Waste-to-energy: “Feed me, Seymour!”

One challenge in pursuing sustainability is trying to break from existing procedures and methods to do things differently. Not trying to make radical change translates to simply maintaining a flawed system.

For example, waste-to-energy technologies represent unsustainable resource management and do not engender significant positive change away from today’s problems. Since these technologies benefit from a continuous flow of solid waste to an incinerator or landfill, they effectively perceive recycling as a competitor that can take away the materials they need as inputs.

• When faced with the choice of recycling a material or turning it into fuel for an incinerator, which decision might a facility manager make? Keep in mind it takes a lot of capital to build an incinerator, with a potentially long payback period. A municipality or company may prefer to incinerate its waste to justify its investment by continuing to generate heat and electricity.

• When a solid waste authority harvests methane from its landfill to produce “clean, cheap” energy and prevent climate change emissions, isn’t there an inherent, perverse incentive to continue landfilling waste?

• Aren’t new technologies that promise to harvest energy from waste in more innovative ways only wrapping themselves in exciting new packaging, while continuing to perpetuate our existing problems? As I said in an interview about plasma gasification for the NPR show Marketplace, our objectives should not be waste management and material destruction, but instead waste elimination and reuse of our limited resources because “products and materials can ideally be designed so they can maintain their flows within closed loops.”

If an unsustainable system becomes the status quo and, in fact, is propped up by opposing incentives, sustainable change is less likely to be achieved. We should harness creative redesign of material flows, collaboration among the public and private sectors, and take a long-term perspective to understand what approaches provide truly sustainable solutions for eliminating solid waste. Otherwise, we simply are listening to ongoing demands to “feed me, Seymour!”

The law of diminishing returns

With all the sustainability attention devoted to environmental impacts and social responsibility (note: for good reason, since so many organizations are concerned only with the financial bottom line), the importance of the third leg of the stool — economics — can be forgotten. But as an armchair economist (with some college courses to boot), I understand how critical are financial metrics in evaluating the benefits and costs of decisions, identifying limits to growth, and even answering the question of what is nature worth.

Economics also helps show how limited and short-sighted is the pursuit of eco-efficiency, if it is an organization’s only sustainability goal. The “law of diminishing returns” means that a sustainability program trying to decrease an organization’s harmful impacts can be successful early on, but at some point it will require higher and higher expenditures to obtain the same reductions in impacts… and eventually it will ‘hit the wall’ in an asymptotic curve that will never achieve zero impact.

As a result, eco-efficiency alone will not enable an organization to achieve true sustainability. While there are gains to realize from an eco-efficiency strategy, it is a means of only reducing unnecessary waste within a bloated system and delivering financial return.

The potential ROI (actually SOI, or “savings on investment”) should not be the most important criterion for a company deciding whether and how to pursue sustainability. After all, many organizational activities are not based on a direct, immediate or even tangible ROI/SOI — for example, marketing, brand building and reputation management — but executives identify them as requisite for survival and license to operate, especially over the long haul.

In fact, a company’s market valuation is incomplete without measuring the significant and sometimes overwhelming value of “intangible assets,” including reputation derived from sustainability actions. For example, a Business for Social Responsibility report (PDF) discusses how CSR, intangibles and value creation can be tangibly connected by shareholders and customers.

Implementing far-reaching sustainability programs usually requires more fundamental changes in organizational goal-setting and decision-making that may not readily pass a short-term financial test. While broad sustainability efforts will necessitate some level of resource investment, an organization should note the opportunity for longer-term growth in positive recognition, customer commitment and sales by moving beyond the status quo.

An organization should focus on establishing leadership by defining a broader, loftier sustainability commitment and doing things in radically different or innovative ways. In the end, those organizations will be the ones to write the new “law of increasing returns through sustainability.^”

“Sustainable Product”? More than simply recycled content

When an organization is planning to develop or purchase a “sustainable product,” toward what goal should managers aim?

Using recycled content is a great place to start, but this single definition of a sustainable product is incomplete. For example, recycled content can be subject to contamination by toxic heavy metals, coatings, colorants (e.g., chlorinated pigments in green, red or yellow printing inks) or other additives from its previous application. In fact, these contaminants may become part of the substrate material or even be liberated into the background environment during recycling, composting, landfilling or incineration.

A manufacturer sourcing recycled material should require its supplier to document the chain of custody and previous application of the material, verify ingredient formulation to the greatest extent possible, and test for the most likely contaminants. Unfortunately, material testing is of limited value. Individual tests can look for (and find) only specific chemical constituents and adding tests for more contaminants can increase costs quickly.

This is where an ounce of prevention can readily surpass a pound of cure. In addition to looking back in time (up the supply chain) for a recycled material, a manufacturer also should look forward in time, and design the next application to enable future recycling of the material. Components within a product should be combined in a way that facilitates easy disassembly after the use phase, to divide the materials into their separate recycling streams.

The manufacturer also should collaborate with other organizations — governments managing public recycling systems, companies that collect and haul discarded materials, processors of recovered materials, manufacturers or suppliers that could use the material in the future, and others — to increase collection and reuse.

Finally, recycled materials should be combined in the next application so they can be recycled yet again (…and again). For example, different plastics with different physical properties should not be melted together for a product application and preclude their separation in the future. Otherwise, they still will be destined for the landfill or incinerator at some point — a mixed-plastic speed bump literally provides just a short pause for those plastics on their way toward final disposal. Image source: www.britishrecycledproducts.co.uk

A company using recycled content in its products should understand the previous use of the material and analyze for potential contamination, design the product to maintain the material’s recyclability, and help enhance the system to recover the product after its use and recycle its component materials.

Product sustainability cannot be judged by a single attribute, such as recycled content, ingredient composition or recycling used materials, when such items are inextricably linked and should be intentionally developed to work together as effectively as possible.

Sustainability = Innovation

One thing is certain about anything published in the esteemed Harvard Business Review (HBR): the content is not taken lightly — both the significance of being selected for the journal, as well as the impact it can have on mainstream business thinking. Since HBR has included multiple articles about sustainability, we can be sure the concept of ‘sustainable business’ is no longer just conceptual.

A recent and engaging HBR article is entitled “Why Sustainability is Now the Key Driver of Innovation” (Sept. 2009). The authors, Ram Nidumolu, C.K. Prahalad, and M.R. Rangaswami, present their argument and model for why sustainability is a source of creativity, a differentiator and the chief means to industry leadership.

One primary example of sustainability’s link to innovation is a company choosing whether to meet or exceed regulations for environmental quality, human health and other societal impacts. Simply meeting existing regulations means your organization is not unique, but just another member of your sector. However, deciding to lead by exceeding current regulations means your organization is innovating; I’ve provided the following examples:

• Defining the industry standard for what can be achieved
• Becoming the probable technological benchmark for government regulation going forward (creating the perception in regulators’ minds: “If Company X can do it, then all firms in its sector should be able to.”)
• Making the change on your own terms, at your own pace and under a cost structure that is not imposed from outside (*this point is critical and may help you internally sell the idea of surpassing current regulations)
• Avoiding the uncertain, up-and-down nature of regulation by moving beyond regulation
• Differentiating yourself from your competitors
• Tangibly demonstrating leadership, which you can convey through marketing and PR

Transitioning from regulatory compliance as a Stage 1 starting point, the authors chart four more stages of innovating through sustainability — Stage 2: realizing eco-efficiency opportunities; Stage 3: redesigning products and services to make them more eco-friendly; Stage 4: changing business models for sustainability; and Stage 5: reformulating the overall approach to sustainability and business operations as we know them (true ‘out-of-the-box’ thinking).

As their final point, the authors note sustainability efforts can generate innovation by helping attract and retain the most talented employees, who increasingly are deciding to work for organizations that evidence environmental and social leadership. Once these individuals are committed team members, their capabilities can take the organization to new levels of achievement.

Sustainability truly is an opportunity for innovation. In fact, as the HBR article points out, defining your reputation and orienting your actions through the sustainability lens may be the most significant way to set yourself apart.

My advice: start investing in sustainability innovation now.

Nike: innovation and competitive differentiation through sustainability

The following post is an abstract of a longer document. Read the complete Sustainably Defined Idea Paper on Nike’s leadership efforts.

Nike is the world’s leading brand of athletic footwear and one of the top brands of athletic apparel and equipment. The company has prided itself on its approach to design and experience marketing, but always has been pursued by critics for its labor and environmental practices. Nike now perceives sustainability as a path to leadership, competitive differentiation and most importantly, to evidence a positive framework and actions on social and environmental issues.

After being criticized by the New York Times, other reporters and interest groups in the early 1990s for its suppliers’ troubling labor practices in Asia, Nike changed its focus from measuring only traditional business metrics such as product performance, profits, return on investment (ROI) and shareholder value, to adding metrics such as suppliers providing safe working conditions, paying living wages, manufacturing products without harming human health or the environment, and collaborating with stakeholder groups. Due to pressure from interest groups and its own internal drive to deliver, Nike perceived the need to not just be consistent with its competitors, but to lead its industry on such important challenges by developing robust objectives and harnessing the internal creativity of its product designers and other employees to achieve those objectives over time.

Through this process of change, Nike realized the innovation opportunity inherent in sustainability — designing for a broader concept of quality beyond simply product cost, performance and aesthetics — and the reputational opportunity of tangible action. At the same time, Nike transitioned from labeling these functions as “corporate social responsibility” to an office of “Sustainable Business and Innovation (SB&I),” to help Nike excel in a sustainable economy. In the words of CEO Mark Parker: “It took us a while, but we finally figured out that we could apply these two core competencies — design and innovation — to bring about environmental, labor and social change… We saw that doing the right thing was good for business today — and would be an engine for our growth in the near future.”

Although Nike realizes it has much work ahead to completely harmonize its product life cycles and operations with the principles of sustainability, it is progressing toward that goal. The company is signaling its intentions for the future and embodying sustainability innovation and performance. As a result, Nike is poised to arrive sooner and more completely than its competitors and define what is achievable as the standard for its industry.

Leadership is the key to sustainability

To define its sustainability leadership, an organization must first publicly commit to integrating sustainability into its DNA, and then quickly follow with a long-term vision statement and tangible actions that demonstrate this pledge. Functioning sustainably means moving past simply meeting regulations and minimum requirements, to charting a new path, proving credible achievement and improvement, excelling and differentiating within one’s industry, and maintaining open communication with all stakeholders along the way.

Investing in sustainability can build real business value over time:

• Reduced risk and liability: Auditing and optimizing operations to be safe for human and environmental health can eliminate risks, liabilities and regulatory requirements. For example, the investment community is beginning to understand the challenge of hidden liabilities and value companies using sustainability metrics – ask BP the importance of reducing unsustainable risks.

• Brand differentiation and competitive advantage: Sustainability innovation can help distinguish an organization and its brand from competitors. Studies prove the growing significance of an organization’s brand to its long-term success in the marketplace; brand is critical to a stock’s intrinsic value.

• Enhanced reputation and stakeholder relationships: The pursuit of a positive vision can inspire investor and customer confidence, strengthen employee commitment, and improve relations with public and private stakeholders. For example, increasing numbers of buyers are making procurement decisions with an eye toward suppliers’ reputations. In addition, government agencies are working to change the model from regulation to partnering with organizations that demonstrate sustainability innovation and thus become the benchmark by which others are judged.

Leadership is the key to sustainability — rising above the fray of shareholder resolutions, environmental group campaigns and reactionary decision-making — by defining and achieving a vision that is entirely positive, enabling concurrent success within economic, environmental and social spheres.

The pursuit of sustainability provides numerous opportunities that can be realized, if an organization is ready to do the necessary work and lead by example.

Moving from the ‘cost’ column to the ‘benefit’ column

What originally began as a call by scientists, interest groups and a limited number of citizens has advanced into the public consciousness and changed consumer behaviors and decision-making. Through iconic issues such as carbon footprinting, green jobs, sweatshop-free clothing, lead in toys, BPA in water bottles, and “paper or plastic,” sustainability issues have reached into the mainstream and are helping define brand image. Consumers and the public expect companies, their government and institutions to operate within specific boundaries with respect to human health, the environment and social responsibility. They are judging actions on more and more criteria and adding sustainability performance to the expected components of a company’s ‘license to operate.’

As a result, companies are beginning to move beyond perceiving social and environmental issues as cost centers and compliance requirements, to understand the opportunities for innovation and competitive differentiation inherent in sustainability. They are moving from only prioritizing shareholder value and business risks related to sustainability, to addressing stakeholder value and business opportunities as well. As a result, companies are moving toward brand enhancement, positive stakeholder engagement and increased business value by changing their products, operations and perspectives on their corporate responsibility. Increasingly, companies are working to meet the increased demands placed on them by their various stakeholders, through actions such as:

• Expanding their success metrics to include sustainability measures.
• Addressing concerns of the SRI (socially responsible investing) community.
• Attracting and retaining employees by becoming socially responsible workplaces.
• Meeting the environmental and social procurement criteria of institutional customers.
• Shifting from governmental regulation to a new era of partnering for sustainability.
• Responding to increasing concerns from consumers and local communities about the human health impacts of products, operations and facilities.

Sustainability leadership will continue to be an important opportunity for companies in the future. The recommended approach is to pursue industry leadership through sustainability innovation and competitive differentiation, work collaboratively with stakeholders, build a positive reputation, provide tangible metrics of organizational actions, and demonstrate continuous improvement over time. There are ways to truly “do well by doing good,” benefitting the larger society, reducing a company’s bottom-line costs and increasing its top-line revenues.