Johnson & Johnson on sustainability and the intersection of returns on investment

Johnson & Johnson has been articulating some form of corporate sustainability since 1943. The pharmaceutical company's credo, penned by former chairman Robert Wood Johnson in 1943, lays out a mission of corporate citizenship, responsibility, fairness and "protecting the environment and natural resources."

The credo is an interesting document, given its foresight. You could take that 1943 text and drop it into hundreds of sustainability reports today. J&J's modern sustainability projects have been going on since the 1980s and 1990s; the company's latest effort will land later this month when its corporate sustainability report is published online. (A paper copy will follow in early September.)

We caught up with Brian Boyd, vice president of Johnson and Johnson's worldwide environmental health and safety group. Boyd's group oversees about 25 employees dedicated to sustainability and social responsibility.

Here's what he had to say:

On J&J's approach to sustainability, Boyd noted that the company formed its first environmental group in about 1980. That group pushed enterprise-wide standards for things like environmental impact, working conditions and energy use. In 1990, J&J set its first sustainability goals.

"In many respects, we've been at this a long time," Boyd said. "We have a good handle on our manufacturing and R&D locations. We set best practices and audit against them."

Boyd added that IT systems collect and verify annual audits. There are self assessments and a corporate-wide audit every three to four years, unless there's a problem. If there are, a facility will be audited more frequently.

Add it up and J&J has global standards that encompass a 26-chapter book. This book has everything from water standards to energy best practices and safety risks. The aim is to have a plant running in Thailand on the same standard as one in New Jersey, where Johnson and Johnson's corporate headquarters is located.

On the importance of water: Referencing what the Beacon Institute highlighted at IBM's Smarter Planet Blogger Day, Beacon argued that water management is a huge issue for the enterprise since no company can grow without it. Boyd said that J&J's manufacturing processes "aren't water-intensive," but nevertheless the company recognizes the issue -- especially where there's scarcity of the resource.

"We're mindful of being as efficient as we can be with goals to conserve and reduce," he said.

However, J&J's approach to its water projects are based on financial metrics. The company has best practices for water management and looks for technologies for purification, reusing waste water and water-free urinals.

"But we use those technologies when they are cost effective," Boyd said. "Many of them are borderline and we may not implement if there's not a good financial return."

Boyd added that water projects have a harder time clearing return hurdles.

"Water is pretty inexpensive," he said, adding that J&J prioritizes sustainability projects based on returns.

Speaking about returns on investment, Boyd said J&J has a goal of cutting carbon emissions by 7 percent. He noted that those projects generate good returns, and that the company's energy projects have delivered a return of 19 percent, saving $50 million.

J&J doesn't have one single lens for sustainability returns, Boyd said. An area such as green lighting can become a global best practice in short order just based on returns. Other projects such as solar installations were in the incubator stage for a while before going mainstream at the company, Boyd said.

On solar power return on investment, Boyd said that J&J has 20 solar arrays installed at facilities around the world. Indeed, the company is sixth on the EPA's top 50 list of green power users.

"We continue to install solar power with strong financial returns," Boyd said, adding that solar installations have become viable thanks to incentives from state and federal governments.

Three installations in New Jersey have generated internal rate of returns of more than 20 percent. "And there's no risk because there are few moving parts and you can put panels on the roof and they will last for 25 years," he said.

What if solar subsidies went away? Boyd acknowledged that J&J couldn't justify the returns on solar installations without the value of renewable energy credits, tax credits and other incentives.

"If you took those incentives away and it was solar versus coal, coal would win," Boyd said.

On herding suppliers and sustainability, Boyd said J&J has 12 years of experience working with environment, health and safety issues with suppliers. Most of those efforts have revolved more around risk management and mitigation than environmental efforts. The company has been sharing best practices and technologies to cut the carbon footprint of its supply chain.

As for enforcing best practices and environmental goals, Boyd said Johnson and Johnson audits its resources at home and abroad. If a country lacks a strong regulatory infrastructure, J&J assumes the role of the regulator.

"We audit plants in some parts of Asia and Latin America more than we do one in New Jersey," Boyd said.

On the importance of LEED ("Leadership in Energy and Environmental Design") certification, Boyd had some interesting points. If J&J is building a new facility, all of its best practices are followed and the company will build to LEED specifications. The company has six or seven LEED-certified locations.

In existing facilities, Boyd argued that most of J&J's facilities are "pretty far down the road" toward LEED certification, just based on the company's best practices. In that scenario, there is little incentive to get official LEED certification.

"Adding a certification to a facility is not a value proposition," Boyd said. "The value is really less about certifications and more about less operating costs and healthier employees."

On J&J's favorite clean energy projects, Boyd outlined the following projects as continual efforts:

• Solar array projects.
• Co-generation to create electricity on site and reuse heat.
• Biomass efforts: Boyd said that facilities in Ireland and Switzerland are using renewable energy sources such as wood chips instead of diesel or a petrochemical.
• Geothermal projects, such as geothermal heating and cooking, where appropriate. Boyd said that's because you need a lot of space to put wells and coils into the ground.

Here's a look at J&J's sustainability projects from its 2008 report:

How does sustainability help the J&J brand? Boyd said Johnson and Johnson executives weren't into greenwashing, the practice of touting every initiative and product as green. But sustainability does play into J&J's "total trust package" as a brand, he said.

"Striving to do the right thing is part of the total trust package," Boyd said.

One example: J&J has an injectable arthritis drug called Simponi that must remain cold. The company used to pack it in a big cardboard box with Styrofoam to keep the drug cool -- doctors joked that getting a shipment of Simponi was like getting a delivery of a Volkswagen.

In response, J&J redesigned the shipping packages to use renewable gel packs and corn-based plastic containers -- not so much for the environment as for financial return. Those corn-based plastic containers are now reusable up to 100 times.

The boxes are now considered assets.

This post was originally published on Smartplanet.com