SWOT & Best Practices

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Li Yen Chong prepared this case under the supervision of Professor Velma Lee for class discussion. This case is not intended to show effective or ineffective handling of decision or business processes. The authors might have disguised certain information to protect confidentiality. Cases are written in the past tense, this is not meant to imply that all practices, organizations, people, places or fact mentioned in the case no longer occur, exist or apply.

© 2019 by The Asia Case Research Centre, The University of Hong Kong. No part of this publication may be digitized, photocopied or otherwise reproduced, posted or transmitted in any form or by any means without the permission of The University of Hong Kong. Ref. 16/587C

Last edited: 8 March 2019

VELMA LEE LI YEN CHONG

WASTE MANAGEMENT INC.: FROM CORPORATE SOCIAL RESPONSIBILITY TO

CREATING SHARED VALUE A lot of people don't know this: when I was young, I wanted to be a garbage man. I asked my mom, and she said they made good money, and it was steady work.

- Paul Pierce, American pro-basketball player1

To me, I think people who don't think it's a big deal to toss a plastic bottle in the garbage are not only being irresponsible, but I think they're being disrespectful of all the other humans on earth.

- Sophia Bush, American Actress and Activist

In the summer 2017, China announced that it no longer wanted to import “foreign garbage,” and banned numerous kinds of paper and plastic imports. It also tightened standards for accepting foreign waste materials. This new policy had a significant impact on the US.

Trash piled up and recyclables were dumped in landfills. The new reality, however, created an opportunity for the waste management industry.

The waste management industry overall was transformed. Additional and newer waste treatment methods were deemed necessary to deal with the waste produced by the growing population. The management at Waste Management Inc. (WM), a leading provider of integrated environmental services in North America, questioned how to make the best use of the changing

1 https://en.wikipedia.org/wiki/Paul_Pierce: player in the National Basketball Association player who played 19 seasons

2 https://en.wikipedia.org/wiki/Sophia_Bush: voice role in LEGO The Incredibles 3 New York Times May 29, 2018 “Your Recycling Gets Recycled, Right? Maybe, or Maybe Not”. 4 Sun Sentinel July 13, 2018 “Trashmount in Broward reaching maximum capacity”.

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16/587C Waste Management Inc.: From Corporate Social Responsibility to Creating Shared Value

industry landscape. What steps were made to create shared value with societal constituents such as government agencies, communities and non-profit organizations? What investments were made in technology, assets, and human resources?

Waste Management Industry

The waste management industry had to actively involve its stakeholders which included municipal authorities, residential communities, industrial organizations, educational institutions, and media, in strategy formulation and decision making. Volume and treatment methods were two major concerns of the waste management industry. Broad categories of treatment methods included material recycling, biological treatment and anaerobic digestion; biological treatment and composting; energy recovery, material recycling and construction material; and landfill.

According to industry experts, waste and recyclable materials were generally collected and transported from an origination point to a material recovery facility, transfer station, or disposal site. A waste management company typically provided collection services under one of two contractual agreements. A typical contract for commercial and industrial collection services was three years. For most residential waste collection, the company either had a contract with, or a franchise granted by, a municipality, homeowners' association or some other regional authority that gave the company the exclusive right to service all or a portion of the homes in an area. These contracts or franchises could range from three to seven years. [See EXHIBIT 1.]

Competitiveness in the North American waste management industry varied greatly across states and counties. Some consumers only had access to one waste management company in the form of a regional or state monopoly, which led to reduced consumer bargaining power. Access to multiple waste management services meant an increase in competition.5

Waste Management Inc. Business Model

WM, founded in 1971, operated in the US, Puerto Rico, and Canada with over 14,000 million dollars revenue in 2017.6 It sorted and burned usable waste to generate electricity. Its renewable energy resources produced twice the amount of renewable electricity than all of the US solar industry combined, which powered over 500,000 homes.

7 Their integrated yet diverse waste management strategies paired with advanced technology helped WM become one of the world’s most ethical companies and the top 50 most advanced companies in the US to work for in the 20th century.8

According to Waste Management’s company report, it produced and sold recyclable commodities globally to its customers. It managed the marketing of recyclable commodities processed in the company’s facilities by maintaining comprehensive service centers that continuously analyzed market prices, logistics, market demands and product quality. The company also provided recycling brokerage services, which involved managing the marketing of recyclable materials for third parties. This segment was managed by the strategic business solutions organization and energy and environmental services organization. In FY2016, the recycling brokerage segment reported revenues of 2,093 million dollars, which accounted for 15.4% of the company's total revenue. 5 Marketline 2017 Waste Management Report North America. Retrieved from http://advantage.marketline.com June 28, 2018. 6 Marketline 2017 Waste Management Report North America. Retrieved from http://advantage.marketline.com June 28, 2018. 7 Waste Management Inc., 2014. 8 Waste Management Inc., 2017.

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16/587C Waste Management Inc.: From Corporate Social Responsibility to Creating Shared Value

Geographically, the company classified its operations into two segments, the US and Puerto Rico, and then Canada. In FY2016, the US and Puerto Rico segment accounted for 94.9% of the company's total revenues, followed by Canada with 5.1%.9

The company's network included over 700 collection and transfer stations, almost 300 active landfill disposal sites, 146 recycling plants, over 100 beneficial-use landfill projects and six independent power production plants. WM offered environmental services to nearly 21 million residential, industrial, municipal, and commercial customers in the United States, Canada, and Puerto Rico. With 26,000 collection and transfer vehicles, the company had the largest trucking fleet in the industry. WM, together with its competitor Republic Services, Inc., handled more than half of all garbage collection in the United States.10

The strategic business solutions organization worked with customers throughout the US. The strategic accounts program provided centralized customer service, billing and management of accounts to streamline administration nationwide. WM’s energy and environmental services organization offered its customers a variety of services, including construction and remediation services as well as fly ash and residue disposal. It also offered in-plant services, specialized disposal services for oil and gas exploration, and production operations.

Additionally, WM developed, operated and promoted the benefits of landfill gas through its WM Renewable Energy Program. Landfill gas was produced naturally as waste decomposed in a landfill. As of FY2016, the company had 131 landfill gases projects which produced commercial quantities of methane gas. The processed gas from 103 of the landfills was used to fuel electrical generators. At 16 landfills, the gas from the decomposed waste was delivered by pipelines to industrial customers as a substitute for fossil fuels. At 11 landfills, pipeline natural gas was produced and sold to natural gas suppliers. At another, the gas was processed into liquefied natural gas (LNG) for vehicles.

Additionally, WM invested in businesses and technologies designed to offer services and solutions, including joint ventures, acquisitions and partial ownership interests. The solutions and services included the collection of project waste, construction debris, and household or yard waste through the Bagster program. Also included were the development, operation, and marketing of plasma gasification facilities; operation of a landfill gas-to-liquid natural gas plant; solar powered trash compactors; and organic waste-to-fuel conversion technology. The company offered portable self-storage and long distance moving services through a joint venture; fluorescent bulb and universal waste mail-back through its LampTracker program; portable restroom servicing under the name Port- -Let; and street and parking lot sweeping services. WM held interests in oil and gas producing properties, according to its introduction on WM’s company website.

Waste Management Inc.’s External Environments and Impact

WM hired a consulting firm to conduct an impact study. The firm’s team found the following results:

Environmental Impact Conserving and protecting groundwater was a major concern. Contamination by an unrelated fracking company in West Virginia in 2014 resulted in the presence of chemicals and waste in 9 Marketline, 2016 Waste Management Report – US Market, accessed June 28, 2018. 10 Marketline, 2016 Waste Management Report – US Market, accessed June 28, 2018. 11 Marketline, 2016 Waste Management Report – US Market, accessed June 28, 2018. 12 Jump up to: "About Waste Management". www.wm.com. Retrieved June 29, 2018.

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16/587C Waste Management Inc.: From Corporate Social Responsibility to Creating Shared Value

the surrounding groundwater and made local resident ill.13 WM, however, maintained a clean government inspection record, proving the system’s effectiveness in maintaining uncontaminated groundwater (Waste Management, Inc., 2014).

Positive Impact Research and development was one of WM’s main foci. With multiple laboratories monitoring environmental impact, WM shared their reports with like-minded organizations to team promote environmentally sound practices. Comprehensive waste audits and management plans to solve industry issues were developed from a thorough analysis of the audits.14

Negative Impact Landfills and dumps, although often treated as interchangeable were significantly different. While open-aired dumps carried potential environmental dangers, most (Need cite if truly the majority) waste management companies operated landfills, which were the better option for handling garbage waste. Landfills were basically underground holes to contain garba covering the interior of the hole with linings that prevented any leakage to the surrounding environment.

ge by

Concerns regarding the durability of the linings, however, surfaced in light of recent worries about leachate leakage, a liquid mix of natural moisture and waste chemical components that could destroy the surrounding soil and groundwater if improperly contained and properly.16 Exhibit 2 depicted a cross-sectional view of the landfill linings employed by WM.

WM operated both landfills and dumps. While landfills produced the necessary natural gases for generating electricity for local communities or companies, WM sought to increase revenue recycling raw materials that could produce heat, fuels, power, and chemicals via methods such as fermentation, gasification, and digestion. 17 This meant that some of WM’s collected waste went straight to dumps instead of into landfills. Dumps had the potential to allow animals to consume waste, then carry harmful waste components to areas beyond the facilities.

Transportation of waste carried legitimate environmental impact as well. There were reportedly numerous instances of waste spilling out of garbage trucks. Overpopulation of landfills and dumps were causing some companies to consider transporting garbage to further but less populated sites. This meant higher transportation costs and greenhouse gas emissions, according to a communications director for WM.18

Social Impact

Positive Impact WM and other waste management companies developed a waste prevention attitude for the present and future. According to the Integrated Solid Waste Management model, [See EXHIBIT 3] proper management of waste impacted waste management companies and

13 Begos, Kevin. 2014. USA Today. January 5. http://www.usatoday.com/story/money/business/2014/01/05/some-states-confirm-

waterpollution-from-drilling/4328859/ , accessed June 28, 2018. 14 Natural Resources Defense Council. 2014. Smarter Business: Greening Advisor.

http://www.nrdc.org/enterprise/greeningadvisor/wm-audits.asp., accessed July 3, 2015. 15Solid Waste Management. 2015. Landfill Versus Dump: Some Facts.

http://www.guyenterprisegy.com/solidwaste/dumpvslan.htm, accessed June 18, 2015. 16 Ibid. 17 Herndon, Andrew. 2012. Trash Saved by Waste Management Worth Up to $40 Billion. April 12.

http://novaenergia.net.br/noticias/trash-saved-by-wastemanagement-worth-up-to-40-billion/, accessed June 18, 2015. 18 Profita, Cassandra. 2012. When The Landfill Is Full... December 21. http://www.opb.org/news/blog/ecotrope/when-the-

landfill-is-full/, accessed June 18, 2015.

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16/587C Waste Management Inc.: From Corporate Social Responsibility to Creating Shared Value

communities by applying what they learned.19 An example of this would be communities that purchased durable, long-lasting goods and products that were free of toxic substances.

Negative Impact The construction of landfills, dumps, or waste management facilities had a negative impact on surrounding communities. Landfills that were not sufficiently protected and covered faced possible methane gas leakage, which caused fires (Solid Waste Management n.d.). Uncontrolled dumping and improper waste handling brought insects and rats that carried disease. Contamination of water via leachate imposed major health issues, even more so if the communities were reliant on groundwater for everyday use. Leachate specifically contaminated organic compounds that decreased the oxidation-reduction potential and increased the mobility of toxic metals.

20 Although we did not hear of many incidences in North America, the reverse was true in third world countries, where there was minimal or no healthcare prevention strategies, especially near dumps. In fact, there were 17 known places in Asia with the largest dumps. 21

The related impacts were tied to one fact: the prevalence of Waste-to-energy plants in low- income urban areas, which contributed to environmental injustice. cycAccording to Eco- le, European countries were much less opposed to smaller waste-to-energy facilities like anaerobic digesters. cite For countries where green technology was less prevalent, this was a major concern. For example, residents in northern Beijing were opposed to a waste incinerator project, claiming that regulators were unable to maintain current landfills.

Economic Impact

Positive Impact The total revenue for WM was USD13, 996 billion at the end of 2014, with a net income of 1, 298 billion for the same year.24 According to Eco-cycle (2014), a recycling rate of 75% by year 2030 in the waste management industry had the potential to create over one million jobs.25 NH Business review (2011) suggested there was a trend of green companies building a positive reputation as an eco-friendly company that cared more about the wellbeing of the community in comparison to other companies, which could lead to higher profits.26

WM used certain goals to help the economy by focusing on sustainable growth, as well as employing the most valuable and quickest solutions for the greatest impact on profits. WM set a benchmark for achieving quantitative goals by the year 2020, which included managing at least 20 million tons of recyclables. WM earned an 88% increase in managing recyclables from 2007 to 2013, managing 15.0 million tons of garbage in 2013.

27 Cost savings were achievable

using sustainable practices even in the banking industry. For example, Bank of America used 19 United States Environmental Protection Agency, Solid Waste and Emergency Response. 2002. Solid Waste Management: A

Local Challenge With Global Impacts. Washington D.C., April 11, 2002. http://www.epa.gov/osw/nonhaz/municipal/pubs/ghg/f02026.pdf, accessed June 23, 2016.

20 Begos, Kevin. 2014. USA Today. January 5. http://www.usatoday.com/story/money/business/2014/01/05/some-states-confirm- waterpollution-from-drilling/4328859/ , accessed June 28, 2018.

21 Vidal, John. 2014. Smelly, Contaminated, Full Of Diseases: The World's Open Dumps Are Growing. October 6. http://www.theguardian.com/globaldevelopment/2014/oct/06/smelly-contaminated-disease-worlds-open-dumps, accessed June 23, 2015.

22 Eco-cycle. 2014. Zero Waste Creates Jobs. May 14, http://www.ecocycle.org/zerowaste/jobs, accessed April 13, 2015. 23 Kong, Lingyu. 2015. Residents of Beijing Community Renew Protest against Waste Incineration Plant. May 22.

http://english.caixin.com/2015-05-22/100811732.html., accessed June 30, 2015. 24 Bloomberg Business. 2015. Waste Management Inc. (WM: New York).

http://investing.businessweek.com/Research/stocks/ownership/ownership.asp?ticker=W M., accessed April 13, 2015. 25 Eco-cycle. 2014. Zero Waste Creates Jobs. May 14. http://www.ecocycle.org/zerowaste/jobs, accessed April 13, 2015. 26 NH Business Review. 2011. Green Actions Can Boost Business Profits and Resilience. March 11.

http://www.nhbr.com/March-11-2011/Green-actions-can-boostbusiness-profits-and-resilience/, accessed June 30, 2015. 27 Waste Management, Inc. 2015. About Us. https://www.wm.com/about/index.jsp., accessed July 2, 2015

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16/587C Waste Management Inc.: From Corporate Social Responsibility to Creating Shared Value

various sustainability practices to reduce environmental, including subsidizing hybrid vehicles, implementing a paperless system, and owning Leadership in Energy and Environmental Design, or LEED-certified buildings, just to name a few.28

Negative Impact When contamination of land and water was viewed from an economic perspective, there were potential impacts on the society and businesses in the surrounding areas. The absence of emergency hazmat teams on constant standby in case of an accidental spill could have destroyed the ecosystems in surrounding communities and businesses.29 Furthermore, waste-to-energy was not traditionally known as a financially competitive strategy and business plan. In fact, tipping fees (imposed charges based on the quantity of waste received at a waste-to-energy facility) for incinerators were 50% more expensive than landfilling and composting facilities, even if they were more effective. Economies of scale in building different sizes waste-to-energy plants were also considered. While the capital costs were lower for smaller facilities, smaller facilities were less common because of consistency and doubts over the adequacy of air pollution controls. Larger facilities averaged around “$10 per ton lower operating and maintenance costs.”30

Challenges Going Forward

After China refused to import and absorb international garbage, taking less American trash since 2018, the new generation became more environmentally conscious. How would waste management respond to the changing landscape amid the socio-political change and a growing population with a growing amount of trash? Was Integrated Waste Management technology able to track the entire process? Were smart analytics used to generate reports to manage logistics, transportation, general public education, users, and other value chain players? What partnerships would be relevant for medium to longer term development?