Integrating Sustainability Into Strategy, Governance and Employee Engagement

suzanne

“We have been doing a lot of things around sustainability for a very long time,” says Suzanne Fallender, director of CSR (corporate social responsibility) Strategy and Communications in the Intel Global Corporate Responsibility Office.

“What we’re doing now is trying to take it to that next level of integration in terms of our strategy, in terms of our governance system, in terms of employee engagement,” she says. “That’s really where we’ve been focusing a lot of our efforts.”

Fallender came to her role four and a half years ago from outside the company. “I actually was working on the investor side of things,” she says, at Institutional Shareholder Services (now part of MSCI), an organization that did corporate governance and ESG research. “I went from analyzing thousands of companies doing CSR to being inside a company, and I always tease that I get a taste of my own medicine now since I now have to answer the questionnaires I used to send to companies.”

In her role, Fallender works on Intel’s global CSR programs, which are detailed online athttp://www.intel.com/go/responsibility and http://blogs.intel.com/csr. She’s also front and center on the issue in social media, tweeting at @sfallender and @intelinvolved.

In a conversation with Nina Kruschwitz, an editor and the special projects manager at MIT Sloan Management Review, Fallender talks about the challenges of breaking out costs and payoffs of sustainability efforts, how the company is using targeted websites like ExploreIntel.com to provide year-round real-time reporting of CSR activities and how Intel sees value in helping create long-term demand for renewables, even if it means paying more for green energy today.

Intel has been active in sustainability issues for a long time, something like 20 years?

Intel started voluntarily reporting environmental data back in 1994, so we’ve had many years of experience with this. We moved to transparency and proactive engagement with investors on these topics, and today we learn quite a bit through proactive outreach and road shows that we do with ESG research firms and socially responsible investors.

Given the long history we’ve had, right now we’re working on how we strengthen that in our strategy and vision, how we integrate it into how we talk about value and how we really engage with the functional business units to make it relevant.

Since you’ve been at this so long, you must have developed a business case. How would you articulate the business case for sustainability right now?

One of the things we look at is the different ways that sustainability creates value, and that can differ by action or program. But really, it creates value in four ways for us: one is risk management, two is operational excellence and cost savings, three is brand value and four is revenue and new market opportunities.

As a manufacturer, most of our business case is made in terms of our license to operate. Being able to have strong relationships at the local and national levels with different stakeholder groups is critical, given the pace of innovation and how fast we bring up new factories online. The fact that we do have a strong environmental and sustainability reputation helps in that trust-building.

How do you measure these sorts of things in relation to making the business case?

That’s one of the projects we’ve been engaging with corporate finance on, because some of this is very difficult to measure.

We’ve done a lot of measurement around the reduction of our footprint, and some of the things that we’ve measured which make a very clear case are our investments in energy efficiency within our factories and operations. We can identify how much we’ve invested in new controls or systems, or, say, how much we’ve spent to upgrade to new, more efficient boiler systems.

We know, based on those projects, how much we’ve saved in annual energy costs. Since 2001, we’ve invested over $45 million in 1,500 projects. We can quantify that that has saved us in energy, 790 million kilowatt hours in energy costs — about $23 million a year. Those are the easier things to measure.

Some things are harder to quantify. For example, we are the largest purchaser of green power in the U.S. according to the EPA. We know that we’re paying a premium for our power when we buy renewable energy credits, but we know that there are some qualitative and longer-term benefits that come along with that as well, such as spurring some long-term demand in the market for renewables that will help bring that cost down over time.

Just because you can’t always measure or monetize it doesn’t mean you can’t talk about the strategic value it creates. We’re investing in areas to quantify what we can, and we’re working with corporate finance to develop some tools to help us be more systematic in our measurement approach.

Are investors responsive to the idea that this is clearly very long-term thinking? How much pressure is there to show quarterly returns for this stuff?

I think there’s an understanding that much of this is more long-term focused. We actually were doing quarterly environmental reporting a few years ago, and we found that nobody was using it. Perhaps we were out too early in quarterly issues. But I do think people do understand that many of the benefits from these issues are more long term, and part of long-term strategic discussions.

I think when you’re looking at mainstream investors, one of the things we’ve learned is that it is probably more effective to not give them 100 pages of a CSR report, but to pick out the few things that you think are most relevant to your business and your industry. One way we’ve done this is to integrate it into our financial reporting. So in our annual report and 10K, we integrate information on energy-efficient performance, climate risk, water risk.

Are you able to separate sustainability investments from those which might just be regarded as broader business investments?

We don’t break that out right now, partly because it’s difficult to know how to break that out given how we’ve worked to embed sustainability across our business. For example, some of the things that, we’ve done in the marketing space involve changing the guidelines for how we do events, and some of that is sustainability-driven.

We had a team led by an employee in our corporate events marketing group who decided he wanted to be able to “green” our Intel Developer Forum, one of our largest annual events. The team was able to drive a lot of change there, and there were some investments up front that will save money over time.

Can you talk a bit about risk management and the license to operate?

I would say that for Intel, like with most companies, you start with the risk management. That’s usually where most companies will start when thinking about CSR. And yes, the license to operate would fall into that category. We spend a lot of time at the local level engaging with local stakeholders. We have regular meetings at most of the sites where we have major manufacturing operations, and we’ve increasingly tried to use technology in that approach.

We recently launched a new site called ExploreIntel.com. We’re piloting it with one of our manufacturing sites in New Mexico, as a way to use technology as part of our stakeholder engagement process. The site has real-time reporting from the factory of environmental data — air status, the amount of water conserved during the previous quarter, solar power and recycling figures. It shows whether the stacks and different controls on the site are operating properly. Also, if there’s any notice we need to give in real time to the community, we can provide that on the website as well. There’s a webcam on the roof,

The webcam — what’s it streaming?

It’s a live webcam, so anyone who logs on can see the top of the roof looking out over the campus. Because a lot of people haven’t been on our Intel site, they can see what it looks like, what kind of water conservation controls we have. The site also has some educational videos, too, with our environmental engineers, our senior executives explaining our approach to environmental management.

It’s really a one-stop shop for information. We just launched it this year, so it’s very new. These sites complement our annual CSR report. We integrate CSR information by audience to different channels.

How long did it take ExploreIntel.com to go from idea to practice?

It was pretty quick — it took less than a year. As you can imagine, Intel is very strong on privacy controls, so it took a little while to get that through legal, in case someone walked by the webcam. But we had a very strong champion in our senior VP of manufacturing and supply chain who is a strong advocate of transparency, and he said, “Let’s really try to see if we can make this work.” He helped shepherd it through.

The next pilot site is our manufacturing plant in China, which we just launched last week actually, and then we’ll see if we want to roll it out to more manufacturing sites.

We’ve been talking about how you engage with external communities, like shareholders and community stakeholders. What about internally? What kinds of incentives does Intel provide to get employees engaged?

We’ve integrated it into employee and executive compensation. We did that in 2008 for the first time. We had been talking with some outside groups about ways to link to compensation. We’d seen other companies just link their CEO pay, or the pay of their top executives. We had a variable compensation plan called the Employee Bonus plan, essentially a profit-sharing plan. It has three main components: absolute financial performance, relative financial performance, and operational goals. It’s in that operational goals component where we integrated the sustainability metrics.

The metrics have changed slightly each year based on what change we needed to drive. But we think it’s very important that it’s included - for frontline employees all the way up to the CEO.

What would you say is the biggest barrier internally, whether it’s something like working across silos between departments, or dealing with the skeptics in the room?

I’d say two things. One of the challenges inherently is the fact that we have a matrix-distributed model. We try to integrate responsibility into different parts of our business because we think this is ultimately the most effective way to manage these issues. But that does make it more complex to manage, and sometimes things move a little bit slower. It’s a tradeoff — you do want the people who are responsible for that specific aspect owning it, but it creates challenges in trying to align and reconcile all the different things that are going on.

The other is something we touched on earlier, which is trying to quantify things that are inherently hard to quantify. Take the issue of water, which is something we’ve invested quite a bit of dollars in over the years, to reduce our water use and improve our efficiency. But water is still relatively inexpensive, so in addition to running the numbers to see what your ROI is, you have to also remember that it’s not just about straight ROI — you have to also think about risk and reputation issues and community impact.

There was a report last year by Environmental Leader on some of Intel’s own metrics that said the company’s chemical waste rose 27% between 2009 and 2010—

That was when we released our CSR report this year. One of the things that we pride ourselves on is that we talk about not only our highlights, but also our challenges in our reporting.

Two of our challenges are in the areas of chemical generation and water use, and one of the reasons for that is because as our technology gets more and more complex and our chips get smaller and smaller. Our latest chips have a vertical design build component. A good way to think about it is that it’s like a city — you can’t just continue to build flat and outwards when you run out of real estate – you build up instead. Building up on the chip though requires more rinses, both of chemicals and water. So water and chemical use goes up.

Now, we’ve been investing in different pilots and looking at different ways that we can continue to bring those numbers down over time. But for a period of time it’s going up. So, we talk through what some of those challenges are and then continue to drive that discussion from the senior level to continue to invest in looking for ways that to bring that down without compromising the quality of the design.

So given everything we’ve talked about, what do you see as the biggest challenges Intel is facing with sustainability over the next two to three years?

This whole question of mainstreaming and reporting, and articulating the business and social value corporate responsibility creates. There’s a lot of discussions internally and externally around how do we overcome some of these barriers in terms of measurement. I do think that’s what I’ll spend a lot of my time on with different people in the company in the coming years, from investor relations to corporate finance to our business groups.



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