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COURSE INTRODUCTION:
A FRAMEWORK FOR SUSTAINABLE BUSINESS
1.1 INTEGRATING BUSINESS INTO SUSTAINABLE DEVELOPMENT
Sustainable development is a force that has been growing internationally and locally. It is based on the belief that we should pass on to the next generation an environment that is at least as good as the one we inherited. The soil should remain non-toxic and fertile, the air remain clean; the global temperature and sea levels constant, the number of species as rich. As a result the opportunities for wealth, enjoyment and appreciation of beauty should be as great for the next generation, and others to follow. Although that is a simple argument, finding the means to protect our environment from industrial growth, exploding population and rising expectations of affluence is not a simple task. Indeed the greatest contribution of the proponents of sustainable development is not to identify the problem, but to frame the complexity of how we can find solutions. Despite the many interpretations of sustainable development, everybody agrees that achieving it requires an integration of environmental, social, political, economic, and technological activities. We have to understand not only how each specific pollution or resource extraction problem affects the environment, but how they result from:
- social demands for increasing goods and services;
- political will and capacities to protect the environment;
- economic constraints and opportunities;
- and technological limitations and innovation.
Techno logy
Society
Politics
Environment
Economics
Environment
Industrial Ecology
Industrial Ecology
Industrial Ecology
Figure 1.i Sustainable Business in Sustainable Development
Business is a dominant actor in sustainable development because companies produce most of the goods and services that impact the environment. As a result companies are increasingly faced with the necessity to improve their environmental performance. This demand comes from the public, customers, government, investors, insurers, and the communities in which they operate. The problems business must deal with are enormous and include the greenhouse effect, the ozone hole, production and release of toxic substances, local air and water pollution, plus the mountains of consumer and industrial waste. Companies are making significant progress in dealing with many of these problems. They are moving from a reactive approach to environmental problems where they dealt with each issue as it arose and often only because legal requirement forced them to deal with the problem. Companies are becoming proactive by searching out the sources and causes of poor environmental performance and developing the practices and systems that will help them improve. Business has learnt that the most effective way to control impacts is to look at the interrelationships of different tasks and to find ways, to not only increase the cumulative effect, but also to make it more efficient. The strategy for integrating the different tasks within a firm is called environmental management.
Despite the successes of environmental management we are still a long way from solving the environmental problems caused by business. Perhaps, though, if we extend the logic of environmental management’s integration of the firm, we may be able to answer an important question: How can a company really help to solve environmental problems when its control over them is limited? A mobile phone company does not pull the raw materials out of the ground or make most of the parts, nor does it do the retail sales or collect the phones for recycling. Similarly, in service industries like hotels or accounting, firms have little control over the environmental impacts of all the computers, buildings, paper, transportation (for workers especially) and other equipment, supplies, and facilities that they use—but their environmental impacts are huge. Most companies only play a small role in the transformation, distribution, selling or consumption of products. How can they reduce the environmental impacts of the products they make? Of the products they use? Often their greatest environmental impacts come from supporting services, how can they control things such as transportation or energy systems? How can they cover the cost of doing so or turn their environmental efforts into profit makers? Most importantly, how can undertake these efforts without being put in a weaker competitive position?
In order to overcome the limitations of the firm we must go beyond an ad hoc or bit-by-bit approach. For that reason, in this course we take an integrated approach to improving a business’s environmental performance. In this approach, we will investigate the benefits of getting company departments working together, and look at how a company can work together with suppliers, distributors, buyers, and recyclers of its products. We will look at the physical infrastructure, such as the roads, sewers or electricity generation that companies depend on. We will also examine how a company can work with its competitors, with governments, NGOs (Nongovernmental Organizations) and other representatives of the society to find ways to make its environmental innovations feasible. In short, what we will try to achieve in this course is to see how a company can extend its environmental management into the creation of an industrial ecology.
Figure 1.ii Contrast between Natural and Industrial Systems
a. Cyclical Processes of Ecosystem Functioning
b. Linear Process of Industrial System
Presently our industrial system operates as a linear process where resources are drawn from what is regarded as an unlimited resource base, transformed in a chain of production processes and then dumped as waste into the environment (figure 1.ii b). Please note that the unlimited view of the resource base is based on a lack of understanding of both the real limits to resource availability and the more complicated consequences to the environment of their extraction. To keep things simple, only a few stages of transformation in the production chain are shown. In each of these stages there are energy and materials that go into the product and also those which are used for processing, but which are then lost as emissions and waste. Finally, there is the end production of waste, which can be defined as the lack of further use of materials or energy that come out of the system. Generally, most waste is burned, buried or flushed, just to get rid of it. The linear system of our industrial system obviously falls far short of the energy and material efficiency of nature’s closed loop. And equally obviously, achieving the goal of industrial ecology will require dramatic transformations of our industrial system. The following list describes the many ways we will have to transform our industrial system from one that wastes to one that uses less energy and materials and converts its products and wastes into residuals (raw materials) fit for further use.
Products, processes, services, or operations can produce residuals , but not waste. Every process, product, facility, constructed infrastructure, and technological
Solar Energy Photosynthesis
Detrivores
Carnivores Herbivores
Unlimited Resource Extraction
Materials Processing Production Consumption
Unlimited Dumping of Waste
system should be planned to be adaptable to environmentally preferable innovations. Every molecule that enters a specific manufacturing process should leave that process as a part of a salable product. Every erg of energy used in manufacture should produce a desired material transformation. Industries should make minimum use of materials and energy in products, processes, services, and operations. Materials should be the least toxic for the purpose, all else equal. Industries should get most of the needed materials through recycling streams (theirs or those of others) rather than through raw materials extraction. Every process, product, component, and part should be designed to preserve the embedded utility of the materials used. Every product should be designed so that it can be used to create other useful products at the end of its current life. Every industrial landholding, facility, or infrastructure system or component should be developed, constructed or modified to maintain or improve local habitats and species diversity, and to minimize impacts on local or regional resources. Close interactions should be developed with materials suppliers, customers, and representatives of other industries, with the aim of developing cooperative ways of minimizing packaging and of recycling and reusing materials.
1.3 Building Industrial Ecology: Linkages through Social and Technological Infrastructure
Achieving industrial ecology requires creating linkages between business and the society around it. These linkages can be categorized in two main groups of social infrastructures that include economics, politics, and society; and also technological infrastructures.
Social Infrastructures
The actions of companies and industry are governed by what we as a society think they should be doing. As a society we function with a reasonable amount of agreement of what we should be doing and how we should deal with any needed changes. These conceptions of what is valuable—or what is permissible—and the theories that support them underlie all the previous activities discussed.
In the political sphere there is great variation among countries in the degree to which people believe the government should become involved in dealing with environmental problems. Although most governments have environmental protection departments, they differ on whether environmental protection laws should be created and enforced, and how much money they are willing to spend on the environment. Furthermore governments differ on the extent to which they work with companies to improve environmental performance. The politics and governance of environmental protection is extremely important to overcoming many of the problems companies have to face in dealing with environmental improvement.
The realm of politics is greatly influenced by economic thought and techniques. If the dominant ideology is that protecting the environment costs the economy in terms of
authorities fulfill the important function of assessing the environment performance of companies so that customers who want to buy environmentally friendly products can identify the companies that produce them.
Physical Infrastructure
Some of the greatest environmental impacts result from the ways we move people, goods, energy and information around. The impact results not only from the energy used and pollution produced when using these services, but also from the habitat destroyed, the energy and materials used, and pollution produced during their construction. Physical infrastructure includes the technologies that supply such needs as transportation, communication and energy and water supply and the land use patterns that influence the distribution of those technologies. Often these needs are met by governments or companies that have close to a monopoly on supply or collection in an area. Examples in Hong Kong are institutions like the Water Authority, garbage collection by the Food and Environmental Hygiene Department, China Light and Power, Town Gas, the KCR and the Highway Department. Companies and industries have to consider how they use these infrastructures when trying to design environmental improvements. Companies, government, and other institutions can join together to help to create new systems for recycling or “reverse logistics.” To achieve greater improvements in performance, however, it may be necessary to use alternative types of infrastructure. The most promising alternative infrastructures are “distributed” close to the place of use, such as local energy generation or sewage treatment. Land use patterns greatly impact the environmental performance of these technologies. For example cities are often designed with different industries and residential areas separated making much movement of people and materials necessary: people are separated from work; industry is separated from markets, people are separated from parks and other amenities; recycling depots can be disallowed in some areas and make recycling too costly. Separation puts greater energy and material demands on the environment because of not only the need to fuel all the vehicles, package all the goods, etc., but also to build all the technological infrastructure such as roads and railways. The greatest separation is that of urban activities from rural activities. This urban rural divide not only contributes to increased material and energy use, but also allows urban dwellers to ignore the damage that their demand does to the environment.
Value infrastructure
None of these infrastructures would contribute to an industrial ecology if they do not perform one critical function; they need to create some sort of value for the company. This would be a true fulfillment of replicating the functions of an ecosystem. The reason why there is no waste in natural ecosystems is that some organism always evolves to find value in consuming even the excrements and remains of all other organisms. Similarly, in industrial ecology, the product cycle can only function on a market basis if there is an exchange of value at each stage. That value may come from a conventional source such as: improvements in material or energy efficiency that reduce costs; the capture of a new market; or the benefits of an improved image. Or they may come from more unconventional sources, such as: the avoidance of penalties; reductions of insurance; sale of byproducts and materials for recycling; co-generation; the development of environmental technologies; and so on. Importantly, many of these
conventional and unconventional means of creating value in an industrial ecology require new attitudes, physical infrastructure and regulations to be accepted and imposed before they can be realized. Therefore the creation of new physical and social infrastructures that are common to all in an industry are often the key to individual companies in the industry, not only making environmental improvements, but also profiting from them.
1.3 A BUSINESS CENTERED APPROACH TO INDUSTRIAL ECOLOGY
Industrial ecology is an excellent concept, but it is not going to be achieved in our market economy unless it is made practical for companies to participate. It can be made practical by modifying and extending existing company practices to the needs of industrial ecology. Indeed, over the last decade, there has been a rapid advance in developing environmental management practices and systems for businesses. Many of these, such as the ISO 14000 series of environmental management systems—based on the ISO 9000 quality management system—are extensions of other corporate practices. Many of the practices promoted in these systems, such as, close interactions with suppliers and customers, or of work on Design for the Environment (DfE) begin the job of integrating the firm into an industrial ecology. We will therefore begin with our discussion with these systems of integrating improved industrial performance among the different divisions within a firm and among its external partners and relationships.
1.3.i Environmental Management of a Firm and its Product Cycle
Internal Processes of a Firm
A firm is certainly capable of devising its own ways of reducing, reusing and recycling materials and energy (Fig. 1.iii). This is true of businesses in any industry. A manufacturer such as a computer company can decrease the amount of plastic, metals or toxins it uses. A hotel can reduce its air conditioning and water use. An insurance company can recycle all the paper it uses and demand higher premiums from polluters. A company, however, does not simply make environmental improvements. The initiative has to come from somewhere and the improvements have to be undertaken in some organized manner.
Figure 1.iii: Internal Processes of a Firm
The ability of a firm to make environmental improvements depends on the willingness of management to make improvements and the organization of the firm, and then the strategy has to be implemented. Implementation of environmental
Energy and Materials A Company
Products Waste energy Waste materials Reduce Reuse Recycle
Figure 1.iv Integrating environmental improvements throughout a business’s divisions
Top Management Support Activities Human Resources
Accounting Site and Facilities
Purchasing Research and Development
Environment, Health & Safety
Primary Activities Logistics Production Distribution Marketing
Upstream and Downstream Linkages
Both a firm and its products are part of a cycle of material and energy flow through the industry that the firm is in (Fig. 1.v, below). Thus if a firm is a automobile dealership, it is of course linked backwards to the company that made the automobile, the many companies that made the parts and components, the companies that made all the materials, and the companies that extracted those materials from the ground, forests, and fields. The automobile dealership is also linked forward to its customers, and the companies who recycle the cars. Every company, no matter where it is in the product cycle, is linked upstream and downstream. The industry, when looked at more broadly, also includes suppliers that make things that don’t go directly into the product; such as the company that makes the electricity to light up the dealer’s showroom or the equipment manufactures that make the machines that make the cars.
The environmental performance of each company and the product are also linked upstream and downstream. To a certain extent a company can take control of the environmental impacts that it is responsible for at these upstream and downstream locations. The greatest environmental impacts of a car, for example, are not its actual manufacture, but the upstream extraction of metal and other resources, the processing of metals, and especially the downstream use of fuel when the car is used by the customer. The car company can influence the environmental performance at some of the stages in the cycle by the specifications and demands it makes of its suppliers and by designing greater fuel efficiency into the car. No one company has control in the system, rather any company can influence the system’s environmental performance from any stage of the cycle. This is true, not only of key companies, such as an automobile assembler, but also firms anywhere on the product cycle. Parts manufacturers can decrease environmental impact when they manufacture and by making their parts more efficient when in use. Car drivers can influence the cycle by good maintenance and efficient driving of the vehicle. The designer of the car, the designer of the parts, the processor of the raw materials can also determine influence how the car can be recycled. The linkage that one stage can have on another weakens, however, the farther that one moves from a firm’s location in the product cycle of its primary activities.
Integrating environmental improvements throughout a business’s divisions
Improvements at each stage of the cycle are especially important because each stage has energy and material inputs, and pollution outputs that determine the overall environmental performance of a product. It is most obvious to see the upstream and downstream linkages for a firm’s primary activities, however, the supporting activities of the firm are also linked to product cycles. These supporting activities include everything from office supply purchases to electricity usage to R&D facilities. The linkage between a company and firms that supply it with supporting activities is usually weaker than that between firms connected through primary activities. For example, few companies have direct control over the environmental performance of the companies that supply the office buildings that they rent, the paper they use or that supply their electricity. Yet, these support activities may be the source of a company’s greatest environmental impact.
Chapter 6 Society and Culture extend the issues discussed in this chapter of the course notes are the basis for the course framework.
Graedel T. and Allenby B. 2003. Industrial Ecology. Upper Saddle River: Prentice Hall.
