Sustainability Concepts in Decision-Making: Tools and Approaches for the US Environmental Protection Agency (2014)

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Private-Sector and Private–Public Partnership Sustainability Initiatives: Applicability to Environmental Protection Agency Decision-Making

Many companies in the private sector, especially the world’s largest and most brand-visible firms, have made substantial progress in operationalizing sustainability concepts by integrating these concepts into operations, strategy, and communications. Driven primarily by a quest for value creation—and realized through efforts to reduce waste, gain access to new markets, and bolster brand image—many leading companies have spent considerable time and resources over the last 2 decades in attempting to integrate sustainability considerations into their day-to-day operations. But much work remains to be done. A select number of successful enterprises in specific business sectors have undertaken more transformational sustainability initiatives. Many of them were already successful enterprises with a history of innovation and sustained value creation. Learning how successful firms have used sustainability tools and approaches can be an important incentive for other companies to do the same. It can also inform efforts of the Environmental Protection Agency (EPA) to amplify the successes of private-sector sustainability initiatives without inhibiting the creativity and commitment that has made such efforts possible in the first place.

This chapter reviews the primary drivers of sustainability initiatives in the private sector and discusses how companies have used sustainability tools—such as extensive collaboration, and life-cycle assessment (LCA)—to evaluate potential effects associated with their products. These are some of the tools considered in Chapter 3 and the applications are relevant to the SAM process. It also discusses initiatives outside EPA that involve the application of tools and approaches that are relevant to the sustainability focus areas presented in the agency’s FY 2014 action plan (EPA 2014b). It is important to note that the tools and approaches developed by the private sector or through private-public partnerships are not applicable to all of EPA’s mission-related activities.

CORPORATE DRIVERS OF SUSTAINABILITY INITIATIVES

A vast literature on why private firms choose to pursue sustainability initiatives has developed over the last 20 years, and the results have been fairly consistent. Companies have adopted practices to improve environmental and social performance for a host of reasons—from improved efficiency and legal compliance to broader strategic notions of competitive positioning and recruiting. But, as with most business initiatives that gain traction, the primary rationale is the quest for value creation, broadly defined.

Several studies have addressed the question of why firms choose to incorporate sustainability criteria into their management and strategy and have reported diverse rationales. The most well-documented of their motivations include improved environmental performance in operations (Florida and Davison 2001); improved public relations, company image, and community relations (Florida and Davison 2001; Morrow and Rondinelli 2002); improved regulatory compliance; and a quest for competitive advantage (Porter and van der Linde 1995a,b; Florida and Davison 2001).

The “green and profitable” argument took hold in the middle 1990s with a series of high-profile articles in Harvard Business Review and a host of empirical studies that showed a connection between im-

proved environmental management and benefits for firms and communities (Hart and Ahuja 1996; Klassen and McLaughlin 1996; Rondinelli and Vastag 2000; Andrews et al. 2003; Potoski and Prakash 2005a,b). Such articles promoted the notion that improved environmental performance was linked to improved financial performance and many other benefits to companies. A key early insight was that pollution indicates waste and therefore is inefficient. “Going green” in this context moved from the realm of compliance into the world of profit maximization and the emergence of a new concept of a “triple bottom line”, which includes social, environmental, and economic considerations (Hart 1997; Elkington 1998; Prakash 2000; Esty and Winston 2006).

Alongside increased globalization of manufacturing and operations over the last 2 decades, expectations emerged that firms would standardize practices, including how they manage social and environmental outcomes, irrespective of where they operate. More recently—owing to consumer and societal pressure and hypercompetitive global markets that demand and reward efficiency in the value chain—companies have begun to expect improved performance, measurement, and reporting by their key suppliers (Andrews et al. 2006). The standardization of practices through such management systems as provided by the International Organization for Standardization became a de facto requirement (and an explicit contractual obligation in such industries as automobile manufacturing) as a means to drive efficiency and manage risk (Prakash and Potoski 2006).

Sustainability initiatives have also quickly become a recruiting tool for companies that are looking to secure top talent. A recent survey by the nonprofit Net Impact showed that 53% of workers and 72% of students indicated that a job where they could make a difference was important or essential for their happiness (Net Impact 2012). Executives and managers understand the value of human resources for continued success and survival and are trying to make their companies more attractive to the current generation of workers, who expect more than a paycheck from their employers (Savitz 2013).

Demand from the investment community is also driving corporate sustainability initiatives. The demand comes not only through the traditional pathway of the socially responsible investment and divestment movements but increasingly from mainstream banks and private-equity firms. Nearly 80 financial institutions in 35 countries (including Bank of America, Barclays, and Citigroup) have adopted the Equator Principles for assessing the environmental and social risks associated with investment; these institutions cover over 70% of project finance in emerging markets (EP Association 2011). And private equity has begun to integrate sustainability concepts into investment decisions. Leading firms, such as KKR and The Carlyle Group, are forming partnerships with nongovernment organizations (NGOs) to integrate environmental and social governance (ESG) criteria into their portfolio companies both as a means to screen potential acquisitions and as a way to derive additional value from companies in which they have an ownership stake. The trend is growing beyond just those companies. A 2013 survey of the private-equity industry showed that 74% of private-equity firms that had assets under management from $500 million to over $350 billion had increased their ESG commitments in the previous 12 months (Hayward et al. 2013; MSP 2013).

In addition to providing such benefits as increased efficiency, image enhancement, and cost reduction, many firms have found sustainability initiatives to be a means of promoting innovation in products, processes, technologies, and business models. Indeed, prominent business scholars and strategists tout the ability of sustainability initiatives to drive innovation and argue that companies that fail to incorporate the pursuit of sustainability concepts as a goal and core value will fail to achieve competitive advantage in their sectors (Nidumolu et al. 2009). Many companies have used their sustainability assessments and programs to create innovative products and services, and in some cases they actually disrupt the status quo on the way to reshaping their businesses and creating new markets. Early and anecdotal findings suggest a causal relationship between sustainability leadership and innovation (Deloitte 2013).

While the various internal and external sustainability drivers continue to gain momentum among mainstream firms, the shareholder value model—as it is currently being implemented—is facing increased criticism because of its failure to address new sources of business risk. Such criticism has led some firms to shift the focus from a primacy of shareholders to that of stakeholders. A focus on stakeholders—if done correctly—can drive innovation and profitability, enhance reputation, and ultimately

create shared value that aligns the interests of society with those of the firm (Porter and Kramer 2006). By extension, aligning its purpose with a broader array of actors creates opportunities for a firm to be more efficient, craft new product offerings, find solutions to seemingly intractable problems, and enhance its reputation (Freeman et al. 2007).

COLLABORATION AS CENTRAL TO OPERATIONALIZING SUSTAINABILITY CONCEPTS

A critical component of the evolution toward incorporating sustainability concepts is the growing practice of collaboration. Collaboration is familiar to most organizations that participate in environmental protection and sustainability decision-making. It is a normal feature of customer–supplier relationships, government and business partnerships, and other initiatives that jointly involve NGOs, universities, and other stakeholders. It is also a primary approach that many companies have taken to develop their sustainability plans.

As companies sought to improve their compliance with the growing number of public-health and environmental regulations in the 1970s and 1980s, they also began to explore opportunities to reduce pollution in economically sensible ways. Early pioneers included the 3M Pollution Prevention Pays program and the Dow Chemical Waste Reduction Always Pays (WRAP) initiative. Internal collaboration within a company evolved into external partnerships, such as the 1989 partnership between the Environmental Defense Fund (EDF) and McDonald’s partnership to phase out polystyrene-foam clamshell packaging. Simultaneously, individual industry sectors began to develop environmental and other codes of performance for their members. The most prominent example was the chemical industry’s Responsible Care initiative, established in 1988 in the United States,¹ which initially required all member companies of the Chemical Manufacturers Association (now the American Chemistry Council) to implement six performance codes as a condition of membership.²

The first decade of the 21st century witnessed a dramatic expansion in the number and kind of collaborative relationships created by NGOs and global companies. Examples of the collaborations include partnerships between EDF and other NGOs with Walmart to introduce sustainability strategies and practices into the company’s global supply chain, between Coca-Cola and the World Wildlife Fund (WWF) to develop a global water initiative to protect critical watersheds and preserve water access for current and future users, between Marks and Spencer (which established a “Plan A” business plan to rethink and redefine its product value chain) and OxFam to develop a business process for recycling clothing to lower-income families, and between The Nature Conservancy (TNC) and Dow Chemical to explore the value of ecosystems and natural capital. In addition, Unilever developed its Sustainable Living Plan, a business strategy that aims to decouple environmental effects from the economic growth of the company and develop more sustainable products that can also ameliorate social problems.

EPA was a pioneer in efforts to create platforms for precompetitive collaboration for environmental protection. After the enactment of the 1990 Clean Air Act Amendments, EPA used its ability as a neutral convener to enlist the automotive and petroleum industries, state and local officials, NGOs, and other stakeholders to share research information and design a regulatory framework for cleaner fuels, a framework that was embodied in regulations in 1994. More recently, such initiatives as the Electronics Industries Code of Conduct, the Roundtable for Sustainable Soy, and WWF efforts to convene major food-commodity producers to incorporate sustainability concepts into their operations testify to the growing vitality of efforts to leverage the global marketplace for sustainable outcomes.

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¹This initiative was developed several years earlier in Canada.

²In 2002, Responsible Care was upgraded to require implementation of a management system by all members of the American Chemistry Council. The management system was subject to independent certification by third-party auditors. In addition, individual companies had to report their performance on a variety of environmental and safety performance metrics publicly.

Appreciative Inquiry (a “system in the room” technique) is a method of finding innovative solutions and building relationships; it is a prime example of how to create mutual value for all stakeholders. Walmart used such a technique in 2008 at its Sustainability Index Summit to seek direction for its system that was being developed to measure and evaluate the environmental and social effects of its products. Over 2 days, the company held meetings with over 170 stakeholders, including executives, employees, suppliers, NGOs (both partners and critics), academics, consultants, and other experts. The group developed metrics that would potentially be used to score products and suppliers, and it brainstormed ideas for how such a system could be best rolled out. The outcome of the summit was the genesis of what eventually became The Sustainability Consortium (TSC), an ambitious effort that involves global companies, academe, and stakeholders in developing tools, methods, and strategies to stimulate a new generation of products and supply networks for the consumer marketplace.³ TSC has over 90 corporate members whose combined revenues exceed $2.4 trillion (TSC 2013).

Several major insights relevant to EPA have emerged from this trajectory of collaboration, including the following:

• The scale of sustainability problems is vastly different from the scale of issues addressed by a previous generation of partnership participants. Today, global, regional, and local problems exist simultaneously, and cross-institutional partnerships need to incorporate issues of scale into the design and structure of the collaboration agenda.

• On a global scale, no institution has the knowledge, resources, or other capabilities necessary to solve major problems, including climate change and the preservation of biodiversity, water supplies, and other natural resources, so new skill sets and innovative organizational strategies for identifying and managing collaboration opportunities must be developed.

• The ability and credibility to convene and manage large-scale collaboration is a major asset that can be implemented by governments and NGOs in cross-sector initiatives and by corporations and their partners throughout their value chains.

• Issues of transparency, reporting, and governance have become more important in ensuring public confidence in collaboration initiatives, in providing a clearer definition of accountability for delivery of performance results, and in identifying roles and responsibilities in multi-institutional and multisector undertakings (see Box 5-1).

• Each participating organization—government, business, NGO, or academic—should clearly define its own core competences and authorities for participating in a major collaborative action to add value to the entire enterprise of planning and actions.

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³TSC is a sustainability researching organization that was developed in a joint effort of the University of Arkansas and Arizona State University supported by membership fees from stakeholders that comprise mainly private companies, other sustainability nonprofits, and academic institutions. The mission is to develop a system—called the Sustainable Measurement and Reporting Systems—to evaluate a consumer product’s sustainability performance for the entirety of its supply chain. The main stated goal is to distill sustainability indicators identified into key performance indicators in which to evaluate the performance of consumer products. Some retailers appear to be adopting the work by TSC in differing approaches. Walmart seems to be committed to evaluating and ranking its suppliers in a systematic manner.

On the basis of the past decades of experience (for example, see Box 5-2) and the magnitude of current and future sustainability challenges, future collaborative strategies and initiatives will probably need to encompass more innovative thinking for major transformational change. WWF and TNC, for example, are developing a global water standard that would encourage the application of best practices in water-resource management and water-quality protection. Given EPA’s extensive knowledge and experience in developing water-quality standards, there is an innovation opportunity to learn and leverage the agency’s expertise on a wider scale. The field of multisector, multistakeholder collaboration continues to encompass dynamic learning and represents one where specific institutions, such as EPA, will need to select carefully both the issues and the competences in which it can add value to existing efforts.

Engaging in collaborative problem-solving will help the agency to evaluate and anticipate such consequences.

Such tools and guidance would go a long way in helping underresourced small and medium enterprises around the United States and companies that have not yet felt market pressure to advance sustainability concepts in their operations but could derive substantial economic value from it.

SUSTAINABILITY INITIATIVES OUTSIDE THE ENVIRONMENTAL PROTECTION AGENCY

EPA has identified four cross-program priorities for sustainability-related activities in its FY 2014 action plan: sustainable products and purchasing, sustainable materials management, green infrastructure (or the private-sector analogue, green buildings), and energy efficiency (EPA 2014b). This section discusses examples of programs and other initiatives outside the agency that are relevant to EPA’s activities.

Sustainable Products and Purchasing

Multiple, parallel efforts are under way to use life-cycle information in business management to consider products or services in a holistic way. Some of the initiatives intend to identify the most perti-

nent issues, which if known and targeted for improvement would lead to more sustainable products. For example, the Association of Home Appliance Manufacturers (AHAM) developed a sustainability standard for appliances (including refrigerators) that allocated points for various product-performance categories (AHAM 2012). Similarly, TSC has been working to develop an approach on hundreds of product categories, the Life Cycle Initiative of the UN Environment Programme (UNEP) and the Society of Environmental Toxicology and Chemistry (SETAC) and the International Network of Product Sustainability Initiatives are collaborating on global principles and practices for analysis of hot spots (parts of the life cycle that can be especially important), and Johnson & Johnson’s Earthwards® process involves the combined use of life-cycle screening and risk assessment to consider potential upstream and downstream effects and risks.

Typically, the environmental performance of products is evaluated case by case. A retailer’s purchasing representative may meet with a supplier to discuss and negotiate different aspects of the product transaction. At that point, the supplier may communicate its sustainability efforts concerning the product. Depending on the retailer’s sustainability interests, such an appeal by the supplier may prove to be attractive at the negotiating table. As one may expect, this approach is often time-consuming and lacks transparency, and there is uncertainty as to whether the retailer is achieving its sustainability goals in making its purchases. Centralized or consistent approaches are often lacking.

Some retailers may attempt to leverage existing information networks to incorporate their suppliers’ sustainability information by using enterprise resource planning software. However, because the information that retailers receive from suppliers is inconsistent and nontransparent, it can be difficult to make decisions that are based on it.

Alternatively, large retailers that have enough leverage in the marketplace, such as Walmart, may opt to take a more top-down approach in achieving their sustainability goals. One such program is the Walmart Packaging Scorecard system. The system identifies nine categories of sustainability considerations:

• Greenhouse-gas (GHG) emissions related to production.

• Material value.

• Product-to-package ratio.

• Cube use.

• Emissions related to transportation of packaging materials.

• Recycled-content use.

• Recovery value of raw materials.

• Renewable energy used to manufacture packaging.

• Innovation.

Walmart sent suppliers a clear message on the intent, goals, and expectations with regard to participation in the scorecard system. The system allowed Walmart a clear indication of whether it is achieving its identified goals and targets.

A new effort is under way to develop global principles and practices on hot-spot analysis. The UNEP–SETAC Life Cycle Initiative⁴ aims to create a system that uses life-cycle information as the platform for assessing the environmental performance of countries, sectors, product categories, and products. The purpose of the hot-spot analysis flagship project is to develop a framework within which organizations will gain a fuller understanding of environmental or social issues whose improvement would have a substantial effect in advancing sustainability goals.

Traditionally, EPA’s regulations and policies pursue single-issue solutions. As business strategies gradually shift to practices considered to be going “beyond regulation”, EPA is positioned to be able to foster the incorporation of sustainability concepts in its internal decision-making and to influence the private sector with regard to products and purchasing.

Sustainable Materials Management

Sustainable materials management (SMM) is an approach to serving human needs by using or reusing resources productively and sustainably throughout their life cycles—from the point of resource extraction through postconsumer use of a product. It seeks to optimize the amount of materials involved and minimize all the associated environmental effects while striving for economic efficiency and accounting for social considerations (EPA 2013f).

Current SMM approaches focus heavily on the purchasing habits and end-of-life management by the consumer. EPA looks extensively at solid-waste streams in the United States and provides continuing reporting of waste composition and recycling habits. In addition, through its use of Federal Green Challenge, Food Recovery Challenge, Electronics Challenge, and SMM Data Management System, the agency provides opportunities for other government agencies and private businesses to challenge each other to improve practices in procurement and waste management. The challenge programs are voluntary and provide recognition in addition to the intrinsic benefits of SMM.

However, material choices are made far upstream of the consumer. If SMM is considered in the processes of providing natural resources for producing goods and providing services, more comprehensive effects can be realized and the choices made downstream for distribution and end-of-life management can be facilitated. This is where a life-cycle approach to SMM provides additional value.

If one considers SMM to be analogous to the budgeting that a company undertakes to ensure financial sustainability, LCA may be considered analogous to the accounting required to track finances, evaluate the efficacy of the budget, and set goals for improvement. The UNEP–SETAC Life Cycle Initiative’s hot-spot analysis, AHAM’s appliance standard, and TSC’s SMRM are examples of LCA projects that have identified and set priorities among hot spots. Establishing a system of categorizing products and identifying high-priority hot spots on the basis of life-cycle information will facilitate an understanding of the effects and opportunities for improvement. LCA, including hot-spot analysis, can provide many benefits:

• Quantitative comparisons of purchases.

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⁴Joint partnership between United Nations Environment Programme (UNEP) and Society of Environmental Toxicology and Chemistry (SETAC).

• Priority-setting for improvements through hot-spot identification.

• Ability to set targets for internal goals and for suppliers.

• A clearer communication of expectations in developing purchasing policies.

• Encouragement of cleaner production and extended producer responsibility, inasmuch as LCA includes effects of disposal of products.

• Clear communication to the public.

Some companies and industries have taken it upon themselves to perform LCA studies of current products or potential new products. Two examples are presented in Boxes 5-3 and 5-4.

As demonstrated in those two examples, SMM results in increased involvement. Policies that encourage companies to be more engaged with their products or services throughout an entire life have the added benefit of maintaining a manufacturer–customer relationship during product use, maintenance, and return at the end of use. That relationship helps a manufacturer to identify customers’ needs, create customer loyalty, and reduce material-supply risk. By maintaining a similar relationship with its supply chain, a manufacturer can respond more quickly to changing demands and reduce supply-chain environmental effects (EPA 2012h).

On the basis of an examination of industry trends, it is possible that life-cycle environmental performance will become as predominant a consideration as safety and quality are today in the design and development of products, technologies, and services.

Green Infrastructure

In describing its sustainability priorities for FY 2014, EPA highlighted storm-water management as a main focus in the category of green infrastructure. Chapter 4 provides a case study of storm-water management in the context of a combined-sewer overflow project in the Cleveland metropolitan area. This section discusses another aspect of green infrastructure: green buildings.

The General Services Administration (GSA) Public Buildings Service Rocky Mountain Region Denver Federal Center (DFC) houses a 1-mi² campus for 28 federal agencies and nearly 7,000 employees. Drivers of sustainability initiatives on the campus include the GSA sustainability policy that sets a goal of zero environmental footprint for all GSA activities; Executive Order 13514, Federal Leadership in Environmental, Energy, and Economic Performance; and the DFC master plan and environmental-impact statement.

The DFC sustainability plan identifies strategic goals for a sustainable DFC campus:

• Zero emissions:

o Storm-water and wastewater reuse.

o Waste reduction, reuse, and recycling.

o Chemical-use reduction.

• Improved energy efficiency.

• Carbon neutrality by 2030 (80% by 2020).

• Open space conforming with the master plan.

• Increased use of public transportation.

• Improved GSA–tenant partnership:

o High-performance building design and improvements.

o Environmental management and performance.

o Education and training.

o Sustained community outreach.

DFC established a Sustainability and Environmental Management System to translate those strategic goals into sustainability objectives, targets, and strategies (management programs) and to measure its progress toward a sustainable DFC.

GSA has incorporated sustainable design and practice into daily operations through the guiding principles (GP) in the 2006 memorandum of understanding Federal Leadership in High Performance and Sustainable Buildings and the 2008 High Performance and Sustainable Buildings Guidance. GSA is required to achieve full GP compliance for 18% of all owned and leased buildings that are larger than 5,000 gross square feet by FY 2015. To document GP requirements for existing buildings, GSA is using the 2009 version 3 of the Leadership in Energy and Environmental Design (LEED) system for its bulk-volume certification program (GSA 2013a). GSA also recognizes the Green Building Initiative’s Green Globes 2010 green-building certification system. The DFC is pursuing GP requirements for 32 buildings by 2015.

In addition to the development of the DFC, GSA conducts research projects to investigate how sustainable technologies and approaches can improve building performance. In 2013, GSA reported on a demonstration project that it conducted in EPA’s Region 8 headquarters building. The project provided methods for assessing indoor water use, building thermal performance, and other characteristics (GSA 2013b).

Energy Efficiency

Pursuing Energy Efficiency and Setting Appropriate Targets

Siemens is a technology and infrastructure company that operates in many countries. Globally, Siemens operates more than 290 major manufacturing sites, employs more than 350,000 people (60,000 in the United States), and sells technologies in each of its major business sectors: energy, industry, infrastructure and cities, and health care. With such a diverse and global business, Siemens was challenged to develop a program to reduce resource consumption that would be implemented consistently and effectively throughout its operations. By developing and deploying tools for consistent measurement and tracking of resource consumption, including transparent reporting of progress toward resource-efficiency goals, Siemens reduced its resource consumption globally over a 5-year period and developed a new generation of sustainability goals that were based largely on lessons learned in the first 5 years of its sustainability program.

Globally, most Siemens facilities are required to maintain an environmental-management system that is compliant with International Organization for Standardization (ISO) standards, and each new building is expected at least to meet LEED Gold certification requirements where possible. In addition, Siemens tracks the energy consumption (electricity use, primary energy consumption, and district heating) and carbon dioxide emission from production and large-office facilities that the company owns or operates. About 85% of Siemens’s total emission and resource consumption is reported to a database; coverage is higher in some cases, such as GHG, of which 95% of direct and indirect emission is reported (Siemens 2011). Siemens calculates its GHG emission, Scope 1, Scope 2, and Scope 3 (travel) on the basis of the guidelines published by the World Resources Institute (WRI) in cooperation with the World Business Council on Sustainable Development (WBCSD). Siemens publishes its energy-consumption data and other natural-resources data, such as its GHG emission, on its global Web site and in its global sustainability report, which is being integrated into its annual financial reporting. In addition, customers that are evaluating Siemens as a sustainable supplier request information from Siemens about its natural-resources consumption, and Siemens voluntarily discloses some data to such entities as the Carbon Disclosure Project (CDP).

Siemens set global goals in its sustainability program beginning in 2007. Among the goals was a target to achieve, by the end of FY 2011, a global reduction in energy consumption of 20% from a base year of 2006 relative to global revenue (Siemens 2011). The goal was set by the managing board of the company. By the end of FY 2010, Siemens had encountered several uncertainties that affected achievement of its energy-efficiency goal. The company indicated in its annual sustainability report that because of increased business activity in some business divisions and inclusion of new locations in the reporting—and increased use of heating energy in some areas of the world in a severe winter—the efficiency increase for electricity totaled 11% overall. Siemens reported that achievement of its 20% goal by the end of FY 2011 was therefore unlikely. The company reported that it would continue to pursue its energy-efficiency program regardless of economic developments over the prior 2 years, stating that “the base load energy consumption of buildings is, after all, largely independent of economic developments” (Siemens 2011, p. 73). Although power consumption had risen in FY 2010, GHG emission had been reduced because of more favorable emission factors and reductions in the use of sulfur hexafluoride, fuel oil, and liquefied gas. After 2010, those trends continued. By the end of FY 2011, Siemens missed its goal to reduce electricity consumption by 8% but met its other resource goals, including reductions in common air-pollutant emission, GHG emission, primary energy consumption, energy consumption for district heating water consumption, and waste production.

In evaluating the next generation of goals for the company’s sustainability program, Siemens identified several categories of improvement that may be important for EPA’s consideration, including the need for a detailed implementation plan, with management ownership, to bring about action in individual facilities. To promote individual business ownership of resource-efficiency initiatives and to avoid reliance on a centralized program, the company did not establish a centralized funding source for capital improvements. Some facility managers interpreted a lack of centralized funding as a lack of high-level commitment to the sustainability goals, and it may have been too soon to expect that global sustainability goals would be embedded into individual facility decisions in the absence of specific implementation direction or incentives at the outset. Annual communication (internally and externally) of the goals and progress of the sustainability program and various types of recognition for the program, such as Siemens’s leadership in the Dow Jones Sustainability Index, have enhanced awareness of the importance of the sustainability goals throughout the company.

The tools that most contributed to Siemens’s success included its centralized database with standardized reporting methods (such as the WRI–WBCSD Greenhouse Gas Protocol), public reporting that enhanced accountability and awareness of the goals (such as the Siemens Web site, which displays progress toward annual goals, its published sustainability report, and voluntary disclosures to such organizations as CDP), the Energy Efficiency Program (created by Siemens and uniformly deployed) used to evaluate potential energy-efficiency improvements at production facilities (see Table 5-1), and published external standards that are now recognized and required by Siemens where possible, such as LEED building certifications and ISO standards. As Siemens’s sustainability program has evolved, it has recognized that consistent long-term implementation of tools, such as its Energy Efficiency Program, is essential for achieving long-term goals.

• Clear leadership from the top of an organization.
• Clear implementation plans to accompany sustainability goals.
• Clear internal communication of leadership priorities, goals and implementation plans.
• Sustained application of consistent methods whether created internally or externally.
• Rigorous maintenance of accurate internal data.
• Voluntary public disclosure to enhance awareness and accountability. (Recommendation 5g)

Siemens has also recognized a need for new tools, such as watershed assessment tools for a better understanding of the health of the watersheds in which it has or may have facilities, a recognized method for performing product LCAs in response to increasing customer demand, a recognized method for determining total cost of ownership, and approaches or tools that balance more than one aspect of sustainability (such as, the environmental and economic aspects of sustainability).⁵

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⁵In 2011, Siemens launched its Eco-Care Matrix, a decision-support tool that graphically depicts results and brings environmental-impact considerations together with economic factors. The center of the matrix always contains a comparative reference point that is derived from traditional technologies. The y axis shows the new solution’s environmental compatibility relative to the reference point. This combined value includes carbon dioxide, sulfur dioxide, nitrogen oxides, dust emissions, water, energy, and natural-resource use. The x axis shows customer benefit expressed as a change in system costs. If a new product or solution is to the right of and above the reference point, the presumed customer benefit is higher and its environmental impact lower.

TABLE 5-1 The Siemens Energy-Efficiency Program

Source: Adapted from Siemens 2011. Reprinted with permission; copyright 2011, Siemens.

Application of an Internal Carbon Tax to Advance Business and Sustainability Objectives

Given its size and prominence as a well-recognized consumer brand, Disney has measured a growing recognition of sustainability issues among its customers. Disney’s close brand connection to children and their families makes it especially sensitive—and vulnerable—to any sustainability issue that might affect its reputation.⁶ Such issues include GHG emission from cruise ships and other logistical operations; safety, health risks, and emissions associated with its licensing agreements for the manufacture of toys; and menu choices at its lodging and theme park facilities.

Over a period of years, Disney has been migrating along a path of greater sustainability commitments, including changing menus to combat child obesity, achieving a net positive ecosystem impact through the Disney Worldwide Conservation Fund, developing water-conservation plans, setting a goal of zero waste with a 2013 target of solid waste to landfills that is 50% of 2006 levels, informing and mobilizing employees and consumers in sustainability activities, reducing indirect GHG emission from electricity consumption, and setting a net zero direct GHG emission objective. As part of the process, Disney requires the preparation of an environmental assessment for any project that requires a capital authorization request.

In 2009, senior Disney executives instituted an internal price on carbon (externally referred to as a carbon tax). The major motivation for the internal price of carbon was twofold: to increase employee and manager awareness of the company's sustainability challenges and motivate them to greater participation

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⁶The Walt Disney Company is a global, diversified company with major businesses in film and television entertainment, parks and resorts, and consumer products. According to Forbes Magazine, it is the 17^th most valuable brand in the world; it recorded 2013 sales of $42.84 billion and has a market capitalization of $103.96 billion (April 2014).

in a variety of initiatives and to incentivize individual Disney businesses to minimize carbon emission and to take ownership in finding creative ways to make their individual businesses more sustainable. In designing the levy, Disney assessed several major uncertainties: the newness of the effort and the absence of other mature corporate carbon-tax initiatives to evaluate, instability in the price of carbon in the global and regional marketplaces, and unknowns associated with the future development of government policy frameworks and regulation of carbon (excepting such examples as California's AB 32 legislation and European Union requirements).

The internal carbon tax, based on a range of $10–20 per metric ton of carbon dioxide–equivalent emission, is calculated on the basis of a business unit’s projected carbon emission over a 5-year period. If emission is below the projection, the tax is reduced. Since its implementation, Disney’s carbon tax has generated operational changes and innovations, large and small, including

• Changing theme-park trains to be fueled by recycled cooking oil rather than fossil fuels.

• Investing in carbon research and development for waste-heat recovery and conversion to power, biofuels, and other alternatives.

• Altering cruise-ship hull designs and coating formulations, optimizing routes, and installing highly efficient lighting and heating, ventilation, and air conditioning.

Those and other options are subject to continuing evaluation of their costs and performance relative to the company's longer-term objective of achieving zero net GHG emission through a combination of reductions, efficiencies, and offsets.

One of the unique aspects of the design and implementation of the internal carbon tax was the integral role of Disney’s financial organization. Disney’s environmental and corporate citizenship staffs have responsibility for tracking emission in various source categories, and the financial part of Disney, including the chief financial officer, constructed and measured the financial allocation of the carbon tax among the various business units. That represents a unique collaboration—one that marries highly visible external commitments with internal incentives that shape the bottom-line effect on the operations of Disney’s businesses.

Disney's initiative to internalize the cost of carbon has been conducted as part of a growing application of pricing schemes in the private sector, including such companies as DuPont, ExxonMobil, Google, Microsoft, Royal Dutch Shell, and Walmart. Although pricing is at different levels that reflect the relative lifespans of specific assets, the movement toward internal carbon pricing is a major testament to the power of internal transparency to influence business decision-making. Such transparency, in turn, has identified new options for improving business operations and research and development, stimulated further integration of sustainability factors into business strategy, and created new opportunities for innovation, value creation, and collaboration with external stakeholders.

INNOVATION OPPORTUNITIES FOR THE ENVIRONMENTAL PROTECTION AGENCY

If EPA serves as the convener, additional precompetitive collaboration opportunities can be identified and concerns over antitrust issues minimized. The convening efforts should include

• Benchmarking against other successful value-chain initiatives that exist in the private sector or between the private sector and NGOs.

• Reviewing existing policy instruments from a value-chain perspective to identify where they complement or contradict each other and trying to reconcile them.

One concept that business and industry have come to understand well is that the fuel of sustainability assessments, programs, and progress is data. No matter what the program, assessment, or tool under scrutiny, it runs on data. The higher the quality of the data, the more contextualized it can be, and the more effective the assessment and program implementation. Many tools in use by the regulated community collect and apply data for sustainability purposes. The data that a company collects to perform LCAs constitute a logical nexus point for EPA to propose collaborative projects. The data and analysis requisite for successful ISO 14001 environmental management systems and ISO 50001 energy management systems certification would make up an excellent dataset and basis for mutually beneficial collaborations between EPA and the regulated community. An examination of leading companies’ environmental reports and the data gathered in them can yield surprising new insights and common ground for collaborative projects that EPA may want to pursue. The idea is to pursue mutually beneficial collaborations that are based on data already gathered and processed, many of them already in the public domain.

Many firms already engage in a great deal of voluntary reporting on a variety of sustainability indicators, but the full capabilities of mining the data for insights into more sustainable strategies are still evolving. Great insights that could drive value to business, communities, and ecosystems are possible. Much of the regulated community has been studying the concept of sustainability and implementing sustainability processes for years.

Although there is still much that the regulated community can learn from EPA in these matters, the agency has the opportunity to leverage the experience of leaders in the regulated community to strengthen both EPA decision-making and corporate performance more broadly (see Table 5-2).

CONCLUSIONS AND RECOMMENDATIONS

Key Conclusions and Recommendations

TABLE 5-2 Sustainability Drivers for the Private Sector and EPA