Leading Sustainable Organizations
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David H. Marks is Goulder Professor of Civil and Environmental Engineering systems at MIT and director of the Laboratory for Energy and the Environment. His research focuses on sustainable development, environmental engineering, industrial ecology, and water resource systems. His teaching interests include sustainable development, environmental engineering, industrial ecology, and water resource systems. Marks spoke to Michael S. Hopkins, editor-in-chief of MIT Sloan Management Review.
Let’s start by talking about how you define sustainability and how your ideas differ from those of others.
I see sustainability as continued economic development that meets environmental and social concerns. That idea can take you in many directions, from better design of a product in terms of trade-offs between energy and cost and weight all the way up to asking, “How do you run a sustainable organization?”
The Dow Jones Industrial people in Zurich have an index for rating companies. It includes environmental performance. They are looking at the role of the “sustainable organization,” one that’s flexible, constantly reviewing its place in the world, willing to change. Such an organization would have clear procedures for dealing with abrupt changes in its business. A “sustainable organization” will train people to be more flexible, able to change functions within the company as it evolves quickly. That’s a very different definition of sustainability, but one that could have an impact on environmental sustainability as well.
MARKS’S SUSTAINABILITY TAKEAWAYS
How do you define sustainability?
- Continued economic development that meets environmental and social concerns
Which sustainability issues will have the biggest implications for managers?
- All businesses know carbon legislation is coming.
- The Copenhagen round of climate talks will accelerate consideration of carbon.
- Dow Jones is rating companies based on environmental performance.
Threats and Opportunities
What threats and opportunities will sustainability-related concerns present?
- Threat: Not all spending on sustainability will bring a competitive advantage.
- Opportunities: Improved organizational structure, better management
Sustainability used to be the job of environmental health and safety people. That’s changing … because of sustainability, good management will be more important than ever.
Do you think it’s important to arrive at a shared definition?
It would help. I think most people could buy into the idea of “continued economic development while meeting environmental and social concerns.” A slogan we’ve used in the Alliance for Global Sustainability (AGS) in working with industries is that sustainability pays dividends. We emphasize the value of a company’s ability to position itself so it can deal with issues such as climate change, resource availability, child labor.
How do you see the language being used outside of industry?
Sustainability is on the minds of people who came to the idea through their long-term environmentalist activities. Global climate change has prompted this evolution in thinking. People are becoming aware of what kind of car you drive, if you have a second home and how big it is, etc. Individuals with big houses—like Al Gore—are buying carbon offset credits to justify the environmental extravagance. While this is good, there is sometimes an overeager desire to “be green” without the hard work of developing an understanding of specifics.
You mention individuals buying carbon offsets. Which sustainability issues will have the biggest implications for business?
A carbon-constrained environment will affect every business in the long run. All companies, even the really conservative ones, know that legislation is coming. We haven’t paid back the full cost of certain types of resource use, and it’s coming back to haunt us. The Kyoto Protocol was not an entirely great agreement, but it clearly signaled that rules to reduce carbon pouring into the atmosphere were coming. The new Copenhagen Round will improve things, we hope.
What other drivers do you imagine, in addition to carbon?
Water is going to be a big driver. Here are some interesting statistics: What percentage of the world does not have electricity? About one-third, two billion people. What percentage doesn’t have an adequate clean water supply? It’s also one-third—and it’s not necessarily the same third. These are not technological problems. We know how to clean water and how to provide electricity. They are problems of economics and policy. Who pays? How are projects financed?
Another major theme is urbanization. The present population of the world is a little over 6 billion. It will grow to 9 billion by 2050. And that growth, within round-off errors, will all be in the developing world. France will be smaller, Japan will be smaller, the United States might be a little bit bigger, Germany will be smaller. The developing world will see a tremendous population growth and a flood of people moving from rural areas to urban areas.
This growth will radically redefine urban areas as jurisdictions struggle to provide security, education, economic opportunity, health care. Current organizational systems in the developing world are clearly unable to provide these essentials adequately in cities today, like Bangkok. These cities are chaotic. Bangladesh is already a triage area.
Consider a small manufacturing company in the midwest. Where is it going to feel the pressure first? From the government? The marketplace? People up and down the supply chain? Employees? Companies need to shift from a short-sighted resistance to any regulation to asking how they can influence regulation. A sustainable business will ask “What is coming? Which regulation is best for me?” Many companies could be a lot happier in a carbon regime based on tradeable permits rather than on a command-and-control system dictating how much can come out of their smokestacks and what type of treatment they have to use.
The company should ask what impedes them from addressing sustainability-related concerns. If they’re trying to do a better job but it’s costing them more, then they feel that they’re not competitive.
So spending on sustainability can put companies at a competitive disadvantage?
Not if handled properly. The right strategy could become a competitive advantage. The right regulatory regime can help a company find what’s right for them. If a company can do a better job of managing waste, managing factory inputs and production processes, and defining what kind of product they will make, it is liable to be more efficient—which will pay sustainability dividends to the company and the environment.
What else is a challenge?
It’s a challenge to make sustainability concepts operational. You get into trouble making vague ideas operational and, absent regulation, there’s not a clear metric. “Safety” is another nebulous idea. However, at one point DuPont decided it would be a “safe” company and established a basic metric: zero deaths a year. Now, when you go to a meeting at DuPont, the first order of business is for someone to stand up and tell you where the exits are, what the fire alarm sounds like, and those sorts of things.
With sustainability it’s even harder to establish a clear metric. Generally when I talk about sustainability I’m talking about a lifecycle view, whether things are going into the environment or whether they’re coming back and being reused. Companies have been conditioned for years by the Toxic Waste Act of 1995, which said that everybody who produces toxic waste over a certain threshold had to report it and make it publically known. A company might reduce its waste by 95 percent but still be unable to shed that last 5 percent. The public sees the 5 percent as a very large number.
Looking at the lifecycle of a product, including all processes and substances, is a huge task but can reveal new ways to proceed. At first, there will certainly be a certain inertia, due to lack of information. To higher-ups it seems like a great idea. But down among the people who actually have to make the choices and do the work of change, there is resistance and considerable uncertainty.
One potential set of directions are ISO Standards. ISO 9000 was total quality management, and ISO 14000 is environmental management. Here’s how it can work. Say that Ford wants to make sure that all of its suppliers are doing quality work. Can you imagine the time and effort to do that research? You’d have to go out to inventory all of them. How would you do it? It’s a lot easier to ask, “Are you ISO 14,000-certified?”
Companies also wonder where the boundaries of their focus should be. They wonder, “Are the products I source from China made using child labor?” Certification agencies specializing in this area can help companies ensure that they aren’t.
You mentioned lack of information. What kind of information do they need?
Mechanical engineers at MIT are working on design tools that show you trade-offs. For example, Dave Wallace, co-director of the MIT CADlab, works on rapid prototyping. These tools show almost instantaneously how small changes in a product design can affect its quality, energy use, and environmental impact.
In Europe there’s mandatory recycling, up to 85 percent of a product’s content. It sounds like a good idea, doesn’t it? Well, Frank Field and Randy Kirchain in the Materials Systems Lab will show you how counterintuitive that can be. To make a car 85 percent recyclable, you may have to cut down on the amount of nonrecyclable plastics you use. That increases weight and leads to a heavier vehicle and lower gas mileage. It’s not always the case that the most recycling is the best for the environment or for the corporate bottom line.
What kinds of opportunities do you think will emerge as a result of paying more attention to sustainability?
The opportunities will come from improved organizational structure and better management. We in the engineering and science areas are thrilled that Sloan is taking a leadership role in thinking about sustainability right now. Lifecycle analysis can point to trade-offs that can help a company see over the horizon.
Is that a fundamentally different way of looking at business?
No, it means putting even more emphasis on good management. Let’s take the production of ethanol, as an example. The Clean Air Act of 1990 was heavily influenced by corn lobbyists, who defined ethanol as something that could be made only from corn. As interest in biofuels increased, there was increased production of corn-based ethanol, even though research on other plant materials is pointing in other directions. Farmers used to rotate crops biannually between corn and soy to restore nutrients to the soil. Given the skyrocketing price of corn, farmers are trying to grow more every year, pouring on expensive and environmentally damaging fertilizer, and bringing marginal land into production. Furthermore, the high price of corn is very economically stressful to Mexico, one of our major trading partners, where corn is a dietary staple.
The long-term question should have been whether ethanol is really the right path to a low-carbon energy regime and whether there were other good sources for ethanol. Should it be coming, for instance, from switchgrass? It is now clear that you put more energy into making corn ethanol than you get out of it.
Meanwhile, the Brazilians were watching the price of sugar plummet. They had a huge amount of sugar and no place to sell it. They decided to try converting it to sugar-based ethanol. Now, most of the cars in Brazil can run on ethanol or regular fuels because they’ve developed a technology enabling the car itself to figure out what fuel it has to use.
That technology is becoming available in the United States, but ethanol from Brazil has a 45 cents per gallon import duty attached to it. This protects domestically produced ethanol, but does it protect consumers or the environment?
What are the greatest challenges and opportunities for undertaking sustainability efforts?
These are the questions I’m most interested in. For example, how do you integrate into a fossil and nuclear grid wind and solar which are intermittent and non-dispatchable? And in the process, possibly decentralize power systems?
We’re starting to see transitions within companies. In the past, “environment” was handled by the environmental health and safety people. Their main job was to keep the company president out of jail. But they were not considered line people, and they were never part of the system. The challenge now is how to make people understand that sustainability is not only part of their jobs but a determinant in how successful they will be.
To me, sustainability will have come of age when environmental awareness and action are not just altruistic but are integral to the successful function of an organization in society Success will include being careful about resources—both human and natural resources—and about the impacts their production processes and their products will have beyond the factory gates.