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									                                                                Environmental Scorecard      1



Running Head: ENVIRONMENTAL SCORECARD




                Towards a Model to Measure Environmental Sustainability:

                         The Hospitality Environmental Scorecard




     Andrew Moreo, M.S. Candidate, Hospitality Information Technology Management

 Frederick J. DeMicco, Ph.D., Department of Hotel, Restaurant and Institutional Management

                                The University of Delaware
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                      Towards a Model to Measure Environmental Sustainability:

                                The Hospitality Environmental Scorecard

                                                  Introduction

       The environment has been a concern for some Americans back to the 1800’s. John Muir

founded the Sierra Club in 1892 (John Muir information page, n.d.). He was also crucial to the

foundation of the National Park Service in 1916(When Did NPS Begin?, n.d.). The Nature

Conservancy was later formed in 1951 (About Us, n.d.). These organizations and government

agencies along with many others have been doing their part to conserve and preserve the

environment in which we live. However, until recently environmental concerns have taken a

backseat to economics, and have, in fact, only recently been making their way to the forefront of

the minds of the worlds’ business leaders. This was evidenced by the many concerns of some of

the worlds’ leading businessmen and women at the World Economic Forum Annual Meeting in

January of 2007 held in Davos, Switzerland (Annual Meeting, n.d.). Although not the only topic

of interest, environmental concerns wove their way into many other areas of interest.

       Released shortly after the end of this conference, the Intergovernmental Panel On

Climate Change made an unprecedented announcement. According to Rosenthal and Revkin

(2007): “… (The Intergovernmental Panel on Climate Change) has concluded for the first time

that global warming is ‘unequivocal’ and that human activity is the main driver, ‘very likely’

causing most of the rise in temperatures since 1950.”

       In the report Contribution of Working Group I to the Fourth Assessment Report of the

Intergovernmental Panel on Climate Change: Summary for Policy Makers (2007), working

group I states:

                  Global atmospheric concentrations of carbon dioxide, methane and nitrous oxide have increased

       markedly as a result of human activities since 1750 and now far exceed pre-industrial values determined
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        from ice cores spanning many thousands of years. The global increases in carbon dioxide concentration are

        due primarily to fossil fuel use and land use change, while those of methane and nitrous oxide are primarily

        due to agriculture. (p.2)



The report goes on to say that the panel can state with: “…very high confidence that the global

average net effect of human activities since 1750 has been one of warming…” (p.3). Since this

report’s publishing, there has been a dramatic rise in the attention to all things “green” in the

media. It appears that many businesses are trying to become more environmentally friendly

while remaining financially competitive (Lagace, 2002).

Affects on Tourism

        The following sections have been taken from Cetron and DeMicco’s Go Green, Earn

More Green, an unpublished manuscript. It has been used with the permission from the authors.

        In general, the travel industry creates relatively little in the way of greenhouse gases.

Britain, a prosperous island nation that is both source and destination for much long-distance

travel, estimates that the industry produces only about 5.5 percent of the country’s carbon

emissions. France, where the travel industry may be even more important, puts the number at

about 10 percent. These are the highest peaks in generally low terrain.

        By far the largest travel-related source is aviation. Estimates vary, but most scientists say

that flight produces somewhere between 2 and 3 percent of greenhouse emissions. Only half of

that is related to travel and tourism; the remainder comes from cargo flights.

        By contrast, the shipping industry produces at least twice as much CO2 and methane, but

cruise lines and other passenger carriers create only a tiny fraction of it. Again, cargo is

responsible for the rest. Of course, even if cruise lines release relatively little in the way of

greenhouse gases, whenever emissions controls are eventually enacted for cargo ships almost
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certainly will apply to them as well. And if travel is not responsible for global warming, it is

likely to get hit hard by rising temperatures.

       Thus far, the problems are most visible in ski country. According to the Swiss Academy

of Sciences, 75 of the country’s 90 glaciers receded between 2003 and 2005, and the loss

continues. The Gurschen glacier is disappearing so rapidly that the Andermatt ski-lift company

covered part of it with a reflective blanket to keep the ice from melting away beneath the resort’s

upper cable-car station. The glacier has thinned by 20 meters over 15 years, forcing the resort to

spread snow over it so that skiers can get from the ski lift to the runs.

       Last December, nearly half of Switzerland’s ski areas were snow less, like their

colleagues in Vermont and New Hampshire. The Organization for Economic Cooperation and

Development recently studied the likely effect of global warming on the alpine ski industry.

According to its report, with a rise in global temperature of 4 degrees Celsius—within the level

expected in this century—about half of the country’s resorts could no longer rely on enough

snow to attract skiers. At least 13 would be forced to shut down. In Germany, with even a 1-

degree rise 60 percent of the country’s ski areas would no longer be “snow-reliable.” Banks in

Switzerland already are refusing to lend to ski areas located below 1,500 meters.

       In the United States, a study at the University of Vermont found that a modest rise in

temperature could actually bring in 10 to 14 percent more visitors to Rocky Mountain National

Park by 2020. That would mean an extra $40 million or so to the local economy and as many as

1000 new jobs. However, more warming would discourage visitors and reduce local income and

employment.

       The situation is even worse in Australia, where tourism is one of the country’s largest

export industries, worth more than $18 billion in the 2004-‘05 season. The Great Barrier Reef,
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the country’s most important natural attraction, brings in nearly one-fourth of that income and

supports some 800 tour operators. In recent years, high ocean temperatures have begun to kill the

corals that make up the reef. In 2002, 60 percent of the reef area examined was bleached; that is,

the coral was dead or dying. Researchers estimate that by 2050 more than 95 percent of the reef’s

coral will be dead. In a survey conducted at James Cook University, two-thirds of tourists said

they would be unlikely to visit the region without the reef to attract them.

       Other important Australian tourist sites also are expected to suffer from global warming.

Kakadu National Park attracts about 200,000 visitors annually. Rising sea levels due to global

warming are expected to threaten 90 percent of the park’s coastal freshwater wetlands,

endangering the habitats of the hundreds of species of birds, reptiles, and amphibians that the

tourists come to see. And with a rise of even 1 degree Celsius—a level now considered to be

more or less inevitable—the highland rainforest of North Queensland would shrink to half its

size. Again, rare species could be lost, and with them an important source of tourism.

World Wide Initiatives

       Thus far, three countries—Scotland, New Zealand, and Tunisia—have committed

themselves to becoming carbon-neutral. That is, in the future they will emit no more carbon into

the atmosphere than they can remove from it. These plans rely heavily on the idea of “carbon

offsets.” For example, when a new electric generating plant is built, the owner would be required

to plant enough trees—often in some far distant part of the world—to absorb as much carbon

from the atmosphere as the plant will emit. Alternatively, the firm might subsidize construction

of wind turbines or some other environmentally friendly power system to generate electricity

elsewhere without releasing carbon.
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        Scotland and Tunisia both have stressed the role of tourism in meeting their zero-carbon

goals. Scotland is encouraging travel companies to reduce their carbon emissions or buy offsets,

at the details remain vague and it seems that any reduction programs will be voluntary. Tunisia

now requires an environmental impact assessment for any new hotel development. Existing

hotels received a 20 percent subsidy for energy audits, and for installation of solar energy

systems. Fifty hotels have begun to install solar power under the program.

        New Zealand Prime Minister Helen Clark in February 2007set a national goal of

becoming the world’s first greenhouse gas-neutral country. Among her specific commitments

were a decision to replace 3.4 percent of fuel sold in the country with clean-burning biofuels by

2012 and a campaign to help households cut waste and save energy. In addition, the government

will work to cut its own fuel bills, make its buildings and transportation more energy-efficient,

and use only recycled paper and other environmentally friendly products.

        The British government is committed to generating 10 percent of the country’s electricity

from renewable resources by 2012. However, the program reportedly is well behind schedule.

Even China appears to be coming around. When the Kyoto Accord was negotiated, China fought

hard, and successfully, to exempt developing countries—including, especially, itself—from

curbs on carbon emissions. More recently, Beijing has become worried that climate change will

reduce the fertility of its farming regions and make it even more difficult for the country to feed

its vast population. Now that China itself is about to become the world’s largest carbon emitter, it

clearly needs to accept some curbs during renegotiation of the Kyoto Agreement, which expires

in 2012. Given its newfound concern for the environment, it may even be more willing to accept

them.
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       But the biggest pledge thus far comes from Sweden, which plans to be the world’s first

oil-free economy by 2020. The country of 9 million people has a major head start over most

other countries. Only 32 percent of its energy came from oil in 2003, while 26 percent came

from renewable resources. Future improvements are intended to rely on locally produced

biofuels, rather than nuclear power or distant offsets.

       There is another approach to reducing greenhouse emissions: the carbon tax. Tax carbon

emissions heavily enough and it becomes cheaper for companies to install antipollution

equipment or switch to cleaner fuels. Governments can use the proceeds to promote renewable

energy development, or just to support their general activities.

       Carbon taxes have been most popular in the Nordic countries. Sweden, Finland, Norway

all introduced them in the 1990s. So did the Netherlands.

Sweden’s tax is typical. It was enacted in 1991. Sweden enacted a carbon tax in 1991, with a

starting rate of 0.25 SEK per kg., or US$100 per ton. It applied to oil, coal, natural gas, liquefied

petroleum gas, gasoline, or aviation fuel used in domestic transportation. Industrial users paid

half that rate for their fossil fuels, and some high energy industries, such as manufacturing and

paper, were exempt. The tax rate was raised by 50 percent in 1997.

       Britain in early 2003 set a goal of reducing its greenhouse gas emissions by 60 percent no

later than 2050. As part of that program, it recently raised the tax on airline flights from £10 to

£40 (US$19 to US$76) in the hope of reducing CO2 emissions from air travel. There’s some

doubt about how much the tax will have, as the island nation relies on air travel for most of its

long-distance transport. However, it does make an important point for the travel industry: if air

travel is a relatively minor contributor to greenhouse warming, it is at least a very conspicuous

one and vulnerable to antipollution measures that may be more painful than justified.
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       Thus far, the United States has done precious little to control global warming. Thus far,

the environmentally conscious college town of Boulder, CO, has the nation’s only carbon tax.

Adding an extra US$16 per year to the average home electric bill and about US$46 for

businesses, the tax will be used to support energy efficiency programs for area homes and

businesses and for city government operations. It is expected to bring in some US$6.7 million by

2012. At that point, city officials hope to have saved 350,000 metric tons in carbon emissions.

The ultimate goal is to reduce Boulder’s carbon levels to 7 percent below those in 1990 and 24

percent below those of 2006.

       If carbon taxes remain unpopular in the United States, other curbs on carbon emissions

have been gaining a surprising amount of support from some unlikely seeming quarters. After

years of resistance, three major energy trade associations have joined the AFL-CIO in favor of

mandatory federal limits on CO2 and other greenhouse gases. They include the American Gas

Association, the Edison Electric Institute, and the Electric Power Supply Association. Members

of the Edison Electric Institute generate about 60 percent of the electricity in the U.S.

        Instead of backing a carbon tax, the associations have put their weight behind a federal

cap-and-trade system. At least five such schemes have been proposed, but they all would limit

the amount of greenhouse gases and electric companies are allowed to emit. Firms that produced

less pollution than they were allowed could sell their excess allotment to companies that

produced too much. It is beginning to seem likely that some such plan could be enacted this year.

       A number of states have gotten well ahead of the federal government in reducing

greenhouse gas emissions by the power industry. A regional cap-and-trade plan is already in

effect at the state level in New England and New York. In addition, six Western states recently
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announced plans to establish their own program in the near future. They include Arizona,

California, New Mexico, Oregon, and Washington.

       However, a federal plan could have a significant impact on greenhouse gases throughout

much of the United States. Twenty-five states get 50 percent or more of their electricity from

coal-fired power plants, and none of them belongs to one of the regional pollution-reduction

plans. Washington seems to offer the best hope of controlling emissions in these states.

       A national-and-trade plan could have a substantial impact on energy users as well. Thus

far, no one is sure how much current antipollution proposals would add to the cost of electricity.

Estimates range from about 3.5 percent for the least restrictive of the schemes now under

consideration to 35 percent for the most aggressive. For large-scale energy consumers such as

hotels, restaurants, resorts, and casinos, those new bills could really add up.

Industry Action

       The travel industry’s best-known response to global warming is clearly Sir Richard

Branson’s offer—announced at London’s giant World Travel Market exposition last year—to

spend US$3 billion to fight the problem. That represents all the profits from Virgin Atlantic,

Virgin Trains, and his other travel operations for the next ten years. Of that sum, US$25 million

will go to scientists who find a way to remove excess carbon dioxide from the air. To win that

prize, someone will have to devise a way to extract at least 1 billion tons of carbon gases from

the air each year for ten years. And it’s not enough simply to have a brainstorm; the scheme must

be put into action. US$5 million of the prize will be awarded when the decade of CO2 removal

begins, the remainder at the end. Another US$400 million will go to start Virgin Fuels, a new

company devoted to developing alternative energy sources like solar and wind power, and
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especially cellulosic ethanol. In all, Branson announced last August, he will spend US$1 billion

on alternative energy over four years.

       In 2006, Sir Richard also helped found an organization called Sustainable Aviation. Its

goals are to improve aircraft fuel efficiency in the UK, reduce CO2 emissions and jet noise by 50

percent, and cut nitrogen oxide emissions by 80 percent, all by 2020. That could have a

substantial impact on the world’s future burden of greenhouse gases. The average airliner today

dumps one tone of CO2 into the air for every 4000 miles that it carries a single passenger. If

aviation is responsible for only 2 percent of emissions today, both tourism and trade are growing

rapidly. British authorities say that aircraft related emissions will grow from 5.5 percent of the

total to 25 percent by 2050. And by 2025, as international trade grows, emissions from shipping

are expected to rise by 75 percent.

        However, many travel-related businesses, and individual travelers, have decided not to

wait until someone else solves the problem of global warming. They are taking small-scale

action on their own. Many tour operators are either going green or setting-up green-oriented

travel programs. These include REI Adventures, whose Carbon-Neutral Travel program buys

renewable energy credits to offset the carbon dioxide produced by flights and ground transport

during vacations booked with them, and Ecoventura, a carbon-neutral adventure company in the

Galápagos Islands.

       In the United States, ski areas understandably panicked by the threat of snow less winters

have decided to go carbon neutral. Vail, in Colorado; Stratton, in Vermont; and many others

throughout the country will be buying renewable energy credits to offset the emissions used from

the fossil fuels to generate their energy. These credits will support clean energy production

elsewhere.
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       Online discounters Expedia and Travelocity both have set up programs to let travelers by

carbon offsets. Expedia charges US$5.99 to offset about 1000 pounds of carbon dioxide, the

amount emitted by an airliner as it carries a single passenger on a round-trip flight of up to 2,200

miles. Offsets for flights up to 6,500 miles cost $16.99, while $29.99 is enough for an

international flight of up to 13,000 miles.

       Many other plans rely on planting trees to offset the greenhouse effect of aviation and

ship travel. According to the National Resource Defense Council, it takes three trees to absorb

the greenhouse gases emitted by a typical airliner flying 4,000 miles. One tree takes care of the

CO2. The others compensate for nitrogen oxide and water vapor.

At least four carbon offset programs for travelers have been established in the United States

alone. They include:

      Native Energy: A for-profit operation setup by the Intertribal Council on Utility Policy,

       an organization that promotes wind and solar energy among the Native American tribes

       of the Great Plains and Alaska.

      Carbon Fund: A nonprofit group that invests in energy efficiency, solar energy, wind

       farms, and reforestation projects.

      TerraPass: A profit-making operations that runs in Expedia’s offset program, among

       others.

      And the Conservation Fund’s nonprofit Go Zero Program, which markets offsets for

       Travelocity and other firms.

According to at least one study, just the nonprofit offset programs may do a better job of

directing cash to fight global warming than their for-profit peers. One profit-making offset firm

the researchers examined passed along less than 45 percent of its income to alternative energy
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projects. The remainder went to overhead than corporate profits. The nonprofit program

examined in the study spent fully 93 percent of its income on energy offsets.

       Hotels have also found opportunities to make themselves more green. These include

replacing incandescent light bulbs with long-lasting, energy-efficient fluorescents and upgrading

appliances to modern, energy-sparing models. The Marriott hotels, among others, began that

process years ago. For uses like “EXIT” signs and emergency lighting, LEDs use still less

energy; they are now being installed in train and subway stations throughout the United States.

Even something as simple as putting lids on the pots in the kitchen can save an estimated 25

percent of the energy used to prepare meals.

       There is a lot of room for saving. According to one study, the average hotel in

Switzerland produces 93 tons of CO2 each year. Of the country’s 6,000 hotels and health spas,

only 20—less than half a percent—have earned certification for being environmentally friendly.

The average hotel consumed 20 percent more heating oil and 45 percent more electricity than

Swiss officials believed they could.

       Saving energy can bring other benefits as well. Going green can attract business from

environmentally concerned guests. According to David Warnes, of the Winnock Hotel, on the

east shore of Scotland’s Loch Lomond, they had £18,000 of business in the last year as a result

of our Green Tourism Business Scheme membership. In fact, over 30 percent of travel firms

belonging to the GTBS, a Scottish environmental program, report that their profits are up as a

direct result of joining the scheme.

       The previous sections have been taken from Cetron and DeMicco’s Go Green, Earn

More Green, an unpublished manuscript. These sections have been used with the permission of

the authors.
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The Purpose: The Environmental Scorecard

          The projects being undertaken by both government and industry leaders all need a

method for measurement. The success of a project can only be determined through

measurement. The purpose of this paper was to develop a tool called the Environmental

Scorecard (ESC) with which managers, executives, board members, and share holders, could

quantify the environmental and financial impact of the company as a whole, as well as specific

environmental initiatives undertaken by the company. The balance of this paper will describe

how this tool was modeled after Kaplan and Norton’s (1992) Balanced Scorecard (BSC). And,

how the ESC could fit into the strategic model known as the coalignment model as presented by

Olsen (n.d.). This paper will provide further evidence of environment concerns as a force

driving change in the business world. Finally after a discussion of a sampling of the initiatives

that the hospitality industry is implementing, the Environmental Scorecard will be reviewed in

detail.

                                         Literature Review

The Balanced Scorecard

          Kaplan and Norton (1992) presented the need of senior executives to have not only

financial measures but operational measures as well. They argued that businesses only act upon

and influence what it measures. They identified that during the industrial era purely financial

measures were acceptable for evaluating a company’s health. However in today’s business

climate those financial measures did not adequately represent the vitality of a company. To that

end they developed the Balanced Scorecard system, which provided for measurements of a

company from four perspectives: financial, internal business, innovation/learning, and customer.

In each of these perspectives goals and measures would be developed internally by companies
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for self evaluation. By implementing the BSC executives could embrace a global perspective of

the company including both tangible and intangible components.

       It will be argued later in this paper that because of the increasing importance of the

environmental concern, an environmental perspective should be added to the BSC. The

Environmental Scorecard (ESC), the tool presented in this paper, is formatted in the same way as

the BSC. It will have goals and measures of those goals from both an environmental perspective

as well as a financial perspective. Both the BSC and the ESC have the potential to be

incorporated into the coalignment model as systems of measurement.

The Coalignment Model

       Olsen (n.d.) presented the coalignment model as a strategic structure by which events in

the world, the firm’s strategic choices, the firm’s structure and the firm’s performance should all

be in alignment to provide maximum benefit to share holders. It is in the final step, the firm’s

performance, where the ESC would have its greatest impact.

       In the first stage of the coalignment model management should scan the environment

searching for forces driving change, also known as trends. These trends will often create

opportunities and threats to which the company must then react. Olsen further categorizes and

subcategorizes the environment into: remote: economic, political, socio/cultural, technological,

and ecological; task: customer, supplier, competitor, and regulator; firm: major competitors in

local markets; and functional: finance, marketing, human resources, administration, operations,

and research & development. Through scanning all of these different areas, Olsen suggests that

management should be able to identify the major forces driving change, as well as estimate the

size and the timing of the effects those trends will have on the company. There is evidence in
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many of the categories stated above that environmental concerns are becoming a force driving

change.

          In the remote environment there is an abundance of evidence, a small sampling of those

articles will be presented. As stated in the introduction there is an Intergovernmental Panel on

Climate Change (Rosenthal and Revkin, 2007) which provides evidence of political concern for

the environment. The presence of environmental topics and concerns at the World Economic

Forum in Davos, Switzerland in 2007 provides evidence of both political and economic concerns

(Annual Meeting, n.d.). Tzschentke, Kirk and Lynch (2004) provide evidence that the service

industry is showing an interest in environmental practices and accreditation schema, which is

further economic evidence.     There is, of course an abundance of socio/cultural evidence.

According to www.democracynow.org, the Step It Up organization sparked a nation wide rally

on April 14, 2007. It was said to have been the largest ever demonstration against global

warming (Step It Up: Thousands Gather this Weekend for Largest Ever-Rally Against Global

Warming, 2007). Further socio/cultural evidence can be provided by the multiple website

containing carbon footprint calculators, which allow individuals and families to determine how

much CO2 they put into the atmosphere. The Nature Conservancy at www.nature.org, British

Petroleum at

http://www.bp.com/extendedsectiongenericarticle.do?categoryId=9008204&contentId=7015209

&BPLinkTrace=1604280000, Carbon Footprint at

http://www.carbonfootprint.com/calculator.html, and An Inconvenient Truth at

http://www.climatecrisis.net/takeaction/carboncalculator/, are all providing this service. There is

even evidence it the world of IT, according to McGee (2007) that companies are looking for

ways to maintain their computing power while reducing their energy usage from cooling the
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hardware. Even the big blue chip company, IBM, has created a partnership with The Nature

Conservancy on a project to help government officials, industry leaders, and land owners make

better informed decisions about river usage (Hamm, 2007).

       In addition to the evidence in the remote environment there is also substantial evidence in

the task environment. According to a survey by TripAdvisor (2006): “Thirty-eight percent of

respondents said that environmentally-friendly tourism is a consideration when traveling” (p.1).

They further state that thirty-four percent of travelers would pay higher rates to stay in a more

environmentally conscious property. This is evidence that the time is coming when being a

‘green’ property will be a competitive method or competitive advantage ( a method for a

company to attract customers and differentiate themselves from the rest of the market). One such

hotel is the 133 room Gaia hotel in American Canyon, CA. Wen-I Chang plans to build a total

of eight hotels, all attempting to be certified “Gold” level of Leadership in Energy and

Environmental Design (LEED) by the U.S. Green Building Council (Tate, 2007). There are even

large brands taking environmental initiatives such as Marriott and Fairmont to name two.

According to Rebecca Little (2007) Chateau Lake Louise, a Fairmont Hotels & Resorts property,

meets 40 percent of its electricity needs through green power. According to the Environmental

Policy (n.d.) page on the Fairmont website www.fairmont.com/environment: “Our Green

Partnership Program, a company-wide stewardship program, strives to minimize our properties’

operational impact on the environment through resource conservation and best practices.”

Likewise according to the Environmentally Conscious Hotel Operations page in Marriott’s

website http://marriott.com/marriott.mi?page=echo: “Marriott’s Environmentally Conscious

Hospitality Operations program (ECHO) focuses on water and energy conservation, clean air
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initiatives, wildlife preservation, “reduce-reuse-recycle” waste management, and clean-up

campaigns.”

       There are many other initiatives supported by many other companies; however it would

be impractical to attempt to list them all in this paper. The above examples of environmental

initiatives are but a small sampling of what is being done today. Included in Appendix A is a

listing of environmental initiatives undertaken by Marriott. The previous examples are evidence

of governmental, business, and the public’s growing concern with the environment. This

growing concern is pushing the environmental issue from the fringes of societal thinking into the

mainstream, where it is becoming a force driving change. It was not the intention of this paper to

provide overwhelming evidence that the environment needs to be protected, but instead that in

today’s world becoming an environmental leader within the hospitality industry could provide

economic as well as environmental rewards.

       Once a company has scanned the environment and evaluated it for its threats and

opportunities, the executive team then decides on its strategy which will contain a set of

competitive methods. According to Olsen (2007), competitive methods are bundles of products

and services which capitalize on opportunities in the environment to provide profit for the

company. With a clearly defined set of competitive methods, the company can then focus on its

structure. In the structure portion of the coalignment model, it is essential that the company

allocate resources which will provide the necessary support for the competitive methods. In this

way the company has aligned the opportunities in the environment, with its business strategy,

with the resources necessary to accomplish said strategy.

       Just as Kaplan and Norton (1992) proposed that you can only capitalize on what you

measure, Olsen also recognizes the need for measurement. In the final portion of the coalignment
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model, the strategies which have been implemented must be measured. It is in this measurement

where the proposed Environmental Scorecard will prove its worth. In part because of its

relatively recent appearance on the global business stage, there is a distinct lack of literature with

specific methodology measuring the environmental impact relative to the return on the

investment made in the environmental initiative. The ESC is a model that might help to fill that

void.

                                             The Model


          As stated previously the purpose of this paper was to develop a model by which

companies could measure themselves on an environmental yardstick. With the advent of so

many new technologies and opportunities to foster ‘green’ culture within companies it has

become difficult to quantify the success of an initiative as well as the ‘greenness’ or

environmentally friendliness of the company as a whole. The proposed model accommodates

both types of evaluations. A most crucial component in the development of this model was the

inclusion of the Sustainability Index. This index provides a way to compare the respective

financial success of either an initiative or an operational area versus its respective environmental

impact. This ability to span the business and environmental worlds is what makes this model

unique.

          As mentioned in the literature review, this model was framed by the Balanced Scorecard

model. In addition to the four traditional perspectives of Financial, Customer, Internal Business,

and Innovation and Learning this model introduces a fifth perspective: The Environment

Scorecard (ESC). Just as the Balanced Scorecard (BSC) is designed to provide information to

different stakeholders, the Environmental Scorecard can inform all stakeholders: frontline

employees, managers, directors, executives, the board members, and share holders, as to the state
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of the company’s environmental impact as it relates to the company’s financial health. The

remainder of this paper will explore and describe the methodology behind the Environmental

Scorecard.

The Environmental Scorecard

       The Environmental Scorecard has been designed for implementation with the Balanced

Scorecard. As such, it is assumed that all the preliminary work for implementing the BSC has

been completed. This model starts from the point of establishing the Goals and the Measures of

those goals. The ESC provides two distinct ways for a company to look at itself: by

environmental initiatives or global operations. These two perspectives produce different Goals,

but similar Measures. Figure 1 provides an example of how these two perspectives might look.

The environmental perspective is informed by the literature review as to the most widely used

initiatives in the hospitality industry. The global operations perspective uses operational

categories typical of a Midlevel hotel with Food & Beverage.

                                        Figure 1
                 The Environmental and Operational perspective scorecards.

              Environmental                                             Operational
        Goals            Measures                               Goals                 Measures
Energy Management                                      Rooms
Water Management                                       Food and Beverage
Waste Management                                       Front Office
Building Materials                                     Engineering
F,F,&E                                                 IT
                                                       Amenities
                                                       Human Resources
                                                       Sales & Marketing

       The environmental and operational perspectives are both categories and the goals listed

inside are then value drivers. In other words Energy Management, Water Management, etc. are

value drivers. Each company then needs to decide on initiatives to undertake to raise the value
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of each of those value drivers. See Figure 2 for examples. When examining the environmental

perspective it is important that the company list all initiatives in which they are participating.

Likewise, in the operational perspective it is imperative that all inputs, outputs, and processes be

taken into account. Only by looking at the company as a whole can its true environmental

impact be determined.


                                   Figure 2
               Energy Management and Food & Beverage scorecards.
    Energy Management                                   Food & Beverage
     Goals       Measures
                                                       Goals        Measures
Laundry
Light Bulbs                                       Food
Energy Sources                                    Energy Use
HVAC                                              Water Use
                                                  Waste

Evaluation

       Once the perspectives, goals and initiatives have been identified, the method of

evaluation needs to be chosen. The ESC provides two methods: industry benchmarking and

internal goal setting/reduction. These two methods may be employed separately or in

conjunction with each other.

       Industry benchmarking. Industry benchmarking is the process of creating a quantitative

standard by which an organization can compare its current performance to industry standards

(Dodds, 2005). In the ESC model benchmarking is accomplished through a few simple steps.

First, an industry standard is established. For example in a luxury full service hotel in a

temperate climate, satisfactory water usage is approximately .50 cubic meters/guest night

(Dodds, 2005). This standard is both quantifiable and should be measurable at any property.

Through a simple formula a hotel’s Benchmark Index (IB) can be established. The formula is as

follows:
                                                                    Environmental Scorecard       21



                                     The Benchmark Index

PB = The Pollution/Usage Benchmark for that resource
PCB = Company’s actual Pollution/Usage for that resource
IB = The Benchmark Index
                                  IB = ((PB - PCB)/PB)*100

       The results are such that if IB is negative, the company has not achieved the benchmark

and the lower the number the less they achieved. If IB is zero, the company has met the

benchmark. And, if IB is positive the company has exceeded the benchmark and the higher the

number the more they achieved. For an example see Figure 2.1.

       There is one more piece to discuss before the SIB or Benchmarked Sustainability Index

can be calculated. That is ROI or return on investment. Return on investment provides the

financial side to the entire model. It balances environmental impact of an initiative or company

operations against the financial feasibility of that investment. In this usage of ROI if ROI < 0 the

project is not profitable, if ROI = 0 the project broke even and if ROI > 0 the project made a

profit. For an example see Figure 4. In this model ROI is calculated as follows:

                                     Return On Investment

$ Invested = Dollar amount invested in the initiative or area of operation.
$ Saved = Dollar amount saved through the initiative or earned through that area of operation
$ Incremental = Dollar amount of incremental sales gained because of the initiative.
ROI = Return on Investment

               ROI = ((($ Saved + $ Incremental) - $ Invested)/ $Invested)*100


       There is also the possibility to use a cumulative approach to calculating ROI as well as

the environmental indexes. However that is beyond the scope of this paper, and may be the

subject of future endeavors. For now ROI will be calculated on a single year basis.

       Now with ROI it is possible to make the final calculation for this method. SIB is the

culmination of this method. It is a measure which takes into account the profitability of the
                                                                     Environmental Scorecard       22



initiative as well as the environmental contribution of that same initiative. This provides

companies with a tool, a single number, with which they can compare and judge the viability of

seemingly very different initiatives. It should be noted that because of the way SIB is formulated

a negative IB could be offset by an extremely positive ROI. This means that a project that is not

environmentally sound, but has high returns could still have a favorable SIB for this reason the

Sustainability Matrix was designed. The Sustainability Matrix will be covered later in the paper.

SIB is interpreted as the higher the better. For an example see Figure 4.


                              The Benchmark Sustainability Index

ROI = Return on Investment
IB = The Benchmark Index
SIB = The Benchmark Sustainability Index

                                         SIB = (ROI+IB)/2


       Internal goal setting/reduction. The other method for evaluation provided in this model

is Internal Goal Setting/Reduction. This method is very similar to industry benchmarking; the

main difference lies in the use of an internal standard instead of an industry benchmark. This

method is useful at the beginning of the process, before any industry benchmarks have been

found or established. In this method the company compares its present performance against its

prior performance to gauge its progress or success. The formulas are as follows:

ROI = Return On Investment
PG = The Pollution/Usage Goal of the company for that resource
PCG = The Company’s actual pollution/usage of that resource
IR = The Reduction Index
SIR = The Reduction Sustainability Index

               ROI = ((($ Saved + $ Incremental) - $ Invested)/ $Invested)*100

                                     IR = ((PG - PCG)/PG)*100
                                         SIR = (ROI+IR)/2
                                                                      Environmental Scorecard      23



        Once the method has been chosen, there still remains the critical task of choosing the

actual measure. There are a multitude of different measures for each value driver and initiative.

Figure 3 provides a list of possibilities.

                                       Figure 3
              Table of Goals and their possible corresponding Meausres.
                  Goal                                         Measure
Energy Management                           KWatt/guest night
                                            CO2 out put/guest night
                                            CO2 out put/ square foot
Water Management                            Kg of Laundry/guest night
                                            Cubic meters of water used/guest night
                                            Cubic meter of water used/ acre of land
                                            Cubic meter of water used/meal
Building                                    % recycled materials/ $ of Investment
                                            % bio-friendly material/ $ of Investment
Waste Management                            Waste recycled/ Total Waste
                                            Waste Composted / Total Waste
                                            Waste Reused/ Total Waste



In this example Hotel XYZ invested $5,000 to install new low flow shower heads in an attempt

to reduce their water consumption. An industry Benchmark of .5 m3 was established. All other

figures are fictional, and should not be used to estimate of ROI on low flow shower heads in the

real world.

Sustainability Matrix

        The ESC model also employs a graphical tool with which to represent and evaluate the

preceding results. Using The Sustainability Matrix it is possible to compare multiple measures

of the same project, multiple years of the same project, or multiple projects all on one graph.

Where the Sustainability Indexes summarize the relationship between environmental impact and

financial viability, this matrix brings the two variables together in a graphical representation, but

at the same time it allows the user to see the values for each variable. In this way if one variable
                                                                     Environmental Scorecard       24



cancelled the other out in the Sustainability Index, it is shown in the matrix which will allow for

better judgment of the project. The Environmental aspect (The Benchmark Index, or the

Reduction Index) is shown on the x axis while ROI is shown on the y axis. Figure 5 is a

demonstration of this tool using the results from Figure 4.

                                             Figure 4

                 Table of XYZ Hotel’s water saving initiative for three years.
                PB         PCB         IB     $Invested       $Saved       ROI               SIB
                   3           3
 Year 1       .5 m        .8 m      -60%        $5000         $1000       -80%               -70
 Year 2       .5 m3       .5 m3       0%        $5000         $5000         0%                0
                   3           3
 Year 3       .5 m        .3 m       40%        $5000         $6000        20%                30


                                             Figure 5

                The Sustainability Matrix depicting the results from Figure 4.



          +         Environmentally                            Sustainable
                      Unfriendly
                                                                   Yr 3
                                                                   From
                                                                   Fig. 4
                                                 Yr 2
                                                 From
ROI                                              Fig. 4


                       Unsustainable                          Unprofitable
                       Yr 1
                       From

          -            Fig. 4



                   -            Environmental                                       +
                                 Impact (IB)
                                                                       Environmental Scorecard       25




        If a project falls in the “Unsustainable” quadrant it neither meets the environmental

criteria nor is it profitable. Projects in this quadrant should be rejected, or re-worked on both

environmental and financial fronts. If a project falls in the “Environmentally Unfriendly”

quadrant it is profitable but it still does not meet the environmental standards. In this case the

company can work to improve the environmental impact of the initiative. In the “Unprofitable”

quadrant a project is environmentally friendly, but it is not profitable, so a company should focus

on making the project more profitable. Finally, the “Sustainable” quadrant is what is truly

sustainable. Projects in this quadrant are environmentally as well as financially sustainable,

which is true sustainability in the business world.

        It should be clear from this chart how it would be useful to track these projects over time.

In a similar way, instead of using different years of the same project, the company could plot

different projects to see how they compare to each other. Finally, it should also be noted that

when a company is deciding how profitable the project might be, this model allows for using

different methods for calculating ROI. Companies could incorporate a time value of money

factor, to account for the value of time on money. The company could also take a cumulative

approach to calculate the value of the project over its expected life to decide if it is viable.

Finally a company could use a pay back method to either figure out how many years it will take

to recoup the investment, or how much they would have to save every year to recoup the

investment in a given number of years. The point being, that as long as the method for

calculating is stated and if the same method is used if attempting to compare different projects,

then this model will support any method chosen.
                                                                        Environmental Scorecard       26



                                             Conclusions

        Through the abundance of articles, associations and websites concerning the environment

and the impact society has on it, it is clear that environmental concerns have become a force

driving change in both business and society. It is still unclear if this concern for the environment

is a fad or if it will become a permanent fixture in the world’s business and social landscape.

Only time will tell. However, it does seem pertinent to explore options and methods for

evaluating environmental initiatives, as well as the overall impact of a company on the

environment. To have meaningful evaluation there should be some form of a quantitative

analytical tool with which to make informed judgments (Kaplan & Norton, 1992).

        Although the Environmental Scorecard is unproven, as of yet, it still provides the

foundation for a quantitative analytical tool. This model provides a method by which a company

can evaluate its global operational environmental impact as well as the impact of its specific

environmental initiatives as they compare to the company’s financial health with regards to each

of those perspectives. This could have a tremendous impact on the ability of managers,

executives, and shareholders to evaluate a company’s environmental impact. This should

influence the initiatives chosen by managers, as well as investors’ decisions regarding with

which company they choose to invest.

        Whatever the potential, this project needs further research to examine its validity and

reliability, so as to gain strength in its value as an analytic tool. In addition to its validation and

demonstration of reliability there should be further conceptualization for how the ESC might be

modified and used at national, state, community, family, and individual levels. Although the

ESC has been demonstrated in this paper through a hotel, it has the potential for implementation

in any business, or circumstance which needs environmental and financial evaluation. Through
                                                                    Environmental Scorecard   27



further research, the power of this model will be demonstrated, and (the authors hope) employed

in any number of business and societal settings. In summary, the authors have developed an

auditing system which can be used to conduct sustainability assessments of hospitality

properties. Please contact them if additional information is desired.
                                                                  Environmental Scorecard   28



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                                                                  Environmental Scorecard        29



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                                                                    Environmental Scorecard     31




                                      Appendix A
                                       Marriott Initiatives

              Taken from http://marriott.com/news/detail.mi?marrArticle=160342

-- Group "Re-Lamp" campaign, which replaced 450,000 light bulbs with fluorescent lighting in
2006 and saved 65 percent on overall lighting costs and energy usage in guest rooms;
-- Linen Reuse Program, a global effort to encourage guests to reuse linens and towels during
their hotel stay which saved 11 to 17 percent on hot water and sewer bills involved in laundering
operations at each hotel;
-- Marriott's smoke-free policy in all U.S. hotels announced last year, improves indoor air quality
and will result in a 30 percent reduction in energy use for air treatment systems;
-- Marriott's "Ozone Activated Laundry" and "Formula One Systems" can save up to 25 percent
in energy used in laundry systems;
-- Replacement of 4,500 outdoor signs with LED and fiber optic technology yielding a 40
percent reduction in outdoor advertising energy use in its first year;
-- Installation of 400,000 new shower heads which reduce hot water usage by 10 percent each
year;
-- Three newly appointed Regional Directors of Energy and an architect certified by the U.S.
Green Building Council for Leadership in Energy & Environmental Design (LEED) - to help
oversee a variety of programs including Marriott's first LEED-certified hotel, The Inn &
Conference Center by Marriott in Adelphi, Md;
-- New waste-management pilot program to streamline efforts and identify the most
environmentally friendly, yet cost-efficient methods for Marriott's 2,800 hotels around the world
to continue to adhere to the company's recycling guidelines for trash, cardboard, newspaper and
glass; and
-- Marriott's Environmentally Conscious Hospitality Operations (ECHO) program, launch in
1994, is an award-winning program that focuses on water and energy conservation, clean air,
"reduce-reuse-recycle" waste management, wildlife preservation and neighborhood cleanups.

								
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