Industry

Businesses function because they reduce the transactional cost of acquisition of goods and services by individuals. They exact a "fee" for this service and exist for the sole purpose of making a profit for their owners. Implicit in any business model within a free-market economy is the tendency to continuously improve the efficiency of its operation, for instance, by reducing the cost of raw materials needed for its processes or by exploring alternate product delivery systems. Environmental benefits are therefore assured in a business when good environmental stewardship leads to a higher profit potential.

There are numerous examples of businesses being effective and even aggressive stewards of the environment in instances where these two considerations were congruent. Such opportunities are not difficult to identify. The following examples illustrate instances where environment-friendly changes in the design of a product lead to cost savings and therefore to increased profits:

• A large manufacturer realized immediate savings in packaging and transportation costs by moving from the traditional cylindrical design to a novel rectangular one for its 32-and 48-oz plastic vegetable oil containers. The new bottle used about 30% less plastic resin (eliminating 2.5 million pounds of plastic consumption annually) and was easier to pack into boxes. The change also allowed the company to cut down on its use of corrugated boxes for shipping of this product by 1.3 million pounds annually!

• A leading automobile manufacturer switched to the use of recycled poly(ethylene terephthalate) (PET)(from soda bottles) to fabricate components such as grille reinforcements, window frames, engine covers, and trunk carpets. The use of recycled grade of resin as opposed to virgin resin not only reduced the cost of production but also provided a significant (in 1999, 7.5 million pounds) annual market for recycled PET resin.

• Over a period of two decades a leading beer manufacturer reduced the weight of its aluminum beverage cans (by 33%) and glass bottles (by 23%) using innovative improvements in the design and materials used in manufacture. This resulted in increased profits and better environmental stewardship at the same time. The cost savings from weight reduction of the cans combined with those from its aggressive aluminum-recycling program saves the company some $200 million annually.

• In 1999 The General Electric Corporation developed a superior synthetic process for its ULTEM polyetherimide that allowed the resin to be made at a saving of 25% of the direct energy used for the process. The new approach also resulted in substantial reduction of the process waste that required disposal or treatment. (A Presidential Green Chemistry Challenge Award recognized this particular innovation in 1999.)

• Until the late 1980s the nylon carpet fibers manufactured by Du Pont were made available in white to be dyed at the mills in a typical wet process. The process requires heat to maintain the dye baths at proper temperature and is polluting, as considerable amounts of water were needed to wash the fiber. A new process (solution dyed nylon) was developed where the dye was incorporated into the fiber during extrusion processing. This lead to improved color fastness, cost savings, and significant energy savings as well as reduction in emissions.

Even a simple environmental audit of an industrial operation can often uncover profitable waste reduction opportunities. A case in point is the list of 17 priority chemicals that the U.S. Environmental Protection Agency (EPA) asked the industry to voluntarily reduce. In 1992, the Chemical Manufacturers Association claimed its member companies had reduced the emission of these by 33% and expected to cut emissions down to 50% in 2 years, well ahead of the agreed upon schedule. Cadmium-based pigments used in plastic resins were included in this list. The industry changed to noncadmium colorants, thus reducing the cadmium eventually disposed of in postconsumer waste by 96%. Evidently, businesses that developed environmental innovations to address their pollution problems anticipate and often reap significant commercial benefits. These may come about in the form of saleable by-products, innovative low-polluting primary products, and cost-savings associated with cleanup or even incentives. A1992 study by INFORM (a New York-based organization) found that in 181 waste prevention activities reported by the 29 companies, each $1 spent on the activity yielded an average saving of $3.50 to the company. The average time to pay back the initial capital investment was just over 1 year. A particularly successful global example is the restrictions on the use of CFCs by the Montreal Protocol of 1987. The immediate reaction of the industry to control of CFCs was negative, but as the opportunities for profit by developing substitute compounds were realized, the industry actively supported the protocol. Major companies such as Du Pont invested significant research resources into developing profitable substitutes31 to replace the ozone-depleting Freons. A recent book by O'Brien (Ford & ISO 14001: The Synergy Between Preserving the Environment and Rewarding Shareholders, McGraw-Hill, 2001) documents in great detail how Ford Company discovered that better environmental stewardship can be very profitable.

The difficulty arises when corporate profit goals and environmental stewardship do not coincide, and the very nature of business enterprise forces the selection of the former at the expense of the latter. In this situation, intervention by government can spur environmental benefits and stimulate corporate technological innovation. One such case is that of lead chromate, once widely used as a yellow pigment in traffic paints (usually solvent-borne paints based on alkyds or hydrocarbon resins). With the advent of regulations restricting the use of lead pigment on highways, new organic yellow pigments were adapted for the application. These are now almost used exclusively for yellow markings on highways. A similar change is now taking place in paint and adhesive industries as a result of the volatile organic compound (VOC) limits being imposed on these products as a result of the Clean Air Act Amendments.

There are also instances where businesses can be proactive in environmental stewardship despite an apparent loss in profits. In these situations, businesses seemingly compromise their profits by voluntary adopting compliance strategies. These policies of self-regulation at times reach even beyond what is recommended by the regulatory bodies. While what motivates such actions is not always clear, perhaps some of the following factors play a role in their decisions.

• The high level of consumer awareness of the environmental profile of its products may dictate such a move by the business. With consumer purchase preferences being significantly influenced by the environmental performance of the goods or services, businesses may compete for market share on the basis of positive environmental attributes of their products.

• Adopting high environmental standards ahead of anticipated regulatory pressure can be a strategic move by a business toward eventual greater market share.

• Good environmental practices, especially with the more visible consumer goods enhance the overall corporate image. The promotional value of good environmental stewardship may outweigh the fiscal loss of voluntary compliance over the long term.

A recent book by Hawkins et al. (Natural Capitalism: Creating the next industrial revolution, Little, Brown & Company, 2000) discusses the role of industry in detail.

31 The substitutes that were developed, the hydrochlorofluorocarbons (HCFCs) and hydrofluorocar-bons (HFCs) are transitional substitutes. Both are greenhouse gases, and HCFCs are also ozone-depleting substances although significantly less so than the CFCs they replaced.

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