Achieving ECO-Efficiency In BusinessMr. Petr Horacek Executive Director Programme Std Prof. Leo A....

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I World Business Council For Sustainable Development

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ACHIEVING ECO-EFFICIENCY IN BUSINESS

Report of the World Business Council for Sustainable Development Second Antwerp Eco-Efficiency Workshop March 1445,1995

Prepared by Robert U. Ayres, INSEAD

with support from Kai Hockerts, Universitaet Bayreuther &

Peter Ruckiger, Eidgenoessische Technische Hochschule, Zuerich

The Eco-Efficiency Workshop was organised in association with

UNEP UNITED NATIONS ENVIRONMENT P R O G R A M (UNeP)

INDUSTRY AND ENVIRONMENT IIFF.T(C I.-,,\

Printed courtesy of Dow Europe S.A. 'Trademark 0IThe Dow Chemical Compan

Workshop Participants Bioloam Corporation Mr. Ed Alfke Chairman U.S.A.

918 South Park Lane Tempe, AZ 85281

Tei: 1 602 966 5755 Fax: 1 602 966 5659

UNEP iVPAC 39-43 Quai Andrti CitroBn Ms. Jacaueline Aloisi de Larderei Tour Mirabeau Director

3M Europe Mr. Ailen Aspengren Mgr. Env. H&S, Europe

INSEAD Prof. Robert U. Ayres Sandoz Prof. Mgt Envir.

ANOVA AG Mr. Frank W. Bosshardt Associate

3M U.S. Mr. Bob P. Bringer Staff Vice Presldent

WBCSD Mr. Serge de Klebnikoff Director Development

Clba Pigments Dr. Peter Donath Head of Production & Technical Service

iMD Ms. Annette Ebblnghaus Research Associate HiBE Protect

75739 Paris Cedex 15 France Tel: 33 1 44 3714 50 Fax: 33 1 44 3714 74

106 Bd de la Woluwe 1200 Brussels Belgium Tel: 32 2 761 2339 Fax: 32 2 772 4270

Boulevard de Constance 77305 Fontainebieau Cedex France Tei: 3 3 1 60724011 Fax: 33 1 60 72 42 42

Hurdnerstrasse 10 8640 Hurden Switzerland Tei: 41 55 47 33 77 Fax: 41 55 48 48 24

St Paul Center St Paul, Mlnnesota U.S.A. Tel: 1 612 778 4331 Fax: 1 612 778 7203

16 route de Florissant 1231 Conches-GE Switzerland Tel: 41 22 839 3100 Fax: 41 22 839 3131

4002 Bash Switzerland Tel: 41 61 697 66 02 Fax: 41 61 697 86 07

Chemin de Bellrive 23 to01 Lausanne Switzerland Tel: 41 21 618 0348

OECD Mr. Jeremy Eppei Counselor

The Greening of industry Mr. Kurt Fischer U.S. Coordinator

The Strategy Workshop Dr. David Fleming Director

Dow Europe S.A. Mr. Claude Fussler Vice President EH&S

WBCSD Mr. Ulrich Goiueke Project Manager

Nestle Pascal Greverath Environmental Affairs Manager

Gispri Mr. Tayzo Hayasi

Fax: 41 21 618 0707 2 Rue Andre-Pascal 75775 Paris Cedex 16 France Tek 33 1 45 24 79 13 Fax: 33 1 45 24 78 76

177 Coiiege Ave. Tufts Uni Medford MA 02155 U.S.A. Tei: 1 617 628 5000 Fax: 1 617 627 3099

104 South Hili Park Hampstead London NW3 25N United Kingdom Tei: 44 171 794 5644 Fax: 44 171 435 381 8

Bachtobelstrasse 3 8810 Horgen Switzerland Tel: 41 1 728 2403 Fax: 41 1 728 2097


Avenue Nestle 55 1800 Verez Switzerland Tel: 41 21 924 2213 Fax: 41 21 924 4547

3rd Floor Shosen-Mitsui Bldg 2-1-1 Toranomon Minato-ku, Tokyo 105 Japan Tal: 81 3 5563 8800 Fax: 81 3 5563 8810

Env. ind. Forum of South Africa Jonathan Hobbs Johannesburg 2000 DirectorIChief Advisor South Africa

Tei: 27 11 800 5401 Fax: 27 11 800 4360

P.O. Box 1091

Em-EEciaoy Workshop 3 World Business Council For Sustainable Development

Cookson Group Dr. Lyn H o l Assistant Director

WBCSD Czech Mr. Petr Horacek Executive Director

Programme Std Prof. Leo A. Jansen

Swiss Bank Corp. Mr. Franz A. Knecht Vice President Head Env. Mgt. Services

6.30 Mr. Alan Knight Quality & Env. Controllei

Powergen Or. William S. Kyte

Domus Academy Prof. Ezio Manzini Vice President

Hoffmann-La Roche AG Dr. Peter Mueller Vice President

Bank Gdanski SA Ms. Teresa Murat Credit Department Manager

Sandy Lane Yarnton, Oxon United Kingdom Tel: 44 186 584 1921 Fax: 44 186 584 1943

Politichyeh veznu 13 P.O. Box 1113 111 21 Prahal Czech Republic Tel: 42 2 2421 2224 Fax: 42 2 2421 3695

P.O. Box 6063 2600 JA Dem The Netherlands Tel: 31 15 697 543 Fax: 31 15 697 547

P.O. Box 4002 Basel Switzerland Tel: 41 61 288 9854 Fax: 41 61 288 2929

1 Hamshire Corporate Park Southampton United Kingdom Tel: 44 1703 256256 Fax: 44 1703 256095

Westwood Way Westwood, Business Park Coventry CV48 8LG United Kingdom Tel: 44 1203 424225 Fax: 44 1203 425226

Strada 2 - Edificio C2 Milanofiori 20090 Assago Milano Italy Tel: 39 2 8244 017 Fax: 39 2 8257 496

Building 49, Room 236 P.O. BOX 4002 Basel Switzerland Tel: 41 61 688 8429 Fax: 41 61 688 1920

80-958 Gdansk W Targ Onewny Poland Tel: 48 58 379 560 Fax: 48 58 311 500

Novotex Mr. Leif Norgaard

Norsk Hydro 0240 Oslo Mr. Kjell Oren Norway Director Environment

Fax: 45 97 251 014

Tei: 47 22 432 436 Fax: 47 22 433 160

Via S. Bovio 3 CAP

20090 Milano

3M ltalia SPA Mr. Marcello Puccini S.Felice-Segrate Director Eur. Prod. Reso.

ltaiy Tel: 39 2 7035 3388 Fax: 39 2 7035 3236

Fundes CH Hauptstrasse 10 Mr. Andres Romero P.O. Box Latin-America Analyst 8872 Weesen

Switzerland Tel: 41 58 436 650 Fax: 41 58 436 651

Stungarter Strasse 106

Tel: 49 711 585 8308 Fax: 49 71 1 578 9833

Sony Europe GmbH Dr. Lutz-Guenther Scheidt 70736 Fellbach General Manager Germany

Wuppertal Inst%ut Ooppersberg 19 Prof. Or. Friedrlch Schmidt-Bleek 5600 Wuppeltal Vice President

Commission of European Union OG XII, D-5 Mr. Andrew I. Sors Head of Unit

WBCSO Indonesia Prof. Otto Soemarwoto Executive Director

Dow Europe S.A. Mr. Hans Staeuber

Green Management Program Mr. Martin Standley Program Leader

. . Germany Tei: 49 202 24 92 132 Fax: 49 202 24 92 138

Rue de la Loi 200 1049 Brussels Belgium Tel: 32 2 295 7659 Fax: 32 2 299 4462

Bandung Business Center 7th Floor, Bandung 40121 lndonesla Tel: 62 22 440 728 Fax: 62 22 440 729

Bachtobelstrasse 3 CH-8810 Horgen Tel: 41 1 728 2704 Fax: 41 1 728 2935

PR 8100 Dep 0031 Oslo Norway Tel: 47 22 573 600 Fax: 47 22 688 753

Eo-Efficiency Workhop W o r l d Business Council For Sustainable Development 4

WBCSD Mr. Blorn Stigson Executive Director

Novo Nordisk Mr. Peter Tang Senior Vice President

Ciba Mr. Martin Tanner

WWF UK Dr. Richard Tapper Head of industly Policy

Gorbachev Foundation Mr. Ludo van Oyen

GEM Dr. Jonathan Williams Head 01 Group


Novo Alie 2880 Bagsvaerd Denmark Tei: 45 44 423 435 Fax: 45 44 448 463

Ciba-Geigy Limited. K-24 225 4002 Basei Switzerland Tel: 41 61 696 4543 Fax: 41 61 696 3471

Panda House Caiteshail Lane Godalming, Surrey GU7 I X R United Kingdom Tei: 44 1483 412 545 Fax: 44 1483 426 409

Vaariweg 163C P.O. Box 772 1200 AT Hiiversum The Netherlands Tei: 31 35 235 908 Fax: 31 35 236 258

Jasmine House The Walled Garden South Warnborough Hampshire RG25 iTN United Kingdom Tei: 44 1256 86 27 21 Fax: 44 1256 86 27 21

WBCSD 16 route de Fiorissant Mr. Jan-Oiaf Wliiums 1231 Conches-GE Director Switzerland

Tei: 41 22 839 3100 Fax: 41 22 839 3131

Shell Mr. Alain Wouters

Em-Efficiency Workshop 5 World Business Council For Sustainable Development

Workshop Agenda

Time allocation

0 discussion and working period briefings and key points

March 14 morning Defining Eco-Efficiency and Creating Value Chair Person: Allen H. Asoeneren. 3M Euroue

I 09:oo Robert Bringer and Bjorn Stigson Break

Opening remarks

Scenario plannina to create an eco-eff icient world

How to Achieve Eco-Efficiency I Best Practice March 14 afternoon Chair Person: Jacaueline Aloisi de Larderel. Director UNEP IP

I4:OO Leif Norgaard Hans Staeuber Alan Knight Edward Alfke Lyn Holt Bob Bringer Franz Knecht Plenaty Discussion Dinner

,-Chair Person: jan-olaf Willums, Dire&, WBCSD Green cotton and EMAS at Novotex The Blue House project and eco-fitness analysis at Dow Managing the supply chain at B&Q Biodegradable packaging: Biofoam Corporation Integrated materials management at Cookson plc Product responsibility at 3M Environmental risk and banking: Swiss Bank Corporation

World Business Council For Sustainable Development 6

Development of Flexible Guidelines

I Develooment of flexible auidelines

Introduction and Moderation: Hans Staeuber, Dow Europe March 15 morning

I 09:OO 1 Hans Staeuber

I 14:45 I Claude Fussler

Communication / Implementation

Communication / lmdementation cont. End of Workshop

Eco-Effioimcy Workshop 7 World Business Council For Sustainable Development

From the Concept to Management Guidelines Claude Fussler Vice President, Ventures and EH&S, Dow Europe

You cannot find Eco-efficiency in a dictionary but you will, soon. It is already in many conference .~

titles. It is often heard in business and environmental debates. Eco-efficiency is a concept shaped by the Business Council for Sustainable Development during the preparation of its report to the 1992 Rio Earth Summit.

In November 1993 a group of experts from business, governments and research institutes met in Antwerp to propose a working definition of eco-efficiency and discuss some of its implications. This first group recommended a program to develop the concept, document best practices and promote a policy framework to encourage it.

Two CEOs, Desi DeSimone of 3M and Frank Popoff of Dow, invited a Task Force to follow-up on this recommendation. I had the pleasure to organize, with Allen H. Aspengren of 3M, the second Antwerp Workshop. We are gratefid to Professor Robert Ayres of INSEAD for this edited report of the proceedings. It is a report of work-in-progress, not an official WBCSD statement.

The Task Force assembled in Antwerp confirmed the working definition of eco-efficiency. It discussed many recent case histories presented by the participants. They helped to make progress towards management and policy guidelines which would accelerate the shift towards eco-efficiency

This second report is in line with the conclusions of the first Antwerp Workshop. We have understood the need for change. We have made progress on the use of life cycle assessments and in the management of complex systems and closed material loops. We realise more and more the need for cooperation with environmental organizations and policy makers in order ensure that economic value rewards ecological progress.

We may not, however, realise the urgency and the magnitude of the necessary changes. Eco- efficiency is a breakthrough discipline. It challenges us to innovate in a big way and waste no time!

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Note: The next Task Force Workshop meeting on October 30 and 3 1 in Washington DC will finalize the WBCSD Eco-efficiency Guidelines.

World Business Council For Sustainable Development 8 Eoo-Efftdency Workshop

CONTENTS

WORKSHOP PARTICIPANTS

WORKSHOP AGENDA

FOREWORD

1 , ECO-EFFICIENCY: DEFINITION AND CONTEXT 1.1 Background 1.2 Delinition of Eco-Efficiency 1.3 Eco-efficiency: A New Paradigm for Managers

2. CREATING (AND ADDING) VALUE 2.1, 2.2 Elements of Value Created 2.3 Summary of Key Points

SYNOPSIS OF “BEST PRACTICE” CASES 3.1.

Presentation by Robert Bringer, 3M Co.

3. Environmental Risk and Banking: Swiss Bank Corp. (Franz Knecht) 3.1.1. Synopsis of presentation 3.1.2 Relevance of eco-effeciency Green Cotton and EMAS at Novotex (Leif Norgaard) 3.2.1. Synopsis of presentation 3.2.2. Relevance to eco-efficiency The Blus House Project and Eco-Fitness Analysis at Dow (Hans Staeuber) 3.3.1. Synopsis of presentation 3.3.2. Relevance to eco-efficiency Managing the Supply Chain at B&Q (Alan Knight) 3.4.1. Thestasthgpoint 3.4.2. Example: timber 3.4.3. Example: solvent-based paints 3.4.4. Example: brass door handles 3.4.5. Relevance to eco-efficiency Biodegradable Packaging: Biofoam Corporation (Edward M&e) 3.5.1. Synopsis ofpresentation 3.5.2. Relevance to eco-efficiency Integrated Materials Management at Cookson PLC (Lyn Holt) 3.6.1. Synopsis of presentation 3.6.2. 3.6.3. Example: porcelain glaze manufacture 3.6.4. Example: post-consumer plastic recycling 3.6.5. Example: refractories rentmg 3.6.6. Relevance to eco-efficiency

3.2.

3.3.

3.4.

3.5,

3.6.

Example: “No-Clean” solder paste and container recovery

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Eoo-Efficiency Workshop 9 World Business Council For Sustainable Development

3.7.

3.8.

Product Responsibility at 3M (Robert Bringer) 3.7.1. Synopsis of presentation Eco-efficient Design at Wuppertal Institut (F. Schmidt-Bleek) 3.8.1. Background 3.8.2. The carpetsweeper 3.8.3. The cooling system (FRIA) 3.8.4. Relevance to eco-efficiency

4. GUIDELINES FORBUSINESS 4.1, Elements of Eco-Efficiency Guidelines 4.2. Company Culture 4.3. Goal-Setting 4.4. Reconnaissance 4.5. Policy-Makmg 4.6. Management Tools 4.7. R&D for Eco-Efficiency 4.8. Policy-Implementation 4.9. Design for Eco-Efficiency 4.10. Production and Eco-Efficiency 4.1 1, Purchasing and Marketing for Eco-Efficiency 4.12. After-Market Service 4.13. Closing the Loop

SOCIETAL IMPLEMENTATION: ROLE OF GOVERNMENT 5. I , 5.2. Ecological Tax Reform 5.3. Other Roles of Government

5 . The Systems Perspective Revisited

6 . AFTERTHOUGHTS 6.1, 6.2. 6.3. International Aspects of Eco-Efficiency 6.4. Next Steps

How Can Business Help Society in Shifting to Eco-efficiency? How to Encourage Eco-Efficiency Among SME’s

APPENDIX A. INSTITUTIONAL BACKGROUND

APPENDIX B. HISTORICAL BACKGROUND

REFERENCES

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World Business Council For Sustainable Development 10 Eco-Etfioiency Workshop

1. ECO-EFFICIENCE DEFINITION AND CONTEXT

1.1. Background “Eco-efficiency”, as a goal for business, is a relatively new and still evolving concept. Other closely related concepts include “pollution prevention”, “source reduction”, “waste reduction”, “waste minimization”, and “clean (or cleaner) production”, All of these terms are intended to capture the idea ofpollution reduction through process change, in sharp contrast to earlier “end-of-pipe’’ approaches, which can best be characterized as separation and redirection or recycling.’

A somewhat more advanced concept that has recently emerged - in parallel with “eco- efficiency” - is “Design For Environment” (DFE).Z This approach adds two features to pollution prevention, both ofwhich it shares with eco-efficiency. First, it features a life cycle perspective, which means that products are considered in the context of the whole sequence of stages of the life cycle, beginning with extraction and processing of raw materials and including all intermediate processing and manufacturing steps, use ofthe product, and final disposal. Second, it extends the range oftechnological options from treatment and process change to include product design. In particular, there is explicit focus on the ways in which product design can reduce materidenergy intensiveness in production and use, on the one hand, and facilitate re-use, remanufacturability and recycling, on the other.

However, while the two concepts are closely related, “eco-efficiency” is not just another name for DFE. It differs in one important respect, which is central to much of the discussion at Antwerp 11. To state the difference briefly: eco-efficiency does not focus simply on resource use or pollution reduction, but equally - if not more - on value creation.’ In the language of economists, it suggests the objective ofmaximizing value added per unit resource input. This idea is essentially equivalent to maximizing resource productivity at the firm level (taking into account scarce environmental resources as well as energy and raw materials), rather than simply minimizing wastes or pollution associated with a given product.

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1.2. Definition of Eco-Efficiency The term Eco-efficiency was first used in the book Changing Course, cited previously. The first Antwerp Workshop defined it as follows: -

“Eco-efficiency is reached by the delivery of competitively priced goods and services that satisfy human needs and bring quality to life, while progressively reducing ecological impacts and resource intensity throughout the life cycle, to a level at least in line with the earth’s estimated carrying capacity.”

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EGO-Efficiency Workshop 1 1 World Business Council For Sustainable Development

Several simpler altemative definitions were discussed, such as:

“Greater value for customers with minimum resource use, pollution and waste”

“Economical efficiency of environmentally sound management”

“Eco-efficiency = Value CreatedEnvironmental consumption and impact” . -

_- However, these short versions did not seem entirely satisfactory. The Antwerp I definition could perhaps be modified, at least in minor ways, as subsequent discussion indicated. For instance, it was pointed out that the currying cupaciQ (mentioned as the last factor) is characteristic of the system as a whole and therefore it is not a manageable criterion for a product or a company. It was also pointed out, however, that one can calculate, for any given product, what effect it would have if all people worldwide were to buy or use it. Consider for example that today nearly everybody wants to owna car. What are the implications for highway construction, loss ofvaluable farmland, petroleum consumption, etc? Such calculations, and questions, are consistent with the life cycle perspective. Nevertheless, it was recognized that the carrying- capacity criterion, taken literally, is inapplicable to individual firms.

A more comprehensive approach to definition was suggested, stressing seven elements:

0. Minimize the material intensity of goods and services

1. Minimize the energy intensity of goods and services

2. Minimize toxic dispersion

3 . Enhance material recyclability

4. Maximize sustainable use of renewable resources

5 . Extend product durability

6. Increase the service intensity of goods and services

- This list, too, could be criticized. For instance, it is not theoretically possible to maximize more than one objective hnction. Some objectives might actually conflict with others, at least in some situations. (For instance, durability might conflict with service intensity, or with recyclability). There is also some obvious overlap between categories.

World Business Council For Sustainable Development 12 Eoo-Efficiency Workshop

1.3.

After further discussion, there was fairly unanimous agreement that certain core elements must be involved: these are as follows:

1. Attention to providing real services based on the needs of the customer

2. Economic viability for the firm

3. A systems (life-cycle) viewpoint with respect to both processes and products

4. Explicit recognition at the policy-making level of the firm that the environment is finite, that the “carrying capacity” of the earth (defined appropriately) is limited, and that the firm bears some responsibility for not making problems worse in this regard.

In effect, there was a rather clear consensus that, while no definition is likely to satisfy everybody, the original definition, taken together with the clarifying comments, is adequate and can be accepted for purposes of going forward.

Eco-Efficiency: A New Paradigm for Managers The emergence of the eco-efficiency concept (as well as DFE) partly reflects the emergence of a more system-oriented view of the world within industry. This in itself is of fundamental importance, since it marks the dawning recognition that the world is finite and that the “cowboy economy” of the past is in process of evolving into a “spaceship economy”, with all that that implies in terms of inter-connectedness. The concurrent emergence ofa new discipline, industriulecology, is further evidence ofthis evolutionary development.

But more important for most participants in the Antwerp I1 Workshop, the eco- efficiency concept creates a needed bridge between the macro-level concept of “sustainable development” and the micro-level of corporate behavior. It is everyday corporate behavior with which we are concerned.

This evolutionary development can reasonable be described as a “paradigm ~hift”.~The shift reflects the fact that, in many industrial sectors, further environmental gains mandated by regulation via “end-of-pipe’’ approaches are becoming extremely - sometimes unreasonably - costly. On the other hand, many opportunities for making

have already proven cost effective and many others remain to be exploited. Common sense suggests that “an ounce of prevention can be worth more than a pound of cure”.

gains at lower cost (or even at a profit) through process change or product innovation -

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bo-Efficiency Workshop 13 World Business Council For Sustainable Development

Eco-efficiency is a paradigm shift in another sense: it represents a proactive strategy for moving gradually away from production and sale of material “goods” toward the production and sale of immaterial “services”. After all, it is the service that the consumer wants; the good is only an agent for delivering the service. While it is difficult to imagine an economic system producing no material goods at all, it is clear that

maximization of service output per unit of material product. Since material products require material inputs, this, in turn, implies maximizing service output per unit of resource input.

Apoint made by several participants at theworkshop was that the built-in incentive for a company in the “goods” manufacturing business, and perhaps even more so in the case of retailers, is to increase its profits by making and selling more of the material products. This incentive conflicts with several ofthe criteria for eco-efficiency, notably minimization of energy and materials inputs, as well as increased durability. This apparent conflict is greatly reduced by the eco-efficiency (value maximization) perspective. However, there may still be some need for governmental action, perhaps in the tax policy area, to change the “rules of the game”. This topic was considered hrther by the Workshop in connection with the role of government. (See Section 6).

An important issue that was seldom addressed directly by the Workshop, but which arose in various ways at different points and cannot be avoided, is the following set of questions: To what extent can eco-efficiency be expected to yield immediate profits through resource savings or reduced end-of-pipe treatment costs? To what extent must (can) eco-efficiency be justified on the basis of longer term benefits to the firm (e.g. increased customer satisfaction or reduced long-term environmental liability risk to the firm)? And to what extent should eco-efficiency be justified on the basis of indirect benefits, such as reduced environmental damage costs attributable to society as a whole?

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maximization of value added per unit of resource input corresponds very closely to .~ -

This issue is important, partly because there has been a public controversy recently, as regards the extent to which pollution prevention through process change can be expected to be profitablein the short-term sense.5 As evidence, the 3MCompany began its in-house program, called “Pollution Prevention Pays” (PPP), to encourage employees to notice and implement opportunities to reduce energy consumption and pollution and thereby eliminate “end-of-pipe” costs of pollution control. This program has apparently been extremely successful, both from an environmental protection perspec-

Company estimates that it saved $537 million in first year costs alone. Dow’s similar program, “Waste Reduction Always Pays” (WRAP) also claims to have achieved substantial economic savings as well as environmental benefits. Many other comparable examples can becited, including several discussed at the Workshop. In fact, Bjom Stigson (representing WBCSD), in his introductory talk at Antwerp 11, began with the

tive, and also from an economic standpoint. In fact, between 1975 and 1990, the 3M ~

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World Business Council For Sustainable Development 14 Eco-EWoiency Workshop

words “Clean, Green ... and Rich?”. His talk ended with the same three words, lacking only the question mark. The implication was clear that eco-efficiency can, and should, be profitable. -

a recent article in the Harvard Business Review, Noah Walley and Bradley Whitehead,

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On the other hand, there is a lot of skepticism in industry, and among economists. In

ofMcKinsey & Co., deprecate the “win-win’’ rhetoric, as exemplified by the 3M case noted above:

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“Questioning today’s win-win rhetoric is akin to arguing against motherhood and apple pie. After all, the idea that environmental initiatives will systematically increase profitability has tremendous appeal. Unfortunately, this popular idea is also unrealistic. Responding to environmental challenges has always been a costly and complicated problem for managers. In fact, environmental costs at most companies are skyrocketing, with l i l e economic payback in sight.”6

Later, they write

...” To achieve truly sustainable environmental solutions, managers must concentrate on finding smarter and finer trade-offs between business and environmental concerns, acknowledging that, in almost all cases, it is impossible to get something for nothing” [ibid. p. 47; italics added].

The Workshop did not attempt to refbte the Walley-Whitehead critique of the “pollution-prevention’’ mystique directly. But clearly, the same or similar arguments are likely to arise with respect to eco-efficiency. Virtually all of the participants at Antwerp I1 felt that opportunities for increasing value, while simultaneously reducing resource inputs and environmental impact, are virtually limitless.

The argument for “win-win’’ is worth articulating: eco-efficiency is a dynamic strategy that presupposes both existing and likelyfuture environmental risks and regulation, and their costs, as “facts ofbusiness life”. (See Section 5.4. Reconnaissance). From this perspective, reducing the likely costs of doing business in that fbture environment can legitimately be regarded as a real saving, as compared to the future costs of continuing current practices or “business as usual”. By contrast, the more static (and more standard) view, as exemplified by Walley and Bradley, tends to make cost comparisons with respect to a baseline that is not in thefuture but in thepast. The W-B basis of comparison is a hypothetical world without environmental regulation. Obviously, in such a world it is much harder to find “win-win” opportunities. But that is not the world we live in now, or will inhabit in the future.

In this connection, it was noted more than once at the workshop that, whether a given corporate initiative qualifies as “win-win”, from the corporate accounting perspective, usually dependson how the accounting is done. This leads into a discussion of“hidden” costs and benefits, both internal and external to the firm Thus, getting the accounting

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Ec*Efficiency Workshop 1 5 World Business Council For Sustainable Development

2.

2.1.

right is very important for more than one reason. This has strong implications for reforming corporate accounting methodology, a point that arises again later (Section 4). -

Bearing in mind the controversy over “win-win” rhetoric, one final point is worth making: for the present there may be two kndamentally different kinds of eco- efficiency. One kind is indeed immediately profitable to the firm (call it short-term or “win-win’’ eco-efficiency). Evidently such opportunities should be sought vigorously and exploited as soon as possible. The other kind might be termed long-termor “hidden value” eco-efficiency (see next section). The latter may accrue directly to the firm, but only in ways that cannot be quantified in monetary terms. Or they may only have a longer-run societal payoff This, too, can be indirectly beneficial to the firm itself, although not necessarily in ways that can be measured quantitatively. But immediate profitability, based on conventional accounting methodologies, would not necessarily justify the second kind of eco-efficiency. The Workshop did not fully explore the criteria for distinguishing the two. This topic certainly deserves further examination by WBCSD. It should be noted that one ofthe roles of government (section 6 ) is to make “hidden values’’ more explicit and more appropriable by firms.

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CREATINGAND ADDING VALUE

Presentation by Robert Bringer, 3M Co.

Bringer discussed severallinked questions, some ofwhich are discussed further in other places in this report, viz.

What is eco-efficiency?

What is an eco-efficient company?

How can we define the scope of eco-efficiency?

What are the key ingredients to eco-efficiency?

His presentation emphasized one key point particularly cogently: The notion of value- creation is core to eco-efficiency. (It is what distinguishes eco-efficiency fromDFE, for instance). Bringer emphasized that economic value can be hidden as well as obvious; intangible as well as tangible, and that it can materialize in the long term as well as the short term.

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World Business Council For Sustainable Development 16 Em-Etficiency Workshop

In his discussion of “hidden” value, Bringer discussed an example. Much of 3M’s traditional coatings business depends on the use of solvents. But many of the costs of using solvents were not obvious to process designers (or company accountants). The major cost of using non-aqueous solvents can be characterized, in his words, as “the cost of eternal vigilance”. The decision by 3M management to invest heavily in R&D to seek solvent-free coating processes - now far advanced - was an explicit attempt to realize a previously hidden value by eliminating a hidden cost.

Intangible values include worker safety, morale, operating flexibility, and corporate reputation. All of these can have an important influence on productivity, which in turn is reflected on the “bottom line”. As an example of a long term benefit, Bringer cited 3 M s decision to sharply reduce air emissions from all plants, worldwide, before being required to do so by law. (N.B. 3M management presumably carried out a “scenario” exercise, perhaps informally, prior to making this decision). Apart from the hidden values and intangible benefits arising from that policy initiative, he commented: “By doing it earlier than required by law, we were able to do it less expensively, on our own schedule and with the best and most innovative technology”.

In answer to questions raised in subsequent discussion, he pointed out that, had 3M waited for regulation to take effect, it would have had less flexibility for undertaking significant retrofit operations in its plants while carrying on normal production. It would also have had to “queue” for certain critical items of capital equipment, resulting in delays and higher costs. On the other hand, it must be acknowledged that, by moving early, 3M might have committed itself to a slightly less effective emissions control technology (given the rapid rate of technological change in that industry).

Some obvious questions arise, Three, in particular, provoked discussion. The first was: why not waitfor Zegrslation? Bringer responded that there are several reasons. There is arisk oflosing “green” customers to competitors. A bad environmental performance can harm a company’s reputation. But, most important, he emphasized that being proactive - acting in advance of legislation - it is possible to plan better, to gain flexibility in scheduling and choice of technology, and to avoid possible delays and higher costs in buying needed items of specialized equipment at the same time that everybody else wants it. This is a recipe for realizing intangible profits.

Do we need a more sophisticated “Eco-accounting ” system? Bringer answered, in effect, that it isn’t absolutely necessary, given a top management commitment to eco- efficiency. The criteria for eco-efficiency (listed in section 2.2.) are sufficient for guiding day-to-day decisions. Managers at the operational level don’t necessarily need a sophisticated environmental accounting system. “Clear judgment factors should be adequate and preferable”. It is impossible to do a detailed study of every micro- decision. On the other hand, improved accounting methodologies capable of identify-

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EEo-E5cicncy Workshop 1 7 World Business Council For Sustainable Development

inghidden costs (and thereby revealing hidden benefits) to the firmcan helpin decision- making on a strategic level. In some cases, it can be crucial. However, improved accounting at the firm level depends in part on improved methodologies for assessing “external” social and environmental costs. The latter issue is outside the domain of corporate accountants.

“We have achieveda 90% reduction in emissions”. Isn ’t that eco-efficient? Probably it is, but the emphasis is in thewrong place and important opportunities may be missed as a result. Eco-efficiency should be measured in terms of the services provided to society as a whole by the company, vis a vis the burdens imposed on society and the environment by the company, and not in terms of process emissions alone.

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2.2. Elements of Value Created: The following list summarized many of the Bringer’s points:

Obvious value, based on standard accounting procedures

Hidden value, based on reducing costs due to inadequate accounting procedures e.g. high costs of safety procedures, training, cleanup after accidents.

- Intangible value, based on factors difficult to measure in monetary terms e.g. worker safety, morale and productivity, operating flexibility, company reputation.

Short-term vs. long-term value, depending on company policy e.g. being proactive with respect to potential future legislation (as opposed to the more usual reactive policy) and thereby improving reputation, gaining flexibility and saving higher expenses later.

2.3. Summary of Key Points To be successfbl in the long run, firms must create value for their stockholders. To do this they must createvalue fortheir customers. But customerswillincreasingly demand more than a product that simply performs a function. They will demand that the production, use and disposal of the product be as beneficial to customers (and as hannless to the environment) as possible. Thus, because the chain of relationships is really endless, firms must begin to think in terms of creating value for society at large.

Eco-efficiency must become goal for companies, because it explicitly promotes change in the right direction, i.e. towards “sustainable growth”. In other words, it enables a

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World Business Council For Sustainable Development 18 Ibo-Efticimcy Workshop

company’s business to grow in a qualitative way (by adding value) while reducing adverse effects on the earth. Value added can be partly intangible; customers will recognize it. ~

In summary: Environmental protection can no longer be regarded as somebody else’s (i.e. government’s) business. It is an essential aspect of every business. It follows that top management must be prepared to accept lower returns and longerpaybacks (based on conventional accounting methodology) for certain environmental protection investments.

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3. SYNOPSIS OF “BEST PRACTICE” CASES’

3.1. 3.1.1. Synopsis of presentation

Environmental Risk and Banking: Swiss Bank Corp. (Franz Knecht)

Service sector companies, such as Swiss Bank Corporation do not have environmental risks, as such. With no market demand or competitor pressure to respond to, internal support for environmental initiatives is weak. Employees of Swiss Bank Corp. have generated at least 25 “green” product ideas (e.g. green credit cards). But none has been realized so far because customers do not (yet) appreciate or demand them.

The first step, before telling other people what they should do (or buy), however, has to be to look carefully at the companies’ internal operations. For Swiss Bank there was an opportunity to save energy. It was found that the energy consumption of the Zurich offices could be reduced immediately by 15% through improved “housekeeping”. A further 5-1 0% saving was obtained by minimal investment (e.g. stopping leaks). More impressive gains (30-3 5%) were available cost-effectively from improved isolation and other straightforward engineering modifications.

In addition to internal energy savings, the bank initiated aregional scheme for collecting and recycling of“confidential” financial recordsand otherwastepaperfrominstitutions like banks, insurance firms, lawyers in the Bade region. The bank also contributed to closing the material cycle by buying paper with a higher recycled content.

However the major environmental program of the bank has focussed on the introduction of environmental risk as an explicit factor in lending and credit evaluation, since 1992. The purpose was simply to increase the profitability of real estate lending. The approach is to make credit risks more visible to lenders (i.e. bank officers). This was

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Eco-Etfoisnoy Workshop 19 World Business Council For Sustainable Development

realized by creating a new job: environmental credit risk specialist, together with an environmental credit risk committee and certain standard procedures. Of course environmental or ecological risk is only one of several types of risk a bank must take into account. (Othersinclude political risk, transfer risk, settlement risk, sectorialcredit risk, financial credit risk, management credit risk). An evocative quotation was offered: “Risks prowl ceaselessly around every business; usually they hunt in packs; dealing with them piecemeal is ineffective; more often than not they are linked” [Bankers Trust Co, Advertisement].

Some of the tools used by the bank to promote environmental improvement among its customers were:

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Formal commitment to outside programs (e.g. the ICC-charter)

MissionStutement: “We regard sustainabledevelopment as afundamental aspect of sound business management. We expect that our customers comply with all environmental regulations. Environmental risks should be part of the normal checklist of risk assessment and management. We will, in our domestic and international operations, endeavor to apply the same standards of environmental risk assessment” [Statement developed in 1991, signed by 80 banks].

Environmenfal Report by the bank

Formal Risk Assessment: For instance, the bank gives loans for real estate development. It is useful to investigate the risk exposure for each project (e.g. to identify contaminated sites) and thencalculate thetotal for all projects the bank is involved in. This can help to make risks more transparent to the risk manager. The Swiss Bank Corporation for example has a three-step approach to detect possible risks: 1. Information provided by the customer; 2. Screening carried out by bank internal specialists; 3. Independent risk evaluations by external consultants.

Banks consider environmental liabilities of less potential importance for big companies, with large assets. They reason that a large firm will not be hit hard by amilliondollar cleanup at onesite. That makesit especiallyimportantforsmall and medium-sized companies to demonstrate a good risk performance.

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Eco-RutingsmaybeausefUltoolto assessrisksinadvance. SEEF1GURE;ECO- RATING. If, for example, a contaminated site is discovered, the credit-worthi- ness of the customer can be reduced.

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industry related factors

financial rating

management rating

Eco-Rating economy ecology

problematic compounds waste environmental law production technology storage transport

site contamination pollution limits product design markets competition disposal costs energy systems environmental mission environmental politics organisation responsibilites legal compliance environmental reporting

Of course the major “tool” for influencing customers, apart from simple refusal to lend (e.g. on contaminated sites) is risk-adjusted pricing SEE FIGURE: RISK ADJUSTED PRICING. But this situation is expected to change in the near future. Risk premiums, ingeneral, will rise due to all kinds ofrisksincluding environmental risksin therelevant industries, within the next 2 - 5 years. But the risk premium will actually go down if a company can demonstrate agood risk management this includes a good environmental risk management too

The next logical step for banks is what might be called “InvestmentlEquity” banking. Companies are likely to be rated, both by themselves (environmental reporting) and by outside groups, based on benchmarks developed from governmental agencies such as the U.S. Securities and Exchange Commission (SEC) with EPA support, or by specialized rating agencies, or even by non-governmental organizations (known as NGO’s), such as the Environmental Defense Fund, the Center for Economic Priorities, or Greenpeace. The key point is that environmental liability is increasingly important and increasingly visible.

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Risk Adjusted Pricing high risk ! c 0 -5

c - - 4 - risk premium I

+

c - - I I

I

c 0 - c c

c - 0 - no risk !

L O O c

bank’s fixed cost

cost of carrying capital = liquidity, regulatory reserves, dividends

refinancing = cost of money to the bank (savings, CD, financial markets)

credit risk components

Ideally, companies that are environmentally responsible should be rewarded by financialmarkets; and conversely. In practice, the emphasisis put on the environmental risks that are recognized and negatively valued in the market place. But, with the growth of “green” investment f k d s (and other evidence of stockholder concem) it would seem that there is at least a gradual trend in valuing opportunities as well.

3.1.2. Relevance to eco-eficiency

Reducing environmental risk -the Bank’s objective - is likely to involve several steps on the part ofthe client firm. The first is to achieve adequate safety and emissions control, and especially, to dispose of toxic or hazardous wastes in a safe manner. This is activity in the “end of pipe” mode. The second stage involves pollution prevention and process change to reduce emissions or wastes. Both of these steps are precondi- tions and sound criterias for eco-efficiency.

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However, by defining eco-efficiency - roughly (see section 2.2.) - as maximizing value per unit of resource input and environmental impact, it is clear that environmental risk to the firm, and thus to its bank, declines in inverse proportion to eco-efficiency. In other words, the more eco-efficient the firm, the lower its risk factor is likely to be.

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Since banks cannot carry out detailed studies of every aspect of a clients business, a general indicator of eco-efficiency will also be a good (inverse) indicator of risk. In time, this will also bring financial benefits to the firm in terms of lower interest rates for loans and premium market prices for securities of the firm.

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Green Cotton and EMAS at Novotex (Leif Norgaard)

Novotex is a medium-sized Danish company producing “green” T-shirts. The “green” characterization is due to the fact that no formaldehyde - a hazardous chemical -is used in the production process. In choosing this unorthodox technology over more conventional ones, Novotex made a deliberate attempt to add (intangible) value to its product. It was hoped that customers would appreciate this and respond favorably. It was also an attempt to preempt potential environmental regulation. (An example ofthe use of scenario planning).

In support of its strategy, Novotex has developed an explicit environmental valuation system to calculate the “environmental value” of its products on a scale from 0 to 100, taking into account the complete product life cycle fromraw material to final disposal. As Norgaard noted, “a product with an environmental value of zero might be a nuclear bomb. A score of 100 percent is not possible, as any material product poses at least some environmental risk.

The company carries out formal LCA’s onits products and builds detailed input-output (1-0) tables for each stage of the process. SEE FIGURE; MASTER FLOW SHEET. Among the more interesting results of this kind of analysis is the fact that a standard T-shirt weighing 192 grams requires 1000 g (1 kg) of raw cotton. Of the original raw material (raw cotton) 64.5% is “lost” in ginning.’ A further 24.8% of the remainder is lost in spinning, 4% in knitting, 10.6% in dyeing and finishing, and 14.75% in cutting. These, and similar, numbers enable management to concentrate on the most promising opportunities for reducing wastes.

Novotex was the first Danish company to be audited voluntarily according to the principles being incorporated in the new Eco-Management and Audit System (EMAS) of the European Union. (EMAS is developing a certification scheme, but it is not yet in force). This example of pro-activity helped the company in two ways:

(i). The implementation of EMAS at Novotex was funded and assisted by the Danish government and many stakeholders actively participated in the EMAS process.

EOc-Eliioioncy Workshop 23 World Business Council For Sustainable Development

Master Flow

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(ii). Due to its successfuluse ofLCAs and EMAS, Novotexreceived a number of environmental awards. These contribute to a “green” marketing image. Furthermore, the skills acquired by the internal implementation of the EMAS is used to consult other organizations and companies like the EC-workgroup on Eco-Labeling of British Telecom.

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.~ The next step for Novotex is to work with suppliers to help them implement their own environmental management and assessment systems (EMAS’S), partly to help them refine the life cycle assessment programs (LCA’s) already in place and partly to enhance communication throughout the supply chain

3.2.2. Relevance to eco-efficiency

Novotexsatisfiesmost ofthecriteriaforaneco-efficient firm. Whileit cannot addmuch value in the short run to its basic product (T-shirts), except insofar as avoiding the use of formaldehyde might add some intangible value, it is going to some lengths to minimize the use of materials (and energy) throughout its supply chain. In so doing it has also adopted a life-cycle perspective, which is one of the other important criteria. Also, its proactive stance onEMAS hasgivenit bothvisibility inits own field and some consulting income which might conceivably grow into a new line of business.


The Blue House Project and Eco-Fitness Analysis at Dow (Hans Staeuber)

Environmental protection is now a core value within Dow. Anumber of different tools (e.g. Core Issue Analyszs) are available to the different businesses to evaluate their environmental performance. The product stewardship reviews “X-ray” the environmental impact of business in the whole Life Cycle. More specifically, Eco-Fzfness Analysis (EFA) has been developed to assess eco-efficiency and to assist the businesses in developing and marketing environmental superior products while increasing their value. EFA is a conceptual tool to evaluate opportunities and to encourage innovation. It is an enhancement of Value Marketing, as can be seen in Figure 4.3. I. Furthermore environmental performance is reflected in the merit ratings and pay of all managers.

EFA is a scoping tool for Life-Cycle Assessment (LCA). It facilitates qualitative comparisons of different environmental alternatives. The e c o - j h w index is only a relative measure and does not imply absolute results. The specific hnction performed

of each system or product by examining five generic environmental parameters: (1) energy intensity, (2) material intensity, (3) resource conservation, (4) eco-toxicity and (5) durability and functionality. Each parameter can reach a score from 0 (worst) to 5 (ideal). These scores can be added up, so an overall ideal score is 25. To visualize the

by a product or service is used as the basis ofEFA. It produces an eco-fitness “profile” ~

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Eco-Eff iciency Analysis in DOW

Eco-Fitness Value Recovely Value Marketinq Index

E 1” Eco-Fitness

Index

-Material Intensity - Energy Intensity - Durability and Functionality - (Eco) toxicity ~ Resource Consewation

security Index

3 Value Recovering Measurements 4 Security Measurements

Figure 4.3. I : Eco-efficiency analysis (Dow Europe)

results of the eco-fitness analysis Dow uses a “spiderweb” (See Figure 4.3.3.).

A preliminary EFA has been carried out for the “The Blue House” concept. The goal is to provide affordable and comfortable residential space while minimizing the environmental burden over the whole life cycle including the material to build, energy to build and to heat, infrastructure and the demolition and recycling, at a cost no higher than competing conventional designs. A preliminary analyses contrasts the “Blue House” against a standard masomy house and a standard timber frame house (Figure 4.3.2). This data exemplifies the method; it should not necessarily be regarded as final or authoritative.

“The Blue House” uses a modular construction system that permits fast, easy and precise construction, withhigh design flexibility. The construction panels are very light, yet rigid enough to require no interior support hence no beams in the attic space. All

House” uses Styrofoam@ as a multi-functional insulation material. Styrofoam@ has excellent insulation and mechanical properties. It is complete water impermeable and it is easily machinable. It is therefore used to produce high performance structural panels, in combination with wood. At the end of its life-cycle these panels are easy to recycle, either in lower value structural uses or in energy-recovery incinerators.

interior space is hnctional, thus adding value to the standard product. “The Blue ~

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Summary of Results: (Preliminary) 110 m House Criteria "Blue H o u d Timbmr Frame Masonry

DurabilitylFunstionalily same same (Eco) toxicity samm samm

Non renewablm matariala ' 37 mt 181 mt

Material to build (Le. built in) 24 mt 95 mt Total material flow (to build

the house) 95 mt 232 mt

Energy to build 326 GJ 462 GJ Energy to heat (for 100 years) 1100 GJ 1500 GJ

same same

288 mt

162 mt

314 mt

325 GJ 4000 GJ

Total Energy (to build and to heat for 100 y) "w?!z!a -2wQEd -4mQGd

-Focus: Energy Management ! ' I all mleriah Which had Io b. uIlrac1.d lmm lh. mdh, such a. linwslone,

meld, oil. Scaroily of malerial not rdl.ct.d.

Figure 4.3.2: Preliminary results of an eco-fitness comparison of the "Blue House", a masonry house and a timber frame house @ow Europe)

The eco-fitness analysis (EFA) summary shows that the main ecological advantages of the "Blue House" lie inthe low material and energy intensity. Due to a special static soil insulation system the foundation and excavation of the "Blue House" can be reduced from a normal 125 cm (without a cellar) to only 35 cm, thus sharply reducing material

The Eco-Efficiency Index: To Build and then Heat 01 10 m Houses for 100 Years

The "Blue House" Timber Frame Masonry

Malitlll Inlonslly 95 mt 232 mt 514 mt Non r r n m b l i mlerlall 37 mt 181 m 288 mt Emrm Inlm*lly 14w OJ 2000 OJ a 0 0 OJ

Figure 4.3.3: The Eco-Fiiness Indices to buildandheat the "Blue House ' I , amasonry house and a timber frame house (Vow Europe)

Ero-Efficimcy WaLsh~p 27 World Business Council For Sustainable Development

intensity, The “Blue House” therefore scores a relatively high rating in terms of this measure. The house is thermally very efficient inuse, thus reducing the energy intensity of the house over its lifetime, as compared to the altematives analyzed.

Figure 4.3.3 gives an overview of the respective eco-fitness indices of the “Blue House”, a timber-frame house and a masonry house. The dotted ‘spiderweb’ represents the relative environmental performance. The “ideal profile”, scoring the maximum in all five categories, would be a perfect pentagon.

As the eco-fitness parameters “durability/hnctionality” and “toxicity” did not vary between the designs they were given the same ranking. Eco-toxicology scores a ‘4’ as the materials used do not a significant health or environmental risk. Regarding durability the “ideal score” was taken to be 100 years, which is reached by all three alternatives, for a score of ‘5’. As designed, the “Blue House” uses less non-renewable resources. It scores ‘4’ as compared to ‘3’ for the timber frame house and the masonry house.

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The value of specific management tools like EFA can only be judged in context. As applied tothe “Blue House” the analysis must obviously be regarded as preliminary and indicative, rather than final or authoritative. In particular, the LCAwork on alternative designs has not been very comprehensive up to now. Ideally one might wish that the project had begun as an attempt to find the optimum eco-efficient house design - taking into account the entire life cycle - in which case a wider range of design concepts and materials might have been considered. (This is now being done).

On the other hand, in the rea! world, it can be argued that the project offers the promise ofaddingvery significantlyto thevalue ofanexisting Dowproduct, namely polystyrene foam. From the consumer point of view, the Blue House would be equivalent in purchase price and superior from the standpoint of operating cost. From this perspective, the Blue House concept goes along way toward converting a commodity chemical (styrene) into a consumer service (housing). From this perspective, the project is potentially a good example of eco-efficiency in practice. Of course, it must be acknowledged that the concept is still in the very early stages of development and muchremains to be learned from hrther analysis and experience with construction and maintenance.

3.4. 3.4.1. The starting point

Managing the Supply Chain at B&Q (Alan Knight)

When the managing director of B&Q, the biggest Do-It-Yourself (DIY) retailer in Europe, was asked for the first time by an environmentalist group: “How much tropical

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World Business Council For Sustainable Development 28 Eoo-E~oimcy Workshop

timber do you sell?” he could not answer the question. He felt, however, that the answer “I don’t know” meant “I don’t care”, since what a firm doesn’t think worth knowing about its business must be something it doesn’t care about. Conversely, to care implies a need to know.

In response to this episode, the position of Environmental Coordinator was created. When B&Q started to research the origins of its timber products, it turned out that a lot of suppliers also didn’t know where their supplies originated, or how the forests were managed. After analyzing the situation further, it was found that a lot of B&Q timber actually came from mismanaged forests. Dr Knight remarked: “It didn’t matter that B&Q was not directly responsible for the logging oftropical timber. We were held responsible anyway.” Inasmuch as many suppliers do not consider their products to be relevant to their environmental policy (if any), B&Q started to do its own research. As B&Q relies on over 500 suppliers in 60 countries this entailed a major effort.

It is now B&Q policy to know all environmental problems associated with its products. Therefore all suppliers have to document their own sources and environmental problems. B&Q now grades all its suppliers (on a score from A to E) and encourages themto dolikewisewiththeir ownsuppliers,downthechain. AsaresultmorethanBO% ofthe suppliers today have an environmental policy in effect. In answer to a question as to whether small suppliers have the means to answer the questions posed to them, Dr. Knight replied: “Many suppliers underestimate their knowledge. They don’t ask the right questions. If they have problems they can still go to the chamber of commerce or to external consultants. The main point though is that they must believe in the B&Q policy and try in good faith to implement it.”

Today the newly combined Quality and Environmental Department must approve any new product item and can thereby directly influence the daily business of the firm. As it is B&Q policy “to meet and exceed customers expectations”, the company started a number of environmental initiatives.

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3.4.2. Example: timber

As timber is one ofB&Q’s main products it was decided that the company must know exactly where its timber came from, at least, by the end of 1993. It began to switch completely to timber from well-managed sources. The switch will be complete by the end of 1995. Also, B&Q supports a number of model forestry projects. At first it conducted its own trial certifications. It now assists in setting up independent certification schemes and establishing the internal security of suppliers. The policy applies to both temperate and tropical forests. B&Q has used its large buying power to induce behavioral change on the part ofits suppliers. About 10% ofB&Q’s sources have changed their own suppliers in order to keep B&Q’s business.

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Eoc-Efficiency Workshop 29 World Business Council For Sustainable Development

3.4.3. Example: solvent-based paints

“People doing DIY work at home are asked to minimize use of solvent based paints, varnishes and glues but suppliers do not address it” (Guurdiun, 1993). Based on this

of 9% of all paint sold is not used by the customer and ends up as waste. However, such hazardouswaste cannot beeasily disposed of Onconcluding that they might be obliged by hture regulation to take back old paint products and packaging for disposal, B&Q decided to act first, in advance of any legislation. In this case the effort led eventually to the formation of an independent organization, the Household Hazardous Waste Forum, which addresses this problem.

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article, and other indications, B&Q did some research. Results showedthat anaverage ~~

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3.4.4. Example: brass door handles

Although there was no demand for “green” door handles, this product proved on investigation to be one of the most environmental damaging ones sold by B&Q. Brass door handles were imported from India, and it turned out that the employees ofthe brass casting works had to fhction under very hazardous conditions, often without proper protection. The plant was also a significant polluter of the air, by smoke and metallic particulates. Accordingly, B&Q decided to act. The firm did not attempt to “armtwist” its supplier to improve its performance. Instead, it donated E 50,000 in the form of targeted consulting services. This help enabled the supplier to find the means to obtain new facilities. Safety consultants helped to upgrade the production system, leading to a much higher safety and environmental standard. The unexpected bonus was a E 500,000 annual saving (in lower costs) due to the more efficient new facility and better management.


B&Q is a retailer, selling products. It is not obvious that a retailer can do much to increase the intrinsic value of products it sells, as such. It can, of course, select the products it sells, bearing in mind the criteria of eco-efficiency. However, this possibility was not discussed, except in the fairly narrow context of influencing suppliers to select more environmentally acceptable production methods and sources. Thus, to some customers, at least, the knowledge that timber comes from a properly managed forest does add some intangible value. The same sort of argument might apply to the brass door handles.

B&Q has undoubtedly adopted a “life cycle” perspective. It has also demonstrated

problems on the part of their customers (in the case of paint) exemplifies both aspects of eco-efficiency .

some of the benefits of a proactive strategy. Concern for hazardous waste disposal ~

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3.5. Biodegradable Packaging: Biofoam Corporation (Edward Alfke) 3.5.1. Synopsis of presentation

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Unlike polystyrene foam, however, Alfke asserts that Biofoam is 100% biodegradable. As apackagingmaterialit has other advantages overpolystyrenefoampellets. Itisusable for packing heavier objects, for instance. Ahrther advantage, according to &e, is that shipping and transport is minimized because “we produce in the customer’s facility.” Currently Biofoam customers for packaging materials include companies like Motorola, Micro-Age Computers and a manufacturer of children’s products.

As regards other possible uses, Alke remarked that Biofoam may be used as a “no- calorie” diet food, since it accepts flavors very well. It can also be used as a synthetic insulation (againin competitionwith polystyrene foam, but alsowith fiberglass, foamed slag and mineral wool). He stated that it’s ability to “encapsulate” fertilizersg and pesticides in a biodegradable medium makes it potentially useful in agriculture, where it would reduce the leaching of chemical fertilizers into the ground a very important application, if confirmed by field tests. Other features are potentially of interest. For instance, Biofoam sucksup oil, yet is relatively unintlammable. Conceivably it could be used to clean up oil spills on marshy land (as in Siberia), and perhaps even in water. Rodentsarenot attractedtoBiofoam, accordingto Alfke, asthenutrientvaluehasbeen removed from the product. Questioned on this point, he said that the nutrient value is recovered by the process, but gave no further details.

The economics appear to be favorable. Biofoam can already today be sold at the price of polystyrene foam, with the option of hrther price decreases in the future. Finally, Alfke states that Biofoam has a positive welfare effect, inasmuch as it offers work for fanners as well as clean industly jobs.

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Biofoam appears to be an excellent example of a “green” product, at least with respect to the downstream (disposal) aspect ofthelife cycle, as comparedwith other competing packaging materials that are likely to end up in landfills. No comprehensive life cycle analysis has been done, however, so nothing can be said, at present, about the relative environmental aspects of Biofoam vs. polystyrene foam at the “upstream” (raw materials and manufacturing) part of the life cycle.

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As regards the “add value” criterion for eco-efficiency, it can be argued that the new product adds economic value to the raw material - grain. But, of course, polystyrene foam also adds value to its raw material, namely natural gas liquids or petroleum. To first order, the “value-added” comparison between the two competing products can be settled by simple economics. Let the market decide! But, it must be recognized that there are difficult second-order issues that should be dealt with in a more comprehensive life cycle analysis (LCA). Among them is the fact that grain production is generally subsidized. Also, grain production in North America is highly energy-intensive, meaning that a unit of grain “consumes” a significant quantity of energy, derived from petroleum, both in fuel and in nitrogenous fertilizer. That the product is based on grain, arenewable resource, rather thannon-renewable petroleum is potentially an important aspect of the question. Further, the use of grain for packaging might be seen to compete with other socially important uses ofgrain (e.g. for food) in a world with a growing population. (Similar points need to be explored with respect to other potential uses of Biofoam).

Having said this, the very fact that Biofoam is a completely new and innovative product, based on a renewable resource at a break-even price with a number of interesting uses and no disposability problem or other environmentally damaging attributes (at least to first order) commends it as a potentially significant contribution to eco-efficiency at the societal level. Since the process is new and proprietary, nothing can be said about the eco-efficiency of the firm itself at this stage.

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Integrated Materials Management at Cookson PLC (Lyn Holt)

The Cookson Group PLC is a supplier of engineered materials to industrial customers, originally established in 1704, in Newcastle, UK. Its has a current turnover of $ 2,250 million, of which 70% is exported. Its manufacturing divisions include electronic materials, refractories, ceramics, plastics and engineered products.

One of Cookson’s central strategies is to retain the “ownership” of its product throughout its life cycle. This strategy has proven to be very profitable in a number of instances, as well as providing environmental benefits. Cookson is apparently a clear case of a “win-win” outcome.

3.6.2. Example: “No-Clean” solder paste and container recovery - Alpha-Fry, a Cookson subsidiary, is the major manufacturer of solder paste in the westem world. Soldering provides the main assembly route for electronics. (Cleaning solder residues used to be one of the main uses for CFCs.) It has been found that various water-soluble substances, including soap, can be used as substitutes for CFC’s. However, a significant water effluent problem arose for many solder-users as a consequence of the CFC-substitution. Alpha-Fry therefore undertook some R&D

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World Business Council For Sustainable Development 32 bo-EEiicimoy Workshop

to develop a new kind of soldering paste with the property that the binder evaporates at soldering temperatures, yet it can be condensed and recycled. This enables the customer to eliminate the cleaning line formerly needed. It also reduces the energy and material intensity of the soldering process.

The elimination ofthecleaninglineis aninteresting example 0fa"hidden" cost resulting in areal saving (forthe customer). Bythe same token, Alpha-fry found away ofadding significant value to its own product. This enables the firm to charge a higher price than otherwise and thus increase profitability.

Alpha-Fry had previously implemented a take-back system for the glass containers in which its solder paste was shipped. To reduce the cleaning costs associated with the returned glass containers for solder paste the company changed its packaging from glass to pure tin jars. On being returned, these tin containers are put directly into the melting pot for making more solder paste. As a result the contamination of effluent water by cleaning the glass jars can also be completely avoided. Again, the innovation reduced environmental loading and simultaneously increased profits.

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3.6.3. Example: porcelain glaze manufacture

Cookson has a subsidiary that produces and sells glazes for porcelain. The process includes a stage in which opacified glass frits are ground by ball-milling in water. However, about 10% of the ground glass was normally retained in the water, thus necessitating large settling tanks and land fill disposal of the sludge. (Quantities involved are in the thousands of tonnedy).

To eliminate this problem, Cookson invested in R&D to develop an unique new flocculent which causes the suspended glass particles to clump together. As a result, the ground glass product can now be retrieved more effectively from the rinse water and can be used in the glaze. This increases output by 10% and eliminates a waste. Moreover, the resulting glaze is actually superior to the previous one. Overall, the discovery and use ofthe new flocculent saves the company storage tanks, raw material and energy, thus reducing material and energy intensity. Theinnovation has also proven to be very profitable.

3.6.4. Example: post-consumer plastic recycling

A major difficulty in Plastics Recycling arises from the fact that reclaimed materials from the consumer waste stream are mixed both in types as well as color. Most plastics recycling companys can easily separate polyethylene from the other types ofplastics in curbside recycling programs. This material (Polyethyene) constitutes approximately 80% of this source. It is cleaned, granulated and repelletized for use in other products at a lower cost than the prime polyethylene.

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Loudon Plastics, a U.S. based Cookson Company, is able to process the recycled polyethylene into Structural Foam Molded Plastic Pallets. These pallets are light

Ecc-Efficiency Workshop 33 World Business Council For Sustainable Development

weight, strong and durable, Plastic pallets are used in many closed loop returnable systems in many industries such as automotive, grocery and paper making, etc.

Theuse ofpost consumer plasticsin pallets diverts a significant volume ofmaterial from landfills and provides auseful product for industry. At the end of aplastic pallets useful life it can also be recycled back into more plastic pallets.

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3.6.5. Example: refractories renting

Refractories used in steel-making need to be replaced frequently. There are thousands of tonnes of refractories used each year. In Cookson’s case, the refractory business rents the refractory furnace liners to the steel company. When the time for replacement comes, the used liners are retrieved. Since Cookson has total control over the cycle and the composition is known exactly, it is possible to use the recovered material in non- critical parts or well controlled mixes, thus saving input materials.

The net effect is that the customer has no refractory disposal and stocking problem and the refractory manufacturer conserves inputs. The overall result is reduced material and energy intensity both for Cookson and for its customer. The take-back feature adds value to the refractory.


The various examples of integrated materials management at Cookson Group are excellent examples of eco-efficiency. All of the criteria (listed in section 2.2) are satisfied, including life-cycle approach, reduced energy and materials intensity, reduced toxic effluents, and most important, increased value to the customer. It is the latter feature of these examples which principally accounts for the fact that all of the examples cited, at least, turned out to be highly profitable (in the short term), as well as environmentally beneficial. Thus, Cookson also exemplifies the possibility of “win- win” outcome


Product Responsibility at 3M (Robert Bringer)

Four generalizable rules can be distilled from experience at 3M Co. according to Bringer:

- 1. Encourage product development on the basis of the environmental policy and LCA methodology.

2. Get marketing involved in early stages.

3. Environmental marketing claims must be valid. 3M has a policy on marketing

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claims since 1990 to avoid marketing overstretching their statements.

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4. Market your eco-efficient products strongly. Actually a number of customers look for eco-efficient products. (For example the Environmental Safety & Energy Performance Goals for Federal Government Agencies in the U.S. oblige

products are “environmentally preferable product” by offering respective product lists. ~

__ many government agencies to do so). A company should tell them which of its -

A number of examples of recent eco-efficient 3M products are shown below. SEE EXAMPLES OF ECO EFFICIENT 3M PRODUCTS.

EXAMPLES OF EGO EFFICIENT 3M PRODUCTS

I

II

111

IV

V

VI

Use of Recyled Materials Scotch-BriteTM Never Rust Wool Soap Pads - never scratch - germicidal

- dispensers, organizers Post-itTM Recycled Paper Notes

ScotchmarkTM Recycled Carbonless Paper

Less Material to do the same Job ScotchTM Strechable Tape Post-itTM Fax Trasnmittal Memos

Customer Safety

Miscellaneous Non-flammable Adhesives

Prevents Pollution in Use Safest StripperTM Paint and Varnish Remover Linerless Label Stock Roll Repulpable Tapes Color-KeyTM and MatchprinP Proofing Systems Numerous Products where CFC’s, CI-Solvents, VOC’s were Eliminated

Consenre Energy Scotchtint Sun Control Window Film - Ultra Safety and Security Version SilverluxTM Fluorescent Reflector Film

Products Made With Eco-Efficient Manufacturing Processess ScotchTM, MagicTM and Transparent Tapes - 97% Solventless Process - Use of Rewable Resources - Recycled Waste

Safest Stripperm Paint and Varnish Remover

Eoo-Efioisnay Workshop 35 World Business Council For Sustainable Development

Bringer summarized “lessons learned” by making a few simple points.

First of all, we learned to talk about products and not only processes.

We learned to focus on the whole life-cycle, not just our own part of it. We tried to use less resources overall, not only per unit product of our own plants!

Eco-efficiency is more than just products and processes, however. It addresses the question of ecological impact unit of service per provided to the final consumer.

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Eventuallywemust think about optimizing the whole systema company operates in, This means concentrating on services rather than products. This may involve renting products, rather than selling them (like Cookson). For industrial goods this is easier than for consumer goods, For consumer goods this is a major revolution. It will require cultural changes.

Eco-efficiency is an attitude; We have to address a fundamental question with no easy answers: how to get people to learn how to think harder about these things. One step must be to involve educational institutions and renowned universities. But more is needed too.

3.8. Eco-efficient Design at Wuppertal Institut (E Schmidt-Bleek) (The following information was made available to Workshop participants in pamphlet form, but not presented verbally. It is included here because of its obvious relevance.)

3.8.1. Background

The eco-efficient design program at Wuppertal Institute, in collaboration with the design department at Wuppertal University, is part of a dematerialization strategy ranging across the whole range of products, infrastructures and services. The objective is to reduce the material flow in our society (thus decreasing the materials intensity per unit service, or M I P S ) . Two examples have beenprovided. They are described below:

3.8.2. The carpetsweeper

Invented by Agim Meta, this cleaning device requires no electricity to operate. It uses

when the sweeper is not moving. It is claimed to fhction “as well as a vacuum cleaner inmost situations.” It is constructed ofreplaceable parts, said to be easily recycled, with an “estimated lifetime” in use of 40 years. No information is available on production cost, nor is there any experience of use to enable the claims to be verified.

a flywheel to store mechanical energy, thus allowing the brushes to continue rotating -

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3.8.3. The cooling system (FRIA)

Invented by Ursula Tischner, this unit is designed as an integral part of the kitchen wall, with openings to the exterior allowing cold outside air into the unit in winter. It thus

tion unit is modular and separate from the cold space. Designed to last as long as the house, according to the Institute it requires only one seventh (estimated) as much

tion is available on costs, nor is there any experience base to verify the performance claims.

__ reduces estimated energy consumption in operation by a factor of two. The refiigera-

material as the equivalent service provided by conventional units. Again, no informa-

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The examples illustrate potential product innovations, with a clear and explicit attempt to minimize life cycle materials and energy consumption. If performance claims are substantiated, and if such products were actually marketed and used widely, there would be significant eco-efficiency gains at the societal level. It is less clear that these products would be superior in value terms from the user’s perspective, or from a hypothetical producer’s perspective. Thus the “add value” aspect of eco-efficiency is only evident at the macro-level. Nothing can be said at present with regard to theimpact on corporate behavior, for instance. The latter is a key aspect of eco-efficiency section 2.3.

4. GUIDELINES FOR BUSINESS

4.1. Elements of Eco-Efficiency Guidelines The starting point for developing guidelines must be an understanding of the usual practice and decision process in business. The guidelines must be explicitly linked to these. There are three broad categories of elements to be considered: (1) supporting elements, (2) “science” elements and (3) “system” elements. Supporting elements include:

Culture (in the company, the government, society at large).

Financial elements (financial assets, credit, cash flow) -

Incentives (financial - including tax - incentives, both to the firm and to

personal incentives of other kinds) individuals; regulatory incentives, both at the firm level and the personal level; -

Em-Efficiency Workshop 37 World Business Council For Sustainable Development

“Science” elements include the following:

Measurement technology (instruments, techniques)

Benchmarking systems for monitoring progress

Tools for analysis, including computers, data bases, models, accounting methodologies (e.g. mass balance), contingent valuation methodologies (e.g. willingness-to-pay, willingness-to-accept, etc.)

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“System” elements include all life-cycle phases, both “upstream” and “downstream”, and all environmental interfaces.

Having reviewed the definition and criteria for eco-efficiency as a new management paradigm it is useful to proceed in the order of the steps in the business process. A generic list would include the following steps:

Company culture: awareness raisingkonsensus building within management, at all echelons

- Goal-setting: creating formal mission statements.

Reconnaissance: identifying key issues (threats and opportunities) for the business.

Policy-making: Define, assess and select among strategic options

* Methodology: Develop needed management tools, models, procedures and protocols.

R&D: Research and development leading to product improvement or new products/services.

Zmplementingpolicy: Allocate responsibility and resources to do the job (staff, budget, etc.)

Design: Design products or services to add value

Production: Manufacture the product (or the production facility)/ produce the service

Marketing: Market the product/service

After-market: Service and maintenance of the product in use

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Close the loop: Take-back and re-manufacture, recycle or disposal of the product.

__ We now consider these topics in order. (This does not reflect the actual order of the discussions in the Workshop).

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4.2. Company Culture It is difficult to define culture, as it applies to a company. However most people have some intuitive understanding of what it means. The culture of a company is largely formed by top management, over a long period of time. The top management must support eco-efficiency, on a continuing basis. A company culture that would facilitate the move toward increased eco-efficiency should have most of the following charac- teristics:

An understanding at all levels that an eco-efficient company must take full responsibility for all of its products, not only including their use by the customer. Responsibility has several dimensions. It does not simply mean that a company stands behind its product and provides a warranty against failure.

As an example of responsibility in a broader sense, one participant in the Workshop seminar made the following argument: “Companies must take more responsibility for the social and environmental implications oftheir products. For example, car producers have to accept their responsibility for solving the broader problem of mobility (taking into account problems of congestion, pollution, and noise) in towns. It is their current products that are the major cause of the externalities, and they have the resources and technology to make major contributions to solving these problems. Companies should rethink their function as suppliers in our society. Why shouldn’t Gigantic Motors Ltd. offer public transport or car-sharing services as well as just selling cars?” This is not a simplematter, to be sure. Many special interestswould resist change, for fear oflosing some protected status. Furthermore, this “solution” might mean a transport monopoly for Gigantic Motors. It is not necessarily the right solution. But new thinking is needed.

Other aspects of company culture conducive to eco-efficiency include:

An understanding that the whole life cycle of the product must be considered in all decisions, at all levels.

An understanding that all employees must share in this responsibility, beginning at the top. A pro-active “can do” mentality in the executive suite is necessary.

Eagerness to “spread the w o r d about eco-efficiency, both to suppliers and customers, is important.

F.eCo-EEcimcy Workhop 39 World Business Council For Sustainable Development

and finally,

Transparency and openness are an important aspect of a company culture conducive to eco-efficiency. This is because some of the most important ideas that will yield both added value and reduced resource input and environmental impact will come from employees and the public. Management has to be listening By the same token, people outside the executive suite need to know more about what is going on there.

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4.3. Goal-Setting Virtually every company has a formal “mission statement” embodying its shared concept of what the business is about. Beyond this, management usually articulates other goals, in simple terms, such as target rates of growth and target rates of return on capital. Some firms include targetsrelated to innovation. For example, 3 M s explicit goal statement includes a qualitative target of being “the most innovative enterprise” and a quantitative one: that 30% of profits should be from “new” products (less than 5 years old). Another 3Mgoal is to be a preferred supplier in all the firm’s markets. Still another is to be a company that employees take pride in being associated with.

As an example of a short but quite comprehensive mission statement, the following is from AT&T

“AT&T’svision isto be recognized bycustomers, employees, shareholdersand communities worldwide as a responsible company which fully integrates life cycle environmental consequences into each of our business directions and activities” lo

All of these are consistent with eco-efficiency. But it is also important that such goal- statements include more direct reference to the key elements of eco-efficiency noted in section 2.2. namely (1) a life-cycle philosophy, (2) a commitment to adding value to products on a continuing basis, while simultaneously reducing material and energy consumption, and (3) a commitment to protecting the environment and to sustainable long-term economic growth not only for the firm, but for the society as a whole.

Other possible goal-statements that would be conducive to eco-efficiency might include reference to shifting (over time) away from producing material goods to selling services. Along these lines, Cookson’s stated goal of “Owning and Renting” its materials is another example. -

4.4. Reconnaissance __

Reconnaissance is an essential prerequisite for long-term planning. It is essential for top managers to look ahead, to identify change elements - risks and opportunities -that

World Business Council For Sustainable Development 40 Eca-ERicienoy Workshop

may affect the business. The eco-efficiency paradigm depends in a fhndamental way on recognition that the earth is finite, that its capacity for recovery from damage due to human activity is limited, and that public and political pressures to modify business practices accordingly will inevitably increase. These constraints (including government regulation) are and will be a “fact of business life”. However, the specific impacts on each industry and firm must be assessed individually. Moreover, change also creates

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business opportunities. It is important to recognize them and respond in timely fashion. _- (The following is largely based on a presentation by Main Wouters, Global Business Network and Whole Systems, Inc.) There are many possible ways to look at present and future reality. Scenario planning is about anticipating change and, to some extent, affecting the processes of change. (Scenarios should not be considered as forecasts. They are tools to help planners and decision-makers understand the uncertainties related to external forces influencing the business environment).

A good scenario must be plausible, logical and consequential. Plausible means it has to be recognizable in the present and not easily dismissed. Logical means it should be based on analysis and be internally consistent. Consequential means relevant for decisions, challenging “mental mind maps” and stimulating ideas. Scenarios should provide (i) a common language for communication; (ii) a shared image ofthe future and (iii) perspectives on key uncertainties and strategic issues.

Thequestionisnotwhatexactlywillhappeninthefuture, but “whatwewilldoifcertain things happen?’ With the help of scenario analysis managers are better equipped to achieve a robust (“least regrets”) position with respect to all possible risks and corresponding opportunities. Risk scenarios aren’t for predicting rain but for building “arks”.

4.5. Policy-Making The translation of a generalized goal into a specific business activity is “where the wheel meets the road. To reach a goal related to innovation, it is necessary to do R&D, and then to take products from the laboratory into the market. To meet a goal related to return on capital, it is necessary to make raise money, make investments in specific projects, and keep accounts. For most firms, the choice of product line and production technologywas made in the past (gradually, not all at once) and current policy choices relate mainly to incremental changes to existing products or technologies. Occasion- ally, a new firm is created to produce and sell a completely new product (e.g. Biofoam). In such cases, a much wider range of considerations arises.

It is important that the criteria for eco-efficiency be applied explicitly at this stage, with respect to every such business decision, but especially those decisions relating to product design changes and production. While it is not appropriate or possible to carry

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Eco-Efficiency Workshop 4 1 World Business Council For Sustainable Development

_. . . . - .. .

out a complete life-cycle analysis (LCA) for every such decision, it is very important to consider the life cycle implications ofproposed changes, at least qualitatively. When a completely new product or manufacturing technology is under consideration, a more thorough analysis is also called for. This should not only include the usual engineering analysis, market study, financial analysis, etc., but also an LCA of the innovation as compared to its chief competitors.

It is important, in this connection, to understand what material intensity means. It must be clear, for instance, that material intensity is not equal to energy intensity. Beside energy and resource intensity there are other things that must be considered in an LCA to be consistent with eco-efficiency. (For example, it may be important to consider the use of land, as in the case of Biofoam, for instance).

In some cases, it is not necessary to go into tedious comparative detail, however. This may be the case when firms uncovered significant opportunities to change the nature of their business, in the direction of shifting away from selling a product outright to renting the product and selling a service instead. Cookson’s goal of“0wnership” of its materials has been translated into specific policies in several instances that were cited in Section 4. For instance, it led the firm to seek and find new uses for plastic from recovered plastic bottles, a new approach to “take-back” packaging of solder flux, and a new basis for its refractory business and its relationship with client steel companies. Though not specifically mentioned at the Workshop, it is worth noting that Dow has similarly developed a solvent-rental business for electronic companies and Ciba-Geigy has shifted its basic approach in agro-chemicals from the simple sale of chemicals products to the provision of integrated pest management services.

Clearly, major changes like these go beyond “product improvement”. They require re- thinking the nature of the business and, of course, the corresponding steps in the business process, from accounting to marketing.

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4.6. Management Tools A number of management tools to help managers identify and select worthwhile opportunities were mentioned at the Workshop, though only a few were discussed at length. These included:

Formal Risk Assessments (e.g. at Swiss Bank Corp)

Formal Life Cycle Analysis (LCA) of products (e.g. Novotex)

Procedural standards, such as EMAS (e.g. Novotex) and protocols such as - IS0 14000

World Business Council For Sustainable Development 42 Eoo-EtEciency Workshop

Environmental accountdaudits, using explicit mass balances wherever possible

Financial accounting methods need to be modified to reflect “hidden” costs and potential benefits. (See section 3, above)

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Formal eco-efficiency assessments (e.g. Dow “eco-fitness” methodology) ~

Monitor results and feedback to management. Environmental reporting (e.g. EMAS, mentioned above) is an essential aspect of this, but there are other aspects. “Benchmarking” is very important for monitoring progress and sharing informationwithinthe fim. Thereis acertain degree ofconflict betweentheneed for benchmarking, which requires exchanging rather detailed process and production data, and the “cult of secrecy” that exists in many firms.

LCAs are especially important for an eco-efficiency strategy/policy. It is important to recognize that actions insufficiently thought through can cause more harm than good. (A number of examples could be cited from the history of environmental regulation). However LCA’s are more difficult to perform than is commonly admitted by professional practitioners. (One reviewer of the draft commented: “If we can get acceptance for “life cycle thinking or philosophy rather than SETACLAC methodology, we will have made great strides forward.”)”

In the “real world most firms don’t have the time and the money for a “scientific” quantitative LCA to justify every decision. Therefore it may be desirable to identify the most important environmental impacts (e.g. material flows and energy) and to find a rough first approximation that is both robust and heading into the right direction. In this connection, it may beuseful to focus first on the input side and the aggregate ecological “consumption” of the whole product life cycle. Materials-intensity per unit service ( M I P S ) seems to be a potentially helpfkl measure in this regard, although questions of definition and interpretation remain to be addressed.

Of course we have to be prepared to undertake deeper analysis if the rough environmental measurement is not sufficient. The following analogy expresses the key point: “Ifyouwantto buyacaryouwillfirstlookattheprice. Thefirst questiontobeanswered is can I afford it? Only ifthe answer is “yes” do you start to ask further questions. (Has it a nice color? What speed can I drive? etc).”

4.7. R&D for Eco-Efficiency In accordance with the basic criteria for eco-efficiency (section 2), companies need to focus harder on minimizing the material intensity of goods and services. This implies thatR&D needsto focusnot onlyonproductimprovement, but on process change. The

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Eoo-Efficiency Workshop 43 World Business Council For Sustainable Development

long-term program at 3M to eliminate the use of solvents in its coatings businesses exemplifies this approach. A number of the “best practice” cases (e.g. Cookson) involved several changes in production processes that led to major product improvements as well as reduced environmental impacts. The “No Clean” solder paste was one example; theflocculentforrecoveringgroundglassfiits fromwaterwas another. These changes resulted from mission directed research.

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4.8. Policy-Implementation Policy implementation begins with assignment of responsibility and allocation or resources to accomplish the task. This is the core of operational management. The main point that needs to be emphasized is that eco-efficiency is not achievable if responsibility for environmental concerns is administratively separated from production and design. The requirements ofeco-efficiency need to be considered at every level of decision-making, down to the lowest

Communication is an important element in policy implementation. Apart from normal managerial channels, possible modes of intemal communication include newsletters, prizes and employee recognition programs. All of these can play a role in promoting the idea of eco-efficiency.

4.9. Design for Eco-Efficiency Up to now, most designers have concerned themselves only with product performance and aesthetics. Designers must recognize and take into account that fact that design details can make a great deal of difference in terms of anergyhaterials requirements for manufacturing, use and, especially, secondary use(repairability, remanufacturability, recyclability). For instance, whenit became clear that German automobile manufacturers were likely to be required to take back old cars for ultimate disposal, they quickly began to explore ways of building cars so that disassembly (to recover valuable components) would be much easier at the end of the car’s life.

Alternative design concepts need to be assessed in terms of life-cycle impacts. (See comments on LCA above). Where a complete LCA is impractical, or premature, a simpler methodology, such as Dow’s “Eco-Fitness”methodo1ogymay beused. Agood example of this was the “Blue House” concept of Dow.

Some fairly sophisticated formal methodologies (using computer assisted design tools) have been developed in connection with “Design for Environment” (DFE). They are relevant here. The topic was not explicitly considered at the Workshop, however.

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4.10. Production and Eco-Efficiency The importance of production processes was frequently noted. Fundamental changes normallyrequire R&D. (SeeR&D above). However, firms need to pay closer attention to energy use and emissions. Both 3M and Dow (and many other firms, including the Swiss Bank Corp.) have achieved major improvements in energy efficiency at little or no cost, or even with net savings, through the use of targeted programs to identify opportunities for savings. (The extent of remaining opportunities along these lines is one of the areas of current controversy, but virtually all of the participants at Antwerp I1 saw significant potential for “win-win” opportunities in their own companies).

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4.11. Purchasing and Marketing for Eco-Efficiency Companies can influence both customers and suppliers. It is easier to influence suppliers than customers. To change the attitudes of customers (market side) specific marketing strategies are needed. On the supplier side the main tool is to introduce “green” procurementlpurchasing policies (e.g. B&Q). On the customer side, consumer/customer demand for “green” productdservices can be stimulated by a “green” marketing strategy. Advertising is obviously part of this. Other modes of external communication include public exhibits, sponsored TV shows, participation in Exposi- tions (such as the Hannover Expo 2000), “customer days” and so on. However, the major selling point, as always, must be increased customer value.

b b 1 0

The company in the middle (#I) can influence three cultures, including suppliers (#2) and customers (#3).

Ex-Eficienoy Workshop 45 World Business Council For Sustainable Development

4.12. After-Market Service At one time the motto of most producers was caveat emptor (let the buyer beware). Manufacturers took no responsibility for after-sale service or (in case of problems) failures. This attitude began to change when firms began to realize that after-sale service could be a positive selling point. It changed even more when Courts (beginning with a landmark decision by the California Supreme Court) began to rule that companies could be held liable for safety or environmental problems arising from the use of their product - or even the misuse of their product - without the need for the plaintiff to prove any specific fault or misconduct. (This legal principle is now called “strict liability”).

Most firms now recognize that their responsibility- and potential liability- does not end with a sale. Some firms have made this continuing responsibility into an opportunity for adding additional value. The automobile partsindustry and the tire industry (among others) recognized, for instance, &t the sale ofreplacement parts could be muchmore profitable than sales to original equipment manufacturers (OEMs). So the aftermarket began to get some attention. Two decades ago, manufacturers began offering warranties for the first two years, then three years. The warranties have been getting longer, as competition has become tougher. More recently still, auto manufacturers have begun to push leasing, rather than sale. So far, leasing is only possible for the first few years of the car’s life.

But, the trend toward rental or leasing, rather than final sale, is only beginning. But, driven by liability laws and other forces, it will almost certainly accelerate. This trend is clearly consistent with increasing eco-efficiency, since the manufacturer has more and more responsibility for how the car is used, how it is disposed of, and for its environmental impact. The same trend is visible in other industries. But increasing responsibility is only one side of the coin. The other side is that firms are increasingly seeing the after-market as an opportunity for expansion.

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4.13. Closing the Loop The end-point of the trend toward increasing lifetime responsibility for a product is total lifetime responsibility. If a firm is to take total responsibility, of course, it makes sense to design the product, make the product, own the product through its lifetime, and eventually take the product back for re-manufacturing, recycling, or disposal. In

that many companies do not realize that it is coming. But that myopia creates an opportunity for those more far-sighted managers who do see the shape of things to come.

effect, the firm sells a service, not a product. This end-point is still far enough away so -

World Business Council For Sustainable Development 46 Eco-Effioiency Workshop

5. SOCIETAL IMPLEMENTATION: ROLE OF GOVEWMENT

5.1. The Systems Perspective Revisited Environmental programs like “clean technology”, “pollution prevention”, and so on- including “eco-efficiency - have their critics. There is no need to review the criticisms, or answer them individually. However there is a fundamental point that needs to be recognized by the advocates of eco-efficiency. A sophisticated environmentalist is likely to say something like the following: “What is the advantage of increasing resource productivity? If industry learns how to use resources more efficiently, then demand will drop, prices will drop (at first) and more users will then enter the market. The end resultwill bemore, not less, resourceusage. Think ofthe example ofhighways. The more highways are built to relieve congestion, the more places become accessible by car and the more people buy them. So the result is more cars and more congestion!”

The point of the environmentalist criticism is that firms might learn how to use resources more efficiently with the only result being that more people consume more goods and use more energy, thus exceeding the earth’s finite carrying capacity that much sooner. Nothing would have been gained at all. This argument is hard to refute.

As noted previously, there is a potential conflict in some sectors between the criteria for eco-efficiency (especially, to minimize inputs while adding value) and the business imperative to maximize profits by increasing sales and thus exploiting economies of scale in production. Certainly, eco-efficiency is only applicable within the domain permitted by economic constraints. On the other hand, it is also argued cogently that, for many firms, existing economic constraints do not leave much scope for eco- efficiency gains. (Recall the Walley-Whitehead critique in Section 2.3).

For instance, petroleum refiners already have strong economic incentives to recover every possible chemical or fbel value from the raw material. They are very efficient in this regard. On the other hand, they can hardly be expected to try to discourage sales of their products to downstream users. Yet, it is the final use of that particular group of products that is far more environmentally harmfbl than the drilling, refining or distribution processes are. Indeed, it is the use of fossil fuels that constitutes the most immediate threat to the carrying capacity ofthe earth. A similar argument applies in the case of automobile producers. It is the use of the product that is h d . In short, even if every manufacturing firm took advantage of every possible opportunity to become more eco-efficient without changing itsproduct mix the degradation of environmental quality to any given degree would only he delayed a few years.

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In other words, while incremental efficiency gains are necessary and important, incremental gains in process improvement are not enough. Eco-efficiency in the long run implies “quantumjumps” in the substitution ofnew ways of thinking and doing for old habits and old patterns. It means substantial dematerialization ofproducts and the replacement of material products wherever possible by services.

To add value and reduce inputs further, the nature of business itself must change. As the several participants at the Workshop emphasized repeatedly, companies must begin to adopt the strategy exemplified by Cookson PLC, namely to retain lifetime responsibility for their material products and sell services instead. One factor that is driving this change, already mentioned, is the change in product liability doctrine (towards “strict liability”) initiated in U.S. courts and now spreading through Europe. Another change, somewhat related to the first, is that companies are being made responsible retroactively, both by legislation and court decisions, for environmental problems arising from past practices that were apparently legal at the time. The auto industry, for instance, is becoming more interested in providing services to owners, or even retaining ownership of the vehicles, precisely because external constraints (including liability rules and the threat of take-back legislation) have changed the business environment.

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The point is that external constraints do matter, and that changes of the magnitude needed for long-term eco-sustainability will not be achieved by efficiency gains alone, still less gainsin the short-term“win-win” category under current economic conditions. This contradicts the idea (promoted by some groups in industry) that government intervention is not needed and not desirable.

The fundamental reason why government intervention is not only desirable, but necessary to achieve eco-efficiency at the societal level, is that the only reliable way to achievepermanent reductions in aggregate resource use is to make sure that prices for non-renewable resources rise significantly -albeit not all at once - and remain on a rising trend. This would eventually occur of itself, as the most accessible and best quality resources are exhausted, and the efficiency of exploration and extraction technology begins to approach its natural limits. But the historical trend in resource prices (except for timber) has been downward for many decades. This fact encourages wasteful use and discourages conservation. There is also a constant encouragement from the government itself to increase quantitative production of goods. The implicit argument is that higher levels of production creates more jobs.

To summarize, eco-efficiency is a positive goal for industry. But at present, given the trendsinresource prices vzsavislabor costs, most firmsdonothavesufficientincentive to make radical changes of the kind that will be needed to assure long-term environmental sustainability.

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World Business Council For Sustainable Development 48 Eoo-EEicienoy Workshop

5.2. Ecological Tax Reform This leads to a critical question: How can we support the government in creating an appropriate ffamework for encouraging eco-effiency? There are really two questions here. First, whatwould such aframework ofincentivssbelike? A d , second, what can industry do to help make it happen?

The framework of incentives should reward, not penalize, eco-efficiency initiatives of companies. An ecological tm reform would help a lot. Taking the GNP as a whole, payments for raw material and energy inputs account for only a few (less than 10) percent. The exact percentage varies from country to country, of course. Most payments go to labor and capital. On the other hand, taxes account for about 40% of GNP in the EU as a whole, 60%-70% ofthose taxes are levied directly on labor (social security and value added taxes), and most of the rest is levied on incomes (including income from capital) or consumption. Only a small portion oftotal taxrevenues-well below 10% -is obtained from taxes related to resource use, mostly the tax on motor fiel.

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With unemployment in the EU at about 12%, a significant portion of that total tax bill goes to provide benefitsfor unemployed persons. Yet, one ofthereasonswhy newjobs are not being created fast enough is that labor costs are so high. Taxes levied directly onlaborintheEUaccountfor23.5% oftheGNP (1991), whichisseveraltimesasmuch as the total of all payments for raw materials and fuels (exclusive of labor content). Evidently, the material and energy costs of goods and services, on average, are relatively insignificant. If a company wants to cut costs, it will first try to eliminate people.

Suppose, however, the tax situation were reversed. Suppose taxes on labor were cut to 5% of GNP, while taxes on raw materials and fbels were increased to 25% of GNP, withno changein the total? Then prices ofgoods and energywould rise and labor costs would fall. In those circumstances, industry would try much harder to cut materid energy costs than labor costs. Firms would worry much more about “downstream” energy costs to customers, than they do now, because that would be a much more visible factor in the purchase decision. Life cycle thinking would spread. The idea of selling services visa vis products would become more attractive. It would spread more rapidly.

The main features of a “green” tax reform would have to include the following:’*

1. Gradual introduction, allowing industry to adapt slowly, without making existing capital investments obsolete overnight.

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2. The changes must be predictable, giving “clear, long-term signals to all players’

EOo-Eficimcy Workshop 49 World Business Council For Sustainable Development

3. The shift has to be substantial to be effective

4. The shift must not increase the overall fiscal burden. -

To the above list, at least one more requirement must be added, namely that the tax reform be coordinated intemationally, so as to minimize trade distortions.

At the macro-economic level, there is little doubt that cutting the “price” of labor vis a vis resources would gradually change the structure of production and the pattern of investments. Assuming the same demand for final products (not realistic, of course) industry would gradually accommodate itself to use less energy and more labor. This would help to reduce unemployment as compared to what it would otherwise be. It would also contribute to eco-efficiency. (This does not mean that a given piecemeal tax change, such as an incremental carbon tax without a corresponding reduction in labor taxes, would have any beneficial impact on employment.)

Needless to say, the composition of demand depends on relative prices, so the above picture is too simplified. The composition of demand would change, too. Energy- intensive and materials-intensive goods would cost more, so demand for them would drop as compared to demand for less materialdenergy-intensive services. This would further promote eco-efficiency.

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5.3. Other Roles of Government Governments have other important roles to play. For instance, it would be helpful for governments to follow eco-etlicient procurement policies. (At present, thanks to subsidies and influential special interests, they often do the opposite). Finally, govem- ment officials themselves also need to be eco-efficient. Similarly, there should be a “green stewardship” approach in governments affairs (e.g. in building infrastructure). Governments should make their decisions based on“green” benefit-cost calculations (Le. by including environmental benefits and costs too). This is, of course, easier said than done, since many environmental costs are not - or only imperfectly - monetizable. Nevertheless, at present environmental aspects are more often ignored completely in such calculations. This is equivalent to giving them a valuation of zero (in effect).

Some state guarantees for small and medium-sized enterprises (SMEs) with eco-

are some fbnds for research and development. At present, these funds are mostly dedicated to “hot” technologies with powerful industrial backing, like telecommunications and advanced manufacturing (i.e. labor-saving!). But perhaps the EU could create a program to encourage small and medium sized enterprises to develop new eco- efficient products and processes.

efficient new products and services could be helpful. In the Europeancommunity there -

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World Business Conncil For Sustainable Development 50 Eoo-EEcicncy Workshop

At another level, better national environmental accounts are badly needed. Rational policy cannot be made without reliable data. At present there is a major conflict of interest between the need for better data to support public policy and the pervasive industrial culture of secrecy. While some kinds of data clearly justify the classification “proprietary”, other data (e.g. on production levels and uses of materials) are

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suppressed by governments, on behalf of industry, for no good reason. (Competitors usually know; only the public is kept in the dark).

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-- New thinking, new dialog and (re)-education is needed. Schools need to sensitize studentsto eco-efficiency. Thisis, at least in part, arole ofgovernment, thoughindustry and NGO’s must be involved too.

6. AFTERTHOUGHTS

6.1. How Can Business Help Society in Shifting to Eco-Efficiency? The business community can help in educating society, both directly and indirectly. One areainwhichbusinessis alreadyactiveisat theinterfacewithgovernment. Itwould be appropriate for WBCSD to actively try to influence external factors, including regulatory and tax policy, in directions more favorable to eco-efficiency. This can be done through familiar channels (lobby fellow industrialists, initiate contacts with regulators, etc.) Industry associations can contribute: world partnerships and “product stewardship”, promoted by and through industry associations, should be part of a progressive company policy

Companies should work together with environmental NGOs, if only because NGO’s can oRen communicate with customers more effectively than the company itself Therefore better communication between companies and environmental (NGO’s) would be helpful. For instance, NGO’s can do a better job of public education if they work with (and are supported by) industry. Confrontation, a common pattern today, is not the best way to solve future problems, which require cooperation. A recent example that has been widely publicized was Greenpeace’s role in promoting a refrigerator that does not use any CFC’s. In that case Greenpeace was the initiator and industry followed. An example of mutual cooperation was cited in Italy, where the printing industry and several NGO’s worked actively together to increase public awareness of environmental problems in society. (Any further details?)

An important role of public education is to make people aware of the existence of eco- efficient products and services.

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Several effective tools for communication were mentioned earlier in the context of marketing. The environmental reporting systems based on EMAS should be harmo- nized among countries. Suchreports should also be made more substantive. UNEP and several industry networks, such as the Public Environmental Reporting Initiative (PEN) have published useful guidelines with regard to reporting.

The “green dot” and similar labelling devices are essentially communications schemes, intended to convey information to the public . The major danger is that they will be subject to abuse, with the result that the real information content declines to the vanishing point. Eco-labelling (with or without explicit use of LCA’s) is another communications device.

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The “culture of secrecy”, mentioned earlier, is particularly important in this context. Companies routinely try to avoid giving out information that might be of use to competitors. In so doing, they alsohideinformation f?om the public and NGO’s. l3 The inevitable suspicionis that companies have “something to hide”, and that whatever they do say is suspect. This suspicion is reinforced by a long history of misleading advertisements. It is possible that every member of WBCSD may be totally innocent of such a charge. (Indeed, 3M has a long-standing policy against making excessive claims). But the public does not, and cannot, make such distinctions. The public is justifiably wary of advertising and “public relations”. What companies believe to be “educational” material may be viewed by others as propaganda. These problems can only be alleviated by making a deliberate effort to reduce unnecessary secrecy.

6.2. How to Encourage Eco-Efficiency Among SME’s SME’s constitute a special problem. Many have no knowledge of, or interest in, environmental problems. A lot of managers of SME’s argue that they haven’t the money to search for eco-efficient solutions, or even to carry out an eco-audit. It was pointed out, however, in the context of supply chain management (B&Q) that when forced to do better (e.g. by pressure from important customers) they can often do quite well. It is often a matter of paying attention. Big companies can and should use procurement policy to encourage eco-efficiency among their smaller suppliers.

On the other hand, there are also cases - such as the brass casting mill in India cited by B&Q -where pressure alone is either inappropriate or insufficient. It must be accompanied by technical assistance to get results. Business needs to find ways to systematize this sort of assistance. This is a role where WBCSD could help.

capital just to grow, (Big companies need capital to become more efficient). This

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Small companies are often good at innovation. But small innovative companies need

applies, of course, to projects leading toward eco-efficiency. Perhaps some cash-rich big companies could create venture capital funds dedicated to encourage eco-efficient projects of smaller companies. This should be done according to normal high-risk

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World Business Council For Sustainable Development 52 Eoo-E0icienoy Workshop

investment criteria. While not every initiative will be profitable, one ofthe major thrusts of eco-efficiency is added value -which should be translated into profit.

6.3. International Aspects of Eco-Efficiency Technology transfer is one of the tools for increasing eco-efficiency in developing countries. The example of the brass casting mill in India is instructive (B&Q). A small amount of consulting assistance (coupled with some pressure) actually generated a massive change, that also increased productivity and cut costs. It seems plausible that “win-wid’ opportunities may be greater in developing countries than in western Europe or North America. This is because they start from a lower point, using cruder technologies. UNEP and UNIDO have a joint program to demonstrate opportunities of this sort in the developing world. Several promising possibilities have been uncovered.

Another potentially useful approach is the idea of allowing firms, such as utilities or refineries, located in western Europe or North America to receive partial credit for required emission reduction in their home countries (for example, VOC, SOX or NOx control) by investing, instead, in comparable controls in developing countries, where a given investment may be several times more effective in terms of the actual amount ofpollutant removed. This would be a way oftaking advantage ofthe sharply increasing cost curve for emissions controls, which usually displays something like the 80/20 rule: the first 20% of investment reduces emissions by 80%; whereas the last 20% of emissions reduction is likely to account for 80% of the total cost. This kind of tradeoff deserves more serious consideration than it has yet received. WBCSD could play an influential role in this area.

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6.4. Next Steps Recall the various definitions of eco-efficiency, especially “seven key elements”. The need for action to support sustainable development is understood. We have a working definition (see “7 key elements” above). We also have checklists of support factors, analytical tools, etc. Further needs include:

Documentation of individual attempts to measure eco-efficiency (e.g. case examples) with particular emphasis on the economic aspects. Cases need to provide more information on economic benefits to the customer and to the firm, as well as social and environmental benefits.

Identification and documentation of business visions and “success factors”

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Identification and documentation of “accelerators” and “decelerators” (e.g. constraints, opportunities, cultural changes, collaboration between businesses and societies, price reform from labor to resources, awardhncentive package, education, entrepreneurs focusing on services.)

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Eco-Efficisncy Workshop 53 World Business Council For Sustainable Development

APPENDIXA. INSTITUTIONAL BACKGROUND

Publication ofthe Report ofthe World Commission on Environment and Development chaired by Gro Harlem Brundtland, (then) Prime Minister of Norway, in 1987, was a major catalytic event. The commission’s report, entitled Our Common Future, received wide circulation and attention. It introduced the concept of “sustainable development”, which it defined as “to ensure that it meets the needs of the present without compromising the ability of hture generations to meet their ownneeds” [ibid,

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P.81.

So strong was the response to Our Common Future that a major UN effort-an Earth Summit - was launched, to culminate in the UN Conference on Environment and Development, to be held inRio de Janeiro, Brazil, in June 1992. This Conference also marked the 20th anniversaxy of the first UN Conference on the Human Environment, heldinStockholmin 1972, whichledto theformationoftheUNEnvironmentProgram (UNEP), now anindependent agency.I4 The Secretary-General ofthe 1972 Stockholm Conference, Maurice Strong ofCanada, was asked to take on the same role for the 1992 Rio conference. He undertook this task on a Ml-time basis beginning in 1989

In mid-1990 Mr Strong approached Stephen Schmidheiny, a well-known Swiss businessman, to serve as principal advisor to UNCED for business and industry. Mr. Schmidheiny, in turn, invited 50 business leaders from around the world (albeit, not from the so-called planned economies) to form the Business Council for Sustainable Development (BCSD). This group not only advised UNCED and helped shape its agenda, but also prepared its own Report, published in 1992 as Changing Course: A Global Business Perspective on Business and the Environment. This book, too, has been very influential. After the Earth Summit, Mr. Schmidheiny resigned from his leadership of BCSD to concentrate on other interests. However, despite this, the members of BCSD decided to continue their activities. One of the major initiatives by BCSD after 1992 was the first “Eco-Efficiency” Workshop, which took place in Antwerp, November 16-17, 1993. That Workshop was the direct progenitor of the 1995 Workshop, which is the subject of this Report.

Subsequently, the International Chamber ofcommerce undertook a somewhat parallel activity, with wider membership. In April 1991, at the (2nd) World Industry Confer- ence of Environmental Management, in Rotterdam, some 700 industrialists met to discuss a document called the Business Charter for Sustainable Development. As of spring 1992 some 200 firms had expressed written support for this document at CEO or comparable level. This Charter, including 16 basic principles (Appendix A), became part ofthe business community’s contribution to the UNCED process. This organization, under the name World Industry Council for the Environment (WICE) also continued activity after 1992.

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World Business Council For Sustainable Development 54 Eo-Efficiency Workshop

In 1994 the two organizations, BCSD and WICE agreed to merge, under anew name: World Business Council for Sustainable Development (WBCSD), with headquarters in Geneva. The successor organization has 120 members, all international companies; it is organized into 7 policy development focus areas, 2 environmental management programs (one ofwhichis “eco-efficiency”), 10 specialized working groups nominally led by CEO’s, and 5 demonstration projects. The second Antwerp Workshop, held March 14-15 1995 was a part ofthe continuing “eco-efficiency program ofWBCSD.

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APPENDIX B. HISTORICL BACKGROUND

However, none ofthe traditional approaches (except recycling, in some cases) actually reduces or eliminates wastes. These approaches attempt to shift the wastes from a place where they can do harm to a place where they are less likely to do so. In some cases they are converted from a dangerously harmful form to a less potentially harmful form or location. Indeed, regulation medium-by-medium has, in some cases, encouraged the recovery and treatment ofwastes from one medium, only to find them reappearing in another. For instance, the burning of solid wastes may generate air pollution. Air pollutants, especially particulates and oxides ofnitrogen and sulfur can be (re)deposited onlandviarainfall, onlytobecarriedintoriversandstreamsviasurfacerunoff. Landfills may also leach toxic substances into the groundwater. In some cases, these inter-media transfers can generate multiple control costs (for instance, water treatment costs downstream from effluent outfalls) without ever really eliminating the basic problem.

Traditionally, pollution control can be characterized as separation and redirection (or sequestration). Incineration of wastes, primary sewage treatment (by controlled bacterial action), and the use of filters (bag-houses) and cyclone-type centrifugal separators were early examples. Electrostatic precipitators were introduced - initially for copper smelters, later for electric power plants, steel mills and other metallurgical plants, and incinerators - early this century. The Claus process for removing sulfur from natural gas and refinery gases was also an early success. By the 1970’s these technologies were already very widespread.

Other important, more recent examples of end-of-pipe treatment include secondary and tertiary sewage treatment (now being applied to industrial wastewaters as well as

(FGD). Sequestration and disposal of wastes in ‘safe’ disposal sites is also a kind of “end-of-pipe” treatment. This is the normal route for municipal solid wastes, ashes, FGD sludge, and toxic chemicals and contaminated soils. Most expenditure on environmental controls, up to now, has been in this category.”

municipal sewage), catalytic convertors for motor vehicles and flue gas desulfurization -

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Eco-EffiOirmoy Workshop 55 World Business Council For Sustainable Development

Another basic environmental control strategy is to “clean up” after a pollution episode that has already occurred. This approach is now termed remediation. It applies mainly totoxicwastedumpsandoilspills. Intheformercase, theideaistodigup theoldwastes __

the case of oil spills, the first-generation treatment was simply to collect floating oil, separate it fromwater, and burn it. Later detergents were used to allow the oil droplets to mix easily with water (thus exposing them to bacterial action). Recently, more sophisticated schemes have been introduced, including the use of “fertilizers” to encourage bacterial growth and activity.

Recycling is an approach to waste reduction that has been strongly advocated. Of course, scrap metals have been collected and recycled since ancient times, but not for pollution control purposes. The same is true ofglass, and to alesser extent, of tires and paper. In recent times the idea of recycling has been applied more systematically to aluminum beverage cans, paper and some packaging materials. In the case of paper, recycling has been promoted inEurope by legislative mandate. However, recycling also entails waste and pollution and it is not always clear whether recycling actually reduces waste and pollution (as compared, say, to controlled incineration) or increases them. Indeed, life cycle analyses have suggested that in some cases (e.g. packaging materials) incineration with energy recovery is often environmentally preferable to recycling

More recently the idea of recycling has been further refined to distinguish several intermediate stages, e.g.

- such as leaking drums of toxic chemicals - and re-bury them in safer landfills. In -

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Re-use of a discarded product, as such, but in a less demanding application. For instance, discarded railroad ties have been extensively re-used as garden walls and stairs Old bricks, tiles and cobblestones can be re-used. Similarly, some obsolete computer chips have been re-used in electronic games.

Repair of a discarded product, for subsequent re-use. Old clothes and furniture, as well as automobiles, are often repaired to allow further use. (Unfortunately, modem technology and sophisticated composite materials often makes repair more difficult than it was in the past, although products may last longer without repair).

Re-munufacture of a discarded product (such as a pump, engine or tire), replacing worn parts such as bearings, gaskets, piston rings or wearing surfaces

option is gaining in popularity, since it offers a means of upgrading certain components (e.g. of computers, telecommunications equipment or copying machines) without discarding the whole unit.

but retaining structural componentsthatretaintheirintegrity. Theremanufacturing -


References

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The list of key references is fairly long. Two important examples are J. Hirschhom & K. Oldenburg Prosperity without Pollution: The Prevention stratea for Industry & Consumers Van Nostrand Reinhold, N.Y., 1991; and T. Jackson (ed) Clean Production Stratepes (Stockholm Environment Institute), Lewis, London, 1993. Many other sources are cited therein.

There is a large selection of literature. However, a u se l l reference is “Green Products by Design”, Office of Technology Assessment (Washington D.C.,) 1992.

See also Bruce Smart (ed.) Beyond Compliance: A New Industry View of the Environment (World Resources Institute Inc.), Washington D.C. 1992.

Indeed, the much more restricted notions of source reductiodpollution preventiodclean technology have been so described [Baas & Dieleman, 19891.

This controversy was low level and academic until the publication of a widely quoted article “America’s Green Competitiveness Strategy” lauding the beneficial impacts of regulation on innovation by Michael Porter of Harvard Business School [“America’s Green Strategy” Scientzyc American, April 19911. Prof Porter’s article was subsequently quoted by Vice President Gore.

N. Walley & B. Whitehead “It’s not Easy Being Green”, Harvard Business Review, May-June 1994, p.46.

These cases are summarized from information provided by presenters. Neither WBCSD nor INSEAD can take responsibility for the accuracy of any of the statements herein.

Actually, the material removed by the ginning process consists of cottonseed (55%) and ‘‘linters’’ (45%). The cottonseed is milled for oil, and the remaining mash is used for animal feed; the linters is used as feedstock for cellulosic chemicals, such as rayon and nitrocellulose. Hence the actual waste is much smaller than it appears to be.

This might gain hrther importance in the aftermath of the Oklahoma City bombing, which made use of a home-made bomb based on ammonium nitrate fertilizer and he1 oil. It has been pointed out that such a bomb could not be made from mixed or encapsulated fertilizers.


10 From a presentation on Design For Environment by Paul Reaves Comrie, 19 April 1995 at Carnegie-Mellon University Policy Forum.

-~ 1 1 Use of unverifiable data from “confidential sources” is one major pitfall of LCA’s. The formal use of mass balances for verification can be helphl. Inappropriate aggregation of mass flows (especially wastes) in meaningless categories such as BOD or VOC) is another problem. Use of ~

mixed energy and mass units is a third problem commonly encountered. (Ed). .___

12 From a speech to the IS0 (reprinted in Tomorrow) by Frank Bosshardt, Associate to Stephen Schmidheiny.

13 One reviewer of the first draft objected to mention of the “culture of secrecy”, pointing out that companies do provide significant amounts of information to regulators. While this is m e , up to a point, the information in question generally remains proprietary and inaccessible to the public. Moreover, it is unverifiable even by the regulatory authority, except by spot-checks, which almost never occur. For purposes of argument one may suppose that every member of WBCSD provides totally accurate information to the authorities. Unfortunately, there is overwhelming indirect evidence that many others do not. An independent estimate by the Office of Technology Assessment in the U.S. suggested that the Toxic Release Inventory, compiled by the U.S. EPA covers only about 7% of actual emissions [OTA 19871. Another independent estimate by Industrial Economics Inc., Cambridge Mass. , based on mass balance considerations for 17 of the most important toxic chemicals, reached essentially the same conclusion [IEI 19911.

14 The Stockholm Conference of 1972 was also accompanied by the publication of an influential book, On@ One Earth: The Care andMaintenance of a Small Planet, commissioned by Secretv-General Strong, prepared by Barbara Ward and Rene Dubos, with the assistance of a large scientific committee consisting of over 150 members representing 58 countries.

15 One continuing problem is that such expenditures are easy to identify and monitor. It is much harder to determine when expenditures on process change are motivated by environmental concerns vis a vis process improvement.

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