Executive Briefings

Going Green: Government Fumbles; Business Recovers the Ball

Things aren't going too well at the moment for governmental efforts to combat the effects of climate change. The recent United Nations summit in Cancun ended with a whimper. Participants agreed that climate change is "one of the greatest challenges of our time." They called on developing countries to reduce emissions "as soon as possible." They vowed to work on keeping the global temperature rise to below 2 degrees Celsius (3.5 degrees Fahrenheit), and consider lowering the increase to 1.5 degrees C in 2015. And they laid out a plan to help developing countries adapt to climate change and embrace green technology. But none of those measures had any teeth, and it looks like business as usual for the time being. According to Jack Short, secretary general of the International Transport Forum, the lack of real progress in Cancun means there will be less political pressure on the transportation sector to reduce emissions over the next few years.

When it came to cultivating the bureaucratic rain forest, however, Cancun negotiators were wildly successful. According to a statement by the group, the meeting "encompassed the sixteenth Conference of the Parties (COP) and the sixth Conference of the Parties serving as the Meeting of the Parties to the Kyoto Protocol (CMP), as well as the thirty-third sessions of both the Subsidiary Body for Implementation (SBI) and the Subsidiary Body for Scientific and Technological Advice (SBSTA), and the fifteenth session of the AWG-KP and the thirteenth session of the AWC-LCA."

Got that?

Closer to home, progress in the U.S. is just as slow. Forget about seeing any kind of a climate bill pass in the final days of the 111th Congress. "If you're holding your breath, start breathing," said Daniel M. Kreeger, executive director of the Association of Climate Change Officers, at eyefortransport's 4th Sustainable Supply Chain Summit in San Francisco.

On the regulatory side, the U.S. Environmental Protection Agency announced in September that it would phase out the Climate Leaders Program, an industry-government partnership for devising climate-change strategies. The effort had given private business access to EPA's technical support and expertise. Now, the agency said it would "encourage and assist the transition of our Partners into non-federal programs that our Partners may choose to join." In other words, Partners, you're on your own.

Kreeger recalled the "unbelievable energy" that surrounded the Copenhagen climate conference in 2009 - at least until that meeting devolved into rancor and anticlimax. And with U.S. lawmakers' attention occupied by the healthcare bill and other matters over the past year, "all of the air is sort of oozing out of the balloon," he said. "A lot of companies are going back into their shells."

Perhaps. Certainly a good number of corporate executives are breathing sighs of relief that they won't have to deal with a carbon tax or cap-and-trade regime anytime soon. And I'm sympathetic to the argument that government can be more of an obstacle than a facilitator of meaningful change. (See bureaucratic babble from Cancun above.) In any case, some far-seeing companies aren't waiting for new regulations to shape their green strategies. They're forging ahead with programs that enlist the aid of outside partners throughout their supply chains.

The key word is "outside." Internal efforts can only go so far in promoting sustainability and cutting greenhouse gas emissions. The direct manufacturing and distribution activities of Unilever account for just 5 percent of the company's overall carbon impact, said Dennis Averill, corporate manager of EHS (environmental health and safety). Ninety-five percent resides with partners who are beyond the operation's walls.

Unilever is a big company with a lot of clout. It buys 12 percent of the world's tea, 6 percent of its tomatoes, 3 percent of its palm oil. So it's in a good position to influence the environmental record of suppliers. For instance, said Averill, the company won't buy palm oil from areas where deforestation has occurred. Suppliers are required to submit documentation that they are engaged in ethical practices and working toward sustainability.

Telecommunications giant BT Americas Inc. competes in a sector - information and communications technology - that accounts for 2 to 3 percent of all global emissions, according to head of corporate responsibility Kevin Moss. The company is attacking the sustainability issue on a number of fronts. In addition to demanding ethical behavior by suppliers, it's drilling down to the product-design stage to promote phone batteries that consume 50 percent less energy. It's even making slight adjustments in temperature tolerances - 1 to 2 degrees in each direction - at energy-hungry server centers. (First, though, it must convince equipment vendors not to void their warranties as a result of the change.)

Innovations are also taking place at the customer end of the chain. One European distributor of soda vending machines is equipping the units with wireless devices that alert the owner to when they need refilling. The technology reduces unnecessary maintenance visits by 10 percent, and vehicle loads by 30 percent, Moss said.

One of the most aggressive corporate sustainability efforts is that of IBM. Like Unilever, it has plenty of influence over its vendor base, spending $40bn a year with 28,000 suppliers, 3,000 of which account for 80 percent of procurement costs. Louis Ferretti, director of environmental compliance and supply chain social responsibility, said businesses have no choice but to act now, given the emergence of China, India and other countries as new economic powers. "If the rest of the world wants to consume like Americans," he said, "they'll need five planets - five times the earth's available natural resources."

In February 2010, IBM sent a letter to 28,000 suppliers in 90 countries, detailing eight requirements for environmental responsibility and corporate management. The guidelines were drawn in large part from the work of the Electronics Industry Citizenship Coalition, formed to devise a standard code of conduct for electronics supply chains. Among the steps laid out in the letter were the creation and monitoring of strict measures for energy conservation, waste management and greenhouse gas reduction. IBM also called on primary suppliers to spread the word to the next tier.

The company claims the goals are voluntary, but would you want to be a supplier that ignores the "advice" of one of your biggest customers? In reality, these green dictates issued by Fortune 500 multinationals are becoming the price of doing business. Government regulation or customer fiat: it hardly seems to make a difference. Makes you wonder whether the most effective buyer-supplier collaborations are those with a healthy dose of "or else" to them.

- Robert J. Bowman, SupplyChainBrain

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Things aren't going too well at the moment for governmental efforts to combat the effects of climate change. The recent United Nations summit in Cancun ended with a whimper. Participants agreed that climate change is "one of the greatest challenges of our time." They called on developing countries to reduce emissions "as soon as possible." They vowed to work on keeping the global temperature rise to below 2 degrees Celsius (3.5 degrees Fahrenheit), and consider lowering the increase to 1.5 degrees C in 2015. And they laid out a plan to help developing countries adapt to climate change and embrace green technology. But none of those measures had any teeth, and it looks like business as usual for the time being. According to Jack Short, secretary general of the International Transport Forum, the lack of real progress in Cancun means there will be less political pressure on the transportation sector to reduce emissions over the next few years.

When it came to cultivating the bureaucratic rain forest, however, Cancun negotiators were wildly successful. According to a statement by the group, the meeting "encompassed the sixteenth Conference of the Parties (COP) and the sixth Conference of the Parties serving as the Meeting of the Parties to the Kyoto Protocol (CMP), as well as the thirty-third sessions of both the Subsidiary Body for Implementation (SBI) and the Subsidiary Body for Scientific and Technological Advice (SBSTA), and the fifteenth session of the AWG-KP and the thirteenth session of the AWC-LCA."

Got that?

Closer to home, progress in the U.S. is just as slow. Forget about seeing any kind of a climate bill pass in the final days of the 111th Congress. "If you're holding your breath, start breathing," said Daniel M. Kreeger, executive director of the Association of Climate Change Officers, at eyefortransport's 4th Sustainable Supply Chain Summit in San Francisco.

On the regulatory side, the U.S. Environmental Protection Agency announced in September that it would phase out the Climate Leaders Program, an industry-government partnership for devising climate-change strategies. The effort had given private business access to EPA's technical support and expertise. Now, the agency said it would "encourage and assist the transition of our Partners into non-federal programs that our Partners may choose to join." In other words, Partners, you're on your own.

Kreeger recalled the "unbelievable energy" that surrounded the Copenhagen climate conference in 2009 - at least until that meeting devolved into rancor and anticlimax. And with U.S. lawmakers' attention occupied by the healthcare bill and other matters over the past year, "all of the air is sort of oozing out of the balloon," he said. "A lot of companies are going back into their shells."

Perhaps. Certainly a good number of corporate executives are breathing sighs of relief that they won't have to deal with a carbon tax or cap-and-trade regime anytime soon. And I'm sympathetic to the argument that government can be more of an obstacle than a facilitator of meaningful change. (See bureaucratic babble from Cancun above.) In any case, some far-seeing companies aren't waiting for new regulations to shape their green strategies. They're forging ahead with programs that enlist the aid of outside partners throughout their supply chains.

The key word is "outside." Internal efforts can only go so far in promoting sustainability and cutting greenhouse gas emissions. The direct manufacturing and distribution activities of Unilever account for just 5 percent of the company's overall carbon impact, said Dennis Averill, corporate manager of EHS (environmental health and safety). Ninety-five percent resides with partners who are beyond the operation's walls.

Unilever is a big company with a lot of clout. It buys 12 percent of the world's tea, 6 percent of its tomatoes, 3 percent of its palm oil. So it's in a good position to influence the environmental record of suppliers. For instance, said Averill, the company won't buy palm oil from areas where deforestation has occurred. Suppliers are required to submit documentation that they are engaged in ethical practices and working toward sustainability.

Telecommunications giant BT Americas Inc. competes in a sector - information and communications technology - that accounts for 2 to 3 percent of all global emissions, according to head of corporate responsibility Kevin Moss. The company is attacking the sustainability issue on a number of fronts. In addition to demanding ethical behavior by suppliers, it's drilling down to the product-design stage to promote phone batteries that consume 50 percent less energy. It's even making slight adjustments in temperature tolerances - 1 to 2 degrees in each direction - at energy-hungry server centers. (First, though, it must convince equipment vendors not to void their warranties as a result of the change.)

Innovations are also taking place at the customer end of the chain. One European distributor of soda vending machines is equipping the units with wireless devices that alert the owner to when they need refilling. The technology reduces unnecessary maintenance visits by 10 percent, and vehicle loads by 30 percent, Moss said.

One of the most aggressive corporate sustainability efforts is that of IBM. Like Unilever, it has plenty of influence over its vendor base, spending $40bn a year with 28,000 suppliers, 3,000 of which account for 80 percent of procurement costs. Louis Ferretti, director of environmental compliance and supply chain social responsibility, said businesses have no choice but to act now, given the emergence of China, India and other countries as new economic powers. "If the rest of the world wants to consume like Americans," he said, "they'll need five planets - five times the earth's available natural resources."

In February 2010, IBM sent a letter to 28,000 suppliers in 90 countries, detailing eight requirements for environmental responsibility and corporate management. The guidelines were drawn in large part from the work of the Electronics Industry Citizenship Coalition, formed to devise a standard code of conduct for electronics supply chains. Among the steps laid out in the letter were the creation and monitoring of strict measures for energy conservation, waste management and greenhouse gas reduction. IBM also called on primary suppliers to spread the word to the next tier.

The company claims the goals are voluntary, but would you want to be a supplier that ignores the "advice" of one of your biggest customers? In reality, these green dictates issued by Fortune 500 multinationals are becoming the price of doing business. Government regulation or customer fiat: it hardly seems to make a difference. Makes you wonder whether the most effective buyer-supplier collaborations are those with a healthy dose of "or else" to them.

- Robert J. Bowman, SupplyChainBrain

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