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Improving Sustainability at General Electric (GE)

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INTRODUCTION

The General Electric Company (GE from henceforth) is an American Multinational Conglomerate founded in 1892 by the merger of American Inventor Thomas Alva Edison's Edison General Electric Company and Thomson-Houston Electric Company .GE currently operates simultaneously in five diverse business sectors namely: Energy (e.g. oil and gas), Media (as NBC Universal in areas such as cable and film), Technology Infrastructure (e.g. Aviation and Healthcare), Home and Business Solutions(Appliances and Intelligent platforms) and Finance ( as GE Capital involved in both commercial and consumer finance). GE currently has businesses in about 160 countries and about 300,000 employees around the globe. The company's headquarters is located at 3135 Easton Turnpike, Fairfield, Connecticut, USA.

As a global conglomerate GE has had a controversial history with regards to air and water pollution dating back to the late 1940s and had always been a target of criticism from public officials and environmentalists in the US. However, things took a turn for the better when on the 9th of May, 2005 GE's CEO Jeffery Immelt announced the company's new environmental initiative called 'Ecomagination'. In Mr Immelt's words, the aim of the initiative is to "focus our unique energy, technology, manufacturing, and infrastructure capabilities to develop tomorrow's solutions such as solar energy, hybrid locomotives, fuel cells, lower-emission aircraft engines, lighter and stronger materials, efficient lighting, and water purification technology". As can be observed, the adoption of such an initiative was very bold especially given the large size of GE and it numerous businesses around the globe; nevertheless, the initiative was implemented across the entire company and is currently in its sixth year of operation.

As Ecomagination is GE's main sustainability programme, the documents retrieved from the company and used for the purpose of this workbook are in the form of "Annual Sustainability Reports" which are publicly available at the Ecomagination website (http://ge.ecomagination.com/report.html). The reports are currently available for the years 2005 to 2009 in PDF format and can be downloaded and viewed by the public.

IMPROVING SUSTAINABILITY AT GE

As mentioned in the introduction, GE has sought to quell criticism of its environmental records and improve its sustainability by implementing a company-wide sustainability initiative launched in 2005 called Ecomagination. The initiative encompasses an array of changes and commitments forming a broad strategy that is implemented with the aim of not just making GE a global leader in terms of sustainability, but also with the accompanying belief that commitment towards sustainable practices, products and services will give GE a competitive advantage and is therefore worth the effort and any initial costs.

In order to achieve its goals of becoming a more sustainable company and to increase their overall sustainability performance, GE through Ecomagination has committed to taking the following concrete steps:

Reduce water use and improve water reuse: As of 2006 GE's freshwater was totalling about 15.3 billion gallons and so the company announced its goal of cutting consumption by 20% by 2012. By 2009, GE's water usage was down 30% to about10.7 billion gallons which further prompted the company to set a modified goal of aiming for a 25% reduction by 2015. One way GE was able to reduce its freshwater consumption was by conducting 'Kaizen blitz water reduction events' at three of the largest consumption sites;according to GE reports, the Kaizan approach employs multi-functional teams tasked with spending a concentrated week studying water usage at a given facility with the ultimate aim of developing water reduction projects.

Double investments in clean Research and Development: At the launch of Ecomagination, GE committed to increase its R&D spending on clean technologies from about $700 million in 2004 to $1.5 billion by 2010; by the end of 2009 a total of about $5 billion had been spent on R&D for clean technologies which according to GE reports generated about $70 billion in revenue thanks to the new technologies and products from the Ecomagination initiative. In light of this, in 2010 GE announced a commitment to invest an additional $10 billion in Ecomagination by 2015.

Reduce Greenhouse Emissions and improve Energy efficiency of its current operations: At the launch of Ecomagination, setting 2004 as a baseline GE made a commitment to cut 1% of its greenhouse gas (GHG) emissions by 2012 and reduce the intensity of its GHG emissions 30% by 2008. As of 2011, GE has been successful in cutting GHG emission by 22% and also reduced the intensity of its GHG emissions by 39%. According to GE reports, overall energy intensity has improved by 34% and the company hopes to improve by up to 50% for all its operations by 2015.

Increase revenues from Ecomagination products: In 2009, revenues from Ecomagination grew by 6% to about $18 billion despite the financial crisis. GE projects Ecomagination revenues to continue to grow at double the rate of total GE revenues in the next five years and eventually account for a larger proportion of total sales.

Communicate with the public: GE has resorted to keeping communication channels open and also engaging more with the public regarding Ecomagination efforts. For example, as part of its $200 million innovation experiment, the company announced the 'Ecomagination Challenge' running from January to March which encourages entrepreneurs, students etc. to present ideas for future clean energy technologies with the top 5 entries to be awarded $100,000 each.

GE's STAGE OF CORPORATE SUSTAINABILITY

Employing the concept of the 'Six phases of corporate sustainability' as mentioned by Dexter Dunphy and Jodie Benveniste in their book entitled 'Sustainability: The Corporate Challenge of the 21st Century', one would place GE in the 'strategic sustainability'. Specifically, GE is a HS5 in terms of Human Sustainability and simultaneously an ES5 in terms of Ecological sustainability.

The justification for place GE in the HS5 category of the strategic sustainability phase has to do with the fact that as a company GE has a well-documented history of human development and training programmes that is part of the GE culture. At the centre of this is John F Welch (Jack) Leadership Development Centre established in 1956 and named after Jack Welch the famous ex-CEO of GE who believed in the principle that a company was only as good as it people. Currently GE invests about $1 billion annually on training and education programmes for GE employees. Now, it could be argued that given GE's long standing commitment to Human sustainability, one should place them as a HS6 (Ideological Commitment Phase); this argument is debateable and for the purpose of this workbook, GE is placed as a HS5 because even though it scores high on development and training, its policies are very strict and its culture very competitive which has led to the consistent termination of the underperforming 20% of its workforce. As a result one could argue that although GE invests much in its people, its culture does not put too much effort in aiding underperformers and simply cuts them off.

On the other hand, in terms of Ecological sustainability GE is labelled as an ES5 thanks in large part to the launch of its Ecomgination initiative in 2005. Given the fact that GE is over a century old, its decision to make sustainability in 2005 was bold and historic one and going into the future, one can expect the initiative to be implement across all its business around the globe due in large part to its very strong culture. Put in perspective, as a company GE has progressed through a long phase of active antagonism in its early years, through the indifference phase for most of the 80s and 90s before finally making a strong commitment in 2005 with the announcement of Ecomagination. Recently GE has been very active in the area of sustainability from cutting emissions and water usage to investing in clean technologies and seeking ideas from the public, the company has been ranked on various indices as one of the top five sustainability leaders over the past five years. Also the argument could be made that GE should be labelled as an ES6, while true, the fact is that given the large size of a company like GE and its numerous businesses in diverse sectors across the globe its sustainability polices will need time to be fully implemented and assessed.

GE's COVERAGE OF ENVIRONMENTAL DIMENSIONS

CLIMATE CHANGE: Taking into account the large size and global reach of GE as a company, climate change can be highlighted as a key issue that poses a challenge for GE moving forward. In light of this fact, as part of the Ecomagination initiative GE has been able to successfully cut its GHG emissions by 22% and also reduced its GHG intensity by 39%, using 2004 as a baseline. Figure 1 below shows the distribution of operational GHG emissions by GE in 2009 according to type :

Source: GE GHG Inventory

As observed 85% of their emissions are made up of CO2 while 13% are consist of HFCs which are usually emitted during foam-blowing operations at its refrigerator manufacturing plants, in total they accounted for approximately 98% of GE's emissions in that year.

In order to tackle the problem GE has established a GHG inventory modelled after the World Resources Institute/World Business Council for Sustainable Development (WRI/WBCSD) protocol. Going by this inventory GE employs the 'control' approach which accounts for GHG emissions over which the Company has control; the protocol is subdivided into three scope categories namely: Scope 1 which accounts for direct GHG emissions from sources under the control of the reporting company, Scope 2 which accounts for indirect emissions imported or purchased electricity, water or steam and finally Scope 3 which accounts for indirect emissions which result from a reporting company's activities but occur from sources belonging to another entity.

WATER: As was highlighted earlier on, from 2006 to 2009 GE successfully cut its freshwater consumption by 30% and is on pace for an additional 25% reduction by 2015. . This was achievable through the installation of GE sensing ultrasonic flow meters which was installed at the largest water consumption site. The sensors provided a more accurate measure of the total flow from 2006 and led to the discovery of an overestimation of about 2.2 billion gallons from the figures previously calculated. In addition, more concrete steps were taken to address water usage such as the replacement of single-speed pumps with new variable frequency drive pumps, improved valve operation and as well as the previously mentioned the running of Kaizen blitz water reduction events to name a few. In addition, GE currently has a project underway aimed at reducing its global water usage by about 5%, the project is running at one of its US plants and employs the use of GE water & process technology equipment in the form of nanofilteration and ultrafilteration technologies to recycle and reuse water.

In addition, GE has also established a water inventory protocol based on the previously mentioned WRI/WBCSD GHG protocol. As a feature of this, GE employs a 'control' approach and accounts for freshwater use at so called 'criteria sites'. The criteria sites are simply any GE sites that use a total of 15 million gallons or more annually from a 2006 baseline and subsequently.

Quality assurance is another measure by GE that has been implemented with the aim of increasing the accuracy of the water use inventory and eliminating and accounting for errors.

WASTE MANAGEMENT: In regards to waste management GE gathers data for all of its operations that generate more than 100 metric tons of hazardous waste and/or more than 500 metric tons of non-hazardous industrial waste. Currently there are three broad schemes put in place to specifically address waste management.

The first is the 'Waste Site Qualification Programme (WSQP)' which ensures that waste generated by GE is taken through recycling, treatment and disposal facilities that meet GE rigorous environmental and safety standards. The standards require waste management sites to improve their facilities beyond set local standards in order to gain GE approval because GE sites can only use GE approved facilities regardless of the amount of waste they generate. As of 2009 the WSQP programme has been expanded to about 500 GE manufacturing locations globally.

Next in GE's waste management scheme are 'reportable spills' through which GE tracks any spill on or from a site that is reportable to regulatory authorities. As of 2005 GE divided the spills into spills/releases to water such as lake, ocean etc. and spills/releases not to water consisting of any other kind(s) of spills.

Lastly, GE has an operational leaders Environment, Health, Safety (EHS) training manuals that provide information on how to identify waste reduction opportunities through the use of lean manufacturing technologies.

GE's CONTRIBUTION TO WIDER ECONOMIC PERFORMANCE

WAGES AND BENEFITS: With GE currently operating in more than 100 countries around the globe, the company is very active in terms of job creation and employee development. As shown in Figure 2 below, taking into account its total global workforce of about 300,000 people in 2009, about 154,000 people were non-US showing its interest in hiring and developing local people.

Source: GE Metrics

In addition, GE provides benefits to it employees beyond their normal salaries that is aimed at ensuring heir financial security. It provides a variety of benefit packages to eligible employees across its various businesses around the globe such as retirement and health benefit plans that cover employees and their families. According to GE data, it currently has an assortment of pension plans that provide cover for close to 635,000 employees and retirees around the globe.

SHARE VALUE AND RETURN ON INVESTMENT: An examination of GE's stock price from the 1st April, 2010 to 1st April, 2011 shows an increase of about a $2 rise from $18.33 to $20.34 signifying an increase in value for shareholders in spite of the recent recession. Also GE's financial statement at the fiscal year ending 2010 shows the company made a gross profit of over $11 billion, once again confirming the fact that it is providing investors a significant return on their investments.

GOVERNMENT TAXES AND FEES: In addition, GE also paid out close to $1 billion in income taxes to the government.

USE OF LOCAL SUPPLIERS AND SUPPORT FOR LOCAL BUSINESSES: In an effort to enhance its supply chain management, GE launched a 'Supplier Diversity Programme' in 1974. The aim of the programme is to engage diverse groups of suppliers in order to enhance economic opportunity; according to the GE the core components of the programme are National Minority Development Council, Women's Business Enterprise National Council and a host of state and local development councils.

Source: GE Metrics

Figure 3 above shows a 2009 distribution of GE's assessments of potential suppliers by region, its findings and the categories of its finding based on the issue(s) of concern. According to reports, GE employs and 'eyes always open' approach in terms of assessment by investigating concerns raised by external sources such as the press reports and pursuing corrective measures immediately.

SUSTAINABLE OF PRODUCTS/SERVICES

According to GE's 2009 Ecomagination report, revenues grew by about 6% to $18 billion courtesy of products launched under the initiative. GE currently uses an Ecomagination Product Review (EPR) to determine not only which offerings are included in the Ecomagination portfolio but also to ensure that the products improve customers' value proposition and environmental performance. In addition, GE has developed a process for what it terms 'New Product Introduction (NPI)' which focuses on consumer needs and views environmental performance as a key customer priority. This exemplifies GE's cradle to grave approach of being a responsible corporate citizen by not focusing solely on commercial factors but also environmental and health impacts of their products and services.

As a global conglomerate, GE is involved in the provision of a diverse set of products and services from appliances and aviation to healthcare and financial services.

As Figure 4 shows below, most of GE's revenue is derived from offering financial services through GE Capital and as such most people even label it as a financial company with a manufacturing arm.

Source: GE Metrics

The manufacturing arm in the form of the provision of technology infrastructure is another of GE's significant business units and perhaps the most well-known.

Taking these facts into account, this workbook will focus briefly on how these two major GE businesses (GE Capital and GE Technology Infrastructure) and their products could be made more sustainable.

GE Capital: As mentioned earlier, GE has invested significantly in cleaner technologies and is also involved in financing and providing loans to support external businesses with a focus on innovative and sustainable practices and products. In an effort to make GE Capital more sustainable, GE could gradually consider putting more resources in telecommuting; by doing this there will be less need for large GE buildings and offices around the globe. In addition, it could lead the way by installing most of the innovative technologies derived from its Ecomagination initiative at its GE Capital offices.

GE Technology Infrastructure: As GE's major manufacturing arm has made significant gains especially by focusing on the production of more sustainable products via the Ecomagination initiative. As a global manufacturing force with most of its products available in a range of places such homes, airports, banks and schools to name a few, GE has a great avenue to influence a global shift to the use of more sustainable products. GE can also improve this business unit, by making a conscious effort to minimize emission, water usage and improving waste management. There is no doubt that this is probably the division with the most sustainability concern due to the nature of the operations involved in the production process, as such GE would do well to also invite external evaluators to assess its plants and provide more sustainable solutions to enhance its production process.

ETHICAL CULTURE

GE is well known for its strong company culture and its integrity policy is laid out in a document entitled 'the spirit and the letter' which all employees are required to pledge to and sign. This is accompanied by an ombudsman process that allows employees to raise and report ethical concerns with impunity.

GE's integrity policy covers the following parties: Directors, Employees, Officers, Subsidiaries and Controlled Affiliates, Non- Controlled Affiliates and all Third parties representing GE.

Specifically, all employees are expected to understand GE's policies and are obligated to raise any concerns they have while leaders are obligated to prevent compliance issues from arising, detect them when and if they arise and respond to them expediently.

From close examination, one can observe that GE's integrity policy is quite plain and easy to understand, it is specific and detailed as it lays out the following:

The parties bound to the policy.

What is expected of the parties in terms of compliance and their obligations

An exhaustible list of various channels and steps to be taken in terms of reporting concerns.

It explains how and when the process will be carried out

The penalties involved when the policy is violated

And most importantly a bold statement that prohibits and punishes any form of retaliation against those who raise concerns.

The integrity policy covers a broad range of parties and lays out in details how those parties are to be treated and how related ethical concerns are to be treated. A snapshot of this is a follows:

Employees: With regards to its staff, their rights, obligations and expected conduct is laid out at the beginning of the integrity policy. For instance, employees are encouraged to raise concerns early, they also have the right to remain anonymous but can choose not to, their confidentiality is respected and most of it is clearly emphasized that retaliation is prohibited.

Customers: Regarding the treatment of customers, all forms of improper payments are prohibited and guidelines are provide on how to deal with various potential scenarios; however, reasonable expenditures and gifts are acceptable but subject to corporate guidelines.

Suppliers: GE's suppliers are also expected to abide by lawful guidelines such as fair work practices and quality standards. Overall, they are expected to abide by national laws and regulations and also ensure the safeguarding of confidential information.

Wider Community: GE's integrity policy also provides guidelines for dealing with governments, preventing money laundering, safeguarding clients' privacy, ensuring fair competition and dealing with local communities. The policy is very specific and provides clear expectations and steps on how to deal with the aforementioned members of the wider community.

It is evident that GE has parlayed it long experience in doing business around the globe into creating an ethical code of conduct that is unambiguous and rigorous in addressing all stakeholders in its businesses around the world.

KNOWLEDGE REVIEW -

FEATURES OF EFFECTIVE SUSTAINABILITY MONITORING SYSTEMS

The issue of sustainability has become more serious and highly debated in recent times, given the large amount of companies that claim to be committed to sustainable practices and products, this section will provide an annotated bibliography that reviews the features of effective sustainability monitoring systems. By doing this, the aim is to gain perspectives from experts in the field of sustainability that lay out what effective sustainability monitoring systems should contain and as such provide use with a set of requirements with which to assess the currents systems being implemented by various companies today.


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