MGT 9380

Environmentally Sustainable

Behavior In Organizations

Final Assignment:

Sustainability Report for Dow Chemical

Company

Tuesday, December 15, 2016

Associate Professor: Stephan Dilchert

Team Members:

Mourti Nefeli Noyes Henry

Executive Summary

The following report focuses on Dow Chemical Company and the way they report on

their sustainability initiatives. Our objective is to understand how the company prioritizes its

environment and society related practices, whether their reporting method provides

meaningful information and where the company is lacking in terms of sustainability.

For each area for improvement that has been identified through this research, a

recommendation is provided on how to improve. Recommendations range from specific

initiatives to overall online presence.

Overall, Dow claims to be a leader in sustainability by employing innovation in its design

and production process and leveraging partnerships with non-profit organizations. However, in

its 178-page 2014 Sustainability Report, we see the company falling in the same “trap” as many

other large organizations; the need to promote an overly positive image of the company and its

operations by continuously repeating the same flattering statements.

Given the recent announcement of the merger between Dow and DuPont, our report

has been modified to incorporate the potential of the new entity, DowDuPont, when it comes

to Sustainability, given the financial resources, human capital and technical capabilities.

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Introduction

On Friday, December 11th,, 2015, Dow Chemical Co. officially announced its decision to

merge with DuPont Co. The merger, which has been discussed on Wall Street Journal before its

official announcement, will create DowDuPont, which will then be split into three separate

entities.1 After hearing this news, it’s easy to imagine the environmental impact and the power

that these companies can have onto new sustainability initiatives. This will affect not only the

chemicals and plastics industry, but will have a widespread influence into agriculture and

manufacturing as well. The two companies’ combined worth is $129 billion2 and they have

annual combined revenues of approximately $83 billion3.

Examining the sustainability report of Dow, as well as that of DuPont, from 2014 helps

us understand what this new company could achieve for the environment and sustainability.

Dow and DuPont both report on their sustainability, economic, and social performance using

the GRI G3/G4 reporting framework. DuPont provides a Sustainability Progress Report that

gives an overview on how the company is doing environmentally while Dow publishes quarterly

updates. Dow and DuPont both have websites set up and a sustainability section on their

websites that announces goals for the company and the progress of those goals. DuPont only

lists Sustainability Progress Reports for 2013, 2014, 2015 and Global Reporting Initiatives for 1 Wall Street Journal, “Dow Chemical Long Pursued DuPont”,http://www.wsj.com/articles/dow-long-pursued-dupont-1449709386?cb=logged0.289368260698066652 Wall Street Journal, “DuPont, Dow Chemical Set For Record Sessions After Deal News”, http://blogs.wsj.com/moneybeat/2015/12/09/dupont-dow-chemical-set-for-record-sessions-after-deal-news/3 Reuters, “$130b mega-merger: Dow, DuPont to form world's largest agrochemical entity”, https://www.rt.com/usa/325668-dow-dupont-merger-chemical/

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2014 and 2015. Dow lists annual Sustainability Reports from 2006 and includes separate

Sustainability Highlights as well as quarterly updates that focus on any initiatives that have

shown progress in the past few months. Even though this follows the standard for companies

of this size in any industry, both Dow and DuPont claim to integrate sustainability into their

core business and given their pasts (both companies have had tremendous scandals with

harmful products for the environment and people), they could increase their transparency by

making it much easier to find their reports and to show the changes from year to year.

Dow & DuPont – Sustainability Report Quick Overview

The sustainability reports of each company contain a message from the CEO and a letter

from the CSO. DuPont and Dow talk about the business segments and the geographic segments

that they operate in and a revenue breakdown for all segments. Dow also talks about the

workforce breakdown, showing how many full-time and part-time employees are male or

female while providing a breakdown of contract employees by male and female. As of 2014,

Dow is predominantly male at 70% on average for employees and uses twice as many male

contractors as female contractors. DuPont doesn’t make any mention of employment

breakdown.

The reports also summarize the economic impact of Sustainability for the companies.

With both companies already following the GRI G4 reporting framework, there are very few

differences in the structure of the report. The Dow report is roughly 178 pages compared to 69

pages for DuPont. The length of the reports differs partly due to the difference in size of the

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companies themselves; Dow is a bit larger and operates in more business segments than

DuPont.

Focus on Dow’s Sustainability Report

We wanted to take a closer look at Dow, the initial subject of our research, and provide

a breakdown of their sustainability initiatives that would help us understand where the

company is lacking and where they actually set the standard, if applicable.

There is no doubt that Dow shows significant achievements in its report and especially

in terms of its 2025 Sustainability Goals, an initiative that started back in 1995 and is renewed

every ten years. (Let us remind you here that DuPont has its 2020 Sustainability Goals, which

started in 1990). For anyone reading Dow’s 2014 Sustainability Report, the company’s intention

and efforts in reducing the impact of its operations, introducing more sustainable products for

its clients and connecting with local communities in order to improve the quality of life in their

respective areas, are evident.

While analyzing the aforementioned activities towards sustainability, we found it useful

to group them under two distinct categories:

I. The external category, meaning activities that target sustainability goals outside the

company, e.g. providing products that help clients be more sustainable or working

with non-profit organizations to conduct research or educate the public.

II. The operational category, which includes activities that aim at decreasing the

company’s environmental impact by switching to alternative energy (such as the

agreement with a wind farm to supply 200 MW of wind power annually) or the

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decisions undertaken to maintain CO2 emissions constant for the next 10 years

despite the company growth.

DOW has received multiple awards for these – and many more – initiatives but

identifying the validity, worth and selection process of these awards is almost impossible for

not only the average consumer but also industry professionals.

Here are some of the areas for improvement for Dow:

A. Employee-Based Initiatives

Despite the overly positive picture painted through its report, our research shows that

the company lacks severely in terms of internal, employee based, initiatives that could actually

help shift the organization’s culture and show Dow’s candid commitment to its values.

Specifically, even though the company mentions the importance of employee

engagement and even reports on its employees’ time spent volunteering for various causes, it

fails to establish (or at least effectively report on) processes and incentives that would identify

their employees’ behaviors regarding the environment and feed into meaningful

recommendations about how to enable them to drive change. If Dow’s idea of innovation and

sustainability doesn’t include a prominent role for its employees, then it’s unlikely we will ever

see true commitment from Dow – or what is now DowDuPont.

In Dow’s 2014 Sustainability Report, we see that the company has been conducting

annual surveys to increase employee engagement, especially when it comes to job

development, leadership, communications, etc., called GEOAS - Global Employee Opinion and

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Action Survey. There is no mention of questions around employees’ environmental behaviors

or practices, which leads us to question the company’s awareness of behavioral patterns in its

employees that could either harm or benefit the environment. With the lack of such

information, it is almost impossible for any company to get its employees to engage and invest

in sustainability in a way that would help the company become a change agent in the industry.

Therefore, our recommendation to DowDuPont would be, once they have finalized the

separation of the three future entities, to start with soliciting information about what its

thousands of employees are doing at work in terms of the environment. Understanding how

employees behave will allow them to form the right mix of employee-based initiatives that will

reflect the companies’ commitment to long-term sustainability.

Dow also seems to fail to incorporate environmental concerns at any stage of the

company-employee relationship; recruiting, selection, training or performance management.

This leads us to believe that, despite their continuous efforts to portray Dow as a company

driven by sustainability and innovation, no significant changes were made to the organizational

structure and its core operations to reflect that.

For DowDuPont, we’d also like to see how many women is part of this company

throughout all the ranks. How many new jobs were added that were “Green” jobs; jobs, whose

primary function is to develop new products, chemicals, and processes while using cost-benefit

analysis to determine how impactful they might be on the environment.

B. Sustainable Chemistry – Life Cycle Assessment

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One of Dow’s 2025 Sustainability Goals is enhancing Sustainable Chemistry and

increasing revenue from products that are “highly advantaged by sustainable chemistry”.

However, we can’t seem to find what that means exactly since the company only provides

generic statements about the materiality of this initiative and the amount of revenue gained

through such products for 2014 ($13 billion). What we need is for Dow to at least provide some

examples of products that were significantly modified by sustainable chemistry, how this

change was implemented, what it meant for procurement, production and distribution, how

they benefited Dow’s clients and how that was promoted and communicated to the clients.

Otherwise, one would assume that the increase in those sales was not necessarily due to

sustainable chemistry, but rather served as a way for Dow to boast about integrating

sustainability into its products without actually providing any comprehensive data that would

be easy for a layman to identify and understand.

The same goes for the Life Cycle Assessment (LCA), an extremely significant tool for

companies like Dow, that helps record and assess the environmental impact of a product in all

stages of its life, from cradle to grave. There are two main issues with how Dow reports around

its products’ LCA:

Information is scattered throughout the report and not concentrated in one

chapter or section that would help understand what the company is actually

doing and whether LCA is applied across all business segments or only in a few.

The information provided is limited and for the most part it’s a repetition of the

same statement about how Dow uses LCA to get a holistic view of its products’

impact. Every now and then the company offers more information on very

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specific points, such as what LCA has shown about Scope 3 GHG emissions saved

by Dow insulation products.

A Dow advocate might say that Dow owns various different segments with multiple

products each and it would be very difficult – and perhaps pointless? – To include all that

technical information in the Sustainability Report. We would agree that Sustainability Reports

should not exhaust the reader to the point where they would give up reading but there are

many stages between what Dow does now and what an exhaustive report would look like.

C. STEM Education

For a company like Dow, the supply of talent in STEM professions is key. It is what will

keep the company innovating and, given the increasing focus of various programs and colleges

on sustainability, it will equip the company with professionals who share an interest and

passion in creating positive change. Dow claims to support initiatives related to STEM

education through its STEMtheGAP program and DuPont has a variety of initiatives around

STEM education. However, we cannot find any information about tangible results of Dow’s

initiatives nor do we see the company connecting education with sustainability and using that

to advance its current employees. In order for DowDuPont to sustain its place in the market,

stay ahead of the curve and become a true leader in sustainability, they will have to prioritize

STEM education, combine it with sustainability and offer it not only to future generations but

also to the already invested human capital of approximately 100,000 employees combined4.

4 Joseph N. Distefano, “Dow and DuPont plan to merge, then break apart”, (December 12, 2015), Philly.com, http://www.philly.com/philly/business/20151212_Dow_and_DuPont_plan_to_merge__then_break_apart.html#LqbUemjLPQRctCHl.99

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D. Data Presentation

While Dow’s report touches on many important aspects of sustainability, such as GHG

emissions, governance and ethics, alternative energy, etc., the method they use to present it

seems more like a data-dump for the company to make sure that no legal issues can arise, by

virtually saying, “hey, we reported all of it.” They may have reported all of it, but not in a way

that is effective for people, communities and their shareholders to see and comprehend how

the company is changing to adhere to Sustainability principles and what that means for them

and the future of the industry. The current report has an extensive “Strategy and Profile”

section that includes everything from climate to communities, many of which are simply

repeated later on in the respective sections. As a result, the reader must go back and forth and

weed out the continuous boasting statements to get a full view of what the company is doing

to, for example, engage communities or to reduce energy usage.

The new reports should definitely follow the GRI format, but it also needs to be more

structured. The letters from the CEO and the CSO should be included, as is the case so far, not

because there is important information in those letters but because it reflects commitment and

responsibility from the top down. A table of contents, highlights and summary is a “must”,

especially with such long reports. Dow has been following this template but DuPont goes

straight into content without giving the reader the opportunity to find information easily. Then

a distinction should be made based on their business segments; for companies like DowDuPont

it is important for the public to know how much the company has integrated sustainability

across businesses and how. What we get now is a generic overview that makes it difficult to

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detect which business segments are the least and most harmful to the environment and what

actions are being taken. Under each business segment they can present their progress of old

programs and any new initiatives and partnerships by following the triple-bottom line format

(people, planet, profit) so as to make it very clear to identify their impact.

There is always a need for a data-dump, how they were calculated, where they got the

numbers from, but the point of this report should be to make it easily available and

comprehensible to the public so they should leave that at the end and put an index on it. We

believe that with these changes in the structure of the report, the general public as well as

industry and sustainability analysts will be able to better monitor and evaluate the sustainability

efforts of such a complex and large entity. Otherwise, the sustainability report is simply a PR

effort, not an essential part of the company’s function and growth.

E. Economic Impact

There is a heated debate amongst analysts on whether companies should publish

integrated reports featuring both financial and sustainability results. Many would argue that

the two do not belong together because there is very little cross-over on the people who care

about both. Accountants, the traditional type of investor, the SEC, and IRA care about the

financial statements, they care about the taxes and the value of the stock. However, more and

more investors and hedge fund managers also care about how green the company is because it

gives a sense of whether this company is moving forward with the times. Whether it can follow

– and perhaps lead – the ever-changing sociopolitical dynamics those large corporations are

called to address.

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Dow includes a section on “Economic Impact”’ where they give an overview of the

company’s financial performance and attempt to demonstrate how sustainability has added to

that (e.g. revenue from products enhanced by sustainability). They also include potential

financial risks from climate change, as well as benefit plans, provided financial assistance and

indirect economic impacts such as building strong and healthy communities. But is this all

necessary in a Sustainability Report?

When a company integrates sustainability into its business, it’s only logical to measure,

monitor and report on the economic aspect of those initiatives. The financial angle should be

included but it should also be clear and straightforward, not the flowery paragraphs that depict

Dow as the benefactor of countless communities. If they want to make this information

available to the public, then by following the triple bottom line for each business segment, they

can effectively showcase the true investment and financial impact of each of their sustainability

programs. However, dumping financial data, some of which are not even related to

sustainability, seems like a desperate attempt to fill some more report pages and show that the

company is doing more that it actually is.

Some investors decide to only invest in companies that care about the ecosystem and

society due to their morals, while other investors support companies that care about the

ecosystem because they tend to have better ROIs; The main point is that until DowDuPont

figures out a meaningful, direct way to report on the financial aspects of sustainability, they

should keep them separate and simple. If they wish to keep them all in one, they can simply

index the financial data at the end for the analyst from Bloomberg.

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Online Presence

Taking a step back from the actual sustainability reports and viewing the companies’

websites, one might think that both sustainability sections were written by the same person.

Each website begins with a general “mission statement” that overuses the words innovation

and sustainability. Each company claims that they are the leader and the driver of change in

the industry. It almost feels as if the two companies merged a long time ago and simply kept

separate books for anti-trust reasons.

Diving a bit deeper into the websites, we start to hit business segments and industries

that we typically don’t realize that either company has any interest in. The one that stands out

is solar power and solar panels. Dow pushes hard their new product, which is the Powerhouse

Solar System 2.0, a new solar-power shingle that is supposed to increase the efficiency of solar

power for the modern home. DuPont is pushing their partnership with Moser Baer to bring

efficient and effective solar power to northern India. Although it is exciting to hear about these

innovations, we doubt that Dow and DuPont are the industry leaders. Tesla comes to mind for

the industry leader in solar power with their partnership with Solar City. Which brings up the

question: how do Dow and DuPont choose which segments to enter? What are the criteria?

It seems like Dow and DuPont are innovating to stay competitive and profitable and that

innovation comes in ways that are sustainable and environmentally-friendly because that is

what our era calls for, it is what American – and not only – consumers request and, more

importantly, climate change is a hot-button issue for the globally-developed economies. It’s

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hard to believe that if governments and people were not driving the push for more sustainable

technology, that either Dow or DuPont would be pushing these innovations.

There is nothing wrong with companies following the “green trend”, if it means that the

industry’s net effect is positive and not only harms but benefits the environment. We do need

companies though that strives for true change, not just good PR.

Recognizing the Past

This brings us to our next point, the lack of recognition for the companies’ past. Dow

and DuPont both have had practices in the past that have severely harmed people and the

environment. None of that is mentioned in their sustainability reports though. Should we not,

as consumers, hold these companies accountable and recognize that very little has been done

by these companies to make up for the calamity of their past? Dow pushed through herbicides

and pesticides that were unsafe to consumers and end-users and promoted them as safe. Dow

claimed that the EPA was incompetent and not fit to judge their chemicals. DuPont has a

history of dumping toxic chemicals into rivers and bears responsibility for polluting the Hudson

River in New York. These companies should and need to address these issues going forward. It

would be a strong step, as they work on becoming one company, to show that the new

company has really changed, that they matured, not just grew bigger. By admitting to their

pasts, the new company can be stronger going forward.

We don’t expect companies to be eternally indebted to society for mistakes of the past.

As a community and as a society we accept that things change but the key is how they address

and fix them now. They can be a true leader in sustainability by, for example, pushing forward

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ideas on how to rectify the “brime” spillage in Midland, Michigan, or how to clean up rivers

they have polluted to make them inhabitable again. The report that Dow – or DowDuPont -

puts out should be focused on that, their goals and their mission as a company should be

focused on how to reverse the negative effects of their actions in the recent past. The Dow

sustainability report is 178 pages long and not only jumps from one idea to the next but we also

don’t see the company taking ownership of the environmental issues they created in the past.

Expectations for the Future

Dow and DuPont see sustainability as good for business. However, consumers and

governments are pushing all businesses and industries to be more eco-friendly and sustainable.

What is essential here is Dow’s power and influence in the industry. The fact is that Dow is the

company who can single-handily, and more so after the merger with DuPont, affect how our

food is grown, what kind of herbicide and pesticide are used, what the impact on our health

and environment is. They can positively affect the lives of the end-consumers of plastics and

household products. The biggest change can come from the fact that most of Dow’s business is

in business-to-business transactions, which means if Dow actually puts sustainability at the

focus of everything it does, and not just what is profitable, then they can really start to impact

many different industries.

The merger of Dow and DuPont is a great thing for all of the reasons above. They are

combing two major companies and then splitting them into three separate entities. Though the

structure of these entities is unknown, we hope that it will be easier to prioritize sustainability

and eco-system friendly initiatives in the smaller companies, which will still have the same

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resources and capacity of the larger ones. It also allows Dow and DuPont to reinvent the

reporting standards for “sustainability”, to make them crisp and clear and understandable so

other companies in other industries can duplicate and reproduce them for their own

operations.

Dow and DuPont may not be perfect, and their reasons for environmental

consciousness are certainly questionable, but they have the power and knowledge (they are

companies with great scientific talent, after all) to change how the world operates for the

greater good.

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