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					                                                        Environmental Sustainability Case Study



                            Eco-labelling at Sico Inc.

Case Study Summary
Strong external drivers to reduce the volatile organic compound (VOC) content of its paint
prompted Sico Inc. (Sico Paints) to seek Environmental ChoiceM eco-label certification for
some of its paint product lines. Sico believes the eco-label carries more weight and
credibility than if the company was to put its own label on paint cans claiming environmental
improvements. Having externally audited and certified eco-labels on its products
demonstrates to the public that the company is committed to providing healthy and safe
products for consumers. Sico hopes that acting voluntarily now can add value to existing
relationships as well as open new business opportunities.

Sico Inc. Corporate Overview
Sico, headquartered in Beauport, Québec, is the largest manufacturer of paint products in
Canada. The company has a significant share of the Canadian market for architectural paint
and is growing its markets as a supplier of metal coatings intended for the global
transportation industry.

The company is worth just over $300 million (Cdn) in assets after a recent acquisition of Para
Paints. Sico employs approximately 1,000 people in eight production locations across
Canada, the United States and Mexico.

Sico has two main product segments: 1) Industrial Paints and 2) Commercial or Architectural
Paints. For industrial markets, Sico manufactures metal coatings for the railway, aerospace
and heavy transportation industries worldwide, as well as coatings for specialized equipment.
The industrial product segment accounts for 25 per cent of total sales for the company.
Markets for industrial paints include North America and Europe. Commercial and
architectural paints make up the other 75 per cent of sales and are marketed primarily in
Canada. Well known commercial paint brands include Sico, Crown Diamond, Mulco,
Betonel, Chateau, Para, Corrostop Ultra, Formula, Polyprep, Maxithane, Crystalex and
Sikkens.

Background and Drivers
Two major drivers motivated Sico Paints to look seriously at adopting eco-labels for its paint
products: 1) Federal Government pressure and 2) TerraChoice’s development of a new eco-
label for paint as part of its Environmental Choice eco-labelling ProgramM.

In the mid 1980s, the Canadian Council of Ministers of the Environment (CCME) set a target
to reduce volatile organic compounds (VOCs) in consumer paints by 20 per cent over 12
years, between 1985 and 1997. The CCME is an organization made up of provincial and



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territorial Ministers of the Environment as well as representation from Environment Canada.
This 20 per cent VOC reduction target was part of the CCME’s larger Environment
Reduction Plan for Nitrogen Oxides/Volatile Organic Compounds. To communicate this new
target, the CCME met with the Canadian Paint and Coatings Association (CPCA), of which
Sico is a member, and asked the Association to take voluntary action to lower the VOC
content in commercial and architectural paints.

Concurrently Sico was approached by TerraChoice, the
organization that administers the Environmental Choice
ProgramM, to endorse a new eco-label that had been developed
for commercial and architectural paints. The CPCA supported
the eco-label concept and because of increased awareness of the
environmental impacts of VOCs, Sico decided to seek
endorsement of the Environmental ChoiceM eco-label. Not only
did it seem like the right thing to do but Sico also recognized that, based on recent trends,
public pressure to reduce VOCs would likely intensify in the future. Sico saw an opportunity
to take a leadership role within the industry.

Implementation

Sico — Phase One

The majority of paints, sealants, and caulking compounds contain varying levels of VOCs.
In many outdoor, and some indoor applications, higher VOC levels are necessary to promote
better drying times to allow optimal product application. Sico decided to look at the VOC
content of its latex products and compared those with the lower VOC contents being
recommended by the government and TerraChoice. The Environmental ChoiceM criteria for
low VOC paint specifies the
maximum allowable levels of VOCs
and the removal of certain harmful        Box 1: Environmental ChoiceM Program
substances from the manufacturing         Certification Criteria for Low VOC Paint
process (see Box 1).
                                          • Must not be formulated or
Some of Sico’s paints already met             manufactured with formaldehyde,
                           M
the Environmental Choice criteria,            halogenated or aromatic solvents or
some were close, and some had                 heavy metals such as mercury, lead,
significantly higher VOC contents.            cadmium and chromium.
Sico decided to work with those           • They must have a flash point of 61.0ºC
paint lines where the quality would           or greater.
not be jeopardized. In most indoor        • Paints and stains must not contain
applications, low VOC products                VOCs in excess of 200 grams per litre.
perform just as well as paints with a     • Varnishes must not contain VOCs in
higher VOC content.                           excess of 300 grams per litre.




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Sico’s Research and Development Group set to the task of reformulating selected products to
meet the Environmental ChoiceM criteria. The major undertaking for the R&D Group was to
determine how to shift from using solvent-based technologies for paint manufacturing to
water-based technologies. Sico made the shift and was successful at reducing VOC levels,
receiving certification for over 600 products of its different lineups. As a general rule, most
of Sico’s latex interior and exterior paints and stains now fulfill the requirements as outlined
by TerraChoice’s Environmental ChoiceM Program.

Sico — Phase Two

About three years ago, Sico received communication from TerraChoice that it was going to
lower the allowable VOC content in its criteria for the Environmental ChoiceM eco-label for
paint from 200 grams per litre to 150 grams per litre. Sico was caught off guard slightly by
the new timeline for compliance and took the issue to the Canadian Paint and Coatings
Association. The Association was also surprised at this development and approached
TerraChoice about extending the timeline to give companies more time to reformulate,
research and adopt new technologies, etc.

Internally at Sico, senior technical people were skeptical that this new VOC criteria was
worth going after, and questioned the value of the endorsement of the Environmental
ChoiceM eco-label. Yvon Savaria, Sico’s Director of Marketing — Architectural Division,
saw value in continued use of the Environmental ChoiceM eco-label as future trends indicate
that pressures would likely accelerate in favour of more eco-labelling.

Despite some hesitation, Sico made the necessary changes to its formulation and
manufacturing processes and now many of its paints meet the new, lowered VOC content
criteria. However, Sico has not heard anything from TerraChoice since the initial
communication. Many of Sico’s paints now exceed the criteria set out in the Environmental
ChoiceM Certification and because it acted proactively, the company is ahead of government
and consumer expectations in this regard. Sico hopes that acting voluntarily now can add
value to existing relationships as well as open new business opportunities.

Future Trends

The LEED (Leadership in Energy and Environmental Design) Green Building Rating
System™ developed by the US Green Building Council is driving the green building
movement in the United States. Sico has seen some of its competitors in the United States
introduce zero VOC paints to meet demand resulting from LEED. Sico believes the Canadian
version of LEED, currently being developed, will put similar pressure on the Canadian paint
industry to manufacture paints with even lower VOC and heavy metal content.

Another eco-labelling standard, the GREENGUARD™ Certification Standard for Low
Emitting Products for the Indoor Environment, has recently been introduced in the United
States. This standard, developed by the GREENGUARD™ Environmental Institute (GEI),
defines products with low chemical and particle emissions for use indoors, primarily building


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materials, interior furnishings, furniture, cleaning and maintenance products, electronic
equipment, and personal care products. The standard establishes certification procedures
including test methods, allowable emission levels, product sample collection and handling,
testing type and frequency, and program application processes and acceptance. The
GREENGUARD™ certification complies with established indoor air quality standards such
as the US Environmental Protection Agency’s purchasing requirements, the State of
Washington’s Indoor Air Quality program, Germany’s Blue Angel program, the US Green
Building Council’s LEED program, and more. GREENGUARD™ Allowable Emission
Levels for Eco-Spec paints are presented in Table 1.

Table 1: GREENGUARD™ Allowable Emission Levels for Eco-Spec Paint
  Total VOCs                               0.50 mg/m3
  Formaldehyde                             0.05 ppm
  Total aldehydes                          0.1 ppm
  Styrene                                  0.070 mg/m3
  Listing of measured carcinogens and reproductive toxins as identified by California
  Proposition 65, the US National Toxicology Program (NTP), and the International
  Agency on Research on Cancer (IARC) must be provided.

  Any pollutant not listed must produce an air concentration level no greater than 1/10 the
  Threshold Limit Value (TLV) industrial work place standard (Reference: American
  Conference of Government Industrial Hygienists, 6500 Glenway, Building D-7,
  Cincinnati, Ohio 45211-4438).

  Any pollutant regulated as a primary or secondary outdoor air pollutant must meet a
  concentration that will not generate an air concentration greater than that promulgated
  by the National Ambient Air Quality Standard (US EPA, code of Federal Regulations,
  Title 40, Part 50).

Sico wants to be prepared for these significant drivers and avoid potential costs of being
reactionary if pressured to meet expectations outlined in a specific standard. The company
sees these trends as inevitable, and hopes to gain competitive advantage by being proactive.

Cost

In terms of cost to the company, Phase One (the initial lowering of VOC content in its paints)
was significantly more expensive than Phase Two. Phase One involved more organizational
change as the company shifted from using solvent-based technologies for paint
manufacturing to water-based technologies. Phase Two improvements involved tinkering
with only one or two specific ingredients, actions that demanded fewer resources.

In terms of certifying its products with the Environmental ChoiceM eco-label, there are two
areas where Sico incurs costs: (1) Audit & Verification and (2) Annual License Fees.




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1. Auditing and Verification: Auditing and verification are required as part of the
   certification and licensing process. TerraChoice auditors ensure the product or service,
   and relevant processes comply with the certification criteria. This is a one-time only fee
   and is charged each time Sico wants to certify a new paint product.
2. Annual License Fees: Annual license fees are based on the gross annual sales of the
   certified product or service and are calculated on a per license agreement basis. The total
   cost to the corporation in annual license fees is approximately $10,000 (Cdn).

Industry-wide Results

An independent study conducted by the Ontario Research Council in 1991 showed that
VOCs from consumer paint in Canada had dropped substantially after only six years of the
allotted 12 years of the aforementioned CCME program. The Canadian Paint and Coatings
Association (CPCA) signed a Memorandum of Understanding with the CCME and
Environment Canada, committing it to gather information on the VOC content of all
consumer paints sold in Canada through its members and provide regular, aggregate results
to the other parties. The first report, presented to Environment Canada and the CCME,
covered the period from 1991 to 1995 and showed a 20.1 per cent reduction in VOCs in
consumer paints. Figure 1 shows the overall trend in solvent- versus water-based paint sales,
reflective of the efforts made by the industry to lower VOC and heavy metal contents. As can
be seen by the latest figures for 1998, there was a further decrease of VOCs in these
products, to reach an overall 27 per cent decrease.




Figure 1: Litres: Solvent/Water-based as Percentage of Total Trade Sales

Because paint manufacturers in Canada have had success reducing the VOC content of paint
through new, innovative technologies, the average VOC level in paint products on the
Canadian market has seen a significant decrease since the Environmental ChoiceM guidelines



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were originally established. The Environmental ChoiceM Program is currently revising its
criteria for VOC levels in paint products.

Business Benefits
Reputation and Image — The most significant business benefit of having eco-label
endorsement for Sico products is enhanced brand image. The paint industry’s reputation
suffered in the 1980s when a wide variety of consumer products were targeted as dangerous
because they contained lead. Although consumer paint has not contained lead in decades,
consumers still remember the media coverage the lead issue received and as such, the
industry’s reputation is still vulnerable. Having certified eco-labels on its products shows the
public that Sico is committed to providing healthy and safe products for consumers.

To increase communication of its environmental commitments and activities, Sico is
planning to add an environment section to its web site by the end of 2003. This section will
discuss the Environmental ChoiceM Program and Sico’s eco-label certified paint lines, as
well as the company’s activities managing post-consumer paint. Sico believes it is industry’s
role to address any major issues it faces and communicate these issues to the public as a
means of educating and increasing awareness among consumers. Not all consumers are
interested in this information but, Sico believes there is a trend in consumers who are seeking
more information about the products they buy and are thus making more informed
purchasing decisions.

Customer Loyalty — Some of Sico’s best selling paint lines (e.g., Cashmere and Chamois)
are low VOC paints that carry the Environmental ChoiceM eco-label endorsement. Sico
attributes customer demand for these particular lines in part to the eco-label, however
customers have shown in recent surveys that priority concerns remain quality (i.e., it looks
good, it is soft, it is washable, etc.), cost, and then environmental friendliness. Efforts to
improve the environmental friendliness of its products have had a marginal impact on costs.
The paints manufactured with new technologies (i.e., Cashmere and Chamois) are roughly 15
per cent more expansive as Sico has to use new ingredients with lower availability or volume
efficiencies. This has forced the company to reflect these costs in the retail prices of the
finished products. The success of these product lines however, proves that consumers are
willing to pay for high performance paints that have less impact on the environment. It is
extremely difficult for Sico to attach a dollar figure to customer loyalty for its architectural
paint sales but the company believes having a good corporate reputation plays an important
role in retaining customers.

Innovation — Having to meet expectations for lower VOC commercial paint forced Sico to
innovate through reformulation and new product development, and through adoption of new
water-based technologies. These technologies would likely have been discovered at some
point in the future; however, significant drivers caused Sico to react earlier and in turn,
realize the potential for improving its products.




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Environmental Benefits — Low VOC paints are distinguished by the fact that they use
water as a carrier instead of petroleum-based solvents. Because of this distinction, the levels
of harmful emissions from water-borne surface coatings are significantly lower than solvent-
borne surface coatings. Low VOC paint also contains no, or very low, levels of heavy metals
and formaldehyde. Low VOC paints that meet the Environmental ChoiceM criteria do not
adversely affect indoor air quality and contribute much less to the formation of ground level
ozone and photochemical smog.

Lessons Learned
Success Factors

Sico’s partnership with TerraChoice’s Environmental ChoiceM Program is one success factor
that has enabled the company to advance its eco-labelling program. Because the
Environmental ChoiceM eco-label is an external endorsement and requires auditing by an
independent third party, it carries more objectivity and credibility than if Sico were to put its
own label on paint cans claiming environmental improvements.

Challenges

One difficulty with the Environmental ChoiceM eco-label is that it is not well recognized
among consumers. More could be done to increase visibility and turn the Environmental
ChoiceM eco-label into a marketing advantage for the companies involved in the program.
There is also opportunity for the Environmental ChoiceM Program to be used as a mechanism
to promote a “greener brand” of Canadian products in the international marketplace.

Continuous improvement of a product for any company is always challenging. Sico has
advanced its paints and lowered VOC and heavy metal content over two different phases.
The first required a more major overhaul of the technologies used to manufacture
commercial paints. The second phase involved making minor changes to product
formulations, specifically altering two ingredients to lower VOC content even further.
Continuing to lower the VOC content will necessitate even more research and testing. The
easier changes have been made and further VOC reductions may jeopardize the quality of the
paint given current levels of technology.

Supporting Processes, Policies and Information Sources
TerraChoice Environmental ChoiceM Program — As has been mentioned previously,
Sico’s partnership with TerraChoice was a major impetus to Sico’s environmental labelling
efforts.

Canadian Paint and Coatings Association (CPCA) — The CPCA represents the interests
of the Canadian paint and coatings industry — in Canada, North America and on the
international scene. CPCA members are estimated to manufacture and distribute more than
90 per cent of the paint available in Canada. Sico finds membership in the CPCA to be a


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good source of information relevant to its industry and helps the company stay up to date on
legislative and other developments.

Sico is involved in the Coatings Care® program, lead by the CPCA. The CPCA’s Policy on
Management of Post-Consumer Paint commits the sector “to contribute its fair share of costs
towards the management of its consumer products which require special handling.” As part
of the program, Sico and other members of the CPCA, are committed to supporting joint-
responsibility stewardship programs, sharing this responsibility with consumers and
municipalities or similar waste collectors. The Coatings Care® program is one additional way
Sico is demonstrating its public commitment to being a steward for the environment.

References
Information in this case study was gathered through the following means:
• Interview with Yvon Savaria, Director of Marketing, Architectural Division — Sico
    Paints.
• Sico Paints web site — www.sico.com.
                                        M
• Terra Choice Environmental Choice Program web site —
    www.terrachoice.ca/index2.html.
• The Canadian Paint and Coatings Association (CCPA) web site —
    www.cdnpaint.org/menu_e.html.
                     TM
• GREENGUARD Indoor Air Quality Certified web site —
    www.greenguard.org/default.asp.




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