w n but striking trends are worth noting. For example there are n o w 2.5 million vegetarians in the UK; complementary medicine is used by ever growing numbers of UK citizens and successful Health Food Shops are springing up everywhere; Local Exchange Long Range Planning Vol. 29
February 1996
Box 2 Describing Tomorrow's Organization Underline the number which indicates how your company operates now, then circle the number where you would like it to be. The old ways of thinking describe outmoded practices, new ways of thinking are emerging and suggest the basis for sustainable business success.* Old Ways of Thinking
Fragmented world view Domination Economic growth Self-interest Purpose vague and/or uninspiring Values implicit Shareholder supremacy (Exclusive approach) Adversarial deals (Win-lose) Simplistic thinking Dependency Hierarchy emphasized Limiting environmental damage Reduced emissions Stable, toxic compounds manufactured/used Monetary measurement of performance Questionable legitimacy Secretive Work related training
N e w Ways of Thinking
1 1 1 1 1 1
2 2 2 2 2 2
3 3 3 3 3 3
4 4 4 4 4 4
5 5 5 5 5 5
6 6 6 6 6 6
Holistic world view Partnership Ecological sustainability Service Purpose inspires commitment Values declared
1 1 1 1 1 1 1
2 2 2 2 2 2 2
3 3 3 3 3 3 3
4 4 4 4 4 4 4
5 5 5 5 5 5 5
6 6 6 6 6 6 6
1
2
3
4
5
6
Stakeholder concept (Inclusive approach) Reciprocal relationships (Win-win-win) Complex, systems thinking Empowerment Delegated authority All operations environmentally sound Emissions eliminated Manufacture/use of stable, toxic compounds eliminated
1 1 1 1
2 2 2 2
3 3 3 3
4 4 4 4
5 5 5 5
6 6 6 6
Multiple performance measures 'Licence to operate' Open with information Lifelong learning
"Sources include Peter Block, Stewardship, Berret-Koehler, San Francisco (1993); Callenbach, Capra etal., EcoManagement, BerretKoehler, San Farncisco (1994); J. C. Collins, and J. I. Porras, Built to Last, Century, London; Hawken, Paul, 1993% The Ecology of Commerce, Weidenfeld and Nicolson, London (1994).
Trading Schemes (LETS) provide bartering arrangements on a systematic basis and are developing across the country. LETS schemes exist in North America, Australia and Europe and in the UK have grown from 40 in 1993 to 400 by the end of 1995. Ethical and Environmental Unit Trusts are attracting growing interest. The amount invested in the UK doubled from £400 million in early 1993 to over £800 million in 1995, and the best of these perform above the average for all Unit Trusts. MORI surveys have established that one in four people take environmental factors into account w h e n making buying decisions. An analogy helps to focus the m i n d on the nature
of the change which organizations now face. 36 The transition phases which the butterfly goes through provide this analogy. An egg is laid, which is analogous to the formation of a new business. The egg becomes a caterpillar and enjoys an active life, often with a voracious appetite, until it changes into a pupa. The pupa of the common blue butterfly is 'short, plump, immobile, often hairy and keeps out of sight of predators by hiding under leaves or moss'. Which of these descriptions fits your business? The egg, the caterpillar, the pupa or the butterfly? The demise of the caterpillar is not bad n e w s - - c o n t e m p l a t e the butterfly!
References 1. Statistics such as these are widely available especially in the Worldwatch Institute Vital Signs: the trends that are shaping our future, now published annually by Earthscan. 2. Gary Hamel and C. K. Prahalad, Competing for the future, Harvard Business Review, July/August (1994). 3. Colin Hutchinson, Vitality and Renewal, p. 10, Adamantine Press (UK), Praeger (USA) (1995). 4. The sources include Alexander King and Bertrand Schneider, The First Global Revolution, Simon and Schuster (1991); UNEP, IUCN and WWF, Caring for the Earth; Stephan Schmidheiny, Changing Course, MIT (1992).
Integrating Environment Policy with Business Strategy
5. Contained in Hutchinson, Vitality and Renewal, p. 101, note 3. 6. Tibbs, Hardin, Industrial ecology, Whole Earth Review, Winter (1992). 7. KarI-Henrik Robert, The Natural Step, Box 70335, S-107 23 Stockholm, Sweden. 8. Paul Hawken, The Ecology of Commerce, Weidenfeld and Nicolson (1993). 9. Paul Hawken, op. cit., p. 53. 10. Environmental Business Forum, Confederation of British Industry, London and The Business Charter for Sustainable Development, International Chamber of Commerce, Paris and London. 11. Willums and Goluke, From Ideas toAction, pp. 116, 186, ICC (1992). 12. Assessments of environmental reports are contained in TomorrowV (1), January-March (1995) and UK Environmental Reporting Survey 1994, KPMG, 8 Salisbury Square, London EC4Y 8BB. 13. World Business Council for Sustainable Development supplement contained in Tomorrow V (3), July-September (1995). 14. Advisory Committee on Business and the Environment, Fourth and Fifth Progress Reports, October 1994 and July 1995 offer several recommendations. The reports are available from the Department of the Environment, UK. 15. Taylor, Hutchinson, Pollack and Tapper, The Environmental Management Handbook, p. XV, Pitman (1994). 16. Lester Brown, State of the World 1995, Chapter 6, Earthscan (1995). Also S.P. Halliday, Environmental Code of Practice for Buildings and the Services, Building Services Research and Information Association, Old Bracknell Lane, Bracknell, Berkshire RG12 7AH, UK (1995). 17. James C. Collins and Jerry I. Porras, Built to Last, p. 47, Century, London (1994). 18. Verbal communication from Pierre van Coppernolle, Director of Environment, Rank Xerox (Europe). 19. Jan-Olaf Willums, From Ideas to Action, p. 116, ICC (1992); Frances Cairncross, Green, Inc., p. 187, Earthscan (1995). 20. John Speirs, MD Norsk Hydro UK, has described this on public platforms. 21. Stephan Schmidheiny, Changing Course, p. 221,266, MIT (1992). Also Cairncross, op cit., pp. 202, 205 (1995). 22. Verbal communication, August (1995). 23. Taylor et al., op. cit., p. 392. 24. This section draws on Collins and Porras, op. cit.; P & G's Environment Progress Report (1995); as well as communications with P & G executives (1995). 25. Available from Procter and Gamble, Cincinnati, Ohio 45202 or Hedley House, Gosforth, Newcastle upon Tyne NE99 lEE, UK. 26. Xerox Corporation and the Environment, Xerox Square, Rochester, New York 14644, USA. 27. Rank Xerox Fact Book, Rank Xerox Ltd, Parkway, Marlow, BUCKS SL7 1YL. 28. Tomorrow V (2), ApriI-J u ne (1995), special featu re on forestry in different parts of the world, including future demand for timber and paper. 29. Industrial Symbiosis at Kalundborg is described in a brochure published jointly by SK Power Company, Gyproc, Novo Nordisk and Statoil. Other references include Elkington and Knight, The Green Business Guide, p. 156, Gollancz (1991); Schmidheiny, Changing Course, p. 105, MIT (1992); and Tibbs, Hardin, Industrial ecology, Whole Earth Review, Winter, pp. 9-10 (1992). 30. Tom Peters, Liberation Management, p. 759, Macmillan (1992). 31. Peter M Senge, The Fifth Discipline, Century, London (1990). 32. Capra Callenbach et al., EcoManagement, Berrett-Koehler (1993). 33. Paul Hawken, op. cit. 34. Collins and Porras, op. cit. 35. Royal Society for the encouragement of the Arts, Manufactures and Science (RSA), Tomorrow's Company, RSA, London (1995). 36. The analogy is used by Willis Harman, A System in Decline or Transformation, in the context of national economies rather than business organizations.
Long Range Planning Vol. 29
February 1996
BUSINESSES, ESPECIALLYLARGECORPORATIONS, are the most powerful organizations in the world. As such, they bear a heavy responsibility for the type of world we live in and that our children will inherit. Several large companies recognize both their power and their responsibilities, Enlightened self-interest leads visionary companies to accept their wider responsibilities, The damage being inflicted on h u m a n health and the biosphere causes concern to us all. One in seven children in London suffer from asthma. Ten of the warmest summers this century have occurred in the last 15 years. Worldwide we strive to provide food for a population growing by 7 million every m o n t h while we lose 2 million tons of topsoil in the same period. The world fish catch has been steady since 1988 but the per capita catch is declining. Only 0.03% of the world's water is easily accessible fresh water and water scarcity is a severe problem in m a n y countries and a seasonal problem in others. The world grain harvest is not keeping pace with rising population and world grain stocks are declining. 1 Radical change is necessary if lasting solutions are to be found, and government, business, and individuals all have a part to play. The future is about sustainability. Companies are competing for the future but can only do so if they are farsighted, regenerate their core strategies, innovate, and use new ways of thinking to transform their organizations. 2 This article is about the contribution that business can make and is based on the principle that corporate responsibility is in four broad areas: economic, social, resource use, and ecological. 3 See Figure 1. Examples are used to illustrate that it is realistic to expect a significant contribution to come from business. First, however, a description of a sustainable society is provided in order to offer a vision as a framework for action. ~
Pergamon 0024-6301(95)00061-5
Vision of a Sustainable Society Numerous books and articles have contributed ideas about a sustainable society4--societies which improve quality of life without destroying the earth's LongRangePlanning, Vol. 29, No. 1, pp. 11 to 23, 1996 Copyright© 1996 Elsevier Science Ltd Printed in Great Britain. All rights reserved 0024-6301/96 $15.00+0.00
Step is taken up by Paul Hawken, a successful entrepreneur with natural-foods wholesale and mail order businesses in the USA. 8 He advocates the application of ecology in business and endorses the message of The Natural Step. In the case of toxic substances, for example dioxin, they both recommend asking six basic questions: 9 O Is dioxin natural? No E3 Is dioxin stable? Yes O Does it degrade into harmless substances? No O Does it accumulate in bodily tissues? Yes O Is it possible to predict the acceptable tolerances? No O Can we continue to place dioxin into the environment? No, not if we want to survive.
carrying capacity. Figure 2 develops the four responsibilities of business: social, economic, resource use, and ecology and amplifies them as indicated. 5 Against each heading some indicators of sustainability are provided. Business organizations are uniquely placed to contribute to achieving this vision. They are forward looking, optimistic, respond to objectives, are actionorientated, accept the idea of risk and need measures of success. We need to create a world 'that is aesthetically pleasing, biologically stable, and economically productive'. 6 An important contribution to our perception of what is required comes from the work of The Natural Step in Sweden. 7 We have created an industrial system that is linear, wasteful and toxic, and need to change it to one that is cyclic, resource-conserving and healthy. In order to move towards a sustainable society, businesses of every kind need to work with people and with the principles of ecology. The Natural Step has established four systems conditions applicable to business: 0
Stored deposits: less use of underground mineral deposits,
0 Alien compounds: less use of persistent, nonnatural substances. 0 Eco-systems: capacity.
allowing
greater
diversity
and
0 Metabolism: reduced rate of use of energy and materials. The powerful message emanating from The Natural Integrating Environment Policy with Business Strategy
These six questions can be used to test whether it is responsible to continue manufacturing or using potentially toxic substances. The questions test corporate ethical integrity in ways that are consistent with the voluntary commitments many companies have entered into by joining the CBI's Environment Business Forum or signing the ICC's Business Charter for Sustainable Development. 1°
An Environment Policy on its Own is Not Enough Two thousand companies w o r l d w i d e have declared their environment policy making statements such as: O We are committed to environmental goals. O We comply with current and anticipated legislation. El We conduct regular reviews/audits of all operations. O We take environmental factors into account in decisions. O We apply the precautionary principle. O We manage energy, resources, and wastes responsibly. O We recycle materials wherever possible. O We set high standards of health and safety. O We play our part in community initiatives. O We contribute to charitable causes. O We train employees in environmental matters. O We require our suppliers to meet our environmental standards.
Economics as if People, Environment and Resources Matter Government
Business
Technology
• Democratic • Authorative • Legitimate
• Cyclic, Resourceconserving, Healthy • Enpowering Profitable odified
• • • • •
Free~
/
Benign Economical Efficient Durable Appropriate
Population
Materials
• Stabilized • Healthy
. . • •
- Peaceful
"~ Democratic & | ttisfying Human I Communities 1)
Values
ELEMENTS OF A
Re-used Recycled Conserved Sustainable
I Conservation
SUSTAINABLE SOCIETY
~
Sources
of Physical Resources
~ue:~ Effimcntly : T r nan ~ tai~ln' t:oV~ a r de:
Food • Sustainable yields • Near to markets • Organically grown
© Colin Hutchinson, 1994 Vitality & Renewal, Adamantine
Water Ecology • Life support systems safeguarded • Diversity of species protected
Biodiversity Respected and Valued
• Supplies of clean, f r e s h w a t e r f o r all • Economical use . Pollution prevented
O We report progress on achieving our environmental goals. ~3 We use an effective environmental management system. There is no doubt that some companies have achieved a great deal by implementing policies such as these and saved large sums of m o n e y by improving energy efficiency, resource usage, and waste reduction. Monsanto, Dow Chemicals, and 3M are outstanding examples of companies which have achieved dramatic savings. 11 The reduced impact on the environment is described by firms like these in their environmental reports. The growing number of environmental reports indicate a healthy trend, but the standard of reporting varies and few of them make a direct link between environmental performance and their business results. 12 Environmental performance and business results are seldom linked in annual reports. Calls for this to happen have been made by the World Business Council for Sustainable Development (WBCSD) 13 and the Advisory Committee on Business and the Environment.~4 The WBCSD is urging the financial sector to support sustainable development and has put forward eight recommendations: O Stop discounting the future. [] Accept longer pay back. O Acknowledge potential value of eco-efficiency. [] Finance investments in developing countries. [] Build in hidden or ignored environmental costs. [] Note that environmentally sound resources often cost more. O Prefer resource uctivity.
efficiency over labour
prod-
[] Assess environmentalrisks. The WBCSD asks w h y financial market goals are often at odds with the goals of sustainable development. A study has been initiated to see h o w the financial sector could encourage companies to develop sustainable products and processes and provide long term capital requirements. These ideas are directed at the financial markets but they are also relevant to financial departments of companies and indeed to those responsible for corporate strategic planning.
The Level of Penetration of Environmental Management The extent to w h i c h companies in different sectors of industry and commerce have adopted environmental Integrating Environment Policy with Business Strategy
management principles varies. Some sectors are heavily involved, others moderately but many have ignored the environment. Three categories have been identified by Bernard Taylor: 15 0 High penetration: Damaging, dirty and dangerous El Moderate Penetration: Wasteful and polluting [] Low Penetration: The silent destroyers
The highest level of penetration is in the industries with the greatest imprint on the natural environment because they are the most exposed. Industries which are wasteful and polluting are in the second category because they have some impact and are moderately exposed to stiffer regulations. Many of these companies have discovered that they can save considerable sums of money by cutting wasteful practices and reducing pollution, especially at source. The third category are the laggards, and many of these organizations believe that environmental matters do not concern them. They fail to realize h o w they are implicated or the contribution they could make to environmental solutions (see Figure 3). The service sector of the economy, the silent destroyers in the diagram, employs two-thirds of the working population in developed countries, their employees earn as much if not more than those in the other sectors and they depend on the other sectors (as well as each other) for their business. They could make a significant contribution to environmental management, as has been indicated by the WBCSD. For example they could consider whether it is appropriate to do business with organizations which are environmentally irresponsible. They could find ways in which to tailor their services so they contribute to a sustainable future--a few are beginning to do so as we shall see. They might also consider the potential risk of losing some of their larger clients who require their suppliers to demonstrate responsible environmental management practices. In this respect many large service organizations like banks, building societies and accountancy firms occupy very large buildings whose imprint on the local environment is considerable. Guidelines for responsible management of buildings are available from various sources. 16
Why Some Companies Go Further The reasons w h y some companies take matters further and integrate their environment policy with their business strategy warrants more study than it has yet been given. A few cases will illustrate h o w varied are the circumstances which lead to deeper involvement and the consequences of this for both the company and the environment. Some of the reasons w h y companies have become more deeply involved in environmental management are given below:
DAMAGING DIRTY & DANGEROUS
WASTEFUL & POLLUTING
SILENT DESTROYERS
Q A logical extension of an early statement of vision and values (e.g. Merck committed to advancement of medical science and service to humanity. 17)
D An integral part of the company's core ideology (e.g. P & G 'More from less'--a long established principle.) Long Range Planning Vol. 29
February 1996
O Compatible with the mainline business (e.g. BT 'It's good to talk'--BT TV advertising. During the rail strikes in summer 1995 they encouraged teleconferencing rather than struggling with difficult journeys to attend meetings.) O The cost structure of the business required a fundamental change in approach (e.g. Rank Xerox: their practice of leasing copying machines meant that they remained on the balance sheet leading to an unacceptable capital/revenue ratio. This led to investigation of h o w their capital assets might be better used by reuse and recycling of components. Later this led to modifications in their choice of materials and manufacturing processes. 50% of their machines now contain remanufactured components. 18) O By announcing a tough environmental goal for the c o m p a n y just prior to stricter USA regulation (e.g. Monsanto--pledged in 1986 to reduce worldwide air emissions by 90% by 1992 and achieved it. ~9) O After being exposed by an environmental group (e.g. Norsk Hydro--environmentalists climbed the fence, took soil samples and disclosed the results in the media. The results were challenged and denied, hlitially, but very soon Norsk Hydro confirmed, with their own analysis, that the soil on their premises was contaminated. Since then Norsk Hydro have been a leader in disclosing information about their environmental impacts and management practices. 2°) O After a disastrous accident (e.g. Union Carbide-the Bhopal accident is now famous: Methyl Isocyanate, a poisonous gas was released in 1984 resulting in the deaths of 2,600, and a further 300,000 are expected to suffer long term effects. Robert Kennedy, CEO of Union Carbide, has admitted that 'people don't trust us'. The Bhopal accident led to more stringent application of the chemical industry" s Responsible Care programme. 21) O A n e w market initiative which is compatible with the main line business (e.g. The Cooperative Bank--lO0% increase in personal bank accounts, 20% increase in retail deposits after their ethical advertising campaign in 1992. 22) O Niche products have been developed or promoted by Johnson Mathey (catalytic converters for car exhausts because they mine platinum), Volkswagen using more recyclable components, BP with its solar energy division and NPI's Global Care Unit Trust. These are well k n o w n but many more are being developed and will emerge in due course. 0 Company launched with an environmental misIntegrating Environment Policy with Business Strategy
sion (e.g. Body Shop--from the start in 1976 they adopted an ecological stance, choosing natural ingredients, avoiding animal testing, minimizing waste and reusing packaging. 23) In each case there were at least two factors which led to serious involvement with the environment. The first was the particular circumstance summarized above, the second was the role played by a top executive w h o became the champion for the initiative and w h o influenced the board and carried the initiative through the organization. These champions take on this role for a variety of reasons, including their values, the influence of family and friends and especially the influence of their own children or grandchildren for w h o m they want to leave a healthy natural environment.
Three Starting Points The examples given above are, broadly speaking, of one company acting on its own initiative and concerned with its own business performance. This is effective and appropriate but not the only option. Three approaches are explored in more detail: O The firm acting alone. 21 An industry-wide initiative. Q Industrial Symbiosis: exchanging resources between industries and working with the local community.
The Firm Acting Alone Several examples are available but in this paper we look more closely at the evolution of environmental strategy in different sectors, namely health and household (Procter & Gamble), electronics (Rank Xerox), and banking (The Cooperative Bank).
Procter a n d Gamble 24 Procter and Gamble celebrated their 150th anniversary in 1986 and in a speech at the time their Chief Executive, John G. Smale, said: Our commitment must be to continue the vitality of this company.., so that this company, this institution, will last through another 150 years. Any c o m p a n y which aims to do that in our changing world sets itself an enormous challenge. Procter and Gamble's long-standing ideology includes product excellence, honesty and fairness, continuous selfimprovement and respect and concern for the individual. P & G have never shied away from ambitious goals: 'We like to try the impractical and impossible and prove it to be both practical and possible'. Their work on environmental matters demonstrate a logical
extension of these principles as well as the integration of environment policy with business strategy. Their Environmental Progress Report (1995) 25 gives details of the integration of environmental quality throughout the business, h o w they are organized to achieve this and their future environmental goals. In 1995 they broadened the scope of their reporting and merged their Europe Environment Report with their North American counterpart The Environment. The environmental achievements of P & G include: • being the first company to bring recycled plastic bottles and refill packs to the laundry detergent market, w h i c h helped to eliminate 80 million cartons a year; • applying Total Quality Management to pollution prevention; • getting consumers, manufacturers, retailers, environmentalists, and government officials at all levels to work together to seek environmental solutions; • recognizing that consumer decisions are based primarily on performance but environmental attributes of products are also important, and customers need accurate, science-based information; • helping to form the Global Environmental Management Initiative; • declaring European environmental goals for 1995/6--reduce packaging usage by 20% compared with 1989/90 levels; increase post-consumer recycled materials to 37% of all materials; achieve $100 million savings through waste reduction, or 35% reduction of waste per production unit compared with 1991/2; • establishing appropriate structures within P&G, namely a Professional and Regulatory Services Group, an Environmental Science Department and Product S u p p l y Environmental professionals using Total Quality Environmental Management (TQEM) methods and processes throughout P & G worldwide.
Rank Xerox For many years Rank Xerox leased all their copiers to their clients. This created a disproportionately large asset on the balance sheet relative to their revenue. It became important to consider h o w to make more use of these assets. They explored ways in which to reuse and recycle copiers and their components and to manufacture them to make this easier. Today they sell copiers as well as leasing them and have broadened the base of their business into document handling generally. As Paul Allaire, President and Chief Executive of Xerox Corporation, says: [Our environment] policy applies to every aspect of our business
operations--including most emphatically the way we design our products,z6 At Xerox 'protecting Planet Earth begins with a commitment which extends from products and services to where our customers work and live'. Environmental health and safety concerns take priority over economic considerations. The goals include product design, minimization of waste, use of recycled materials and returning components to productive use after their initial lifecycle (see Figure 4 and Box 1). As a result of implementing their environmental policies alongside their business strategy Rank Xerox (Europe) and Xerox Corporation have w o n several environmental awards and have: 27 • eliminated CFCs by 1993; • offered customers in Europe the choice of re-manufactured or n e w document processing machines; • developed the idea of'Design for the Environment'; • designed the 10 series copier so that 51% is reprocessed, 46% recycled and 3% sent to landfill; • reduced their total waste stream--only 19% goes to landfill; • employed 200 people in Asset Recovery operation at Venray; • reduced the value of purchased virgin materials by $50 million in 1994; • introduced automatic power saving which cuts energy consumption by 95% w h e n machines are not in use; • provided a closed loop process for cartridge recovery; 200,000 toner and copy cartridges were returned in 1993, rising to 400,000 in 1994; Long Range Planning Vol. 29
February 1996
Box 1 RANK XEROX E n v i r o n m e n t a l Product S t e w a r d s h i p Rank Xerox concept of product stewardship is a proactive way of approaching our company's responsibility towards the environment, which reflects customers requirements in the 90s and maintains an environmental focus on every stage of the product life cycle.
E~ Design for environment--like an umbrella encompasses the whole life of RX products starting from design through procurement to end-of-life reprocessing and ensuring that more and more components of our equipment are interchangeable and compatible.
El Purchasing and procurement--Our vision is to work with our suppliers to achieve full reprocessing capability-we are working towards applying Rank Xerox Environmental principles and standards in purchasing of equipment, parts and components.
El Manufacturing processes and operations~Rank Xerox manufacturing operations are energy efficient, reduce waste to a minimum and have eliminated or reduced to the minimum the use of harmful materials.
El Integrated Supply Chain (ISC)--Delivery to customers is achieved using minimal packaging and Just In Time (JIT)--which reduces storage and waste. About 50% of all equipment is returned to one of RX Asset Recovery Operations (ARO) for further reprocessing. The integration of the ISC into this process provides reliable return rate, and forms a closed loop for supply and return process.
Q Customer operations~Customer use and service is a real focus of RX Product Stewardship. Our customers have a large choice of environmental papers, and participate in different take-back schemes, enabling Rank Xerox to recover end-of-life equipment and used packaging from customers premises.
El Remanufacturing operations provide fully guaranteed 'as new' performance of Rank Xerox equipment--the same assembly lines and testing equipment are utilized for remanufactured and newly manufactured machines. El After maximizing the reuse of parts and components, Rank Xerox is recycling as much of the remaining material as possible both internally and through external certified recyclers.
Waste minimization, including energy savings, form another 'umbrella' relevant to all domain of RX business activity. Through '3Rs' policy RX strives to minimize waste to landfill. This approach is not only responsible with regard to pollution prevention and resource conservation, but is highly cost effective over the whole Rank Xerox product life-cycle.
• manufactured injection-moulded print cartridges with 25% of the feed stock from recovered cartridges;
• exceed air, water, soil, and noise pollution regulations.
per-
The trigger for action was the cost structure of the business and a desire to make better use of the copier machines w h i c h remained company property. As this issue was explored it became clear that reducing waste, reusing assets and recycling machine components made sense for the business and for the environment. Pierre van Coppernolle, Director of Environment, Rank Xerox (Europe) has said that the two most significant environmental challenges are communicating with employees and keeping abreast of regulations worldwide: 'The more aware our employees are of environmental issues, the better this is from a customer viewpoint, therefore training is becoming an essential component of our programmes'.
• design and produce environmentally friendly products;
The Cooperative Bank, as their name implies, have been committed to a participative style of management from their early beginnings. Their Mission
• introduced a returnable pallet scheme with annual savings of $150,000; • developed 'Corrupad' as a packaging material using 100% recycled board, w h i c h is recyclable, and saving $3 million; • involved staff at all locations in environmental activities; • demonstrated that concern for the environment does not mean sacrificing quality. Rank Xerox intend to maintain their business performance and: • continue improving their environmental formance--make zero use of landfill; • cut energy consumption by 30% by 1997;
Integrating Environment Policy with Business Strategy
The Cooperative Bank
Statement has 8 Clauses, one of w h i c h is on Quality of Life: To be a responsible m e m b e r of society by p r o m o t i n g an environm e n t w h e r e the n e e d s of local c o m m u n i t i e s can be met n o w a n d in the future.
Their Ethical Policy, developed with the support of their customers, was re-affirmed in 1992 and explicitly states that they will not invest in or supply financial services to any regime or organization which: • oppresses the h u m a n spirit or denies h u m a n rights;
Criteria Demonstrating Integration of Environment Policy and Business Strategy These companies (and others) have achieved effective integration of their environment policy and their business strategy. Based on their actions the following checklist has been developed. Every c o m p a n y will not take action in each of these areas, but those companies which want their environmental responsibility to be an integral part of h o w they run their business are likely to agree with most of the following:
• are involved in m o n e y laundering, drug trafficking or tax evasion;
[3 A board statement of commitment to integrating environmental management with business strategy, explaning h o w the organization fits into a sustainable society and the measures needed to achieve this.
• manufactures tobacco products;
Q Health and safety of employees, customers and the community is given priority over profits.
• manufactures or sells w e a p o n s to countries which have oppressive regimes;
• are involved in animal experimentation; • are involved in producing animal fur; • are involved in blood sports. By contrast they will: • encourage customers to be proactive about the environment; • do business with those with compatible values; • continue to strengthen their customer charter. The Cooperative Bank have had an Ethical Policy since 1992 and a strengthened environment policy since 1995. They believe that their improved results in 1995 compared with 1994 are strongly influenced by these policies, and showed: • retail deposits up by 20%; • n e w personal accounts doubled; • market share increased (helped by improved services); • revenue up by 7%; • trading surplus up by 20%; • profits before tax up by 84%; They provide a good example of h o w it is possible to develop ethically and environmentally sound strategies in the service sector and enhance the business at the same time.
C3 Environment/ecological policy influences the design of products and services in direct and explicit ways. t3 Purchasing policy avoids scarce resources, endangered species and support for oppressive regimes. [3 Environment policy has a direct influence on manufacturing processes, maintenance practices and emissions. [3 Reduce, re-use and recycle are the operating principles at all sites to avoid waste, recover resources and reduce pollution at source, with a zero waste goal. [3 Emissions are monitored and measured at all sites and improvement targets are set alongside business objectives. [3 Toxic substances are given special care and there are demanding targets to reduce usage and cut emissions. [3 Products (as appropriate) and packaging are recovered after use for re-use and recycling. [3 Environmental savings are an integral part of accounting and budgeting procedures in all departments. [3 Relevant environmental training is provided for employees--Environmental performance of managers is an integral part of the appraisal and reward system. [3 Continuous environmental improvement is as important as improved business performance. [3 The
hidden
(usually
unaccounted)
Long Range Planning Vol. 29
costs
of
February 1996
environmental damage (environmental cost accounting) is being explored, with a view to inclusion in financial reports. It is interesting to note that large organizations which have not integrated their environment policy with their business strategy may still make demands on suppliers to meet stated standards. The supplier, however, can only meet these criteria by first achieving this integration!
I n d u s t r y - w i d e Initiatives An initiative to achieve sustainable w o r l d w i d e development of the forestry and paper industries is taking place. The first difficulty is to define 'sustainable' because it is used widely to mean sustainable yields by those interested in the timber. They argue that timber yield is the only measurable and economically useful yardstick. Those w h o see forests as a complex ecosystem wish the whole habitat to be sustainable and argue that there are many benefits from forests other than their timber yield. These include absorption of carbon dioxide, prevention of erosion, diversity of species and long term effects on rainfall. Gradually the latter argument is beginning to prevail and four quality indicators are emerging28: 0 Authenticity: natural w o o d l a n d characteristics, range of tree sizes and ages, diversity of species, resilience to storms and extreme weather conditions. D Health: of trees and other species, including those which are typically ignored. 0 Environmental benefits: contribution to clean air and water, prevention of soil erosion and flooding, stored carbon in mature trees. Q Social and economic goods: amenity value, use as a tourist attraction, farming of timber, nuts, fruit, game and pharmaceuticals. Increasing attention is being paid to these issues in North America and Europe but there is considerable lethargy in tropical countries. In Asia there are strong demands for Westerners to get their own house in order, Africa has reacted slowly, while in South America reactions have been mixed. Other stages in the process involve the timber trade, paper and pulp production and customer demand for timber and paper products. The International Tropical Timber Organization is slowly responding to market pressure, but lacks strength and vision, while in the UK a group of businesses has formed the '1995 Group' to take matters forward.
C o m m u n i t y - w i d e Initiatives As a result of thoughtful and creative development over 20 years a whole c o m m u n i t y has become involved in a system of industrial symbiosis. The Integrating Environment Policy with Business Strategy
result is that many environmentally harmful practices have not only ceased but the firms involved have derived benefits. 29 Kalundborg is a city in Denmark of 50,000 people which has established a system of INDUSTRIAL SYMBIOSIS. Starting in a small w a y in the 1980s several companies n o w cooperate with each other, through negotiated deals, and have achieved a remarkable exchange of resources, reduction of wastes and emissions, and use of recycled materials. Originally the scheme was started for cost reasons but continues to develop in ways which reduce the environmental impact of the businesses involved. It is seen as a 'sensible thing to do' and widely appreciated in the community where the factories, the farmers and municipal authorities are all represented on the local environment council. The Kalundborg coal-fired power station (500 employees) is the largest in Denmark and produces most of the electricity for the region. Since 1980 it has supplied district heat to the city and steam to the oil refinery (250 employees) and Novo Nordisk, a pharmaceutical and biotechnology business employing 1200 people. Combined heat and power (CHP) schemes have enabled householders to discontinue using 3500 individual oil burning domestic heating systems. Residual heat from the power station is used by the Power Station's fish farm producing 200 tons of trout and turbot annually for the French market. 330,000 tons of treated sludge from the fish farm is used as fertiliser annually on nearby fields. There is still excess heat available and a 40 acre greenhouse is being considered. Desulphurization at the power station removes 95% of the sulphur dioxide, which is washed with lime-water to produce 250 tons of gypsum every 24 hours. This is used by Gyproc (155 employees) to make plaster board for the building industry. This is less expensive than imported gypsum. 3,000 tons of pure sulphur are produced each year and used by yet another firm which manufactures sulphuric acid. By extracting the sulphur the gas emissions from the oil refinery are n o w virtually sulphur-flee. The oil refinery's cleaned flue gas is sold to the power plant, which has been adapted to burn coal or gas. This has reduced the power plant's coal consumption by 30,000 tonnes annually. The oil refinery has been able to reduce its flare to a 'pilot light'. The power station has eliminated its use of ground water by getting some of its copious requirements for cooling water from surface water supplied by a local water utility and some from waste and treated water from the oil refinery. Some of this is returned to the refinery, and other companies in the neighbourhood, as steam. The power station produces 50 tons of ash per hour, and 99% of this is removed by filtration and used in making cement, building roads and for reclaiming land.
Novo Nordisk buys steam from the power station and surface water from the local utility. They make enzyme products from potato flour and corn starch and large quantities of biomass containing nitrogen are p r o d u c e d as a by-product. This is used on nearby fields to replace commercial fertiliser.
Achieving Strategic Change Our world is changing, probably faster than ever before. The trends that are shaping our future include expansion of knowledge, rapidly improving information systems, environmental pollution, and the rate of use of some renewable resources (eg water, timber and fishing) exceeding sustainable yields. Trends like these contribute to social and economic turbulence. Against this background there is little doubt that business organizations need to be adept at managing organizational and individual change. Indeed, as the most powerful organizations in our society, they are well placed to lead the w a y and help create sustainable societies. Fortunately there are some valuable research findings, useful insights and proven successes which help to identify some of the best ways in w h i c h organizations can change their strategy and become more effective. Tom Peters says: trust people, treat them as if they are responsible and they will behave responsibly, and accept the fact that control is inappropriate in decentralized, networking organizations. 3° As a sequel to Peters, Peter Senge has described h o w to develop a learning organization. He maintains that competitive advantage in the future will be with those organizations w h i c h can make use of the ability of people at all levels to learn and apply their learning. He emphasizes the importance of a shared vision, the use of systems thinking, team development and proficiency achieved through life-long learning. 31 The Elmwood Institute offers a guide to ecological auditing and sustainable business. They are strong advocates of deep ecology, w h i c h means living an ecologically sustainable life style as well as managing in accordance with its principles. They describe practical ways in w h i c h to understand, develop and implement the concept of ecomanagement. 32 The problems we face are systemic and require systemic or ecological thinking and a shift in values from expansion to conservation, quantity to quality and domination to partnership. The book offers checklist guidelines for action on energy, materials, product design, manufacturing, recycling, marketing and sales, managing wastes, as well as finance, transport and international business relations. Paul Hawken, a successful entrepreneur in his own right, says that business needs to listen to ecologists. Business needs to re-imagine its world along sustainable principles which favour local or regional pro-
duction over international or national production. Business also needs to take responsibility for its effects on the environment, use local capital to grow and develop, use production processes that are human, worthy, dignified and intrinsically satisfying, and create durable products for long-term utility whose ultimate disposal will not be harmful. 33 There is also the research carried out by Collins and Porras into visionary companies w h i c h achieve lasting success. 34 They say that visionary companies preserve their core purpose, stimulate progress, identify and remove misalignments which are inconsistent with the core process, have Big Hairy Audacious Goals (BHAGs), are ideological (ie their core values and their purpose are clearly stated). They avoid the tyranny of 'OR' but use the genius of 'AND'. This means that they do not get hung up on false dichotomies such as either we help the environment or we make a profit. They find ways to help the environment and make a profit. Visionary companies move from charisma to democracy, and they painstakingly build the characteristics of the organization. In 1993 the RSA initiated a project on Tomorrow's Company and published their final report in 1995. This advocates the inclusive approach which involves developing effective stakeholder relationships. Successful companies of the future will be those which have earned a 'licence to operate'. 35 The ideas contained in works like these have been developed into a self-administered questionnaire. This can be used by managers at any level to assess whether they use old or n e w ways of thinking and what they should do in the future. The dual assessment of current and desired ways of thinking define the gap which needs to be closed as part of the business's strategic development. This shift in thinking is essential for companies that wish to achieve effective integration of their business strategy and environment policy (see Box 2).
Transformation in Progress The shrewd corporate planner will keep a close eye on developments in several companies, not just competitors. They will also monitor the trends in legislation, regulations and fiscal measures in the UK, Europe and worldwide. Stricter regulation has been the single most important influence on companies w h i c h have developed environment policies. Understanding h o w grass roots values and behaviour are changing in our societies is important even if some effects take time to develop. Some examples of less k n o w n but striking trends are worth noting. For example there are n o w 2.5 million vegetarians in the UK; complementary medicine is used by ever growing numbers of UK citizens and successful Health Food Shops are springing up everywhere; Local Exchange Long Range Planning Vol. 29
February 1996
Box 2 Describing Tomorrow's Organization Underline the number which indicates how your company operates now, then circle the number where you would like it to be. The old ways of thinking describe outmoded practices, new ways of thinking are emerging and suggest the basis for sustainable business success.* Old Ways of Thinking
Fragmented world view Domination Economic growth Self-interest Purpose vague and/or uninspiring Values implicit Shareholder supremacy (Exclusive approach) Adversarial deals (Win-lose) Simplistic thinking Dependency Hierarchy emphasized Limiting environmental damage Reduced emissions Stable, toxic compounds manufactured/used Monetary measurement of performance Questionable legitimacy Secretive Work related training
N e w Ways of Thinking
1 1 1 1 1 1
2 2 2 2 2 2
3 3 3 3 3 3
4 4 4 4 4 4
5 5 5 5 5 5
6 6 6 6 6 6
Holistic world view Partnership Ecological sustainability Service Purpose inspires commitment Values declared
1 1 1 1 1 1 1
2 2 2 2 2 2 2
3 3 3 3 3 3 3
4 4 4 4 4 4 4
5 5 5 5 5 5 5
6 6 6 6 6 6 6
1
2
3
4
5
6
Stakeholder concept (Inclusive approach) Reciprocal relationships (Win-win-win) Complex, systems thinking Empowerment Delegated authority All operations environmentally sound Emissions eliminated Manufacture/use of stable, toxic compounds eliminated
1 1 1 1
2 2 2 2
3 3 3 3
4 4 4 4
5 5 5 5
6 6 6 6
Multiple performance measures 'Licence to operate' Open with information Lifelong learning
"Sources include Peter Block, Stewardship, Berret-Koehler, San Francisco (1993); Callenbach, Capra etal., EcoManagement, BerretKoehler, San Farncisco (1994); J. C. Collins, and J. I. Porras, Built to Last, Century, London; Hawken, Paul, 1993% The Ecology of Commerce, Weidenfeld and Nicolson, London (1994).
Trading Schemes (LETS) provide bartering arrangements on a systematic basis and are developing across the country. LETS schemes exist in North America, Australia and Europe and in the UK have grown from 40 in 1993 to 400 by the end of 1995. Ethical and Environmental Unit Trusts are attracting growing interest. The amount invested in the UK doubled from £400 million in early 1993 to over £800 million in 1995, and the best of these perform above the average for all Unit Trusts. MORI surveys have established that one in four people take environmental factors into account w h e n making buying decisions. An analogy helps to focus the m i n d on the nature
of the change which organizations now face. 36 The transition phases which the butterfly goes through provide this analogy. An egg is laid, which is analogous to the formation of a new business. The egg becomes a caterpillar and enjoys an active life, often with a voracious appetite, until it changes into a pupa. The pupa of the common blue butterfly is 'short, plump, immobile, often hairy and keeps out of sight of predators by hiding under leaves or moss'. Which of these descriptions fits your business? The egg, the caterpillar, the pupa or the butterfly? The demise of the caterpillar is not bad n e w s - - c o n t e m p l a t e the butterfly!
References 1. Statistics such as these are widely available especially in the Worldwatch Institute Vital Signs: the trends that are shaping our future, now published annually by Earthscan. 2. Gary Hamel and C. K. Prahalad, Competing for the future, Harvard Business Review, July/August (1994). 3. Colin Hutchinson, Vitality and Renewal, p. 10, Adamantine Press (UK), Praeger (USA) (1995). 4. The sources include Alexander King and Bertrand Schneider, The First Global Revolution, Simon and Schuster (1991); UNEP, IUCN and WWF, Caring for the Earth; Stephan Schmidheiny, Changing Course, MIT (1992).
Integrating Environment Policy with Business Strategy
5. Contained in Hutchinson, Vitality and Renewal, p. 101, note 3. 6. Tibbs, Hardin, Industrial ecology, Whole Earth Review, Winter (1992). 7. KarI-Henrik Robert, The Natural Step, Box 70335, S-107 23 Stockholm, Sweden. 8. Paul Hawken, The Ecology of Commerce, Weidenfeld and Nicolson (1993). 9. Paul Hawken, op. cit., p. 53. 10. Environmental Business Forum, Confederation of British Industry, London and The Business Charter for Sustainable Development, International Chamber of Commerce, Paris and London. 11. Willums and Goluke, From Ideas toAction, pp. 116, 186, ICC (1992). 12. Assessments of environmental reports are contained in TomorrowV (1), January-March (1995) and UK Environmental Reporting Survey 1994, KPMG, 8 Salisbury Square, London EC4Y 8BB. 13. World Business Council for Sustainable Development supplement contained in Tomorrow V (3), July-September (1995). 14. Advisory Committee on Business and the Environment, Fourth and Fifth Progress Reports, October 1994 and July 1995 offer several recommendations. The reports are available from the Department of the Environment, UK. 15. Taylor, Hutchinson, Pollack and Tapper, The Environmental Management Handbook, p. XV, Pitman (1994). 16. Lester Brown, State of the World 1995, Chapter 6, Earthscan (1995). Also S.P. Halliday, Environmental Code of Practice for Buildings and the Services, Building Services Research and Information Association, Old Bracknell Lane, Bracknell, Berkshire RG12 7AH, UK (1995). 17. James C. Collins and Jerry I. Porras, Built to Last, p. 47, Century, London (1994). 18. Verbal communication from Pierre van Coppernolle, Director of Environment, Rank Xerox (Europe). 19. Jan-Olaf Willums, From Ideas to Action, p. 116, ICC (1992); Frances Cairncross, Green, Inc., p. 187, Earthscan (1995). 20. John Speirs, MD Norsk Hydro UK, has described this on public platforms. 21. Stephan Schmidheiny, Changing Course, p. 221,266, MIT (1992). Also Cairncross, op cit., pp. 202, 205 (1995). 22. Verbal communication, August (1995). 23. Taylor et al., op. cit., p. 392. 24. This section draws on Collins and Porras, op. cit.; P & G's Environment Progress Report (1995); as well as communications with P & G executives (1995). 25. Available from Procter and Gamble, Cincinnati, Ohio 45202 or Hedley House, Gosforth, Newcastle upon Tyne NE99 lEE, UK. 26. Xerox Corporation and the Environment, Xerox Square, Rochester, New York 14644, USA. 27. Rank Xerox Fact Book, Rank Xerox Ltd, Parkway, Marlow, BUCKS SL7 1YL. 28. Tomorrow V (2), ApriI-J u ne (1995), special featu re on forestry in different parts of the world, including future demand for timber and paper. 29. Industrial Symbiosis at Kalundborg is described in a brochure published jointly by SK Power Company, Gyproc, Novo Nordisk and Statoil. Other references include Elkington and Knight, The Green Business Guide, p. 156, Gollancz (1991); Schmidheiny, Changing Course, p. 105, MIT (1992); and Tibbs, Hardin, Industrial ecology, Whole Earth Review, Winter, pp. 9-10 (1992). 30. Tom Peters, Liberation Management, p. 759, Macmillan (1992). 31. Peter M Senge, The Fifth Discipline, Century, London (1990). 32. Capra Callenbach et al., EcoManagement, Berrett-Koehler (1993). 33. Paul Hawken, op. cit. 34. Collins and Porras, op. cit. 35. Royal Society for the encouragement of the Arts, Manufactures and Science (RSA), Tomorrow's Company, RSA, London (1995). 36. The analogy is used by Willis Harman, A System in Decline or Transformation, in the context of national economies rather than business organizations.
Long Range Planning Vol. 29
February 1996