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Dow Chemical’s CEO on Running an Environmentally Friendly Multinational
Andrew Liveris, the CEO of Dow Chemical, discusses the 120-year-old company’s ambitious sustainability agenda. He says an environmentally driven business model is good for...
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Andrew Liveris, the CEO of Dow Chemical, discusses the 120-year-old company’s ambitious sustainability agenda. He says an environmentally driven business model is good for the earth—and the bottom line. Liveris is one of the CEOs contributing to Harvard Business Review’s Future Economy Project, in which leaders detail their company’s efforts to adapt to and mitigate climate change.
SARAH GREEN CARMICHAEL: Welcome to the HBR IdeaCast from Harvard Business Review. I’m Sarah Green Carmichael.
This month, 13 U.S. federal agencies came out with a climate change report based on science. The conclusion? Humans are to blame for the rise in global temperatures. The Trump administration largely rejects that conclusion. Not, however, many leading CEOs.
ANDREW LIVERIS: DOW is no longer the company—I can be egregious with my next statement—the company that gave you napalm back at the Vietnam War.
SARAH GREEN CARMICHAEL: Today we’re going to hear from Dow Chemical Chairman and CEO Andrew Liveris. HBR Editor in Chief Adi Ignatius asked him about how the chemical company is trying to transform itself through environmental initiatives and a commitment to sustainability.
ADI IGNATIUS: DOW has a more complicated story even now because, you know, you’re making plastics, you’re making petrol-derivative products, which rely on fossil fuels. Is the point that you’re transitioning away from these products, or that that’s not the way to think about it?
ANDREW LIVERIS: Well, Petrochemical DOW and the boom era of substituting natural products with plastic products without due regard to the environment in the ‘70’s and ‘80’s is now being replaced by a full life cycle analysis of minimizing the footprint of the plastics in the environment. But humanity still wants those plastics, and so a big chunk of the responsibility on you being in plastics now is companies like ours have the resources to work on it, which is use less input, OK; produce less waste through the process, and then the product that goes out there is lighter and recyclable; and then be part of the answer in recycling it; and then be part of the answer in replacing it with renewables.
The DOW we put in place today is a nimble R&D company because we’re much more willing to cannibalize ourselves in innovation cycles being shorter. That DOW will be less and less Petrochemical DOW and more and more materials-that-are-friendly-to-the-environment DOW.
And so again, when you go to the short cycle innovation sector where you’re substituting materials that are your own and you’re making a lot of profit, that’s a very different type of company than the petroleum/petrochemical company that we’re leaving.
ADI IGNATIUS: Companies like yourselves, you know, eventually find that a lot of these initiatives actually pay off on the bottom line. They don’t initially, so I’m interested in, how do you bring along stakeholders in that early stage to really believe in this mission when there won’t be an immediate payoff?
ANDREW LIVERIS: Well, you’re right: you know, the financial community would really prefer that if you don’t have a business model to recoup your investment against that cost, well, because it’s an intangible, unless there’s some tangible way of measuring it—like, for example, a price on carbon—then they would prefer you not to invest in that.
How we overcome that in DOW is by doing full life cycle analysis on what we call our footprint and our handprint, our footprint being our facilities, our handprint being our products that we send out to the world. And when we do full life cycle analysis, and we look at the cost our products have in society versus the benefit they bring, we need to have a benefit that outweighs the cost.
If we can do it for emissions, like in carbon, if we can burn less BTUs so we emit less carbon, we can deliver that to the bottom line. And in fact, 2005 to 2015, we invested a billion dollars, and we can tangibly show to investors we saved six billion dollars.
And our new goals have us delivering two billion dollars of new value through 2025 by managing inputs for less outputs, by managing ourselves on emissions and on waste so we impact the environment less. These sorts of metrics, which we now track for ourselves, we can articulate to the investment community.
The denominator goals actually became the simplest to talk about to investors and to the financial community, which is look, there’s a license to operate, there’s a regulatory environment that comes through either federal or state or even local authorities, and those regulatory environments are born from inputs that are garnered from everywhere, and we need to be one of those that provide that input. In fact, we need to be a primary source because we have science-based input. So, having the EPA having access to our toxicology lab and our analytical lab so they can get sounder science to give the better regulatory answer so it wasn’t just a regulation in abstract. Being collaborative with NGOs so we could understand their views of what a regulatory environment would look like, these sorts of environments on the denominator, really, they’re a cost of doing business but actually if you think about it, rising tide lifts all boats.
And that’s our motto at Dow. Our mojo and motto is, always comply with the highest standard, no matter which country you’re operating in, and normally that highest standard is coming from the United States, although not always. That’s denominator driven. You can have that conversation with investors in the financial community because in essence if you don’t comply, you could be out of business.
ADI IGNATIUS: So, the U.S. federal government right now doesn’t seem to be making a lot of this a priority. How does that change things for you and how do you think it changes things for U.S. businesses generally?
ANDREW LIVERIS: Well, so our company, as we sit here today and as we move to 2025 and beyond, considers the entire initiative basically of sustainability as a business model. We think if we can have the objective of delivering pure water, clean water, to the 1.5 billion people in the world that don’t have access to it, or we can deliver energy efficiency into areas that are energy-scarce, that’s independent of the regulatory environment.
Here in the United States, what’s happening with the current administration is a peel back on regulations that would put forward without a lot of inputs and a lot of sound science. There’s no question the Obama administration allowed the agencies to proliferate regulations without doing the risk-reward benefit profiles at the front end. In 2009, the manufacturing sector regulatory cost per employee in the United States was $9,500. In 2016, that same number was $19,900. So, we had a doubling of regulatory costs.
So, what should be happening, and I think mostly is happening today, is many people who are regulated are being asked to come to the table and say, Well, here’s the regulations as it sits today. That makes no sense. How do we put in a smarter reg based on sound science? It’s a bit of a messy process, but it is what’s going on right now. We consider that ancillary to our main agenda of sustainability as our business model. So, in other words, we’re driving to put in place higher standards on the pillars that matter, and most of those are very much in the sweet spot of our science and our daily work. So, for example, food packaging. If we can deliver a package based on film, based on plastic, that actually has—is lighter, it’s more functional, it’s recyclable, and actually ultimately the holy grail is renewable, that’s a sustainability agenda that has a profit output that is beyond the regulation.
ADI IGNATIUS: I think you’re saying that the Trump administration, in your view, is more science-based on these issues than the Obama administration was. Is that—
ANDREW LIVERIS: I think that’s a bridge too far. I think what I’m saying, or what I was trying to say, is they are much more interested in getting the input of those jurisdictions that are being regulated. So, the regulator is talking to the regulated, whereas, the Obama administration did not do that.
ADI IGNATIUS: Gotcha. Sticking on the policy issue though, I think what companies like yours are doing definitely move the needle. They are models for other companies to follow if they’re interested in doing that, but they only add up to so much. At a certain point, policy is how big changes can happen. What is the role, what is the obligation of businesses to lobby for action in areas that you’ve made a priority?
ANDREW LIVERIS: Well, I think this is the biggest challenge in front of all of us. It’s my passion, actually, that business, government and civil society, each one of us having a seat at the table and looking at the table with respect to we have to find the win-win-win, because civil society as we know it, whether it be an emerged developed country and or an emerging country, what we’re all doing as seven billion people and will do as nine billion people by 2050 is just simply not sustainable.
And if we take out various slivers of the problem, we will sub optimize and get bad answers, and I think sound public policy based on sound science means that the entry price today is collaboration across those jurisdictions of business, government, and civil society, and, you know, we have governments that are being elected and not elected based on populace positions around the world. That’s just a sign that civil society’s getting very frustrated and very angry because we’re not meeting the economic pillar of what governments are meant to do, which is to create jobs. And all the infrastructure that supports the creation of jobs—sound education, sound management of infrastructure and many of the things that are the price of entry to have stable civil society—are starting to be shaken.
And I think it’s the role of business then to be one of the catalysts for change, and I think you need to find more and more enterprises, big and small, that are actually willing to have a seat at the table and develop the sound public policy that drives you to more medium- to long-term vision.
Our collaborations are geared that way. Our community advisory panels that we have in every country in the world at every site that we’re at serve that purpose. In other words, whether it’s managing the neighbor next to the facility in Bahia Blanca, Argentina, or here in Midland, Michigan, the input of civil society is there on our plans.
I do think that is the minority today, and I think we need to find a way to elect people, to have business leaders who are not afraid to take a public position, and obviously be able to speak the language of civil society and all of its representatives.
ADI IGNATIUS: So, on the topic of those NGO partnerships, you‘ve had one with The Nature Conversancy on—to study how your operations rely on and affect nature. Is that something you would recommend to other CEOs, sort of, a partnership like that, and if so, why?
ANDREW LIVERIS: The Nature Conservancy and DOW found each other because the thing that impressed us about them, and there are others—they’re not unique—they are very much conscious that business has to see the profit motive as a reason to be at the table. In other words, we’re not a non-for-profit. We are for-profit. And the right to do business based on treating nature such that nature rejuvenates and can be sustainable is the agenda they have. And a lot of that is based on the science that we have. The collaboration, which, using our engineers and our scientists and using their scientists and their public policy experts, is to develop a suite of tools to help decision makers rapidly assess the value of an ecosystem to a business or a community. And we’ve identified valuing nature, as we call these projects “valuing-nature projects,” there are many of these that we’re doing that are bottom line, but their mojo, their way of working with us, is they understand we have to have them as bottom-line projects.
ADI IGNATIUS: What would be your advice for companies or CEOs who want to pursue a kind of long-term sustainable agenda? Where do you start?
ANDREW LIVERIS: Nearly much every enterprise I’m familiar with in the Fortune 200 or even higher, the Fortune 500, that’s got any number of decades behind them deeply rooted in their psyches is their values and their credo. If you can take your values and use your science, use your people and make it part of your strategic pathway forward in terms of how your products impact the environment, how your products impact humanity, and provide the highest standard such that you are a unique provider of that solution, such that therefore you can actually extract value from that by being that unique provider, what they’ll find is that society actually values it.
The profit pool might not necessarily come from a customer per se. It might come through a license to operate from a jurisdiction that you might not otherwise have gotten. It may come through a partnership model like with The Nature Conservancy. Look for it as part of your business model, and don’t look for it as an initiative to the side.
ADI IGNATIUS: Are you currently feeling more optimistic or more pessimistic about the future of the environment and our, man’s stewardship over it?
ANDREW LIVERIS: There’s a big piece of me that wants to answer that question that says I’m feeling optimistic, but there’s a lead weight on my feet that keeps dragging me back to reality. The lead weight on my feet is that capitalism as a distributor of wealth is starting to fail, and that’s because more and more of the financial outputs of capitalism are going to fewer and fewer, which is of course leading to the populism wave.
But it also is because we have become, in many of the Western economies, very short-term in our thinking. In other words, many of these policies that I’m referring to, and many of the trajectories that companies like DOW are on, are multi-year, if not multi-decade, and having CEOs and boards who are willing to invest in the right to operate, license to operate with drivers that aren’t regulatory, in other words, the denominator drivers but numerator drivers, I think people intellectually get it, but the lead weight on people’s feet that grounds us in reality is the 90-day march to financial returns, earnings results of most companies. Most of the investments we’ve been making at DOW, they’ve been going back since the mid-90’s, and some of these returns are coming now.
It’s harder then to have the optimism, because the pressures on the leadership of public companies are becoming more and more short-term oriented, so it either needs to become part of the CEO agenda, or it’s not taken seriously by your owners or your communities or your employees or your customers. And so just like everything at the CEO table, whether it’s talent and people management, whether it’s marketing and sales, whether it’s government and public policy, the sustainability agenda needs to be the CEO agenda. If it’s the CEO agenda, I think people like me will become more optimistic.
ADI IGNATIUS: All right, Andrew. Thank you for your time. Thank you for your insights. It’s always a pleasure to speak with you.
ANDREW LIVERIS: Yes, and thank you for making me part of your very fascinating piece of work.
SARAH GREEN CARMICHAEL: That’s Andrew Liveris. He’s the chairman and CEO of Dow Chemical. He was speaking with Harvard Business Review’s editor in chief, Adi Ignatius.
For lessons and stories from other CEOs taking climate change seriously, check out HBR’s Future Economy Project. Go to HBR.org/future-economy.
And thanks for listening to the HBR IdeaCast. I’m Sarah Green Carmichael.