Interview on Sustainability in the Retail Sector

I was recently interviewed by Steve Rowen, Senior Analyst at Retail Systems Research (RSR), regarding sustainability drivers, trends, strategies, & technologies in retail. RSR is a market research firm who focus solely on business challenges and technology strategies for the retail sector.

Key topics covered: market drivers in the sector today, such as customer demand, private label growth, and green branding; strategies for this sector, including gaining visibility on an enterprise’s carbon footprint, developing & leveraging new data sources and integrating for reporting & optimization; and future trends (such as leveraging life cycle assessments for green product design).The link for the article is here. Read more!

Will Crisis Management drive Sustainability Adoption? (also published on TriplePundit.com)

(This post was also published on TriplePundit.com)

Recent conversations with sustainability execs, including those in the product - centric industries (CPG, discrete mfg) and in technology firms, have centered around adoption of internal sustainability programs (that is: executive sponsorship and enactment of internal initiatives to create a sustainable organization and business model).

A central issue comes up: how to convince executives that sustainability programs are critical to the welfare, brand, and growth of their company?

As in any nascent market or as part of a new management trend, there are always 'thought leader' executives that 'get it' quickly; in this case: they understand the sustainability value proposition for their company, and more importantly, may articulate the specific programs and initiatives that need to be executed to acheive success.

But many execs are viewing sustainablity with a jaundiced eye; it may appear to be 'one more corporate exercise' as one exec told me. And many view sustainability as an additional layer of compliance (more on this in a future post).

This is not to denigrate or judge those executives who don't get it; the incentives for most of these people are ones that you would expect:

- Increase profitability
- Find and develop new product and services lines, or expand to new markets
- Attract and retain the best talent
- And, keep the company out of trouble (i.e. regulatory compliance, product liability mgt, maintain positive press and brand image, etc)

So what may drive sustainability adoption broadly throughout various sectors, beyond that of the 'thought leaders'?

Perhaps the lessons of the environmental regulations wave in the 1970 - 1980's are applicable; when corporations were hit with a multitude of regulations, such as hazardous waste rememdiation, toxics management, and clean air and water requirements.

I worked with corporate environmental officers in the leading process, discrete, and energy companies in that time period, and I was frustrated when I tried to advance proactive strategic environmental risk programs. The value proposition was simply: it pays to stay out of trouble by investing in such a program on an enterprise level.

This sales approach was not extremely successful.

Clients would listen and adopt strategic programs after a crisis hit; a spill or leak of hazardous materials, or evidence of disposal at a Superfund site, for examples. It is hard to invest in the future, especially for events that have not been experienced.

The driving force of adoption of more proactive, strategic environmental risk managment programs was 'crisis management': some companies found themselves in significant risk, in terms of past environmental management practices (or legacies'), with associated regulatory, cost, legal, and negative public image issues as a result. When viewed in this light, proactive strategies (such as sustainability) that encompass processes, people, and products, look like very good investments after all.

When we view sustainability program adoption today, there are certainly those companies who are visible due to their proactive approach (think Walmart), but: we are also drawn to environmental and health crisis's that have occurred; the Mattel issue with it's suppliers was a highly visible example of the need for a corporate sustainability program (or at least a sustainability initiative for the supply chain).

I would advance the idea that in the near term, the vast majority of corporations (i.e. those that are not 'thought leaders', and are in the population within 2 standard deviations of the bell shape curve of their sector) will not adopt sustainability programs unless faced with a crisis; either their own or one from a competitor or well known company. The crisis may not be a major one, but could be big enough to cause negative impacts on brand, customers or employees. They could be: product returns, worker health & safety, past environmental liabilities, losing key talent to competitors, or have a supplier face the same issues.

I don't think this adoption driver will continue on indefinitely, but given the lagging economy and business investment in key sectors (construction, manufacturing), many companies may defer on moving forward with enterprise level programs. When the economy turns around, adoption will probably hit some level of inflection point in the near future (2 years), where sustainability programs will not be a 'nice to have', but will be necessary to compete. But I do not think we are there yet. Read more!

Some thoughts on sustainability in the supply chain

As the sustainability technology market develops, it appears that there are a number of segments within (such as CSR reporting, supply chain mgt, etc) that are gaining traction, and may 'drive' general adoption of sustainability within organizations. I find it interesting that there are a number of different tech firms such as Aravo, Stakeware, CSRware, Credit360 and many others, that are coming at sustainability from different business processes. The recent Forrester report on sustainability technology (which I commented on in this post) details the general groups as well, but does not identify supply chain solutions as a specific segment. I think this may be an area that could drive faster adoption, and also be a platform that could integrate with other sustainability processes & metrics as they were developed in an organization.

Initiatives to ‘green’ the supply chain generally follow these key metrics:

• Lower energy use and increase energy efficiency in storage and transportation
• Minimize packaging via improved product design and use of recycleable materials
• Lower carbon footprint and emissions via improved energy (above), use of alternative energy sources (where appropriate)
• Substitution or elimination of toxic materials when possible
• Effecient use of resources; i.e. "embedded water" costs
• Optimize the supply chain as to minimize impacts on stakeholders

The market drivers for greening are:

• Product - specific compliance, such as REACH
• Sustainability reporting
• GHG emission reductions and credits
• Improved risk management (in light of recent supply chain incidents with Mattel, others)
• Cost savings of shippers / suppliers; leading to better value pricing
• Stronger relationships & transparency with key suppliers; strategic value

In discussions with many supply chain management solution providers, it appears that many end user clients are deploying 'green' solutions in the supply chain to achieve better energy efficiency, because it is the most visible and generally the easiest issue to solve with key suppliers and logistics partners. But it remains to be seen whether that issue will continue to drive the growth of this segment. There is a general feeling that any additional 'incidents' with global brands will increase awareness and urgency on the part of corporations to gain complete transparency in their supply chains and manage them beyond just energy efficiency gains. Along those lines, continued regulation enactment similar to REACH and RoHS in the EU will also force companies to align their supply chain (and product management) processes so as to be in compliance with product - centric regulations.

Read more!

Use of Life Cycle Assessments (LCA) in Sustainability Programs

Recently read a blog post on TriplePundit by ClimateCheck, regarding the development of ISO 14064, which covers the measurement and reduction of GHG emissions.

A comment in the article (link is here) caught my eye:

"One of the challenges is the use of an “approved or standardized” approach to quantifying the carbon credits created by new technologies. There are many approaches being used, ranging from in-house engineering calculations to full life cycle analyses (LCA) and computer models"

It made me think about the 'state of the art' of LCAs...(yes, I know: I may lead a very lonely life)......anyway, I do think that LCAs can be a very powerful tool to identify, measure, and manage GHG emissions, as well as do the same for other important 'sustainability' metrics such as: resource consumption (i.e. water); toxics use and emissions, and of course carbon footprinting.

LCAs have been around for quite a while; I developed (rudimentary) tools for environmental management problems in the 80s and 90s; focusing on chemical disposal / recycling challenges. Product Stewardship and 'Responsible Care' were the primary drivers of this market at this time; both programs were developed by the chemical industry in response to potential strict regulations in the aftermath of catastrophic environmental incidents (Bhopal, West Virginia chemical releases). But these programs did not really look at impacts in production; they focused more on the impacts after the sale.

Currently, qualitative LCAs are in use ("LCA Lite" is a term a peer of mine in the manufacturing consulting industry has used). These are quite useful for strategic planning, prioritization and ranking of initiatives and programs, and communications / marketing purposes, but may not add value for decision making on supply chain optimization and 'greening', or similar decisions in green product development in PLM efforts.

I think the standards organizations such as ISO and the Voluntary Carbon Standard are taking a lead in the development of rigorous methodologies, as well as definition of metrics that may be accepted by industries.

This is a market sector that I think both technology companies and service providers may have significant success in the next few years; tech companies in the CSR and supply chain mgt sectors are well positioned to incorporate LCA functionality (and data sets); and 'white space' development and industry - specific customization will be required to get LCAs to the point of being widely accepted tools for sustainability decision making.
Read more!

When Compliance is not enough...

Recent industrial accidents have been in the news: an International Paper plant explosion in Mississippi, and in February, another explosion at the Imperial Sugar plant in Port Wentworth GA (link).

When thinking about 'sustainability', it would seem that governmental compliance needs to be adhered to, first and foremost. Compliance in most cases is performed as result of required regulations by EPA, OSHA, and state government groups, for these two cases. But what happens when a facility (or warehouse or distributor) is in compliance, but an accident of this magnitude still occurs?

As reported by the Wall Street Journal earlier this week in their article "Dust Cloud Settles Over Industries", there was a significant dust problem at the Imperial Sugar plant, and questions were raised by outside experts as well as those in OSHA as to how effective cleaning procedures were. In this case, the plant had been cited for numerous violations in the past, but as one inspector put it, they probably did not know the severity of their own dust problems:

"They don't see it, they don't clean it, because they don't realize the hazard is there," says John Vorderbrueggen, lead investigator for the blast at the U.S. Chemical Safety Board, a federal agency that probes chemical accidents. "I wouldn't call it negligence. I'm sure any company, if they had an awareness that a hazard existed, they would take corrective action. So it's really an ignorance issue." (Wall St. Journal)

OSHA regulations may not have been sufficient, according to a member of their own safety board:

"OSHA has a 'gotcha' approach," says Stephen Selk, investigations manager for the safety board. "They look hard and creatively to identify sometimes arcane interpretations of rules that were broken. We're suggesting to OSHA that they don't offer clear guidance. They don't tell industry the things to do to prevent a disaster like this." (Wall St. Journal)

And this is where I started thinking about 'sustainability' versus compliance.

******

It remains to be seen whether Imperial Sugar and International Paper were in compliance with relevant environmental health & safety regulations. But assuming that they were, they still have incurred very high costs (financial, loss of human lives, diminished brand) as a result of these accidents. Could the implementation of a risk management or sustainability program avoided these accidents?

I think the issue here is that instead of just meeting compliance, or even adhering to a sustainability program, there is a need to monitor and optimize the processes and associated metrics of any compliance, risk management, and even sustainability program. You might be in 'compliance' with a governmental or NGO regulation, or even in compliance with your own sustainability program, but if your processes are faulty, or if you are not measuring the correct metrics, or you don't have a standard to measure the metrics.....then compliance is all for naught.

We have seen this type of problem in the supply chain, with the crisis that Mattel went through recently when it was discovered that toys were being produced by second and third tier suppliers with hazardous metals. Mattel did not have a process that was applicable for evaluating and managing this risk; they essentially had zero transparency into that part of their supply chain. Their financial 'hit' was close to $40MM, along with massive disruption of their supply chain.

These events provide ample evidence that key to any program is the accuracy of data and consistent processes to measure it; selection of appropriate metrics and ones that can be measured; and a validation process to constantly review and amend, in light of business changes, technology advances, etc. 'Sustainability' in its most basic form is then a result.
Read more!