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Cover Story

Awakening a Sustainability Giant

by Katie Sosnowchik with Joseph Fiksel

In 2001, had you asked any of Cinergy’s 7,000 employees to define the term “sustainability,” most would have been hard-pressed to provide an answer. Times have changed dramatically at this Cincinnati, OH-based gas and electric utility, however. Today, employees can not only easily define the concept, they can also tell you how their day-to-day actions contribute to it. Above all, they can point to a respected external rating system—the Dow Jones Sustainability Indexes (DJSI)—to prove that their actions speak as loudly as their words.

That’s pretty impressive for a company that only recently catapulted into the sustainability limelight. There was no one solitary event signaling an upheaval in Cinergy’s corporate philosophy, or a crisis that forced a transformation in its business practices. Rather, it was more of a gradual awakening to what the concept represented and a curiosity of sorts about how its existing programs might apply. In fact, it was Cinergy’s desire to have an outside perspective on the social, economic and environmental aspects of its business practices that prompted it to create a multi-disciplinary team to work together to apply for the indexes in June 2003.

“There were not that many places in the U.S. where you could go to have your program gauged by an external authority,” explains John Stowell, vice president, Environmental Strategy & Sustainability. “The DJSI appeared to be the gold standard for that kind of an evaluation. So when we applied, we did so not thinking we would be named to the list, but to get some idea where we stood vis-à-vis other industries that were already deeply into sustainability. Basically we were looking for a report card.”

And what a report card it was. When the results were announced in September 2003, Cinergy’s overall score in the utility category was the highest rating for any U.S. utility, and the company ranked third internationally. It was named to the DJSI again this year—one of only three utility companies in the U.S. and 16 worldwide to be included.

The process has been an eye-opener.

“The actual process of applying for DJSI forced us to stop and do an assessment of where we are and what we are doing,” says CEO Jim Rogers. “It’s like a lot of things in life when you stop and reflect—it helps you gain insight and wisdom. The whole process gave us some ah-hahs! about where we are. But once you have been given that recognition, it raises the bar. What creates the greatest cynicism is when you have been given recognition and then you don’t live up to it. So I believe that looking out to the future, now that we have been named to it two years in a row—the fact is that we have to be more aggressive going forward. As Will Rogers says, ‘You might be on the right track, but if you’re sitting still you will get run over.’ ”

“I have been with this company for 18 years and knew that a lot of our people were doing a lot of good work, but until you try to bring this all together under one hat, you don’t know how productive your company is, you don’t know how embedded your company is in the communities it serves and the enthusiasm people have when you ask them to tell you what they are doing,” Stowell adds.

The bottom line, says Rogers, is that Cinergy now has a “new way of looking at our business.”

It also has its own unique definition of the term “sustainability” (responsible actions lead to long-term success) and a new way of applying the concept (The Hand of Sustainability—see page 15), which goes beyond the familiar three-legged stool of economic, environmental and social responsibility. Cinergy has also implemented what some might argue is the most important element of all: an innovative internal communications program centered around a Sustainable Landscape image map that raises employee awareness of Cinergy’s sustainability initiatives and clearly indicates how each employee contributes to their success.

“One of the things I discovered is that sustainability is a morale builder because it allows people to talk about the contributions they are making not just to the company, but to the community,” Stowell says. “And when that’s all brought together as part of the business plan, they suddenly realize that what they are doing has a loftier goal than making a dime. The dime’s important—but there’s more to it than just the dime.”

Sustainability, writes Rogers in the company’s recently published and first-ever sustainability report, is about “creating economic opportunities for our customers. It’s about improving the quality of life in our communities. It’s about looking inward, too, nurturing a quality workplace and workforce and ensuring our company maintains the highest of ethical standards. Sustainability should not be mistaken for corporate altruism. There are solid business reasons for focusing our business on ‘the right thing to do.’ We’ve been doing it for years and it’s been paying dividends.”

Jim Rogers and John Stowell recently spoke with green@work about Cinergy’s exploration into the sustainability arena—and what lies next on its agenda.

WHAT ARE SOME OF THE MOST PRESSING ENVIRONMENTAL CHALLENGES TO YOUR BUSINESS TODAY?
Rogers: For a six-year period, I chaired the environmental policy committee of our industry trade association, the Edison Electric Institute. As chair of that committee, I have spent a great deal of time digging into the details of these issues and trying to have an understanding of their impact around the country. For instance, 52 percent of the electricity in the United States comes from coal. Cinergy burns 30 million tons of coal per year to generate our electricity. So we are very dependent on coal as a fuel source. Obviously when you burn that much coal, you have significant emissions of sulfur dioxide [SO2], nitrogen oxide [NOX] and mercury. If you go back to 1990, we spent about $1.7 billion reducing these emissions; as we look out over the next four years, we estimate that we are going to spend between $1.6 and $2.1 billion for reductions. So one of our largest challenges today is to provide reliable electricity at low cost with the smallest environmental footprint possible.

There is also great uncertainty today as to what future rules will be regarding SO2, NOX and mercury emissions. The EPA has two rules pending—one on sulfur dioxide and one on mercury—the first expected to be out later this year; the second released the first part of next year. So as I try to project what we are going to spend, I am doing so in an environment of uncertainty about future rules.

WHAT ABOUT CO2 REDUCTIONS?
Rogers: In regard to CO2, my starting point on this issue is that one day we will live in a carbon-constrained world. So then the question becomes: What steps should we be taking today to prepare for that? One thing that we have done is to make a commitment to reduce the CO2 emissions from our plants by five percent off our 2000 base level—and to achieve that by 2010. I think it’s do-able—we wouldn’t have made the commitment unless we thought that it could be done.

Another thing that we are doing is negotiating with GE and Bechtel to build a coal technology plant that uses old technology in a new way. It’s called Integrated Gasificiation Combined Cycle or IGCC. As luck would have it, there were two demonstration projects built in the early ’90s and we happened to participate in one of them—the Wabash River Station. So we want to convert this coal plant to receive coal gas. Coal gas allows you to take out more SO2 than at a traditional plant, you can also take out the NOX, and you can also reduce the mercury at a much lower cost. The unique advantage of an IGCC plant given the technology today is that you’ve also got the ability to significantly reduce the CO2 from that plant. The technology isn’t completely proven, but what we are planning to do is apply for DOE dollars and try to work on carbon sequestration at this plant. It’s not only in a region of Indiana where we have the grid infrastructure, but it’s also in a part of the state where the geology is very receptive to sequestration—we can try to re-inject carbon into the earth. There’s a lot of debate about whether it can be done, there’s a lot of debate about whether it will ever be economic to do, but we feel that we need to experiment.

AS A COAL BURNER, CINERGY IS OBVIOUSLY A TARGET FOR MANY ENVIRONMENTAL GROUPS. HOW DO YOU CONVINCE THEM OF THE SINCERITY OF YOUR COMMITMENTS IN THIS AREA?
Rogers: I understand their motivations. I have learned to frame the issues from the perspective of all of stakeholders: consumers, investors, employees, the communities we serve and also broader societal concerns. We need to consider the interplay of goals and objectives from each stakeholder group, which sometimes are at odds with one another. We need to calibrate the conversation in terms of how it will affect everyone involved. I believe that “the perfect is the enemy of the good.” If you strive to make everything perfect, you will never make progress. Five or six years ago, I tried to get more aggressive emission reduction legislation passed—to tie SOX, NOX and mercury all together—and to spread reductions over a period of time. If we had been able to pass that, we would have greater reductions in our plants today than we do under the current law. But everybody sort of stiffed the idea in the hopes that eventually they would get everything they wanted tomorrow, rather than get some of it today. We can’t just shut down all the coal plants—when 52 percent of all electricity in this country comes from coal—it’s just not do-able. What’s better is to determine how to make sure all the incremental coal plants are really good, how to retrofit some and how to shut down others that are really old. That gets us on the path to cleaner air sooner—and it allows us to make real progress.

WHAT’S YOUR MOTIVATION TO DO ALL THIS?
Rogers: There’s a couple different motivations. I started my career as a consumer advocate fighting utility rate increases. And I spent time as a federal regulator. As a result, I have come to the realization that I am a pragmatist. And the pragmatist in me says that we have certain environmental goals in this country, and those goals are only going to get greater and we need to plan for that. So let’s be pragmatic about how the rules are evolving and get positioned to do it in the way that has the lowest cost possible. Let’s start planning to be consistent with that evolution.

From a personal view, I apply what I call the “grandchildren test.” Simply put, when my grandchildren get to be my age, will they say that their granddaddy made good decisions that remain good decisions. Will these decisions stand the test of time? I have been CEO for 16 years and have had a lot of pressure to earn quarterly earnings and annual earnings—but I have a self-imposed pressure to make good decisions for five, 10 or 15 years out.

WAS PREPARING YOUR FIRST SUSTAINABILITY REPORT SIMILAR TO THE DJSI EXPERIENCE?
Stowell: The DJSI experience brought a lot of people here in the company into the sustainability family. And so when we sat down to create our sustainability report, we decided to follow the advice of all the people we talked to when we were preparing our benchmarking study: Make this program your own—don’t let someone create it for you. In the end, we came up with five aspects—instead of the famous three-legged stool—because we recognized that we also have a unique economic development arm and a unique way of dealing with our employees that needed to be acknowledged. So the sustainability report that we have prepared built off those five aspects; when we focused on each one, it really wasn’t that hard to put together. What I hope to improve next year is for our metrics to be stronger, so we are now looking at the Global Reporting Initiative. We will continue to tell “stories” because the public understands those and it humanizes the information; what we will attempt to do is improve the metrics of the report.

HOW HAS YOUR OWN JOURNEY IMPACTED YOUR RELATIONSHIPS WITH YOUR SUPPLIERS?
Stowell: We just held our first sustainability awards last year, but we did it before we actually completed our thinking regarding the five aspects of sustainability. So going forward we will focus on those five aspects. We’ve had environmental awards with our suppliers for a number of years, but we will be changing from a strictly environmental focus to a sustainability focus. Because this business strategy is important to us, our suppliers recognize that it should be important to their business planning as well. Our last questionnaire did ask what kind of business practices they had engaged in during the last calendar year that they would consider to be sustainable and to provide examples. Some questions were environmental, but some were also related to social and economic issues.

WHAT’S NEXT ON YOUR AGENDA?
Rogers: I believe we need to help create a national conversation about environmental and energy issues. Our country is unique in that we’ve never adopted a national environmental policy or a national energy policy where the people that create that policy look at the interplay between energy and the environment—these issues are interrelated in so many ways. For example, we could go to a renewable portfolio of wind and solar to reduce emissions, but today that brings prices way up. Then there’s the whole issue of our aging nuclear fleet—the news headlines these past few weeks regarding problems with nuclear plants prove there’s some legitimate issues that need to be addressed there. There are also issues that need to be addressed about how we use coal and how we can reduce those emissions. This national conversation needs to be about looking at what we are trying to achieve in terms of fueling our economy, maintaining our standard of living, but at the same time making sure we have clean air.

There is so much uncertainty in our industry; so much of what I call “stroke of the pen” risk, where the value of an enterprise can be changed by the signing of a law or a regulation. I think to be able to manage during that uncertainty is one of our biggest challenges, but resolving that uncertainty is about trying to stimulate a national conversation that leads to comprehensive environmental and energy legislation. As I look out over the next two years, this country needs an energy and environmental road map for the future. Think of all the dependency on foreign oil that we have. Think about our growing dependency on foreign sources of natural gas. Think about our environmental goals. As a country we can’t wait until the next crisis to deal with these things; we need to deal with them now so that we can have a sustainable future. We need to lead on environmental issues, not follow. We need a plan—and if that plan translates into regulations, then we need more regulations. We need this plan so that we can build our strategies and make our investments in such a way to match up with the energy and environmental goals of our country. Right now it’s hard to find anyone to tell us what those goals are.

Dr. Joseph Fiksel, principal and co-founder of Eco-Nomics LLC, a sustainable business practices consultant, contributed much of the background information for this report. Fiksel’s clients include companies in a wide array of industries, as well as leading NGOs.