Going Green is not Black and White

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Emory Blair
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1 Going Green is not Black and White Cummins Westport Inc Shippers Forum, A Better Environment for Business Yossi Sheffi Elisha Gray II Professor of Engineering Systems, MIT Director, MIT Center for Transportation and Logistics Professor, Civil and Environmental Engineering, MIT, Professor, Institute of data Science and Society, MIT 1 1

2 Main Points It s all about the supply chain Life Cycle Assessment Rationale for sustainability initiatives The difference between say and pay It s not planet vs. profit B-2-B businesses and Trucking 2 2

3 It s All About the Supply Chain 2/3 carbon emission of most companies is in their upstream supply chain For some products, most of the emissions are in the use phase (downstream) So looking just at a company s environmental impacts is misleading. 3 3

4 Use-Phase Impact & LCA What is dry? Impact per dry hands Number of dry hands in the life Supply chain impact Sensitivity analysis to parameters 5 4

5 Rigorous Life Cycle Assessment (LCA) 1. Too slow and expensive (Tesco 2001) 2. With full effort only 125 products/year 3. Needed seven centuries for 90,000 SKUs 4. Walmart also started and withdrew 6 5

6 Basic Business Reasons To Act (Even for skeptics) Sustainability Impact Brand Eco-efficiency Hedging Risk mitigation Bottom line impact 8 6

7 Basic Business Reasons To Act (Even for skeptics) Sustainability Impact Brand Eco-efficiency Hedging Eco-efficiency many sustainability actions reduce cost (or improve service) Risk mitigation and thus should be done anyway Example: reduce energy consumption (Staples with truck engine regulators) Bottom line impact 9 7

8 Basic Business Reasons To Act (Even for skeptics) Sustainability Impact Eco risk-mitigation attacks by NGOs, the media, and even consumer groups can reduce sales and stock price Brand Eco-efficiency Example: Nike boycott Hedging Risk mitigation Bottom line impact 10 8

9 Basic Business Reasons To Act (Even for skeptics) Sustainability Impact Brand Eco-segmentation/hedging Develop an offering for the green market in order to understand it, know demand patters, master technology, know suppliers just-in-case the market will change (regulations, demand, etc.) Eco-efficiency Example: Clorox Green Works ( an experiment ) Hedging Risk mitigation Bottom line impact 11 9

10 Basic Business Reasons To Act (Even for skeptics) Sustainability Impact Brand Hedging Branding Eco-efficiency Create and support a brand that transmits care for the community, workers, and the environment. Help recruit workers and attract funding, in addition to supporting risk mitigation Risk mitigation Example: Starbucks (minimum wage, health care, education, procurement) Bottom line impact 12 10

11 Who is at Risk? Consumer-facing companies (B-to-C) with Strong brand equity (particularly children s) No halo effect Large, deep tier extraction companies Touching the earth Investor and media pressure Many also touch consumers (vertically integrated) 13 11

But: Trucking is visible to consumers and policy makers The VW scandal turned attention to

12 What About Trucking? Less susceptible to consumer and NGOs boycotts B-2-B ( behind the scenes ) Many competitors But: Trucking is visible to consumers and policy makers The VW scandal turned attention to diesel engines Pressure sources: Regulators Customers (including 3PLs) trucking is relatively easy target The courts Investors/funds still small but may grow 12 12

13 Consumers Say But Don t Pay The FORD story

Consumers Say But Don t Pay The FORD story 2018 2018 Ford lobbies to relax mileage standards April 25, 2018 Ford eliminates most cars and focus on SUVs and trucks

14 Consumers Say But Don t Pay The FORD story Ford lobbies to relax mileage standards April 25, 2018 Ford eliminates most cars and focus on SUVs and trucks SUVs: Ride high (more wind resistance) Weigh more than sedans What changed? Cheap fuel American preference GM, Fiat-Chrysler are also changing their product mix 14 14

15 Product Attributes Search attributes - obvious tangible properties Experience attributes Can be verified only after purchase Intrinsic credence attributes Can be verified only after purchase and only with specialized expertise/equipment Hidden credence attributes - Cannot be verified by the consumer

They will only pay for the average quality Sellers of high quality cars will leave the market Average

16 The Akerlof Effect What happened when consumers for used cars cannot distinguish between good cars and lemon cars? They will not pay extra for sellers arguing that their cars are good. They will only pay for the average quality Sellers of high quality cars will leave the market Average quality is eroded The market is damaged This happens with CSR. If consumers cannot judge, they will not pay for responsible products 18 16

17 Trucking While consumers just talk and are not willing to pay or experience minor inconveniences B-2-B companies are subject to pressures Corporate customers can set rules, codes of conduct, preferences 17 17

18 Green Labels 18 18

19 Problems With eco-labels Greenwashing Nebulous attributes low carbon, recyclable. natural, certified, green-approved Lack of standards and independent validation Number of eco-labels (Now close to 500 ) 19 19

20 What do Companies do? Most: must pass the standard hurdle rate Some: use a lower hurdle rate for sustainability projects (Very) few: will do it (almost) regardless of cost (Still fewer): Benefit corporation 23 20

21 B-2-B Companies CSR reports (used by customers) Include commitments Materiality assessment Energy usage (carbon footprint) Diversity of work force Safety Participation in programs (governments and NGOs) Marketing 21 21

Driver behavior (idling, heavy breaking, speed) Limiting empty movements (deadheading) Route planning (heavy first,

22 Operational Improvements (and don t forget to advertise) Shippers can do a lot Collaborate on light loads Collaborate on head haul/back haul Build extra time into requirements Use milk runs (including multi-company) Truckers can do a lot Driver behavior (idling, heavy breaking, speed) Limiting empty movements (deadheading) Route planning (heavy first, slopes) New engines; new fuels The good news: almost every sustainability initiative in trucking leads also to cost reductions 22 22

The Limit of Influence Suppliers: Not knowing who deep tier suppliers are No

suppliers Commodities lack of ability to identify But: can pressure 1 st tier

Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 3 Tier 3 Tier 3 Tier 3 Tier 3

23 The Limit of Influence Suppliers: Not knowing who deep tier suppliers are No commercial relations with deep tier suppliers Smaller volume with deep tier suppliers Commodities lack of ability to identify But: can pressure 1 st tier suppliers OEM OEM OEM Tier 1 Tier 1 Tier 1 Tier 1 Tier 1 Tier 1 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 3 Tier 3 Tier 3 Tier 3 Tier 3 Tier 3 Tier 3 Tier 3 Tier 3 Tier 3 Tier 3 Tier 3 Customers: No easy way to influence behavior 23

deposits ~10%-30% higher carbon footprint than other energy sources Several barrel of

24 A Sticky Business Oil Sands Alberta, Canada Process: burn large quantities of natural gas to generate steam that is injected into the ground to mobilize the thick bituminous deposits ~10%-30% higher carbon footprint than other energy sources Several barrel of water per barrel of oil The most destructive project on Earth (Environmental Defense Canada) 27 24

25 A Sticky Business Oil Sands 2010 ForestEthics campaign Publish list of companies using trucking companies that use Alberta oil. Alberta Government: Industry provides 30% of the province s GDP #1 employer of indigenous people C$2.5 trillion in revenue in next 10 years Industry not as dirty: Only 1.25% of boreal forest would be mined 80%-95% of water used is recycled Per barrel emissions are down 26% since 1990 Miners planted 12 million seedling, part of land reclamation 28 25

26 A Sticky Business Oil Sands We invite Levi Strauss, The Gap, and the affiliates (as well as any other American/international company currently marketing their products in Canada that does not want to accept our dirty money) to NO LONGER do business on Canadian soil. By all means, purchase your oil from regimes that provide NO human rights or environmental stewardship. Don t let the door hit your behind on the way out. (A reader commenting on the story) We do not take a position opposing or supporting any fuel or energy source from any country or geography. (Levi Strauss spokesperson) 29 26

27 The Slogans Planet vs. Profits People vs. Planet People vs. Profits 30 27

28 The Real Deal: People vs. people People who want a clean environment People who want jobs and affordable stuff 28 28

Summary It is difficult for OEMs to become sustainable Most of the environmental impact is in the supply chain Upstream Little knowledge and no leverage

Both sides of the debate are right Environmental sustainability Jobs and affordability OEM OEM OEM Tier 1 Tier 1 Tier 1 Tier 1 Tier 1 Tier 1 Tier 2 Tier 2

29 Summary It is difficult for OEMs to become sustainable Most of the environmental impact is in the supply chain Upstream Little knowledge and no leverage Downstream No leverage Consumers refuse to pay or be inconvenienced in the name of sustainability Say vs. Pay Inconvenience (e.g. Amazon) How to sell environmentally responsible products? Both sides of the debate are right Environmental sustainability Jobs and affordability OEM OEM OEM Tier 1 Tier 1 Tier 1 Tier 1 Tier 1 Tier 1 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 3 Tier 3 Tier 3 Tier 3 Tier 3 Tier 3 Tier 3 Tier 3 Tier 3 Tier 3 Tier 3 Tier

30 Summary Government regulation is not the full answer Governments are complicit Regulations cannot be too severe Examples: Brexit Trump Reasons for business to act Eco-efficiency Eco-risk management Eco-hedging Brand enhancement 30 30

31 Summary - Trucking 1. Less vulnerable to direct consumer and NGO actions 2. But possibly more vulnerable to community actions As a result, subject to various pressures In particular: customer demands (due to B-2-B position) 3. B-2-B businesses know what is the minimum they should do it is what their business customers demand 4. Many opportunities for eco-efficiency: technology and operations In trucking - they all reduce costs as well (!) 5. Important to advertise relevant business initiatives as sustainability Publish sustainability reports 31 31

32 Questions?????? Yossi Sheffi 32 32

Energy. Business Plan Accountability Statement. Ministry Overview

Energy. Business Plan Accountability Statement. Ministry Overview Business Plan 2018 21 Energy Accountability Statement This business plan was prepared under my direction, taking into consideration our government s policy decisions as of March 7, 2018. original signed