A long-time Environmental Defense Fund executive and designer of corporate partnerships, Gwen Ruta, talks with MIT Sloan Management Review about gaining competitive advantage through greener supply chains, internal sustainability initiatives, and a reinvention of laundry soap. — Interview by Samuel Fromartz
As vice president of corporate partnerships at Environmental Defense Fund, Gwen Ruta has worked closely with companies on projects that help the environment – and business.
EDF partnered with McDonald’s in 1990 to end the use of foam sandwich containers and increase recycled packaging. It jump-started hybrid electric delivery trucks in a partnership with FedEx, and is working with Wal-Mart on everything from reducing fleet emissions to shrinking packaging and reforming supplier practices in China.
EDF does not receive money from these corporate partnerships. But it requires that solutions be transparent, so ideally, they spread and transform an industry.
“Essentially, we like to create a race to the top for environmental values,” Ruta said.
She spoke with MIT Sloan Management Review in September.
When did EDF begin working with companies on sustainability projects?
EDF did its first corporate partnership in 1990, with McDonald’s. We worked with them to reduce the amount of packaging they were using and increase recycled content. The idea was to create new markets for recycled material. At the time solid waste was a big issue – remember the garbage barge that was floating around the east coast?
The thing that people remember about our partnership with McDonald’s is that they eliminated those Styrofoam “clamshell” sandwich containers. But we were also able to demonstrate other measurable and significant environmental benefits. We went back 10 years later and figured they saved about 300 million pounds of packaging. There were also measurable business benefits for McDonald’s, because they were buying less packaging and spending less to haul away waste, not to mention reputational benefits.
They also set a new packaging standard for the industry that Burger King and others followed, which is what we’re trying to achieve in all of our partnerships.
That was really the first partnership; things have changed dramatically since then. Companies are now much more used to working with NGOs on a whole range of issues. It’s even an expectation of doing business.
I would imagine partnerships are an easier way to get things done than by pursuing regulations or filing lawsuits.
They are, but everything has its place. I don’t think you can only do voluntary partnerships and I don’t think you should only pursue regulation or litigation, because each moves at its own pace. If you combine those approaches, you’re likely to get more results. And we’re all about results.
We also get involved in projects that don’t really have anything to do with regulations. We had a project a few years ago with FedEx, for instance, where we brought to market the first commercially viable hybrid delivery truck. That was about using FedEx’s clout in the truck market to say to the suppliers, ‘Hey, we want you to build a better truck.’
We launched the first trucks in 2004 and now there are 75 different fleets that are experimenting with hybrids. At the last truck conference there were something like 19 hybrid models on the showroom floor.
So we are seeking market transformation. The role EDF plays is to provide that activation energy – helping to get over that initial challenge of building a market from scratch.
Essentially we like to create a race to the top for environmental values, and we do that by getting companies to exercise their influence in the supply chain. More and more companies have realized just how much influence they have. They’ve always exercised it in terms of price or quality or deliverables. Now we’re adding the environment to that list.
Are companies skeptical initially? Do they worry this is going to be too costly or not work?
Less and less so. We talked about how we’ve been doing this since 1990, but the speed of change has increased significantly in the past two years. Now there’s enough experience, and enough stories, about the impact and benefits of sustainability initiatives.
So now more and more companies are saying, “What are we missing out on?”
What is driving this change?
Fuel prices definitely. But the potential in the US and the existence elsewhere of regulatory schemes related to carbon emissions is also a huge issue going forward. And then there’s the issue of increasing transparency of corporate actions – it’s hard not to have the world know what you do.
Companies were also used to thinking of the environment as a cost center – “I have to build a waste water treatment plant,” or “I have to put a scrubber on” — that kind of thing, reacting to regulatory controls that almost always cost money. And it took awhile for people to wake up and realize, “If I’m proactive about this, and strategic about this, it can be a revenue-enhancer for my company.”
So there’s a lot of factors right now pushing companies to find ways to improve the environment and their business.
Companies are also coming in with a more sophisticated understanding – the conversations are at a much more substantive level. That’s not to say there aren’t a lot of companies who still think that sustainability is all about implementing an office paper recycling program. I don’t want to downplay office paper recycling – it’s a good thing – but I doubt it’s the best way to take advantage strategically and move your company forward on the environment.
Do you find companies want to quantify the benefit of pursuing sustainability?
Most companies these days come in with the idea that there might be an initial investment involved, but they also feel there’s a payoff. If you look at energy efficiency, for example, there’s a lot of the low-hanging fruit right now in terms of cost savings. But people recognize they will have to invest in new heating systems, for example, or new production systems, and they’re interested in knowing what the payback is. And it’s almost always faster than they thought it would be.
Beyond the low-hanging fruit, do they think these issues are going to change the way they do business in the future?
Some companies do – the ones that get it the most are. You look at a company like GE and its Ecomagination initiative. They’re trying to figure out where there are eco-efficiencies, and also seeing it as a way to grow revenue. So it’s not just looking at existing businesses – it’s about figuring out new businesses, in an energy-constrained, carbon-constrained economy. They’re asking, “What are people and companies going to need and want and how will GE get there first?”
Can you talk about your work with Wal-Mart? Wal-Mart often comes under criticism but I’m interested in your take on their sustainability initiative.
Photo: Matt Wright
Wal-Mart is a huge entity, so there’s a lot to be done. I would liken their sustainability initiative to turning around an ocean liner, it takes awhile to make the turn. But we do see it turning – faster in some areas than in others.
As for the criticism, some people think Wal-Mart just shouldn’t exist. You can argue that, but the fact is they do exist. And I don’t see them going out of business anytime soon. So ignoring the problem won’t make it go away. And they do have this incredible market clout. They’ve got around 60,000 companies in their supply chain, so the environmental impact of their operations is enormous but so is the potential for making change.
Here’s an example, a little tiny one but it illustrates the principle: Concentrated laundry detergent.
Most laundry detergent is water, with a little bit of soap added, and we ship that water around in big plastic jugs. They’re heavy and they’re using up a bunch of fuel not to mention plastic resin to ship water around. Suppliers have been trying to go to a more concentrated formula detergent but they had this perception problem – you go to the shelf and there’s a big jug of detergent for $5.99 and a little tiny bottle for $5.99. With no further information, consumers buy the big jug. Who wouldn’t?
But because of its size and scale, Wal-Mart was able to negotiate with its suppliers to make a coordinated move toward concentrated detergent and also use its huge microphone with the 175 million people who shop at Wal-Mart every week. They did education around concentrated laundry detergent, they offered specials and recently finished their commitment to switch all of their laundry detergent to the concentrated form.
So each year this saves about 150 million gallons of water, 30 million pounds of plastic, 7 million gallons of diesel fuel, and on the business side, saves $30 million in labor costs loading and unloading boxes, and cuts out-of-stocks by about 50%, because they can put more bottles on the shelf.
And the P&Gs and Unilevers, who are making laundry detergent for Wal-Mart, are not going to add water to big jugs to sell it at Stop ‘n Shop. Concentrated laundry detergent will soon be the only way you buy laundry detergent because no one wants to make two different product lines.
So we expect that the environmental impact will be about four-times nationally what Wal-Mart’s getting because everyone will start selling it.
That’s one tiny thing – well, it’s not tiny because anything associated with Wal-Mart is not tiny – but it’s an example of how they can do things that others can’t.
(Backstory: Behind the story of Wal-Mart’s strong-arming of suppliers is the simple idea of redesigning a formerly dumb package. See Concentrated Laundry Detergent Becomes Latest Trend in Green Retail Packaging on sustainableisgood.com.)
How does a company implement this? One criticism of corporate sustainability is that it is too insular and viewed as part of public relations, rather than operations.
There are really two important components to any sustainability initiative. First, aggressive goals, set out at the top level. Second, regular and transparent ways to measure progress against the goals. Because we’ve found, if you set the goal, a results-related goal, you kick off an innovation revolution within your company.
It’s unbelievable how much you can unleash in terms of employee innovation, creativity and energy, if you get the goal right.
So it seems like, once they commit and set a real goal, then it will happen?
Yes, and some of it is just mindset. Pollution is waste. Waste costs money. Once you figure that out, then you’re looking for ways to not waste money.
One can only have carbon emissions if one has burned fuel and one can only burn fuel if one has paid for it. Once people get the idea that carbon is money, reducing carbon becomes a way of saving money.
That’s sort of the obvious thing. But more and more companies are saying, “Wait a minute, I think new markets will open up for me, if I am able to show I am in front of this issue.”
Do you see one issue as the core issue going ahead? The most important or life changing for the business world?
In the next 3-5 years it’s definitely climate change and in the 3-5 years following that it’s going to be water.
On climate change - we now have national and international programs coming into place that will raise the cost of doing business for companies that aren’t paying any attention to climate change.
And on water – if we don’t stop climate change there will less and less of it to go around.
So you need to understand what potential liability you face, but also see what opportunity is coming your way because economic and natural systems are changing. There’s both risk and opportunity.