Environmental Upgrading in Global Value Chains The Perspective of SUSTAINABILITY STRATEGIES - Orsato's presentation (1)

Environmental Upgrading in Global Value Chains

The Perspective
of
SUSTAINABILITY STRATEGIES

Renato J. Orsato

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

Confused?

Alternative Energy Emission Trading Schemes
Alternative Powertrains End of Life Management
Bio-mimicry Food Miles
Bio-fuels Forest Stewardship Council
Bio-polymers Green Clubs
Base of the Pyramid Global Reporting Initiative
CERES Global Compact
Clean Development Mechanism Industrial Ecology
Cellulosic ethanol Industrial Symbiosis
Climate Clubs ISO 14001 certification
Climate Labels Life-cycle Assessment
Down Jones Sustainability Index Product Declarations
Design for Disassembling Product Stewardship
Design for the Environment Process Certification Clubs
Environmental Management Systems Product Service Systems
Eco-activism Responsible Care
Eco-industrial Parks Rainforest Action Network
Eco-labels Reputational Value
Eco-branding Voluntary Environmental Initiatives

Social Innovation Centre

How can managers…

• Prioritize eco-investments?

• Align eco-investments with strategy?

• Create competitive advantages?

• Create new market spaces?


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).

Social Innovation Centre 4

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?

Competitive Advantage Competitive Environmental Strategies

Lower costs
STRATEGY 4
STRATEGY 1 Environmental Cost
Eco-Efficiency
Leadership

Differentiation STRATEGY 2 STRATEGY 3
Beyond Compliance
Eco-Branding
Leadership

Organizational Processes Products and Services

Competitive Focus


Sustainable Value Innovation

Economic Environmental
Costs Impacts

STRATEGY 5
Sustainable
Value
Innovation

Value for Contribution
Customers to Society


Competitive Environmental Sustainable Value Innovation
Strategies Strategy

1 4

5

2 3

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


Competitive Environmental Strategies

existing market spaces

Competitive Advantage
Competitive Environmental Strategies

Lower costs STRATEGY 1 STRATEGY 4
Environmental Cost
Eco-Efficiency Leadership

Differentiation
STRATEGY 2
STRATEGY 3
Beyond Compliance
Eco-Branding
Leadership

Organizational Processes Products and Services

Competitive Focus


Eco-differentiation Strategies

Process Product
standards standards

STRATEGY 2
Upstream Downstream
Activity System activity system
STRATEGY 3

ISO 14001


Green Clubs

GOVERNMENT

1. Government Regulations
- National and International Laws
- Various regulatory frameworks for recycling,
emissions, etc.

2. Business- 6. Gov-NGOs
Government Initiatives
Initiatives 7. Multipartite
Initiatives Global
-Emissions and Reporting
-recycling - EMAS
- UN Global Compact Initiative
targets
BUSINESS - Climate Leaders NGOs
-US Climate Action I
3. Business -SO 26000 5. Civil Regulation
Self-Regulation made by NGOs
- Industry Codes of Conduct 4. Business-NGOs - Principles for
-Responsible Care Partnerships environmental, social
- ISO 14001 - CERES and human rights
- WBCSD - Climate Group
- Climate Savers


Beyond Compliance
Leadership
Beyond Compliance
Leader
Non-Compliance Average
laggard

VEIs - Green Clubs
Negative Positive

Reputation
From To

Beyond Compliance Sustainability leader in the industry

Avoiding Negative Reputation Building Positive Reputation

Reactive and Defensive Reflexive

Stakeholder opposition and confrontation Stakeholder criticism, negotiation and dialogue

Consumer boycotts Consumer engagement

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


Flow Chart of
Plantations
Palm Oil
Smallholders

Mill

Transport & Shipping

Product
Retailers
Manufacturers

Refiners &
Blenders Ingredient
Manufacturers
Source: RSPO

Palm Oil Process flow chart
1. Holding (Ramp station) Rejected bunches return to state or outsider (unripe; rotten; empty)

2. Transferring (Transfer Carriage)

3. Sterilization (Sterilizer)

Water:
Input - water from boiler
Output - sterilizer
condensate (to deoling)

Palm Oil Process flow chart (cont.)
Sand Trapping (Sand Trank)??

4. Thereshing (Theresher)

Empty bunch

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

Fine Fibers
and crude oil
are separated

Palm oil and palm kernel
oil are separated

Palm oil productivity per hectare

Social Innovation Centre Source: Oil World 2008

Worldwide vegetable oil production

Source: Oil World, May, 2008


Comparative Cost of Production of Selected
Oils (US$/tonne)

Source: MPOB (2005)


Asia and the EU are world's major
importers of palm oil

China
Other 18%
16%
India
Africa Asia
13%
12% 55%
Pakistan 6%
EU
Other Asia
16%
19%

Source: Oil World, May, 2008


World palm oil production (tonnes)
X 1 million tonnes

Social Innovation Centre Source: Oil World, MOPB, MPOC

Palm oil production (area)

Source: Presentation at the "Developing Energy and Natural Resources, Building Sustainable Society" workshop on August 29, Tokyo (apud Oil World,
May, 2008)

Malaysian Palm Production

Social Innovation Centre Sources: Mr Chandran’s presentation - MPOB

Source: USDA 2008


Source: Corley , R.H.V.. How much palm oil do we need?

Hummm....


Source: 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


Lower Costs, Synergies Cost Leadership
Carbon Credits Market Entry

Synergies

$
Eco-investment

Low Costs STRATEGY 1 STRATEGY 4

Upstream Downstream
Activity System Activity System

Differentiation $$$
STRATEGY 2 STRATEGY 3

Enhanced
Processes Products Reputation

Enhanced Reputation Price-Premiums

Outcomes

BEYOND COMPETITION

new market spaces



Economic Environmental
Costs Impacts

STRATEGY 5
Sustainable
Value
Innovation

Value for Contribution
Customers to Society


Electric Vehicles

Thomas Edison and his EV in 1913


- What´s the problem of EVs?
- Do they have a chance now?


Better Place

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


Lower economic costs and
Environmental impacts
Costs
New Business Models

New customers
SVI and markets

New Value Propositions

Value
Higher value for customers and
contribution to society


Beyond the firm level….

The Ecological Modernization
of
Organizational Fields

77

The Ecological Modernization of Industry

Organisational Commitments,
Competences & Constraints

Market Demand & Environmental
Patterns of Utilisation Policies & Programs
Social Integration

Circuits of
Political Ecology
Competitive Forces Interest Groups &
& Collaboration Organisations
System Integration

Positioning of Industrial Ecology
Related Businesses Conditions

Organisational Field

(Orsato 2001)


Automakers’ motivations,
Competences & Constraints

+ 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.

Market Demand & Environmental
Patterns of Utilisation Policies & Programs

+ Fleet operators become interested in EVs to + EVs became a means of reaching Kyoto
reduce their CO2 emissions. targets for CO2 reductions.
+ Toyota Prius allows a large number of users to + Governments introduced tax incentives and
experiment (hybrid) EV drive. subsidies
By 2010, a favourable
momentum is created
around EVs and the Interest Groups
Competitive Forces
& Collaboration circuits of political & Organisations
ecology start favouring
EV developments. + Public support for EVs increases
+ The alliance between Better Place and Renault-Nissan, and
the aggressive approach of the Chinese BYD stir EV - Shareholders try to deter ZEV legislation
competition.

Positioning of Industrial Ecology
Related Businesses Conditions

+ The prospects of mass-market for EVs provokes a + Electric utilities started joint projects for the
race for the development of batteries deployment of infrastructure for EV recharge
- Suppliers of ICE-related parts do not support EV + V2G technology can help utilities to solve the
developments problem of frequency regulation and energy
storage


Grazie!

renato.orsato@insead.edu
www.renatoorsato.com


Environmental Upgrading in Global Value Chains The Perspective of SUSTAINABILITY STRATEGIES - Orsato's presentation (1)

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