Environmental Upgrading in Global Value Chains The Perspective of SUSTAINABILITY STRATEGIES -...

Environmental Upgrading in Global Value Chains

The Perspective

SUSTAINABILITY STRATEGIES

Renato J. Orsato

VIU-Duke Workshop, Venice, July 13-15, 2010

Social Innovation Centre

Emission Trading Schemes

End of Life Management

Food Miles

Forest Stewardship Council

Green Clubs

Global Reporting Initiative

Global Compact

Industrial Ecology

Industrial Symbiosis

ISO 14001 certification

Life-cycle Assessment

Product Declarations

Product Stewardship

Process Certification Clubs

Product Service Systems

Responsible Care

Rainforest Action Network

Reputational Value

Voluntary Environmental Initiatives

Alternative Energy

Alternative Powertrains

Bio-mimicry

Bio-fuels

Bio-polymers

Base of the Pyramid

Clean Development Mechanism

Cellulosic ethanol

Climate Clubs

Climate Labels

Down Jones Sustainability Index

Design for Disassembling

Design for the Environment

Environmental Management Systems

Eco-activism

Eco-industrial Parks

Eco-labels

Eco-branding

Confused?

How can managers…

• Prioritize eco-investments?

• Align eco-investments with strategy?

• Create competitive advantages?

• Create new market spaces?

Social Innovation Centre 44

Practice

- Reference-company programme at Lund

University, Sweden. Six-months of work per

company in 35 companies (2000-2004);

- Global research (2004-2008).

Theory

Peer-reviewed articles in California

Management Review, Journal of Industrial

Ecology, Organization Studies, among others.

Method

Multi-case study and action-research.

Sponsors

Marie Curie Programme (2004-2007)

INSEAD Social Innovation Centre (2007-2008).

What are Sustainability Strategies?

•Sustainability Strategies are choices

available to managers to align

environmental and social investments with

the generic strategy of the company.

A quick test…

• Based on your personal experience:

• When choosing an hotel to stay for working trip, does your

company check whether the hotel has good environmental

credentials?

• ISO 14001 certification

• Subscribes to Global Compact

• When choosing an hotel for holidays, do you check for some of

the above?

Why then …

• Eco-excellence of organizational process should

generate competitive advantage?

• Can a ISO 14001 certification generate competitive

advantage?

• Why?

• When?

STRATEGY 1Eco-Efficiency

STRATEGY 4Environmental Cost

Leadership

STRATEGY 3Eco-Branding

STRATEGY 2Beyond Compliance

Leadership

Competitive Focus

Organizational Processes Products and Services

Lower costs

Differentiation

Competitive Environmental Strategies

Value for

Customers

Economic

Contribution

to Society

Environmental

Impacts

STRATEGY 5Sustainable

Innovation

Sustainable Value Innovation

Competitive Environmental

Strategies

Strategy

Existing Markets New Market Spaces

Sustainability Strategies

When does it Pay to be Green?

• When: a clear time frame, and the context in which the company operates

• Pays: quantitative and qualitative data, as well as the tangible and intangible value created by the eco-investment

• Green: a clear definition of the type eco-investment

existing market spaces

STRATEGY 1

Eco-Efficiency

STRATEGY 4Environmental Cost

Leadership

STRATEGY 3Eco-Branding

STRATEGY 2

Beyond Compliance

Leadership

Competitive Focus

Organizational Processes Products and Services

Lower costs

Differentiation

STRATEGY 3

STRATEGY 2

Process

standards

Upstream

Activity System

Product

standards

ISO 14001

Downstream

activity system

Eco-differentiation Strategies

1. Government Regulations

- National and International Laws

- Various regulatory frameworks for recycling,

emissions, etc.

4. Business-NGOs

Partnerships

- CERES

- Climate Group

- Climate Savers

5. Civil Regulation

made by NGOs

- Principles for

environmental, social

and human rights

3. Business

Self-Regulation

- Industry Codes of Conduct

-Responsible Care

- ISO 14001

- WBCSD

7. Multipartite

Initiatives

- EMAS

- UN Global Compact

- Climate Leaders

-US Climate Action I

-SO 26000

2. Business-

Government

Initiatives

-Emissions and

-recycling

targets

6. Gov-NGOs

Initiatives

Global

Reporting

Initiative

GOVERNMENT

BUSINESS NGOs

Green Clubs

Negative Positive

Reputation

Beyond Compliance

Leadership

VEIs - Green Clubs

Beyond Compliance

Non-Compliancelaggard

Leader

Average

Consumer engagementConsumer boycotts

Stakeholder criticism, negotiation and dialogue Stakeholder opposition and confrontation

ReflexiveReactive and Defensive

Building Positive ReputationAvoiding Negative Reputation

Sustainability leader in the industryBeyond Compliance

ToFrom

Another question…

• Are you wiling to pay more for eco-friendly products?

• How much more?

• When shopping, are you consistent with your ecological

commitments, or convenience, quality and price come

first?

• Curiosity: do you know what products contain palm oil?

The Case of

Palm Oil

Plantations

Refiners & Blenders Ingredient

Manufacturers

Retailers

Product Manufacturers

Transport & Shipping

Smallholders

Source: RSPO

Flow Chart of

Palm Oil

1. Holding (Ramp station)

2. Transferring (Transfer Carriage)

Palm Oil Process flow chart

Rejected bunches return to state or outsider (unripe; rotten; empty)

3. Sterilization (Sterilizer)

Water:

Input - water from boiler

Output - sterilizer

condensate (to deoling)

4. Thereshing (Theresher)

Palm Oil Process flow chart (cont.)

Empty bunch

5. Digesting (Digester) 6. Pressing (Press) 7. Screening (Vibrating Screen)

Fine Fibers

and crude oil

are separated

Sand Trapping (Sand Trank)??

Palm oil and palm kernel

oil are separated

Palm oil productivity per hectare

Source: Oil World 2008

Source: Oil World, May, 2008

Worldwide vegetable oil production

Comparative Cost of Production of Selected

Oils (US$/tonne)

Source: MPOB (2005)

Asia and the EU are world's major

importers of palm oil

Africa

Pakistan 6%

16%Other Asia

Source: Oil World, May, 2008

World palm oil production (tonnes)X

Source: Oil World, MOPB, MPOC

Source: Presentation at the "Developing Energy and Natural Resources, Building Sustainable Society" workshop on August 29, Tokyo (apud Oil World,

May, 2008)

Palm oil production (area)

Malaysian Palm Production

Sources: Mr Chandran’s presentation - MPOB

Source: USDA 2008

Social Innovation CentreSource: Corley , R.H.V.. How much palm oil do we need?

Hummm....

Social Innovation CentreSource: Greenpeace GHG

NASA Images:

Deforestation in Sumatra

Source: http://earthobservatory.nasa.gov/IOTD/view.php?id=2457

1997: HAZE OVER INDONESIA. Uncontrollable fires in forests and peatlands during 1997

released up to 2.57Gt of carbon, a volume equivalent to up to 40% of the mean annual global

carbon emissions from fossil fuels during the period.

Source: Greenpeace

Eco-activism

The Roudtable for Sustainable Paim Oil

Source: RSPO

Certification

Supply chain certification system:

‘Segregation’

Supply chain certification system:

‘Identity Preserved’

Supply chain system:

‘Book and Claim’

Questions:

• Is RSPO responding to the demands of stakeholders –

Greenpeace in particular?

• Can palm oil become a “differentiated commodity”, in the same

fashion the Fair Trade coffee did?

• Are client organizations willling to pay for differentiated palm oil?

• Can products be eco-branded on the basis of the palm oil content

(RSPO certification)?

Competitive Environmental

Strategies

Summarising

STRATEGY 1 STRATEGY 4

STRATEGY 3STRATEGY 2

Enhanced Reputation

Upstream

Activity System

Downstream

Activity System

Lower Costs, Synergies

Carbon Credits

Price-Premiums

Cost Leadership

Market Entry

Enhanced

Reputation

Synergies

Outcomes

Processes Products

Low Costs

Differentiation

BEYOND COMPETITION

new market spaces

Value for

Customers

Economic

Contribution

to Society

Environmental

Impacts

STRATEGY 5Sustainable

Innovation

Electric Vehicles

Thomas Edison and his EV in 1913

- What´s the problem of EVs?

- Do they have a chance now?

90% of the journeys < 70Km 10% journeys > 70Km

Better Place

New Value Propositions

ValueHigher value for customers and

contribution to society

Lower economic costs and

Environmental impacts

SVINew customers

and markets

New Business Models

The Ecological Modernization

Organizational Fields

Beyond the firm level….

Organisational Commitments,

Competences & Constraints

Competitive Forces

& Collaboration

Market Demand &

Patterns of Utilisation

Positioning of

Related Businesses

The Ecological Modernization of Industry

Environmental

Policies & Programs

Interest Groups &

Organisations

Organisational Field

Industrial Ecology

Conditions

Social Integration

System Integration

Circuits of

Political Ecology

(Orsato 2001)

Automakers’ motivations,

Competences & Constraints

Competitive Forces

& Collaboration

Market Demand &

Patterns of Utilisation

Positioning of

Related Businesses

Environmental

Policies & Programs

Interest Groups

& Organisations

Industrial Ecology

Conditions

+ EVs became a means of reaching Kyoto

targets for CO2 reductions.

+ Governments introduced tax incentives and

subsidies

+ Automakers invest increasing resources in battery technology

- ICE-related competences limit support to EVs inside the firms

- The financial crisis of 2008 limts EV investments.

+ The alliance between Better Place and Renault-Nissan, and

the aggressive approach of the Chinese BYD stir EV

competition.

+ The prospects of mass-market for EVs provokes a

race for the development of batteries

- Suppliers of ICE-related parts do not support EV

developments

+ Fleet operators become interested in EVs to

reduce their CO2 emissions.

+ Toyota Prius allows a large number of users to

experiment (hybrid) EV drive.

+ Electric utilities started joint projects for the

deployment of infrastructure for EV recharge

+ V2G technology can help utilities to solve the

problem of frequency regulation and energy

storage

+ Public support for EVs increases

- Shareholders try to deter ZEV legislation

By 2010, a favourable

momentum is created

around EVs and the

circuits of political

ecology start favouring

EV developments.

Grazie!

renato.orsato@insead.edu

www.renatoorsato.com

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