experiences in management for...

Experiences in Managementfor Sustainability

Contents

1 Foreword

3 The Global Compact

5 Introduction

CASE STUDIES

13 In search of ecological excellence: Skanska’s environmental management at the Kukule Ganga Hydropower Project

37 One company, one idea: Samarco Salvamar project

53 Environmental Preservation and other efforts of Kikkoman Corporation

65 Eskom and the flexible hot water load management control system

The Global Compact Learning Forum | Experiences in Management for Sustainability

DisclaimerEDITOR’S NOTE: The views expressed in this publication are the authors’ own and donot necessarily represent the views of the Global Compact. The Global Compact makesno representation concerning, and does not guarantee, the source, originality, accuracy,completeness or reliability of any statement, information, data, finding, interpretation,advice or opinion contained in this publication.

This report is intended strictly as a learning document and should not be interpretedto indicate either effective or ineffective practices.

Printed on recycled paper.

The Global Compact Learning Forum | Experiences in Management for Sustainability 1

ForewordTHE FOUR CASE STUDIES present-ed in this publication come fromthe first collection of expandedcase studies developed, since2002, in accordance with a newapproach and case study guide-lines for the Global CompactLearning Forum. The newapproach encourages companiesto join case study authors fromour network of business schoolsand other institutions with astrong interest in learning indeveloping brief examples sub-mitted to the Global Compactweb database into fully devel-oped case studies that are exter-nally reviewed by peer reviewersand then presented at LearningForum meetings for open discus-sion. The four case studiesincluded here have beenthrough this process and werepresented jointly by companyrepresentatives and their casestudy authors at the SecondAnnual International GlobalCompact Learning ForumMeeting held in Berlin inDecember 2002. The meetingwas hosted with the support ofGTZ and companies from thenetwork called German Friends

of the Global Compact. We trustthat the publication of thesecase studies in printed form willenable further distribution andhelp continue the process oflearning about corporate citizen-ship around the world.

For this volume, we wish tothank, in particular, the com-panies Skanska, Samarco,Kikkoman and Eskom, theauthor institutions StockholmSchool of Economics,Fundação Dom Cabral, ReitakuUniversity and the AfricanInstitute of CorporateCitizenship, and the UnitedNations EnvironmentProgramme (UNEP) for theircontributions. We are also verygrateful to the peer reviewers –Hans de Geer, Dr. AntonFerreira, Boleslaw Rok,Gerhold K. Becker – who pro-vided valuable feedback to thecase authors during the casedevelopment process.

We hope that all readers willbenefit from the experiencescollected here, showing build-ing blocks in management forsustainable development andresponsible corporate citizen-ship. Further information andnew case studies, which areavailable for comment in the

Global Compact’s online data-base can be found on theGlobal Compact website atwww.unglobalcopact.org. GlobalCompact participating compa-nies interested in being thesubject of a case study are wel-come to contact the GlobalCompact Office at [email protected], as are academicsinterested in writing case stud-ies or acting as peer reviewers.

Ellen Kallinowsky

Head Learning ForumApril 2003

The Global Compact

The Global Compact asks companies to embrace, support and enact, with-in their sphere of influence, a set of core values in the areas of humanrights, labour standards and the environment. The principles are as follows:

Human Rights

Principle 1 | Businesses should support and respect the protection of internationally proclaimed human rights; and

Principle 2 | make sure that they are not complicit in human rights abuses.

Labour

Principle 3 | Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;

Principle 4 | the elimination of all forms of forced and compulsory labour;

Principle 5 | the effective abolition of child labour; and

Principle 6 | the elimination of discrimination in respect of employment and occupation.

Environment

Principle 7 | Businesses should support a precautionary approach to environmental challenges;

Principle 8 | undertake initiatives to promote greater environmental responsibility; and

Principle 9 | encourage the development and diffusion of environmentally friendly technologies .

Anti-Corruption

Principle 10 | Business should work against corruption in all its forms,including extortion and bribery. *

* The Secretary-General will introduce this principle at the Global Compact LeadersSummit on 24 June 2004.

More information,

including how to participate,

is available on the

Global Compact website at

www.unglobalcompact.org.


Introduction

CORNIS VAN DER LUGT

DIVISION OF TECHNOLOGY, INDUSTRY AND ECONOMICS (DTIE)UNITED NATIONS ENVIRONMENT PROGRAMME (UNEP)

THE CASE STUDIES PRESENTED IN THIS VOLUME are examples of companiesthat have proven commitment and innovation in the introduction ofenvironmental management systems, along with related requirementssuch as the right policies and training of employees. The different experi-ences remind us that setting up the company vision, policy, strategy,assessment, targets, task assignment, monitoring and reporting systemsand so forth are but one part of the full picture. Structure and content gohand in hand with process, and, in this process, we have individuals, per-sonalities, human beings.

To start with, making it happen requires committed leadership. Thevalue of personal conviction and drive at the board level is evident. Withthe commitment of senior management we need the commitment of indi-vidual employees. In addition, our examples show the strains that idealstructure and content can meet when faced with different cultural con-texts in different parts of the world. This is where standardisation meets itsmatch. Of course, pollution is pollution wherever we are. One cannot givea “cultural interpretation” to the damage that an oil spill, chemical leakage


or air pollution do to local human health, fauna and flora. Yet, to makeenvironmental management systems happen, we have to be mindful that itis not about “managing the environment”. Rather, it is about “managinghuman beings in their interaction with the environment”. This goesbeyond working with internal stakeholders. As we can see from the casestudies, it also critically requires working with external stakeholders suchas consumers, NGOs and local communities. The experiences that followcome from Sweden, Sri Lanka, Japan, Brazil and South Africa.

Setting yourself the goal of having group-wide ISO 14001 certificationand outperforming your sector in environmental management globally isone thing. Applying this sensibly in a hydropower construction project ina developing country, showing care for local impacts and needs, is another.This has been the experience of a Scandinavian company in Sri Lanka.Skanska is a Swedish construction group operating in over 50 countriesworld-wide with around 75000 employees. Its case study takes us to SriLanka, where the company was one of seven contractors involved in ahydropower project of which the planning goes back to the 1960s.Relying mostly on hydropower, Sri Lanka has to cope with rising electric-ity demands in the midst of changing rainfall patterns. In this instance, a“run of the river” dam project was undertaken in the late 1990s, followingan earlier environmental impact assessment done in 1993. Lying close toa World Heritage forest in an area that suffers from illegal logging andrubber extraction presented additional challenges. Furthermore, manage-ment was tested on the seriousness of its convictions and flexibility in dis-playing care with respect to the social impact that a construction projecthas on poor local communities.

The project in Sri Lanka was the first international hydropower projectthat Skanska completed within the framework of certified ISO environ-mental management standards. The company soon realised that its chal-lenge was more than environmental, having to undertake some strongconvincing power, environmental training and education to help raiselocal environmental awareness and the provision of local environmentalservices. Its experience presents practical insight into the boundary ques-tion of how far company responsibility and impact lies. The company haslearned that blunders by other contractors in the project also put itself inthe spotlight. It had to be innovative in convincing its client of the need

Setting yourself the goal of

having group-wide ISO

14001 certification and out-

performing your sector in

environmental management

globally is one thing.

Applying this sensibly in a

hydropower construction

project in a developing coun-

try, showing care for local

impacts and needs, is another

6 The Global Compact Learning Forum | Experiences in Management for Sustainability

to use more environmentally friendly building material, having local sup-pliers accept questions related to the content of their chemical products,finding local partners to assist in waste management, and getting the localpetroleum company to provide diesel fuel with a lower sulphur content.

As far as organisation is concerned, the group has introduced an envi-ronmental policy driven by the group executive board, committed toindependent audit and certification, implemented under supervision of“quality – natural environment – working environment” (QEW) depart-ments in every business unit and every project, with good communicationflows and regular contact between the field project management andheadquarters. Educating and training the 900 local employees involved inthe Sri Lanka project proved valuable in advancing safety thinking andoverall performance. This has a lasting local impact from which theclient, Ceylon Electricity Board, will benefit when it takes over the com-pleted product. If anything, its case study author concludes, Skanskacould have ensured greater credit for its environmental work had itengaged more with local communities and NGOs in dialogue.

Introducing management systems and at the same time creating entrypoints for innovative ideas to feed into the system bottom up is whatBrazilian company Samarco has been able to achieve. This producer ofiron ore pellets is owned jointly by Companhia Vale do Rio Doce andBHP Billiton. Facing pressure from shareholders abroad, the companystarted phasing in ISO 14000 and ISO 9000 with certification in the mid-1990s. Its “Quality House” model with clear targets provides for regularengagement of employees at all levels and encourages the creative use ofin-house knowledge. The result has been an environmental policy andmanagement system that is not the sole responsibility of the environmen-tal protection division, but of all employees. Employees from all divisionsvolunteer to assist in environmental monitoring and reporting.

At Samarco, the start of a “Field of Ideas” programme at the initiativeof the company president has also encouraged employees to provide inno-vative ideas on how to improve company performance in different areas.An example highlighted is the Salvamar project, in which the idea of alocal fisherman has resulted in the company supporting a local scheme inwhich used oil from local fishing boats is collected and recycled to beresold to fishermen. Providing facilities for recycling, Samarco shared an

Introducing management sys-

tems and at the same time

creating entry points for inno-

vative ideas to feed into the

system bottom up is what

Brazilian company Samarco

has been able to achieve.


interest with local fishermen in helping to restore and protect the localcoastal environment. This is an area in which the fishermen traditionallydiscarded used oil into the sea or buried it in the sand. The training andenvironmental education that accompanied the effort resulted in a jointcommunity development project that proved good eco-business sense toall involved. The project has also inspired the creation of similar initia-tives at other villages in the region.

From co-operation between the mining and fisheries sectors in Brazilwe move on to the food and drinks industry in Japan. Kikkoman compris-es a group with 61 companies world-wide, 48 subsidiaries and 13 affiliatesinvolved in the production of soy sauce, juices and alcoholic beverages.Over the last four decades the company has expanded its presence to theUnited States, Western Europe and in the Asia Pacific region. Withmuch of its production processes automated, the group currently employsaround 6000 people. Expanding globally and at the same time wishing tomaintain consistent quality standards in all operations brought specialchallenges in different cultural environments. With the commitment tothe Global Compact driven by a strongly convinced CEO, managingorganisational change within the company has involved, among others,reforming its corporate governance structure from a Japanese style to amore internationalised one. This included introducing outside directors tothe corporate board, creating a code of conduct for employees and a busi-ness ethics committee. At the same time, traditional elements such as itsmanagement philosophy of co-operation and human respect have beenkept intact.

Responsibility for the Global Compact lies within the internationaloperations, human resources and environmental departments of Kikkoman.The environmental departments have the main responsibility, since theenvironmental field is where the company feels its greatest challenge lies.The company CEO chairs its environment preservation committee, which,among others, is responsible for the group environmental management sys-tems and annual environmental reporting. This committee has been activesince the early 1990s in drawing up an environmental charter and settingvoluntary action programmes, more recently on energy savings and cuttingCO2 emissions beyond the Japanese Kyoto target. Regular environmentalaudits have been built upon by the expanded introduction of ISO 14001

From co-operation between

the mining and fisheries

sectors in Brazil we move on

to the food and drinks

industry in Japan.

With the commitment to the

Global Compact driven by a

strongly convinced CEO,

managing organisational

change within the company

has involved, among others,

reforming its corporate gover-

nance structure from a

Japanese style to a more

internationalised one.


certification of plants and subsidiaries. Importantly, the company is alsoexpanding its independently verified environmental accounting to includemajor group suppliers. Like any performer, the company has learned frompast mistakes, such as a wine poisoning incident in 1995. Yet its efforts toaddress such problem areas pro-actively has produced results with recogni-tion in the form a number of awards for this first Japanese group to havejoined the Global Compact in 2001.

Our next stop is Africa, where we have a case study from the electricitysupply sector. How do you meet the increasing energy demands of thegrowing population of an emerging market economy in Africa, where thedominant source of power generation is coal? Do you build more coal-fired power stations? From both an economic and environmental point ofview this is not a sustainable solution. A central part of the answer is, ofcourse, diversification, expanding the input from renewables. A furtherpart of the answer lies in energy efficiency, both in generation and distri-bution. Added to this, another part of the answer, not to be underestimat-ed, lies in helping consumers to consume sustainably. From the largestelectricity producer in Africa comes an innovative example of demandside management (DSM). This involves actions to influence the time,pattern and amount of electricity demand in ways that increase customersatisfaction and, at the same time, produce desired changes in the loadshape of the power utility. As such, DSM by Eskom provides an alterna-tive to simply expanding the power system. While it can take up to tenyears to build a new power station, a DSM programme can be implement-ed within twelve months. It enables the consumer to save on electricitybills and make a contribution for future generations and the environment.Every kilowatt-hour of electricity saved means one less kilogram of CO2generated by the power station.

The Eskom case study focuses on a project implemented since the late1990s in a residential area of Cape Town. Over 9000 households becameinvolved in a voluntary programme to reduce electricity use during peakshours. Volunteers indicate their patterns of use of their geysers, for example,using hot water in the morning or evening for bathing. Based on this infor-mation, their geysers are switched off at appropriate time intervals throughradio signals. The resulting reduction in local electricity use has enabledEskom to defer planned network cable upgrades in the area by a few years,

Our next stop is Africa,

where we have a

case study from the

electricity supply sector.

How do you meet the

increasing energy demands

of the growing population

of an emerging market

economy in Africa,

where the dominant source

of power generation is coal?


adding to cost savings. The project, currently being introduced in the restof South Africa, has been managed by a DSM department specially createdfor this task. The department has played an educational role by helpingexplain to consumers the benefits of DSM and other energy saving meas-ures. The example underlines the value of helping consumers makeinformed choices if we wish to advance sustainable consumption. The con-tribution of the DSM department represents an important part of the com-pany’s environmental management system and environmental policy.

Our tour of three regions and four case studies in this volume displaysthe value of humans communicating knowledge and joining collectiveefforts. Again, the structure and content of environmental managementsystems need to take due cognisance of the human factor. Without that,ambitious concepts such as “sustainability management” will remain theory.The Global Compact has inspired these companies to share their learningexperiences with other companies and stakeholders committed to corpo-rate citizenship and sustainable development. They may not be perfect,but they are showing commitment and willingness to learn. We thankthem for their contribution to this journey.


Case Studies

In search of ecological excellence:Skanska’s environmental management at theKukule GangaHydropower ProjectHANS DE GEER AND DANIEL STRIDSMAN

STOCKHOLM SCHOOL OF ECONOMICS1

Introduction

SKANSKA IS A SWEDEN-BASED INTERNATIONAL CONSTRUCTION enterprise,active in construction-related services and project development. Theoriginal Skanska Company was founded in 1887 and was based on cementmanufacturing in Sweden, but it soon expanded into activities in the con-struction field and began to capture market shares abroad. Today, afterconsiderable international expansion, Skanska is one of the world’s leading construction enterprises, operating in some 50 countries throughout theworld. Its primary markets are Sweden, the US, UK, Denmark, Finland,Norway, Poland, the Czech Republic, Argentina and Hong Kong.

1 Peer review of this case study was provided by Boleslaw Rok from the L. Kozminski Academy ofEntrepreneurship, Poland

Case Study | Skanska in Sri Lanka 13

2 www.skanska.com.; [Skanska Group magazine] Worldwide No 2, 2002.; Ceylon Electricity Board(1993), Final Environmental Assessment Report --– Kukule Ganga Hydropower Project.

The Skanska Group has approximately 75,000 employees and covers allphases of construction activities from concept to operation and mainte-nance. The total turnover of the Skanska Group amounted to EUR 18 bil-lion in 2001, an increase of 53 percent compared with the previous year.Earnings after net financial items were approximately EUR 120 million.

Certified environmental management systems form the basis for theenvironmental work pursued in the Skanska Group and, since the end of2000, all of Skanska’s operations are certified according to the ISO 14001environmental management standard. Skanska lies ahead of its maininternational competitors in having certified environmental managementsystems on a Group wide basis.

The Kukule Ganga Hydropower Project

Sri Lanka is a developing country in South-East Asia that has recentlyattained peace talks after 20 years of agonizing civil war between theSinghalese majority and the separatist Tamil minority. The country is ingreat need of electrical power to support industrialization and develop-ment. Since Sri Lanka lacks coal, oil and nuclear power, but has a highrainfall, hydroelectric power presents itself as the obvious power alterna-tive. To secure the country’s power supply, a huge hydropower scheme waselaborated 30 years ago, including an investigation of rainfall patterns,which provided guidelines for the location of hydroelectric projects. Theproblem is that these patterns have changed over time, decreasing theproductivity of current hydroelectric installations. The resulting shortageof power has caused power cuts of up to eight hours a day and compelledthe use of diesel-generators. However, the government has decided thatincreased use of hydroelectric power is the best solution to this problem.2

A hydroelectric power station on the river of Kukule Ganga, 70 kilo-metres southeast of the capital Colombo, was planned as early as the1960s. At that time, an American study highlighted the possibility ofextracting electricity from the river, sketching a 110-meter high dam,which would yield electricity, as well as provide irrigation. The environ-

Since the end of 2000,

all of Skanska’s operations

are certified according to the

ISO 14001 environmental

management standard.

Skanska lies ahead of its main

international competitors in

having certified environmen-

tal management systems on a

Group wide basis.


3 origin.dailynews.lk/2002/04/06/fea04.html.

mental consequences of this project were considered great and 1000 fami-lies would have been forced to move. Protests from environmental organi-sations eventually stopped the project.

Instead, a plan for a small “run of the river” dam emerged, where only afew dozen families had to move.3 The Sri Lankan government approvedthe new concept in 1993 and this marked the starting point of the KukuleGanga Hydropower Project (Kukule Ganga HPP). Nevertheless, construc-tion activities were delayed due to lack of funding until 1999, when theJapanese government granted Sri Lanka aid in the form of soft loans tofinance the project.

After the construction work of the Kukule Ganga HPP is completed, acertain amount of water will still be released in the original river channel toprotect the river fauna. Most of the water, though, will be diverted from theriver channel, led through a long mountain tunnel of 8 kilometres with ahead of 176 metres. At the end of the tunnel, the water will run throughtwo turbines powering generators, after which it is discharged back into theriver channel. The hydropower station is calculated to yield 80 MW (2 x40 MW) and an average annual energy production of 317 GWh.

The forest surrounding the project is an outshoot of the World HeritageSinharaja Forest in southern Sri Lanka, the last untouched rain forest inSri Lanka. The area is extremely rich in biodiversity and vulnerable tohuman interference. The farmers in the neighbourhood make their livingby cultivating rubber and tea. Many villagers have been given work dur-ing the building process and new modern roads have been constructed.This has certainly increased the general welfare of people, but unfortu-nately also resulted in increased deforestation.


Method

A research journey to Sri Lanka in October 2002 enabled the authors togather information on the Kukule Ganga HPP. Lars Jennemyr, ProjectManager of Skanska at the Kukule Ganga HPP, facilitated this by placinghis personnel at our disposal for lengthy interviews. Relevant externalstakeholders were also contacted and interviewed. Direct observations atthe Kukule Ganga construction site and consultation of various writtenmaterial has supplemented these interviews.

The Global Compact Performance Model has been used as an analyti-cal framework for this business case study. For information on this model,see the Learning section of the UN Global Compact Internet site(www.unglobalcompact.org).

Environmental Management at Kukule Ganga

Skanska’s involvement in the Kukule Ganga HPP started in June 1999and will end in April 2003, and mainly covers tunnel blasting and con-creting. Skanska’s contract is worth US$50 million and the labour forceduring constructions reached 900 people at its peak, including 50 expatri-ates from Sweden. Skanska only holds one out of seven contracts thatconstitute the Kukule Ganga HPP. Japanese and other European compa-nies perform the other contracts. When the Kukule Ganga HPP is men-tioned henceforth, only Skanska’s part of the project is concerned, notthe work of other contractors.

Skanska’s work in the Kukule Ganga HPP is pioneering in the sensethat it is the first international hydropower project that Skanska is com-pleting within the framework of the certified environmental managementsystem ISO 14001. In this way, the project has established new practicesand acted as a guideline for later projects by Skanska. Apart from normalchallenges faced in such a process, the fact that Sri Lanka is a developingcountry, lacking environmental awareness among common people as wellas institutional support for environmental measures, has proved especiallychallenging for environmental management.

Skanska’s work in the Kukule

Ganga HPP is pioneering in

the sense that it is the first

international hydropower

project that Skanska is

completing within the

framework of the

certified environmental

management system

ISO 14001.


4 www.iso.ch. 5 [Skanska group magazine] Worldwide No 2, 2002, p. 14.

The ISO 14001 is an environmental management system, prepared in1996 by the International Commission on Standardisation in Geneva.4

The system promotes environmental protection, resource conservationand improved efficiency. Unlike the vast majority of highly specific tech-nical standards, ISO 14001 is quite flexible and could be adopted by verydifferent companies occupied with different activities. Two different com-panies could come up with two different plans to fulfil the requirementsof the standard. The contents are not the primary thing, rather it is themethod and the end result.

In order to gain “ISO 14001 certification”, there should be independ-ent assessment and verification that operations are in agreement with theISO 14001 management standard. In Skanska’s case, the Norwegian con-sulting agency Det Norske Veritas Certification AB was used for independentaudits at the Kukule Ganga HPP. Skanska has also trained its own engi-neers to conduct internal audits of Skanska’s activities.

Skanska and its client, the Ceylon Electricity Board, have put forwardthe Kukule Ganga HPP as “a model for how an environmental manage-ment system should be implemented on a large-scale project.” 5 Skanskahad already earlier complied with a great part of the contents of ISO14001 in trying to spread and implement safety and environmental stan-dards to projects on different locations in the world. However, this workwas carried out ad hoc and without realising the full learning potential.Now, with the full adoption of ISO 14001, Skanska’s activities are sub-mitted to a firm regulatory framework, which involves continuous evalua-tion, feedback and improvement.

Kukule Ganga HPP in the Performance Model

Skanska’s vision

Skanska’s vision for a new environmental policy was born in 1998 in theaftermath of an environmental accident in Sweden (the Halland RidgeTunnel). During this process, Skanska had been exposed to heavy criti-cism and even prosecuted for its use of a hazardous sealing material.

Skanska’s Kukule Ganga

HPP has nourished an

educational vision and

attracted many visits for the

purpose of study.

The project management

has stated that it is glad

to share its experiences

in the environmental field.

Increasing environmental

awareness throughout the

world should, in time,

ensure greater demand for

environmental friendly

solutions and increase

the market shares of

companies with

environmental certification.


6 Skanska’s Code of Conduct, approved by the Board of Directors in February 2002. See:www.skanska.com.

7 www.skanska.com.

Skanska felt the urge to ensure that this would never happen again. TheHalland ridge accident in a way worked as an alarm clock for Skanska toshift perspective from retroactive mitigatory measures to a more proactiveenvironmental approach. Skanska’s decision to adopt the environmentalmanagement system of ISO 14001 on a group-wide basis gave a clear sig-nal of raised ambition in the environmental field, as did the formulationand approval of a company code of conduct at the beginning of 2002.6 Asa part of this process, Skanska also joined the Global Compact.

It is Skanska’s vision to be the world leader – the client’s first choice –within construction related services and project development.7 This alsoimplies being the world leader in environmental management.Environmental practice in the construction field requires continuousimprovement. What was considered good practice a decade ago may justas well be anathema today. Consider, for instance, the use of asbestos.

Skanska’s Kukule Ganga HPP has nourished an educational vision andattracted many visits for the purpose of study. The project managementhas stated that it is glad to share its experiences in the environmentalfield. Increasing environmental awareness throughout the world should,in time, ensure greater demand for environmental friendly solutions andincrease the market shares of companies with environmental certification.

Leadership

When the construction work at the Kukule Ganga HPP started, Skanskahad already made the decision to implement ISO 14001, but had not yetgained certification. The vision to be number one in environmental man-agement came from the Group executive board and the message wasclear: implement ISO 14001, gain certification and retain it. In order topursue this, the group executive board also required information on allmajor non-conformities to ISO 14001 in all projects.

Skanska developed a new organisation with QEW-departments (QEW= Quality, Environment and Working environment) in every businessunit and in every project. The responsibility for implementing ISO 14001is delegated to the project level, where the QEW-departments developthe necessary routines. However, this has not meant that project manage-

The vision to be number one

in environmental

management came from

the Group executive board

and the message was clear:

implement ISO 14001, gain

certification and retain it.


ment has had to work out its way alone, without support. There has beenan ongoing communication process between project management andhome office, and regular visits, checks and consultations are standard.

Empowerment

Skanska has faced challenges in implementing ISO 14001, due to the pre-requisites of the workforce at Kukule Ganga. For instance, it proved diffi-cult to train people in safety thinking, e.g. convincing them of the neces-sity of wearing boots and helmet during tunnel work. Many were used towalking bare-foot and felt hindered by boots.

Another challenge was to get people to follow routines. For example,Skanska, from the start of the Kukule Ganga HPP, installed sediment set-tlement ponds, to clear water used during excavation of tunnels before dis-charging it into the river. On one occasion, an overflow from the settle-ment ponds occurred and additional sediment particles reached the river.Skanska’s client, the Ceylon Electricity Board, presented complaints fromvillagers to Skanska and the company took care of the problem. Mr. T. M.Herat, Project Director of the Ceylon Electricity Board, later remarkedthat although Skanska could have been more alert, the company policywas probably right. The problem had been an extraordinarily high inflowof seepage water and relaxation down the line in cleaning the ponds. TheQEW-manager at Kukule Ganga, Jeffrey Wambeek, underlined the prob-lem thus: “Generally speaking, all routines must be constantly reaffirmedin Sri Lanka. The routines work for a while, but suddenly they let go.”

One possible reason why routines at Kukule Ganga are let go after awhile is that common people in Sri Lanka do not take environmentalquestions seriously enough. More down-to-earth questions are given prior-ity, whereas environmental care is considered a luxury of the rich. Tochange this attitude, Skanska has concentrated on conveying new ideasto the workforce. QEW-manager Wambeek stressed the importance ofeducation to be able to realize the importance of preserving nature. “Thisis the weakest link in our work, and it is seen in the environmental audits,because we have managed the tough parts, but we got caught on the easy parts.”

The QEW-department launched an ambitious environmental aware-ness-training program for all employees from the beginning of the project.Afterwards, the lower level managers have continuously received addi-tional training on these questions.

“We need a change in

attitude by people,

and this is accomplished

through education.”


8 Piyal Parakrama, President of the Green Party of Sri Lanka; Ajanta Palihawadena, environmentalist;Samantha Gunesekera, environmentalist.

9 Our Way of Working is an internal document, although constantly accessible to Skanska employeeson the company Intranet, it is not publicly available.

Some environmentalists expressed doubts about Skanska’s environmen-tal education of employees. When confronted with evidence, such aslearning material and attendance lists, where employees allegedly havesigned their participation in the educational program of Skanska, theenvironmentalists remarked, that in Sri Lanka, offering workers a goodsquare meal and having them sign afterwards easily fabricates such lists.8

Such fraudulent proceedings may be plausible in Sri Lanka, but they arediametrically opposed to the commitments made in Skanska’s Code of Conduct,and Skanska denies any such accusations. Bengt Ivner, Operational Managerat the divisional level of Skanska, notwithstanding his rejection of the accu-sations, showed a certain understanding for such suspicion: “They are proba-bly right that it was not within our power to get the environmental mes-sage through to every single one of these persons. But the next time theyhear it, perhaps, at least something more is grasped.”

When new ideas are introduced, some time for apprehension and repe-tition is needed to integrate the new material. A theoretical course at thebeginning of the project is certainly recommendable, but must be supple-mented by persistently repeating the message. QEW-manager Wambeekstressed the importance of being realistic about learning possibilities,given the native population’s limited previous environmental awarenessand the short time frame of the project. The construction time, less than4 years for a large-scale project, admittedly does not permit far-reachingeducational measures. Much time has had to be devoted to rudimentaryconstruction and safety training, since pressure from local politicians andvillagers has forced Skanska to recruit locally to a great extent, ratherthan bringing in experienced workforce from outside.

Policies and strategies

Skanska’s Code of Conduct functions as the general guiding principle andethical standard for Skanska. This document encompasses environmentalissues but also human rights, employee relations and business ethics.

On an operational level the management system Our Way of Working9

establishes working methods, tools and standards, including ISO 9001 for

Skanska’s Code of Conduct

functions as the general

guiding principle and ethical

standard for Skanska.

On an operational level the

management system Our

Way of Working establishes

working methods, tools and

standards, including ISO

9001 for production quality,

ISO 14001 for e

nvironmental safety,

and Internal Management of

the Working Environment.


10 www.dams.org.11 www.dams.org/report/reaction/reaction_skanska.htm.; www.skanska.com.

production quality, ISO 14001 for environmental safety, and InternalManagement of the Working Environment. Our Way of Working encom-passes all Skanska projects and consequently has a general, broad outline.To adopt the principles of the Code of Conduct and of Our Way of Working ata project level, a Project Plan is elaborated and gradually developedthroughout the phases of the project. The Project Plan is the source ofdetailed, project specific instructions, and it is here, that the routines ofenvironmental work are formed in practice.

The work of the QEW-department during the first year at Kukule Gangawas to a great extent about setting up the environmental management sys-tem. This involved making risk assessments, interviewing local governmentand setting up strategies and procedures. The second year was generallyabout monitoring and writing non-conformities to test the system and see ifit worked. If it did not work in some respect, the personnel had to go backand see what went wrong to make a new procedure in this respect. Thethird year involved following up and revising the system again.

Resources

The company trademark is a crucial resource of conveying trust to clients.Skanska’s vision to be number one in environmental management hassometimes distinguished itself from the crowd of other companies. TheWorld Commission on Dams (WCD) is an international commission withrepresentatives from governments, NGOs and business, which has devel-oped guidelines for large dam and hydroelectric projects.10 The report ondams and development, issued by the commission in 2000, was not verywell received by the hydroelectric industry. Nevertheless, Skanska wentagainst the stream, directly declaring itself in favour of the report andpointed at ISO 14001 as a suitable tool for practical application of thereport’s guidelines.11

Skanska has recently begun strengthening its trademark worldwide byrenaming all subsidiaries after the parent company. To protect its trade-mark, Skanska abstains from accepting projects that are very controver-sial. In line with this, Skanska pulled out of the bidding for Turkey's con-troversial Ilisu Dam. Skanska is very well known in Sri Lanka, since its

To protect its trademark,

Skanska abstains from

accepting projects that are

very controversial.

In line with this,

Skanska pulled out of the

bidding for Turkey's

controversial Ilisu Dam.


earlier activities on the island include the large Kotmale dam, a numberof bridges and roads. A strong trademark is often desirable, but in certainparadoxical situations it could work as a disadvantage. Axel Wenblad,Senior Vice President Sustainability of the Skanska Group, asserted thatSkanska’s trademark might be too strong in Sri Lanka: “The name of theKukule Ganga project may be unknown to people, but they still know ourname and associate us with the project. We are associated with much,over which we have no control.”

Skanska’s Project Manager at Kukule Ganga, Lars Jennemyr, alsopointed at this problem. He complained that when the project is men-tioned or criticized in Sinhalese papers, readers automatically readSkanska, as if Skanska and the Kukule Ganga HPP were synonymous. Asituation where every slip by the other, more anonymous contractors ofthe project is attributed to Skanska, is clearly not desirable.

An example of this phenomenon was the scandalous road constructionby another contractor at the Kukule Ganga HPP. Blasted rock materialfrom the construction had been thrown down the river slopes causingunnecessary destruction. Even though Skanska had nothing to do withthis, the trust for the company may have suffered because of people’signorance of the distribution of responsibility.

Innovation and processes

When the construction plans for the Kukule Ganga HPP were elaborated,the Ceylon Electricity Board produced a report on the environmentalimpact of the project. This report was the first means of Skanska to inves-tigate the environmental consequences of planned construction activities,before taking on the Kukule Ganga HPP.

However, the quality of this environmental assessment report has beenquestioned. The Ceylon Electricity Board prepared it in 1993, the firstyear of environmental impact assessment in Sri Lanka. Today, Dr.Channa Bambaradeniya of the World Conservation Union expresses theconcern that many biologists have found the report not to meet contem-porary scientific standards. He also expresses his wonder at why no rescueoperations or mitigatory measures were carried out between the comple-tion of the report in 1993 and the beginning of construction activities in1999. According to Dr. Bambaradeniya, the responsible authorities should

An illustrative example of

this problem was encoun-

tered when Skanska was

requested to build asbestos

roofs. Use of asbestos as a

building material for roofs

was a requirement of

Skanska’s contract, the

technical specifications of

which were prepared in

1993 by the Ceylon

Electricity Board.

However, when construc-

tion started, asbestos was

put on Skanska’s list of

prohibited materials.

When Skanska refused to

use this material, the client

replied that Skanska would

be paid for asbestos, but

that it, of course, had the

option to use equivalent or

better material. Skanska

persevered with the client

and after long negotiations

an agreement was reached

to use an alternative to

asbestos, for which

Skanska incurred a major

part of the additional costs.


have taken measures during this time to prevent environmental destruc-tion. The report, he states, only anticipated direct impacts of the projectand failed to foresee the indirect consequences of road construction, suchas illegal logging.

For construction companies like Skanska, performing major buildingprojects, there is certainly a problem in the time lag between cause andeffect. The decision process of such projects is often quite long, ten totwenty years, the greater part of which lies outside the reach of the con-tractor. Problems could arise when the foundations of a project, workedout ten years ago, come in conflict with contemporary and improved stan-dards of sustainability, or when current knowledge greatly exceeds that pre-viously possessed. Axel Wenblad summed up the dilemma: “The contractcannot be broken, but neither should the environmental undertakings.”

In line with ISO 14001, the QEW-department has carefully assessedplanned purchases. Suppliers have been interrogated on the contents oftheir chemical products. Unfortunately, the suppliers have often provedreluctant to report this, referring to this information as business secretsand expressing fear of being copied. To overcome this problem, the QEW-department turned the inquiry the other way around and asked if productscontained certain ingredients. If they did contain these ingredients, therewas no purchase.

To monitor compliance with environmental management principlesduring construction, Skanska’s QEW-department at Kukule Ganga hasconducted inspection rounds every week, making unannounced spotchecks. Twice yearly, a comprehensive audit of the whole project has beenconducted by the external reviewer Det Norske Veritas or by engineersinternally trained for this purpose. Mr. T. M. Herat, Project Manager ofthe Ceylon Electricity Board, appreciated the responsibility taken bySkanska performing environmental audits: “They had a special environ-mental unit, and as a company they were very concerned. It is there in theirsystem.We would like to see that in other companies. They have their ownmonitoring team from the head office.”

The QEW-department had a very hectic time in the beginning of theproject trying to get ISO 14001 going before the environmental auditrounds arrived. To prepare routines for waste management the QEW-department turned to the Waste Management Department of the Colombo


Municipal Council and asked for guidelines, but it appeared that, althoughthere were some written guidelines, in practice there was no working systemfor recycling and waste management. The QEW-department was sent off tothe local refuse tip, where waste and sewage were dumped together, repre-senting a health hazard to the whole neighbourhood.

The Skanska personnel at the QEW-department realised that it had tomake the best out of the situation in Sri Lanka and establish its ownmethods. A suitable area for waste management near the working site waschosen, but then an unforeseen problem arose – the permission to use theland for waste management proved to be difficult to obtain, owing toSkanska’s commitment to reject corruption and bribery. It was a long timebefore pressure from the Ceylon Electricity Board finally forced the localauthority to consent.

Soon, the land chosen for waste disposal also proved problem-ridden. Itwas a closed down rubber plantation, located at some distance from theconstruction site, where local people, as it appeared, obviously continuedto extract rubber illegally. One day, an area near Skanska’s land for wastemanagement burnt down, due to clashes of interests within the illegalrubber business. Skanska, however, got the blame.

Another problem was theft. Combustible waste was disposed of in apit, where diesel fuel was used to increase the intensity of the fire. Theemployees, who had 20 litres per day at their disposal, only used a few andsold the rest, which caused an incomplete combustion. As a consequence,dogs and children flocked round the burning pits to practice recycling.Faced with this dangerous situation, the QEW-department closed downthe area and moved its waste management to within the project area bor-ders, where surveillance was easier.

Skanska once received a major non-conformity note during an externalenvironmental audit for its handling of waste. When spray cans havebeen used up, they were to be locked into a container, but during theenvironmental audit in September 2002, it was revealed that someemployees, for the sake of convenience, had just thrown them down aburning pit. A great number of fluorescent tubes was also found in the pit.This caused a major non-conformity in the audit report and Det NorskeVeritas Certification AB, which conducted the audit, demanded immedi-ate measures.

An unforeseen problem arose

– the permission to use

the land for waste

management proved

to be difficult to obtain,

owing to Skanska’s

commitment to reject

corruption and bribery.


By the time this incident occurred, the project was at a late stage andthe workforce had been substantially reduced, increasing the responsibili-ty of individual workers. Partly, this could explain the incident.Nevertheless, Skanska was shown that whatever education and workingprinciples are given, action does not always conform to proclaimed inten-tions. Skanska looked very seriously on this matter; if instructions are notfollowed, the health and safety of people are endangered.

One last measure that Skanska has at hand to ensure adherence to itsprinciples is dismissal of employees. Earlier, the employees had one-yearcontracts, but during the current demobilization phase, the contracts onlyrun for one month at a time. Because of this, Skanska could put powerbehind words, if nothing else helps.

The incident with the spray cans in the burning pit caused Skanska torepeat the whole program of environmental awareness for all employees.In a general sense, the problem with education is that it sometimes has atendency to be superficial, whereas old, firmly rooted values and attitudesare preserved under the surface, threatening to re-emerge when behaviouris relaxed. QEW-manager Wambeek has continuously had to fight adversepractices among workers: “People think we are insane, when we say thatthey should not burn up old tires – Why, when it is such a good source ofheat? We have to go in and explain in an easily comprehensible manner.If we do not, our instructions are ignored.”

When the Kukule Ganga HPP started, a certain place was assigned forwashing of cars and provided with all facilities. This seemed to work fineand the cars were kept clean, but one day Skanska personnel noticed byaccident that one of the company cars was being washed in the river. Thedriver was asked why he was doing this and he answered that this was theaccepted way of washing cars by everyone. Skanska had never imaginedthis option, but faced with reality took several measures to prevent furtherriver washing. The employees were informed and prohibition signs inEnglish and Singhalese were installed, but Skanska was still not totallysure of compliance. As an additional security measure, large boulders weredropped on the exit roads to the river, to bar entrance. This was allegedlydone by mistake, since roadblocks on public roads are illegal. Nonetheless,no efforts were made by the relevant project department of Skanska tocorrect the “mistakes”. Wambeek remarked that the concern was not only

One worker, reflecting

upon the work with the

environmental manage-

ment system, described the

difference between

Skanska and other employ-

ers as the difference

between night and day:

“Surely environmental

aspects are not totally neg-

lected in other places, but

they do not appear in

teamwork. If something is

done there, it is individual

initiatives. But here, every-

thing is done together.”

Wijesooriya, a Director at

the Central Environmental

Authority of Sri Lanka,

gave Skanska recognition

for its innovative practice

in protecting forest slopes

from erosion, during the

preparatory work for tun-

nel construction. “They

tried to protect the slopes

from erosion through

drainage. It was a nice way

of doing this. I have used

this as an example in my

training programs also.”


for Skanska’s employees – others would also use river washing if not pre-vented from doing so.

Sometimes, it evidently helps to put force behind words, but to ensurethe durability of measures, even after Skanska’s departure, understandingand education are probably more important. Without personal integrationof environmental principles, rules are soon neglected, when surveillanceis relaxed. The systematic, practical environmental work carried out dailyshould contribute to this through the creation of sound habits. The habit-ual work with environmental routines has, according to the QEW-manag-er Wambeek, instilled a new awareness into the employees’ minds. Duringa journey, for example, some employees discovered the dumping of oil ina river and were very upset. Another direct consequence of the educationhas been improved safety thinking. Masayuki Shinzawa, the ChiefResident Engineer of the Japanese/German/Swiss Engineering andConsulting agency, which conducts monthly inspections at Skanska’s con-struction site, has noticed improvement: “Sri Lankan people do not con-sider safety to be very important and they do not want to work with hel-mets. In the beginning, many workers did not use their helmets, but nowthey nearly always do. That is an improvement.”

During Skanska’s construction of the Kukule Ganga HPP, some peoplein Sri Lanka have noticed and learned new technical approaches to envi-ronmental care. Erosion is a common problem in areas with heavy rainfalland steep slopes.

Another measure to avoid erosion was to refrain from using river sandin concrete constructions. Excavation material from tunnels was crushedto sand and used instead. If river sand had been used, there was a risk ofincreasing the water velocity and thereby causing erosion.

Another example of innovative practice by Skanska in the KukuleGanga HPP was waste oil management. Skanska collected 6 m3 of wasteoil every month from its operations at Kukule Ganga. The oil was storedin barrels on cement floor and sawdust was provided to eradicate anyspillage. Naturally, over time, the accumulated amount became substan-tial, so the project QEW-department went to the Central EnvironmentalAuthority in Colombo to get advice on how to dispose of the oil. Sincethere was no proper procedure in the country, the QEW-department con-sulted the Internet, the home office, as well as consultants and outside


environmental experts. The consultation resulted in a recommendationto burn the oil at 1500° Celsius in a cement kiln, which would removeharmful substances and incorporate any residuals in cement.

Skanska tried to work along these lines, but faced problems finding aproper partner. The QEW-department received offers from different per-sons willing to pay well for the waste oil. However, ISO 14001 does notpermit a company to flee its responsibility by simply dispatching harmfulsubstances down the value-chain. The QEW-department had to investi-gate each purchaser’s procedures, to find out their environmental quality.It appeared that almost none of the burning facilities inspected reachedthe high temperature needed to dissolve the carbon compounds of the oil.The only company with sufficiently high temperatures was not preparedto pay anything for the oil. As a consequence, Skanska gave away thou-sands of litres of waste oil for some time, but eventually the combustioncompany got enough and rejected further free deliveries. This forced theQEW-department to hunt around the island to find a new combustioncontractor. One contractor with sufficiently high temperatures was even-tually found near the city of Kandy. The combustion process was analysedand Skanska required the company to use more absorbent material, toimprove the combustion. The oil transports of this company were alsoscrutinized and regulated by the Skanska QEW-department. The waste oilprice which Skanska obtained was lower than the market price, but theenvironmental care demanded by Skanska was correspondingly higher.

Similar problems faced the QEW-department when taking recyclingmeasures. Skanska investigated and interviewed different companies con-cerning recycling, but found few that could meet the requirements.Batteries, tires and metals were recyclable, but recycling of glass and plas-tic was not feasible so these materials were buried in a safe area. In thefuture, when recycling measures have come into practice on Sri Lanka,this material may be unearthed and recycled.

“What concerns the environ-

ment we have no secrets. We

are glad to share our knowl-

edge. In the long run, this

attitude is perhaps as impor-

tant as direct environmental

measures, because it creates a

domino-effect.”Kieran Deasy

QEW-engineer


12 Interview with Roy Andersson, Plant and Logistics Manager of Skanska at the Kukule Ganga HPP.

Impact on value chain

The ISO 14001 standard puts much emphasis on suppliers and subcon-tractors and Skanska has been prone to distribute environmental informa-tion to them, making clear that co-operation with Skanska implies envi-ronmental care.

A single measure aimed at the environment always has a limited scope,but the effects of a good example on others, or of diffusing knowledge andnew attitudes into the business field, could be immense. Skanska, being aleading and strong company, could put pressure on its supply-chain to follow.

However, influencing the value chain often has a price. In Skanska’scase, suppliers were often reluctant to conform to a higher environmentalnorm, unless compensated by a higher price. For instance, Skanska madethe Ceylon Petroleum Corporation manufacture a diesel fuel with sulphurcontent below 0.2 ppm/litre. This diesel cost extra, but it reduced air pol-lution significantly.

In addition to the increased cost of sustainable purchases, Skanska facedthe problem that environmentally friendly products are often less effectivefrom a strict construction point of view.12 Increased demand for sustainableproducts in the future will perhaps ensure that products emerge whose effi-ciency in production is equal to that of hazardous products.

Skanska’s clients were also reluctant to conform to Skanska’s environ-mental norms without compensation. The asbestos and the waste oilexample illustrate this. In the former case, Skanska had to increase itsbuilding cost by introducing environmentally safe material, without beingfully compensated. In the latter case, Skanska had to lower the price oreven give away the waste oil for free, to ensure safe disposal.

Apart from these problems when redirecting the value-chain, Skanska’scase also points to significant benefits. When construction activities arefinished, the Ceylon Electricity Board will take over the Kukule GangaHPP. It is obviously a huge gain for the Ceylon Electricity Board not tohave to decontaminate Skanska’s construction area, but to receive a cleanproduct. It is also clear that local people making their living near thehydropower project have benefitted from Skanska’s environmental ambi-tions, because Skanska’s efforts to minimize pollution have protected thelocal living space.

Clearly, Skanska’s

environmental management

has increased the value for its

client. Moreover, Skanska has

given its suppliers the option to

grow in a sustainable direction

by continuously exposing them

to demand for environmental

friendly products and services.

Suppliers have had the

opportunity to test new

products and techniques,

which the local market does

not yet support,

but which could become

important in the future.

In this way, Skanska has

invested in its suppliers’ future

and enabled far-sightedness

on their part.


Skanska’s own gain from pursuing an ambitious environmental policyin the value-chain could be greater trust from its business partners andfrom ordinary people. Whereas the increased cost of purchases is measura-ble, trust is difficult to estimate in figures, but this does not reduce its fun-damental value to business.

People Satisfaction

There are no active trade unions at Skanska’s construction site.According to Skanska personnel, the unions may have considered theproject too small to unionise. Skanska has allegedly not opposed theworkers. When it comes to employee satisfaction, there have been nocomplaints about Skanska. The employees have been offered decentwages, proper accommodation and subsidized home journeys, and every-one seems to have been happy and proud to work for Skanska.

Skanska has tried to use positive examples to encourage and motivateemployees. The institution “Employee of the month” involves officialrecognition and a sum of money, as reward for exceptional work effort,mainly in the areas of environment and safety. Enterprising workers havebeen promoted by advancement, irrespective of caste and ethnicity.Individual development talks have also been used to deliver feedback onwork performance.

Education has played an important role in Skanska’s employee satisfac-tion. Sometimes the benefit of education became too big, for examplewhen a number of drivers left for work in the Middle East with theirnewly acquired Skanska operator’s permit as a ticket.

Impact on society

Whereas the employees of Skanska seem content, the local villagers inthe project neighbourhood have sometimes shown antagonism. Partly,this is because the Ceylon Electricity Board does not seem to have paidenough as compensation to the people who were forced to resettle whenthe project began. The environmentalist Ajanta Palihawadena explainedthat many people had just inherited their land and were not able to provetheir claims on it. This may have caused distrust from the start, althoughSkanska was not responsible for this. Perhaps the fact that Skanska is aforeign company also caused some antagonism. Mr. T. M. Herat, Project

QEW-engineer Kieran Deasy

said that you have to take the

risk of people leaving when you

educate them:

“But what about the people

that really want to be with the

company, they could leave if

they do not get training.

If there is no training, then you

lose the best employees instead.

This is a catch 22 situation.

You have to educate.”


13Madavela, S., Rock powder in the stream and dust causes rashes and itching among children. Lankadipa [localSinhalese newspaper] 19 March 2001.

Director of the Ceylon Electricity Board, suggested this: “The CeylonElectricity Board is associated with the building of roads, with havingbrought in the project and raised employment. Everybody in the region ishappy about the project, but what they think about Skanska is more diffi-cult to say, because Skanska has had little interaction with locals, exceptthat they have employed some people.”

The Skanska personnel at Kukule Ganga, on the other hand, claim tohave engaged in the local community in different ways. Examples giveninclude participating in local festivities and inviting the villagers to theproject area. Skanska has also contributed to the functions of the neigh-bourhood by distributing plastic barrels to collect water and by building astage, once arranging a music show in the evening. The QEW-managerWambeek has also kept much contact with local Buddhist monks. TheQEW-engineer Kieran Deasy said that the villagers could see thatSkanska is a friendly organisation that cares, but at the same time headmitted that it is easier in Sweden to merge into the surroundings.

The Swedish personnel and senior local staff of Skanska live togetherin a camp built especially for them on a hill and enclosed by fences. ThisWestern way of life, illuminated at night by bright lights, probably con-trasted sharply to the villagers’ non-electrified lives. Such contrasts createopposition and opposition creates antagonism. When confronted with thelight and development of the Swedes the villagers’ poverty was in a wayilluminated and thus accentuated. This may have caused resentment.

On several occasions, Skanska was falsely accused of pollution. Localpapers reported that people had contracted skin diseases by the waterfrom tunnel excavations that Skanska had discharged in the river.13

However, no cases of illness could be presented to Skanska. Anothertime, Skanska was accused of disposing the sewage from thousands ofworkers directly into the river. However, Skanska only had 900 employeesand tests conducted by the Central Environmental Authority found nosupport for the accusations. Mr. T. M. Herat, Project Director of theCeylon Electricity Board, explained that the villagers tried to overempha-size problems to gain some things, and that one could observe in theirway of bringing forward complaints that there was some affectation.

The Swedish personneltried to gain trust byengaging in some activi-ties, but it did perhaps notwin the hearts of all peo-ple. To gain more trust,Skanska’s Swedish person-nel could either haveadopted a more modestway of living dispersed inthe jungle among natives,or it could have boughttrust by giving in to thedemands for charity by vil-lagers. However, whenthings are concerned, theformer alternative presentsitself as unrealistic and thelatter has an awkward feel-ing of buying trust.

It seems that Skanska, inthe hectic working phase ofthe Kukule Ganga HPP, hasmissed some importantstakeholder dialogues,which could have inspiredthe parties with more con-fidence. Failing to engagesufficiently in NGO dia-logues, Skanska has alsomissed a great deal of well-deserved credit for its envi-ronmental work.


14Piyal Parakrama, President of the Green Party of Sri Lanka; Ajanta Palihawadena, environmentalist;Samantha Gunesekera, environmentalist.

Skanska was, for example, requested to provide households with asphaltedroads, tap water and electricity.

It is important to be conscious of the size of the cultural, linguistic andnational differences for people to overcome in this type of project. Thelimited timeframe of the project is also essential. There was not unlimitedtime for fraternization with local people. Some environmentalists airedthe perception that Skanska lacked transparency, complaining aboutignorance of what was going on in the project area and who was doingwhat. The environmentalists felt excluded from construction activitiesand frustrated over inability to monitor what was going on. Unsupportedrumours were also mentioned that Skanska was in the project for somesecret gain.14

Skanska has invited environmental organisations on some occasions,but maybe too seldom. If the contacts with NGOs had been more directand on a continuous basis, perhaps some of the critical voices would havebeen appeased. It seems that Skanska, in the hectic working phase of theKukule Ganga HPP, has missed some important stakeholder dialogues,which could have inspired the parties with more confidence. Failing toengage sufficiently in NGO dialogues, Skanska has also missed a greatdeal of well-deserved credit for its environmental work. Instead of receiv-ing honours for its achievements, Skanska has faced accusations of envi-ronmental crimes in local newspapers, as well as indignant demands forcharity by villagers. Maintaining its policy of incorruptibility, Skanska haseliminated the chances of gaining trust by seeding money.

The question presents itself: what is corporate social responsibility?Should it be to buy trust and sympathy by practising charity? Or should itbe to be awkward enough to refuse such suggestions and instead place onpeople the burden of education and adhesion to an extensive set of rules,to develop and constantly reassess routines for safety and environmentalcare, and reshape the business in a sustainable direction? The KukuleGanga case shows that the latter alternative may not always be the mostopportunistic, but nevertheless, it must be the viable way in the long run.

It is important to be con-

scious of the size of the cul-

tural, linguistic and national

differences for people to over-

come in this type of project.


The bottom lines

Environmental care seldom gives quantifiable results, but usually meansadditional costs. Being a pioneer means development costs and groupsarriving every now and then for educational visits. Nonetheless, Skanskahas managed to keep within the financial and temporal confinements ofits Kukule Ganga HPP contract. The increased administration and report-ing associated with ISO 14001 have not delayed the project schedule andthe additional cost in the environmental field has been provided for bymore efficient and competitive work in the construction field.

It seems that it is the competitive strength of Skanska in the construc-tion field that has permitted the company to release additional resourcesfor environmental care. Axel Wenblad, Senior Vice PresidentSustainability of the Skanska Group, properly stated: “The projects ofSkanska are primarily about building things, not primarily about ethics.”Skanska’s main concern is, of course, to do competitive work within theconstruction field, and it is this work that has enabled the successfuladoption of the Environmental Management System ISO 14001 andsecured adherence to the Global Compact principles.

Unanswered questions

Skanska’s project at Kukule Ganga still houses a few unanswered ques-tions. Will the Kukule Ganga HPP keep what it has promised to bring SriLanka in terms of power? This depends on the rainfall. The rain patternshave changed before and there is no long run guarantee that the powerstation will yield the predicted 80 MW. Hopefully it will.

Skanska will soon have finished the Kukule Ganga HPP, but some ofthe attitudes and knowledge conveyed by the company will probably pre-vail. Skanska has been able to influence its value chain in a sustainabledirection. This work will now continue without Skanska’s demand andsupport. It is to be hoped that some environmental products and solu-tions, developed because of Skanska, have come to stay in Sri Lanka. Theincreasing environmental awareness in Sri Lanka and the fact that schoolchildren are now given the fundamentals in this field point in this direc-tion. Still, the economic situation unfortunately does not yet permitincreased environmental care in practice. The future will show what willbe the yield of the seed planted by Skanska in this respect.


15 Minutes from QEW-department Meeting No. 33 at Kukule Ganga HPP (20 Sept. 2002).

One serious environmental issue that has emerged as a result of the roadconstruction to the Kukule Ganga HPP is both legal and illegal logging.These activities were not feasible before, due to weak infrastructure, butwith the modern, broad asphalt roads to the project, logging has escalated.A local Buddhist monk has expressed deep concern for the forest. Theproject management of Skanska has also observed the problem and repeat-edly informed relevant stakeholders, including mass media, but seeminglyto no avail.15 Skanska neither has the resources, nor any formal obligationto act as a forest warden and stop the logging. Moreover, Skanska’s powerto influence the local community will soon be gone. The obligation tostop criminal logging obviously lies with the local authorities. The CeylonElectricity Board will take over Skanska’s camp when the constructionwork is completed. What will then happen to Skanska’s high quality hous-ing? Operation and maintenance of the Kukule Ganga Hydropower stationwill not require many housing facilities. One suggestion comes from theprofessor of biology, Gunatilleke. He has expressed his concern for the for-est and suggested that Skanska’s houses could be used to establish a biodi-versity training and research facility including activities such as eco-tourism. He has also suggested that the forest area around the KukuleGanga HPP should be declared conservation area. These ideas could per-haps constitute a gleam of hope for the threatened forest.

One serious environmental

issue that has emerged as a

result of the road construction

to the Kukule Ganga HPP is

both legal and illegal logging.


Stakeholder appendix

Skanska personnel

• Axel Wenblad, Senior Vice President Sustainability, is responsiblefor environmental questions at the group level of Skanska.

• Bengt Ivner, Operational Manager of Skanska International CivilEngineering AB, is responsible for the Kukule Ganga HPP at adivisional level of Skanska.

• Lars Jennemyr, Project Manager of the Kukule Ganga HPP, is incharge of activities at Skanska’s hydropower project.

• Jeffrey Wambeek, QEW-manager at the Kukule Ganga HPP, is akey player in the implementation of ISO 14001 at the projectlevel. He was born in Sri Lanka, but, in the beginning of the1970s, Wambeek got the opportunity to study at the RoyalInstitute of Technology in Sweden, where he was trained as anengineer and eventually employed by Skanska. Speaking Swedish,Singhalese and English impeccably, Wambeek has proved aninvaluable asset during Skanska’s construction works in Sri Lanka.

• Kieran Deasy worked as QEW-engineer at the Kukule Ganga HPPduring the implementation of ISO 14001. Together with JeffreyWambeek, he held the main responsibility for the elaboration ofthe environmental methods used.

Other stakeholders (key players interviewed given in brackets)

• The Ceylon Electricity Board is the governmental agency of SriLanka’s Ministry of Irrigation and Power, administrating Sri Lanka’spower program. This is Skanska’s client at the Kukule Ganga HPP(Mr. T. M. Herat, Project Director of the Kukule Ganga HPP)www.ceb.lk.

• The Central Environmental Authority is the governmental agencyresponsible for the protection and management of the environmentin Sri Lanka. This agency administred the production of the FinalEnvironmental Assessment Report -in the planning stage of theKukule Ganga HPP (W. A. D. D. Wijesooriya, Director ofEnvironmental Management & Assessment).

• JVK (Joint Venture Kukule Ganga) is formed by three independentengineering firms: Nippon KOEI CO. Ltd. (Japan), Electrowatt-Ekondo Ltd. (Switzerland) and Lahmeyer International GmbH


(Germany). JVK holds the overall responsibility for the KukuleGanga HPP and conducts monthly inspections on Skanska’s con-struction site (Masayuki Shinzawa, Chief Resident Engineer).www.n-koei.co.jp.

• IUCN – The World Conservation Union is an international NGO,which brings together states, government agencies, and NGOs inorder to conserve biodiversity and to promote sustainable manage-ment of natural resources (Channa Bambaradeniya, SeniorProgramme Officer Biodiversity) www.iucn.org.

• The Green Party of Sri Lanka (Piyal Parakrama, President).www.greenpartysrilanka.org.

• Ajanta Palihawadena and Samantha Gunesekera are two inde-pendent environmentalists engaged in the preservation of SriLanka’s unique nature.

• Batagoda Chandrawimala Thero is a Buddhist monk in the nearestvillage of Kelinkanda, acting as a contact between Skanska’s proj-ect management and the villagers.


16 Peer review of this case study was provided by Hans de Geer of the ADG Stockholm School of Economics.17 More information is available at the site: www.samarco.com

One company, one idea: Samarco Salvamar project

CLÁUDIO BRUZZI BOECHAT,

FUNDAÇÃO DOM CABRAL16

SAMARCO17 PRODUCES IRON-ORE PELLETS, for use in direct reduction andblast furnace metallurgical processes, and concentrated ore fines. Its yearlyproduction capacity is 12 million tons of iron ore pellets and 1 milliontons of concentrated ore fines. Samarco was born 25 years ago as a projectlinked to steel-producing companies (Samitri, of the Belgo-MineiraGroup, and Marcona, a North American company). Due to incorpora-tion, privatization and selling processes, control over the companybecame equally shared (50% to 50%) by Companhia Vale do Rio Doceand BHP Billiton, a company belonging to the Australian group TheBroken Hill Proprietary Company Limited.

Only under this shareholding configuration has Samarco truly startedto operate directly on the global pellet market rather than throughSamitri or BHP. Today, Samarco is the second largest player in the pelletsea borne trade. To guarantee closer proximity with, and better service forclients, Samarco established offices in Europe (Amsterdam) and Asia(Hong Kong).

Case Study | Samarco Salvamar Project 37

The following table containsthe implementation timeframe for some of thesedevelopment projects andthe introduction of manage-ment systems:

1991 Normatization

1992 QTS – Sol Project –

Maspet

1993 Routine Management

1994 ISO 9000 Certification

1995 Beginning of the ISO14000 Project andImplementation ofManagement Systemsand Managing byDirectives

1996 Benchmark

1998 ISO 14000 Certificationand KnowledgeManagement

1999 Analysis and Solution ofProblems

A processing plant and the Alegria Mine constitute the GermanoUnit, in the cities of Mariana and Ouro Preto, in the state of MinasGerais. Its deposits amount to 5.6 billion tons. The Ponta do Ubu Unit, acomplex formed by two pelletization mills and their own maritime termi-nal, is located in the city of Anchieta in the state of Espírito Santo. Thetwo cities are linked by a 396 km-long iron ore pipeline capable of trans-porting up to 14 million tons per year. The duct transfers concentratedore produced in Minas Gerais to the pelletization unit in Espírito Santo.

Building a successful enviroment

The ore pipeline and the conveyor belt system used in the mining processenabled economic exploration of Itabirite, a low iron content ore formerlydiscarded. Since its establishment, use of state-of-the-art technology andinnovative processes has been a precondition for the enterprise’s viability.

The iron market depends directly on the steel market. In the last fewyears, it experienced an intense process of consolidation. Today, 80% ofglobal production comes from three companies: Rio Tinto, BHP and Valedo Rio Doce, two of which are Samarcos’ shareholders (BHP and Vale).In the last four years, the price of iron ore dropped 20% and, althoughsome recuperation is expected, it is unlikely to reach previous levels. Amore competitive market, higher quality requirements and the increasedimportance of environmental concerns have all represented great chal-lenges for Samarco and required intensive efforts towards development,modernization and increase in profits and profitability.

In 1990, Samarco analyzed 250 profitable companies and selected 25 asobjects for case studies deserving further examination. Based on the rea-sons found for their success, development projects were designed, includ-ing implementation of the required management processes.

These projects are part of the Management Model and are important steps inthe development process proposed for the company. This process began withimplementation of internal processes and normatization, followed by quality,environmental, occupational health and safety management models. The estab-lishment of a focus on the client, a global benchmark, and a search for domes-tic and international recognition completed such development processes.


The statement of Mission, Objectives and Values of Samarco lead theprocess. The Management Model that accompanies it contributes to theinternal dissemination of strategic goals, ensuring the participation andcommitment of employees to the objectives and goals of the company.

The starting point is the so-called “Quality House”, which values thesuccess conditions of the company. Next, there is a longer definitionalphase – Samarco 2010 Vision – that was established after the presentationof scenarios and perspectives by Officers and Managers at a one-weekseminar. This Vision unfolds in the Strategic Planning, in which thedefined goals are considered directives for the Improvement Plans(Biannual Seminar) and the Routine Management Plans (AnnualSeminar). Based on the definition of such seminars, the AnnualCorporate Goals Plan is produced, and unfolds in the Goals Plans andRoutine Management.

Each plan has specific terms and mechanisms for its monitoring. TheMonthly Routine Management Meetings involve management (Officersand Managers) and are open to any employee. Currently over 200 controlitems are evaluated and there is a rigorous failure analysis process. In thewords of the Human Resources General Manager, Benedito WaldsonPinto, the process of Improvement Development is an important successfactor of the company: “Samarco places a lot of emphasis on thinking –we think, develop and test technologies and, when they prove feasible,they are incorporated and become routine very rapidly”.

Even though its mechanisms may eventually be refined, the process asa whole has already been integrated within the company. Currently thereare around 700 rules, from the mine to the port, dealing with Quality,Environment, Health and Safety.

To guarantee competitiveness for its products, the market requires thecompany to comply with international quality standards and to certifyits products according to the largest possible number of them. In addi-tion, there is a great concern to avoid the generation of financial, envi-ronmental or social liabilities. As Francisco Dutra, the ManagementRisk General Manager has said “at Samarco there is currently theawareness in each department and employee that, if it does not operateaccording to international standards, it will not be generating any valueto the company”.

“At Samarco there is

currently the awareness

in each department and

employee that, if it does not

operate according to

international standards,

it will not be generating any

value to the company”.

Francisco DutraManagement Risk General Manager


A common characteristic of these certification development processesis that Samarco does not contract external consultation packages. Thecompany starts creating a study group to assess and analyze the necessaryprocesses. The employees involved in such groups are removed from theirfunctions to dedicate their time to such activity.

Occasionally, these groups may rely on external consultants, but onlyto support their understanding of a subject. The result is the creation of agroup of people who know the company and who are qualified to imple-ment the necessary processes. An intense internal persuasive process iscarried out. Voluntary professionals, the so-called “multipliers”, study andare prepared to spread the knowledge throughout the company and tomobilize the organization for the necessary changes. Several initiativeshave been developed this way including ISO 9000 and ISO14000, theManagement System. The same process is now being carried out for thePNQ (Brazilian quality award) and the risk management system.

Samarco is considered a benchmark in terms of organizational atmos-phere. An internal survey was recently carried out, but the results are stillunder evaluation. The previous survey, carried out in July 1999 by Hay doBrasil, showed that Samarco “not only sustained the leadership in Hay’sorganizational atmosphere ranking, but also increased its rate. The gener-al satisfaction index reached 76%, compared to 74% in 1996. About 97%of employees participated in the survey”.

The closeness between Samarco and its employees dates from its estab-lishment, during which it constructed villages in Mariana and Ubu tolodge employees close to the mill and the harbour. Up to 250 familieslived in the village in Mariana. The proximity of employees, their familiesand the company created a very close relationship. At this time, the com-pany was a major provider. In the village in Mariana, the company madeavailable a communal restaurant to the families of employees. The schoolwas also maintained entirely by the company. These institutions were usedextensively by the families. Measures such as these contributed to a strongsense of loyalty towards the company. Aware of their dependence on thecompany, whenever sales dropped or any incident required interruption ofactivities, the women would gather and pray for a quick recuperation.

Over time, this relationship changed and the dependency was reduced.The transition process was implemented in order to preserve the good


relationship between the company and employees. The school was trans-ferred to the city’s administration, but the company guaranteed technicalsupport to keep quality standards. The houses were sold to employees, butthe company financed the transactions and reinvested the money in ahousing program for other employees.

This transition was supported by internal communications, such as eventsand specific publications, but also through the development and valorisationof leadership communicative behaviour and of the planning and monitoringprocess. Madelon Piana, Manager of Corporate Communications observedthat “when direct communication from the leadership is absent and theleadership is not attentive to employee needs, the effectiveness of variouschannels of communication will often be undermined.”

The company uses a 360 degrees evaluation process. Negotiations arebased on the definition of objectives. There is a defined capability chartand a variable remuneration system. The turnover is traditionally low.There is a policy of investment in employee education and the instruc-tion level indicators have been increasing as a result.

Samarco’s environmental protection policy

The growing importance of environmental matters generated, in the lasttwo decades, several initiatives to stimulate volunteer measurement andrelease of information related to environmental impacts. This means asignificant improvement in understanding of the subject.

Legislation in several countries established different assessment systemsand the proliferation of indicators. Though contributing to environmen-tal improvements, they also resulted in a very narrow base for compar-isons. Some of these initiatives established themselves gradually as impor-tant benchmarks in their own areas, for example, ISO 14000. These regu-lations are intended to provide companies with criteria for voluntaryenvironmental management, so as to broaden their capability to manageimpacts and risks and to improve processes that may lead to better envi-ronmental performance.

Certification is based on analysis of an extensive range of parametersand represents a challenge for companies. To implement it with the nec-

Communicability is one

of the attributes analyzed

during evaluation

and is also a criterion

for the promotion

of managers.


essary seriousness and comprehension, the company must carry out a trueprocess of cultural change. In Samarco’s case, this implementation repre-sented a third historical moment for its Environmental Protection Policy.

Samitri, owned by Luxembourgian shareholders (ARBED Group) andMarcona, a North American company, both among Samarco’s originalshareholders, brought from their original countries environmental aware-ness at a level that is not yet common in Brazil. Stabilization ponds, forinstance, were still considered unnecessary expenditures, in Brazil. Evenso, the first moment is characterized as of “total reactivity”. In 1991, theFederal Environmental Protection Legislation, and the subsequent cre-ation of environmental protection agencies and implementation of envi-ronmental licensing procedures gave rise to the need for better structuresto handle environmental issues. Samarco contracted out the first largeenvironmental project, the PRAD – Programa de Recuperação de ÁreasDegradadas (Degraded Areas Recuperation Program). The project sig-nalled the beginning of a second stage: instead of acting in response toexternal requirements, the company became more proactive.

Environmental Consultancies were created in Minas Gerais andEspírito Santo, the states in which Samarco operated. However, sincethere was no well-defined environmental policy, each one of them actedat will, generating two distinct ways of action, disputes among them beingthe natural consequence.

In 1996, the company’s President invited a mine-planning engineer,Vitor Feitosa, to coordinate the company’s Health, Safety andEnvironmental Protection initiatives, tasks formerly assigned to theHuman Resources function. The Consultancies did not report to thecoordinator himself but had to follow guidelines established by him.Samarco then began developing an Environmental Protection Policy thatshould lead to the ISO 14000 certification. As usual, no consulting pack-age was contracted – the project was internally developed. AnEnvironmental Management System (SGA) was created and is consid-ered as the great differential: the SGA was developed based on interna-tional standards but in accordance with Samarco’s needs and profile.

A great training effort was developed, carried out by “multipliers”recruited from several areas of the company. But like many other necessaryinitiatives, this was not free from conflict and debate, for example, some


areas did not want to offer their professionals to act as multipliers. Therewas also resistance to change and the explanation “because we have alwaysdone that this way” was often heard. Along the way, Samarco tried todeepen its relationship with the community. Previously, this relationshipwas restricted to sporadic donations without any strategic intent, a form ofgood-neighbor policy. Now, the goal was enhanced transparency. “Thedoor had to be opened although we knew there would be strong criticism,and it happened exactly that way.” Samarco started to voluntarily promotepublic hearings to present environmental and social results of its activities.

An interesting initiative took place within the Pelletization Division:the GAMA – Grupo de Amigos do Meio Ambiente (Group of Friends of theEnvironment). The Group gathers employees who voluntarily committhemselves to the monitoring of environmental control items impacted bytheir activities. Such monitoring is performed along the work processitself, during daily activities. There are groups for every shift and resultsare presented to all during periodic meetings. New goals and alternativesof improvement are also discussed during these meetings. The GAMA isled by employees elected by colleagues and is self-managed. Interest andresults of its internal activities led the Group to extend its action to theexternal world, supporting activities of environmental protection, givinglectures in schools and associations and contributing to the community.

As Sandrely A. Lopes, environmental protection analyst, has said, “theenvironment is no longer the exclusive responsibility of EnvironmentalProtection Divisions, but of everyone”. Each area manages its own controlitems; the environmental concern flows over the walls of the companyand ‘contaminates’ the employees’ daily routines, both in their family andin the community.

Field of ideas

The organizational atmosphere and the Social Responsibility andEnvironmental Protection Policies shape the concepts and explain theconcern that gave birth to the Salvamar Project, but it was the Field ofIdeas (Campo de Idéias) program that made it operational and created theconditions necessary for its implementation.

The goal was

enhanced transparency.

In 1998, Samarco was

recognized as the first

iron ore producer to obtain

ISO 14001 certification

for all stages of its

production process.


In 1989, a group of company’s executives participated in a managerialdevelopment-training program. The final activity of the course was thepresentation, by the executives, of a viable project of interest for the com-pany that would also consolidate the knowledge acquired. The company’sPresident suggested to one of the groups the development of a reward sys-tem to stimulate employees to contribute ideas and innovative suggestionsthat could improve routines or otherwise be relevant to the company’sstrategy. The President was aware of one experience conducted withinthe Belgo Mineira Group, since Samarco, through Samitri, was also partof this Group: the Technical and Administrative Merit Award of theBelgo Mineira Group was conferred on employees that suggested andimplemented innovative ideas. This suggestion accorded with the objec-tives of Samarco’s Mission Statement: “Continuous drive towards a high-performance organization, in which every individual accepts responsibilityand is rewarded for results.”

The project was developed and presented by the group in the TrainingProgram but, back in the company, after conclusion of the course, theproposal was forgotten. Each member of the group belonged to a differentsector and daily activities absorbed all their available time and efforts.

However, since, as Vitor Feitosa commented: “Penido (Samarco’sPresident) never forgets! It must be implemented”, the instruction wasgiven to the members of the group and the management area was chosento manage the project. A process was defined, ranging from the presenta-tion of the idea up to the reward process.

The Program has the following objectives:

• Give encouragement to the generation of ideas throughout thecompany

• Promote innovation and creativity

• Reward and recognize employees’ contributions

There are two categories: Category 1, including proposals regardingQuality, Cost and Attendance; and Category 2, including proposalsregarding Environmental Protection, Safety and Morale. Approved andimplemented ideas are presented during the Annual Fair. More than2,500 people, including community members and Samarco’s employees,visited the fair in 2002.


One hundred ideas were submitted during 2000, the first year of the“Field of Ideas.” Of these, 75 were approved by their divisions and passedto the next stage – the elaboration of action plans. A total of 148 employ-ees of Ubu and Germano units participated in the program, together withthree other employees of contracted companies Rawmec, Incorpori andConstrutora Ouro Preto, in Germano.

Currently, the “Campo de Idéias” is an important complement to theformal process of improvement development, integrated with theManagement Model.

GAMA’s President, Gerson Oliveira, statement shows one of the rea-sons for the success of the Field of Ideas program and of Samarco itself: “Iworked for several other large companies, but never got as much satisfac-tion. Here, they are willing to listen, they like ideas.”

The Salvamar project

The seventh idea submitted within the Field of Ideas program made compa-ny history. As part of the activities for the SGA (EnvironmentalManagement System) implementation, the sailor Sebastião Machado par-ticipated, together with other Samarco employees, in a training courseoffered by Petrobrás on the elaboration of an Oil Spill Emergency Plan.They were given information on how to develop such a plan, how to act incase of an accident, and about the environmental impact of oil spills intothe sea. Tião, as Sebastião is known, is the son of a fisherman. Married,with two children, he lives in Perocão, a fisher village, near Ubu. About 80fishing boats arrive there every day. Back from the training course, he men-tioned to other colleagues – among them Sandrely Amigo Lopes, an envi-ronmental protection analyst – that the region’s fishermen discarded intothe sea or buried in the sand all the oil used in their boats’ engines.

Sandrely knew that “this kind of coastal environmental pollution isconsidered one of the most harmful to the environment. Although fre-quent, the doses are small and hence considered to be inoffensive.Lacking information, most of the fishermen did not understand theimpact on the environment.” They noticed that some species were dwin-dling following the disappearance of the mangrove’s flora and the loss of

The program’s results in its

three years of existence con-

firm the positive outcome of

the first year. They are:

• Average of three contri-butions per employee

• 87% of personnel havealready presentedimprovement proposalsto the program, at leastonce

• return of US$11.01 perUS$1.00 invested

• Of the 1,509 approvedproposals betweenSeptember 1999 andJune 2002, 792 wereimplemented and 717are currently beingimplemented.

• 59 of the proposed ideasaddress environmentalimprovements.

• Samarco already patent-ed some of the ideaspresented within thisprogram.


18José Luís Ramos – fisherman – cited in the Annual Report- 2001

the “sun’s brightness reflected on the sea”.18 Nevertheless, they did notcare much about the oil’s final destination.

The conversation between Tião and Sandrely inspired both of them todo something. The initial idea was to lay barrels in the areas used to parkboats and collect the used oil. They wanted to do this immediately.Sandrely had to call for patience: “Let’s stay calm friends...we have expe-rience and knowledge about oil spills but not with working with commu-nities.” She talked to her boss and he agreed to the idea, committing him-self to finding a solution for the matter. The first factor required for suc-cess had been achieved: support of the area’s leadership. “The managerhas to support the idea and I was lucky to have a very sensitive man asmy manager”, says Sandrely.

The harbour’s personnel proposed sending the idea to the Field of Ideas.Having been recently launched, the program represented a channel to achievea commitment going beyond the good will and interest of the involved per-sons. If the idea were approved, it would become a company’s project.

The idea was approved and the project now had to be detailed and exe-cuted. Careful planning started, including many conversations with fisher-men, their associations (such as the Colônia, which is a kind of coopera-tive) and the Environmental Protection Agency of the Espírito SantoState. Enthusiasm and anxiety regarding the project had to be kept undercontrol in order to allow consideration of all possibilities. This dialogueprocess gave birth to a project, which was later implemented in Perocão.

Samarco recycles the oil it uses and its Ubu plant has all the equipmentnecessary for the process: the centrifuge, the filters and the laboratory tocheck the quality of the oil. This equipment had excess capacity, whichwas able to be used for the project. For the Salvamar Project, the oil wouldbe collected, recycled and resold to fishermen at a price to cover process-ing costs. Fishermen who discarded at least 90% of the capacity of their oiltank would be rewarded. This would stimulate better engine maintenance,avoiding excessive burning of oil and consequent pollution of the sea. Inturn, the fishermen had to participate in environmental education coursesaimed at sensitizing them to the “environmental impacts of the by-prod-ucts from fishing, whether garbage or oily residues.”

The first factor

required for success

had been achieved:

support of the

area’s leadership.


The first community to be included in the project was that of Perocão’sfishermen, less than half of whom have completed elementary school.Seventy percent of them have incomes in the 200-to-400 Real (US$ 60-to-120) range. They participated in meetings and courses. Besides acquir-ing knowledge about the environment, they developed their organizationcapabilities and learned to discuss and decide as a group.

To quantify the amount of waste oil, the fishermen and their boatswere registered along with the oil volumes used in each watercraft. About300 boats with approximately 900 crewmen participated. Boats wereequipped with stickers identifying them as participants in the SalvamarProject. A 680-liter collector and a tank for the sale of recycled oil wereinstalled when the project operations started. Samarco assigned anemployee to take care of the Salvamar station. Gilberto Machado, wholived in Perocão and identified with the project’s ideas, was selected.However, haste in completing and operating the project raised one prob-lem. The period necessary for filling the collector, collecting and recy-cling is approximately three months. Because of that, the fishermenwould initially have to collect the oil for this period without having itback, recycled. Anxiety did not allow them to wait. Pressure and the wishto see the project succeed forced Samarco to involve Shell, a Samarcosupplier, with whom they negotiated the supply of new oil at prices equalto production costs until completion of the first recycling period. Whenthe recycled oil finally arrived there was strong resistance due to itscolour. Even after recycling, the oil keeps a darker colour than new oil.And new oil sold at prices equal to production costs represented immedi-ate savings. Pressure was then exerted for continued sale of new oil at pro-duction-cost prices. However, this would compromise the whole conceptof recycling. Fishermen are well aware of the importance of the oil. Oneof them remarked: “you know ... oil is the life of the engine.” Samarcotried to convince the fishermen to accept the recycled oil, to make themunderstand that the colour was not related to quality, but it was difficult.

After Perocão, the Salvamar project turned to the fisher community inAnchieta. This time, things proceeded differently. The fishermen them-selves, after they became aware of results achieved in Perocão, soughthelp from the city’s Environmental Protection Agency, which, initially,did not show much interest in the idea. However, the State


Environmental Protection Secretariat interfered, reinforcing the fisher-men’s request. In November 2001, the project started operations in a sim-ilar way as had occurred in Perocão. Meetings, courses and visits toSamarco were first conducted to present the oil recycling process and thelaboratory, where adequacy for use was checked. The oil sold within theproject was recycled oil, right from the start.

Now other fishing communities are coming to Samarco and toMunicipal Environmental Protection Agencies to ask for the implementa-tion of the Salvamar Project in their areas. The initial problem of encour-aging use of recycled oil seems to have been overcome. The Salvamarimplementation leader in the community of Prainha de Muquiçaba, JoséAugusto Caudonazi, commonly named Deco, is already registering thefishermen. On the quality of the recycled oil, he says: “There is no prob-lem at all. When it comes from Samarco we believe.” Deco is an enthusi-ast of the Salvamar Project. “This is a fantastic project. I tell everybody:try and implement it in your community too. The other day, my boatstopped in Jacareípe. I talked to people over there. They already knewabout the project and they want it too.” In Muquiçaba, they once installedbarrels on the beach but there was neither collection nor recycling. Theoil collected ended up in the sand and was taken into sea by the tide.

Implementation in Muquiçaba started with participation by all thoseinterested. The community wanted it and went to the MunicipalEnvironmental Protection Secretariat. They started participating as facili-tators, scheduling a meeting with Samarco and supporting the communaldiscussion and mobilization process. In the Municipal Secretariat, GiovanaKill believes that the process is a guarantee for the project’s permanence.Belonging to everyone, the project does not run the risk of discontinuance.

The Salvamar Project has received many awards. It won first prize inan international contest promoted by BHP Billiton. Technicians and thetugboat sailor that created the idea were taken to Australia to receive theUS$2,500 award, which they intend to invest in a new social project atPerocão. The annual budget of the Salvamar Project is around 15 thou-sand Reais (c. US$ 4,000). It is necessary to publish information aboutthe project and its results in order for the company to be able to capturethe public relations benefits. But the cost of publishing this information ishigher than investment in the project itself.

The Salvamar Project

has received many awards.


In Sandrely’s opinion, an explanation for the project is that “welearned so much that the knowledge ended up being brought into thecommunity.” Because they have the knowledge, they recognize that thereis much to be done and initiatives mixing the company’s social policiesand employees’ volunteer actions are multiplying themselves. TheSalvamar Project is proceeding. There is still no risk of overburdeningSamarco’s recycling equipment, but there is an increasing interest in find-ing partner companies that could expand the idea to other regions.Samarco would contribute the operational model because of their expert-ise in the impacts of oil spills and working with communities.

An idea that grew

The Salvamar Project was a far-reaching idea. From an environmentalviewpoint, it encompassed the complete cycle of oil utilization, includingoil recycling and reuse, and stimulated reduction in consumption. Fromthe social standpoint, it contributed to the development of the communi-ty, broadening its knowledge and its participation in issues important tothe environment they are in. It also stimulated subscription to new valuesand helped increase self-esteem because every citizen contributes and par-ticipates. In addition, in enabling the reuse of oil and the reduction ofcosts, it increases the fishermen’s income.

The average saving of R$70 (seventy Reais, around US$20) in themonthly consumption of oil is significant for the fishermen and a strongreason to participate since only registered fishermen are allowed to buyrecycled oil. But, after the training course and the lectures, motivationtowards environmental protection increases and fishermen change theirhabits regarding other refuse like plastic bags, nets and fish scraps. Most ofthem bring trash back to land and throw it in barrels close to collectors.They even collect other objects they find in water for adequate disposal.Fishermen from other regions not yet participating in the SalvamarProject are coming to the collection stations to dispose of oil after hearingtheir colleagues commenting on the impact of inadequate disposal.

Since the beginning of the project, more than 2,000 liters of oil havebeen already collected, both in Perocão and in Anchieta. The project is


in its final implementation phase in Muquiçaba and initial contacts havealready been made with Iriri and Inhaúma’s communities, including meet-ings and visits to Samarco. In Perocão, the recovery of the mangrove’s florais already noticeable and it is common to hear fishermen saying such thingsas: “The mangrove has to be preserved because it is the sea’s nursery.”

Shareholders visiting the company often inquire about SalvamarProject. The project is also of interest to banks working with the compa-ny, which include it in their sustainability assessment of the company.The recognition of its importance is a stimulus for other employees andthe management to adopt and implement other new ideas.

Whenever the Salvamar Project is implemented in a new community,new knowledge and new improvement and action opportunities are dis-covered. Luiz Milagre, a fisherman, wrote a sentence in a text he preparedfor a contest named Histórias de Pescador (Fishermen Stories), one ofSalvamar’s activities, that could very well be transposed to the manage-ment and daily life of companies: “The sea is an infinite school and wewill never know all its mystery.”

The project is also

of interest to banks

working with the company,

which include it in their

sustainability assessment

of the company.


Sources

Samarco Annual Report 2001

Olinta Cardoso – Lecture at Mix ABERGE 2001

INTERVIEWS

SAMARCO

Ana Paula Gomes Costa – Management Internal Consultant

Benedito Waldson Pinto – Human Resources General Manager

Francisco Dutra – Management Risk General Manager

Gerson Oliveira – GAMA’s President

Madelon Piana – Corporate Communications Manager

Sandrely A. Lopes – Environmental Protection Analyst

Sebastião Machado – Sailor – Salvamar Creator

Vitor Feitosa – Health, Safety and Environmental Protection Initiatives Coordinator

EXTERNAL STAKEHOLDERS

Giovana Kill – Environmental Municipal Secretary

MEETINGS WITH

Perocão Fisherman GroupAnchieta Fishermen GroupMuquiçaba Fishermen Group


19Takao Inukai wrote the first draft, which was reviewed and rewritten by Toru Umeda. The second draftwas read and commented on by Kikkoman's staff members. The third draft was reviewed by Prof. GerholdK. Becker, Hong Kong Baptist University. For this case study, the case authors interviewed Mr. KazuoShimizu, Manager at the Office of the President, and Dr. Ayumu Nagahara, Director of the EnvironmentDepartment, on August 26, 2002 at Kikkoman’s Tokyo headquarters. Peer review of this case study wasprovided by Gerhold K. Becker of the Hong Kong Baptist University, Centre for Applied Ethics.

EnvironmentalPreservation and other efforts of KikkomanCorporation

TAKAO INUKAI AND TORU UMEDA

REITAKU UNIVERSITY19

Introduction

IN OCTOBER 1917, eight brewery houses run by the Mogi, Takanashi andHorikiri families consolidated into one company, Noda Shoyu Co., Ltd.The resulting company was renamed Kikkoman Shoyu Co., Ltd. in 1964.In 1980, it adopted the name Kikkoman Corporation. The business ofKikkoman Corporation, hereafter referred to as Kikkoman, and 61 groupcompanies worldwide [48 subsidiaries and 13 affiliates] involves the pro-duction and wholesale of soy sauce, soy sauce derivative products, tomatoketchup, vegetable and fruit juice, canned provisions, and alcoholic bev-erages. In Japan, Kikkoman has three manufacturing sites of soy sauce atNoda, Takasago and Chitose cities, one research headquarters, and eight

Case Study | Kikkoman Corporation 53

branch offices. Kikkoman has the largest share of the soy sauce market inJapan: 28%. Kikkoman's soy sauce is currently marketed in more than onehundred countries.

Kikkoman started direct investment in the United States in 1957. Ithas since expanded business in the U.S. market. Kikkoman's share in thehome-use soy sauce market in the U.S. now accounts for approximately56%. As of April 2002, Kikkoman has sales companies in the U.S., theUnited Kingdom, France, Germany, Canada, Australia, Mexico, China,and Singapore. It also has six overseas manufacturing plants in the U.S.(Wisconsin and California), Singapore, Taiwan, the Netherlands, andJiangsu Province in China. At these overseas plants, local raw materials,local packaging materials, and the local labour force are used to producesoy sauce for the local markets.

In fiscal year 2001, Kikkoman's net sales revenue was 336,887 millionyen; its operating income was 14,942 million yen; and its net income was5,363 million yen, all on a consolidated basis. As of the end of March2002, Kikkoman's capital amounts to 11,599 million yen and the numberof employees totals 2,476 on a stand-alone basis and 6,240 on a consoli-dated basis.

Mr. Yuzaburo Mogi has served as President and CEO since February 1995.

Kikkoman and the UN Global Compact

Background of its Participation in the UN Global Compact

Kikkoman participated in the UN Global Compact in January 2001.Kikkoman became the first Japanese company to officially support the ini-tiative. President Mogi’s personal relationships played an important rolein the lead-up to this involvement. In autumn of 2000, Mr. Yukio Sato,Japanese ambassador to the United Nations, suggested to President Mogithat his company support the Global Compact initiative. At around thesame time, Dr. John Ruggie, former Dean of Columbia University'sSchool of International and Public Affairs and then chief advisor forstrategic planning to UN Secretary-General Kofi Annan, had stronglyrecommended to President Mogi that he participate in the initiative.President Mogi and Dr. Ruggie were acquainted, since Mr. Mogi was the

Kikkoman became the

first Japanese company

to officially support the

Global Compact.


first Japanese citizen to receive an MBA from Columbia University, andhas served as trustee since 1994 and trustee emeritus since 2000.

When President Mogi later happened to attend a lecture on the GlobalCompact by staff of the UN Information Center in Tokyo, he began tosee how well the concept of Global Compact matched the managementphilosophy of Kikkoman. He also knew that there were no legal problemspreventing the company from participating in the Compact. The presi-dent made a decision by himself to support the initiative and sent a letterof consent to Secretary-General Kofi Annan in January 2001.

Since Mr. Mogi became Kikkoman's president in 1995, one of the com-pany's management philosophies has been to “endeavour to become acompany whose existence is meaningful to the global society.” A line ofthe company’s Action Guidelines for its employees counsels them to “actwith a consciousness of being a 'global citizen'.” Participation in the UNGlobal Compact was, therefore, an ideal opportunity for Kikkoman toshow itself as a global company in the real sense. When the companydeclared its support for the initiative, the president had no idea of whetherany other Japanese company had already joined the Global Compact. Mr.Mogi later confessed that he had never imagined that his company wouldbecome the first Japanese company ever to join the UN Global Compact.

Office responsible for Global Compact matters

Since Kikkoman’s participation in the Global Compact was decided in atop-down way by President Mogi, the president may be considered as aprime driver promoting the corporate scheme for the initiative within theKikkoman Group. The Office of the President, comprising five members,has so far been responsible for looking after wide-ranging issues involvingthe Global Compact, and there is no other office or division specializingin Global Compact matters in Kikkoman. While it is true to say that theOffice of the President has the advantage of being able to respond swiftlyto issues concerning human rights, labour and the environment, whichsometimes require cross-sectional coordination among InternationalOperations, Personnel, and Environment Departments, with the compa-ny’s priority being the three environment-related Global Compact princi-ples, the Environment Department also has a significant role in GlobalCompact matters.

A line of the company’s

Action Guidelines for its

employees counsels them to

“act with a consciousness of

being a 'global citizen'.”


Impacts of Participation in the Global Compact

Kikkoman's announcement to support the Global Compact did notattract much attention among the Japanese business community, let aloneamong Japanese society in general: media coverage was very limited; thecompany received a limited number of inquiries and requests for inter-views on the topic. In fact, Kikkoman had been the only supporter of theGlobal Compact in Japan until Ricoh Co., Ltd. joined the supportergroup in April 2002, followed by several others.

Compared to the limited impact on society, the internal impact of itsparticipation in the Global Compact was more visible. The KikkomanGroup has made efforts to raise awareness of the Global Compact amongits employees through the company newsletter and other means sinceannouncing its support of the initiative. Kikkoman Group AnnualEnvironmental Report for 2001, released in July 2001 also covers thetopic. President Mogi has often stressed the significance of supporting theinitiative in his messages addressed to employees. He said, at an introduc-tory session for the UN Global Compact held at the headquarters of theJapan Business Federation on May 21, 2002: “I try to take every opportu-nity to talk about the Global Compact to raise employees' consciousness,emphasizing the importance of promoting the UN Global Compact.” Mr.Kazuo Shimizu, Manager at the Office of the President said in an inter-view with the case authors: “Kikkoman’s participation seems to have pro-vided an opportunity for employees to think of global corporate citizen-ship and global-mindedness.”

Kikkoman also launched corporate governance reforms to tighten upits compliance framework in the wake of its participation in the GlobalCompact:

Corporate Governance Reforms

Kikkoman, in its desire to become a global company, had to investefforts into corporate governance reforms to streamline decision-making processes and to accelerate the execution of business opera-tions. Since Sony Corporation introduced a corporate officer sys-tem in Japan in 1997, an increasing number of Japanese companiesare cutting the size of the Board of Directors. According to onesource, about 240 Japanese companies had introduced this systemby the end of fiscal 2000. The Commercial Law, when revised in2002, formally adopted the concept of a corporate officer system.


Kikkoman introduced the system in March 2001, not long after itjoined the Global Compact.

In 2002, Kikkoman also introduced outside directors with a view toenhancing its corporate governance. At the annual general meet-ing of shareholders held in June 2002, two outside directors andone additional outside corporate auditor were appointed.Kikkoman appears to have transformed its corporate governancestructure from a conventional Japanese style into an Americanstyle. As of October 2002, the company has 10 directors on theBoard, 2 being outside directors. There are 30 corporate officers, 8of which are also Board members. Kikkoman has 4 corporate audi-tors, including two outside auditors.

Enhancing Business Ethics and Compliance

As a company wishing to be a global company in the global com-munity, Kikkoman recognizes the importance of business ethics andcompliance systems, and thus recently improved both. In March1995, the company published Action Guidelines for its employeesbased on its management philosophy. A more carefully tailoredCode of Conduct was formulated in August 2002. A BusinessEthics Committee was established in October 2002 to assumeresponsibility for the company and group’s compliance system.

Kikkoman's Approach to Environmental Issues

As is declared in one of its example submissions on the Global Compactwebsite, Kikkoman places a higher priority on its efforts to solve environ-mental problems than on its efforts in other areas of the Global Compact,namely, human rights and labour. Since its foundation, Kikkoman hasalways been sensitive to the environment in its business practices. Soysauce, one of Kikkoman’s main products, is an extremely pure and naturalproduct made from fermented soybean protein. Soy sauce is a product ofJapanese traditional biotechnology mixed with the controlled use ofmicro-organic agents. It is imperative that Kikkoman keep its factory'senvironment spotlessly clean.

As a company wishing

to be a global company

in the global community,

Kikkoman recognizes the

importance of business ethics

and compliance systems.


Sections in Charge of Environmental Preservation

Kikkoman's commitment to addressing environmental problems started inthe 1970s. Following the enactment of a series of laws countering environ-mental pollution and destruction, Kikkoman established the EnvironmentPreservation Division as an independent division in 1972. After the Riode Janeiro Summit in 1992, the company’s enthusiasm for environmentpreservation was rekindled with the establishment of a GeneralEnvironment Protection Committee (the current General EnvironmentPreservation Committee) as the highest decision-making body promotingthe Kikkoman Group’s pro-environment activities. An EnvironmentalCharter was formulated and promulgated later in the same year.Kikkoman’s Environment Department functions as the Committee’s secre-tariat. The president of Kikkoman has previously chaired the Committee.

In March 1993, the General Environment Preservation Committeedrew up a voluntary plan titled “Action Program on the Environment,”which has been reviewed and revised annually since then. In order toraise employees' awareness of environmental issues, an EnvironmentalCharter comprising an Environmental Motto and a set of Guidelines forActivities was formulated in 1992. The Environmental Motto states:“Kikkoman will respect the working of nature, and contribute to the real-ization of a society comfortable to live in through our corporate activitieskeeping harmony with the environment.” The Guidelines for environmental

activities appear in sidebar below.

Internal environmental audits have been conducted since 1995 by theEnvironment Preservation Division, currently the EnvironmentDepartment, based on the scheme of ISO 14001. The audits covered 14operations centring on the company’s manufacturing sector and R&Ddivisions. Since October 1997, the coverage of the internal environmen-tal audits has extended to subsidiary and affiliate companies at home andabroad. ISO 14001 non-certified plants have internal environmentalaudits, including document reviews and on-site inspections, conducted ona yearly basis to determine whether the internal control system works. ForISO 14001 certified plants, a member of staff from the EnvironmentDepartment of Kikkoman usually accompanies inspectors of the ISO cer-tifying agency.

The General Environment

Preservation Committee’s

mandate includes

1. examining and approving the Group's environmental policies;

2. confirming findings of environmental auditing;

3. reviewing itsEnvironmental Management System.

There are two sub-commit-

tees under the Committee.

One is a panel dealing

with issues concerning pro-

motion of resource/energy

savings in manufacturing

and technology sectors,

environmental assessments,

promotion of waste reduc-

tion and its proper dispos-

al. The other is a panel for

issues concerning promo-

tion of resource/energy sav-

ings in sales and indirect

sectors, reduction of waste,

and promotion of a green

procurement campaign.


Kikkoman's Actions for Environmental Preservation

The General Environment Preservation Committee of Kikkoman decid-ed, in February 2001, (1) to promote energy saving efforts including thereduction of greenhouse gases; (2) to increase rates of recycling waste; and(3) to build up an environmental management system. Kikkoman hastaken various measures to achieve these goals. The details and results ofthese measures are disclosed in the Annual Environmental Report.

Reduction of Greenhouse Gases

Kikkoman aims to reduce the total carbon-dioxide emission ofoperations in the Kikkoman Group, especially in its major domes-tic manufacturing plants, to 92% of the 1990 level by 2010, there-by going beyond the legal requirement which the Japanese govern-ment agreed to in the Kyoto Protocol. When Kikkoman's TakasagoPlant in Hyogo Prefecture completed the renovation of its facilitiesfor processing raw materials in December 2001, a co-generationsystem was introduced. The system enables the plant, equippedwith an electric power generator using natural gas, to harness wasteheat, which is the by-product of power generation, as a source ofenergy for other purposes. Thanks to this system, it is estimatedthat the Takasago Plant will be able to curtail 12% of heavy oiluse, 21% of carbon-dioxide emissions and 46% of electricity con-sumption.

Enhancement of Recycling Rates of Waste

Kikkoman has set a target to increase, by 2005, the rates of recy-cling waste to 99% in the production sector and 95% in other sec-tors of the Kikkoman Group centring on major domestic manufac-turing companies. The following 4Rs are its policy priority: (1)Refuse: Do not use or make what is not necessary; (2) Reduce:Save energy and raw materials and reduce waste; (3) Reuse: Usebottles and other reusable things again; (4) Recycle: Reuse materi-als in different ways.

Building up the Environmental Management System

Kikkoman has encouraged its manufacturing sites to obtain ISO14001 certifications. In 1997, the Noda Plant, Kikkoman's majormanufacturing site, became the second Japanese food making plantto obtain this certification, following Kirin Brewery Company.Since then, the following Kikkoman plants and subsidiaries have

Guidelines for Activities

We act vigorously and

strenuously to maintain

harmony with the

environment.

1. Each of us will try toremain in harmony withthe environment in performing one’s ownduty in all sectors ofdevelopment, procure-ment, production, salesand support.

2. In addition to observinglaws, we will formulateand observe our ownrules and regulations.

3. As members of society,we will participateactively in environmen-tal preservation activi-ties in our local commu-nities.

4. We will study the environment and deepen our understand-ing about it.

5. We will think and actfrom a global point ofview.


obtained ISO 14001 certifications: the Takasago Factory in 1998;the Chitose Factory and the Fukushima Factory of Nippon DelMonte in 1999; the Ojima Distilling Plant, the Gunma Plant ofNippon Del Monte and Manns Wine Company in 2000; the ToneCoca-Cola Bottling Company, the Nagano Factory of Nippon DelMonte and the Nakanodai Area of Kikkoman's Noda Plant in2001. The following overseas plants obtained ISO 14001 certifica-tion during 2002: the Wisconsin Plant in June; the NetherlandsPlant in August; and the Singapore Plant in October.

Release of an Annual Environmental Report

Kikkoman has produced an Annual Environmental Report since1998. Kikkoman's way of releasing the Report is unique. To savepaper and ink, Kikkoman recently stopped having its environmen-tal report printed for circulation. Instead, the Report has beenmade public on its Web site. The Report is also available in theform of a business-card-size CD-ROM. If some printed copiesshould be required, only that specific number of copies is to beprinted on a unique recycled paper made out of soy sauce cake, awaste generated in the process of producing soy sauce. This recy-cled paper, which was invented jointly by Kikkoman and HokuetsuPapermaking Company, is a certified product with “tree-free label,”proving that it is not made out of wood.

The Annual Environmental Report 2000 newly incorporates an environmen-tal accounting report giving a quantitative evaluation of the outcomes ofKikkoman's environmental investment and expenditure. An independentthird-party review by a private research agency was another additionmade to the Report 2000 to guarantee the objectivity of its environmentalaccounting. With the Annual Environmental Report 2001, the coverage ofenvironmental accounting was extended to include major related manu-facturing companies in the Kikkoman Group on top of Kikkoman’s own.

Recognition for Kikkoman's Environmental Activities

Kikkoman's environmental preservation activities have been recognizedat home and abroad. For example, Kikkoman received the Environmentaland Resource Cooperation Award from The Japan Food Journal in 1998for its continuing efforts toward environmental protection through creat-

Unique recycled paper made

out of soy sauce cake

is a certified product

with “tree-free label.”


ing an environmental management system and reducing the environmen-tal load of its operations. Kikkoman also received the 23rd Excellent FoodIndustry Companies Award 2001 from Japan’s Ministry of Agriculture,Forestry, and Fisheries in the recycling/environmental preservation cate-gory. Abroad, Kikkoman was given recognition in September 2001 by theEnvironmental Protection Agency of the State of California for its effortstoward waste reduction at its California Plant.

Kikkoman's Approach to Human Rights and Labour Conditions

Though Kikkoman’s efforts in the human rights and labour fields mayappear to be dwarfed compared to its environmental activities, the compa-ny has also paid attention to these issues. The company foresees no majorrisks in the fields of human rights and labour. As President Mogi said at anintroductory session for the UN Global Compact held at the headquartersof the Japan Business Federation on May 21, 2002: “Our companies oper-ate mainly in advanced countries. There seems to be little chance that wewill face serious challenges involving human rights and labour conditionsin our business operations.” The Kikkoman staff interviewed told the caseauthors that Kikkoman has never encountered business situations involv-ing forced labour or child labour and that there is no danger of such formsof labour since most of the production processes are automated.

According to the same staff, Kikkoman maintains a non-discriminationpolicy in accordance with local laws and regulations so that it “seldom”sees such practices in the workplace, in employment and promotion,either at home or abroad, and the company is keen on promoting andemploying racial minorities and handicapped people.

The Eighty-Year Chronicle of Kikkoman Corp., published in October 2000,which outlines the history of Kikkoman, documents that the companyhas long fostered a philosophy of valuing the individual and has respectedhuman rights and labour elements in its business operations. More con-cretely, Kikkoman's concept of “Spirit of Industry,” its improved labourwelfare, its “consumer-oriented” policy and its strict quality control sys-tem provide clear evidence of Kikkoman's human-based philosophy in itsbusiness operations. Let us look at each of these in turn:


Spirit of Industry

In Kikkoman, the concept of “Spirit of Industry,” inherited from an earli-er time, is still held as a management philosophy to the present day. NodaShoyu Co. Ltd., the predecessor of Kikkoman, faced a labour strike in1927, which lasted for 218 days. The then-President, Shichiroemon Mogi,the founder of Kikkoman, attributed the prolonged strike to the loss ofthe family-like cooperative spirit in the company owing to the moderniza-tion of manufacturing systems. To recover such a spirit, the founder pro-posed the Spirit of Industry as a management philosophy for his company.

Kikkoman has maintained a relatively good relationship betweenlabour and management since the settlement of the massive strike, thanksin large measure to this concept. Another base of this stability may beKikkoman’s policy of job security. The company has maintained a policyof not dismissing any employee even when under pressure to curtail thework force and streamline operations in the tough times of economicrecession. Rather, it has tried to reduce the number of workers by encour-aging early retirements or by cutting down on new recruits.

A labour-management relationship based upon “the spirit of mutualtrust” of labour and management may seem to be unique, especially to theeyes of Westerners. This aspect should not be disregarded or overlookedwith regard to the Global Compact’s principles of labour conditions.

Labour Welfare Improvement

It has been noted that Kikkoman had improved labour conditions well inadvance of the labour policies of the Japanese government. The followingare some examples.

When the Health Insurance Act was enacted in 1926 in Japan,Kikkoman established a health insurance cooperative for its employees. Itwas only the second Japanese company to establish such a scheme. TheJapanese government revised the Labour Standards Act to curtail theaverage weekly hours of labour from 48 to 40 in 1977. Kikkoman hadalready started reducing the working hours as early as 1962, and the poli-cy of the 40-hour week had been implemented since 1971.

The Child Care Leave Law was enacted in 1992 to promote measuresto support working mothers. Kikkoman had introduced its own child careleave system in December 1981 where maternity leave of 6 to 12 months

The concept of “Spirit of

Industry” is held as a

management philosophy.

The concept represents

a united devotion of labour

and management to the pub-

lic welfare, based on “mutual

respect and trust as humans,”

with both parties working

together with “the spirit of

committing themselves to

the public good.”


after childbirth was made available – currently, maternity leave of up to18 months is permitted. Kikkoman's system looked so advanced in thosedays that a newspaper report described the company as a “consideratecompany for its workers.”

The Child Care and Family Care Leave Law was enacted in 1995 as anamendment to the Child Care Leave Law. The revised law provides aleave of absence for taking care of a family member. Kikkoman had intro-duced a family care leave system in 1978, under which an employee cantake a maximum of 18 months leave of absence in order to take care of afamily member.

Consumer-Oriented Stance and Quality Control

A policy of being consumer-oriented is a fundamental management phi-losophy of Kikkoman. The policy denotes a priority given to matters con-cerning its consumers, including swift and careful responses to any claimsas well as the supply of safe foodstuff to consumers. The company, sensi-tive to the safety of its products, has made great efforts to establish andenhance a comprehensive quality control system.

The Kikkoman Group learned lessons from a wine-poisoning incidentin 1985 involving a subsidiary company of Kikkoman. The subsidiarycompany unknowingly marketed imported wine containing diethyleneglycol after blending it with its own wine. When the poisoning incidentwas revealed in the national media, it became a social problem, and theblame was attributed to the parent company, Kikkoman. As a result, sometop executives of Kikkoman were forced to resign, taking responsibilityfor the incident. Following this bitter experience, the Kikkoman Groupdecided to set up a Quality Control Office, currently designated theQuality Control Department, and launched an inspection system for qual-ity control to ensure the quality of the processes and products in all stagesranging from production to marketing.

Other businesses later followed the Kikkoman Group’s quality controlsystems when they faced the need to establish such systems in response tothe enhanced liability of producers under the Product Liability Lawenacted in July 1995.

In 1998, Kikkoman’s labour

and management signed the

Declaration of

Determinations by Labour

and Management for the

New Age. This Declaration

is a sign of the firm determi-

nation of both labour and

management to achieve

continued success in the

21st century. Labour and

management explicitly

declared that, on the basis

of “the spirit of mutual

trust,” “the principle of

equality of labour and man-

agement,” “the mutual

respect of each other's

rights” and “the fulfilment

of mutual duties,” they will

cooperate to make the com-

pany and its employees

prosperous. The Declaration

also states that labour and

management will “cooperate

to help the company and

labour become entities

whose values are truly

appreciated by the global

society.”


Unsolved Questions

There seems to be three unsolved questions Kikkoman is expected toanswer in further promoting its schemes for the Global Compact.

The first is the matter of its stance regarding disclosure of informationon its efforts to address issues concerning human rights and labour stan-dards. Since the Kikkoman Group has good records in these fields, itcould contribute to the global initiative by providing more input as acompany representing the non-Western world.

The second involves the establishment of a structure or frameworkinside the company or the Group. If Kikkoman is ready to further pro-mote the Global Compact initiative, it will need to set up an office whichdeals specifically with the Global Compact, rather than the Office of thePresident which is currently looking after this as well as its routine work.During an interview conducted for this case study, Dr. Ayumu Nagahara,Director of the Environment Department, commented that the interviewprovided a valuable opportunity since he had seldom had such a face-to-face meeting specifically to discuss the topic of the Global Compact withstaff of other departments or offices. He stressed that the interview itselfconstituted a precious learning process.

The third is a language barrier that the company will hopefully over-come if it wishes to be an active participant in the Global CompactLearning Forum. This may be recognized as a problem not only byKikkoman but also by other Japanese companies who are planning to par-ticipate in the forum in future. Translation of letters and documents fromand to the UN Global Compact Office is a time-consuming work. Inorder to encourage more Japanese companies to participate in the GlobalCompact, it is necessary for the United Nations Global Compact Office,or any UN body, to make efforts to overcome the language barrier andestablish an easier communication system for companies from non-English speaking countries.


20 Peer review of this case study was provided by Dr. Anton Ferreira of the University of South Africa.

Eskom and the Flexible Hot Water Load Management ControlSystem

M. MOSHOESHOE AND D. SONNENBERG

AFRICAN INSTITUTE OF CORPORATE CITIZENSHIP20

AS A SIGNATORY TO THE United Nations Global Compact, Eskom hasundertaken to integrate the 9 Global Compact principles into their oper-ations. To showcase this integration, Eskom has opted to use its Flexicon– Flexible Hot Water Load Management Control – system as testimony tothe company’s incorporation of principles 8 and 9 of the Global Compact,which relate to environmental responsibility and environmentally soundtechnologies.

The Flexicon system forms part of Eskom’s Demand Side Management(DSM) programme, an initiative coordinated by the DSM Department atEskom’s headquarters in Johannesburg. The main objective of the DSMDepartment is to find ways of reducing the demand for power during peakperiods of electricity consumption. Flexicon is an ingenious way forEskom to reduce geyser energy consumption during peak periods. Withthe consent of participating households, who also benefit, Eskom is ableto show energy savings during these periods. These savings have numer-ous benefits that are outlined later in this case study.

Case Study | Eskom 65

21 www.eskom.co.za

The compilation of this case study was facilitated by a series of inter-views with the relevant personnel at Eskom, namely the responsible envi-ronmental advisor and the manager of the Demand Side Managementdepartment, who is ultimately responsible for the Flexicon case study.Additional contact with limited external stakeholders took place duringthe research phase of the case study, as well as collection of anecdotalaccounts from Eskom and video footage of stakeholder engagement.

About Eskom

Over the last century, Eskom21 has established itself as a leading electricitysupply company, providing over 95% of South Africa’s electricity needsand over 50% of Africa’s. Eskom is owned by the South African govern-ment and is among the top seven utilities in the world in terms of genera-tion capacity, and among the top nine in terms of sales. Eskom generates,transmits, distributes and sells power to industrial, mining, commercial,agricultural and residential customers and redistributors.

In 1999, Eskom embarked on a new strategic trajectory with the aim ofbecoming the pre-eminent African energy and related services business.Eskom has set out to leverage its core competencies as products and serv-ices into new markets, focussing on the African market, but with aspira-tions to penetrate other markets, both emerging and developed. Thisdiversification strategy is largely implemented through Eskom Enterprises(Pty) Ltd., Eskom's vehicle through which non-regulated activities areundertaken and which has, over the last two years, created a major busi-ness foundation for the development of Africa's energy and telecommuni-cations infrastructure.

Eskom has an environmental management system that supports contin-ual improvement in the ways in which the organisation manages itsimpacts on the wider environment. The organisation promotes open com-munication about environmental issues and aims to educate, train andmotivate its employees about environmental matters.

Eskom’s environmental

policy commits the

company to:

• promote open commu-nication on environ-mental issues amongemployees and stake-holders;

• establish an environ-mental managementsystem with a view toensuring continualimprovement in appro-priate business activi-ties, including preven-tion of pollution whereeconomically viable andsustainable;

• contribute toward sus-tainable developmentthrough the efficientproduction, distributionand use of energy; and

• educate, train and moti-vate its employees aboutthe environment.


22 The graphic that illustrates how much and when electricity is consumed.

Demand Side Management

Background

In order to understand the reason behind selecting Flexicon as the majorfocus of this case study, it is important to understand the context withinwhich the programme was initiated. Put simply, the more energy that isused, the more energy needs to be generated. The result is that morepower stations need to be built. This inevitably results in higher costs forboth consumers and the environment. However, by using energy wisely,the consumer helps to contain costs and avoids negative environmentalimpacts that would have arisen with the construction of additional supplystations.

Additionally, South Africa’s coal reserves are, of course, not infinite.The country’s growing population rate and accompanying demands on itsenergy resources have a severe impact on the country’s natural resources.Reducing coal consumption preserves this cheap and valuable resource tohelp maintain the country’s energy supply for substantially longer. Theenvironment also benefits from more efficient use of energy: every kilo-watt-hour of electricity saved means one less kilogram of carbon dioxidegenerated by a power station and released into the atmosphere.

Details

Eskom established the Demand Side Management (DSM) department todeal with a range of issues, all geared towards reducing peak electricityconsumption. When a utility or local authority supplying electricity influ-ences the way it is used by customers, this activity is known as DemandSide Management. DSM consists of two focus areas: the commercial sec-tor and the industrial sector. For the case study under review, the mainfocus is on the commercial sector and, within that, the emphasis is givento households as customers rather than companies.

The term “Demand Side Management” was first used in the UnitedStates in the early 1980s to describe planning and implementation of util-ity activities designed to influence the time, pattern and/or amount ofelectricity demand in ways that would increase customer satisfaction, andsimultaneously produce desired changes in the utility's load-shape. 22

This new strategy implies

that:

• Eskom is proud of beingAfrican;

• Eskom functions as aglobal business;

• Eskom promotes eco-nomic growth in SouthAfrica and Africa,through active contribu-tions to the NewPartnership for Africa’sDevelopment(NEPAD);

• Eskom has venturedinto energy relatedproducts and services;

• Eskom has formed jointventure partnerships toaugment skills and openup new markets; and

• Eskom will be chosen asa preferred developmen-tal partner.

Implementation of this new

paradigm rests on four key

strategies, namely:

• Advancing Eskom’s roleas the leading electricitysupplier in Africa;

• Expanding Eskom’s busi-ness aspirations throughenergy and related serv-ices;

• Expanding Eskom’s busi-ness reach through e-business;

• Partnering South Africainto Africa.


23 Water is used for two purposes in electricity generation – driving turbines to generate power and for cooling.

DSM is an alternative to power system expansion and is also a tangiblemeans of providing customers with a valuable service. DSM initiativeshave also been adopted in the United Kingdom, Europe, Australia andelsewhere.

DSM is still a relatively new concept in South Africa. The SouthAfrican government, in the White Paper on Energy Policy, recognises theimportance of energy efficiency, and commits itself to promoting the effi-cient use of energy in all demand sectors. It also commits itself to investi-gating the establishment of ‘appropriate institutional infrastructure andcapacity for the implementation of energy efficiency strategies’. AlthoughEskom formally recognised DSM as far back as 1992, the first DSM planwas only produced in 1994. In this plan, the role of DSM was establishedand a wide range of DSM opportunities and alternatives available toEskom were identified. Although some municipalities and local serviceproviders have power systems (ripple control) that could be classified asDSM type interventions, these do not have the added benefit of produc-ing customer satisfaction.

South Africa’s growing population places significant demands on itsenergy resources that in turn have a severe impact on the country's natu-ral resources. Now more people have access to electricity and most resi-dential houses utilise electricity at peak times. This places a strain onEskom's resources requiring the company to generate more energy. As aresult, additional power stations are required and consumers are having tobear the financial costs while the environment bears the hidden costs.

The benefits of DSM are:

• A DSM programme can be implemented within 12 months while itcan take up to 10 years to build a new power station;

• It is far more cost-effective to implement a Demand SideManagement programme than to build a new power station;

• The customer benefits financially due to lower electricity consump-tion and reduced costs;

• Without demand-side management, South Africa’s electricitydemand could double over the next 20 years, requiring extra gener-ation capacity. This will result in significant electricity priceincreases;

South Africa’s growing

population places significant

demands on its energy

resources that in turn have a

severe impact on the

country's natural resources.

By using energy wisely,

South African consumers can

help to contain costs and

reduce environmental impacts

by obviating the need

to construct additional

power stations and

by utilising energy

more efficiently.

This reduces the amount

of water23 required

to generate power,

the amount of emissions

released into the air,

and so on.


24 The amount of power used at a particular time during the day.25 How much power can be saved during peak times and redistributed, or shifted, to off peak periods.

• Customers can be better served by having a choice of options thatenhance the benefits received from electricity while maintainingthe same or lower costs;

• Commercial entities benefit through savings on monthly electricityaccounts, while electricity supply companies benefit by implement-ing and maintaining the project, as well as through shared savings;

• The environment benefits from efficient use of energy. For exam-ple, every kilowatt-hour of electricity saved means one less kilo-gram of carbon dioxide generated by the power station and releasedinto the atmosphere, as well as preservation of significant volumesof scarce water resources for other uses. This is in line with theSouth African government's White Paper on Energy Policy (1998),which places a high premium on the environment, affordable energyto all, and energy efficiency.

Tableview Case Study

Background

The workings of the Flexicon system are illustrated by the followingexample from Tableview residential area near Cape Town.

Conventional hot water load24 management systems have traditionallyfocused on effectively managing load during peak periods with little or noregard for customer comfort or centralised scheduling. The objective ofthe Tableview project was to maximise the amount of shiftable load25 dur-ing the peak periods, while ensuring that customers seldom or never expe-rience the unpleasant fate of a cold shower or bath. One of the underly-ing principles of the Flexicon system is that of individual choice, particu-larly in how their geyser is controlled. This is made possible by the indi-vidual addressability of each load switch with this particular system via aradio signal.

Implementation

The decision was taken to implement this large-scale pilot project in theTableview area, near Cape Town, Western Province, due to sustained,


26 Megawatt. 27 Kilowatt.

unprecedented and continuing demand for electricity. Substantial net-work upgrades in the form of cables and transformers were planned for theTableview area with implementation due to start in 1999. Informationobtained indicated that there were approximately 9000 households in thearea with an average of 1.25 geysers per household.

One of the major benefits of implementing a load management systemin the area was that most of the planned network upgrades could bedeferred by a few years. Additionally, the Tableview DSM pilot served asa yardstick for the rollout of a national DSM initiative. Load shiftingfrom the morning and evening peaks to off-peak periods would improvethe load factor and reduce the magnitude of the demand peaks. The endresult: more efficient utilisation of the existing electricity reticulationinfrastructure. At the outset, it was hoped that the 1998 winter eveningpeak of 33 MW26 would be reduced by 10MW, to around 23MW, almosta 30% reduction. Implementation of the Tableview load management sys-tem commenced during the latter half of 1998 and continued through1999. The system involved the installation of 9800 geyser load switches,as well as a number of other infrastructure requirements.

Once the 9800 load switches were installed in the Tableview area, aseries of tests was then run. The information gleaned from the testing wasused to determine the amount of load that could be shifted from peak tooff-peak periods and the amount of demand reduction achievable. Testresults showed that the morning water heating peak occurred at 07h30and was 8.2 MW in magnitude, while evening water heating peaked at21h00 and was 6.4 MW in magnitude. This translates to a diversified fig-ure of 1.02 kW27 per geyser in the morning and 0.8 kW in the evening.This represents the maximum amount of load that can be removed fromthe load profile at each time interval.

Since the testing of the load management system in Tableview therehas been a tremendous amount of growth in electricity demand. Duringthe 2001 winter, tests were conducted using the load management systemwith the existing 9000-odd relays installed to determine the amount ofmanageable load. The Tableview area has expanded to such an extentthat in excess of 6000 new households have been built in the area since


the initial installations were completed. The acquisition of this new por-tion of the water-heating load will take place when the Tableview loadmanagement system expansion of 6000 relays takes place in the latter partof 2001, to be completed within the first quarter of 2002.

Features

The benefits to distribution of this manageable load will be the capacityto optimise their bulk purchase costs for the region while deferring net-work (specifically cable) upgrades for a number of years depending uponthe continued rate of growth in the area.

The main feature of the hot water load control system is its flexibility.One of the underlying principles of the system is that of individual cus-tomer choice, particularly in how the geyser is controlled. The load man-agement system implemented allows each geyser relay to be addressed indi-vidually. This means that it is possible to customise the manner in whicheach customer’s geyser is controlled to cater for the household’s lifestyle.

Initially, a number of preset control algorithms, or geyser controloptions, were established. These permitted Eskom a greater or lesserdegree of control of the customer’s geyser. During the commissioning ofthe project, households were allocated a control option based on a shortquestionnaire filled in during installation of the load switch. The infor-mation recorded at the time of installation included the geyser tempera-ture, element size, number of people in the household and times at whichbaths or showers are taken.

The customer is given the choice of changing from their default algo-rithm to one of a higher or lesser degree of control by contacting a 24-hrphone-in centre.

Case Study Analysis

The purpose of this section is to determine, from a Global Compact per-spective, how successfully DSM and Flexicon have been integrated intoEskom. This will be assessed using the Global Compact PerformanceModel and with reference to the two applicable Global Compact princi-ples. These principles ask business to:

• Principle 8: undertake initiatives to promote greater environmentalresponsibility; and

Benefits

The introduction of the

Flexicon system in

Tableview has had many

positive spin-offs for the

customer and for Eskom.

Customer benefits include:

• lower than expectedannual increases in elec-tricity prices;

• a better quality of sup-ply (less power interrup-tions) due to less stresson the local reticulationnetwork;

• management of geyserload out of peak periods;and

• a reduction in loss ofpower from geysers byway of an “efficiency”switching algorithmthat keeps the geyser offduring the evening andmidday periods to vary-ing degrees per customerrequest.

Eskom’s benefits include:

• Improvement in thenational electricity sup-ply load factor;

• Conservation of naturalresources; and

• Lower pollution levelswhile still providing thesame quality of serviceto the customer.


• Principle 9: encourage the development and diffusion of environ-mentally friendly technologies.

The energy sector is an important player in the South African econo-my, contributing 15% per annum to the Gross Domestic Product (GDP)and employing over 250 000 people. Electricity is a key factor in SouthAfrica's prospects for economic growth, the development of communities'capabilities and the improvement of the quality of life of all SouthAfricans. To this end, Eskom developed the DSM programme to plan andimplement activities designed to influence the time, pattern and amountof electricity usage and reduce the consumption of electricity during peaktimes. This goal has been achieved through deliberate interventions, suchas in Tableview, in the form of electricity efficiency and load managementprogrammes, in the residential, commercial and industrial sectors. Eskom’srecognition that social and economic development is enhanced with thesupply of cheap and efficient electricity led them to introduce the DSMprogramme in the early nineties. The fact that DSM actually reduces theamount of energy consumed can be explained as follows: Eskom’s DSMincentives allow the end user to benefit from the supply of cheap powerwhile simultaneously facilitating the redistribution of power to other keysectors for their use in activities which are central to the country’s economy.

To realise DSM meant that Eskom had to form a department with thenecessary skills to implement the energy savings. DSM is an importantcomponent of Eskom with its own complement of staff. They explorenumerous avenues for energy savings and also fulfill an educational roleby explaining to customers the benefits of demand side management ini-tiatives and various other energy saving measures. The latter include themany innovations that Eskom has either developed or endorsed, such asenergy saving light bulbs, geyser blankets and water pipe insulation. Allthese measures, be they small but effective innovations or large scaleefforts such as Flexicon, have broader impacts on society and people.

The Global Compact

Performance Model is com-

prised of ten elements, list-

ed below with a selected

comment:

• Vision – a shared ambi-tion to achieve a highlydesirable future;

• Leadership – driving thevision through theorganisation;

• Empowerment – releas-ing the full potential ofpeople in line with thevision;

• Resources – managingthe means to implementthe strategy and empow-er employees;

• Policies & strategy –where an organisationspells out its culture andspecific ambitions;


End Comments

It is Eskom's goal to achieve the following objectives through its DSMprogramme:

• To add value to Eskom's bottom line by initiating DSM pro-grammes that comply with sound business principles;

• To concentrate on DSM programmes that provide win-win situa-tions for the customer and for Eskom;

• To create the opportunity for Eskom to improve supply-side plan-ning, which results in lowered risks in implementing supply-sidesolutions;

• To achieve market transformation and ensure DSM sustainability.This should ensure that the market does not regress to lower levelsof efficiency after active participation of the utility has ceased;

• To reduce the maximum demand by changing the configuration ormagnitude of the load shape. Eskom will thus be able to accommo-date the system demand growth using existing capacity. This flexi-bility means that, in the event of market transformation or marketderegulation, Eskom will be competitive in the market and remainone of the cheapest energy suppliers in the world, thus creatingvalue for customers.

Eskom has an environmental management system that supports contin-ual improvement in the ways in which the organisation manages itsimpacts on the wider environment. The organisation promotes open com-munication about environmental issues and aims to educate, train andmotivate its employees about environmental matters. The company’senvironmental objectives fit nicely with the environmental savings thatDSM affords.

With electricity consumption growth in the residential sector expectedto be over 15% p.a. over the next ten years, the implications for Eskom asa supplier are profound. New plants would need to be constructed to meetthis new load type i.e. generation plant capable of running for relativelyshort periods during the day and only for a few months of the year. Thecapacity utilisation of this new plant would thus be extremely low com-pared with the currently installed capacity.

• Processes & innovation– thrives in organisa-tions that foster systemsthinking;

• Impact on people –commitment to princi-ples beyond profitimpacts positively onpeople;

• Impact on the valuechain – cooperation andtransaction providesadded value;

• Impact on society – theperception of companyperformance by society;

• Reporting – progressagainst objectives adds asocial and environmen-tal ledger to financialresults.


In considering the cost implications of new generation capacity provi-sion to the country and its electricity consumers, DSM becomes anextremely attractive alternative. Although South Africa currently has sur-plus generation capacity, the lead times for new plant construction arelengthy (up to 10 years).

If DSM can be used to limit residential demand growth or mitigate theimpacts through the provision of incentives for industrial, commercialand residential users to move load out of the peak periods, substantialbenefits for all customer groups could be derived. Inevitably, high priceincreases would be avoided through the deferment and probable avoid-ance of the construction of new generation facilities.

The potential therefore exists to substantially defer any supply sidegeneration construction decision through DSM until well into the nextmillennium. With the expansion of DSM, construction of certain newplants could well be avoided.

Contacts

• Eskom Manager Demand Side Management – Albert Africa

• Eskom Senior Environmental Advisor – Peter Nelson

• Eskom Manager Corporate Environmental Affairs – Vanida Govender

• Case Study Author – Dan Sonnenberg,

African Institute of Corporate Citizenship


Via a DSM, Eskom could, if DSM is fully expanded, see the followingresults:

• R2,5 billion (1997 rand) savings by customers due to less kilowatt-hours of electricity consumed over the next 20 years;

• Reducing peak demand by 4,000 megawatts by the year 2015. This ismore than the generation capacity of Eskom’s largest power station,Kendal and means that one less power station, costing in excess ofR10 billion, will need to be constructed;

• Energy savings of more than 350 gigawatt-hours over 20 years due toincreased efficiency. This is more than twice the electricity generatedby Eskom in 1995;

• 185 million tons of coal not burned over 20 years. This is more than2.5 times the amount of coal exported by South Africa in 1995;

• 490 billion litres of water saved by power stations over 20 years –equivalent to 20% of the Vaal Dam’s28 capacity; and

• 118 million tons of greenhouse gases not emitted into the atmosphere– equivalent to 2% of greenhouse gas emissions from the burning offossil fuels in 1990.

28 One of South Africa’s largest water impoundments.


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