Sustainability Strategies Addressing Supply-Chain Air Emissions (2014)

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47 Most U.S. corporations are actively working to improve the sustainability of their supply chains. The shippers and carriers interviewed were able to cite initiatives and specific results achieved. This chapter addresses the goals, measures, and results being pursued and realized by companies in their sustainability programs. The particular focus is on the efforts taken by selected com- panies to promote their sustainability efforts as a core part of their brands. These companies have taken nuts-and-bolts projects and elevated the sum of the parts to convey a sus- tainable image to consumers and corporate customers. Such examples serve as encouragement for others. Several cases of shippers and carriers who can be said to have achieved a “sus- tainability brand” based on their supply chain green initiatives are detailed here. 5.1 Setting and Leading the Sustainability Agenda Many U.S. corporations have staked out a sustainability vision. These include leading consumer products companies such as Nike and Wal-Mart, as well as carriers such as FedEx and UPS. Nike’s website makes clear that sustainability has evolved from an issue formerly relegated to experts to a broad priority integrated into all aspects of the business. Nike boldly states, “our vision is to build a sustainable business . . . by decoupling profitable growth from constrained resources.” Furthermore, this broad vision translates directly into sup- ply chain terms, “our vision is to create a sustainable supply chain across all of our brands that is lean, green, equitable, and empowered” (Nike, Inc., 2013). Wal-Mart is equally clear, stating that “Wal-Mart is committed to sustainability because it’s the right thing for the environment and for our busi- ness.” Also, Wal-Mart has provided strong leadership in the sustainable supply chain arena, as the world’s largest retailer. The company states on its website that “we strive to positively impact global supply chain practices,” (Wal-Mart, 2010). In the transportation industry, leading companies have firmly enmeshed sustainability principles into their overall cor- porate missions. For example, “sustainability and innovation go hand in hand at FedEx. We call it EarthSmart—FedEx solutions for a more sustainable world,” states the FedEx 2012 Annual Report. In its 2011 Corporate Sustainability Report, UPS states that logistics “is the core of our sustainability as a company, and the engine that drives our contributions to a more sustainable society.” Numerous other carriers in multiple modes of trans- portation also espouse sustainability goals and visions. Leading companies are organizing to consolidate and elevate their activities in support of sustainability. This generally starts at the top, with chief operating officers (CEOs) and boards tak- ing an interest, and continues with the naming of senior execu- tives responsible for sustainability. Within this overall structure, the research team found some supply chain sustainability or green logistics teams operating to lead or coordinate efforts specific to logistics and transportation. At the senior levels in corporations, the setting of over- all corporate sustainability goals and priorities may rest with a sustainability officer. At ConAgra Foods, the Citizenship Steer- ing Committee is led by a member of the company’s senior leadership team and vice president of corporate affairs, and is composed of key leaders and subject matter experts in key func- tional areas (ConAgra Foods, 2011, pers. comm.; ConAgra Foods, 2012a). At the TJX Companies, Inc., an assistant vice president for environmental sustainability coordinates the company’s environmental sustainability initiatives on a global basis (TJX, 2012). Staples has a vice president for sus- tainability, who leads efforts on product and supply chain sustainability. Nike launched an executive-level Committee for Sustain- able Innovation in 2011. Chaired by the CEO, it oversees the innovation pipeline and portfolio, helping to capital- ize on opportunities by “accelerating adoption and bringing these activities to scale.” In 2001, Nike formed a Corporate Responsibility (CR) Committee at the board level. The CR C H A P T E R 5 The Sustainability Brand

48 Committee has oversight of environmental impact and sus- tainability issues, labor practices, and corporate responsibility issues in major business decisions. Within the Supply Chain Department, Nike has established an internal unit devoted to improving logistics sustainability (Nike, Inc., 2011). This multi- level structure is fairly typical of the sustainability approach being taken by leading U.S. manufacturers and retailers. Carriers also are active in addressing sustainability issues within their organizations. In this case, virtually all the sustain- ability efforts lie within the transportation and logistics arena, given that that is the industry focus of these firms. Con-way, for example, has a Sustainability Steering Committee that includes a sustainability leader from each business unit (e.g., the CEO, chief financial officer, or head of facilities or engineering) (Con-way, 2011, pers. comm.). One carrier mentioned it has a dedicated Clean Air Accountability Division. FedEx Express’ Enterprise Sustainability Council includes chief operating officers of each operating company and corporate vice presi- dents. The goal is to engage and align corporate and business unit leaders so that sustainability initiatives cascade through the operating companies This council meets quarterly to set strategic direction and push initiatives through the operating companies. Sustainability Impact Teams run working groups (on metrics, data, strategic sourcing, etc.) and meet monthly. Finally, FedEx re-launched their EarthSmart initiative in April 2012 to gain broader recognition that sustainability is critical. Since then, various programs have been introduced to ramp up interest in sustainability. Innovations have included carbon- neutral envelope shipping, solar facilities, all-electric delivery vans, and tricycles (FedEx, 2012, pers. comm.). 5.2 GHG Reduction as Major Focus of Corporate Efforts The globalized economy is characterized by high levels of freight transport intensity and increasingly complex supply chains. Transportation is intimately connected to sourcing, production, inventory management, warehousing, and sales activities. The research team found that these other activi- ties are typically awarded priority over freight transport efficiency or emissions considerations by shippers and third- party logistics providers. For example, a growing number of companies apply just- in-time delivery practices that require punctual, reliable, fast, and flexible transportation, usually via road or air freight, to reduce the risk of mismatch between supply and demand within the supply chain. This delivery balancing act tends to favor modes that emit more pollutants and greenhouse gases (GHGs). Business concerns about avoiding product stock-outs while also minimizing inventory often trump the additional cost associated with faster transport modes or part-loading of trucks. Stakeholder interviews confirmed that shippers (more so than carriers) consistently face these trade- offs, which present challenges to minimizing air emissions. GHG emissions, although a more recent consideration than CAP emissions, presently receive the greatest attention in cor- porate reporting. CAP emissions have been regulated since at least 1970 (with the advent of the Clean Air Act) in the United States, while GHG emissions are not yet regulated in this coun- try. However, efforts to reduce GHG emissions can directly and positively affect shipper and carrier business economics, aside from their environmental benefits. This is particularly true for carriers, given that fuel cost amounts to a high pro- portion of total costs in transportation and the competitive nature of freight markets drives tight profit margins. Carriers are, therefore, actively focusing their efforts on improving fuel efficiency, usually with rapid payback prospects. This alignment of GHG public policy efforts with carrier cost-savings objectives offers the potential for a double win, with environmental benefits as a byproduct of cost savings associated with fuel efficiencies. The interviews indicated that many carriers would be unlikely to voluntarily adopt sustain- ability initiatives, if they did not make business sense. One railroad executive said, “this is all about reducing fuel cost, environmental benefits are ancillary”(Class I Railroad, 2011, pers. comm.). A third-party logistics provider stated that truck- load carriers and their shipper customers might be willing to pay something on the order of 2 to 5 cents more per mile for environmental sustainability, but not likely more than 5 cents. While GHG reduction links directly with carrier fuel cost savings, the same is not true of CAP reduction. This may explain why there was limited evidence of voluntary CAP emissions reductions on the part of carriers and shippers. Efforts mentioned in our interviews were primarily driven by concerns about potential regulation (e.g., lower-emission intermodal terminal equipment in Southern California, in response to public action) motivated in part by incentives (e.g., switching to lower sulfur fuel within a certain distance of ports or cold-ironing by container ship operators). Further, several corporate sustainability initiatives (e.g., the Carbon Disclosure Project (CDP), the Greenhouse Gas Protocol, and the U.S. Climate Registry) are focused on climate change and GHG emissions rather than on CAP emissions. The exceptions to this are the Global Reporting Initiative, which includes protocols for reporting CAP emissions, and EPA’s SmartWay Program, which assists partners in determining mass emissions and emission rates for CO2, NOx, and PM. 5.3 Supply Chain Sustainability Initiatives Shippers (broadly, the owners of cargo moved via the trans- port system, whether manufacturers, distributors, or retailers) consider many factors in their capital and operating decisions.

49 Supply chain sustainability is only one such factor, and within that, air emissions is a single element. Shippers’ supply chain sustainability programs generally reflect overall corporate sustainability policy and typically address activities across the end-to-end supply chain (including product sourcing, manu- facturing, packaging, transportation, warehousing, etc.). Carbon audits of supply chains often reveal that freight trans- port is responsible for only a small percentage of total emis- sions. Estimates in the literature range from 5% to 15% (World Economic Forum, 2009). These results are derived from eco- nomic input-output lifecycle assessments for individual prod- ucts, and are supported by a review of CDP member reporting. This is one reason why freight emissions may be relatively low on the list of priorities when shippers are setting their overall emissions reduction strategies. Furthermore, key global and U.S. voluntary reporting initiatives tend to underplay emissions associated with freight transportation as follows: • Under the current requirements of the Greenhouse Gas Pro- tocol, an accounting tool used to understand, quantify, and manage GHG emissions that is commonly used in corpo- rate reporting of GHG emissions, the reporting of emissions associated with the movement of goods is only mandatory (within Scope 1 emissions) if the pertinent emission sources are owned or controlled by the company (e.g., if emitted by fleet vehicles), which is not necessarily common. • Reporting of GHG emissions from third parties is simi- larly not mandatory under the requirements of EPA’s Climate Leaders Program or under the Global Reporting Initiative (GRI). • Only a small proportion of shipper organizations (less than 15%) actually report on emissions associated with trans- portation and distribution as part of their CDP reports. • One shipper interviewed estimates that only 7% of its GHG emissions are from the company’s own facilities and fleet operations, while the remaining 93% are from the lifecycle impacts of their products sold. Virtually all major U.S. shippers of goods—manufacturers, distributors, and retailers—have embraced sustainability at some level in recent years. These initiatives typically include both broad corporate sustainability efforts and projects focused on logistics and transportation environmental effects. Shippers generally consider the sustainability gains realized by their car- riers and suppliers, and the related costs as well. Two programs that can be considered fairly typical of large company efforts are • Staples’ sustainability strategy. Staples’ five pillars of sustainability are (1) selling more sustainable products/ services, (2) offering easy recycling solutions, (3) eliminat- ing operational waste, (4) maximizing energy efficiency and use of renewable energy, and (5) becoming a sustainability leader in the global community. The company takes a holis- tic view of sustainability. Its long-term vision is to achieve zero carbon emissions in operations and to help customers pursue the same goal. In the medium term, Staples’ goal is to reduce its global carbon emissions by 50% by 2020 (from a 2010 baseline); so far, it has achieved a 30% reduc- tion in U.S. carbon emissions (from a 2001 baseline). The company also aims to improve its U.S. fleet fuel economy by 15% by 2015 (from a 2010 baseline) (Staples, 2012). • ConAgra Foods sustainability efforts. Since 2008, ConAgra Foods has measured GHG emissions, including its trans- portation footprint, and has redesigned its external web- site to communicate its efforts to the public. Over the past 3 years, ConAgra Foods developed a GHG management program centered on tracking facility-specific emissions to enable strategic decisions regarding reduction strategies. The company’s overall goal is to reduce GHG emissions by 20% per pound of product produced by 2015. The focus is on CO2 emissions, rather than on CAP. ConAgra Foods participates in the CDP and in the EPA’s Energy Star Program. For both contracted and owned fleets, the company aims to improve efficiency in all modes of trans- portation. ConAgra Foods is tracking GHG emissions associ- ated with product transport and has requested that its largest suppliers disclose their GHG inventory and emissions reduc- tion strategy to the CDP. In the supply chain, ConAgra Foods’ Perfect Pallet Initia- tive is the cornerstone effort, optimizing pallet efficiency by adjusting product packaging size, shape, and orientation. Over the past 4 years (FY2009 to FY2012), ConAgra Foods has completed more than 40 perfect pallet projects, which reduced the use of pallets and stretch wrap, decreased the use of forklifts during staging and loading, and improved overall loading and transportation efficiency. In FY2012, the company optimized the package size, thereby allowing more units to fit on each pallet. Combined, these projects have reduced diesel fuel use by more than 380,000 gallons, cutting GHG emissions by more than 3,900 metric tons. ConAgra Foods also aims to reduce the average length of haul for its products. Currently, its average length of haul is 1,100 miles, but ConAgra Foods hopes to drive this down to 700 miles, which is similar to the haul length of its competitors. Although the company has made some progress, it has yet to make the major changes in its supply chain needed to achieve this result, which would be considered as Scope 3 progress (ConAgra Foods, 2011, pers. comm.; ConAgra Foods, 2012; ConAgra Foods 2012a). The following good examples of environmental programs by carriers emerged from interviews: • Swift Transportation—This large truckload carrier focuses its environmental efforts on reducing fuel use. The

50 company has made many investments in achieving the pre- dicted results, but lately fuel economy has improved only modestly, perhaps partly because of an increasing content of biodiesel (with a lower British thermal unit content than regular diesel) in the nation’s fuel supply. Swift tracks several fuel efficiency measures. It is able to do so in highly accurate ways, on an hourly or daily basis. Two key metrics are driving miles per gallon (different from miles per gallon) and idle time (as percent of total engine time). These are reviewed at every level of the organiza- tion daily. In addition, fuel efficiency is tracked for loaded ton-miles and empty moves. Swift’s empty miles trend is improving (although the company notes that, as empty miles decrease, fuel economy for the miles run worsens). Swift also owns a large intermodal operation, which is fuel- efficient (and hence CO2 reducing) for long-haul freight moves. Overall, the company requires a positive return on investment for investments, including those that help reduce the environmental footprint (Swift Transportation, 2012, pers. comm., 12 June). • Con-way sustainability—This large less-than-truckload and truckload carrier is actively working on sustainability, although it has not yet reached the point of branding itself under the green banner. Con-way’s Menlo Logistics (3PL) business is taking the lead in this area and other units will follow. A broad focus is being taken—environmental, enter- prise, and corporate social responsibility. Con-way calls this “people, planet and prosperity.” In terms of the supply chain, the company looks at carbon measurement in the broader supply chain, including everything from fuel effi- ciency and empty miles to the placement of its warehouses. Con-way expects to publish its first annual sustainability report internally in 2014 and externally in 2015. Carriers are cautious about shipper commitment to supply chain sustainability. Some claimed that their customers are ask- ing for help to configure supply chains that take account of carbon. But experience to date indicates that few shippers are willing to pay more than 5% to achieve a carbon-neutral or reduced carbon footprint outcome. “At the end of the day, carbon generated by production and transport activity is part of the landed cost of goods. People fall on the side of sustainability if the cost is the same. If it is different, we are just not seeing it. Companies are willing to be altruistic to a point” (Con-way, 2012, pers. comm.). • APL carbon emissions reduction—The company’s overall goal is to reduce CO2 emissions by 30% by 2015 (from a 2009 baseline). By 2015, APL wants its fleet to produce no more than 130 grams of carbon exhaust for every 20-foot equivalent unit container (TEU) of cargo transported 1 nautical mile. The company’s new ships, along with slow- steaming efforts, are expected to help APL reach this goal. In addition, operational measures will contribute by opti- mizing vessel trim, speed and routing; improving main- tenance of vessel hulls to reduce drag in the water; and upgrading cargo-handling equipment at terminals (http:// www.apl.com, APL, 2012). APL has participated in several pilots in hopes of finding break-through technologies that will help reduce emissions, including, for example, a sea water scrubber (APL, 2012, pers. comm.). 5.4 Metrics and Reporting Shippers and carriers often base their sustainability goals and metrics on those recommended by the leading industry organi- zations (e.g., the Carbon Disclosure Project, Global Reporting Initiative, and Business for Social Responsibility). The particu- lar metrics used by companies the research team interviewed range from straightforward and operationally driven items like mpg for over-the-road tractors to quite complex metrics involv- ing numerous dimensions. For example, one intermodal opera- tor interviewed uses just two metrics (mpg and age of fleet) to measure sustainability, while a parcel carrier uses up to 100 dif- ferent indicators to monitor sustainability. Metrics Overall, for shippers, the main metric used is percent reduc- tion of CO2 emissions per year. Most shippers who measure and report sustainability initiatives use the widely accepted GRI sustainability reporting guidelines. GRI considers GHG emissions to be a key performance indicator, which is one of the reasons why so many shippers interviewed cited the reduction of CO2 emissions as their main sustainability met- ric. One large food manufacturer explained that the overall goal is to drive down the average length of haul—a goal that affects several environmental metrics, including fuel use and CO2 emissions. For carriers, the main metrics utilized include average fuel savings or fuel use per ton-mile moved and percent reduction in CO2 emissions per year. Carriers are focused on measuring and reducing fuel use, given that fuel accounts for such a large share of their direct costs. Overall, corporate, publicly stated environmental initia- tives overwhelmingly emphasize GHG reductions. For exam- ple, FedEx is working toward its “20 by 20” goal of reducing CO2 emissions by 20% by 2020. Maersk Line has set a goal of reducing CO2 emissions by 25% by 2020. On the shipper front, Nike has targeted a 30% reduction of GHG emissions by 2020. Staples aims to reduce absolute GHG emissions by 50% by 2020 (from a 2010 baseline). Air quality measures, such as CAP reductions, were only mentioned by a few interviewees, most of whom operate in California. Examples of metrics, goals, and results provided by inter- viewees are noted in Exhibit 5-1.

51 Exhibit 5-1. Sustainability metrics and goals. Metric Goal Result Company Shippers Length of haul Decrease average length of haul to 700-800 miles Some progress; currently at about 1,100 miles Food manufacturer (large) CO2 2 emissions, absolute reduction 30% absolute reduction in CO by 2020 (vs. 2003 baseline) The company has almost doubled in size since 2003 and they are slightly above baseline, proving they have cut a lot of emissions Athletic apparel manufacturer (large) CO2 emissions, % reduction 50% reduction of CO2 emissions by 2010, 75% reduction by 2015, 5% annual reduction of CO2 (per ton delivered) each year Reached the 2010 goal so far and continually reach annual goal Food manufacturer (small) CO2 emissions, % reduction per pound of product Reduce GHG emissions by 20% per pound of product produced by 2015 On target Food manufacturer (large) Renewable energy use 100% renewable energy Produce no waste Currently unable to achieve this goal, but waiting for technology and legislation to catch up Mass retailer (large) Carriers CO2 emissions, % reduction Reduce CO2 emissions per TEU-km by 25% by 2020 On track Container shipping line Reduce CO2 aircraft emissions intensity by 20% by 2020 Achieved 13.5% reduction in CO2 emissions by 2010 Parcel carrier Reduce aviation CO2 emissions by 42% by 2020 (1990 baseline) CO emissions reduced by 33%, as of 2008 goal Parcel carrier Reduce fleet CO2 emissions by 37% Goal completed and fulfilled 3PL Fuel efficiency 20% efficiency increase by 2020 for vehicles By end 2010, achieved 15.1% increase in vehicle fuel efficiency Parcel carrier Fuel use Reduce aviation fuel use to 6.9 gals/100 available ton- miles (ATM) by 2011 Met fuel goal already and set a new goal of 6.57 gals/100 ATM Parcel carrier Empty miles Reduce empty miles by 20% Empty miles now reduced by 32% Intermodal operator Age of fleet 100% of fleet at 2008 or newer model 50% of fleet is now at 2008 or newer model Intermodal operator Electricity use Reduce warehouse electricity use by 30% Both goals completed and fulfilled 3PL Idle time Reduce idle time as a % of total engine time On track Trucking company CAP emissions, total Reduce PM emissions and NOx emissions Eliminated 21.63 tons of PM emissions and 805.2 tons of NOx emissions Trucking company Driving miles per gallon Reduction over time N/A Trucking company Source: Analysis of shipper and carrier interviewee responses, 2011 and 2012

52 The active use that carriers, in particular, make of these metrics was emphasized in several interviews. For example, Weber Logistics has developed a dashboard for all energy and efficiency areas, which is reviewed daily and includes driving time, idle time, and average miles per hour (speed perspective) (Weber Logistics, 2012, pers. comm.). A long- haul trucker stated that it reviews two key measurements daily, driving mpg and idle time (as percent of total engine time) at every level of the organization. Yearly goals are broken up into shorter-term objectives (Swift Transporta- tion, 2012, pers. comm.). In its advertising, MOL (a Japa- nese ocean carrier) shows its progress against environmental goals (CO2, NOx, and sulfur dioxide emissions per TEU-mile) as well as its operational service performance (American Shipper, 2012). Reporting Reporting of sustainability results also varies considerably across companies. Several companies the research team inter- viewed (e.g., Wal-Mart, Nike, FedEx, UPS, and Maersk) pro- duce and release annual sustainability reports. Some companies like Wal-Mart disclose results via collabo- ration groups such as CDP. Others release their targets and results in a less formal format. Stonyfield Farm and Weber Distribution report selected sustainability results on their web- sites, although Stonyfield is considering producing a more for- mal report in the next few years (Stonyfield Farm, 2012, pers. comm.). Other companies—including those with strong sus- tainability programs but not seeking to build a sustainability brand—measure, but do not release, results. Nike presents an interesting example of sustainability reporting by a large consumer products manufacturer. Nike releases a corporate responsibility report annually. The purpose of this report is to connect with consumers and communicate plans and progress. Socially responsible labor practices in manufacturing appear to share top billing with environmental issues in this document. Within the environ- mental considerations, CO2 is definitely more of a focus than CAP (not included currently, but Nike will have the capabil- ity to do so in the near future), and more than 10 pages in the report are devoted to GHG emissions. Nike also actively addresses transport and logistics aspects, although these are only a modest part of the overall sustainability footprint. Nike has adopted a CO2 measurement tool that calculates emissions for inbound freight flows and is trying to increase visibility of transport legs all the way to the store (Nike, Inc., 2011 and 2012). Patagonia, an apparel maker, has taken a novel approach to communicating its commitment to “use business to inspire and implement solutions to the environmental crisis.” It has developed a project called “The Footprint Chronicles” that documents and shares with customers information about the environmental effects of every part of the supply chain (Patagonia, 2012). 5.5 Branding Supply Chain Sustainability Certain companies have elevated their sustainability efforts, and their public communication of these initiatives, to a level that sets them apart from others. Although the extent and results of these efforts can be debated, such companies clearly believe that there is value in taking a strong sustain- ability approach. The motivation ranges from enhancing the attractiveness of products for environmentally conscious consumers to altruism on the part of company founders. In many cases, it is difficult, if not impossible, to quantify an exact return on investment in these programs. Yet several companies have set the bar high enough to serve as inspira- tions to others, whether large or small, shipper or carrier. A few of these companies and their sustainability programs are described in the following: • Stonyfield Farm—This New Hampshire-based yogurt maker places significant emphasis on sustainability and edu- cating consumers about its environmental efforts. Sustain- ability was one of the founding principles of the company and is central to its brand, as the consumer understands it. Over time, Stonyfield has concentrated its sustainability efforts on the hot spots of its supply chain—milk (largest and most difficult impact area to fix), transportation, packaging, and facilities. Stonyfield seeks to achieve its internal sustainability goals while also addressing consumer needs. The company focuses on educating consumers about why they should choose a sustainable brand. It expects that the level of green con- sumer awareness will rise in future, based on Stonyfield’s own efforts and those of its competitors (Stonyfield, 2012, pers. comm.). Stonyfield’s main sustainability target is to achieve a 5% annual reduction in CO2 emissions per ton of product delivered. Reaching this goal implies a 75% decrease by 2015 (from a 2006 baseline); a 50% reduction was already achieved by 2010. All of the company’s individual sustain- ability projects tie into this 5% annual reduction in GHG. The company does not directly address CAP. On the transportation side, Stonyfield looks at miles in network, vehicle use, and mode to reduce the CO2 footprint. The company became a certified EPA SmartWay Transport Shipper and measures its GHG impact using EPA Smart- Way’s FLEET performance model. Stonyfield also requires that all trucking companies moving its products be SmartWay-certified carriers.

53 Significant progress has been achieved. Between 2006 and 2008, Stonyfield reduced transportation CO2 emis- sions by more than 40% while also growing the business. This is equivalent to taking 1,700 automobiles off the road for a year (Stonyfield, 2012, pers. comm.; Stonyfield, 2012; Cooke, 2009). In terms of advice to other small companies seeking to make sustainability a core part of both the company’s image and its operations, Stonyfield advises that “the big- gest thing is getting [sustainability] into the day-to-day. It’s not top to bottom, it is at the employee level” (Stonyfield Farm, 2012, pers. comm.). • Nike—Nike’s supply chain sustainability program is evolv- ing to encompass a complete, end-to-end supply chain view that is more transparent to consumers. The company has developed a list of supply chain expectations that includes environmental footprint analysis; publishing a corporate responsibility report on a consistent basis; pro- actively investing in research and development of alterna- tive materials; understanding supplier footprint; ensuring traceability of materials throughout the supply chain; and integrating environmental standards, certifications, and traceability systems to ensure integrity throughout the supply chain (Nike, Inc., 2011). Each segment of the supply chain is measured via a common denominator (grams of CO2 per unit processed). This allows Nike to roll up the impact along each leg of the product’s journey. In transportation, Nike has realized many opportunities to conduct existing operations more efficiently and is pursuing new approaches, such as shifted transport modes (Nike, Inc., 2011 and 2012). Nike recently updated its environmental targets to FY2015 (baseline FY2011) as follows: – Achieve 20% reduction in CO2 emissions per unit from FY2011 levels through FY2015. – Source all products from factories that have achieved bronze or better on Nike’s Sourcing and Manufacturing Sustainability Index by the end of FY2020. – Accelerate the adoption of cleaner fuels and vehicle technologies by transport and logistics partners (Nike, 2010/2011). • UPS—UPS focuses on its sustainability programs and has made these efforts a part of its brand. At UPS, “sustain- ability is more than a practice, it’s a value” according to Cindy Miller, managing director of UPS United Kingdom, Ireland and Nordics, in a statement quoted on the UPS website (UPS, 1994-2012). Although specific UPS initia- tives have been discussed earlier in this report, the follow- ing overall objectives are significant: – Increase average in-service miles per gallon for pack- age cars in the U.S. domestic package segment by 20% (from 2000 to 2020). The actual experience achieved was about an 8% improvement from 2000 to 2010. – Reduce global CO2 emissions for UPS Airlines by 20% (from 2005 to 2020). Supporting initiatives include reduced aircraft flight speeds, computer-optimized flight plans, computer-managed aircraft gate departure, arrival and taxi times, biodiesel in ground support equipment, environmentally friendly paint that reduces drag, and cleaner engines (UPS, 2010). UPS has extended its sustainability brand by offering customers a carbon-neutral shipping option (using carbon offsets) and eco-friendly packaging. UPS expects interest to grow as consumers become more aware of the sustain- ability advantages. To encourage demand, UPS initially matched customer cost (up to $1 million, by 2011). The carbon offsets are viewed as a cost-effective way to get car- bon out of the supply chain (UPS, 2012, pers. comm.; UPS, 1994-2012). • FedEx—FedEx presents its sustainability efforts in an annual global citizenship report. This emphasizes the “simple goal” of connecting “the world in responsible and resourceful ways.” Environmental and efficiency goals are highlighted, such as aircraft emissions intensity, vehicle fuel efficiency, alternative jet fuel, renewable energy generation and pro- curement, and LEED certification. Specific targets flagged include improving fuel efficiency and CO2 emissions of the FedEx fleet by 30% by 2020 (from a 2005 baseline). One of the main innovation-focused levers to achieve this goal is to increase the electric and hybrid fleets by 20% (FedEx, 2012). FedEx expanded its sustainability brand in April 2012 by launching a worldwide carbon-neutral envelope ship- ping program. FedEx purchases the equivalent amount of CO2 offsets from BP Target Neutral for the transporta- tion emissions of all global FedEx envelopes shipped, at no extra charge to customers (a first in the industry, according to FedEx). As of April 10, 2012, every FedEx Express enve- lope that moves through the system is being offset. Cus- tomers like the idea of carbon-neutral shipping and are asking FedEx, “What is our carbon footprint?” With the new program, FedEx can show customers that its carbon emissions are now effectively zero for envelope shipping (FedEx, 1995-2012; FedEx, 2012, pers. comm.). 5.6 Rationale for Shipper and Carrier Sustainability Efforts A key question for policymakers and regulators is “what are the drivers of private-sector sustainability initiatives?” The research team encountered various answers to this ques- tion. Economics (particularly reduced costs) and company policy rank highly among shippers’ and carriers’ reasons for efforts to reduce emissions. Other reasons cited range from customer or consumer demand to competitive positioning

54 Exhibit 5-2. Drivers of shippers’ supply chain sustainability programs. Note: “Company” means company policy and the right thing to do. “Economics” means a company’s internal business economics, driven by cost reduction. “Customer” means pressure from business customers or consumers. “Regulatory” means legislative or regulatory requirements. “PR” means public relations reasons. “Competition” refers to competitive pressures. Source: Analysis of shipper interviewee responses, 2011. Exhibit 5-3. Drivers of carriers’ supply chain sustainability programs, weighted by rank. Note: “Company” means company policy and the right thing to do. “Economics” means a company’s internal business economics, driven by cost reduction. “Customer” means pressure from business customers or consumers. “Regulatory” means legislative or regulatory requirements. “PR” means public relations reasons. “Competition” refers to competitive pressures. Source: Analysis of shipper interviewee responses, 2011.

55 illustrates the main drivers of shippers’ supply chain sustain- ability programs, presented on a weighted basis, by driver rank (first = 3 points, second = 2 points, third = 1 point). For carriers, economic (business cost), regulatory, and competitive factors are the main drivers (Exhibit 5.3). Carri- ers, in contrast to shippers, cite regulations as a major driver of sustainability programs. However, carriers also state that customers are driving progress as well, with sustainability now typically being considered by shippers alongside price and service in selecting a transportation partner. An interview with a state environmental agency supported the main drivers of sustainability found in the researcher’s interviews with carriers and shippers. This interviewee stated that intense carrier competition has raised the importance of fuel cost savings and green credentials (e.g., SmartWay certi- fication and carbon footprint calculations) (U.S. EPA, 2011, pers. comm.). and public relations. The driver behind supply chain sustain- ability programs is clearly not regulatory requirements alone. Overall, the research team found company policy (includ- ing simply “doing the right thing”), business economics (e.g., cost savings or increases), and customers to be the main stated drivers for shippers. Regulatory factors were rated as being much less significant. For instance, one food manufacturer explained that the top driver of their sustainability program is consumer requirements, because this company’s particular customers are focused on local and organic products. A lead- ing retailer was largely influenced by consumer perceptions in taking a high-profile stand on sustainability. An apparel maker was stimulated to launch a broad sustainability effort, in part, by negative press on one aspect of its supply chain. An office products wholesaler and retailer noted that its corpo- rate clients now require detailed descriptions of sustainability programs as part of their requests for proposals. Exhibit 5-2