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Defining Sustainability, Part 2: The BMW Way

Part Two of Seven

By Jack Rosebro

Bmwsustcov

The BMW Group comprises the automobile brands BMW, Mini, and Rolls-Royce, and employs about 106,000 full-time workers worldwide in the manufacture of about one million vehicles per year (2004 figures). Having largely built the BMW brand on the reputation of its engines, the BMW Group is considered a pioneer in hydrogen-fueled engines, and considers liquid hydrogen to be “the fuel of the future,” but has largely eschewed hybrid and hydrogen fuel-cell development in favor of more traditional powerplants.

BMW’s Sustainable Value Report 2005/2006 is the company’s fifth environment-related annual report, and apparently takes the place of the traditional environmental report, rather than supplementing it.

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.

Bmwsust2
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)

Bmw_heat_wheels_3
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:

Comments

Robert Schwartz

BMW Sustaiability? Does not compute.

Lance Funston

You say they eshewed hybrids, but what about their role in two-mode hybrid development partnership? You also posted an earlier article about their experimentation with supercapacitors to create a hybrid acceleration booster.

t

If, in the future, there is not enough resource to go around, whether it be water or forestland or rainforest, the amount of profit for quantity of input will be somewhat irrelevant, will it not.

In any event, just looking at the plant inputs ignores the impacts that occur when the product is used. The automobile is not sustainable given the U.N. definition, especially if, within the definition of future generations, one includes non human life.

Bruk B

At least the way it's stated above, Figge's Sustainable Value concept applies as long as your perspective remains inside the microcosm of your immediate industry. That is, using these resources more effectively than your competitors allows you to remain more "sustainable" in that industry, relative to your peers.

BUT, the hazard of ignoring questions like "how dangerous is a ton of CO2" is that macro issues are completely missed that may swamp the micro world.

This is like running a race backwards over a rolling flatbed truck. Relative to a fixed point on the ground, the fastest runner passes more slowly than the others and can claim he is "more sustainable" relative to that point. But when that point is the edge of a cliff they all still go over it together.

It might be good business for BMW to be "more sustainable" than its competitors but until it jumps off the truck completely it's still headed for the same global warming cliff. (With the rest of us.)

When asked what is the most powerful force in the universe, Einstein replied "compound interest." Think about it, anything that requires sustained growth can not be "sustainable" forever as it would require infinite resources. Our world is finite.

tom deplume

As currently built cars may not be environmentally sustainable. Future cars could be produced from biomass based fibers and resins which could hold up for over a century. The newest battery innovations could make the need for an ICE or fuel cell irrelavent. Electric motors could last for centuries with only replacement of bearings maybe once a decade. The first companies to build such cars will most likely be new companies with today's manufacturers playing catch up.

Jack Rosebro

"You say they eschewed hybrids, but what about their role in two-mode hybrid development partnership? You also posted an earlier article about their experimentation with supercapacitors to create a hybrid acceleration booster."

The article states that BMW has largely (not completely) eschewed hybrids. Despite their own experiments, BMW has made many statements about their skepticism of the value of hybrid powertrains. The fact that they signed on to the GM/DCX hybrid transmission venture only shows that BMW is wisely hedging its bets.

That being said, it is entirely possible that BMW may - or may not - do an about-face. Many of their competitors already have. Thanks for the question.

- Jack Rosebro

An Engineer

"Our world is finite."
In theory, yes. In practise, no!

In terms of the duration of human life we have an infinite resource: sunlight. The rest is just matter we need to recycle, the way it is done in nature. CO2 is captured by a plant doing photosynthesis (using the infinite resource). The CO2 is converted to plant matter (call it food for simplicity). The plant or an animal or a human can use the food, and convert it back to CO2. Infinitely sustainable, practically speaking.

Humans can do the same thing, if we choose to. It is already happening in water treatment. In simple terms: down the drain, through the sewage treatment plant, back to the river, into the treatment plant and back into your tap. Infinitely sustainable, practically speaking.

Now, how does more people affect this cycle? You do not need more water, you simply need to move the water through the whole cycle faster. For example, say you have a town of 10,000 people, each requiring say 250 liter of clean water per day. You need to cycle the water at a rate of 250 * 10,000 = 2.5 million liters/day. If your population increases to 20,000 people, you need to double the rate of the cycle to 5 million liters/day. The size of the reservoir of clean water is only important as far as a "back-up" should something go wrong somewhere in the cycle. The size of the reservoir does not limit the population that can be supplied with clean water, only the rate at which the water can be cycled does that.

Is there a limit to how fast the water can be cycled? The limit is determined by the resources that the cycle consumes for each unit (liter) of water. In this way, the limit is set by technology. As technology improves over time, less resources are needed to treat a liter of water. This is why, over time, the real cost of most resources tend to decrease.

What happens if technology cannot keep up with population growth/demand? Well, as we saw in the past year with crude oil, prices go up. When prices go up, it encourages consumers to use a commodity more efficiently. In our village, water demand may decrease to 200 liter/person/day. With a population of 20,000, that would effectively save 1 million liter water/day.

Bottom line: no need to head for the caves! Between the market and technology we are pretty much covered. If we can only keep those nasty politicians away...

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