Chapter 9 The Other “P” of Sustainability—People – Sustainable Operations and Closed Loop Supply Chains, Second Edition

CHAPTER 9

The Other “P” of Sustainability—People

9.1 Introduction

Much of the emphasis of the book is on two of the Ps of sustainability: profit and planet. This chapter is dedicated to the other “P” of sustainability: people. We discuss some examples of firms that have considered their social impact when designing their operations and supply chains.

In general, when a firm considers the environmental impacts of their operations, they are also considering the social impact, although perhaps indirectly:

Pollution prevention and waste reduction. A firm that pollutes less is contributing to the better health of the citizens in the communities where it operates. For example, lower emissions of SO2 decrease the intensity of acid rains, which protects the health of plants and animals, which indirectly impacts human health through better food supply and a better quality of life. Reducing or eliminating the waste streams that contaminate a community’s water supply directly improves the health of its citizens. In general, reducing the amount of waste also means reducing the rate of landfilling. Landfilling has a direct negative impact on the health of humans, because some toxic materials may leak and contaminate water streams.

Carbon footprint reduction. When a firm reduces its carbon footprint, it is contributing to reducing the intensity of global warming. Although global warming may be beneficial to some communities (e.g., longer growing season in cold areas of Canada), its potential negative impacts are stronger in a larger portion of planet, including poorer communities in tropical areas of the world. That is because impacts of global warming include rising sea levels, a change in the amount and pattern of precipitation, and a likely expansion of subtropical deserts.1 According to the Intergovernmental Panel on Climate Change (IPCC), the direct negative impacts of global warming on humans include vulnerability to extreme weather events (such as hurricanes, and droughts), as well as coastal flooding, reduction in water supplies, and reduction in food supplies (due to droughts and floods).2

Green buildings. As discussed in Chapter 4, one of the strongest impacts of green buildings on humans (in addition to lower environmental impact) is increased employee productivity (working in a healthier environment, with better temperature, ventilation, indoor air quality, and natural illumination), estimated to be around 5 percent.

Design for the environment (DfE). The link is direct here, if one considers that DfE protocols emphasize materials choice, and that includes an assessment of toxicity to humans. For example, the cradle-to-cradle design Certification discussed in Chapter 5 (in the section “Cradle-to-Cradle® Design Principles”) specifically bans the use of PVC and chloroprene at any concentrations on product designs, and sets very low limits for the use of halogenated hydrocarbon and toxic heavy metals (Pb, Hg, Cd, Cr+6). A product that is non-toxic has a direct positive impact on consumers’ health.

The list above is not meant to be exhaustive, but it provides examples where the lower environmental impact of a firm’s operations has direct and indirect positive impacts on the health of humans, and their quality of life. This shows how the “planet P” is related to the “people P.” In this chapter, however, we provide examples where firms design their operations and supply chains taking into consideration more direct social impacts, and how they can gain a competitive advantage through shared value creation.

9.2 Stakeholder Analysis

In order to understand the reach of a firm’s social impact, one needs to understand the various stakeholders of a firm:

Employees. Firms provide direct and indirect employment, and that is a direct positive impact on communities. For example, General Motors (GM) employs 225,000 people in more than 120 countries.3 In terms of indirect employment, there are GM’s suppliers, and all the services that exist around GM plants and suppliers to support the employees, such as restaurants, health-care services, hotels, and so forth. Of course, employment is only one indicator of social impact related to employees. Working conditions, benefits (including health insurance), diversity practices, and so forth also need to be considered.

Communities. Firms have a direct impact in the communities where they operate. As previously discussed, they provide direct and indirect employment. But they can also support local schools, hospitals, local charities, cultural events, environmental initiatives, and in many cases these are win–win partnerships. In some cases, this support can be classified as philanthropy, or charity. For example, Lilly, the pharmaceutical company headquartered in Indianapolis, Indiana, has several initiatives aimed at improving access to health care for underserved populations. Among its many initiatives, Lilly donates medications to several, patient assistance programs in the United States and abroad. Some less-developed countries may gain access to licenses for making Lilly’s patent-protected drugs, so that drug manufacturers may make generic versions of Lilly’s patent-protected drugs at a much lower cost. As another example, Johnson & Johnson (J&J), which manufactures drugs and medical and diagnosis devices, among other products, lists several social responsibilities initiatives on its website.4 One initiative provides training for midwives to assist in births, with impact estimated at six million births by 2020. As another example, J&J provides HIV medicines either at special effort or at reduced pricing in more than 100 countries. J&J donates medication to several NGOs around the world, for example, 129 million doses of mebendazole in 2015 for treatment of children with worms in countries in Africa, Asia, and Central America. In other cases, community support is a win–win, or shared value creation, as we discuss later in this chapter. For example, strong local schools help provide a quality workforce, and also improve the local quality of life, increasing employee retention.

Customers. Firms can have a significant social impact in their customers by developing products that help save lives and improve quality of life. Consider, for example, the pharmaceutical companies previously described, and their impact on their customers’ health, and global health in general. As another example of a product designed to meet societal problems, Procter & Gamble (P&G) has developed water purifying packets for use in poor areas of the world or in natural disasters, where water sanitation is an issue. One small P&G packet turns 10 liters of dirty, potentially deadly water into clear, drinkable water. P&G’s Children’s Safe Drinking Water Program works with several partners to provide the water purification packets to schools, health clinics, and disasters such as cholera outbreaks, earth quakes, and floods. By 2015, the program had delivered 9 billion liters of clean water to those in need, and had a goal of 15 billion liters to be delivered in 2020.5

Supplier. Firms can have a positive impact in their suppliers, by offering training, financing, and support. These are examples of win– win situations, in that supplier development improves sourcing in the long run, reducing costs and improving quality. For example, consider Walmart’s efforts in securing MSC-certified seafood previously described. Such developments help economic sustainability of the firm in terms of assurance of quality supply. There are also examples of direct social support of suppliers, for example, Nestlé’s training and technical assistance to 113,446 coffee farmers in 2016.6 This improves profitability of the farmers, and helps Nestlé secure a long-term supply of coffee.

Non-governmental organizations (NGOs). Although some NGOs have a combative tone with firms, many firms and NGOs have realized that, instead, a collaborative approach yields dividends for both parties. Continuing on the coffee example, Nestlé has not only its own farmer support initiatives, but it also sells Fairtrade-certified coffee, as discussed in Chapter 8. Tetra Pak is a multinational headquartered in Switzerland that manufactures, among other products, long-life packaging—cartons manufactured with aseptic technology, which keeps food (such as milk and juices) fresh for at least six months without refrigeration or preservatives. Tetra Pak’s packages are complex, with six different layers of three materials: paper, polyethylene terephthalate (PET), and aluminum. Tetra Pak has engaged with numerous NGOs around the world, such as the Forest Stewardship Council (FSC) since a key raw material is paper, the World Resource Institute (WRI) for carbon and water footprint accounting, and many others, including those with a more social bend, such as Scaling Up Nutrition.7

Industry Groups. Continuing with the Tetra Pak example, the firm is engaged with several industry groups, such as Carton Council, to promote standards for recyclable packages, as well as increasing recycling rates.

Governments. Firms, particularly large OEMs, have an interest in keeping a good relationship with governments, either local or national governments. As discussed in Chapter 4, good relationships with local governments may ease the issuance of permits, and enhance license to operate in general. National government agencies are the source of regulations, and national legislation, and thus firms can successfully lobby for the establishment and improvement of these regulations. For example, the European Recycling Platform (ERP) has successfully lobbied the European Union for the establishment of the WEEE directive for e-waste recycling, which is based on the principle of individual producer responsibility, as discussed in Chapter 2. Again, this is a win–win situation, as firms can improve their competitive position, and governments can improve environmental and social welfare through better, more informed legislation and regulations.

9.3 Shared Value

Some of the examples in the previous section on stakeholder analysis, and in this book in general, illustrate the idea of shared value. As Porter and Kramer define8:

The concept of shared value can be defined as policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates. Shared value creation focuses on identifying and expanding the connections between societal and economic progress.

Or, as the Shared Value Initiative puts it9:

Shared value is a management strategy in which companies find business opportunities in social problems. While philanthropy and CSR [Corporate Social Responsibility] focus efforts on “giving back” or minimizing the harm business has on society, shared value focuses company leaders on maximizing the competitive value of solving social problems in new customers and markets, cost savings, talent retention, and more.

Notice the direct contrast between the idea of CSR and shared value in the two quotes. Porter and Kramer suggest seven main areas where addressing societal concerns can lead to higher productivity; these arguments are in line with what has been presented in this book:

1. Environmental impact. By now it should be clear to the reader that when a firm significantly reduces its environmental impact, it enjoys many productivity benefits, in line with the lean philosophy of reducing waste. Consider the previous TetraPak example, where increased recycling rates of its packages lead to both lower environmental impact and cost reductions in the form of lower raw material costs.

2. Energy use. Reducing energy use, or, more succinctly, a firm’s carbon footprint, directly contributes to the bottom line, as articulated many times in this book.

3. Water use. Again, solid water stewardship implies lower costs in the short run, and it also ensures water supply in the long run. Coca-Cola, for example, has invested heavily in understanding water scarcity and abundance around the world, in reducing its own water efficiency and footprint, and making sure that all water used in their facilities are returned to a level that supports aquatic life, even when not required by local governments.10 In terms of water efficiency, for example, Coca-Cola has a goal to improve water efficiency by 25 percent by 2020, compared to a 2010 baseline.11

4. Employee health. Investing in a wellness program means lower absenteeism and higher morale; all contributing to higher productivity.

5. Employee skills. Similarly, improving employee skills through training programs such as tuition assistance and others lead to more productive and more motivated employees.

6. Worker safety. Again, worker safety programs reduce health-care costs, absenteeism, improves retention, morale, and so forth.

7. Supplier access and viability. This has been discussed at length in the previous section on stakeholder analysis.

The examples in this chapter are meant to be illustrative of the types of initiatives that some companies undertake in social responsibility, or in creating value. Many more examples can be found in any large firm’s website, in its sustainability report.