The Labyrinth of Sustainability: Green Business Lessons from Latin American Corporate Leaders

The Labyrinth of Sustainability: Green Business Lessons from Latin American Corporate Leaders

by Daniel C. Esty (Editor)

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Overview

Companies can no longer afford to be 'un'sustainable. While this observation has been widely accepted in the United States and Europe, only recently have Latin American companies and businesses across the developing world started to integrate sustainability principles into their corporate cultures. Recognizing and responding to this emerging trend, 'The Labyrinth of Sustainability' offers a collection of carefully developed and tightly framed case studies generated through the Latin American Corporate Sustainability Analysis project, an initiative convened by the Yale Center for Environmental Law and Policy in conjunction with the EGADE Business School in Mexico and INCAE Business school in Costa Rica and Nicaragua.

The introduction by Daniel Esty, the Hillhouse Professor of Environmental Law and Policy at Yale University and one of the world's leading corporate sustainability experts, makes a compelling argument for what he calls the "sustainability imperative"--the notion that businesses must work toward sustainability to be successful in today's marketplace. It distills from the 12 case studies that follow five important sustainability strategy lessons for executives and managers on leadership, vision and execution, partnerships, communications and inspiration.

The 12 case studies focus on the sustainability strategy and initiatives of a company with business operations in Latin America, drawing out key themes and highlighting both successes and challenges. The aim of 'The Labyrinth of Sustainability' is to present the problems and prospects for corporate sustainability in a Latin American context across a spectrum of companies that ranges from small businesses to multinational enterprises. With its Latin American focus and lessons for business in a range of industry settings, this volume complements previous analyses and case studies of corporate sustainability in different regional contexts.

Product Details

ISBN-13: 9781783089123
Publisher: Anthem Press
Publication date: 01/31/2019
Series: Anthem Ecosystem Services and Restoration Series , #1
Pages: 250
Product dimensions: 6.00(w) x 9.00(h) x 1.00(d)

About the Author

Daniel C. Esty is the Hillhouse Professor at Yale University, USA, and the coauthor of the prizewinning book, Green to Gold: How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage. He has advised hundreds of companies across the world (including Coca-Cola, DowDuPont, FedEx, Ikea, Microsoft, Unilever and Walmart) on their corporate sustainability strategies and served in top positions in the U.S. Environmental Protection Agency and as commissioner of Connecticut’s Department of Energy and Environmental Protection.


Read an Excerpt

CHAPTER 1

WATER CONSERVATION IN SCARCITY CONDITIONS: CORPORATE SUSTAINABILITY AT MEXICO'S FEMSA GROUP

Roger Nion Conaway and Francisco Gabriel Rodríguez González

Abstract

FEMSA Group, a beverage and retail company headquartered in Monterrey, Mexico, has incorporated sustainability into its core business strategy with a special focus on water resource management. This case explores how a multinational corporation relying heavily on water resources can operate in a water-scarce region, advancing conservation and securing a "social license to operate." It also examines the range of water conservation measures the company has instituted and maps out how FEMSA has created economic, social, and environmental value for the communities where the business operates. This success has emerged, in part, through partnerships with like-minded nongovernmental organizations and other for-profit companies. The FEMSA experience thus demonstrates that corporations working in concert with other stakeholders will often improve sustainability performance and business results.

Introduction

FEMSA Group (Fomento Económico Mexicano, S.A.B. de C.V) began operations in 1890 and has since emerged as a major beverage and retail company with its base in Monterrey, Mexico. FEMSA now operates in 12 countries, registers annual revenues of over US$18 billion, and employs more than 260,000 people. Its conservation and sustainability efforts serve as a beacon of corporate social responsibility in Mexico.

FEMSA's emphasis on sustainability has emerged partly out of necessity. As the operator of the world's largest independent Coca-Cola bottling enterprise, as well as a stakeholder in Heineken, FEMSA Group must steward the most vital ingredient in its beverages — water. To that end, the company created the nonprofit FEMSA Foundation in 2008 to balance environmental protection, social responsibility, and economic growth. The FEMSA Foundation not only works to conserve water resources, but also delivers a broad array of social benefits to the local communities around FEMSA facilities, including nutrition training, clean water, and sanitation infrastructure. Our discussions with FEMSA and FEMSA Foundation employees have shown that the corporate value of sustainable water commitments extends beyond just securing a company's supply of a key resource.

This case study highlights the water conservation activities of the FEMSA Foundation and the closely related Monterrey Water Fund, known in Spanish as Fondo de Agua Metropolitano de Monterrey. Our findings come from three sources: (1) interviews with FEMSA Foundation directors in Monterrey, who oversee activities in the Río San Juan watershed and build partnerships with nongovernmental organizations (NGOs) and funding organizations; (2) notes from firsthand observations during a visit to the watershed in the mountains above Monterrey; and (3) secondary sources accessed through online databases and websites, including FEMSA vision and mission statements.

This chapter explains the evolution of sustainability thinking at FEMSA, then describes the water fund and analyzes its water conservation work in the Monterrey watershed. It details the reforestation efforts, soil restoration activities, and social programs that support families living within the watershed. The chapter also highlights FEMSA's collaboration with other companies, NGOs, and community groups to protect water resources.

FEMSA's Best Practices

FEMSA's commitment to a broad range of social and environmental programs beyond its core business operations is a best practice in corporate sustainability. The company illustrates the benefits of collaborating with public and private partners to deliver such programs. Inaction by the Mexican government led FEMSA to begin addressing critical community water management needs, both as a corporation and through its corporate foundation. For FEMSA and a number of other businesses, acting in the place of underperforming government entities has become a fundamental necessity — and a critical dimension of corporate social responsibility, especially in a developing country setting.

A number of scholars have highlighted the necessity of creating a "stakeholder framework for analyzing and evaluating corporate social performance." Indeed, inclusively creating value for all stakeholders helps develop intangible assets. These assets provide competitive advantage and increase shareholder wealth. FEMSA's sustainability strategy reflects such a "stakeholder" framework by integrating economic goals with social and environmental activities. This approach secures the company's social license to operate. In a 2007 article, John Campbell of Dartmouth College and Copenhagen Business School asked, "Why would corporations behave in socially responsible ways?" The answer, he wrote, is that the financial health of an individual corporation depends on the success of the economy as a whole. FEMSA's sustainability strategy and the efforts of the FEMSA Foundation provide a vivid example of Campbell's argument in action.

Sustainability at FEMSA

The FEMSA Group published its first sustainability report in 2005. These reports are published separately from the company's annual report and are publicly available online. This outreach has proven to be an effective communications strategy, signaling a commitment to transparency and building community trust.

The group's sustainability reports conform to Global Reporting Initiative G4 guidelines, an internationally accepted framework for measuring triple bottom line performance. The guidelines helped the company to identify a series of potential issues that could also pose business risks for its Coca-Cola FEMSA unit:

• changes in consumer preferences;

• water scarcity and inability to keep existing water concessions;

• risk of raw material price hikes;

• significant changes in regulatory or fiscal regimens; and

• competition that could affect Coca-Cola FEMSA's performance.

This reporting helped focus FEMSA's sustainability strategy on water and other related issues. In 2012, FEMSA made additional changes in order to create the company's "Strategic Sustainability Framework." The values that emerged from a materiality analysis helped sharpen the FEMSA Group's focus on three sustainability pillars: "People, Planet, Community." These priorities align FEMSA's ethics and values strategy with the sustainability imperative identified by Lubin and Esty. FEMSA's water conservation activities have emerged from these values.

The FEMSA Foundation and Water Funds

The FEMSA Foundation's water initiative began in 2008, seeking to achieve "the conservation and sustainable use of water and the improvement of quality of life in the community through education, science, and applied technology." Because it recognizes the importance of community needs, and not just the company's own priorities, the foundation has also long championed nutrition in conjunction with water issues. To deliver on its water conservation and access goals, the foundation launched a series of water funds supported by the Latin American Water Funds Partnership.

A water fund oversees water-related environmental services and promotes water protection as a locally organized nongovernmental institution. Water funds serve as an example of "alternative action," born in civil society when government inaction leaves communities' needs unmet. Water funds can offer management efficiency and sustainability for threatened watersheds. For FEMSA, water funds serve as trust funds that collect private contributions for watershed interventions and community services.

The FEMSA Foundation's water funds integrate well within FEMSA Group's triple bottom line sustainability perspective. The funds help the company deliver: (1) social development, such as economic improvements to watershed residents' lives; (2) environmental sustainability, focusing on reforestation and protecting water sources from soil erosion; and (3) increased economic value for FEMSA. This commitment to community success as well as profitability has underpinned FEMSA's business model for nearly a decade, and ensured the company's social license to operate.

FEMSA has also worked with the Latin American Water Funds Partnership to expand its reach. The partnership is comprised of four organizations: the FEMSA Foundation, the Global Environment Facility, The Nature Conservancy, and the Inter-American Development Bank. It has set out to create 32 local water funds in Latin America and preserve 3 million hectares of land (approximately 7.5 million acres). Fifteen million people will benefit from new environmental services the water funds make possible. In 2014, the Rockefeller Foundation recognized the partnership with its Next Century Innovators Award.

In Monterrey, Hurricane Alex accelerated the growth of these partnerships, as in June 2010 the hurricane caused massive flooding and extensive infrastructure damage. The deluge led the partnership to develop extensive water conservation activities in the mountains surrounding Monterrey. The federal government failed to respond quickly or adequately, hindering local government efforts, so the private sector took responsibility. As we explain below, the Monterrey Water Fund was key to FEMSA's efforts.

Sustainability Analysis: The Monterrey Water Fund

The impact of FEMSA's sustainability efforts is perhaps best illustrated by the Monterrey Water Fund, an effort to protect water quality and improve livelihoods in FEMSA's home region. The fund focuses on the needs unmet. Water funds can offer management efficiency and sustainability for threatened watersheds. For FEMSA, water funds serve as trust funds that collect private contributions for watershed interventions and community services.

The FEMSA Foundation's water funds integrate well within FEMSA Group's triple bottom line sustainability perspective. The funds help the company deliver: (1) social development, such as economic improvements to watershed residents' lives; (2) environmental sustainability, focusing on reforestation and protecting water sources from soil erosion; and (3) increased economic value for FEMSA. This commitment to community success as well as profitability has underpinned FEMSA's business model for nearly a decade, and ensured the company's social license to operate.

FEMSA has also worked with the Latin American Water Funds Partnership to expand its reach. The partnership is comprised of four organizations: the FEMSA Foundation, the Global Environment Facility, The Nature Conservancy, and the Inter-American Development Bank. It has set out to create 32 local water funds in Latin America and preserve 3 million hectares of land (approximately 7.5 million acres). Fifteen million people will benefit from new environmental services the water funds make possible. In 2014, the Rockefeller Foundation recognized the partnership with its Next Century Innovators Award.

In Monterrey, Hurricane Alex accelerated the growth of these partnerships, as in June 2010 the hurricane caused massive flooding and extensive infrastructure damage. The deluge led the partnership to develop extensive water conservation activities in the mountains surrounding Monterrey. The federal government failed to respond quickly or adequately, hindering local government efforts, so the private sector took responsibility. As we explain below, the Monterrey Water Fund was key to FEMSA's efforts.

Sustainability Analysis: The Monterrey Water Fund

The impact of FEMSA's sustainability efforts is perhaps best illustrated by the Monterrey Water Fund, an effort to protect water quality and improve livelihoods in FEMSA's home region. The fund focuses on the building of water infrastructure, reforestation, and the creation of economic incentives for conservation for local landowners.

Water Flow around Monterrey

The Río San Juan watershed encompasses the states of Coahuila and Tamaulipas in addition to FEMSA's home state of Nuevo León and Monterrey, its capital. The watershed serves approximately five million people. Water availability in the region, however, is low and irregular, and water sources have faced issues due to pollution. In a 2011 article, José Cháidez demonstrated how sustainable management of the Río San Juan's water remains critical to addressing the demand for agricultural, industrial, and municipal freshwater consumption, as well as natural disaster management.

In interviews with the authors of this chapter, local residents described Monterrey's strange relationship with water. Because the city and land nearby do not receive much rain, highway and bridge designs do not consider the impact of excess water during storms. Such inadequate infrastructure has led to a growing inability to manage extreme water events. In recent decades, Monterrey has faced two significant flooding incidents: Hurricane Gilbert in 1988, and Hurricane Alex in 2010. Hurricane Alex struck Monterrey with a peak water discharge around 15 percent lower than the peak during Hurricane Gilbert, yet the resulting water flows resulted in more significant damage to infrastructure. This counterintuitive impact resulted from the degradation of the surrounding environment. First, the upper watershed forest and soil health had declined between 1988 and 2010. Forest fires and tree diseases had damaged the watershed forest, and water ran down hillsides rather than soaking into the soil. Second, Monterrey's rapid population growth resulted in unorganized and unplanned development. Concrete streets, asphalt parking lots, and other urban development prevented water absorption in formerly forested mountain areas. Finally, accumulated water funneled through the city through only one source, the Santa Catarina River.

The combination of these three factors has increased the intensity of water flow during extreme weather events. To address the increased risk of flooding, the local government constructed a 70-meter-high peak-breaker dam in 2007 at a cost of 530 million pesos (US$45 million). The dam regulates water flow into the Santa Catarina River, intending to slow water flow during heavy rainfall and hurricanes. Even so, Monterrey suffered significant flooding during Hurricane Alex — engineers have said that without the dam, flooding would have resulted in more significant damage.

The Formation of the Monterrey Water Fund

The Monterrey Water Fund was launched in 2013 as an NGO dedicated to addressing the water challenges highlighted by Hurricane Alex. The fund began with the participation of the Latin American Water Funds Partnership, the FEMSA Foundation, and The Nature Conservancy. In 2016, the government asked the Monterrey Water Fund to develop the Water Plan for the state of Nuevo León, where Monterrey is located. This request allowed the Monterrey Water Fund to influence watershed protection around the sprawling metropolis of Monterrey.

At the beginning of the planning process, two groups were created: one technical and another political. The major stakeholders included the Tecnológico de Monterrey (a private university), the Universidad Autónoma de Nuevo León (a public university), CONAGUA (the national water authority), SEMARNAT (the national environmental authority), CONAFOR (the national forestry authority), state agencies like the water utility of Nuevo León, and local governments like the Monterrey Municipality. NGOs took part as well, including Pronatura Noreste and the Fondo Mexicano para la Conservación de la Naturaleza, the largest fund for conservation issues in Mexico. In the two years prior to the public launch, the water fund held meetings and workshops, shared information, and conducted analyses.

The Monterrey Water Fund received funding from the Natural Capital Project, a group formed by The Nature Conservancy, the World Wildlife Fund, Stanford University, and the University of Minnesota. This group developed a software platform to identify areas in the Río San Juan watershed where environmental intervention measures would have maximum impact. Two consulting firms, KPMG and Baker & McKenzie, developed the governance of the fund. Membership and participation emerged as a particular strength: major companies in Monterrey, such as FEMSA, CEMEX, Arca Continental, Heineken, Cuprum, and Alfa, joined the initiative.

The Monterrey Water Fund is organized as a trust fund. Three committees form its foundation. The science and technology committee, led by Alfa, which reviews the Conservation Plan developed by national government agencies and then presents it to the board; the communication committee, led by Arca Continental and Heineken; and the fundraising committee, led by FEMSA Foundation. The board itself consists of a president or CEO from each company. The president of Cuprum, an aluminum manufacturer, serves as chairman. Long-time FEMSA competitors such as PepsiCo also collaborate as members of the water fund.

(Continues…)


Excerpted from "The Labyrinth of Sustainability"
by .
Copyright © 2019 Daniel C. Esty editorial matter and selection.
Excerpted by permission of Wimbledon Publishing Company.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

Table of Contents

Acknowledgments; Introduction, Daniel C. Esty;

1. Water Conservation in Scarcity Conditions: Corporate Sustainability at Mexico’s FEMSA Group, Roger Nion Conaway (EGADE Business School) and Francisco Gabriel Rodríguez González (EGADE Business School);

2. Walmart Mexico: Clean Energy to Reduce Costs and Improve Corporate Image, Mariel Guadalupe Ferro Rivas (EGADE Business School) and Mariana Cesín Sastré (EGADE Business School);

3. Grupo Vanguardia Revitalizes Plastics Recycling in Honduras, Martha Sofia Cifuentes (INCAE Business School) and Felipe Perez (INCAE Business School);

4. Nissan Mexicana’s Renewable Power Partnership, Marco Antonio Cristobal and Aidee Figueroa;

5. Tecnosol Follows the Sun, Martha Sofia Cifuentes (INCAE Business School) and Felipe Perez (INCAE Business School);

6. Rizek Pushes Dominican Republic Cocoa Industry toward Sustainability, Milagros De Camps German;

7. Centrosur Leads the Way to Sustainability in Ecuador, Edwin Garcia;

8. A Resilient World: Bavaria Builds Its Case on Water, Santiago Cortes Villota (Yale School of Forestry & Environmental Studies);

9. Grupo Herdez Takes the Initiative in Mexico’s Food Market, Faruz O. Loutfi Olivares (Yale School of Forestry and Environmental Studies);

10. Chile’s Las Palmas Avocado Orchard: Water Consumption Reduction in Agriculture, Siegfried King;

11. Mabe-Ontex: Increasing Global Competitiveness with Ecofriendly Disposable Products, Margarita Heredia-Soto (IESDE School of Management);

12. Water Use Efficiency Initiatives in Nestlé’s Value Chain and the Implications of the Company’s Business Model, Hellen Quinonez (EGADE Business School);

Index.

What People are Saying About This

From the Publisher

“The way that business approaches sustainability is changing rapidly as new opportunities and challenges emerge. The picture has become more complex––it's no longer just about emissions, reputation or jobs. Rather, it's about all these aspects at the same time. The Labyrinth of Sustainability examples show that smart companies have now integrated sustainability deeply into their decision-making process and are proving that they can be more successful by considering not just the financial return, but also their impact on society and the environment.”

—Peter Bakker, President and CEO, World Business Council for Sustainable Development



“This excellent book shows that there are companies in Latin America taking seriously their social duty towards sustainability––with positive business results. This book should also be viewed as a call to action for the many others still lagging behind.”

—Ernesto Zedillo, Director, Yale Center for the Study of Globalization, and Former President of Mexico



“Never before has it been so important to change the conversation about how corporate leaders can step up to the challenge of creating a sustainable future. The Labyrinth of Sustainability profiles real success stories in Latin America that show what is possible and why every business leader should pay attention.”

—Jaime Serra Puche, Chairman, SAI Law and Economics, and Former Minister of Trade, Mexico



“The Labyrinth of Sustainability offers a roadmap to corporate best practice in Latin America, highlighting the experience of real companies and illustrating that sustainable practices can be good for business. It is not a theoretical treatise, but a compilation of successful business strategies that demonstrate what is possible in terms of both competitiveness and sustainability.”

—Carlos Pascual, Senior Vice President, Global Energy, IHS Markit, and Former US Ambassador to Mexico



“An enlightening, in-depth analysis of how sustainability has moved from the last page of the annual report to the front and center of corporate strategy in Latin America.”

—Christiana Figueres, Convenor, Mission 2020, and Former Executive Secretary, UN Framework Convention on Climate Change



“Sustainability has evolved from being about corporate social responsibility to a great investment opportunity for private sector firms in Latina America.”

—Juan Pablo Bonilla, Manager, Climate Change and Sustainable Development Sector, Inter-American Development Bank



“An inspiring book for Latin American corporations demonstrating the importance of companies going beyond social responsibility to being true corporate citizens who positively impact and influence the communities and the environment in which they live and work.”

—Juan Fernando Posada, President, Latin America Selling & Market Operations, Procter & Gamble



“A pathbreaking book that arms readers with actionable insights based on real-world business experience. Invaluable for corporate practitioners and students alike.”

—P. J. Simmons, Chairman, Corporate Eco Forum



“In The Labyrinth of Sustainability, Daniel Esty has compiled an impressive array of case studies on practical environmental sustainability actions taken by a wide range of companies across sectors and countries in Latin America. These examples serve as a beacon to a more sustainable future for Latin America.”

—Richard Wells, President, The Lexington Group


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