Dow Chemical Company addresses the ethical and environmental challenges that face the chemical industry, its personal legacy, and its commitment to “sustainable chemistry.”

By Abby Schultz

To The Dow Chemical Co., chemistry is a way to solve problems—big problems. As environmental concerns like climate change, the lack of clean water, food shortages and human health rise on the global agenda, Dow believes it has the tools to find solutions and to make money doing so.

There are those who are skeptical that a chemical company, let alone the largest diversified chemical company in the United States, and one dogged by a history of making products like the pesticide Dursban and defoliant Agent Orange, can accomplish these goals. But as David E. Kepler, Dow’s Senior Vice President, Chief Sustainability Officer and Chief Information Officer, Shared Services notes, “everything is manufactured,” and Dow’s goal throughout all its operations is to lower the impact of making products by using fewer resources and generating less waste.

“That’s what sustainability is about, trying to meet the needs of the current without compromising the future,” Kepler says. “We try to do it better each time we go after it.”

Dow is making sure this thinking is infused through the corporation in the normal course of operations, but in creating its 2015 Sustainability Goals, Dow sought to reach further, to find opportunities in a changing world. “Chemistry is an enabling science,” Kepler says. “There are real problems in the world that we are well-positioned to solve.”

Among the many 2015 commitments addressing energy efficiency, local communities, environmental protections and product safety is a commitment to realize three “breakthroughs” in tackling world challenges. The breakthroughs could include new products, new manufacturing processes or a new “unique” chemistry, says Dow, based in Midland, Mich.

The decision to include goals that reach outward as well as inward wasn’t initially popular at Dow, but the corporate leadership recognized that addressing world challenges is what people wanted Dow to do, says David W. Graham, Dow’s Vice President of Environment, Health and Safety and Sustainability. “I don’t think we ever looked back,” Graham says. Notes Kepler: “Our company, by the nature of who we are, has a broader role than lightening its footprint.”

Dow already has lightened its footprint on the earth. In meeting its 2005 Environment, Health and Safety goals, Dow reduced the energy needed to produce a pound of product by 22 percent since 1994, exceeding its goal of 20 percent and saving 900 trillion BTUs. Dow also reduced chemical emissions by 56 percent from 1994 to 2005, and emissions of “priority” compounds (including persistent, bioaccumulative and toxic [PBT] compounds, known human carcinogens and ozone depleters) by
84 percent in that period, beating goals in both cases.

Reducing waste from operations has been a goal of Dow’s since the mid-1980s, when it created the Waste Reduction Always Pays (WRAP) award program. Graham says Dow created WRAP to be a “change agent” within the corporation, “to get our people to identify where waste is created and to then come up with the solution and implementation plan to make a change.” By 2005, Dow estimates it had reduced 230,000 tons of waste, 13 million tons of waste water and 8 trillion BTUs of energy.

While applauding these efforts, observers of the company question whether Dow will ever overcome its legacy as a maker of Dursban and Agent Orange, as well as the legacy it inherited when it bought Union Carbide Corp. in 2001. On Dec. 3, 1984 a leak of methyl isocyanate (MIC) from an agricultural pesticide plant in Bhopal, India—a company in which Union Carbide held just more than half the stock—killed several thousand people. It is estimated that another 15,000 to 20,000 more people have died of complications since then, and the region is still contaminated 23 years later. Dow says it never owned or operated the plant, and the responsibility for continued clean up at the site rests with the Indian government and state government of Madhya Padesh.

“From our standpoint, Dow for now and for the foreseeable future will be weighed down by heavy negative legacies,” says Andrew Brengle, a Senior Analyst at KLD Research & Analytics, an investment research firm focused on socially responsible investing. In the case of Bhopal, if Dow is correct in not having a legal responsibility, it may have to answer to a moral responsibility, U.K. consulting firm SustainAbility (which has worked with Dow and the chemical industry) concludes in a report titled “The Changing Landscape of Liability.”

For its part, Dow has a section on its website devoted to “issues and challenges,” where the company addresses what it calls the “complex issues” of Agent Orange, Bhopal and dioxin, among others. Dow admits its positions are at odds with many stakeholders, and that these topics will for some “continue to define who we are and what we do.”

Kepler says every large company has issues, and that part of Dow’s reputation will rest on how well the chemical maker deals with the concerns and engages in transparent dialogue. “We’ve learned over the years that being transparent and open helps bring out the right level of dialogue,” he says.

One way Dow gets a handle on stakeholder concerns is by consulting its Corporate Environmental Advisory Council, a group of 10 individuals from universities, nongovernmental organizations and consulting firms. The council worked with Dow as it created its 2015 sustainability goals. “They challenged us along the way and I used them as a sounding board very effectively,” says Graham. “I took their advice to heart.”

The council is filled with high-profile individuals who truly challenge the company, says Seb Beloe, Vice President, Research and Advocacy at SustainAbility. Current council members include Jorgen Randers, Professor of Policy Analysis at the Norwegian School of Management, who teaches scenario analysis and corporate social responsibility; Don Edwards, a mediator and facilitator who is President and CEO of Justice and Sustainability Associates in Washington, D.C.; Shufang Zhang, a doctoral student at the Department of Populations and International Health at the Harvard School of Public Health; and Mariette (Louke) van Wensveen, Ph.D., an ethics consultant and independent scholar in Los Angeles.

The Business of Sustainability
As many companies are discovering, a focus on sustainable solutions, whether in the normal course of business or in addressing larger challenges, makes good business sense. In the chemical industry, customers ranging from retailers to computer makers to building suppliers are demanding environmentally friendly products, and many are responding, including DuPont and German chemical company BASF. Beloe of SustainAbility believes Dow is among those chemical companies with sufficient internal momentum to address this “shift in the landscape.”

“This agenda is a source of opportunity for them,” Beloe says. “If [Dow] can respond effectively, that enables them to position themselves as a source of solutions to downstream users rather than a source of problems.”

One way Dow is responding is through its 2015 commitment to “sustainable chemistry.” This commitment requires Dow to look at the processes involved in making and using products at all steps of a product’s life cycle, from extraction of raw materials until the product is thrown away. Dow’s objective will be “to look at how to continue to reduce the footprint of existing chemicals,” Graham says.

To do this, Dow will assess products, processes and systems according to sustainable chemistry criteria that will be validated externally. According to Dow’s website, the criteria will include: increased energy efficiency; increased efficiency of raw materials use; decreased use of scarce resources; decreased emission of extracted or man-made substances to nature; and improved social, health and security risk profiles. Following these criteria will point Dow to efficiencies in energy and raw materials and will lead the company “to make decisions on how to optimize our chemistries into the future,” Graham says.

An outcome of this commitment may be new products or chemistries that allow Dow, say, to reduce its dependence on oil. In one example, Dow is making natural oil polyols out of soybeans, sunflower seeds or rapeseeds instead of hydrocarbons. The polyols are used to make cushions in couches or automobiles.

In March, Dow announced the introduction of Propylene Glycol Renewable (PGR), a product made out of the glycerin generated in the making of biodiesel fuel. The conventional product uses propylene, which is made from hydrocarbon. PGR can be used as unsaturated polyester resins in boat hulls and bathroom fixtures as well as aircraft de-icers, automobile antifreeze, and in heavy-duty laundry detergents, according to Dow’s press release on the product.

Dow will not eliminate its existing propylene products, in part because of volatile seed oil and glycerin prices, and also because customers have different needs and expectations. “Initially there will be some who are highly sensitive to the nature of resource materials that are there, others would not be,” Graham says. That said, Graham adds, “This is a very dynamic situation. We are constantly innovating and creating new product lines that eventually [make] obsolete the products they are replacing.”

Heather Langsner, Director of Research at Innovest Strategic Value Advisors—an investment research and advisory firm that considers how well companies are positioned to gain competitive advantages and profit opportunities from their focus on environmental, social and strategic governance issues—says Dow is right to develop green chemistries, which she notes Dow’s competitors have been doing. However, Langsner is concerned with Dow’s reliance on chlorine-based products, such as polyvinyl chloride (PVC).

PVC and other chlorine-based products are a concern to stakeholders who worry that PVC poses environmental and health risks, and customers ranging from Wal-Mart to Intel to Firestone Building Products are phasing out its use. While the PVC market is expected to grow 4 percent a year through 2009, that market will weaken as alternative, bio-based products take hold, Innovest says in its “Chemicals Sector Report,” published in August 2006.

“It’s not that PVC producers are bad, it’s that you are facing what we think may be a change in the way your products are viewed,” Langsner says. At the moment, Dow doesn’t see an alternative to PVC that is as functional and can be scaled up to deliver what the world needs. Dow is talking to Wal-Mart about PVC and says the retailer knows that “change out of certain products can create significant unwanted outcomes,” Graham says. “We have to be careful we don’t trade one problem for another.” Graham also notes that PVC piping “is still the easiest, most cost-effective water piping system for residential use anywhere.”

In 2005 Dow sold its stake in NatureWorks, a bioplastics manufacturer, to food, agricultural and risk management provider Cargill. Langsner at Innovest questions the move, but Graham says the company’s products weren’t “scalable,” and that NatureWorks didn’t match Dow’s vision. “There is still a problem with the product itself, in terms of delivering all the functionality it needs,” Graham says.
Another area where Innovest sees a shift occurring is in pesticides. The biopesticide market is projected to grow by 20 percent a year, Innovest says, while the synthetic pesticide market is expected to decline by 3.14 percent a year. According to Graham, almost all of the research at Dow AgroSciences, a subsidiary, is dedicated to biosolutions. “We are poised like everyone else to follow that trend and to seek the advantage to having the kind of solutions that we think are necessary to survive.”

Not everyone is skeptical. The book “Green to Gold: How Smart Companies Use Environmental Strategy to Innovate, Create Value and Build Competitive Advantage,” by Daniel C. Esty and Andrew S. Winston names Dow as a top environmental leader—what they call a “wave rider.” Several factors define a wave rider: a high ranking on two or more socially responsible lists, participation in industry compacts or agreements (such as the Global Reporting Initiative), and survey results from environmental executives, among other factors such as how the company performs against key metrics on sustainable “outcomes,” like greenhouse gas emissions and waste.

Winston points to Dow’s involvement with the U.S. Business Council for Sustainable Development (USBCSD), a group that seeks to prove the business case for sustainability through specific projects.

Dow played a key part in developing the council and the company’s executives have held leadership positions in the organization.

Dow is working with the council on a “by-process synergy” project, designed to reuse nonchlorinated waste from six Dow Chemical manufacturing plants on the Gulf Coast. The idea behind by-process synergy is that it is possible to create a “diversified industrial ecosystem,” analogous to a natural ecosystem, where industrial plants use waste material and energy from other industrial plants, eliminating the need to use virgin material, the USBCSD says in a 2005 case study. The project was funded in part by the Department of Energy.

“They are out there trying to think outside of their own boundaries and connect to larger networks,” Winston says.

A recent connection Dow has made is with the U.S. Climate Action Partnership, a group of more than 30 businesses and nongovernmental pushing the federal government to enact climate change legislation.

Getting the United States to tackle climate change is a first step, but Kepler believes an international framework is essential. “We have to have some of the major greenhouse gas emitter countries step forward and have a common view that they are going to solve these problems,” Kepler says.

When it comes to tackling global challenges, Dow believes, as a diversified chemicals maker, that it’s in the right spot. “Everything that is manufactured has a chemical reaction in it,” says Dave Kepler. “Dow being the largest producer of chemicals and plastics has a good window to this challenge.”

To Seb Beloe at SustainAbility, the chemicals industry is an interesting mirror for society as a whole. “It’s so conservative, so resistant to change,” Beloe says. Yet chemistry is fundamental to sustainable development. “All the cool, new technologies we need to address climate change—they can do it,” Beloe says.

Dow recognizes it is in a position to make a difference and doing so makes business sense. The 2015 sustainability goals grew out of a vision to be “the largest, most profitable and most respected chemical company in the world,” Graham says. The enormity of the challenges the world faces requires a company of Dow’s size, research and manufacturing capabilities, and global reach. “The competitive advantage is finding the scalable opportunity,” he says. “I think we are wonderfully positioned to take advantage.”