MBA 869: Environmental Strategy

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MBA 869: Environmental Strategy

Lecture 1:

Bringing the Environment Down to Earth

and into the Board Room

Dr. Carol Seagle

Assistant Adjunct Professor of Strategy and Entrepreneurship

Director of Research, Center for Sustainable Enterprise

[email protected]

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Road Map for Today’s Class

1. News and Introduction to the course and the class

2. Overview of topics to be covered in detail throughout course

3. Description of course assignments

4. Discussion about the Reinhardt article

5. Presentation of ancillary data regarding the state of business

implementation of environmental strategy

Objectives for today’s class:

• You will know the plan for the course and what to expect to learn from it.

• You will know what is required of you as a student in this class.

• You will have an increased understanding of what is meant by “environmental strategy.”

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Energy 101 - Colin Pistell (2nd_{-yr MBA Student)}

TODAY – Tuesday, October 20th at lunch in McColl 2050 (12:30-1:50pm)

How energy is produced, Trends in the energy business, Overview of oil & gas and electricity industries, carbon trading, and renewable energy

CPCC Center for Sustainability - T. Boone Pickens

Wednesday, October 21, 2009 at 7 p.m. at Halton Theater in Charlotte, N.C. Sign up for your free tickets online at: www.pickensincharlotte.com.

Renewable Energy Networking Event with SJF Ventures and the Council for Entrepreneurial Development (CED).

Thursday, October 22, 5:30 pm - 7:30 pm West End Wine Bar, Durham, NC

Global Climate Change: Challenges and Options in North Carolina and Beyond

Friday Center, UNC Chapel Hill. The fee is $10 per lecture.http://www.fridaycenter.unc.edu/pdep/wbi/index.htm The Energy Landscape: Options for the Future

Thursday, November 5, 7 pm. Course #2626

John Papanikolas, Associate Professor of Chemistry and Deputy Director of the UNC Energy Frontier Research Center

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Course Objectives

Through readings, case studies, guest speakers, and assignments, this course aims to:

1. Expose you to strategies companies use to reduce costs, minimize risk, create value, expand markets, innovate, and build competitive advantage, 2. Familiarize you with significant historical milestones which have

influenced the relationship between business, society, and the environment. 3. Give you practice using quantitative tools to evaluate alternative business

strategies with environmental implications, and

4. Challenge you to think critically about the environmental and societal consequences of business decisions and how business leaders can

incorporate consideration of these consequences into their decision making.

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Pedagogical Objectives

Within the context of an MBA education, this course has the following intentions:

1. to develop your ability to think critically, to systematically evaluate complex issues, and to weigh interconnected and conflicting interests; 2. to increase your capacity to comprehend and make use of quantitative

and qualitative information to ground your decision-making; and 3. to improve your ability to communicate clearly and effectively.

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_{Course Overview}

Date

Oct. 20

Topic

Introduction to Course and Environmental Strategies

Oct. 22 Pollution Prevention and EMS

Oct 27 Industry Self-Regulation —Responsible Care

Oct 29 Pollution Prevention and Supply Chain Mngt.

Nov 19 Water Issues

Nov 24 Ecosystem Markets

Dec 3 Climate Change – Intro and Regulatory Options

Dec 8 Climate Change – Business Consequences

Dec 10 Climate Change –Special Topics & Alternative Energy

Intro — Course Overview — Course Assignments — Article — Data

Nov 3 Life Cycle Analysis and Precaution

Nov 5 Financial Analysis & Decisions under Uncertainty

Nov 10 Strategies to Promote Behavioral Change

Nov 12 DuPont — Corporation-Wide Environmental Strategy

Nov 17 Green Building and Sustainable Agriculture

Risk and Change Management Pollution Reduction Competitive Differentiation Macro-Issues Affecting Corporations

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Supply Chain Strategy

China’s Green Alliance Program

Visual Course Map

Industry-Specific Strategy: Responsible Care Financial Analysis: Tempes Corp. Internal Environmental Strategy: Benziger Winery CaraGreen NC Choices DuPont

Water

Climate

Change

Ecosystem

Markets

Risk Analysis:

Cd-Li Batteries & BPA

Behavior Change

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Process Innovation

Competitive Time Frame Competitive Focus Tomorrow Internal Today External

Market Innovation

Stewardship

Prevention

Hart’s Shareholder Value Matrix

Responsible Care Be nz iger Te mpe s

Cd-Li Batteries & BPA China’s Green Alliance Program City Water

Process Innovation Market Innovation

Prevention Stewardship

Behavior Change

Water

Climate Change

Ecosystem Markets

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Course Components

1. Discussion Papers • Responsible Care • DuPont 2. Case Studies • Benziger • Tempes • DuPont 3. Guest Speakers

• China’s Green Alliance Program

• CaraGreen

• NC Choices

• Ecosystem Markets 4. Student-Driven Content

• Environmental Strategy News Updates

• Discussion Board

• Presentations with Executive Summary

• Business Consequences of Climate Change

• Energy Solutions

• Sigg

• Cd-Li Batteries

• City Water Tanzinia

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Assignments / Grade Components

Intro — Course Overview — Course Assignments — Article — Data

1. Environmental Strategy News Update — in class or discussion thread (15%) 2. Participation — in class and via discussion board (25%)

3. Case Brief (15%)

4. Group NPV Assignment (15%) • Tempes Corporation

5. Group Project (30%)

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http://www.greenbiz.com/ http://www.climatebiz.com/ http://www.sustainablelifemedia.com/ http://www.greenerdesign.com/ http://www.hbrgreen.org/ http://mitsloan.mit.edu/sustainability/ http://www.environmentalleader.com/ http://www.wbcsd.org http://www.edf.org/home.cfm http://www.netimpact.org/ http://www.csrwire.com/

http://www.thegreenguide.com/ (from National Geographic)

Environmental Business Web Resources

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_{―Bringing the Environment Down to Earth‖}

Reinhardt’s Core Assertion:

―Managers should make environmental investments for the same reasons

they make other investments:

…because they expect them to deliver positive returns or to reduce risk.‖

Critical Caveat:

―[Environmental strategy] can enable some companies

—those with the right industry structure, competitive position, and managerial skills—

to deliver increased value to shareholders while making improvements in their environmental performance.‖

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Five Approaches to Environmental Strategy

1. Differentiate Products

2. Influence Regulation

3. Cut Costs

4. Manage Risks

5. Redefine Competition

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Differentiating Products

Examples:

• Ciba Specialty Chemicals

• StarKist Tuna

• Others ?

What factors are critical for this strategy to succeed?

1

1. Customers willing to pay a premium

2. Ability to communicate environmental benefits credibly

3. Protection from imitators long enough to profit on investment

Besides patents, what other strategies can create barriers to competition?

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Influencing Regulation to Manage Competitors

= Formation of industry associations or convincing the government

to pass regulation

Example:

• Chemical Industry’s Responsible Care

Companies must ask

―Am I better or worse off if my competitors match my investment?‖

2

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Internal Cost Reductions

• Pollution prevention

• Resource efficiency

• Energy conservation

What are the (hidden) costs of pollution?

3

1. Wasted materials (direct and indirect) 2. Lower product yields

3. Wasted effort 4. Downtime

5. Creation of by-products

6. Handling and disposal costs 7. Managerial and reporting costs 8. Diminished value to the customer

―Like defects, pollution often reflects flaws in product or process design.‖

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• DuPont – ―The goal is zero‖

• In 2006, reported that waste treatment and pollution control expenses had decreased by $1.6 Billion/yr

• Energy savings exceeded $0.2 Billion/yr • Putting those numbers into perspective,

DuPont’s average annual Net Profit are approximately $1.8 Billion

• 3M – ―Pollution Prevention Pays‖ Program

• Resulted in $1 billion savings in its first year

• Staples saved $6 million in 2 yrs w/ centralized controls for lighting and HVAC

• Herman Miller – reduced waste from 41 to 5 million lbs / yr • Savings of $1 million/yr

Examples of Cost Savings from Pollution Prevention

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Survey of 181 waste reduction activities by 29 chemical manufacturers by Harvard’s Michael Porter:

• Of 70 activities that reported changes in product yield, 68 (97.1%) were increases

• ¼ initiatives required no capital investment

•

2_/3 _{initiatives had pay-back period < 6 months}

• For 27 activities with available data, annual savings per $1 spent = $3.49

Case Study of 29 Chemical Plants

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Managing Environmental Risk

―A firm’s ability to operate is contingent upon society’s approval.‖

Effective risk management:

• Helps companies avoid accidents, boycotts, lawsuits

o Particularly important in hyper-connected Information Age

• Offers opportunity to improve community relations

• Assists in stabilizing costs

Companies should ask whether their policies incentivize managers

to reduce risk or do policies subsidize risk.

4

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5 Redefining Markets

Process Innovation

Is the environmental performance of out

products limited by our competencies? Can improvements be made through new

technology? Competitive Time Frame Competitive Focus Tomorrow Internal Today External

Market Innovation

Does our vision include solutions to social and environmental problems?

Does our vision guide the development of new market innovations?

Stewardship

What are the implications for product design if we assume responsibility for its entire life

cycle?

Can we add value or lower costs while reducing the impact of our products?

Prevention

Identification of the most significant waste and emissions streams from current

operations.

Can we lower costs and risks by eliminating waste or using it as an input?

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Examples of Innovation

• ―Green Products‖ that extend product portfolio

• Recipe for Success: Meet the needs of the customer without requiring customers to sacrifice on price or quality (i.e., Green attributes cannot stand alone)

• Can be targeted to ―green‖ or general consumer; e.g., Benziger Winery (2) • Credibility is critical/Greenwashing backfires

• New Business Models:

• e.g., Servicizing: Provide a service (access to a good) instead of the good itself (ZipCar, Xerox)

• Reaching new markets with products that meet a social need: (a.k.a. ―Social Entrepreneurship‖ or ―Social Intrapreneurship‖)

• Products designed for BoP (e.g., PuR Water Sachet, MoneyMaker Pump) • Revolutionize industry structure (e.g., Microfinance/Microcredit or

distributed electricity generation)

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How widespread is the adoption of environmental

strategy by corporations?

How could the corporate landscape be surveyed?

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Environmental Strategy as Business Strategy:

―The State of U.S. Corporate Environmental Policy and Management‖

Survey of Russell 1000 Companies

• Based on review of publically available documents

• Prepared for Sustainable Enterprise Institute by IW Financial, Inc.

• Russell 1000 = Large cap. Index subset of Russell 3000

• Includes largest 1000 U.S. companies based on market value

• Represent 92% of total market value of U.S. stocks

• Data from end of 2008; 988 companies

• http://www.russell.com/indexes/characteristics_fact_sheets/us/Russell_1000_Index.asp

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Environmental Strategy as Business Strategy:

―The State of U.S. Corporate Environmental Policy and Management‖

Russell 1000 Survey Results (September 2009) 59.7% companies have enterprise-level environmental policy

30% have policies that apply globally (i.e., policy extends beyond commitment to compliance with local laws)

27.9% companies have mission/vision/values statement that includes reference to the environment without providing specific details

29.7% companies discloses presence of an EMS; 20% utilize ISO 14001; 1.7% entire company ISO-14001 certified 26.9% companies disclose total direct GHG emissions

Policy addresses:

Energy use/conservation 20.3% Water use/conservation 12.85% GHG emissions 8.4% 15.5% have enterprise-level climate change policy; 4.2% have quantifiable targets or goals

12.3% companies use Global Reporting Initiative (GRI)-based CSR/EHS report 8.8% policies include a commitment to stakeholder involvement

< 6% Russell 1000 firms have C-level executive responsible for environmental, health and safety (EHS) or corporate social responsibility (CSR) issues

2.6% include commitment to third-party auditing

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_{2009 Green of Corporate America}

• Study by Siemens and McGraw Hill Construction

• Based on phone survey of 203 corporations

• Firms interviewed represent > 75% total value U.S. equities market

• Follow-up to similar study conducted in 2007

Results:

• 61% firms report having a person or a team dedicated to sustainability

• 31% firms report having budget dedicated to measuring or reducing emissions

• 53% request suppliers/vendors to incorporate sustainability into their practices

• 72% state operating costs are main reason for sustainability (6% disagree)

• Impact of Economic Crisis on Growth of Corporate Sustainability:

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2009 Green of Corporate America

(Siemens and McGraw Hill Construction)

1 Company views sustainability as complying with _{government regulations.} 2 Sustainability is viewed as a cost, but it enters into _{company mission.} 3

Proactive application of sustainability is considered consistent with the company's profit mission; the firm benefits from lower costs through ah-hoc policies, but sustainability is not implemented as institution-wide strategy.

4

The company makes cleaner products or services, applies eco-effectiveness and life-cycle

stewardship; enjoys competitive advantages from sustainability initiatives.

5

Company is driven by a passionate, values-based commitment to improving the well-being of the company, society, and the environment;