Week 3 Discussions and Required ResourcesAssignment: This is a two-part assignment. Each part must be at least 200 words unless otherwise noted. Please read all attachments and follow ALL instructions

143 Part Three What WaveRiders Do Understanding the Green-to-Gold Plays is important. Getting into the game, however, requires more than just a playbook.

We’ve found that a successful journey toward Eco-Advantage starts with the right mindset and a focus on driving environ- mental thinking deep into corporate strategy. Our research has identiﬁed ﬁve ways of thinking that help businesses ﬁnd opportunities to seize a competitive edge. We take up these approaches to developing an Eco-Advantage Mindset in Chapter Six.Setting out on a journey with nothing to guide you but the right frame of mind is like trying to sail to a distant port with a good ship but no crew or charts. So we also provide the tools businesses need to get beyond good intentions and turn environmental focus into competitive advantage. Chapter Seven shows you how to map environmental per- formance. With the right information, companies can under- stand how big environmental issues affect their value chain and the competitive playing ﬁeld. We call this Eco-Tracking. Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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144What WaveRiders Do Eco-Advantage Toolkit Culture Redesign Eco-tracking MIN D SET Seizing opportunities to lower cost and risk, or raise revenues and intangible value, often means redesigning both products and pro- cesses. It also means helping suppliers and customers change course and lower theirimpacts. In Chapter Eight, we discuss tools that help companies Redesigntheir entire value chains.

Finally, in Chapter Nine, we explore how to build an Eco- Advantage Cultureand engage executives, managers, and employees in the vision. Inspiring workers with goals, ownership, and incentives that build environmental thinking into all levels of the organization will help turn environmental challenges into opportunities for proﬁt. With the Eco-Advantage Mindset at its core, these three tool sets make up the Eco-Advantage Toolkit (see ﬁgure), which is the basis for meaningful action and successful execution of the Green-to-Gold Plays. Some executives even talk about the importance of embedding environmental thinking and action in their “corporate DNA.” We agree, and the following chapters show the way. Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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145 Chapter 6 The Eco-Advantage Mindset In 1963, Oregon teen Dick Fosbury was a good high jumper on his high school track team, but he was nowhere near ready to compete on an international level. Five years later, Fosbury emerged as the world’s best high jumper.

For decades, high jumpers had jumped over the bar using basically one method: run at it face forward, kick one leg over, and then the other. Thousands of coaches were teaching millions of kids the “proper” way to jump, working to per- fect what Fosbury would show was a suboptimal method.

Instead of using this traditional “straddle” or “scissor” ap- proach, Fosbury saw a new way to clear the bar. As he ap- proached the hurdle, he turned his back to it, arched over, and kept his legs together. This simple innovation changed the sport of high jumping forever. Fosbury won the gold medal in the 1968 Olympic Games, breaking both the U.S. and Olympic records. In four short years, by the 1972 games, twenty-four of forty Olympic high Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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146What WaveRiders Do jumpers had adopted his style. All but two medalists since 1968 have used what is now called the Fosbury Flop.

The potential to remake the sport was always there. After all, the mechanics of Fosbury’s jump were easy to grasp. But only an inno- vative thinker, a future engineer, saw the possibility for transforma- tion. As Fosbury told Sports Illustrated, “I’ve never tried to be a nonconformist. I just ﬁnd different solutions. I’m a problem solver.

That’s what engineers do.” Everybody talks about out-of-the-box thinking and paradigm shifts, but it’s discouraging how rarely we witness real, discontinuous change. Fosbury found an instant competitive advantage from look- ing at an old problem in a new way. Similarly, in the corporate world, a handful of companies are developing new ways of approach- ing a thorny problem: How do we grow and prosper while decreasing pollution and conserving natural resources? WaveRiders build a foundation for Eco-Advantage by reframing how everyone in the company looks at environmental issues. For these companies, environmental thinking is not always the ﬁnal word on strategy, but it isalways a consideration.

In our research, we’ve found that this new mindset is absolutely critical to managing eco-risks, driving innovation, and turning envi- ronmental pressures into competitive advantage. This chapter high- lights how WaveRiders use an environmental lens to change the way they think and sharpen their business strategies. After a while, these companies don’t have to focus consciously on ﬁnding an alternative perspective. Environmental thinking becomes intrinsic to how they do business. Deeply embedded, the Eco-Advantage Mindsetarises naturally at every opportunity. Some basic rules to get you there:

• Look at the forest, not the trees. WaveRiders think broadly about (a) the time frames involved in investment and strategy decisions, (b) the full range of potential payoffs from those investments, in- cluding hard-to-measure intangible gains, and (c) possibilities for adding value across the full chain of production.

• Start at the top. Every company we found leveraging Eco- Advantage had a commitment to environmental thinking at the very top of the organization. Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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The Eco-Advantage Mindset147 •Adopt the Apollo 13 principle— “No” is not an option. In lead- ing companies, management gives the organization bold environ- mental goals and seemingly impossible tasks—and refuses to ac- cept failure.

• Recognize that feelings are facts. Top performers know that what NGOs, employees, customers, communities, and other stakehold- ers feel about a company’s environmental performance and repu- tation can be much more important than the reality.

• Do the right thing. We’ve seen time and time again that Wave- Riders make choices based on core values, including caring for the environment, even when it might not pay off in the short run.

LOOK AT THE FOREST, NOT THE TREES If Dick Fosbury had stuck with traditional high-jumping techniques, he never would have won an Olympic gold medal. Fosbury, though, looked at the big issue ﬁrst (getting over the bar) and then reasoned backwards to ﬁnd the best way to do it. By concentrating on the forest, he found the strategic advantage. WaveRiders in the corporate world do the same. True, many business books push broad thinking, but taking up the environmental lens requires stretching the mind in new directions. Nature, after all, cuts a very wide swath.

In factoring environmental considerations into their strategic thinking, WaveRiders broaden their vision across three critical di- mensions. They consider issues in both short- and long-time horizons.

They calculate payoffs more broadly than others and are more at- tuned to intangible costs and beneﬁts. They don’t let the traditional boundaries of their business limit their vision, and they search for ways to improve performance throughout their value chains.

Time: The Strategic Term WaveRiders consider short-term ﬁnancial impacts, but they look past quarterly ﬁnancial results before making important decisions. They know that maximizing shareholder value is not the same thing as maximizing quarterly proﬁts. And they recognize that proper analysis of some issues, including many environmental challenges, requires longer timelines. Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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148What WaveRiders Do Companies make long-term business decisions all the time. They spend millions on R&D when the potential payoffs down the road are, at best, uncertain. They enter tenuous new markets like China and India in the hope that business will boom. And they invest in leadership training to build up “bench strength” and prepare future executives. The Eco-Advantage Mindset requires that companies bring the same long-term perspective to environmental strategy. Rick Paulson is the Plant Manager for Intel’s multibillion-dollar chip fabrication plant near Phoenix, Arizona. As the head of “Fab 22,” he’s responsible for producing Intel’s latest chips in vast quan- tities using some of the most advanced technology in the world. And he has to do it quickly, cheaply, safely, and proﬁtably. But like all Intel executives, Paulson must think beyond today’s operations. Intel lives or dies by its ability to build the nextchip plant—and the next chip. Fab 22 will be outdated very soon. So Paulson has an eye on Intel’s future production needs. He knows that he must keep com- munity groups, activists, and regulators happy for one simple reason:

Their unhappiness can easily slow or block expansion plans, costing the company millions of dollars. No wonder Paulson talks about making decisions not for the short term, but for the “strategic term.” How long is the strategic term? It depends on the business. It may be a year or two, or much further out. In the late 1960s, executives at Royal Dutch/Shell began looking for ways to prepare for an in- creasingly unstable oil market. The result was a planning group that focused on painting pictures of possible futures—scenarios that would help the company think about what its business might look like over the long term. Among other futures the team famously imagined were the rise of OPEC and the fall of the Soviet Union. More recently, scenarios have helped Shell set environmental strat- egy. We talked with the head of the group, Albert Bressand, and a group of other senior executives. Over a lunch in headquarters in The Hague, Netherlands, they explained how scenarios help them devise better strategies. “First, you should know that scenarios are notforecasts,” Lex Holst, VP of Health, Safety, and Environment, said, “but consistent pictures of a possible future.” Added Mark Weintraub, the executive who writes the annual Shell Report, “We ask ourselves, ‘Will 20 Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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The Eco-Advantage Mindset149 NOTABLE QUOTE: THE GRANDCHILDREN TEST For Jim Rogers, CEO of energy company Cinergy, the long run extends a generation or two. When asked why a company that makes its money burning coal is thinking about the environment and climate change, Rogers says, “I apply what I call the grandchildren test. Simply put, when my grandchildren get to be my age, will they say that their granddaddy made good decisions that remain good decisions?” percent of all new cars in 2020 be powered by hydrogen fuel cells?’ We don’t know, but we can hold up a strategy to this picture and ask, ‘Is my plan robust in this kind of world?’ ” Will the world move toward increased energy efﬁciency and de- mand much more renewable energy? If so, Shell is facing company- altering, perhaps company-threatening, changes. So it’s worth think- ing long-term, asking tough questions, and building pictures of the future. These kinds of scenarios helped Shell decide to move into the hydrogen business in the ﬁrst place. Other companies are talking more informally but still thinking long-term. Executives at IKEA are exploring how their business might greatly reduce its dependence on fossil fuels. Given today’s infrastructure and technologies, could a furniture business consume no oil or gas? It might seem farfetched. But IKEA executives know that the world is changing and they want to be ready to move proac- tively into the energy future one step ahead of the competition. Even smart fossil-fuel suppliers like BP and Shell are planning for a day with much less fossil fuel in the mix. What long-term environmental pressures could sink your business?

And which of them might offer opportunities for growth? Until you ask those questions in a serious and systematic way, the future will control you instead of the other way around. Big difference. So WaveRiders think broadly about time. Great, you might say, but taking the long view can create seemingly very tough choices now. And the market can be quite unforgiving in the short term. The trade-offs can look especially ill advised if you consider only the ﬁ- nancial costs. Changing or retooling longstanding production pro- cesses or reformulating successful products often costs a bundle of Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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150What WaveRiders Do money upfront. But not paying attention to changing circumstances and new pressures, including environmental ones, can hurt a business far more.

Payoffs: Beyond the Immediate and Obvious Every business faces countless decisions about how to invest the next dollar. Should we spend more money on R&D, on new equipment, or on a new marketing campaign? Every business has some process, either formal or informal, for making these cost–beneﬁt calculations and coming to a conclusion. For most companies, the decision hinges on out-of-pocket costs and potential ﬁnancial returns.

WaveRiders operate like all other companies, but they think dif- ferently. They include more than the obvious dollar payoff in their decision-making. When considering the return on an investment, they factor in beneﬁts such as enhanced brand image and corporate rep- utation, improved employee morale, community support, reduced governmental red tape, increased speed to market, and competitive differentiation. These intangibles are hard to measure, but smart companies include them in their strategic planning, despite the difﬁ- culty. Leading-edge managers have taught themselves to fold intan- gibles into their calculations at every turn because they know that immeasurables sometimes produce the greatest value. We heard one story from industrial giant 3M that really impressed us. No company knows more about the beauty of small things than 3 M, which has seen its little yellow sticky notes grow into a billion- dollar product. The creation of the ﬁrst Post-it is a famous case of serendipity, but the growth of the brand into a mainstay of the com- pany’s balance sheet didn’t just happen. The company has always had a remarkable eye for product extension opportunities. This isn’t a story about that, though. Instead, it’s a tale about revenues fore- gone, values stuck to, follow-through on promises mad e...and thinking broadly about what the real payoff of a decision is—a key element of the Eco-Advantage Mindset. 3M product managers had identiﬁed a new and fast-growing mar- ket for Post-its. Consumers wanted to put notes on vertical surfaces like computer monitors, but as millions of people were annoyed to ﬁnd out, Post-its tend to fall off in these situations. The simple so- Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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The Eco-Advantage Mindset151 lution was to design a stronger adhesive, which the world-class sci- entists at3M quickly did. But that led to a big internal problem.

The new adhesive required the use of industrial solvents that re- lease dangerous pollutants called volatile organic compounds (VOCs). These toxic chemicals bring with them a host of problems including air pollution, worker safety issues, and potential liability.

To avoid these problems, 3M CEO Livio DeSimone had declared in the early 1990s that no new investments would be made in technol- ogies that produced VOCs. No exceptions. That mandate left brand managers with a potential blockbuster product that they couldn’t bring to market. They asked the research- ers to ﬁnd an adhesive that worked without using VOC-producing solvents. Six long years later, in 2003, 3M launched Super Sticky Notes to much success and millions of dollars in sales. 3M is keeping the opportunity costs of this six-year wait close to the vest, but based on the size of the Post-its business, we believe 3M gave up tens of millions of dollars in revenues to stick by the no- solvents pledge. Yet when asked today if the choice was worth it, 3 M executives say “absolutely.” And this is partly because they look at their payoff matrix differently from executives in other companies. In making this decision, 3M calculated what the company calls the “total cost” of using solvents, which includes some hard-to-measure but important expenses. By sticking to its no-solvents pledge—by thinking in the strategic term instead of the short term— 3M nar- rowed its exposure to new air pollution regulations, cut monitoring and compliance costs, and reduced the risk of EPA or state ﬁnes.

Simultaneously, 3M showed its customers, local communities, regu- lators, and NGOs that it was serious about reducing its ecological footprint. The decision also made clear to workers that 3M puts safety ahead of proﬁts, a message that pays big dividends in employee dedication. As 3M Vice President Kathy Reed tells it, with these intangible beneﬁts included, the total cost of notgoing the solvent-less route was too high. Of course DeSimone could not have known that the no solvents rule would result in a six-year delay in sales, but he certainly knew there would be trade-offs. In the end, ﬁnding a way around the solvent roadblock also turned out to be good for the long-term ﬁnancial bottom line. As Post-it Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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152What WaveRiders Do GREEN COST ACCOUNTING In most companies, nobody really knows how much environmental is- sues cost the business, or how much a change in practices helps the bottom line. The problem is that the relevant costs may be spread out among many different departments or buried in “general and adminis- trative” accounts. A number of companies have worked to unveil these costs, which are normally hidden from management scrutiny. Breaking out environmental spending separately helps to clarify the fully loaded costs of the company’s products or processes.

The environmental group at Northeast Utilities has gone a step further.

Whenever they help those in line operations address an environmental issue, they estimate the savings achieved not only in direct costs, but also in management time reduced, regulatory compliance burden lifted, and other indirect costs avoided. At the end of the year, they tabulate these savings and issue a report they call “Earning Our Keep,” highlight- ing their value to the business. plant manager Valerie Young noted, “solvent-less technology is half the cost and two times the speed.” Avoiding all the special handling required of the toxic solvents sped up operations and removed some serious health risks.

The point, though, is that no one at 3M could have promised at the time that a solvent-less technology would ultimately be cheaper.

Developing the new non-solvent technologies and changing the man- ufacturing process looked mainly like an expense—one the CEO de- manded, but an expense nevertheless. Looking solely at the bottom line, 3M would not have delayed the release of the Super Sticky line.

And without thinking beyond the ﬁnancial cost and considering other softer paybacks, 3M would never have found a better way to go .

The “trees” that 3M could easily have gotten lost in were the im- mediate revenues and proﬁts from launching the Super Sticky line.

The “forest” was a stronger business that was safer for employees, better for the environment, and more proﬁtable. In some cases, seeing the forest can be literal. Smart companies in the natural resource realm (forestry, oil, and mining) are now taking into account how their actions affect wilderness and the plants and animals living there, or more scientiﬁcally, biodiversity. Almost by Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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The Eco-Advantage Mindset153 deﬁnition, extractive industries destroy biodiversity. Cutting trees or sweeping away the land to get to minerals or oil can demolish the local environment.

The word “green” probably doesn’t leap to mind when thinking about extractive industries, so we were more than a little surprised when we asked environmental advocates to name some companies handling biodiversity issues well. Glenn Prickett, the Director of the Center for Environmental Leadership and Business within the global NGO Conservation International, highlighted the work of mining giant Rio Tinto. As Prickett said, “Twenty years ago, an NGO formed just to go after Rio Tinto, so they’ve felt the pain. Now Rio Tinto has the most sophisticated biodiversity strategy out there.” Rio Tinto needs access to land for exploration if it wants to con- tinue satisfying the world’s growing demand for minerals and metals like copper, aluminum, and iron. But permission to mine is getting much harder to obtain as open land disappears. As Mark Twain once said, “Buy land. They’ve stopped making it.” Property owners, com- munities, native peoples, and local governments today have less in- terest in their land being sliced open, even for substantial economic gains. They require a show of good faith from any company that promises riches. To ﬁnd ways to please the communities that control the land, Rio Tinto became, of necessity, a good caretaker of biodiversity. But its commitment went beyond expediency. The company shared with us its internal guidance document, “Sustaining a Natural Balance,” which lays out why they care about biodiversity and how operational executives should manage it. This impressive manual describes a ﬁve- step process for assessing potential exploration tracts, working with communities and NGOs, and ﬁnding ways to mitigate as much of the damage caused by extraction as possible. Rio Tinto will never please all its critics, or even fully undo the damage from mining, but by working with stakeholders, the company is moving toward a bet- ter balance of economic growth and environmental protection. Once considered merely nice to have, environmental plans and community engagement strategies have become must-have items. As Dave Richards, Rio Tinto’s principal adviser for environmental is- sues, told us, “Our license to operate is granted not just by the com- Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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154What WaveRiders Do munity at the plant gate, but society at large. If you play hardball with those interests, you’ll have a hard life. This is a conscious at- tempt to change a risk into an opportunity.” Boundaries: Beyond the Factory Gates Before its “cadmium crisis,” Sony probably did not consider an ob- scure Chinese supplier of control wires a part of its inner circle. But once you strand 1.3 million game systems in a Dutch warehouse a month before Christmas, your deﬁnition of “family” gets much big- ger.

Thinking of your company as just your own factories, ofﬁces, and other hard assets is outmoded. Corporations operate within a global production network, with suppliers plugging into various parts of the process. The boundaries between us and them have blurred. Intan- gibles like brand value and employee knowledge and skills are part of every company’s value, the gold WaveRiders get from being green.

These “soft” assets are assets just the same and need to be tended with great care. When Doug Daft invited Dan Esty to join his newly created Coca- Cola Environmental Advisory Board, he explained his vision for the new group in simple terms: With a market capitalization of $115 billion, Coca-Cola’s book value amounted to only about $15 billion, leaving a whopping $100 billion in intangible value. Daft under- stood, as does his successor Neville Isdell, that when you are the guardian of the world’s most valuable brand, environmental mistakes can cost millions, even billions of dollars. It’s no longer enough for companies to say “we do our part for the planet.” That was last century, and those were too often empty words. We live today in a world of extended producer responsibility.

Companies cannot dodge the environmental problems up and down their value chains, from the furthest upstream supplier to the most remote downstream customer. Simply put, what happens outside your four walls is often what counts most. This reality requires asking new questions: Are workers at your suppliers’ factories facing toxic exposures or other unhealthy condi- tions? Do your suppliers dump hazardous waste in the local river? Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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The Eco-Advantage Mindset155 Do your customers discard your product in a manner that causes litter or pollution? These questions and many more are out on the table now.

The wonderful and horrible thing about the Internet is that infor- mation is everywhere. One story of suspected child labor or of dump- ing toxic waste in a river anywhere in the world will instantly spread, tarnishing your brand and destroying value. Thinking about the en- vironmental effects of your products and production processes be- yond your own factory gates isn’t just advisable, it’s essential. Low-cost furnishings champ IKEA has committed immense re- sources to tracking where all its products come from, particularly the wood. The company has set aggressive goals: It will buy no wood from areas of high conservation value, accept no lumber from illegal logging, and move toward purchasing only wood certiﬁed as sustain- ably harvested. Is IKEA taking too much responsibility for what happens outside the conﬁnes of its business? After all, the company does not purchase wood directly; it buys the furniture made with the wood. But that’s not how IKEA’s top brass see it. They believe their customers expect nothing less from them. Sitting in a light, open IKEA ofﬁce in tiny Gelterkinden, Switzer- land, Chief Forester Gudmond Vollbrecht told us how his team cre- ates value. “My foresters [eighteen in all] travel up to 140 days per year to see furniture and wood suppliers ﬁrst-hand.” This expensive and extensive effort isn’t just about doing the right thing, Vollbrecht said. “If we can’t ﬁnd business value and be part of the business agenda, we’ll fail. We’ve found that knowing our supply chain is great business mapping also—we just know our business better.” Thanks to its tracking efforts, IKEA is ﬁnding new efﬁciencies and ways to cut out the middle man. For a company that prides itself on delivering reasonably priced goods to eager customers, improvements that contain costs are big strategic victories. Just as IKEA has learned that its upstream supply chain can be more than just a source of risk, so other companies are ﬁnding new opportunities downstream. HP, for example, saw that its customers had trouble getting rid of old toner cartridges for printers. The com- pany also noticed sales slipping as new companies sprang up to sell Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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156What WaveRiders Do reconditioned cartridges. Instead of walking away and leaving the customer to deal with this disposal problem, HP launched its own very successful recycling and remanufacturing business.

The printer business is HP’s crown jewel, and remanufactured toner cartridges are now a high-margin, hundred-million-dollar busi- ness. Some 11 million cartridges are now reused annually, and over 80 million have been recycled since 1991. More importantly, if HP had not built this Planet Partners reuse business, someone else would have. Initially, thinking about the full life cycle of its product was a defensive move, but this defense also proved to be a good offense—a major upside success story with a highly proﬁtable ending. IKEA, HP, and other smart companies are looking for opportu- nities across the value chain. This life-cycle way of thinking yields valuable insights on products and production processes. It also helps managers understand their businesses better and capture value wherever they might ﬁnd it in the value chain.

START AT THE TOP In many ways, seeking Eco-Advantage requires a broad-based effort involving all levels of a company. But real environmental leadership has to start at the top. In every WaveRider we identiﬁed, executives told us that commitment from the highest levels was a critical element of success—the only way to engage middle management and em- ployees down the line in the challenge of remaking a business to be more environmentally sound. Why would a BP reﬁnery manager work to cut emissions without a “request” from the CEO? How could 3M product managers have waited for years to yield proﬁts from the Super Sticky Post-its if the directive had not come from the top of the organizational chart? In all of our WaveRiders, the CEO and other senior executives have engaged on business sustainability issues, sometimes very per- sonally. At DuPont, Chad Holliday serves not only as the chairman and CEO but, by his own declaration, as Chief Safety and Environ- mental Ofﬁcer—a title that sends a powerful message through the entire company. Holliday also chaired the World Business Council for Sustainable Development. And he coauthored Walking the Talk, a book that makes the business case for sustainable development. Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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The Eco-Advantage Mindset157 STEPPING UP TO THE CHALLENGE We’ve already told the story of how BP CEO Lord John Browne vowed to take his company “beyond petroleum” and how that seemingly rash promise has now translated into $1.5 billion in savings. His pledge came after his bold public acceptance of climate change as a real and pressing issue—well ahead of his industry peers. In contrast, former ExxonMobil CEO Lee Raymond remained a vocal doubter of the science on global warming. Today, Browne has assured BP what he’s called “a seat at the table” at just about every serious conversation on environmental regu- lation and the future of energy policy. And as Lee Raymond sails into retirement, his company will almost certainly change its tune. The price—both in access to government and public perception—for being combatively anti-environmental is rising.

Maybe no CEO has pushed for sustainability harder than Julio Moura, head of GrupoNueva, a $2.4-billion conglomerate with op- erations in Central and South America. The company owns, among other things, a forestry business and a manufacturing operation that makes polyvinyl chloride (PVC) piping for the construction indus- try—enterprises that seem the antithesis of green. Yet the company was founded to think green, and at Moura’s insistence, his top ex- ecutives have worked overtime to address environmental problems. One of GrupoNueva’s top priorities was eliminating the use of lead-based stabilizers in the production of PVC. Since the problem originated upstream in the supply chain, the company set out to solve it on site. “Our chemists spent one year working with suppliers and came up with a calcium-zinc solution,” Maria Emilia Correa, VP of Social and Environmental Responsibility, told us. “We set a goal that the cost of production would not go up more than 1 percen t...and they pulled it off!” The success, though, was temporary. When it became clear that GrupoNueva couldn’t guarantee suppliers enough volume to make the production change, the leadership team came up with a novel solution: share their thinking with competitors. Moura hit the road, telling other PVC pipe buyers about what lead does to the workers and the children living near their suppliers in Peru. He asked them to join with him to guarantee suppliers enough volume to justify Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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158What WaveRiders Do switching to the calcium-zinc technology. And it worked. What better example could there be of “walking the talk” than that?

ADOPT THE APOLLO 13 PRINCIPLE—“NO” IS NOT AN OPTION “Houston, we’ve had a problem here.” Apollo 13’s April 1970 lunar mission was mostly a ho-hum event— men had already walked on the moon twice. But then an oxygen tank exploded 200,000 miles from Earth, and astronaut Jack Swigert radioed back his memorably understated message. That left NASA ﬂight director Gene Kranz with the seemingly impossible task of bringing Swigert, mission commander Jim Lovell, and astronaut Fred Haise back home alive—a four-day trip in a two-man lunar module with carbon dioxide ﬁlters that couldn’t handle the load. If you saw the Tom Hanks movie, you’re likely to remember Kranz’s charge to his team of engineers. Find a way, he told them, using only what’s available to the astronauts, to ﬁlter the air, or they will die before we can get them home. As Kranz put it, “Failure is not an option”—a dictum that has become a modern classic. And it worked. Facing inﬂexible constraints, the engineers innovated, and while the world watched anxiously, the three astronauts made it safely home. In business, the stakes are rarely so stark, but the greenest com- panies also don’t take no for an answer. Like Gene Kranz, Wave- Riders place very tough, seemingly unachievable demands on their organizations and workers, and they hold their feet to the ﬁre until the goals are met. In the early 1990s, after the new national Toxics Release Inventory had pegged it as America’s—and arguably the world’s—leading pol- luter, DuPont started to get religion about going green. Determined not to be “number one” in such an unwanted category, Chad Hol- liday’s predecessor as CEO, Ed Woolard, sent a clear message to the business unit: Reduce hazardous waste. Woolard was serious about it—he set a company-wide goal of “Zero Waste.” Business units would soon ﬁnd out just how serious he was. One huge facility in Victoria, Texas, proved to be a test case.

Opened in 1951, the Victoria plant specializes in nylon intermediates, products that are used to make other products. The intermediates are Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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The Eco-Advantage Mindset159 a major component of Stainmaster carpets, Lycra Spandex, and everything from luggage to seatbelts to panty hose. Unfortunately, manufacturing them is dirty work. In 1990, the Victoria plant created 35 million pounds of toxic waste—bad stuff like benzene and sulfuric acid, much of which was put into deep wells.

As an intermediate product in a long value chain, the business operates on tight margins. That was problem one. Problem two was that cleaning up the mess was, it seemed, going to be expensive, far beyond what the tight margins allowed. Line executives came to Woolard and said that signiﬁcantly reducing hazardous waste would cost $500 million. His response was simple: “Wrong answer.” So they reworked the plan and said it would cost $200 million. His response again: “Wrong answer.” In the end, the net present cost to change the Victoria business was almost zero. The engineers found ways to reduce the use of toxics at the source by changing processes. They worked with the local com- munity to build wetlands around the facility to help clean the water naturally. And they sold some of the by-products that had once been waste. By 2002, Victoria released less than 10 million pounds of toxics, a reduction of over 70 percent, even while production grew. That’s what can happen when you put smart business people in a room and tell them they can’t leave until they have an answer that protects proﬁts andserves the environment.

WaveRiders are tough on everyone, including suppliers. When Dell wanted to print its product catalogs on recycled paper, the paper companies said they couldn’t do it, but Dell refused to budge, and its catalogs are now printed on 10 percent recycled content. When FedEx Kinko’s and Timberland wanted to use renewable energy at some of their facilities, both companies demanded and got price par- ity from renewable energy suppliers, at least over the period of the initial contract. When companies ask the seemingly impossible of suppliers, often the ﬁrst reaction is no. But WaveRiders keep at it and demand a solution. By the way, things haven’t changed much at DuPont since it ﬁrst caught the spirit of the Apollo 13 Principle. The company’s energy managers are currently expected to hit a target of 10 percent of the company’s energy coming from renewable sources while saving$8 million. They must feel like those NASA engineers. Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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160What WaveRiders Do THE APOLLO 13 PRINCIPLE Think big. Look at your opportunities for environmental gains. Give your businesses seemingly impossible goals that reﬂect an ambitious environ- mental vision. Then step back and let the company innovate. Tell them to ﬁnd a way to produce your product with less material, less energy, and less waste, but without spending any more money to do it. Success will not come easily nor every time. But the pressure can unleash amaz- ing advances. RECOGNIZE THAT FEELINGS ARE FACTS Flying into Phoenix, Arizona, on a clear day can be a delight. The country is a beautiful, dry desert painted in shades of brown and red.

But as you descend into Sky Harbor International airport, the vision is disrupted by splashes of rich green that don’t quite ﬁt. Those are the golf courses.

Golfers can probably pick out some of the most famous courses from ﬁve thousand feet. The Troon North Golf Club in nearby Scottsdale is, in the words of Golf Magazine, “built around dramatic granite boulders, striking elevation changes, and spectacular carries over desert washes.” But like the many other courses that dot the area, Troon North has an appetite for water that just won’t quit, in a part of the country that has little water to spare. Golf courses in the Southwest need more water than in any other part of the country—about 88 milliongallons per year for every single course. The water needed for just one Arizona golf course could ﬁll 12,000 swimming pools or provide for all the water needs for about 1,500 Americans (or 20,000 Africans). This is not a diatribe against golf courses. The point is that if you went looking for a way to reduce water use, golf courses would be a good place to start. But in Arizona, as in all places, it’s easier to point a ﬁnger at industrial interests than at something you enjoy personally. Thus Intel, which has a very large facility with two sem- iconductor fabrication plants in Chandler, Arizona, feels the pressure.

As Plant Manager Rick Paulson says, “The hottest issue here is water use.” Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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The Eco-Advantage Mindset161 Chip manufacturing does, in fact, require a fair amount of water.

The entire Chandler site uses over 600 million gallons a year. That’s a drop in the bucket compared to the 8 billion gallons used by nearby golf courses. If local golf courses were just 7 percent more efﬁcient in their sprinkling, they could make up for allof Intel’s water use.

But having the facts on your side is never enough. In Arizona, keeping the community happy means using water care- fully, especially if you’re a highly visible Fortune 100 company with a physical plant that takes up lots of space. Spending millions of dollars annually to recycle water, as Intel does at Chandler, is not an investment the company would make if it were looking only at quar- terly ﬁnancial results. Nor is Intel’s water resource management pro- gram required by law. Intel executives feel it’s the right thing to do, and by showing sensitivity to the local community’s needs, they main- tain Intel’s license to operate. Recently, the company received the go-ahead to build a new chip fabrication plant in just months—a process that might otherwise have taken years. How much is fast approval for a new production facility worth? Of course, it’s impossible to calculate precisely, but speeding up the development of a multibillion-dollar factory is worth a lot of money. To our way of thinking, Intel is dealing with community pressures in a very smart way. Doing the right thing and doing what’s good for business are not mutually exclusive. The perception gap is even worse with air quality concerns. Intel’s Chandler site produces about the same amount of volatile organic compounds as a local gas station, yet Rick Paulson points out, “We have a problem with the perception, be it real or not, of Intel’s con- tribution to air quality—it’s not what the data is, it’s what the per- ception is.” Asking an engineer to ignore real data and deal with feelings is not easy. Many other companies have fallen into the gap between the en- gineer’s analysis and public perception. Remember how Shell con- ducted detailed analysis of the plan to sink the Brent Spar oil plat- form in the North Sea? The solution was not ideal, but it was most likely the best option. For protestors and Shell consumers around the world, though, impressions quickly trumped facts. Or consider GE’s Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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162What WaveRiders Do HOW MONSANTO’S SUSTAINABILITY CRUSADE BACKFIRED Robert Shapiro was a darling of the environmental community. During his tenure as Monsanto’s CEO from 1995 to 2000, Shapiro put sustain- ability at the very center of his corporate strategy. He envisioned a world where innovations in life sciences, genetic engineering, and biotechnol- ogy would allow crops to grow without pesticides or fertilizers, lawns to ﬂourish without water, and rice and other foods to provide essential vi- tamins. He was a visionary.

Shapiro and his team of Monsanto scientists knew they could bring about an agricultural revolution. And they were certain that they could do so safely. After all, Americans had been eating bioengineered soy- beans and other crops for years, without the slightest sign of ill effects.

But what Shapiro and his top management didn’t know was that the European consumer wasn’t at all keen on the idea of genetically modiﬁed food.

Robert Shapiro brought his GMO-based revolution to Europe with all the conﬁdence in the world, only to unleash a ﬁrestorm of protest. With cries of “Frankenstein Food” echoing all around them, Monsanto exec- utives tried to mount rational, science-based arguments to calm the fears of French, German, and Italian consumers, all to no avail. Before long, Monsanto was out of the European market, and the company itself was teetering on the brink. What the superanalytic Shapiro missed is that feelings are facts. years-long battle with regulators over the proper solution to the prob- lem of toxic PCBs in the Hudson River. Water scientists tell us that GE is basically right—leaving the chemicals where they are is not ideal, but probably the best option for reducing human exposure.

But tell that to the people living along the river.

Smart companies are realizing that feelings in the marketplace are just as real to the people who have them as the company’s facts are to them. Like Intel, they’ve seen that managing perceptions and paying sincere attention to the environmental concerns of the com- munity can have a positive effect on the bottom line. Understanding this reality is vital to getting in the right mindset to create Eco- Advantage. Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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The Eco-Advantage Mindset163 BRANDED LITTER Big, public brands such as Coca-Cola and McDonald’s get dispropor- tionate public attention—for good and bad. Consider the problem of “branded litter.” When people see trash on the road with the golden arches on it, they think, even subconsciously, “McDonald’s is dumping garbage everywhere.” That may not be McDonald’s fault, but that’s what people feel. DO THE RIGHT THING IKEA is a famously penny-pinching company—a habit driven by founder Ingvar Kamprad, reputed to be one of the ten richest men in the world (a rumor IKEA strongly denies). Kamprad ﬂies coach, stays in cheap hotels, and drives the same beat-up Volvo he’s had for years.

Bob Kay, the IKEA store manager in Paramus, New Jersey, told us a tale that shows just how hyper-thrifty Kamprad can be. Once when he was visiting Kay’s store, the company founder saw a swept- up pile of dust and debris that included some little wooden pencils customers and employees use around the store. As Kay tells it, “Ingvar said, ‘Bob, don’t let them throw out the pencils!’ So I got down on the ﬂoor and picked up these pencils worth less than a penny.” Given this attention to every cent (or Swedish krona) wasted, it might seem odd that IKEA spends millions of dollars on environ- mental initiatives. At Kay’s store, for example, workers sort product packaging while receiving new inventory. They create piles for dif- ferent kinds of plastic, wood, and metal, and the store pays to have the different types of waste recycled. None of this is to meet regu- latory demands. What’s more, the extra step slows down inventory replenishment and costs money in labor and waste management. But IKEA sees the effort as critical to its spirit of stewardship. So why is tight-ﬁsted IKEA spending extra money on the environ- ment? A big part of the answer lies in a mantra posted around the ofﬁces: “Low prices—but not at any price.” Those are more than words. The slogan holds real meaning to every IKEA employee we Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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DO YOU NEED A HISTORY OF THINKING GREEN?

Companies do not need to be founded with an environmental ethic in mind to believe that taking care of the environment is the right thing to do. Sure, some WaveRiders have talked about this for many years. Her- man Miller’s founder D. J. DePree, a religious man who felt a deep re- sponsibility to the world, declared in the early 1950s that the company “will be a good corporate neighbor by being a good steward of the environment.” If this was not the ﬁrst mention of environmental ste- wardship in the corporate world, it must be fairly close.

Yes, it helps if a belief in stewardship is built into a company’s history.

But any company can make the commitment and ﬁnd innovative ways to follow through on it. Some companies have come to these values after building a legacy that has been anything but eco-centered. Chi- quita Brands, for example, has one of the most tortured corporate his- tories in the world. Yet today, the company’s executives say that their relatively new focus on environmental and social issues is a key to the company’s success. met, and the company’s actions back it up all the way to the recycling bin.The business argument for environmental care is being recognized by more than only privately held Swedish companies. Before HP’s ill- fated merger with Compaq drove her from ofﬁce, CEO Carly Fiorina gave a speech about why companies should make environmental and social responsibility a core part of doing business. Three of her four themes focused on how going green was good for business. But the very ﬁrst reason she gave was simply that “It’s the right thing to do.” Top executives at companies such as Nike, McDonald’s, and Alcan have publicly said the same thing in the same words. In his online statement of values, Herman Miller CEO Brian Walker writes, “We advocate for the environment for the simple reason that we believe protecting our fragile environment is the right thing to do.” Over and over during our research, we asked, “Why are you doing this? Why spend money on something that’s good for the environ- ment or is so intangible?” And repeatedly we heard this same mantra, often accompanied by a quizzical look, “It’s the right thing to do.” Skeptics might say that these corporate leaders are just mouthing empty platitudes, but we hear sincere commitment. And we’ve seen 164 What WaveRiders Do Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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The Eco-Advantage Mindset165 THE ECO-ADVANTAGE BOTTOM LINE Developing the right mindset is critical to success in a Green-to-Gold world. To bring the environmental lens to your company’s strategic fo- cus:

•Look at the forest, not the trees: Think broadly about timeframes, payoffs, and boundaries.

•Start at the top: Senior executives, especially the CEO, must be engaged in setting the vision.

•Adopt the Apollo 13 Principle: Establish tough environmental goals, and don’t take no for an answer.

•Recognize that feelings are facts: Emotions and perceptions carry enormous weight—and the customer is never wrong.

•Do the right thing: Clear environmental values inspire employees, customers, regulators, and potential adversaries alike. these same executives taking action to back their words, often at risk to the short-term bottom line.

More than anyone else, the people in the trenches know and care.

If they believe that their employer is trying to be both moral and proﬁtable, and if they see this spirit radiating down from the very top of the company in an uncompromising way, they are more likely to bring their full talents to bear. That’s how you create real Eco- Advantage. Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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166 Chapter 7 Eco-Tracking The Eco-Advantage Mindset is a powerful motivator and the core of the environmental lens that helps companies step up to challenges and ﬁnd opportunities for seizing advantage.

But it’s just the beginning. Companies need tools to get going.

We start here with the elements of the toolkit that help com- panies understand where they are.Getting the lay of the land requires thinking and analysis that might not come naturally. Eco-Tracking helps to answer fundamental but sometimes unfamiliar questions:

• What are the company’s big environmental impacts?

• When and where do those impacts arise? During manufac- turing? During shipping and distribution? Upstream in the supply chain? Or downstream in the hands of customers?

• How do others view the company’s environmental perfor- mance?

These questions can be difﬁcult to answer. But leading companies use a core set of Eco-Tracking tools to develop Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Eco-Tracking167 an environmental self-portrait and help them manage for Eco- Advantage. Following their lead, we suggest that you:

•Trace your environmental footprint.

• Capture data and create metrics.

• Set up environmental management systems.

• Partner for advantage.

Eco-Advantage Toolkit—Eco-Tracking MIN D SET Redesign Culture Eco-tracking TRACE YOUR ENVIRONMENTAL FOOTPRINT Every company leaves a mark on the world through the products it makes and services it offers. The more resources it uses or pollution it produces, the bigger its footprint.

Imagine an extremely simple version of the value chain for a car (see “Simpliﬁed Car Value Chain” ﬁgure). From the manufacturer’s perspective, parts—engines, doors, windshields, seat belts, and a thousand others—come in one end of the factory. The workers as- semble the vehicle, paint it, and send it out the door. Finished cars and SUVs roll out of the plant and onto trucks, trains, and container Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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168What WaveRiders Do Simpliﬁed Car Value Chain Manufacturing (Assembly and Painting/ Finishing) Distribution Supplier Operations and Parts CAUTION:CHECK FOR TOXICS, AIR EMISSIONS, AND LEGAL CONCERNS NO LEGAL ISSUES Customer Use NOT OUR PROBLEM NOT OUR PROBLEM ships for distribution around the world. Car dealers sell these vehicles to millions of happy customers.

In years past, asking a car company to trace its environmental footprint would lead mostly to confusion. “What’s a footprint?” company ofﬁcials might ask. Even the most enlightened executives would likely limit their answer to impacts arising from manufactur- ing—exhaust from factory equipment, wastewater, and perhaps air emissions from the painting process. The other boxes in the value chain wouldn’t even register as a possible source of concern. The new view of a company’s value chain and footprint is much broader (see “Extended Car Value Chain” ﬁgure). It still includes the manufacturing process, but now it expands to embrace unregulated environmental issues like energy use. Issues of concern also extend upstream along the value chain to supplier operations and down- stream to customer use and ultimate disposal. As we’ve said many times, in a world of extended producer responsibility, what happens outside the factory gates now counts on your environmental balance sheet. To get a handle on the car’s real footprint, the manufacturer must ask how its suppliers operate. Where does the steel come from and how was it forged? What toxic emissions does the metal fabrication produce? Then, looking downstream: How much gas will the driver burn during the “use phase” of the product? What about the green- house gas that comes out the tailpipe? And what happens years later when the vehicle is hauled to the junkyard? The total footprint now reﬂects the car’s full life cycle. Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Eco-Tracking169 Extended Car Value Chain Supplier Operations. e.g., Metal Fabrication Steel Aluminum Glass Rubber Fabric/ Interior r Energy GHGs Waste Water Air (VOCs) Energy GHGsToxics Waste Water Air (VOCs) Manufact. Distribution End of Life Use EnergyGHGs Air Pollution GHGs Air Pollution Energy Landfill Ground Contamination Toxics Some aspects of a company’s footprint are positive, such as cus- tomers served, employees paid, and support provided to communi- ties. But in the environmental context, the footprint reﬂects how much a company’s pollution burdens society and the scale of its con- sumption of the Earth’s natural resources. Increasingly, society is in- sisting that those who tax the planet’s capacity to absorb human impact both pay for the damage they do and work to minimize the harm. WaveRiders take the measure of their footprint seriously and set explicit goals to reduce its negative effects. But before they can reduce their footprint, they need to know its contours. One of the most useful tools for measuring the footprint is the product Life Cycle Assessment, or LCA. Life Cycle Assessment (LCA) Life Cycle Assessment tracks the environmental impacts of a product from its raw materials through disposal at the end of its useful life.

LCA is an important tool for developing an environmental self- portrait and for ﬁnding ways to minimize harm. A good LCA can illuminate ways to reduce the resources consumed and lower costs all along the value chain. Let’s take one more look at that car value chain (see ﬁgure).

Instead of a linear path, we now see a circle. The car starts as raw natural resources extracted from the earth—everything from iron ore and aluminum to cattle for leather interiors. Suppliers receive these inputs and craft the various car parts. The car company assembles its product and distributes it globally. After 200,000 miles on the road, the car enters the end-of-life phase. Some pieces will be sold Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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170What WaveRiders Do Simpliﬁed Car Life Cycle Garbage Manufacturing Distribution Use/Driving End of Life Supplier Operations Materials Production for scrap back to raw material producers, other parts refurbished and reused in another car, and still others sent to the landﬁll.

A Life Cycle Assessment looks at this complete circle and measures environmental impact at every phase. It provides the foundation for understanding the issues a company must address and clues to help ﬁnd Eco-Advantage. Which step in the process uses the most water, or produces the most air pollution? Can we reuse or recycle any by- products from manufacturing? Can we recycle the whole product?

Which steps in the chain create environmental impacts that would Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Eco-Tracking171 Life-Cycle Greenhouse Gas Emissions Phase 1: Pre-manufacturing (Suppliers) Phase 2: Manufacturing/Operations (Us) Phase 3: Use (Customers) SUV 70% 15% 15% Bank Account 10% 5% 85% Leather Boot 20% 80% concern different stakeholders? Where is waste and inefﬁciency? The answers can be surprising and vary widely across products and in- dustries. Take, for example, one politically charged environmental impact, greenhouse gas emissions. Imagine we have only three life cycle stages:

pre-manufacturing (before you), manufacturing (you), and use (after you). To oversimplify, that’s suppliers, your operations, and customers. Now let’s look at the approximate greenhouse gas emissions for three products: an SUV, a bank account, and a leather boot (see ﬁgure). The greenhouse gas emissions proﬁles for these three products are vastly different. For the SUV, the majority of the greenhouse gases come not from manufacturing, but when drivers burn fuel (the use phase). For a service business like the bank branch where the account is held, energy use in operations (lighting, heating and cooling) is the biggest percentage of its own immediate footprint. And for the boot, most of the emissions occur upstream in the supply chain. The numbers here are not exact since every product or company is different, but they are very much grounded in reality. In fact, Tim- berland conducted an LCA for one product, a leather boot, and cal- culated emissions at all stages in the value chain, including sub- suppliers like the cattle industry (again, they provide the leather).

Surprisingly, the cattle are responsible for the most emissions by far.

During digestion, cows produce methane, a powerful greenhouse gas. Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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172What WaveRiders Do Cow hides are only a fraction of the weight of the cow, so Timber- land assigned only seven percent of the cows’ gas production to the boot’s environmental balance sheet. Yet even at that small percentage, cattle are responsible for 80 percent of the greenhouse gas burden of the boot.

Why does this matter? In theory, armed with better information about the size and nature of the various environmental aspects of its boots, Timberland could focus its efforts in the right places. Or at least executives are better positioned to understand the trade-offs they face. Nobody in the company is thinking seriously about removing all leather from its boots, and nobody can stop a cow from churning out methane. But Timberland now knows that reducing the amount of leather per boot will shrink its climate-change footprint far more than reducing energy use at assembly plants or distribution centers. LCAs can also guide product development. 3M has been rapidly expanding its Life Cycle Management program. The protocol for new products now includes an assessment of environmental, health, and safety issues at suppliers, within 3M, and with the customer. This understanding of the full systemic impacts of its products gives 3M a powerful foundation on which to build strategies for Eco- Advantage. Take 3M’s favorite tool, eco-efﬁciency. If you know the pressure points in the system, and you know where you can have the most impact, your strategies get that much better. You can cut pol- lution and waste with a scalpel rather than a chain saw. Companies that understand the life cycle of their products also drive revenues by ﬁnding ways to make customers’ lives better. In one case, based on an LCA, 3M developed a less toxic, ready-to-use industrial disinfectant for schools and hospitals. Reducing the cus- tomers’ environmental burden drove increased sales. One important cautionary note: LCAs are often challenging to do.

The analysis can cover a product, a division, or the whole company.

Some calculations are relatively straightforward, while others require careful analysis—and some big assumptions. One core issue is how far upstream or downstream in the value chain to go. Timberland measured the emissions from the cattle. Should they have included the emissions from the fuel used to deliver feed to the ranchers? How about the fuel used in the farm equipment where they grew the corn to feed the cattle? Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Eco-Tracking173 Consider the trade-off between depth and cost. Simple analyses often yield signiﬁcant insights. So remember the 80/20 rule—80 per- cent of the work comes from 20 percent of the issues—before plung- ing into a deep LCA. If you don’t make reasonable assumptions, draw the boundaries in a logical way, and acknowledge the limits of the analysis, LCAs can very quickly spin out of control. Some amus- ingly thorough LCAs have included the energy needed to produce the food eaten by people involved in making a product. Ultimately, knowledge is power. Understanding its footprint along the value chain can help a company engage in pollution prevention, ﬁnd new opportunities to serve customers, avoid problems with stakeholders, and gain a big leg up on the competition. That’s Eco- Advantage.

WHERE ARE WE HEADED?

One of the biggest challenges in the sustainability realm is simply deﬁn- ing what it requires of corporations. One organization, the Natural Step, has a useful framework with four principles that help companies create a picture of what it means to be sustainable. (See endnotes for the Nat- ural Step’s “system conditions.”) Working with a clear vision of the end- point, companies then can begin to lay out the steps necessary to get there—what Natural Step founder Karl-Henrik Robert calls “backcasting from principles.” A number of WaveRiders—McDonald’s, Starbucks, and Interface, to name a few—credit Robert’s approach with helping to advance their thinking about sustainability. IKEA executives, for example, pictured a speciﬁc future where lighting was low cost and environmentally safe.

Current low-energy lamps were expensive and contained toxic mercury, which violated Robert’s system conditions. So the IKEA team went searching for new options, resulting in a reﬁned production process that cut mercury by 75 percent. Asking themselves “Where are we headed?” focused attention and drove innovation on a long-standing problem. CAPTURE DATA AND CREATE METRICS “What gets measured gets managed.” Maybe that claim is too uni- versal, but metrics—particularly when tied to rewards—attract at- tention. To manage any aspect of business performance you need Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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174What WaveRiders Do information. In the environmental world, data has not always been at the center of decisionmaking, strategy, or policy. It should be.

Data, after all, is almost always an important precursor of real, ver- iﬁable environmental improvement.

Just one data tracking law—the Toxics Release Inventory pro- gram—started many WaveRiders down the path to environmental leadership. After being required to measure and report their emis- sions of a long list of toxic substances, companies saw just how big their footprints were. And many realized that valuable chemicals were going up the smokestack.

What to Track Every company should track some basic environmental outcomes— the resources it uses, and what it emits or wastes. Leading companies track their performance in a number of areas (see table). It would be nice to distill the outcomes and get to a single metric, but it’s not possible. Herman Miller’s CEO expressed frustration to us that he couldn’t get environmental metrics down to a couple of key items for his “balanced scorecard.” But the fact is, protecting the environment is inescapably a multidimensional challenge. Environmental indicators are like ﬁnancial metrics. Everyone pro- duces the basic tools of ﬁnancial measurement: the income, balance sheet, and cash ﬂow statements. But each company picks speciﬁc metrics to focus on, such as net income, debt-to-equity level, or free cash ﬂow. We need all of these measures, but some are more essential than others, depending on the circumstances. For those using a balanced scorecard to manage their business, our list of metrics provides a good starting point for what should appear on the environmental side of the ledger. Those looking at triple bot- tom line performance will have to include social metrics as well. Every company should tailor its data collection to ﬁt its own core issues and develop company- or industry-speciﬁc indicators. Star- bucks, for example, closely tracks several aspects of its paper usage, such as percentage recycled or unbleached content. Millions of paper cups add up. To keep an eye on an issue that could squeeze opera- tions, Coca-Cola tracks how many liters of water it uses to produce a liter of ﬁnal product. Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Eco-Tracking175 Key Environmental Metrics Environmental Outcome Basic Metrics Energy — Energy used — Renewable energy used or bought Water — Total water used— Water pollution Air — Greenhouse gas emissions— Releases of heavy metals and toxicchemicals — Emissions of particulates, VOCs, SOx, and NOx Waste — Hazardous waste — Solid waste — Recycled materials Compliance — Notices of violations— Fines or penalties paid We suggest three general guidelines for environmental data and metrics:

• Track both relative and absolute metrics. Measure greenhouse gases, for example, per dollar of sales and total tons of carbon dioxide emitted. It’s tempting to show progress in relative terms, but some environmental problems are absolute. Reducing green- house gas emissions relative to sales is useful. But if sales increase signiﬁcantly, the problem is still getting worse. Key stakeholders won’t be impressed by a denominator-driven claim of progress.

• Capture data at multiple levels within a company. The ability to drill down—by country, region, division, site, and even production line—can help isolate problem areas to address or highlight leading-edge performance and best practices to replicate.

• Collect the same information for the whole value chain. At the risk of sounding like a broken record, what happens outside the factory gates, from suppliers to distributors to customers, can be critical. Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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176What WaveRiders Do If all of this sounds expensive, it doesn’t have to be. Good mea- surement often goes hand in hand with tight operational control.

Even tiny Rohner Textil, one of the smallest companies we inter- viewed, has tracked dozens of environmental metrics since 1993. In a moment, we’ll see how GE has saved money with an elaborate eco- data tracking system that offers a high degree of granularity. Supply Chain Metrics and Materials Databases So far, we’ve talked about metrics best suited for businesses with concrete products. A service business uses energy and may generate waste, but probably doesn’t need to track water emissions. But even service businesses rely on products, and their suppliers might face some different issues. Tracking supplier performance is a good idea.

Could a bank be held liable for environmental issues created by the manufacturer of ATM machines? It may sound ridiculous, but who would the NGOs and media go after—the obscure manufacturer or the big customer-facing multibillion-dollar brand? McDonald’s has starting asking its suppliers to track key metrics.

The company’s own operational footprint is wrapped up in energy use and waste. But burgers and fries come with environmental bag- gage. Cattle raising and industrial agriculture have large footprints— a point brought home to McDonald’s by the many questions posed by NGOs about whether its meat came from grazing lands that were cleared from rainforests. McDonald’s realized it needed to get a han- dle on those impacts as well. Some WaveRiders are going beyond basic metrics and asking sup- pliers for proprietary information. Herman Miller built a materials database to guide its production of the environmentally sound Mirra chair. The two managers leading the charge asked every supplier to give them the exact ingredients in every component. Some companies balked at sharing this information, but Herman Miller would buy only from those suppliers who complied. Every single chemical and substance received a score of red, yellow, or green based on toxicity and other environmental attributes. Man- agement told designers that they could use greens with no qualms but had to try to minimize yellows and avoid reds like PVC plastic.

With this database of 800 materials—who knew so many things went Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Eco-Tracking177 into one chair?—Herman Miller can calculate with precision the quantities of every substance in every chair. Since the tool also gen- erates an overall product score from 1 to 100, designers now have targets for each new generation of products.

Data management is a critical tool for generating Eco-Advantage in all categories: risk, cost, revenue, and intangibles. Customers look- ing for furniture with low environmental impact and no concerns about indoor air quality will be satisﬁed by the Mirra. Cleaner prod- ucts enhance the brand as well. Finally, knowing precisely what’s in your products can slash risk and save millions of dollars. Sony’s cadmium crisis was a wake-up call heard broadly across the electronics industry. Dell, for example, is spending millions to beef up its materials database. One of Dell’s key environmental executives, Don Brown, told us, “If there’s a problem when we hit the dock in the EU, we can answer any questions with dataand avoid holding up 10,000 units in customs.” Going Past Raw Data to Creative Metrics Having good data gets you to the starting line. Using the information to demonstrate environmental impact in interesting, relevant ways can focus employee attention on the right things. Talking about en- ergy use per employee, for example, brings the challenge down to the individual level and grabs everyone more than a grand total. DuPont has focused on a deceptively blunt metric: Shareholder Value Added (SVA) per pound of product. That’s right, the weight of everything the company makes, which, they say, was once in the vicinity of 20 billionpounds. DuPont is getting at a profound truth:

even with aggressive goals on waste and energy, the more stuff it produces, the bigger the environmental impact. So the company cut to the chase and just measured the volume. DuPont has six years of data on SVA per pound for ninety divisions. The informal goal is to quadruple this measure of resource productivity company-wide. In 2004, DuPont lost some of its iconic brands including Lycra and Spandex when it sold its nylon business to Koch Industries. How does this sale relate to pounds of stuff? DuPont’s Paul Tebo explains it in market valuation terms. He draws a theoretical chart of SVA/ pound against the Price/Earnings ratio of different companies or in- Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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178What WaveRiders Do dustries. At one corner is a company like Microsoft—high P/E, high SVA/lb. At the other end are big, heavy industries like nylon produc- tion—low P/E, low SVA/lb. DuPont believes the two axes are con- nected and wants to move to the high value-added end of the spec- trum, with higher growth rates and higher valuations.

We will always need products and materials, but the markets value more highly the services and knowledge added on top of these ma- terials. As we shift to an information-based economy, bytes replace bits. So, in a way, SVA/pound captures the spirit of the broad global move toward dematerialization. That’s a lot to heap on one little metric, but it does the job.

Data and Competitive Spirit Rankings and lists start arguments. Just look at the hullabaloo over U.S. News ’s annual ranking of colleges. Or the yearly ﬂap over the coaches’ poll and computer ranking that determine which college football teams go to the major bowl games. As we’ve found out, even dry environmental data can raise a big fuss. Our research team at Yale, working with the Earth Institute at Columbia University, created a ranking of countries based on sus- tainability metrics. The results, released at the annual meeting of the World Economic Forum, touched off a ﬁrestorm in a number of countries. Then Mexican President Ernesto Zedillo insisted that his Environment Ministry ofﬁcials visit Yale to complain. The Belgian Prime Minister faced a parliamentary inquiry, and Singapore’s En- vironment Ministry suggested that it was impossible, perhaps even unconstitutional, for Singapore to be ranked near the bottom. WaveRiders know that data can stoke competitive ﬁres. They com- pare environmental performance across sites, regions, or divisions.

Latin American conglomerate GrupoNueva releases all its metrics internally, every month, by facility. Plant managers know where they stand on a wide range of issues including environmental perfor- mance. IKEA’s internal reviews of store managers include their rank on environmental metrics within their country and continent. It’s just human nature: Nobody wants to be at the bottom. Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Eco-Tracking179 Environmental metrics show a company where it stands. Data and indicators are critical to fact-based decision-making and sound environmental management. They drive continuous improvement and allow managers to mark progress against pollution control and resource productivity goals. Sustainability is more a journey than a destination, but it still pays to know where you are on the path. SET UP SYSTEMS Tax time always brings out two basic types of people: those who have all their receipts, bank and brokerage statements, and mortgage stubs sorted and ready to g o...andtherest of us. The information exists in old shoe boxes and at the bottom of desk drawers, but we’ve set up no precise system to capture it. Businesses don’t have that option. Financial statements must con- form to Generally Accepted Accounting Principles, and public com- panies are required to report on their performance. In the United States under the Sarbanes-Oxley Act, CEOs and CFOs could face jail time if their ﬁnancial statements are not in order. Environmental is- sues are now considered part of the potential liabilities that compa- nies must include in any such accounting. Implementing an environmental management system (EMS) is thus essential for companies of all sizes. Setting one up takes time and care, but when a good system is in place, managers know their busi- ness better, ﬁnd ways to squeeze out waste and make processes run more efﬁciently, and avoid serious problems. Take the example of GE. It’s no surprise that the company, with its data-oriented corpo- rate culture, has built an elaborate system for tracking environmental results. Senior Vice President Steve Ramsey walked us through GE’s Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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180What WaveRiders Do Environmental Management Systems Setting up an environmental management system doesn’t have to be a solo journey. Standardized EMS platforms have already been developed.

One particularly useful place to look for help is the International Orga- nization for Standardization’s environmental management standard, ISO 14000. Like the well-known ISO 9000, which guides companies in build- ing quality into their operations, ISO 14000 provides a template for set- ting up an environmental management system. Not every company with good data and systems needs ISO 14000, but many now seek certiﬁ- cation at the “request” of their big customers.

Help in implementing ISO 14000 can be obtained from a variety of sources. Both the World Business Council for Sustainable Development and the Global Environmental Management Initiative provide guidance.

And alternatives to ISO 14000 are available. Some European facilities have adopted the European Union’s Eco-Management and Audit Scheme. A number of the companies we studied have developed their own systems, often with more emphasis on improving outcomes than the process-focused ISO requires.

So while creating a detailed management system may seem unexciting or expensive, our research shows that having somesystem in place is well worth it and drives optimal performance. PowerSuite, an intranet program that provides detailed process in- formation, like a regulatory calendar that reminds managers what to do and when to ﬁle to meet permit requirements.

The real-time “digital cockpit” includes metrics on environmental performance, resource use, safety, and compliance at almost every level—from company wide to the granular level of a discrete pro- duction process. If there’s a hitch anywhere along the line, plant man- agers and their bosses will know and can act on it. GE’s tracking system cost about $10 million to develop. But this data emphasis, linked with the company’s famed commitment to Six Sigma efﬁciency, has produced outstanding environmental manage- ment results. GE has reduced the number of times wastewater emis- sions have exceeded levels permitted by regulations by more than 80 percent in a decade. The company has also saved tens of millions of dollars through environmental and safety productivity improve- ments. The new system quickly paid for itself many times over. Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Eco-Tracking181 When Things Go Wrong Remember how badly Exxon executives ﬂoundered in the days after theExxon Valdez oil spill? The company ended up spending $3 bil- lion to clean up the oil in Prince William Sound. Additional penalties, ﬁnes, and legal judgments so far have sent the total tab over $12 billion. And the books on this 1989 incident have not yet been closed. One last speciﬁc systems area deserves special focus: risk assess- ment and emergency management. Say something goes wrong at one of your facilities—a spill of something toxic or, worse yet, actual injury or death. What should the company do? Who’s in charge of ﬁxing the problem? Who talks to the press? Who talks to employees?

These questions should notbe answered on the ﬂy. In a crunch, time is of the essence. When accidents occur, companies need a clear set of procedures. Everyone involved in an emergency response must know his or her role. IBM, for example, has a corporate crisis man- agement team with responsibilities spelled out and speciﬁc managers deﬁned as acceptable spokespeople. Well ahead of a crisis, companies need a process for identifying potential environmental risks. The AUDIO tool we described brieﬂy in Chapter 2 is a good start. It helps you ﬁgure out where in the value chain crises might erupt. A number of tools can help sharpen thinking and focus, particu- larly at the day-to-day operational level. We’ve worked with com- panies like Northeast Utilities to implement simple questionnaires on environmental risk. The questions push the critical middle managers to think about where the company’s challenges and vulnerabilities are. Do they know how they’d handle emergencies? Is the necessary equipment in place to respond to an accident? Have personnel been trained and drilled? The questionnaire helps generate a gap analysis to identify holes in the system. WaveRiders think about environmental risks before they become problems. IKEA’s Material Risk Council, for example, meets regu- larly to review the latest thinking on chemicals. Those deemed too dangerous are put on a blacklist and eliminated from the supply chain. Companies face an especially critical point of exposure when they Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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182What WaveRiders Do acquire new assets. With a substantial volume of mergers and ac- quisitions, GE conducts a rigorous environmental and risk assessment on all deals. The company builds into the price of the potential new asset the costs for (a) bringing the new business into full regulatory compliance, (b) putting GE’s Environment, Health, and Safety sys- tems into place, and (c) dealing with legacy liability issues. Key mem- bers of the environmental review team meet monthly with manage- ment to discuss deals in the pipeline.

The risks identiﬁed can kill a deal or result in mandatory remedial action. The GE team tells a chilling story about a Brazilian ﬁrm the company bought a few years ago. During the deal review, the team noted that the on-site day care was near an area with substantial chemical storage. GE demanded that the company move the kids.

About three months later a chemical ﬁre broke out and destroyed that part of the building. GE executives have no doubt that many children would have been killed. “This example is why you need to be systematic,” the GE team told us. A ﬁnance-only review of the deal would not have uncovered the threat.

PARTNER FOR ADVANTAGE You might think you have a handle on your big environmental issues if you’ve set up tracking tools and systems. But NGOs and local communities often have a very different view of your issue set. Re- member, feelings are facts. We can think of no better way to track what outsiders think of your company on an emotionallevel than by partnering with, and really listening to, outside organizations. Partnering is, in fact, a key tool for generating Eco-Advantage.

Whole books have been written about partnerships, and many con- ferences have been devoted to the topic. Here, we give a brief review of notable examples and provide key lessons we’ve gleaned from an- alyzing dozens of business–stakeholder relationships. In theory, a company could partner or learn from nearly any of the twenty stakeholders on our Eco-Advantage Players wheel from Chapter 3. It’s worth thinking through the possible links with all of them. But ﬁve key categories of partnership are most likely to pay big dividends: NGOs, environmental experts, governments, com- munities, and other companies. Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Eco-Tracking183 Partnering with NGOs If there were a contest for the company with the worst corporate social responsibility history, Chiquita (formerly United Fruit), would deﬁnitely be in the running. In the 1950s, the company funded a CIA- led coup of the democratically elected government in Guatemala be- cause it disliked the new leaders’ agriculture policies. (Hence, the phrase “banana republic.”) This tortured history makes the turn- around of Chiquita, now a leader in environmental and social re- sponsibility, all the more remarkable.

Chiquita executives will tell you that the transformation began in the early 1990s when they formed a deep, lasting, and unlikely part- nership with the Rainforest Alliance, a New York–based NGO. The key players in this relationship are still there today. We spoke with Dave McLaughlin from Chiquita and Chris Wille from Rainforest Alliance, both of whom work in Costa Rica and spend signiﬁcant time on the farms that produce the world’s bananas. Today, the partnership is multifaceted and deeply entrenched.

Working with a range of other stakeholders, including some other companies and small farmers, Chiquita and Rainforest Alliance de- signed a set of guidelines for growing and processing bananas in an environmentally and socially preferable way. After a two-year inten- sive and inclusive process, they produced a new way of doing busi- ness. Now, every year, Rainforest Alliance audits and certiﬁes farms that meet the standards of its Better Banana Program. Chiquita then shares the results with the public in a brutally honest environmental report, including notes on even the smallest failures. One example:

“In Turbo, Colombia, a company automotive facility was leaking oil, which could have entered a nearby stream.” This astonishing transparency has won awards for environmental reporting excellence and earned Chiquita loyalty from watchful cus- tomers in Europe. The reports were years ahead of the more recent efforts from other companies like The Gap, which has also opened its books on supplier performance. The Chiquita–Rainforest Alliance partnership is one of the most strategic and effective in the world—and one of the oddest, at least from the outside. As the 1990s began, Rainforest Alliance was among Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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184What WaveRiders Do the biggest critics of the banana industry generally and Chiquita in particular. If Chiquita were the Roman Empire, executives saw the NGO as the raiding hordes of barbarians. NOTABLE QUOTE: STRANGE BEDFELLOWS As Conservation International’s Glenn Prickett notes:

Lines between these camps were once clearly drawn. Now former antagonists work together in ways that are uncomfortable, controversial, and yet often highly effective ....Intheir heart of hearts, most environmental NGO leaders would probably prefer public policy solutions to industry partnerships. And most industry executives would probably prefer to focus on business, not environmental work. But we live in an era of strange bedfellows. In 1991, the Rainforest Alliance produced a preliminary set of standards for how farmers should grow bananas. The industry re- jected it. As McLaughlin told us, Chiquita thought it might be a trap.

Executives believed that the increased visibility of the company might make it a target of criticism, despite their best intentions. Leaders at the NGO acknowledge that this fear was not unfounded. “Many NGO criticisms were unfair or generalized,” Chris Wille admits. “All bad things happening in Costa Rica were laid at the feet of one in- dustry and one company.” Relations, in short, were virtually nonexistent. But many forces were conspiring to bring Chiquita to the table. European buyers were asking tough questions about banana farming, and Chiquita knew it needed to make a good faith effort to improve. Working with the Rainforest Alliance offered a credible starting point. The relationship started slowly with a simple meeting. McLaughlin and Wille walked a farm together to explore issues. After a gradual building of trust, Chiquita agreed to develop a two-farm pilot program to test new standards and learn what could really work on the ground. But the relationship was still dicey, even at times icy. As we mentioned ear- lier, Ranger Rick magazine led a kids’ write-in campaign to the Chi- quita CEO. The Rainforest Alliance was behind the effort, and this was after they had started working together. Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Eco-Tracking185 But trust continued to grow. Over the years, the partnership has combined sound science with on-the-ground realities and operational savvy. The Better Banana Program is a detailed operational play- book. Chiquita spent $20 million over the ﬁrst decade to roll out changes across the continent, but saved $100 million in operating costs at the same time. Farm productivity is up 27 percent, and cost per box of bananas is down 12 percent. Chiquita managers have no doubt that these farms just plain run better. The environmental results are impressive as well. Chiquita farms have drastically cut the use of pesticides, eliminating some insecti- cides entirely. The farms now carefully manage waste such as plastic and bad bananas that they once dumped haphazardly. “It’s night and day on the farms,” Wille tells us. “The plastic litter used to be knee deep and wash into rivers. Tourists who know nothing about the program say they can spot a certiﬁed farm because it is cleaner and better organized and managed.” The beneﬁts in terms of employee morale are enormous. Banana industry executives have told Wille that the difference in worker at- titude alone has made the expense of the program worthwhile.

NOTABLE QUOTE: CHANGES AT CHIQUITA All of the operational changes on Chiquita’s banana farms are important.

But Chiquita executives really rave about the changes in their own com- pany. As Dave McLaughlin says, At the end of the day, it’s not the certiﬁcation that interests me.

What is truly the most valuable part is the process. Getting your people plugged into it and thinking outside the box and getting new idea s...allof those things are ten times more important. To see our senior managers become friends with the NGO is something. Our management is far more enriched than they were.

In our ﬁrst CSR report, a letter from the CEO talked about how engagement with the Rainforest Alliance led us down a completely new path. We opened that door and danced with the devil. And we’re better off for it. The other gold star for NGO partnership goes to McDonald’s. For over ﬁfteen years, the company has worked with a who’s who Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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186What WaveRiders Do of global environmental NGOs. First came the groundbreaking part- nership with Environmental Defense on packaging. Just one change, the move away from the Styrofoam burger “clamshell,” was inter- national news. More recently, McDonald’s has worked closely with Conservation International to examine the environmental impacts of its supply chain.

Together the two organizations established a set of principles for a pilot program, including a systems-based approach, a long-term view, and a base in real science. With these familiar elements of the Eco-Advantage Mindset, they hoped to understand McDonald’s up- stream impacts on water pollution, soil erosion, and waste manage- ment, especially from livestock. The partnership brought in some pi- lot suppliers to test new metrics and goals. We spoke with the company’s largest beef and bacon supplier, who found the pilot pro- gram tough but enriching. Cynics might contend that McDonald’s is simply co-opting the agenda of these NGOs. We say, so what? It’s not some Machiavellian conspiracy if a company takes on environmentally sound practices that NGOs help them design. McDonald’s is working in good faith with these organizations. It’s true, public criticism of companies with whom NGOs partner is way down. But then again, there is less to complain about. And it’s much harder for the NGOs to attack their own partnerships and programs. Partnering gives a company a strong defense against NGO attacks, but a large part of that defense is the demonstration of genuine progress. We call it brand inoculation— another form of Eco-Advantage. As true partners, NGOs can help companies track what’s coming over the horizon and how the brand is perceived. Picking their brains and really listening will give a company an Eco-Advantage over competitors who ignore what this important part of the market is saying. Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Eco-Tracking187 Partnering with Experts WaveRiders also seek Eco-Advantage by partnering with knowledge generators. Academics and other environmental experts can provide valuable perspectives on growing issues of concern. Launching a di- alogue, or even opening operations to their scrutiny, provides a peer review mechanism and a way to keep the company at the cutting edge.

Alcan cautiously accepted the request of some university research- ers to study its (now former) aluminum operations in Jamaica. “They crawled all over our operations,” Alcan’s Dan Gagnier, told us.

“Then I held my breath for the report.” Looking at the full life cycle, the bauxite operations were declared “best in class,” which was a relief. But not everything was perfect. The report helped Alcan im- prove on issues like rehabilitating the land after mining. Alcan let experts in and got an in-depth LCA in return for its transparency. DuPont regularly invites experts to judge its internal Sustainable Growth Excellence Awards. The awards celebrate employees and projects that moved the ball on sustainability. But DuPont uses the review process as a scouting exercise. They bring in a range of schol- ars, researchers, and NGOs, including some people who would nor- mally be antagonists. The awards panelists ask tough questions and let the company know if they are off track. Other companies do their scouting more directly. Dow, Unilever, Coca-Cola, and a growing number of corporations, big and small, have created environmental or sustainability advisory boards to meet regularly with company ofﬁcials. This peer review gives companies feedback on their environmental programs and performance from an independent perspective. And they get a chance to hear from top NGO leaders, academics, and environmental management experts about emerging issues and environmental community priorities. This scan of the horizon provides a critical heads-up on what might be coming down the pike. Finally, a very few WaveRiders have gone even a step further and brought environmental science expertise in house. Clif Bar hired an ecologist trained at Yale to work full-time on the company’s sustain- ability efforts. She has worked with every department, helping the company move to organic ingredients and focus more of its mar- Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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188What WaveRiders Do keting efforts on global warming issues. The company has shifted some of its sponsorship of sporting events to focus on environmental issues, for example, by making a bike race “climate neutral.” This internal perspective from a trained scientist has helped the company ﬁnd new ways to connect with health-focused, outdoorsy customers.

Partnering with the Government For many years, the government’s role in environmental issues was clear. Congress passed the laws, and regulatory agencies promulgated implementing rules. “Command and control” regulation hasn’t dis- appeared. But today both the federal EPA and state departments of environmental protection often look for ways to work collaboratively with business. The EPA has launched dozens of voluntary programs and industry partnerships. Some initiatives such as the Energy Star ratings on computers and appliances set standards for using a government-approved label. Others have more of a give and take. (A more complete list of government programs is on our website, eco-advantage.com.) Intel was one of the ﬁrst companies to take the EPA up on its Project XL offer of regulatory ﬂexibility for companies willing to show “excellence and leadership” and commit to pollution controls above and beyond legal requirements. With the advice of a stake- holder group, Intel established a set of stringent environmental goals, reviewed them regularly, and released quarterly metrics. In return, Intel received a site-wide permit and top-speed regulatory review for its expansion plans. Intel executives call this initiative a “huge win.” With the European Union taking an aggressive stance on advanc- ing environmental regulation, partnering in that region might prove particularly valuable. Nokia, for example, is one of two companies (the other being Carrefour) leading a pilot project with EU ofﬁcials under the new Integrated Product Policy. The IPP focuses on the life- cycle impact of products. The pilot program is bringing together a range of stakeholders from Nokia’s competitors to recyclers and cus- tomers to explore how to reduce the total environmental impact of cell phones. Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Eco-Tracking189 Partnering with Communities Communities are no longer bystanders when it comes to corporate actions. Every day in cities, suburbs, and rural areas across America, would-be expansions and new facilities fall victim to antisprawl cam- paigns and “not in my backyard” attitudes.

Shell, like other resource-intensive industries, used to make deals with governments or land owners and move forward with major pro- jects. No longer. As we mentioned earlier, Shell’s work with the com- munity near its Athabasca oil sands project in Alberta, Canada, offers a new model for how things must be done. The Tar Sands are the great oily hope of fossil fuel lovers. Esti- mates suggest the possibility of oil reserves nearly as big as Saudi Arabia’s. But the process of extracting the oil represents a major environmental challenge. It’s everything-intensive—people, land, en- ergy, water, money, time. Reasonably enough, local native communities have questions.

What’s going to happen to our air? What will happen to the water table and local rivers and streams? Fort McMurray, the population center, has already grown from a hamlet of a thousand people in the 1960s to a bustling city of 35,000 in the 1990s. It’s projected to shoot past 100,000 residents if the oil sands project goes forward, with all the additional environmental pressures such rapid growth brings. To allay the fears and prepare for the future, Shell worked closely with the native communities, helping them build businesses to serve the project, preserving burial grounds and ﬁshing rights, and even teaching them to prepare re ´ sume´ s so that they could take advantage of the job boom. The company created regional infra- structure plans with NGOs, communities, and competitors. “We did things not required by law, or even by Shell internal HSE prac- tice at that point,” Shell’s Mark Weintraub told us. “All this work has helped position us for approvals and expansion as we become a ‘partner of choice’ in the region.” Shell has spent a lot of time and money, but Weintraub believes that the approval process was shortened by at least a year, a substantial saving in an industry where time really is money. Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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190What WaveRiders Do Partnering with Other Companies Some environmental issues can’t be addressed by a single company on its own. Sometimes, it makes sense for an entire industry to take on a problem or for a group of companies with similar interests to work together on solutions. Cross-company partnerships take many forms:

•Agreement on shared learning. McDonald’s, Coca-Cola, and Uni- lever created the Refrigerants, Naturally! initiative—supported by the United Nations Environment Program and Greenpeace—to ex- plore alternatives to chemicals in refrigerators and freezers that deplete the ozone layer and contribute to global warming. The U.S.

EPA recognized the initiative with a Climate Change Award in 2005.

• Closing loops. Albertsons supermarkets won an America’s Mar- ketplace Recycles Award for its innovative supply chain partner- ships focused on reuse of wooden pallets, cooking oil, and other materials.

• Commitment to change a market. Microsoft, Kaiser Permanente, and Crabtree & Evelyn worked with a group of sixty companies to phase out PVC plastic from products and packaging.

Partnerships with big ambitions, such as remaking a market, re- quire real effort and somebody willing to step up and take the lead.

Working with the NGO Metafore, a diverse list of companies—in- cluding Staples, Time Inc., Starbucks, FedEx Kinko’s, Nike, and Toy- ota—have come together to form the Paper Working Group. After struggling on their own to deﬁne environmentally responsible paper and ﬁnd suppliers that can provide it, the companies came together to harmonize the tools they use to evaluate paper purchases. Their combined buying power—together they represent more than one per- cent of global paper demand—should also increase the supply and affordability of green paper. In 2004, leading electronics producers, including HP, Dell, and IBM, launched the Electronics Industry Code of Conduct to harmo- nize supplier standards for the entire industry. A joint code of con- duct produces scale economies in implementation and training, which saves suppliers lots of time and money. Other industries have noticed Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Eco-Tracking191 WORLD BUSINESS COUNCIL FOR SUSTAINABLE DEVELOPMENT For nearly ﬁfteen years, the WBCSD has been developing company and industry partnerships. As executive director, Bjo ¨ rn Stigson has helped companies in a range of industries band together to share best practices, particularly in the realm of eco-efﬁciency, and to develop strategies for sustainable development. what the electronics companies are doing. From pharma to auto- makers, companies are quietly putting together joint policies for man- aging their supply chains.

In some contexts, one company raising its standards alone might be disadvantaged. Partnerships make perfect sense. The burden of being out in front—and bearing environmental costs others are duck- ing—will be especially acute in highly competitive industries where even slight cost differentials can kill a business. In these circum- stances, smart companies look to establish industry-wide partner- ships. Leading-edge companies that are prepared to meet more de- manding requirements might also ﬁnd that quietly lobbying the government for more stringent regulations is the best path forward. Since industry partnerships eliminate the opportunity to seize a competitive edge, cooperation will be strategically optimal where a company seeks to level the playing ﬁeld or where acting collectively saves everyone money and pushes the industry forward. Partnerships don’t make sense when solo action offers a basis for seizing Eco- Advantage.

Eight Lessons Learned on Partnering In analyzing dozens of partnerships, some successful—and some less so—we’ve identiﬁed a series of fundamental lessons:

1. know your own situation well before picking an appropriate partner Be clear on your environmental issues when you sit down with oth- ers. An AUDIO analysis is a good place to start. Then educate your- Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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192What WaveRiders Do self on your business’s key problems, and learn which groups spe- cialize in the issues you face.

2.know with whom you’re dealing All partners, especially NGOs, are not created equal. Sustainability expert John Elkington has developed a playful, but useful, typology of NGOs. He breaks them into sharks, orcas, sea lions, and dolphins.

Sharks are always on the attack, smelling blood and weakness from miles away. Orcas use fear and bullying. Sea lions play it safe and stay close to issues they know well. Dolphins are intelligent, creative, and can help fend off sharks. The point is that some NGOs are easier to work with than others. Avoid the sharks.

3. be patient If we could share only one lesson, this would be it. Trust builds over time. It can take years to make the case internally for reaching out.

As Chiquita’s Dave McLaughlin says, “We aren’t making Tang here.

It isn’t just ‘add water and stir.’ ” Nurture long-term relationships.

4. learn each other’s culture and values IKEA spent six months with World Wildlife Fund just discussing val- ues before launching a partnership. The differences between for-proﬁt and not-for-proﬁt organizations can be large, but different values and cultures are not insurmountable. Still, it takes effort to learn to talk the other guy’s language.

5. set workable goals Partnership goals need to be carefully developed and speciﬁed. They must achieve environmental progress that satisﬁes all the partners, but also be relevant to and supportive of core business objectives. Set modest short-term goals and exceed them. And never over-promise publicly.

6. establish champions Each partner needs a clear operational leader for the project and the relationship. Backing from the highest level is also vital. IKEA reports regularly to the CEO on its World Wildlife Fund partnership. You also need critical line managers to climb on board. McDonald’s work Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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LESSONS FROM THE CORPORATE TRENCHES FOR NGOs A progressive NGO will often meet its goals and help clean up the en- vironment more quickly if it puts down the sword and ﬁnds a way to work productively with companies. We’ve identiﬁed a few guidelines for greater success:

•Don’t just criticize. Companies listen better if they hear encouraging words.

•Be constructive. No company is sustainable, so it’s easy to tear them down. But can you build them up?

•Don’t expect success if you equate all business with evil. Anti- market or anti-capitalist approaches don’t provide a good foundation for corporate engagement.

•Understand the pressures business faces. Give company ofﬁcials cover by building a credible, practical plan that makes them look good with their management.

•Map yourstakeholders. And watch your backside. NGOs can be accused of selling out when they work with companies. While building the banana program, Rainforest Alliance found itself getting more support from industry than sister NGOs.

•Let some things go. Compromise is essential to a working partnership. Remember that “the perfect is the enemy of the good.” •Admit mistakes. And don’t be afraid to revise views or positions, even long-standing ones. on its supply chain took off only when the supply chain managers, not just the corporate responsibility people, stepped into the process.

7.think big, but start small The commitment to green the supply chain is a worthy goal, but it can’t be done overnight. Pilot programs provide a way to test as- sumptions, establish trust, and build a base for bigger and broader future partnership initiatives.

8. coordinate communications Great partnerships can turn sour very quickly when one side pre- maturely declares victory. NGOs see greenwashing and companies hear gloating. You can’t assume that the way you would talk about an issue is how the other side would. In the same spirit, don’t an- Eco-Tracking 193 Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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194What WaveRiders Do nounce environmental breakthroughs until you have credible evi- dence of progress.

Overall, if there’s one clear message to take away from partner- ships, it’s this: Do not be afraid to start a conversation with your harshest critics. Listening to an extensive critique may be painful, but it’s better than ﬁnding it splattered all over the web. At the very least, all the parties will learn something. Knowing where you stand with everyone is a key component of eco-tracking and the ﬁrst step in building competitive Eco-Advantage. THE ECO-ADVANTAGE BOTTOM LINE Here’s our list of the top Eco-Tracking tools:

• AUDIO analysis •Life Cycle Assessment •Developing a core set of environmental indicators •Establishing a materials database •Comparative metrics to drive competition •Environmental Management Systems •Emergency procedures •Partnerships Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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195 Chapter 8 Redesigning Your World Green architect Bill McDonough likes to say that we humans should be humble. After all, it took us 5,000 years to put wheels on our luggage.

McDonough argues that we need to look at environmental issues in a new way. Eco-efﬁciency isn’t good enough, he says. Too often, it’s just making the wrong things more efﬁ- ciently. McDonough sees vast opportunities to redesign prod- ucts or even reconceive how and why we use them. He en- visions a world where, after customers are done with them, products are broken down into either biological parts (like food waste or cotton) that can be safely disposed of, or tech- nological parts that can reenter the industrial system and be- come new products. Only design that supports this vision, he says, will lead us toward sustainability in the deepest sense. Redesigning products, processes, and even whole value chains is the second section of the Eco-Advantage Toolkit (see ﬁgure). To make real environmental gains and beneﬁt from reduced waste and increased resource productivity, Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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196What WaveRiders Do companies need to make fundamental changes to how they—and perhaps their customers and suppliers—do things.

Design is critical because so much of a product’s environmental impact is ﬁrmly established in the design phase. As Timberland’s Terry Kellogg put it, “Once you spec out a product, 90 percent of the footprint—in energy, water, chemicals, hazardous waste, you name it—is set.” Design is where the rubber meets the road.

Eco-Advantage Toolkit—Redesign MIN D SET Eco-Tracking Culture Redesign Pollution Prevention Hierarchy McDonough and his partner, Michael Braungart, call their idealistic approach “cradle to cradle.” For most companies, the state of the art in environmental thinking is more modest—and can be summed up with the slogan, “Reduce, Reuse, Recycle.” As this simple guide suggests, the best pollution control option is to reducethe use of resources and eliminate waste. The next best option is to refurbish or reuse items. Then recyclewhat’s left. As a very last resort, throw something out. Most companies are still working on integrating these three Rs into the production process. But why stop there? Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Redesigning Your World197 Pollution Prevention Hierarchy REDUCE REUSE RECYCLE Traditional Priorities New Priorities REDESIGN REIMAGINE The pollution prevention hierarchy has two further levels (see ﬁg- ure). Before reducing, companies should explore ways to redesign what they do and how they do it. And even before that, they should try to reimagine their products or processes. Innovation is critical to 21st-century competitive advantage. The environmental lens can drive creative thinking and help companies ﬁnd new opportunities to add value to their products and services and please customers. Just as companies have learned it’s generally cheaper to reduce than to reuse, recycle, or throw out, now they are discovering that it is often more proﬁtable to redesign and reimagine. DESIGN FOR THE ENVIRONMENT Swiss textile company Rohner Textil set out a decade ago to be a leader in the sustainability marketplace. Rohner saw a growing de- mand for environmentally safe fabrics from existing companies like Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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198What WaveRiders Do Herman Miller, which was launching eco-friendly product lines, and from new enterprises, such as Q Collection, a New York-based sus- tainable design home-furnishings company. To meet these market re- quirements, Rohner’s managers knew they had to go beyond process improvements and explore the makeup of their products.

Working with McDonough and Braungart, Rohner managers ﬁrst asked themselves what materials they should use. They chose wool and ramie, natural ﬁbers that avoided many of the environmental problems associated with cotton, particularly pesticide use. Then they turned to the real challenge: the chemical dyes used to produce a rainbow of colors for decorators. Rohner wanted to use only dyes that ﬁt a rigorous set of environ- mental criteria: They could not cause cancer or contain persistent toxins or heavy metals. Of the sixty chemical companies Rohner asked to submit information on the composition of their dyes, only one, Ciba-Geigy, responded with speciﬁcs. Out of the 1,600 chemi- cals Ciba-Geigy used, a mere sixteen—one percent—made the cut.

To this day, those are the only dyes Rohner uses. The end result of Rohner’s work is a product they call Climatex, a biodegradable, en- vironmentally friendly fabric. Scraps can be used as mulch—try that with your average piece of cloth. As in all things, companies face trade-offs. Rohner’s product meets all product standards except one: The dyes cannot be combined to make a pure black color. Sitting with CEO Albin Kaelin in Switzer- land, we looked at swatches and could not tell the difference between “real” black and Rohner black. But of course, some interior designers can. Design for the Environment, or DfE as insiders call it, is a catch- all name for initiatives like the one Rohner undertook. It’s a system- atic way to include environmental thinking in product and process designs from the get-go. DfE tries to minimize environmental down- sides in input sourcing, production, and use. Once a company has a feel for where environmental issues arise in the value chain, it can redesign to avoid those problems. For ex- ample, if end-of-life disposal is a problem, a product might be re- designed to make it easy and economical to recycle. Herman Miller’s new Mirra Chair, the product of a rigorous DfE program, can be broken down in just ﬁfteen minutes into a handful of parts that are Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Redesigning Your World199 96 percent recyclable. In another design coup, the Mirra seat back uses a distinctive honeycomb design to give it the ﬂexibility that chemical plasticizers would normally provide. This breakthrough al- lowed the Herman Miller team to design these chemicals out of the chair entirely.

Hitachi adopted a DfE strategy in its washing machine division to stay ahead of Japanese recycling laws. In redesigning its product to make disassembly easier, the company developed a process by which its washing machines could be made with just six screws. Not only did this new design facilitate recycling, the six-screw structure cut manufacturing time by 33 percent and signiﬁcantly reduced the num- ber of parts needed in inventory. Hitachi also discovered that the new washer required less service, so that customers got higher reli- ability and lower repair bills. Hitachi’s efforts resulted in an environ- mentally preferable washing machine that’s also a higher-value prod- uct with improved customer satisfaction, lower production costs, and reduced disposal costs.

CLOSING LOOPS AND INDUSTRIAL SYMBIOSIS According to sustainability visionary Amory Lovins, “waste equals food.” What he’s talking about are the closed loops in nature. When a tree falls, it breaks down into dirt and provides nutrients for new plants. The waste becomes food for the next generation. In the business setting, waste is costly. It often means you’re squan- dering valuable inputs like metals, chemicals, or energy. WaveRiders have learned this lesson. They seek to recapture these resources by recycling waste water, reusing materials, and stripping valuable gases from exhaust. In doing all this, they reduce their footprint, improve resource productivity, and often save money. Dow Chemical, for example, redesigned its process for scrubbing the hydrochloric acid used to make chlorinated organic compounds.

The reengineered procedures, which recapture the acid, allowed the company to reduce its caustic waste by 6,000 tons per year. An in- vestment of only $250,000 returned $2.4 million in annual savings on inputs and lower waste-disposal costs. Herman Miller opened a waste-to-energy plant at one of its facil- ities. The company burns scrap fabric, generating over 10 percent of Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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200What WaveRiders Do the facility’s energy needs and all of its heating. Ironically, as Herman Miller has gotten more efﬁcient, it has had to take scrap from com- petitors to keep the plant running at capacity. Not enough waste is an unusual problem, but not a bad one to have.

Process redesign can go far beyond recycling. Under pressure to reduce the use of fertilizers and pesticides that pollute nearby rivers and streams, the Dutch ﬂower industry developed a new way to grow ﬂowers in water and a material called rock wool. The closed-loop system recirculates the fertilizers and pesticides in the water, reducing the amount required and eliminating groundwater exposure. The new approach also lowers the risk of disease and narrows the vari- ation in growing conditions, which improves the consistency and quality of the ﬂowers. In addition, cutting and handling costs have fallen. As a result of its redesign initiative, Dutch ﬂower growers have increased the value of their product, lowered the cost of inputs, re- duced waste, and raised their resource productivity. All this translates into improved competitiveness and a world-leading market position for a country that lacks steady sunshine and faces stiff new compe- tition. The quintessential example of this sort of industrial ecology can be found in the town of Kalundborg, Denmark, where a series of companies are linked through a web of resource and waste ﬂows some have dubbed “industrial symbiosis.” At the center of the system is a power plant that throws off steam, heat, ﬂy ash, and sludge from scrubbers. All of these waste products are useful inputs for other industries. A wallboard plant takes the sludge, a Novo Nordisk phar- maceutical plant and an oil reﬁnery use the steam, and the town gets the excess heat. A Statoil reﬁnery meanwhile sends the power plant waste water and gas. The web of connections also includes a local farm, a biotech plant, and a cement manufacturer. Everyone involved saves resources, time, and money.

REDESIGNING AND REIMAGINING SPACE: GREEN BUILDING Eco-designed buildings are a big part of the Green Wave. Sustainable design principles can make buildings more energy efﬁcient, lighter, and airier. Back in the 1970s, Yale’s famous architectural historian Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Redesigning Your World201 Vince Scully derided efforts to design solar heating into buildings as “plumbing,” not architecture. No more. Today, designers take green building very seriously.

In its standards for the design and construction of environmentally sound buildings, the U.S. Green Building Council awards points for using recycled materials, incorporating energy efﬁciency into design, and other environmental beneﬁts. Based on the total score, a building can be LEED (Leadership in Energy and Environmental Design) cer- tiﬁed to Silver, Gold, or Platinum standards. Cities and states are getting into the act by passing laws mandating that all new govern- ment buildings must be built to LEED standards. As they are in so many other instances, WaveRiders are very much on top of this trend. When we started our research, Herman Miller was the undisputed champ, with two of its buildings rated Gold— out of only eleven such buildings in the country. These buildings are bright, beautiful, and airy. But they’ve also proven to enhance worker productivity, which is where the Eco-Advantage comes in. Certiﬁed buildings are energy efﬁcient, so they are cheaper to operate. One of Herman Miller’s buildings has lowered utility costs per square foot by 41 percent compared with typical construction. Now, green design is entering the mainstream. The rebuilt World Trade Center is being constructed to LEED standards. Bank of Amer- ica’s new headquarters in New York City aims to be perhaps the most eco-friendly ofﬁce building in the world. Seeking LEED’s top-of-the- line Platinum status, the new building will employ cutting-edge de- sign to reduce energy and water use by half. Nokia is already one of the real leaders in this space. Its headquarters includes recycled ma- terials and uses passive solar heating and lighting, providing an in- spiring testament to the company’s commitment to environmental values.

REDESIGNING AND GREENING THE SUPPLY CHAIN Poor Kathie Lee Gifford. In 1996, she was just a TV personality who licensed her name for a line of clothing. Surely she did not expect to become a cause ce´le` bre for NGOs campaigning against child labor.

Yet to this day, the label sticks. Search the Internet for “Kathie Lee” Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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202What WaveRiders Do and the top links will take you to sites about Regis Philbin or about sweatshops. Ouch.

Between Gifford’s debacle and Nike’s high-proﬁle sweatshop prob- lems, a perfect storm of supply chain questions came together. Where are your products from? Who makes them? How do they make them? All these questions and many more are now fair game, espe- cially for big brands. No longer can companies say, “Well, that’s not really ourbusiness.” Nor can they claim they didn’t know what was in their suppliers’ products. WaveRiders are building big supply chain audit programs to help redesign how their products are made. And they’re trying to get to know alltheir suppliers. In today’s networked, blog-happy world, a problem with any supplier, even a small one, can tarnish a big brand quickly. But supplier audits are more than protection against public rela- tions disasters. If a supplier lags on environmental or social per- formance, it usually signals more problems down the road. IBM, for example, has discovered that suppliers that do poorly on their audits are likely to fail later in other areas, like delivery time or quality.

IKEA’s Supply Chain Redesign and the Staircase Model Even IKEA, a true environmental pace-setter and socially responsi- ble company, came under attack in the early 1990s for a series of supply-chain scandals. A Swedish documentary showed children working in Pakistan, reportedly on IKEA products. On the environ- mental front, the company took heat for using wood from endan- gered rain forests. These kinds of public relations nightmares can cost millions. When just one product, the Billy Bookcase, was found to have illegally high levels of formaldehyde, sales in Den- mark alone dropped 25 percent. The problems hit IKEA’s management team hard. After much soul searching, they built one of the most impressive supplier audit sys- tems in the world. Known as “The IKEA Way on Purchasing Home Furnishing Products,” or more simply IWAY, this program is broad, deep, searching, and very well thought through. Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Redesigning Your World203 The scale alone is incredible. About eighty employees working in the “trading ofﬁces” (purchasing department) around the world visit suppliers and rate them on social and environmental performance.

Another eighteen employees are foresters by training and work ex- clusively on understanding where all the wood in IKEA’s products comes from. This latter group is larger than the forestry departments of some countries . Combined, these auditors have done thousands of supplier checks. IKEA shared its IWAY Evaluation Checklist with us, and it’s an amazing array of questions covering compliance, emissions, waste, chemicals, safety, child labor, work conditions, forest sourcing, and ten other areas. “Checklist” is a big understatement for this ﬁfteen- page form that urges auditors to get their hands dirty and can take days to complete. Just one example of the helpful “Notes to auditor” throughout, this one on hazardous waste: “Check that the procedure is working in reality. Check how empty containers and barrels are handled.” Another note encourages the auditor to “explain the IKEA philos- ophy .... check that the supplier understands the key environmental impacts and has started to measure and follow up.” These lines dem- onstrate an important element of the process: IKEA does not just swoop in, give a rating, and leave. The company works closely with suppliers to bring them up to snuff. IKEA suppliers from Mexico to Bangladesh have cleaned up their operations, spending millions on new equipment like waste-water treatment facilities. But IKEA also steps in and helps suppliers to reduce environmental impact directly. One Romanian furniture sup- plier, with loans from IKEA, invested in modern equipment including a new boiler, ventilation, and air ﬁlters, and installed a machine to turn briquettes from waste to energy and proﬁt. A core element of IWAY is what IKEA calls the “staircase model,” which establishes four levels of achievement. Level 1 is basically un- acceptable and means the supplier must have an action plan for reaching Level 2, the company’s minimum standard. Every new sup- plier must go through an audit beforedelivering the ﬁrst shipment.

Level 3 is yet a higher standard, and Level 4 suppliers meet even stricter third-party standards such as the Forest Stewardship Coun- Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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204What WaveRiders Do cil’s certiﬁcation, widely considered the toughest standard in sustain- able forestry.

The staircase model is what elevates IKEA’s supply chain audit above the vast majority of similar programs. If supplier checks exist at all, most ask basic questions about compliance with the law. It’s a “CYA” business practice at best. IKEA’s proactive stance, which demands continuous improvement, is a different animal. The com- pany is pressuring suppliers to change how they operate, where they source wood from, how much they pay employees, and much more.

Digging this deep represents real value-chain redesign. So what does all this cost? It’s a good question with a surprising answer: No one knows. “We’ve never put a budget together or cal- culated the costs,” IKEA’s Dan Bra ¨ nnstro¨ m said. “It’s rather fantas- tic.” Don’t misunderstand: IKEA cares deeply about costs. The company is famously value conscious—some might even say cheap.

But the value to IKEA of lowering supply chain risk is so high that millions of dollars in employee salaries and time is seen as negligible in comparison. As IKEA’s top CSR executive Thomas Bergmark told us, “For IWAY, there is almostno hurdle rate ....there’s a risk by not doing it. It’s not an option ....ourbrand name has real value.” To protect that value, IKEA even audits the auditors. As IKEA’s Head of Compliance, Bra ¨ nnstro¨ m, who came from running the in- tense store reviews on the retail side of the business, now makes sure the company meets the same high standards in the supply chain. On top of the internal audits, IKEA also periodically brings in third-party veriﬁers to review the whole process. It’s a three- tiered system of checks that reduces supply chain risk about as much as anybody can. Finally, if anyone in the organization has any doubts about how seriously IKEA takes this supply chain work, they can just ask the IWAY Council that oversees the whole operation. It’s chaired by An- ders Dahlvig, IKEA’s CEO. Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Redesigning Your World205 THE ECO-ADVANTAGE BOTTOM LINE WaveRiders move beyond merely tracking environmental issues to change products, processes, their workplaces, and even their supply chains. To carry out their redesign efforts, they deploy various tools in- cluding:

•Design for the Environment (DfE) •Closed-loop systems •Industrial ecology •Green building and LEED certiﬁcation •Supply chain audits Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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206 Chapter 9 Inspiring an Eco-Advantage Culture In 1997, a Conoco oil tanker and a tug boat collided near Lake Charles, Louisiana, opening up a hundred-foot gash in the tanker. Few remember this accident today for one simple reason: Not a drop of oil was spilled. Conoco, then owned by DuPont, had invested in “double-hull” tankers years ahead of regulations. One hull was ripped open, but the sec- ond held. “That spill would have been larger than the Exxon Valdez without the double hulls,” DuPont’s VP for Environ- ment Paul Tebo told us. “Conoco would have been gone.” What does this have to do with creating a corporate cul- ture of environmental engagement? Quite a bit. In 1989, when green issues were still off the radar screen of most of corporate America, DuPont’s visionary CEO Ed Woolard launched a Board-level Environmental Policy Committee and established an Environmental Leadership Council made up of senior executives who met every month. Woolard’s green logic inspired fresh thinking across DuPont’s diverse business portfolio. Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Inspiring an Eco-Advantage Culture207 Archie Dunham, Conoco’s chairman, sat on the council and was, Tebo proudly reports, “a convert.” With the zeal of the recently con- verted, Dunham and other DuPont executives in 1990 made an ex- pensive commitment to build only double-hull ships. They believed that the reduction in risk to both the company and the environment was worth it, and were they ever right. Many companies talk about having a culture of innovation, or they claim, “we put the customer ﬁrst.” But what does that mean, exactly?

Often, not much. Too many slogans are attempts at quick ﬁxes and panaceas for corporate ailments—empty words unless backed with actions and results. 3M has long claimed the innovation mantle and can prove it with countless new, leading-edge products that have kept the company growing for decades. The company’s innovation record is no acci- dent. 3M uses concrete organizational tools to stay fresh and drive new thinking. The company’s famed “15 percent rule,” for example, frees its engineers to spend up to 15 percent of their time on projects of their own choosing, no matter how wild. Culture comes from more than just a high-minded mission state- ment or the words in a CEO’s “all-hands” e-mail. It’s built day in, day out with a conscious effort and incentives to shape people’s be- havior. Companies can encourage difﬁcult-to-measure “soft” skills like creativity with “hard” rules and metrics. In Good to Great, Jim Collins talks about a proverbial ﬂywheel that gets moving slowly but, with constant nudges in the right direction, gains speed and inertia.

Building a corporate culture that promotes environmental thinking is a ﬂywheel project. The right tools help create the ﬂywheel and get it spinning in the direction of Eco-Advantage. Everything from executing Green-to- Gold Plays to cultivating an Eco-Mindset to using Eco-Tracking and Redesign tools adds momentum. In this chapter, however, we focus on tools that create a culture that cultivates opportunities for stra- tegic advantage. The WaveRiders we’ve talked to use four basic culture-building tools:

• A vision, reinforced by stretch goals • Practices that fold environmental thinking into every strategic de- cision Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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208What WaveRiders Do •Incentives for engagement with and accountability for the environ- mental agenda • Communications aimed at both internal and external audiences.

Eco-Advantage Toolkit—Culture MIN D SET Redesign Eco-tracking Culture DREAM THE IMPOSSIBLE When Katsuaki Watanabe took over as President of Toyota in 2005, he made it clear that developing environmentally friendly technolo- gies would be his top priority—even ahead of safety, quality, and cost. If this weren’t shocking enough, he also promised that his en- gineers would someday develop a car that could “cross the U.S. con- tinent on one full tank of gas.” Talk about a stretch goal!

Goals for an organization can be splashy like Toyota’s or more concrete. Unilever, for example, set a fairly unsexy goal of zero liquid efﬂuent from its seventy-six facilities in India. Watanabe himself set more realistic targets alongside his big 200-miles-per-gallon vision, including a sales goal of one million hybrid cars per year. Either way, fanciful or functional, stretch goals are a vital tool for provok- Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Inspiring an Eco-Advantage Culture209 ing fresh thinking, promoting innovation, and building an Eco- Advantage.

As Harvard Business School’s Michael Porter has argued, having to address tough environmental issues can be the spark a company needs to go beyond its comfort zone and ﬁnd ways to innovate.

Stretch goals drive creativity by asking the near impossible and de- manding the reexamination of assumptions. They force everyone to search for new ways to meet old needs. We’re not talking about lofty statements like, “We seek to be an environmental leader in our industry.” Visions help set a tone and establish priorities, but they don’t provide concrete goals or much direction. Nor are we talking about incremental gains such as “use 5 percent less energy next year.” We’re focusing instead on big ad- vances that present a challenge and might seem nearly impossible.

The stretch goals we’ve seen animating corporate culture give life to the mindset principle “No is not an option.” Our research suggests that the sweet spot for stretch goals comes with targets that are clear and speciﬁc, yet far-reaching. Some are technically achievable but extremely challenging, like the 3M and Nike targets of reducing emissions of volatile organic compounds by 90 percent (both companies achieved it). Other stretch goals can seem purely symbolic, but in fact also drive execution. For years, DuPont has declared, “The goal is zero” when it comes to waste. While cer- tainly an aspiration, zero packs a punch. It is speciﬁc and easy to visualize. If something is going out a pipe or into the garbage, you know you’ve missed the target. Furniture maker Herman Miller re- cently outlined its goals for the year 2020, which included zero waste and a 100 percent emission-free footprint. They’ve labeled these goals “Perfect Vision.” Stretch goals help to clarify a company’s long-term direction and empower employees down the line to step up to the challenge. In 1999, Alcan set an ambitious greenhouse-gas reduction goal of 500,000 tons by 2004. Once unleashed, the company’s engineers found 2.2 million tons to cut in only the ﬁrst two years. Alcan’s Dan Gagnier told us how management had missed the boat: “Executive management, no matter how well intentioned, was lagging behind operational management, who felt it was time the company did much better on these issues.” Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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210What WaveRiders Do But here’s an irony: While operational people often know more about what actually can be achieved, they should not be expected to set stretch goals. In the words of DuPont’s Paul Tebo, “If you set goals by letting the organization tell you how to set them, you don’t have any goals at all ....youjust get what people know they can do.” Some WaveRiders are setting goals that help them cut environ- mental impacts beyond their own operations, up and down the value chain. Alcan, which consumes tremendous energy in making alumi- num, has started talking about going “Beyond Zero.” Here’s the thinking: The production of every ton of aluminum creates about twelve tons of greenhouse gases (GHGs). If the transportation market uses more aluminum, lighter vehicles will burn less fuel and emit fewer GHGs. By Alcan’s estimates, a ton of aluminum added to a car saves about twenty tons of GHGs over the life of the vehicle. Critics would say that Alcan is just trying to get out of reducing its own emissions or, worse yet, that it’s pushing this logic to sell more aluminum. Both may be true. There can be a ﬁne line between broad thinking and issue avoidance. But thinking about how your products ﬁt into the full value chain is the right approach—and often the best way to ﬁnd opportunities your competitors may have missed, which is the deﬁnition of Eco-Advantage. Going beyond zero can inspire everyone in the company to ﬁnd new solutions and do what was once thought impossible. Over time, goals that might have been symbolic become achievable. Herman Miller now expects to reach its goals of zero landﬁll and 100 percent renewable energy. Our research consistently shows that tough stan- dards often spark innovation.

WaveRiders ask their organizations what’s achievable, then set stretch goals beyond that to unleash creativity, drive innovation, and build Eco-Advantage. Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Inspiring an Eco-Advantage Culture211 We heard the same thing almost word for word everywhere: “We didn’t have a clue how we’d get there.” Diving into the unknown can be scary. But this is why seemingly impossible goals like zero, or even beyond zero, are so important for breaking out of old ways of thinking. As Dawn Rittenhouse, DuPont’s Director of Sustainable Development, told us, “We’re not looking for continuous improve- ment. We’re looking for strategic thinking and transformation.” GOING PUBLIC Want to take goal-setting to a new level? A public declaration of envi- ronmental goals lights a ﬁre under people’s feet, but be careful. Setting public goals—and then missing them—can be painful. DuPont’s Paul Tebo put it succinctly: “Once you go public, it’s no longer voluntary.” ECO-ADVANTAGE DECISIONMAKING In some companies, top executives decide nearly everything. Other corporations are highly decentralized and give people at all levels some latitude. But even with their different cultures, the WaveRiders we studied showed a few common trends in decisionmaking style that help them make tough environmental choices.

Environmental issues tend to be thorny and complicated. Tradi- tional cost–beneﬁt analysis often fails to include hard-to-see or hard- to-measure upsides in the calculus. But WaveRiders do notignore intangible beneﬁts. They know that payoffs may come down the road or in a form that traditional accounting has a hard time capturing, such as avoiding accidents, deﬂecting regulatory attention, and build- ing goodwill with consumers and communities. Environmental costs and beneﬁts are frequently diffuse or delayed, but they are no less real.

Rethinking the Hurdle Rate Many possible corporate investments—new initiatives, product launches, marketing, and so on—compete for attention and money.

To help decide among them, most companies require that any pro- Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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212What WaveRiders Do posed investment yield a minimum return known as the “hurdle rate.” By forcing everyone to justify proposed projects with hard numbers, hurdle rates provide a metric for evaluating investment al- ternatives and avoiding misallocation of scarce investment dollars. In the environmental realm, however, where intangible beneﬁts may be undervalued and hard numbers difﬁcult to establish, ﬁxed hurdle rates can lead to wrong decisions.

3M, for instance, often slashes the hurdle rate for Pollution Pre- vention Pays ( 3P) projects from the corporate standard of 30 percent to only 10 percent. IKEA, too, gives special leeway to environmental investments. When deciding, say, whether or not to install solar pan- els on a store, the company allows a ten- to ﬁfteen-year payback— much longer than for other investments. In some cases, WaveRiders actually lower the hurdle rate to zero.

One of 3M’s manufacturing directors, Jim Omland, told us about two multimillion-dollar projects he approved without even calculat- ing a hurdle rate. One factory cut the emissions of an air pollutant and another cleaned up the water going into ponds in Little Rock, Arkansas. Neither change was required by law, but making them kept the company ahead of stakeholder expectations. “Many issues fall into the ‘you just do it when you can’ category,” Omland said.

“If I don’t deal with them now, I could face community or regulatory issues down the road.” Let’s be clear. If a project provides an immediate payback in the usual commercial terms, then it’s an eco-efﬁciency play and doesn’t require a lower hurdle rate. The ﬂexible hurdle rate is for projects without an immediate beneﬁt in hard dollars. To green-light these projects, executives need a bit of slack and the courage of their con- victions. What 3M and other companies are recognizing is that the intangible beneﬁts of these projects—reducing risk, staying ahead of regulations, pleasing communities, enhancing employee morale—are often substantial, even if they are hard to measure. Some companies use a formal process to identify lower hurdle rate projects. Unilever’s capital investment process requires an environ- mental proﬁle of an investment, which may trigger a lower rate. Oth- ers prefer a more informal process. McDonald’s executive Bob Lan- gert remarked, “For some investments, I don’t have to show the Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Inspiring an Eco-Advantage Culture213 normal hurdle rate. It’s not formal, and you won’t ﬁnd it in writing anywhere, but I have the go-ahead for that sensibility.” Still other companies are beyond informal. They don’t technically lower the hurdle rate but instead make strategic, directional changes without doing cost–beneﬁt calculations. Take the ﬂaring of gas from oil wells. BP and other oil companies realized that burning off the excess gas found in oil deposits was becoming unacceptable to many stakeholders. The practice contributed to global warming with no economic gain. So BP managers simply set a “no ﬂaring” policy. BP’s Chief Economist Peter Davies told us, “There’s no point” in measur- ing the intangibles on such policy changes. Davies wasn’t saying that intangibles are worth nothing. Rather, as an economist, he was ac- knowledging that they can’t be measured precisely. What really mat- ters in this case is that the strategic no-ﬂaring decision was right for the long-term health of the brand and the company. For all these business decisions, WaveRiders fold intangible beneﬁts—such as lower risk, brand building, and reputation protection—into their investment calculations. The business logic of their choices is sound. Indeed, it’s the traditional business tools that ignore key costs and beneﬁts. Pairing During a recent redesign of its shoe boxes, Timberland eliminated 15 percent of the cardboard and reduced material costs by roughly the same amount. This was an obvious eco-efﬁciency win. But environ- mental executives also wanted to use 100 percent recycled cardboard in the new design. Post-consumer recycled content, however, costs Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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214What WaveRiders Do more per pound. Luckily, the savings in material quantity offset the switch to a more expensive paper stock. But the savings could have been signiﬁcantly higher had the company chosen to skip the expen- sive paper change.

Around the same time, Timberland was also exploring options for retroﬁtting two large distribution centers with low-energy lighting.

The total cost was $600,000. Because of state subsidies, the retroﬁt of one facility in California would pay back in less than two years—a no-brainer. But retroﬁtting the other distribution center in Kentucky would take six or more years to hit payback, with an internal rate of return below the company’s hurdle rate. Timberland could have chosen to do only the California retroﬁt. In both cases, the managers “paired” the less desirable project with the no-brainer and presented them as a single proposal. The box redesign, paired with the switch to recycled content, would save only a little money—much less than the 15 percent of the box redesign alone. The two-site retroﬁt would have a three-year payback, ex- ceeding the hurdle rate, but taking longer than the best project alone.

Why make these choices? Because Timberland was keeping a big- picture focus on its corporate reputation and long-term value. We saw similar “illogical” behavior at many companies. Herman Miller sorts twenty-six different waste materials and sends them to be recycled. For half of these materials, the company makes money, since the value of the recaptured scrap is higher than the cost of sorting and pick-up. Processing the other half loses money. But Her- man Miller still sorts them all and breaks even on the total recycling program. And when they ﬁnd ways to make more from the proﬁtable materials, they bring additional money-losers into the mix. WaveRiders such as Interface, McDonald’s, and IKEA have used a similar form of pairing to increase their percentage of renewable en- ergy. In particular, they plow the savings from energy efﬁciency pro- jects into buying higher-priced green energy, keeping total energy costs ﬂat while achieving broader environmental gains. Pairing is a tool to keep good long-term decisions from being re- jected for short-term considerations—an end run around the “green eyeshades” in accounting. By breaking even overall, managers reap the intangible upside beneﬁts—bragging rights with stakeholders, en- Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Inspiring an Eco-Advantage Culture215 hanced brand and intangible value, and happier employees—at no net cost.

Leveraging the Invisible Hand BP’s Peter Davies told us that his environmental responsibilities were simple: Be certain the company makes good, rational decisions. For an economist, no decision-making system works better than one re- lying on markets. Economists love the magic of Adam Smith’s “in- visible hand.” So we weren’t surprised when Davies expressed his enthusiasm for BP’s experimentation with an intracompany trading market for carbon.

The program started with targets on greenhouse gases for each of twelve business units. The overarching goal was to reduce company emissions by one percent per year or more. To meet this goal, the company established an internal trading system that lets business units buy or sell emissions reductions. If one business could cut green- house gases more than its target, it could sell the additional tons of carbon to other divisions. BP’s business units traded two million tons at a shadow price of about $5 per ton. Shell set up a similar internal carbon trading market, gearing the company up to meet its Kyoto Protocol obligations in Europe. Both BP and Shell recognize the limits of the intracompany carbon game.

They don’t worry about whether they’ve got the carbon price exactly right. The management teams understand that internal trading is sim- ply a tool to draw attention to emissions and highlight opportunities to reduce them. Garth Edward, Shell’s Trading Manager for Envi- ronmental Products, buys and sells commodities in actual global mar- kets. The internal trading system, he says, is not real, but “it’s useful as a ﬂag-raising exercise.” BP also recognizes that the goal is to focus business leaders on the issue. As BP’s Chris Mottershead told us, “In business, you can’t focus on 10,000 things, but can only do about three things well. With this tool, reducing the impact of our operations on climate change became one of those three.” The idea of casting a spotlight on pollution costs and imposing an internal “tax” on environmental harms has many variations. In 1995, Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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216What WaveRiders Do after CEO Albin Kaelin declared, “The traditional accounting system is not telling the truth,” Rohner Textil put a tax on itself for its carbon emissions. Herman Miller similarly buys “green tags”—re- newable energy credits that support clean energy development—as a way to get managers focused on the impacts of higher energy costs that they likely will face in a carbon-constrained world.

One WaveRider even funded some of its most forward-looking environmental work out of a special kitty controlled by the Board of Directors. The money supported a pilot program on Design for the Environment and other nontraditional projects. In effect, the Board subsidized the work and artiﬁcially lowered the price of these in- vestments, thereby spurring environmental gains, creative thinking, and some risk-taking that might otherwise not have happened. A few companies are even using environmental charges to help consumers and employees make better decisions in their own lives.

IKEA put a small tax on plastic bags—and donated the proceeds to charity—to help customers see that the environmentalcost for using the bag was not zero. Hyperion Software and Timberland have both started programs to help employees buy hybrid cars—to the tune of a $5,000 rebate in Hyperion’s case. In the end, internal trading or taxing mechanisms change price signals. Emissions of greenhouse gases cost the world something, but they’re currently priced at zero for those who release them. Market mechanisms help companies “internalize the externalities” and move the price closer to the cost to society of the environmental harm. And as regulatory mechanisms kick in, the companies that have moved ahead on their own will be better positioned for success under the new competitive conditions.

BROAD ENGAGEMENT The CEO launches a new initiative. Everyone scrambles. The CEO leaves or gets sidetracked by other priorities. The initiative peters out and ﬁnally dies. Does this “ﬂavor of the month” management style sound familiar? It’s no different with Eco-Advantage initiatives. While CEO lead- ership is required to make the environment a top priority, these ef- forts will not get very far if onlythe CEO is engaged. Executives of Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Inspiring an Eco-Advantage Culture217 all stripes—most importantly, middle management—need to own the issue.

All business unit heads at Shell, for example, write and sign an “assurance letter” vowing their compliance with the company’s sus- tainability priorities (somewhat like the CEO and CFO signatures on ﬁnancial statements required by the Sarbanes-Oxley law). WaveRiders drive real environmental engagement by:

• Placing ownership for environmental strategy with management at an operational level.

• Cross-fertilizing executives between line operations and environ- mental positions.

• Establishing incentives for environmental success based on clear metrics. ECO-ADVANTAGE CHAMPIONS At a number of companies, valiant eco-champions work the system to get environmental initiatives moving. Some even have CEO support. But those in the environmental department cannot be the sole source of environmental action. For fresh thinking to take hold and generate Eco- Advantage, the practice of looking at choices through an environmental lens has to be embedded throughout the organization. Relying onlyon a champion is a doomed strategy. Real success requires engagement from the top of the organization to the bottom. Ownership A sprawling committee that includes 400 of 6,000 employees would not seem like the most efﬁcient organizational tool. But furniture maker Herman Miller’s Environmental Quality Action Team (EQAT) works extremely well. It’s the best tool we saw for engaging all levels of employees in the goal of environmental stewardship and the chal- lenge of building Eco-Advantage.

Begun in 1989 with a few people working on lowering the envi- ronmental impact of manufacturing, the EQAT has grown organically over time. It’s now a loose matrix of nine subcommittees covering topics as diverse as design, transportation, and green mar- Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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218What WaveRiders Do keting. The EQAT has minimal hierarchy, but an environmental ex- ecutive informally coordinates the whole structure, and a handful of managers form a core team. This group guides without commanding, while the subteams set and measure progress against stretch goals.

As an engagement tool, it’s powerful. When a team needs buy-in, it invites people with key roles throughout the organization to join the fray.

As the company’s Design for Environment (DfE) initiative evolved, the EQAT asked the Senior Vice President for Purchasing, Drew Schramm, to join the team. After all, how could they design products with environmental considerations without involving the person in charge of buying everything that goes into those products? Soon Schramm faced a tough choice with serious environmental implications. His ﬁnancial goals for the year were tight: Cut $25 million in costs. His team found a less expensive replacement for one commonly used part. The new option would save the company $1 million, but it contained polyvinyl chloride (PVC). And unfortu- nately, the EQAT’s DfE team had set a goal of using no PVC. In the long run, as potential regulations tightened or customer preferences shifted away from harmful materials, it would be better for the com- pany to avoid PVC. So Schramm said “No thank you” to the $1 million savings, took his decision to the president, and together they agreed it was the best course. Schramm had to ﬁnd the savings else- where, which he did. Now imagine that same scenario if Schramm had not been part of the team that had actually chosen the no-PVC goal. The conversation might have gone something like this:

EQAT members: “Hey, Drew, how about you give up that $1 million in savings so we can make our PVC goal?” Drew: “Yeah, sure, I’ll get right on that.” Maybe that’s a bit unfair—Schramm might have made the same choice. But clearly it was easier for him to make the call and to make the case to his boss as an EQAT team member. He owned the envi- ronmental goal as much as anyone. The EQAT is a strange animal in almost every regard, size and reach being only the most obvious. It has a very loose reporting re- lationship, and it’s a great example of empowerment. The team es- Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Inspiring an Eco-Advantage Culture219 calates an issue when they think it’s necessary, and million-dollar decisions meet the informal threshold. But they have no ﬁxed re- porting schedule. Herman Miller’s President and CEO, Brian Walker, told us he’d like to hear from the EQAT more. (How often does an executive want more reports from a committee?) But, he said, “Why tinker with something that works?” High-level committees focused on environmental or sustainability issues are becoming more common. Starbucks created an Environ- mental Footprint Team with executives from critical areas such as transportation, purchasing, and store operations, but also reaching out to human resources, public affairs, and legal. The team meets quarterly to discuss progress against their goals. Very senior-level teams are cropping up as well. European chemical company BASF established a Sustainability Council made up of Board members and seven division presidents. Committees are no cure-all, as every executive knows. Often they mean more meetings for busy people. They can also easily backﬁre by making members tune out. But committees can be a powerful start. Better still, as the culture of the company embraces environ- mental thinking, senior executive committees tend to become less important. DuPont has moved away from the monthly Environmen- tal Leadership Committee meetings, and now has one Sustainable Growth Council led by the chairman. They meet only three times per year, which could be a sign of lessening commitment. But for Du- Pont, it indicates that they’ve moved environmental thinking deep enough into the company to reduce the need for top-down manage- ment. Companies can also ratchet up their efforts by giving up-and- coming executives real responsibility for company-wide, cross-cutting programs. In 2004, Hector Ruiz, CEO of chipmaker AMD, wanted to engage his management team in environmental and social issues.

So he asked a mix of senior and junior managers each to shepherd a sustainability issue through the organization. This Executive Stewardship program leverages the EHS staff and builds “bench strength” by testing talented employees on important projects. Most importantly, it moves the ball forward on important initiatives that might otherwise falter for lack of support. Executive stewards lend senior support, help eliminate organizational barriers, Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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220What WaveRiders Do and are directly accountable to Ruiz. As senior company ofﬁcials, the stewards bring clout to the environmental agenda. And by giving them responsibility for action, Ruiz can be assured that the stewards dig in hard.

Spreading the management focus on environmental and social is- sues makes sense. Timberland took aspects of Corporate Social Re- sponsibility and divided them among three senior executives who report to the Chief Operating Ofﬁcer. Timberland’s Terry Kellogg told us, “Our CEO is still the keeper of the CSR ﬂame, but now we have three of seven top executives carrying the voice.” TOUGH LOVE: GE’S SESSION E At GE, plant managers and operations leaders in every line of business, in every region of the world, must explain their plant’s environmental, health, and safety performance to a panel of EHS executives, the head of his or her business unit, and a room full of peers. In these annual meetings, called “Session E,” the plant manager makes the presentation, not the plant’s environmental manager.

At Session E—an off-shoot of the GE’s more famous Session C, which helps the company identify top talent—managers are praised for out- standing performance and exchange best practices with their peers. But they also get direct feedback about their failures. “In thirty years in busi- ness, I’ve never been so humiliated,” said one veteran factory manager after a dreadful performance at Session E.

Another manager had failed to achieve closure on 78 percent of en- vironmental and safety issues left over from the previous year’s review.

First came a public dressing down in Session E. A few days later, the Session E Letter that went out to all participants summarized the meeting and again addressed this manager’s shortcomings. This is peer pressure at its worst—or best. Nothing says “you’re accountable” like the specter of falling ﬂat on your face in public.

GE’s tough love seems harsh, but it works. And GE managers aren’t left to sink or swim on their own. The company’s EHS team provides a range of tools to help managers improve their performance. In fact, the “humiliated” factory manager turned his plant into a world-class EHS facility over the next few years. Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Inspiring an Eco-Advantage Culture221 Cross-Fertilization Before taking over as IKEA’s top sustainability executive, Thomas Bergmark ran the dining and home ofﬁce furniture business. 3M’s top environmental ofﬁcial, Kathy Reed, spent twenty years in line operations. DuPont’s Paul Tebo was running the company’s petro- chemicals business when he was tapped for the environment job.

Notice a trend? WaveRiders make a point of bringing line expertise into critical environmental roles. Career environmental professionals are talented and vital to the organization. But when environmental executives make demands, line management is inclined to dismiss them with a quick, “You don’t understand the ﬁnancial pressures we’re under.” That retort doesn’t ﬂy with managers like Bergmark, Reed, or Tebo— they’ve been there. One caveat: Companies that park a senior executive in the environmental role as a last stop before retirement have problems. The environmental management agenda is far too complicated and demanding to be handled by someone counting the days until he can collect his pension.

Experienced executives from operations have the connections and credibility to push the environmental agenda. They know the busi- ness imperatives and are often better positioned to spot opportunities for generating Eco-Advantage. Cross-fertilization is a powerful tool at all levels. When Bergmark needed an environmental manager to act as the go-between with store operations, he brought in Nicole Schneider, a long-time oper- ational manager from one of Germany’s biggest IKEA stores. Why Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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222What WaveRiders Do pick her and not an environmental person? “The key is to link en- vironmental affairs to the business and get out of the ‘greeny’ cor- ner,” Schneider told us. “I know how I thought when I was there.” Cross-fertilization also means getting people who normally would not speak to one another in the same room. When Toyota wanted to break the mold and develop its next generation car—the one that became the incredibly successful Prius—top managers led brain- storming meetings with people from across the company. Herman Miller, while trying to meet its tough zero-landﬁll goal, put janitors together with engineers to discuss where the company generated waste. For some companies with the right culture, the ultimate in cross- fertilization is to make environmental thinking a deep part of many people’s jobs. Then you don’t need special meetings to merge different perspectives. Perhaps Nike is the furthest along this path. Of about 25,000 employees, thousands have some responsibility for sustaina- bility issues, and many dozens of these have something in their title to that effect. For example, the company designers follow the prin- ciple of “Power of One,” meaning they must ﬁnd one design element per product season that reﬂects sustainability priorities. Nike credits this diffusion of thinking to the fact that the company started as a design and marketing ﬁrm, without the in-house manufacturing op- erations that require traditional compliance-oriented executives.

When the company took on sustainability and responsibility for its value chain, it found ways to engage people from all over the orga- nization. The environmental ethos happened organically. Cross-fertilization and ownership are about integration. Companies ﬁnd opportunities to get ahead of the competition when everyone looks at the business through an environmental lens. WaveRiders ask all employees to help ﬁnd Eco-Advantage. Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Inspiring an Eco-Advantage Culture223 Incentives: Compensation, Careers, and Kudos If what gets measured gets managed, you can bet that what people getpaid for (or promoted for) will get managed even better. Let’s face it: When most managers hear the word “green,” they think dol- lars, not environment. So it would seem logical that WaveRiders would put environmental performance into executive bonuses and compensation. In fact, some do, but not all. Sure, WaveRiders believe that the environment must become a nonnegotiable part of everyone’s job, just as safety and quality did in the 1980s and 1990s. But each company acts on this belief in its own way. In many companies, environmental results are now part of the key performance indicators around which executive evalua- tions revolve. In others, environmental performance factors into bo- nus calculations. For still others, environmental performance be- comes ingrained in the company culture, affecting who gets promoted and even who survives in the company. In 1999, Northeast Utilities found itself reeling from a series of guilty pleas over its failure to uphold pollution laws. So the company refocused attention by making environmental results 20 percent of every executive’s performance evaluation and bonus calculation. That single action sent a wake-up call that was sorely needed. The reasons for turning bonuses a shade greener are not always so stark. Many companies just believe that the environment is a legiti- mate priority to encourage. At Shell, performance against key CSR indicators—such as greenhouse gas emissions, oil spills, injuries, and diversity—determines up to 25 percent of executive bonuses. SC Johnson includes in its managers’ bonus calculation their product- line Greenlist scores, which rate toxicity and environmental impact.

And Chiquita ties bonuses for farm managers to their compliance with the Rainforest Alliance’s banana certiﬁcation program. Some of the companies we spoke with had little visiblerelationship between pay and environmental performance. If environmental thinking is embedded deep in the corporate mission, monetary incen- tives are redundant. It becomes unacceptable to operate any other way, and your job is at stake if you don’t get it. At 3M, top managers know that environmental care is a baseline obligation. “You don’t get an executive position if you don’t get the values,” Kathy Reed Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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224What WaveRiders Do told us. “So if you want a career, you have to take environmental issues into accoun t...no incentive will save your job .” Even if no money is involved, making the environment a key part of performance reviews sends a clear message. Dick Hunter, Dell Computer’s corporate VP for manufacturing and distribution, has two-hour operational reviews with Chairman Michael Dell and CEO Kevin Rollins. The conversation now startswith safety and environ- ment. In a cultural trickle-down, Hunter starts all his own staff re- views that way, as well. The repercussions at some companies are very real. After IKEA built its IWAY supplier audit program, some managers didn’t seem to buy in and manage supplier performance closely. So IKEA, eu- phemistically, “changed a few area trading managers.” A company that removes people for missing the environmental boat doesn’t need to do a whole lot more.

kudos Finally, we’ll say just a few words about a very obvious culture builder and behavior inﬂuencer: awards programs. Most companies have some sort of recognition—from plaques to dinners to hard cash—for employees who come up with ideas to save money or de- velop new products. WaveRiders develop programs aimed squarely at environmental issues. 3M has a range of awards, most connected to its Pollution Prevention Pays program. It’s not quite the Oscars, but “Most Haz- ardous Waste Prevented” is a nice honor to get at a special lunch with your coworkers. A few hundred 3P awards are presented each year. Out of this group of winners, a special few receive the Chair- man’s Environmental Leadership Award, including being ﬂown to Minneapolis for a big dinner event with the top brass. FedEx Kinko’s launched an Environmental Branch of the Year pro- gram that honors the top few stores on environmental performance.

And Timberland started a signiﬁcant cash award program for large- scale initiatives, such as a major switch to renewable energy at the company’s distribution center in the Netherlands. The Carden Welsh Award is named for a beloved former executive, which gives it a personal touch. The winner receives $1,000 in cash and $1,000 to donate to a favorite charity. Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Inspiring an Eco-Advantage Culture225 TELL COMPELLING STORIES Years ago, an English teacher told one of us (Andrew) something that stuck: The world has only eight archetypal stories. And the Old Testa- ment pretty much hits them all: boy meets girl (Adam and Eve), rivalry (Cain and Abel), rebellion against authority (apple anyone?), and so on.

Companies also tell stories, most of them built along familiar themes. Drink our beer, for example, and sexy women will love you.

But when it comes to telling a company’s environmental story, things get more complicated. Stakeholders listen carefully to green pitches, and if the facts are wrong or the assertions off base, they’ll be sure to let you know, sometimes in a very loud way. Being transparent and telling the truth aren’t exactly the hallmarks of traditional mar- keting, but in eco-marketing, you had better be clea r...andright.

We covered some of this communications terrain when we ex- plored the Green-to-Gold Plays that deal with marketing and intan- gibles. Here, we focus on particular “nuts-and-bolts” issues. We’ll break up the listening audience into two core groups—external (es- pecially communities, regulators, and NGOs) and internal (essentially employees).

External Audiences Companies can use communications as both a shield and a sword.

Touting the green qualities of a business can ensure that NGOs, reg- STARBUCKS MISSION REVIEW How do you make sure your operations are living up to your ideals?

Empower employees to check up on you. At Starbucks, anyemployee can ask for an explanation if something seems to violate one of the company’s six guiding principles. In one case, a few employees noticed that shipments from a roasting plant were coming in with boxes that were not full. Sensing the amount of paper and fuel wasted, they ques- tioned whether half-ﬁlled boxes really ﬁt the company’s principle on en- vironmental responsibility. The plant upgraded its computer system to ensure fuller shipments. Giving employees the ability to question any- thing is a powerful engagement tool. Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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226What WaveRiders Do ulators, the media, and ultimately, the public see the company as a responsible corporate citizen. Telling customers about the green at- tributes of a particular product also can set you apart in the mar- ketplace so long as the beneﬁts you claim are really there.

3M developed a simple process for managing these issues. Its En- vironmental Marketing Claims Committee is a cross-functional group that draws from public affairs, EHS and product responsibil- ity, and legal affairs. It checks every marketing claim, from ads to packaging, and thinks about how a particular claim will ﬂy in the marketplace. The point, the team says, is partly legal but mainly about reputation: “We want to be known as a company that’s as good as its word.” More general communications about the company’s environmental qualities can take a number of forms. Many companies now issue an annual environmental report or a sustainability or CSR report that addresses both environmental and social issues. Some just post rele- vant information on their websites. Which approach works best? It really does not matter—what’s important is the content. A good environmental report should discuss the important aspects of the company’s footprint. It should use quantitative metrics and cover core issues such as air emissions, water pollution, hazardous waste disposal, energy consumption, greenhouse gas emissions, and notices of legal violations.

Failure to review all aspects of the company’s footprint, most of which involve public information anyway, signals to stakeholders that a company has something to hide. Deal honestly with bad news—chemical spills, legal penalties, or pollution trends that are going up rather than down. Those who share shortcomings get to Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Inspiring an Eco-Advantage Culture227 tell the story their own way and explain in their own words how the problem is being addressed. After its legal troubles in the 1990s, Northeast Utilities issued an environmental report with a sober letter from then-CEO Mike Morris on its cover with a blunt message ac- knowledging serious failures. Morris (now CEO of American Electric Power) committed Northeast Utilities to improved environmental performance. In the intervening decade, the company has come a long way.

Remember, too, that all businesses today operate in an ultratrans- parent world. When NGOs or the media ﬁnd you trying to sweep an environmental breakdown under the rug—and they will—you can be sure that they won’t tell the story sympathetically. Multinational companies are especially vulnerable, given their size and exposure.

Even smaller companies can’t keep bad news hidden in the face of local NGOs and an ever-expanding corps of watchdogs. Bloggers and other self-appointed supervisors of the public interest pretty much assure that nothing remains a secret for long. Environmental reporting can and should also include good news— employee beach or river clean-ups, partnerships with conservation organizations, or proﬁles of employees who volunteer with commu- nity groups. Just make sure you don’t rely on these feel-good stories to blunt the demand for cold, hard facts about the company’s envi- ronmental performance. The days where a company could talk only about the good news and release a report full of glossy pictures of happy animals are long gone. No deﬁnitive model will tell you what issues a good report should address or how best to present environmental information. The Global Reporting Initiative has tried to develop a template for sus- tainability reporting, but its early efforts have generated cumbersome forms of limited use in communicating with the general public. In the absence of a template, remember that good charts and graphs are key to any report today. Most companies ﬁnd it useful to show trends—several years of past performance—and to track results against past and future goals and targets. And in case it’s not obvious, all reports and recent data should be made available on the com- pany’s website. (Our website, www.eco-advantage.com, links to some award-winning reports and best practices.) Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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228What WaveRiders Do A ﬁnal point: These reports, especially the web versions, offer an opportunity to listenas well as talk. Storytelling should be a two- way street. Knowing what others think of your performance and policy choices is very valuable. Shell’s Tell Shell program, for ex- ample, has elicited wide-ranging feedback for the company, helping it to reframe its image and priorities. Shell now quotes its critics and fans alike in its reports. Likewise, SC Johnson invites experts and customers around the world to engage with them through a sustainability-focused e-mail exchange.

SUCCESSFUL ENVIRONMENTAL REPORTING Tell the truth. Be upfront about bad news. Transparency is a powerful force behind the Green Wave, and expectations rise daily. Be clear about what metrics the company does and doesn’t track, and show them in relative and absolute terms. Reporting on greenhouse gas emissions per unit of revenue is ﬁne, but adjusting the denominators doesn’t fool se- rious readers. And you’re likely to annoy them if the overall total is grow- ing rapidly. Environmental reports are a powerful tool to build trust with all stakeholders. Don’t waste the opportunity.

Talking to the investor community about environmental initiatives takes particular skill. Annual reports and quarterly analyst calls, the normal channels for communicating with Wall Street, tend to focus on one story: quarterly earnings growth. Long-term sustainability strategies are a tough sell in a forum so heavily built around short- term gains. Interface’s Chairman Ray Anderson told us, “It was seven years before I talked about anything to shareholders besides our cost and waste reduction initiatives.” DuPont’s CFO, Gary Pfeiffer, makes the point that companies wanting to talk about sustainability must talk Wall Street’s language as well: “Wall Street will never accept ‘in 100 years you’ll love us. ’...they want to know how we’ll get there.” To keep the analysts happy and listening, sustainability initiatives need to be broken into bite-sized chunks and explained in strategic terms. GE’s Jeffrey Immelt doesn’t sell ecomagination as a feel-good campaign to make GE seem eco-friendly. He talks about fast-growing Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Inspiring an Eco-Advantage Culture229 markets for environmental goods and services like fuel-efﬁcient jet engines and better water treatment technologies. Wall Streeters ﬁnd it inﬁnitely easier to get their heads around a sales growth message.

The Internal Audience: Telling Employees Stories Employees’ identities are powerfully shaped by a company’s reputa- tion. Almost everyone wants to work for a company that they can feel good about. In our knowledge-based economy, the most prized workers are highly mobile and often highly sensitive to their em- ployer’s environmental performance.

Time and again, we heard from employees who responded to their companies’ own CSR reports by saying, “I didn’t know we did all this, and I’m so proud.” The stories of emissions reduced, energy saved, or communities supported are heart-warming and build real loyalty. Even the failures are important. Employees know many of those stories anyway, but seeing their management own up to short- comings builds trust. Feel-good aspects aside, environmental reporting can have signiﬁ- cant tangible beneﬁts. First, a public report is a way to put a stake in the ground and signal to all employees what issues to focus on.

The Shell Report acts as a form of leverage on employees and helps the company “manage the underlying performance,” according to Shell’s Mark Weintraub. Since the report is sent to 2 million people, including all 120,000 employees, executives take notice if their busi- nesses are mentioned. The commitment to sustainable development is measured publicly in that report. No employee wants to look bad. Second, a good report helps employees understand why environ- mental concerns or sustainable development are a corporate priority and why it’s good for business. Shell, Weintraub says, tries to “push beyond the nice happy stories where we save whales to the business case.” Creating opportunities to ﬁnd Eco-Advantage requires every- one in the company to understand the value of making environmental thinking part of everyday strategy. Finally, the report is a fantastic way to share learning across an organization. Gathering the data often reveals which facilities are leaders and which are laggards—and why. Companies also discover strategies and environmental wins they didn’t know about and can Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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230What WaveRiders Do now share more broadly. Weintraub observes that Shell uses its re- port as a mirror on the organization to see what’s working and what isn’t.

beyond reporting Sharing best practices can be a dry exercise, or it can inspire others to follow. A compelling story opens minds. One of GrupoNueva’s subsidiaries, Amanco, found a sizable $6 million in savings after a concerted eco-efﬁciency initiative uncovered fresh ways to reduce waste and cut resource use. Sharing these results with other divisions proved to be a powerful door-opener for Maria Emilia Correa, the VP for Environmental and Social Responsibility. “Successful stories get people interested,” she said. “The $6 million savings for Amanco is a magic wand—it immediately opens eyes.” Companies need a range of tools to convey the environmental mes- sage. Some are experimenting with multimedia presentations, highly visible environmental bonuses, end-of-year awards that highlight em- ployee efforts, intranets, and much more. Herman Miller and FedEx Kinko’s have used company-wide videos as a way to tell stories about what each company is doing on the environmental front. DuPont created an Active Energy Leadership Team that swoops in on busi- nesses to share best practices in energy management. BP shares in- formation over its intranet, including case studies and stories on re- ducing carbon dioxide emissions on an oil platform or ways to reduce gas ﬂaring. No single answer is right. What’s best is whatever reaches employees and shows them how they can improve their operations.

eco-training Building an environmental mindset, identifying opportunities for Green-to-Gold Plays, and developing and using tools that create Eco- Advantage—none of these things comes easily. Like learning any other skill set, mastering these requires educating people up and down the line. We highlight here three kinds of training programs WaveRiders use to help create an Eco-Advantage culture:

• Training on focused topics like regulatory compliance or eco- efﬁciency Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Inspiring an Eco-Advantage Culture231 •“Take it home with you” informal education to raise general knowledge of environmental issues • Executive-level, big-picture programs on sustainability.

In the ﬁrst category, WaveRiders have developed signiﬁcant train- ing modules on speciﬁc environmental topics. Alcan has come up with a program it calls EHS First, a central vision for the company with the training to back up its importance. As Simon Laddychuk, who led the team that developed this initiative, told us, a key goal was to drive the philosophy into the core business. “All employees, and all of the top 800 managers, even Travis [the CEO], have gone through a four-day training module on environmental, health, and safety issues.” When Alcan bought another large manufacturing com- pany (Pechiney), it budgeted $20 million to harmonize the two com- panies’ approaches to EHS and make sure everyone was at the Alcan EHS standard. The second category, building employee interest in and knowledge about environmental issues, can be informal and fun. At Rohner Tex- til, employees loved the company’s sustainability efforts so much they demanded more. One group wanted to know why the company wasn’t using solar panels on the roof. CEO Albin Kaelin knew that solar energy wasn’t a viable power option for Rohner, especially in Switzerland with its limited hours of sun each year. But why be the bearer of bad news? Instead, at the annual summer barbeque, Kaelin planned a demonstration. The refrigerator would be powered by so- lar panels. Everything was ﬁne until night fell and the beer and wine got warm. Point taken. In another instance, Kaelin held a two-day seminar with no energy and little water. He had everyone cook with wood to make the point that resources are scarce. In both cases, Kaelin was handing out the same advice editors give writers: Show, don’t tell. Maybe Rohner does take its environmental consciousness-building a bit far. But many companies use newsletters and other informal methods to share information and generally raise everyone’s level of knowledge. Clif Bar produces a newsletter called “Moving Toward Sustainability,” which teaches employees about important issues for the business, like the beneﬁts of organic farming. The company also Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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232What WaveRiders Do uses a more informal e-mail series called “Notes from Your Company Ecologist” to cover issues that touch people’s everyday lives, like the environmental impacts of dry-cleaning chemicals.

At the executive level, education and continuous knowledge re- ﬁnement is even more important. A growing number of companies are making sure that their next generation of leaders is up to speed on sustainability and why it matters to the company. Unilever Co- CEOs Niall Fitzgerald and Antony Burgmans took the company’s top 200 managers on a retreat to the Costa Rican jungle. The essence of the get-away was team building, but the environmental setting helped set a tone for the hard thinking required about the company’s future. Alcan’s executive training, Laddychuk told us, is a “combination of technical and softer issues ....it’s atranslation of values into everyday practice—it’s about a mindset.” Similarly, Northeast Utili- ties developed an innovative training program for middle managers centered on “hard choices.” Rather than dodging the reality that line managers have competing pressures that make environmental goals seem secondary, the company tackles these issues head-on and talks about how to strike a balance. Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

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Inspiring an Eco-Advantage Culture233 THE ECO-ADVANTAGE BOTTOM LINE To build an Eco-Advantage culture, leading companies use many ap- proaches:

•Stretch goals •Decision-making that expressly accommodates environmental issues •“Pairing” environment-related projects or adjusting hurdle rates to reﬂect undercounted intangible value gains •Internal markets to highlight hidden environmental costs •Stewardship committees to promote executive engagement •Placing environmental ownership on operational ofﬁcials •Environmental performance reviews and clear accountability for results •Cross-fertilization between environmental ofﬁcials and those with line responsibilities •Eco-based bonuses and awards •Including environmental elements among key performance indicators •Environmental or sustainability reports •Real-time eco-information websites •Employee authorization to question actions inconsistent with environmental commitment •Eco-training Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

Created from ashford-ebooks on 2020-05-26 11:39:04.

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338.

Created from ashford-ebooks on 2020-05-26 11:39:04.