The first few pages of the biennial report are replete with revenue, production, and profit charts that would seem more at home in a conventional corporate financial report, and the theme is echoed throughout the report: sustainability as economic component, measurable in currency.

That approach has been taken before with mixed results: various agencies have at one time or another, for example, tried to put a dollar figure on the planet’s natural resources, calculating a “cost of replacement” despite our inability to replace a natural resource once it has been fully extinguished.

In its report, BMW cites three competing definitions of sustainability. The first two, noted in last week’s introduction to this series, are ubiquitous yet imprecise:

1. The UN’s definition of sustainable development, identified as “development that satisfies the needs of the present generation without endangering the bases for life of future generations”;

2. That which “takes equal account of environmental, social, and economic development”: the so-called three-legged stool of sustainability, also referred to by US and UK firms as the “triple bottom line.”

The third definition, which is unique to this report, states that “for the BMW Group, the economic relevance of sustainability is seen in three elements: resources, reputation, and risks.”

Much of BMW’s valuation of sustainability initiatives is calculated using the Sustainable Value method, a research project of Dr. Frank Figge, a professor at the Sustainability Research Institute of the School of Earth and Environment at Leeds University (UK), and Dr. Tobias Hahn, Environmental Scientist at the Institute for Future Studies and Technology Assessment (IZT) in Berlin.

Sustainable value is created when a company uses economic, ecological, and social resources more efficiently than the industry average.

—Dr. Figge

That value, according to the Sustainable Value method, can be measured in currency. BMW apparently agrees, saying that “the main advantage for companies is that the Sustainable Value presents sustainability success like economic success...In the medium to long term, the Sustainable Value could become the basic element of a sustainability audit.”

BMW’s graphic illustrating their vision of sustainability. Click to enlarge.

To give an example, Figge and Hahn divided the average yearly operating profit of sixteen automakers, in euros, by the average amount of water used by those companies in 2003, measured in cubic metres per year. They came up with an industry average of €96 of profit per cubic meter of water, and compared it with BMW’s profit in the same year of around €923 per cubic meter of water used.

By calculating the spread between BMW’s profit per cubic meter of water and that of its competitors, one arrives at a differential of €827. Multiply that amount by the amount of water that BMW used in 2003, and €3,006 million of “value” is created.

But where, exactly, is this value, and how does it help justify BMW’s stewardship of natural resources as better than, say, that of Ford or Honda? No assessment is given of, for example, the true cost of a given pollutant to the society which must absorb that pollutant. Such an assessment is referred to as a “burden-oriented logic.”

This economic-ecological connection is similar to some of Figge’s earlier work, in which he linked biodiversity to portfolio theory, the branch of economics which introduced the concept of portfolio diversification to asset managers and investors about fifty years ago.

In this sense, the Sustainable Value method seeks to define one leg of the three-legged stool of sustainability in terms dictated by another leg of the stool. No attempt is made to measure the value of the third leg—that of social quality.

“The Sustainable Value,” in BMW’s words, “does not cover social projects, as the value of social commitment can be neither quantified nor expressed in monetary terms.” This does not mean that BMW eschews social projects; to the contrary, the report includes a section devoted to social projects.

Existing approaches to assess and manage sustainable performance are burden-oriented. They concentrate on how bad, costly or burdensome the use of a resource is. A typical question in this context is: How dangerous or costly is the emission of a ton of CO₂?

Sustainable Value is value-oriented. Sustainable Value addresses the same question in a different way. How much value is created by a ton of CO₂?

—Sustainable Value website (www.sustainablevalue.com)

Heat wheels used in BMW factory to recapture energy from waste heat. Click to enlarge.

Putting that question aside for now, we note that, according to BMW’s figures, an average of 1.04 tons of carbon dioxide were produced at manufacturing facilities for every vehicle built in 2000. By 2004, that average had dropped by about ten percent to 0.94 tons per vehicle built. However, BMW’s sales rose during that same period, and total production of CO₂ also rose steadily between 2000 and 2004, from 870,862 tons per year in 2000 to 1,169,786 tons in 2004—an increase of about 34%.

By their very existence, the statistics in the preceding paragraph pose a thorny question to BMW as well as its competitors, and by extension, all manufacturing industries: How can a company grow while at the same time reducing its true (quantitative) impact on the environment?

A smaller 2003 sustainability report on BMW’s Spartanburg, South Carolina manufacturing facility is available on BMW’s US website. Among other environmental initiatives, it describes a gas-to-energy operation which pipes naturally-occurring methane gas from a nearby landfill to the Spartanburg plant, supplying more than 25% of the facility’s energy needs through four gas-fired turbines.

Next week: Is Ford really rebuilding itself around a philosophy of sustainability?

Resources:

• BMW Sustainable Value Report 2005/2006

• BMW USA 2003 Sustainability Report