Handbook on Applying Environmental Benchmarking in Freight Transportation (2012)

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7 Environmental benchmarking is a business tool that helps companies evaluate their environ- mental performance and identify operating practices that contribute to superior performance. Many companies have begun conducting benchmarking studies for the purpose of identifying work processes and practices that influence the environmental performance of their organiza- tions. Organizations are aware that their operations may have detrimental, mitigating, or even positive impacts on the environment depending upon how the practices are implemented. The impacts of processes can be quantified and thus used as a statistic to evaluate the organiza- tion’s performance and competitive standing in the industry. For example, there is an increased awareness and interest in the contributions organi- zations make to climate change and the risks of a variable climate. The Financial Times FTSE4Good Index, the Dow Jones Sustainability Index, and the Carbon Disclosure Project demonstrate the increased emphasis of investors on organizations’ practices related to carbon and its association with climate change. Although a benchmarking study should be customized with respect to the organization’s needs, the general approach to an environmental benchmark- ing study is as follows: • Define criteria for establishing practices as best-in-class; • Define performance metrics/criteria that address the areas of specific inter- est and allow for comparison across firms; • Research industry practices and trends, including collecting and analyzing quantitative and qualitative data on the policies, actions, successes, and failures of industry peers; • Select individual organizations for study based upon specific criteria that position the organi- zation as leaders in the industry (e.g., environmental indices, sustainability report measures, industry awards); • Evaluate the overall performance of individual organizations included in the analysis relative to the metrics and develop rankings to identify best-in-class; • Perform a gap analysis to highlight an organization’s strengths and weaknesses relative to the field; and • Provide targeted recommendations for cutting-edge projects, policies, and initiatives that allow an organization to maximize operational efficiencies, improve environmental quality, and reduce operating costs. C h a p t e r 3 Environmental Benchmarking: Overview of the Process and Benefits Benchmarking Defined “Benchmarking is the continuous process of measuring products, services and practices against the toughest competitors or those recognized as industry leaders.” —David Kearns, CEO of Xerox Corporation 1982–1990

8 handbook on applying environmental Benchmarking in Freight transportation Benchmarking can be viewed as a continuous process (see Exhibit 4). Once a study has been planned, analysis conducted, findings integrated into an action plan, and the plan executed, the process can begin anew to achieve continuous improvement.6 3.1 What Are the Benefits of Environmental Benchmarking? Although the primary objective of environmental benchmarking is to reduce a company’s environmental impacts (or “footprint”), it can also contribute directly to the business objectives of enhancing profitability and enterprise value for business owners and shareholders. The busi- ness benefits of environmental benchmarking include improved information for management, reduced costs, competitive advantage, improved relationships with key business stakeholders, and reduced risk. Improved Information for Management Environmental benchmarking requires a company to collect and understand data on its use of fuel, other resources, and its generation of environmental impacts, which can allow companies to make more informed business decisions. Reduced Costs Because fuel is typically one of the largest contributors to operating costs for freight carri- ers, fuel economy is a crucial industry performance metric. Because fuel consumption pro- duces emissions of criteria air pollutants, air toxics, and GHGs, fuel economy is also a primary measure of environmental performance for freight carriers. For this reason, improving a com- pany’s environmental performance aligns with the business goal of reducing operating costs. Comparative benchmarking can help a company judge how much further improvement in fuel economy may be possible and motivate action to implement additional fuel efficiency strategies. Voluntarily adopting best practices and best technologies can substantially reduce fuel use. For Exhibit 4. Benchmarking to achieve continuous improvement. Planning Analysis Integration Action Maturity 6The benchmarking framework shown here builds on Robert Camp’s book Benchmarking: The Search for Industry Best Practices that Lead to Superior Performance, which was an early and important work in the field.

environmental Benchmarking: Overview of the process and Benefits 9 instance, studies have suggested that adopting best practices could reduce truck fuel use by 10 to 15 percent in the near term through vehicle technology retrofits and other operational strategies. Savings of as much as 30 percent in the long run would be possible as equipment is replaced. Vol- untary adoption of best practices by marine, rail, and aviation carriers has also been estimated to be capable of achieving fuel savings of 20 percent or more industrywide.7 Competitive Advantage Companies that offer environmentally friendly products or operate in an environmentally conscious manner often have a competitive advantage. Performing environmental benchmark- ing will assist companies in offering environmentally distinguished products and services or demonstrating environmentally conscious operations and practices. Future business opportuni- ties may also require disclosure of environmental performance and benchmarking (e.g., ship- pers may prefer to work with carriers participating in EPA’s SmartWay Transport Partnership, discussed in Chapter 4). In this case, companies that track environmental performance and benchmark will have a competitive advantage over those that do not. Relationships with Stakeholders Demonstrating environmental stewardship and improved environmental performance through benchmarking can raise the standing of the company with key stakeholders. • Customers—Becoming a good steward of the environment can enhance the reputation of the company with its customers and the public more broadly, which can be of great value. • Local communities—A company that enhances its environmental performance will show the communities in which it operates that it cares about environmental issues. Good relations with the local community can be valuable when a business needs to change or expand its operations. • Potential and current employees—Improving environmental performance can make companies more attractive to prospective employees and help businesses retain the talent they already have. • Regulators and licensing agencies—Environmental benchmarking provides a tool to identify best practices that exceed what is required by regulations. Improving environmental performance beyond compliance with regulations can improve relations with government officials, policymak- ers, and regulators who have a say in licensing the business to operate equipment or facilities. • Investors—Environmental benchmarking can help companies reduce their environmental impacts and raise their standing with investors. Over the last 10 years, socially responsible investing has grown in importance. Sustainability indexes, such as the FTSE4Good Index Series, are designed to provide investors exposure to companies that are managing their social and environmental risks, while also helping ethical investors avoid companies that are not doing so. To be included in the FTSE4Good Index companies must be shown to be making progress toward becoming environmentally sustainable, among other criteria. Improving environmental performance is an important component of participating in socially responsi- ble investment indexes and attracting investments from socially responsible investment funds or individual investors who track environmental performance. Reduced Risk Benchmarking environmental performance allows a company to reduce risks. Having an envi- ronmental performance that exceeds that of business peers will reduce regulatory risk and other uncertainties associated with unknown future policies. 7Transportation’s Role in Reducing U.S. Greenhouse Gas Emissions: Volume 1 Synthesis Report. Report to Congress, U.S. Department of Transportation, April 2010.