Chapter 4 Eco-Efficiency and Metrics – Sustainable Operations and Closed Loop Supply Chains, Second Edition


Eco-Efficiency and Metrics

4.1 Life-Cycle Assessment (LCA)

After lean implementation, the firm continues on its journey toward sustainability by moving toward eco-efficiency: reducing the environmental impact of products and processes. The first step in eco-efficiency is to have an understanding of the environmental impact of the firm’s products and processes, and this is accomplished through life-cycle assessment (LCA). The objective of LCA is to find the full range of environmental (and sometimes, societal) damages assignable to products or processes through their entire life cycle, which comprises raw material extraction and processing, transportation, manufacturing, packaging and distribution, use by consumers, and end-of-life/disposal. Common categories of assessed damages include, but are not limited to: energy consumption, depletion of minerals and fossil fuels, global warming, toxicity (air, water, land, humans, and animals), ozone layer depletion, and acid rain. LCA is a data-intensive process, which is helped by the use of existing databases and software.

ISO14040,14041,14042,and14043 provide guidelines for conducting an LCA, which is shown in Figure 4.1. The four steps are described now.

Goal and Scope Definition

In this step, the analyst must determine the level of specificity of the study: is the product or process analyzed specific to the firm or a particular manufacturing plant? For example, two different plants producing the same product could have different emission levels—one plant could have more modern, energy-efficient, and less polluting equipment than the other. An LCA specific to a product produced at a particular plant may require an additional level of data collection that may be impractical and costly, and thus one may prefer to use industrial averages (for example, the impact of using aluminum as opposed to steel in a particular design), which are widely available, as we will see in some examples later. Related to this, the analyst will also need to determine the level of accuracy to be used in data collection and analysis. For internal decision-making in a firm (e.g., should we use product design A or B?), a reasonable estimate of environmental impacts is generally enough. If the study is used for driving public policy (e.g., should the government provide tax breaks for specific clean technologies?), however, a higher level of accuracy is desired.

Figure 4.1 LCA phases (ISO 14040, ISO 14041, and 14044).

Finally, if the goal of the study is to compare two alternative products, then the basis of comparison should be in terms of equivalent use. For example, if one is comparing bar soap versus liquid soap, then the basis of comparison should be the environmental impact (e.g., energy use) of manufacturing and using the products necessary for a given number of hand washings (say, 100 hand washings). As another example, if one is comparing fluorescent lights versus light emitting diodes (LED) lights, then the basis of comparison should be a given number of lighting hours: if one LED light lasts 25,000 hours and an incandescent light lasts 1,000 hours, then one should compare the environmental impact of manufacturing and using 1 LED light against 25 incandescent lights.

Regarding scope, the analyst must determine which environmental concerns should be addressed in the study (e.g., energy use, materials choice, solid waste, global warming potential, eutrophication, etc.). The analyst must also determine which stages of the life cycle will be addressed. In a cradle-to-gate LCA, only raw material extraction, transportation, manufacturing, and packaging and distribution are included, whereas in a cradle-to-grave LCA, use by consumers and end-of-life/disposal are also included (in addition to cradle-to-gate stages). This is shown in Figure 4.2.

Inventory Analysis and Impact Assessment

In this stage, the analyst collects data on the impacts of inputs and outputs generated by each life cycle stage on the assessed category of interest. There are databases available for common materials and processes used, which are industrial averages, and software is also widely available, containing these databases. The site contains some resources; different software providers include GaBi, SimaPro, and open-LCA. To illustrate, suppose the analyst has determined the scope of an LCA for a product to be of cradle-to-grave type, with two environmental concerns: materials choice and energy use. This is shown in Table 4.1. The analyst must now provide an assessment of how the product impacts the environment (regarding the choice of materials used in the design, as well as the energy use) for each of the six different life cycle stages. The assessment can be made using the actual number (for example, on energy consumption, GJ/unit, or kWh), or on a scale (e.g., from 0 to 4, where 0 represents “no concern,” and 4 represents “high concern”).

Figure 4.2 LCA stages and scope.

Table 4.1 Example of Product Assessment Matrix for LCA

Life cycle stage

Environmental concern


Materials choice

Energy use

Raw material extraction









Packaging and distribution



Use by consumers






Regarding materials choice, a good design would use materials with ample supply on earth, low rates of depletion, high potential for recycling, and low toxicity. Under these criteria, recommended materials may include aluminum, iron, carbon, hydrogen, manganese, nitrogen, oxygen, silicon, and titanium. Using the same criteria, the designer should avoid silver, gold, arsenic, cadmium, chlorine, chromium, mercury, nickel, and lead.

Regarding energy use, Table 4.2 contains some industrial averages for the amount of energy used to produce various metals. Notice how recycled materials consume a significantly lower amount of energy compared with primary production, particularly for aluminum, whose primary production is very energy intensive. As a result, assumptions about the percentage of recycled content on an aluminum part, for example, may make a significant impact on the final results of the LCA.

Table 4.2 Energy Use (GJ/mg) in Production of Various Metals1


Primary production

Secondary production (through recycling)




















Table 4.3 compares paper versus plastic bags for use in grocery stores. The study addresses five different categories of environmental impact: materials choice, embodied energy, solid waste, total emissions to air, and global warming equivalents (in terms of CO2 equivalents; we discuss later in this chapter the precise meaning of this term). The study compares the environmental impact of one paper bag against two plastic bags, as they both have similar carrying capacity. The study assumes current average recycling rates for paper and plastic in the United States. Table 4.3 indicates that paper bags have lower environmental impact in the categories of materials choice, and global warming potential. Plastic bags have lower environmental impact in the categories of solid waste, and total emissions to air; the two products have similar embodied energy (i.e., the energy necessary for manufacturing).

Figure 4.3 illustrates the global warming potential of desktop PCs and switching equipment conducted by NEC (the Japanese manufacturer). The single assessed category of environmental impact is global warming potential (which is also called carbon footprint, as we will see later in this chapter), and the figure simply illustrates which stage of the product’s life cycle contributes the most to global warming potential. The stages of the life cycle include purchased parts—the amount of global warming emissions related to manufacturing parts (including raw materials extraction) used in the products, final assembly at NEC, use by customers, distribution, and disposal. We first note that global warming potential is highly correlated to energy use, and emissions in the stage “use by customers” are related to global warming emissions associated with electricity production. For desktop PCs, most of the global warming potential (59 percent) is embodied in purchased parts, that is, during manufacturing of PC components, whereas use by customers represents 39 percent. Thus, reuse of desktops (through remanufacturing) is good for the environment, because reusing components (as opposed to manufacturing them from scratch) saves a significant amount of energy. With switching equipment, the vast majority of global warming emissions occur during use by customers (almost 98 percent), whereas purchased parts represent a little less than 2 percent. Thus, the remanufacturing of old, energy-inefficient switches is not good for the environment, unless remanufacturing is able to upgrade the product to newer, energy-efficient standards. For both products, product assembly at NEC represents about 1 percent of the global warming potential. The contribution of end-of-life and disposal is negligible for both products.

Table 4.3 Example of LCA: Paper versus Plastic Bag

Category of impact

Paper bag

Plastic bag

Materials choice

Wood (renewable)

Oil (nonrenewable)

Embodied energy (mJ)



Solid waste (in g)



Total emissions to air (kg)



Global warming potential (kg CO2 equivalents)



Source: Institute for Lifecycle Energy Analysis.

Figure 4.3 LCA (Global Warming) for different electronic products. (Source:

Figure 4.4 shows the results of an LCA performed by Osram and Siemens comparing three different alternatives for light bulbs: conventional incandescent bulbs, compact fluorescent lights (CFL), and LED lamps. The environmental impact assessed in Figure 4.4 is energy consumption during manufacturing and 25,000 hours of use by consumers. Traditional incandescent, CFL, and LED bulbs last on average 1,000, 10,000, and 25,000 hours, respectively. Thus, the appropriate comparison is energy usage for 25, 2.5, and 1 for incandescent, CFL, and LED bulbs, respectively, for both manufacturing and use with consumers. Just as in switching equipment, the stage “use by consumers” dominates the environmental impact of light bulbs; thus, the significant savings provided by CFL and LED bulbs. Although not shown here, the same study also analyzed human toxicity potential, global warming potential, and eutrophication as other environmental impact factors, and concluded that CFL and LED bulbs are again better than incandescent bulbs.

Figure 4.4 LCA of different light bulbs: conventional incandescent (CONV.), compact fluorescent (CFL), and LED. (Source:

Limitations of LCA

Just like any other tool, LCA has its limitations:

1. Weights given to different impacts: The answer to an LCA is not always clear, particularly when the study is performed for multiple impacts, such as the paper versus plastic bag in Table 4.3. If the analyst gives different weights to different impacts to come up with a single answer, then the weights are subjective.

2. Drawing the boundaries: Ideally, LCA studies should consider the entire environmental impact of a product through its life cycle, as in cradle-to-grave shown in Figure 4.2. Data can be easily collected by a firm to estimate environmental impact in the stages directly under its control, such as production, transportation, distribution, and packaging. Other stages (such as end-of-life and disposal) require assumptions such as existing recycling rates (which differ across locations), average hours of use, and so forth.

3. Social impacts: Environmental impacts are relatively easy to measure, but socio-economic impacts (such as well-being of impacted communities) are more difficult to quantify. A new framework for conducting social life cycle assessment has been developed by the United Nations Environmental Programme (UNEP). It considers five stakeholder categories: workers, local community, society, consumers, and value chain actors. Within each stakeholder category, there are impact categories as follows: human rights, working conditions, health and safety, cultural heritage, governance, and socio-economic conditions.

4. Renewable versus nonrenewable resources: An LCA that only considers energy consumption as an impact factor may fail to detect important issues with depletion of nonrenewable resources. Thus, materials choice (as an environmental impact factor) should be incorporated as often as possible.

In the next section, we provide a more in-depth discussion of a particular application of LCA: measuring a firm, product or process carbon footprint.

4.2 Measuring Carbon Footprint

Carbon footprint means the amount of greenhouse emissions associated with an organization (say, a firm), a product, or a process over a defined period of time. Carbon footprinting can be thought of as an application of LCA to the case where the environmental impact factor is global warming potential. The name “greenhouse gas” (GHG) refers to the manner in which certain gases—water vapor, methane (CH4), carbon dioxide (CO2), ozone (O3), nitrous oxide (N2O), hydrofluorocarbons (HFCs), and others—trap the energy generated by the sun in the earth, warming the planet. The presence of these gases in the atmosphere allows life as we know it to exist, and without them the planet would be significantly cooler. Due to different concentrations of these gases in the atmosphere, water vapor accounts for 36–70 percent of the greenhouse effect, carbon dioxide accounts for 9–26 percent, methane accounts for 4–9 percent, and ozone accounts for 3–7 percent. Industrial and human activities in general, however, are significant emitters of CO2 and methane; the concentration of these two gases has increased by 40 percent and 125 percent, respectively, since 1850.2

Due to the warming potential of GHGs, firms have started tracking and reducing their emissions of these gases, even without government regulation. Because CO2 is the most prevalent among the GHGs, it has become a standard for reporting all emissions of GHGs. Thus, firms report their total emissions of GHGs in terms of CO2-equivalent, using conversion factors shown later in this chapter.

An offset is a compensatory measure made by a firm for its carbon emissions; this is usually done through financial support of projects (elsewhere, not inside the firm) that lower CO2 emissions. A firm can reduce its own emissions by, for example, switching to a cleaner technology—for example, using solar panels to produce electricity for its retail stores, which Walmart has been doing—this is not an offset, but a direct reduction in Walmart’s direct emissions. Alternatively, the firm can also sponsor the planting of trees in deforested areas (trees absorb CO2), or provide financial support for a wind farm; those are examples of offsets—even though the firm’s actual level of emissions may not have changed, net emissions in the planet are lowered by the trees it planted, or by the electricity produced via wind farms (which avoids consumption of coal).

In a cap-and-trade regulation, the government sets a “cap” on the amount of emissions allowed per year. After setting the cap, the government issues allowances to firms in certain industrial sectors—those that are heavy CO2 emitters, such as utilities, paper, steel, and cement manufacturers—that gives these firms the right to emit a given quantity of GHGs in a year. Allowances may be auctioned, or allocated for “free.” A firm with annual emissions below its allowance can sell the difference (between its allowances and actual emissions) in the market, so that firms with emissions above their allowances can buy them. This system provides an economic incentive for firms to decrease their level of greenhouse emissions, because the government lowers the cap every year. Cap-and-trade has been used successfully to decrease the amount of SO2 (which causes acid rain) in the atmosphere in the United States, that is, actual SO2 emissions decreased over time since the program’s implementation in 1995. Cap-and-trade for GHG is in Effect in the European Union since 2005; in the United States, there is no legislation at the federal level, although California passed its own legislation in October of 2011.

An alternative type of legislation aimed at reducing greenhouse emissions is a carbon tax, which is a tax levied on carbon emissions. A carbon tax could impose a tax on direct CO2 emissions (say, $12 per ton of CO2 emitted, which is abbreviated as $12/tCO2), or an energy tax, which is levied on the carbon content of fuels used (say, $43 per ton of carbon, abbreviated as $43/tCo2). British Columbia implemented a $10/tCO2 legislation in 2008, with the tax level increased later; it was $30/tCO2 in 2017.

The GHG protocol provides internationally recognized standards for firms to track their GHG emissions—corporate GHG accounting—and we discuss this next.

An Organization’s Carbon Footprint

The GHG Protocol Corporate Standard3 provides guidance for firms and other organizations to compute their GHG emissions. It covers the accounting and reporting of six GHGs: CO2, methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6). The GHG protocol is a partnership between the World Business Council for Sustainable Development and the World Resources Institute. The CDP (formerly, Carbon Disclosure Project) is an organization (and data repository) that allows firms, cities, states, and countries to voluntarily disclose their carbon emissions, in order to track their progress toward emissions reductions, and to increase transparency of their operations.

To measure an organization’s carbon footprint, the first step is to set the boundaries of the organization. Some organizations are complex entities: they may participate in joint ventures, subcontract some portion of their operations, and lease some assets. The GHG protocol recommends reporting at the highest level possible (say, the parent company, such as General Electric). For operations that are jointly owned, the GHG protocol suggests an equity share approach (where the organization reports emissions from wholly owned facilities, and a share corresponding to its equity share for partially owned facilities). Alternatively, the organization may decide to report all emissions from facilities that are under the organization’s control, including both wholly and partially owned.

After setting the boundaries, the GHG protocol identifies three separate scopes for emissions:

1. Scope 1. These are emissions from the organization’s own on-site operations: fossil fuel combustion in the organization’s fleet vehicles (mobile combustion of fuels), fossil fuel combustion in local electricity production (stationary combustion of fuels), as well as gases generated by some manufacturing processes.

2. Scope 2. These are emissions resulting from the production of electricity purchased by the organization.

3. Scope 3: These include all upstream activities (extraction of raw materials, production of parts purchased by the firm, and transportation of these parts to the organization), downstream activities (distribution of the organization’s products to distribution centers, and retailers, as well as product disposal), and travel and commuting by employees. Referring back to Figure 4.2, one can view Scope 1 emissions as related to the “manufacturing” portion of the product’s life cycle, Scope 2 emissions as all the electricity purchased by the organization, and Scope 3 emissions as all the other stages in the cradle-to-grave LCA approach (except use by customers), in addition to employee travel and commuting. Notice that scope 3 for an organization is scope 1 or 2 for another organization.

Scope 1 and 2 emissions are relatively easy to compute, whereas Scope 3 emissions are much more complex. We notice, however, that for several firms and/or industries, the bulk of emissions are likely to be Scope 3, rather than Scopes 1 and 2. One study finds that Scopes 1 and 2 combined account for 26 percent, on average, of an industry’s emissions.4 Walmart states that “90 percent of our environmental impact exists beyond the footprint of our stores and facilities”.5 Due to the simplicity in calculation, and the fact that carbon legislation does not address Scope 3 emissions, however, we provide here an example of how to compute Scopes 1 and 2 emissions for a small firm. The reader is referred to the GHG protocol website ( for guidelines on computing Scope 3 emissions.

Since there are multiple GHGs involved in the computation, all of their emissions are converted to CO2 emissions, with the use of a global warming potential conversion factor. That is, the global warming potential of CO2 is normalized to one. The global warming potential of the three main GHGs is shown in Table 4.4. From Table 4.4, 1 kg of CH4 is equivalent to 25 kg of CO2.

The next source of data concerns the emissions amount for common processes. For Scope 1 emissions, Table 4.5 presents emissions for the three main GHGs in the stationary combustion of fossil fuels, and Table 4.6 presents emissions for mobile combustion of fossil fuels.

Table 4.4 Global warming potential of three main GHGs


Global warming potential







Source: U.S. EPA.6

Table 4.5 Emissions Factor for Stationary Combustion of Fossil Fuels

Source: U.S. EPA.7

Table 4.6 Emissions factors for mobile combustion of fossil fuels

Source: U.S. EPA.8

For Scope 2 emissions, the emissions factors depend on where the electricity is purchased, since the amount of emissions (say, per MWh of electricity purchased) depends on how the electricity is produced, and different regions of the United States and the world generate electricity using a different mix of sources (coal, natural gas, nuclear, hydroelectric, wind, etc.). In the United States, the grid is divided into 26 sub-regions, as shown in Figure 4.5. The emissions factors for each of the 26 sub-regions, in terms of kilograms of each of the three gases per MWh of electricity purchased, are shown in Table 4.7.

Figure 4.5 Sub-regions of the U.S. electricity grid. (Source: U.S. EPA)9

Table 4.7 Emissions factors for electricity purchased in different regions of the united states

Source: U.S. EPA.10

Now, we show how to use the data provided above to estimate the carbon footprint of a landscaping business in North Florida. The firm has two pick-up trucks, and several gasoline-powered machines, such as mowers, trimmers, blowers, and so forth. The firm also owns a generator, which it occasionally uses to generate electricity for its office during power outages. Every year, the firm purchases about 6,800 gallons of gasoline for its two trucks and machines, about 2,500 MMBtus of natural gas for heating the offices and for the generator, and 10,000 kWh of electricity (that is equal to 10 MWh of electricity). The emissions are calculated as follows:

Scope 1, natural gas (stationary): From Table 4.5, the emissions factors for CO2, CH4, and N2O are 53.06, 0.005, and 0.0001 kg of gas per MMBtu, respectively. Since the firm consumes 2,500 MMBtu of natural gas per year, the corresponding emissions are 132,650 kg of CO2, 12.5 (0.005 * 2,500) kg of CH4, and 0.25 (0.0001* 2,500) kg of N2O.

Scope 1, gasoline (mobile): From Table 4.6, the emissions factors for CO2, CH4, and N2O are 8.81, 0.0005, and 0.00022 kg of gas per gallon, respectively. Since the firm consumes 6,800 gallons of gasoline per year, then the corresponding emissions are 59,908 kg of CO2, 3.4 kg of CH4, and 1.5 kg of N2O.

Scope 2, electricity (grid): From Figure 4.5, the corresponding sub region for Florida is FRCC. From Table 4.7, the corresponding emissions factors for CO2, CH4, and N2O are 487.7, 0.040, and 0.0055 kg of gas per MWh of electricity purchased, respectively. Since the firm consumes 10 MWh, the corresponding emissions are 4,877 kg of CO2, 0.40 kg of CH4, and 0.055 kg of N2O.

Adding all emissions from Scope 1 and Scope 2 sources, we obtain 197,435 kg of CO2, 16.3 kg of CH4, and 1.8 kg of N2O. From Table 4.4, the associated global warming factors are 1, 25 and 298 for CO2, CH4 and N2O, respectively. Thus, the emissions in term of kilograms of CO2 equivalent are 197,435 kg, 407 kg (16.3×25), and 537 kg (1.8×298) for CO2, CH4, and N2O, respectively, for a grand total of 198,379 kg of CO2 equivalent per year. Thus, the firm’s carbon footprint is 198.4 tons of CO2 equivalent per year. For ease of reference, the calculations are summarized in Table 4.8.

The U.S. EPA provides a tool for computing a household’s own carbon footprint; this tool is available at:

Table 4.8 Summary of carbon footprint calculations for landscaping business example

A Product’s Carbon Footprint

The previous section detailed a method to compute the carbon footprint for an organization as a whole. We can also compute the carbon footprint of a product, which is in essence a cradle-to-grave LCA with greenhouse emissions as the sole environmental impact factor. An example was discussed previously, in Figure 4.3, for NEC products, where the stage “use by customers” dominated switching equipment’s carbon footprint due to the amount of electricity consumed by this product, which operates 24/7 for several years.

Notice that the reporting of a product’s carbon footprint is entirely voluntary (whereas an organization’s carbon footprint might be required by carbon legislation). There are standards for computing a product’s carbon footprint, such as the PAS 2050 (released by the British Standard Institute), and the GHG Protocol, which was released in late 2011. The PAS 2050 standard has links to the ISO 14040 and ISO 14064 standards, which are also for carbon footprint (ISO standards are focused on requirements, as opposed to specific guidelines). The PAS standard is used by the Carbon Trust,11 which is a nonprofit established by the UK government, with support from firms, to help firms measure carbon footprint, as well as implement low carbon technologies. Firms can also pursue Certification of their products from Carbon Trust, which allows them to use a label.

LCA and carbon footprint are metrics that identify a firm’s environmental impact, for the organization as a whole, or for specific products and/or processes. The next step for the firm is to improve its environmental performance, and our next section discusses a process for this.

4.3 Environmental Management Systems and ISO 14001

An environmental management system (EMS) is a process designed to help a firm meet environmental objectives, mandated or not by legislation, and thus demonstrate improved environmental performance. The process described in an EMS is based on the plan-do-check-act (PDCA), or Deming’s cycle, which is used in most quality management systems. Using a process based on quality management techniques is a natural fit, as one can think of environmental performance as a dimension of overall quality for the firm.

Depending on the scope of the firm’s environmental activities, an EMS can be informal, with limited documentation, or a formal process, fully documented, particularly for firms exposed to significant environmental risks (say, in chemical manufacturing, or oil extraction and refining). Most firms that are subject to environmental legislation have an EMS designed exclusively for compliance with existing legislation. However, an EMS can be proactive, and designed to take a firm beyond compliance.

An EMS is likely to include clear procedures and documentation to deal with the following issues:

Do you have an environmental policy? An environmental policy details the firm’s approach to dealing with environmental issues. For example, an environmental policy may be very narrowly focused toward compliance with existing environmental legislation, or it may be very far reaching (e.g., the firm’s goal is to be carbon neutral, or have all of its manufacturing plant achieve zero landfill).

Have you conducted an analysis of the environmental impact of your products and processes? This requires the firm to conduct an LCA for its products and processes.

Do you have documented environmental objectives and targets? Targets could be, for example, a 5 percent reduction in carbon footprint every two years, or a 5 percent reduction in yearly energy consumption in three years, etc. One of supermarket chain Tesco’s environmental objectives is to reduce its CO2 emissions per square foot of its stores and distribution centers by 50 percent by 2020, against a 2006 baseline.12

Have you established programs for achieving objectives and targets? Programs are means to achieve targets. For example, the firm will retrofit all of its windows at its headquarters with energy-efficient ones; the firm will install solar panels in 30 percent of their retail locations in 5 years, etc.

Have you appointed personnel to oversee the implementation of the targets and programs? Here, the firm needs to demonstrate accountability for the environmental targets and programs within the organization, including programs targeted toward compliance with environmental legislation.

Are the core elements of the EMS defined in either paper or electronic form? This demonstrates the need for documentation of targets, programs, procedures, and responsibilities.

Are there procedures that ensure that the documents associated with the EMS are created and maintained consistently?

Do you have procedures for defining responsibility for nonconformances and taking actions to mitigate them?

Do you have procedures for informing personnel about the elements of the EMS?

Do you have procedures for defining responsibility for nonconformances, and taking actions to mitigate them?

Do you have procedures for periodic audits of the documents in the EMS?

ISO 14001 was a standard created by the International Standards Organization (ISO) to evaluate the soundness of a firm’s EMS. Thus, a firm can have its EMS certified against the ISO 14001 standard. Simply put, ISO 14001 is to an EMS what ISO 9000 is to quality management, so we first review some basic facts about ISO 9000.

Most firms have quality management programs; however, pursuing ISO 9000 Certification signals to the world that the firm’s quality management system is sound, because it has been reviewed by an independent accreditation body against an international standard. ISO 9000 does not ensure that the firm’s product has quality; it does ensure, however, that all processes within the firm (to design, produce, and distribute the product or service) are consistent. ISO 9000 Certification occurs at the site level, and not at the firm level—thus, a firm may have one plant that is ISO 9000 certified but not another plant. A study has shown that ISO 9000 Certification pays of financially: firms that pursue certification are better off—in terms of return on investment (ROI) and cost of goods sold (COGS) as a percentage of sales—than firms that do not pursue certification.13 The improved financial performance is likely related to changes made in the firm’s processes—in pursuing ISO 9000 Certifications, firms must take a hard look at their processes in order to document them; this exercise reveals “low-hanging fruit”—opportunities that can be targeted for improvement.

Just as a firm that is ISO 9000 certified does not necessarily produce high quality products, the products produced by a firm whose EMS is ISO 14001 certified are not necessarily “green.” The ISO 14001 label only certifies that the firm has established a functioning EMS, according to international standards. In addition, ISO 14001 Certification does not state that the firm is in compliance with existing environmental regulations. It only states that that the firm has a well-defined process to comply with all relevant regulations. Corbett and Kirsch14 have identified the following three myths about ISO 14001 Certification:

Myth 1: ISO 14000 is strictly an environmental standard, thus it is irrelevant to my business. Some managers may have the wrong impression that ISO 14001 Certification is important primarily for firms with significant environmental risks, such as heavy manufacturing and processing industries. About one-third of all certified firms to date, however, are in service industries. There are potential benefits of ISO 14001 beyond improved environmental performance, as discussed in detail in myth 3 below.

Myth 2: ISO 14001 is a pain. It is true that ISO 9000 certification may be indeed time consuming (typical implementation times are about 12–18 months) and expensive (considering all hours spent plus consulting fees, and Certification fees).

ISO 14001 Certification is a natural extension of ISO 9000, since both standards use the plan-do-check-act planning cycle as discussed before. In addition, the scope of ISO 14001 is narrower (relative to ISO 9000), systems do not need to be perfect, and nonconformances are easier to remedy. The key message is: if a firm is already ISO 9000 certified, then it should also seek ISO 14001 Certification.

Myth 3: “There are no benefits to ISO 14001 Certification.” The benefits of ISO 14001 Certification can be described in three categories:

Improved relationships with communities and authorities: ISO 14001 Certification signals to communities and local governments that the firm has made a good faith effort to deal with environmental issues—for example, if accidents happen, then an ISO 14001 certified firm has a plan to deal with them. In addition, a carefully thought out EMS may decrease the probability of costly accidents, due to the planning and accountability procedures inherent in it. As a result, ISO 14001 certified firms may experience less intensive surveillance and monitoring by authorities, and faster granting of permits for expansion or construction projects.

Organizational learning: The process of formalizing procedures reduces the firm’s dependence on a few key individuals. In addition, the requirement that employees be trained in the details of the firm’s EMS may yield morale benefits.

Financial benefits: ISO 14001 Certification may result in cost reductions. Just as in the case with ISO 9000 Certification, being forced to take a detailed look at the firm’s processes may reveal inefficiencies; the firm’s costs associated with waste processing and removal are also likely to decrease. The firm may experience a higher market share, because its potential customers may only look for suppliers that are certified (similarly to some automotive firms that require ISO 9000 Certification as a condition for doing business with some suppliers). These financial benefits should be reflected in the firm’s stock prices. In fact, a study found that financial markets react positively to the news of ISO 14001 Certification—median abnormal return (i.e., return above market return) for firms receiving certification was about 0.77 percent for the two days following certification.15

In fact, the same study has found that no company that has implemented ISO 14001 has regretted it.16

4.4 Green Buildings and LEED Certification

Among voluntary green labels and certifications a firm may pursue, an important one that has achieved a significant adoption rate is LEED certification for buildings. LEEDv4—Leadership in Energy and Environmental Design—is a rating system for buildings created by the U.S. Green Building Council (USGBC). Out of a maximum of 110 points for new construction and major renovations, the rating system awards points for buildings in seven major categories as follows (numbers mean the possible number of points to be awarded in each sub-category)17:

Credit: Integrative Process 1

Location and Transportation (LT): 16 Possible Points

LT Credit: LEED for Neighborhood Development Location 8-16

LT Credit: Sensitive Land Protection 1

LT Credit: High-Priority Site 1-2

LT Credit: Surrounding Density and Diverse Uses 1-5

LT Credit: Access to Quality Transit 1-5

LT Credit: Bicycle Facilities 1

LT Credit: Reduced Parking Footprint 1

LT Credit: Green Vehicles 1

Sustainable Sites (SS): 10 Possible Points

Prerequisite 1: Construction Activity Pollution Prevention (Required)

SS Credit: Site Assessment 1

SS Credit: Site Development—Protect or Restore Habitat 1-2

SS Credit: Open Space 1

SS Credit: Rainwater Management 2-3

SS Credit: Heat Island Reduction 1-2

SS Credit: Light Pollution Reduction 1

Water Efficiency (WE): 11 Possible Points

Prerequisite 1: Outdoor Water Use Reduction (Required)

Prerequisite 2: Indoor Water Use Reduction (Required)

Prerequisite 3: Building-Level Water Metering (Required)

WE Credit: Outdoor Water Use Reduction 1-2

WE Credit: Indoor Water Use Reduction 1-6

WE Credit Cooling Tower Water use 1-2

WE Credit: Water Metering 1

Energy and Atmosphere (EA): 33 Possible Points

Prerequisite 1: Fundamental Commissioning of Building (Required)

Prerequisite 2: Minimum Energy Performance (Required)

Prerequisite 3: Building-Level Energy Metering (Required)

Prerequisite 4: Fundamental Refrigerant Management (Required)

EA Credit: Enhanced Commissioning 2-6

EA Credit: Optimize Energy Performance 1-18

EA Credit: Advanced Energy Metering 1

EA Credit: Demand Response 1-2

EA Credit: Enhanced Refrigerant Management 1

EA Credit: Renewable Energy Production 1-3

EA Credit: Green Power and Carbon Offsets 1-2

Materials and Resources (MR): 13 Possible Points

Prerequisite 1: Storage and Collection of Recyclables (Required)

Prerequisite 2: Construction and Demolition Waste Management Planning (Required)

MR Credit: Building Life-Cycle Impact Reduction 2-6

MR Credit: Building Product Disclosure and Optimization—Environmental Product Declarations 1-2

MR Credit: Building Product Disclosure and Optimization—Sourcing of Raw Materials 1-2

MR Credit: Building Product Disclosure and Optimization—Material Ingredients 1-2

MR Credit: Construction and Demolition Waste Management 1-2

Indoor Environmental Quality (EQ): 16 Possible Points

Prerequisite 1: Minimum Indoor Air Quality Performance (Required)

Prerequisite 2: Environmental Tobacco Smoke (ETS) Control (Required)

EQ Credit: Enhanced Indoor Air Quality Strategies 1

EQ Credit: Low-Emitting Materials 1-2

EQ Credit: Construction Indoor Air Quality Management Plan 1

EQ Credit: Indoor Air Quality Assessment 1

EQ Credit: Thermal Comfort 1

EQ Credit: Interior Lighting 1-2

EQ Credit: Daylight 1-3

EQ Credit: Quality Views 1

EQ Credit: Acoustic Performance 1

Innovation (IN): 6 Possible Points

IN Credit: Innovation 1-5

IN Credit : LEED Accredited Professional 1

Regional Priority (RP): 4 Possible Points

RP Credit: Regional Priority 1-4

For example, under Materials and Resources MR Credit: Construction and Demolition Waste Management, the requirement for being awarded the two possible points are as follows:

Recycle and/or salvage nonhazardous construction and demolition materials. Calculations can be by weight or volume but must be consistent throughout. Exclude excavated soil, land-clearing debris from calculations. Include materials destined for alternative daily cover (ADC) in the calculations as waste (not diversion). Include wood waste converted to fuel (biofuel) in the calculations; other types of waste-to-energy are not considered diversion for this credit . . . Option 1: Diversion (1-2 points): Divert 50% and three material streams (1 Point); Divert 75% and four material streams (2 points). Option 2: Reduction of total Waste Material—Do not generate more than 2.5 pounds of construction waste per square foot.

As another example, for water efficiency, the WE prerequisite indoor water use reduction stipulates that the design must use 20 percent less water than a baseline calculated for the building, where the standard provides specific guidelines for computing the baseline water consumption (e.g., 1.6 gallons per flush for commercial toilets, 1.0 gallons per flush for commercial urinals, 2.5 gallons per minute at 80 psi per shower stall for showerheads, etc.). The WE credit indoor water use reduction awards 1 point for each additional 5 percent indoor water reduction (from the 20 percent requirement), for a maximum of 6 points for 50 percent indoor water use reduction.

The standard also provides suggestions for possible technologies for achieving the points. For example, for Water Efficiency WE Credit: Indoor Water Use Reduction, some suggestions are:

Further reduce fixture and fitting water use from the calculated baseline in WE Prerequisite Indoor Water Use Reduction. Additional potable water savings can be earned above the prerequisite level using alternative water sources. Include fixtures and fittings necessary to meet the needs of the occupants. Some of these fittings and fixtures may be outside the tenant space (for Commercial Interiors) or project boundary (for New Construction).

There are four levels of Certification, depending on the number of points achieved by the building:

LEED certified: 40–49 points

LEED Silver Certified: 50–59 points

LEED Gold Certified: 60–79 points

LEED Platinum certified: 80 points and above

As an example, the Bronx Library Center, in New York, is LEED Silver Certified. Among many other features, 90 percent of the demolition debris was recycled, the building achieves 20 percent energy cost savings (relative to a baseline for comparable buildings), and 80 percent of the wood used is Forest Stewardship Council (FSC) certified. (Green labels and Certifications are discussed further in Chapter 8.)

The popularity of LEED Certification is evident in Figure 4.6, which shows significant growth since its inception in 2000. In fact, LEED is adopted outside of the United States, with projects in more than 160 countries, including Europe, Asia, and Latin America.18

Figure 4.6 Growth in LEED certifications since its inception.

Some of the features in green buildings, necessary for LEED certification, can be easily justified financially. For example, if a building consumes 20 percent less electricity than a baseline (comparable) building, the firm can estimate the net present value of these savings (by assuming a certain average cost of electricity, and the annual baseline consumption of electricity), and these savings can be compared with the upfront investments in technology necessary to achieve these savings (e.g., energy-efficient appliances and fixtures, photovoltaic solar panels). A significant portion of monetary savings used in justifying these projects, however, originates from improved employee productivity (working in a healthier environment, with better temperature, ventilation, indoor air quality, natural illumination), estimated to be around 5 percent for green buildings.19

4.5 Web Resources

Many of the topics discussed in this chapter are progressing rapidly, although some (such as LCA) are fairly mature. The reader can find additional resources (and constantly updated information) on the following sites:


Carbon footprinting standards:

Calculating one’s carbon footprint:

ISO 14000:

LEED Certification standards: