Business and the Environment6

1
Business and the Environment6

• Application of CSR Firm Water Policy
• Whether CSR is consistent with profitability or
  CSR as profit sacrificing. Difficult to
  determine.
• Real example where both may be involved
• Taking actions that are consistent with
  profitability in avoiding costly regulation,
  community, and consumer reaction.
• Taking actions driven by external pressures that
  are riskier and more rapid than the firms
  managers would prefer.

2
Business and the Environment

• Quality fresh water supplies under increased
  stress.
• Overallocation. Competing uses. Colorado River.
• Missing marketsprices and easy allocation
  mechanism. Tucson example of misallocation.
• Strongly held community views.
• High profile.
• Poor infrastructure, especially in developing
  regions.
• Business often in the middle.

3
Business and the Environment

• Business use of water becomes an issue.
• Direct
• Supply chain
• Expansion plans.
• Climate change exacerbates the problem.
• Growing environmental impact.
• Threat of government intervention or stranded
  capital if water is lost subsequently.
• Threat of consumer response.

4
Business and the Environment

• Proactive business response.
• Course webpage At the Crest of a Wave A
  Proactive Approach to Corporate Water Strategy.
• Develop and implement a water strategy
• Conduct a water use assessment across the supply
  chain

5
Business and the Environment

• Type of businessall categories overlap.
• Water consuming businessesfood, beverages,
  pharmaceuticals, agriculture
• Water polluting businesses agriculture, apparel,
  mining, defense
• Water transporting businessesconstruction,
  shipping
• Water financing businessesbanking, insurance
• Water provisioningutilities, technology
  providers
• Water dependentutilities, software, shipping

6
Business and the Environment

• Evaluate water related risks within the value
  chain and the supply chain.
• Supply issues?
• Quality issues?
• Who is affected?
• Risk?
• Reputation?
• Production?
• Distribution?
• Input supplies?
• StakeholdersNGOs, media, government

7
Business and the Environment

• Sectors (Value chain analysis) and water
  usevolume, source, impactquantity, quality.
• Sourcinginputs, storage
• Productionmanufacturing, assembling, storage
• Packaging
• Distributiontransport, storage, support,
  marketing.
• End of liferecycling, disposal.
• Facilities at all levels and divisions.

8
Business and the Environment

• Risk Management
• To change the probability that the environmental
  event occurs through changes in the supply chain
  use of water.
• To change the losses involved.
• To change the firms liability.
• To change the managers liability.
• To obtain more information on mitigating the
  problem. To change corporate culture.
• To evaluate the costs and benefits of these
  actions.

9
Business and the Environment

• Cost-benefit analysis involves
• Evaluation of uncertainty,
• Ease of implementation,
• Assessment of impact on supply chain,
• Visibility,
• Community, market good will.
• Coordinate managerial levels and set firm initial
  agenda
• hardware response (inputs, supply chain),
• operational response (production, RD, delivery),
  
• employee response,
• consumer response (marketing).

10
Business and the Environment

• Interact with relevant stakeholders on
  implementation
• Community
• NGOs
• Shareholders
• Employees
• Government
• Operationalize.
• Document.
• Communicate.
• Evaluate.

11
Business and the Environment

• Conflict between promoting share holder value and
  reducing environmental risk.
• Because of limited information, may over invest
  or under invest in risk mitigation. Incentives of
  managers may not coincide with firms best
  interests.
• Outside pressures or drivers for more immediate
  action before the firms managers can fully
  assess how to respond to the problem.

12
Business and the Environment

• Firms have incentives to reduce environmental
  risk, such as those associated with water.
• Disrupts cash flow if major liability and clean
  up or other water related costs take place.
• Damages reputation with consumers, regulators,
  employees, investors.
• Risk to the firm cost of cleanup, liability for
  damage, damaged reputation, potential for lost
  water supplies, lost sales, lost employee and
  supplier goodwill, increased likelihood of
  government regulation.

13
Business and the Environment

• Intel case Impact of expansion of chip
  manufacturing in New Mexico in early 1990s. Water
  Impact.
• Background.
• Enticed to New Mexico (and Arizona) through
  various tax incentives. 1980.
• Average plant salaries are 35,000 - more than
  double the per capita income in New Mexico, the
  fifth poorest state. All of which made Rio Rancho
  the nation's fastest growing small city in 1993.

14
Business and the Environment

• 1993, Intel had a competition for site of the
  expansion for the new Pentium and next-generation
  P6 chips. New Mexico beat Arizona, Texas,
  California, Utah for the plant with vary large
  additional tax incentives. Their reward was
  Intel's 1.8 billion Fab 11, a project that would
  become the third largest industrial expansion in
  the world that year.
• An underlying assumption was that the Albuquerque
  area could provide the water.
• This was no small concern because Intel and all
  semiconductor companies freely admit they are, by
  the nature of their technology, world-class water
  hogs.

15
Business and the Environment

• The six- and eight-inch-diameter silicon wafers
  Intel makes must be rinsed at least 20 times in
  hyper-clean water to remove impurities.
• Estimated that an average of 2,840 gallons was
  used to produce one six-inch wafer and perhaps
  twice that for an eight-inch.
• If Intel's new chip factory makes about 30,000
  eight-inch wafers a month, which is standard, the
  amount of water used could reach 6 million
  gallons a day.
• For comparison, the daily use of a really
  gluttonous golf course is about 1 million
  gallons.
• Intel says it returns 85 percent of this water to
  the Rio Grande through Albuquerque's treatment
  plants however, that water never makes it back
  to the aquifer.

16
Business and the Environment

• In April 1993 Intel applied to the New Mexico
  state engineer, who decides water allocation
  issues, for a new water-use permit that would
  allow it to use 4,500 acre-feet of water a year,
  or about 4 million gallons a day.
• An acre-foot is the amount of water it takes to
  cover one acre to a depth of one foot, or about
  326,000 gallons.
• In addition to Intel's pumped water allotment, it
  would continue to use about 3.5 million gallons a
  day from Rio Rancho Utilities, which also pumps
  from the aquifer.
• August 1993, U.S. Geological Survey reported that
  Albuquerque was pumping out its groundwater
  nearly three times faster than it could be
  replenished.

17
Business and the Environment

• Intel's water request, arriving almost
  simultaneously with the aquifer alarm, quickly
  struck a nerve.
• Drought.
• Other major users, dairy farmers, golf courses,
  etc were less apparent, the focus was placed on
  Intel.
• NGO and community reaction. SWOP (Southwest
  Organizing Project).
• Shareholder pressure.
• Wanted to respond and have a plan prior to outlay
  of capital equipment and infrastructure. More
  difficult later.
• Made water use a critical issue in each proposal
  to expand production or to go into new product
  lines, construction sites.

18
Business and the Environment

• The best time to consider environmental issues
  is up front, during the design phase. For new
  fabs (fabrication, or manufacturing buildings),
  this is when it is still relatively easy and
  inexpensive to make changes in the design of the
  buildings and facilities.
• New water-saving technologies.
• Intel reduced freshwater needs by 50
• Water management strategies, standards, and tools
  developed.
• Demands for more.

19
Business and the Environment

• Intel also considered a a new production method
  for chips, SCORR, invented at Los Alamos National
  labs in 2001 that would use 95 less water.
• Battle over adoption time. Intel proposed 2010
  because of the cost, from 100 to 200 million to
  convert .
• SWOP argued that Intel could implement it as it
  modified its production processes, which it does
  about every 18 months because their products
  change so frequently.

20
Business and the Environment

• An example of CSRbroad community interaction on
  a community wide resource. Some actions are
  likely to be consistent with profitability and
  shareholder value. Others maybe less so.

21
Business and the Environment

• What does this example of CSR imply for
  environmental managers?
• High profile events.
• Need for environmental managers to weigh options
  and plan carefully for success within the firm
  and with the community.