Resource Scarcity Will Recast Corporate Environmental Behavior

Today, some 1.1 billion people lack clean drinking water, 1.3 billion are without electricity and more than one billion are hungry. Addressing these growing and connected nexus crises is, or should be, a major priority for business. It isn’t yet, but there are signs that companies are starting to realize the stakes and make commitments to being part of the solution — often with low-waste programs that also save them money.

It’s increasingly hard to argue for business as usual when the stakes are so high. Alan M. Kelly, emeritus dean of the University of Pennsylvania School of Veterinary Medicine, said in a recent talk that because of population increases, urbanization, poor cultivation practices, drought and other factors, the world is losing 30 million acres of arable land per year. By 2030, available arable land per person will shrink by from a half to a third of an acre.            

“An era of low food prices is coming to an end, in part because of low water availability,” he said. “The cities are the locus of almost all economic expansion, and by 2050 there will be three billion middle-class people in the developing world, moving up the food chain.”

At the “Nexus of Energy, Food and Water” workshop sponsored by the Initiative for Global Environmental Leadership (IGEL) at Wharton, many speakers pointed noted that there will soon be nine billion people on earth with rising expectations. Just as governments have to adjust to changing environmental priorities, so do corporations that do business on a global scale.

Business leaders will need to incorporate knowledge about the nexus of food, water and energy — and how these forces will shape the world — into routine business planning, many of the speakers agreed. Although sustainability has become a watchword for companies, which often chart their progress in annual reports, the response is not yet equal to the size of the problem. With rising awareness that holistic thinking is a smart business strategy, that is slowly changing.

Bernard David, an entrepreneur and senior fellow at IGEL, noted that given limited resources, the search for profits has to take a longer-term view. “Sustainability is a systems problem, and we’re not wired to think in terms of systems,” David said.

Humanity’s Final Exam

Andrew Winston, founder of Winston Eco-Strategies, and co-author of the influential book Green to Gold, said at the conference that nexus challenges are “the final exam for humanity, and it’s the biggest test we’ve ever faced. It’s time to set radical efficiency goals…. Seeing a good payback quickly on the ‘easy’ stuff — eco-efficiency that saves energy and water — always convinces people that there’s benefit in this.”

And although there has been some progress, sustainable environmental policies “are not getting to scale,” notes the World Resources Institute (WRI) in a 2013 working paper entitled, “Aligning Profit and Environmental Sustainability: Stories from Industry.” A good example is climate change.

In 2012, extreme weather events, linked to a warmer world, were estimated to cost the U.S. $60 billion. Meanwhile, the effects of global warming could be amplified by 1,200 new coal-burning power plants proposed worldwide. Yet, while more than 300 of the S&P 500 companies report their greenhouse gas emissions to the Carbon Disclosure Project, WRI notes that corporate responses to climate change and natural resource scarcity often are “marginalized” and are not a high priority compared with “core” concerns such as “product manufacturing or marketing campaigns to attract new clients.”

However, dwindling supplies of the resources on which companies depend and new consumer preferences are forcing executives to pay attention. WRI believes the priorities are clear:

  • Change the corporate charter to liberate sustainability from its “silo” and integrate it into long-term planning — on a par with other operations that create value.
  • Give sustainability a seat at the table where capital is allocated. When companies use traditional financial measures that generally fail to give fair value to natural resources, environmental protection often loses out. Better metrics are needed to account for the planetary impact of business decisions.
  • Work to integrate the goals of financial managers with those on the environmental team, so they can present to management as a unified voice.

Nexus-conscious companies are focused on making real gains in energy efficiency, water conservation and food use. They’ve absorbed the necessary lessons, and their ranks are likely to grow.

Energy Efficiency: Challenges and Opportunities

Neil Hawkins, vice president of sustainability and environment, health and safety at the Dow Chemical Company, referenced the big increases in population and middle class consumers on the way. “They want to eat more meat, and that’s how we get food competing with biofuel feedstocks — it’s a big change.” The competition from ethanol complicates the picture, Hawkins said. “In a business-as-usual scenario, we’d have to double agricultural output by 2050. It’s pretty challenging.” Quoting Pavan Sukhdev, a green consultant in India, he added: “We use nature because it’s valuable, but we lose it because it’s free.”

Charlene Wall-Warren, North American sustainability manager for BASF, told the IGEL audience that her company hopes to increase its energy efficiency 35% by 2020, while also reducing its withdrawal of drinking water from supply sources for production by half (compared to 2010).

Johnson & Johnson has made a similar commitment. Jed Richardson, the company’s global energy director, said the company will increase its clean energy use to 50 megawatts by 2015, reduce fleet CO2 emissions 20% per mile and facility CO2 emissions also 20% by 2020, while cutting water consumption 10% at manufacturing and R&D facilities.

Corporations make a major contribution to relieving nexus pressures by producing their own zero-emission solar, wind and geothermal power. Richardson said the company is close to meeting its 2015 goal already, having installed 45 megawatts of renewable energy at its facilities, including 34 solar projects. One of these is a 4.1-megawatt spread over 18 acres in Titusville, New Jersey. It provides approximately 70% of the site’s energy use.

Food Matters

The potential gains from agricultural reform are huge. IGEL’s David pointed out that food production takes 50% of available land in the U.S., 80% of the fresh water and 10% of the national energy budget.

But, echoing Winston, David said that 40% of that American food goes uneaten. “Some 20 pounds of food per person are wasted each month. Twenty five percent of all fresh water is wasted, and 25% of methane emissions are from uneaten rotted food in landfills. But if just 15% of the wasted food was saved, it could feed 25 million Americans. It takes seven to 10 calories of energy to produce one calorie of edible food.”

Because of inadequate storage and poor storage, some 30% to 40% of the world’s food crops are lost between the field and the marketplace, according to Tim Fox, head of energy and environment at Britain’s Institution of Mechanical Engineers. And that means water waste, too. A quarter of the fresh water taken by humans is used to produce food that is wasted or lost.

Because it takes eight kilos of grain to produce one pound of meat, Sir Gordon Conway, professor of international development at Imperial College, suggests that a switch to a vegetarian diet could be an effective global solution. “But I don’t see that happening,” he said. In any case, Tamara McCann, former chief counsel for environment and sustainability at the National Cattlemen’s Beef Association, noted that meat is becoming more efficient, with total U.S. beef production up dramatically even as the size of the cattle herd has been declining since 1977.

McCann said that the beef industry — frequently criticized for inefficiency — has drastically reduced its water use per pound of beef. The growing practice of biogas recovery from animal facilities — using dairy farm methane to produce electricity in gas turbines, for example — also increases efficiency. And she pointed to a 2007 Washington State University study that found that ranchers are producing 13% more beef from 30% fewer cattle than in 1977, using 33% less land, requiring 12% less water and reducing carbon emissions by 16%.

Of course, the meat industry’s confinement systems are still a major polluter of waterways, and advocates for grass-fed beef make a compelling case for natural grazing in place of huge grain feedlots. Judith Schwartz’ book Cows Save the Planet even argues that properly managed grazing can help restore soil health. McCann argues, however, that grazing all American beef cattle would require an additional 131 million acres, equivalent to “75% of the land area of Texas.”

A Huge Business Opportunity

Former U.S. Attorney General John Ashcroft, also a Wharton conference speaker, emphasized the growing importance of nexus issues. “If the water runs out, it will be more important than if the oil runs out. Corporate leaders can redefine the possible in these areas. When companies take initiative with intensity and enthusiasm, they can actually lead the customer.”

As for companies taking the lead, Coca-Cola and Nestlé Waters are focusing on protecting the world’s increasingly challenged freshwater supplies. For Coke, it is simply good business. The company notes in the 2011/2012 Sustainability Report that since it sells its products where it makes them, added to “the ecological and ethical imperatives that drive our water stewardship, we also have a vested business interest in preserving and improving local water sources.”

Jeff Seabright, vice president of environmental and water resources at Coca-Cola, noted at the conference that water and agricultural production are tightly intertwined. “Twenty eight percent of global cultivated land is in stress and 40% of irrigated land — by 2025 it will be 73% of irrigated crops. We’re approaching a pretty significant tipping point on these interrelated areas. And solving this set of challenges is the greatest business opportunity of this generation.”

Succeeding at transforming company-wide operations will take more than a board vote. Seabright pointed out that Coca-Cola follows a franchise model, so it must work with 200 other companies, 500 brands, 300 independent bottling partners, and 1,000 manufacturing facilities.

Among its goals, Coca-Cola aims to increase water efficiency 25% by 2020, and that same year “safely return to communities and nature an amount of water equal to what we use in our finished beverages and their production.” It wants to be a “net zero” user of water. By the end of 2011, it had balanced about 35% of the water used in its beverages.

Coca-Cola has also committed $30 million over six years to the Replenish Africa Initiative (RAIN), which will give two million people access to safe drinking water by 2015. RAIN intends to start more than 100 water access programs in Africa. 

The water crisis could cut worldwide cereal production 30% by 2030, noted Nestlé S.A. CEO Paul Bulcke, in a London speech early in 2013. Noting the issue needs urgent attention, he called for collective action by “policy makers, civil society, agriculture and other stakeholders, at local and international levels” to address water shortage.

Some 40% of Nestlé Global’s factories are in regions experiencing water stress, and 10% are in areas of severe scarcity. The company is reducing its water withdrawal (in part through rainwater harvesting) at the same time it increases operating efficiency. In 2012, it began screening its factories’ water use with tools developed by WWF and the German Development Finance Institution. That analysis produces a “physical risk” score that measures the effect of the company’s withdrawals on water quantity and quality. Nestlé’s water risk database is updated annually.

In the long run, the efficiencies “reduce operating costs and conserve scarce resources,” says Michael Washburn, vice president of sustainability at Nestlé Waters in North America. “Yes, our projects have to pay back in a certain amount of time, but our company gives us flexibility on taking a longer time to pay back.” Bottled water, meanwhile, has its own imperatives. “We produce a product that in certain quarters is controversial, and has a precise set of societal expectations,” said Washburn. “We’re expected to be good stewards, to be involved in responsible disposal of our packaging, and to use energy as efficiently as possible. If we fall short on any of those things, we’re confronted with a societal backlash.”

Sustainability, said Washburn, in some cases provokes engagement outside the company’s own boundaries. In north Florida, Nestlé works with the Suwannee River Partnership to help farmers with best practices in irrigation, and use of fertilizers and herbicides, to reduce effluent release into rivers and streams. Also in Florida, the company is working with Southern Forestry Consultants to manage its 468-acre certified tree farm for optimal soil conservation and biodiversity.

Since Nestlé Waters draws its product from springs, not rivers, why do that work with ranchers? “It’s about local relationships,” said Washburn. We are present in 26 communities around the country where we have factories, and our employees live there and interact with stakeholders there. We actively seek positive community engagement, because it builds brand equity and local trust. It’s not a selfless act, because there are benefits that come back to our company.”

Rethinking What’s Waste

Several other corporate spokespeople offered their views during and after the conference.

“We’re at an exciting place in business history, and it’s time to be radically innovative,” said Gil Friend, president and CEO of Natural Logic, which helps companies develop sustainability strategies.

It’s partly a supply chain issue, said Cope Willis, manager of sustainable business solutions for PricewaterhouseCoopers. “We need play-to-win strategies, and one way to do that is to take control of your supply chain and collaborate with key suppliers and stakeholders to address pervasive environmental and social issues.” At Interface, which developed cutting-edge solutions for recycling carpet, having a reputation for innovation has paid off. Noted Tim Riordan, vice president for supply chain, other companies are now approaching Interface looking to use their proprietary technologies.

Dave Stangis, vice president for public affairs and corporate responsibility at Campbell Soup, said that in addition to reducing its energy use, his company is working to recycle 95% of the waste it generates globally, eliminate 100 million pounds of packaging and cut energy use by 35%, all in an effort to slash its carbon footprint by 50% in 10 years.

New Profit Streams

Radical innovation includes coming up with dramatic new uses for what was long considered “waste.” Many automakers also have zero waste goals, and have gotten surprisingly far in achieving them. Ford, for instance, has 14 plants globally that are “nil to landfill,” and in 2012 recycled 586,000 tons of scrap metal in North America, producing $225 million in new revenue. General Motors reports that 105 of 156 plants globally are zero waste (meaning less than 1% of residue), and are yielding $1 billion annually from what used to be landfill waste. Honda is also a leader, with 10 of 14 North American plants converted to zero waste.

According to Bernard David, groups such as the Natural Resources Defense Council are helping other companies find secondary markets for materials once destined for the landfill. “They’re using online solutions to facilitate the sale — or donation — of rejected shipments of, say, 80,000 pounds of carrots or 40,000 pounds of overripe [but consumable] bananas,” he said. It works on a smaller scale, too. David pointed to restaurants that are limiting menus, offering flexible portions (so people don’t leave food on their plates) and initiating staff waste reduction initiatives. “We need to understand that food waste occurs all along the supply chain,” David noted. “We need to be taking the highest and best uses for food.”

Such reuse is the key to the business of Rubicon Global, which is revolutionizing the waste and recycling business. The company doesn’t own landfills or truck fleets. According to Perry Moss, Rubicon Global’s president, “We create revenue by reducing the cost of waste and recycling services, optimizing logistical routes and diverting material from landfills…. It’s not rocket science; it’s about prevention, or not generating the waste in the first place.” Rubicon’s approach demands local solutions — environmental savings are quickly dissipated if recovered materials must be transported long distances.

Moss said that on average, Rubicon Global saves companies 20% to 30% on their waste and recycling-related bills, and significant amounts of administrative time. It’s not just food waste — some 400 million electronic devices are dumped annually in the U.S., and less than 15% are recycled. And much of the material shipped overseas for recycling is not handled in an environmentally friendly manner. Rubicon Global finds secure recycling solutions that can be reliably listed in sustainability reports, as well as on-site data protection, and the remarketing of parts to capture value that would otherwise be lost. Working with retailers across North America, Rubicon Global has implemented transportation solutions that eliminate two to three pickups per week, per location.

As WRI pointed out, individual accomplishments — including those of the leading-edge companies — can be impressive. But they are nowhere near adding up to a solution to our global nexus challenges. Still, there is growing evidence that sustainability has a seat at the table where corporate decisions are made. And in addition to the environmental benefits, the business case is compelling.

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