Business and Environment Series: Marcus - Strategic Environmental Management

STRATEGIC ENVIRONMENTAL

MANAGMENT

Alfred MarcusCarlson School of Management

What is Strategic Environmental Management?

From Compliance to Business Growth and Development

opportunity, not constraint

enhance competitiveness

3

Win-Win Conversion of Environmental Challenges to

Opportunities????

HiHi

ProfitsProfits

LoLo

GoodGood BadBad

Environmental PerformanceEnvironmental Performance

Old ModelOld ModelWin-LossWin-Loss

ComplianceComplianceModel (neutral)Model (neutral)

New ModelNew Model

Win-winWin-win

5

Evidence of Economic Benefits from SEM

Corporate performance (CSP) and corporate financial performance (CFP) are positively correlated.

Reputation is an important mediator of the CSP-CFP relationship.

Meta-analysis of 52 studies by Orlitzky, Schmidt, & Rynes (2003)

6

Evidence of Economic Benefits from SEM

Saving $ through energy saving and prevention of risks/lawsuits

Support from socially responsible investment 　 $3.07 trillion in 2009 ($2.71 trillion in 2007)

(Social Investment Forum, 2010)

HOW ACHIEVE SEM???•LOWER COSTS: reduce wastesLOWER COSTS: reduce wastes•INCREASE REVENUE: higher value productsINCREASE REVENUE: higher value productsINNOVATE ----INTRODUCE NEW TECHNOLOGIESINNOVATE ----INTRODUCE NEW TECHNOLOGIES

CostCost

TimeTimebenefitsbenefits

learning

CashFlow

Costs

Earnings

Risks

Cost of Capital

StrategicAnd

PolicyDecisions

Change In

Value

•Energy Efficiency•Material Efficiency•“Dematerialization”•Reduction of Toxicity

SEM Valuation

3M --Dr. Joe Ling:Pollution Prevention

“Pollution is … unused raw material. By reducing the

amount of pollution, … [3M can] save money both on

pollution control and on raw materials the next time around.

It's a win-win situation.”

Dr. Ling launched 3M’s Pollution Prevention Pays program in 1975

POLLUTION PREVENTIONPOLLUTION PREVENTIONLOWERS COSTS: REDUCES WASTELOWERS COSTS: REDUCES WASTE

11

22

33

44

Process/processProcess/processstepstep

productproduct

otherother

air air releasesreleases

waste waste waterwater

haz/solidhaz/solidwastewaste

TTOOTTAALL

IINNPPUUTTSS

TTOOTTAALL

OOUUTTPPUUTTSSTotal inputs =Total inputs =

Total outputsTotal outputs

Pollution Prevention Pays (3P)

Foundation for governmental environmental policies/programs globally

Benefits for 3M or for its customers & suppliers.

Fundamental to 3M philosophy

3M’s 3P Results (aggregate first year savings)

Over 3 billion pounds of pollution prevented

Over $1.4 Billion saved

CashFlow

Costs

Earnings

Risks

Cost of Capital

StrategicAnd

PolicyDecisions

ChangeIn

Value

•New products•New markets•New clients• Price premium

Valuation: Environmental Elements

350

300

250

200

250

150

100

50

0

12%

10%

8%

6%

4%

2%

0%

Note: Chart includes any product that claims in label or advertising to address environmental concerns .

Source: Marketing Intelligence Service

1985 1986 1987 1988 1989 1990

0.5%

1.1%

2.0%

2.8%

4.5%

9.2%Introductions per Year

Percent Share of Total Introductions

18

NEW GREEN PRODUCTS 1985-1990

Do consumers accept?

*

* *

*

*

*

24

60

122

160

262

308

3M- Using the Sun Instead of Electricity

• Enabled by 3M Multilayer Optical Film

• Materials & process breakthroughs

• Enabled by 3M Multilayer Optical Film

• Materials & process breakthroughs

“Piping” sunlight through a building“Piping” sunlight through a building

“Core Daylighting” Impact

Prototype systems installed in Canada, U.S. and Middle East Energy savings larger than anticipated

System now being commercialized

3-5 Year payback anticipated

New Green Products Today

Do Good– Affirmative !!!

• Activist• Eco-entrepreneur

– Sustainable• Environment• Social• Economic

Bottom of the Pyramid (BOP) Entrepreneurial Opportunities

A $ 5 trillion Market

WHAT BUSINESS TO BE IN?

INNOVATE ----INTRODUCE NEW TECHNOLOGIES & INNOVATE ----INTRODUCE NEW TECHNOLOGIES & PRODUCTSPRODUCTS

*Develop and acquire “green businesses”

*Divest and alter “environmentally damaging businesses

11

Edgar Woolard CEO 1989-95 outspoken commitment corporate environmentalism “greening” of portfolio

voluntary exit CFC production SUVA brand HCFC & HFC refrigerants, coolants, air conditioning

agents Chad Halliday his successor

further “greening” of portfolio WHY?

Global Challenge = Opportunity 50% more mouths to feed aging population

Technology 7-8 years slight modification 4-5 years whole new crop

Strategic Realignment by Du Pont

Funds research in “life sciences” with mature businesses (e.g.nylon & polyester)

Sells Conoco Acquires controlling interest Pioneer Hi-Bred

Uncertainties: Obstacles to Realization

Competition Monsanto: genetically modified material

• finance Searle - Nutrasweet & drugs (Celebrex)– Novartis, Hoechst+Rhone Poulenc =Aventis

• same strategy• Environmental & Regulatory

Frankenstein Foods European regulation

separation approved and unapproved strains food labeling

Technological: picking winners - best options feedstocks for bioengineered chemicals corn for chicken feed soy for heart healthy oil

SEM NOT EASY TO ACHIEVE: no slam dunk, but necessary and essential to corporate bottom line