Description
The Global Environmental Management Initiative (GEMI) is a non-profit organization of leading companies dedicated to fostering environmental, health, and safety excellence worldwide.
busi ness helpi ng busi ness achi eve global
envi ronmental, health and safety excellence
Environment: Value to Business
About the Global Environmental
Management Initiative
The Global Environmental Management Initiative (GEMI) is a
non-profit organization of leading companies dedicated to
fostering environmental, health, and safety excellence world-
wide. Through the collaborative efforts of its members, GEMI
also promotes a worldwide business ethic for environmental,
health, and safety management and sustainable development
through example and leadership.
The guidance included in this primer is based on the
professional judgment of the individual collaborators listed
in the acknowledgments. The ideas in the primer are those
of the individual collaborators and not necessarily their organi-
zations. Neither GEMI nor its consultants are responsible for
any form of damage that may result from the application of the
guidance contained in this primer.
This document has been produced by the Global Environmental
Management Initiative (GEMI) and is solely the property of the
organization. This document may not be reproduced without
the express written permission of GEMI, except for use by mem-
ber companies or for strictly educational purposes.
gemi’s member companies include:
anheuser-busch companies, inc.
ashland, inc.
bristol-myers squibb company
browning-ferris industries
the burlington northern and santa fe
railway company
the coca-cola company
colgate-palmolive company
coors brewing company
the dow chemical company
duke energy
the dupont company
eastman kodak company
elf atochem north america
georgia-pacific corporation
the goodyear tire & rubber company
halliburton company
johnson & johnson
koch industries, inc.
lockheed martin corporation
merck & company, Inc.
motorola, inc.
novartis corporation
occidental petroleum corporation
olin corporation
pharmacia & upjohn, inc.
phillips petroleum company
the procter & gamble company
southern company
temple-inland, inc.
texas instruments incorporated
environment:
valuetobusiness
global envi ronmental management i ni ti ative
This primer was developed in a truly collaborative
process by the Global Environmental Management
Initiative’s (GEMI) Environment: Value to Business
(EVTB) Work Group. Harry Ott (The Coca-Cola
Company), Chair of the Work Group, and Ben Jordan
(The Coca-Cola Company) directed the project.
The primer was written by Tim Larson and Kristin
Larson of the Resource Planning and Management
Systems (RPM Systems) Group of ThermoRetec
Corporation, with oversight and guidance from
Howard Brown (President of RPM Systems) and
Cathy Van Dyke. Steve Hellem, Executive Director of
GEMI, and Mary Beth Parker, also of GEMI, provided
substantial input and support to the project.
Several EVTB committee members were extensively
involved in many aspects of the project, from con-
ceptualization and planning to ?nal development
of the primer. Jim Thomas (Novartis Corporation)
played a signi?cant role in developing the primer
and organizing the ?nal primer review meeting at
Yale University.
Other major EVTB Work Group contributors include:
Lisa Baggett, Georgia-Paci?c
Tanya Blalock, Southern Company
Stan Christian, Motorola
Mitch Griggs, Duke Energy
Carolyn Kennedy, Georgia Power
Dave Mayer, Georgia-Paci?c
Vivian Pai, Johnson & Johnson
Scott Smith, Coors Brewing Company
Darwin Wika, DuPont
The project also received generous support
and input from other GEMI member company
representatives, including:
Clinton Allen, Bristol-Myers Squibb
Carol Cala, Eastman Kodak Corporation
Stephen Evanoff, Lockheed Martin Corporation
Chuck Grif?n, Southern Company
John Hayworth, Browning Ferris Industries
Kevin Henke, Koch Industries
Acknowledgments
Joseph Holtshouser, Goodyear Tire &
Rubber Company
Steve Jones, Alabama Power
Rob Minter, Southern Company
George Nagle, Bristol-Myers Squibb
Bill Rankin, Olin Corporation
Jerry Schinaman, Bristol-Myers Squibb
Bob Sherman, Halliburton Company
Bill Sugar, Anheuser-Busch Companies
Robin Tollett, Procter & Gamble
additional thanks to:
RPM Systems staff who contributed to the research,
writing and editing of the primer, including:
David Cross, Brett Evans, Sarah Friedman, Prescott
Gaylord, Paula Grimm, Michelle Hirsch, Dan Kops,
Mark Loef?er, Rebecca Quarno, Todd Rogow, Megan
Shane, and Melissa Spear, among others.
Graphic design: Heather Corcoran
The Industrial Environmental Management
Program of the Yale University School of Forestry
and Environmental Studies for hosting the ?nal
meeting to review the primer, the ‘Dialogue
on Measuring Environmental Value to Business.’
Special thanks to the following Yale faculty
members for their thoughtful participation:
Marian Chertow, Bradford Gentry, Thomas Graedel,
and Reid Lifset.
The following individuals who reviewed and
commented on the draft EVTB primer:
Cindy Angelelli (Policy & Strategy Division, Duke
Energy), Bob Brady (Fund Manager, Salomon Smith
Barney), Linda Descano (V.P. Environmental Affairs,
Salomon Smith Barney), David Ratcliffe (CFO,
Georgia Power), and John Richards (Finance
Division, The Coca-Cola Company).
The following non-GEMI member companies
who provided case study information for the
primer: ARCO, Baxter International, Duracell,
Rhône-Poulenc.
3
Contents
introduction 5
chapter 1: plan to add value 9
Know Your Business 10
Inventory Potential Environmental Impacts 10
Identify Value-Creating Opportunities 13
Prioritize Activities 19
chapter 2: do what adds value 21
Build the Business Case 21
Mobilize Resources 22
Build Momentum 24
chapter 3: check the value-added 27
Gather Cost and Bene?t Data 28
Analyze the Value of Environmental Activities 33
chapter 4: advance and communicate value 39
Strategies for Effective Communication 40
Communicating Value to Upper Management 41
Communicating Value to Operations 43
Communicating Value to External Stakeholders 46
conclusion 48
appendix: financial tools 50
resources 51
Greetings,
Corporate environmental professionals from
companies around the world are adding value
to their corporations’ bottom lines in ways that
could not have been imagined a few years ago.
More and more companies are discovering that
proactive environmental programs make
signi?cant contributions to pro?tability and
competitiveness. In addition to reducing risk
and avoiding costs from regulatory compliance
programs, bene?ts are ?owing from
environmental initiatives that spur process
innovation, increase worker productivity and
morale, enhance brand image, streamline time-
to-market, improve relations with regulators
and local communities, and open new market
opportunities. Professional environmental
managers are key contributors to a company’s
overall strategic business success.
Environmental professionals in today’s compa-
nies share a unique vantage point. They address
challenges that cut across all aspects of the
business, fromthe plant ?oor to the boardroom.
They are in an excellent position to identify
problems and opportunities, and to broker
information and innovative solutions. Yet in
order to add real value, environmental
professionals must be ‘plugged into’ main-line
business. It is important for business managers
to understand the ways environmental activi-
ties can add business value. Environment: Value
to Business is about focusing on this need for
integration and communication—and ways to
achieve it.
Preface
November 1998
While this primer provides a valuable tool kit
for corporate environmental organizations and
professionals, the ideas, examples, and case
studies found in these pages will be of interest
to a wider audience. The Global Environmental
Management Initiative (GEMI) hopes this
primer will strengthen the growing discussion
in business, ?nancial, and environmental circles
about the value of corporate environmental
activities and the links between environmental
and business performance. We look forward, in
future GEMI activities, to expanding our efforts
in facilitating dialogue and building broader
understanding among business leaders and
managers, members of the ?nancial community,
and corporate environmental professionals.
We hope you will enjoy and bene?t from these
creative and leading-edge activities.
Sincerely,
Harry J. Ott
Chair
Environment: Value to Business Work Group
Global Environmental Management Initiative
Director
Global Environmental Assurance
The Coca-Cola Company
The business context in which corporate
environmental professionals must work is rapidly
changing. Competitive pressures in the global economy
are pushing companies to ensure that all endeavors
contribute to the creation and protection of shareholder
value. Corporate environmental professionals need to
rethink their roles, responsibilities, and approaches in
order to respond to these larger business trends.
focus on business integration. Companies are
reorienting traditional business strategies to focus
on cross-functional business processes and are taking
advantage of opportunities to coordinate the work of
different operating units and departments.
customer-orientation. Corporations are encouraging
all business functions, not just sales and marketing,
to adopt a customer-focused approach to delivering
products and services.
emergence of the triple bottom line.
1
Increasingly,
investors and consumers are holding corporations
accountable for their impacts
on the environment and society,
in addition to ?nancial performance,
forcing companies to anticipate
and rapidly respond to social
and environmental issues.
In this shifting business context, the role of the
environmental professional is evolving. Environmental
staff must get ‘plugged into’ business—undertaking
activities that create value for the business and com-
municating this value to multiple internal and external
stakeholders. Increasingly, corporate environmental
professionals are discovering that the value of their
services expands as the scope of their activities extends
beyond remediation and compliance activities. By
focusing on resource management or ‘eco-ef?ciency,’
environmental activities can produce operational and
strategic value by reducing costs and enhancing reve-
nues. Less resources, less waste, less risk. More sales,
more revenues.
Environmental activities can reduce operating costs by:
improving resource utilization rates and
process ef?ciency;
reducing waste; and
using risk management to avoid ?nes and
clean-up costs, reduce legal costs and judgments,
and decrease insurance and overhead costs.
An environmental program which is well-integrated
into core business processes can also in?uence
pro?tability in more subtle (and sometimes less
tangible) ways by:
streamlining product development cycles and
reducing time to market;
improving relationships with regulators, suppliers,
and consumers;
safeguarding corporate image and brand names;
Introduction
1
John Elkington,
Cannibals With Forks:
The Triple Bottom Line
of 21st Century
Business. Oxford, UK:
Capstone Publishing, 1997.
5
M. Douglas Ivester
Chairman, Board of Directors & CEO,
The Coca-Cola Company
The best possible environment for our success is the best possible environment. Implementation
of The Coca-Cola Environmental Management System throughout our organization will help us
protect and grow our business through continued environmental leadership.”
“
4
3
plan
Know the business
context.
Inventory potential
environmental impacts.
Identify value-creating
opportunities.
Prioritize activities.
advance
Communicate value and
get feedback from:
Internal stakeholders
(upper management
and operations).
External stakeholders
(customers, suppliers,
shareholders, investors).
check
Gather actual cost and
bene?t information.
Analyze the value creat-
ed by environmental
activities.
1
the plan-do-check-advance cycle
6
do
Build the business case.
Mobilize resources.
Build momentum
through implementation.
enhancing employee productivity and morale; and
identifying new product and service opportunities.
Companies are only beginning to discover the ways
in which corporate environmental initiatives can add
strategic value to business.
While Environment: Value to Business explores tools
and techniques that corporate environmental profes-
sionals can use to plan, create, measure, and communi-
cate the business value of environmental activities, we
believe that these ideas will be of interest to a much
broader audience. In particular, business leaders and
members of the ?nancial community will ?nd compel-
ling examples of ways corporate environmental activi-
ties can contribute to pro?tability and competitiveness.
In addition, the concepts addressed in this primer are
directly relevant to corporate health an safety activities.
Environment: Value to Business is divided into four
chapters—one for each stage of the Plan-Do-Check-
Advance (PDCA) cycle of environmental management.
2
Total Quality Environmental Management (TQEM), ISO
14001, and other environmental management system
approaches are all founded in this iterative
process focused on continuous learning
and improvement—making PDCA a useful
framework for presenting the Environ-
ment: Value to Business (EVTB) concepts and tools.
Ideally, efforts to plan, create, measure, and communi-
cate the value of environmental activities will be seam-
lessly integrated into corporate environmental man-
agement systems.
It is understood that readers may be at different
points in the PDCA process. Environment: Value to
Business is designed to facilitate quick navigation; and
each chapter provides useful tips and tools, key ques-
tions, and case studies. Of course, not all EVTB concepts
and tools ?t neatly into the ‘bins’ of the PDCA frame-
work. We have endeavored to denote some of these
important links between chapters—where tools
presented in one chapter can also be used in another
stage of the PDCA process—using the ( ) symbol.
2
2
For the purposes of
this primer, the term
‘Advance’ is more
appropriate than the
PDCA term ‘Act.’
7
9
The corporate environmental professional
faces the same challenge confronting other business
leaders in a changing world—how to allocate or secure
limited resources (money, staff, senior management
attention) to maximize the value of activities and
projects. When done well, planning can enable corpor-
ate environmental managers to identify, assess, and
prioritize opportunities in the organization and devise
creative strategies for leveraging resources—not just
the environmental department’s resources, but those
of other departments as well. This chapter describes
the essential elements of a successful planning effort
and presents tools and tips for maximizing the bene?ts
of planning.
The key to good planning is to transform it from
an academic exercise that results in just another report
on the shelf to a vibrant process of getting plugged
into the business. Planning requires environmental
professionals to step out into the business, gain an
understanding of the broader organization, listen to
other departments’ needs and goals, and identify stra-
tegic opportunities for solving company challenges.
It involves reaching beyond traditional role boundaries
to become strategists, entrepreneurs, sales representa-
tives, and educators. In this way, effective planning can
both reveal value-creating opportunities and provide
critical insight into how best to communicate with key
individuals and groups.
1
Plan to Add Value
10
There are four main elements to successful planning: (1)
knowing your business; (2) taking inventory of potential
environmental impacts; (3) identifying value-creating
opportunities; and (4) prioritizing activities.
Know Your Business
Assess the business context of environmental activities.
All too often, corporate environmental professionals
are unaware of the speci?c goals, priorities, and needs
of other departments and staff within the company.
Being able to offer value-adding solutions requires
three things. First, identify the current and potential
customers of environmental services. Second, know
what business challenges those customers are trying
to solve. Third, understand your company’s long range
business plans. While environmental professionals
cannot be expected to be experts in every aspect
of a company, failure to do homework on the business
context may leave giant value-creating opportunities
on the table and environmental issues on the sidelines.
Inventory Potential
Environmental Impacts
Make sure that you know all of the ways your company
impacts the environment. As illustrated in the resources
throughput model (see pages 12–13), environmental
impacts typically arise from (1) the use of input
resources; (2) the generation of wastes, emissions,
and discharges; and (3) the existence, use or disposal
of products.
This task is akin to the identi?cation of ‘environ-
mental aspects’ in the ISO14001 environmental
management system standard. To conduct an inventory
of environmental impacts, ?rst identify the core
business processes and functions in your organization,
including the production and operational processes.
Then, map the processes that you identify (see
the Process Mapping section below for suggestions).
Process mapping not only improves understanding
of business activities, but also helps to reveal areas
where these activities can impact the environment and
where environmental staff can intervene to provide
value-adding assistance. For each process and/or
functional area, brainstormthe current and potential
environmental impacts.
Key Questions
know your business
What are the business trends affecting your
company and industry?
Who are the customers (both internal and
external) of environmental services?
Who are the customers of your company’s
products & services?
What are the business goals for your business
this year?
What are the priorities of senior management?
What are the priorities and initiatives of other
departments and business units?
Tips
know your business
Review internal literature. Gather and review
reports and materials to learn about important
issues affecting your company and industry.
In addition to materials such as corporate
newsletters and annual reports, most business
units and departments produce periodic
reports, strategic plans, annual business goals,
and budgets. Watch for issues or key words
that are important to management.
Get invited to meetings. Look at every interac-
tion as an opportunity to listen to the needs of
others. Use opportunities to meet with stake-
holders to learn about their business goals and
needs (meetings, interviews, surveys, informal
interactions).
Benchmark. Keep abreast of environmental
initiatives and business trends affecting
companies in your industry by participating
in industry associations and other business-
environment initiatives (e.g. GEMI).
11
Key Questions
inventory of impacts
What are the core business and operational
processes of your company (e.g., new
product development, purchasing, component
manufacturing)?
What are the existing and potential impacts
of each department, process, and product on
the environment?
What environmental impacts of the company’s
activities are regulated?
Which environmental impacts pose the
greatest risk to the company’s pro?ts, growth,
and public image?
How signi?cant are these risks and impacts?
Tips
inventory of impacts
Don’t get bogged down in the details. The goal
is to identify areas of current and potential
environmental impact, and to have a basic
understanding of your business processes, not
to develop complex engineering diagrams
(although these may be informative later).
Think beyond regulatory impacts. By only
looking at environmental impacts that are
covered under regulations, you will likely miss
value-creating opportunities. For example,
high water use may not pose adverse regulatory
impacts, but it can unnecessarily increase the
size of the treatment facility needed to process
wastewater. Resource conservation means
avoided raw materials and costs as well as
avoided waste management costs and risks.
These activities can both reduce external
environmental impacts and directly reduce
a company’s operating costs.
Get out and talk with people. The environmen-
tal manager does not need to be an expert on
all processes in the company, but should talk
with those who are. Environmental audits and
training sessions provide a good opportunity
to map processes and identify environmental
impacts. Ask employees about the processes in
which they are involved. Engage them in help-
ing you to create, re?ne and verify process
maps. Taking an interest in others’ work builds
political capital for EHS by providing insight on
how environmental initiatives can help them
succeed with their business goals.
12
Steps for Effective Process Mapping
Process mapping is an excellent tool for inventorying
environmental aspects and impacts. A process map is
a schematic depiction of business processes which
immerses the corporate environmental professional
in the world and jargon of operations and reveals
opportunities for intervention. Both the process map
itself and the effort of creating one can aid in the iden-
ti?cation of value-creating opportunities for the envi-
ronmental function: the areas of greatest risk, environ-
mental impacts, and super?uous or inef?cient steps
that can be eliminated or modi?ed. Creating the maps
can also lead to questioning the rationale behind
certain process elements, and even entire processes.
observe procedures and interview operators. This
includes visiting the plant ?oor as well as support and
technical departments. At a minimum, it necessitates
talking with or involving those close to the process
activities. Determine the major steps of the process.
List the resources that ?ow into each step (e.g., materi-
als, energy, water) and the impacts that result (e.g.,
wastes, fugitive emissions, vehicle miles traveled).
draft initial process map. A draft process map
provides a useful starting point—a visual guess to
spark discussion. Do not try to make it perfect. Get
?ip chart paper and markers, and draw boxes for
the major process steps. Use arrows and lists to indi-
cate resource ?ows, waste streams, and environmental
impacts. Use multi-colored Post-It Notes
®
to ?ag
key issues, inef?ciencies, or problems that you discover
while mapping.
review and revise. Staff from other departments are
often excited to discuss their work and will not hesitate
to correct your maps. Ask them to help identify areas of
environmental impact and process inef?ciency.
Engaging line operators, supervisors, and managers in
the process gets them thinking about the impact of
their actions on the environment—a key element of an
effective environmental management system.
corporati on
resources
Energy (all fuels)
Investment
Raw materials
Staff time
resources throughput model
The goal of ‘eco-ef?ciency’ is to maximize the amount and
quality of goods or services produced, while minimizing the
environmental impacts of resource use and waste generation.
Typically this translates into maximizing pro?ts by minimiz-
ing the amount of resources used and the amount of wastes
generated. The goal is ‘doing more with less.’
13
Identify Value-Creating Opportunities
Once environmental staff are plugged into the busi-
ness, they can get the information needed to identify
value-creating opportunities at many levels of
company operations. Smart compliance strategies
have additional bene?ts for other departments and
business units. Environmental initiatives taken beyond
the basic requirements of compliance may both reduce
costs and enhance revenues. Search for the places
where value can be created.
Value in Compliance
Certain environmental performance standards and
activities are required by company policies and govern-
ment regulations. While these activities are typically
viewed by management as a cost of doing business,
they in fact provide fundamental value to business.
A well designed compliance program can:
provide a license to operate. National, state, and local
governments have imposed environmental, health,
and safety requirements on corporations that do busi-
ness within their jurisdictions. Compliance with these
requirements usually adds real value. Safeguarding the
health and safety of workers, communities, and the
environment is essential to securing the public trust to
continue operations, expand, and innovate.
avoid penalties. Failure to assure compliance can
bring signi?cant costs to business—?nes, permit
denials, plant shut downs, legal fees—which directly
impact the bottom line. While it is impossible to
precisely document avoided costs, numerous environ-
mental managers have found estimation to be useful.
add flexibility. A record of strong and effective
compliance can earn ?exibility with regulators
which enables operations to make needed changes
more quickly.
Value in Operations
At the operations level, the goal should be ?nding
new ways to do more with less. The key is focusing
on resources. By reducing total resource inputs, haz-
ardous inputs, or undesirable by-products, it is possible
to lower the costs of production and compliance as
well as waste disposal and management costs. Thus,
environmental initiatives in operations can:
products & services
Revenues
Delivered product
waste
Hazardous waste
Non-hazardous waste
14
improve the efficiency of resource use. Yield
and resource utilization rates can be improved
by reducing the amount of resources used per unit
of product produced. This approach, often called
process optimization, involves changing processes to
minimize resource requirements.
minimize wastes. Wastes, emissions, and discharges
bring not only disposal costs, but also regulatory
reporting costs and the potential for spills and
unacceptable health and safety exposures. Reducing
the amount of off-quality product has triple the
impact: saving inputs, reducing wastes, and producing
more product to sell.
reduce the costs of managing hazards. Eliminating
the use of hazardous materials in production processes
reduces the costs of engineering and control measures.
If you don’t use it, no one will spill it or be exposed to it.
spur process innovation and reduce maintenance
costs. Pollution prevention activities can reveal other
opportunities for streamlining, and even eliminating,
process elements and maintenance requirements.
Many corporate environmental professionals report
that creative pollution prevention and waste minimiza-
tion programs often result in signi?cant process
improvements because they permit a fresh look at
practices and procedures.
boost productivity and morale. Improving working
conditions can increase productivity. For example,
addressing indoor air quality and noise issues has
been demonstrated to reduce absen-
teeism and improve staff morale.
Similarly, in some cases, energy-ef?cient
lighting upgrades have boosted worker
productivity by 5 to 7%.
3
Value in Risk Management
Reducing environmental risks can save signi?cant
costs. Environmental risk management strategies can:
reduce the costs of emergency response. Proactive
environmental management can avoid or minimize the
short- and long-term costs of accidents, spills, and
releases. Preventive measures and effective plans can
3
Joseph J. Romm, Lean
and Clean Management:
How to Boost Pro?ts and
Productivity by Reducing
Pollution. New York:
Kodansha International, 1994.
risk management
operations
compliance
Getting to the bottom line
increasing value-creating
opportunities
i
n
c
r
e
a
s
i
n
g
v
a
l
u
e
t
o
b
u
s
i
n
e
s
s
a
n
d
i
n
t
e
g
r
a
t
i
o
n
15
reduce response and clean-up costs, while minimizing
costs arising from regulatory penalties, litigation fees,
and legal settlements.
reduce remediation costs. Improving the manage-
ment of remediation projects can reduce ongoing oper-
ational costs and help close out remediation projects
ahead of schedule.
reduce product liability costs. Incorporating environ-
mental, health, and safety concepts into product design
from the outset can reduce the potential for harmful
environmental, health, and safety impacts resulting
from product use, misuse, or disposal.
reduce insurance premiums. Limiting environmental
risk exposure for employees, contractors, and cus-
tomers can directly lower corporate insurance costs.
More and more insurance companies are considering
these issues in pricing coverage.
Value in Capital Investments
Companies spend millions of dollars servicing the
long-term life-cycle costs of capital investment and
design decisions. The environmental implications
of capital investments such as the purchase of new
sites, facility construction, the start-up or redesign
of manufacturing lines, and new products can have
signi?cant business consequences. Environmental
managers can add value by providing critical infor-
mation early in capital budgeting and decision pro-
cesses. Since environmental professionals often are
not asked for advice early in the process, it is important
to study the acquisition and change processes and
then proactively insert key information. Through in-
volvement in these decision processes, it is possible to:
reduce the uncertainty of corporate transactions.
Due diligence activities can identify potential environ-
mental liabilities associated with property acquisitions
and divestitures, directly affecting prices and long-term
facility operations and development costs. Brown?eld
redevelopment can bring strategic business and tax
advantages. Often corporate environmental profession-
als must educate peers and managers in other depart-
ments on how to take advantage of these opportunities.
strategic direction
i
n
t
o
t
h
e
c
o
m
p
a
n
y
market growth
capital investments
In 1993, Bristol-Myers Squibb initiated a programto improve the environ-
mental performance of their products throughout the product life cycle — from the
research and development phase, through manufacturing, packaging, sales, distribu-
tion and consumer use to ?nal disposition. The Product Life Cycle (PLC) program has
produced signi?cant cost savings, while at the same time has spread a general aware-
ness of environmental issues. EHS staff train teams of 8-10 representatives of
different functions within the business. The teams then review a group of related
products to identify opportunities to create value. Each review costs approximately
$25,000 and generates an average of $200,000 in savings. One product improvement,
debossing rather than printing capsules, has generated an estimated annual savings
of $100,000. By eliminating the solvent-based ink required for printing, Bristol-Myers
Squibb reduced chemical waste and minimized workers’ exposure to toxics. Other
innovations include: the removal of cotton in bottles containing over-the-counter
analgesics, the creation of the ?rst alcohol-free hair spray, and the creation of reusable
and collapsible plywood pallet boxes.
At Duracell, working closely with suppliers is a central part of the company’s
supplier development program. Duracell meets regularly with its suppliers as a group
to share best practices and improve performance. For several years, environmental
programs have been included in the overall rating of suppliers. When Duracell’s ener-
gy management initiative began to reap major cost savings as well as reduce the com-
pany’s contribution to greenhouse gas emissions, Duracell decided to incorporate the
initiative into its global supplier development program. Duracell held a conference of
major suppliers to share its approach and challenged the group to participate in a
partnership program where each company agreed to set energy ef?ciency goals, initi-
ate programs to achieve those goals and share best practices within the group. Most
suppliers committed to the program. Awards will be given to the best performers. The
bene?ts are better supplier relations, new ideas for reducing costs at Duracell, and
assistance to suppliers in controlling costs.
product life cycle
reviews:
bristol-myers squibb
company
supplier
development
program:
duracell , inc
16
environment: value to business
success stories
ARCO successfully negotiated a revised hazardous waste permit. The permit allowed
the re?nery to build a needed oil tank on property previously used as a hazardous waste
land treatment unit. Tank permitting and construction proceeded on a fast track basis.
The process was enhanced by the company’s long-term environmental performance and
their excellent working relationship with the regulators. This partnership allowed the
re?nery to save over $1,000,000 in long-term monitoring costs. In addition, they recov-
ered previously unavailable but valuable re?nery real estate. This project was a success
because it brought previously unused property back into constructive use and it saved
money on future long-term monitoring programs.
In 1996, Koch Industries proposed to build a 210-mile gas liquids pipeline
from Pascagoula, Mississippi, and Bayou La Batre, Alabama, to a Koch Hydrocarbon
Southeast plant in Belle Rose, Louisiana. Koch mobilized its public affairs professionals
to develop a communications/government affairs strategy addressing complex issues
of routing, competition, right-of-way acquisition, permitting, and construction. The
pipeline needed to cross Lake Pontchartrain which has been the center of extensive grass-
roots efforts to restore its environmental integrity. Koch’s market opportunity depended
on bringing the pipeline into operation quickly, without long delays that could result
from public opposition. After preliminary analysis, but before submitting permit appli-
cations, Koch invited a wide range of interested parties to discuss their concerns.
Organizations, including the Lake Pontchartrain Basin Foundation, the Coalition to
Restore Coastal Louisiana, the Southern Louisiana League of Women Voters, the Sierra
Club, local ?shing organizations, elected of?cials, and scientists studying the region’s
lakes and wetlands all contributed to the project. Based on the recommendations provid-
ed by these external stakeholders, Koch made routing and other changes and speci?ed,
in writing, the environmentally sensitive construction methods that would be used. The
pipeline route now avoids eagle nests, gopher tortoise and sandhill crane habitats, and
a sensitive salt marsh area. Koch’s permitting process began at the same time as other
companies were starting competing pipeline projects. Initiating open communication
helped Koch earn the trust of these groups and made Koch the community’s choice to
proceed with this venture. By seeking external participation, Koch’s public affairs team
helped to secure 2,500 right-of-way signatures and 64 permits in 18 months, less than the
24 to 30 months typical for large projects. Construction started in August 1998.
reuse of a
hazardous
waste disposal
facility:
arco
decreased time-
to-market for
pipeline project:
koch industries
(koch pipeline
southeast, inc.)
17
enhance the environmental attributes of products.
Companies can appeal to environmentally-conscious
consumers by using recycled and recyclable materials,
eliminating hazardous product constituents,
and reducing the impacts of products and services.
enhance the corporate image and brand names.
A solid environmental record can enhance public per-
ception of a company and improve the marketability of
its products and services. Partnerships between envi-
ronment and public affairs departments can result in
creative initiatives that demonstrate the company’s
commitment to both local environmental quality and
global environmental stewardship. Whether through
sponsorship of a local environmental education center
or involvement in activities such as GEMI, external ini-
tiatives enable employees to engage with others on
environmental challenges and show that these issues
are important to company management.
Value in Strategic Direction
Corporate environmental professionals often possess
valuable information and insight which, when present-
ed well and credibly, can in?uence senior manage-
ment’s strategic decision-making. A growing number
of corporate executives are embracing environmental
thinking and initiatives as part of overall business strat-
egy. There are a variety of ways environmental profes-
sionals can in?uence this awareness and affect their
company’s strategic directions:
influence product mix. Documenting the true
environmental costs and risks of certain products can
motivate business leaders to shift resources to more
pro?table and environmentally-benign activities.
Environmental drivers such as consumer preferences
and regulatory incentives can prompt companies to
enter newbusiness areas throughstrategic acquisitions.
monitor and manage strategic issues. Regulatory
initiatives, and public attitudes and public concerns can
alter a corporation's image and long-term ?nancial
performance. Environmental managers can monitor
regional, national, and global trends, alert senior man-
agement when corporate interests might be affected,
and suggest useful responses. Environmental profes-
sionals can engage in ‘scenario planning’ to help the
18
reduce time to market. Getting involved early to
secure permits and address regulatory requirements
can remove obstacles to new product commercializa-
tion and production expansion. Environmental man-
agers can also play a key role in overcoming community
opposition to new facility construction or expansion
by communicating with local residents and addressing
their concerns.
encourage sustainable design in construction.
Companies can lower life-time operating expenses
and environmental impacts of new facilities by incor-
porating environmental considerations into the design
from the outset. Sustainable design techniques such
as recycled and non-toxic building materials, energy
ef?cient lighting and climate control systems, and
native plantings can reduce utility and maintenance
costs, improve working conditions, and productivity.
It can also bene?t the company’s public image.
affect equipment acquisition decisions. Working
with purchasing departments, environmental man-
agers can add energy ef?ciency and pollution preven-
tion criteria to the purchasing decisions for of?ce
equipment, machinery, and vehicle ?eets. These consid-
erations can reduce life-cycle operating costs and
improve a company’s image while protecting the
environment.
Value in Market Growth
Environmental activities can enhance the marketability
of products and services. Consumer demands for envi-
ronmentally-friendly products and environmentally-
responsible corporations are on the rise.
4
These market
pressures are not only felt by consumer prod-
ucts companies. High environmental perfor-
mance standards are increasingly expected
of vendors and suppliers as well. Thus, envi-
ronmental initiatives can:
help secure beneficial supplier relationships.
Corporate environmental professionals can work
with supplier companies to save costs and reduce risk,
and to win supply contracts with other companies
by implementing proactive environmental manage-
ment systems.
4
Jacquelyn A. Ottman,
Green Marketing:
Opportunity for
Innovation, 2nd edition.
Chicago: NTC, 1998.
19
business with long-term strategic planning for market
and product change and development. Trends in tech-
nology, global resources, and environmental issues can
present problems or open up opportunities. Environ-
mental professionals can play a key role in helping their
companies prepare for changing business realities and
seize emerging business opportunities.
redefine and expand markets. As markets and indus-
tries rapidly change, corporate environmental attribut-
es and performance can help secure new markets and
protect existing ones. Strategic decisions to invest in
product redesign to enhance recyclability, for example,
can win market share where new regulations, such as
product take-back, penalize competitors. In this way,
environmental initiatives can spur the innovation that
builds new markets.
modify the business mission. There may be strategic
advantage in modifying the core mission of the
company to include environmental themes. Corporate
focus on themes of sustainability and innovation ‘for
achieving a better world’ can demonstrate commit-
ment to long-term value creation.
Prioritize Activities
No corporate environmental professional has the
time, staff resources, or funds to pursue all potentially
value-creating opportunities in the organization.
To make effective use of limited resources, environmen-
tal managers must focus their efforts and prioritize
environmental activities. Decision-making criteria
typically include: (1) the importance of the project to
business goals; (2) the project scale in terms of cost
and resources required; and (3) the degree of dif?culty
(e.g., complexity of the problem, the amount of political
capital required). This does not mean that only
the easiest and cheapest projects should be done ?rst.
Rather, this process should result in a plan that
balances the potential bene?ts with political and
economic resources needed.
Key Questions
prioritize activities
Which activities offer the greatest potential
bene?ts by strengthening compliance and
adding value to business?
What activities should be continued and
discontinued given limited staff and budget
resources?
Where are the ‘low hanging fruit’ that can be
used to demonstrate progress to management
and stakeholders and to build momentum?
Which are worth picking?
How should resources be allocated among
projects?
What is feasible to accomplish in a given
time frame?
Tips
prioritize activities
Involve key stakeholders. Engaging important
customers of environmental services in the
prioritization process, in addition to environ-
mental staff, can ensure you address their
needs. A well-facilitated planning and prioriti-
zation session can also promote broad owner-
ship and commitment to selected initiatives.
Prioritization by voting. Numerous analytical
techniques exist for prioritizing potential
activities, but do not let analysis lead to
paralysis. Simple voting techniques (based on
individual judgments) can quickly sort out
the most promising activities to undertake.
Dare to start small. Especially in complex
political environments, it may be important
to achieve several small successes to build
credibility and political capital in preparation
for larger, more dif?cult projects later.
21
The value of environmental activities
can be realized through effective implementation of
projects, programs, or systems. Yet, in doing what adds
value, there are several challenges to overcome: (1) get-
ting upper management approval and support; (2)
mobilizing the necessary resources; and (3) building
momentum once the project has been kicked off.
Build the Business Case
It seems that every article on environmental manage-
ment instructs environmental staff to secure senior
management commitment and support for environ-
mental programs. Yet getting that support is not
always easy, nor is it always necessary. Most often, the
need for senior management approval is driven by a
need to secure ?nancial and staff resources. If you can
leverage existing support and resources to get things
done, you may not need special approval from senior
management at the outset. Where this is possible,
management support can be nurtured over time.
Senior business managers have limited time and
attention to divide among multiple, competing issues.
When approval is needed prior to introducing a new
program or project, you need to target your pitch and
2
Do What
Adds Value
22
presentation speci?cally to your management audi-
ence. Upper management is often most interested in
the ?nancial implications of a proposal, so be prepared
to provide an estimate of the project’s costs and
bene?ts to the business. While providing ?nancial data
may seem intimidating early in the process, it is impor-
tant not to get stuck in extensive research and analysis.
Make a credible ‘guesstimate’ of the costs and bene?ts,
using terms that are meaningful to senior managers
(see Chapters 3 and 4 for tips on measuring and
communicating value). Getting approval should not be
a test of your ?nancial skills, but rather an opportunity
for you to present the case for your program to a
key customer.
Mobilize Resources
Many corporate environmental professionals vastly
underestimate the availability of resources to support
environmental activities within their corporations.
They assume that available resources consist only of
the departmental budget and staff who have been
speci?cally assigned environmental job responsibilities.
Successful implementation often demands that
environmental managers identify potential allies with
similar or overlapping interests and use (or piggy back
on) other organizational resources.
There are myriad creative examples of environmen-
tal professionals mobilizing resources. For example,
when environmental managers have integrated envi-
ronmental criteria into new product development
checklists and evaluations, R&D staff take greater
responsibility for identifying potential environmental
hazards of new products or services. Such efforts can
reduce the environmental impacts of design choices,
decrease time to market by ensuring permits and
controls are in place, and shape perceptions of the
environmental departments as valuable providers of
technical assistance.
Corporate audit programs can also offer oppor-
tunities to mobilize and leverage scarce resources.
By promoting facility self-assessments, several corpo-
rate environmental departments have shifted their
focus to providing training and technical assistance.
Cross-training of quality audit staff has leveraged staff
from other departments to supplement corporate
Key Questions
build the business case
Who needs to approve the project? What are
the steps required to gain approval?
What is the appropriate forum in which to
present the project for approval?
How much information and detail should you
provide to make your case?
Tips
build the business case
Benchmark. Other facilities or departments may
have tried similar initiatives. If your company
has not, other companies may have. To ?nd out
who in the industry has implemented similar
programs or projects, read through case studies
in trade journals and attend conferences and
industry association meetings. Useful case stud-
ies can be found in the following environmental
journals: Environmental Quality Management
(John Wiley & Sons), Pollution Prevention Review
(John Wiley & Sons), Corporate Environmental
Management (PRI Publishing), Journal of
Industrial Ecology (MIT Press), and Tomorrow
Magazine. Use their cost/bene?t information as
a starting point for your own estimates.
Be realistic. Credibility is essential to being
taken seriously. Remember that the importance
of environmental initiatives will often be
judged by senior management in relation to
many other corporate initiatives. Do not try to
glorify or overstate the bene?ts of environmen-
tal activities. Earn your support by selling only
what you believe in and what will help achieve
the company’s objectives.
23
Key Questions
mobilize resources
What people, programs, procedures, and tools
are available within the environmental, health,
and safety department?
What people and programs outside of the
environmental, health, and safety department
could be used to support and help deliver
environmental services?
Who can serve as a champion for the project
and represent the key customers in the business
units and other departments?
How can the environmental managers and
business unit representatives work together
to implement the project? What forums could
be used to enhance collaboration among the
different groups?
Tips
mobilize resources
Piggyback on other corporate programs. Within
any corporate organization, there are likely to
be other departmental initiatives that address
similar issues or use tactics similar to the
proposed environmental initiative (e.g., quality
circles and audits, newsletters and Intranet
sites, maintenance programs). Integrating envi-
ronmental activities and ideas with other more
established or accepted programs may increase
the success of implementation.
Build cross-functional teams. Successful integra-
tion of environmental activities into the larger
business organizationdemands cross-functional
teams. As Fisher Scienti?c learned in its pollu-
tion prevention initiatives, the most effective
approach for waste minimization is ‘having a
full spectrum multi-disciplinary team analyzing
the problems.’
5
Such teams can be task
oriented to address a particular problem
such as design for environment or energy
conservation in a particular facility, or they can
be a higher level advisory team to review and
provide direction to your overall program.
Provide incentives for participation. Potential
participants in the project must have reasons
to get involved. The best incentive is to help
solve a problem that they are working on.
Whether the project warrants carrots (e.g.,
recognition such as public announcements,
awards) or sticks (e.g., working with human
resources to create a job requirement, penalties
for non-involvement), make sure you provide
your partners in the business units with ade-
quate justi?cation for working with you. At one
company, the environmental team offered free
lunches for product design engineers to come
and discuss environmental issues.
5
Romm, Lean and Clean
Management, 1994.
24
Tips
build momentum
Don’t bite off more than you can chew.
Implement projects on a manageable scale so
that everyone involved does not end up over-
burdened and frustrated. Pilot initiatives can
lead to interesting discoveries about how the
project will play out over the long term.
Consider using pilot initiatives and incorporat-
ing the pilot feedback into the planning and
implementation of the full project.
Set reasonable goals and expectations. People
like to feel that they are making progress. If the
project proceeds in stages and each stage has
well-de?ned milestones, goals, and expecta-
tions, project participants will feel a sense of
accomplishment when a phase is successfully
completed and will be more motivated to meet
the challenges of the next phase. However, this
does not mean that the project pace needs to
be slow. If a project is too slow or easy, it won’t
be a challenge. The most successful projects
balance the need for challenge with the need
for realistic accomplishment.
Support your champions. Be supportive of the
individuals involved and offer to help. Check
in regularly. Do not assume the project will
run without you. If others think you have lost
interest, they will too.
Celebrate successes, even the small ones.
When things go well, people often forget to
pause and celebrate success. Recognize those
who have contributed using awards, prizes, free
lunches, or even just a pat on the back.
audit teams. These approaches allow the environmen-
tal department to share responsibility for compliance
assurance with facilities, while encouraging
facility staff to pursue their own value-creating
environmental activities.
Build Momentum
Many well-designed programs fail when they do not
receive adequate or sustained attention from key staff.
Start with a bang, but be prepared to back the project
or program launch with continued efforts. Plan and
sequence implementation tasks so that they display
frequent, visible, concrete actions. Once the initial
fanfare has worn off, it is critical to keep the initiative
moving. If the project or program is allowed to languish
and lose momentum, it may be dif?cult to sustain
enthusiasm and effort among all participants.
25
The Coca-Cola Company’s Global Environmental Assurance Department recently
developed a simple yet effective waste minimization program known as ‘Waste$MART.’
While conducting environmental compliance audits at Coca-Cola facilities around the
world, Global Environmental Assurance staff recognized that there were numerous recur-
ring opportunities for reducing waste. The group developed an innovative waste mini-
mization training program that could add value to their manufacturing and anchor
bottling facilities. The collaborative approach used in the Waste$MART program is partic-
ularly important, since many bottling plants are independently owned and not normally
subject to corporate environmental compliance audits.
The four-day waste minimization training program conducted at a host plant
typically involves 20 to 25 participants, representing 5 to 15 production facilities.
The ?rst training day is an all-day awareness seminar on The Coca-Cola Company’s
environmental management system. Participants then spend a half-day going through
useful wastewater, energy, chemical, and solid waste minimization tools and exercises,
such as calculating the true costs of water treatment and use. Finally, participants
work in teams of 4–5 people to analyze waste minimization opportunities in various
production areas of the plant. At the end of the program, the groups present their
?ndings to plant management and make speci?c recommendations for reducing waste,
along with estimates of the resulting cost savings.
The results of the program have an obvious direct bene?t to the plant hosting the
program, plus trainees from other plants take the waste minimization methods and tools
back to their own facilities. Despite less stringent regulatory requirements in many of
the countries in which the Coca-Cola system operates, the program has rapidly grown in
popularity overseas because plants recognize the potential economic and reduced-impact
bene?ts. The program not only identi?es opportunities for reducing waste disposal and
treatment costs, it encourages staff to improve operations ef?ciencies. For example,
preventing syrup from entering the wastewater stream results in more product to sell.
The program also boosts staff morale as it taps participants’ commitment to the
environment and interest in improving plant operations. Costs to participating plants
are minimal —primarily consisting of staff time to attend the training—and are far
outweighed by the direct bene?ts of the program. To date, more than $6 million in
potential savings (around $220K per plant) have been identi?ed.
Case Study
waste
minimization
program:
the coca-cola
company
27
Measuring the value of environmental
initiatives stands as one of the most important, and
most challenging, tasks facing environmental profes-
sionals. The appropriate choice of tools and approaches
depends on what questions are being asked.
Are you measuring the value of an individual
project, the value of the environmental function
or the value of all environment-related activities
in the company?
Are you estimating the value that could be created
from a planned project, or checking to verify that
value has been created from an existing project?
Who is the intended audience for the measurement
information?
Value measurement can be used to verify the out-
comes of environmental activities, providing both
critical feedback for future program improvements
and communicable results to sustain support from
key stakeholders. Several of the project evaluation
tools presented in this chapter are also useful when
planning and prioritizing environmental activities
(the focus of Chapter 1). During the planning phase,
estimates are used to evaluate the likely costs and
bene?ts of going forward, whereas during or following
Check the
Value-Added
3
28
implementation, actual ?gures are used to assess
impacts that the initiative has produced. Financial tools
such as Return on Investment (ROI), Net Present Value
(NPV), and Economic Value Added (EVA), can be used—
with estimated cash ?ows —to help environmental
managers prioritize, select and gain approval for value-
enhancing environmental projects. These tools can
then later be used to analyze the project impact,
quantifying actual costs and bene?ts.
In recent years, environmental cost accounting and
activity-based accounting have generated signi?cant
interest among environmental managers as they move
to gain a better understanding of the bottom line
implications of environmental issues and activities.
What is new for many environmental managers is
tracking non-traditional costs and bene?ts, and
translating these into the universal language of value—
dollars. This chapter offers several strategies for
approaching value measurement.
Successful measurement strategies avoid ‘paralysis
by analysis.’ By tailoring the precision of the value
measurement effort to the importance of the task and
demands of the audience, environmental managers
can ensure that ‘checking’ supports environmental
activities rather than replaces them. Remember the
‘80-20 Rule.’ Eighty percent of the intended result
can often be achieved through twenty percent of the
effort. Striving for perfection typically requires the
additional eighty percent of the effort.
Gather Cost and Bene?t Data
Costs and bene?ts, expressed as cash ?ows, are the
building blocks for measuring the value added by
environmental activities. While this sounds obvious,
costs are not always easy to track and bene?ts are not
always easy to quantify. A recent study
found that the true environment-relat-
ed costs facing ?rms are signi?cantly
underestimated.
6
Types of Costs and Bene?ts
The most commonly tracked costs are those incurred
by environmental departments, programs, and projects.
These direct costs typically include charges for waste
disposal, construction and engineering work, staff
salaries, permits, testing, remediation, training, ?nes,
consultants, information systems, and administrative
costs avoi ded by
savi ng resources, ti me,
and unnecessary
overhead expenses also
provi de the benefi ts
for many proactive
‘ eco-effi ci ency’ activiti es.
overhead. However, these costs often represent only a
small part of the environment-related costs facing the
business.
For many organizations, signi?cant environmental
costs are hidden in many cost centers or buried in over-
head accounts. Although these costs are not under the
control or responsibility of environmental staff, they
represent signi?cant opportunities for savings. Some
companies have seized this opportunity by tracking
utility costs (e.g., energy, water), insurance premiums,
and other environmental costs which do not appear in
the EHS department’s budget. For example, working
with quality assurance departments, several environ-
mental departments have begun tracking the amount
of sub-quality product that is rejected and disposed.
In addition to direct waste disposal costs, there are the
added costs of wasted material inputs and lost sales
opportunities. These companies have found that the
value of improved quality is far greater than the
reduced costs of waste disposal.
Therefore, many environment-related costs—both
within the control of the environmental department
(e.g., compliance activities, emergency response, reme-
6
Michael B. Rynowecer,
Benchmarking
Environmental Management
Practice. Boston: BTI
Consulting Group, 1997.
cost category
Process chemicals
Storage
Disposal
Training
Insurance
Production
Taxes/Fees
Maintenance
labor
Maintenance
materials
Water usage
Electricity usage
data
Usage rates
Unit costs
Total square footage
Costs/square foot
Type and quantity disposed
Unit costs
Number of people
Number of training sessions
Length of training sessions
Hourly labor rates
Type and coverage
Premium
Machine down time
Machine rates
Labor rates
Sewer use tax
Chemical use tax
Water use tax
Volume of taxed items
Hours of labor
Tasks performed
Amount of materials
Costs of materials
Annual usage rate
Cost/gallon or cubic feet
Annual usage rate
Cost/kWh
where found
Production records
Purchase orders
Measurement
Rental contract
Manifests
Invoices
Training records
Wage rate sheet
Capital budgets
Invoices
Production records
Operating budget
Personnel records
Water bills
Environmental records
Water, chemical usage
Records
Maintenance log
Wage rate sheet
Maintenance log
Purchase orders
Flow meters or logs
Town water bills
Equipment speci?cations
Utility bills
who to ask
Foreman
Billing department
Maintenance department
Engineering department
Billing department
Environmental manager
Accounts payable
Environmental manager
Contractor
Personnel department
CFO
Accountant
Accounts payable
Risk manager
Production manager
Finance department
Personnel department
Environmental manager
Accounts payable
Local POTW
Production Manager
Purchasing
Maintenance department
Shop foreman
Maintenance department
Purchasing department
Production manager
Accounts payable
Production manager
Accounts payable
type of costs
Direct
Hidden
Contingent
liability costs
Less tangible
costs
definition
Costs that are directly linked with
a project or process
Costs which may be contained in general overhead
accounts or accounts for other departments of
business units
Those costs associated with liabilities that may
result from choices made and action taken
Impacts which are often qualitative and dif?cult to
quantify using readily available measures
examples
Equipment, materials, labor, utilities
Waste disposal, monitoring,
paperwork, reporting, taxes,
regulatory compliance
Penalties, ?nes, legal fees, settlements
Impacts on corporate or brand image,
community relations, worker morale
7
U.S. EPA,
Introduction to
Environmental
Accounting as a
Business
Management Tool,
1995.
8
Mitchell Kennedy,
‘Critical Issue of Total
Cost Assessment:
Gathering Date for P2,’
Pollution Prevention
Review, Spring 1996.
Type of Costs
7
Where to Find Cost Data
8
29
diation) and outside (e.g., wasted product, inef?cient
resource utilization, product liability)—represent
signi?cant value creation opportunities. This added
value often comes in the form of avoided or reduced
costs. More and more, companies rely on the bene?ts of
avoided costs to justify the direct costs of conducting
environmental regulatory compliance and corporate
audit programs. Bene?ts can result from improvements
in the ef?ciency and effectiveness of compliance activi-
ties, as well as through reductions in ?nes and penal-
ties, and emergency response and clean-up costs. Costs
avoided by saving resources, time, and unnecessary
overhead expenses also provide the bene?ts for many
proactive ‘eco-ef?ciency’ activities. For example, 3m
corporation reports that their Pollution Prevention
Pays program has generated over $790 million in saving
since its inception in 1975.
9
Avoided or
reduced cost calculations compare current
expenditures to a baseline, with the differ-
ence tallied as savings. Baselines can be drawn from
internal (e.g., averages of previous year costs) or exter-
nal (e.g., average costs in a given industry) sources.
Where to Find Conventional and Hidden Cost Data
Since many environment-related costs fall outside
the budgets of the environmental function, signi?cant
effort, creativity and persistence are required to track
down costs and translate them into compatible units
and ?gures. The table on page 29 provides guidance on
?nding cost information in a corporate organization.
Estimating Less Tangible Costs and Bene?ts
One of the biggest challenges is estimating less
tangible costs and bene?ts, such as:
Positive relationships with suppliers or regulators;
Increased product marketability;
New market opportunities spurred by
environmental drivers;
Reduced environmental risk; and
Enhanced corporate image from proactive
environmental initiatives and avoided incidents.
While quantifying these effects is often grounded
on debatable assumptions, the value resulting from
these ‘less tangible’ bene?ts can dwarf other direct or
hidden costs.
30
Tips
gather cost data
Be credible, not exact. In many cases, the exact
number is far less important than the order of
magnitude or the direction of the trend. Be
careful not to get mired in data, searching for
elusive exactness. Sanity check the size of vari-
ous costs and bene?ts to ensure that they seem
correct and credible.
Draw on the homework of others. Often, you
can use company or industry averages, some-
times available from trade associations, for
estimating the costs and bene?ts of environ-
mental activities. For example, one company
estimates that average costs associated with
responding to and cleaning up a spill of diesel
fuel run at about $240 per gallon. Another
company estimated that the average safety
incident cost the company $35,000. They then
used this ?gure for calculating avoided costs
achieved through new safety initiatives.
Acknowledge all costs & bene?ts. Just because
you haven’t measured it, doesn’t mean that
it doesn’t affect value. It is often bene?cial to
acknowledge important bene?ts, even if you
do not provide a quantitative estimate of
its value. Identify the areas where a project or
program can create bene?ts and incur costs.
Brainstorming provides a valuable tool for
quickly identifying the entire range of costs
and bene?ts that can result from a program or
project. This exercise provides a good opportu-
nity to identify the less tangible bene?ts that
may result from a project, such as increased pro-
ductivity or enhancement of corporate image.
9
3M Corporation
World Wide Web site:
www.mmm.com
31
Case Study
payback from
environmental
management
information
systems:
rhône-poulenc, inc.
Source: Jim Dray and James
W. Heptinstall, ‘Justifying
the Cost of EMIS: Piloting Lessons
from Rhône-Poulenc,’
Environmental Quality
Management, Winter 1996.
Rhône-Poulenc, as part of an extensive business reengineering effort, determined
that the health, safety, and environmental (HSE) function needed an information system to
support the communication, tracking, and sharing of HSE knowledge. However, manage-
ment did not approve all of the funds for the system at once. To get more information
about costs and bene?ts and to build a constituency for the system, they chose to ?rst pilot
the system in four plants.
The pilot suite cost less than $500,000 and consisted of modules to manage the following
types of information: incoming material safety data sheets (MSDSs), site documentation,
employee training requirements and history, and employee skills. At the conclusion of the
?rst three months of the pilot, Rhône-Poulenc held a workshop for the pilot users at the
plants and the HSE shared services of?ces. The goals of the session were to: (1) brainstorm
possible areas of savings from the system; (2) quantify the savings associated with each
area; and (3) check the total results for consistency and credibility. In order to quantify
savings, the group used a simple worksheet. For each module, the team identi?ed and
estimated bene?ts in three categories:
Direct Cost Savings: Reduced materials, paper, and copying costs
People/Staff Time: Reduced need for consulting services, administrative and clerical time
Risk: Compliance assurance for mandated training, reduced liability from improved
access to MSDSs, communication of incident information to prevent future incidents
The bene?t totals generated by this exercise doubled the original estimate, so the group
reviewed the total annualized savings estimates for each module and asked:
Are the numbers of users and the frequency of use estimates realistic?
Have we incorporated new costs (e.g., system operating costs) as well as new savings?
What costs are soft vs. hard?
Based on the answers to these questions, the team slightly revised their savings estimates
and agreed to present a simple payback of nine months for the pilot implementation. This
assessment provided senior management with a convincing case to approve moving for-
ward with a full implementation of the environmental management information system
throughout Rhône-Poulenc’s North American facilities.
32
Common Project Financial Evaluation Tools
uses
The payback period is the number of years it takes until the bene?ts
received equal the money invested in a project. Using a payback rule, only
undertake projects that cover their initial investment in a pre-deter-
mined payback period.
Payback Period = Initial Investment / Net Annual Profit
ROI is calculated by dividing the bene?ts received from a project (in a
set time period) by the amount invested in the project. Projects are worth-
while when the ROI is greater than the average rate of return for the
company as a whole.
ROI = Income / Investment
RI is the net operating income that a project is able to earn above a pre-
determined minimum return. RI is calculated by subtracting the
required dollar return on the investment from the income received.
RI = Income – (Required Rate of Return x Investment)
NPV is the present value (PV) of future cash returns of a project. The PV of
future cash ?ows is calculated by discounting them at the appropriate
market interest rate. The PV of future cash ?ows is then subtracted from
the cost of the investment to arrive at NPV. A project adds value if it has a
positive NPV; that is if the present value of future cash ?ows or bene?ts is
greater than the project costs.
NPV = - C
0
+ C
1
+ C
2
+ . . .
(1+r)
1
(1+r)
2
IRR is the rate of discount that makes the NPV equal to zero. Projects
should only be accepted or continued if the IRR is greater than the oppor-
tunity costs of capital (the discount rate).
NPV = - C
0
+ C
1
+ C
2
+ . . . = 0
(1+IRR)
1
(1+IRR)
2
tool
Payback Period
Return on Investment
(ROI)
Residual Income
(RI)
Net Present Value
(NPV)
Internal Rate of Return
(IRR)
There are two main approaches to addressing less
tangible costs and bene?ts. The ?rst approach is quali-
tative assessment of value added, using case studies
and focus groups. Narrative case studies can powerfully
communicate the less tangible attributes of environ-
mental activities, particularly when they involve
partnerships with stakeholder groups. Case studies
and focus groups allow environmental staff and part-
ners to articulate areas where less tangible bene?ts
have resulted. In hearing the stories of environmental
contributions to business objectives, business leaders
can be prompted to assign their own value to
these bene?ts.
Second, several companies have quanti?ed less
tangible value using proxy data and survey tools.
The use of proxy data allows environmental managers
to estimate less tangible costs and bene?ts using
substitute measures. For example, historic short-term
?uctuations in a company’s stock price or sales around
a serious environmental incident or marketing initia-
tive could serve as an approximation of the value of
risk avoidance or environmental marketing initiatives.
Surveys provide useful tools for quantifying the
value of environmental activities. Project evaluation
surveys can be used to measure the degree to which
internal customers (e.g., operations and other company
departments) value the provision of environmental ser-
vices. These survey techniques enable environmental
managers to generate statistics that re?ect value per-
ceptions of their customers, both internal and external.
Surveys can also be used to determine how much
customers and consumers value the environmental
attributes of products and services. For example, kodak
corporation has occasionally included questions in
marketing surveys to assess the degree to which con-
sumers consider environmental criteria and perfor-
mance when purchasing products.
Environmental managers can also question busi-
ness managers about the value that they perceive to be
created by environmental activities. Working
with applied decision analysis, mobil
corporation developed a risk-based cost-
bene?t analysis program to integrate envi-
ronment, health, and safety values into cor-
porate strategy.
10
By asking senior managers
how much they would be willing to pay
for certain outcomes (e.g., reduced risk of
incidents, improved compliance performance), environ-
mental managers can incorporate value perceptions
that are better aligned with the broader business con-
text. In addition to helping to quantify the value of
environmental activities, this approach helps inform
senior managers about the role proactive environmen-
tal activities can play in reducing risk.
Analyze the Value of
Environmental Activities
To measure and communicate the value of environ-
mental activities, corporate environmental professionals
must become familiar with several commonly used
tools for ?nancial analysis.
Project Evaluation Tools
There are several standard ?nancial tools that compa-
nies use for evaluating projects and activities. These
tools are often used to decide whether to go forward
with an individual initiative and are then applied again
to check the results of the project during implementa-
tion. Typically, a project is only approved or continued
and allocated resources if its annual rate of return
exceeds the ?rm’s cost of capital (often referred to as
‘hurdle rate’). The table on page 32 summarizes several
common ?nancial tools for project evaluation.
Becoming familiar with speci?c project evaluation
tools used by the ?nance department and other busi-
ness functions in the corporation enables environmen-
tal managers to adopt techniques that demonstrate
the environmental value to business in a way that res-
onates with business managers. Additional details on
these tools, including several advantages and disadvan-
tages of using each, are presented in the Appendix .
In recent years, corporate pollution prevention and
waste minimization initiatives have relied strongly on
project evaluation techniques for both prioritizing
opportunities and tracking savings. Companies such as
dupont and bristol-myers squibb have initiated
programs to encourage business unit and facility staff
to seek and undertake pollution prevention activities.
Training facility operations personnel in the use of basic
project evaluation techniques allows them to demon-
strate and document the savings and value from
environmental activities. It also leverages non-environ-
mental staff in creating and measuring this value.
10
Presentation by
Daniel Brooks
(Applied Decision
Analysis, Inc.) and
W.E. Jenkins (Mobil
Corporation) at the
IBC Integrating EH&S
into Core Business
Processes Conference,
Washington, DC,
September 8–10, 1997.
33
economic value added
®
(eva
®
) In recent years, several
companies such as the coca-cola company and
georgia-pacific corporation have adopted Econ-
omic Value Added (EVA
®
) as a corporate-wide measure
of the shareholder wealth created (or lost) by the com-
pany during a set time period. EVA
®
can provide a more
accurate perspective on value creation than traditional
measures such as earnings per share and return on
investment. (See the georgia-pacific case study on
page 37.)
34
dupont’s‘SHE Excellence Awards’ Program encour-
ages business unit teams to document and submit
summaries (including cost savings) of pollution
prevention ‘Zero Heroes’ projects for recognition and
awards. dupont calculates that its ‘Zero Heroes’
projects resulted in $550 million in cost savings and
avoided capital expenditures over a three year period
(1994–1996). In 1994, bristol-myers squibb
deployed a Best Practices Sharing Database to capture
and share innovative business processes and practices,
along with their documented savings. In order to be
included, a solution must be innovative, demonstrate
potential ?nancial bene?ts, provide environmental,
health, and safety bene?ts, and be transferable to other
parts of the company. The Lotus Notes
®
database
is network and/or intranet-accessible, and addresses
nineteen business functions, sharing the value of
innovative solutions throughout the company.
bristol-myers squibb estimates that the projects
and practices documented in its Best Practices Sharing
Database have saved the company over $15.7 million.
Program Evaluation Tools
While the above tools are useful for measuring the
value added by individual projects, corporate environ-
mental professionals are often interested in an overall
measure of value contributed by the environmental
function or by environmental activities throughout
the organization. Three methods for analyzing the
overall value of environmental activities are presented
below: the balance sheet approach, the value: cost
ratio approach, and the Economic Value Added
®
(EVA)
®
approach.
balance sheet approach One widely used approach
for measuring EVTB is to aggregate the costs and
bene?ts, or net savings, derived from environmental
activities. These ?gures are presented in a table,
resembling a traditional balance sheet.
value:cost ratio The Value : Cost ratio provides an over-
all metric to summarize the degree to which the envi-
ronmental function covers its costs by adding value to
the business. (See the procter & gamble case study on
page 36.)
Case Study
environmental
financial
statement:
baxter
international
inc.
Source: Baxter International
1997 EHS Performance Report,
Issued 1998.
Environmental Costs
Cost of basic program
Corporate EHS affairs and shared multidivisional costs
Auditors’ and attorneys’ fees
Corporate EHS engineering/facilities engineering
Division/regional/facility EHS professionals and programs
Packaging professionals and programs for packaging reductions
Pollution controls —operations and maintenance
Pollution controls —depreciation
Total costs of basic program
Remediation, waste and other response costs
Attorneys’ fees for cleanup claims, NOVs
Settlements of government claims
Waste disposal
Environmental taxes for packaging
Remediation/cleanup—on-site
Remediation/cleanup—off-site
Total remediation, waste, and other response costs
total environmental costs
Environmental Savings
Income, savings and cost avoidance from 1997 initiatives
Ozone-depleting substances cost reductions
Hazardous wastedisposal cost reductions
Hazardous wastematerial cost reductions
Nonhazardous wastedisposal cost reductions
Nonhazardous wastematerial cost reductions
Recycling income
Energy conservationcost savings
Packaging cost reductions
total 1997 environmental savings
Cost avoidance in 1997 from efforts initiated in prior years back to 1990
total income, savings and cost avoidance in 1997
1.5
0.5
0.6
5.8
0.8
2.6
1.0
12.8
0.1
0.0
3.1
0.3
0.3
0.0
3.8
16.6
1.7
0.0
(0.2)
0.2
2.9
4.6
3.3
1.3
13.8
86.3
Baxter International has pioneered an environmental ?nancial statement
approach to measure the value of environmental activities. An Environmental Financial
Statement is included in their annual EHS performance report which summarizes the
estimated costs and savings (in millions of dollars) of environmental activities worldwide.
35
1997 data
millions usd
100.1
Procter & Gamble (P&G) has used the Value: Cost ratio to show that Health,
Safety, and Environmental (HSE) programs more than doubly pay for themselves. The
costs included in the ratio are: salaries, labor, insurance, and site operations such as
wastewater treatment and land?ll disposal. The values come from a variety of HSE
services:
Pollution prevention. This program examines each site for ways to recycle materials
and eliminate inputs that are not needed. The costs are compared against a base year
to get a savings value.
Design manufacturing waste out. This program aims to eliminate the cost of
product materials thrown away during manufacturing. The cost can be reduced by
redesigning the product development process for waste reduction. Again, the savings
are tracked against a base year and added to the values.
Insurance savings. Because P&G has so many HSE services, it is allowed to self-insure
both its properties and its workers compensation. Self-insurance provides signi?cant
savings over purchasing insurance from outside agencies.
HSE resources. Costs of staf?ng HSE drops as the departments become more ef?cient.
Regulatory reviews. The HSE group watches proposed regulations and works with
regulators so that new regulations are economically feasible. This may prevent a large
impact on operating costs, which is considered another value.
The ratio also helps P&G track improvements. When HSE started comparing three
years ago, the ratio of value to cost was slightly less than 2 to 1. Now it’s slightly more.
HSE can improve the ratio both by reducing costs and by increasing value. Tracking
the ratios demonstrates to corporate leaders how HSE programs contribute to the
bottom line. ‘It justi?es our existence,’ states Robin Tollett, Section Head for Global
Environment at Procter & Gamble.
Case Study
value: cost ratio:
procter & gamble
36
In 1995, Georgia-Paci?c adopted the Economic Value Added model (EVA
®
) as a
company-wide ?nancial performance measurement system. Use of EVA
®
has helped
the Environmental Affairs department align environmental decision making with
overall business strategy. By using EVA
®
, Georgia-Paci?c has not only established a
systematic decision making process from which to evaluate its use of capital, but one
that encourages teamwork within and among departments and fosters creative solu-
tions to business problems.
EVA
®
is the after-tax net operating pro?t minus a charge for debt and equity
capital used to generate that pro?t. Georgia-Paci?c adopted the Stern Stewart EVA
®
model which, in its simpli?ed form, uses the following equation:
In?ows — (Out?ows + Taxes + Cost of Capital) = EVA
®
Where In?ows primarily represent revenues and/or value-added, and Out?ows rep-
resent program costs.
Georgia-Paci?c modi?ed the EVA
®
measurement system to account for departments
that deploy relatively little capital, function in an advisory capacity, or primarily add
value by reducing costs. That meant looking at other areas where EVA
®
might not
be as obvious, including related expenses such as consulting costs, energy savings,
on-time completion of projects, facility permits, and working with customers to add or
retain business based on environmental practices.
For example, EVA
®
techniques were used to measure the value of forming an inter-
nal Consolidated Permitting Group within Environmental Affairs to consult with
mill operations on air permitting issues. Previously, each of Georgia-Paci?c’s pulp
and paper mills hired their own external consultants to assist with complex permit-
ting issues. The Consolidated Permitting Group is very ef?cient and popular with
facilities; it also generated an EVA
®
of $598,000 for Georgia-Paci?c’s Environmental
Affairs department.
Case Study
economic
value-added
®
:
georgia pacific
37
Once measurement and analysis have
clearly demonstrated the value of environmental activi-
ties, the corporate environmental professional needs to
communicate this value to a broader group of stake-
holders, both internal and external to the corporation.
Certainly, communication skills are critical in all steps
of the Plan-Do-Check-Advance cycle, but the Advance
phase often requires the environmental professional to
‘go public’ with environmental success stories to com-
municate challenges and request help. Communication
provides a means to: (1) build momentum and support
for environmental activities; (2) enlist partners in other
departments and business units; and (3) receive feed-
back on the initiatives put forth and the methods used
to support continuous improvement.
There are many stakeholder groups with whom
the environmental manager must communicate
effectively—upper management decision-makers,
many departments and operational functions within
the company, and external interests such as customers,
suppliers, and investors. Each of these groups may
require their own communications strategies. While
the task of communicating effectively with so many
audiences may seem daunting, the environmental
professional stands in a unique position to create
4
Advance and
Communicate
Value
39
40
partnerships across departments and functions.
These partnerships create value by generating solu-
tions to business and environmental problems and
can open up lines of communication for the future.
(See the diagram on pages 40–41.) Drawing on the
experiences of numerous companies, this chapter
provides overall communication strategies, as well as
speci?c methods for communicating with different
stakeholder groups.
Strategies for Effective
Communication
Corporate environmental professionals should consider
the following general techniques in reaching out to
internal and external stakeholder groups.
target your message to your audience. When it
comes to communication, there is never ‘one size ?ts
all.’ By understanding the interests and motivations of
the stakeholders, you can target your message in a way
that compels their attention and action. Emphasize
directed dialogue with your partners, instead of broad-
casting information (e.g. company-wide e-mails).
leverage existing opportunities to communicate.
Even in the most supportive corporate environments,
you cannot expect upper management or operations
staff to have the time to meet with you on a regular
basis. When possible, utilize existing organizational
forums (i.e. safety meetings, quality teams) to commu-
nicate environmental messages instead of setting up
special meetings and conferences focused on EHS.
use a variety of communication methods. Individuals
learn in different ways—through graphics, written
materials, interactive discussions. Since you cannot
possibly know the learning styles of everyone you need
to reach, vary your methods of communication. Ask key
individuals how they would prefer to receive informa-
tion—e-mail, phone calls, newsletters, presentations,
meetings—and how often.
get feedback on your communications strategy.
As you solicit input on environmental programs and
projects, gather feedback on your communication
strategies and how they could be improved. Is your
intended audience receiving and understanding the
message? Are they getting bombarded with informa-
tion? Most companies have professional communica-
tors (public relations, stockholder relations, marketing)
who are often happy to help. Use them for advice.
building partnerships
for value enhancement
Customers
Upper
Management
f
e
e
d
b
a
c
k
v
a
l
u
e
Environmental
Manager
Suppliers
41
Communicating Value to Upper
Management
Upper management (such as the CEO, the CFO, the
Board of Directors, and various Vice Presidents and
Brand Managers) are key decision makers who support
the environmental department and control resources.
When communicating to upper management, it is
particularly important to do your homework. Your core
audience in upper management may be only ?ve to ten
individuals, and they will expect you to be direct and
to the point when you meet with them or write reports
for them. Failure to clearly and credibly articulate
the value of environmental activities can jeopardize
management’s commitment to your efforts.
When communicating with upper management,
resist the temptation to walk them through your logic
and thought processes or the litany of challenges you
face. Provide them with the information needed to
make an educated decision. This does not mean that all
your data needs to be perfect. Top management can
accept ballpark ?gures, provided they are credible. Be
sensitive to the context in which they are working—
challenges they are facing, important initiatives they
are involved with, changes in leadership, and critical
deadlines (i.e. annual meetings, budgets).
Target the message
know where you stand. Does senior management
believe that the environmental function adds value to
the business or are you perceived as the ‘Department
of Production Prevention’? Tailor your message accord-
ing to where you fall on the spectrum of perceived
value. If you lack upper management support, keep a
low pro?le and go to executives only when their
approval is required. As you achieve results and earn
the support of management, adjust your message.
Build a series of success stories and actively engage
senior management in communicating the value of
those efforts throughout the organization and to
external stakeholders.
help solve problems. Put environmental initiatives
in terms of other problems management is trying to
solve. For instance, relating your waste reduction pro-
gram to ‘process optimization’ might get you better
results in an organization focused on process improve-
internal stakeholders
external stakeholders
Investors
Operations
incorporating environmental goals into the corporate
strategic plan, the environmental manager can align
environmental goals with those of the business units
and foster a dialogue with other departments and
functional areas.
publicize your publicity. Make certain that senior
executives are noti?ed of any awards the company
receives for environmental programs. Ask them to
accept an award on your behalf, or ask the awarding
organization to notify and congratulate the CEO. For
example, one environmental department, upon
receiving an award from the National Association for
Environmental Management (NAEM), asked NAEM to
send a letter to their CEO, praising the achievement.The
external recognition bolstered the executive’s interest
in and support for the environmental department.
benchmark against other companies. Make senior
executives aware of environmental strategies and
business value created by other companies. Use bench-
marking to show the areas where you are leading the
industry or where you fall short. One EHS department
developed an environmental software program which
another company wanted to model. The environmental
manager was pleased to share information, but asked
for a letter from the other CEO to her CEO which stated,
‘Our company is committed to improvements in envi-
ronment, health, and safety, and your company has an
excellent tool which would help us achieve our goals.
Would you entertain us visiting your company so that
we could learn the most about this tool?’ This made the
CEO aware that someone external to the organization
valued the work of the environmental department.
use the printed word. Send articles or white
papers on environmental value to business to senior
executives, or write your own articles in the company
newsletter, where an executive might read it. Solicit
quotes from executives for environmental reports,
annual reports, or articles.
use the spoken word. Have executives kick-off
meetings, expressing the importance of the initiative
and its value to the company. This strategy assures
operations of top management’s commitment to the
project and makes certain that the executive is fully
educated regarding the program and its bene?ts.
42
ments. Similarly, you might present the impact of your
accelerated regulatory permitting program as one
aspect of a time to market initiative.
speak in dollars. Senior executives understand the
language of accounting and ?nance, and you should
communicate using their terms. This means presenting
in dollars, not kilowatt-hours or tons of waste.
the five-minute version. Know what you want and be
able to clearly state your needs. Assume your hour-long
presentation to CEO will be cut to ?ve minutes.
show pictures. Senior managers often do not have
time to visit facilities and witness the front line of oper-
ations activities. Showing pictures or slides of good
environmental practices at a site can make the abstract
value of an environmental program tangible to execu-
tives. One department found that by taking pictures of
poor environmental conditions in overseas facilities,
they were able to garner support to improve environ-
mental policies and standards worldwide.
Leverage existing opportunities
Some information is requested by upper management
on a regular basis, through budget requests, quarterly
and annual reports, business plans, and presentations
to the board. Take advantage of these opportunities
to communicate key messages regarding the value of
environmental activities to the business. Often one key
idea, packaged well within a standard presentation,
can catch top management attention.
know and use your allies. As one environmental
manager quipped, ‘it’s not who you know, but what you
know about who you know.’ Know who is supportive of
your efforts, and who needs to be convinced. Provide
your allies in upper management with messages to
convey, whether in meetings or passing in the hallway,
to their colleagues. The environmental department in
one company was able to develop a relationship with
the external affairs department by sharing a ?oor of
the of?ce building. The external affairs department had
the ear of senior management and was able to assist
the environmental managers in communicating with
senior management.
plug into the strategic planning process. Strategic
plans go through the of?ce of the CEO for approval,
making them effective tools for communicating
environmental objectives and opportunities. By
Communicating Value to Operations
Operating departments and facilities are the customers
of environmental services and the partners needed to
effectively integrate environmental activities into busi-
ness processes. Operations is where change happens,
and where the real opportunity to deliver value to busi-
ness lies. Seemingly small changes in work processes
can have a dramatic impact on environmental perfor-
mance and generate signi?cant value for the business.
Target the message
Recognize that operations staff often will be responsible
for implementing much of the environmental program,
and this work may represent an additional burden (e.g.,
waste segregation). Communicate the value of environ-
mental programs in terms of solving operations
problems. For example, emphasize those environmen-
tal activities which have led to process ef?ciency gains,
improved resource utilization, reduced waste costs and
burden, and/or higher quality products. Acknowledge
the added effort that may be required.
move toward a service-oriented approach. View
environmental programs and projects as services to
the business. Prepare a list of the services you provide
each business unit and share the list. You can even
create a matrix to show which programs bene?t which
departments. In this way, you are not defending what
you do, but selling and engaging in a dialogue with
your customers.
convey upper management support. To partner with
you, operations will want to know that the project has
the support of upper management. If you have upper
management commitment, leverage it.
speak in operations language. Each department and
functional area may have its own jargon. You should be
able to roughly translate your message into these lan-
guages. Challenge yourself to learn the new languages
rather than expecting others to understand EHS jargon.
recognize successes. If you rely on partners in the
business units to assist with environmental activities,
you must give them recognition when environmental
objectives are met. They deserve a pat on the back to
feel good about their work and to continue their
efforts. Recognition and rewards spur innovation and
generate additional value for the organization.
To celebrate the environmental success stories in oper-
43
ations, one company hired a free-lance journalist, who
interviewed the heads of the business units and wrote
an article on each business unit’s accomplishments.
Leverage existing opportunities
You will seldom have the opportunity to get operations
managers’ undivided attention: be sure to leverage
existing forums. If you cannot pull staff away from
production activities for meetings, integrate your com-
munication efforts into their normal work context.
get your issues on their agendas. Each business unit
has meetings and business processes into which envi-
ronmental activities can often be integrated. For exam-
ple, environmental items can be included in the agenda
of weekly safety meetings. Environmental questions
can be added to marketing surveys and product devel-
opment checklists.
get their issues on your agendas. Invite managers
from other departments and business units to serve on
the Environmental Council, or to speak at environmen-
tal meetings. One company established a scholarship
program for site personnel to attend the annual
environmental meeting. The applicants had to write
a short essay on why they wanted to attend and the
environmental department paid travel expenses.
establish green teams. Several companies have
involved non-EHS staff in environmental issues by
setting up Green Teams. These teams which are made
up of volunteers from all job levels and departments
can be a valuable resource for communicating environ-
mental messages, as well as for generating ideas
on how to integrate environmental activities into
business processes.
co-opt required training courses. Many successful
environmental managers have been able to work with
human resources to include environmental elements
into ongoing non-EHS training activities. EHS training
which is required by law can also be adapted to include
more general discussions on environment’s value to
business and instructions on how to get involved with
proactive environmental programs in the business units.
use mass marketing. Companies have devised a
variety of channels to reach out to all employees in the
organization. To introduce new employees to environ-
mental initiatives and commitments, environmental
Case Study
risk portfolio
communication:
novartis
corporation
Gaps or
Problems
Minor
gaps
Good
Very
good
Marginal Medium Critical Catastrophic
Individual risks
e
x
i
s
t
i
n
g
r
i
s
k
c
o
n
t
r
o
l
s
potenti al i mpact
I
n
c
r
e
a
s
i
n
g
r
i
s
k
Novartis Corporation developed its Risk Portfolio program to better
integrate awareness of environmental, health, and safety risks into corporate deci-
sion-making. Novartis sites worldwide prepare portfolios of the risks perceived by the
site management team. This process enables environment, health, and safety staff to
work directly with site business managers, fostering communication about important
environmental issues and their relevance to business goals. Each site team begins the
process by identifying hazards and areas of vulnerability, assisted by a tickler list of
hazards. For each identi?ed hazard, a standard risk assessment form is completed.
The risks are then plotted by their ‘potential impact’ (worst case potential) along the
X-axis of a chart. The ‘actual risk control’ is then evaluated, looking at the existing
control measures as well as considering the probability of occurrence. The risk control
is plotted along the Y-axis. (see ?gure below)
Company and worldwide business sector risk portfolios are then made by merging
the highest hazards from each site’s portfolio into a new matrix. The risk portfolio
serves as both a measurement and internal communication tool —providing business
managers at all levels with an overview of risks, as well as an objective basis for dis-
cussing and setting goals and allocating resources for risk reduction. The Risk
Portfolio program offers a powerful mechanism for opening an internal dialogue
about the value of environmental risk reduction activities with business leaders,
while informing environmental professionals about business plans and priorities.
44
In May 1998, Southern Company hosted a forum on ‘Adding Value
to the Corporation’ to highlight the topic of environmental value to business. The goal
of the forum was to bring together environmental and business staff from Southern
Company to initiate a dialogue on the value that environmental activities add to the
corporate bottom-line. Southern Company participants came from senior manage-
ment, including the Chief Financial Of?cer (CFO) and other executive management,
as well as internal operational departments. Southern Company also invited several
state regulatory of?cials and representatives from other companies, with the objective
of discussing mutual expectations and sharing effective practices and tools.
One session, ‘Environmental Toolkit,’ gave time for company representatives to
present their approaches to measuring and communicating environmental value-
added. The response from the forum was overwhelmingly positive. As a follow-up to
the forum, Southern Company has initiated a pilot project, exploring various ways to
express environmental value in traditional ?nancial terms. Environmental profes-
sionals found the forum, and subsequent initiatives, to be effective mechanisms for
increasing communication, understanding, and collaboration between business and
environmental staff.
Case Study
evtb conference:
southern company
45
46
departments have produced short videos that are
shown during new employee orientation. Successful
environmental managers have also published environ-
mental newsletters and bulletins and included lea?ets
in the paycheck envelopes.
Communicating Value
to External Stakeholders
The environmental manager must communicate the
business value of the environmental function to several
external stakeholder groups, including customers,
suppliers, and shareholders. These are diverse groups
with varied motivations and interests. As with opera-
tions and upper management, know where you stand
and adjust your strategies according to the needs and
expectations of your audience.
Customers
Customers buy products and services based on price,
quality, the image of the brand, and in some cases,
the perception that the business is a good corporate
citizen. To effectively communicate the value of your
environmental programs to your customers, utilize
existing departments and resources that are available
in the organization to support consumer relations.
partner with public affairs. Develop alliances with
your company’s public affairs and marketing depart-
ments. These departments are often looking for infor-
mation on company performance and products that
can be communicated inside and outside of the com-
pany. Creating environment-focused employee volun-
teer programs can both improve community relations
and educate volunteers about the value of environ-
mental activities. Public affairs and investor relations
departments can assist environmental professionals
in developing cases studies and articles which recog-
nize environmental programs and achievements.
inform customer service. Provide customer service
representatives with reference materials to answer
environmental-related questions from customers
when they call or write the organization.
make your web site a big hit. Use your company’s
web site to communicate your environmental goals
and success stories. Successful web sites are
graphically interesting, informative (include speci?c
examples, not just vague policy statements), and
are updated regularly.
Suppliers
Increasingly, external stakeholders are concerned not
only with your company’s environmental performance
but the performance of the companies who supply
the raw materials and components for your products
and services. Implementing aggressive environmental
supplier programs can reduce your company’s risks and
liabilities and improve the life cycle environmental per-
formance of your products and services. One consumer
products company found that by convening regular
supplier meetings, they could set group environmental
goals and share best practices on how to achieve them.
As suppliers improve their environmental records
and decrease liabilities, the cost of inputs may also
decrease — creating value for your company. To harvest
these potential bene?ts, you will have to work with the
purchasing department to engage suppliers in your
programs and commitments.
Financial Community
Members of the ?nancial community—including
stock analysts, portfolio managers, investors, insurers,
and lenders—evaluate the performance, pro?tability,
and growth of publicly traded companies to maximize
investment returns. Typically, these groups are
concerned with corporate environmental performance
in cases where there is a signi?cant negative impact
on the company’s earnings per share, such as through
contaminated site remediation, litigation, or
non-compliance penalties. More proactive environ-
mental activities, such as pollution prevention,
eco-ef?ciency and energy ef?ciency, currently receive
limited attention in company valuations. However,
according to a survey of ?nancial analysts, the
in?uence of environmental performance on corporate
?nancial analysis is likely to grow in the
coming decade.
11
Whether environment
becomes a signi?cant factor in compa-
ny analysis depends largely on whether
companies can demonstrate the impor-
tance of environmental activities to
their future performance, pro?tability,
and growth.
Numbers alone, however, do not always tell the
story. While ?nancial analysts depend on quantitative
factors (e.g., earnings, costs, return on equity) to assess
future growth and pro?tability, qualitative factors also
11
Linda Descano and
Bradford S. Gentry,
‘How to
Communicate
Environmental
Performance to the
Capital Markets,’
CMA News
(April 1998) p. 35.
weigh heavily in ?nancial decisions. Corporate reputa-
tion, business strategy, quality of management, and
brand loyalty sway many decisions in the ?nancial com-
munity. Proactive environmental activities, coupled
with documented results, case studies and examples,
can provide excellent stories—evidence that these larg-
er qualitative factors are a core (and practiced) part of
the company’s fundamentals. For many ?nancial ana-
lysts, the salient fact is not that a company saved $50
million through a pollution prevention program. Rather,
the value is that the company has a program that will:
(1) reduce future pollution and waste treatment costs;
(2) continually seek improvements in process ef?cien-
cies; and (3) safeguard against future risk and liabilities.
Even though environmental professionals rarely have
an occasion to communicate directly with members of
the ?nancial community, they can affect the availability
and credibility of environmental stories.
provide executives with your story. CFOs and other
executives responsible for investor relations infre-
quently discuss the business rationale for and impact
of corporate environmental activities with stock
analysts, portfolio managers, and shareholders.
Environmental professionals can provide executives
with information they need to present a consistent and
credible story regarding environmental initiatives.
All senior managers, whether in ?nance, legal, opera-
tions, marketing, or R&D, should be versed in how the
company’s environmental strategy and initiatives
reduce risks and create competitive advantage. Avoid
‘greenwash’—environmental claims must be credible,
or your message and reputation will be discounted.
prepare executives for shareholder meetings. For
shareholder meetings, provide the CEO and CFO with
talking points on environmental objectives, initiatives,
and performance. Even if the executives choose not to
proactively address environmental issues at sharehold-
er meetings, they will be prepared to address any ques-
tions or shareholders initiatives. For example, at one
company’s annual shareholder meeting, an initiative
based on the CERES principles was put to a vote.
Although the initiative was defeated, the CEO took the
opportunity to reinforce the company’s environmental
commitment. Environmental professionals can further
in?uence investor relations by publishing annual envi-
ronmental reports, including environmental informa-
47
tion in corporate annual reports, or by supplying
investor relations or external affairs department staff
with environmental ‘talking points.’
leverage information disclosure. Through the
Internet, information on corporate environmental
performance is available to the public, allowing
unprecedented access and analysis. Government agen-
cies, such as the U.S. EPA, have taken signi?cant steps
to disclose corporate environmental data electronically.
Numerous environmental organizations have launched
web-based ratings of corporate environmental
performance. Several non-governmental organizations
evaluate corporate environmental performance
speci?cally for use by investors and ?nancial analysts.
By monitoring these sources, an environmental
manager can be better prepared to: (1) correct errors
in disclosures; (2) use disclosures to win support or
leverage action within the company; and (3) provide
sources with better data about the outcomes and
value of environmental initiatives.
get involved in the debate. Many ?nancial and corpo-
rate managers perceive environment as a non-?nancial
issue. While several initiatives have recently been
launched to highlight and explore ways in which envi-
ronmental activities add value to business, discussion
of the links between environmental and ?nancial per-
formance are only beginning. Conferences and studies
sponsored by GEMI, the Aspen Institute, the EPA Green
Markets Committee, among others, are beginning to
focus attention on these issues. By engaging in such
initiatives, environmental professionals can broaden
the debate. Write articles and op-eds for magazines,
newspapers, and journals that reach the ?nancial com-
munity. Speak to students at a local business school
regarding the links between corporate environmental
performance and ?nancial performance.
plug back into the business. At the core of ‘advancing’
the topic of environment value to business—and more
importantly, environmental initiatives within the orga-
nization—is communication. What communication
does for us is plug us into the business, creating part-
ners within and external to our organizations who
understand our business needs, our stakeholders’
needs, and how to help us address those needs. This is
our link back to Chapter 1 and another pass along the
Plan-Do-Check-Advance cycle.
Changing business realities are shifting the
focus of environmental departments from managing
consequences to managing resources. Focusing on the
business value of environmental management systems
has become a high priority for environmental profes-
sionals. But how much do environmental activities
actually contribute to the bottom line? Historically,
most executives believed that environmental activities
had little bearing on corporate ?nancial performance,
except in higher-risk industries. There are signs,
however, that attitudes are shifting. Executives from
leader companies are increasingly speaking out about
the operational and strategic value of environmental
activities. As Vernon R. Loucks Jr., Chairman and CEO
of Baxter International Inc., states:
‘At Baxter, we’ve found that corporate environmental
programs, as well as those in the health and safety
area, produce important ?nancial bene?ts. Our experi-
ence makes a powerful bottom-line argument for
EHS-responsible corporate behavior that should appeal
even to companies that haven’t yet made EHS issues
a priority. For example, Baxter’s environ-
mental initiatives over the past seven
years yielded more than $100
million in savings.’
12
While many companies have documented the direct
bene?ts of corporate environmental activities, the
question remains: Do these bene?ts ultimately result
in improved pro?ts and higher stock prices? The link to
48
Conclusion
reduced operating costs has been demonstrated many
times. However, there has been limited analysis to
evaluate the link between corporate environmental
performance and improvements in ?rm sales, earnings,
competitive position, investment risk pro?le, or market
value. A few recent studies suggest a positive correla-
tion between environmental performance and ?nan-
cial performance. In a survey of 300 of the largest
public companies, an ICF Kaiser study found that those
?rms that improve their environmental management
systems and environmental out-
comes experienced an increase in
their stock price by as much as ?ve
percent.
13
Another study found that a
diversi?ed portfolio of eco-ef?cient
companies can be expected on aver-
age to outperform less ef?cient com-
petitors between 240 and 290 basis
points per annum.
14
Environmental performance
can contribute to corporate pro?ts
in the following areas: (1) compliance;
(2) operations; (3) risk management;
(4) marketing; (5) capital investments;
(6) strategic direction
(See Chapter 1.) The primary ways that corporate
environmental activities impact stock prices are by
reducing the risk of the ?rm and enhancing brand
value. Risk is a critical factor for investors making
12
Baxter International Inc.
Annual Environmental,
Health & Safety
Performance Report, 1997.
13
Stanley J. Feldman, Peter
A. Soyka, and Paul Ameer,
Does Improving a
Firm’s Environmental
Management System
and Environmental
Performance Result in
a Higher Stock Price?
ICF Kaiser International:
November 1996.
14
Mathew J. Kiernan
and Jonathan Levinson,
‘Environment Drives
Financial Performance: The
Jury is In.’ Environmental
Quality Management
(Winter 1997).
investment decisions. Some ?nancial professionals also
believe that proactive environmental management
provides a leading indicator of good general manage-
ment practices within a company. Firms that systemati-
cally seek to optimize resource ef?ciency and minimize
wastes often integrate environmental activities
into core business processes and focus on continuous
improvement—factors essential to long-term innova-
tion and value creation. Despite increased recognition
of environmental contributions to ?nancial
performance, (according to a recent United Nations
Development Program (UNDP) study), there remains
a ‘green wall on Wall Street.’
15
Many
stock analysts still do not consider
environmental performance an
important factor in determining the value of a corpora-
tion. This may be due to the fact that analysts rely on
information from annual reports and corporate of?cers
which rarely reveal much about environmental
initiatives. At the same time, corporate CEOs and CFOs
believe they are effectively communicating their
commitment to the environment and their environ-
mental success stories.
One reason for this disconnect may be that most
corporate environmental communication is directed
towards stakeholders such as environmental groups,
plant communities, regulators, and customers, and are
not written in a language that analysts ?nd useful or
even understand.
The continuing debate among corporate executives
and Wall Street analysts emphasizes the need for envi-
ronmental managers to measure the contributions
of environmental activities to the bottom-line of their
companies and to effectively communicate the connec-
tion. The role of the corporate environmental profes-
sional is changing from that of technical specialist
to cross-functional consultant, process optimizer, and
business problem-solver. By integrating the ideas and
tips contained in this primer into corporate environ-
mental management systems, environmental man-
agers can better realize and communicate environ-
ment’s value to business.
49
15
Ann Thayer, ‘Green Wall
on Wall Street.’ C&EN,
4 May 1998, p. 31.
Appendix:
Financial Tools
The following ?nancial tools are useful in
planning, analyzing and communicating the
economic value of environmental projects.
payback period
The payback period of a project is the number
of years (or months) until the bene?ts you
receive from a project cover the money you
have invested. If you apply the payback rule to
investment decisions, you will undertake only
projects which cover their initial investment
within some pre-determined period.
Advantages
Simple to calculate, allowing managers to
quickly conduct preliminary evaluations or
triage projects. Payback is often useful for the
myriad of minor investment decisions man-
agers face.
Easy device for communicating investment
projects. Managers can casually discuss ‘quick
payback’ projects.
Assists in managerial control. Senior manage-
ment will know within a period of a few years
if a manager calculated the payback period
correctly and made the correct decision to go
forward with a project.
Disadvantages
Managers must make an arbitrary decision as
to what is an acceptable payback period. If a
company uses the same cutoff date regardless
of project life, it will tend to accept too many
short lived projects and too few long ones.
Cash ?ows are not typically discounted,
so the time value of money is not taken into
account. In addition, all possible cash ?ows
after the payback period are not included in
the calculation.
For projects where managerial control is less
important and making the right investment
decision is very important, you should consider
using more accurate ?nancial tools such as net
present value.
return on investment (roi)
Return on Investment (roi) compares how
much you invest in a project today with the
bene?ts that you will see in the future from
the project. It is calculated by dividing an
accounting measure of income by an account-
ing measure of investment. This ratio should
then be compared against the rate of return for
the company as a whole or against some exter-
nal yardstick.
ROI = income/investment
Some ?rms use operating income in the
numerator, others use net income. Some esti-
mate total assets for the denominator, others
measure total assets minus liabilities.
Advantages
Combines all components of pro?tability
(revenues, costs, and capital investments) into
a single number.
Can be compared with the rate of return on
other potential projects elsewhere (both inside
and outside the organization).
Disadvantages
Covers only a speci?c time period. May not
account for large cash ?ows in the longer term.
Considers only the average return
on investment and ignores the time value
of money.
Emphasizes short-run performance rather than
long-term pro?tability. To maintain a high ROI,
managers may reject otherwise pro?table
investment opportunities.
residual income (ri)
Residual Income is the net operating income
that a project is able to earn above a
pre-determined minimum return. RI is calculat-
ed by subtracting the required dollar return
on the investment from the income received.
RI = income – (required rate of return x
investment)
Advantages
Easy to compute, and often leads to the same
conclusions as Economic Value Added (EVA)
techniques.
Encourages managers to make pro?table
investments which may be rejected when
using the ROI formula. Using RI, you could
justify a project that has a return greater than
the minimum required, since it will add value
to the organization as a whole.
Managers focus on maximizing a dollar
amount rather than a percentage (as in ROI).
Disadvantages
The cash ?ows are not discounted, so the time
value of money is not taken into account.
net present value (npv)
Net Present Value (NPV) is the present value of
future cash returns of a project, discounted at
the appropriate market interest rate, minus the
present value of the cost of the investment. An
investment is worth making if it has a positive
NPV. If an investment’s NPV is negative, it
should be rejected.
NPV = -C
0
+ C
1
+ C
2
+ . . .
(1 + r)
1
(1 + r)
2
where C is the cash ?ows (costs – bene?ts) in
each year and r is the discount rate.
Advantages
NPV incorporates all the cash ?ows of a project
(other approaches, such as payback period,
ignore cash ?ows beyond a particular date).
A dollar today is worth more than a dollar
tomorrow. NPV re?ects the time value of
money and discounts the cash ?ows properly.
The discount rate (r) can be adjusted to
re?ect risk.
Disadvantages
Involves more sophisticated calculations and
analysis.
Is more dif?cult to effectively communicate.
Managers must make arbitrary decisions about
the true opportunity costs of capital to employ
(i.e. discount rates).
internal rate of return (irr)
The Internal Rate of Return (IRR) is an impor-
tant alternative to NPV. IRR is the rate of
discount which makes the Net Present Value
(NPV) equal zero. Projects should be accepted
if the IRR is greater than the opportunity costs
of capital (the discount rate).
NPV = C
0
+ C
1
+ C
2
+ . . . = 0
(1 + IRR)
1
(1 + IRR)
2
where C is the cash ?ows (costs – bene?ts)
in each year.
Advantages
The IRR number is intrinsic to the project
and does not depend on anything except the
cash ?ows.
Disadvantages
Involves more sophisticated calculations and
analysis.
Is more dif?cult to effectively communicate.
If a project has cash in?ows followed by one
more or out?ows, the IRR decision rule
changes: managers should accept projects if
the IRR is below the discount rate.
Some projects have a number of changes of
sign in cash ?ows over time. If this is the case,
there will be multiple internal rates of return,
and NPV must be used instead.
50
Resources
Introduction
Global Environmental Management Initiative
(GEMI). Total Quality Environmental
Management: The Primer. Washington, DC:
GEMI, 1993.
Chapter 1 Planning
Elkington, John. Cannibals With Forks: The Triple
Bottom Line of 21st Century Business. Oxford:
Capstone Publishing Limited, 1997.
Naimon, Jonathan, Karen Shastri, and Mark
Sten. ‘Do Environmental Management
Programs Improve Environmental Performance
Trends?’ A Study of Standard and Poors 500
Companies. Environmental Quality
Management. Autumn 1997.
Ottman, Jacquelyn A. Green Marketing:
Opportunity for Innovation, 2nd edition.
Chicago: NTC, 1998.
Pojasek, Robert B. ‘Selecting P2 Opportunities.’
Pollution Prevention Review. Spring 1998.
Pojasek, Robert B. ‘Understanding a Process
with Process Mapping.’ Pollution Prevention
Review. Summer 1997.
Romm, Joseph J. Lean and Clean Management:
How to Boost Pro?ts and Productivity by
Reducing Pollution. New York: Kodansha
International, 1994.
Chapter 2 Doing
Brown, Howard and Timothy Larson. ‘Making
Business Integration Work: A Survival Strategy
for EHS Managers.’ Environmental Quality
Management. Spring 1998.
Chapter 3 Checking
Aldrich, James R. ‘Estimating the Real Rate of
Return on Potential P2 Investments.’ Pollution
Prevention Review. Winter 1998.
Bailey, Paul E. ‘Full Cost Accounting for Life
Cycle Costs.’ Environmental Finance. Spring
1991. pps. 13–29.
Bailey, Paul E. and Joseph G. Karam. ‘Expressing
Environmental Liabilities in Dollars and Cents:
What Corporations Can Do Now.’
Environmental Finance. Winter 1991/92.
Bailey, Paul E. and Peter A Soyka. ‘Environmental
Accounting—Making It Work for Your
Company.’ Total Quality Environmental
Management. Vol. 5, No. 4 Summer 1996.
pps. 13–30.
Brealey, Richard and Stewart Myers. Principles
of Corporate Finance. 2nd Edition. Singapore:
McGraw-Hill Book Company, 1984.
Brooks, Daniel. ‘Risk-Based Decision Making:
Integrating Risk Management into Business
Planning.’ Applied Decision Analysis, Inc.
Cairncross, Frances. ‘Cost and Bene?ts’ and
‘Making Polluters Pay,’ in Costing the Earth.
Cambridge: Harvard Business School Press,
1992. pps. 43–62 and 89–109.
Ditz, Daryl, Janet Ranganathan, and R. Darryl
Banks, eds. Green Ledgers: Case Studies in
Corporate Environmental Accounting. Wash-
ington: World Resources Institute, 1995.
Dray, Jim and James W. Heptinstall. ‘Justifying
the Cost of EMIS: Piloting Lessons from Rhône-
Poulenc.’ Environmental Quality Management.
Winter 1996. pps. 73–76.
GEMI.Benchmarking: The Primer Benchmarking
for Continuous Environmental
Improvement.Washington: GEMI, 1994.
GEMI. Finding Cost-Effective Pollution
Prevention Initiatives: Incorporating
Environmental Costs into Business Decision
Making. Washington: GEMI, 1994.
Kennedy, Mitchell. ‘Critical Issues of Total Cost
Assessment: Gathering Environmental Data for
P2.’ Pollution Prevention Review. Spring 1998.
McLaughlin, Susan and Holly Elwood.
‘Environmental Accounting and EMSs.’
Pollution Prevention Review. Spring 1996.
Schene, Michael G. and James T. Salmon.
‘Applying Outcome Evaluation and Measures to
Environmental Management Programs.’
Environmental Quality Management.
Summer 1997.
Spiro, Herbert T. Finance for the Non-Financial
Manager. 4th Edition. New York: John Wiley &
Sons, 1996.
U.S. Environmental Protection Agency. Of?ce
of Pollution Prevention and Toxics. Introduction
to Environmental Accounting as a Business
Management Tool: Key Concepts and Terms.
Washington: U.S. Environmental Protection
Agency, 1995.
Chapter 4 Advancing
Birchard, Bill. ‘Making Environmental Reports
Relevant.’ CFO. June 1996. pps. 79–80.
Hamilton, James T. ‘Pollution as News: Media
and Stock Market Reactions to the Toxic
Release Inventory Data.’ Journal of
Environmental Economics and Management.
Vol 28, 1995. pps. 98–113.
Hunter, David. ‘News to Some.’ Chemical. 25
March 1998. p. 5.
Thayer, Ann. ‘Green Wall on Wall Street.’ C&EN
4 May 1998. p. 31.
United Nations Development Programme
(UNDP) working paper, ‘Valuing the
Environment: How Fortune 500 CFOs &
Analysts Measure Corporate Performance.’
United Nations Environment Programme
(UNEP) and SustainAbility. Engaging
Stakeholders 1998: The CEO Agenda. 1998
Conclusion
Clough, R. ‘Impact of an Environmental Screen
on Portfolio Performance: A Comparative
Analysis of S&P 500 Stock Returns,’ Duke
University, 1997.
Cohen, Mark A., Scott A. Fenn, and Jonathan S.
Naimon. ‘Environmental and Financial
Performance: Are They Related?’ Washington,
DC: Investor Responsibility Research Center
Environmental Information Service, 1995.
Feldman, Stanley J. ‘Does Improving a Firm’s
Environmental Management System and
Environmental Performance Result in a Higher
Stock Price?’ ICF Kaiser International, Inc., 1996.
Hart, Stuart L. and G. Ahuja, ‘Does It Pay to Be
Green?’ Corporate Environmental Strategy. Troy:
PRI Publishing, New York, 1996.
Hart, S.L. and G. Ahuja. ‘An Empirical
Examination of the Relationship Between
Pollution Prevention and Firm Performance,’
University of Michigan, School of Business
Administration, September 1994.
Kiernan, Matthew J. and Jonathan Levinson.
‘Environmental Drives Financial Performance:
The Jury Is In.’ Environmental Quality Review.
Winter 1997.
Klassen, Robert D. and Curtis P. McLaughlin.
‘The Impact of Environmental Management
on Firm Performance.’ Management Science.
Vol. 42, No. 8, August 1996. pps. 1199–1214.
Porter, Michael E. and Claas van der Linde.
‘Green and Competitive: Ending the Stalemate.’
Harvard Business Review. September-October
1996. pps. 120–134.
U.S. Environmental Protection Agency.
Environmentally Screened Index Investing.
Washington: U.S. Environmental Protection
Agency, November 1996.
Walley, Noah and Bradley Whitehead. ‘It’s Not
Easy Being Green.’ Harvard Business Review.
May–June 1994. pps. 424–429.
White, M.A. ‘Corporate Environmental
Performance and Shareholder Value,’ University
of Virginia, McIntire School of Commerce,
November 1995.
51
General
Aldrich, James. Pollution Prevention Economics:
Financial Impacts on Business and Industry. New
York: McGraw-Hill, 1996.
Allenby, B.R., and D.J. Richards, eds. The Greening
of Industrial Ecosystems. Washington: National
Academy Press, 1994.
Bowman, E.H. and M. Haire. ‘A Strategic Posture
Toward Corporate Social Responsibility.’
California Management Review. Vol. 18, No. 2,
1975. pps. 49–58.
Christie, Ian and Heather Rolfe. Cleaner
Production in Industry: Integrating Business
Goals and Environmental Management.
London: Policy Studies Institute, 1995.
DeSimone, Livio D. and Frank Popoff. Eco-
ef?ciency: the Business Link to Sustainable
Development. Cambridge: MIT Press, 1997.
Esty, Daniel and Michael E. Porter. ‘Industrial
Ecology and Competitiveness: Strategic
Implications for the Firm.’ Journal of Industrial
Ecology. Vol. 2, No. 1, 1998. pps. 35–44.
Frankel, Carl. In Earth’s Company: Business,
Environment, and the Challenge of
Sustainability. Vancouver: New Society
Publishers, 1998.
Hawken, Paul. The Ecology of Commerce:
A Declaration of Sustainability. New York:
Harper Collins Publishers, 1993.
Knight, C. Foster. ‘Pollution Prevention,
Technology Challenges and Competitive
Advantage in the Process Industries.’ Total
Quality Environmental Management. Autumn
1995. pps. 87–92.
Lawrence, Brian. ‘ISO 14001—The New
Environmental Management Paradigm.’
Environmental Technology. March/April 1997.
Mannion, Richard F. ‘Enhancing Corporate
Performance Through Quality-Driven Pollution
Prevention.’ National Productivity Review.
Winter 1996. pps. 25–32.
Marcus, Phillip and John T. Willig, editors.
Moving Ahead with ISO 14001: Improving
Environmental Management and Advancing
Sustainable Development. New York: John
Wiley & Sons, Inc. 1997.
Marcus, Philip A. ‘Using EH&S Management
Systems to Improve Corporate Pro?ts.’
Environmental Quality Management.
Winter 1996.
Miller, William H. ‘Making Pollution Prevention
Pay.’ Industry Week. No. 10, May 20, 1996.
Polonsky, Michael Jay and Alma T. Mintu-
Wimsatt, eds. Environmental Marketing:
Strategies, Practice, Theory, and Research.
New York: Haworth Press, 1995.
Porter, Michael E. ‘America’s Green Strategy.’
Scienti?c American. April 1995. p. 168.
Porter, Michael E. ‘Green Competitiveness.’
Scienti?c American. 1991. p. 351.
Schmidheiny, Stephan, with the Business
Council for Sustainable Development.
Changing Course: A Global Business Perspective
on Development and the Environment.
Cambridge: MIT Press, 1992.
Schmidheiny, Stephan and Frederico Zorraquin.
Financing Change: the Financial Community,
Eco-ef?ciency, and Sustainable Development.
Cambridge: MIT Press, 1996.
Willums, Jan-Olaf. The Sustainable Business
Challenge: A Brie?ng for Tomorrow’s Business
Leaders. Shef?eld: Greenleaf Publishing, 1998.
Young, P.J. ‘Environmental In?uences on
Company Valuations.’ Journal of the Chartered
Institute of Water and Environmental
Management. Vol. 10, No. 1, February 1996.
pps. 41–46.
52
818 Connecticut Avenue, NW, Second Floor
Washington, D.C. 20006
phone: 202-296-7449•fax: 202-296-7442
e-mail: [email protected]
website: www.gemi.org
printed on recycled paper
Trademark of American Soybean Association
TM
doc_468168546.pdf
The Global Environmental Management Initiative (GEMI) is a non-profit organization of leading companies dedicated to fostering environmental, health, and safety excellence worldwide.
busi ness helpi ng busi ness achi eve global
envi ronmental, health and safety excellence
Environment: Value to Business
About the Global Environmental
Management Initiative
The Global Environmental Management Initiative (GEMI) is a
non-profit organization of leading companies dedicated to
fostering environmental, health, and safety excellence world-
wide. Through the collaborative efforts of its members, GEMI
also promotes a worldwide business ethic for environmental,
health, and safety management and sustainable development
through example and leadership.
The guidance included in this primer is based on the
professional judgment of the individual collaborators listed
in the acknowledgments. The ideas in the primer are those
of the individual collaborators and not necessarily their organi-
zations. Neither GEMI nor its consultants are responsible for
any form of damage that may result from the application of the
guidance contained in this primer.
This document has been produced by the Global Environmental
Management Initiative (GEMI) and is solely the property of the
organization. This document may not be reproduced without
the express written permission of GEMI, except for use by mem-
ber companies or for strictly educational purposes.
gemi’s member companies include:
anheuser-busch companies, inc.
ashland, inc.
bristol-myers squibb company
browning-ferris industries
the burlington northern and santa fe
railway company
the coca-cola company
colgate-palmolive company
coors brewing company
the dow chemical company
duke energy
the dupont company
eastman kodak company
elf atochem north america
georgia-pacific corporation
the goodyear tire & rubber company
halliburton company
johnson & johnson
koch industries, inc.
lockheed martin corporation
merck & company, Inc.
motorola, inc.
novartis corporation
occidental petroleum corporation
olin corporation
pharmacia & upjohn, inc.
phillips petroleum company
the procter & gamble company
southern company
temple-inland, inc.
texas instruments incorporated
environment:
valuetobusiness
global envi ronmental management i ni ti ative
This primer was developed in a truly collaborative
process by the Global Environmental Management
Initiative’s (GEMI) Environment: Value to Business
(EVTB) Work Group. Harry Ott (The Coca-Cola
Company), Chair of the Work Group, and Ben Jordan
(The Coca-Cola Company) directed the project.
The primer was written by Tim Larson and Kristin
Larson of the Resource Planning and Management
Systems (RPM Systems) Group of ThermoRetec
Corporation, with oversight and guidance from
Howard Brown (President of RPM Systems) and
Cathy Van Dyke. Steve Hellem, Executive Director of
GEMI, and Mary Beth Parker, also of GEMI, provided
substantial input and support to the project.
Several EVTB committee members were extensively
involved in many aspects of the project, from con-
ceptualization and planning to ?nal development
of the primer. Jim Thomas (Novartis Corporation)
played a signi?cant role in developing the primer
and organizing the ?nal primer review meeting at
Yale University.
Other major EVTB Work Group contributors include:
Lisa Baggett, Georgia-Paci?c
Tanya Blalock, Southern Company
Stan Christian, Motorola
Mitch Griggs, Duke Energy
Carolyn Kennedy, Georgia Power
Dave Mayer, Georgia-Paci?c
Vivian Pai, Johnson & Johnson
Scott Smith, Coors Brewing Company
Darwin Wika, DuPont
The project also received generous support
and input from other GEMI member company
representatives, including:
Clinton Allen, Bristol-Myers Squibb
Carol Cala, Eastman Kodak Corporation
Stephen Evanoff, Lockheed Martin Corporation
Chuck Grif?n, Southern Company
John Hayworth, Browning Ferris Industries
Kevin Henke, Koch Industries
Acknowledgments
Joseph Holtshouser, Goodyear Tire &
Rubber Company
Steve Jones, Alabama Power
Rob Minter, Southern Company
George Nagle, Bristol-Myers Squibb
Bill Rankin, Olin Corporation
Jerry Schinaman, Bristol-Myers Squibb
Bob Sherman, Halliburton Company
Bill Sugar, Anheuser-Busch Companies
Robin Tollett, Procter & Gamble
additional thanks to:
RPM Systems staff who contributed to the research,
writing and editing of the primer, including:
David Cross, Brett Evans, Sarah Friedman, Prescott
Gaylord, Paula Grimm, Michelle Hirsch, Dan Kops,
Mark Loef?er, Rebecca Quarno, Todd Rogow, Megan
Shane, and Melissa Spear, among others.
Graphic design: Heather Corcoran
The Industrial Environmental Management
Program of the Yale University School of Forestry
and Environmental Studies for hosting the ?nal
meeting to review the primer, the ‘Dialogue
on Measuring Environmental Value to Business.’
Special thanks to the following Yale faculty
members for their thoughtful participation:
Marian Chertow, Bradford Gentry, Thomas Graedel,
and Reid Lifset.
The following individuals who reviewed and
commented on the draft EVTB primer:
Cindy Angelelli (Policy & Strategy Division, Duke
Energy), Bob Brady (Fund Manager, Salomon Smith
Barney), Linda Descano (V.P. Environmental Affairs,
Salomon Smith Barney), David Ratcliffe (CFO,
Georgia Power), and John Richards (Finance
Division, The Coca-Cola Company).
The following non-GEMI member companies
who provided case study information for the
primer: ARCO, Baxter International, Duracell,
Rhône-Poulenc.
3
Contents
introduction 5
chapter 1: plan to add value 9
Know Your Business 10
Inventory Potential Environmental Impacts 10
Identify Value-Creating Opportunities 13
Prioritize Activities 19
chapter 2: do what adds value 21
Build the Business Case 21
Mobilize Resources 22
Build Momentum 24
chapter 3: check the value-added 27
Gather Cost and Bene?t Data 28
Analyze the Value of Environmental Activities 33
chapter 4: advance and communicate value 39
Strategies for Effective Communication 40
Communicating Value to Upper Management 41
Communicating Value to Operations 43
Communicating Value to External Stakeholders 46
conclusion 48
appendix: financial tools 50
resources 51
Greetings,
Corporate environmental professionals from
companies around the world are adding value
to their corporations’ bottom lines in ways that
could not have been imagined a few years ago.
More and more companies are discovering that
proactive environmental programs make
signi?cant contributions to pro?tability and
competitiveness. In addition to reducing risk
and avoiding costs from regulatory compliance
programs, bene?ts are ?owing from
environmental initiatives that spur process
innovation, increase worker productivity and
morale, enhance brand image, streamline time-
to-market, improve relations with regulators
and local communities, and open new market
opportunities. Professional environmental
managers are key contributors to a company’s
overall strategic business success.
Environmental professionals in today’s compa-
nies share a unique vantage point. They address
challenges that cut across all aspects of the
business, fromthe plant ?oor to the boardroom.
They are in an excellent position to identify
problems and opportunities, and to broker
information and innovative solutions. Yet in
order to add real value, environmental
professionals must be ‘plugged into’ main-line
business. It is important for business managers
to understand the ways environmental activi-
ties can add business value. Environment: Value
to Business is about focusing on this need for
integration and communication—and ways to
achieve it.
Preface
November 1998
While this primer provides a valuable tool kit
for corporate environmental organizations and
professionals, the ideas, examples, and case
studies found in these pages will be of interest
to a wider audience. The Global Environmental
Management Initiative (GEMI) hopes this
primer will strengthen the growing discussion
in business, ?nancial, and environmental circles
about the value of corporate environmental
activities and the links between environmental
and business performance. We look forward, in
future GEMI activities, to expanding our efforts
in facilitating dialogue and building broader
understanding among business leaders and
managers, members of the ?nancial community,
and corporate environmental professionals.
We hope you will enjoy and bene?t from these
creative and leading-edge activities.
Sincerely,
Harry J. Ott
Chair
Environment: Value to Business Work Group
Global Environmental Management Initiative
Director
Global Environmental Assurance
The Coca-Cola Company
The business context in which corporate
environmental professionals must work is rapidly
changing. Competitive pressures in the global economy
are pushing companies to ensure that all endeavors
contribute to the creation and protection of shareholder
value. Corporate environmental professionals need to
rethink their roles, responsibilities, and approaches in
order to respond to these larger business trends.
focus on business integration. Companies are
reorienting traditional business strategies to focus
on cross-functional business processes and are taking
advantage of opportunities to coordinate the work of
different operating units and departments.
customer-orientation. Corporations are encouraging
all business functions, not just sales and marketing,
to adopt a customer-focused approach to delivering
products and services.
emergence of the triple bottom line.
1
Increasingly,
investors and consumers are holding corporations
accountable for their impacts
on the environment and society,
in addition to ?nancial performance,
forcing companies to anticipate
and rapidly respond to social
and environmental issues.
In this shifting business context, the role of the
environmental professional is evolving. Environmental
staff must get ‘plugged into’ business—undertaking
activities that create value for the business and com-
municating this value to multiple internal and external
stakeholders. Increasingly, corporate environmental
professionals are discovering that the value of their
services expands as the scope of their activities extends
beyond remediation and compliance activities. By
focusing on resource management or ‘eco-ef?ciency,’
environmental activities can produce operational and
strategic value by reducing costs and enhancing reve-
nues. Less resources, less waste, less risk. More sales,
more revenues.
Environmental activities can reduce operating costs by:
improving resource utilization rates and
process ef?ciency;
reducing waste; and
using risk management to avoid ?nes and
clean-up costs, reduce legal costs and judgments,
and decrease insurance and overhead costs.
An environmental program which is well-integrated
into core business processes can also in?uence
pro?tability in more subtle (and sometimes less
tangible) ways by:
streamlining product development cycles and
reducing time to market;
improving relationships with regulators, suppliers,
and consumers;
safeguarding corporate image and brand names;
Introduction
1
John Elkington,
Cannibals With Forks:
The Triple Bottom Line
of 21st Century
Business. Oxford, UK:
Capstone Publishing, 1997.
5
M. Douglas Ivester
Chairman, Board of Directors & CEO,
The Coca-Cola Company
The best possible environment for our success is the best possible environment. Implementation
of The Coca-Cola Environmental Management System throughout our organization will help us
protect and grow our business through continued environmental leadership.”
“
4
3
plan
Know the business
context.
Inventory potential
environmental impacts.
Identify value-creating
opportunities.
Prioritize activities.
advance
Communicate value and
get feedback from:
Internal stakeholders
(upper management
and operations).
External stakeholders
(customers, suppliers,
shareholders, investors).
check
Gather actual cost and
bene?t information.
Analyze the value creat-
ed by environmental
activities.
1
the plan-do-check-advance cycle
6
do
Build the business case.
Mobilize resources.
Build momentum
through implementation.
enhancing employee productivity and morale; and
identifying new product and service opportunities.
Companies are only beginning to discover the ways
in which corporate environmental initiatives can add
strategic value to business.
While Environment: Value to Business explores tools
and techniques that corporate environmental profes-
sionals can use to plan, create, measure, and communi-
cate the business value of environmental activities, we
believe that these ideas will be of interest to a much
broader audience. In particular, business leaders and
members of the ?nancial community will ?nd compel-
ling examples of ways corporate environmental activi-
ties can contribute to pro?tability and competitiveness.
In addition, the concepts addressed in this primer are
directly relevant to corporate health an safety activities.
Environment: Value to Business is divided into four
chapters—one for each stage of the Plan-Do-Check-
Advance (PDCA) cycle of environmental management.
2
Total Quality Environmental Management (TQEM), ISO
14001, and other environmental management system
approaches are all founded in this iterative
process focused on continuous learning
and improvement—making PDCA a useful
framework for presenting the Environ-
ment: Value to Business (EVTB) concepts and tools.
Ideally, efforts to plan, create, measure, and communi-
cate the value of environmental activities will be seam-
lessly integrated into corporate environmental man-
agement systems.
It is understood that readers may be at different
points in the PDCA process. Environment: Value to
Business is designed to facilitate quick navigation; and
each chapter provides useful tips and tools, key ques-
tions, and case studies. Of course, not all EVTB concepts
and tools ?t neatly into the ‘bins’ of the PDCA frame-
work. We have endeavored to denote some of these
important links between chapters—where tools
presented in one chapter can also be used in another
stage of the PDCA process—using the ( ) symbol.
2
2
For the purposes of
this primer, the term
‘Advance’ is more
appropriate than the
PDCA term ‘Act.’
7
9
The corporate environmental professional
faces the same challenge confronting other business
leaders in a changing world—how to allocate or secure
limited resources (money, staff, senior management
attention) to maximize the value of activities and
projects. When done well, planning can enable corpor-
ate environmental managers to identify, assess, and
prioritize opportunities in the organization and devise
creative strategies for leveraging resources—not just
the environmental department’s resources, but those
of other departments as well. This chapter describes
the essential elements of a successful planning effort
and presents tools and tips for maximizing the bene?ts
of planning.
The key to good planning is to transform it from
an academic exercise that results in just another report
on the shelf to a vibrant process of getting plugged
into the business. Planning requires environmental
professionals to step out into the business, gain an
understanding of the broader organization, listen to
other departments’ needs and goals, and identify stra-
tegic opportunities for solving company challenges.
It involves reaching beyond traditional role boundaries
to become strategists, entrepreneurs, sales representa-
tives, and educators. In this way, effective planning can
both reveal value-creating opportunities and provide
critical insight into how best to communicate with key
individuals and groups.
1
Plan to Add Value
10
There are four main elements to successful planning: (1)
knowing your business; (2) taking inventory of potential
environmental impacts; (3) identifying value-creating
opportunities; and (4) prioritizing activities.
Know Your Business
Assess the business context of environmental activities.
All too often, corporate environmental professionals
are unaware of the speci?c goals, priorities, and needs
of other departments and staff within the company.
Being able to offer value-adding solutions requires
three things. First, identify the current and potential
customers of environmental services. Second, know
what business challenges those customers are trying
to solve. Third, understand your company’s long range
business plans. While environmental professionals
cannot be expected to be experts in every aspect
of a company, failure to do homework on the business
context may leave giant value-creating opportunities
on the table and environmental issues on the sidelines.
Inventory Potential
Environmental Impacts
Make sure that you know all of the ways your company
impacts the environment. As illustrated in the resources
throughput model (see pages 12–13), environmental
impacts typically arise from (1) the use of input
resources; (2) the generation of wastes, emissions,
and discharges; and (3) the existence, use or disposal
of products.
This task is akin to the identi?cation of ‘environ-
mental aspects’ in the ISO14001 environmental
management system standard. To conduct an inventory
of environmental impacts, ?rst identify the core
business processes and functions in your organization,
including the production and operational processes.
Then, map the processes that you identify (see
the Process Mapping section below for suggestions).
Process mapping not only improves understanding
of business activities, but also helps to reveal areas
where these activities can impact the environment and
where environmental staff can intervene to provide
value-adding assistance. For each process and/or
functional area, brainstormthe current and potential
environmental impacts.
Key Questions
know your business
What are the business trends affecting your
company and industry?
Who are the customers (both internal and
external) of environmental services?
Who are the customers of your company’s
products & services?
What are the business goals for your business
this year?
What are the priorities of senior management?
What are the priorities and initiatives of other
departments and business units?
Tips
know your business
Review internal literature. Gather and review
reports and materials to learn about important
issues affecting your company and industry.
In addition to materials such as corporate
newsletters and annual reports, most business
units and departments produce periodic
reports, strategic plans, annual business goals,
and budgets. Watch for issues or key words
that are important to management.
Get invited to meetings. Look at every interac-
tion as an opportunity to listen to the needs of
others. Use opportunities to meet with stake-
holders to learn about their business goals and
needs (meetings, interviews, surveys, informal
interactions).
Benchmark. Keep abreast of environmental
initiatives and business trends affecting
companies in your industry by participating
in industry associations and other business-
environment initiatives (e.g. GEMI).
11
Key Questions
inventory of impacts
What are the core business and operational
processes of your company (e.g., new
product development, purchasing, component
manufacturing)?
What are the existing and potential impacts
of each department, process, and product on
the environment?
What environmental impacts of the company’s
activities are regulated?
Which environmental impacts pose the
greatest risk to the company’s pro?ts, growth,
and public image?
How signi?cant are these risks and impacts?
Tips
inventory of impacts
Don’t get bogged down in the details. The goal
is to identify areas of current and potential
environmental impact, and to have a basic
understanding of your business processes, not
to develop complex engineering diagrams
(although these may be informative later).
Think beyond regulatory impacts. By only
looking at environmental impacts that are
covered under regulations, you will likely miss
value-creating opportunities. For example,
high water use may not pose adverse regulatory
impacts, but it can unnecessarily increase the
size of the treatment facility needed to process
wastewater. Resource conservation means
avoided raw materials and costs as well as
avoided waste management costs and risks.
These activities can both reduce external
environmental impacts and directly reduce
a company’s operating costs.
Get out and talk with people. The environmen-
tal manager does not need to be an expert on
all processes in the company, but should talk
with those who are. Environmental audits and
training sessions provide a good opportunity
to map processes and identify environmental
impacts. Ask employees about the processes in
which they are involved. Engage them in help-
ing you to create, re?ne and verify process
maps. Taking an interest in others’ work builds
political capital for EHS by providing insight on
how environmental initiatives can help them
succeed with their business goals.
12
Steps for Effective Process Mapping
Process mapping is an excellent tool for inventorying
environmental aspects and impacts. A process map is
a schematic depiction of business processes which
immerses the corporate environmental professional
in the world and jargon of operations and reveals
opportunities for intervention. Both the process map
itself and the effort of creating one can aid in the iden-
ti?cation of value-creating opportunities for the envi-
ronmental function: the areas of greatest risk, environ-
mental impacts, and super?uous or inef?cient steps
that can be eliminated or modi?ed. Creating the maps
can also lead to questioning the rationale behind
certain process elements, and even entire processes.
observe procedures and interview operators. This
includes visiting the plant ?oor as well as support and
technical departments. At a minimum, it necessitates
talking with or involving those close to the process
activities. Determine the major steps of the process.
List the resources that ?ow into each step (e.g., materi-
als, energy, water) and the impacts that result (e.g.,
wastes, fugitive emissions, vehicle miles traveled).
draft initial process map. A draft process map
provides a useful starting point—a visual guess to
spark discussion. Do not try to make it perfect. Get
?ip chart paper and markers, and draw boxes for
the major process steps. Use arrows and lists to indi-
cate resource ?ows, waste streams, and environmental
impacts. Use multi-colored Post-It Notes
®
to ?ag
key issues, inef?ciencies, or problems that you discover
while mapping.
review and revise. Staff from other departments are
often excited to discuss their work and will not hesitate
to correct your maps. Ask them to help identify areas of
environmental impact and process inef?ciency.
Engaging line operators, supervisors, and managers in
the process gets them thinking about the impact of
their actions on the environment—a key element of an
effective environmental management system.
corporati on
resources
Energy (all fuels)
Investment
Raw materials
Staff time
resources throughput model
The goal of ‘eco-ef?ciency’ is to maximize the amount and
quality of goods or services produced, while minimizing the
environmental impacts of resource use and waste generation.
Typically this translates into maximizing pro?ts by minimiz-
ing the amount of resources used and the amount of wastes
generated. The goal is ‘doing more with less.’
13
Identify Value-Creating Opportunities
Once environmental staff are plugged into the busi-
ness, they can get the information needed to identify
value-creating opportunities at many levels of
company operations. Smart compliance strategies
have additional bene?ts for other departments and
business units. Environmental initiatives taken beyond
the basic requirements of compliance may both reduce
costs and enhance revenues. Search for the places
where value can be created.
Value in Compliance
Certain environmental performance standards and
activities are required by company policies and govern-
ment regulations. While these activities are typically
viewed by management as a cost of doing business,
they in fact provide fundamental value to business.
A well designed compliance program can:
provide a license to operate. National, state, and local
governments have imposed environmental, health,
and safety requirements on corporations that do busi-
ness within their jurisdictions. Compliance with these
requirements usually adds real value. Safeguarding the
health and safety of workers, communities, and the
environment is essential to securing the public trust to
continue operations, expand, and innovate.
avoid penalties. Failure to assure compliance can
bring signi?cant costs to business—?nes, permit
denials, plant shut downs, legal fees—which directly
impact the bottom line. While it is impossible to
precisely document avoided costs, numerous environ-
mental managers have found estimation to be useful.
add flexibility. A record of strong and effective
compliance can earn ?exibility with regulators
which enables operations to make needed changes
more quickly.
Value in Operations
At the operations level, the goal should be ?nding
new ways to do more with less. The key is focusing
on resources. By reducing total resource inputs, haz-
ardous inputs, or undesirable by-products, it is possible
to lower the costs of production and compliance as
well as waste disposal and management costs. Thus,
environmental initiatives in operations can:
products & services
Revenues
Delivered product
waste
Hazardous waste
Non-hazardous waste
14
improve the efficiency of resource use. Yield
and resource utilization rates can be improved
by reducing the amount of resources used per unit
of product produced. This approach, often called
process optimization, involves changing processes to
minimize resource requirements.
minimize wastes. Wastes, emissions, and discharges
bring not only disposal costs, but also regulatory
reporting costs and the potential for spills and
unacceptable health and safety exposures. Reducing
the amount of off-quality product has triple the
impact: saving inputs, reducing wastes, and producing
more product to sell.
reduce the costs of managing hazards. Eliminating
the use of hazardous materials in production processes
reduces the costs of engineering and control measures.
If you don’t use it, no one will spill it or be exposed to it.
spur process innovation and reduce maintenance
costs. Pollution prevention activities can reveal other
opportunities for streamlining, and even eliminating,
process elements and maintenance requirements.
Many corporate environmental professionals report
that creative pollution prevention and waste minimiza-
tion programs often result in signi?cant process
improvements because they permit a fresh look at
practices and procedures.
boost productivity and morale. Improving working
conditions can increase productivity. For example,
addressing indoor air quality and noise issues has
been demonstrated to reduce absen-
teeism and improve staff morale.
Similarly, in some cases, energy-ef?cient
lighting upgrades have boosted worker
productivity by 5 to 7%.
3
Value in Risk Management
Reducing environmental risks can save signi?cant
costs. Environmental risk management strategies can:
reduce the costs of emergency response. Proactive
environmental management can avoid or minimize the
short- and long-term costs of accidents, spills, and
releases. Preventive measures and effective plans can
3
Joseph J. Romm, Lean
and Clean Management:
How to Boost Pro?ts and
Productivity by Reducing
Pollution. New York:
Kodansha International, 1994.
risk management
operations
compliance
Getting to the bottom line
increasing value-creating
opportunities
i
n
c
r
e
a
s
i
n
g
v
a
l
u
e
t
o
b
u
s
i
n
e
s
s
a
n
d
i
n
t
e
g
r
a
t
i
o
n
15
reduce response and clean-up costs, while minimizing
costs arising from regulatory penalties, litigation fees,
and legal settlements.
reduce remediation costs. Improving the manage-
ment of remediation projects can reduce ongoing oper-
ational costs and help close out remediation projects
ahead of schedule.
reduce product liability costs. Incorporating environ-
mental, health, and safety concepts into product design
from the outset can reduce the potential for harmful
environmental, health, and safety impacts resulting
from product use, misuse, or disposal.
reduce insurance premiums. Limiting environmental
risk exposure for employees, contractors, and cus-
tomers can directly lower corporate insurance costs.
More and more insurance companies are considering
these issues in pricing coverage.
Value in Capital Investments
Companies spend millions of dollars servicing the
long-term life-cycle costs of capital investment and
design decisions. The environmental implications
of capital investments such as the purchase of new
sites, facility construction, the start-up or redesign
of manufacturing lines, and new products can have
signi?cant business consequences. Environmental
managers can add value by providing critical infor-
mation early in capital budgeting and decision pro-
cesses. Since environmental professionals often are
not asked for advice early in the process, it is important
to study the acquisition and change processes and
then proactively insert key information. Through in-
volvement in these decision processes, it is possible to:
reduce the uncertainty of corporate transactions.
Due diligence activities can identify potential environ-
mental liabilities associated with property acquisitions
and divestitures, directly affecting prices and long-term
facility operations and development costs. Brown?eld
redevelopment can bring strategic business and tax
advantages. Often corporate environmental profession-
als must educate peers and managers in other depart-
ments on how to take advantage of these opportunities.
strategic direction
i
n
t
o
t
h
e
c
o
m
p
a
n
y
market growth
capital investments
In 1993, Bristol-Myers Squibb initiated a programto improve the environ-
mental performance of their products throughout the product life cycle — from the
research and development phase, through manufacturing, packaging, sales, distribu-
tion and consumer use to ?nal disposition. The Product Life Cycle (PLC) program has
produced signi?cant cost savings, while at the same time has spread a general aware-
ness of environmental issues. EHS staff train teams of 8-10 representatives of
different functions within the business. The teams then review a group of related
products to identify opportunities to create value. Each review costs approximately
$25,000 and generates an average of $200,000 in savings. One product improvement,
debossing rather than printing capsules, has generated an estimated annual savings
of $100,000. By eliminating the solvent-based ink required for printing, Bristol-Myers
Squibb reduced chemical waste and minimized workers’ exposure to toxics. Other
innovations include: the removal of cotton in bottles containing over-the-counter
analgesics, the creation of the ?rst alcohol-free hair spray, and the creation of reusable
and collapsible plywood pallet boxes.
At Duracell, working closely with suppliers is a central part of the company’s
supplier development program. Duracell meets regularly with its suppliers as a group
to share best practices and improve performance. For several years, environmental
programs have been included in the overall rating of suppliers. When Duracell’s ener-
gy management initiative began to reap major cost savings as well as reduce the com-
pany’s contribution to greenhouse gas emissions, Duracell decided to incorporate the
initiative into its global supplier development program. Duracell held a conference of
major suppliers to share its approach and challenged the group to participate in a
partnership program where each company agreed to set energy ef?ciency goals, initi-
ate programs to achieve those goals and share best practices within the group. Most
suppliers committed to the program. Awards will be given to the best performers. The
bene?ts are better supplier relations, new ideas for reducing costs at Duracell, and
assistance to suppliers in controlling costs.
product life cycle
reviews:
bristol-myers squibb
company
supplier
development
program:
duracell , inc
16
environment: value to business
success stories
ARCO successfully negotiated a revised hazardous waste permit. The permit allowed
the re?nery to build a needed oil tank on property previously used as a hazardous waste
land treatment unit. Tank permitting and construction proceeded on a fast track basis.
The process was enhanced by the company’s long-term environmental performance and
their excellent working relationship with the regulators. This partnership allowed the
re?nery to save over $1,000,000 in long-term monitoring costs. In addition, they recov-
ered previously unavailable but valuable re?nery real estate. This project was a success
because it brought previously unused property back into constructive use and it saved
money on future long-term monitoring programs.
In 1996, Koch Industries proposed to build a 210-mile gas liquids pipeline
from Pascagoula, Mississippi, and Bayou La Batre, Alabama, to a Koch Hydrocarbon
Southeast plant in Belle Rose, Louisiana. Koch mobilized its public affairs professionals
to develop a communications/government affairs strategy addressing complex issues
of routing, competition, right-of-way acquisition, permitting, and construction. The
pipeline needed to cross Lake Pontchartrain which has been the center of extensive grass-
roots efforts to restore its environmental integrity. Koch’s market opportunity depended
on bringing the pipeline into operation quickly, without long delays that could result
from public opposition. After preliminary analysis, but before submitting permit appli-
cations, Koch invited a wide range of interested parties to discuss their concerns.
Organizations, including the Lake Pontchartrain Basin Foundation, the Coalition to
Restore Coastal Louisiana, the Southern Louisiana League of Women Voters, the Sierra
Club, local ?shing organizations, elected of?cials, and scientists studying the region’s
lakes and wetlands all contributed to the project. Based on the recommendations provid-
ed by these external stakeholders, Koch made routing and other changes and speci?ed,
in writing, the environmentally sensitive construction methods that would be used. The
pipeline route now avoids eagle nests, gopher tortoise and sandhill crane habitats, and
a sensitive salt marsh area. Koch’s permitting process began at the same time as other
companies were starting competing pipeline projects. Initiating open communication
helped Koch earn the trust of these groups and made Koch the community’s choice to
proceed with this venture. By seeking external participation, Koch’s public affairs team
helped to secure 2,500 right-of-way signatures and 64 permits in 18 months, less than the
24 to 30 months typical for large projects. Construction started in August 1998.
reuse of a
hazardous
waste disposal
facility:
arco
decreased time-
to-market for
pipeline project:
koch industries
(koch pipeline
southeast, inc.)
17
enhance the environmental attributes of products.
Companies can appeal to environmentally-conscious
consumers by using recycled and recyclable materials,
eliminating hazardous product constituents,
and reducing the impacts of products and services.
enhance the corporate image and brand names.
A solid environmental record can enhance public per-
ception of a company and improve the marketability of
its products and services. Partnerships between envi-
ronment and public affairs departments can result in
creative initiatives that demonstrate the company’s
commitment to both local environmental quality and
global environmental stewardship. Whether through
sponsorship of a local environmental education center
or involvement in activities such as GEMI, external ini-
tiatives enable employees to engage with others on
environmental challenges and show that these issues
are important to company management.
Value in Strategic Direction
Corporate environmental professionals often possess
valuable information and insight which, when present-
ed well and credibly, can in?uence senior manage-
ment’s strategic decision-making. A growing number
of corporate executives are embracing environmental
thinking and initiatives as part of overall business strat-
egy. There are a variety of ways environmental profes-
sionals can in?uence this awareness and affect their
company’s strategic directions:
influence product mix. Documenting the true
environmental costs and risks of certain products can
motivate business leaders to shift resources to more
pro?table and environmentally-benign activities.
Environmental drivers such as consumer preferences
and regulatory incentives can prompt companies to
enter newbusiness areas throughstrategic acquisitions.
monitor and manage strategic issues. Regulatory
initiatives, and public attitudes and public concerns can
alter a corporation's image and long-term ?nancial
performance. Environmental managers can monitor
regional, national, and global trends, alert senior man-
agement when corporate interests might be affected,
and suggest useful responses. Environmental profes-
sionals can engage in ‘scenario planning’ to help the
18
reduce time to market. Getting involved early to
secure permits and address regulatory requirements
can remove obstacles to new product commercializa-
tion and production expansion. Environmental man-
agers can also play a key role in overcoming community
opposition to new facility construction or expansion
by communicating with local residents and addressing
their concerns.
encourage sustainable design in construction.
Companies can lower life-time operating expenses
and environmental impacts of new facilities by incor-
porating environmental considerations into the design
from the outset. Sustainable design techniques such
as recycled and non-toxic building materials, energy
ef?cient lighting and climate control systems, and
native plantings can reduce utility and maintenance
costs, improve working conditions, and productivity.
It can also bene?t the company’s public image.
affect equipment acquisition decisions. Working
with purchasing departments, environmental man-
agers can add energy ef?ciency and pollution preven-
tion criteria to the purchasing decisions for of?ce
equipment, machinery, and vehicle ?eets. These consid-
erations can reduce life-cycle operating costs and
improve a company’s image while protecting the
environment.
Value in Market Growth
Environmental activities can enhance the marketability
of products and services. Consumer demands for envi-
ronmentally-friendly products and environmentally-
responsible corporations are on the rise.
4
These market
pressures are not only felt by consumer prod-
ucts companies. High environmental perfor-
mance standards are increasingly expected
of vendors and suppliers as well. Thus, envi-
ronmental initiatives can:
help secure beneficial supplier relationships.
Corporate environmental professionals can work
with supplier companies to save costs and reduce risk,
and to win supply contracts with other companies
by implementing proactive environmental manage-
ment systems.
4
Jacquelyn A. Ottman,
Green Marketing:
Opportunity for
Innovation, 2nd edition.
Chicago: NTC, 1998.
19
business with long-term strategic planning for market
and product change and development. Trends in tech-
nology, global resources, and environmental issues can
present problems or open up opportunities. Environ-
mental professionals can play a key role in helping their
companies prepare for changing business realities and
seize emerging business opportunities.
redefine and expand markets. As markets and indus-
tries rapidly change, corporate environmental attribut-
es and performance can help secure new markets and
protect existing ones. Strategic decisions to invest in
product redesign to enhance recyclability, for example,
can win market share where new regulations, such as
product take-back, penalize competitors. In this way,
environmental initiatives can spur the innovation that
builds new markets.
modify the business mission. There may be strategic
advantage in modifying the core mission of the
company to include environmental themes. Corporate
focus on themes of sustainability and innovation ‘for
achieving a better world’ can demonstrate commit-
ment to long-term value creation.
Prioritize Activities
No corporate environmental professional has the
time, staff resources, or funds to pursue all potentially
value-creating opportunities in the organization.
To make effective use of limited resources, environmen-
tal managers must focus their efforts and prioritize
environmental activities. Decision-making criteria
typically include: (1) the importance of the project to
business goals; (2) the project scale in terms of cost
and resources required; and (3) the degree of dif?culty
(e.g., complexity of the problem, the amount of political
capital required). This does not mean that only
the easiest and cheapest projects should be done ?rst.
Rather, this process should result in a plan that
balances the potential bene?ts with political and
economic resources needed.
Key Questions
prioritize activities
Which activities offer the greatest potential
bene?ts by strengthening compliance and
adding value to business?
What activities should be continued and
discontinued given limited staff and budget
resources?
Where are the ‘low hanging fruit’ that can be
used to demonstrate progress to management
and stakeholders and to build momentum?
Which are worth picking?
How should resources be allocated among
projects?
What is feasible to accomplish in a given
time frame?
Tips
prioritize activities
Involve key stakeholders. Engaging important
customers of environmental services in the
prioritization process, in addition to environ-
mental staff, can ensure you address their
needs. A well-facilitated planning and prioriti-
zation session can also promote broad owner-
ship and commitment to selected initiatives.
Prioritization by voting. Numerous analytical
techniques exist for prioritizing potential
activities, but do not let analysis lead to
paralysis. Simple voting techniques (based on
individual judgments) can quickly sort out
the most promising activities to undertake.
Dare to start small. Especially in complex
political environments, it may be important
to achieve several small successes to build
credibility and political capital in preparation
for larger, more dif?cult projects later.
21
The value of environmental activities
can be realized through effective implementation of
projects, programs, or systems. Yet, in doing what adds
value, there are several challenges to overcome: (1) get-
ting upper management approval and support; (2)
mobilizing the necessary resources; and (3) building
momentum once the project has been kicked off.
Build the Business Case
It seems that every article on environmental manage-
ment instructs environmental staff to secure senior
management commitment and support for environ-
mental programs. Yet getting that support is not
always easy, nor is it always necessary. Most often, the
need for senior management approval is driven by a
need to secure ?nancial and staff resources. If you can
leverage existing support and resources to get things
done, you may not need special approval from senior
management at the outset. Where this is possible,
management support can be nurtured over time.
Senior business managers have limited time and
attention to divide among multiple, competing issues.
When approval is needed prior to introducing a new
program or project, you need to target your pitch and
2
Do What
Adds Value
22
presentation speci?cally to your management audi-
ence. Upper management is often most interested in
the ?nancial implications of a proposal, so be prepared
to provide an estimate of the project’s costs and
bene?ts to the business. While providing ?nancial data
may seem intimidating early in the process, it is impor-
tant not to get stuck in extensive research and analysis.
Make a credible ‘guesstimate’ of the costs and bene?ts,
using terms that are meaningful to senior managers
(see Chapters 3 and 4 for tips on measuring and
communicating value). Getting approval should not be
a test of your ?nancial skills, but rather an opportunity
for you to present the case for your program to a
key customer.
Mobilize Resources
Many corporate environmental professionals vastly
underestimate the availability of resources to support
environmental activities within their corporations.
They assume that available resources consist only of
the departmental budget and staff who have been
speci?cally assigned environmental job responsibilities.
Successful implementation often demands that
environmental managers identify potential allies with
similar or overlapping interests and use (or piggy back
on) other organizational resources.
There are myriad creative examples of environmen-
tal professionals mobilizing resources. For example,
when environmental managers have integrated envi-
ronmental criteria into new product development
checklists and evaluations, R&D staff take greater
responsibility for identifying potential environmental
hazards of new products or services. Such efforts can
reduce the environmental impacts of design choices,
decrease time to market by ensuring permits and
controls are in place, and shape perceptions of the
environmental departments as valuable providers of
technical assistance.
Corporate audit programs can also offer oppor-
tunities to mobilize and leverage scarce resources.
By promoting facility self-assessments, several corpo-
rate environmental departments have shifted their
focus to providing training and technical assistance.
Cross-training of quality audit staff has leveraged staff
from other departments to supplement corporate
Key Questions
build the business case
Who needs to approve the project? What are
the steps required to gain approval?
What is the appropriate forum in which to
present the project for approval?
How much information and detail should you
provide to make your case?
Tips
build the business case
Benchmark. Other facilities or departments may
have tried similar initiatives. If your company
has not, other companies may have. To ?nd out
who in the industry has implemented similar
programs or projects, read through case studies
in trade journals and attend conferences and
industry association meetings. Useful case stud-
ies can be found in the following environmental
journals: Environmental Quality Management
(John Wiley & Sons), Pollution Prevention Review
(John Wiley & Sons), Corporate Environmental
Management (PRI Publishing), Journal of
Industrial Ecology (MIT Press), and Tomorrow
Magazine. Use their cost/bene?t information as
a starting point for your own estimates.
Be realistic. Credibility is essential to being
taken seriously. Remember that the importance
of environmental initiatives will often be
judged by senior management in relation to
many other corporate initiatives. Do not try to
glorify or overstate the bene?ts of environmen-
tal activities. Earn your support by selling only
what you believe in and what will help achieve
the company’s objectives.
23
Key Questions
mobilize resources
What people, programs, procedures, and tools
are available within the environmental, health,
and safety department?
What people and programs outside of the
environmental, health, and safety department
could be used to support and help deliver
environmental services?
Who can serve as a champion for the project
and represent the key customers in the business
units and other departments?
How can the environmental managers and
business unit representatives work together
to implement the project? What forums could
be used to enhance collaboration among the
different groups?
Tips
mobilize resources
Piggyback on other corporate programs. Within
any corporate organization, there are likely to
be other departmental initiatives that address
similar issues or use tactics similar to the
proposed environmental initiative (e.g., quality
circles and audits, newsletters and Intranet
sites, maintenance programs). Integrating envi-
ronmental activities and ideas with other more
established or accepted programs may increase
the success of implementation.
Build cross-functional teams. Successful integra-
tion of environmental activities into the larger
business organizationdemands cross-functional
teams. As Fisher Scienti?c learned in its pollu-
tion prevention initiatives, the most effective
approach for waste minimization is ‘having a
full spectrum multi-disciplinary team analyzing
the problems.’
5
Such teams can be task
oriented to address a particular problem
such as design for environment or energy
conservation in a particular facility, or they can
be a higher level advisory team to review and
provide direction to your overall program.
Provide incentives for participation. Potential
participants in the project must have reasons
to get involved. The best incentive is to help
solve a problem that they are working on.
Whether the project warrants carrots (e.g.,
recognition such as public announcements,
awards) or sticks (e.g., working with human
resources to create a job requirement, penalties
for non-involvement), make sure you provide
your partners in the business units with ade-
quate justi?cation for working with you. At one
company, the environmental team offered free
lunches for product design engineers to come
and discuss environmental issues.
5
Romm, Lean and Clean
Management, 1994.
24
Tips
build momentum
Don’t bite off more than you can chew.
Implement projects on a manageable scale so
that everyone involved does not end up over-
burdened and frustrated. Pilot initiatives can
lead to interesting discoveries about how the
project will play out over the long term.
Consider using pilot initiatives and incorporat-
ing the pilot feedback into the planning and
implementation of the full project.
Set reasonable goals and expectations. People
like to feel that they are making progress. If the
project proceeds in stages and each stage has
well-de?ned milestones, goals, and expecta-
tions, project participants will feel a sense of
accomplishment when a phase is successfully
completed and will be more motivated to meet
the challenges of the next phase. However, this
does not mean that the project pace needs to
be slow. If a project is too slow or easy, it won’t
be a challenge. The most successful projects
balance the need for challenge with the need
for realistic accomplishment.
Support your champions. Be supportive of the
individuals involved and offer to help. Check
in regularly. Do not assume the project will
run without you. If others think you have lost
interest, they will too.
Celebrate successes, even the small ones.
When things go well, people often forget to
pause and celebrate success. Recognize those
who have contributed using awards, prizes, free
lunches, or even just a pat on the back.
audit teams. These approaches allow the environmen-
tal department to share responsibility for compliance
assurance with facilities, while encouraging
facility staff to pursue their own value-creating
environmental activities.
Build Momentum
Many well-designed programs fail when they do not
receive adequate or sustained attention from key staff.
Start with a bang, but be prepared to back the project
or program launch with continued efforts. Plan and
sequence implementation tasks so that they display
frequent, visible, concrete actions. Once the initial
fanfare has worn off, it is critical to keep the initiative
moving. If the project or program is allowed to languish
and lose momentum, it may be dif?cult to sustain
enthusiasm and effort among all participants.
25
The Coca-Cola Company’s Global Environmental Assurance Department recently
developed a simple yet effective waste minimization program known as ‘Waste$MART.’
While conducting environmental compliance audits at Coca-Cola facilities around the
world, Global Environmental Assurance staff recognized that there were numerous recur-
ring opportunities for reducing waste. The group developed an innovative waste mini-
mization training program that could add value to their manufacturing and anchor
bottling facilities. The collaborative approach used in the Waste$MART program is partic-
ularly important, since many bottling plants are independently owned and not normally
subject to corporate environmental compliance audits.
The four-day waste minimization training program conducted at a host plant
typically involves 20 to 25 participants, representing 5 to 15 production facilities.
The ?rst training day is an all-day awareness seminar on The Coca-Cola Company’s
environmental management system. Participants then spend a half-day going through
useful wastewater, energy, chemical, and solid waste minimization tools and exercises,
such as calculating the true costs of water treatment and use. Finally, participants
work in teams of 4–5 people to analyze waste minimization opportunities in various
production areas of the plant. At the end of the program, the groups present their
?ndings to plant management and make speci?c recommendations for reducing waste,
along with estimates of the resulting cost savings.
The results of the program have an obvious direct bene?t to the plant hosting the
program, plus trainees from other plants take the waste minimization methods and tools
back to their own facilities. Despite less stringent regulatory requirements in many of
the countries in which the Coca-Cola system operates, the program has rapidly grown in
popularity overseas because plants recognize the potential economic and reduced-impact
bene?ts. The program not only identi?es opportunities for reducing waste disposal and
treatment costs, it encourages staff to improve operations ef?ciencies. For example,
preventing syrup from entering the wastewater stream results in more product to sell.
The program also boosts staff morale as it taps participants’ commitment to the
environment and interest in improving plant operations. Costs to participating plants
are minimal —primarily consisting of staff time to attend the training—and are far
outweighed by the direct bene?ts of the program. To date, more than $6 million in
potential savings (around $220K per plant) have been identi?ed.
Case Study
waste
minimization
program:
the coca-cola
company
27
Measuring the value of environmental
initiatives stands as one of the most important, and
most challenging, tasks facing environmental profes-
sionals. The appropriate choice of tools and approaches
depends on what questions are being asked.
Are you measuring the value of an individual
project, the value of the environmental function
or the value of all environment-related activities
in the company?
Are you estimating the value that could be created
from a planned project, or checking to verify that
value has been created from an existing project?
Who is the intended audience for the measurement
information?
Value measurement can be used to verify the out-
comes of environmental activities, providing both
critical feedback for future program improvements
and communicable results to sustain support from
key stakeholders. Several of the project evaluation
tools presented in this chapter are also useful when
planning and prioritizing environmental activities
(the focus of Chapter 1). During the planning phase,
estimates are used to evaluate the likely costs and
bene?ts of going forward, whereas during or following
Check the
Value-Added
3
28
implementation, actual ?gures are used to assess
impacts that the initiative has produced. Financial tools
such as Return on Investment (ROI), Net Present Value
(NPV), and Economic Value Added (EVA), can be used—
with estimated cash ?ows —to help environmental
managers prioritize, select and gain approval for value-
enhancing environmental projects. These tools can
then later be used to analyze the project impact,
quantifying actual costs and bene?ts.
In recent years, environmental cost accounting and
activity-based accounting have generated signi?cant
interest among environmental managers as they move
to gain a better understanding of the bottom line
implications of environmental issues and activities.
What is new for many environmental managers is
tracking non-traditional costs and bene?ts, and
translating these into the universal language of value—
dollars. This chapter offers several strategies for
approaching value measurement.
Successful measurement strategies avoid ‘paralysis
by analysis.’ By tailoring the precision of the value
measurement effort to the importance of the task and
demands of the audience, environmental managers
can ensure that ‘checking’ supports environmental
activities rather than replaces them. Remember the
‘80-20 Rule.’ Eighty percent of the intended result
can often be achieved through twenty percent of the
effort. Striving for perfection typically requires the
additional eighty percent of the effort.
Gather Cost and Bene?t Data
Costs and bene?ts, expressed as cash ?ows, are the
building blocks for measuring the value added by
environmental activities. While this sounds obvious,
costs are not always easy to track and bene?ts are not
always easy to quantify. A recent study
found that the true environment-relat-
ed costs facing ?rms are signi?cantly
underestimated.
6
Types of Costs and Bene?ts
The most commonly tracked costs are those incurred
by environmental departments, programs, and projects.
These direct costs typically include charges for waste
disposal, construction and engineering work, staff
salaries, permits, testing, remediation, training, ?nes,
consultants, information systems, and administrative
costs avoi ded by
savi ng resources, ti me,
and unnecessary
overhead expenses also
provi de the benefi ts
for many proactive
‘ eco-effi ci ency’ activiti es.
overhead. However, these costs often represent only a
small part of the environment-related costs facing the
business.
For many organizations, signi?cant environmental
costs are hidden in many cost centers or buried in over-
head accounts. Although these costs are not under the
control or responsibility of environmental staff, they
represent signi?cant opportunities for savings. Some
companies have seized this opportunity by tracking
utility costs (e.g., energy, water), insurance premiums,
and other environmental costs which do not appear in
the EHS department’s budget. For example, working
with quality assurance departments, several environ-
mental departments have begun tracking the amount
of sub-quality product that is rejected and disposed.
In addition to direct waste disposal costs, there are the
added costs of wasted material inputs and lost sales
opportunities. These companies have found that the
value of improved quality is far greater than the
reduced costs of waste disposal.
Therefore, many environment-related costs—both
within the control of the environmental department
(e.g., compliance activities, emergency response, reme-
6
Michael B. Rynowecer,
Benchmarking
Environmental Management
Practice. Boston: BTI
Consulting Group, 1997.
cost category
Process chemicals
Storage
Disposal
Training
Insurance
Production
Taxes/Fees
Maintenance
labor
Maintenance
materials
Water usage
Electricity usage
data
Usage rates
Unit costs
Total square footage
Costs/square foot
Type and quantity disposed
Unit costs
Number of people
Number of training sessions
Length of training sessions
Hourly labor rates
Type and coverage
Premium
Machine down time
Machine rates
Labor rates
Sewer use tax
Chemical use tax
Water use tax
Volume of taxed items
Hours of labor
Tasks performed
Amount of materials
Costs of materials
Annual usage rate
Cost/gallon or cubic feet
Annual usage rate
Cost/kWh
where found
Production records
Purchase orders
Measurement
Rental contract
Manifests
Invoices
Training records
Wage rate sheet
Capital budgets
Invoices
Production records
Operating budget
Personnel records
Water bills
Environmental records
Water, chemical usage
Records
Maintenance log
Wage rate sheet
Maintenance log
Purchase orders
Flow meters or logs
Town water bills
Equipment speci?cations
Utility bills
who to ask
Foreman
Billing department
Maintenance department
Engineering department
Billing department
Environmental manager
Accounts payable
Environmental manager
Contractor
Personnel department
CFO
Accountant
Accounts payable
Risk manager
Production manager
Finance department
Personnel department
Environmental manager
Accounts payable
Local POTW
Production Manager
Purchasing
Maintenance department
Shop foreman
Maintenance department
Purchasing department
Production manager
Accounts payable
Production manager
Accounts payable
type of costs
Direct
Hidden
Contingent
liability costs
Less tangible
costs
definition
Costs that are directly linked with
a project or process
Costs which may be contained in general overhead
accounts or accounts for other departments of
business units
Those costs associated with liabilities that may
result from choices made and action taken
Impacts which are often qualitative and dif?cult to
quantify using readily available measures
examples
Equipment, materials, labor, utilities
Waste disposal, monitoring,
paperwork, reporting, taxes,
regulatory compliance
Penalties, ?nes, legal fees, settlements
Impacts on corporate or brand image,
community relations, worker morale
7
U.S. EPA,
Introduction to
Environmental
Accounting as a
Business
Management Tool,
1995.
8
Mitchell Kennedy,
‘Critical Issue of Total
Cost Assessment:
Gathering Date for P2,’
Pollution Prevention
Review, Spring 1996.
Type of Costs
7
Where to Find Cost Data
8
29
diation) and outside (e.g., wasted product, inef?cient
resource utilization, product liability)—represent
signi?cant value creation opportunities. This added
value often comes in the form of avoided or reduced
costs. More and more, companies rely on the bene?ts of
avoided costs to justify the direct costs of conducting
environmental regulatory compliance and corporate
audit programs. Bene?ts can result from improvements
in the ef?ciency and effectiveness of compliance activi-
ties, as well as through reductions in ?nes and penal-
ties, and emergency response and clean-up costs. Costs
avoided by saving resources, time, and unnecessary
overhead expenses also provide the bene?ts for many
proactive ‘eco-ef?ciency’ activities. For example, 3m
corporation reports that their Pollution Prevention
Pays program has generated over $790 million in saving
since its inception in 1975.
9
Avoided or
reduced cost calculations compare current
expenditures to a baseline, with the differ-
ence tallied as savings. Baselines can be drawn from
internal (e.g., averages of previous year costs) or exter-
nal (e.g., average costs in a given industry) sources.
Where to Find Conventional and Hidden Cost Data
Since many environment-related costs fall outside
the budgets of the environmental function, signi?cant
effort, creativity and persistence are required to track
down costs and translate them into compatible units
and ?gures. The table on page 29 provides guidance on
?nding cost information in a corporate organization.
Estimating Less Tangible Costs and Bene?ts
One of the biggest challenges is estimating less
tangible costs and bene?ts, such as:
Positive relationships with suppliers or regulators;
Increased product marketability;
New market opportunities spurred by
environmental drivers;
Reduced environmental risk; and
Enhanced corporate image from proactive
environmental initiatives and avoided incidents.
While quantifying these effects is often grounded
on debatable assumptions, the value resulting from
these ‘less tangible’ bene?ts can dwarf other direct or
hidden costs.
30
Tips
gather cost data
Be credible, not exact. In many cases, the exact
number is far less important than the order of
magnitude or the direction of the trend. Be
careful not to get mired in data, searching for
elusive exactness. Sanity check the size of vari-
ous costs and bene?ts to ensure that they seem
correct and credible.
Draw on the homework of others. Often, you
can use company or industry averages, some-
times available from trade associations, for
estimating the costs and bene?ts of environ-
mental activities. For example, one company
estimates that average costs associated with
responding to and cleaning up a spill of diesel
fuel run at about $240 per gallon. Another
company estimated that the average safety
incident cost the company $35,000. They then
used this ?gure for calculating avoided costs
achieved through new safety initiatives.
Acknowledge all costs & bene?ts. Just because
you haven’t measured it, doesn’t mean that
it doesn’t affect value. It is often bene?cial to
acknowledge important bene?ts, even if you
do not provide a quantitative estimate of
its value. Identify the areas where a project or
program can create bene?ts and incur costs.
Brainstorming provides a valuable tool for
quickly identifying the entire range of costs
and bene?ts that can result from a program or
project. This exercise provides a good opportu-
nity to identify the less tangible bene?ts that
may result from a project, such as increased pro-
ductivity or enhancement of corporate image.
9
3M Corporation
World Wide Web site:
www.mmm.com
31
Case Study
payback from
environmental
management
information
systems:
rhône-poulenc, inc.
Source: Jim Dray and James
W. Heptinstall, ‘Justifying
the Cost of EMIS: Piloting Lessons
from Rhône-Poulenc,’
Environmental Quality
Management, Winter 1996.
Rhône-Poulenc, as part of an extensive business reengineering effort, determined
that the health, safety, and environmental (HSE) function needed an information system to
support the communication, tracking, and sharing of HSE knowledge. However, manage-
ment did not approve all of the funds for the system at once. To get more information
about costs and bene?ts and to build a constituency for the system, they chose to ?rst pilot
the system in four plants.
The pilot suite cost less than $500,000 and consisted of modules to manage the following
types of information: incoming material safety data sheets (MSDSs), site documentation,
employee training requirements and history, and employee skills. At the conclusion of the
?rst three months of the pilot, Rhône-Poulenc held a workshop for the pilot users at the
plants and the HSE shared services of?ces. The goals of the session were to: (1) brainstorm
possible areas of savings from the system; (2) quantify the savings associated with each
area; and (3) check the total results for consistency and credibility. In order to quantify
savings, the group used a simple worksheet. For each module, the team identi?ed and
estimated bene?ts in three categories:
Direct Cost Savings: Reduced materials, paper, and copying costs
People/Staff Time: Reduced need for consulting services, administrative and clerical time
Risk: Compliance assurance for mandated training, reduced liability from improved
access to MSDSs, communication of incident information to prevent future incidents
The bene?t totals generated by this exercise doubled the original estimate, so the group
reviewed the total annualized savings estimates for each module and asked:
Are the numbers of users and the frequency of use estimates realistic?
Have we incorporated new costs (e.g., system operating costs) as well as new savings?
What costs are soft vs. hard?
Based on the answers to these questions, the team slightly revised their savings estimates
and agreed to present a simple payback of nine months for the pilot implementation. This
assessment provided senior management with a convincing case to approve moving for-
ward with a full implementation of the environmental management information system
throughout Rhône-Poulenc’s North American facilities.
32
Common Project Financial Evaluation Tools
uses
The payback period is the number of years it takes until the bene?ts
received equal the money invested in a project. Using a payback rule, only
undertake projects that cover their initial investment in a pre-deter-
mined payback period.
Payback Period = Initial Investment / Net Annual Profit
ROI is calculated by dividing the bene?ts received from a project (in a
set time period) by the amount invested in the project. Projects are worth-
while when the ROI is greater than the average rate of return for the
company as a whole.
ROI = Income / Investment
RI is the net operating income that a project is able to earn above a pre-
determined minimum return. RI is calculated by subtracting the
required dollar return on the investment from the income received.
RI = Income – (Required Rate of Return x Investment)
NPV is the present value (PV) of future cash returns of a project. The PV of
future cash ?ows is calculated by discounting them at the appropriate
market interest rate. The PV of future cash ?ows is then subtracted from
the cost of the investment to arrive at NPV. A project adds value if it has a
positive NPV; that is if the present value of future cash ?ows or bene?ts is
greater than the project costs.
NPV = - C
0
+ C
1
+ C
2
+ . . .
(1+r)
1
(1+r)
2
IRR is the rate of discount that makes the NPV equal to zero. Projects
should only be accepted or continued if the IRR is greater than the oppor-
tunity costs of capital (the discount rate).
NPV = - C
0
+ C
1
+ C
2
+ . . . = 0
(1+IRR)
1
(1+IRR)
2
tool
Payback Period
Return on Investment
(ROI)
Residual Income
(RI)
Net Present Value
(NPV)
Internal Rate of Return
(IRR)
There are two main approaches to addressing less
tangible costs and bene?ts. The ?rst approach is quali-
tative assessment of value added, using case studies
and focus groups. Narrative case studies can powerfully
communicate the less tangible attributes of environ-
mental activities, particularly when they involve
partnerships with stakeholder groups. Case studies
and focus groups allow environmental staff and part-
ners to articulate areas where less tangible bene?ts
have resulted. In hearing the stories of environmental
contributions to business objectives, business leaders
can be prompted to assign their own value to
these bene?ts.
Second, several companies have quanti?ed less
tangible value using proxy data and survey tools.
The use of proxy data allows environmental managers
to estimate less tangible costs and bene?ts using
substitute measures. For example, historic short-term
?uctuations in a company’s stock price or sales around
a serious environmental incident or marketing initia-
tive could serve as an approximation of the value of
risk avoidance or environmental marketing initiatives.
Surveys provide useful tools for quantifying the
value of environmental activities. Project evaluation
surveys can be used to measure the degree to which
internal customers (e.g., operations and other company
departments) value the provision of environmental ser-
vices. These survey techniques enable environmental
managers to generate statistics that re?ect value per-
ceptions of their customers, both internal and external.
Surveys can also be used to determine how much
customers and consumers value the environmental
attributes of products and services. For example, kodak
corporation has occasionally included questions in
marketing surveys to assess the degree to which con-
sumers consider environmental criteria and perfor-
mance when purchasing products.
Environmental managers can also question busi-
ness managers about the value that they perceive to be
created by environmental activities. Working
with applied decision analysis, mobil
corporation developed a risk-based cost-
bene?t analysis program to integrate envi-
ronment, health, and safety values into cor-
porate strategy.
10
By asking senior managers
how much they would be willing to pay
for certain outcomes (e.g., reduced risk of
incidents, improved compliance performance), environ-
mental managers can incorporate value perceptions
that are better aligned with the broader business con-
text. In addition to helping to quantify the value of
environmental activities, this approach helps inform
senior managers about the role proactive environmen-
tal activities can play in reducing risk.
Analyze the Value of
Environmental Activities
To measure and communicate the value of environ-
mental activities, corporate environmental professionals
must become familiar with several commonly used
tools for ?nancial analysis.
Project Evaluation Tools
There are several standard ?nancial tools that compa-
nies use for evaluating projects and activities. These
tools are often used to decide whether to go forward
with an individual initiative and are then applied again
to check the results of the project during implementa-
tion. Typically, a project is only approved or continued
and allocated resources if its annual rate of return
exceeds the ?rm’s cost of capital (often referred to as
‘hurdle rate’). The table on page 32 summarizes several
common ?nancial tools for project evaluation.
Becoming familiar with speci?c project evaluation
tools used by the ?nance department and other busi-
ness functions in the corporation enables environmen-
tal managers to adopt techniques that demonstrate
the environmental value to business in a way that res-
onates with business managers. Additional details on
these tools, including several advantages and disadvan-
tages of using each, are presented in the Appendix .
In recent years, corporate pollution prevention and
waste minimization initiatives have relied strongly on
project evaluation techniques for both prioritizing
opportunities and tracking savings. Companies such as
dupont and bristol-myers squibb have initiated
programs to encourage business unit and facility staff
to seek and undertake pollution prevention activities.
Training facility operations personnel in the use of basic
project evaluation techniques allows them to demon-
strate and document the savings and value from
environmental activities. It also leverages non-environ-
mental staff in creating and measuring this value.
10
Presentation by
Daniel Brooks
(Applied Decision
Analysis, Inc.) and
W.E. Jenkins (Mobil
Corporation) at the
IBC Integrating EH&S
into Core Business
Processes Conference,
Washington, DC,
September 8–10, 1997.
33
economic value added
®
(eva
®
) In recent years, several
companies such as the coca-cola company and
georgia-pacific corporation have adopted Econ-
omic Value Added (EVA
®
) as a corporate-wide measure
of the shareholder wealth created (or lost) by the com-
pany during a set time period. EVA
®
can provide a more
accurate perspective on value creation than traditional
measures such as earnings per share and return on
investment. (See the georgia-pacific case study on
page 37.)
34
dupont’s‘SHE Excellence Awards’ Program encour-
ages business unit teams to document and submit
summaries (including cost savings) of pollution
prevention ‘Zero Heroes’ projects for recognition and
awards. dupont calculates that its ‘Zero Heroes’
projects resulted in $550 million in cost savings and
avoided capital expenditures over a three year period
(1994–1996). In 1994, bristol-myers squibb
deployed a Best Practices Sharing Database to capture
and share innovative business processes and practices,
along with their documented savings. In order to be
included, a solution must be innovative, demonstrate
potential ?nancial bene?ts, provide environmental,
health, and safety bene?ts, and be transferable to other
parts of the company. The Lotus Notes
®
database
is network and/or intranet-accessible, and addresses
nineteen business functions, sharing the value of
innovative solutions throughout the company.
bristol-myers squibb estimates that the projects
and practices documented in its Best Practices Sharing
Database have saved the company over $15.7 million.
Program Evaluation Tools
While the above tools are useful for measuring the
value added by individual projects, corporate environ-
mental professionals are often interested in an overall
measure of value contributed by the environmental
function or by environmental activities throughout
the organization. Three methods for analyzing the
overall value of environmental activities are presented
below: the balance sheet approach, the value: cost
ratio approach, and the Economic Value Added
®
(EVA)
®
approach.
balance sheet approach One widely used approach
for measuring EVTB is to aggregate the costs and
bene?ts, or net savings, derived from environmental
activities. These ?gures are presented in a table,
resembling a traditional balance sheet.
value:cost ratio The Value : Cost ratio provides an over-
all metric to summarize the degree to which the envi-
ronmental function covers its costs by adding value to
the business. (See the procter & gamble case study on
page 36.)
Case Study
environmental
financial
statement:
baxter
international
inc.
Source: Baxter International
1997 EHS Performance Report,
Issued 1998.
Environmental Costs
Cost of basic program
Corporate EHS affairs and shared multidivisional costs
Auditors’ and attorneys’ fees
Corporate EHS engineering/facilities engineering
Division/regional/facility EHS professionals and programs
Packaging professionals and programs for packaging reductions
Pollution controls —operations and maintenance
Pollution controls —depreciation
Total costs of basic program
Remediation, waste and other response costs
Attorneys’ fees for cleanup claims, NOVs
Settlements of government claims
Waste disposal
Environmental taxes for packaging
Remediation/cleanup—on-site
Remediation/cleanup—off-site
Total remediation, waste, and other response costs
total environmental costs
Environmental Savings
Income, savings and cost avoidance from 1997 initiatives
Ozone-depleting substances cost reductions
Hazardous wastedisposal cost reductions
Hazardous wastematerial cost reductions
Nonhazardous wastedisposal cost reductions
Nonhazardous wastematerial cost reductions
Recycling income
Energy conservationcost savings
Packaging cost reductions
total 1997 environmental savings
Cost avoidance in 1997 from efforts initiated in prior years back to 1990
total income, savings and cost avoidance in 1997
1.5
0.5
0.6
5.8
0.8
2.6
1.0
12.8
0.1
0.0
3.1
0.3
0.3
0.0
3.8
16.6
1.7
0.0
(0.2)
0.2
2.9
4.6
3.3
1.3
13.8
86.3
Baxter International has pioneered an environmental ?nancial statement
approach to measure the value of environmental activities. An Environmental Financial
Statement is included in their annual EHS performance report which summarizes the
estimated costs and savings (in millions of dollars) of environmental activities worldwide.
35
1997 data
millions usd
100.1
Procter & Gamble (P&G) has used the Value: Cost ratio to show that Health,
Safety, and Environmental (HSE) programs more than doubly pay for themselves. The
costs included in the ratio are: salaries, labor, insurance, and site operations such as
wastewater treatment and land?ll disposal. The values come from a variety of HSE
services:
Pollution prevention. This program examines each site for ways to recycle materials
and eliminate inputs that are not needed. The costs are compared against a base year
to get a savings value.
Design manufacturing waste out. This program aims to eliminate the cost of
product materials thrown away during manufacturing. The cost can be reduced by
redesigning the product development process for waste reduction. Again, the savings
are tracked against a base year and added to the values.
Insurance savings. Because P&G has so many HSE services, it is allowed to self-insure
both its properties and its workers compensation. Self-insurance provides signi?cant
savings over purchasing insurance from outside agencies.
HSE resources. Costs of staf?ng HSE drops as the departments become more ef?cient.
Regulatory reviews. The HSE group watches proposed regulations and works with
regulators so that new regulations are economically feasible. This may prevent a large
impact on operating costs, which is considered another value.
The ratio also helps P&G track improvements. When HSE started comparing three
years ago, the ratio of value to cost was slightly less than 2 to 1. Now it’s slightly more.
HSE can improve the ratio both by reducing costs and by increasing value. Tracking
the ratios demonstrates to corporate leaders how HSE programs contribute to the
bottom line. ‘It justi?es our existence,’ states Robin Tollett, Section Head for Global
Environment at Procter & Gamble.
Case Study
value: cost ratio:
procter & gamble
36
In 1995, Georgia-Paci?c adopted the Economic Value Added model (EVA
®
) as a
company-wide ?nancial performance measurement system. Use of EVA
®
has helped
the Environmental Affairs department align environmental decision making with
overall business strategy. By using EVA
®
, Georgia-Paci?c has not only established a
systematic decision making process from which to evaluate its use of capital, but one
that encourages teamwork within and among departments and fosters creative solu-
tions to business problems.
EVA
®
is the after-tax net operating pro?t minus a charge for debt and equity
capital used to generate that pro?t. Georgia-Paci?c adopted the Stern Stewart EVA
®
model which, in its simpli?ed form, uses the following equation:
In?ows — (Out?ows + Taxes + Cost of Capital) = EVA
®
Where In?ows primarily represent revenues and/or value-added, and Out?ows rep-
resent program costs.
Georgia-Paci?c modi?ed the EVA
®
measurement system to account for departments
that deploy relatively little capital, function in an advisory capacity, or primarily add
value by reducing costs. That meant looking at other areas where EVA
®
might not
be as obvious, including related expenses such as consulting costs, energy savings,
on-time completion of projects, facility permits, and working with customers to add or
retain business based on environmental practices.
For example, EVA
®
techniques were used to measure the value of forming an inter-
nal Consolidated Permitting Group within Environmental Affairs to consult with
mill operations on air permitting issues. Previously, each of Georgia-Paci?c’s pulp
and paper mills hired their own external consultants to assist with complex permit-
ting issues. The Consolidated Permitting Group is very ef?cient and popular with
facilities; it also generated an EVA
®
of $598,000 for Georgia-Paci?c’s Environmental
Affairs department.
Case Study
economic
value-added
®
:
georgia pacific
37
Once measurement and analysis have
clearly demonstrated the value of environmental activi-
ties, the corporate environmental professional needs to
communicate this value to a broader group of stake-
holders, both internal and external to the corporation.
Certainly, communication skills are critical in all steps
of the Plan-Do-Check-Advance cycle, but the Advance
phase often requires the environmental professional to
‘go public’ with environmental success stories to com-
municate challenges and request help. Communication
provides a means to: (1) build momentum and support
for environmental activities; (2) enlist partners in other
departments and business units; and (3) receive feed-
back on the initiatives put forth and the methods used
to support continuous improvement.
There are many stakeholder groups with whom
the environmental manager must communicate
effectively—upper management decision-makers,
many departments and operational functions within
the company, and external interests such as customers,
suppliers, and investors. Each of these groups may
require their own communications strategies. While
the task of communicating effectively with so many
audiences may seem daunting, the environmental
professional stands in a unique position to create
4
Advance and
Communicate
Value
39
40
partnerships across departments and functions.
These partnerships create value by generating solu-
tions to business and environmental problems and
can open up lines of communication for the future.
(See the diagram on pages 40–41.) Drawing on the
experiences of numerous companies, this chapter
provides overall communication strategies, as well as
speci?c methods for communicating with different
stakeholder groups.
Strategies for Effective
Communication
Corporate environmental professionals should consider
the following general techniques in reaching out to
internal and external stakeholder groups.
target your message to your audience. When it
comes to communication, there is never ‘one size ?ts
all.’ By understanding the interests and motivations of
the stakeholders, you can target your message in a way
that compels their attention and action. Emphasize
directed dialogue with your partners, instead of broad-
casting information (e.g. company-wide e-mails).
leverage existing opportunities to communicate.
Even in the most supportive corporate environments,
you cannot expect upper management or operations
staff to have the time to meet with you on a regular
basis. When possible, utilize existing organizational
forums (i.e. safety meetings, quality teams) to commu-
nicate environmental messages instead of setting up
special meetings and conferences focused on EHS.
use a variety of communication methods. Individuals
learn in different ways—through graphics, written
materials, interactive discussions. Since you cannot
possibly know the learning styles of everyone you need
to reach, vary your methods of communication. Ask key
individuals how they would prefer to receive informa-
tion—e-mail, phone calls, newsletters, presentations,
meetings—and how often.
get feedback on your communications strategy.
As you solicit input on environmental programs and
projects, gather feedback on your communication
strategies and how they could be improved. Is your
intended audience receiving and understanding the
message? Are they getting bombarded with informa-
tion? Most companies have professional communica-
tors (public relations, stockholder relations, marketing)
who are often happy to help. Use them for advice.
building partnerships
for value enhancement
Customers
Upper
Management
f
e
e
d
b
a
c
k
v
a
l
u
e
Environmental
Manager
Suppliers
41
Communicating Value to Upper
Management
Upper management (such as the CEO, the CFO, the
Board of Directors, and various Vice Presidents and
Brand Managers) are key decision makers who support
the environmental department and control resources.
When communicating to upper management, it is
particularly important to do your homework. Your core
audience in upper management may be only ?ve to ten
individuals, and they will expect you to be direct and
to the point when you meet with them or write reports
for them. Failure to clearly and credibly articulate
the value of environmental activities can jeopardize
management’s commitment to your efforts.
When communicating with upper management,
resist the temptation to walk them through your logic
and thought processes or the litany of challenges you
face. Provide them with the information needed to
make an educated decision. This does not mean that all
your data needs to be perfect. Top management can
accept ballpark ?gures, provided they are credible. Be
sensitive to the context in which they are working—
challenges they are facing, important initiatives they
are involved with, changes in leadership, and critical
deadlines (i.e. annual meetings, budgets).
Target the message
know where you stand. Does senior management
believe that the environmental function adds value to
the business or are you perceived as the ‘Department
of Production Prevention’? Tailor your message accord-
ing to where you fall on the spectrum of perceived
value. If you lack upper management support, keep a
low pro?le and go to executives only when their
approval is required. As you achieve results and earn
the support of management, adjust your message.
Build a series of success stories and actively engage
senior management in communicating the value of
those efforts throughout the organization and to
external stakeholders.
help solve problems. Put environmental initiatives
in terms of other problems management is trying to
solve. For instance, relating your waste reduction pro-
gram to ‘process optimization’ might get you better
results in an organization focused on process improve-
internal stakeholders
external stakeholders
Investors
Operations
incorporating environmental goals into the corporate
strategic plan, the environmental manager can align
environmental goals with those of the business units
and foster a dialogue with other departments and
functional areas.
publicize your publicity. Make certain that senior
executives are noti?ed of any awards the company
receives for environmental programs. Ask them to
accept an award on your behalf, or ask the awarding
organization to notify and congratulate the CEO. For
example, one environmental department, upon
receiving an award from the National Association for
Environmental Management (NAEM), asked NAEM to
send a letter to their CEO, praising the achievement.The
external recognition bolstered the executive’s interest
in and support for the environmental department.
benchmark against other companies. Make senior
executives aware of environmental strategies and
business value created by other companies. Use bench-
marking to show the areas where you are leading the
industry or where you fall short. One EHS department
developed an environmental software program which
another company wanted to model. The environmental
manager was pleased to share information, but asked
for a letter from the other CEO to her CEO which stated,
‘Our company is committed to improvements in envi-
ronment, health, and safety, and your company has an
excellent tool which would help us achieve our goals.
Would you entertain us visiting your company so that
we could learn the most about this tool?’ This made the
CEO aware that someone external to the organization
valued the work of the environmental department.
use the printed word. Send articles or white
papers on environmental value to business to senior
executives, or write your own articles in the company
newsletter, where an executive might read it. Solicit
quotes from executives for environmental reports,
annual reports, or articles.
use the spoken word. Have executives kick-off
meetings, expressing the importance of the initiative
and its value to the company. This strategy assures
operations of top management’s commitment to the
project and makes certain that the executive is fully
educated regarding the program and its bene?ts.
42
ments. Similarly, you might present the impact of your
accelerated regulatory permitting program as one
aspect of a time to market initiative.
speak in dollars. Senior executives understand the
language of accounting and ?nance, and you should
communicate using their terms. This means presenting
in dollars, not kilowatt-hours or tons of waste.
the five-minute version. Know what you want and be
able to clearly state your needs. Assume your hour-long
presentation to CEO will be cut to ?ve minutes.
show pictures. Senior managers often do not have
time to visit facilities and witness the front line of oper-
ations activities. Showing pictures or slides of good
environmental practices at a site can make the abstract
value of an environmental program tangible to execu-
tives. One department found that by taking pictures of
poor environmental conditions in overseas facilities,
they were able to garner support to improve environ-
mental policies and standards worldwide.
Leverage existing opportunities
Some information is requested by upper management
on a regular basis, through budget requests, quarterly
and annual reports, business plans, and presentations
to the board. Take advantage of these opportunities
to communicate key messages regarding the value of
environmental activities to the business. Often one key
idea, packaged well within a standard presentation,
can catch top management attention.
know and use your allies. As one environmental
manager quipped, ‘it’s not who you know, but what you
know about who you know.’ Know who is supportive of
your efforts, and who needs to be convinced. Provide
your allies in upper management with messages to
convey, whether in meetings or passing in the hallway,
to their colleagues. The environmental department in
one company was able to develop a relationship with
the external affairs department by sharing a ?oor of
the of?ce building. The external affairs department had
the ear of senior management and was able to assist
the environmental managers in communicating with
senior management.
plug into the strategic planning process. Strategic
plans go through the of?ce of the CEO for approval,
making them effective tools for communicating
environmental objectives and opportunities. By
Communicating Value to Operations
Operating departments and facilities are the customers
of environmental services and the partners needed to
effectively integrate environmental activities into busi-
ness processes. Operations is where change happens,
and where the real opportunity to deliver value to busi-
ness lies. Seemingly small changes in work processes
can have a dramatic impact on environmental perfor-
mance and generate signi?cant value for the business.
Target the message
Recognize that operations staff often will be responsible
for implementing much of the environmental program,
and this work may represent an additional burden (e.g.,
waste segregation). Communicate the value of environ-
mental programs in terms of solving operations
problems. For example, emphasize those environmen-
tal activities which have led to process ef?ciency gains,
improved resource utilization, reduced waste costs and
burden, and/or higher quality products. Acknowledge
the added effort that may be required.
move toward a service-oriented approach. View
environmental programs and projects as services to
the business. Prepare a list of the services you provide
each business unit and share the list. You can even
create a matrix to show which programs bene?t which
departments. In this way, you are not defending what
you do, but selling and engaging in a dialogue with
your customers.
convey upper management support. To partner with
you, operations will want to know that the project has
the support of upper management. If you have upper
management commitment, leverage it.
speak in operations language. Each department and
functional area may have its own jargon. You should be
able to roughly translate your message into these lan-
guages. Challenge yourself to learn the new languages
rather than expecting others to understand EHS jargon.
recognize successes. If you rely on partners in the
business units to assist with environmental activities,
you must give them recognition when environmental
objectives are met. They deserve a pat on the back to
feel good about their work and to continue their
efforts. Recognition and rewards spur innovation and
generate additional value for the organization.
To celebrate the environmental success stories in oper-
43
ations, one company hired a free-lance journalist, who
interviewed the heads of the business units and wrote
an article on each business unit’s accomplishments.
Leverage existing opportunities
You will seldom have the opportunity to get operations
managers’ undivided attention: be sure to leverage
existing forums. If you cannot pull staff away from
production activities for meetings, integrate your com-
munication efforts into their normal work context.
get your issues on their agendas. Each business unit
has meetings and business processes into which envi-
ronmental activities can often be integrated. For exam-
ple, environmental items can be included in the agenda
of weekly safety meetings. Environmental questions
can be added to marketing surveys and product devel-
opment checklists.
get their issues on your agendas. Invite managers
from other departments and business units to serve on
the Environmental Council, or to speak at environmen-
tal meetings. One company established a scholarship
program for site personnel to attend the annual
environmental meeting. The applicants had to write
a short essay on why they wanted to attend and the
environmental department paid travel expenses.
establish green teams. Several companies have
involved non-EHS staff in environmental issues by
setting up Green Teams. These teams which are made
up of volunteers from all job levels and departments
can be a valuable resource for communicating environ-
mental messages, as well as for generating ideas
on how to integrate environmental activities into
business processes.
co-opt required training courses. Many successful
environmental managers have been able to work with
human resources to include environmental elements
into ongoing non-EHS training activities. EHS training
which is required by law can also be adapted to include
more general discussions on environment’s value to
business and instructions on how to get involved with
proactive environmental programs in the business units.
use mass marketing. Companies have devised a
variety of channels to reach out to all employees in the
organization. To introduce new employees to environ-
mental initiatives and commitments, environmental
Case Study
risk portfolio
communication:
novartis
corporation
Gaps or
Problems
Minor
gaps
Good
Very
good
Marginal Medium Critical Catastrophic
Individual risks
e
x
i
s
t
i
n
g
r
i
s
k
c
o
n
t
r
o
l
s
potenti al i mpact
I
n
c
r
e
a
s
i
n
g
r
i
s
k
Novartis Corporation developed its Risk Portfolio program to better
integrate awareness of environmental, health, and safety risks into corporate deci-
sion-making. Novartis sites worldwide prepare portfolios of the risks perceived by the
site management team. This process enables environment, health, and safety staff to
work directly with site business managers, fostering communication about important
environmental issues and their relevance to business goals. Each site team begins the
process by identifying hazards and areas of vulnerability, assisted by a tickler list of
hazards. For each identi?ed hazard, a standard risk assessment form is completed.
The risks are then plotted by their ‘potential impact’ (worst case potential) along the
X-axis of a chart. The ‘actual risk control’ is then evaluated, looking at the existing
control measures as well as considering the probability of occurrence. The risk control
is plotted along the Y-axis. (see ?gure below)
Company and worldwide business sector risk portfolios are then made by merging
the highest hazards from each site’s portfolio into a new matrix. The risk portfolio
serves as both a measurement and internal communication tool —providing business
managers at all levels with an overview of risks, as well as an objective basis for dis-
cussing and setting goals and allocating resources for risk reduction. The Risk
Portfolio program offers a powerful mechanism for opening an internal dialogue
about the value of environmental risk reduction activities with business leaders,
while informing environmental professionals about business plans and priorities.
44
In May 1998, Southern Company hosted a forum on ‘Adding Value
to the Corporation’ to highlight the topic of environmental value to business. The goal
of the forum was to bring together environmental and business staff from Southern
Company to initiate a dialogue on the value that environmental activities add to the
corporate bottom-line. Southern Company participants came from senior manage-
ment, including the Chief Financial Of?cer (CFO) and other executive management,
as well as internal operational departments. Southern Company also invited several
state regulatory of?cials and representatives from other companies, with the objective
of discussing mutual expectations and sharing effective practices and tools.
One session, ‘Environmental Toolkit,’ gave time for company representatives to
present their approaches to measuring and communicating environmental value-
added. The response from the forum was overwhelmingly positive. As a follow-up to
the forum, Southern Company has initiated a pilot project, exploring various ways to
express environmental value in traditional ?nancial terms. Environmental profes-
sionals found the forum, and subsequent initiatives, to be effective mechanisms for
increasing communication, understanding, and collaboration between business and
environmental staff.
Case Study
evtb conference:
southern company
45
46
departments have produced short videos that are
shown during new employee orientation. Successful
environmental managers have also published environ-
mental newsletters and bulletins and included lea?ets
in the paycheck envelopes.
Communicating Value
to External Stakeholders
The environmental manager must communicate the
business value of the environmental function to several
external stakeholder groups, including customers,
suppliers, and shareholders. These are diverse groups
with varied motivations and interests. As with opera-
tions and upper management, know where you stand
and adjust your strategies according to the needs and
expectations of your audience.
Customers
Customers buy products and services based on price,
quality, the image of the brand, and in some cases,
the perception that the business is a good corporate
citizen. To effectively communicate the value of your
environmental programs to your customers, utilize
existing departments and resources that are available
in the organization to support consumer relations.
partner with public affairs. Develop alliances with
your company’s public affairs and marketing depart-
ments. These departments are often looking for infor-
mation on company performance and products that
can be communicated inside and outside of the com-
pany. Creating environment-focused employee volun-
teer programs can both improve community relations
and educate volunteers about the value of environ-
mental activities. Public affairs and investor relations
departments can assist environmental professionals
in developing cases studies and articles which recog-
nize environmental programs and achievements.
inform customer service. Provide customer service
representatives with reference materials to answer
environmental-related questions from customers
when they call or write the organization.
make your web site a big hit. Use your company’s
web site to communicate your environmental goals
and success stories. Successful web sites are
graphically interesting, informative (include speci?c
examples, not just vague policy statements), and
are updated regularly.
Suppliers
Increasingly, external stakeholders are concerned not
only with your company’s environmental performance
but the performance of the companies who supply
the raw materials and components for your products
and services. Implementing aggressive environmental
supplier programs can reduce your company’s risks and
liabilities and improve the life cycle environmental per-
formance of your products and services. One consumer
products company found that by convening regular
supplier meetings, they could set group environmental
goals and share best practices on how to achieve them.
As suppliers improve their environmental records
and decrease liabilities, the cost of inputs may also
decrease — creating value for your company. To harvest
these potential bene?ts, you will have to work with the
purchasing department to engage suppliers in your
programs and commitments.
Financial Community
Members of the ?nancial community—including
stock analysts, portfolio managers, investors, insurers,
and lenders—evaluate the performance, pro?tability,
and growth of publicly traded companies to maximize
investment returns. Typically, these groups are
concerned with corporate environmental performance
in cases where there is a signi?cant negative impact
on the company’s earnings per share, such as through
contaminated site remediation, litigation, or
non-compliance penalties. More proactive environ-
mental activities, such as pollution prevention,
eco-ef?ciency and energy ef?ciency, currently receive
limited attention in company valuations. However,
according to a survey of ?nancial analysts, the
in?uence of environmental performance on corporate
?nancial analysis is likely to grow in the
coming decade.
11
Whether environment
becomes a signi?cant factor in compa-
ny analysis depends largely on whether
companies can demonstrate the impor-
tance of environmental activities to
their future performance, pro?tability,
and growth.
Numbers alone, however, do not always tell the
story. While ?nancial analysts depend on quantitative
factors (e.g., earnings, costs, return on equity) to assess
future growth and pro?tability, qualitative factors also
11
Linda Descano and
Bradford S. Gentry,
‘How to
Communicate
Environmental
Performance to the
Capital Markets,’
CMA News
(April 1998) p. 35.
weigh heavily in ?nancial decisions. Corporate reputa-
tion, business strategy, quality of management, and
brand loyalty sway many decisions in the ?nancial com-
munity. Proactive environmental activities, coupled
with documented results, case studies and examples,
can provide excellent stories—evidence that these larg-
er qualitative factors are a core (and practiced) part of
the company’s fundamentals. For many ?nancial ana-
lysts, the salient fact is not that a company saved $50
million through a pollution prevention program. Rather,
the value is that the company has a program that will:
(1) reduce future pollution and waste treatment costs;
(2) continually seek improvements in process ef?cien-
cies; and (3) safeguard against future risk and liabilities.
Even though environmental professionals rarely have
an occasion to communicate directly with members of
the ?nancial community, they can affect the availability
and credibility of environmental stories.
provide executives with your story. CFOs and other
executives responsible for investor relations infre-
quently discuss the business rationale for and impact
of corporate environmental activities with stock
analysts, portfolio managers, and shareholders.
Environmental professionals can provide executives
with information they need to present a consistent and
credible story regarding environmental initiatives.
All senior managers, whether in ?nance, legal, opera-
tions, marketing, or R&D, should be versed in how the
company’s environmental strategy and initiatives
reduce risks and create competitive advantage. Avoid
‘greenwash’—environmental claims must be credible,
or your message and reputation will be discounted.
prepare executives for shareholder meetings. For
shareholder meetings, provide the CEO and CFO with
talking points on environmental objectives, initiatives,
and performance. Even if the executives choose not to
proactively address environmental issues at sharehold-
er meetings, they will be prepared to address any ques-
tions or shareholders initiatives. For example, at one
company’s annual shareholder meeting, an initiative
based on the CERES principles was put to a vote.
Although the initiative was defeated, the CEO took the
opportunity to reinforce the company’s environmental
commitment. Environmental professionals can further
in?uence investor relations by publishing annual envi-
ronmental reports, including environmental informa-
47
tion in corporate annual reports, or by supplying
investor relations or external affairs department staff
with environmental ‘talking points.’
leverage information disclosure. Through the
Internet, information on corporate environmental
performance is available to the public, allowing
unprecedented access and analysis. Government agen-
cies, such as the U.S. EPA, have taken signi?cant steps
to disclose corporate environmental data electronically.
Numerous environmental organizations have launched
web-based ratings of corporate environmental
performance. Several non-governmental organizations
evaluate corporate environmental performance
speci?cally for use by investors and ?nancial analysts.
By monitoring these sources, an environmental
manager can be better prepared to: (1) correct errors
in disclosures; (2) use disclosures to win support or
leverage action within the company; and (3) provide
sources with better data about the outcomes and
value of environmental initiatives.
get involved in the debate. Many ?nancial and corpo-
rate managers perceive environment as a non-?nancial
issue. While several initiatives have recently been
launched to highlight and explore ways in which envi-
ronmental activities add value to business, discussion
of the links between environmental and ?nancial per-
formance are only beginning. Conferences and studies
sponsored by GEMI, the Aspen Institute, the EPA Green
Markets Committee, among others, are beginning to
focus attention on these issues. By engaging in such
initiatives, environmental professionals can broaden
the debate. Write articles and op-eds for magazines,
newspapers, and journals that reach the ?nancial com-
munity. Speak to students at a local business school
regarding the links between corporate environmental
performance and ?nancial performance.
plug back into the business. At the core of ‘advancing’
the topic of environment value to business—and more
importantly, environmental initiatives within the orga-
nization—is communication. What communication
does for us is plug us into the business, creating part-
ners within and external to our organizations who
understand our business needs, our stakeholders’
needs, and how to help us address those needs. This is
our link back to Chapter 1 and another pass along the
Plan-Do-Check-Advance cycle.
Changing business realities are shifting the
focus of environmental departments from managing
consequences to managing resources. Focusing on the
business value of environmental management systems
has become a high priority for environmental profes-
sionals. But how much do environmental activities
actually contribute to the bottom line? Historically,
most executives believed that environmental activities
had little bearing on corporate ?nancial performance,
except in higher-risk industries. There are signs,
however, that attitudes are shifting. Executives from
leader companies are increasingly speaking out about
the operational and strategic value of environmental
activities. As Vernon R. Loucks Jr., Chairman and CEO
of Baxter International Inc., states:
‘At Baxter, we’ve found that corporate environmental
programs, as well as those in the health and safety
area, produce important ?nancial bene?ts. Our experi-
ence makes a powerful bottom-line argument for
EHS-responsible corporate behavior that should appeal
even to companies that haven’t yet made EHS issues
a priority. For example, Baxter’s environ-
mental initiatives over the past seven
years yielded more than $100
million in savings.’
12
While many companies have documented the direct
bene?ts of corporate environmental activities, the
question remains: Do these bene?ts ultimately result
in improved pro?ts and higher stock prices? The link to
48
Conclusion
reduced operating costs has been demonstrated many
times. However, there has been limited analysis to
evaluate the link between corporate environmental
performance and improvements in ?rm sales, earnings,
competitive position, investment risk pro?le, or market
value. A few recent studies suggest a positive correla-
tion between environmental performance and ?nan-
cial performance. In a survey of 300 of the largest
public companies, an ICF Kaiser study found that those
?rms that improve their environmental management
systems and environmental out-
comes experienced an increase in
their stock price by as much as ?ve
percent.
13
Another study found that a
diversi?ed portfolio of eco-ef?cient
companies can be expected on aver-
age to outperform less ef?cient com-
petitors between 240 and 290 basis
points per annum.
14
Environmental performance
can contribute to corporate pro?ts
in the following areas: (1) compliance;
(2) operations; (3) risk management;
(4) marketing; (5) capital investments;
(6) strategic direction
(See Chapter 1.) The primary ways that corporate
environmental activities impact stock prices are by
reducing the risk of the ?rm and enhancing brand
value. Risk is a critical factor for investors making
12
Baxter International Inc.
Annual Environmental,
Health & Safety
Performance Report, 1997.
13
Stanley J. Feldman, Peter
A. Soyka, and Paul Ameer,
Does Improving a
Firm’s Environmental
Management System
and Environmental
Performance Result in
a Higher Stock Price?
ICF Kaiser International:
November 1996.
14
Mathew J. Kiernan
and Jonathan Levinson,
‘Environment Drives
Financial Performance: The
Jury is In.’ Environmental
Quality Management
(Winter 1997).
investment decisions. Some ?nancial professionals also
believe that proactive environmental management
provides a leading indicator of good general manage-
ment practices within a company. Firms that systemati-
cally seek to optimize resource ef?ciency and minimize
wastes often integrate environmental activities
into core business processes and focus on continuous
improvement—factors essential to long-term innova-
tion and value creation. Despite increased recognition
of environmental contributions to ?nancial
performance, (according to a recent United Nations
Development Program (UNDP) study), there remains
a ‘green wall on Wall Street.’
15
Many
stock analysts still do not consider
environmental performance an
important factor in determining the value of a corpora-
tion. This may be due to the fact that analysts rely on
information from annual reports and corporate of?cers
which rarely reveal much about environmental
initiatives. At the same time, corporate CEOs and CFOs
believe they are effectively communicating their
commitment to the environment and their environ-
mental success stories.
One reason for this disconnect may be that most
corporate environmental communication is directed
towards stakeholders such as environmental groups,
plant communities, regulators, and customers, and are
not written in a language that analysts ?nd useful or
even understand.
The continuing debate among corporate executives
and Wall Street analysts emphasizes the need for envi-
ronmental managers to measure the contributions
of environmental activities to the bottom-line of their
companies and to effectively communicate the connec-
tion. The role of the corporate environmental profes-
sional is changing from that of technical specialist
to cross-functional consultant, process optimizer, and
business problem-solver. By integrating the ideas and
tips contained in this primer into corporate environ-
mental management systems, environmental man-
agers can better realize and communicate environ-
ment’s value to business.
49
15
Ann Thayer, ‘Green Wall
on Wall Street.’ C&EN,
4 May 1998, p. 31.
Appendix:
Financial Tools
The following ?nancial tools are useful in
planning, analyzing and communicating the
economic value of environmental projects.
payback period
The payback period of a project is the number
of years (or months) until the bene?ts you
receive from a project cover the money you
have invested. If you apply the payback rule to
investment decisions, you will undertake only
projects which cover their initial investment
within some pre-determined period.
Advantages
Simple to calculate, allowing managers to
quickly conduct preliminary evaluations or
triage projects. Payback is often useful for the
myriad of minor investment decisions man-
agers face.
Easy device for communicating investment
projects. Managers can casually discuss ‘quick
payback’ projects.
Assists in managerial control. Senior manage-
ment will know within a period of a few years
if a manager calculated the payback period
correctly and made the correct decision to go
forward with a project.
Disadvantages
Managers must make an arbitrary decision as
to what is an acceptable payback period. If a
company uses the same cutoff date regardless
of project life, it will tend to accept too many
short lived projects and too few long ones.
Cash ?ows are not typically discounted,
so the time value of money is not taken into
account. In addition, all possible cash ?ows
after the payback period are not included in
the calculation.
For projects where managerial control is less
important and making the right investment
decision is very important, you should consider
using more accurate ?nancial tools such as net
present value.
return on investment (roi)
Return on Investment (roi) compares how
much you invest in a project today with the
bene?ts that you will see in the future from
the project. It is calculated by dividing an
accounting measure of income by an account-
ing measure of investment. This ratio should
then be compared against the rate of return for
the company as a whole or against some exter-
nal yardstick.
ROI = income/investment
Some ?rms use operating income in the
numerator, others use net income. Some esti-
mate total assets for the denominator, others
measure total assets minus liabilities.
Advantages
Combines all components of pro?tability
(revenues, costs, and capital investments) into
a single number.
Can be compared with the rate of return on
other potential projects elsewhere (both inside
and outside the organization).
Disadvantages
Covers only a speci?c time period. May not
account for large cash ?ows in the longer term.
Considers only the average return
on investment and ignores the time value
of money.
Emphasizes short-run performance rather than
long-term pro?tability. To maintain a high ROI,
managers may reject otherwise pro?table
investment opportunities.
residual income (ri)
Residual Income is the net operating income
that a project is able to earn above a
pre-determined minimum return. RI is calculat-
ed by subtracting the required dollar return
on the investment from the income received.
RI = income – (required rate of return x
investment)
Advantages
Easy to compute, and often leads to the same
conclusions as Economic Value Added (EVA)
techniques.
Encourages managers to make pro?table
investments which may be rejected when
using the ROI formula. Using RI, you could
justify a project that has a return greater than
the minimum required, since it will add value
to the organization as a whole.
Managers focus on maximizing a dollar
amount rather than a percentage (as in ROI).
Disadvantages
The cash ?ows are not discounted, so the time
value of money is not taken into account.
net present value (npv)
Net Present Value (NPV) is the present value of
future cash returns of a project, discounted at
the appropriate market interest rate, minus the
present value of the cost of the investment. An
investment is worth making if it has a positive
NPV. If an investment’s NPV is negative, it
should be rejected.
NPV = -C
0
+ C
1
+ C
2
+ . . .
(1 + r)
1
(1 + r)
2
where C is the cash ?ows (costs – bene?ts) in
each year and r is the discount rate.
Advantages
NPV incorporates all the cash ?ows of a project
(other approaches, such as payback period,
ignore cash ?ows beyond a particular date).
A dollar today is worth more than a dollar
tomorrow. NPV re?ects the time value of
money and discounts the cash ?ows properly.
The discount rate (r) can be adjusted to
re?ect risk.
Disadvantages
Involves more sophisticated calculations and
analysis.
Is more dif?cult to effectively communicate.
Managers must make arbitrary decisions about
the true opportunity costs of capital to employ
(i.e. discount rates).
internal rate of return (irr)
The Internal Rate of Return (IRR) is an impor-
tant alternative to NPV. IRR is the rate of
discount which makes the Net Present Value
(NPV) equal zero. Projects should be accepted
if the IRR is greater than the opportunity costs
of capital (the discount rate).
NPV = C
0
+ C
1
+ C
2
+ . . . = 0
(1 + IRR)
1
(1 + IRR)
2
where C is the cash ?ows (costs – bene?ts)
in each year.
Advantages
The IRR number is intrinsic to the project
and does not depend on anything except the
cash ?ows.
Disadvantages
Involves more sophisticated calculations and
analysis.
Is more dif?cult to effectively communicate.
If a project has cash in?ows followed by one
more or out?ows, the IRR decision rule
changes: managers should accept projects if
the IRR is below the discount rate.
Some projects have a number of changes of
sign in cash ?ows over time. If this is the case,
there will be multiple internal rates of return,
and NPV must be used instead.
50
Resources
Introduction
Global Environmental Management Initiative
(GEMI). Total Quality Environmental
Management: The Primer. Washington, DC:
GEMI, 1993.
Chapter 1 Planning
Elkington, John. Cannibals With Forks: The Triple
Bottom Line of 21st Century Business. Oxford:
Capstone Publishing Limited, 1997.
Naimon, Jonathan, Karen Shastri, and Mark
Sten. ‘Do Environmental Management
Programs Improve Environmental Performance
Trends?’ A Study of Standard and Poors 500
Companies. Environmental Quality
Management. Autumn 1997.
Ottman, Jacquelyn A. Green Marketing:
Opportunity for Innovation, 2nd edition.
Chicago: NTC, 1998.
Pojasek, Robert B. ‘Selecting P2 Opportunities.’
Pollution Prevention Review. Spring 1998.
Pojasek, Robert B. ‘Understanding a Process
with Process Mapping.’ Pollution Prevention
Review. Summer 1997.
Romm, Joseph J. Lean and Clean Management:
How to Boost Pro?ts and Productivity by
Reducing Pollution. New York: Kodansha
International, 1994.
Chapter 2 Doing
Brown, Howard and Timothy Larson. ‘Making
Business Integration Work: A Survival Strategy
for EHS Managers.’ Environmental Quality
Management. Spring 1998.
Chapter 3 Checking
Aldrich, James R. ‘Estimating the Real Rate of
Return on Potential P2 Investments.’ Pollution
Prevention Review. Winter 1998.
Bailey, Paul E. ‘Full Cost Accounting for Life
Cycle Costs.’ Environmental Finance. Spring
1991. pps. 13–29.
Bailey, Paul E. and Joseph G. Karam. ‘Expressing
Environmental Liabilities in Dollars and Cents:
What Corporations Can Do Now.’
Environmental Finance. Winter 1991/92.
Bailey, Paul E. and Peter A Soyka. ‘Environmental
Accounting—Making It Work for Your
Company.’ Total Quality Environmental
Management. Vol. 5, No. 4 Summer 1996.
pps. 13–30.
Brealey, Richard and Stewart Myers. Principles
of Corporate Finance. 2nd Edition. Singapore:
McGraw-Hill Book Company, 1984.
Brooks, Daniel. ‘Risk-Based Decision Making:
Integrating Risk Management into Business
Planning.’ Applied Decision Analysis, Inc.
Cairncross, Frances. ‘Cost and Bene?ts’ and
‘Making Polluters Pay,’ in Costing the Earth.
Cambridge: Harvard Business School Press,
1992. pps. 43–62 and 89–109.
Ditz, Daryl, Janet Ranganathan, and R. Darryl
Banks, eds. Green Ledgers: Case Studies in
Corporate Environmental Accounting. Wash-
ington: World Resources Institute, 1995.
Dray, Jim and James W. Heptinstall. ‘Justifying
the Cost of EMIS: Piloting Lessons from Rhône-
Poulenc.’ Environmental Quality Management.
Winter 1996. pps. 73–76.
GEMI.Benchmarking: The Primer Benchmarking
for Continuous Environmental
Improvement.Washington: GEMI, 1994.
GEMI. Finding Cost-Effective Pollution
Prevention Initiatives: Incorporating
Environmental Costs into Business Decision
Making. Washington: GEMI, 1994.
Kennedy, Mitchell. ‘Critical Issues of Total Cost
Assessment: Gathering Environmental Data for
P2.’ Pollution Prevention Review. Spring 1998.
McLaughlin, Susan and Holly Elwood.
‘Environmental Accounting and EMSs.’
Pollution Prevention Review. Spring 1996.
Schene, Michael G. and James T. Salmon.
‘Applying Outcome Evaluation and Measures to
Environmental Management Programs.’
Environmental Quality Management.
Summer 1997.
Spiro, Herbert T. Finance for the Non-Financial
Manager. 4th Edition. New York: John Wiley &
Sons, 1996.
U.S. Environmental Protection Agency. Of?ce
of Pollution Prevention and Toxics. Introduction
to Environmental Accounting as a Business
Management Tool: Key Concepts and Terms.
Washington: U.S. Environmental Protection
Agency, 1995.
Chapter 4 Advancing
Birchard, Bill. ‘Making Environmental Reports
Relevant.’ CFO. June 1996. pps. 79–80.
Hamilton, James T. ‘Pollution as News: Media
and Stock Market Reactions to the Toxic
Release Inventory Data.’ Journal of
Environmental Economics and Management.
Vol 28, 1995. pps. 98–113.
Hunter, David. ‘News to Some.’ Chemical. 25
March 1998. p. 5.
Thayer, Ann. ‘Green Wall on Wall Street.’ C&EN
4 May 1998. p. 31.
United Nations Development Programme
(UNDP) working paper, ‘Valuing the
Environment: How Fortune 500 CFOs &
Analysts Measure Corporate Performance.’
United Nations Environment Programme
(UNEP) and SustainAbility. Engaging
Stakeholders 1998: The CEO Agenda. 1998
Conclusion
Clough, R. ‘Impact of an Environmental Screen
on Portfolio Performance: A Comparative
Analysis of S&P 500 Stock Returns,’ Duke
University, 1997.
Cohen, Mark A., Scott A. Fenn, and Jonathan S.
Naimon. ‘Environmental and Financial
Performance: Are They Related?’ Washington,
DC: Investor Responsibility Research Center
Environmental Information Service, 1995.
Feldman, Stanley J. ‘Does Improving a Firm’s
Environmental Management System and
Environmental Performance Result in a Higher
Stock Price?’ ICF Kaiser International, Inc., 1996.
Hart, Stuart L. and G. Ahuja, ‘Does It Pay to Be
Green?’ Corporate Environmental Strategy. Troy:
PRI Publishing, New York, 1996.
Hart, S.L. and G. Ahuja. ‘An Empirical
Examination of the Relationship Between
Pollution Prevention and Firm Performance,’
University of Michigan, School of Business
Administration, September 1994.
Kiernan, Matthew J. and Jonathan Levinson.
‘Environmental Drives Financial Performance:
The Jury Is In.’ Environmental Quality Review.
Winter 1997.
Klassen, Robert D. and Curtis P. McLaughlin.
‘The Impact of Environmental Management
on Firm Performance.’ Management Science.
Vol. 42, No. 8, August 1996. pps. 1199–1214.
Porter, Michael E. and Claas van der Linde.
‘Green and Competitive: Ending the Stalemate.’
Harvard Business Review. September-October
1996. pps. 120–134.
U.S. Environmental Protection Agency.
Environmentally Screened Index Investing.
Washington: U.S. Environmental Protection
Agency, November 1996.
Walley, Noah and Bradley Whitehead. ‘It’s Not
Easy Being Green.’ Harvard Business Review.
May–June 1994. pps. 424–429.
White, M.A. ‘Corporate Environmental
Performance and Shareholder Value,’ University
of Virginia, McIntire School of Commerce,
November 1995.
51
General
Aldrich, James. Pollution Prevention Economics:
Financial Impacts on Business and Industry. New
York: McGraw-Hill, 1996.
Allenby, B.R., and D.J. Richards, eds. The Greening
of Industrial Ecosystems. Washington: National
Academy Press, 1994.
Bowman, E.H. and M. Haire. ‘A Strategic Posture
Toward Corporate Social Responsibility.’
California Management Review. Vol. 18, No. 2,
1975. pps. 49–58.
Christie, Ian and Heather Rolfe. Cleaner
Production in Industry: Integrating Business
Goals and Environmental Management.
London: Policy Studies Institute, 1995.
DeSimone, Livio D. and Frank Popoff. Eco-
ef?ciency: the Business Link to Sustainable
Development. Cambridge: MIT Press, 1997.
Esty, Daniel and Michael E. Porter. ‘Industrial
Ecology and Competitiveness: Strategic
Implications for the Firm.’ Journal of Industrial
Ecology. Vol. 2, No. 1, 1998. pps. 35–44.
Frankel, Carl. In Earth’s Company: Business,
Environment, and the Challenge of
Sustainability. Vancouver: New Society
Publishers, 1998.
Hawken, Paul. The Ecology of Commerce:
A Declaration of Sustainability. New York:
Harper Collins Publishers, 1993.
Knight, C. Foster. ‘Pollution Prevention,
Technology Challenges and Competitive
Advantage in the Process Industries.’ Total
Quality Environmental Management. Autumn
1995. pps. 87–92.
Lawrence, Brian. ‘ISO 14001—The New
Environmental Management Paradigm.’
Environmental Technology. March/April 1997.
Mannion, Richard F. ‘Enhancing Corporate
Performance Through Quality-Driven Pollution
Prevention.’ National Productivity Review.
Winter 1996. pps. 25–32.
Marcus, Phillip and John T. Willig, editors.
Moving Ahead with ISO 14001: Improving
Environmental Management and Advancing
Sustainable Development. New York: John
Wiley & Sons, Inc. 1997.
Marcus, Philip A. ‘Using EH&S Management
Systems to Improve Corporate Pro?ts.’
Environmental Quality Management.
Winter 1996.
Miller, William H. ‘Making Pollution Prevention
Pay.’ Industry Week. No. 10, May 20, 1996.
Polonsky, Michael Jay and Alma T. Mintu-
Wimsatt, eds. Environmental Marketing:
Strategies, Practice, Theory, and Research.
New York: Haworth Press, 1995.
Porter, Michael E. ‘America’s Green Strategy.’
Scienti?c American. April 1995. p. 168.
Porter, Michael E. ‘Green Competitiveness.’
Scienti?c American. 1991. p. 351.
Schmidheiny, Stephan, with the Business
Council for Sustainable Development.
Changing Course: A Global Business Perspective
on Development and the Environment.
Cambridge: MIT Press, 1992.
Schmidheiny, Stephan and Frederico Zorraquin.
Financing Change: the Financial Community,
Eco-ef?ciency, and Sustainable Development.
Cambridge: MIT Press, 1996.
Willums, Jan-Olaf. The Sustainable Business
Challenge: A Brie?ng for Tomorrow’s Business
Leaders. Shef?eld: Greenleaf Publishing, 1998.
Young, P.J. ‘Environmental In?uences on
Company Valuations.’ Journal of the Chartered
Institute of Water and Environmental
Management. Vol. 10, No. 1, February 1996.
pps. 41–46.
52
818 Connecticut Avenue, NW, Second Floor
Washington, D.C. 20006
phone: 202-296-7449•fax: 202-296-7442
e-mail: [email protected]
website: www.gemi.org
printed on recycled paper
Trademark of American Soybean Association
TM
doc_468168546.pdf