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GREEN TO GOLD STRATEGIES

Raghu Ram Tata, XLRI Jamshedpur
Drivers of Corporate Sustainability
Sustainability
SSM = Sustainable Strategic Management
• Eco and social efficiency are directly tied to the short-run economic
sustainability of the firm
• Eco- and socio-effectiveness have posterity as the planning horizon in the
value-creation process.
• The essence of eco- and socio-effectiveness lies in viewing the firm as an
agent of social change with a higher-level purpose
Beyond Eco- and
Socio-Efficiency
Revenues
Intangibles
Costs Risks
Strategy Framework
Costs
1. Eco-efficiency: Improve resource
productivity
2. Eco-expense reduction: cut
sustainability costs & regulatory
burden
3. Value chain eco-efficiency: lower
costs upstream & downstream
4. Eco-risk control:
Manage sustainability
driven business risk
5. Eco-design: Meet customer’s
sustainability needs
6. Eco-sales & marketing: Build
product loyalty & position on
sustainability attributes
7. Eco-defined new market
space: Promote value
innovation & develop
breakthrough products
8. Build corporate reputation &
trusted brands
Revenues
Intangibles
Costs Risks
Strategy Framework
1. LCA, DfE, DfS
2. Green supply chains
3. Industrial ecology
4. EIA/SIA
5. ISO 14001 / 26000
6. Green buildings
7. ECOLOGICAL FOOT PRINT
• Reduce, Reuse, Recycle
1. Product Responsibility
• LCA, green supply chains,
Industrial ecology
2. CESR
3. Equator Principles
4. SRI/PRI
5. IFC due diligence frameworks
1. Product/process innovation
• Green technology
• BOP opportunities
2. Eco-labels / ISO certifications
3. Product differentiation
4. Government push
• Energy star etc.
• Sustainability in Public Procurement
1. GRI – Sustainability reporting
2. Carbon Disclosure Project
3. DJSI / India ESG – 50
4. E P&L accounts
• Influence govt. policy
• Attract/retain talent
• Higher access to credit
Tata Nano – Tried to do a Maruti?
Key Differentiators
1. Touted as New People’s Car – re-
defining markets – Social acceptance
2. Price competitiveness
3. Reshaping the bottom of the pyramid
4. Better mileage – better environmental
performance
5. Euro IV compliant – creating barriers
to new entrants
6. Influencing policy through
demonstration
7. Proximity of suppliers to cut costs –
last mile advantage
8. Knock-down – re-assemble modal to
save transport costs – lower ecological
footprint
9. Low switching costs for customer
1. Eco efficiency: Improve resource
productivity
DuPont: in last 15 years
• Cut its GHG emissions by 72%
– 50% of reductions came from only 1 process change
• Production of Adapic Acid that eliminated NOx emissions
– Vowed to hold flat its energy use
– Found many ways to get leaner & meet its energy
targets
– In last 10 years, saved $ 2 billion
– LEADERS GET THE SAME OUTPUT WITH LOWER
INPUTS
Improving productivity: classic win-win SD strategy
Water:
• In 2006, the Coca-Cola India saved more than 100,000
kilolitres of water through water conservation efforts within
its bottling plants.





Material:
• Timberland redesigned its shoe boxes to eliminate 15% of
the material (25 million boxes / year)
Energy:
IBM overshot its 5 year GHG reduction targets
– Redesigned heating / cooling systems
– Saved $115 million through energy efficiency initiatives
Big initiatives
Dow chemicals: Waste Reduction Always Pays
(WRAP) – Yielding results for over 20 years
Small Initiatives
Adobe: Computerized water sprinkler system

ECO-EFFICIENCY IS A BASELINE ELEMENT OF
SMART BUSINESS – low hanging fruit
Pollution Prevention Pays (3Ps)
1970s: companies struggled to comply with
new environmental regulations
– Scrubbers for air pollution
– ETPs for water pollution
– SW segregation for incineration
3M’s started Pollution Prevention Pays
• Any idea that reduced pollution should also
save money
“Anything not in a product is considered a cost
…. It is a sign of poor quality”
Everything coming out of a plant is either
– A product
– By-product (which can be reused or sold), or
– Waste
Why should there be any waste?
Anything that increases a company’s footprint –
emissions, solid waste, energy, water use
………………………………….sign of inefficiency
• Employees encouraged to rethink products
and processes – small or big
– Initially, 20 waste cutting, money saving ideas
– Saved many a tons of pollution & $ 11 million
• Cumulative total of @ 8100 projects > $1.2 b
• Environmental savings of 4 billion pounds of
pollutants
• VOC emissions dropped from 70,000 tons
(1988) to < 6000 tons now
Remarkable financial impact
• Achieved $1 billion in 1
st
year project savings
• 3M calculates only the 1
st
year savings from an
eco-efficiency project
• 3M sets new 3P goals but no monetary or
environmental goals
Look at work through environmental lens
- leads to innovation
- leads to eco-advantage
Go beyond waste reduction & efficiency
– Find markets for by-products (Industrial ecology)
Retrofit & Automation
• LCA & DfE bring environmental thinking into
practice
• Without them also, one can improve eco-
efficiency
– Computers shut down when not in use
– Centralized controls for lighting, heat, cooling
• Staples saved $ 6 million in 2 years across its 1500 stores
– Energy efficient lighting, motion sensors
• FedEx spent $3000 – 10000 / centre
• Pay back period 12 – 18 months
How important are cost savings?
• 3M’s net & operating margins roughly same as 30 years
ago
• $ 1 billion eco-efficiency savings not reflected in the
company’s margins
• 3M operates in highly competitive businesses with
eroding margins
– ECO-EFFICIENCY SAVINGS KEPT 3M COMPETITIVE AND
ALLOWED THEM TO STAY IN BUSINESS
• Interface saved $300 million in cost reductions
from waste management & eco-efficiency
– IT SURVIVED EARLY Y2K RECESSION

Tata Sponge Iron Ltd , Keonjhar district, Orissa.

• Production capacity of 2,40,000 TPA
• Annual turnover of @Rs. 1.65 billion
• Power shortages, excessive emissions, and waste disposal
problems since inception - 1982
• Commissioned a waste heat recovery boiler - used waste gases
from its kilns to produce 7.5 MW of electricity - independence
from endemic power shortages; improved operational efficiency.
• Set up a brick-manufacturing plant for producing fly ash bricks
that are cost-effective, stronger, and more resilient than normal
clay-burnt bricks
• reduced air pollution and conserved resources
• Annual savings of Rs. 70 million in power consumption and
additional profits @ Rs.1.3 million from fly ash bricks




2. Eco-expense reduction
Cut sustainability costs & regulatory burden
• Late 1980s – public disclosure of
environmental info was on the rise
• DuPont
– Discovered that it was among world’s largest
polluters
– Spending over $ 1 billion / year on waste
treatment & pollution control
– Money going up the stack
• CEO set tough targets
– Slash emissions
– Cut costs
– “The goal is Zero” became DuPont’s mantra
• Now
– Waste treatment & pollution control expenses down
to $ 400 million
– Otherwise, expenses would have grown to $ 2 billion
• A swing of $ 1.6 billion in annual costs for a
company netting @ $ 1.8 billion/year
• DuPont would roughly break-even without its
environmental efforts
• Time & money consumed by pollution
control & environmental management
– Money spent on waste disposal, pollution control
equipment
– Managerial time & money spent on filling forms
– Some times- fines & legal expenses
– Business slow down / closure due to non-
compliance
• Anything a company can do to avoid
regulatory delays
– Will lower operational costs
– Increase speed to market
• Green field projects – countless permits
– Environmental / SIA clearances – time consuming
• To avoid further delays
– Avoid using certain chemicals / materials
– Be below emission thresholds
– Stakeholder engagement & shared value creation


• Leaders watch regulations closely
• Do everything to stay below limits
• If necessary – redesign processes / products

SEEING BUSINESS THROUGH THE LENS OF
ENVIRONMENTAL EXPENSES CAN HELP TO
FIND NEW, LOWER COST AND FASTER WAYS
OF DOING BUSINESS
3. Value chain eco-efficiency
Lower costs upstream & downstream
• PUMA – Environmental P&L
• 1
st
in the industry to commit to ‘Zero hazardous
waste” across supply chains by 2020
• NIKE followed

• Not taking care of value chain eco-efficiency can
cost a fortune
• Sony PlayStation – Christmas time 2001
• 1.3 million PS-II were held in warehouses in
Europe
• Toxic element Cadmium was found in cables of
game controls – small but legally unacceptable
levels
• Sony inspected 6000 factories to track down the
source
• “The Cadmium Crisis” – or the cost of “little”
environmental problem – 18 months & $130
million

• Sony learned the hard way – evolved a new
supplier management system
– Even the best companies can be surprised by
environmental issues
– The environment is a not a fringe issue – it can
cost real money
– Real benefits come if you see things through
environmental lens
• Child labour – big social / ethical issue
• Nike – sweat shop disaster
• Carpet manufacturers – child labour issues
• Lower value chain costs
– Cut environmental expenses
– Cut financial expenses
• IKEA – fix it yourself furniture boxes
– Squeeze millimeters out of every box
– 50% increase in fill rate
– Saves 15% fuel per item
– Less trucks / trains to transport
4. ECO-RISK CONTROL
MANAGE ENVIRONMENTALLY DRIVEN BUSINESS RISK
Cross promotions
• Spiderman toys with Kellogs products
– Small battery contained toxic mercury
– 17 million call-backs
– Kellogs committed never to use such batteries
• McDonalds – toys with happy meals
• Identified button batteries as a problem and
eliminated mercury completely
How did McDonalds do it?
• Issues of litter / packaging / mad cow disease
• Decided to get ahead of the curve
• Process of “Anticipatory issues management”
– Studies environmental / social trends to identify
potential dangers to business
– They identified mercury in batteries as a risk &
eliminated it – much before legally required
– Influenced suppliers to find alternatives
Find the risk before it finds you
Business risk comes in strangest forms…
• Market influencers – actors / sports icons /
talk-show hosts/news papers/NGOs/TV etc..
– CSE pesticide expose
– Sharukh’s cigarette smoking – Anti smoking laws
– Dhoni’s hair-style
– Oprah Winfrey’s talk shows
– NDTVs save the tiger campaign – 4.7 lakh
responses



Anticipatory issues management
Shell – scenario planning
IKEA – exhaustive supply chain auditing

• Go far beyond traditional company
boundaries to look for environmental / social
risks
Avoid Humpty-Dumpty situation: A reputation
once shattered, can’t easily be put back
LEADERS FIND ISSUES BEFORE PROBLEMS FIND THEM


Go beyond compliance for competitive advantage
Tata Nano
• Leaders realize that getting ahead of regulations
can:
– Save money / time / reduce hassles
– Puts entry level barriers for competitors
SC Johnson: Innovative cleaning products
– Reformulated market leading products to eliminate
PBTs (Persistent, bio-accumulative and toxic).
– Greenlist – every ingredient is scored based on
environmental attributes – toxicity / biodegradability
– Evaluates 3000 raw materials
Nokia reviews 30,000 components – removed
some from products

• Future scaping companies are less effected by
new regulations
• Companies that go beyond compliance
welcome stronger regulations
– They also lobby for or shape the new regulations
– Less prepared companies are kept out of the
market / discussion boards
– New regulations create winners / losers

Leaders end up on the winning side

The eco-advantage bottom line
Look to reduce costs by:
• Eliminate waste & promoting eco-efficiency
• Cut disposal costs & compliance expenses
• Capture the value of reduced environmental
burdens up & down the value chain
Control environmental risk by:
• Anticipate environmental issues & address them
• Stay ahead of new regulatory requirements
• Manage government mandates to gain relative
advantage in the marketplace
5. ECO-DESIGN
MEET CUSTOMER ENVIRONMENTAL NEEDS
Jack Welch – former CEO –GE
Battled the government for years over GE’s
responsibility to toxic Polychlorinated biphenyles
(PCBs) in Hudson & Housatonic rivers
Jeff Immelt – successor to Jack Welch –
declared that environmental goods and
services would be centerpiece of GE’s
business strategy
• Immelt launched GE’s Ecomagination
campaign
– A multipronged initiative
– Part image advertising
– Part green product marketing
– Part product innovation
– Over all, its about top-line growth
• GE booked a $4 billion increase in sales of
environmental products in the first year
• Reaping $100 billion/year revenues from
ecomagination initiative
• Environmental strategy has been on a long
march for the past 40 years
– Tactical focus on compliance
– Tactical emphasis on costs & efficiency
– More strategic view centered on growth
opportunities
More companies now see top-line potential
from artfully managing green wave pressures
LG Eco-Design Strategy

1. Improving efficiency when using resources
LG not only reduces the weight and volume of its products, but also makes more efficient use of resources by using
natural and/or recyclable materials.

2. Reducing the use of hazardous materials
LG bans any use of the six hazardous substances (lead, mercury, cadmium, hexavalent, chromium, and PBB/PBDE),
employs halogen-free flame retardants, and refrains from using any other substances that could cause harm to the
human body.

3. Improving energy efficiency
LG Electronics complies with international efforts to reduce greenhouse gas emissions by reducing power
consumption and the use of standby electricity.

4. Improving recyclability
LG Electronics chooses materials that can be easily recycled. During the production and planning stages, we focus on
making sure that a given product can be easily broken down. Later, overall recyclability is further improved by
reducing its number of individual parts.

Eco-Design Activities
LG Electronics implements its objective management system, design management system, and accomplishment
management system with the goal of developing eco-products.

Eco-Design Application
By applying the eco-design concept to all of its products, hazardous substances are banished and-by reducing energy
consumption and developing recyclable eco-products-natural resources are preserved.
Surveys have shown that customers care about
environment
• First wave of Electric cars, Energy saving light
bulbs … from the stable of GM, Ford, Philips
& GE
Still some of these products failed
– Didn’t meet the customers need at right price
– Ineffective positioning or marketing

If WTP exists, how to convert it to actual
spending?

Make your customer’s environmental problem
your own
• Eco-design: a product/item is developed in a
way that reduced Environmental impacts for
someone somewhere in its life cycle journey
– supplier inputs - product – end-of-life disposal
• DfE helps customers lower their footprint &
costs - benefits that justify
– Price premiums
– Increased market share
– Strengthen customer loyalty

• Countless ways to help customers improve
eco-efficiency
• Innovation / creativity / entrepreneurial
spirit is the key
– Door-to-door waste collection in Indian cities
– BigBelly trash can in US
– MSW to organic manure or energy
– Sun Microsystems “Green Server”
– Dell’s computer take-back @ $25 / computer
• Eco-design can be tricky – many companies
have failed
Meet a need that actually exists
• DuPont – polyester recycling – Petra Tech
– Creates new polyester from old materials
– But, polyester disposal was not a big problem for
customers
– Recycled polyester costs more than virgin
polyester
– No compelling customer value proposition
DON’T GET CAUGHT-UP IN TECHNOLOGY AND FORGET
BUSINESS CASE
DON’T SUPPOSE THAT WHAT IS GOOD FOR YOUR COMPANY IS
GOOD FOR CUSTOMERS



Don’t ignore other needs of the customer
• 3M scientists made magnetic audiotapes using
water based coatings
– Completely avoided solvents
– VOC free product
– But – temperature range was very low
– Often melted under normal use
• McDonald: served coffee in reusable mugs
– Customers wanted to walk out with their coffee
– They are paying for mobility as much as for the
coffee
PRODUCT’S FUNCTIONALITY LIES IN THE SERVICE IT
PROVIDES

6. Eco-sales & Marketing
Build product loyalty and position on sustainability attributes
• Not every customer wants eco-friendly good
• But, some do
– this base is expanding
– More people are including socio-environmental
factors in to their buying equations
– Companies are vying to get a piece of this cake
• Body shop
• Organic foods
• Herbal beauty products
• Tribal crafts
When & where green marketing works
• Shell Oil – Thailand
– Dense cities / high traffic volumes
– Need for cleaner fuels that burn cleaner, produce
less emissions, protect engines
– Shell converted natural gas to zero sulpher liquid
– mixed it with regular diesel – PURA
– Charged a premium
– Strong market share & sales – SUCCESS



• PURA launched in Netherlands on the same
pitch – FAILURE
– Holland is full of green customers
– But, air pollution is not an issue there
– Not many takers for engine protection story
• Shell re-launched PURA as V-Power
– Enhanced engine power
• In India
– 3 premium petrols – all green – but sales pitch is
on – mileage / engine power / engine protection

Green attributes cannot stand alone
• Customers need other reasons to buy
– Price, quality, service will remain core concerns
• Green – can be 2
nd
or 3
rd
sales pitch
• Certification / eco-labels – indirect ways of
green marketing
• GOI – If only buys recycled paper products?
• ISO 14001 for EMS
• Partner with green crusaders – WWF –
Greenpeace etc..
7. Eco-defined new market space
- Breakthrough products
• 1993: Toyota set to design “21
st
century car”
– The Focus: Natural resources / environment Vs.
traditional size / speed
– Target: double the fuel efficiency of a small car
– Electric – an option – but other products failed
– Hybrid gas-electric engine was born
• Toyota Prius – a giant success
• Value innovation
– Product is so new
– So different
– So unique
– Customers believe there is no substitute
– Prius made competition irrelevant
– Hybrid is a new category of personal transport,
separate from a car
8. Intangible value
Build reputation & trusted brands
• Brands matter – celebrity oriented world
• BP rebranding campaign - $200 million
– Beyond petroleum
– $ 1 billion solar panels by 2008
– Still 98% of BP’s business comes from Oil & gas
– It’s a start
• ITC
– E-choupal
– ITC-CII centre of excellence in SD

• GE – Ecomagination
– Initially 17 products selected
– Wind turbines / solar panels
– Genx jet ingine: 15% less fuel, 30% quieter, 30% less
NOx emissions, less cost to operate
• Supermodels in coal mine pushing clean coal
• Elephants dancing touting “technology that’s
right in step with nature”
• Jet engine buyers are just Boeing & Airbus
• Then why wider publicity? – brand building
helps
– Multiple explosions in a Texas refinery
– 267000 gallon oil spill in Alaska
Eco-advantage bottom line
• Meet customer needs that actually exist
• Don’t ignore customer’s non-environmental
needs
• Green attributes rarely stand alone
• Market to different niches differently
• Don’t expect a price premium

The six sins of 'greenwashing'

Misleading the public about environmental practices or
benefits.
Hidden trade-off: A paper product that comes from a well-
managed forest but has to be transported a long way.
No proof: A claim that a product was not tested on animals, yet
no evidence is provided.
Vagueness: Terms like chemical-free or nontoxic that aren't
substantiated.
Irrelevance: A claim that is not important or that all others in
the product category can make.
Lesser of two evils: Organic tobacco. Enough said.
Fibbing: Citing bogus certifications.

• it was marked as "Made in China" and therefore had
recently been shipped halfway around the world.
• It was made from cotton (a crop which is estimated to
use 35% of all industrial pesticides)
• Printed with thermoplastic PVC-based inks which
contain phthalates, one of the nastier toxins, and well on
it's way to being banned worldwide.

From a Bluenotes store
in Toronto A green
canvas tote bag marked
"Think Green":
The eco-advantage bottom line
Look to reduce costs by:
• Eliminate waste & promoting eco-efficiency
• Cut disposal costs & compliance expenses
• Capture the value of reduced environmental
burdens up & down the value chain
Control environmental risk by:
• Anticipate environmental issues & address them
• Stay ahead of new regulatory requirements
• Manage government mandates to gain relative
advantage in the marketplace
• Meet customer needs that actually exist
• Don’t ignore customer’s non-environmental
needs
• Green attributes rarely stand alone
• Market to different niches differently
• Don’t expect a price premium