Three years ago, top managers at Royal Dutch/Shell Group came up with two scenarios on which to base their long-term planning. In one, reflecting existing trends, regional conflicts plague the world, environmental problems are attacked piecemeal, and low prices shape energy use. In the other, sustainable development takes hold. International cooperation blossoms to combat environmental damage and global warming. Governments discourage fossil-fuel use and promote renewable energy. Both futures are equally probable, says Peter Hatfield, Shell's coordinator of group planning, who tries to prepare managers in 100 countries for any eventuality. "We want to make sure," he adds, "that the decisions our businesses make can exist in both worlds to the greatest degree possible."
Shell is one of a growing minority of companies that are forming task forces, mounting experiments, or revising their planning based on the idea of balancing growth and the environment. "The most innovative thinking on sustainable development is evolving in the business community," declares John Elkington, director of Sustainability Ltd., a London consulting firm. The leaders are tiptoeing toward a new "approach to management that drives a different set of design and cost considerations," says Braden R. Allenby, American Telephone & Telegraph Co.'s senior environmental attorney.
Companies that make this shift will do more than clean up or prevent their own pollution. They'll make and distribute a product more efficiently than ever, worry about its lifelong environmental impact, plan for its recycling, and get their suppliers on the bandwagon. Such efforts will "demand a new mind-set, new tools, and adjustments throughout the organization," says Thomas N. Gladwin, professor of management and international business at New York University. But there will be a reward--what Monsanto Co. Chairman Richard J. Mahoney calls a chance to "reengineer cost structures." If 3M achieves its 1995 goal of reducing air and water emissions 90% and solid waste 50% from the levels of 1990, it will "cut the inflation-adjusted cost per unit of most products by 10%," declares L.D. Desimone, 3M's chairman.
Hearing such talk, some companies are making an ambitious start. Monsanto, Du Pont, and AT&T, like 3M, plan to sharply cut air emissions and waste. Using recycling and less toxic materials, they'll creep toward a stunning goal: "closed loop" manufacturing that emits no discharges. Dow Chemical Co.'s new ethylene plant in Fort Saskatchewan, Alberta, will release just 10 gallons of cleaned-up wastewater per minute into the North Saskatchewan River, vs. 360 gallons for such plants today. The plant also will use 40% less energy. It will cost 8% more than usual, but Dow expects to recoup that in lower maintenance costs.
TRICKY JOB. Dow also is taking cradle-to-grave responsibility for the chlorinated solvents used to clean industrial equipment. For now, it is teaching customers to get by with less. That hurts sales, but cuts emissions. Soon, Dow may take back used solution, reclaim the solvent, and incinerate what's left. Ultimately, it plans water-based substitutes. These will be harder to use, so Dow will design the bath-like cleaning equipment to make sure it works. This setup will cost up to $1 million, twice what customers pay now. But it will use 90% less cleaning solution, says Gregory R. Keeley, Dow's marketing manager for advanced cleaning systems, and so be cheaper to run.
One of the trickiest tasks in all such efforts is assessing a product's environmental impact. One tool for the task is life-cycle analysis, an inventory of materials and energy consumed--and pollution emitted--during a product's manufacture, use, and disposal. It can cost up to $80,000 a product. And it isn't easy. In assessing paper, do you include the gas that runs the saw that cuts the timber used for pulp? And how do you weigh the relative impact and cost, say, of releasing carbon dioxide instead of using more water? Even so, life-cycle analysis is helping such companies as Procter & Gamble and Dow pick raw materials and set research-and-development priorities. Dow has decided that, in general, reducing the materials content of products is better than recycling.
The next step is getting engineers and designers on board. AT&T, among others, is adding Design for Environment (DFE) software to its computer-aided-design systems. These contain guidelines and options for making products easily recyclable, choosing the least harmful materials, and minimizing hazardous waste and energy use in manufacturing. Neil Sbar, head of environmental materials and technology at AT&T Bell Laboratories, says his group is developing a rating system for DFE products. First out, in 1993, will be a business phone that's easier to disassemble for recycling and uses conductive plastic interconnections to minimize use of lead solder.
Ultimately, the roadmap to sustainable development may be "industrial ecology." Here, the idea is to use the waste of one process or company as raw material for another, much the way biological systems work. Several companies and the city of Kalundborg, Denmark, are making a pioneering stab at this.
SURPLUS HEAT. They want to conserve water, which is pumped from Lake Tisso seven miles away. So instead of condensing process steam and dumping it into a fjord, the coal-fired Asnaes power station sells it to a nearby Novo Nordisk enzyme plant and a Statoil refinery. The power plant also sells fly ash to a cement company and surplus heat to the city for heating. Statoil in turn supplies Asnaes with treated wastewater for cooling. Statoil also sells the power plant desulpherized gas to burn, saving 30,000 tons of coal a year. And it ships high-sulphur gas to a sulfuric-acid plant. Asnaes, which removes pollutants from its smokestack by a process that yields limestone gunk, sells that to Gyproc, a wallboard maker that can now cut imports of mined gypsum. Surplus heat from Asnaes warms a fishery that produces 200 tons of trout and turbot a year. Local farms use waste from the fishery and from Novo's enzyme plant as fertilizer.
Such a shift on any wide scale would mean longer-term planning than companies do now, says Elkington. It would also depend on ways of measuring how a company's actions affect ecological systems. Among the most crucial will be accounting methods that assign to a product its environmental costs. The U.N. is working on this with the International Standards Accounting Board.
Another key would be a new mix of regulations, tax credits, and economic incentives--plus smoother relations between government and industry. Typically, the Environmental Protection Agency aims to control pollution. Sustainable development would stress prevention. The EPA is experimenting with this. Last year, it launched a program that will let more than 700 volunteer companies determine how to best cut emissions of 17 toxic chemicals--as long as the reduction is 50% by 1995.
The breadth of the sustainable-development agenda makes many CEOs squirm. At a meeting last January in Laguna Niguel, Calif., the consensus among 39 top executives was that only 10% of the world's chief executives accept the notion. U.S. companies in particular "are very nervous," says one American chief executive. That's because at its core, sustainable development implies slowing population growth and fighting world poverty--issues "most CEOs don't see as their concern or problem."
But then, attitudes change with time. And industry is at least getting started. "The question isn't, 'Have you achieved sustainable development?' The answer is always no," says David T. Buzzelli, vice-president for environment at Dow. "The question is, 'Are you moving toward it continuously?' "