Corporate sustainability is reshaping Virginia’s iconic industriesMarch 29, 2010 11:22 AM
by Nicole Anderson Ellis
In 2002, when Dennis Treacy went to work for Smithfield Foods Inc., there was no question in his mind that the nation’s largest pork producer had “environmental issues.” The biggest challenge? Keeping millions of tons of hog manure out of the water each year.
Between 1995 and 2000, Smithfield suffered three separate spills of more than 1 million gallons each. The company faced lawsuits in multiple states, including Virginia. Then in 1997 it was fined $12.6 million — the largest civil fine ever, at the time, in the history of the federal Clean Water Act — for illegal discharges into the Pagan River in Smithfield, a tributary of the James River and part of the Chesapeake Bay watershed.
Long before donning his current hat — chief sustainability officer and senior vice president of corporate affairs — Treacy was well versed in Smithfield’s failings. He used to run the Virginia Department of Environmental Quality (DEQ), the agency charged with enforcing federal and state water quality laws. In fact, there is a case on record called Treacy vs. Smithfield Foods.
But that was the old Smithfield. Today, the company is receiving state and national awards for environmental leadership. Hiring Treacy was proof, says current DEQ Director David Paylor, that the company wanted to change. It was fed up with bad press and big fines and decided to make social responsibility an integral part of its business operations.
That a-ha moment is occurring in executive suites and board rooms worldwide. “It’s amazing to see the change just in the last three years,” says Michael Lenox, dean of the University of Virginia’s Batten Institute and an expert on business innovation.
Even amid predictions that the global recession would curb the shift toward corporate sustainability, it’s accelerating, he notes. “Corporations are recognizing the importance of the environment as a strategic issue.”
“It’s a sea change,” agrees Erika Herz, managing director of the Alliance for Research on Corporate Sustainability at U.Va.’s Darden School of Business. “If businesses want to be relevant, they need to turn the ship.” Even when the ship is big and bulky, as in the case of Smithfield, which had more than $12 billion in sales last year, companies are realizing that going green is good for business.
“The tipping point was the realization among business executives that ignoring these issues wasn’t accomplishing anything,” says Lenox. In fact, the opposite was proving true. “Demonstrating good environmental stewardship may drive sales.”
Of course rectifying environmental impacts is easier for some businesses than others. Virginia’s most iconic industries — coal, tobacco, paper and pork — face unique challenges.
Yet corporate giants in each are taking steps to ride the green wave washing over corporate America. What is driving their urge to change? Where are these companies starting, where are they headed, and how is the journey altering the health of the companies and the commonwealth?
Growing public concern
In 2008, 84 percent of Americans voiced concern about the impact their consumption had on the environment, according to a survey by the Boston-based strategy and consumer agency Cone. In 2009, a follow-up survey showed 70 percent of Americans paid attention to a company’s environmental record.
In addition to drawing customers, corporate sustainability attracts talent, according to a study by the Stanford Business School. It also improves employee motivation and productivity.
“No one wants to wake up every day thinking they’re doing the wrong thing,” says Treacy. Since Smithfield made a public commitment to change, he notes, “It’s easier for us to deal with our customers, and it’s easier to deal with ourselves.”
Like Smithfield, Altria Group Inc.’s commitment to sustainability was prompted by a public shove. “Society was calling for change, loud and clear,” explains Paige Magness, manager of corporate responsibility strategy. “The company had a choice. Do we change?”
In 1998, weary from lawsuits over the harmful effects of cigarettes, the company rewrote its mission statement. The revisions include a mandate to “Align with Society.” It is under this banner that Altria is going green.
Popular demand also is influencing the evolution of MeadWestvaco Corp. The Richmond-based global packaging and specialty chemicals company has broadened its green retail offerings, says Mark Watkins, senior vice president for technology. “In the last few years, there have been new revenue opportunities.”
MeadWestvaco has responded with products such as Natralock (a packaging product that replaces PVC clamshells and uses 80 percent less petroleum-based plastic), Evotherm (a less-energy intensive asphalt that releases fewer toxic gases), and MWare (biodegradable foodservice packaging).
The company prides itself on a long-standing commitment to sustainability. “I wouldn’t call it a sea change,” says Watkins, “When the ideas came out about sustainability, we all starting saying, ‘That sounds like what we’re doing.’”
As a policy the company refuses to deal in wood from old-growth forests, rain forests or what it calls “forests of exceptional conservation value.” MWV uses the Sustainable Forestry Initiative, a certification system created and predominantly funded by the timber and paper industry, to ensure its paper and packaging products come from sustainably managed forests. MWV CEO John Luke was a founding member of the initiative’s board of directors and served as chair in 2007.
The seeds of change were slower to take root in coal country. People don’t buy coal; they buy power. As long as the utilities wanted coal, the industry could ignore public shifts toward green. So insulated is the industry that when Alpha Natural Resources, the nation’s third largest coal mining operator, asked Michael Peelish to serve as its chief sustainability officer, the West Virginia native — who describes himself as “born into the coal industry” — asked his CEO, “Are you making this job up?”
Peelish describes meetings where the heads of major utilities explain why they’re moving away from coal. “We’re in a decarbonizing world,” says Peelish. “We have to figure out how to adapt.”
“That’s what the smart businesses are recognizing,” says Lenox. “This is not a one- or two-year thing. These are major social and economic concerns and they better get out ahead of it.”
Transparency and innovation
In seeking sustainability, many corporations adopt formalized environmental management systems, including the International Organization for Standardization (ISO) 14001, which is considered the gold standard. MeadWestvaco uses ISO 14001, as does Altria and Smithfield. The pork processor adopted ISO standards in 2001. Under the rules of this voluntary Geneva-based program, companies must identify every part of their activities, products, and services that could significantly impact the environment, even if they aren’t regulated.
In 2003 Smithfield conducted baseline studies; no small task for a global company with more than 52,000 U.S. employees and operations in 13 countries. Then, in keeping with ISO’s emphasis on transparency, it published the results. An annual Corporate Social Responsibility Report now tallies emissions and waste, from the slaughtering house to the front office. Armed with a baseline, Smithfield set reduction goals. Finally it hired an outside auditor to, in Treacy’s words, “ensure we do what we say we’ll do.”
Still, problems periodically arise. Last month a Missouri jury awarded $11 million to seven families who filed suit because of foul odors coming from a 4,300-acre hog farm owned by a Smithfield subsidiary, Premium Standard Farms Inc. The suit blamed the odors on waste emanating from feed operations at the farm where 200,000 hogs are fattened for slaughter annually. Premium Standard plans to appeal the verdict.
Meanwhile, Alpha Natural Resources also has begun baseline studies. “We’ve done a greenhouse gas footprint for our company,” says Peelish. “We’re doing energy audits right now.”
Looking forward, the company has chosen a green design for its new headquarters, under construction in Bristol, Va. The building is registered with the U.S. Green Building Council’s LEED program — Leadership in Energy Efficiency and Design — one of the most stringent in terms of sustainable building.
In Richmond, MeadWestvaco’s new corporate headquarters is one of only three projects in the country to receive four Green Globes, the best possible rating by the nonprofit Green Building Initiative. High-efficiency construction techniques helped the building achieve a 21 percent drop in energy use compared with conventional construction. (see photo gallery)
Improving efficiency is a textbook starting point for companies seeking sustainability. And the paybacks often whet a company’s appetite for deeper changes. “They seek more opportunities to cut waste and minimize costs,” says Herz. “This leads to innovation.”
Waste-reducing innovation is nurtured at all levels of Smithfield, says Treacy. From making double-sided copies to repurposing waste, “It’s been a complete cultural shift.”
The company offers cash awards to employees who find ways to minimize Smithfield’s environmental impact and save money. In 2008 an employee at the Portsmouth processing plant suggested the replacement of spray nozzles on sprinklers used to cool hogs during the summer. The switch from a constant spray to intermittent pulse saves 19 million gallons of water each year. Implementing this and a handful of similar changes at the Portsmouth facility cost $35,000, reduced water use by 40 percent in six months and is saving the company $258,000 a year. The innovations also earned Smithfield a Governor’s Environmental Excellence Award in 2009.
Philip Morris USA, a subsidiary of Altria, garnered the same honor last year. It won recognition for innovative water filtering at Park 500, a tobacco processing plant in Chesterfield County.
For years the Park 500 plant had drawn criticism for its impact on the James River. In 2004, the Chesapeake Bay Foundation sued the DEQ for allowing the facility to release high levels of known toxins just south of Richmond (more than 1.8 million pounds of ammonia, chlorine, nitrates, phosphates, lead and mercury between 1999 and 2008). Suits and appeals bounced around for years, culminating in a hearing before Virginia’s Supreme Court. In 2007, the case was settled; the DEQ issued a new, stricter permit for the Park 500 plant.
By then, Philip Morris USA was experiencing success with new environmental management systems. Greenhouse gas emissions had dropped more than 15 percent since 2004. Energy use was down nearly 10 percent. Water use had been cut by a third, and recycling was up 178 percent.
In this solution-centered climate, Altria tried something new. It built a 48-acre wetland engineered to filter 1.8 million gallons of water a day. In the first year after completion, phosphorus levels from Park 500 dropped 80 percent; nitrogen levels, by nearly half.
In the process, the company met its goal of aligning with the community at large. “Society would expect a company like Philip Morris USA, if it found an opportunity to reduce emissions into the James River watershed, to do so,” says Magness. The living system has become a widely touted source of pride for Altria, all opposition to installing a filter now gone.
When it comes to sustainability, says Herz, “A company’s willingness to experiment seems linked to the speed of its success.”
For more than a century, Virginia Tech’s Mining and Mineral Engineering program has educated workers for Virginia’s coal industry. But during the last few decades, the school’s forestry department has been greening the face of the mining industry. In 1980 Alpha Natural Resources began supporting the Powell River Project, a joint effort with Virginia Tech and other educational institutions to improve methods for reclaiming land that had been strip-mined.
“For years we were told ‘pack it down, pack it down,’” says Peelish. “We’d run a dozer over it a thousand times.” Today Alpha uses an innovative approach called forestry reclamation that uses deep, loosely graded topsoil to nurture shade-tolerant seedlings followed by hardwood “crop” trees. Not only does this system cost less than conventional grassland reclamation, it improves the value of post-mining land.
That’s the goal in every industry, says Treacy: to convert waste to value. Since 1992 Smithfield has been capturing methane at a growing number of its hog houses and using the liability — a greenhouse gas — to run steam boilers. Smithfield reports production up 67 percent since 2004, and during 2008 the company captured enough methane to power more than 12,000 U.S. households for a year. “The future of the meatpacking industry is energy generation,” Treacy says.
Biofuels are even enticing the coal industry. Many coal companies are exploring ways to diversify. “Wind in particular seems a good fit,” says Peelish. Alpha Natural owns a lot of high-altitude, wind-swept land. It’s also exploring biomass, which can be burned in conjunction with coal. “Clean energy and renewables are smart,” says Peelish. “They are a good idea. Anyone who says otherwise is wrong.”
As the world moves toward alternative fuels, the commonwealth will face additional challenges because of its long reliance on coal, says Herz. “If you want to purchase green power, we don’t have the support at the policy level the way other states do. Businesses that are seeking alternative power don’t have much help in the form of state incentives.”
While 28 states already mandate their utilities to have minimum renewable portfolios, Virginia does not. But with Smithfield, Alpha Natural Resources, Altria and MeadWestvaco shifting toward a new, green economy, Herz predicts the legislature will be scurrying to draft legislation to make Virginia a pro-sustainable business environment.
Down the road
No one familiar with the greening of these corporate giants thinks true sustainability — economic success with a net-zero environmental impact — is at hand.
Alpha mines 90 million tons of coal a year. Even ignoring the damage associated with its combustion, coal mining causes “unavoidable environment impacts,” says Peelish.
The same can be said of large-scale tobacco farming. Tobacco farming can be rough on soil, and Altria requires massive quantities: in 2008 Philip Morris USA purchased more than 17 million pounds of Virginia-grown tobacco. Suppliers also include farmers in poor countries where both fertile land and wood for curing tobacco are scarce. “So what happens,” says Magness, “is massive deforestation” in developing countries such as Malawi in Africa.
Corporate forestry and hog production also come at an environmental price. “We’re large and by our nature we’re allowed to put a certain amount of pollution in the environment,” says Treacy.
So while there’s no denying that change has begun, modifying decades — sometimes centuries — of resource-intensive processes takes time.
Those in the nonprofit sector watch corporations announce reform with tempered hope. “These businesses have areas of significant environmental challenge and degradation,” says Trip Pollard, a senior attorney for the Southern Environmental Law Center. “There has been a profound change to how some corporations treat the environment, but it is like trying to turn an ocean liner.”
Change may be slow at first, says Michael Lipford, director of The Nature Conservancy’s Virginia programs, but when companies get a taste for cost savings and public praise, they can get hooked on doing the right thing. “Once you start walking down a certain road, you get used to it. And you keep going.”
Over at the DEQ, Paylor is cheering every improvement, however small. “In the beginning stage you minimize your footprint. You don’t eliminate it,” he says. “Being green is a path.”
That’s been MeadWestvaco’s experience. “The sustainability journey is one of continuous improvement,” says Watkins. “It’s about where you’re starting from and how you’re going to move forward.”
“The goal is continued improvement,” says Treacy. “When an environmental problem does arise, we admit it. We address it, and we put a system into place to make sure it doesn’t happen again.”