I find the trade-offs that arise in energy development, environmental protection and human health fascinating. Over the years I’ve written on this topic a few times:

Energy Technologies and Unintended Consequences

Unintended Consequences, Part II: Air vs. Water

Unintended Consequences, Part III: Electricity vs. Water

Today I want to talk about a 160,000 square-foot new water treatment facility in New York that will be going online this year, and how it’s giving us safer water at the cost of a hefty increase in greenhouse gas emissions. I’m referring to the Catskill/Delaware Ultraviolet Light Disinfection Facility, which is in the final stages of construction just north of New York City. The facility will use ultraviolet light to disinfect an average of 1.3 billion gallons of water per day. It’s also going to use a lot of electricity and, as a result, increase greenhouse gas emissions.

Source: NYC Dept. of Environmental Protection

The consequences of this project are neither unintended nor unforeseen. The project was required by Federal and State regulations to maintain the safety of New York City’s water supply, which is one of only a handful of major water supplies in the U.S. that remain unfiltered, according to civil engineer Robert Osborne, who is very into water. Having an unfiltered water supply is a kind of badge of honor. It means your water is exceptionally pure. But Federal and state regulations require water supplies to be protected by other means if filtration is not used. (The New York Times reported that a filtration system for this water supply would have cost up to $8 billion to build millions of dollars a year to operate.)

A project of this magnitude, whose costs are estimated at $1.6 billion, undergoes detailed analysis and planning, including an the creation of an environmental impact statement. The environmental impact statement says that the plant will draw an average of 4.45 megawatts of electric power. By my calculations (4.45MW X 24 hours X 365.25 days X 1000), that will equal about 39 million KWh of electricity annually.

You can calculate the amount of greenhouse gases emitted to provide 39M KWh of electricity in New York using EPA’s eGRID methodology (available via a cool tool on amee.com). Using my assumption, it comes to over 25,000 metric tons of CO2 equivalent. Taking the EPA’s estimate of the average annual greenhouse gas emissions of an average automobile (5.1 metric tons of CO2E per year) you find that these emissions are the equivalent of putting about 5,000 more cars on the road.

I have no doubt that this particular trade-off (cleaner water for dirtier air) is worth it. The project protects over 8 million people who depend on this water supply from the risk of water-borne contaminants that could cause a significant public health crisis. I point it out not to criticize this project but rather to illustrate the kinds of trade-offs policy makers face all the time.

I’d love to hear your thoughts.

by Al Iannuzzi

CRC Press; November 8, 2011

Creating a sustainable society will depend in large part on reducing the environmental impacts of making, distributing and using products and of disposing of them at the end of their useful life.  Every product company that hopes to have a role in our future is going to have figure out how to do this. They now have an excellent guide in a new book called “Greener Products: The Making and Marketing of Sustainable Brands,” by Al Iannuzzi. Dr. Iannuzzi is Senior Director of Product Stewardship and Worldwide Environment, Health & Safety at Johnson & Johnson, a $60 billion healthcare products company. He has spent his entire career advancing the environmental performance of his company and its products while helping it achieve its business goals. He therefore is very well qualified to have written this book.

The book is distinguished by its comprehensive scope, which ranges from the drivers of green product development, to the methods for developing greener products, through advice for marketing those products effectively.  It is organized in three sections. The first section covers the market and regulatory drivers for green products. The second section looks at examples of greener products that have come to market. It also includes a chapter by James A. Fava, a founder of sustainability consulting firm Five Winds International. The chapter provides an overview of some of the many tools companies can use to analyze the environmental characteristics of products and processes and to develop more environmentally efficient designs. The third section looks at green marketing “because,” says Dr. Iannuzzi, “what good is a greener product if you can’t get the customer to buy it?” The marketing section includes a chapter by executives of the Shelton Group, an advertising agency focused on sustainability and energy efficiency and a leading provider of consumer insights related to green products. Though the consumer data discussed in the book is focused on U.S. consumers, the book takes a global perspective, citing product examples from North America, Europe and Asia and examples of regulations in effect on six continents.

The first section of the book sets the context for the development of greener products. It highlights many of the market factors that are creating demand for greener products including consumer demand, retailer mandates, socially responsible investment, product ratings systems and green public procurement. Among the regulatory factors the book discusses are regulations covering packaging; restrictions on the use of chemicals; and an increasingly important concept called “extended producer responsibility,” which requires that manufacturers take responsibility for their products at the end of their useful life.

Section II is packed with examples of companies and the greener products they have introduced across a range of industries from apparel to consumer electronics to household cleaning to industrial chemicals and health care. Concise case studies of companies including Timberland, SC Johnson, Clorox, Philips, Samsung Electronics, Apple, Seventh Generation, Proctor & Gamble, Unilever, DuPont, BASF and Johnson & Johnson, review what impelled them to invest in greener product development, what they did, how they did it and what the result was, providing a valuable overview of the experiences of companies that have taken a leadership position in the development and marketing of greener products.  A good example in this section is the Earthwards process developed at Johnson & Johnson. Earthwards enables “product development teams to evaluate a product throughout its life cycle and identify areas where it can be improved to lower its impact and increase social benefit.” The process uses a scorecard approach that was developed after looking at other companies for examples, interviewing people inside and outside the company and under the guidance of consultant Five Winds. The company also asked an environmental non-governmental organization to review the process and make recommendations, which were incorporated.  At J&J a product receives the Earthwards designation if achieves significant improvements in at least 3 of 7 dimensions (such as packaging, energy, waste, etc.) identified by the scorecard. By 2015 the company expects to have at least 60 products in its portfolio that have achieved the Earthwards designation.

The Chapter by Dr. Fava of Five Winds reviews many of the management systems (such as ISO 14000), programs (such as product stewardship and Design for Environment), tools (including life cycle assessment and environmental impact assessment) companies can use to build their own greener product future. I suspect most readers who are unfamiliar with this material will come away from this chapter somewhat overwhelmed by sheer volume of material packed into a small chapter. This is probably fine; it highlights the need to recruit some competent help when building a greener products process and culture.

The final section, on green marketing, presents an analysis of consumer survey data that segments consumers into four broad behavior and attitudinal groups, each of which has somewhat different motivations and find different messages appealing. The “Actives,” for instance, represent 22 percent of the U.S. adult population, are well educated, have above-average income, and participate in significantly more green activities such as recycling than average consumers.

A substantial amount of consumer research conducted over the years by many companies has failed to provide a silver bullet approach to marketing green products. Most research concludes that the majority of consumers is fundamentally more interested in meeting their own needs than the needs of the planet, and more consumers show interest in green products than are actually willing to buy them if those products fall short in meeting their price, performance or emotional needs.

It’s possible that over time some consumers will begin to consider “environmental performance” an important dimension of performance along with the others. And even today many consumers, including the “Actives” mentioned above, derive some emotional benefits from associating themselves with products that make credible green claims. But the fundamental approach to understanding customers and reaching them with marketing messages is no different for green products than for traditional products. “In short,” writes the Shelton Group,“the best advice for the successful marketing of green products is the same as it is for successfully marketing any other product: Know thy buyer!”

Section III also presents a set of examples of green marketing, describing positioning, packaging and messaging of products ranging from Clorox Green Works to Honest Tea to Neutrogena Naturals. It’s valuable to have all of these case examples in one place. But it’s speculative to consider them “best practices,” since most provide no information about the success of these products. The section also reviews and explains greenwashing, regulatory standards for green marketing, ecolabels and cause marketing.

For sustainability practitioners who have followed green marketing and green product development closely over the last few years much of the material in this book will be familiar. But for those new to this topic, or any marketer, product developer, consultant or product-company executive who wants an efficient way of getting a comprehensive overview of this field, which is becoming a pillar of successful business, this book is a valuable resource. (It’s available for sale now on Amazon.com and elsewhere.)

Recent large global water catastrophes; flooding in Australia, Thailand and the U.S. can hide the fact that there is a global freshwater shortage not just in well publicized countries like Ethiopia and other similarly arid places, but also in developed countries across the globe.

The Carbon Disclosure Project recently release its CDP Water Disclosure Global Report 2011 (PDF). The report is based on a survey of some 190 organization. It found that 57 percent of responding organizations had board-level oversight of water policies, strategies and plans. For Paul Smith, CEO of CDP, that’s not enough. He wrote:

We need to see more companies understand that water is a critical issue, requiring greater board-level attention than it currently receives. Those corporations that navigate the challenges effectively will be able to profit from the significant opportunities that result from a robust water strategy.

A water management plan can deliver both financial and environmental benefits. Here are some examples of water management initiatives I have personal experience with:

• Undertake a water audit. If you do not have the in-house expertise this may cost some money but the savings should easily cover this. In the U.K. a number of start-ups have formed to help with water audits. See, for example, Waterscan and The Green Water Company.
• Check water bills (past and present) for inaccuracies. I disputed a large water bill in the U.K. that had a discrepancy of over £25,000 because the original bill was based on historical estimated readings.
• Install water smart meters. To get a truly accurate picture of your water use in real time these are essential.
• Ensure your operation complies with all applicable regulations. For instance, regarding water discharge.
• Publicize your work.

Water has to be on corporate agendas across the globe and not just as an afterthought following electricity and gas. If you’d like to share your experiences with water management, or would like to comment, please leave a comment below.

Martyn Harrison has a Masters’ degree in Resource and Environmental Management and a Bachelors’ degree in Environmental Conservation Management from the UK and loves all aspects of environmental
management and sustainability and how to make the world a better place. He has recently relocated to Singapore to further enhance his career and he is a  doting father of his 16-month-old baby.

The E P&L calculates environmental aspects of the company’s operations, such as water use and greenhouse gas emissions, and ascribes a financial cost to them. An E P&L doesn’t have to show only costs; it would ascribe revenue to initiatives that produced a net improvement of environmental performance, such as planting trees. PUMA does not show any such “environmental revenue” lines.

The company calculated that the environmental cost of the greenhouse gas emissions and water consumption across its supply chain in 2010 was €94.4 million, with over 90% of the total attributable to its suppliers. Net earnings in 2010 were €202.2 million, meaning that including environmental costs in the company’s P&L for real would slash its earnings nearly in half.

This initiative, the splashy announcement of it, complete with a live online Q&A by PUMA CEO and chief sustainability officer Jochen Zeitz, and ensuing publicity around it, are likely to stir greater interest in the corporate mainstream in the financial costs of environmental degradation.This is a great thing because accounting for the full cost, including ecological costs, of doing business, would go along way toward creating the incentives needed for dramatic improvements in corporate environmental performance. So despite my grim take on PUMA’s numbers, this is a wholly positive step and should be applauded.

PUMA’s calculus draws on the concept of ”ecosystem services.” For readers wanting to get up to speed on the concept of ecosystem services and how they are valued financially, I’ve assembled this selective reading list to get you started. If you have other sources you find valuable, please leave a comment.

• Valuing Ecosystem Services (WRI)
• Mainstreaming Ecosystem Services (WRI)
• Guide to Corporate Ecosystem Valuation (WBCSD)
• Valuing Ecosystem Services: Toward Better Environmental Decision-Making (National Academies Press). You can download a prepublication copy (pdf) of the above here.
• Valuing Ecosystem Services ( USDA Forest Service) 
•  An Introductory Guide to Valuing Ecosystem Services (pdf, DEFRA, UK)
• Video: http://www.youtube.com/watch?v=OribQXOYPLs (Gund Institute for Ecological Economics at University of Vermont)

There are broad differences in how companies set sustainability goals and which goals they choose to communicate publicly. In my many conversations with sustainability executives it’s become clear to me that many of them are not sure they are going about this in the best possible way.

Which Goals to Set?

With global warming the most prominent public environmental policy issue, it’s increasingly common for companies to establish goals for reducing carbon emissions. The specifics vary—from a percentage absolute reduction versus a prior year benchmark, to a reduction in “carbon intensity”—but carbon emissions reductions goals are table stakes for companies seeking to establish sustainability credentials.

Beyond carbon, many companies sensibly identify goals related to their major environmental impacts, or ones thematically related to their business. Given the attention that e-waste has received, it makes sense that electronics manufacturers like HP and Dell have set electronics recycling goals. The Coca-Cola Company has set a goal of neutralizing its water footprint by 2020.

Some companies, especially service businesses but also products manufacturers, are in setting goals regarding the environmental impacts their customers have while using their products and services.  A common form of this is energy efficiency targets for products.

Where in the Organization Are Goals Set?

Where in a company do sustainability goals originate? Are they set from the top down? Are they derived from the bottom up? In our interviews, we’ve seen approaches that are all over the map.

We heard the story about the global packaged goods company whose CEO set a goal that the sustainability team thought was absurd, unrealistic and unachievable. The sustainability lead at a large retail and pharmacy chain tells the story of how his CEO went on television and publicly announced a carbon emissions reduction target that was 50 percent higher than what he had agreed to the day before–to keep the sustainability leader “on his toes.”

Some companies take more of what might be called a bottoms-up approach. Dell told me, for instance, that it sets its sustainability goals with reference to science, input from engineering teams, and the product roadmaps of key partners.

A major automaker tells me that they’ve seen success setting sustainability goals from “the middle,” meaning that mid-level managers are asked to study a problem and establish a goal. They get together with their peers across different functions and look at technology trends, projections for the future size of the vehicle fleet, consumer expectations, regulatory trends, competitor behavior and so on. Middle management then proposes goals and an executive committee reviews and ratifies them.

Which Goals to Communicate Publicly?

Some companies are very sparing in which sustainability goals they choose to communicate publicly, regardless of how many internal goals they may set. Alliance Boots, the British retailer, has dozens of business units operating in dozens of countries. Each unit has its own environmental goals. But the company overall has publicized just one quantitative target: to reduce the carbon footprint of “Boots legacy stores” by 30 percent by 2020 compared to 2005. Real estate management firm Jones Lang LaSalle  has communicated a handful of sustainability goals but only one specific, measurable one: to reduce its clients’ carbon emissions by an amount at least ten times greater than its own carbon footprint each year. By contrast, some of the electronics firms I’ve spoken with have literally dozens of specific, quantitative goals. And UK retailer Marks & Spencer has received much attention for the 100 commitments it made in 2007 and the additional 80 in 2010, many of which are quantitative and specific.

New Research on Sustainability Goal Setting

We are researching this topic further and intend to publish a study on best practices for sustainability goal setting. If you’d like to participate in our research, have any suggestions, or have your own best practices to share, please leave a comment or drop me a line.

• Product development may seek sustainably sourced materials or designs that are energy efficient to operator or easier to recycle
• Supply chain may set sustainability standards for suppliers
• Manufacturing may focus on improving the energy and water efficiency of processes and the management of waste
• Facilities and IT have a lot of low hanging fruit in energy efficiency
• Transportation and fleet management groups may look at alternative fuel and hybrid vehicles and route optimization
• Human resources may take on employee engagement programs
• Marketing and public affairs groups will take on responsibility for engaging with external stakeholders and communicating about your company’s sustainability efforts

Where does your finance department fit in all of this? Finance can, of course, work to improve the efficiency of its own operations. The finance department at Yale University, for example, recently announced that it switched from paper to digitial distribution of its financial report to save paper and money. Some banks offer “green treasury” services to eliminate the paper involved through the treasury function.

But your finance department can play a much larger role in supporting your sustainability strategy than just improving its own operations. Finance creates leverage. And sustainability-minded finance can be a key ally to sustainability leaders.

We recently interviewed senior sustainability leaders at more than 30 major companies in North America and Europe. In that research we heard a few things about how finance departments are behaving at sustainability minded companies. (Our latest research report, based on those interviews, is available for purchase at an introductory price here.)

A few finance practices emerged that sustainability leaders should be aware of:

Allocate a pool of capital project money to the sustainability department. At most companies, central sustainability budgets are small. Capital projects, even those intended to to deliver sustainability benefits, are funded out of other departmental budgets. And sometimes sustainability projects get pushed aside by a department’s other priorities. To ensure that some worthy projects get done each year, one company we spoke with allocates a pool of money to be used for capital projects directly to the sustainability group. The sustainability department is able to use those funds to support a couple of capital projects of its choosing. And it also works  with other departments to influence their budgets to take on other worthwhile projects. You might want to see if your department can obtain a mini capital budget of its own in the next budget cycle.

Calculate risk-adjusted returns realistically. At some companies, sustainability projects have a hard time getting funded because they don’t appear to pass the company’s rate-of-return hurdle. The thinking goes like this: Why invest scarce capital in a lighting retrofit when a new product launch could deliver a rate of return many times greater? But the reality is that many sustainability projects–especially those centered on improving efficiency–have highly predictable rates of return and present almost no risk at all. Other projects they might compete with, such as new product launches or marketing campaigns, may be inherently riskier. Thus sustainaiblity initiatives can have a superior risk-adjusted rate of return. Make sure your finance department calculates risk-adjusted returns appropriately..

Sustainable 401K. Some companies tell us that their sustainability program is motivated in large part by a commitment to their own employees, who value a socially and environmentally responsible workplace. At such companies, it makes sense to look at financial benefits, such as 401K programs, through a sustainability lens. A growing number of 401K plans offer socially or environmentally responsible investment options. You finance department can help choose appropriate options for your company.

How is the finance department supporting sustainability at your company? Please leave a comment to discuss it with us.

Balancing Arguments Made by Environmentalists

The ExxonMobil report provides a useful counterbalance to some of the arguments made by environmental groups. Regarding oil sands, for example, the report states “there is concern among a range of stakeholders regarding the increased energy intensity and water use associated with developing oil sands.” It goes on to cite studies on life cycle greenhouse gas emissions by the Alberta Energy Research Institute and IHS CERA, suggesting that “the oil produced at the Kearl project [in northern Alberta] will have about the same life cycle greenhouse emissions as many conventional crude oils refined in North America.”

For context, it’s worth noting, though the report does not, that the Alberta Energy Research Institute is funded by the government of Alberta, which has a major economic stake in exploiting its oil sands reserve, and research and consulting firm IHS CERA’s major customers are energy companies such as ExxonMobil. But the broader point, that the correct basis for comparison is a full lifecyle analysis, is important and the possibility of achieving impact-parity is worth noting.

A Question of Tone

Yet the ExxonMobil report also raises an interesting question of tone.

Hydraulic fracturing is coming under increasing scrutiny by advocy groups, the media, political leaders and regulators. It’s safe to say that the practice is highly controversial. This search on the New York Times Web site today is illustrative. It turns up several articles with a negative cast linked to hydraulic fracturing, along with two upbeat sponsored links touting “proven technology” and “safeguarding a valuable resource.”

Search results for "hydraulic fracturing" on nytimes.com on March 3, 2011

The ExxonMobile report references this controversy with notable blandness, stating, ”The industry has over 60 years of experience with the technique; still, the use of hydraulic fracturing in the growing development of unconventional gas resources has prompted public interest.” “Public interest” is an almost comically mild way of characterizing the debate over this practice.

This mild rhetorical style is not used consistently throughout the report, however. You only need only look at the company’s description of the public policy debate around the impacts of climate change to feel the rhetorical temperature rise. “Designing equitable policies to limit emissions and to create acceptable frameworks for the massive investments and financial transfers has been, and will continue to be, contentious.”

The inconsistent tone of the report is a relatively minor point. Far more important is a factual and comprenhensive discussion of what the company is doing and plans to do and what its results have been so far. But ExxonMobil and other companies would do well to attend to the tone of their sustainability reporting to make sure it portrays them as they intend.

UPDATE:

I just came across oil and gas industry guidelines for environmental reporting.

It may appear that these two traumas have nothing in common. Indeed, the havoc in the stock market will prove ephemeral, while the devastation of the Gulf oil spill could be with us for a generation or more. But they are linked by the role technology played in each of them.

As the New York Times noted, the oil drilling platform that exploded and sank in the gulf “was described before the accident as one of the most technologically advanced drilling platforms in the world.” Drilling for oil miles below the earth’s crust and a mile below the sea was once inconceivable. But now it’s a proud triumph of technological advancement. In the case of the stock market plunge, suspicions center on the role of computer-driven flash trading, the esoteric and technologically sophisticated mechanism for making profits by deploying more computing power than one’s competitors in the market.

The common thread joining these two stories is the ability of technology to elude the understanding of its creators, and its power to wreak havoc beyond our control.

It was over two years ago that the $7.2 billion dollar loss inflicted on Societe Generale by a rogue trader evoked for me the Exxon Valdez and the principal that technological sophistication brings power that tends to outpace our ability to understand it and leaves us unprepared for the consequences of its misuse.

It would be a good thing if our technophilic society learned humility from these episodes.

The program is intended to prepare mid-career executives for a transition to the cleantech industry. I am among the first cohort of 30 participants, who come from varied backgrounds including banking, media, IT, law and the non-profit sector.

Our tuition is paid by NYSERDA, the New York State Energy Research and Development Authority, which is seeking to foster the development of the cleantech industry in New York and sees this program a means of building the ranks of experienced executives in the industry.

Yesterday we reviewed a case study of Verdant Power, a developer of marine power generation projects and technology. The company achieved an important milestone when it fielded a pilot project in the East River of New York City involving 6 underwater turbines that are providing power to the grid using the renewable power of the tides, generating no emissions and without harming acquatic life. Ron Smith, CEO of Verdant Power, listened in on a freewheeling analysis of his business and then took the floor to tells us about his company and to field our questions.

For many of us, the inspiring story about the company and its mission were overshadowed by the realization of just how difficult the regulatory environment is for startups such as Verdant Power. The company has spent a significant share of its limited resources seeking regulatory approvals and has had modest results to show so far. The company also illustrated just how nascent its industry is. Although the company has a staff of only twenty, it must perform technology design and development, resource assessment (identifying appropriate sites), and project development because suitable partners are few and far between.

There is a lot of enthusiasm on day two of the program. Some 2/3 of my class are interested in starting their own businesses, and I am hearing some pretty interesting ideas in the halls. I’ll post more on the program and what I learn in the coming weeks.

If you are familiar with similar programs in other locations, please leave a comment–I’d love to hear about them.

The New York Times reported today that utility-scale solar energy projects in the sun-rich but water-poor Southwest and California are running into obstacles as project developers compete with local interests for access to water. One proposed solar project in Nevada, for example, would have used some 1.3 billion gallons of water per year.

If water is the new oil, water-guzzling energy installations will face justifiable skepticism, especially in dry areas.

The article references BrightSource, a solar developer with a relatively less water-intensive approach to power generation. It quotes BrightSource investor (and my new favorite VC) Alan Salzman of VantagePoint Venture Partners explaining his decision to invest in BrightSource:  “Our approach is high sensitivity to water use …. We thought that was going to be huge differentiator.”

As alternative energy sources are developed and deployed, it clearly critical that investors, developers and regulators consider the big picture environmental impacts of new projects.

What’s your perspective?