William K Reilly, "Private enterprises and public obligations: Achieving sustainable development,"
California Management Review, Summer 1999, 41.4, 17-26.

Abstract:
The Exxon Valdez oil spill underscored how central corporate responsibility has become to the country's reconciliation of its
economic and environmental aspirations, especially if progress in cleaning up the air and water, which has been substantial the
past quarter century, is to continue. This reconciliation lies at the heart of the concept of sustainable development.
Sustainable development is not just about achieving greater efficiency in the use of energy and materials, which is important,
but also envisions fundamental product innovation and the use of less materials. One dimension of the challenge of sustainable
development is for government to craft incentives to foster innovation without prescribing corporate behavior. Another is to
engage the developing world constructively on such critical issues as water and private investment, which can improve the
lives of people, especially the poor. Without the cooperation of developing countries, it is unlikely that global environmental
problems like climate change can be addressed effectively.

In March 1989, I made one of the most significant, far-reaching decisions of my tenure as EPA Administrator. I ordered a full-scale review and reconsideration of the proposed Two Forks dam in Colorado. That was a half billion-dollar project that threatened a scenic river canyon, characterized by its defenders, who had the public relations edge on the dam's proponents, as "the St. Peters of trout fishing." My decision was highly controversial, with western development interests in Congress by and large supporting the project.

The advice of my friend Senator John Chafee was always to try to make my most controversial decisions when Congress was out of town. I released my statement commencing the veto process on Good Friday. Having made a decision to block a local project in which there was not one dollar of federal money, I was braced for the inevitable storm. I expected the rest of this particular Friday to be quiet, however.

Only minutes after signing the order relieving my regional administrator of the authority to make the decision whether to permit the dam, which he was poised to approve, my chief of staff Gordon Binder appeared in my office looking grim. He said, "There's been an oil spill in Alaska; it looks like a big one." I called John Sununu, President Bush's chief of staff, telling him I intended to go to Alaska.

Responding to an oil spill in the open ocean is the jurisdiction of the Coast Guard, which is part of the U.S. Department of Transportation. I was the green EPA administrator-green in both senses of the word, actually. I was the former president of World Wildlife Fund and I had been on the job only seven weeks. I was often described as the environmental conscience of the Bush Administration and I also oversaw within my agency the emergency response team of the federal government. I knew the environmental President would want his EPA administrator on scene at our first big environmental crisis. Sununu said on the phone, warily I thought, "I'll get back to you." A short time later, he called to say that Transportation Secretary Sam Skinner had been located on a golf course in Florida. Sununu asked that the two of us go together to Alaska
on the Coast Guard Commandant's plane.

We were soon en route to the scene of the disaster. What we knew was that some 11 million gallons of oil were in the water with three times that much oil still on board and likely to spill. There was less than $6 million in the Emergency Response Fund of the U.S. government at that time. I recall feeling like a minister of a poor Third World country, heading off to a crisis with authority, with responsibility, and with hardly any money at all.

As it happens, I knew a good deal about Alaska and oil. In the early 1970s, I had been the responsible staff member at the White House Council on Environmental Quality who reviewed the environmental impact statements on the proposed Alaska pipeline. One fact stuck in my memory: environmentalists reviewing those analyses had estimated there was one in a thousand chance of a major oil spill in that part of Prince William Sound. When it foundered on Bligh Reef, the Exxon Valdez was making the 867th tanker run south from Valdez.

My early impressions of the spill were indelible, unforgettable. The Coast Guard gave us an air tour of the Sound, repeatedly circling the wounded ship. They confidently asserted that everything was under control, a dozen skimmers were at work, the leaking ship was enclosed by booms, and so, too, were the mouths of four rivers from which salmon fry would soon be released from hatcheries to head through the Sound to the open sea. They continued on that line, even after we had been shown skimmers gummed by the viscous crude, virtually dead in the water. Skimmers are designed for cleanups in calm harbors not roiling seas, as we had in Prince William Sound. We were able to find only two of the dozen said to be at work. We couldn't locate the others. Even after we observed that all the booms around the ship and around the river mouths were broken and breached, the Coast Guard, nevertheless, continued to assert that the response was progressing well. Based on what
I saw, I refused to participate in a press conference to reassure the country, proposing instead that we inform the press that we were there to gather information to advise the President and that he would communicate to the country after our return to Washington. Coast Guard authorities and Transportation Secretary Skinner took my refusal as unfair, as critical of Coast Guard operations, but cancelled the press conference nonetheless.

Thus came my first lesson in responding to a crisis as a government official: Don't let the fact that your agency is responsible lead you into assuming that it's also effective. Keep your perspective. Tell the truth. Oil was on the move. It was unstoppable. It would inevitably wash up on hundreds of miles of coastline. It certainly wasn't the Coast Guard's fault that high waves and winds had disabled skimmers and breached booms. For the responsible agency, the first instinct is often to go into a defensive crouch, to reassure. Later, I was to become quite familiar with the temptation and of the need to resist it.

My second impression was astonishment that the federal, state, and pipeline authorities were so little prepared for a major spill in a place that, after all, had experienced high and highly remunerative tanker traffic. Today, equipment is pre-positioned all over the nation's major harbors. Other resources are on standby to be flown to a spill scene. There's substantial funding in federal hands should private parties not take the lead in cleaning up what they spill.

Exxon's chairman Larry Rawl provided a casebook example of how not to communicate when your company screws up. He played the victim in television interviews, reminding people of their dependency on oil. However, the company itself-inexcusably and shockingly unprepared at the start-performed quite credibly and responsibly over the ensuing months of cleanup. Unspoken throughout the months follow ing the tragedywas a sense of relief that the company responsible for the spill was both financially able and instantly willing to shoulder the burden of cleanup.

The frequent demands that we federalize the cleanup overlooked the fact that virtually everything we could think of to do, Exxon did. A federally led response effort would have been slow and far less generous with fishers in nearby communities than Exxon was. I had misgivings about Exxon's employing hundreds of people to scrub and steamblast oil-soaked rocks and beaches. However, such activities were seen by the public, both in Alaska and in the lower 48 states, as energetic and appropriate. (Incidentally, we did open a telephone hotline at EPA to solicit ideas for accelerating the clean up. My favorite suggestion was a proposal that we drop millions of nerf balls into the oil to soak it all up.)

A third impression that I brought home from this first visit to Alaska was surprise, surprise that oil spill cleanup technology was so primitive and unsophisticated. I convened my staff and later brought together chemical company executives to inquire about the bio-remediation techniques of which I had read. Within a short time, EPA was able to deploy an experimental mix of nutrients that halved the time necessary to degrade the hydrocarbons. When I had met with President Bush prior to my first trip to Alaska, he told me, "See if you can find an opportunity for volunteers to help in the cleanup." He thought young people particularly might want to participate. A few conversations with public officials in Alaska made it clear that outsiders were not welcome. As one of them put it to me behind closed doors, "We have seven percent unemployment here. This is a local hire situation." When I later advocated bio-remediation, explaining to Alaskan officials how the nutrients would feed the bacteria which would then eat and break down the hydrocarbons, I took delight in explaining that we did not intend to introduce
foreign bacteria, just to feed and increase local ones. These were all local hire bugs, I assured the Alaskans.

A new bio-remediation industry was effectively launched with that successful experience. It's now used across the country to clean up hazardous waste sites. The Exxon Valdez was a great tragedy, its effects persist, and recovery is far from complete. Ten years later, only two species have recovered, five species are said to be recovering, and eight species are said not to be recovering. After the spill, I proposed a $ 1 billion fine and settlement, to which Exxon agreed. That money has so far financed the purchase and permanent protection of 640 thousand acres of conservation lands around Prince William Sound. We did not have to suffer years of delay to get that money and I am proud of the deal we struck, which was the largest environmental penalty in history. Had I known that an Alaskan jury would assess a fine of $5 billion against the company, a staggering judgment against a company that already had spent $2 billion on clean up, I'm not sure I would have been so aggressive
in pushing for the $ 1 billion federal fine.

With the Exxon Valdez, the country got serious about preparing for oil spills. The government functioned as both enforcer of laws and penalties, albeit after the fact, and it also was mid-wife to a new oil cleanup technology. Oil companies looked on in horror. Some, like Conoco, committed to having their tanker fleets double-hulled and went on to achieve new records for safety and environmental compliance. We all learned important lessons-except perhaps the most basic one, which is to reduce our dependence on oil.

Notwithstanding the Exxon Valdez, America's environmental history is not an unrelieved succession of tragedies. True, they punctuate the chronology of our memories-the Cuyahoga River fire, the Santa Barbara oil spill, Love Canal, Valley of the Drums, and Times Beach. However, the quiet measure of progress comes in some formidable numbers. Since 1988, a period of extraordinary economic growth and development in the United States, carbon monoxide in cities' air is down 38 percent, nitrogen oxide down 14 percent, ozone smog down 19 percent, particulates down 26 percent, sulfur dioxide down 39 percent, and lead down 67 percent. If you run the numbers back to 1970, when we first began to get serious about clean air, particulates are down about three-quarters and lead concentrations are down about 98 percent. Whereas two-thirds of the nation's surface waters were unfit for swimming or fishing in the early 1970s, by the early 1990s, two-thirds were suitable and fit for fishing and swimming. As one of my predecessors as EPA administrator, Bill Ruckelshaus put it, even if a third of our waters
were not fishable and swimmable, at least they were no longer flammable.

Now these achievements are indisputable, real, and significant. As the writer Gregg Easterbrook has argued, the nation's environmental achievement ranks alongside Social Security as one of the two great success stories in postwar domestic policy. It is a success shared by scientists and writers, nongovernmental organizations, government agencies at all levels, by taxpayers and consumers, and by private businesses that have transformed their processes and, in many cases, their products in response to new and more demanding public expectations.

We are in a new era, one quite different and more demanding still than the one that followed our environmental laws. It has begun to dawn on thoughtful people that much about our lives and economies is not indefinitely sustainable. Prosperity for those in developed countries, when expanded to include the eager multitudes in impoverished places, is taxing the natural support systems to exhaustion, depleting oceans of fish, the forests of trees and soils, and the climate of its congeniality and stability. In one sense, this new era features a familiar asymmetry between our environmental aspirations and our economic goals.

By some measures, we have done reasonably well at greening our economic development. We have over 111 percent greater GNP than we had in 1970 (in 1992 dollars) and tens of millions more people, millions more homes, twice as many cars, thousands more factories and places of business, and still we have achieved those pollution reductions that I cited.

Our environmental experience has led us to two profoundly important discoveries. The first is that laws and regulations can be crafted to foster behavior that creates incentives to improve the environment. The best example is pollution rights trading incorporated in the acid rain title in the 1990 Clean Air Act. By reducing by half the total nationwide emissions of sulfur dioxides allowed and by allocating reductions to electric utilities based upon a maximum permissible emission rate per million BTUs, the law ensured that acid rain levels would plummet-and they have. By leaving it up to the electric utilities how they apportion their reduction-permitting them to buy credits from newer, lower-cost emitters while older and more expensively controlled polluters would be allowed to exceed their allocated pollution levels, provided they paid-the law created
a market in pollution rights. By allowing companies to pursue any path to improvement (conservation, conversion to low sulfur coal, conversion from coal to natural gas, installation of scrubbers, we didn't care), the overall economic cost of acid rain control was vastly reduced to the point where it is now significantly under $200 per ton. That is a great innovation. It is about $500 less per ton than EPA had expected and predicted; it's about $1200 less per ton than the electric utility industry had predicted.

The second important discovery, one being studied and experimented with by our best companies, is the concept of eco-efficiency. The concept implies that going beyond legal requirements has an ethical dimension. Yet it is also driven by a very practical economic interest. At Du Pont, on whose board I serve, it has to do with reducing the footprint or the material component of a product. The company has been highly successful at increasing the value while reducing the weight and mass of its products. Eco-efficiency has led to a reduction in Du Pont's waste of 46 percent between 1991 and 1996, a period of very rapid growth for the company. Waste products are now being reformulated. They are used to make profitable products such as insulation. They're also used in the envelopes you get from the postal service that you can't tear (you have to cut them with scissors) and so on. A drive to eco-efficiency has also prompted the creation of a new screen for manufactured herbicides. It's required that they be biodegradable, not accumulate in ground water, have a short half life, and not cause cancer in any
exposure.

These are smart business moves that create value, reduce cost, avoid waste, and steer clear of litigation and bad public relations. They and similar measures in other companies display some critical characteristics of sustainability: process efficiency, product enhancement, and market positioning and development. One interesting reality about these initiatives is that government alone could never have required them. It could and did create a sense of movement in these directions, but industry has had to commit to research and develop the products.

I should emphasize here that the pursuit of eco-efficiency does not end with process efficiency, which is the first and most appealing objective. I recall that Monsanto's Chairman some years ago told me that after he saw his own company's submissions to EPA under the Toxic Release Inventory (a required, formal measurement of all toxics going out of the stacks), he realized for the first time how much high-volume waste his company was responsible for. He made a commitment to reduce the amount of that waste by 90 percent over the next four years. Now that's process efficiency. However, process efficiency is really a higher form of business as usual. It leads to savings but does not transform the product. The path to sustainability must lead to more fundamental product innovation, to less materiality, and to higher quality.

The question I would ask is: Can government policies and regulations foster this transformation? My sense has long been that government needs a more complex relationship with business and the environment. Adversarial modes of relationship are appropriate for enforcement and compliance with the laws. However, as former Du Pont chairman Ed Woolard once observed, "Those companies focused merely on compliance with environmental laws are yesterday's companies. Tomorrow's companies will learn to make money by satisfying higher environmental expectations."

Can government help shape and direct those expectations without prescribing behavior? A series of voluntary government environmental programs introduced during the past ten years points the way, I think, to new and productive partnerships. One of these programs is called "33/50." It identified, from the Toxic Release Inventory, 17 of the most pernicious chemicals (such as mercury, lead, cyanide) and it asked companies responsible for most of these emissions to reduce their emissions by 33 percent by 1992, and by 50 percent by 1995. In return for that, they got a letter from me and a plaque to put on the wall. That was all. The program more than achieved the goals and ahead of schedule. One company executive later told me, "You set the goal, 50 percent reduction, too low." I should emphasize those releases were totally lawful emissions. There was nothing about those emissions levels that would have allowed me to enforce against them They were below the threshold, a permissible amount. We got the reductions in a way that government could not have compelled them, and the companies that achieved them
were very proud to have done so. They did it, like Frank Sinatra in the song, their way.

A second such program is Green Lights and a related program Energy Star Computers. Green Lights is built on the altogether counterintuitive assumption that government bureaucrats (my staff at EPA) knew more about saving electrical energy than the people who constructed and managed buildings. It turned out, however, that by working through a combination of trade associations and manufacturers, together with the people who purchase such equipment, we saw 30 percent average reductions in energy costs and very significant savings of energy and pollution (sulfur dioxide and the rest) that is associated with power production. Lighting and its electrical demands had simply not been identified by companies as a cost center, nor had the new and more efficient "green lights" become in sufficient demand, both of which the EPA program achieved.

Another program we called Energy Star Computers. It is based on the simple perception by two companies that by introducing a sleep directive in a chip to shut down computers when not in use, we could save very significant amounts of energy in the fastest growing sector of energy use in the United States, computers. Just prior to our going public with this, I was asked to hold off on announcing the program as the entire industry wanted to get stars on their computers. Those two measures, Green Lights and Energy Star Computers, resulted in savings (according to the government) that are now equivalent in the removal of carbon dioxide of taking 3.5 million cars off the road every year.

Design for Environment is another such program-a program that essentially builds on a concept familiar to industrial engineers in which you identify a characteristic desired in a process or product and then design for it (e.g., "design for quietness," "design for speed"). Hence our program: "design for environment." EPA went to two industries plagued by environmental problems and composed heavily of small businesses, the dry cleaning industry and the printing industry. Both these industries were seriously challenged by the costs entailed by complying with the Clean Air Act of 1990. In dry cleaning, we concluded that there is basically one toxic of concern. There was a substitute for it and we determined to publicize it. Press attention was arranged. I recall being briefed by my staff. I was supposed to arrive the next morning at a press conference and present a suit to be cleaned with this non-toxic substitute chemical. The staff made their presentation with great enthusiasm and confidence about how effectively all this would work. They somewhat vitiated that confidence, however, when at the very end, the head of the
staff who had developed the program lingered behind and said to me in a soft voice, "Administrator, about that suit you bring in tomorrow, it probably shouldn't be one of your best suits. This is, after all, somewhat experimental."

We went to the printing industry and concluded there are essentially seven distinct operations in a typical printing process; two of them posed problems with hazardous waste. Working with the trade association, we found substitutes. They were effective. I was asked by the staff, however, not to talk about these initiatives for the simple reason that we did not have adequate resources to respond in such a direct, hands-on way with the trade associations of other industry segments across the country should they request similar partnerships.

The agency had simply not been constructed with a model of technology transfer, information exchange, and direct assistance to solve problems of this sort. In my opinion, these efforts and a pesticide environmental stewardship program really respond to the changing landscape of corporate behavior. In the pesticide program, we essentially said that it takes two years or more to register a new chemical in the United States, sometimes significantly longer. If a chemical is brought to the government which has three or four characteristics-doesn't cause cancer in any amount, doesn't bio-accumulate in the ground water, doesn't persist for very long, and is, by all measures we have, nontoxic-it will go to the head of the line for early introduction and approval.

When these kinds of programs are directed at going beyond compliance, they involve transfer of information. They rely on partnerships with business and trade associations. These are characteristic of the new generation of environmental initiatives. They have demonstrated considerable success. They are aiding in the transformation of countless businesses to more benign, more effiient, more value-added products and processes.

Although these measures are part of a positive conversion of much U.S. manufacturing, they frankly do little to improve the squalid environments of many cities of the developing world. Unless we succeed in improving environmental conditions in poorer countries, I believe we will receive much less cooperation from these same countries when we seek their help, for example, on global warming.

Let me tell a story from my experience at the United Nations Conference on Environment and Development (the Earth Summit held in Rio in 1992) where I functioned as head of delegation for the United States. I had had considerable experience as president of World Wildlife Fund working on environmental problems in developing countries. I was nevertheless quite startled to discover the level of distrust and anger toward the United States and European countries felt by ministers from other countries (such as India, China, Malaysia, Brazil, and Nigeria) whom I met with at that conference. They were angry at the priorities that were signaled by the United States and the developed world, priorities for reducing ozone depletion and chemicals associated with it, for dealing with global warming, and for trying to protect our new bioengineering industries in the convention on biological diversity (a convention the United States did not sign at Rio and to which the Clinton Administration
later acceded subject to a unilateral reservation regarding its interpretation). The concern of the Ministers from developing countries was not that they considered these issues trivial or the science flawed. Their concern (as more than one of them put it to me) was that none of these issues had yet to cause a single death or even illness in their counties. However, they told us that "dirty water is killing millions every day, an issue to which you, your government, your nongovernmental organizations pay virtually no attention." That was not completely fair, as Agenda 21, one of the main reports from the conference, did address some of these issues; but neither was it an altogether unjustifiable criticism. Water in developing countries was far from a central preoccupation of our governments or our NGOs.

I can recall being sufficiently affected by that criticism that I redrafted the presentation of the United States to focus attention on developing country concern with clean water. One member of my delegation entreated me to take it out. He said, "Remember, the President arrives tomorrow. You're going to have to stand up with him at a press conference and explain exactly what we're doing about third-world water problems. Eighty-six percent of the American public is against more foreign assistance for the environment and we're in the middle of an election campaign." I took it out.

I did, however, find it fascinating when a year later Buenos Aires, Argentina, privatized its water supply and wastewater treatment. The city invited a consortium of water system operators to run the entire system for some thirty years. The winning consortium has roceeded to extend the water supply to 500,000 more people, to improve the quality of the service, no longer turning it off for the dry season, and at the same time even lowering rates. That was the first big privatization of a water system and it illustrated for the first time that you didn't need foreign assistance to solve these problems. What you needed to do in the developing world was to create a structure and incentives to make it attractive for private capital to invest in public infrastructure to correct persistent problems.

Incidentally, the imperative to do that has been made even clearer since Buenos Aires privatized its water service in 1993. As we began this decade, public transfers of capital-that is, by aid agencies and multilateral lending institutions-totaled some $40 billion. Private North-South transfers of capital to these same developing countries were at about the same level, something over $40 billion. Over the ensuing eight or nine years, public transfers have remained roughly the same, while private capital transfers are in the range of $250 billion or more a year. In other words, we now have a sixfold increase in private capital transfers while public assistance has remained the same as it was a decade ago. It's very clear then that if you wish to affect problems that cost significant amounts of money in developing countries, you must find a way to do it with private capital. That is essentially the reason for my having set out to create a private equity partnership with $300 million which can leverage some $2 billion or more to address water problems in the developing world (we call them emerging markets when we're investing
private capital in them) at a profit.

Environmental protection, as we learned from the Exxon Valdez oil spill, must be much more oriented to prevention than to after-the-fact cleanup. How ever, environmental protection must also involve harnessing economic incentives, as in the acid rain title of the clean Air Act. Further, it must be about eco-efficiency, understood to include reduced materiality and to be about product innovation and improvement. Finally, in today's world we cannot neglect fundamental infrastructure needs in poor countries. A World Bank water report released in March 1999 concludes that a third of the world's population will experience severe water scarcity in the next 25 years. I quote, "Water scarcity is now the single greatest threat to human health, the environment, and the global food supply." Again, to quote Gregg Easterbrook, "In the first world, death from diarrhea is about common as comet strikes. In the developing world diarrhea kills far more people than cancer." He continues, "3.8million deaths from dirty water in a single year is substantially more than the combined worst-case mortality estimates for asbest os, dioxin,electromagnetic radiation, nuclear waste, PCBs, pesticide residues, and ultraviolet rays." Easy to understand why some of the leaders of these countries regard American and European environmentalists as having been transported by middle class enthusiasms.

I cannot imagine that serious commitments to reducing carbon dioxide emissions will ever be made in places where deaths from water-borne diseases exceed 40 percent, as they do in Bangkok, or where the public water supply is turned off twenty-two out of twenty-fo ur hours, as it isin New Delhi, or where low-level dysentery affects most people every day, as is true in so many cities across the world. I consider myself a hopeful environmentalist and have I pointed to positive reforms and innovations. Nevertheless, even while the United States, Japan, and Germany have reduced their material intensity as a measure of GDP by approximately 20 to 30% over the past 20 years, evidence is that total use of material in these same countries rose by an average of more than 27 percent over the same period. Energy consumption is projected to increase by 20 percent in the United States over the next 20 years and to double in non-OECD Asian countries.

Our task as responsible and ethical global leaders is to point the path to sustainability in our own economy even as we help lift from developing
countries the daily oppression of life-threatening illness and deprivation. The two are not unrelated.

[Author note]
William K. Reilly

[Author note]
Adapted from the Peterson Lecture on Business Ethics at the Haas School of Business, University of California at Berkeley, March 17, 1999.