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Industry and the Environment: Motivations for Sustainable Business

Practices

Implementing a More Sustainable Future in Nebraska Conference

Professor Chris Decker

September 25, 2013

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Business and the Environment: General Overview

• Industry “buy-in” needed to achieve improved environmental outcomes

• Addressing environmental issues need not result in reduced profitability

• Profit opportunities exist

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Environment and Performance

• Dow Jones Sustainability Index– Developed by Dow Jones and Sustainable Asset

Management (SAM)– Five different indexes

• World, Europe, North America, Asia Pacific, and Korea

– About 300 firms comprise the various indexes– Inclusion in the index involves an analysis of a

candidate firm’s corporate governance, risk management, branding, climate change mitigation, supply chain management, and labor relations

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40

60

80

100

120

140

160

99 00 01 02 03 04 05 06 07 08 09 10 11

Dow Jones Industrial AverageDow Jones Sustainability IndexS&P 500

Market Indexes (1999:8 = 100)

Environment and Performance

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Incentives, beyond regulatory compliance, for business?

• Cost Efficiency• Labor Productivity• Market Opportunities• Partnerships

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Cost Efficiency

• Cost savings from:– Substitution

• less hazardous inputs

– Efficiency • reduce energy, materials and water, e.g. install energy

efficiency lighting• Retrofitting buildings with efficient lavatory facilities,

etc.

– Reuse and recycling• reduce materials costs

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Cost Efficiency

• ConAgra Foods, Omaha, NE (2013)– Employee-driven efforts to reduce water use

(Wesson Oil facility, TN)

– Cost savings: 169 M gal/year

– How did they achieve this?• Incentives for employees: $5,000 grant for sustainable

community development

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Cost efficiency and regulation• Porter’s Hypothesis: regulations prompt

more efficient production– EPA’s 2010 Tier 4 regulations for diesel engine

efficiency:

“As we redesign equipment to meet Tier 4 requirements, we are taking the opportunity to

see what we can change for the better…We expect the total cost of ownership to be better

with Tier 4 products.” Michael Unrein, Case/New Holland.

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Labor Productivity

• Improved environmental conditions– Improved air quality, lighting, building design, etc.

• Lovins, Lovins and Hawken, state in A Road to Natural Capitalism:

“Eight recent case studies of people working in well-designed, energy efficient buildings measured labor productivity gains of 6% to 16%”

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Market for “green” consumers• Demand and wealth accumulation

“Over the last decade, we have seen many polls confirming the importance of the environment to Americans. Only an irresponsible company would

dismiss this trend as a passing fad …. Environmental excellence has to become part of strategic thinking. It

is in our best economic interests to do so.”

William Mulligan, Environmental Affairs Manager, Chevron Corporation

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Market for “green” consumers

• 2013 Small Business Sustainability Report*:

75 percent of businesses surveyed that sell green products reported increased sales between 2008 and

2011

• Note, however, not all green marketing strategies achieve success.

* Green America, Association For Enterprise Opportunity and EcoVentures International

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Partnerships

• Coase Theorem: Bargaining between polluters and those harmed by pollution– Possible to arrive at a mutually beneficial result

• Example – “Payments for Ecosystem Services”*– Costa Rica: PES Initiative (c.a. 1997)– Energia Global – a private hydropower utility

located in Costa Rica• To improve river flow, paid land owners to halt clear-

cutting for agriculture and to re-forest

*www.percreports.org/fall 2010

Costa Rican Forest Cover

Costa Rican Forest Cover

Costa Rican Forest Cover (PES initiative)

Costa Rican Forest

Total Forest Cover – Percent Change

1990-2000 2000-2005 2005-2010-19% 23% 23%

Environmental News: Mongabay.com

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A Similar Example….

• Conservation Reserve Program, US Dept. of Agriculture (CRP)– Voluntary Participation by eligible farmers– Offered a monetary incentive not to farm certain

identified acres– Improved water quality (reduced runoff, erosion,

leaching, etc.– Acreage for other purposes (hunting, etc.)– Note: A government funded program– Question: can a similar result be achieved differently?

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Future Research Direction

• Community Influence: Do characteristics of a local community’s attitude for environmental quality impact business decisions?– “Green Technologies and Practices”

• US Bureau of Labor Statistics Survey of 6 GTPs

– Concentrations of environmental group members in a community