By Omar Romero-Hernandez, Tiger Li, Tanya Shiu and Jorge Zapata Barbara.
Each year, the world’s human population generates well over 1 billion tons of solid waste, and that volume is on track to grow 70 percent by 2025. A growing share of that is in plastics and organics, which are recycled much less than paper or glass, and in complex waste such as electronics.
This rising mountain is a major issue for governments around the world, especially for those in developing nations. It’s also a growing concern for corporations, which want to reduce the direct costs of waste and get ahead of ever-tougher government regulation. Many companies also worry about potential damage to their brands and public reputations.
Yet our research shows a startling missed opportunity. Over 90 percent of Fortune 75 companies publish corporate social responsibility reports, and the vast majority of those reports include initiatives to reduce and recycle solid waste. Yet less than one quarter of these firms report to profit directly from those practices.
This doesn’t have to be the case.
We have been studying best practices at the Institute for Business and Social Impact, with funding support from the Sustainable Products and Solutions Program at the Haas School of Business. We find that smart companies are turning waste into sources of new revenue, increased efficiency, and higher profit. Over the longer term, these strategies strengthen a company’s brands and public reputation.
Put simply, investing in waste reduction offers solid returns.
*By selling waste during or after the product manufacturing process, producing a new revenue stream;
*By eliminating waste through better designs or leaner operations, which reduces cost.
*By preparing in advance for changes in consumer behavior and regulations, which enhances a company’s brand and reduces the risk of being strait-jacketed into inefficient solutions.
General Motors earns $1 billion a year from recycling and re-use activities, including $20,000 a month just from recycling cardboard. At a factory in Rochester, NY, GM earns 2 cents per pound of cardboard instead of paying 3 cents per pound to dump it at a landfill.
Texas Instruments re-sells more than 20 tons a year of scrap silicon wafers to manufacturers of solar voltaic equipment. Instead of paying for disposal, it generates as much as $3 million a year in additional revenue.
Coca-Cola has saved $180 million over two years – and a substantial amount of post-consumer waste –by reducing the weight of its bottles and cans. It has reduced the weight of its plastic bottles by 25 percent; the weight of its aluminum cans by 30 percent; and the weight of its 8-oz. glass bottles by 50 percent.
But there is more to this story than the direct cost savings or revenue enhancement. Consumers are increasingly interested in sustainability issues, and companies know this. In a recent Nielsen survey of consumers around the world, two-thirds of respondents said they preferred to buy products from companies that give back to society.
More than half said they were willing to pay more for products from companies that do so. Governments, grappling with increasingly scarce landfill space and with public pressure, are imposing stricter regulations. Wealthy nations already have high recycling rates and rising landfill costs, but fast-growing developing nations are now moving in the same direction.
Smart companies are getting out in front of these trends. Apparel manufacturers, led by Patagonia, have joined the Sustainable Apparel Coalition, which quantifies the environmental impact of a product’s materials and packaging. Patagonia went a step further in 2011, launching its “Don’t Buy This Jacket” advertising campaign, which encouraged consumers to repair and re-use their clothing for years or even decades.
All of this constitutes an emerging field of competitive activity. Some strategies contribute immediately to a company’s bottom line. Others contribute to the company’s long-term strength and brand identity.
The key is to recognize that the opportunities are real. Our research indicates that, overall, companies are doing less than they can or should be doing. That may be because investing in leaner production or lighter packaging is still managed as a solid waste affair instead of being part of the firms strategic plan, run by the executive arm of corporate director. In very few occasions, waste management initiatives may be at the cost of not seem to generate any returns (that is very unlikely, over a holistic analysis).
But it’s clear that waste is a resource with hidden value. It’s also clear that waste-reduction expertise is a competitive advantage in its own right. The earlier a company invests in it, the bigger its competitive advantage and the higher those returns will be down the road.
Omar Romero-Hernandez is faculty member on Corporate Sustainability at the Berkeley Haas School of Business, and leader of the Sustainable Product and Solutions Program at the Center for Responsible Business, which is part of the Berkeley-Haas Institute for Business and Social Impact.
Tiger Li is a 2015 MBA candidate at the Berkeley Haas School of Business.
Tanya Shiu is a research data analyst at the Sustainable Product and Solutions Program at the Berkeley Haas Center for Responsible Business.
Jorge Zapata Barbara is a 2014 MBA graduate at the Berkeley Haas School of Business.