2. It’s All About Products, Not companies
Excerpt 2 from the book ‘Full Product Transparency‘
If you read corporate sustainability reports, you’ll find that most companies still focus primarily on the environmental performance of their own operations. Yet for many businesses this focus is mismatched with their true impacts, which lie outside their operations and fall instead within the lifecycle of their products.
When you view a company in terms of the products it makes – as opposed to its offices and employees – you soon discover that the vast majority of environmental impacts occur outside its operational boundaries. In many cases the impacts associated with raw materials extraction and processing, product use and end life far outstrip any ‘in-house’ impacts.
Most of the impacts are outside companies’ boundaries
For Interface’s carpet tiles, for example, around 68% of the impact is associated with the production of raw materials, while only around 10% can be attributed to in-house operations. For companies that make energy-guzzling machines, by far the biggest impact is during the product use phase. This is counterintuitive for many people, because the most visible parts of a company’s operations are either their glitzy office headquarters or their smoke-belching factories.
Sometimes the figures can be quite spectacular. For a consumer goods company such as Unilever, around 95% of a product’s impacts typically come from outside the company’s own operations (see figure below).
Tesco, a UK supermarket, says its direct carbon footprint in the UK is 2.6 million tonnes of CO2 per year. Yet the impact of its supply chain, which makes the products that go into its shops, is 26 million tonnes of CO2 – ten times Tesco’s own footprint. And the footprint of its customers using Tesco’s products is even greater: 228 million tonnes of CO2, which is not far off 100 times the supermarket chain’s own footprint.
Only 2% of Apple’s carbon footprint comes directly from its offices and facilities, while around 61% comes from outsourced manufacturing and raw materials, and 30% from the product when it is being used by the consumer.
The impact of ‘stuff’ is usually in the supply chain
When a lifecycle assessment is carried out on a physical product such as a carpet, or a t-shirt, or some ready-mixed concrete, it usually shows that the biggest impacts are in the supply chain, and are therefore already embedded in the product before they get to the company for the final manufacturing process. The biggest environmental impacts up to this point are usually associated with the types of raw materials being used, as well as the types of chemicals used to process these raw materials.
Outsourcing has made things worse
With the advent of outsourcing over the past 20 years, we now have many brands that consist essentially of a marketing department, some finance people, HR and legal units, and a product design team. The actual manufacturing of the product happens halfway across the world in nations such as China, India, Turkey or Brazil, because it’s cheaper to manufacture in such places rather than in Europe or the US. This explains why so many lifecycle analyses of products show an increasing percentage of the impacts taking place outside the operations of a company.
The mismatch in management: 80% of management on direct impacts
So the bottom line is that the seemingly impressive corporate responsibility programmes and targets of many companies are in fact generally confined to minor issues, often down to the paltry level of office paper or electricity. These misinformed programmes take the attention and focus away from major issues such as raw materials use, in life product energy usage, toxic chemicals use and end of life disposal/reuse. These are the main impacts of a company that makes products, not their office lighting. The legendary green advocate Jim Fava, from Five Winds/PE International, made this crude point in a Green Mondays event in June 2011: he pointed out that 80% of sustainability management tools focus upon only 20% of the actual environmental impacts.
The key to sustainability lies in product design
The key to radical change, then, is through product design. If the impact is mainly in the raw materials, then by redesigning its products a company can use fewer raw materials, or use alternatives to them. If a product is a machine that consumes energy such as a car or a vacuum cleaner, then the key is in designing a product that is more energy efficient. And it’s not just physical design that can make a difference: the business model and commercialisation strategy can have a significant influence too.
People buy products, not companies!
One of the things we need to do is to get away from comparing companies so much. After all, people buy products, not companies. It is products and services that have an impact on our lives, so that’s what we should be measuring and trying to make more sustainable. Who cares whether Renault or BMW have more factories with ISO 14001, better corporate greenhouse gas reductions or have more environmental policies? We should be thinking about the impact of the cars they produce.
It’s worth stating again: people buy products, not companies. We need information to decide which product is better. Buyers need that information at point of sale, and in advertisements, so that we can make an informed choice. So why are companies so busy producing corporate reports instead of product information?
Leading companies are embracing LCA as a central design strategy
Unilever is measuring the impact of all its products and brands in all countries on a ‘per consumer use’ basis. So 70% of its products worldwide are now analysed from this detailed perspective, with the focus being on a single serving – a portion, or the typical use of a product such as tea, ice cream, shampoo or washing detergent by the end customer. The metrics it uses are greenhouse gas per consumer use, water, packing and waste per consumer use, as well as sustainably sourced materials. You can argue whether maintaining the impact while doubling sales is ambitious enough (Unilever’s sustainable living plan) but at least they are focusing on the right metrics and right scope: products.
Likewise, Boots, a pharmacy-led retailer, has developed a product sustainability assessment model that analyses 23 critical areas across the lifecycle of the product. These areas focus on the design, creation, transport, use and disposal or recycling of its products. Targets are set to drive innovation and improve the footprint per product and brand.
But still these strategies are far away from FPT
None of these examples are truly the FPT I’m about to advocate in later chapters but we can see some companies are getting closer and closer. For example, Unilever has a target to double sales and maintain its combined product carbon footprint. Yes, it’s just a factor 2 target which is not very ambitious, though they are starting to look at the right scope: full lifecycle products. Also, the Unilever target is combined product, and up to now they haven’t committed to publish Environmental Product Declarations (EPDs) by each product (or product categories). The FPT that I’m advocating requires you to disclose the true, full impacts of all your products.