Category Archives: CSR

Driving the New Climate Economy: How Companies and Communities Can Thrive in a Changing World

By Lisa Manley, Director, Sustainability Engagement, Mars

April 7th, 2018

There are clear signals that the climate has changed over the past century. Around the world, people are beginning to feel the effects, from increased average and extreme temperatures, to changes in rainfall patterns, to more severe and less predictable storms. At Mars, we source key agricultural materials from countries and communities that are vulnerable to the impacts of climate change. We believe it’s time to take a new approach to addressing this challenge, using our influence and reach to take action that proactively addresses the impacts of climate change within our supply chain and operations. Here are three things our business and others are doing to take action.

Setting Science-Based Targets

 More than 97 percent of actively publishing climate scientists agreehuman activity is extremely likely to be causing the climate-warming trends over the last century. To avoid the worst consequences of climate change, science tells us we should limit global warming to less than the two degree Celsius threshold outlined in the Paris Agreement on climate change. As the saying goes, you can’t manage what you don’t measure. With that in mind, the first thing business should do is trust the science; then align measurable goals and actions around that science.

We looked to the best-available science to guide us in setting our climate goals at Mars. That science says we must reduce the total greenhouse gas (GHG) emissions across our value chain by 27 percent by 2025 and by 67 percent by 2050(from 2015 levels). That means not only changing how we operate, but also working with partners and suppliers to transform entire value chains so that the ingredients we need to make our best-loved products, like M&Ms and Uncle Bens, are produced with lower environmental impacts. This isn’t an easy goal to meet. But we know it’s what’s necessary to unlock the systemic changes that are needed to benefit people and the planet.

Committing to Renewable Energy

The second thing business should do is look for the places where we can get the most immediate momentum and leverage that momentum for scale. At Mars, energy use is the major driver of our GHG emissions from direct operations. That’s whywe’re big fans of renewable electricity with a goal to eliminate 100 percent of the GHG emissions from our direct operations by 2040. This goal covers the energy use from about 420 sites in more than 80 countries around the world.

We’re already using or purchasing renewable electricity to cover 100 percent of our operations in Belgium, Lithuania, the United Kingdom and the United States. And in 2018, we plan to add Austria, the Czech Republic, France, Mexico, Poland and Spain to this list.In addition to renewable electricity, renewable thermal energy is an important part of our energy use in our factories. For that reason, we helped launch the Renewable Thermal Collaborative – a coalition for organizations that are committed to scaling up renewable heating and cooling at their facilities and dramatically cutting carbon emissions.

Fostering Executive Engagement and Advocacy

The third imperative for business action is to ensure we are aligning what we say with what we do. We need more vocal business advocates for climate action. We are walking this talk through coalitions such as We Are Still In, a declaration made by 2,700 cross-sector leaders in the U.S. to commit to tackling climate change, ensuring a clean energy future and upholding the Paris Agreement. It also can happen through executive advocacy. For example, our Mars chairman, Stephen Badger, recently authored an op/ed piecein The Washington Post,which makes a strong call to action to global businesses on climate change.

We also need to extend our advocacy to include the seats of power and influence within government. That’s why we engage with groups like the Ceres BICEP(Business for Innovative Climate and Energy Policy) Network, to bring business leaders’ voices to Capitol Hill and local legislatures on climate action and clean energy.

For global businesses, it is our time to step up and lead on climate action. This is not just the “right thing to do,” but also makes good business sense; investing in sustainable practices today will help us become stronger, more resilient businesses in the future.

 

SEM HeadshotLisa Manley, Senior Director of Partnerships & Engagement, Mars, Incorporated

Lisa is Senior Director of Partnerships and Engagement within the sustainability team at Mars, Incorporated. In this role, she works to build momentum for the company’s Sustainable in a Generation Plan through compelling communications and engagements as well as uncommon collaboration.  She works with the global sustainability team to create and oversee integrated sustainability strategy; set high-level goals and commitments; assess and drive scaled investments; and manage global sustainability partnerships and programs. Priority platforms for engagement include climate action, water stewardship and land use within Mars’ approach to healthy planet; increasing income, respecting human rights and unlocking opportunities for women within Mars’ approach to thriving people; and food safety & security, product & ingredient renovation and responsible marketing within Mars’ approach to nourishing wellbeing.

Lisa has nearly twenty years of experience working to advance sustainable business growth with consumer goods companies such as Mars and The Coca-Cola Company.

Lisa holds a bachelor’s degree in international relations and a master’s degree in higher education administration from the University of Virginia.  Outside of work, she collects photography and enjoys golf, tennis and biking.

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A Founder With a Vision: Triple Bottom Line Sustainability at Virgin Group

Co-Authored by Joy De Bach (Virgin Atlantic, Regional Commercial Director, East Region), Gabriela Salas (Virgin Atlantic, Global Sales Executive, East Region), & Karen Titus (Delta Air Lines, National Sales Account Executive, Global Sales)

October 18th, 2017

Being a billionaire has afforded Sir Richard Branson many opportunities in life, but after decades of disrupting some of the world’s biggest industries, his latest passion projects have less to do with flying planes and mobile phones and more to do with saving the world.  As employees of Virgin Atlantic and Delta (Virgin’s partner airline), we were fortunate to be able to see Richard at the Authors@Wharton Speaker Series yesterday, and were once again reminded of what an entrepreneurial spirit and compassion for the environment and human rights can do to change the world.

Having recently experienced the devastation of Irma on his Necker Island residence, climate change literally hit Richard, his family, and his employees with the strength of a hurricane.  But rather than dwell on the negative, he spoke of rebuilding infrastructures throughout the islands to come back better than ever before, and views climate change as ‘one of the great opportunities for this world’, encouraging the business sector and entrepreneurs globally to tackle the issues of global warming.

When asked by host, Professor Adam Grant, what his next venture will be, Sir Richard emphasized that he’s setting his sights on the future, focusing on non-profit initiatives to tackle carbon emissions, global human rights, and creating sustainable fuels, just to name a few.  Now, you might think that a mogul with three airlines in the Virgin portfolio which guzzle fuel crossing oceans and continents and saving the environment shouldn’t necessarily be in the same sentence, however Richard and his Virgin Group are achieving just that.  Just take a look at some highlights from the 2017 Virgin Sustainability Report:

  • 8% reduction on total aircraft emissions from 2015 to 2016
  • Continuation of partnership with LanzaTech to create the world’s first commercially viable, low carbon jet fuel from waste carbon gases
  • Installation of solar energy powering an entire secondary school campus and two water systems in Kenya
  • Review and refresh of Virgin’s Responsible Supplier Policy based on international standards of human rights
  • Announcement of a further investment in efficient aircraft with 12 A350-1000s to become part of our fleet from 2019

Yesterday, we were reminded of what a cool boss we have.  We’ve been fortunate to work for and with a man whose vision and compassion could one day further revolutionize the way people travel, consume energy and communicate, as he’s already done for decades.  For the young entrepreneurs of tomorrow, who were able to see Richard speak, we hope some of them heard his rallying cry and will join him in changing the world.

 

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Creating the Next Generation of Business Leaders

By Erin Meezan, CSO, Interface, Inc.

Last week, on the 10th Anniversary of the formation of the Wharton Initiative for Global Environmental Leadership (IGEL), the organization hosted an energizing conference focused on The Future of Education In Business Sustainability. I was honored to participate on a panel of business leaders including Johnson & Johnson, Interface, Coca-Cola and others, and offer perspective on what skills and experiences are required for future business leaders.

The pivotal point of discussion surrounded how business schools should prepare students for sustainable business management. Should curriculum focus on creating graduates with strong foundational business skills combined with an understanding of how to implement sustainable business practices, such as supply chain management? Or, should schools aim to form ethically-minded, collaborative business leaders who have the capacity to lead the organizational change necessary to solve the world’s greatest challenges? The former approach seems wholly inadequate for creating the next generation of business leaders. But sadly, it’s what most business school programs are focused on creating.

As the Chief Sustainability Officer for Interface, a global carpet tile manufacturer with sustainability at its core, I’ve seen the skills and capabilities needed in our business evolve dramatically over the last ten years. When Interface first began its transition toward a more sustainable business model, we needed business leaders with strong business knowledge who were willing to “learn sustainability.” They needed to know how to implement ideas like zero-waste and closed-loop thinking in our factories. But we never would have started to transform our business if our founder, Ray Anderson, had not recognized that the way we were running Interface, divorced from the consequences of our decisions and their impacts on people and planet, was ethically wrong. He called it a “spear in the chest moment” when he realized our business was fundamentally flawed, and so he set a new vision for Interface. Interface has made great progress to reduce its environmental impacts, and we’ve done it with a fantastic set of business leaders who “learned sustainability.” But as we look toward the future and start creating, promoting and finding the next generation of Interface business leaders, we need something different.

Last summer, Interface’s new leadership team, building on Ray’s legacy, set a new mission for the business – engineer a “climate take back.” In response to the threat of global climate change, we’ve committed to run our business in a way that creates a climate fit for life. And we hope to inspire other businesses to follow our lead. This means, simply, we have to move beyond the mindset of just reducing our carbon emissions – we need to focus on removing carbon from the atmosphere. We’re creating a map for how we as manufacturers can achieve this goal. We’ll focus on how we can source materials, run our operations and create products that remove carbon from the atmosphere. When I think about hiring the next generation of business leaders at Interface to help us lead this revolutionary approach, I think about those ethically-minded, collaborative leaders who can go way beyond implementing sustainable business practices, to designing solutions in our business that help change the world. And I hope that I will be able to find and hire them.

An Interview with Maddie Macks, VP of Academics for the Wharton Graduate Association

Submitted by Mary Johnston, WG’18

Mary conducted an interview with Maddie Macks, VP of Academics for the Wharton Graduate Association. Maddie is in charge of Academics as part of Wharton’s Student Government, and is one of the founding members of the Wharton Sustainability Club.

 

Q: Why is Sustainability an important topic for MBAs?

A: First, resources are finite, and many industries including agribusiness, CPG, manufacturing, and energy rely on these materials for their business. My peers, as future business leaders, will be in positions where they are making supply chain, sourcing and operations decisions and will need to steward these resources to mitigate risk.

Second, while the U.S. federal government is currently trending toward deregulation, this is not the trend globally, as evidenced by The Paris Agreement. Many of my peers will be working in international companies where these regulations will be increasingly relevant.

Further, business decisions can have a big impact on local communities. For example, public health can be heavily impacted by water and air quality, and degradation of local ecosystems can impact livelihoods.

 

Q: What are other top business schools doing in their Sustainability Curricula?

A: They are ramping up their sustainability presence, offering certificates and more specific coursework. Many are integrating sustainability more into their core curriculum to ensure all students are educated on environmental issues in business. Almost all top business schools have sustainability-focused student clubs to build a community in the space on campus. Stanford, Sloan, Ross, and Yale are a few prime examples of schools that are increasing their presence in the space, and it’s attracting top students.

 

Q: What does Wharton do well now in terms of Sustainability?

A: Wharton has partnered with IGEL to offer the Environmental & Risk Management Major, which is one of the things that attracted me to Wharton. The Energy Club, Social Impact Club, and Agribusiness Club have sustainability-related programming, and as of this year, we have a group of about thirty students starting the Wharton Sustainable Business Coalition, a new club that will be up and running by Fall 2017. This group of students has also gotten to know each other well during the Energy Club’s clean energy trek to San Francisco as well as several student-run happy hours.

 

Q: What are the biggest opportunities for Wharton to increase the presence of Sustainability in the curriculum in the short term?

A: There are two things I think Wharton can do in the short term.

First, Wharton could incorporate more Environmental Responsibility content into the Business Ethics core requirement. This would help ensure that every Wharton student gets more exposure to how decision-making can have environmental consequences.

Second, Wharton could proactively ensure all relevant graduate coursework from around Penn related to Sustainable Business topics is cross-listed with Wharton to help facilitate students taking these classes. For example, the School of Earth and Environmental Sciences has several great courses.

 

Q: And how about the long term?

A: Wharton has an opportunity to continue to develop coursework related to sustainability and look into hiring more faculty who can teach courses and do research in the area. Wharton has such a huge opportunity to influence future business leaders’ decision-making, and making sustainability more present in Wharton’s curriculum would speak volumes to the issue’s importance. For example, the Environmental Risk & Management Major does a great job covering risk management, and I would love to see innovation and the financial implications of environmental choices highlighted more prominently as well. I also think there are opportunities to offer more sustainability courses as part of the Business Economics and Public Policy, Operations, Information, and Decisions, and Management Majors to name a few. Incorporating more of a focus on sustainability, can help Wharton stay on the cutting edge of business trends.

Exclusive Offer for Sustainable Brands CSR Conference

Submitted by Karina Newman, Community Engagement Coordinator, Sustainable Brands

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Progress on Sustainability Initiatives at Major Consumer Product Companies (Part 1)

Submitted by Rekha Menon-Varma (WG ’06), Managing Partner, Vertaeon LLC

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Leading consumer product companies have embraced corporate sustainability, from setting mid to long term goals to driving alignment with business objectives. In addition to resource scarcity, increasing regulations, and ever expanding global supply chains, these companies also face changing consumer expectations. A decade ago, I was debating aspects of profit maximization, considering all stakeholders rights and the conflicts (in interests) it could bring about, at our business law class at Wharton. Today, leaders like Unilever, Nestle and Coca-Cola have demonstrated how to strike the right balance in implementing Sustainability initiatives.

Here at Vertaeon, our focus on sustainability strategy, resources and supply chain made us curious about goal-setting in consumer product companies (CPG). Sustainability goals in leading CPG companies ranged from operational (reducing/managing resource consumption, emissions, safe workplace) to supply chain (sustainable sourcing and reducing waste and carbon footprint of supply chain) to social impact. There has also been discussions and actions on business model and product innovation. However, as Clayton Christensen put it in a recent conversation* success in business model innovation is not easy even for leaders. Balancing innovation with social and environmental drivers make it even more complex to design and implement.

Being focused on data analytics and having experienced the power of data in ensuring successful Sustainability initiatives, we went searching for consolidated data on Sustainability goals at CPG companies and found it on Andrew Winston’s Pivot Goals site**. As a first pass, we looked at three sub-sectors including Food, Beverage, and Household and Personal Care. Within these, we assessed fifteen companies and fourteen KPIs including: Climate, Energy, Renewable, Fuel, Air, GHG, Water, Waste, Forest, Safety, Packaging, Food & Ag, Products and Distribution.

Our goal was to identify past focus areas and undertake some level of sector and company benchmarking and gap identification that could (a) yield higher visibility into goal-setting and (b) identify improvement options. For analysis purposes, each goal was reduced to the main message and assigned to one of four buckets/goal areas, categorized by Vertaeon, as Operations, Supply Chain, Products and Community. Progress along these four broad buckets is the primary focus of this analysis. In total, we assessed 19 goal types, 12 focus areas and 155 goals. Considering, ‘what’s measured is managed’, we also split goals with specific targets and progress from those with No Reported Change. Community bucket showed up mainly under ‘no reported change’. (Ref: Charts 2 & 3).

[For detailed analytics related to peer benchmarking and company performance, please contact us at http://www.vertaeon.com]

Key Findings

Operational goals lead the way:

It is no surprise that companies focused on their operations. 51% of the goals are related to reduction targets; GHG (11%), energy (9%), water (10%) and waste (14%) combined with improving recycling (5%), safety and renewable energy. Traditionally, reduction goals have been viewed as cost reduction opportunities; however, as CPG customers, retailers and consumers, demand more from their supply chain, operational initiatives will continue to stay at the forefront of sustainability. Vertaeon’s Integrated Analytics™ platform provides opportunities to further leverage, through in-depth analytics, the operational data collected as part of these initiatives to identify actionable operational improvements.

Supply chain offers new KPI opportunities:

Sustainable sourcing leads overall goals; however, this can be attributed to high coverage by Unilever and P&G (20/27 or 74%). Supply chain goals currently under focus in the CPG sector are improving sustainable sourcing (17%), reducing GHG emissions in supply chain (6%) and transportation (2%). This analysis indicates a vital need for more players to adapt goals/KPIs in the areas of reducing GHG and Carbon footprints, reducing packaging waste and improving sustainable sourcing of raw materials and packaging along the supply chain.

CHART 1

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Product goals as prevalent as supply chain goals (Ref: Chart 2):

While leading players such as Unilever, Nestle, Coca-Cola & Pepsi have embarked on product nutrition and sustainability goals, overall there is still considerable room for improving product sustainability within these consumer sectors. Here again, we will see more KPIs as consumers demand higher levels of nutrition and impact labeling. Current product goals focus on health & wellness (13%) and packaging (6%).

CHART 2

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Goals with no reported change (Ref: Chart 3):

The Community section leads the pack here with goals in community (13%), water availability (9%) and health & wellness (6%). This offers opportunities to set specific targets and monitoring for community and social impact and assess investment priorities as well as impact. Other notable ‘no change’ goals came up in Water (Operations), Food & Ag (Supply Chain) and Health & Wellness (Products). This could suggest there is room for setting additional targets and subsequently monitoring changes here as well.

CHART 3

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In Conclusion

This preliminary assessment of Sustainability goal-setting and currently reported goals at leading CPG companies indicate a primary focus on Operational goals. While Product and Supply chain goals are increasingly becoming part of sustainability initiatives at the leading companies, there is room for further adoption in this sector. The focus on Operational goals presents the unique opportunity for companies to leverage the operational data collected as part of goal-tracking to identify opportunities for improvement. As mentioned at the outset, the heterogeneity in consumer expectations has not yet fully translated to goal-setting or reporting. A recent publication by NC State University*** found that consumers see other dimensions (e.g. risk & compliance, social justice) of interest than those put forth by the GRI framework, thereby suggesting a disconnect between corporate sustainability reporting and stakeholder views and interests. Understanding of consumer demographics and preferences via segmentation and translating insights to product and engagement strategies can address this.

Blog Contributors: Danielle Boccelli, Data Analyst, Vertaeon LLC & Vipin Varma (WG’11, IGEL Alumni Advisory Board), Co-Founder, Vertaeon LLC

*Building a business creation engine, MIT Sloan Webinar, January 2017 **www.pivotgoals.com, A. Winston in collaboration with Jeff Gowdy                          ***Study finds current corporate sustainability reporting misses the mark, M. Bradford et al., NC State University, January 2017

Collaboration, Innovation and Sharing: Turning Circular Supply Chain Vision into Reality

By Todd Hoff, VP Marketing and Customer Solutions, CHEP North America

When many of us were young, our parents taught us to share because it is polite and a nice thing to do. Today, as the world faces significant population growth and the environmental challenges that follow, the concept of sharing is a key building block in the long-term strategy to build a better world.

Experts say that the global population is expected to grow from 7.5 billion today to nearly 10 billion by 2050, adding more than two billion consumers to the global economy that will need access to safe, affordable and nutritious food and personal care products.

For decades, the fast-moving consumer goods industry has kept pace with growing population and consumer demands thanks to the development of innovative agricultural, manufacturing and supply chain practices. In recent years, academics, industry leaders, economic and sustainability thought leaders and efficiency experts have been collaborating to develop equally innovative plans for successfully meeting the challenges of the future.

That is where the concept of sharing comes in. Moving beyond the concept of reduce, reuse and recycle, stakeholders in the global economy have developed a vision of a Circular Economy, powered by a Circular Supply Chain that produces zero waste and zero carbon emissions. The fundamental building block of a Circular Supply Chain is shared and reusable assets.

At CHEP, our business model is based on shared and reusable assets. We move consumer goods throughout the world on more than 300 million reusable pallets, containers and crates that are used over-and-over again by our customers. We are committed to the vision of a Circular Supply Chain and bringing it to life through ongoing collaboration with our customers, thought leaders and stakeholders around the globe.

On February 8th, CHEP partnered with the Wharton School’s Initiative for Global Environmental Leadership at the University of Pennsylvania for a thought leadership event entitled,  Connecting the Dots: Sustainability Through a Circular Economy. CHEP teamed up with visionary stakeholders – a major packaging manufacturer; a multinational food, snack and beverage corporation; a grocery retailer and a leading consumer research company. They each discussed their sustainability efforts and collaboration in helping to turn the vision of a Circular Supply Chain into reality.

A recent study by McKinsey & Company shows that the consumer goods supply chain is fertile ground for both efficiency and sustainable savings presently and over the long-term. That is intriguing, because our focus at CHEP is collaborating with our customers to optimize and improve the sustainability of the supply chain.

Through our end-to-end supply chain solutions, we help our customers save money, become more efficient and more sustainable. For instance in the past 12 months, when it comes to sustainability, we have helped customers keep 1.4 million trees on the planet and eliminate 2.3 million tonnes of CO2 from the atmosphere, equivalent to taking more than 485,000 passenger vehicles off US roads. We’ve also removed 1.3 million tonnes of waste from landfills, eliminated 3 million empty truck miles and avoided more than 3,000 tonnes of food from being damaged during transport.

In collaborating with our customers, CHEP and its parent company, Brambles, have been recognized by the leading Circular Economy foundation and a major grocery retailer as a key component of the Circular Supply Chain because of our shared and reusable business model.

We are excited about developing an efficient and sustainable global supply chain that benefits people and the planet for generations to come. We are equally proud to partner with our customers and leading stakeholders to achieve a Circular Economy and a Circular Supply Chain, through sharing our experiences at Connecting the Dots.

Visit www.chep.com for more information or follow us on Twitter @CHEPna and LinkedIn. Please also check out our YouTube channel.

PSR Presents: The Business of Sustainability

By Samantha Freeman

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On Saturday, November 19th, my Management 100 team hosted a conference in John H. Huntsman Hall on behalf of Penn Sustainability Review. This conference, The Business of Sustainability, explored the intersection between business and sustainability. Our keynote speaker was David Cohen, Chairman of the Trustees of the University of Pennsylvania and an Executive Vice President of Comcast Corporation. Our panel included Morgan Berman, CEO and Co-Founder of MilkCrate; Melissa Lee, CEO and Founder of The GREEN Program; Jason Halpern, CEO and Co-Founder of Gridless Power; and Emily Schapira, Campaign Director for the Philadelphia Energy Authority (PEA). Together, these speakers and panelists answered the long-standing question: How can the sustainability efforts of businesses both small and large lead to significant change?

My team, Flight Club, kept two main goals in mind when planning this conference. We wanted to 1) promote the discussion of sustainability issues among the Penn population, and 2) increase name recognition and interest in PSR. With over 130 Penn students in attendance, the conference successfully raised awareness for the academic discourse community PSR has created. Furthermore, the dozens of questions received for the panel and several students’ newfound interest in writing articles post-conference revealed that sustainability is a topic that truly sparks the curiosity of the Penn population. We are so excited to see how PSR will keep bringing this enthusiasm to new heights over the next few years.

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Around 1 pm on Saturday, students began entering F85. They happily stacked their plates with Chipotle burritos and Zesto’s Pizza, then found a seat and waited for introductions from Lori Rosenkopf, Vice Dean of the Wharton Undergraduate Program, and Julianne Goodman, Editor-In-Chief of PSR. Following these introductions, David Cohen spoke for twenty minutes on Comcast’s commitment to sustainability and future of sustainable investments for businesses. Comcast’s LEED-certified buildings were one point of focus. Comcast Center, in downtown Philadelphia, utilizes high-performance glass and sunscreens and water-saving fixtures to reduce expenses and energy consumption. As Comcast builds more structures like these, the corporation remains committed to delivering its services in a manner that lessons its environmental footprint.

Around 1:50 pm, the panel began its discussion, moderated by Penn graduate student Emily Newton. As the panelists shared the stories behind their businesses and how they got involved with sustainability, one thing became clear: All a person needs to start building an idea is a personal commitment to the issue at hand. For Morgan Berman and Melissa Lee especially, an independent goal to live more sustainably blossomed into a plan for a company that would allow others to do the same. Following the initial round of questions, audience members were welcome to ask their own. Several students were interested in hearing the answer to this question: What small things can I do? As they learned from the panelists, regardless of how miniscule the activity may be (for example, carrying a reusable water bottle over a plastic one), anything counts, and every great decision can have an even more substantial impact.

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My team thoroughly enjoyed working with PSR over the course of the semester, and we hope everyone who attended our conference found the experience to be as enjoyable and rewarding as we did. If you are interested in learning more about the featured businesses or want to know what you can do to promote sustainability, please reach out to our panelists, whose contact information is listed below. We’d like to extend a huge thank you to Julianne Goodman, Hersh Solanski, and Elena Rohner for their guidance, and we thank you all for flying with us.

 

Panelists’ Contact Information:

Morgan Berman: Morgan@mymilkcrate.com

Jason Halpern: Halpern@gridless.com

Melissa Lee: Melissa@theGREENprogram.com

Emily Schapira: eschapira@philaenergy.org

Environmental Catastrophes: The Buck Stops in the C-Suite!

By Lawrence B. Cahill, CPEA, Wharton IGEL Alumni Advisory Group

Introduction

Corporate environmental, health and safety (EHS) programs require a substantial commitment on the part of executive management in order to be successful.  Programs, policies, and procedures must be defined and implemented, resources committed, audits assessing performance conducted, deficiencies corrected, and improvements made.  If all goes well, there is a presumption that unwanted surprises and incidents will be rare, resulting in fewer management headaches and no material adverse personal consequences for senior managers.  Truly a win-win for both the company and its executives.

Sadly, it is not always the case that senior corporate executives participate actively in EHS programs.  A passive approach is much more common as EHS compliance and performance is often deemed to be the sole responsibility of EHS and Sustainability Managers in the organization.  This passive approach can be perilous for both the individual executive and the company.  Senior executives should be involved actively and there are ways to test whether this involvement is real or not.  What follows is a discussion of why participation and commitment are important and a way to test whether it is truly happening in a given organization.

Why Commitment is Important to the Executive

Some believe that environmental incidents and catastrophes will have an impact on a company’s reputation but will not directly affect senior corporate executives.  For example, a recent column in the on-line Environmental Leader was entitled “No Reputational Penalty for CEOs on Environmental Lawsuits.”[1]  The column refers to a study published in the Journal of Contemporary Accounting & Economics entitled “Corporate litigation and changes in CEO reputation: Guidance from U.S. Federal Court lawsuits”.[2]  This study, based on almost 10,000 cases filed in U.S. federal court over an eight-year period from 2000-2007, concluded that there was:

“…no evidence of any reputational penalty for CEOs following environmental allegations against their companies,” [University of Adelaide, South Australia] business school lecturer Dr. Chelsea Liu told Environmental Leader. “This means that the executive labor market, driven by the collective actions of corporations in the marketplace, is not inclined to ‘shun’ those CEOs whose firms are accused of environmental violations. This is very different from how the market reacts to allegations of financial fraud —prior research shows that CEOs whose firms are accused of financial fraud do experience significant reputational damage.”

Yet, actual notable cases in recent history would appear to contradict the study’s conclusions.  There are any number of instances where very senior executives, including several CEOs, have had their reputations permanently sullied and some have even been sentenced to prison for negligence with respect to EHS mismanagement.  These include the following five cases:

  • Union Carbide Corporation (UCC). Warren Anderson, the then CEO of UCC, and seven other employees were sentenced to 2 years in prison in June 2010 for negligence (the maximum allowed by Indian Law) as a result to the December 1984 Methyl Isocyanate release in Bhopal, India, which killed an estimated 4,000 people and injured another 500,000.  Anderson died in Florida in 2014 at the age of 92 and served no prison time in India as he was not extradited.  Interestingly, “Bhopal protestors” picket the Dow Chemical Headquarters in Midland, MI every year at the annual shareholders meeting.  Dow purchased the assets of UCC in 2001, a full 17 years after the incident.  Should the Dow/DuPont merger announced in December 2015 go through one wonders if the protesters will picket in Wilmington, DE as well, the historical headquarters of DuPont.  Not something that executives in either company presumably relish.
  • BP. After a 28-year career with BP, Tony Hayward, the now ex-CEO, was forced to resign on October 1, 2010 as a result of the April 20, 2010 Deepwater Horizon oil spill in the Gulf of Mexico.  Ironically, Mr. Hayward had replaced Lord John Browne as CEO in 2007 who resigned partly as a result of the BP Texas City Refinery fire that killed 15 people in 2005.
  • Massey Energy. Don Blankenship, the now ex-CEO of Massey Energy, was forced to resign on December 3, 2010 after the April 5, 2010 explosion at the Upper Big Branch Mine in West Virginia, which killed 29 miners.  On April 6, 2016, Mr. Blankenship was sentenced to one year in prison for “conspiracy to willfully violate mine health and safety standards.”
  • Tokyo Electric Power Company (TEPCO). Three former TEPCO executives were indicted for negligence on February 29, 2016 as a result of the Fukushima nuclear power plant meltdown caused by a March 2011 tsunami.  In March 2015, a Japanese National Police Agency report confirmed 15,894 deaths, 6,152 injuries and 2,562 people missing as a result of the tsunami.
  • Volkswagen. The now ex-CEO of Volkswagen, Martin Winterkorn, was forced to resign on September 23, 2015 as a result of the 2015 “Clean Diesel Scandal” in the U.S.  Winterkorn accepted responsibility for the scandal while asserting that he was “not aware of any wrongdoing on my part.”  Volkswagen and its executives face possible criminal enforcement action from the U.S. Department of Justice and over 25 State Attorneys General.

It is pretty clear then that there are indeed personal consequences for senior executives when significant EHS incidents occur.  Any individual sitting in one of the chairs in the C-Suite would do themselves a favor by becoming more involved in the company’s EHS management.  And in fact, senior management reviews are a mandatory requirement of ISO 9000 (Quality), ISO 14000 (Environment) and OSHA 18000 (Health and Safety) management system standards often adopted by organizations to better govern operations.  For example, ISO 14000 requires the following: “Top management shall review the organization’s environmental management system, at planned intervals, to ensure its continuing suitability, adequacy and effectiveness.”[3]  And indeed, there are companies, such as Occidental Petroleum, where members of the Audit Committee of the Board of Directors regularly review actual site EHS audit reports.  Although this particular activity should not be relied upon exclusively for assurance purposes, it does provide valuable information on both leading and lagging EHS compliance and performance indicators.

Evaluating Executives’ Commitment

How then does one test whether key executives have an understanding of the implementation and results (and potential consequences) of the company’s EHS management and programs?  One way is to interview these key executives as part of an annual review of EHS program performance.  This annual review can be conducted internally or through a third party.  The evaluation should involve a detailed review of policies and procedures, interviews with a sample of executives at various levels of the organization, and testing the implementation of the EHS program at the site level through assessments or audits at a sample of operating facilities.

The interviewing of key executives is, then, a key component of an EHS program evaluation. In conducting these interviews any interviewer must be diligent, thorough but also respectful of the executive’s time. They are very busy people.  The questions provided below in Table 1 can be used to address and test an individual executive’s involvement and commitment.  It’s important to note that each executive must tailor his or her involvement to best support the organization as effectively as possible.  So, the interviewer should not assume that any given executive should be involved in all the aspects suggested by the questions.  For example, one executive might be involved in the setting of corporate EHS policy and sustainability goals, while another might be responsible for implementing programs within his or her division to achieve those goals, while still others might actually visit plants in their business units periodically to assess site-level performance and gather feedback on the challenges the site management experiences in meeting the goals.

Based on actual experience the questions can be covered in 30-45 minutes. Face-to-face interviews are preferred but a phone interview or video conference can be used as well with comparable results.  Note that the questions are designed to elicit more than a yes/no response.  The interviewer might also discover that the executive will request to see the questions in advance.  That is perfectly acceptable and might actually produce a more productive session as there is a good chance that the executive will have given the questions considerable thought in advance.  In some cases, they will have actually written-out their answers which can enhance the face-to-face discussion.

TABLE 1: Ten Questions to Test an Executive’s Involvement in a Corporate EHS Program

Area of Inquiry Question
1. Personal Involvement What has been your involvement with the corporate EHS program to date?
2. Program Objectives Do you understand the objectives of the program? What are they? Do you believe the objectives are being met? Why or why not?
3. Program Effectiveness Do you believe the program is effective, adequately resourced, and adds value? Specifically, why or why not?
4. Organizational Setting Do you believe that the program is positioned within the organization so as to achieve the appropriate independence and authority? If not, what could or should be done?
5. Stakeholder Involvement Are the concerns of all stakeholders’ (e.g., management, employees, stockholders, regulators, NGO’s, communities) being considered appropriately? Any stakeholders’ interests that are under-represented?
6. Management of Change Is management of change a key component of the program?  If so, how do you know?  If not, why not?
7. Risk Identification Does the program adequately identify and define the key EHS risks faced by the company?  In your estimation, what are the top three risks?
8. Program Outputs Do you see what you need to see with regards to the outputs of the program? If not, what would you like to see that you don’t see now?
9. Corrective Actions Is there sufficient management attention given to correcting identified program deficiencies and needed improvements in a timely fashion? How do you know?
10. Improvements What is the EHS program doing well and should continue to do? If you could change or add one thing to the program to make it better what would that be?

Note that the very last question is extremely important. So, the interviewer has to be careful to manage the interview process so that there will be time for it to be asked and answered.  Executives are very smart and savvy people.  Asking them to identify one thing they might change or add to the EHS program to make it better will often elicit some sage advice and maybe even some “out of the box” thinking.

Closure

Executive participation in and commitment to EHS performance is one key to assuring company-wide compliance and potentially avoiding catastrophes. Experience shows that there is no guarantee that executive participation will be a ‘fail-safe” measure but rigorous management support throughout the organization can be extremely valuable.  Involving executives in an active way can help bolster the program and provide the support necessary to accomplish goals, achieve compliance and minimize (but sadly not eliminate) the potential for disasters.

[1] Hardcastle, Jessica Lyons, “No Reputational Penalty for CEOs on Environmental Lawsuits,” Environmental Leader, March 7, 2016

[2] Liu, Chelsea, et.al., “Corporate litigation and changes in CEO reputation: Guidance from U.S. Federal Court lawsuits,” Journal of Contemporary Accounting & Economics, Volume 12, Issue 1, April 2016, Pages 15–34.

[3] International Organization for Standardization (ISO), “Environmental management systems – Requirements for guidance and use,” ISO14001:2015, Third Edition, Section 9.3, September 15, 2015

Sustainable or Not Sustainable? That is the Question!

By Lawrence B. Cahill, CPEA, Wharton IGEL Alumni Advisory Group

Today there are many economic and social drivers for companies to move towards being more sustainable, green, compliant, and safe in the workplace. One of these drivers is being recognized by credible third parties for exceptional performance. For example, being listed on the Dow Jones Sustainability Index (DJSI) or having one or more sites as members of U.S. OSHA’s Voluntary Protection “Star” Program are noble corporate goals and can enhance a company’s reputation. However, some recent events suggest that these recognition programs should be viewed with perhaps some skepticism. Case in point – BP, Tokyo Electric Power, and VW were all DJSI-listed companies prior to the 2010 Deepwater Horizon, 2011 Japanese Tsunami, and 2015 Clean Diesel incidents. All three companies were removed from the DJSI list within a month of the incidents, suffered significant hits to their stock prices, and had CEO’s and other executives forced to resign. One has to ask the question then: What might this say about formal sustainability recognition programs. This link to an EHS Journal article in 2015 explores this issue in more detail.