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 Environmental Scorecard 2 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 Environmental Scorecard 3 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 Environmental Scorecard 4 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, Environmental Scorecard 5 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. Environmental Scorecard 6 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. Environmental Scorecard 7 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. Environmental Scorecard 8 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 Environmental Scorecard 9 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 Environmental Scorecard 10 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. Environmental Scorecard 11 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 Environmental Scorecard 12 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. Environmental Scorecard 13 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 Environmental Scorecard 14 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 Environmental Scorecard 15 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 Environmental Scorecard 16 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 Environmental Scorecard 17 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 Environmental Scorecard 18 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 Environmental Scorecard 19 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 Environmental Scorecard 20 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 References About Us. (n.d.). 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Retrieved May 5, 2007, from http://www.nytimes.com/2007/02/02/science/earth/02cnd- climate.html?ex=1178510400&en=0d95c4bf0172ccbb&ei=5070 Step It Up: Thousands Gather this Weekend for Largest Ever-Rally Against Global Warming. (2007). Democracy Now!, Friday, April 13, 2007. Retrieved May 5, 2007, from http://www.democracynow.org/article.pl?sid=07/04/13/1421235 Tate, R. (2007). Hotel owner envisions string of eco-hostelries. San Francisco Business Times, April 27, 2007. Retrieved May 5, 2007, from http://www.bizjournals.com/sanfrancisco/stories/2007/04/30/story12.html?b=117790560 0%5e1453831 TripAdvisor. (2006). Travelers willing to pay more to be green; TripAdvisor’s top ten environmentally-friendly hotels. Retrieved April 24, 2007 from www.hotel- online.com/News/PR2007_2nd/Apr07_TripAdvisorGreen.html Tzschentke, N., Kirk, D. & Lynch, P. (2004). Reasons for going green in serviced accommodation establishments. 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Retrieved May 5, 2007, from http://www.ipcc.ch/WG1_SPM_17Apr07.pdf 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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