Business and the Environment6 Application of CSR: Firm Water

Business and the Environment6Business and the Environment6

Application of CSR: Firm Water PolicyApplication of CSR: Firm Water Policy– Whether CSR is consistent with profitability or Whether CSR is consistent with profitability or

CSR as profit sacrificing. Difficult to determine. CSR as profit sacrificing. Difficult to determine. – Real example where both may be involved: Real example where both may be involved:

Taking actions that are consistent with profitability in Taking actions that are consistent with profitability in avoiding costly regulation, community, and consumer avoiding costly regulation, community, and consumer reaction.reaction.

Taking actions driven by external pressures that are Taking actions driven by external pressures that are riskier and more rapid than the firm’s managers riskier and more rapid than the firm’s managers would prefer.would prefer.

Business and the EnvironmentBusiness and the Environment

– Quality fresh water supplies under increased Quality fresh water supplies under increased stress.stress. Overallocation. Competing uses. Colorado River.Overallocation. Competing uses. Colorado River. Missing markets—prices and easy allocation Missing markets—prices and easy allocation

mechanism. Tucson example of misallocation. mechanism. Tucson example of misallocation. Strongly held community views.Strongly held community views. High profile.High profile. Poor infrastructure, especially in developing regions.Poor infrastructure, especially in developing regions. Business often in the middle.Business often in the middle.


– Business use of water becomes an issue.Business use of water becomes an issue. DirectDirect Supply chainSupply chain Expansion plans.Expansion plans. Climate change exacerbates the problem.Climate change exacerbates the problem. Growing environmental impact.Growing environmental impact.

– Threat of government intervention or stranded Threat of government intervention or stranded capital if water is lost subsequently.capital if water is lost subsequently.

– Threat of consumer response.Threat of consumer response.


Proactive business response. Proactive business response. Course webpage: “At the Crest of a Wave: A Course webpage: “At the Crest of a Wave: A

Proactive Approach to Corporate Water Strategy.”Proactive Approach to Corporate Water Strategy.” Develop and implement a water strategy;Develop and implement a water strategy;

– Conduct a water use assessment across the supply chain:Conduct a water use assessment across the supply chain:


Type of business—all categories overlap.Type of business—all categories overlap.– Water consuming businesses—food, beverages, Water consuming businesses—food, beverages,

pharmaceuticals, agriculturepharmaceuticals, agriculture– Water polluting businesses– agriculture, apparel, mining, Water polluting businesses– agriculture, apparel, mining,

defensedefense– Water transporting businesses—construction, shippingWater transporting businesses—construction, shipping– Water financing businesses—banking, insuranceWater financing businesses—banking, insurance– Water provisioning—utilities, technology providersWater provisioning—utilities, technology providers– Water dependent—utilities, software, shippingWater dependent—utilities, software, shipping


– Evaluate water related risks within the value chain and the supply Evaluate water related risks within the value chain and the supply chain.chain. Supply issues?Supply issues? Quality issues?Quality issues? Who is affected?Who is affected? Risk?Risk?

– Reputation?Reputation?– Production?Production?– Distribution?Distribution?– Input supplies?Input supplies?

Stakeholders—NGOs, media, governmentStakeholders—NGOs, media, government


– Sectors (Value chain analysis) and water use—Sectors (Value chain analysis) and water use—volume, source, impact—quantity, quality.volume, source, impact—quantity, quality. Sourcing—inputs, storageSourcing—inputs, storage Production—manufacturing, assembling, storageProduction—manufacturing, assembling, storage PackagingPackaging Distribution—transport, storage, support, marketing.Distribution—transport, storage, support, marketing. End of life—recycling, disposal.End of life—recycling, disposal. Facilities at all levels and divisions.Facilities at all levels and divisions.


Risk ManagementRisk Management– To change the probability that the environmental event To change the probability that the environmental event

occurs through changes in the supply chain use of occurs through changes in the supply chain use of water.water.

– To change the losses involved.To change the losses involved.– To change the firm’s liability. To change the firm’s liability. – To change the manager’s liability.To change the manager’s liability.– To obtain more information on mitigating the problem. To obtain more information on mitigating the problem.

To change corporate culture.To change corporate culture.– To evaluate the costs and benefits of these actions.To evaluate the costs and benefits of these actions.


– Cost-benefit analysis involves:Cost-benefit analysis involves: Evaluation of uncertainty, Evaluation of uncertainty, Ease of implementation,Ease of implementation, Assessment of impact on supply chain, Assessment of impact on supply chain, Visibility, Visibility, Community, market good will.Community, market good will.

– Coordinate managerial levels and set firm initial agenda:Coordinate managerial levels and set firm initial agenda: hardware response (inputs, supply chain), hardware response (inputs, supply chain), operational response (production, R&D, delivery), operational response (production, R&D, delivery), employee response, employee response, consumer response (marketing).consumer response (marketing).


– Interact with relevant stakeholders on Interact with relevant stakeholders on implementation:implementation: CommunityCommunity NGOsNGOs ShareholdersShareholders EmployeesEmployees Government Government

– Operationalize.Operationalize.– Document. Document. – Communicate.Communicate.– Evaluate.Evaluate.


– Conflict between promoting share holder value Conflict between promoting share holder value and reducing environmental risk. and reducing environmental risk.

– Because of limited information, may over invest Because of limited information, may over invest or under invest in risk mitigation. Incentives of or under invest in risk mitigation. Incentives of managers may not coincide with firm’s best managers may not coincide with firm’s best interests.interests.

– Outside pressures or drivers for more Outside pressures or drivers for more immediate action before the firm’s managers immediate action before the firm’s managers can fully assess how to respond to the problem.can fully assess how to respond to the problem.


Firms have incentives to reduce environmental Firms have incentives to reduce environmental risk, such as those associated with water. risk, such as those associated with water. – Disrupts cash flow if major liability and clean up or other Disrupts cash flow if major liability and clean up or other

water related costs take place.water related costs take place.– Damages reputation with consumers, regulators, Damages reputation with consumers, regulators,

employees, investors.employees, investors.– Risk to the firm: cost of cleanup, liability for damage, Risk to the firm: cost of cleanup, liability for damage,

damaged reputation, potential for lost water supplies, damaged reputation, potential for lost water supplies, lost sales, lost employee and supplier goodwill, lost sales, lost employee and supplier goodwill, increased likelihood of government regulation. increased likelihood of government regulation.


Intel case: Impact of expansion of chip Intel case: Impact of expansion of chip manufacturing in New Mexico in early manufacturing in New Mexico in early 1990s. Water Impact.1990s. Water Impact.– Background.Background.

Enticed to New Mexico (and Arizona) through various Enticed to New Mexico (and Arizona) through various tax incentives. 1980.tax incentives. 1980.

Average plant salaries are $35,000 - more than Average plant salaries are $35,000 - more than double the per capita income in New Mexico, the fifth double the per capita income in New Mexico, the fifth poorest state. All of which made Rio Rancho the poorest state. All of which made Rio Rancho the nation's fastest growing small city in 1993.nation's fastest growing small city in 1993.


– 1993, Intel had a competition for site of the expansion 1993, Intel had a competition for site of the expansion for the new Pentium and next-generation P6 chips. New for the new Pentium and next-generation P6 chips. New Mexico beat Arizona, Texas, California, Utah for the Mexico beat Arizona, Texas, California, Utah for the plant with vary large additional tax incentives. Their plant with vary large additional tax incentives. Their reward was Intel's $1.8 billion Fab 11, a project that reward was Intel's $1.8 billion Fab 11, a project that would become the third largest industrial expansion in would become the third largest industrial expansion in the world that year. the world that year.

– An underlying assumption was that the Albuquerque An underlying assumption was that the Albuquerque area could provide the water.area could provide the water.

– This was no small concern because Intel and all This was no small concern because Intel and all semiconductor companies freely admit they are, by the semiconductor companies freely admit they are, by the nature of their technology, world-class water hogs.nature of their technology, world-class water hogs.


– The six- and eight-inch-diameter silicon wafers Intel makes must be The six- and eight-inch-diameter silicon wafers Intel makes must be rinsed at least 20 times in hyper-clean water to remove impurities. rinsed at least 20 times in hyper-clean water to remove impurities.

– Estimated that an average of 2,840 gallons was used to produce Estimated that an average of 2,840 gallons was used to produce one six-inch wafer and perhaps twice that for an eight-inch. one six-inch wafer and perhaps twice that for an eight-inch.

– If Intel's new chip factory makes about 30,000 eight-inch wafers a If Intel's new chip factory makes about 30,000 eight-inch wafers a month, which is standard, the amount of water used could reach 6 month, which is standard, the amount of water used could reach 6 million gallons a day. million gallons a day.

– For comparison, the daily use of a really gluttonous golf course is For comparison, the daily use of a really gluttonous golf course is about 1 million gallons. about 1 million gallons.

– Intel says it returns 85 percent of this water to the Rio Grande Intel says it returns 85 percent of this water to the Rio Grande through Albuquerque's treatment plants; however, that water never through Albuquerque's treatment plants; however, that water never makes it back to the aquifer.makes it back to the aquifer.


In April 1993 Intel applied to the New Mexico state In April 1993 Intel applied to the New Mexico state engineer, who decides water allocation issues, for a new engineer, who decides water allocation issues, for a new water-use permit that would allow it to use 4,500 acre-feet water-use permit that would allow it to use 4,500 acre-feet of water a year, or about 4 million gallons a day. of water a year, or about 4 million gallons a day.

An acre-foot is the amount of water it takes to cover one An acre-foot is the amount of water it takes to cover one acre to a depth of one foot, or about 326,000 gallons. acre to a depth of one foot, or about 326,000 gallons.

In addition to Intel's pumped water allotment, it would In addition to Intel's pumped water allotment, it would continue to use about 3.5 million gallons a day from Rio continue to use about 3.5 million gallons a day from Rio Rancho Utilities, which also pumps from the aquifer.Rancho Utilities, which also pumps from the aquifer.

August 1993, U.S. Geological Survey reported that August 1993, U.S. Geological Survey reported that Albuquerque was pumping out its groundwater nearly three Albuquerque was pumping out its groundwater nearly three times faster than it could be replenished.times faster than it could be replenished.


– Intel's water request, arriving almost simultaneously with the Intel's water request, arriving almost simultaneously with the aquifer alarm, quickly struck a nerve.aquifer alarm, quickly struck a nerve.

– Drought.Drought.– Other major users, dairy farmers, golf courses, etc were less Other major users, dairy farmers, golf courses, etc were less

apparent, the focus was placed on Intel. apparent, the focus was placed on Intel. – NGO and community reaction. SWOP (Southwest Organizing NGO and community reaction. SWOP (Southwest Organizing

Project). Project). – Shareholder pressure. Shareholder pressure. – Wanted to respond and have a plan prior to outlay of capital Wanted to respond and have a plan prior to outlay of capital

equipment and infrastructure. More difficult later.equipment and infrastructure. More difficult later.– Made water use a critical issue in each proposal to expand Made water use a critical issue in each proposal to expand

production or to go into new product lines, construction sites. production or to go into new product lines, construction sites.


– ““The best time to consider environmental issues is up The best time to consider environmental issues is up front, during the design phase. For new fabs front, during the design phase. For new fabs (fabrication, or manufacturing buildings), this is when it (fabrication, or manufacturing buildings), this is when it is still relatively easy and inexpensive to make changes is still relatively easy and inexpensive to make changes in the design of the buildings and facilities.”in the design of the buildings and facilities.”

– New water-saving technologies.New water-saving technologies.– Intel reduced freshwater needs by 50%Intel reduced freshwater needs by 50%– Water management strategies, standards, and tools Water management strategies, standards, and tools

developed.developed.– Demands for more….Demands for more….


Intel also considered a a new production method Intel also considered a a new production method for chips, SCORR, invented at Los Alamos for chips, SCORR, invented at Los Alamos National labs in 2001 that would use 95% less National labs in 2001 that would use 95% less water. water.

Battle over adoption time. Intel proposed 2010 Battle over adoption time. Intel proposed 2010 because of the cost, from $100 to $200 million to because of the cost, from $100 to $200 million to convert .convert .

SWOP argued that Intel could implement it as it SWOP argued that Intel could implement it as it modified its production processes, which it does modified its production processes, which it does about every 18 months because their products about every 18 months because their products change so frequently. change so frequently.


An example of CSR—broad community An example of CSR—broad community interaction on a community wide resource. interaction on a community wide resource. Some actions are likely to be consistent with Some actions are likely to be consistent with profitability and shareholder value. Others profitability and shareholder value. Others maybe less so.maybe less so.


What does this example of CSR imply for What does this example of CSR imply for environmental managers?environmental managers?

High profile events. High profile events. Need for environmental managers to weigh Need for environmental managers to weigh

options and plan carefully for success within options and plan carefully for success within the firm and with the community. the firm and with the community.

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Business and the Environment6 Application of CSR: Firm Water