Outside InExploring corporations’ voluntary integration of

“sustainability” into business discourse and operations as a potential force for stabilizing atmospheric

concentrations of greenhouse gases

By Susan Russell

srussell@kentlaw.edu

Today’s Presentation

• Corporations as potentially powerful forces in fight against climate change

• Overview voluntary corporate adoption of “sustainability” discourse, performance and disclosure agenda

• Sustainability and GHG reduction– Examples: Smithfield Foods and BP

• Wrap up

Harnessing Powerful Forces for Positive Change

“Businesses are among the world’s most influential institutions. As society’s mechanism for production and consumption, their decisions have significant environmental effects.”

- World Resources 2002-2004, Decisions for the Earth, Balance, Voice and Power.

Harnessing Powerful Forces for Positive Change

Reach: Corporations are “glocal” citizens: multi-national, cross-cultural, multi-lingual

Harnessing Powerful Forces for Positive Change

Reach: Corporations are “glocal” citizens, multi-national, cross-cultural, multi-lingual

Corporations constitute 51 out of world’s 100 largest economies

Harnessing Powerful Forces for Positive Change

Reach: Corporations are “glocal” citizens, multi-national, cross-cultural, multi-lingual

51 out of world’s 100 largest economies Corporations house unique business-specific

expertise Transform impacts into opportunities

Harnessing Powerful Forces for Positive Change

Reach: Corporations are “glocal” citizens, multi-national, cross-cultural, multi-lingual

51 out of world’s 100 largest economies Corporations house unique business-specific

expertise Transform impacts into opportunities

Needs of corporations can shape policy decisions

Defining Sustainability

• “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”

– Brundtland Report, 1987

• “Forms of progress that meet the needs of the present without compromising the ability of future generations to meet their needs.” – World Business Council for Sustainable Development

And One More …“Triple bottom line” business agenda and

performance: improved integration of concepts of economic prosperity, environmental regeneration and equity to achieve win-win-win situations.

– John Elkington, Chairman of SustainAbility, Author of

Cannibals With Forks and The Chrysalis Economy

A Definition of Its Own: Internal Corporate “Sustainability”

• Trend: Corporations making sustainability meaningful within unique business context– Mind-set that gets threaded into business – Various sustainability “value propositions”– Finding the language that works as an

organizational concept

A Definition of Its Own: Internal Corporate “Sustainability”

• Sustainability by other names:– Environmental, health and safety

performance– Sustainability– Corporate Social Responsibility– Stewardship– Global Citizenship– Etc., etc., etc.

Voluntary Adoption of Sustainability: A Brief History of Disclosure

• Since early 1990s voluntary environmental reporting– Majority viewed as “green washing,” PR

efforts, very little credibility– All the “positive” things

Voluntary Adoption of Sustainability: A Brief History of Integration and

Disclosure• 1990s to present:

– Trend toward increased accountability and transparency of companies across all levels, functions, operations

• Currently– 1999: 35% of Fortune global top 250 companies

producing reports – 2002: 45% of Fortune global top 250 companies

producing reports – Still small fraction of all companies.– Improved information

• Good, bad and the ugly; more credible, balanced

Adoption of the Sustainability Performance Agenda and

Disclosure

• Trends and Drivers:– External stakeholder pressure and informational

demands• Communities• NGOs• Governments

Sustainability Performance Disclosure

• Trends and Drivers:– Shareholder pressure, resolutions

Sustainability Performance Disclosure

• Trends and Drivers:– Business value from improved performance

• Top and bottom-line value• Reputation• Risk reduction

Sustainability Performance Disclosure

• Trends and Drivers:– Growth in investment

indices and rating firms

• E.g., Dow Jones Sustainability Index, Innovest, FTSE4Good

• Lengthy questionnaires

Value of Disclosure: Company

• Issuance of public report helps drive evolution of concept and improvement of performance – Process stimulates integral exploration of nebulous concept – Reporting drives accountability for performance and desire to

improve – Process important part of the learning within the corporation as

well as for gathering relevant information– Potential to speak first on key issues– Economies of information– Top-line value– Bottom-line value– Reputational value

• Industry leader• Preferred supplier

Value of Disclosure: Public

• More information about the corporation is publicly available

• Transparency promotes dialogue

• Informed decision-making– Improved democracy

• Improved accountability

Energy Strategy: Important Part of Sustainability Commitment

• Energy and CO2 reduction strategies standard part of most sustainability commitment

• Create tangible bottom and top-line value

Two Companies: Smithfield Foods and British Petroleum (BP)

• Rationale – Both produce an abundance of gas– Both have integrated “sustainability” in a manner fitting for their

company– Both have a commitment to voluntary public disclosure– Both are performance leaders in their respective industries– Both are global corporations

• Caveat:– Will only do BP if time permits

Energy Hogs

Smithfield Foods’ waste-to-energy strategies within the context of the

company’s “stewardship” commitment

Company Profile

• World’s largest pork producer and processor• 2004

– Sales: $9 billion– Hogs produced by 650 company-owned

farms and 1,800 contract growers worldwide

– U.S. Operations:• Produced 14 million hogs

– 1750 Contract farmers and 450 company-owned farms

• Processed 24.7 million hogs• Processed 2 million cattle

Defining “Stewardship”

• The “ongoing efforts to protect the natural environment, the safety of our employees and the welfare of the animals we raise … stewardship is not just an ethical responsibility. It’s also a critical investment for building trust with our stakeholders and positioning our company for responsible growth now and in the years to come.”

• Transforming respect for employees, the animals raised for food production, the environment and stakeholder into a driving force for performance improvement, innovation and value creation.

• Disclosure– Annual Stewardship report– Web site– Stakeholder engagement

Environmental Management Systems

• First in industry to implement ISO 14001-certified systems in U.S. production and processing operations.– Basis for compliance, pollution prevention, continuous

improvement.– ISO 14001: systematic method for managing aspects and

impacts of facility• Annual audits by third-party accredited auditors• Identification of eco-efficiency opportunities

Stewardship Challenge and Opportunity: Waste-to-Energy

• Key environmental aspects– Hog manure– Wastewater residuals– Animal fats– Vegetable oils

• Key energy-related business opportunities: – Process innovation– Waste-to-energy technology investment– Unique ventures for renewable fuels– Exploring partnering opportunities and policy change

Process Innovation:Patrick Cudahy

• Adapted boilers and employed leading-edge system technologies.

• Allows meat processing plants to supplement fuel needs by recycling animal fats and other byproducts captured during wastewater treatment process

• Extraction of 175,000-200,000 gallons of grease for fuel– Environmental and business benefits

• Offsets purchase of natural gas for same purpose.– Cheaper source of fuel

• Burning of animal grease for reuse as fuel compared to natural gas

– Lower nitrogen oxide– Lower sulfur dioxide

• Reduced disposal costs• Conservation of landfill space

Process Innovation: Moyer Packing Company, Southern PA

• Specially adapted boiler technology– Powered by animal fats and

vegetable oils from rendering operations

• Benefits– Cheap, renewable source of fuel– Cleaner burning fuel:

• Reduction of NOx and SOx

Investment in Hog Waste Management Technologies

• 2000: Smithfield Voluntary Agreement with North Carolina’s Attorney General’s Office– $15 million– Program pursued by team at NC State

University– Investigating roughly 18 technologies– A number of these are waste-to-energy– Smithfield piloting some technologies

www.bestbiofuels.com

Business Ventures: BEST BioFuels, LLC

Livestock waste to biogas ASTM-standard biomethanol biodiesel

Business Ventures: BEST BioFuels, LLC

• Major partner in BEST BioFuels, LLC– Invested $20 million

2003 in building waste collection system and central treatment complex at Circle Four Farms, southwestern Utah

Business Ventures: BEST BioFuels, LLC

• Utilizes Biomass Energy Sustainable Technology (BEST)

• Environmentally superior technology that Smithfield helped pioneer and pilot

• How it works:– Separates hog waste into partially

purified liquid and solid material– Solid material transported from

farm to centralized processing facility

– Technology transforms solids into various forms of energy, methane, and methanol

– Ash produced can be used as fertilizer

Business Ventures: BEST BioFuels, LLC

– Circle Four Farms:• 23 Circle Four Farms produce livestock waste

– High concentration of animals (144,000 head of finishing hogs)

• Waste is piped to central location through 40 miles of pipe and concentrated at four centrally located digesters

• Concentrated waste is heated and anaerobically digested to yield biogas

• BEST converts biogas to biomethanol, using patented thermo-catalytic process

Business Ventures: BEST BioFuels, LLC

• Key benefits: – Reduces waste volume – Captures methane– Creates valuable commodity

• Potential commercial uses– Biodiesel, clean-burning

renewable fuel typically blended with conventional petroleum diesel at 20/80 ratio

Business Ventures: BEST BioFuels, LLC

• Next Steps …– BEST BioFuels produces 2,500 gallons of

biomethanol from 500,000 gallons of hog waste per day

– 2005, anticipates work will be completed on biodiesel manufacturing facility in Texas

• Biodiesel generation

Increased Biogas Usage

• 2004 overall biogas usage increased 19 percent over 2003 usage– From 247,111 to 293,862 Decatherms

Partnering to Promote Renewable Energy Demand

• Participation in North Carolina Green Power– Independent nonprofit program that uses voluntary

contributions to purchase electricity generated from renewable resources to NC

• Energy to be purchased by homes/businesses in NC

– 2004: • Among seven energy producers who signed agreements to

provide renewable sources– Small, tax-deductible premium

• Methane from hog waste converted to electricity through microturbine at waste collection site

BP Profile

• Leading global energy company– Sales and other operating revenues

“turnover” $285 billion

• Reputation as global sustainability leader– Dow Jones Sustainability Index

• Many firsts:– First internal emissions trading– Achieved industry’s lowest rates of gas

flaring

Sustainability at BP

“For us, ‘sustainability’ means the capacity to endure as a group by renewing assets, creating and delivering products and services that meet the evolving needs of society, attracting successive generations of employees, contributing to a flourishing environment and retaining the trust and support of customers, shareholders and communities.”

• Disclosure– Annual sustainability report available online at www.bp.com– Detailed information on science of climate change and search

for solution– Verification of reporting information by third-parties

Sustainability and Climate Change

• Provides access to overview of the issue and science of climate change

• 1997: first in industry to publicly state precautionary action justified– Set initial target for 2010: GHG emissions from operation 10%

lower than 1990 emissions• Achieved target in 2001

• 2003 BP engaged in more focused inquiry on what is required to stabilize GHG concentrations and further work to minimize emissions from own operations

– Set new target for 2012: No increase in net emissions from 2001

levels by 2012

Actions on Climate Change

• Emissions reduction strategies– Emissions trading– Strategic energy management

• Improved operational efficiencies• Technological innovation

– Investment in renewable energy technology business• BP Solar is one of the world’s largest solar

electric companies• BP’s renewable energy business• Growth goal: 25% per year

– Product innovation– Research partnerships

Emissions Trading

• Jan. 2000: launched first global emissions trading system for all 150 corporate business units to participate – First year: 2.7 million metric tons of CO2 equivalent exchanged

at average price of $7.60 per metric ton

• Active promotion of/participation in market mechanisms– Helped develop existing UK emissions trading scheme– Involved in helping to develop European Union Emissions

Trading Scheme – Largest and first international market for CO2– Voluntary schemes in United States

Products and Innovation

• Emissions from products roughly 15 times higher than operational emissions

• Product innovation 2003:– 2003: BP Ultimate fuels compared with standard fuels “twice the

cleaning power of normal fuels”• 14.5% reduction in CO compared with traditional fuels• 5.3% reduction in NOx emissions• 2.2% reduction in CO2• 5.6% reduction in unburned hydrocarbons

– Lower-sulfur diesel and liquefied natural gas– Hydrogen production and demo projects

Research Partnerships– Princeton U, Massachusetts Institute of Technology

• Carbon Mitigation Initiative• Identifying technology applications to mitigate climate change

– Stanford U• Three-year, $2 million agreement• Public policy aspects of modern energy markets

– Initiated Carbon Capture Project• Industries first large-scale project to develop tech for

capture/storage CO2– Clean Energy Facing the Future

• $10 million, 10-year program, project with the Chinese Academy of Science and Tsinghua University

• Studying implications of clean energy technologies for China– Royal Academy of Engineering, Imperial College London,

Princeton University

Wrap Up

• Voluntary adoption of sustainability performance and disclosure potentially power force for reducing GHGs

• Concept of sustainability within corporations:– Improves performance, – And promotes commitment to disclosure/corporate transparency, – which promotes internal and public access to information, – which promotes accountability, – which promotes overall environmental performance

improvement,– which includes valuable strategies for reducing GHGs and

responses to climate change,– which promotes value to business and multiple stakeholders.

Questions?

Thank You