This chapter is from the book
This chapter is from the book
This chapter is from the book
Breaking Free of Command-and-Control
Accompanying the greening revolution in the corporate sector was the emergence of a new philosophy in regulation and public policy that recognized the limitations (and expense) of conventional regulation and the end-of-the-pipe mentality. In response, a slew of new voluntary initiatives were introduced that recognized the power of information disclosure and transparency.14 The pioneering initiative was the Toxic Release Inventory (TRI) in the U.S. Passed in 1988 as a rider on the Superfund Reauthorization (the law establishing strict liability for toxic waste sites), the TRI received relatively little attention in its early days. This seemingly innocuous provision required only that manufacturers disclose their use, storage, transport, and disposal of more than 300 toxic chemicals (all of which were perfectly legal at the time). Much to everyone's surprise, this data, maintained by the U.S. Environmental Protection Agency, became an important new source of information for activist groups, the media, and third-party analysts to track corporate environmental performance. Top 10 lists of corporate polluters became de rigeur.
The TRI also provided, for the first time, a metric for corporate and facility managers to track their own firms' performance and benchmark it against competitors. What gets measured gets done. Ten years later, toxic emissions in the United States had been reduced by more than 60 percent, even though the U.S. economy boomed during the 1990s. Indeed, many companies actually saved tens of millions of dollars in the process of reducing or eliminating their toxic emissions.15 We could argue that the TRI was one of the most important and effective pieces of social legislation ever passed. And it required nary a lawsuit, court battle, or inspector to make it happen. Since then, many developing countries have adopted a similar philosophy of transparency and information disclosure as the basis for their environmental policies, given that these can be implemented at a fraction of the cost of command-and-control regulations.
Equally important was the advent of "extended producer responsibility" laws, primarily in Europe.16 Quite simply, these laws stipulate that manufacturers are responsible for the products they create all the way to the end of their useful lives. Beginning with regulations on packaging waste in Germany in the late 1980s, these laws now extend to several industrial sectors, including automobiles, consumer electronics, and computers. Requiring that producers take back their products after they have reached the end of their lives has obvious effects on the way companies go about designing products in the first place. This simple requirement has fomented a revolution in product stewardship and "green design" protocols, using life-cycle management as its core principle. Rather than focusing only on the phase of the product's life cycle that the company controls (manufacture or assembly), product stewardship means designing products to take account of their entire life cycle, from the sourcing of raw materials and energy from the Earth to the reuse, remanufacture, or return of the materials to the Earth. Rather than thinking linearly, in terms of "cradle to grave," increasingly, designers think cyclically, in terms of "cradle to cradle."17
In the process, companies have discovered that life-cycle design principles can yield competitively superior products. During the early 1990s, for example, Xerox pioneered take-back, remanufacturing and design-for-environment strategies in the photocopier business and reaped significant competitive benefits. Given the company's extensive field presence for servicing commercial copiers, it was relatively easy to take back used machines, refurbish parts and components, and produce a line of remanufactured machines. However, it was not until the mid-1990s that Xerox actually began to design copiers with an eye toward taking them back. This program, dubbed Asset Recycle Management, was founded on the notion that by reusing assets as many times as possible (recall that most Xerox commercial copiers were leased, not owned by customers), the company would not only reduce its environmental footprint, but also lower its costs and increase its return on assets. It set the goal of producing "waste-free products from waste-free factories."18 By the late 1990s, Xerox was saving close to $500 million per year through this program, a figure approaching 2.5 percent of company sales. In fact, it can be argued that, given Xerox's failure to shift its strategy toward printers (considering documents were increasingly being stored electronically and printed rather than duplicated), the Asset Recycle Management Program kept the company afloat for much of the 1990s.
As the green revolution progressed, leading companies began to shift their energy and attention more toward proactive strategies that reduced waste, emissions, and impacts while simultaneously reducing costs and risks. Paying real money for raw materials and inputs only to dump substantial amounts of these into the environment in the form of waste made little economic sense. In fact, Dow Chemical estimated in the early 1990s that reactive efforts such as regulatory compliance, cleanup, and remediation result in returns in the range of -60 percent while proactive initiatives typically produce positive returns in excess of 20 percent.19 The problem was that most corporate activity (perhaps as much as 90 percent) was still of the reactive variety. The challenge was to transform the portfolio so that more was of the proactive sort. Ultimately, the goal is to get out of the regulatory compliance business entirely.
It was becoming clear that under the right circumstances, firms could actually improve their own competitive position by creating societal value. They could, for example, lower costs by internalizing externalities through pollution prevention. Furthermore, through product stewardship, it was sometimes possible to supply public goods and achieve superior performance. Witness Volvo's new radiator that actually cleans the air as it cools the engine or BP's climate-change policy that reduces its greenhouse gas emissions while reducing its costs. We should emphasize, however, the caveat "under the right circumstances:" Only through creativity, imagination, and the persistent development of particular skills and capabilities can firms simultaneously optimize financial, social, and environmental performance.
By the early 1990s, the greening revolution had led to the creation of a new dual-degree program at the University of Michigan involving both the Business School and the School of Natural Resources and Environment: the Corporate Environmental Management Program (CEMP), now the Erb Institute's dual masters program. Integrating pollution prevention and product stewardship into the management curriculum was the backbone for this program. As the founding director of CEMP, I had completed a virtual turnabout: It was now clear to me that the corporate sector itself was the key leverage point for achieving substantial and lasting change in societal performance and that financial performance need not suffer in the process. I could finally put aside the demons from the past associated with "the smell of money." I came to realize instead that pollution was the smell of waste and poor management.