Newest Knowledge@Wharton Report, Sponsored by Dow, Explores the Circular Economy

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The Circular Economy: From Concept to Business Reality

In an ideal world, everything manufactured by people would automatically be either re-purposed or reduced to its component parts and recycled for other uses, thus presenting a sustainable, closed loop that wasted no resources. But it’s not a perfect world, and the usual destination for our unwanted goods — especially in the U.S. — is the landfill. Can we turn that situation around?

After more than a century of linear thinking about the path products take from cradle to grave, excitement is growing among environmentalists and business leaders about the revolutionary potential of the circular economy — which fights waste by aiming to extract the maximum value from commercial goods. The recent Wharton conference on the subject, co-sponsored by Dow and Wharton’s Initiative for Global Environmental Leadership (IGEL), brought together pioneers from industry, academia, and non-profit organizations. This report extends the discussion begun at the conference by looking more in depth at the issue.

Turning Waste Streams into Value Streams

Recycling waste salvages just a tiny fraction of a product’s original value. Far more productive uses can be found through re-manufacturing, cascading materials through several lifecycles, and developing new business models that move us away from the concept of ownership all together.

Designing for the Circular Economy

Innovative companies are exploring strategies that address end-of-life issues upfront — when a product is being designed. Some are looking to extend the life of products through old-fashioned durable construction, modern modular design, and futuristic repair-before-failure. Others are developing new materials and new types of products tailored to the circular economy.

The Producer Pays

Germany enacted the first countrywide extended producer responsibility (EPR) law in 1991, and much of Europe (and Asia) followed, but there is no national EPR law in the United States. EPR’s profile is rising,  though, even in this country. The concept has gained a foothold at the state and local levels, and some companies are taking voluntary steps in the direction of EPR.

 

Download the entire report here.

Knowledge@Wharton Public Policy Podcast Featuring Eric Orts

From the Knowledge@Wharton website

“What Trump’s Executive Order Means for the Environment”

With the stroke of a pen, President Donald Trump signed an executive order last week that unwinds the environmental policies of his predecessor. The order directs the Environmental Protection Agency to begin withdrawing the Obama-era Clean Power Plan, which aimed to reduce carbon emissions by closing coal plants and building new solar and wind farms. By signing the order, Trump reiterated his campaign promise to bring back energy-industry jobs while bolstering arguments made by climate change opponents.

But some experts think the act was more flash than substance, saying there is still a long and tangled regulatory path before America can abandon its role in curbing global warming. Eric Orts, faculty director of Wharton’s Initiative for Global Environmental Leadership, Denise Grab, senior attorney at the New York University Institute for Policy Integrity, and Justin Gundlach, a climate law fellow at Columbia Law School’s Sabin Center for Climate Change Law, recently spoke about what the executive order means on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111.

Read more highlights and listen to the podcast here.

Kleinman Cetner’s Energy Now Podcast – The Many Fronts of Trump’s Environmental Deregulation Effort

Submitted by Andy Stone, Communications Manager, Kleinman Center for Energy Policy

President Trump is moving forward with his campaign pledge to roll back environmental protections, most notably with his late March executive order instructing EPA administrator Scott Pruitt to withdraw the Clean Power Plan.  In the latest episode of the Kleinman Center for Energy Policy’s podcast series, Energy Policy Now, Penn law professor Cary Coglianese takes a look at the multiple legal and political tools the Trump administration is using to reduce protections, including executive orders, defunding of agencies with environmental oversight, and use of the previously obscure Congressional Review Act.   Coglianese lays out the challenges each strategy will face, and the potential for regulations to be rolled back or to endure.

 

Closely tied to the issue of climate change is the economic outlook of the electric utility industry, which is increasingly tasked with the role of enabling the transition to clean power, yet will face lower electricity demand as a result.  In a second new episode, former Pennsylvania Consumer Advocate Sonny Popowsky takes a look at the challenge that distributed energy presents to electric utilities’ profitability.  Popowsky, who is an advisory board member of the Kleinman Center, also explores the costs to consumers that could result from efforts to balance the growth of rooftop solar, energy efficiency and related technologies with the need to maintain a power grid that equitably serves all.

Exclusive Offer for Sustainable Brands CSR Conference

Submitted by Karina Newman, Community Engagement Coordinator, Sustainable Brands

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Energy Policy Now Podcast – Carbon Reduction Strategies

Submitted by Andy Stone, Communications Manager, Kleinman Center for Energy Policy

Two strategies stand out in the effort to reduce carbon emissions on an economy-wide scale. Carbon Cap and Trade, and Carbon Taxation, have been implemented with varying degrees of success in recent years, while taking very different approaches to reducing emissions.

The latest episode of the Kleinman Center for Energy Policy’s Energy Policy Now podcast takes a look at the mechanisms by which these strategies seek to reduce emissions, and the political and economic considerations that may make one or the other a best fit for a particular nation or region.

The episode features James Hines, Professor of Law and Economics at the University of Michigan, and an editorial adviser to the Kleinman Center.

Managing Transactional Risks in Contaminated Property Cleanups and Redevelopments

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By Dean Jeffert Telego, Owner & President, RTM Communications, Inc.

Managing environmental and financial risk effectively is challenging for all types of corporate and real estate deals from the portfolio to one- off commercial or industrial property transactions.  The environmental risk and liability concerns that arise, from Mergers & Acquisitions to the legacy liabilities associated with the redevelopment of brownfield sites require the use of bullet proof legal tactics, deal strategies that can bracket and or transfer the environmental risks, and the financial tools, such as environmental insurance to close the deal.  In fact, one of the recent trends in corporate transactions is the terms return of capacity and appetite for calculated risk taking by the Property and Casualty (P&C) carriers.  They are providing broader terms and creative manuscripting of environmental insurance such as Pollution Legal Liability (PLL) insurance, to leverage larger and more complex the transaction – whether the deal is a liability buyout or facilitating the closing of a brownfield transaction and its redevelopment.  The transactions are larger in financial terms and the insurance coverage capacity provided is greater.

Real estate market trends are very favorable driving contaminated property transactions toward cleanup and sustainable redevelopment.  Over the past several years, corporate surplus properties have been turning over, influenced by improved economic fundamentals.  There is a surplus of corporate cash on the sidelines along with institutional and foreign sovereign monies looking for higher yields and investing in U.S. real property.  Some focus on brownfield transactions where there are complex infill properties for affordable housing, waterfront, port terminal activity as well as big box store redevelopment.  There is also wide spread construction that is replacing shuttered malls with high end vertical development.

That said, according to a Citizen Commercial Banking report, commercial and industrial property selling activity for 2017 is ramping up. But middle-market decision makers note that valuations may not hold for much longer coupled with unquantifiable economic uncertainty centered on deregulation and tax reform among other externalities, and these phenomenon are further driving market dynamics. The commercial lending markets have seen the slowest increase in construction lending since 2014.  According to a February 8th 2017 Wall Street Journal article, some prominent real-estate investors are reducing their holdings and getting more selective about new deals due to their uncertainty about future market growth after eight years of a bull market.  Asset managers at endowments and pension funds and some private-equity firms are selling more assets and shifting to less risky strategies.  The demand for property may be starting to flag.  Commercial real estate deal volume decreased by $58.3 billion or 11% in 2016 according to Real capital Analytics.

With this mixed news, how does this all portend for contaminated property and brownfield transactional business and site cleanups and redevelopment activities?

Infrastructure is key term to winning Trump administration’s support for brownfield cleanups and redevelopments.  Couch the funding in terms of infrastructure development.  With the past administration, there had been increase cooperation from regulators especially at the state level with the focus on risk-based cleanups and cooperation with the community toward redevelopment.  With the Trump administration we are in a wait and see period relative to the impact to the brownfield cleanups and redevelopment activity that are historically supported by EPA grant monies.  Under a proposal from the Office of management and Budget, the EPA could find its grants to states cut by as much as 30%.  The impact of environmental deregulation and cutbacks in EPA appropriations and staff by 20% to 25% are proposals that would have a material effect on site investigations, cleanups and redevelopment activities leaving funding support to be sought from the private sector.

Environmental risk can impact the success of closing the transaction, valuation of the assets, and the transfer of legacy liabilities. It takes creative funding, the bracketing of environmental risk using rigorous and alternative due diligence and remedial alternatives, and deal structuring techniques grounded in  risk management strategies to assure that the redevelopment or reuse or successful disposition of the surplus or stranded asset(s) can be successfully implemented.

This RTM conference zeroes in on the effect environmental risk has on deal flow and the management of  commercial, industrial and government property types.  We will get into the business tactics and strategies for reducing the uncertainty caused by environmental risk and closing the deals employing creative environmental risk financing and management approaches.  The Conference will also delve into the enhanced value environmental insurance and liability management strategies are bringing to leveraging the M&A activity and the purchasing and disposition of corporate assets and contaminated real estate.

Key presentations will cover:

  • Environmental liability management strategies for successfully transferring corporate surplus properties and closing M&A transactions,
  • Emerging contaminants and new regulatory challenges confronting the financial services industries and property owners/developers,
  • Accelerated transfer of redevelopment and legacy sites into beneficial reuse,
  • Environmental and M&A Buyer – Side insurance leveraging private equity transactions,
  • Creative application of public/private brownfield financings,
  • Extreme weather, climate change and Green Bonds effect on commercial/industrial properties

Energy Policy Now Podcast – How U.S. LNG is Changing the Global Gas Market

Submitted by Andy Stone, Communications Manager, Kleinman Center for Energy Policy

In 2016 the first shipments of US LNG left from a terminal on the Gulf Coast, opening a new frontier of opportunity for the US natural gas industry and, on an international scale, contributing to the development of a truly global gas market. This globalizing market is eroding traditional buyer-seller relationships, including those of the U.S. and its allies, with implications for political balance.

In the latest episode of the Kleinman Center’s Energy Policy Now podcast, Kleinman Senior Fellow Dr. Anna Mikulska explores the geopolitical implications of a global natural gas market, and potential impact or U.S. foreign relations and policy.

In addition to her work with the Kleinman Center, Dr. Mikulska is a nonresident scholar in energy studies at the Baker Institute for Energy Studies at Rice University. Her research centers around European energy markets and energy policy.

Corporate Responsibility and Sustainability in the Trump Administration

By: Steve Rochlin, Co-CEO, IO Sustainability, Twitter: @SteveRochlin

The trends arising from the new Trump Administration make corporate responsibility and sustainability (CR&S) more central to business success than ever. At first this may seem counter-intuitive. Yet, recent history suggests that Republican controlled Administrations and Congresses create conditions that drive companies to enhance their commitments to CR&S. Ronald Reagan issued an executive order creating a task force calling for business to do more in alleviating social problems. George W. Bush encouraged greater corporate engagement. At the same time, activism calling for business to take on greater responsibility and leadership for environmental, social, and governance (ESG) performance intensifies from NGOs, investors, and media.

The private sector will have a central and often unique relationship with the Administration. One expects the Administration to pare back environmental, safety, and other regulations; corporate taxes; reporting requirements such as those for conflict minerals and extractive industry tax and royalty payments; and engagement in international agreements from Basel III to the Paris Climate Agreement. At the same time, the Administration will advance a mix of carrots and sticks to keep domestic jobs and invest in infrastructure. The Administration will seek to redo social support systems such as the Affordable Care Act, and push education, housing, health, and welfare programs to the states. Foreign policy will mix assertive and isolationist stances. The Administration will pinpoint trade and international aid efforts to areas that are viewed to enhance security, job creation, or both.

This agenda will move forward in the first multi-media Presidency to operate and communicate at the pace of internet time. In this context CR&S will be an essential Swiss Army Knife supporting business development and sales, enterprise risk management, brand and reputation, and HR. Companies should take the following steps.

1) Rethink your approach about gaining ROI from CR&S

Executives will experience admonishments that shift from one extreme – dismantle the company’s costly and distracting ESG commitments – to the other – redouble commitments and take bold ESG leadership. Designing a clear and measurable strategy to prioritize and invest in core CR&S areas is a business essential.

Fortunately, evidence from the recently published “Project ROI” report shows CR&S if done well can bump share price up by 6%, increase sales up to 20%, reduce employee turnover by half, and deliver a host of financial risk, productivity, and reputational benefits. Project ROI gives guidance on how to achieve these results and measure outcomes.

This has never been more important as we shift away from debates about privatizing public services, to innovating business solutions for the 17 Sustainable Development Goals. The “SDGs” represent a $12 trillion opportunity that could create 380 million new jobs. Companies and business initiatives such as the Global e-Sustainability Initiative, IBM, NovoNordisk, and Unilever among many others are taking advantage. As they do, trends suggest that the mainstream investor community will intensify their positions that ESG performance represents an increasingly important predictor of financial performance.

2) Deepen voluntary ESG commitments and reporting

Reagan presciently saw the growing influence of the court of public opinion. A new landscape of organized activists and media has extra-judicial power. Over the last three decades, companies have participated in a massive global experiment to create self-policing stewardship mechanisms across a wide range of ESG issues from chemical-use, emissions, forests, fish, human rights, and many others. The more regulatory constraints are lifted, the higher expectations will rise for companies – especially the the biggest brands and leaders in every industry — to manage their impacts on the environment and communities. They’ll be expected more than ever before to hold their suppliers accountable for meeting so-called, “civic regulation.” It will be more important than ever to find the sweet spot between wider societal needs, and high priority ESG issues that require both management and reporting.

Some industry segments will take advantage, adhering to minimum legal requirements to undercut the costs of ESG compliance leaders. As corporate ESG reporting, commitments, and partnerships continue to establish the new normal for business success, the more these free riders will lose out.

3) Hew strongly to your company’s core values in taking public positions

The current Administration is inventing new ways to engage with the public using new and traditional media. Industries and brands are in the spotlight in ways never seen before. Project ROI finds that the public evaluates the authenticity of corporate responses and positions, and looks to the perceived reaction of employees as a barometer. Culture and values are core to determining where and when companies should pick sides or stay out of the fray. Every company should form a rapid response team with Corporate Communications, Government and Public Affairs, Legal, HR, and the CR&S team leaders attached at the hip.

4) Build your own constituency

The politicization of consumer purchasing behavior is maturing in Europe, and reaching adolescence in the US. Stakeholder outreach is no longer a side activity tied to sustainability requirements. Risk management will increasingly require companies to have access to their own constituent networks willing to serve as character witnesses, advocates, brand ambassadors, intermediaries, and intelligence agents as marketplaces, policy, and politics increasingly intermesh. Companies like Nestlé and Target and collaborative multi-stakeholder initiatives, are finding ways to define how ESG stakeholders can support competitive success. Companies will be wise to move from current forms of stakeholder engagement to corporate constituency development as the Tweets and messages fly.

5) Engage on agreed areas of collective need

Domestically this means jobs and infrastructure. Underneath these tent poles are a host of potential solutions and social innovations such as work force development (see Accenture and PwC), addressing economic opportunity (see Bank of America, JP Morgan Chase, and Walmart), education (see IBM,), health (see Robert Wood Johnson Foundation, Campbell Soup Company, Pfizer), and resilience.

Global companies cannot neglect emerging gaps involved in serving international issues. Now is the time to invest in creative and strategic approaches to international development.

Instruments from corporate and workplace community investment, volunteering, R&D, and cause marketing will become more strategic than ever before. The need to demonstrate progress in solving issues will outpace the need to obtain traditional photo-ops and sponsorship branding.

The bottom line is this: don’t myopically focus on the favorable tax and regulatory agenda. Companies should prepare now to be called from all quarters to partner and lead on ESG issues at an unprecedented level of intensity.

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

Energy Policy Now Podcast: How Alberta Overcame Discord to Enact Carbon Tax

Contributed by the Kleinman Center for Energy Policy, via Andy Stone

Carbon policy unexpectedly made headlines last week when a pair of Republican party elders proposed a national carbon tax with a few unique twists. The proposal from Treasury secretaries George Schultz and James Baker actually looks similar to the carbon tax that the Canadian province of Alberta enacted on January 1st with unusually broad buy-in from environmentalists, the energy industry (Canada’s oil sands are in Alberta), indigenous groups and government.

Energy Policy Now, the podcast from Penn’s Kleinman Center for Energy Policy, interviews Alberta’s senior diplomat to the United States on details of the tax and the collaborative process that made it reality.

Gitane De Silva, Senior Representative to the United States, discusses plan details including the rebate checks to the majority of Albertans to offset higher energy costs. De Silva also provides insights into the provincial government’s intended uses for the balance of the C$9.6 billion in tax revenue over the next five years.