b2w digital embedding sustainability into strategyconsisting of the brands americanas, submarino,...
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15.915LABORATORYFORSUSTAINABLEBUSINESSFINALREPORT
PREPAREDFOR:
B2WDIGITAL
EMBEDDINGSUSTAINABILITYINTOSTRATEGY
"Profitforacompanyislikeoxygenforaperson.Ifyoudon'thaveenoughofit,you'reoutofthegame.Butifyouthinkyourlifeisaboutbreathing,you'rereallymissing
something."–PeterDrucker
AnaCarolinaFreire|CamilaGoetze|EduardoHamel|MaricruzLarrea
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Acknowledgments
The Laboratory for Sustainable Business (S-Lab) team – composed by Ana Carolina
Freire,CamilaGoetze,EduardoHamel,MaricruzLarrea-wouldliketothankourhostat
B2WDigital,MariannaAbdelhay,CharlesRepouxandBrunaSaboiafortheirgenerosity
and openness and for the trust placed in our team. The B2W project represented a
greatopportunitytodeepenourknowledgeonthee-commerceindustryaswellason
sustainabilityopportunitiesinthiscompetitiveindustry.
WewouldliketothankProfessorsJohnSterman,MatthewAmengualandJasonJayfor
thegreatlearningsthatwewilltakewithusaswemoveforwardwithourcareers.
We would specially like to thank our faculty mentor Ms. Bethany Patten, for the
knowledgeandinsightsprovidedduringthedurationoftheproject.
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TableofContents Page
1. Introduction………………………………………………………………………………………………………….4
1.1. ProjectBrief
1.2. CompanyBackground
2. ProblemStatement……………………………………………………………………………………………….5
3. AnalyticApproach…………………………………………………………………………………………………6
3.1. Methodology-ProjectScope
3.2. MaterialityTools
3.3. Cost-Risk-RevenueFramework3.4. MethodforDefiningKeyInitiatives
4. CaseStudy:PackagingForSustainability…………………………………………………………..…13
4.1. B2WCurrentSustainabilityInitiatives
4.2. BestPracticesintheIndustry4.3. LowHangingFruit
5. ContextsandConditions……………………………………………………………………………...……..19
5.1. EngagingEmployees
5.2. CleaningMentalModels
5.3. UsingCreativeTensionandCreatingaCommonVision
5.4. EmbeddingSustainabilityintoStrategy
6. Limitations……………………………………………………………………………………………………….…24
6.1. FinancialEvaluation6.2. MisalignmentwithCorporateObjectives
6.3. InmaterialInitiatives
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1. INTRODUCTION
1.1 PROJECTBRIEF
This project was about developing an industry materiality assessment as a strategicbusiness tool thatwill help B2WDigital identify and prioritize key initiatives thatwillhave an impact reducing costs, by the time sustainability gets embedded into thecompany strategy. The implementation of the proposed methodology as well as thebusinesstools,shouldbeofuseforanycompanythathasn’tdevelopedasustainabilitystrategyyet.Themethodologyshouldalsobevaluable forcompaniesthathasalreadystarted their sustainability journey but still hasn’t succeed at spreading the strategyacross the organization, from the bottom to the top and through all internal andexternal stakeholders. For the caseofB2W,a case studyabout theapplicationof theproposedapproachtopackagingisdescribed.
One interesting findingwhile researchingwithin B2Wwas that some functional areaswere already developing sustainable initiatives, with the caveat that it was for adifferentpurposethansustainability,sotheyarenotrecognizedassuch.Thisinsightledustodevelopthecasestudy,whichisnotonlyaboutpackaging,ithasalottodowithawarenessandcommunicationwithintheorganization.
1.2 COMPANYBACKGROUND
B2W Digital is the leading e-commerce company in Latin America with a portfolioconsisting of the brands Americanas, Submarino, Shoptime, SouBarato, DigitalFinance,Submarino Finance and B2W Services1. Itoffers more than 40 categories ofproductsandservicesthroughtheinternet,telesales,catalogs,TVandkioskdistributionchannels.B2Waimstobe“thelargestandbest-loveddigitalcompanyinLatinAmerica”.In order to pursue its vision, the Company has a management culture focused inmaximizing results,providequality services,offerawidevarietyofproductsandhavestrongbudgetarycontrolandfinancialdiscipline2.
B2W set up a sustainability department in 2007, looking for solutions to reduceenvironmental impact of their operations, (Green Company Project3). The ESGOfficerroleisbeingservicedbytheCOOandDirectorofCorporateAffairs,whoreportsdirectlytotheCEOandworkswithastaffof4peopledirectlyrelatedtosustainability.
1http://www.b2wdigital.com/
2http://www.b2wdigital.com/en
3http://www.b2wdigital.com/en/relatorio-anual-2013/page/aspectos-ambientais
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B2W published for the first time the Annual Sustainability Report4for the year 2014,disclosingtheeconomic,socialandenvironmentalperformanceoftheCompany,basedonG45versionofGRI6standards.During the sameyear,B2W joined theSustainabilityIndexCertification7(ISE)ofBM&FBOVESPA,8theBrazilianStockExchange,reflectingthecompany'scommitmenttosustainablepractices.
2. PROBLEMSTATEMENT
B2W executives claim that the corporation aspires to be the leading e-commercecompanybyembeddingsustainabilityasanintegralpartofthebusiness,andeffectivelycommunicating it to their customers. For this purpose, they set the dedicated ESGdivision,todrivethroughtheprocessfromwithin,withhelpofpartnerinstitutions,suchasMIT.
Aseveryorganizationstartingtoworkonsustainability,B2Wfacesnowadays financialandoperationalchallengesthatpreventsthemtopursuefasterresults.Strictallocationof resources and budgetary controls, plus an exigent payback policy, are on-goingpressurestoconsistentlyachieveoutstandingfinancialandoperationalresults.
Havingsaidtheforegoing,S-LabteamhasconcludedthatthemosteffectivewaytohelpB2Wistoprovidethemwithconcretetoolsfortopursueaggressivesustainabilitygoalsthat have positive and evident strategic benefits, are easy tomeasure and are visibleinternallyandexternally.
4http://www.b2wdigital.com/en/informacoes-aos-investidores/relatorios-anuais
5https://www.globalreporting.org/standards/g4/Pages/default.aspx
6http://www.globalreporting.org/
7http://www.bmfbovespa.com.br/en_us/products/indices/sustainability-indices/corporate-sustainability-index-ise-1.htm
8http://www.bmfbovespa.com.br/en_us/
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Theproblemstatementissummarizedasfollows:
“B2WPRIDESITSELFONMAINTAININGLOWOPERATIONALCOSTSACROSSACTIVITYSTREAMS,BUTTHEYHAVENOTYETIDENTIFIEDHOWTOEXTRACTTHESAMEBENEFITTHROUGH
THEIRSUSTAINABILITYACTIVITIES.ITISIMPORTANTTHATB2WIDENTIFYTHESESAVINGSINORDERTOMAINTAINTHEIRREPUTATIONASWELLASDELIVERONTHEIRPUBLIC
COMMITMENTTOSUSTAINABILITY.”
Itisworthmentionthatasourworkevolved,andbasedonthediscussionswiththehostcompany, we have added an additional perspective in solving the problem. In ourselectionofkeyprojects,wedecidedtotake intoaccountsustainability initiativesthatwouldbeeasilyseenandappreciatedbyB2W’scustomers.
3. ANALYTICAPPROACH
3.1 METHODOLOGY–PROJECTSCOPE
Theprojectwasdivided infourstagesthatallowedtheteamtosmoothlyprogress,asshown below. In addition, conference calls and meetings with the host, andconversationswiththefacultymentorwereperformedperiodically.
STEP#1
Researchofmaterialityassessmenttoolsinordertodefinesustainabilitymaterialtopicsfor B2W as well as to understand its current materiality assessment processes andmappingtools.ThisshouldcompriselookingatassessmenttoolssuchasTheEmbeddingProject9andGlobalReportingInitiative10,inadditiontoresearchingdifferentmateriality
9https://www.embeddingproject.org/
10https://www.globalreporting.org/Pages/default.aspx
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propositionsfortheindustryliketheoneprovidedbySASB,11andtheirpaperCorporateSustainability:FirstEvidenceonMateriality12.
STEP#2
Identify material issues based the research conducted in step 1. Use of MITCost/Revenue/Riskframeworkshowninfigure3,tocontextualizetheidentifiedmaterialissues into possible corporate strategies, and use it as a reference to select themostadequatekeyinitiativesforB2Waccordingtotheirstrategy.
STEP#3
Identifysustainabilitybestpracticesbybenchmarkingglobalfirmsthathavesuccessfullyintegrated sustainability into their broader company operations, while being able toreducecostsatthesametime.Inperformingthistask,wefocusedourattentiononthefollowingactionsormeasures:
1. InterviewMITprofessors,thehostkeystakeholdersandresearchdocumentationtoidentifysuitablebenchmarkingcandidates.
2. Perform benchmarking exercise on identified firms using metrics that arerelevanttoB2W,inparticularfromacostreductionperspective.
3. Identifytacticalchanges(e.g.projectmanagementtoolsandcriteria)tointegratemoreeffectivelysustainabilityintostrategywithinB2W.
STEP#4
Interviewkeystakeholderstoassessthecurrentstateofthecompanyandgainamorecomprehensive understanding of B2W’s business, their concerns and interests.Understand how potential sustainability initiatives may fit into their operations andexplorethemindepth.
11http://www.sasb.org/
12Khan,M.,Serafeim,G.,andYoon,A.-FirstEvidenceonMateriality.HBS-http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2575912
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3.2 MATERIALITYTOOLS
Materiality is a fundamentalprincipleof financial reporting that recognizes that someinformation is relevant to investors inmaking decisions13.Materiality in sustainabilityassess the relative importance of specific environmental, social and governance (ESG)issuesfortheoverallstakeholdersofacompany.Thematerialityreportcontainsalltheorganization’s activities, impacts and achievements related to sustainability to becommunicatedtoshareholders14.
The use of sustainability accounting standards in disclosing material sustainabilityinformation benefits investors, companies, regulators, and the public. The negativesocial and environmental impacts of companies’ operations represent a financial riskthat isnotcurrentlyaccountedinafinancialreporting,thereforetheimportanceof itsassessment.Thecomprehensivenessofthereportanddefinitionofthematerial issuesvaryfromindustrytoindustryandfromcompanytocompany15.
The research of materiality assessment tools was focused on mainly three sources:Sustainability Accounting Standards Board (SASB)16, Global Reporting Initiative (GRI)17andInternationalIntegratedReporting(IR)18.
GRI(G4)
GRI’smethodconsiderssustainability reportingasa journey.Theirapproach is flexibleanddesigned tobeuniversallyapplicable toallorganizationsofall kinds, sectors,andgeographies. G419, their most current set of standards, includes references to otherwidelyrecognizedframeworks,suchasOECDGuidelinesforMultinationalEnterprises20,
13http://www.sasb.org/materiality/important/
14https://www.greenbiz.com/blog/2013/09/10/materiality-assessments-missing-link-sustainability-strategy
15http://www.sasb.org/wp-content/uploads/2013/10/SASB-Conceptual-Framework-Final-Formatted-10-22-13.pdf
16http://www.sasb.org/
17https://www.globalreporting.org/Pages/default.aspx
18http://integratedreporting.org/
19https://www.globalreporting.org/standards/g4/Pages/default.aspx
20http://www.oecd.org/corporate/mne/
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the UN Global Compact Principles21, and the UN Guiding Principles on Business andHumanRights22.
GRI,differsfromSASBinthatitdoesnotprovideandindustryspecificapproach,insteadthey propose a comprehensive set of categories as shown in Figure 1, leaving thedecisionofwhatismaterialtoeachcompanyusingthetool.Ontheotherhand,GRIismore open, acknowledging that more stakeholders should be considered in theassessment, not only shareholders. The categories and aspects described in Figure 1proposesorganizationaleconomic,environmentalandsocialimpactsthatsubstantivelyinfluences the decisions of stakeholders. Key stakeholders, such as investors, marketregulators,civilsociety,suppliers,employeesandcustomers,haveavitalroletoplayinperforminganorganization’smaterialityassessment.
Figure1:GRI/G4categoriesandaspectsintheGuidelines.23
21https://www.unglobalcompact.org/what-is-gc/mission/principles
22https://g4.globalreporting.org/how-you-should-report/reporting-principles/principles-for-defining-report-content/materiality/Pages/default.aspx
23https://g4.globalreporting.org/how-you-should-report/reporting-principles/principles-for-defining-report-content/materiality/Pages/default.aspx
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IR
IR’s main objective is to establish guiding principles and content, explaining thefundamentalconceptsthatunderpinthem,andadoptingintegratedthinkingasawayofbreakingdowninternalsilosandreducingduplication.IRdoesnotprescribespecifickeyperformanceindicators,measurementmethodsorthedisclosureofindividualmatters,once it recognizes the wide variation in individual circumstances of differentorganizations.Itfocusesonvaluecreation,asshowninFigure2,andinapproachingallstakeholders related to the company (employees, customers, suppliers, businesspartners,localcommunities,legislators,regulatorsandpolicy-makers)24.
SASB
SASB developed sustainability accounting standards that help publicly-listedcorporations disclosematerial factors in compliance with SEC requirements25offeringonline an open methodology that focuses on materiality from capital marketsstandpoint for 78industries in 5 dimensions: Environmental Capital, Social Capital,HumanCapital,BusinessModel&Innovation,andLeadership&Governance.
24http://integratedreporting.org/resource/international-ir-framework/
25Khan,M.,Serafeim,G.,andYoon,A.-FirstEvidenceonMateriality.HBS-http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2575912
Figure2-IR'sValueCreationProcess.
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AccordingtoSASBthemainmaterialsustainabilityissuesforthee-commerceindustry26are:
1. Energymanagement:especiallyconcerningDataCenters’energyconsumption.2. Water andwastewatermanagement: especially concerning the cooling system
fortheDataCenters,incaseofwaterbased.3. Logistics(lifecycleimpactsofproductsandservices)4. Productpackaging5. DataSecurity&CustomerPrivacy6. Diversity&Inclusion7. Recruitment,Development&Retention
3.3 COST-RISK-REVENUEFRAMEWORK
Figure3showsMIT’sCost-Risk-Revenueframework,inspiredintheValueDriverModelofUnitedNationsGlobalCompact27. Itdefineshowsustainabilityinitiativesareabletocreate value to shareholders through three mechanisms: cost reduction, riskmanagement,andrevenuegrowth.
Within Cost Reduction the strategies for sustainable business are divided in betweenResourceEfficiency(e.g. leaneruseofenergy,useofwater,andproductionofwaste),Waste as Input (e.g. circular economy), and Labor Productivity (e.g. betterwages andsocial dimension). Whereas in Risk Management the strategies are Legal/Regulatory(e.g. potential of carbon tax), Social/Reputational (e.g. riskofhaving sweat shopsandboycotts), and Economic/Operational (e.g. non-sustainable supply chain). Finally,
26http://www.sasb.org/materiality/sasb-materiality-map/
27https://www.unglobalcompact.org/take-action/action/value-driver-model
Figure3-Cost-Risk-RevenueFramework(Source:SustainabilityInitiative,MIT)
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Revenue Growth approaches strategies to drive the brand: Market Access,Differentiation,andEnablingOthers.28
3.4 METHODFORDEFININGKEYINITIATIVES
Afterextensive readingandresearch, thedefinitionof thekeysustainability initiativesforB2Wwasperformedbasedonthefollowingmethodology:
1. MATERIALITY:readingdifferentMaterialityAssessmenttools:SASB,IR,GRI.2. BENCHMARKING: other company’s best practices in sustainability: within e-
commerce industry (Amazon, Etsy, Alibaba, Novica, Ebay) and in other relatedindustries(e.g.retail).
3. BRAINSTORMING:Comprehensive listofpossible sustainability initiatives fore-commerceindustryextractedfromitems1and2.
4. COST-RISK-REVENUEFRAMEWORK:Analysisofsustainabilityinitiativesina‘Cost-Risk-RevenueFramework’perspective,understandingwhatvalueeachinitiativewouldbringtothecompany.
5. DEFINITION OF KEY INITIATIVES: the definition of the key initiatives was aproductofthefourstepsbelow:
i. RankofinitiativeslistedinFigure4basedinthevaluecreationcapabilityin the largest number of subjects within the Cost-Risk-Revenueframework.
ii. Selection of two initiatives based on critical thinking and consideringthose that B2W would probably relate the most. B2W’s problemstatementisclearindefiningitsmainobjectiveasfindingasustainabilityinitiative that can create value to shareholders through cost reduction.Along the project development the host also has emphasized theimportance of reaching their customers’ heart through this sameinitiative, therefore adding another component to our analysis. Thechoseninitiativeswouldhavetobegroundedincostreductionbutwouldalso have to become a strategy to build brand loyalty throughdifferentiation.The selectionof thekey initiatives, therefore, takes intoconsiderationthosethatwouldbringthebiggestimpactforthecompanyin both cost reduction and differentiation according to our bestjudgment.
iii. ValidationwithB2Wofthetwoinitiativesselected.
28http://www.sustainablebrands.com/digital_learning/webinar/organizational_change/promise_systems_approach_sustainability
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Figure2-SASB'se-commercematerialissuesdistributedinCost-Risk-ManagementFramework(Source:B2WMITteam)
4. CASESTUDY:PACKAGINGFORSUSTAINABILITY
Itisnoteasytofindexampleofsustainablepracticeswithaclearcontextoftheimpact.Companiesdisclosepartoftheinformationoftheirinitiativestoshowcasethemtothestakeholdersbuttoprotecttheirstrategy,theinformationthatwouldhelpunderstandthecompletereachitiswithhold.Nevertheless,inordertounderstandtheecosystemofsustainability in different industries it is necessary to look for these examples. Eachcompany is responsible when looking at examples of initiatives taken by others totranslate that into their own reality since the impact candiffer fromone company toanotherdependingonthecurrentstateofeach.Ine-commerce,asinotherindustries,packaging isoneoftheareasthat involvesacomplexgroupofstakeholders inthefulllifecycleofapackage.Itisimportanttohaveaclearunderstandingonwhoisinvolvedandtowhatextent,inordertodesignasustainablepackaging.
The Sustainable Packaging Coalition29 has identify 8 parameters to measure thesustainabilityofapackaging,withamaincoreindicatorsforeachofthem.Thelistcanbeagoodtooltoidentifywhatarethemainissuestobeaddressbyacompany,whichareprioritiesandwhytoselectsomeoverothers.
29http://www.sustainablepackaging.org/
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Source:www.sustainablepackaging.org/Uploads/Resources/design_guidelines_sp.pdf
Foranydivisioninchargeofpackaging,themainconcernistheunitcostperpackage.Inthecontextofe-commercetherearesomeeasytofindsustainable initiativesthatcanbevisibletoclientsandat thesametimehelpreducecosts.Fromthe informationwehaveavailableofB2WtheyareworkingonTotalCostofPackaging,PackagedProductWastage, Recycling Packaging and Reuse of Packaging. Probably they are alsoimplementinggoodpractices inWorkandCommunity Impactbutwedidnothavetheopportunitytoreviewthem.
Parameter CoreIndicatorTotalMaterialUseMaterialUseReductionMaterialWaste
TotalLifeCycleEnergyIntensityRenewableEnergyProportion
LifeCycleWaterConsumptionLifeCucleWaterUsedfromStressedSources
ToxicantsConcentrationToxicantsMigration
MaterialUse
EnergyUse
WaterUse
MaterialHealth
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Source:www.sustainablepackaging.org/Uploads/Resources/spc_indicator_metrics_framework.pdf
4.1 IDENTIFIEDB2WCURRENTSUSTAINABLEINITIATIVES
B2W is trying to achieve cost savings by reducing the volume of the packaging andcardboard,andbyusingmaterialsthatcanbemorecosteffective.
B2Whas9DCs,ofthose3areverylowinpackaginguse,and20%ofthecommercializedproducts do not use any packaging at all. In October 2015 the company acquired 3machinestorecycletheboxesoftheinboundmerchandisetobereusedinthefillingoftheoutboundpackaging.Previoustohavingthemachines,B2Wwouldpayathirdpartytogototheirdistributioncenters(DCs)tocollecttheboxesoftheinboundmerchandise,andtheywouldinvestinproductstobeusedinthefillingoftheirpackaging.Duetothepositiveresults incostreduction,B2Wisaddinganadditionalmachinetotheprocess.AccordingtoB2W,itisonlyeconomicallyviabletohavearecyclingmachineatDCsthathandleenoughvolume tomake the investmentviable.The recyclingmaterial today isserving60%ofthepackagedparcels.
Parameter CoreIndicatorToxicEmissionsLifeCycleGHGEmissionsAirEmissionsWaterEmissions
TotalCostofPackagingPackagedProductWastageLifeCycleEmbodiedEnergyProduction
ProductSafetyRecyclingPackagingReuseofPackagingLandfillingofPackagingPachakingEnergyRecoveryRate
ChildLaborForcedorCompulsoryLaborFreedomofAssociationsand/orCollectiveBargainingDiscriminationExessiveWorkingHoursRemunerationOccupationalHealthSafetyPerformanceResponsibleWokplacePractices
CommunityImpact
WorkerImpact
CleanProductandTransportation
CostPerformance
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B2Whastriedinthepasttousesmartresistancepackaging,whichoptimizetheamountofmaterialuseaccordingtothecontentofthepackage;unfortunately,themetricswerenotwell implementedasmany itemswerereporteddamagedduringshippingandtheinitiativewascancelled.However,B2Wisimplementingasmartboxpackagingsolutionfor all individual shippingwhich has proven to be a successful practice, and they arelookingtoextendthistogroupingparcels.Theinitiativeconsistsofadjustableboxesthatcorrespond to the size of the product, minimizing the amount of material used,thereforeallocatingmorepackagestoeachshippingtruck.
4.2 GOODPRACTICESINTHEINDUSTRY
Therearemanyexamplesofcostreductionachievedbyimprovingpackagingtechniquesthatothercompanieshaveusedtobuildon theirbrandproposition. In2006Walmartannounceda5-YearPlantoreducepackaging.Theoutcomeinsavingsonemissionswas667,000metrictonsofCO2,areductionof323,800tonsofcoal,andadecreasein66.7milliongallonsoffuel30.
Another example is Amazon, which has announced a number of incentives andprograms to reduce the environmental impact of their operations. Frustration-FreePackaging is a service and at the same time a certification that aims to eliminatecomplicated packaging, and replace it with 100% recyclable materials, packaged in asingle box, thus eliminating the vendors’ shipping box. Since launch, the programhascertifiedover200,000itemsgloballyfromover2,000leadingbrands31.EnvironmentallyFriendlyPackaging isaneffort toswitchtheshippingcontainertocorrugatedmaterialthat is 43% recovered fiber content, and introduce packaging material for U.S.fulfillmentthatis100%recyclableandmadefrom50%recycledcontent,alongwithair-filledpillowsthatare100%recycledandnon-toxic32.
Smart Way from EPA helps companies that ship goods or carry goods to improveefficiencybymeasuring,benchmarkingandstreamliningfreightsupplychainoperations.Ithasachieved$24.9billiondollarsinsavedfuelcostsbysaving170.3millionbarrelsofoil,72.8millionmetrictonsofCO2reductions,1,458,000tonsofmono-nitrogenoxidesreductionsand72,000 tonsofparticulatematter reductions33. Itprovides certificationandalogothatcanbevisibleforclients.
30http://corporate.walmart.com/_news_/news-archive/2006/09/22/wal-mart-launches-5-year-plan-to-reduce-packaging
31http://www.amazon.com/b?ie=UTF8&node=5521637011
32http://www.amazon.com/b?node=13786321
33https://www3.epa.gov/otaq/smartway/forcountries/index.htm
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When thinking about logistics of packaging we should also expand to consider howproducts are shipped by plane. An interesting example is the initiative that FedEx isimplementingfor2017inpartnershipwithRedRockBiofuelstodeliverpackagesusingfuel intheirplanesmadefromforestwaste.Theyaredevelopingaprocessingplanttoconvertwoodbiomass intoarenewable,drop-indieseland jet fuels34withthegoalofproducing 48 million gallons of blend aviation fuel from biomaterial discarded fromtimberandsawmillsandrecyclingmaterials.
4.3 OPPORTUNITIES
The initiatives conducted today by B2W, although they fit into sustainable initiatives,theyhavenotbeenframedintosustainableinitiativesbutpracticesforcostreduction.These initiatives are an opportunity for the department in charge of sustainability atB2Wtointernallyalignthecompanytothebenefitsofsustainableprograms.Withthesavingsachievedbyutilizingrecycledmaterialinthefillingofthepackagingitispossibleto prove the cost reductions and to incentivize other departments to review theirprocessesinordertodetectwhatadditionalsustainableinitiativescanhelpthemreducecosts.Forexample,thereisanopportunitytopushforazerowastestrategy.
Anotheraspecttotakeintoconsiderationisthevalueofcommunicatingthesustainableinitiatives to clients in order to improve client satisfaction and loyalty. The newtechniquesinpackagingimplementedbyB2Warenotcurrentlyadvertisedtotheclientsandthisisabigopportunitytoshowcasetheirgoodpracticesandappealtotheheartsoftheirconsumers.
B2WisconsideringthedirectcostreductionwhencalculatingtheirROIinitiatives,butisnot yetmeasuring their savings in carbon emission and energy and fuel,which couldproveimportantvaluetoshareholdersandtheirclients.
SmartWay35haveaninternationalprogramthatcouldbeaninterestingpartnershipforB2W.Both improving their logisticspractices andobtaininga certification that canbevisibletotheirclients.
There are opportunities for B2W to implement simple rules that can impact inefficiencies of fuel utilization and reduction in CO2 emissions. Tim Greiner, PureStrategies36Co-founderandManagingDirector,indicatedtousthatStapleswasabletohavesignificantsavingsinfuelbyintroducingagovernortotheirtrucksthatwouldnot
34http://about.van.fedex.com/blog/biofuels-take-flight-with-fedex-infographic/
35https://www3.epa.gov/smartway/
36http://purestrategies.com/
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allowthemtogoabove55milesperhour37.ThisisaninitiativethatcouldbereplicatedbyB2Wintheirownfleetandonrestricted3rdpartyvehicles.
ForinternationalinboundproductsB2Wshouldanalyzewhatpartnercanbestalignwiththeir sustainable initiatives. Looking into practices like the one that FedEx isimplementing.
Source:http://about.van.fedex.com/wp-content/uploads/2015/12/FedEx-BioFuel-Infographic.pdf
37http://www.cbsnews.com/news/5-ways-staples-is-getting-greener/
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5. CONTEXTANDCONDITIONS
Whenwediscoveredthatsomeareaswerealreadyexecutinghighimpactsustainability
initiatives,withnoassociationtosustainabilitybutforoperationalefficiencypurposes,it
was impressive to observe the excitement of the managers towards the new
perspectives.Thisfactputustothinkharderaboutthewaycompanieslearnsandgrows
together. Peter Senge38in his book “The Fifth Discipline”39provides detailed insights
about how companies looses these abilities over time and also how to revert those
patterns. The answer is not short and no subject of this paper, but we see have
identifiedsomeofthetraditionalbehaviorsthatmaybeholdingB2Wfromexpandand
flourishfasttowardsamoresustainablestate.Thisideahasstrongimplicationsonthe
success of sustainability initiatives for companies. The difficulties to address
sustainabilityinitiativesmaynotbethelackofwillingness,commitmentorresourcesto
advancethroughthesustainabilitypath,itmaybethedifficultyofhavingsustainability
strategypenetratetheorganization.Helpingtheinformationflowacrossfunctionscould
bethebalmcompaniesneedtomoveforward.
ForMITteam,thisalsorepresentsagreatlearningopportunitythatslightlychangedthe
scopeof ourwork and thewaywe approached the solution to theproblem.Wehad
originallyanticipatedthatwewouldinvestmostofourtimediscussingabouteachofthe
sustainabilityinitiativesandhowtheywouldimpactB2Windifferentways,butwefeel
ourhostisinabetterpositiontorolluptheirsleevesandputtheirhandsinsomemud.
Butasstatedbefore,sustainabilityisnotgoingtohappenunlessB2Wisabletoengage
inopenand candid conversations. Tobeable to apply theapproachdescribed in this
report, it isnecessary to improve the conditions for sustainability initiatives in several
ways.
5.1 ENGAGINGEMPLOYEES
Consumer Behavior class at MIT teaches us that that human beings need to be
motivatedtoworktowardsanobjective.Thecloserwearefromourtarget,thestronger
38http://mitsloan.mit.edu/faculty-and-research/faculty-directory/detail/?id=41415
39https://www.solonline.org/page/FifthDiscipline
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themotivationwillbe.Accordingtothisprinciple,thehardestmotivationalefforthasto
bemadeatthebeginning,whenthereisabsolutelynoprogressonthatenterprise.This
initial effort must be done to break the inertia and activate people to start a
motivationaljourneytowardsthecompletionofthetask.
Source:MIT15.847ConsumerBehaviorlecture.
After conversations with B2W managers, they figured out they had already made
progress towards important sustainability goals, which dramatically increased their
motivation tomove forwarddown thatpath. This shouldbeenoughof an impulse to
start moving the organization forward, and as long as sustainability employees keep
settingnewobjectives,engagingotherareasfornewprojectsandinternallypromoting
sustainability.
Takeaway:Helppersonnelconnecttheircurrentprojectsandjobstosustainabilityinitiatives,enablingtheactivationofthemotivationtowardsthesenewobjectives.
5.2 CLEANINGMENTALMODELS
Mental models make people believe strongly in ideas that may not be correct.
Sustainabilityisavictimofmentalmodelsinsideorganizationsintwoways.First,most
executives and employees tend to think that sustainability initiatives will bring no
MOTIVATION
0%
100%
Baseline Activated Progress Completion PostCompletion
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economic benefit for the company, only additional costs. Second, people think that
sustainabilityisaboutbeingkindtotheplanetandthemothernature,andfailtoseeit
isallaboutsurvivaloftheircompanies(andsourceofincome)andtheirownexistence
asindividuals,aswellastheirdescendants.Realityisthatmostsustainabilityinitiatives
can have positive ROI through reducing costs, mitigating risks or increasing the
willingnesstopay,andrealityisthatalltheharmwedototheenvironmentaffectsus,
butsometimeswedon’twanttoseeit.
Aninterestingtooltohelppeopleidentifyandoverridetheirownmentalmodelsisthe
“LadderofInference”,describedinPeterSenge’s40book,“TheNecessaryRevolution”41,
atoolthat isthoughttoallMITstudentsthattakesLeadershipLab42elective.Thetool
describeshowhumanscreatetheirfirstbeliefsaboutreality,basedonobservabledata
40PeterSengeisaSeniorLecturerinLeadershipandSustainabilityattheMITSloanSchoolofManagement.http://mitsloan.mit.edu/faculty-and-research/faculty-directory/detail/?id=4141541http://www.amazon.com/gp/product/B0018QSO94/ref=dp-kindle-redirect?ie=UTF8&btkr=1
42http://mitsloan.mit.edu/actionlearning/labs/l-lab.php
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processedthroughtheirownbackgroundandperceptionsofwhatthetruthis.Lateron,
weusethatknowledgetoquicklyjumpintoinferenceswhenweareexposedtosimilar
dataagain,creatingaself-reinforcing loopoverourperceptions thatgraduallycreates
ourmentalmodels.
The ladder is ametaphor of how ourmindworks. People able to suspend their own
assumptions can see howothers drawdifferent conclusion to the sameobservations,
because their background andmeanings (cultural and personal) are different. Teams
that canavoid toquickly jump into inferencesbasedon theirownmentalmodelswill
enjoy more objective and productive discussions that will open them to unlimited
learning.
Takeaway:Usetoolstohelppeopleinsidetheorganizationunderstandhowtheymaybedrawingintowrongconclusions,basingtheirthinkinginmentalmodels.
5.3 USINGCREATIVETENSIONANDCREATINGACOMMONVISION
Ithasbeenidentifiedlongagothatcompaniesthatsurvivesforlongtimearethosewho
can learn continuously, setting new frontiers and
repositioning themselves away from the reach of
followers and competitors. Peter Senge43, in his
bookTheFifthDiscipline44,described this situation
using a very simple and yet compelling analogy.
Creative tension is generated when a vision is
generated and shared across the company, while
tellingthetruthaboutthecurrentreality.Thatgap
between both, common vision and current state
willcreatethetensionthatcanbeclosedovertime
43PeterSengeisaSeniorLecturerinLeadershipandSustainabilityattheMITSloanSchoolofManagement.http://mitsloan.mit.edu/faculty-and-research/faculty-directory/detail/?id=41415
44https://www.solonline.org/page/FifthDiscipline
Source:TheNecessaryRevolution.
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byoneoftwomethods:(1)activelymovingcurrentrealitytowardsthesharedvisionor,
(2)relaxingthevisiontocomeclosertocurrentreality.Companiescapableofsustaining
orraisingtheirvisionswhilekeepingtheawarenessaboutcurrentrealityalive,arethe
onesthatwillcontinuemovingforwardandthriving.
5.4 EMBEDDINGSUSTAINABILITYINTOSTRATEGY
The Embedding Project45describes with clarity that organizations, in order to be
successful in driving sustainable initiatives, must embed, or integrate, “sustainability
across thebusiness to thepoint that isno longeranadd-onbut simply theway todo
business”.
Source:Theembeddingproject.
Traditionally, a company that is working to launch a new product to market, will
integrate all disciplines in the process tomake sure all aspects are considered: R&D,
manufacturing, sourcing,packaging, sales,marketingand finance, inorder to createa
complete and compelling story around the product before launching the product.
Nobody would consider developing a new product without the involvement of
manufacturing,orfinance,thatisjustthewaycompaniesdobusiness.Sustainability,in
mostcompanies,wouldnotbeand integratedpartof this initiative, itwouldprobably
45https://embeddingproject.org/
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beacontributortoprovideanoutsiderperspectiveonsomespecificaspects,thatmay
ormay not be taken into consideration.What embedding sustainability into strategy
means,isthatsustainabilitymustbejustanotherpiecesofthepuzzle.
Takeaway:sustainabilitymustbeplacedatthesamelevelandwiththesamespecificweightasotherfunctionstobecomethewaytodobusiness,notanadd-on.
6. LIMITATIONS
We’ve discovered that companies have some limitations to the applicability of the
framework previously described. These limitations are not strictly related to
sustainabilitybutare theheritageof a long lasting traditionof financial results as the
onlymeasureofcorporatesuccessandrewardtotheexecutives.Sustainabilityprojects
thatrequiresresources,willbelimitedbythesameprinciples,thetoolsthatcompanies
usetodifferentiategoodprojectsfromnotsogoodprojects.
6.1 FINANCIALEVALUATION
Paybacksareusuallyshort.24monthsandsometimes12months,asinthecaseofB2W.
LowinvestmentandhighROIinitiativesaregoodtopassthisfilterandgetbudget,but
plenty of sustainability initiatives will require a different rule. Initiatives that will
mitigaterisksorbuildreputationarehardtoevaluate.Howdoyoucalculateacashflow
coming from the fact that consumers respect your brandmore than the competition,
whenatthesametimeMarketingisalsoinvestinginadvertising?Ishardtoallocateonly
a fraction of positive outcomes coming from sustainability initiatives that build
reputation,andputthatintermsofNPV.Withthisapproach,thereisnowaytheCFO
will approve budget for such projects, and so, sustainability is doomed to simple and
quickactions.Sustainabilityofficershavethedutytobringthisconversationtotheright
audience,theCEOorthecompanydirectors, tocreateandalternativewaytoallocate
budgetforinitiativesthathavehardtomeasureimpactandlongertermreturns.
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Takeaway:sustainabilityinitiativesmustnotbeevaluatedwiththesameruleasothercorporateinvestmentprojects,becausethecorporatepolicywilldiscardmaterialandprofitableactionsthatarehardertomeasureintraditionaltermsCorporationsshouldtakealongerterm
approachtosustainability.
6.2 MISALIGNMENTWITHCORPORATEOBJECTIVES
Ithasbeencommentedinthisreportthatsomeoftheprojectsinwhichcompanieswill
naturallyengage,arehighimpactsustainabilityinitiatives,andthatsustainabilityofficers
should take advantage of such natural alignment on order to promote, engage and
measure.Butonce thoseprojects are finishedand furtheroperational efficiencies are
hard to obtain, sustainability initiatives will have a difficulties finding sponsors,
resources and focus, as long as their objectives are not perfectly aligned with the
corporation’s. Sustainability officers must convince the company directors that
sustainability measures will be key for investors and stakeholders’ interests and so,
sustainability shouldbepartof thecorporateobjectivesandexecutive rewards. Ithas
been proposed by Professor Robert Eccles46, faculty of Harvard Business School, that
companies that and performs well in material sustainability initiatives, financially
outperformsimilarcompaniesthatdon’tperforminmaterialsustainabilityprojects.
Takeaway:directorsmustbepersuadedtoincludesustainabilitymeasuresaspartofthecorporateobjectivesandexecutiveincentives,withtheargumentthatthiswillhelpthe
companyoutperformitcompetitors.
6.3 IMMATERIALINITIATIVES
Materialityisanoutstandingconcepttodiscusswhichsustainabilityinitiativesmustbe
engaged. It brings objectivity to the conversation and a common language across
executivesand investorsandmake iteasiertounderstandeachother.Butmateriality,
46http://www.hbs.edu/faculty/Pages/profile.aspx?facId=126059
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purelydefinedandanaccountingconcept(whichisthesamedefinitionusedbySASB),
failstoleaveroomforinitiativesthatwillnothaveasignificant[material]impactonthe
10-K.Asarguedbefore, sustainabilityalsoacknowledges that thereare initiatives that
mayhaverelevant impactsthatarehardtomeasuremonetarily,that looktopromote
diversity,employee satisfaction, reputationor riskmitigation,and thatmaybecritical
forabusinessbutstilldon’thavematerialimpactfromtheaccountingpointofview.Itis
important for sustainability officers to broaden the scope of sustainability benefits to
othermetricsthatopenthedoorforexecutingalargerarrayofprojects.
Takeaway:Materialityisanextraordinarytooltomeasurerelevancyofsustainabilityinitiatives,but
don’tgetstuckonittoavoiddiscardinggreatinitiativesthatarenotmaterial.