Summer Heat Brings Industry Call for Climate Deal

Andrew Hutson photo

As I write this blog, it’s hot outside.  I mean really hot.  At 97 degrees today here in the North Carolina Piedmont – with a heat index of 100 degrees – it’s thirteen degrees above the average high for June.

Summers have been getting hotter here, as they have in most parts of the world, since I moved to the South from my native Michigan fifteen years ago.  And the weather has gotten weirder. Way weirder.  Too much rain at times, not enough at others.  Hot when it should be cold, cold when it should be hot.  Bigger storms. You get the picture… you’re experiencing it too.

Yet, somehow, I’m hopeful.

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Generating solutions for energy reduction across the supply chain

How China can harness the power of supply chains to save costs, energy and ultimately the environment

Gearing up for the start of a new school year begins with shopping for new school supplies. Your daughter has asked for the latest princess backpack and a full set of colored pencils. While she has insisted that you buy the set of 36 and not 12, she has not specified any carbon footprint limit. And neither have you.

Turns out, your purchases hold great promise for reducing emissions. According to the International Energy Agency, the global industrial sector emits approximately one-third of energy related CO2 emissions and consumes the same amount of total primary energy supply.

Luckily, a perfect storm of consumer awareness, corporate responsibility and government incentives has ushered big US players like Walmart into the spotlight, who can use their market clout to move their suppliers away from wasteful practices. The good news is that from a technical standpoint, we know how to help companies like Walmart reduce their footprint at in a way that actually saves a lot of money.

But despite making economic sense, the average company implements less than two thirds of energy efficiency projects. We can attribute a lot of this disparity to the complexity of the marketplace in China, where most consumer goods on the shelves of US retailers are manufactured. Among these small and medium sized producers, the scale is vast. Coordination is difficult. The true numbers are obscured. The promise of financial return is hazy. There is a lot of room for improvement.

In October of last year Environmental Defense Fund (EDF) partnered with the University of Minnesota Institute on the Environment’s NorthStar Initiative for Sustainable Enterprise (NiSE) to convene 31 participants from energy service companies, finance, retail, NGOs, government and academia to brainstorm real solutions to this challenge.  This week, we’re launching The Supply Chain Coordination and Energy Efficiency Symposium report to summarize the group’s findings and outline a roadmap to close the gap between the energy efficiency opportunities that are identified and those that are implemented in the supply chain.

Once again, EDF’s commitment to “finding the ways that work” has paid off in spades. This group of unlikely partners has crafted ideas that will help guide our work moving forward. Our ideas included staging pilot programs at leading companies, engaging peer manufacturers to collaborate and compete for success, and advocating for increased industry transparency.  Finally, and most importantly, we emphasized the need to find quick and easy ways to prove to investors what we already know—that investing in energy efficiency pays back, and pays back well.

At the heart of this report lies the goodwill of unlikely partners working together to catalyze solutions. As we know, the trick is ensuring that these solutions are not only imagined, but that emission reductions are realized both in the US and in China, both among industry giants and small businesses. A purchase as simple as a backpack and colored pencils could be a powerful tool in securing a safe future for your daughter. This report is a step toward that future.

Saving Business from Itself

Is the business community its own worst enemy? That was my takeaway from a recent post on FastCompany’s blog. In it, Joss Tantram makes the provocative argument that trade — “rights of enterprise, private trade and market activity” — is a fundamental human right.  But he also notes that that right is increasingly at risk, given the market’s failure to address the disruptive effects of global warming and other environmental challenges. 

“Trade as we have known it is endangered,” Tantram writes. “Clear trends in demographics, urbanization, water quality and availability, climate stability, resource scarcity and ecosystem health represent risks to the continuation of trade as usual.”  He suggests changes to trade law, policy and regulation that remedy the problem.

I agree with Tantram. Mostly. Trade is the lifeblood of the world economy and the engine that enables people to live better lives. And, yes, systems of commerce are increasingly at risk due to self-inflicted social and environmental wounds.  So we do need new public policies to ensure future prosperity.

It's also true that a growing number of businesses are keenly aware that environmental threats are also threats to the bottom line.  As Tantram notes:

“A growing number of companies …recogniz(e) that their longevity relies upon the health and vitality of natural capital and the continuing stable functioning of natural systems, have developed plans to transform their production activities to become sustainable.”

So far so good. But I don’t think Tantram’s diagnosis or his cure, are precise enough. The real question to ask is: can business save itself from itself?

In fact, despite the progress that has been made, the primary obstacle to enacting policies that will safeguard the environment and protect the “right to trade” is still the business community and its allies. Far too frequently, their knee-jerk reaction to proposed environmental policies is to try to kill them.  Or, nearly as bad, many executives will sit on the sidelines while their more aggressive peers disrupt meaningful, system-wide action.

In the very worst  cases, companies speak out of both sides of their mouths. Publicly, they maintain the importance of sustainability; privately, they apply money and influence to thwarting meaningful action – often by undermining sound science (as detailed in this report by Union of Concerned Scientists).

We’ve come a long way in the past decade.  Environmentalists have gone from being seen as the enemy in corporate boardrooms to trusted advisors.  As a result, there are many exciting initiatives underway at corporations around the world aimed at tackling critical environmental problems.  But we cannot continue to pretend that voluntary programs alone are sufficient to solve the scope of the challenges we face.

Over the next decade, being a business leader (or a leading corporation) will mean helping to shape smart government policies that preserve ecosystems vital  to the continued profitability of business itself.  It will also mean taking a more aggressive role in overriding those voices within the business community that wish to maintain the status quo.

Business leadership of this sort is one of the critical elements to meeting the global threat of climate change. The stakes are high: our systems of global trade and the ecosystems life depends on hang in the balance.

Originally posted on EDFVoices.

The Walmart Chronicles: Energy Efficiency Ain't Rocket Science, But It Could Use a Boost

Two years ago, I sat in a crowded ballroom in Beijing and listened to incoming Walmart CEO Mike Duke say, "By 2012, our goal is for the top 200 factories we source from directly in China to achieve 20 percent greater energy efficiency."

It was music to my ears. Even though my organization, Environmental Defense Fund, was one of the key stakeholders working with Walmart, and I had already made several trips to China to help the Walmart team shape the commitment, I was still a bit astounded. This could change everything, I found myself thinking. When Walmart speaks, suppliers listen, and other retailers and brands tend to follow. My thoughts were confirmed by a flurry of BlackBerry action from suppliers in the room. They must have gotten the message.

Well, sort of.

Since the announcement in October 2008, EDF has been working closely with Walmart and its suppliers on the ground in China to meet that goal. We've been in over 300 factories and here's what we've found: Walmart is off to a decent start with its Chinese factories, but for the program to be impactful and meet its potential, it needs to up its game. Dedicating sufficient resources to get the job done would be a good place to start.

Here's the good news: The opportunities for improvement are even larger than we envisioned — it's not unusual for us to find savings of up to 60 percent in many factories — and the payback periods for upgrades are absurdly short. We never recommend a project with a payback period longer than two years, and many of the recommendations we make have simple returns on investment of less than six months.

Our perspective all along has been that energy efficiency ain't rocket science. Solutions to radically reduce energy using mature technology are readily available. The trick was to better understand how such technologies could be applied in the context of Chinese manufacturing for export, mostly small and medium-sized enterprises.

And for the most part, we've figured that out. From toy factories replacing outdated air compressors to furniture makers installing motor maintenance programs, suppliers are finding substantial value in rooting out energy efficiency. One production engineer even exclaimed "Work here is fun again!" when we asked him how it was going.

I've outlined one particular case of how easy such projects can be on the EDF business blog, but can say with confidence that such experiences are not unique. Using simple checklists and data from similar factories, we can evaluate the biggest energy saving opportunities at manufacturing sites very quickly, and have trained a few amazingly dedicated young Chinese Walmart associates to do so as well — this is their country after all and they want to make it a better place. Industry accounts for 68 percent of all electricity use in China (compared with 32 percent in the United States) and 70 percent is from coal-fired power plants. Such changes can go a long way towards driving China's low-carbon future.

That's the beauty of EDF's partnership approach — Walmart has the leverage, we have the know-how.  When we have momentum, it's pure magic.

Now for the not-so-great news: Despite the huge possibilities and proven benefits, energy efficiency in supplier factories still seems to be viewed as extracurricular by Walmart managers. It is not, in the lexicon of the Walmart world, seen as a "core activity" and not given the priority it needs. We've had several fits and starts getting this program off the ground. For a time, we'll have several of those young, talented associates pushing hard to improve the performance of suppliers — and seeing very promising returns — only to have them peeled away when "more pressing" issues arise.

Resources at the notoriously frugal retailer are always tight, and several consecutive quarters of declining sales generally don't help. So when push comes to shove, "core activities" get the attention, sometimes at the expense of earlier priorities.

We get it: When you're the biggest retailer in the world, you've got a lot going on. There are lots of pressures to get everything right, loads of risks to manage, and eyeballs glued to your every move. Priorities need to be balanced. But here's what doesn't make sense: Leaving lots of money on the table when aggressively going after it also happens to solve a huge global problem.

And herein lies the missed opportunity. In our estimation, it would require only minimal additional human resources and a few key structural changes to knock this program out of the park and truly transform the way energy is managed in Chinese factories. Stronger mandates for supplier participation, the introduction of key metrics and a system for metering progress, as well as incentives for good performance would all go a long way towards the meeting the commitment.

So while many suppliers are making substantial progress on energy efficiency, and Walmart will probably achieve its goal of 200 suppliers reducing energy 20 percent by 2012, it has not been the stampede we'd hoped to see. That could change, however, and we're optimistic that it will. Walmart leadership is far too savvy to let an opportunity this good slip through its fingers.

This content was originally published by Greenbiz.com.

The Golden Ticket Yields Plenty of Green: A tour of a Chinese factory brings energy savings to light

“Check this out.”  Our industrial engineer had removed the side panel from an injection molding machine to show me the outdated motor chugging inside.  “There is no reason for this thing to still be in operation.”

We were in Dongguan City – in the heart of China’s Pearl River Delta – where the bulk of consumer goods for export originate.  The machines were cranking out casings for Christmas lights, hundreds at a time.   Chances are the lights on your house, or tree, or dorm room wall framing that blacklight Hendrix poster, began here – particularly if you bought them from any major retail outlet in the United States, like Walmart.

Environmental Defense Fund (EDF) is currently working to improve the environmental performance at the 30,000 Chinese factories that supply Walmart and building a purchasing system that rewards suppliers with environmentally preferable products. A tour of one of these factories revealed the opportunities for potential energy savings in China, now the world's biggest energy user. Read more

Wal-Mart's Sustainability Index: Thoughts from an (almost) insider

Fresh out of Wal-Mart’s quarterly “Sustainability Milestone Meeting,” where the company announced its intention to create and support a Sustainability Index to measure and rate the environmental attributes of products, I’m left with a lot of questions – and also a lot of hope for the future.

I won’t attempt to recap the discussions already swirling around the blogosphere about whether or not this effort is real (Joel Makower’s blog does a pretty good job of summing up the issues). Instead, I’ll give a sample of what I heard today and why we need to help ensure its success.

Amidst the normal hullabaloo of a Wal-Mart event – part business meeting, part tent revival – two key executives reinforced that they understand the imperative of sustainability and why the company needs to act. Read more

Error-Proofing our way to a Cleaner Planet

An article in today’s New York Times on how many colleges in the Northeast have eliminated the use of cafeteria trays in order to prevent food waste (and cut down on the dreaded “freshman 15”) reminded me of a conversation I had recently with a friend, and darn smart industrial engineer, about the best ways to change environmental behavior.

Poka-yoke” he said. 
“Er, what?”
Poka-yoke, it’s a Japanese term.”
“Like tamagotchi or kaiju?”
“No. Not like that at all.” 

Poka-yoke (pronounced “pokah-yokey”), he went on to explain, is the concept of mistake-proofing.  Essentially, it seeks to create a system that makes it easy to do the right thing and difficult (if not impossible) to do the wrong thing. It stems from the quality movement, and the Toyota Production System specifically, where it was used to prevent worker error or injury by designing the possibility of occurrence out of the process.  There are examples of poka-yoke in our lives everyday.  If your car has ever prevented you from locking the keys inside, you’ve experienced it.  Ever try to take the key out of your automatic vehicle’s ignition while in gear?  You can’t.  Poka-yoke won’t let you.  If you’ve never been crushed by a file cabinet, you’ve benefited (most won’t let you open more than one drawer at a time). [Find other examples from everyday life here

It seems to me that my industrial engineer friend and the food service people at Skidmore College (among others) are onto something.  How do we crack the notoriously difficult challenge of changing peoples’ environmental behavior?  Making everyday tasks environmentally error-proof might be a powerful solution- at least partially – to many of our most frustrating environmental dilemmas.   

Hotels in Europe and Asia are already on top of it.  In order to save energy and prevent guests from leaving on lights, televisions or other appliances, room keys are often required to be inserted into the wall to activate circuits.  When you leave, you take the key with you, cutting off power to the room.  This is a simple and elegant solution that results in huge cost savings and environmental benefits.  We need more thinking along these lines.   

So, when thinking about behavior change, think poka-yoke. It’s not nearly as annoying as a tamagotchi, nor as terrifying as a kaiju

Bringing Lifecyle and Value Chain Analyses together…at Last

A webinar hosted by the Supply Chain Council this morning on GHG Accounting in the Supply-Chain brought me back to a question I've been chewing on for a long time. How can we best take advantage of the complementary methodologies of life cycle assessment (LCA) and value chain analysis (VCA) for better supply chain management? In his very thoughtful presentation, Taylor Wilkerson from the not-for-profit government consulting group LMI, outlined a framework for greenhouse gas accounting using the SCOR (short for supply chain operations reference) model in conjunction with the WRI/WBCSD GHG Protocol (wow, what an alphabet soup!) under development and review. His case was compelling, that the SCOR model, already used by many supply chain professionals for tracking standard supply chain metrics (i.e. cost, quality, price and delivery) is an excellent tool for companies to track the greenhouse gas pollution emissions along their supply chains and in their operations. I think Taylor is off to a great start and his approach is extremely innovative. But I think we need more people, and a much deeper effort, working to integrate lifecycle thinking into how products are designed, manufactured and delivered to consumers.

LCA and VCA are two extremely useful platforms that can help push such an effort forward and each has its own strengths and limitations. In general, LCA is great for quantifying the impacts and giving a fairly good idea of where the most significant areas in a production chain exist from raw material extraction, through manufacture, use, and hopefully new life. But, in many ways, the raw numbers LCA provides are dumb. What it can't do is explain the dynamics that exist within a particular industry or identify the most effective levers for change. This is where VCA holds the most power, and it seems to me, is a perfectly complementary methodology to use alongside LCA. Not only does VCA provide a roadmap of sectors, identifying with great detail the stages of production – from firms responsible for raw material extraction through the lead firms orchestrating production, but also the relationships among actors (firms, governments, industry groups, etc), and the power dynamics among them: a level of detail that LCA alone cannot hope to provide, even in a perfect world using the cleanest possible process-level data.

Imagine you are a global retailer, concerned with the environmental impact of a brand new must-have children's toy. In order to better understand the environmental impact of this toy to satisfy eco-conscious moms, you commission an LCA to determine where in the lifecycle the "hotspots" (areas of greatest impact) exist. Your consultant comes back to you, two weeks later with a report full of bar charts and boxes connected by lines of varying thickness – telling you exactly which attributes you need to worry the most about and the relative impact of each. Ok, so now you know that the electric motor is by far the most impactful component and something you should target, but what do you do? Who makes that motor? Where is the factory? Is it even the same company who sold it to you? How deep in the supply chain is it? Are there competitors out there who could produce the same item in a much more environmentally sound manner? Is there much you can do about it given your relative influence in this industry? Who else might you recruit to help make this product better? These are all questions VCA can help answer.

The overlap between these approaches seems obvious, but the barriers to useful integration are substantial – but they don't need to be. The communities that exist around each have their own languages, in many cases peculiar nomenclatures that can seem foreign-sounding even when using common English words (e.g. functional unit, reference flows, allocation through partitioning, et al). Even worse, they have their own fiefdoms, which can be difficult to penetrate. However, there are thoughtful scholars and practitioners in both areas, who see the benefits of each method and the inherent complementarity between them. This is good news.

In order to move forward, we need to get leading thinkers in each area together and help them better understand the linkages between approaches – how they can best design their studies to be of greatest collective value. Perhaps this is where initiatives such as the Sustainability Consortium can provide a forum, and framework, for collaborative innovation that leads to better environmental outcomes.

These kinds of data incorporated into a framework like SCOR could be really powerful across environmental media. I'd love to see what Taylor Wilkerson could do with that information and how supply chain managers, NGOs and governments around the world could take advantage of the new opportunities it would provide.

Why Exchange Your Innovations? Because You'll Benefit Too.

When our Corporate Partnerships team meets with a company for first time, there is a predictable a moment in the conversation when the manager or executive sitting across the table takes a long pause, squints her eyes, and says, "Why in the world would we agree to that?"

The idea that seems so objectionable at first, but more palatable once we explain the benefits? Just as soon as we help the company develop a product innovation, process improvement, or new methodology that leads to cost savings and measurable environmental results, we're going to knock on its competitors' doors and hand it to them with a big green bow on top. It is the core of our business model and how we ensure that the best ideas are brought to scale. It stems from our understanding that we cannot solve the world's most pressing environmental problems in isolation, or with one-off projects, but rather need the collective energy of the planet's smartest companies and individuals to ensure the survival of our species and the biosphere.

This initial dissonance on the part of managers is so predictable because it sits at the core of 20th century business strategy: deem everything cooked up in your kitchen as "proprietary" and share with no one. The reality in the 21st century is that the environmental threats we face are deep, interconnected and global in nature and substantial opportunities for value creation exist through finding collaborative solutions. But, for broad-sweeping innovations to occur, companies must drop their default position of "everything is proprietary" and accept that we're living in an open-source world. This doesn't mean giving up the farm, but it does mean that companies need to closely separate core competitive issues from areas where they can benefit from cooperation and innovation within their industries and across sectors.

While many software companies find the open source concept old hat by now, and IT, biotech, and branded apparel firms (among others) already understand the value of co-development and co-design with contract manufacturers, most managers still shiver at the thought of sharing their best ideas so openly (and fear the ire of their legal departments). Getting over this fear and embracing the open exchange of technologies and processes will more often than not lead to greater efficiency in operations, the ability to bring technological changes to scale, optimize logistics networks, and limitless other opportunities.

Still afraid? It may help to start slowly and think very carefully about operational problems that are inherently non-competitive in nature, but result in great inefficiencies due to business-as-usual practices.

The most obvious places to begin are through solving problems stemming from common processes or a shared supply base. In other words: addressing classic public goods problems. The Global Social Compliance Program a forum organized by global retailers, is attempting to do just that by collectively facing the inherent inefficiencies of individually addressing social and environmental problems in their vast and complex global supply chains. Does it makes sense for five retailers to use five sets of standards and audit the same two hundred manufacturing facility four times a year without sharing any information? Probably not. Co-determining standards and sharing information on vendors could literally save companies millions of dollars, increase quality assurance, and improve social and environmental performance (assuming the standards don't get watered down to a 'lowest common denominator'). Similarly, multi-stakeholder forums, such as those hosted by Business for Social Responsibility create a space to openly discuss common problems and share best practices across several sectors with substantial environmental impacts.

Ultimately, the end goal should be to co-develop new technologies and products (either through explicit coordination, or simply sharing ideas) that solve environmental problems and deliver real returns for each of the companies involved, with distinct market offerings building on each firms unique competencies. The beauty is in a process that brings together ideas, skills, and people that otherwise would not interact. Consider the idea of an environmental technology waiting to be brought to market, but an individual company's footprint is far too small to bring about the scale necessary to lower the costs or substantially drive environmental improvements. For example, your company has developed a green chemistry solution (that has eliminated the toxicity of materials used) to a product input, but your levels of production are far too low for it to be cost efficient. Keeping this information proprietary would result in the innovation rotting on the shelf, without benefit to your company, the workers who manufacture your goods, or the planet at large. Imagine setting that patent free, where demand for such a solution would increase the scale and drive down the price. Now we're all better off and you've created a much safer product for your customers.

Without question, there are still some major issues to work through in order to reduce fear among managers and eliminate obstacles to effective collaboration – and these are no small hurdles. Genuine concerns about what is fair use, who gets credit for a particular innovation, and how the market will reward first-movers remain open and unresolved. However, there are efforts underway to hash out the specifics and foster a healthy community of collaborative environmental innovators based on the Creative Commons platform used by artists, musicians and writers – allowing designers to build on the work of others in way consistent with copyright laws. (The Nike-led Green Exchange is probably the most well-known of such efforts).

As Irving Wladawsky-Berger, IBM's former VP of technical strategy famously told Thomas Friedman, "[t]he emerging era is characterized by the collaborative innovation of many people working in gifted communities, just as innovation in the industrial era was characterized by individual genius." Wouldn't it be great if those gifted communities also happened to solve the world's most pressing environmental problems as well? I believe they can, they just need the freedom, and courage, to do so.