Brazil Converts Environmental Responsibility into Competitive Advantage
Idealism is not the only factor that moves companies to adopt environmental responsibility programs. Cost reductions are another very important incentive, as well as enrichment of a company’s image to consumers and the surrounding community. Brazil is no exception, and companies in that country are become more and more active using environmental programs as an instrument to gain a competitive advantage. By the end of this year, this environmental turnabout will have involved expenditures of $500 million on pollution control equipment.
According to a study conducted in 1998 by BNDES, the Brazilian Development Bank; SEBRAE, the Brazilian service that assists micro- and small enterprises; and CNI, the national confederation of industry, there has been a sharp rise in the adoption of environmental responsibility programs since the end of the 1990s. Of the 1,451 organizations contacted, 85% have already adopted some environmental procedure. About 90% of large companies, mostly with ties to multinational groups, have engaged in this sort of activity, compared with 35% of small and midsize companies.
But the starting signal for this movement goes back to the decade of the 1970s, when groups of environmentalists began to proliferate. Ever since then, companies have tried to avoid having their image linked to environmental disasters. Moreover, “they have worried about their environmental liabilities,” says Sergio Braga, coordinator of the Center for Sustainability Studies (CES) of the Getulio Vargas Foundation.
Accidents such as the one that occurred in 1984 at a Union Carbide plant in Bhopal (India) have had a major impact on social awareness. On that occasion, 500,000 people were poisoned by lethal gases; even today this disaster is considered one of the largest industrial accidents in history. The social pressure on companies encouraged them to include concern for the environment in their planning. “That perception of risk led to a greater demand on the part of the public sector, and it took the form of legislation” aimed at reducing such disasters, says Jacques Demajorovic, professor of environmental education at SENAC, the national business apprenticeship service.
Whether they were motivated by legislation or social pressure, those companies that placed their bets on environmental management could demonstrate the positive results of this strategy after a brief period of time. Generally speaking, those programs involving the rational use of water and electric power have generated the greatest return in the short term. Marcos Viceconte Baptistucci, manager of security and environment at Boticario, the cosmetic firm, agrees. “If we add up all the programs that we have now, and include everything from the treatment of waste products up to the reuse of water, we expect to benefit from [a savings of] up to 20% in the cost of manufacturing,” he says.
Nevertheless, the most important results for companies are those that measure shelf space and sales. “That’s where a company finds out if its eco-marketing is well received by the consuming public,” says Braga. More and more, those products manufactured by environmentally responsible companies are getting a better reception by the public. Many times, the product’s good image overcomes even the quality of the product itself.
“Research undertaken at some universities,” he adds, “and many studies done by Consumers International (a non-governmental organization) about sustainable consumption, show that consumers’ preoccupations about the environment are going to grow in a slow but constant and gradual way. This interest on the part of consumers, who also feel pressured to choose other eco-responsible products, is directly reflected in the business results of certain companies. “The rhetoric that companies used 30 years ago no longer has any support in today’s society,” notes Demajorovic. “In order to adapt to legislation, one way of differentiating yourself and being in harmony with reality, is to adopt rhetoric of socio-environmental responsibility. You can use this as a strategy of differentiation in the marketplace.”
Marketing vs. Internal Responsibility
In Brazil, Boticario is one of the companies that have derived better business results from the process of environmental management. Over the past two years, the company has invested about 460,000 reais in the control of pollutants in its production line. “Our entire process of generating waste products is standardized. Of the total we invested, 300,000 reais were for the construction of a facility for the selection of waste products where we can separate all the waste products that we generate,” says Baptistucci.
Nevertheless, although this process allows a reduction of up to 20% in production costs, it has not wound up getting the return that the company hoped to achieve with respect to its customers. What happens, generally speaking, is that customers get a finished product that results from the responsible use of natural raw materials. Yet it is very difficult for customers to understand fully the work that has been done in internal production processes, which are generally among the most polluted.
Oddly, this vacuum was filled by another initiative within the same company, a foundation for the preservation of the environment. “The projects supported by the Boticario Foundation don’t necessarily have any tie to the productive process,” says Baptistucci. “Nevertheless, nowadays the Foundation is better known than the environmental management done by the company itself.” What we did was show people” that the Foundation’s recommendations were being instituted by management. The company is now part of an environmental case study.
For Braga, however, these types of efforts in Brazil are still insufficient. “Companies are still too worried about promoting their good deeds, and even when they have a well-designed strategy for communicating that, they do it in a very institutional way; they seek to sell the image of the company [rather than] the production processes that reduce the attack on the environment.”
Embraco, another Brazilian firm, offers a clear example of how sales can be increased by using environmental advertising. At the beginning of the 1990s, Embraco, which manufactures hermetic compressors, placed its bets on the development of an “ecological” compressor that utilizes HFC gas, which is not damaging to the ozone layer. This successful tactic caused a change in the character of the market, causing competitors to begin to work with the same process. “Day by day, we rapidly won markets with the 90% of our volume of compressors that we produced that used HFC,” says Rosane Buttgen, the company’s director of management, health, security and environment. “It wasn’t only a monetary gain, but also about our image.”
In the case of Embraco, favorable results in the marketplace led to a policy that favored investing in processes that preserved the environment. In 2001, the company devoted 1.96 million reais – some $672,000 – to the reutilization of water, the cleanup of waste products, and the rational use of energy. In 2002, investment grew by 42%, reaching 2.79 million reais – about $956,000 dollars. Moreover, the company created a prize for environmental responsibility, oriented toward the schools in the region of Joinville in [the state of] Santa Catarina, in the south of Brazil. The result has been an improvement in the status of the company within the community, despite the fact that these results have not been reflected in the direct sale of finished products.
Legislation and Oversight
According to Braga, in order to obtain more effective results – both from an economic and environmental perspective – legislation must be more effective. For example, in Brazil laws are still in the process of evolving. The most important regulation on this subject is number 9605/98, which deals with environmental crimes. It establishes penalties for organizations responsible for ecological disasters, and they can be extended to include the company’s top management. Starting with the promulgation of this law, five years ago, it is has been possible to apply penalties of up to fifty million reais (some $17.2 million) to those companies that relapse into ecological disaster. As Demajorovic explains, “The law has an impact on the process of decision making because companies see themselves as forced to adapt to the law, which directly affects their costs.”
Although the law continues to be the great driving force for environmental management, “a strict [legal] framework doesn’t function if there is no oversight. This has moved forward, and it has meant that some companies are taking more care to incorporate environmental matters in their production process,” says Demajorovic.
Despite improvements, Brazil continues to show results below those in countries that are more economically advanced. According to data from CEMPRE, the Brazilian institute that promotes recycling in waste management, 45% of steel plates (often used in industry) consumed in Brazil in 2002 were recycled. In the United States, this figure reached 60%, and in Japan it was 88%. The data from CEMPRE also show that 44% of glass packaging (a product that is hard to spoil) used in Brazil in 2002 was reprocessed. That number is very much below the figures for Germany (87%), Switzerland (92%), Norway (88%), Finland (91%) and Belgium (88%).
There are only a few isolated examples of companies that go beyond what the law requires, demonstrating that the results can be as positive for environmental preservation as they are for company profits. In its three years of using recycled packaging, Boticario has reached a figure of 800 tons of recycled paper annually, the equivalent of 15,500 eucalyptus trees that don’t have to be chopped down each year. The processes at Embraco, which were consolidated beginning in 2001, also show solid returns. At the beginning of 2002, the company’s headquarters consumed 25,000 cubic meters of water each month. Twelve months later, monthly consumption fell to 19,500 cubic maters, which means a reduction of 22%.
Even so, environmentally responsible behavior originates more often in decisions of individual companies than in the requirements of law. Moreover, such actions are very dependent on the reaction of consumers, who are limited by the information that manufacturers themselves provide.
“The consumer has to trust what the manufacturer says, but the manufacturer doesn’t always talk about all the stages in the process of manufacturing the product,” points out Braga. In general, companies only divulge some aspects of the product. They announce that it is recyclable or biodegradable, but there is no certifying organization that, in an impartial way, can attest to the veracity of the information,” affirms Braga. In his opinion, the solution to this problem is not direct intervention by the government through fines and penalties. The solution is for consumers to know how to distinguish between those companies that are environmentally responsible and those that are not.
In practice, it is the consumer market that takes control. For example, Braga cites the case of Germany, where town councils establish a garbage quota for each citizen. Those who exceed their limits are required to pay an extra tax. “Since they were required to buy a quota, that meant that the cost was passed on to consumers; but that wound up punishing the supermarkets, because consumers left the packaging there. As a result, those companies that were selling directly to the public went on to charge producers in order to reduce [the size of] their packaging. The government applied an economic tool that was clearly unpleasant, and it interfered with the entire chain of production.”
According to Braga, these “white interventions” are part of the rules of the marketplace since the actions of companies are directed toward acquiring profits. “It is necessary to utilize the instruments of the marketplace, because when all is said and done, we live in a capitalist economic ruled by the laws of capitalism.” For Braga, a good solution would be to create an environmental seal that identifies such products. “It would be something with great visibility. Only in such a way would consumers be correctly informed about the environmental impact caused by each product and, within a family of products, they would be able to know which produce less damage to the environment.
Demajorovic goes further. In his opinion, those companies that only try to adapt to legislation are not using the commercial potential of investing in environmental preservation. “It is becoming more and more obvious that environmental management can be transformed into a competitive advantage,” he says. Braga adds that “for companies to be viewed as part of the vanguard in this area, they must go a bit beyond all the basic requirements.” To do that, companies will need to consider the entire production chain in order to count on making effective investments within that area.
One component of this movement for environmental responsibility can be viewed in the internal movements of the markets themselves. A few years ago, the Dow Jones Sustainability Index was created on the New York Stock Exchange, comprising shares of companies that are socially responsible. “It is interesting to observe the fluctuation of share prices in the two groups,” comments Demajorovic. “The index made up of companies that are socially responsible had share prices much more highly valued than the rest.”
Braga predicts that in the near future, companies will move to assess the environmental assets and liabilities that they are producing. “Defining the market value of the goods and services that nature renders to the ecosystem must be a permanent effort. A methodology must be created for allowing us to assess the value of nature and, subsequently, make that mechanism for assessing value permit the adoption of accounting procedures that demonstrate the integration of environmental costs in company’s production processes.” Profits could then be computed in a broader way, not merely as profits in terms of image or a reduction in production costs. “I imagine that, in 10 or 15 years, companies will be including related environmental accounts when their do their bookkeeping,” he says.