Outside In

1. Outside In Exploring corporations’ voluntary integration of “sustainability” into business discourse and operations as a potential force for stabilizing atmospheric concentrations of greenhouse gases

2. By Susan Russell srussell@kentlaw.edu

3. Today’s Presentation • Corporations as potentially powerful forces in fight against climate change • Overview voluntary corporate adoption of “sustainability” discourse, performance and disclosure agenda • Sustainability and GHG reduction • Examples: Smithfield Foods and BP • Wrap up

4. Harnessing Powerful Forces for Positive Change “Businesses are among the world’s most influential institutions. As society’s mechanism for production and consumption, their decisions have significant environmental effects.” - World Resources 2002-2004, Decisions for the Earth, Balance, Voice and Power.

5. Harnessing Powerful Forces for Positive Change • Reach: Corporations are “glocal” citizens: multi-national, cross-cultural, multi-lingual

6. Harnessing Powerful Forces for Positive Change • Reach: Corporations are “glocal” citizens, multi-national, cross-cultural, multi-lingual • Corporations constitute 51 out of world’s 100 largest economies

7. Harnessing Powerful Forces for Positive Change • Reach: Corporations are “glocal” citizens, multi-national, cross-cultural, multi-lingual • 51 out of world’s 100 largest economies • Corporations house unique business-specific expertise • Transform impacts into opportunities

8. Harnessing Powerful Forces for Positive Change • Reach: Corporations are “glocal” citizens, multi-national, cross-cultural, multi-lingual • 51 out of world’s 100 largest economies • Corporations house unique business-specific expertise • Transform impacts into opportunities • Needs of corporations can shape policy decisions

9. Defining Sustainability • “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” – Brundtland Report, 1987 • “Forms of progress that meet the needs of the present without compromising the ability of future generations to meet their needs.” – World Business Council for Sustainable Development

10. “Triple bottom line” business agenda and performance: improved integration of concepts of economic prosperity, environmental regeneration and equity to achieve win-win-win situations. – John Elkington, Chairman of SustainAbility, Author of Cannibals With Forks and The Chrysalis Economy And One More …

11. A Definition of Its Own: Internal Corporate “Sustainability” • Trend: Corporations making sustainability meaningful within unique business context • Mind-set that gets threaded into business • Various sustainability “value propositions” • Finding the language that works as an organizational concept

12. A Definition of Its Own: Internal Corporate “Sustainability” • Sustainability by other names: • Environmental, health and safety performance • Sustainability • Corporate Social Responsibility • Stewardship • Global Citizenship • Etc., etc., etc.

13. Voluntary Adoption of Sustainability: A Brief History of Disclosure • Since early 1990s voluntary environmental reporting • Majority viewed as “green washing,” PR efforts, very little credibility • All the “positive” things

14. Voluntary Adoption of Sustainability: A Brief History of Integration and Disclosure • 1990s to present: • Trend toward increased accountability and transparency of companies across all levels, functions, operations • Currently • 1999: 35% of Fortune global top 250 companies producing reports • 2002: 45% of Fortune global top 250 companies producing reports • Still small fraction of all companies. • Improved information • Good, bad and the ugly; more credible, balanced

15. Adoption of the Sustainability Performance Agenda and Disclosure • Trends and Drivers: • External stakeholder pressure and informational demands • Communities • NGOs • Governments

16. Sustainability Performance Disclosure • Trends and Drivers: • Shareholder pressure, resolutions

17. Sustainability Performance Disclosure • Trends and Drivers: • Business value from improved performance • Top and bottom-line value • Reputation • Risk reduction

18. Sustainability Performance Disclosure • Trends and Drivers: • Growth in investment indices and rating firms • E.g., Dow Jones Sustainability Index, Innovest, FTSE4Good • Lengthy questionnaires

19. Value of Disclosure: Company • Issuance of public report helps drive evolution of concept and improvement of performance • Process stimulates integral exploration of nebulous concept • Reporting drives accountability for performance and desire to improve • Process important part of the learning within the corporation as well as for gathering relevant information • Potential to speak first on key issues • Economies of information • Top-line value • Bottom-line value • Reputational value • Industry leader • Preferred supplier

20. Value of Disclosure: Public • More information about the corporation is publicly available • Transparency promotes dialogue • Informed decision-making • Improved democracy • Improved accountability

21. Energy Strategy: Important Part of Sustainability Commitment • Energy and CO2 reduction strategies standard part of most sustainability commitment • Create tangible bottom and top-line value

22. Two Companies: Smithfield Foods and British Petroleum (BP) • Rationale • Both produce an abundance of gas • Both have integrated “sustainability” in a manner fitting for their company • Both have a commitment to voluntary public disclosure • Both are performance leaders in their respective industries • Both are global corporations • Caveat: • Will only do BP if time permits

23. Energy Hogs Smithfield Foods’ waste-to-energy strategies within the context of the company’s “stewardship” commitment

24. Company Profile • World’s largest pork producer and processor • 2004 • Sales: $9 billion • Hogs produced by 650 company-owned farms and 1,800 contract growers worldwide • U.S. Operations: • Produced 14 million hogs • 1750 Contract farmers and 450 company-owned farms • Processed 24.7 million hogs • Processed 2 million cattle

25. Defining “Stewardship” • The “ongoing efforts to protect the natural environment, the safety of our employees and the welfare of the animals we raise … stewardship is not just an ethical responsibility. It’s also a critical investment for building trust with our stakeholders and positioning our company for responsible growth now and in the years to come.” • Transforming respect for employees, the animals raised for food production, the environment and stakeholder into a driving force for performance improvement, innovation and value creation. • Disclosure • Annual Stewardship report • Web site • Stakeholder engagement

26. Environmental Management Systems • First in industry to implement ISO 14001-certified systems in U.S. production and processing operations. • Basis for compliance, pollution prevention, continuous improvement. • ISO 14001: systematic method for managing aspects and impacts of facility • Annual audits by third-party accredited auditors • Identification of eco-efficiency opportunities

27. Stewardship Challenge and Opportunity: Waste-to-Energy • Key environmental aspects • Hog manure • Wastewater residuals • Animal fats • Vegetable oils • Key energy-related business opportunities: • Process innovation • Waste-to-energy technology investment • Unique ventures for renewable fuels • Exploring partnering opportunities and policy change

28. Process Innovation:Patrick Cudahy • Adapted boilers and employed leading-edge system technologies. • Allows meat processing plants to supplement fuel needs by recycling animal fats and other byproducts captured during wastewater treatment process • Extraction of 175,000-200,000 gallons of grease for fuel • Environmental and business benefits • Offsets purchase of natural gas for same purpose. • Cheaper source of fuel • Burning of animal grease for reuse as fuel compared to natural gas • Lower nitrogen oxide • Lower sulfur dioxide • Reduced disposal costs • Conservation of landfill space

29. Process Innovation: Moyer Packing Company, Southern PA • Specially adapted boiler technology • Powered by animal fats and vegetable oils from rendering operations • Benefits • Cheap, renewable source of fuel • Cleaner burning fuel: • Reduction of NOx and SOx

30. Investment in Hog Waste Management Technologies • 2000: Smithfield Voluntary Agreement with North Carolina’s Attorney General’s Office • $15 million • Program pursued by team at NC State University • Investigating roughly 18 technologies • A number of these are waste-to-energy • Smithfield piloting some technologies

31. www.bestbiofuels.com

32. Business Ventures: BEST BioFuels, LLC Livestock waste to biogas  ASTM-standard biomethanol  biodiesel

33. Business Ventures: BEST BioFuels, LLC • Major partner in BEST BioFuels, LLC • Invested $20 million 2003 in building waste collection system and central treatment complex at Circle Four Farms, southwestern Utah

34. Business Ventures: BEST BioFuels, LLC • Utilizes Biomass Energy Sustainable Technology (BEST) • Environmentally superior technology that Smithfield helped pioneer and pilot • How it works: • Separates hog waste into partially purified liquid and solid material • Solid material transported from farm to centralized processing facility • Technology transforms solids into various forms of energy, methane, and methanol • Ash produced can be used as fertilizer

35. Business Ventures: BEST BioFuels, LLC • Circle Four Farms: • 23 Circle Four Farms produce livestock waste • High concentration of animals (144,000 head of finishing hogs) • Waste is piped to central location through 40 miles of pipe and concentrated at four centrally located digesters • Concentrated waste is heated and anaerobically digested to yield biogas • BEST converts biogas to biomethanol, using patented thermo-catalytic process

36. Business Ventures: BEST BioFuels, LLC • Key benefits: • Reduces waste volume • Captures methane • Creates valuable commodity • Potential commercial uses • Biodiesel, clean-burning renewable fuel typically blended with conventional petroleum diesel at 20/80 ratio

37. Business Ventures: BEST BioFuels, LLC • Next Steps … • BEST BioFuels produces 2,500 gallons of biomethanol from 500,000 gallons of hog waste per day • 2005, anticipates work will be completed on biodiesel manufacturing facility in Texas • Biodiesel generation

38. Increased Biogas Usage • 2004 overall biogas usage increased 19 percent over 2003 usage • From 247,111 to 293,862 Decatherms

39. Partnering to Promote Renewable Energy Demand • Participation in North Carolina Green Power • Independent nonprofit program that uses voluntary contributions to purchase electricity generated from renewable resources to NC • Energy to be purchased by homes/businesses in NC • 2004: • Among seven energy producers who signed agreements to provide renewable sources • Small, tax-deductible premium • Methane from hog waste converted to electricity through microturbine at waste collection site

40. BP Profile • Leading global energy company • Sales and other operating revenues “turnover” $285 billion • Reputation as global sustainability leader • Dow Jones Sustainability Index • Many firsts: • First internal emissions trading • Achieved industry’s lowest rates of gas flaring

41. Sustainability at BP “For us, ‘sustainability’ means the capacity to endure as a group by renewing assets, creating and delivering products and services that meet the evolving needs of society, attracting successive generations of employees, contributing to a flourishing environment and retaining the trust and support of customers, shareholders and communities.” • Disclosure • Annual sustainability report available online at www.bp.com • Detailed information on science of climate change and search for solution • Verification of reporting information by third-parties

42. Sustainability and Climate Change • Provides access to overview of the issue and science of climate change • 1997: first in industry to publicly state precautionary action justified • Set initial target for 2010: GHG emissions from operation 10% lower than 1990 emissions • Achieved target in 2001 • 2003 BP engaged in more focused inquiry on what is required to stabilize GHG concentrations and further work to minimize emissions from own operations • Set new target for 2012: No increase in net emissions from 2001 levels by 2012

43. Actions on Climate Change • Emissions reduction strategies • Emissions trading • Strategic energy management • Improved operational efficiencies • Technological innovation • Investment in renewable energy technology business • BP Solar is one of the world’s largest solar electric companies • BP’s renewable energy business • Growth goal: 25% per year • Product innovation • Research partnerships

44. Emissions Trading • Jan. 2000: launched first global emissions trading system for all 150 corporate business units to participate • First year: 2.7 million metric tons of CO2 equivalent exchanged at average price of $7.60 per metric ton • Active promotion of/participation in market mechanisms • Helped develop existing UK emissions trading scheme • Involved in helping to develop European Union Emissions Trading Scheme • Largest and first international market for CO2 • Voluntary schemes in United States

45. Products and Innovation • Emissions from products roughly 15 times higher than operational emissions • Product innovation 2003: • 2003: BP Ultimate fuels compared with standard fuels “twice the cleaning power of normal fuels” • 14.5% reduction in CO compared with traditional fuels • 5.3% reduction in NOx emissions • 2.2% reduction in CO2 • 5.6% reduction in unburned hydrocarbons • Lower-sulfur diesel and liquefied natural gas • Hydrogen production and demo projects

46. Research Partnerships • Princeton U, Massachusetts Institute of Technology • Carbon Mitigation Initiative • Identifying technology applications to mitigate climate change • Stanford U • Three-year, $2 million agreement • Public policy aspects of modern energy markets • Initiated Carbon Capture Project • Industries first large-scale project to develop tech for capture/storage CO2 • Clean Energy Facing the Future • $10 million, 10-year program, project with the Chinese Academy of Science and Tsinghua University • Studying implications of clean energy technologies for China • Royal Academy of Engineering, Imperial College London, Princeton University

47. Wrap Up • Voluntary adoption of sustainability performance and disclosure potentially power force for reducing GHGs • Concept of sustainability within corporations: • Improves performance, • And promotes commitment to disclosure/corporate transparency, • which promotes internal and public access to information, • which promotes accountability, • which promotes overall environmental performance improvement, • which includes valuable strategies for reducing GHGs and responses to climate change, • which promotes value to business and multiple stakeholders.

48. Questions? Thank You