Factors Leading to Green Profitability Ten Case Studies* eee SEE SS SS SARL SS Paul Lanoie Ecole des Hautes Etudes Commerciales, Canada Georges A. Tanguay University of Maine, USA This paper presents ten examples from the Province of Québec, where firms have increased their profitability while protecting the environment, These examples con- tain new ideas and arguments that can help environment-conscious managers to convince their colleagues to become proactive in this area. The examples are pre- ceded by a discussion of the general context of the relationship between environmen- tal quality and profitability. Specifically, the link between improved environmental quality and increased profitability is elucidated. We then discuss ten examples grouped by industrial sector. Three of the cases are presented in detail, to better shed light on the motivations leading to the implementation of these measures, along with the implementation process. Lastly, the common factors between these examples © Competitiveness © Profit © Québec (© Environment are identified. © Regulation Paul Lanoie holds a master in business science (1984) ftom Ecole des Hautes 2) 3000 chemin de la Cote tudes Commerciales (HEC) in Montreal and a PRD in economics (1980) Ste-Catherine, Montréal, HST 247, From Queen's University in Kingston, Canada. He is currently a fall professor Tara {at HEC and head ofthe economics department. From 1996 t0 1999, be was ‘editor of the journal UActualité économique. His: man field of research is 1 paultancie@hecca ‘environmental economics (government policies and their impacts). He as published more than jo papers i refereed journals and regulary teaches Disposal ofdangerous > Product improvement» Atmospheric waste eT waste (solvents) > Management of paper (patties, CO, $05, pars > Reduction ofpackagng waste NO,) > Reduction ofnon- Management of > Minimisation of hazardous waste fl residue energy costs (cardboard) eid > Willingness ofthe > Inlatives by. plant» New ideas often come end parent company to manager senstve to fom head ace pone make the plert 2 environmental > Avantgarde plant ‘worl-lss compary concerns ‘compared wth the rest » Stronger > Avant garde plant ofthe company envicrmental compared wi the rest» No intention of Pressures in the US ofthe company frst to” Seeking ISO 4000 ‘where the parent ‘obtain 50 14000 centfiestion| company is based cefieation Pues > Procedure centred on» Decreasing costs is” isa majorshange sualiy applied for Imajorchange factor factor 150 14009 > Decreasing costs isa ‘major change factor oa » Packaging of products 1. Reduction of raw > nergy conversion: Se in bags other than materials; use of more coal replaced with sia sell boxes (1998) ficient materials used tyes to fuel three > Use of eardboad High-performance out of four ovens, bones with 100% paper based on an recycled fibres > Eliminate solvent. Automated supply besed alue system (one ton of ‘yrs equals roughly 2 Recvction of ‘one ton of charcoal) refuse and waste >» Apply the principle of 4s > Improve sorting of production refuse » Re-use used paper 13. Energy consumption >» Lighting, insulation, ‘energy performance ‘oF equipment (changes starting in 1998) Table + THREE cases sTUDIEO IN DEPTH (continued opposite) 44 GML31 Autumn 2000Goren aad eyed eet eee cay ey Pe ea GMI 31 Autumn 200% > Space and tanspot 1. Net annual gain sived: net gain of over of $10,000 ‘$100,000 per year. Net annual giln >» For ent company, ‘of $22,000 ‘savings realised by 3. Savings of 15% environmental to 20% (2-year programmes have recovery period) ‘equaled 108% of costs Incurred in 1997 > Objectives set each > Identification of. yearfor waste, energy, precise objectives and packaging son gies > Quarter followup of implementation a atainment of performance indicators objectives > Periods followup > Manager devotes 20% > Manager devotes 25% ofhistime ofhistime > Budget: 03% of sales > Environment manager > Environment manager also holds another alsoacts as production position coordinator > Bulletin board in Environment builtin cafeteria board > Environmental » No committee committee > Basic training for all > Regular taining ‘employees 2nd > Sugpeston box reminder every wo > Involvement io yeas regional environmental > Employee evaluation takes environment into account > Audit every five years» Noaudit by parent company > Audit of company that disposes of hazardous waste FACTORS LEADING TO GREEN PROFITABILITY cs eee > Fixed costs: = Ateritic eanveyer “Tyrestorage ste Intalio of sper » Variable costs: = Royalty ofS pete = Malenance of conveyer error expenses t9 manage te selection = Toa eos Sfoo.000/ar > Savings generated (1998) = Savings of caro: Taos tonics 30 pet tonne) = $605,000 ane aeistance fom eye Quebec = 50,000 = Net savings $505,000 > ens urgets compliance with regulations on “Atmospheric polstants » Supplemented by Special projects (er. posts a fuel > Continuous montorieg ‘of atmospheric ‘emissions > Falaime manager > Falltime technician for analysis of used ols » Several kin operators whose tasks include monitoring atmospheric > Budget: 3% 10 5% oF sales Environment manager participates daly in ‘eration meetings > Insert on the environment in plant newsletter » No committer > Training as required > Interaction with +3 committee representing the ‘commarity > Manager evaluation takes environment into account > Audi every three years by parent company Table + (continued)PAUL LANOIE AND GEORGES A. TANGUAY 46 © = 5 rd Ota NoweDame: St ied Nos 4i-BonConsei Fine cheese cheddar Poultry slaughterhouse nn > Following an > Use ofasteforenersy > Problem: excess aS expansion, the (38 emissions of 809 pes company reduced the Anaerobic treatment (biochemical oxygen Source of ts eluents — ofwastensters that demand) tocomplywith transorms orenie > Solutions: enwronmenta mater in water into" — Ehmination of water teaulatons. ethane ass means oF > Atreception and ~ Methane used to transporting viscera; pastearsat power machinery rang water sytem = Reduction of ilk 1 Systam alo allows ‘replaced with losses (conduits) reduction of vacuum system ~Rekuction of wash Guantties fused Autorate water waters (shower Sludge to weat Suppl conta sys rez) tem: suse water ~ Decrease in vole Supply returns to the of washing soutons veaternay and not to > Fabrication and treatment system moulding = Usual measures of “Recover of residue ‘eduction at source (en in poultry taught: ~ Reduction ofrinsng houses: recover of waters (Condit) Blood: and sere: ~ Decrease in wasn Bier of pees ® Persie Set dra ate > Alachiveerts hve eae been made vi changes in equipment and heightened awareness of personnel eens > Reduction ofr» Ann net savings of Savings of $320,000 in losses frm s%t0 2% Sis0;000%n energy” eaptalsaion expenses (industry averages 5%)» Savings atribuable to compared wth an » Savings of 270,000” reduction of waste ‘cna pipe’ solution peryesr, Wraerueatment and» Reduction of costs less handing related vo purieaton equipment of 57.0090 peryear Table 2 Foon secror COMPANIES The three cases analysed in depth a Inorder to cover a broad range of possible situations, we have chosen toanalyse in depth the case of three companies operating in very different domains (Baxter: medical equi ‘ment; Bonar: paper bags; and Ciment St-Laurent: cement). All three are well-established companies (the youngest is 15 years old) and are subsidiaries of foreign companies. Two of the businesses conduct a large portion of their sales in the USA (up to 30%). The environmental issues that these companies face are varied (disposal of hazardous products, paper refuse and atmospheric waste). Of the three, Ciment St-Laurent prob- ably contends with the most complex problems, as illustrated by the amount of resources allocated to the environment within the company (between 3% and 5% of sales). In contrast, Bonar is not facing very serious problems. M131 Autumn 2000FACTORS LEADING TO GREEN PROFITABILITY [eros 130 Location StHyacinthe Cookshire CTEM Disposable diapers and sanitary napkins Packaging eee 1 Reduction of water use > Evaluation of product lifecycle with & aad ie ‘view to reducing input, along with oui 2. Use of remnants in fabrication ie ee 13, Reclamation of sub-products (sale of diverse refuse) vine = Modifying reservoirs Projects undertaken in 1983 = Measuring insteuments = Interchangeable reservoirs 201 = Retention basin under machines — Plugging leaks con +1 Fined cost of $20,000 and net annual > Total investment: $75,000 esp gain of $3500 > Annual savings: §32,000 per year 12 Fed cost of $75,000 and net annua ‘ain of $53,000 13, Fixed cost of $300,000 and net annual gain of $200,000, Table 3 COMPANIES IN PAPER, CARDBOARD AND RELATED PRODUCT SECTORS Of the motivation for pro-environment actions, one can note in two out of three cases (Baxter and Ciment St-Laurent) the substantial influence of the head office, whereas, in the other case (Bonar), the convictions of a ‘visionary’ plant manager have played a determining role. In particular, Baxter, whose head office is situated in the USA, has set the objective of becoming a ‘world-class’ company, which implies being a leader in the environment. Operating mainly in the USA, where environmental pressures are more substantial than in Québec, the company took advantage of the situation to give all of, its subsidiaries very precise guidelines regarding environmental management. Baxter and Ciment St-Laurent actually issue an annual report dedicated to the environment; Baxter's version is particularly sophisticated. For both of these companies, cost reduc- tions associated with improvements in the environment are a major source of motivation for undertaking new actions. Baxter's environmental annual report even establishes, as a percentage, the rate of return of environmental activities. For example, in 1997, for the company as a whole, environmental actions allowed savings of 108% of the costs incurred. Involvement of the head office is advantageous in some cases. Because head office personnel are not always involved in the daily operational realities, they may have more opportunities to ‘shop around’ to find more profitable initiatives. They may also publi- ise to all subsidiaries the ‘success stories’ of one of their divisions. Profitable pro-environment actions are fairly diverse, ranging from a change in the type of packaging to the use of tyres as a source of energy, and the purchase of more efficient raw materials. The extent of the savings realised by these activities is also quite variable (between 1% and 89% of the cost incurred). The three plants have also reported efforts to decrease energy consumption through various measures (insulation, automaticswitches, etc.), Note that none of these profitable pro-environment activities has been adopted in 4 ‘The 1% refers to the gain realised by Ciment St-Laurent, after the Recyc-Québec subsidy is deducted. GMI 31 Autumn 20 47PAUL LANOIE AND GEORGES A. TANGUAY 8 : Ce Canin Sedum te Nah, Oecomn ne Profitable » Design ofan optional cooling system Soltion centred om recovering materials eared for Droppings oa — Recovering heat energy = Stoppage time above veneer baths ~ Reducing water consumption — Angle of edges on basins ~ Eliminating effluent restment > Water requirements ~ Countercurent rinsing > Veneer solution = Static rinsing » Hydrochloric acid ~ Resin iter, ion exchanger > Copper and nickel ~ Countercurtent rinsing ~ Cationerchange resin filter > Chromic acid (air contamination) ~Vertiation system = Purifier > Chromic acid (water contamination) ~ Anionic resin filter en > Investment of $990,000 » Total recovery vac (52% of industrial ep ~ Copper sulphate 700 kya excluding buildings)) ~ Nickel sulphate: 17,400 kg/an » Sens of c/n ~ Chrome seid 6800 kgs er = Total savings: $94000/a0 > Deciensein production costs of, rchace often gine sad $500:000/ya" ~ Decrease of 2,200 lan to > Increse nlc curert output of Dest of 80% to 95%, generating savings of 32 million)year = Total savings: $10,000 year * tn 1995, this company changed its name to Eka-chimie. Table 4 OTHER MANUFACTURING SECTORS. response to a change in regulations, and, in this sense, the companies are perhaps slightly less ‘myopic’ than Porter would believe. Nonetheless, it is important to point out that the use of tyres as fuel at Ciment St-Laurent has largely been favoured by sub- sidisation from Recyc-Québec, intended to encourage companies to find new means of reclaiming used tyres, Environment-elated management practices are relatively similar at Baxter and at Ciment St-Laurent, while apparently less structured at Bonar, which may simply reflect the fact that the last company’s environmental problemsare less pressing, Asmentioned above, Ciment St-Laurent devotes considerable resources to the environment, yet this is probably linked to the nature of the product manufactured and its production mode. In the three locations, integration of the environment function with the other functions seems to be quite sophisticated. At Baxter and Bonar, the environment managers also hold other positions, which enables them to publicise environmental issues and the specified solutions on several levels. At Ciment St-Laurent, the environment manager participates in daily production meetings attended by the other managers; this manager, as well, thus has several opportunities to emphasise the importance of protecting the environment. In terms of HRM and the environment, Baxter is probably the company that deploys the greatest effort, with regular training in this area, Moreover, it has put in place an environmental committee and a suggestion box. Employee involvement in GMI 31. Autuma 2000FACTORS LEADING TO GREEN PROFITABILITY regional environmental causes is encouraged. Annual employee evaluations take into account the employees’ environment-telated performance. These characteristics are less present in the two other plants. As for control, note that Baxter and Ciment St-Laurent undergo audits performed by the head office personnel, whereas Bonar does not. Overall, these three companies are making the necessary efforts to adequately inte- grate environmental issues into their activities. They have put in place management practices that facilitate the implementation of profitable ‘pro-environment’ actions. This is all the more true in companies in which the senior management is attuned to the possibility of undertaking actions that are profitable from both the environmental and the financial standpoint. Common characteristics ‘We will now examine all the ten cases in light of Tables 2, 3 and 4. The first striking observation is the diversity of situations presented, which suggests that green profitabil- ity can be envisioned under several different circumstances. Nonetheless, there are analogies among the cases. Aside from the fact that all of the companies studied are in the manufacturing sector, three common threads emerge from our analysis. First, note the universal application of the 4Rs (reduction at source, re-use, recycling and reclama- tion) or a combination of the practices associated with the 4Rs. The reduction of waste at source is seen at: Bonar, Coopérative fédérée du Québec, Fromagerie d’Oka, Genpak, QuéNord, Polissage et Placage GG and Kimberly-Clark; re-useat: Bonar, Kimberly-Clark, Polissage and Placage GG; recycling at Baxter; and reclamation of waste and residue at Kimberly-Clark, Fromagerie Agropur, Ciment St-Laurent, Genpak, Polissage et Placage GG and QuéNord. Second, many of the production processes favoured involve significant use and discharge of water (six examples out of ten). In these cases, the companies often succeed at recovering materials or substances that were formerly found in their liquid waste. Therefore, the companies that mainly generate pollution in the form of liquid effluents are more likely to achieve ‘green profitability’ than companies whose pollution consists mainly of atmospheric emissions. ‘Third, the actions taken are relatively minor and, in fact, the results obtained are the product of the sum of small gestures (with the exception of the changes implemented at QuéNord). Whether they involve the simple addition of retention basins under machines, plugging of leaks or changes in rinsing techniques, the adaptations observed are relatively inexpensive and could, in many cases, have been adopted long ago. Often, improved training and greater awareness among personnel has been pivotal to attaining, the specified objectives. A conclusion of sorts ‘This paper is more illustrative than scientific. The ten examples of green profitability stand out because of their diversity, which implies that a broad range of situations can be conducive to these gains. We have also shown that companies that have put in place efficient environmental management practices (involvement of senior management, sufficient resources, integration, HRM centred on the environment and appropriate control methods) probably find it easier to implement actions that promote green prof- itability. In addition, these cases indicate that itis not necessary to wait for more severe regulation before taking action. In fact, itis evident that more stringent environmental, M131 Awtumn 2000 49PAUL LANOLE AND GEORGES A. TANGUAY 50 regulation would not necessarily lead to innovation and heightened competitiveness. In contrast, appropriate environmental regulation associated with corporate alertness is probably a formula conducive to innovation that can minimise the costs of abiding by regulation, and even improve the profitability of companies under many circumstances. While governments have a role to play by introducing regulation that spurs innova- tion, companies must also change their perception of environmental regulation: they must view it as an opportunity to stand out from the competition by innovating. ‘To summarise, this text will probably help managers to judge whether the situation prevailing in their company is similar to those described above, and therefore to gauge their chances of adopting actions resulting in green profitability. Moreover, it is impor- tant to bear in mind that the cost of eliminating pollution is generally considered to be growing, which implies that there are probably limits to green profitability. As we have seen, the firms under study have adopted relatively simple actions that are economical and have proved to be profitable, Means of reducing pollution even further are probably more costly, which would make private profitability more uncertain, Nonetheless, it should be remembered that, in addition to the direct gains reported above, sound environmental management may have indirect positive repercussions, Accordingly, improving environmental performance translates into a better company image, which can help to maintain or increase the clientele and improve access to finan- cial markets. References Deschamps, I., and M. Beaulieu (t996) ‘Concilier la performance économique et la performance écologique: quoi faire et comment réussit’, Gestion, Revue international de gestion 20.4 (December 1996): 40-48. Doonan, J. (1997) Les déterminants de la performance environnementale des usines de pates et papers au Canada (MS thesis; Montreal Ecole Hautes Etudes Commerciales). Dufour, C, P. 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