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Sustainability in Industry: Benchmarks and Road Maps

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  1. Sustainability in Industry: Benchmarks and Road Maps Darlene Schuster Director, Institute for Sustainability November 2008

  2. Acknowledgements • Calvin Cobb, Chair Institute for Sustainability 2006-7 • Subhas Sikdar, Chair Instiute for Sustainability 2008 • Golder and Associates • Beth Beloff, • Dicksen Tanzil, • Abigail Martin • Industry Representatives to Center for Sustainable Technology Practices (CSTP) Sustainability Guide Task Group • Carol English, Cytec Industries, Inc. • Charlene Wall, BASF • Dave Taschler, Air Products • Lafayette College • Professor Javad Tavakoli

  3. The Institute for Sustainability • A community of sustainability “practitioners” • Companies (Center for Sustainable Technology Practices) • Professionals—industry and academic (Sustainable Engineering Forum) • Youth (Youth Council for Sustainable Technology Practices) • Organized under the American Institute of Chemical Engineers (AIChE) • Professional membership organization • Non-profit 501c(3)

  4. Overview of the Institute IfS Practitioners, students & companies Sustainability Engineering Forum 745 AIChE members 950 additional non- AIChE members $25 dues Center for Sustainable Technology Practices Industry Group 10 companies, growing Air Products, BASF, Cytec, Dow, FMC, Honeywell Interface Inc. , Middough (WalMart) Youth Council on Sustainable Sciences & Technologies Partnership w/ SustainUS 9750 students, growing Incorporates sustainability into undergrad research, sponsors awards & student chapters Projects of IfS 1.Sustainability Index Purpose of financial guidance, benchmarking & management Differential to other indices Potential for high profitability 2. ICOSSE Aug 09 Mission: to serve the needs of and influence the efforts of professionals, academes, industries, and governmental bodies that contribute to the advancement of sustainability and sustainable development.  ifs@aiche.org

  5. Triple Bottom Line:A Business View of Sustainability

  6. “Sustainability is a path of continuous improvement, wherein the products and services required by society are delivered with progressively less negative impact upon the Earth” Defined by AIChE Institute for Sustainability November ‘04-July ‘05 Grassroots Project, Earl Beaver, Chair IFS

  7. Credit Trading Design Ecosystems Modeling Watershed Protection Industrial Ecology

  8. How is your Company’s Sustainability Performance Viewed? • By the community? • By your shareholders? • By your customers? • Versus your peers? The AIChE Sustainability IndexTM

  9. How is your Company’s Sustainability Performance Enhanced? • Via the value chain? • by corporate decision making? • by job function? The CSTP Sustainability Roadmap A Process for Sustainable Decision Making

  10. Purpose of a Sustainability Index • Investment guides • Ethical investment/SRI • Long-term return (“stock picks”) • Stock market indices • Stakeholder ratings • Benchmarks for company management

  11. Examples of Financial SI’s

  12. An Example The Dow Jones Sustainability Index (DJSI) • Investment guide • Includes only companies that meet DJSI criteria – governance, transparency, accountability • Stock market index • Track market performance of DJSI components • Subset of corresponding broader indexes • DJSI World, subset of Dow Jones World Index • Benchmarking • Inclusion, being sector leader • Consulting services through SAM – analysis and recommendations for companies who want to be included, improve ratings

  13. Used for Market Tracking Source: SAM, Dec 2007

  14. Reporting of Financial SI’s • Dow Jones Sustainability Indices • Inclusion (in or out), ‘Supersector Leaders’ • Individual company scores & analysis – to licensees only • FTSE4Good • Inclusion (in or out) • Individual company scores & analysis – to licensees only • GS SUSTAIN • Ratings: leaders, average, and laggards • Analysis for sector leaders • energy, mining & steel, food & beverage, pharmaceutical, alternative energy, environmental technologies, biotechnology • Innovest • Top companies – sector leaders & Global 100 list • Ratings (AAA to CCC) and analysis, for investor clients only

  15. What a Company Can Get from Financial SI’s • Dow Jones Sustainability Indexes • Benchmarking with peers, advisory • FTSE4Good • “Guidance and support” for companies to work towards inclusion in FTSE4Good – through EIRIS • GS SUSTAIN • (none specific to sustainability and its ESG analysis) • Innovest • “Confidential custom benchmarking studies” for companies – operational efficiency and business opportunities per peer analysis

  16. Concept of the AIChE Sustainability Indexsm • Based on the Wright Killen Refinery Survival Index (Oil and Gas Journal) • Meant to fill a gap: • Relies more heavily on quantitative performance indicators • Provides a heavier weighting applied to various indicators of safety and environmental performance and to technological innovation towards SD • Available to range of sectors, company size • The scoring: robust methodology designed to account for subjectivity in a transparent manner. • Designed to avoid the ‘black box’ problem of other indices • Intended for executives and directors to manage company business lines • Global, initially focusing on major chemical companies • Publication remains silent on individual company ratings • Companies find it useful to benchmark themselves relative to a set of companies Research funded by United Engineering Foundation

  17. Status • Needs analysis completed in the Fall of 2005 • Pilot study performed in 2006 • Launch • Methodology Published June ‘07 • Index for Fortune 500 CPI November ’07 • Additional pilots underway for Engineering Construction and Energy/ Power Sectors • Requests to explore development of index from water resources, textile chemical manufacturers Research funded by United Engineering Foundation

  18. Advisory Panel • Mission • to  protect and promote the soundness, credibility and utility of the AICHE Sustainability Index™ • Advisors: • International financial community • Industrial sector experts • Media • Non-governmental Organizations (NGO’s)

  19. AIChE Sustainability IndexTM for the Chemical Industry November 2007 Gray Shading = Ranges of individual company scores Blue Line = Simple average of 11 representative companies

  20. AIChE Sustainability IndexTM for the Chemical IndustryNovember 2007

  21. AIChE Sustainability Index for the Chemical Industry (Simple Average) September 2007 Gray Shading = Ranges of individual company scores

  22. Strategic Commitment Environmental Performance Safety Performance Product Stewardship Innovation – meeting social needs Value-Chain Management The AIChE Sustainability IndexTM Fall 2007 Notes: For Sustainability Index methodology and data sources, see CEP, June 2007, pp. 38-42. Companies included in the assessment are ____, ___, ____, … 4.1 4.3 4.3 3.8 4.0 3.9

  23. Elements of the Index • Strategic Commitment • Safety Performance • Environmental Performance • Resource Use • Waste & Emissions • Environmental liabilities • Product Stewardship • Innovation • Product and service innovation – meeting social needs • Process innovation • Value Chain Management • EHS Management • Supply Chain Management • Stakeholder Engagement

  24. Unique Elements • Strategic Commitment • Safety Performance • Environmental Performance • Resource Use • Waste & Emissions • Environmental liabilities • Product Stewardship • Innovation • Product and service innovation – meeting social needs • Process innovation • Value Chain Management • EHS Management • Supply Chain Management • Stakeholder Engagement

  25. Calculations Use Existing Data Sources • Company reports • Annual Corporate Reports • SEC 10-K Filings • Sustainability/EHS Reports • Government Agencies • EPA • CSB • U.S. Patent & Trademark Office • Company websites • Media reports • Independent NGO reports

  26. Value Chain Management Details • Environmental Management System • Corporate level environmental management system – ISO14001, RC-14001, RCMS or EMAS certified • Facility level environmental management system – ISO14001, RC-14001, RCMS or EMAS certified • % certified • Indication of presence/current effort • Supply Chain Management • Presence of a supply chain policies and procedures related to sustainability • Sustainability evaluation required of suppliers • Audits of supplier practices • Policies extended to suppliers’ suppliers

  27. Value Chain ManagementIdeal Score of 7 • Value-Chain Management—Project Orientation • System in place to manage sustainability performance in operations and project delivery • System in place to manage sustainability performance of sub-contractors and other suppliers • Significant number of projects demonstrate excellence in long-term environmental and social performance • Value-Chain Management—Product Orientation • Externally recognized environmental management system in-place at the corporate level and at all major facilities • Presence of company-wide supplier management policies and procedures related to sustainability, applied and enforced to all supply-chain entities with potentially significant impacts

  28. AIChE Sustainability IndexTM • Drills down, but remains broad enough • Based on public data • Targeted for managers and corporate executives, not investors • Focused on • Environmental – performance metrics • Safety – performance metrics (workplace, process) • Product stewardship – mgmt system, history • Value chain management – mgmt system • Sustainability innovation – initiatives, tools, results • Social performance and strategic management also covered • Less than other indexes • Benchmarked to peers and best practices

  29. How is your Company’s Sustainability Performance Viewed? • By the community? • By your shareholders? • By your customers? • Versus your peers? The AIChE Sustainability IndexTM

  30. How is your Company’s Sustainability Performance Enhanced? • Via the value chain? • by corporate decision making? • by job function? The CSTP Sustainability Roadmap A Process for Sustainable Decision Making

  31. CSTP formed in 2004 as part of the AIChE’s Institute for Sustainability • Supported by member companies • Tailored collaborative projects and pre-competitive research • Monthly sustainability education “virtual” sessions • Utilize members to conduct project work • Project: Development of Case studies and evaluation of Decision Support Tools in industrial Use • Project: Focus Groups for Survey of Sustainability in the Chemical Industry (PriceWaterhouse Coopers) • Project: R&D Checklist for Sustainability • Project: Sustainability Roadmap

  32. Background • Project: EPA Grant 2005: Case Studies of Industry Decision Support tools for Sustainability • Identified gaps & challenges • Great tools, not widely used • Need for better integration of sustainability into business processes • Understand context of management and technology decisions along value chain • Understand key decision points, relevant SD considerations, and key functional areas/decision makers involved • Need to understand the broader set of tools, approaches, and other resources to help integrate SD into the organization

  33. Roadmap Structure & Organization • Composite Checklist – Questions to guide sustainability consideration at each value-chain stage Main Page: Overview Key corporate functions & resources • Summary Table – • Form to record answers, action plans, responsible parties, status and documentation • Scoring Framework • Highlight issues and opportunities, updated at each stage

  34. Potential for ImprovementSD Roadmap Summary Table • 192 Key Sustainability Questions • Where to ask them during process and product development • Who should be included in the “answers?”

  35. SD Considerations Resource Use Energy use, material intensity, water use, land use Environmental EnvironmentalImpact GHG emissions, air emissions, solid waste, (pollutant effects) Health & Safety Toxic reduction, hazards, process safety Social Societal Impact Workers’ well-being, local community impacts/QOL, global societal impacts/contributions Economic Impact Financials along value-chain (corporate, customers, …) Econ. Management Internal process, value-chain partnership, stakeholder engagement Business Perspective Business Strategy Alignment with business strategy, core values & competencies, market & regulatory drivers

  36. Resource Use • Energy Use • How energy intensive is the feedstock? Which feedstock materials are the most energy intensive and are there energy-efficient alternatives? • Can the feedstock be produced using renewable energy? • Has energy consumption been optimized for the selected process? • Can any byproducts be used as energy ? • Will energy be saved or conserved in the distribution of this product vs. alternative products/processes? • Will the use of this product save or conserve energy for the customer versus alternative products/processes? • Would there be opportunities to use renewable energy in the production, distribution or use of the product/process? • Are there alternatives for more energy efficient transportation/distribution system? • Could the product be reused/recycled to reduce life-cycle energy use? • Water Use • How water intensive is the feedstock? Which feedstock materials are the most water intensive and are there water-efficient alternatives? • Has water use been optimized for the selected process as both a reagent and processing medium? • Have water source alternatives been evaluated and considered? • Have water quality considerations been aligned with use requirements? • Will the product/process be more water efficient in production and use? • Has water been reused and recycled appropriately? • Have equipment and technology alternatives been evaluated for optimizing water use?

  37. Value Chain Stages Corporate functions to involve or consult at each value chain stage. (RACI Chart) Corporate Functions Sustainability considerations Tools & Resources Elements of the Roadmap

  38. Value Chain Stages Corporate functions to involve or consult at each value chain stage Corporate Functions Sustainability considerations Tools & Resources Engaging Key Corporate Functions • Value Chain Axis • Business Strategy Development • Upstream Input • R&D • Idea Generation • Concept • Scoping • Definition • Development • Scale up • Commercialization • Production • Distribution • Industrial Consumer Use • Customer Use • End of life • Facility • Molecule

  39. Value Chain Stages Corporate functions to involve or consult at each value chain stage Corporate Functions Sustainability considerations Tools & Resources Engaging Key Corporate Functions • Corporate Functions Axis • (each box represents a different corporate function that is critical to driving sustainability in the organization) • Executive Management • Financial • Business Management • R&D • EHS • Engineering • Manufacturing / Operations • Logistics / Supply Chain • Sales • Customer Technical Service/Support • Marketing • Communications • Public Relations • Human Resources • Legal • Information Technology & Management

  40. Checklist along the Value Chain Sustainability Considerations Value Chain Axis Sustainability Considerations Specific questions, applied and modified along the value chain whenever appropriate

  41. Value Chain Stages Corporate functions to involve or consult at each value chain stage Corporate Functions Sustainability considerations Tools & Resources Elements of the Roadmap Tools & Resources Publicly available & in-house tools to support sustainability considerations along value chain

  42. Idea Genera-tion Concept Scoping Defini-tion Develop-ment Scale-Up Com-mercial-ization Scoring Framework

  43. Using the Roadmap • Model developed by CSTP member companies & associated consultants • Next step… validation of concept in use

  44. Illustration of Roadmap • “Evaluation of Biofuels Processing Plant—Upstate New York”. • Reuse of existing brownfields site • Possible Feedstocks: Corn; Willow • Stages of Roadmap to Illustrate: • Upstream Input Stage (show examples) • Commercialization Stage (in progress) • Provide feedback on criteria, questions • Partner with Lafayette College cross functional team

  45. Process of EvaluationOur Hypothetical Company • Information • Located in upstate New York • Purchases corn primarily from mid-western states • Has onsite corn ethanol refinery • Grows willow biomass onsite • Has onsite willow ethanol refinery • Focus of study: • Not to consider the most sustainable industry possible • Developing a plausible vantage point to make comparisons between corn and willow ethanol

  46. Test Case: Biofuels Plant • Established process for biofuel from publicly available information • Answered Roadmap questions based on internet sources & personal/professional opinion/insights • Used publicly available information on willow and corn-derived feedstocks • Focused on issues with sustainability and energy efficiency

  47. Process of EvaluationExample Industries • Corn Ethanol • Well developed industry • Studies done by a variety of sources; data readily available • Production plants already in operation across the US • 2 processes: dry and wet milling