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Environmental Upgrading in Global Value Chains
The Perspective
of
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
CERES
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?
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How can managers…
• Prioritize eco-investments?
• Align eco-investments with strategy?
• Create competitive advantages?
• Create new market spaces?
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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).
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What are Sustainability Strategies?
•Sustainability Strategies are choices
available to managers to align
environmental and social investments with
the generic strategy of the company.
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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?
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Why then …
• Eco-excellence of organizational process should
generate competitive advantage?
• Can a ISO 14001 certification generate competitive
advantage?
• Why?
• When?
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STRATEGY 1Eco-Efficiency
STRATEGY 4Environmental Cost
Leadership
STRATEGY 3Eco-Branding
STRATEGY 2Beyond Compliance
Leadership
Co
mp
eti
tive
Ad
va
nta
ge
Competitive Focus
Organizational Processes Products and Services
Lower costs
Differentiation
Competitive Environmental Strategies
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Value for
Customers
Economic
Costs
Contribution
to Society
Environmental
Impacts
STRATEGY 5Sustainable
Value
Innovation
Sustainable Value Innovation
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Competitive Environmental
Strategies
Sustainable Value Innovation
Strategy
Existing Markets New Market Spaces
5
1 4
32
Sustainability Strategies
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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
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Competitive Environmental Strategies
existing market spaces
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STRATEGY 1
Eco-Efficiency
STRATEGY 4Environmental Cost
Leadership
STRATEGY 3Eco-Branding
STRATEGY 2
Beyond Compliance
Leadership
Co
mp
eti
tive
Ad
va
nta
ge
Competitive Focus
Organizational Processes Products and Services
Lower costs
Differentiation
Competitive Environmental Strategies
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STRATEGY 3
STRATEGY 2
Process
standards
Upstream
Activity System
Product
standards
ISO 14001
Downstream
activity system
Eco-differentiation Strategies
14
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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
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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
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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?
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The Case of
Palm Oil
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Plantations
Refiners & Blenders Ingredient
Manufacturers
Retailers
Mill
Product Manufacturers
Transport & Shipping
Smallholders
Source: RSPO
Flow Chart of
Palm Oil
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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)
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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
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Palm oil productivity per hectare
Source: Oil World 2008
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Source: Oil World, May, 2008
Worldwide vegetable oil production
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Comparative Cost of Production of Selected
Oils (US$/tonne)
Source: MPOB (2005)
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Asia and the EU are world's major
importers of palm oil
Asia
55%
Africa
12%
Other
16%
Pakistan 6%
India
13%
China
18%
EU
16%Other Asia
19%
Source: Oil World, May, 2008
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World palm oil production (tonnes)X
1 m
illio
n t
on
ne
s
Source: Oil World, MOPB, MPOC
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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)
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Malaysian Palm Production
Sources: Mr Chandran’s presentation - MPOB
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Source: USDA 2008
Social Innovation CentreSource: Corley , R.H.V.. How much palm oil do we need?
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Hummm....
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Social Innovation CentreSource: Greenpeace GHG
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NASA Images:
Deforestation in Sumatra
Source: http://earthobservatory.nasa.gov/IOTD/view.php?id=2457
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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
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Eco-activism
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The Roudtable for Sustainable Paim Oil
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Source: RSPO
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Certification
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Certification
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Supply chain certification system:
‘Segregation’
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Supply chain certification system:
‘Identity Preserved’
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Supply chain system:
‘Book and Claim’
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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)?
59
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Competitive Environmental
Strategies
Summarising
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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
$
$$$Ec
o-i
nve
stm
en
t
Outcomes
Processes Products
Low Costs
Differentiation
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BEYOND COMPETITION
new market spaces
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Value for
Customers
Economic
Costs
Contribution
to Society
Environmental
Impacts
STRATEGY 5Sustainable
Value
Innovation
Sustainable Value Innovation
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Electric Vehicles
Thomas Edison and his EV in 1913
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- What´s the problem of EVs?
- Do they have a chance now?
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90% of the journeys < 70Km 10% journeys > 70Km
Better Place
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New Value Propositions
ValueHigher value for customers and
contribution to society
Lower economic costs and
Environmental impacts
SVINew customers
and markets
New Business Models
Costs
Sustainable Value Innovation
The Ecological Modernization
of
Organizational Fields
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Beyond the firm level….
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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)
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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.
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Grazie!
www.renatoorsato.com