Systematizing sustainability

David Kelper

David E. Kepler is executive vice president of business services, chief sustainability officer (CSO), and chief information officer (CIO) for The Dow Chemical Company. He is a member of Dow’s Executive Leadership Committee, which is responsible for the company’s corporate strategy and financial performance.

As CSO, Kepler is responsible for guiding the sustainable business development of the company and is charged with leading the company’s commitment to set the standard for sustainability, including the achievement of the company’s aggressive 2015 sustainability goals. He chairs Dow’s Sustainability Committee. In addition, Kepler chairs the Sustainability External Advisory Council (SEAC).

In this interview, Kepler shares how Dow has systematized the management of sustainability by synthesizing metrics that integrate environmental and social concerns with economic value and strategy.

David Kepler of Dow describes the connection of sustainability to corporate strategy and how the company maintains industry leadership on this important issue.

Interview conducted by Vinod Baya, Bo Parker, and Saverio Fato

PwC: David, you have a unique role in that you lead both the IT and sustainability functions. What is the rationale for doing so at Dow?

DK: There is an organizational rationale, but some of it might be personal as well. I’ve been with the company for more than 35 years, with the first 25 primarily in information technology. After I became CIO, I assumed responsibility for other operational areas that aligned logically with IT. These were functions such as supply chain, procurement, and facilities management. This allowed Dow to create a business services group. Because I was a senior leader who knew Dow, there was a logical extension to bring environment, health, and safety [EHS] into business services. This has evolved into the chief sustainability role.

The skill sets I’ve built during my experience as CIO have helped in the CSO role, because both require an understanding of the strategy and making sure that resources and priorities get linked to that strategy. Effective execution depends on how you link multiple businesses to some common themes in the company and then drive a change of behavior. The enterprise-wide, cross-business-unit coordinating experience as CIO has been very useful in making the case for sustainability.

Having an enterprise-wide perspective is a strong base to build from. But it’s not enough. Sustainability has to be personal. You can’t fully succeed in this role without a fundamental belief that a company like Dow can have a significant and meaningful role to play in finding solutions to some of the major issues facing our planet. Dow is uniquely positioned to make a difference from a sustainability perspective. This is a value shared widely across our organization.

PwC: Does it create visibility that would not exist if the roles were led by separate executives?

DK: Yes, it does. As CSO, I have visibility into the linkages of how sustainability is impacting our strategy, and as CIO, I have visibility into how the strategy in turn will impact our operations.

Dow has been involved with the concept of sustainable development since the 1980s; we’ve had executive-level coverage of EHS for more than three decades now. As sustainability became integrated with our strategy, the sustainability executive leadership has taken on new dimensions. Today, aligning sustainability with IT and other functions reflects that.

PwC: How do sustainability concerns integrate with Dow’s business strategy?

“Sustainable development is a combination of how you achieve economic value, along with how you integrate the environmental and social impact into strategy and operations.”

DK: We advanced on sustainability dramatically by setting 10-year improvement goals. Right now we are working toward the second set of 10-year goals, the 2015 goals we set in 2006. The relevancy of our sustainability goals is tied to our corporate strategy. Certain trends, if left unchecked, in the world, are not sustainable, whether that’s energy, housing, water supply, or environmental demands of consumer growth in the emerging world. But these are challenges that the world must address, and Dow has solutions to these challenges, to enable sustainable growth.

From a strategy perspective, these are addressable markets with real business opportunity for Dow. There’s value in the company picking key megatrends that have a commercial potential. Trends like sustainable energy, infrastructure needs around water, transportation and housing or human health, and food productivity create markets that fit our core capabilities. By applying screening criteria to our investment and new product development decisions, we effectively integrate sustainability with our strategy.

PwC: It seems every enterprise is making some efforts around sustainability. What do you think separates the leaders from the pack? How does Dow maintain its leadership status on this important issue?

DK: My view is that we’ve matured to the point where sustainability is systematized in our business management and our operational execution. When you look at what differentiates us in terms of responsible operations, it is that we have been executing with a disciplined, company-wide metrics approach since the early 1990s— at a global level—and doing so with very specific targets. As a result, sustainability has become embedded in our operations and management systems.

Also, we’ve become much more extroverted about sustainability during the last four or five years. We now think about our environmental and social impact and the value of our products within a broader view around solving world challenges. The shift has been significant for us. We’re building sustainability into our business leadership thinking and no longer limiting its focus to operational performance alone.

PwC: You talked about disciplined metrics. Can you provide an example and how they are used?

DK: Let me provide some context first. When we completed our goals in 2005 and looked at setting the next set of goals, we realized that we could continue to optimize our footprint for responsible operations, but it probably wasn’t enough. The combination of how we listened to the outside—for instance, through our Sustainability External Advisory Council—and where we were going with our corporate strategy resulted in the next set of goals being much more externally focused. We already had metrics for setting targets around safety, emissions, greenhouse gas, and energy efficiency, and we looked at new areas around product safety, sustainable chemistry, and breakthroughs to world challenges.

Sustainable chemistry was one area where we really wanted to work with the outside stakeholders and build their input into our thinking. Sustainable chemistry is a high-level way to look at life cycle management, the attributes of your business model, and the products you make, and then to evaluate its level of sustainability. So we created the Sustainable Chemistry Index [SCI].

PwC: How is SCI being used?

DK: There wasn’t really a good methodology externally to look at life cycle and sustainable products for an entire company. Our sustainable chemistry goal allows us to look at eight attributes; three of them are risk oriented, asking questions such as: How safe is it to produce and ship a product? What is the impact, in terms of the real or perceived view, on human health? Then there are questions on energy use. What kind of material does it use? Is that material renewable and abundant? Finally, the impact or value added to society. We rate these questions and come up with a scoring system that helps us to compare, analyze, and systematically measure our progress, business by business and as a company as a whole.

10 Sustainability products

When the businesses think of products and product development, they may have a great product on one of those dimensions but not necessarily on all those dimensions. SCI encourages them to continue to think about their products holistically and innovate to build more sustainable solutions.

PwC: We have come across a quotation from your CEO, Andrew Liveris. He says: “Sustainability is making every decision with the future in mind.” Is SCI an example of a new metric helping to drive all decisions with the future in mind?

DK: Absolutely. SCI touches all parts of our business. There are very few perfect solutions that optimize everything, but SCI provides a view of areas where you need to improve. Sustainability is not just finding a product or business model that works on one aspect of environmental or social impact or profit. A sustainable solution needs to look holistically at all three. SCI looks at all of them collectively and shows where you have an impact and where you can make changes.

PwC: In your view, where can companies go wrong with sustainability? What should they do differently?

DK: A lot of companies still think of sustainability as: “I have my business plan. How do I layer sustainability thinking on top of that?” Our view is that sustainable development is a combination of how you achieve economic value, along with how you integrate the environmental and social impact into strategy and operations.

When we look at sustainable chemistry, we literally sit down and try to rate our products and bring the three views together. We rate a lot of variables. It’s like a quality index that you can then move forward and ask: “How can we make these products better, and how do we take our learning and put it into our next product development cycle?” The objective is to systematize sustainability so that the choices you make in material or design are right when you start a new product or business.

Another area is when companies focus only on compliance. I would say that if you start with just compliance in mind, then you never really develop a point of view of the best way to do something in an integrated manner. You’re always going to argue about tradeoffs between economic and sustainable practices. You should evolve and mature so that you have a point of view of how to do something in a way that balances the three dimensions of sustainability: the economic, environmental, and social dimensions.

PwC: What is the role of IT in advancing sustainability? Does sustainability challenge the IT organization on any dimensions that are unique to sustainability as a business concern?

“One challenge for the IT organization is to take these [sustainability] trends and first integrate them back into operations. They do need to understand the context of sustainable operations inside a company.”

DK: One challenge for the IT organization is to take these trends and first integrate them back into operations. They do need to understand the context of sustainable operations inside a company. For instance, when we’re looking at some of our new products, we’re putting in systems to enable and model the environmental impact to provide information about how our products should be sustainably installed and used. In some sense, this is a traditional business problem in how you link and integrate information, in this case so that sustainability is systematized and embedded in operations and products.

We can look at the analogy of IT use in the 1970s and 1980s when IT was largely automating processes. Having faster systems that could monitor and analyze started to influence the business model itself over time, especially when technology advancement was greater than the underlying market trends. The trends were actually reshaping how people did work. Similar is the scope and impact of IT’s role in sustainability. IT will shape how work is or will be done differently for more sustainable outcomes.

PwC: What are some open challenges from a sustainability standpoint where IT can help?

DK: When you think about the future, new business opportunity, the full life cycle of resources being used, the supply chain being built, you have to consider what happens if you’re successful in a market, and achieve scale.

The need is to model questions such as: What resources are needed? What is the footprint of the supply chain? What is the end of life for the product? Such questions usually are not asked until after the product is developed and it’s successful, and the result at times is unintended consequences on society or environment. Frankly, they’re unintended many times because you didn’t sit down and model market adoption impacts up front. IT has a role to work with domain experts to build the necessary modeling capability, to factor in to implementation plans.

Another open challenge is to understand the interfaces and quantify the relationships between the environmental, social, and financial concerns. We’re working with the Nature Conservancy1, for example, to understand those interfaces between the environment and our operations. How do you value ecosystem services? I think this is a key opportunity for us, and that’s where we’re still learning and IT has a role to play here.

PwC: You chair the Sustainability External Advisory Council [SEAC]. What role does this council play and how does it interact with your sustainability efforts?

“We now think about our environmental and social impact and the value of our products within a broader view around solving world challenges.”

DK: I think it’s always necessary to get a stakeholder view from people who aren’t directly in your business. For us, SEAC is a way to bring in other constituencies to get their views and perspectives on strategy and impact. We’ve had the external advisory board for almost 20 years now. Early on, we had a similar process with community panels locally. In the 1980s we recognized that we may have had a view of the science, but other people had perspectives different from ours. So to bring in a diversity of views, we created the global advisory council.

$9.8B Energy cost savings

We try to get the council involved earlier to provide a perspective on major projects or strategy that we usually would not see in our normal market interaction. That’s been very helpful. We sit down and go through major projects on strategy implementations with them and we ask: “Here’s how we plan to implement. Are we thinking through this in the right way?” They’ll give us input or advice, and we’ll modify our thinking around that advice. It helps us to think beyond just customers and markets and consider our place in providing solutions to world challenges.

1 Background on Nature Conservancy and other partnerships can be found at: http://www.dow.com/sustainability/change