Corporate environmental strategy Key questions regarding environmental

Corporate environmental strategy

Key questions regarding environmental strategies When does it pay to be green?

Motives for environmental strategy Public concern most often used: response to public concern external political force “green image” Regulatory forces regulators important stakeholder group pollution control and waste management pollution prevention and resource reduction

Motives for environmental strategy Expected competitive advantage company expects reward with an advantageous competitive position possible advantages: cost savings and improved efficiency preserving resources enhance reputation product quality improvement differentiation comply with legislation attract quality employees satisfy consumer needs meeting stakeholders expectation attract capital investments capitalize on new opportunities

Motives for environmental strategy Top management commitment strong internal force management as the facilitator of the learning process creating the climate to learn how to internalize environmental issues more strong in “dirty” industries

Corporate environmental strategies Sustainability strategies are choices available to managers to align environmental and social investments with the generic strategy of a firm (Orsato, 2009) Corporate environmental strategies… …choices available to managers to align environmental and social investments with the generic strategy of a firm. defines corporate priorities and resources managerial perceptions of environmental risks and market opportunities determine the level of integration of environmental issues

Corporate environmental strategies Unsustainable business models Renato J. Orsato: When does it pay to be green? Palgrave Macmillan, 2009

Corporate environmental strategies Non-rival strategies Competitive strategies Unsustainable business models Renato J. Orsato: When does it pay to be green? Palgrave Macmillan, 2009

Corporate environmental strategies Renato J. Orsato: When does it pay to be green? Palgrave Macmillan, 2009

Moderating variables influence links among motives, strategies and performance positive/negative Context: e. g. industry impact (Banerjee et al. 2003) moderate environment impact industries companies can derive competitive advantage through corporate environmentalism moderate environment impact industries cost savings initially; not sustainable due to changes in regulation Competences

Eco-efficiency (1) Process-oriented Eco-efficiency Resource productivity throughout the life cycle while decreasing environmental impact Three ways: Lean thinking Industrial symbiosis Carbon credits

Eco-efficiency (1) Context greater potential to generate competitive advantage for firms supplying to industrial markets (B 2 B) high resource utilization high costs by-products under pressure to reduce both environmental impacts and costs of processes firms that are not susceptible to eco-activism pressure Competences

Beyond Compliance Leadership (2) Reputation some companies not only want to increase the efficiency of their organizational processes, but they also want customers and the general public to acknowledge their efforts Green Clubs CERES http: //www. ceres. org/ UN GRI http: //www. globalreporting. org/Home ISO 14001 http: //www. iso. org/iso_14000_essentials

Beyond Compliance Leadership (2) Context Highly visible brands in consumer markets which deeply depend on natural resources Firms supplying to industrial markets under pressure to improve environmental performance Exporters coping with non-tariff environmental trade barriers Firms dependant on loans from international banks demanding environmental impact evaluation Multinational corporations susceptible to environmental pressure in their home county Competences

Eco-Branding (3) Eco-lables FSC: standardization and accreditation of forestry services http: //www. fsc. org/accreditation. html LEED: Leadership in Environmental and Energy Design standardization and accreditation of environmental and energy performance in buildings http: //www. 5 min. com/Video/What-is. LEED-259783441 Eco-brands Änglamark http: //www. coop. dk/vores+varer/egne+maerker/anglamark. aspx

Eco-Branding (3) Context Reliable and uncontroversial information about the environmental performance is available to the consumer Differentiation is difficult to imitate by competitors Consumers are willing to pay the cost of ecological differentiation Competences

Environmental cost leadership (4) …no matter how eco-friendly a product is, when competing in price sensitive markets it has to be cheap EXAMPLE: Ecolean lightweight packaging It’s packaging costs 25% less than competitors and has the lowest environmental impact Between 40 -60% of oil based plastics used in packaging was substituted with calcium carbonate (chalk) http: //www. youtube. com/watch? v=1 ssmy. WZfraw

Environmental cost leadership (4) Context Competing on the basis of cost Radical material substitution/product redesign is possible without compromising performance Pressure for ever increasing environmental performance Competences

Sustainable Value Innovation http: //www. ted. com/talks/robin_chase_on_zipcar_an d_her_next_big_idea. html

Zipcar concept Jojn Reserve Unlock Drive

Sustainable Value Innovation Context High levels of price rivarly High system inefficiency High pressure to reduce environmental (LCA based) impacts of products High potential to move product tp service-oriiented operations – and revenues Potential to expand to lower income levels consumer base Competences

Functional environmental strategies Marketing growing number of environment aware consumers willing to pay premium prices hard to change consumer habits perception of low quality no delivery of environmental promises no single green marketing strategy from passive and silent “lean green” to “extreme green”

Functional environmental strategies R&D and Operations Strategies corporate level: tightly integrated into the value chain functional: cooperation with production HOW: improve and implement environmental programs aimed at optimizing company’s response to external pressures WHAT: design of new green products

Functional environmental strategies HRM Strategies Training and awareness Active participation and involvement Leadership Corporate culture

Functional environmental strategies Environmental information system environmental information system financial performance and implementation of EMS (Geurts et al. 2004)

Results of environmental strategies Financial performance investors reward positive environmental events and penalize negative (Klassen & Mc. Laughlin, 1996) Non-financial performance environmental performance ISO 14000 and its substandards • various aspects of environmental management • EMS tool enabling to identify and control its environmental footprint clearly defined environmental strategy can have a positive effect on revenue growth (Olson, 2008) higher Tobin Q for companies adopting more stringent environmental standards (Dowel et al. , 2000) SMEs: proactive practices – significantly positive financial performance (Alberto et al. , 2008)

Sustainability Implementation Challenge Source: Marc J. Epstein and Adriana Rejc Buhovac: Solving the sustainability implementation challenge. Organizational Dynamics. Vol. 39, Issue 4 Pages 306 -315

Sustainability Implementation Challenge Formal (hard) management systems Organizational structure Performance management Reward system Soft management systems Leadership Culture & People

Corporate Environmental Strategy Creating the Culture/Values Paul Hawken notes, "We are far better at making waste than at making products. For every 100 pounds of product we manufacture in the United States, we create at least 3, 200 pounds of waste. In a decade, we transform 500 trillion pounds of molecules into nonproductive solids, liquids and gases. "

Corporate Environmental Strategy Why Pursue “Environmental Strategy”? Risk management (reduce potential losses) Compliance assurance Contingency management and corrective action Process management (reduce relative costs) Cost control Improving yield

Corporate Environmental Strategy Why Pursue “Environmental Strategy”? Corporate image management (improve reputation) Stakeholder communications Corporate environmental reporting Market advantage (increase sales) Product attribute

Corporate Environmental Strategy Why Pursue “Environmental Strategy”? Strategic sustainability (improve longevity) Environmental condition assessment Life cycle impacts

Corporate Environmental Strategy Why Pursue “Environmental Strategy”? Based on a study by business researchers, not environmental researchers. Looked at cross section of firms in UK and Japan, which had “ecologically responsive initiatives”

Corporate Environmental Strategy Why Pursue “Environmental Strategy”? Three general motivations arose, none surprising: Competitiveness—improve long-term profitability Legitimation—complying with established norms Social responsibility—concern for social obligations and values

Corporate Environmental Strategy Why Pursue “Environmental Strategy”? Competitiveness (7 companies) Green marketing, products Process intensification

Corporate Environmental Strategy Why Pursue “Environmental Strategy”? Legitimacy (24 companies) Regulatory compliance Network with environmental interest groups Impression management

Corporate Environmental Strategy Why Pursue “Environmental Strategy”? Environmental responsibility (4 companies) Donations to environmental causes Life cycle analysis Unpublicized initiatives

Corporate Environmental Strategy History of Corporate Environmental Strategy Generation 1 Driver: Compliance Objectives: Risk management Primary audiences: Sr. Management, environmental staff Indicators: Regulated emissions, hazardous wastes, violations & fines When: Mid 70 s to mid 80 s

Corporate Environmental Strategy History of Corporate Environmental Strategy Generation 2 Driver: Stakeholder management, process management, pollution prevention Objectives: Drive continuous improvement, communicate eco-efficiency targets & progress (image), avoid costs, preempt regulations, gain competitive advantage Primary audiences: Stakeholders, line management, regulators Indicators: Resource efficiency, emissions & waste, financial, implementation When: Mid 80 s to mid 90 s

Corporate Environmental Strategy History of Corporate Environmental Strategy Generation 3 Driver: Stakeholder partnership, sustainability, life-cycle management Objectives: Strategic effectiveness, credibility, business sustainability, product friendliness (Df. E, LCA) Primary audiences: Broad stakeholder set Indicators: Balanced scorecard, environmental condition, resource efficiency, toxicity reduction, products When: 2000 and beyond

Corporate Environmental Strategy Corporations pursuing “Sustainability” Proctor & Gamble Dow Chemical ABB Asea Brown Boveri Shareholders pressing Social and/or Environmental Issues Interfaith Center for Corporate Responsibility Portfolio 21

Corporate Environmental Strategy Environmental Management Systems (EMS) An EMS is a continual cycle of planning, implementing, reviewing and improving the processes and actions that an organization undertakes to meet its business and environmental goals.

Corporate Environmental Strategy Most EMSs are built on the "Plan, Do, Check, Act" model.

Corporate Environmental Strategy Environmental Management Systems This model leads to continual improvement based upon: Planning, including identifying environmental aspects and establishing goals [plan]; Implementing, including training and operational controls [do]; Checking, including monitoring and corrective action [check]; and Reviewing, including progress reviews and acting to make needed changes to the EMS [act].

Corporate Environmental Strategy Environmental Management Systems ISO 14001: requires implementation of an Environmental Management System (EMS) in accordance with defined internationally recognized standards (as set forth in the ISO 14001 specification). establishing an environmental policy, determining environmental aspects & impacts of products/activities/services, planning environmental objectives and measurable targets, implementation & operation of programs to meet objectives & targets, checking & corrective action, and management review.

Corporate Environmental Strategy Environmental Management Systems Firms using ISO 14001: International Business Machines Baker Hughes Number of ISO 14001 registrations by country

Corporate Environmental Strategy Life Cycle Analysis Taking a holistic environmental view of a product or service, from raw material through production to distribution and final disposal.

Corporate Environmental Strategy Stages of Life Cycle Analysis 1. Definition of Goals and Scope 2. Life Cycle Inventory Analysis: measure materials and energy used and environmental releases that arise along entire continuum of the product or process life cycle 3. Life Cycle Impact Assessment: examine actual and potential environmental and human health effects associated with use of resources and materials and with the environmental releases that result. 4. Life Cycle Improvement Assessment: systematically evaluate and implement opportunities to make environmental improvements based on previous assessments.

Sustainable Development as Corporate Strategy Applying Corporate Environmental Strategy to the Value Chain IKEA identified five key areas to focus the task of integrating environmental criteria and awareness into its business operations: 1. The Environmental Adaptation of the Product Range first, to identify what material is being used today and, second, which materials they will need to eliminate over both the short and long term to improve environmental performance.

Sustainable Development as Corporate Strategy Applying Corporate Environmental Strategy to the Value Chain IKEA 2. Sustainable Forestry: Approximately 75 percent of the raw material for IKEA's products, packaging and catalogs comes from forests. IKEA's ultimate goal is to use wood products sourced only from sustainably managed forests.

Sustainable Development as Corporate Strategy Applying Corporate Environmental Strategy to the Value Chain IKEA 3. Environmental Work with Suppliers: IKEA directly manufactures less than 10 percent of the products it sells. The balance is produced by some 2, 300 suppliers in more than 60 countries. Many suppliers, particularly in Eastern Europe and Southeast Asia, have lower environmental standards than in Western Europe or North America. IKEA is encouraging its suppliers to institute environmental management systems in their operations and many suppliers have already fulfilled the requirements according to ISO 14001

Sustainable Development as Corporate Strategy A peek in to the future: Fuel cell technology at Toyota to Sell First Hydrogen Fuel Cell Car in 2015 Toyota holds 70% of the market for non-plug-in hybrids, and has led the way in researching hydrogen fuel cells, which convert hydrogen to water.

How does it work? The hydrogen fuel cell operates similar to a battery. It has two electrodes, an anode and a cathode, separated by a membrane. Oxygen passes over one electrode and hydrogen over the other. The hydrogen reacts to a catalyst on the electrode anode that converts the hydrogen gas into negatively charged electrons (e-) and positively charged ions (H+). The electrons flow out of the cell to be used as electrical energy. The hydrogen ions move through the electrolyte membrane to the cathode electrode where they combine with oxygen and the electrons to produce water. Unlike batteries, fuel cells never run out.

Oil & gas firms ‘Lead Carbon Reduction Efforts’ • Oil and natural gas companies are America’s top investors in zero- and low-greenhouse gas emissions technologies, according to a study commissioned by the American Petroleum Institute (API). • Oil and gas industry has played a key role in driving US CO 2 emissions to their lowest level in almost 20 years