Supply Chain Compliance: Addressing the Elephant in the Room

by Derek Newberry*

If events like Apple’s Foxconn debacle teach us anything, it is that even reputable companies with strong supplier codes of conduct can face serious compliance issues where regulatory mechanisms are lacking.  I reflected on this recently when leafing through the summary report from last year’s Wharton Initiative for Global Environmental Leadership (Wharton IGEL) Conference “Greening the Supply Chain”.  While I enjoyed reading about the participants’ experiences in sustainability management, I was struck by the short shrift they paid to the all-important question of compliance, despite acknowledging that when it comes to producing tangible results, this really is the “elephant in the room”.

Indeed, ensuring that suppliers adhere to social and environmental criteria and comply with applicable legislation is a thorny problem in settings where the boundaries of corporate responsibility are unclear and enforcement can be costly and onerous.  This is doubly true in production chains characterized by numerous small suppliers and sparse governmental regulations, as is the case in much of the global agricultural sector.  How can we create regulatory mechanisms that enable these sustainability programs to look as good in practice as they do on paper?

Water: Emerging Risks and Opportunities Summit

by Samantha Guidon*

On February 8, 2013, with an imminent Winter Storm Nemo on the horizon, over 250 industry leaders and key players in the water sector came together at Goldman Sachs in New York City to begin the dialogue on addressing water risks throughout the country. Students from the Master of Environmental Studies at the University of Pennsylvania joined the Wharton Initiative for Global Environmental Leadership (Wharton IGEL) team in attending this event to gain key perspectives from leaders in the water sector. Entitled “Water: Emerging Risks and Opportunities Summit,” the conference identified areas in need of improvement and discussed opportunities from various points of view. A welcoming address from David Solomon, Co-Head of the Investment Banking Division at Goldman Sachs, established the overall goals of bringing together capital, technology, and policy in order to determine best management practices within the water sector.

Five Insights from ACORE’s National Renewable Energy Policy Forum

by Candice D. McLeod*

On February 6^th, the American Council on Renewable Energy (ACORE) held its 10^th annual Renewable Energy Policy Forum on Capitol Hill. The event featured a host of industry, financial and government leaders, who spent the day discussing the progress of the renewable energy industry, from the industry’s current purgatorial state due to impending policy deadlines to the potential implications of the current fiscal and partisan climates.

The overall themes were clear – more financing options for renewables, renewable energy policy stability, and China setting the global rhythm.

Here are five main insights drawn from the forum:

1. Renewable energy markets continue to grow significantly. Perhaps we should stop referring to them as “alternative sources” of energy
2. Economic security -keep your eye on Iowa and rural America
3. More policy stability, please
4. More financing options -MLPs  & REITs
5. Don’t throw the baby out with the bathwater

1. Renewable energy markets continue to grow significantly. Perhaps we should stop referring to them as “alternative sources” of energy

John R. Norris, Commissioner, U.S. Federal Energy Regulatory Commission (FERC) opened the panel Renewable Energy Market Growth with the statement, “[if] it wasn’t for an economy that’s walking with a limp and a dramatic decrease in natural gas prices, the renewable energy market would be twice the size.”

350.org and the “Do the Math tour”

*by Meg Schneider

*Views presented in this article reflect those of the author and should not be construed as the views of Wharton, IGEL or the University of Pennsylvania.

Bill McKibben, the environmentalist who wrote the high-profile Rolling Stone article “Global Warming’s Terrifying New Math”, came to Philadelphia’s First Unitarian Church November 17 for his “Do the Math” tour for 350.org. The talk began with a short speech from Swarthmore student Sara Blazevic on her campaign to encourage Swarthmore’s divestment from fossil fuels in its endowment. Josh Fox, best known as the director of Gasland, also talked about grassroots organizing.

Forest Certification Schemes for Corporate Supply Chains

(Post by Caroline D’Angelo, IGEL Communications Coordinator and lead author of the report from which this post is adapted. This research and report was made possible by a Wharton Global Initiatives Research grant.)

Forests are the planet’s biodiversity reserves: One hectare of tropical forest may contain up to 750 species of tree and millions of other species of insects, fungi, bacteria, reptiles and mammals – and of course, the most intelligent of primate, humans. This biodiversity provides medicine, income, food and shelter for millions of people around the world, as well as supply materials and products for corporate supply chains. Beyond hosting an impressive array of species, trees are also reserves for carbon, consuming and storing this greenhouse gas in their soils, bark and leaves. (Indeed, protecting and re-generating forests may be the cheapest way to mitigate climate change - see REDD+.)

Are Academics Afraid of Action?

(This post is cross-posted from StudentReporter.org, which is reporting live from Rio+20 and its affiliated events. Author Sunmin Kim is a doctoral student at the Erb Institute of Global Sustainable Enterprise at the University of Michigan. Please see below for her full bio.)

This post is in reflection of the first day of the UN PRME Global Forum.

“I wonder if academics are afraid of action,” started Claus Pederson, Head of Sustainable Development of Novozyme, to a room filled with 300+ professors, deans and directors of business schools, and other academic participants. The relevancy and impact of business schools is an issue that has recently received much attention and criticism. This comes up in issues of research, curriculum, and responsibility, just to name a few. Are academics really afraid of action, and is it necessarily a bad thing? What does this imply for sustainable development?

Agriculture and Aquaculture in a Changing World

Author Jaivime Evaristo is a graduate student in the Master of Science in Applied Geosciences program at the University of Pennsylvania. This post is adapted from his conclusion of a paper he wrote for the IGEL Student Research Briefs series. Opinions represented in blog posts and research briefs represent the opinions of the authors only, not of Wharton, Penn or IGEL. Click here to read the whole paper>>

In industrialized countries, the area given to agricultural activities has fallen by three percent between 1961 and 2007.  In developing countries, however, it has risen by 21 percent (FAOSTAT 2009). However, although the aggregate output is quantitatively greater than the aggregate food demand, it is unfortunate to note that one in seven people today still do not have access to sufficient food, primarily in the developing world, while an equal number are overfed (Godfray et al. 2010).

Green Scissors: An Opportunity to Overcome Political Differences to Address Environmental Issues

Douglas Miller is a senior at the University of Pennsylvania pursuing a double major in Philosophy, Politics, Economics (PPE) and Environmental Studies. At Penn, he founded Green Acorn Business Certification & Eco-Consulting and serves on the board of several sustainability-related organizations.

Green Scissors is a campaign launched by Friends of the Earth (FOE) that seeks to end environmentally harmful subsidies issued by the US Federal government. Green Scissors “strives to make environmental and fiscal responsibility a priority in Washington” [2]. The campaign exposes perverse subsidies and builds “a strong case that the federal government can protect our natural resources, reduce the growth of government spending, and make a significant dent in the national debt” that now amounts to several trillion dollars [2].This campaign has not only been worthwhile and effective for eliminating so-called perverse subsidies, but has been an important example for opportunities to overcome political differences to address environmental problems.

Subsidies come in various forms. More generally, subsidies are a “form of government support extended to an economic sector…generally with the aim of promoting an activity that the government considers beneficial to the economy overall and to society at large” [5]. The three main types include those that provide preferential treatment for a particular sector, encourage a certain activity or process that otherwise would not be pursued, and ensure the survival and stability of strategically important industries.

Perverse subsidies are those that “exert effects that are demonstrably and significantly adverse” for both the economy and environment and display the two following requisites [5]: First, subsidies are economically perverse when they maintain production processes that would otherwise be non-starters, reduce costs so far that natural resources are wasted or overexploited, harm others while attempting to benefit one economic area to the extent that their net impact is negative, and deter efforts at sustainable exploitation, use of cost-saving technology, and improved management [5]. Second, subsidies are environmentally perverse when they foster activities that result in environmental harm (whether at the site in question or farther afield, and come to fruition immediately or later in time), encourage inefficient and often profligate use of fossil fuels and stimulate the development of nuclear energy, foster grand-scale expansion of car culture rather than public transportation, promote inefficient and wasteful use of water, lead to overexploitation of fisheries and forests, generate air pollution, and stimulate practices that degrade the natural resources underpinning agriculture [5].

Perverse subsidies have at least six features in common. First, they induce higher taxes for everyone since they increase government spending. This furthers government budget deficits. Second, perverse subsidies “divert government funds from better options for fiscal support, notably health and education” [5]. Third, they “undermine market decisions about investment, and they reduce pressure on business to become efficient” [5]. Fourth, perverse subsidies benefit an elite few at the expense of the majority of the population. Fifth, they “often serve to pay the polluter” [5]. Sixth, perverse subsidies drive numerous forms of environmental degradation, which imposes intrinsic harm on the environment and acts “as a further drag on economies” [5].

Perverse subsidies confuse the forces of supply and demand by altering actual prices for goods and therefore create a misinterpreted guide – inaccurate prices – for individual decisions. The absence of appropriate prices for scarce resources “leads to their excessive use” and results in market failure [6]. Moreover, perverse subsidies make an already “bad situation worse” [6].

In the Green Scissors 2011 report, perverse subsidies existing in the domain of energy, agriculture, land and water, and transportation are revealed. The 2011 report has identified “more than $380 billion in wasteful government subsidies that are damaging to the environment and harming taxpayers” [2]. These subsidies “make things worse for people and our common home in the natural environment” [4]. The extensive list of the perverse subsidies identified by Green Scissors can be found at the conclusion of this document.

The most notable facet of this campaign in its strategy: Green Scissors “offers a roadmap for how Congress can bridge the gap between ideologically diverse perspectives to begin moving towards deficit reduction in a productive fashion” [2]. The groups comprising the Green Scissors partnership – Friends of the Earth, Public Citizen, Taxpayers for Common Sense, and The Heartland Institute – exemplify this roadmap. Even though these four groups “have different missions, histories, goals and ideas about the role of government,” there exists common ground where they can work together to promote the public interest [2]. Despite their differences, they all agree that it is necessary “to overcome our nation’s budgetary and environmental woes by tackling spending that is not only wasteful, but environmentally harmful” [2]. Green Scissors thus offers a glimmer of hope – in an era riddled with political polarization and rigidity – for the ability of people with ideologically divergent perspectives to come together and promote shared public interests. Moreover, were these groups to work separately their efforts would certainly be less effective.

Green Scissors has achieved various successes. In total, the campaign helped cut $26 billion in perverse subsidies issued by the Federal government since 1994. During the past year, “lawmakers have taken action on a few of the important issues targeted by the Green Scissors coalition” [2]. While hardly any of the changes go far enough in reducing the size of or outright eliminating perverse subsidies, the successes should “serve as a starting point for Congress as it moves forward on repealing environmentally harmful and wasteful spending” [2]. In 2011, Green Scissors’ efforts in exposing perverse subsidies resulted in various policy successes. First, the Senate voted to eliminate the Volumetric Ethanol Excise Tax Credit. While the bill has stalled, the vote suggests that this subsidy will expire at the end of the year without an extension. Second, an amendment to the Agriculture Appropriations bill capped “the amount of any one entity at $125,000” [2]. Third, the House supported an amendment to “stop the Department of Agriculture from providing yet another subsidy for the ethanol industry for blender pumps and ethanol storage” [2]. Fourth, the House of Representatives voted to cancel the bribe used by the US to stop Brazil from enforcing a WTO ruling that ruled US cotton subsidies as trade distorting.  Fifth, the House voted overwhelmingly to “reduce and, over time, phase out the large taxpayer subsidies provided to people who purchase homes in flood prone areas” [2]. There are also signs that other perverse subsidies will be reduced or cut in the near future. This was observed in debates over identifying oil and gas subsidies as potential targets for cuts, as well as debates about limiting the eligibility for commodity payments.

Green Scissors also contributed to policy achievements in 2009 and 2010. The 2009 Congress allowed many perverse subsidies given to dirty industries in each of the previously highlighted categories to expire. This included subsidies given for liquid coal, biodiesel, refined coal, coke, timber logging, existing open-loop biomass facilities, and alternative vehicle fuels. Other successes included the elimination of perverse subsidies for the Yucca Mountain high-level radioactive waste repository, Global Nuclear Energy Partnership, North Shore Road that would have cut through the one of the largest road-less areas in the eastern US, Royalty-in-Kind program which allowed oil and gas companies to “make royalty payments to the federal government in the form of oil and gas rather than cash,” and the Yazoo Backwater Pumping Plant [1]. Royalty rates were also increased by about fifty percent for offshore drilling.

From Window on State Government

Eliminating or sharply reducing perverse subsidies, such as the billions of dollars worth of cuts already achieved by Green Scissors, removes barriers for laying the foundation for a more sustainable economy. Doing away with these subsidies helps shift consumption “sharply away from environmentally harmful products and services and toward those that are easy on the environment” [6]. Moreover, there is a double dividend as perverse subsidies are removed or greatly reduced. First and foremost, the formidable obstacles created by perverse subsidies that hinder sustainable development are removed. Second, “a huge stock of funds available to give a new push to sustainable development” becomes available [5]. Taxpayers also no longer pay a double price, which is the act of paying once for (perverse) subsidies and then paying again for the environmental and economical costs.

Green Scissors should be commended for its ambition and successes. Since its initiation in 1994, the campaign “has helped cut $26 billion in environmentally wasteful from the federal budget” [3]. Green Scissors has thus been successful in making progress towards achieving its clear-cut goal of eliminating perverse subsidies. It has pursued a bold, unconventional strategy to achieve this aim by working with ideologically contrasting organizations in order to find common ground and work together to promote shared public interests. Its objectives also help solve two problems at once: the federal deficit and environmental issues. In so doing, the Green Scissors campaign has not only been effective in helping cut billions of dollars in perverse subsidies from federal spending but has also set a precedent in building a partnership consisting of diverse organizations.

Works Cited

[1] Aurilio, Anna, Michele Boyd, Michelle Chan, Jennifer Cox, Steve Ellis, David Hirsch, Kate McMahon, Jackson Mueller, Karen Orenstein, Erich Pica, Emily Rhodes, Josh Sewell, Severin Skolrud, Michael Surrusco, Justin Yang, and Erich Zimmermann. “Green Scissors 2010: More than $200 Billion in Cuts to Wasteful and Environmentally Harmful Spending.” Friends of the Earth (2010). Print.

[2] Autumn Hanna (Taxpayers for Common Sense), Eli Lehrer (The Heartland Institute), Benjamin Schreiber (Friends of the Earth), and Tyson Slocum (Public Citizen). “Green Scissors: Cutting Wasteful and Environmentally Harmful Spending.” Friends of the Earth (2011). Print.

[3] Friends of the Earth, Taxpayers for Common Sense, Public Citizen, and The Heartland Institute. Green Scissors | Cutting Wasteful and Environmentally Harmful Spending | Green Scissors. Web. 13 Nov. 2011. <http://greenscissors.com/&gt;.

[4] Lehrer, Eli. “Go Green…By Cutting Government.” Interview by Benjamin Schreiber. Washington Journal for Wednesday, September 21. C-SPAN, 21 Sept. 2011. Web. 13 Nov. 2011. <http://www.c-span.org/Events/Washington-Journal-for-Wednesday-September-21/10737424286/&gt;.

[5] Myers, Norman, and Jennifer Kent. Perverse Subsidies – How Tax Dollars Can Undercut the Environment and the Economy. Washington, DC: Island, 2001. Print.

[6] Speth, James G. The Bridge at the Edge of the World – Capitalism, The Environment, and Crossing from Crisis to Sustainability. New Haven: Yale UP, 2008. Print.

Sustainability Twinned with Profits: A Report from IGEL’s Careers in Sustainability Event

Aishwarya Nair is a Masters of Environmental Studies student at Penn, with a focus on Environmental Policy and Sustainability Management. With a B.A in Economics & International Relations from the University of British Columbia, she is currently researching solutions for sustainable electrification in rural areas in the developing world and the redesigning of the grid system.

The days of the earth movement being limited to tree hugging and long-haired hippies are over.  Green fever is sweeping across the global corporate landscape, and I didn’t have to look much further to find the proof of this statement than IGEL’s Careers in Sustainability, Energy and Business event.

On October 5^th, executives from SAP, MERCK & Co, Coca-Cola, the Dow Chemical Company, and Sustainable Life Media met with Penn students to discuss the future of careers in sustainability and social impact. For those looking at the possibility of entering a green career, the advice is simple. You can start anywhere but sustainability is about being cross-functional, understanding business, and being able to speak the “different” languages to communicate across the board. Just as important, however, is picking the right company to work for; it must be a company that understands sustainability as well, and has a purpose that they take active steps to achieve.

Also appealing was the knowledge that sustainable ideas could come from anywhere. With more and more businesses seeing the profitability in greening up their supply chain and their products, today’s focus is on building relationships between disciplines (finance and sustainability for example).

The pointed questions asked by the audience also revealed that this interest is not one sided. One of the real concerns voiced by the students seemed to be whether all that could be done had already been done, and where the future of green corporations was heading. As someone thinking about a green career, I was just as relieved to hear that we’re only at the tip of the iceberg. As populations expand and demands grow upon the natural system, governments and companies are all looking for more innovation and partnerships to help improve choices and productivity.

Another very valid question asked was how do companies make their sustainability schemes mainstream and actually impact the bottom of the pyramid.  Joe Rozza, Global Resource Sustainability Manager for Coca-Cola, gave an example of his company’s own work to show how sustainability must make sense locally. As a company that heavily uses water, Coke’s future is dependent on access to good quality drinking water. When working in an area with lower environmental standards, building economic dependence on a local asset helps not only in greening up the supply chain for a company, but in also improving the quality of life in that area by creating economic development at the bottom of the pyramid.

The main takeaway from the first panel was that one must learn to balance different stakeholders and have clarity of destination. All in all, the event marked an excellent start to the academic year. The panellists were all very informed and very open to really answering the questions and concerns the audience raised.  To read about the second panel on careers in energy and corporate efficiency, click here.

Natural Gas is the Energy Game-Changer: Report from the Wharton Energy Conference

Natural Gas Flaring: Greenpack.com

John Rowe CEO of Exelon was the opening keynote speaker of the Wharton Energy Conference today at the Union League in Philadelphia. IGEL is a sponsor of the conference. Rowe extolled the benefits of natural gas and called it a complete game changer for energy production. The Marcellus shale play is a light in a bad economy, he said, making natural gas much cheaper than almost every other energy production. Switching natural gas is an important part of the Exelon 2020 plan to become more green. Other steps include upping nuclear production, infrastructure improvements, and energy efficiency investments. As the longest serving CEO in energy (28 years) Rowe called this new age of natural gas unlike anything he has ever seen.

At the energy policy panel, experts discussed the next wave of energy policy. Susan Tierney, former Assistant Secretary of policy for the U.S. DOE, argued that the US will never have a comprehensive energy policy due to political landscape. Its not possible. We do have, however, in essence a quilt of patchwork policy. We must shape what we have, she said, by clean energy standards, etc. EPA is using Clean Air Act rules and updates that will help retire old, inefficient plants. Dr. Tierney also extolled the benefits of natural gas, especially in the face of a wave of coal plant retirements. New gas plants are a relatively economical investment, she said. They are now the fuel and technology of choice. By 2025, the U.S. is supposed to support three times as much renewable fuels in our energy policy, but this will be difficult in the face of cheap gas. She argued that we could reduce greenhouse gas emissions by 50 percent using today’s policy, but not much more than that.

In the short term, natural gas’ cheap prices puts tremendous pressure on alternative energy development, said Adam Umanoff, partner at Akin Gump Strauss Hauer & Field LLP. He highlighted advancements in alternative energy such as wind, that are becoming more and more cost effective and competitive. They are not competitive yet, however, and cheap natural gas makes it hazy for alternative energy for the next few years. Dr. Tierney said technological breakthroughs will change the energy landscape in a longer term view. For example, the Midwest would be in a great place for wind once energy storage works. Umanoff highlighted novel technologies such as concentration solar plants in the desert. Using salt, heat and steam, there is 4-6 hours of storage capacity available. It is not quite commercial today, but we are getting close, he said.

At the lunch keynote, Dan Pickering, co-president of Tudor, Pickering, Holt & Co., further discussed natural gas. He also praised its cheapness, saying that there is a 100 year supply. While he briefly mentioned drilling being unsightly, and alleged that there was not a lot of science behind the allegations of natural gas drilling (fracking) causing environmental degradation, the environmental impacts of natural gas were not discussed.

Many environmentalists are gravely concerned about the environmental degradation and health impacts from natural gas drilling by fracking and tar sands mining. Natural gas leakages from pipelines is another problem, contributing three trillion cubic feet of methane, a greenhouse gas several times more potent than carbon dioxide, to the atmosphere annually – a climate impact equal to emissions from half the coal plants in the US.  Leaks and emissions, according to a National Center for Atmospheric Research study, means that even a partial switch to natural gas from coal, will still accelerate climate change through 2050.

While natural gas does indeed appear the cheapest option, what about these externalities? If we priced carbon and greenhouse gas pollution through taxes, would natural gas still be a panacea? If we priced ecosystem services like watershed protection, would natural gas still win out? These questions are important as we discuss America’s energy future. While natural gas may win out, we need to have comprehensive discussions to mitigate negative environmental impacts and move forward in a positive way on energy.

Author Caroline D’Angelo is a graduate student in the Master of Environmental Studies Program, focusing on environment and business.  She is IGEL’s graduate intern and directs IGEL’s website and social media campaign and also conducts research.