Sustainable business: the need for new business models in a changing world

Address by Travis Engen, President and Chief Executive Officer, Alcan Inc., at the Birkbeck Lecture Series (London, 27 October 2005)

Thank you, Robert.

And thank you, Lord Marshall, for inviting me to be part of the Birkbeck Lecture Series.

Alcan Inc. is a company that relies on a wide spectrum of skills in our workforce. We believe in lifelong learning and we make the training tools available to our employees to move ahead with and within our organization … whether that be shop floor skills training, trades apprenticeships, or post-graduate pursuits. You might be surprised to know that in 1946 Alcan founded an International management college for Alcan executives that in the early 1990s was merged with a similar Nestle management college to found what is today IMD in Lausanne.

So, it is a privilege to be asked to speak by as unique an institution of higher learning as Birkbeck because you embody the kind of opportunity that my company tries to make available to all our people, according to and respectful of their interests and aspirations.

And you do it in the heart of London, one of the world’s truly great cities. As CEO of a leading international aluminum, engineered products, and packaging company, I can’t overstate the influence London has on my industry. Home to the London Metal Exchange that sets prices for our commodity products and headquarters of the International Aluminum Institute, your city is the international seat of the aluminum industry.

London is also widely considered one of the world’s most important global centres of thinking when it comes to sustainability and Corporate Social Responsibility … a reputation that I have come to understand more fully through my company’s association with the Prince of Wales International Business Leaders Forum – or IBLF.

On that note, I would like to acknowledge Robert Davies and the fine work carried out by the organization he represents.

Alcan came to know the IBLF through the Alcan Prize for Sustainability. I’ll have more to say on the Alcan Prize later but, for now, suffice it to say that the IBLF manages this program for Alcan … and does so with dedication, objectivity, and clarity of vision.

I was honoured earlier this year to be named Chairman of the IBLF … honoured both because I have developed considerable respect for the organization through our Alcan Prize partnership and because I believe deeply in the work they do. International business needs forums like the IBLF that allow us to benefit from each other’s experience as we grapple with the challenge of defining the role of business in preserving our planet for future generations, and ensuring a more equitable distribution of the world’s wealth and use of its natural resources.

My topic for this evening is a mouthful: “Sustainable business: the need for new business models in a changing world.” I certainly don’t have all the answers, but I’m pleased to have the opportunity to share some of what I have been learning over 40 years of global business experience… and some of what Alcan is learning as we adopt sustainable business models and strive to play a constructive role in tackling the economic, environmental, and social issues facing today’s world.

I believe it is important to emphasize that this is a path of learning. I don’t believe it will ever be possible to say, “That’s it, we’ve arrived.” The needs of the world will continue to evolve as will our own awareness of them and of the possibilities for action. But the more of us who are engaged, the better the chance that our world will evolve in ways that will continue to offer opportunities to future generations.

Our common challenge is to meet the needs of a world that is expected to have a population of nine billion and a global economy of $135 trillion by 2050. A world that, at today’s pace of change, will need not one – but three – planets to support it. Indeed, if the entire world were consuming at the rate we do in Western economies, it would take five planets to support us.

Finding ways for the one planet available to us to accommodate this growth within the window of the next few decades is a daunting task. One that requires an international, cross-sector, all-out effort.

So how are businesses and business models addressing this? To start with, the corporate world can be placed on a continuum that ranges between Milton Friedman’s view that “the business of business is business” and Ebenezer Scrooge’s revelation that “mankind was my business.”

More and more of us are lining up with the redeemed Scrooge. The time he spent in the spirit world didn’t make Ebenezer less of a business man. It helped him to understand how his business interests, and every decision he made with respect to them, had an impact on the lives of his fellow human beings.

At Alcan, we get it. And getting it is creating so much opportunity that I can’t do justice to it all in the brief time I have with you tonight.

First and foremost, the debate within Alcan is not about whether or not the business case exists for social responsibility. We have no doubt that it does. Every day, we see the return on investment that comes with having an engaged discussion on an opportunity or project that includes all elements of sustainability … economic, environmental and social, not just the economic. To many outside of Alcan, this is seen as recognizing and fulfilling our responsibilities as an international business … one that directly employs tens of thousands of people and has an impact on the lives of many more thousands in our operating communities. But, to us, this is executing our sustainable business model.

We know that our social license to operate and our ability to shape our own destiny depend on relationships of mutual benefit with society at large, and with the governments and non-governmental organizations that represent society’s interests.

We also know that, while we’re looking after our own house, there is a collective contribution that the global business community can – and, in my view, must – make to address issues that threaten our sustainability as a business community.

I’m talking about issues like the heavy consumption of resources by the world’s wealthiest countries. Realities like the developed world’s tendency to lecture emerging economies on conservation when they know full well that our own growth has been based on consuming more than pro rata amounts based on our population. I’m talking about the need to strengthen governance models in emerging economies, eliminating corruption as a way of doing business and transitioning to better investment frameworks for better economic performance.

The IBLF and many other organizations, such as the World Business Council on Sustainable Development or WBCSD, are helping business leaders to think deeply about the role of business in society. I believe these collective initiatives on the part of global business are crucial at this juncture – on a planet that is increasingly stressed. I also believe they carry the promise of significant benefit for civil society.

I have the privilege of co-chairing the WBCSD’s “Role of Business in Society” initiative. This initiative brings together CEOs from some of the world’s most successful companies to define our role and identify how the global business community can help itself by helping sustain the planet. Discussions like this are critical and urgent because it is clear that the answers won’t be found by going about our business as usual.

“Business-as-usual” thinking will not conserve our diminishing fresh water sources, which support all life on this planet. Nor will it address the inequities between the developed and developing worlds, or between rich and poor within the same borders. We have seen far too much evidence of how disaffection through a sense of inequality manifests itself … in the kind of terrorism the world was horrified to witness here in London last July; in wars within and between nations.

The participation of business in tackling these issues is by no means philanthropic. Consider the words of the co-chairs of the WBCSD’s “Sustainable Livelihoods Project.”

In a report entitled “Business for Development,” released last month, they point out that the products and services provided by the Council’s 175 member companies touch the lives of an estimated 2.5 billion people each and every day. Yet most of the world’s population remains trapped in poverty, left out of the world’s markets.

The WBCSD estimates that, by 2050, 85 per cent of the world’s population of some nine billion people will be in developing countries. Its report states that if these people are not, by then, engaged in the marketplace, our companies cannot prosper and the benefits of a global market will no longer exist.

While one could be frightened by these projections, I believe that a better course is to see the opportunities. It is the challenge and the opportunity of the markets that are growing fastest, that are not yet integrated with the more developed regions that should drive us. The sustainability of our businesses, their ability to continue to innovate and raise living standards through productivity gains, their ability to build bridges and relationships, and their ability to continue generating wealth that enables reinvestment and growth depend on the creativity and resolve we bring to working with governments, academia, and NGOs toward equitable participation for all societies in the world’s marketplace.

To quote the UN Secretary General: “It is the absence of broad-based business activity, not its presence, that condemns much of humanity to suffering. Indeed, what is Utopian is the notion that poverty can be overcome without the active engagement of business.”

The WBCSD’s “Business for Development” report, which I encourage you to seek out, presents 14 case studies on companies that are helping to overcome human suffering through innovative business models in some of the most impoverished regions of the world.

Companies like SC Johnson in Kenya, GrupoNueva in Guatemala, and Rabobank in Indonesia are helping local farmers boost their competitiveness, thereby improving their individual livelihoods and the quality of life in their communities.

ConocoPhillips is helping Venezuelan women to develop entrepreneurial skills. EdF is providing affordable solar energy to villagers in Morocco. Procter & Gamble has developed a low-cost product to purify drinking water.

BP, Eskom, and Rio Tinto are cited in the report for the work they’re doing to support small to medium-sized enterprises in bolstering local economies. Philips is expanding the provision of specialized health care to India’s poor. Vodafone is making it easier for African entrepreneurs to receive financing. Holcim is doing something similar with regard to financing low-cost housing in Sri Lanka. Unilever is finding new ways to deliver fortified food and hygiene products in Africa and India.

While this may sound like a list of anecdotes I remind you that it is said that the plural of anecdote is data. What’s really relevant is that all these solutions are business solutions. These companies are developing and selling affordable products or services aimed at solving economic, social, and environmental challenges in impoverished regions. By doing so, they are opening up new markets for themselves and improving the standard of living for the customers they serve.

These are all fine examples of the new business models that hold so much promise for improving the lot of our troubled world. There are many more. Just among WBCSD members alone, there are 66 companies actively creating business-based economic development initiatives in various parts of the world.

The WBCSD is only one of many global forums promoting the notion that business must be an equal partner with governments and non-governmental organizations if we are ever to achieve a greater balance across the economic, social, and environmental dimensions of sustainability.

Many other forums – the WEF, the IBLF, the Global Compact, IISD, ISO, GRI, the G-8, the OECD … the acronyms go on and on – have reached the same conclusion: that no one sector can solve the world’s problems but, together, we have the means.

Governments can create the policy infrastructure that stimulates sustainable growth. NGOs are skilled at early identification of issues and priorities, and facilitating communication among often disparate parties. Business has the resources and expertise to activate solutions that are self-sustaining through the application of business models. By working together and taking each other’s interests into account, we become a formidable force for the betterment of the planet.

I’d like to share a few examples from our own experience at Alcan.

First, I should not assume that all of you are intimate with Alcan Inc. Let me give you the 30-second tour. The past five years have been a time of tremendous growth for us. We were a $7-billion company in 2000. By 2004, we had grown to become a $25-billion enterprise. Our growth has been fueled mainly by acquisitions, most notably algroup of Switzerland in 2002 and Pechiney of France in 2004.

At the end of last year, we spun off our rolled aluminum products division into a new $6-billion company, called Novelis.

Today, Alcan is a world leader in aluminum production, packaging, and engineered products with 70,000 employees in 55 countries. Our global headquarters is in Montreal, Canada where our company was founded 104 years ago. That makes us a youngster by London standards but, by Canadian and aluminum industry standards, we’ve been around a long time.

Our preoccupation with sustainability stems partly from our product. We are very fortunate to produce aluminum, one of the world’s most recyclable products. This puts a special pressure on us to ensure that our products are designed and manufactured in ways that maximize their recyclability.

The fact that we produce a sustainable product has helped our employees understand the logic and accept the responsibility of adopting a sustainability agenda throughout our operations. This is perhaps one of the reasons we have been able to drive a sustainability mindset quite quickly and consistently throughout such a large and geographically diverse organization.

Let me give you a few examples of how our sustainability mindset and determination to build relationships with governments, NGOs, and other stakeholders are helping us to identify business opportunities of mutual benefit in our far-flung operations.

Our facilities in British Columbia, Canada occupy land that is claimed as traditional territory by several First Nations. In the past, Alcan protected its rights in the face of unresolved land claims almost exclusively by legal means. In recent years, we have been consulting with First Nations, creating relationship-protocol agreements with them based on mutual respect, and entering into mutually beneficial business relationships with them.

Recently, three First Nations in the Nechako Watershed area – where the reservoir that feeds our hydroelectric station is located – signed the Three Nation Forest Stewardship Agreement with Alcan. Under this agreement, the three Nations will work together to harvest still-salvageable timber on Alcan-owned property around the reservoir. Forests in much of the B.C. interior have been ravaged by a pine beetle infestation and, while the trees still have commercial value if harvested in time, they have to be removed to halt the infestation. Through this program with Alcan, the three Nations will receive the economic benefit of the harvest and build their capacity for silviculture and forest management. Alcan will solve the problem of the pine beetle infestation on its lands. And local communities will benefit from an economic development fund which the three Nations will create with a portion of their earnings.

Another logging initiative of the Cheslatta First Nation, one of the Three Nations involved in the land-based project I just described, is underwater logging in the Nechako Reservoir. At the time Alcan built its huge hydroelectric and aluminum smelting facilities in B.C. back in the early 1950s, the timber on land flooded to create the Nechako Reservoir – with a surface area roughly the size of Belgium, by the way – was not considered valuable enough to harvest. So it was left standing when the water filled the reservoir.

For a number of years, Alcan engaged in the time-consuming process of clearing submerged timber for safety and navigational purposes … just along the edges of the reservoir and in boat-traffic areas. The wood was burned on shore to dispose of it. However, about 10 years ago, the Cheslatta demonstrated that this timber had been perfectly preserved under water – that it was, in fact, often higher quality than trees on land because it had not been exposed to the air. Alcan worked with the B.C. Ministry of Forests to arrange to tender rights to harvest the submerged timber. With underwater logging equipment provided to them by Alcan, the Cheslatta Resource Corporation won the bid and have since been licensed to harvest six million cubic metres of this highly desirable wood.

Early reservoir logging methods were slow, awkward, and posed some risks to the underwater habitat. Today, however, the Cheslatta have partnered with a B.C. company that has developed a remote-controlled underwater saw … faster, environmentally sound technology that has elevated trees from the Nechako Reservoir timber to the status of eco-friendly wood products. The Cheslatta are profiting economically and socially from the harvest. Alcan is able to ensure safer, more navigable conditions on the reservoir we control. And there are benefits for B.C. as a whole in terms of enhanced tourism values in a breathtaking part of the province.

An example from Cameroon … this one speaks to the need to examine management decisions across all three dimensions of sustainability in our dealings with stakeholders. Our Cameroon site came to us in a recent acquisition. Alcan’s EHS FIRST program to ensure World Class health, safety, and environmental standards is a requirement at all Alcan sites. Unfortunately, the Cameroon operation was nowhere near up to its standards.

There was an area outside the plant gates where slag from the production of aluminum was placed. Local villagers were accustomed to scavenging this for the recovery value of aluminum in the slag, at a fairly high risk of injury. By applying EHS FIRST principles, Alcan would have cleaned up the site for compelling environmental and social reasons, failing to take into account the economic impact … scavenging for discarded industrial materials was the only source of income for some of these villagers.

Our managers there understood the economics of the region and our community stakeholders and they integrated the environmental, economic, and social dimensions into their decision-making. Today, villagers continue to scavenge the slag but in clean, safe circumstances and wearing personal protective equipment provided by Alcan.

EHS FIRST has enormous potential to lead by example. Because we apply a high set of standards across the board – regardless of how little local law or regulation may demand – we can influence what others do. Last year, after becoming a 50% partner in a joint smelter venture in China, we successfully introduced EHS FIRST to our two Chinese partners, raising environmental and health and safety standards to World Class standards.

Management and employees at this smelter have embraced the new standards, are very proud of the leadership they have shown in the Chinese industry, and are better positioned to understand what is involved in developing a World Class aluminum smelter.

In Gladstone, Australia where we have a 41.4% interest in Queensland Alumina Limited, we have entered into a long-term partnership with the Gladstone City Council to use the city’s treated effluent for the final wash process in alumina refining. The treated effluent doesn’t affect the quality of our alumina, but its use conserves 14,000 megalitres a year of fresh water in a drought-prone region of the country.

At our Awaso bauxite mine in southwest Ghana, Alcan owns and operates a fully-functional hospital and clinic that provides care to our employees, their families, and the surrounding community. The thinking behind this facility and other health initiatives, like our HIV/AIDS management strategy in Cameroon, is that employee health issues are business issues. By contributing to the overall health of the community, our Awaso hospital is helping our employees and their neighbours build a more sustainable future. Our HIV/AIDS profile has dropped from 24% to under 3% of our employees … a performance that we successfully extended to the community through outreach and education programs.

Ironically, as we learn more and more about the business and strategic opportunities opening up to us through sustainability, we have some social and economic problems of our own industry’s making to contend with.

Commercially-viable aluminum production is not much older than Alcan. Those of us who have been in this game since the beginning have been in the painful process over the past couple of decades of retiring the first generation of aluminum smelters in favour of cleaner, safer, environmentally superior new smelters.

Why painful? Because, while the new technology is preferable from the perspectives of environmental stewardship and industrial health and safety, it has an impact on employment.

Typically, new smelters can produce more than twice the metal with less than half the people. And that’s an economic and social problem for aluminum-producing regions that have traditionally relied on an abundance of 24-hour-a-day, 365-day-a-year jobs.

In the Saguenay—Lac-St-Jean region of Quebec, North America’s most concentrated centre of aluminum production, Alcan has invested heavily in new smelting technology over the past 20 years. The result? A quadrupling of aluminum production capacity, and a close to 50% reduction in employment. How do we deal with that?

We work with our host communities to diversify the economic base of the region. We use the industrial infrastructure to attract new, secondary manufacturing businesses. Thanks to the combined efforts of Alcan and many other stakeholders, close to 800 new jobs have been created in the region over the past few years.

Or, as in the cases of former aluminum-producing regions that are not large enough to support today’s mega-smelters – Kinlochleven and Lochaber in Scotland, for example – we help our communities use their industrial heritages to transition to service economies, based on the great geography that brought Alcan to them in the first place.

Alcan does not abandon these communities. We work with them toward sustainable, if different, economic success.

Let me wrap up with a few words about the Alcan Prize for Sustainability.

Two years ago, we realigned our corporate sponsorships and donations – which we call Community Investment – to our sustainability platform. We view our Community Investment Program as a very visible expression to the outside world of what’s important to us.

Our criteria today for sponsorships and donations are based on the extent to which a proponent integrates the economic, social, and environmental dimensions of sustainability in a project or program.

To launch this new approach to corporate giving, we created the US$1-million Alcan Prize for Sustainability. The Alcan Prize is an annual award to recognize not-for-profit, non-governmental, and civil society organizations that are doing great work … every day, at the grassroots level … to make our world a better place.

It’s our way of emphasizing our belief that the goals of sustainability are best served when we all work together.

And, if the first year of the program is any indication, it has been a success beyond our initial expectations. The first Call for Entries for the Alcan Prize resulted in close to 500 submissions from 79 countries around the world. The Forest Stewardship Council was the inaugural winner – to my mind, a great first choice … although Alcan, by our own decision, didn’t have a vote. To ensure the credibility and objectivity of the Alcan Prize, we have entrusted its management to the IBLF and a globally-renowned panel of judges, with some 70 NGOs serving as regional assessors.

In establishing the prize, we knew it had to be long term to do real good so we committed to nine years of funding in its first cycle. We hope it will be around for a very long time to come.

I mention it tonight … not just because two U.K.-based NGOs are on the 2006 short list that we announced in Zurich last month … but because it is opening a new world to us. A world of potential partners, teachers, collaborators, and friends … many, if not most, of whom we would have had no exposure to, if not for the Alcan Prize.

We’re learning about sustainability initiatives that are taking place all over the world … some of them international in scope, some of them very local, all of them innovative and inspiring. This learning has tremendous value for us as an organization, in terms of improving our own approaches to sustainability and in the relationships, and new partnerships, we’re building in the NGO sector.

I hope it will make a difference in the world. I know it’s making a world of difference for Alcan. It’s about vision. It’s about leadership. It’s about innovating, letting go of old ideas and embracing new ones.

When we consider the examples we’ve discussed tonight, there can no longer be any serious doubts as to the significant influence business can bring to bear in improving the lot of people around the world … economically, socially, and environmentally.

At Alcan, as we discover more and more ways to do things better in our operations and in our relationships with the outside word, we’re finding substantial economic returns in the form of social license to operate, waste reduction and process efficiencies, shareholder confidence, customer retention, employee recruitment, brand, and reputation.

Alcan has been honoured with many awards and accolades in the past few years for our accomplishments in the practice of sustainability and social responsibility. It’s very gratifying to have our efforts recognized externally, but even more so to know that each accomplishment – each new lesson learned – makes us a better company.

Thank you for listening to the lessons we’ve been learning inside and outside of Alcan. I have only skimmed the surface of how business is redefining its role in society, and am delighted that we have a little more time together to explore any questions you may have.

Thank you.

More information:

• Download Business for Development - Business solutions in support of the MDGs ( 2.1 MB)

Author Travis Engen Publication Date 27 Oct 2005 Document Type Speeches Issue/Topic Business Role/CSR Development Mining & Minerals Region Europe Country United Kingdom Company BP plc. ConocoPhillips Eskom Holdings Limited GrupoNueva S.A. Holcim Ltd. Rio Tinto plc Royal Philips Electronics N.V. S.C. Johnson & Son, Inc. Unilever N.V. Event Birkbeck Lecture Series - London Source Alcan Include In RSS Business & Sustainable Development News