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STRATEGIC ENVIRONMENTAL
MANAGMENT
Alfred MarcusCarlson School of Management
What is Strategic Environmental Management?
From Compliance to Business Growth and Development
opportunity, not constraint
enhance competitiveness
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Win-Win Conversion of Environmental Challenges to
Opportunities????
HiHi
ProfitsProfits
LoLo
GoodGood BadBad
Environmental PerformanceEnvironmental Performance
Old ModelOld ModelWin-LossWin-Loss
ComplianceComplianceModel (neutral)Model (neutral)
New ModelNew Model
Win-winWin-win
5
Evidence of Economic Benefits from SEM
Corporate performance (CSP) and corporate financial performance (CFP) are positively correlated.
Reputation is an important mediator of the CSP-CFP relationship.
Meta-analysis of 52 studies by Orlitzky, Schmidt, & Rynes (2003)
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Evidence of Economic Benefits from SEM
Saving $ through energy saving and prevention of risks/lawsuits
Support from socially responsible investment $3.07 trillion in 2009 ($2.71 trillion in 2007)
(Social Investment Forum, 2010)
HOW ACHIEVE SEM???•LOWER COSTS: reduce wastesLOWER COSTS: reduce wastes•INCREASE REVENUE: higher value productsINCREASE REVENUE: higher value productsINNOVATE ----INTRODUCE NEW TECHNOLOGIESINNOVATE ----INTRODUCE NEW TECHNOLOGIES
CostCost
TimeTimebenefitsbenefits
learning
CashFlow
Costs
Earnings
Risks
Cost of Capital
StrategicAnd
PolicyDecisions
Change In
Value
•Energy Efficiency•Material Efficiency•“Dematerialization”•Reduction of Toxicity
SEM Valuation
3M --Dr. Joe Ling:Pollution Prevention
“Pollution is … unused raw material. By reducing the
amount of pollution, … [3M can] save money both on
pollution control and on raw materials the next time around.
It's a win-win situation.”
Dr. Ling launched 3M’s Pollution Prevention Pays program in 1975
POLLUTION PREVENTIONPOLLUTION PREVENTIONLOWERS COSTS: REDUCES WASTELOWERS COSTS: REDUCES WASTE
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22
33
44
Process/processProcess/processstepstep
productproduct
otherother
air air releasesreleases
waste waste waterwater
haz/solidhaz/solidwastewaste
TTOOTTAALL
IINNPPUUTTSS
TTOOTTAALL
OOUUTTPPUUTTSSTotal inputs =Total inputs =
Total outputsTotal outputs
Pollution Prevention Pays (3P)
Foundation for governmental environmental policies/programs globally
Benefits for 3M or for its customers & suppliers.
Fundamental to 3M philosophy
3M’s 3P Results (aggregate first year savings)
Over 3 billion pounds of pollution prevented
Over $1.4 Billion saved
CashFlow
Costs
Earnings
Risks
Cost of Capital
StrategicAnd
PolicyDecisions
ChangeIn
Value
•New products•New markets•New clients• Price premium
Valuation: Environmental Elements
350
300
250
200
250
150
100
50
0
12%
10%
8%
6%
4%
2%
0%
Note: Chart includes any product that claims in label or advertising to address environmental concerns .
Source: Marketing Intelligence Service
1985 1986 1987 1988 1989 1990
0.5%
1.1%
2.0%
2.8%
4.5%
9.2%Introductions per Year
Percent Share of Total Introductions
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NEW GREEN PRODUCTS 1985-1990
Do consumers accept?
*
* *
*
*
*
24
60
122
160
262
308
3M- Using the Sun Instead of Electricity
• Enabled by 3M Multilayer Optical Film
• Materials & process breakthroughs
• Enabled by 3M Multilayer Optical Film
• Materials & process breakthroughs
“Piping” sunlight through a building“Piping” sunlight through a building
“Core Daylighting” Impact
Prototype systems installed in Canada, U.S. and Middle East Energy savings larger than anticipated
System now being commercialized
3-5 Year payback anticipated
New Green Products Today
Do Good– Affirmative !!!
• Activist• Eco-entrepreneur
– Sustainable• Environment• Social• Economic
Bottom of the Pyramid (BOP) Entrepreneurial Opportunities
A $ 5 trillion Market
WHAT BUSINESS TO BE IN?
INNOVATE ----INTRODUCE NEW TECHNOLOGIES & INNOVATE ----INTRODUCE NEW TECHNOLOGIES & PRODUCTSPRODUCTS
*Develop and acquire “green businesses”
*Divest and alter “environmentally damaging businesses
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Edgar Woolard CEO 1989-95 outspoken commitment corporate environmentalism “greening” of portfolio
voluntary exit CFC production SUVA brand HCFC & HFC refrigerants, coolants, air conditioning
agents Chad Halliday his successor
further “greening” of portfolio WHY?
Global Challenge = Opportunity 50% more mouths to feed aging population
Technology 7-8 years slight modification 4-5 years whole new crop
Strategic Realignment by Du Pont
Funds research in “life sciences” with mature businesses (e.g.nylon & polyester)
Sells Conoco Acquires controlling interest Pioneer Hi-Bred
Uncertainties: Obstacles to Realization
Competition Monsanto: genetically modified material
• finance Searle - Nutrasweet & drugs (Celebrex)– Novartis, Hoechst+Rhone Poulenc =Aventis
• same strategy• Environmental & Regulatory
Frankenstein Foods European regulation
separation approved and unapproved strains food labeling
Technological: picking winners - best options feedstocks for bioengineered chemicals corn for chicken feed soy for heart healthy oil
SEM NOT EASY TO ACHIEVE: no slam dunk, but necessary and essential to corporate bottom line
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