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The Value of Sustainability in Business Operations

Despite the administration’s focus on removing environmental protections, businesses’ sustainability efforts generally have a positive effect on their image as well as bottom line.

Q3 2017
In his opening statement at a June budget hearing, EPA Administrator Scott Pruitt reiterated the agency’s commitment to a “back-to-basics” agenda focused on removing environmental protections that inhibit job creation. As part of the administration’s plan to allow states to take over many of the agency’s responsibilities, Pruitt also stressed that “a one-size-fits-all strategy to achieve environmental outcomes doesn’t work.”

Furthermore, the President’s staff has stated that the proposed budget aims to reduce redundancies and inefficiencies and prioritize EPA’s core statutory mission of providing Americans with clean air, land, and water as well as ensuring safe chemicals — the proposal includes a 31 percent cut in the budget. Additionally, the White House has indicated that EPA should rewrite certain Obama-era rules that have curbed carbon emissions.

In January President Trump had signed an Executive Order for a hiring freeze, which was lifted in April. But in light of other potential budget cuts, EPA is not rushing to staff up. Some report that the President could move to dismantle EPA. However, there are so many institutional, political, and legal obstacles, that the prospect of dismantling EPA is highly unlikely. After all, changing laws takes a very long time and is an arduous process.

In addition, it is widely documented that the majority of Americans (including both Democrats and Republicans) support EPA and its efforts. Most certainly there will be budget cuts, but Congress would encounter high public resistance for efforts beyond the back-to-basics initiatives. Whether you support President Trump and EPA Administrator Pruitt’s plans or not, consensus is that EPA will remain intact and much of its core statutory mission will continue. Regardless, environmental stewardship remains an important topic and, to many, a critical component for the business community and beyond.

Indiana Environmental Stewardship Program (ESP) Members

Three case studies of Indiana ESP members exemplify the potential for return on investment, improved regulatory relations, and continuous improvement of operations through implementation of their environmental programs.
  1. Subaru

    Lafayette, IN

    Subaru has seen exceptional reduction in waste in the last two decades. In 2004, the company achieved zero landfill status. Through objectives identified in its EMS, the company has created a system that reduces, reuses, or recycles all byproducts. Subaru has reduced waste 46 percent since 2000! In 2016, it saved $2.4 million through its sustainability programs.

  2. American Commercial Lines

    Clark County, IN

    American Commercial Lines noted that its sustainability program is an excellent way to differentiate from the competition. The firm “receives substantial financial benefits by eliminating waste streams and preventing pollutions”. Risk aversion and reduction is another gain. Fewer waste streams going off site means less risk for the community; fewer hazardous waste on site reduces risk for employees.

  3. Carrier Corporation

    Indianapolis, IN

    Carrier Corporation has seen the benefits from partnering with local environmental entities: reduction in waste, innovation, augmented culture. Its EMS allowed the company to move its financial resources from environmental recording, reporting, and writing permits toward continuous improvement in business activity. Even a small solution had a big impact, such as how products were washed, which reduced Carrier’s water usage by 21 percent over just a couple of years.

The Case for Environmental Stewardship
The reasons for organizations to implement environmental stewardship programs may vary — reducing waste and inefficiencies, “doing the right thing,” a spiritual duty of being a good steward of the environment. Regardless of the underlying motivation, the inclusion of an environmental sustainability program into a business model is a wise choice for any business owner.

The beneficial results of such programs vary widely: less expense and higher profit, improved regulatory agency relations, reduced waste, enhanced continuous improvement of operation, innovation, expanded market potential, customer loyalty — to name a few. If you were to break those down further, you would also find reduced energy usage in electricity, water, gasoline, and natural gas. Small, but significant, operational changes can also result in reduced labor hours on one process that can generate higher production in other areas. Each of these greater efficiencies improves the bottom line of a business.

Around the world, businesses continue to evaluate and implement environmental sustainability programs. Such programs are extensive and increasing across industries and municipalities: automotive, medical device, aerospace, cabinetry, printing, plastics, farming, community recycling, or landscaping — even Disney! Whether grand or minimal projects, businesses stand to gain economically from effective sustainability programs.

Complying With International Standards
The International Organization for Standardization (ISO) is a non-government organization and is an international standard-setting body with over 150 countries participating. An organization may choose to adopt one or more of the standards to improve its business practices, or may be compelled to implement these programs based on their customers’ requirements. ISO 14001, the Environmental Management Standard (EMS), focuses specifically on managing a company’s environmental responsibilities. For example, in the automotive industry, it is common for original equipment manufacturers (OEMs) to require their supply chain to conform to ISO 14001 and IATF 16949. The latter is the international Quality Management System (QMS) standard for the automotive supply chain sector.

The focus is multi-faceted and includes audits, improved communication, life cycle analysis, and consideration of environmental challenges such as climate change, in addition to compliance management. Businesses may implement environmental management systems or conform to ISO 14001 as a result of a customer requirement, marketing initiative (to gain market share or increase customer awareness) or simply because it is the right thing to do — the drivers vary.

Regardless of EPA budget cuts and rule rewrites, environmental compliance and environmental stewardship will not go away and remain significant to the global community — including numerous non-governmental organizations (NGOs) that lead the charge.

Effects on a Company’s Image and Market
Further, the reputation of a company can be affected — positively or negatively — by environmental actions. Customer interest and loyalty are influenced by a company’s sustainability practices. A Nielsen Global Survey on Corporate Social Responsibility conducted across 60 countries found that 55 percent of consumers are willing to pay more for products and services from companies with sustainability programs. Conforming to an ISO standard or implementing an EMS can result in an increase in business and/or obtaining a new client.

The reasons for organizations to implement environmental stewardship programs may vary — reducing waste and inefficiencies, “doing the right thing,” a spiritual duty of being a good steward of the environment. In addition, employees are known to seek out employers who take a proactive approach to environmental affairs. Forbes noted that one of the top-five factors in attracting employees is for their employer’s ethics to match their own values (e.g., social responsibility), and that 50 percent of millennials are more likely to search for such an employer. On the flip side, environmental violations by a company (online databases are available to anyone today) allow the public to see violations or a major pollutant release. Violations can have an adverse effect on a company’s relationship with business partners, vendors, and customers.

Paying a fine as a result of a violation has no benefit to a company’s bottom line (or reputation). In light of the current climate at EPA, there is a trend of increased enforcement versus education and assistance to businesses. The potential for enforcement penalties for noncompliance are very steep; for example, as much as $14.7 billion for Volkswagen to remedy their Clean Air Act violations. The maximum civil daily penalty for a Class I EPCRA violation is $53,907, while the RCRA maximum penalty is $70,117 per day, per violation. A more prudent approach is to allocate resources for environmental management (including compliance efforts). This could include developing, implementing, and maintaining an EMS or conforming to ISO 14001.

If a company has a global footprint, there are additional sustainability standards and policies such as the European Union’s Restriction of Hazardous Substances (RoHS) and the Registration, Evaluation, Authorization, and Restriction of Chemicals (REACH) that require businesses to avoid or strictly regulate chemicals.

In the United States, California has a unique law in Proposition 65 (Prop 65 or Safe Drinking Water and Toxic Enforcement Act), intended to help Californians make informed decisions about chemicals dangerous to human health. Without complying with these kinds of policies or rules, businesses are limited in the extent of their potential market.

Some Specific Examples
In Indiana, the Environmental Stewardship Program (ESP) and the Partners for Pollution Prevention comprise over 70 entities selecting energy conservation programs customized to their industries. In order to become a member of the ESP program, organizations must develop, implement, and maintain an EMS. Continued membership requires an assessment of an organization’s EMS by a third-party every three years (at a minimum). Three case studies of Indiana ESP members exemplify the potential for return on investment, improved regulatory relations, and continuous improvement of operations through implementation of their environmental programs: Subaru of Indiana Automotive (Subaru), Carrier Corporation, and American Commercial Lines.

Around the world, businesses continue to evaluate and implement environmental sustainability programs. Subaru has seen exceptional reduction in waste in the last two decades. In 2004, the company achieved zero landfill status, meaning the operation does not send any waste to landfill. Through objectives identified in its EMS, the company has created a system that reduces, reuses, or recycles all byproducts. For example, scrap metal is sent to recycling for new car parts, shipping materials are reused perpetually, and the automaker has eliminated waste from the weld-testing process by changing its process. Subaru has reduced waste 46 percent since 2000! In 2016, it saved $2.4 million through its sustainability programs. Advantages of connecting with regulators include having a voice in environmental roundtables with the IDEM Commissioner, being able to work with the same permit writer for renewals or amendments, and discussion of environmental innovation in environmental stewardship.

American Commercial Lines noted that its sustainability program is an excellent way to differentiate from the competition. The firm “receives substantial financial benefits by eliminating waste streams and preventing pollutions”. Risk aversion and reduction is another gain. Fewer waste streams going off site means less risk for the community; fewer hazardous waste on site reduces risk for employees.

Carrier Corporation has seen the benefits from partnering with local environmental entities: reduction in waste, innovation, augmented culture. Its EMS allowed the company to move its financial resources from environmental recording, reporting, and writing permits toward continuous improvement in business activity. Even a small solution had a big impact, such as how products were washed, which reduced Carrier’s water usage by 21 percent over just a couple of years.

For more on these three case studies, watch Gerry Dick of Inside Indiana Business as he speaks with Jean-Francois Brossoit, plant manager, at Carrier Corporation; Tom Easterday, senior vice president of Subaru Indiana Automotive; and Sam George, vice president of Environmental Compliance at American Commercial Lines, about being members of the Indiana Environmental Stewardship Program.

In sum, the way of the future absolutely points to businesses being environmentally responsible. It is not merely feeling good about conserving the environment, it is essential to survival.
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