Sustainability: The Next Generation
by Russell Barton
Since the early part of this decade, the movement to certify sustainable forest management has been growing slowly but steadily in the wood products industry. While the environmental community and the wood products industry in North America have been debating the costs of certification and its perceived threat to competitiveness (not to mention whether business and the environment can even coexist), a number of revolutionary European companies are integrating sustainability into their core business operations and strategies.
Risks of the Status Quo
Where to start in pursuing a strategy of sustainability? The first requirement is to understand the risks associated with the status quo. The Natural Step organization dramatizes this risk with a schematic drawing of a funnel. The bottom line - representing global demand - is rising rapidly as populations and levels of consumption increase and industrialization makes its way inexorably throughout the world.
Simultaneously, the top line - representing the capacity of the earth's natural systems - is declining precipitously. What's more, nature's ability to absorb the waste inherent in our industrial system is also in decline, as are all the "natural system services" that cleanse air and water, generate soil, run biochemical cycles, stabilize climate and so on. (Economist Robert Costanza, biologist Gretchen Daily and others calculate that nature's "services" contribute over $30 trillion annually to the world economy, which is running at just over $20 trillion/year).
Before global demand and natural systems collide, some economists speculate we'll hit some bumps along the way. Resource prices and the cost of waste disposal will go up. Health care costs, regulatory pressure, consumer demand and the backlash from environmental groups will impose greater pressure on business. Brand image may be eroded. New employees may be harder to recruit. Insurance and financing will be tougher to get. Thus, postulates the Natural Step, organizations that figure out how to be sustainable first will inoculate themselves against these risks.
Control Your Own Destiny
A handful of visionary business leaders are beginning to understand that a fundamental focus on sustainability can position them for dramatic advantages in the future and provide huge benefits today. AssiDoman is a major Swedish forest products company and the largest private landowner in the world. Kraft paper for packaging is the mainstay of its business, yet AssiDoman is thrilled with Europe's drive to reduce packaging.
How can this be? Because it has driven product designers and research staff to achieve dramatic innovations that increase the value-to-material weight ratio in their packaging. Company leaders understand that, as the resource base of their products goes down, the importance of the value-added content will go up.
AssiDoman has achieved major breakthroughs in printing technology and in de-inking and bleaching recycled stock, all of which were driven the catalyst of sustainability. These innovations create immediate and long-term advantages not available to competitors with a narrower view of sustainability - those who aspire only to harvest trees sustainably, for example.
Another Swedish forest products giant, SCA, is investing heavily in research that will replace all synthetic polymers with biopolymers within 3-5 years. SONY Germany has invented a process that uses citric solvent to melt polystyrene foam and recover it in 99% of its pure form, functionally eliminating the need to buy new packaging materials. IKEA, the furniture manufacturer, first created a parallel, "green" line of furniture using particleboard with extremely low formaldehyde. By stimulating innovation among its designers, the company developed the properties of the new material so well and at such low cost that it is used in all their furniture, the only large manufacturer in the world to do so.
Beyond innovation, a quest for sustainability can also lower manufacturing costs and eliminate waste. When AssiDoman began to measure costs, they found that ecologically sound harvesting cost more the first year for any given site, often three times as much as conventional practices. But over a five-year period, the additional costs of rehabilitating a clearcut area - to drain, scarify, harrow, build roads and replant - far outweigh the costs for a sustainably managed site. By the start of the third year, the operating costs are about even and, after only five years, the sustainably managed sites are, on average, 56% cheaper than clearcuts.
And that's just the cost. On the revenue side, the sustainably managed sites grow better trees, stronger wood fiber and more of it, which means more board feet and higher prices. Most strikingly, there's a gleam in managers' eyes. When we questioned one manager hard about costs and profit margins, he said: "If you have a motivated workforce, things are cheaper."
A long-range strategy of sustainability can also build internal corporate support for the most creative and productive research initiatives. For example, by investing in biopolymers instead of synthetics, SCA will never have to worry that their research commitment may be undermined by regulations, consumer backlash or legal liability. All they have to worry about is the simple (fun) challenge of outhustling the competition - if any companies are still running with them.
Sustainability also enhances product differentiation, strengthens brand image and leads to stronger customer relations. In fact, in enables a company to redefine the rules of the game. What started out for IKEA as a single piece of furniture grew into a small line and eventually took over 15% of sales to become the fastest growing segment in the company. AssiDoman works with its customers to meet their packaging needs with less materials but more value, and the company has made huge inroads in Germany, where the consumer demand for "totally chlorine-free" pulp and paper is strong.
Haering Construction, a medium-sized Swiss company builds McDonald's restaurants in Sweden. It's a client the company won because of its sustainability perspective. The new restaurants have no heating system, but they're cozy nonetheless because they recapture all the waste cooking heat. And the buildings can be set up and knocked down in two days because Haering and McDonald's believe that, in the future, when society really figures out this sustainability thing, cars will be a lot less prevalent. When that day comes, their restaurants will have to be moved to where the people are living.
Sustainability can also strengthen relationships with suppliers, helping partners drive down costs. IKEA worked with its suppliers to develop and disseminate the innovations that would make its line of "green" furniture competitive with traditional products. Similarly, BMW and Volvo conduct extensive life cycle analyses with their suppliers, and they work with them to design materials that reduce costs and promote sustainability throughout the supply chain.
Dignity is Job One
More than anything, a commitment to sustainability can vitalize a company's employees, inspire them to collaborate in a noble venture and stir them to increased levels of caring - about the organization, its customers, continual improvement, and, cost reduction. AssiDoman trains its loggers two weeks a year in forest ecology and, in the average first cut, the company harvests only 85% of the timber volume that is typically removed by industrial foresters. Yet the company's cost of operations is cheaper.
AssiDoman loggers relate how proud they feel to talk about their work with their children at the dinner table. While other loggers may become defensive or sullen, that priceless emotion - pride - translates directly into superior performance. Likewise, Haering's senior managers spring around the factory floor, eager to show how their sustainability-driven breakthroughs will help humanity and make money in the bargain. Volvo inspires all 70,000 of its employees through training in sustainability, which the company has elevated to a "core value" along with safety and quality - the first such addition since 1927.
Woven together and skillfully leveraged, these benefits provide immediate short-term results as well as a foundation for long-term success. They provide insurance against the risks we face as a global society - specifically, the risk that companies will increasingly be forced to make environmental changes before they're ready.
from Understory