Risk, Economics and the Environment Defining Sustainability and Best Practices for Businesses

(Podcast 92) / November 6, 2012 / http://j.mp/WWrhDQ

Abstract
What does business sustainability actually mean? It is not just about the environment, but just as importantly, it is about economics and risk reduction too. Bruce Tompkins, Executive Director, Tompkins Supply Chain Consortium, shares more in this interview about the what, why and how of the practices businesses are using, especially in the supply chain, where 50 percent of a companys carbon emissions can originate.
Cheyanne: Hello. Thanks for joining us. This is Cheyanne Ritz with Tompkins International. Today we are looking at sustainability practices for businesses with Bruce Tompkins, Executive Director of the Tompkins Supply Chain Consortium. Bruce, a lot of progress has been made in business sustainability. Its being made internationally in the U.S., on a national scale, but especially at the state level in the U.S. Business leaders have to especially be aware of new legislation, such as the Food Safety Modernization act, and requirements for agencies to disclose energy usage. I know there was a lot of news a couple of years ago about how companies were starting to voluntarily report energy emissions in their annual reports. Californias mandates on private companies in particular should make business leaders take notice of sustainability. But when you think about the word sustainabilitywhat comes to my mind is green. Green supply chain. Emission standards. Things like that may not be exactly the right definition. Can you explain to us what business sustainability actually means?

Bruce: Thanks for the introduction Cheyanne. There are several different definitions for sustainability depending on who you talk to and what their emphasis is. One of those was put forward by the Brundtland Commission. And what that commission said was that sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. Its kind of a forward looking sort of thing saying that we need to be conscious of energy and we need to be conscious of natural resources today, so that the future has what it needs. Sustainability has also been defined as an approach to business that creates long-term stakeholder value by embracing opportunities and managing risks and managing risks is an important part of this that are derived from economic, environmental, and social development. To get real sustainability, you have to have an intersection of the idea of the environment and environmental concerns of the economy, and economics of sustainability and social developments. Its at that intersection point that we really find that you can define what is a sustainable practice and what is a sustainable process. Another thing I noticed was a blurring of the lines on what is called sustainability and what is called climate change. And we see a lot of that today. Some of the things that Ill talk about, I think well also tend to look at that blurring where we talk about sustainability but it is also in the bigger picture of really whats happening to the climate and what we have seen in the climate in the last couple of years.

Cheyanne: A lot of it is environmental. But when you do look at it, it becomes an economic and a risk issue, which then, when you think of the climate change issues, it takes it back to risk. How can you mitigate some of the risks that these companies have to deal with, especially since we just went through a large storm that hit New York City, New Jersey; and what that means for supply chains. There has been a lot of news about that. Among these reasons, what are some of the factors that companies today are looking as reasons that they are implementing these sustainability factors? What are some factors that theyre pointing to?

Bruce: Well there are a lot of different things that companies are doing. Some are concrete actions that they are taking to make sure they are meeting government requirements and at the same time, being responsive to society in general. And some of the companies are taking very aggressive stands on sustainability. You look at some classic examples where companies are redesigning their products around sustainability as well as looking at their practices and processes. Of course the key is managing the risks of the business from sustainable incidents. Im glad you brought up this thing that we just had this storm Sandy. That is one of the things people are looking to and has really played a big part in peoples thinking about the supply chain. How do we avoid some of these things that have been happening to us? If we look at last year, all of the things that happened to us from tsunamis, to hurricanes, to earthquakes, and things that people point to as being related to the general climate all of those things had a tremendous impact on global losses, including insured global losses and noninsured global losses, in the hundreds of billions of dollars. These things are important for companies to look at so they understand their supply chains. It is also important for companies to be good corporate citizens, to improve their brands. And sustainability is a good way to do that. A lot of companies had learned that there are some actual real benefits, hard and fast benefits, to doing sustainability that helps them improve their profitability, reduce their costs, and do a lot of other things for customer services that they wouldnt have thought of before. They put it in a sustainable process and it becomes the right thing to do, which sustains their business operations in a way that isnt related to environmental. It is sustaining them for future business. There is also a factor of motivating and retaining employees because youre working for a company thats doing some things that are interesting and out there. Those are some of the factors, and then there are some forces at work from regulations to political environment, which are changing the scope of what companies are doing under the banner of sustainability and climate change. This is important for companies to be doing. They have to look out for the next round of regulations and what that will mean and be compliant with those regulations.

Cheyanne: How much of all this is the supply chain affecting? How many ways can you get risk mitigation and sustainable practices out of the supply chain?

Bruce: There are a lot of the elements of sustainability that are found in the supply chain. About 50% of a companys carbon emissions typically come from supply chain, so obviously supply chain is a big focus area for sustainability and climate change as well. You start talking about things that have happened to companies in the past two years from a catastrophy standpoint. The interruptions to their supply chain and even complete disruptions in their supply chains that have been caused from these events, so it makes supply chain really important. So people have had to change their strategy to a certain extent to look at multiple sourcing instead of single sourcing, look at different regions of the world where the risks for some of these events are less. If you can find a place where they are less we are having weird events in weird places these days but all of those things are really part of this process. And there are a lot more companies who are voluntarily reporting their emission and green house issues to make that real to other companies. About 1100 companies are participating in this, but its not required that they all do this. This is all part of the process for improving the sustainability that companies are focused on.

Cheyanne: It seems like the regulations itself arent quite there yet. There are a few issues of getting those kinds of legislations through, not only in the US nationally but also internationally. Why do you think that many companies are voluntarily going through and making these sustainability efforts part of their day-to-day operations?

Bruce: I think its because they see the value in doing that. They see that internationally things are pretty much at a standstill. There is some progress made in some fronts internationally to get people together so they are looking at sustainability in the same way. Thats a very difficult issue. It is difficult enough to convince people that we have a problem, much less get them interested in doing something about it. Companies are saying its up to us, we have to make it happen.

If you look at the U.S., politically, it isnt a hot button today; its not been a hot button in these elections. Surprisingly, to some extent, it hasnt really been anything youve heard the candidates talk about. In some states, it is a hot button. There has been some progress made nationally to move things forward with executive orders like Executive Order 13514, which requires all federal agencies to report and disclose energy use and emissions. Those kinds of things have been put in place and are effective at moving people forward. In general, there hasnt been that much done with regulations on the political front. Some states have passed some good legislation that has helped companies move forward, or forced them to move forward, depending how you look at it. California is leading the way with some global warming things and Pennsylvania has done some things from a energy conservation point. But in general there hasnt been a united front moving us forward, and the politics of today are really not focused on sustainability and global warming to the extent that they may have been if everything else was equal.

Cheyanne: With those things in mind, what do you see as the future of sustainability? Where do you think these companies will be taking it?

Bruce: Were really in a new age of energy and in the new stages of that new age of energy. Theres energy efficiency, energy conservation efforts going on by a lot of different companies that have been in place for years. I was a graduate student back in the early 80s doing energy conservation work back then. This is not a new thing or something new for companies. They have been looking at this and focusing on it as a way to reduce costs for years and years. But I think its like the new fuel, that coming up with ways to reduce the energy usage, the greenhouse consumption, and all those things are where were going with that. The next milestone in terms of international politics is this intergovernmental panel on climate change, the IPCC. In 2014, they are going to put out some results, and theyve been working on this for a couple of years now. This is the fifth version of their assessment of the world and of the climate change situation. This is multiyear effort. There are 800 or so authors that are working on writing different parts of the document. And there should be some interesting and moving-to-companies kinds of things that come out of that assessment. I think that will force some change. Thats 2014, and it will be here before we know it. Another thing I think in the future is companies that are adopting policies, practices around sustainability because they want to be out in front of it. They dont want to be dictated to and they want to help make and set policy. A lot of the future is in helping to shape where sustainability goes in the future. I see that as being an important thing. To make sure your company is in line for the things talking sustainability and not behind the curve. Also, some of the things that have happened with the Securities Exchange Commission adopting requirements for reporting for sustainability and greenhouse gases, tighter standards being placed on companies, it makes you really want to get out there and do some things to improve before you get caught with regulations that you cant match. So I see that in the future, and in the near distant future companies try and strive to stay ahead of the curve.

Cheyanne: That makes a lot of sense. If were looking at the supply chain specifically, what are some things that company leaders can do to affect sustainability and emissions that can directly impact operations?

Bruce: There are a couple of very important things. One is to have an overall strategy for emissions and resource consumption, and reporting. You have to have a strategy before you can put in place the structural or tactical items to go along with that. They need to have an overall strategy that looks at the location of facilities, number of facilities and purpose of facilities. Why are they there? Why do they exist? Are they serving the purpose they are intended? And looking at it from a sustainability standpoint and not just a customer service and cost perspective, are they built the

right way? Do they have the right equipment? Are they energy efficient as they should be? Are they taking into account all the renewable energy sources that are available? Looking at transportationthats where a lot of our energy consumption takes place today and a lot of emissions are generated through the transportation process. Are people using the right modes of transportation? Are they using the most efficient transportation for what they need to be doing?

Cheyanne: And transportation is a very big area for risks.

Bruce: Absolutely. Some things that are going on that may completely change the way people think about transportation is the price of fuel. We have another event occurring in 2015 with the opening of the Panama Canal (read this new article, A Five-Step Approach to Capitalizing on the Panama Canal Expansion, for more), which may change how companies view the way that they view which port they should be sending the goods to east coast and west coast should they send materials through the expanded Panama Canal. Or, what is the right alternative for them using different ports? And so forth. So thats an important thing. As always, there is this verification and measurement of the sustainability efforts that they do to make sure they are getting the kinds of benefits they need to get from those. Id be remiss if I didnt talk about benchmarking: Benchmark results against other companies and against others that are leading the way in this in their supply chains. Really, there is a need to audit as well, and to make sure that companies are setting a baseline, looking for ways to implement improvements based on the strategy they have set, and measuring the results they get. It really takes that step-by-step process, starting with the strategy, to really have a good sustainable process that eliminates as much emissions as possible. Sustainability is both an individual company topic with a lot of contributing factors, and each company has a lot of areas for improvement. It is also a global issue related to climate change and the things that we are seeing. A couple of years ago, I wouldnt have believed that climate change was real. Im now more of a believer after everything that has happened in the last couple of years. We are in the long-term fight for our natural resources. There is a process going on that well have to be cognitive of as well as the short-term sustainability goals that companies have. I believe that all of us should be concerned with working to impact sustainability and what we can control and keep an eye toward the bigger picture for future generations.

Cheyanne: So sustainability is a global issue but also an individual issue. We have quite a few other resources for those of you who might be interested in this topic. Weve collected them all at www.tompkinsinc.com/sustainability .You can go there and download a couple of different reports.