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CORPORATE INCENTIVES AND ENVIRONMENTAL DECISION MAKING

Alcoa
by Jurgen Schmandt and Sunil Tankha Houston Advanced Research Center Center for Global Studies

ost of the major industries of todays global economy depend to some degree upon exploiting natural resources, as inputs into products or as sinks that absorb wastes and by-products. Despite the emergence of what some term the knowledge economy, traditional industries are still the basic force driving the global economy. Of the dollar value paid for goods, a larger percentage goes towards purchasing the intelligence inside the product, but this has in no way diminished the value of the physical material contained within most products that people continue to use on a daily basis. As more countries like Brazil, China, and India realize their development goals, more of these physical products will be produced, consumed, and discarded. Since the environmental impacts of current levels of production and consumption, especially of energy, are already causing concern, this growth must be carefully managed. In the face of increasing pressure for sustainable development, traditional industries face dilemma - they can either increase their lobbying expenses to predict dire economic consequences if regulations and other controls on their industry or their products are instituted, or they can invest in new strategies and technologies to reduce environmental impacts. This case study profiles one corporation that has made a strategic decision to invest in people and technologies to make its operations compatible with environmental and social sustainability. The company made this choice based on the belief that it will have a brighter economic future by using less energy, reducing pollution, increasing the safety

of its workers and contributing to the well-being of the communities where it operates. The company is Aluminum Company of America (Alcoa), the worlds largest producer of aluminum and alumina and is a strong participant in all segments of the industry mining, refining, smelting, fabrication and recycling. Major applications of its products are in the packaging, automotive, aerospace and construction markets. In recent years, aluminum demand has increased at an annual rate of 2 percent, with stable demand for aluminum cans and steady increases in the automotive sector.

Alcoa: A Brief History


The company was founded in 1888 as the Pittsburgh Reduction Company, following Charles Martin Halls discovery, in 1886, of a cheap process for producing aluminum. Aluminum is the most abundant metallic element in the earths crust, but because it is always found locked in combination with other elements such as oxygen and sulfur, it was also very difficult to extract. Prior to Halls discovery, the extraction of aluminum was very expensive and, as such, it was considered to be a semi-precious metal. Despite the fact that only 125 lbs of aluminum had been produced in America by that time, it had the potential to be a very useful material. Rapid growth in the aluminum market and the accompanying economies of scale led to a fall in the cost of aluminum from US$4.86 per lb in 1888 to US$0.78 per lb by 1893. In 1907, the Pittsburgh Reduction Company which had grown rapidly and established mining and manufacturing sites all over the US and

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Canada - changed its name to the Aluminum Company of America. By 1937, the price of aluminum had fallen further, to US$0.20 per lb. Military demand during World War II resulted in a large increase in production capacity and rapidly expanded aluminum markets. This trend was sustained after the war through peacetime as well as Cold War applications. The aluminum industry grew rapidly in the 1950s and 1960s and Alcoa began an aggressive program to sell aluminum on the international market. The globalization of the 1970s and 1980s challenged the company as substitute products and international competition threatened traditional markets. Alcoas response was to become more innovative - it strengthened and widened its technological base and expanded the range of its products and markets. The company also diversified beyond its core business. However, this effort did not succeed, and has now been reversed. Instead, Alcoa is following the trend towards globalization by expanding its worldwide presence. Over the last few years, it has made numerous acquisitions, expansions and joint ventures. In 1996, Alcoa acquired Italys state-owned integrated aluminum producer, and in 1998, it bought Spains state-owned aluminum producer as well as Alumax (Northcross, Georgia), a world leader in aluminum, with assets of more than US$3.4 billion and 1997 revenues of more than US$2.9 billion. Today, Alcoa has over 100,000 employees in 20 business units located in 250 communities in 30 countries. More than half the workforce is located outside the US. In 1997, Alcoa had over US$13 billion in revenues and net earnings exceeded US$800 million. This positive trend continued in 1998. Despite a 14 percent drop in aluminum prices during the first nine months of the year, the company reported net income of US$217.7 million and net revenues of US$11.1 billion. Shareholder profits were 16.8 percent in 1997 and 17.1 percent in 1998.

Figure 1 Life Cycle of Aluminum


Primary Aluminum
Bauxite Mining

Alumina Refining

Aluminum Smelting

Recycled Aluminum
Ingot Casting

Fabrication

Disassembly

Product Assembly

Collection

Product Use

Consumer Disposal
Source: Alcoa, Aluminum in the Automobile: Life Cycle Considerations, Environmental Paper No. 4, December 1994.

Aluminum: The Wonder Metal


Aluminum is a very versatile metal. It is light, yet strong; resistant to corrosion; highly workable; an excellent reflector and conductor; and easy to recycle. Its properties of recyclability and lightness make aluminum an ideal material for sustainable production systems. In the case of automobiles, 85 percent of

post-consumer automotive aluminum is recovered today and 60- to 70 percent of the aluminum in new cars comes from recycled material. In the case of beverage cans, of the 99 billion cans produced in the US in 1997, over 62 billion were returned for recycling, with the aluminum beverage can containing over 50 percent recycled aluminum. The life cycle of aluminum is illustrated in Figure 1. The use of recycled aluminum eliminates mining, refining and smelting operations and therefore minimizes air pollution (in the form of fluoride emissions) that is associated with smelting and nitrous oxide and sulfur dioxide emissions. Aluminum recycling saves approximately 95 percent of the energy required to make new primary aluminum ingot and consequently reduces carbon dioxide emissions by approximately the same amount. Recycled aluminum also produces 80 percent less solid waste than primary aluminum -

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CORPORATE INCENTIVES AND ENVIRONMENTAL DECISION MAKING Figure 2. A process energy-use diagram for the production of aluminum cans
Source: International Petroleum Indusry Environment Conservation Association, Climate Change and Energy Efficiency in Industry (1992) as produced in Graedel, T.E. and Allenby, B.R., Industrial Ecology, Prentice Hall, N.J, 1995.

3.9 kWh/kg Production of ingot

0.07 kWh/kg

Transport

63% recycled

Ore in the ground

Production of Aluminum 70.4 kWh/kg

Production of Sheet 7.3 kWh/kg

Transport

Production of Cans 16.6 kWh/kg

Cans

0.07 kWh/kg

especially bauxite residue which is a by-product of the alumina refining process - and spent potlining from used smelting furnaces. Figure 2 illustrates the process energy-use diagram for the production of aluminum cans. In addition to being recyclable, in the case of automobiles, the lighter weight of aluminum saves energy by making the vehicle lighter, which reduces fuel consumption. This, in turn, reduces emissions of carbon dioxide and other substances such as nitrous oxides and sulfur dioxide. For example, reducing the weight of a mid-sized car by 700 lbs reduces life-cycle vehicle emissions of carbon dioxide by 10,500 lbs and ultimately reduces a vehicles global warming potential by about 11 percent. However, the environmental impacts of aluminum production are also significant. These include: degradation of the physical and natural environment from mining ore; pollution of ambient air, as well as surface and groundwater; high energy consumption in the aluminum smelting process; impacts on regional air quality; contributions to global climate change; bauxite residue at mining operations; disposal of spent pot lining.

The remainder of this case study will review the philosophy, strategies and programs that Alcoa is employing to enhance corporate sustainability for the 21st century. The programs themselves can be classified into three categories: How Alcoa is reducing the environmental impact of its production activities. How Alcoa is reducing the negative impacts of aluminum use in collaboration with its customers. And how Alcoa is increasing its operational efficiencies and contributing to resource conservation.

Alcoas Philosophy, Strategy and Programs


Philosophy
Alcoas stated commitment to preservation of natural resources and environmental stewardship is based on two principles: first, that it is the responsible thing to do, and second, that it is a key factor in companys ability to create exceptional value for its shareholders as they move into the 21st century. To promote these commitments, Alcoa, prompted by chairman Paul ONeill and former president C. Fred Fetterolf, has spent millions of dollars and thousands of work hours training its workers, supervisors, and executives in six core principles known as Alcoa Values.1 Alcoa Values are meant to unite Alcoas global geographic presence, its cultural diversity, and its autonomous business units through adherence to this common ethical code. The Alcoa Values are:

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integrity safety and health quality and excellence people profitability accountability In 1989, Alcoa began disseminating the core values to its employees, following up with films, training seminars and departmental meetings. The company began to evaluate employees to see how well they applied these principles during daily operations. According to ONeill, We are systematically taking our vision and our values and trying to make them a reality in how we run the place. In 1994, Alcoa strengthened its environmental policy, originally adopted in 1975, by introducing nine environmental principles that clarify the requirements of the Environmental Policy and Implementation Plan. In this plan, Alcoa promises to: support sustainable development; practice responsible use of natural resources; use energy wisely; practice sound environmental management; provide training and information; audit our operations and report findings; sponsor activities to improve the science of environmental protection; develop and adhere to high standards; report on our activities. A new mission statement, based on these principles, was adopted - Alcoa will operate worldwide in a manner which protects the environment and the health of our employees and of the citizens of the communities where we have an impact. At a minimum, the company will comply with the environmental and health standards of each host country. But it will go beyond compliance by anticipating problems. Training of the workforce and auditing of operations are the principal means to this end. As part of the restructuring of Alcoa, a new office was created at the corporate level - Environment, Health and Safety (EHS). Under the leadership of a senior vice president, the office has integrated EHS issues into one discipline to promote information sharing and to remove organizational barriers to problem solving.

Strategy
The Aluminum Company of America does not regard regulation or public pressure as a primary driver of environmental performance. Alcoas commitment to environment, health and safety has put the company in front of regulatory reform. Not only has the firm pledged to comply worldwide with all environmental laws, regulations and permits, but it has also established stringent corporate standards that often exceed local requirements. For instance, after acquiring the Hungarian aluminum firm Kofem in 1993, Alcoa made substantial investments in environment, heath, and safety systems that surpassed Hungarian laws and social standards, even though these investments reduced Alcoa-Kofems profits during the initial years of its operations. Throughout the world Alcoa, insists upon bringing up the environment, health and safety standards of its acquisitions to approximately developed world standards. Alcoa Chairman Paul ONeill sums it up: Alcoa is right in not waiting to be told what to do by government when it comes to protecting the environment.

Leadership
Leadership has been an important ingredient in Alcoas journey towards becoming a sustainable firm, and Chairman Paul ONeill has been an able leader. Appointed in 1987, ONeill is the first outsider to run Alcoa. An economist by training, ONeill spent much of his career in the federal governments Office of Management and Budget. Upon joining Alcoa, he immediately began a massive overhaul of the organization. He closed high-cost plants, took a US$166 million write-off and re-focused Alcoa on its core aluminum business, putting an end to diversification into new materials such as composites. As part of Alcoas globalization strategy, ONeill set up joint ventures to increase Alcoas presence in the fast-growing European, Latin American and Asian markets. Longer term metals contracts are being negotiated to smooth out Alcoas earnings performance and an innovative variable rate dividend plan has been set up to reward investors who stay with the company during economic downturns. These moves are directed at transforming Alcoa from a volume-driven metals company into a world-

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class industrial and consumer aluminum business. They have already translated into improved financial performance. Alcoas return on equity has averaged 15 percent since ONeill was appointed CEO, which is 50 percent above the average for the previous decade.

Addressing Climate Change


Currently, most industries oppose regulation in response to potential climate change. The production of primary aluminum is a very energy intensive process, as shown in Table 1. Compared to automotive steel, for instance, automotive aluminum consumes nine times as much energy for its primary production, on a mass basis, but it takes much less aluminum than steel to perform the same function due to the lighter weight of aluminum. The fossil fuel needs of primary aluminum account worldwide for about 230 million metric tons of CO2 per year, or about one percent of all CO 2 emissions of man-made origin. Alcoas strategy has been to address climate change on three fronts: production site changes such as increasing the energy efficiency of aluminum production and reducing emissions of other greenhouse gases; promoting fuel efficiency in products that use aluminum; and recycling. Over the years, Alcoa has made significant strides in reducing energy intensity in aluminum production. Over the last 20 years, energy requirements to produce primary aluminum have been reduced from 8.25 kWh per lb to 6.6 kWh, which represents a 20 percent decrease. In addition, because of the high energy consumption in the production process, the aluminum industry has invested substantially in acquiring access to cleaner and more efficient sources of energy. A significant number of aluminum smelters have been built in conjunction with hydroelectric power projects. Also, by building smelters close to power sources, the aluminum industry has been able to minimize transmission and other power losses. Alcoa and the aluminium industry are actively reducing polyfluorinated carbon (PFC) air emissions (a greenhouse gases emitted during smelting) to low levels through enhanced process control and prevention at source. Trace amounts of PFC gas emissions are generated during process upsets called anode effects in the smelting of aluminium, which occur when there is a low level of raw material alumina. During the last three years, Alcoa has made significant progress in preventing these anode effects and PFC emissions. These reductions have been achieved through enhanced process control and source reduction so that PFC generation is stopped before it occurs. In the US, the aluminum industry is voluntarily working with the Environmental Protection Agency

Reducing dependence on fossil fuels


Upon his arrival at Alcoa, ONeill had found a business strategy that emphasized continuous improvements in the companys aluminum manufacturing process in order to improve efficiency and cut costs. Over the years, this strategy had reduced energy consumption dramatically - from 20 kWh per lb of primary aluminum ingot in 1910, to 6.6 kWh per lb in 1998. The best Alcoa plants had even reached 5.9 kWh per lb, bringing them close to the theoretical limit of 2.8 kWh. With 45 percent of Alcoas electrical energy needs coming from fossil fuels (primarily coal), reducing fossil fuel use remains a strong imperative for the company. Research and Development (R&D) to improve the efficiency of aluminum production is financed at the rate of several million dollars per year, focusing on the development of inert anodes and direct reduction. Pilot plants to test some of these improvements should be on line by 2001, but implementation of these complex technologies will take decades.

Table 1: Energy input (GJ/Mg) required for the primary production of various metals
Primary Production 31 91 270 61 39 430

Metal Steel Copper Aluminum Zinc Lead Titanium

Source: P F Chapman and F Roberts, Metals Resources and Energy, (Boston: Butterworths, 1983) as produced in T E Graedel and B R Allenby, Industrial Ecology, (Englewood Cliffs: Prentice Hall, 1995).

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to further reduce the frequency of anode effects and PFC releases under the Voluntary Aluminum Industrial Partnership (VAIP) program. Under this program, Alcoa agrees to a 70 percent reduction in average anode effects per pot day by 2000, compared to a 1990 base. Alcoa takes a life-cycle approach to the issue of energy intensity and other environmental concerns. Although the production of primary aluminum is significantly more energy- intensive than for comparable materials, over the life of products total energy consumption is often reduced through the use of aluminum. Recent studies, for example, indicate that material energies are only a small part of the life-cycle energy associated with a car or truck. A far greater percentage of a vehicles energy consumption is accounted for through its use. In fact, almost 25 percent of man-made global carbon output is caused by vehicle emissions. Therefore, by reducing the weight of vehicles, aluminum can increase their fuel efficiency to an extent that more than compensates for the higher energy requirements of the production of aluminum. A 1998 study demonstrated that the use of one kg of aluminum will result in net savings of 20 kg of CO2 over the life of the car, if it is driven 120,000 miles. Recycling has proved to be very effective in reducing emissions of CO2 and aluminum is now one of the most recycled materials. Recycling aluminum reduces emissions by 95 percent over the production of an equivalent amount of primary aluminum. For example, during the processing of one pound of recycled aluminum, less than one pound of CO2 is emitted. Extensive recycling in automotive and packaging applications has decreased net energy and CO2 emissions by 65 percent. Chairman ONeill has been a vocal spokesman for the entire aluminum industry in advocating a proactive stance on climate change policy. He advocated a stronger leadership position by the US, including clear guidance to industry on implementation of a greenhouse strategy. cal chain of command structure and gave field managers worldwide direct access to him. The re-organization eliminated top management layers, reduced headquarters staff from 1,000 to 450 and created 20 regional business units whose managers received more decision-making authority. Their spending authority was increased to US$5 million from one million or less. The business units were then moved to the center of the organization. Each business unit is managed as a responsive, stand-alone enterprise with its own financial, environmental and safety goals. The leaders of these units are accountable for setting performance goals, which are detailed in yearly operating plans. Underneath the business units are pooled corporate resources that service the needs of the business units. Within this framework, each of Alcoas 20 business units is held accountable for EHS goals, which are based on the units specific circumstances and processes. Alcoas chairman and members of the Executive Council review the operating plans and performance of each business unit. This annual review (see below) has become a central feature of headquartersunit relations. The review process includes a full annual evaluation, quarterly progress reports and reviews of special circumstances that were identified by the Environmental Audit Process. One of the quarterly reviews focuses entirely on EHS issues. EHS is organized as a central resource unit and operates under the leadership of the executive vice president (EHS) and general counsel who are members of the executive council. A formal strategic planning process guides the activities of the corporate group. An EHS Advisory Board of senior business managers meets twice a year to provide counsel and advice on issues related to policy and long term strategy and ensures that EHS corporate services are aligned with the needs of the business units. In 1995, a new structure - EHS Shared Services - was put into place to better focus the talents and skills of Alcoas corporate EHS resources. EHS issues were further integrated into the business process through the addition of a more specific EHS section into the operating plans of each business unit. To monitor progress, unit presidents review their units performance regularly - in most cases once a calendar quarter - with members of Alcoas senior management. EHS topics are given priority status as the principal

Decentralizing Alcoa
During the last decade, under ONeills leadership, the company has undergone massive change. Giving more responsibility to front-line managers was a key element of the new strategy. In several steps, beginning in 1991, ONeill abolished Alcoas old hierarchi-

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areas of focus for the first quarterly meeting of the new year. At subsequent reviews, EHS performance is a major item on the agenda. A balanced scorecard process has been established to measure he performance of the business units. EHS issues are included as a prominent part of the balanced scorecard, which also includes financial and human resources issues. land management, community service or environmental education and awareness. In 1995, the award and recognition system was expanded to include EHS programs. The Environmental Performance awards are presented each spring to recognize outstanding performance and progress by locations and business units. The Achievement awards are presented in the fall to recognize outstanding projects and programs that have been completed or established throughout the world. The awards are publicized widely to facilitate the rapid transfer of technology between the locations and business units. To allow employees to express concerns in confidence, report possible violations of state or federal laws and/or company policy including EHS matters, many Alcoa locations instituted a toll free number called ComplianceLine. When a problem is reported, the company reviews the matter and determines the appropriate manner in which to investigate if necessary. During 1994, Alcoa reported that 16 calls were made.

Employee Involvement
Employee involvement is a cornerstone of Alcoas EHS strategy. Employees are the first to get credit for EHS innovations and improvements. Financial and non-financial incentives have also been developed to encourage employee ingenuity and responsibility. Nearly half of Alcoas workforce has some form of variable compensation tied to the attainment of financial and non-financial goals spelled out in operating plans. To encourage, recognize and reward outstanding environmental achievements, Alcoa created an Environmental Excellence Program in 1993. To recognize and reward the diverse environmental activities underway in Alcoa locations worldwide, four award categories were created: Environmental Policy - awarded for achievements that exemplify the advancement of Alcoas Environmental Policy such as the development of effective environmental management programs, employee education and training programs or cooperative relationships with government agencies or environmental organizations; Environmental Progress - awarded for achievements that demonstrate measurable and sustainable progress in reducing environmental impact in a cost-effective manner such as pollution prevention, waste minimization, recycling, or energy conservation programs; Environmental Innovation - awarded for achievements that demonstrate innovation and creativity in addressing environmental issues such as the development, adaptation, and application of innovative technologies or creative management approaches; Environmental Stewardship - awarded for achievements that demonstrate a commitment to environmental stewardship, such as environmental conservation, wildlife habitat enhancement,

Information Management
A key element in Alcoas success in dealing with EHS issues has been the construction of a state-of-the-art information management system that links the diverse elements in a unified and accessible way. In 1995, Alcoa developed environmental management systems guidance material - complete with informational toolboxes for its plants - which are compatible with both ISO 14001 and ISO 9000 requirements. Another initiative was an exhaustive effort to combine numerous health and safety processes into one unified health and safety management system that is linked to the health and safety audit process. Alcoas stated goal is to meld its environmental management systems and the health and safety management systems into a single comprehensive EHS management system while keeping the inherent strengths of each.

Technology Transfer
Alcoa strategy on technology transfer is based on find it, document it and share it. With this in mind, experts from Alcoa locations worldwide collaborated on documenting the worlds best methods for managing several environmental issues that are unique to the aluminum industry. The teams completed their work

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in 1994 and issued four new mandatory standards. The new standards cover bauxite mine rehabilitation, bauxite residue management, rolling mill air emissions, and spent potlining disposal. As part of an ongoing review of existing standards, revisions were made to Alcoas EHS standards that cover the assessment process for prospective acquisitions and divestitures. Alcoa employees at locations worldwide are developing or adapting safety practices that consistently produce outstanding results. These best practices amount to leading edge technologies that become part of a toolbox available to other locations, thus leveraging Alcoas best safety technologies across the company. To develop such toolboxes, ten regional networks worldwide were established. Each identified and gathered a set of the best practices that will be documented as part of a toolbox - including all resources needed to adapt to another location - and shared with the other nine networks. By year-end 1995, the best of the best were assembled in toolboxes available to every Alcoa location. fort, the Wildlife Habitat Team developed a partnership with local elementary schools to educate and involve them in mine reclamation through projects such as Alcoa Science Days, field trips and classroom discussions. In Australia - where Alcoa operates a number of bauxite mines - the company sponsors a project designed to put Alcoas resources and operational expertise at the disposal of community land-care initiatives. In Western Australia - where US$5 million has been budgeted for the project - the land-care program includes wetlands rehabilitation, a land-care field study, rehabilitation of farm land and a comprehensive range of education, information, and community awareness programs and recreational facilities. In 1990, Alcoa of Australia was awarded the UN Global 500 Award for mine rehabilitation and land management in Western Australia. The sustainable mining program was recognized as an outstanding achievement in a very sensitive area where competing land use pressures made the situation very difficult. Alcoa was the first (and perhaps the only) mining company to receive the Global 500 award.

Collaboration
Collaboration is a vital component of Alcoas business strategy. These alliances come in all shapes, sizes and agendas. In 1994, Alcoa invested approximately US$8 million in joint environmental R&D projects, with US$3 million allocated to address remediation issues. Alcoa business units contributed about US$5 million and the remainder came from Alcoas corporate R&D program. US$1 million in matching funds was provided by non-Alcoa organizations for work on joint projects. Alcoa believes harvesting collective energies through partnerships will bring the greatest progress in advancing the companys long-term EHS performance.

Research and Development


In 1995, Alcoa and its businesses invested US$8 million for remediation issues and US$5 million for nonremediation issues. By participating in industry R&D partnership and programs, approximately US$7 million of jointly-shared and in-kind service projects supplements Alcoas investment. An Environmental Technology Advisory Broad meets two- to three times a year to provide strategic direction and review Alcoas environmental R&D program. Major EHS R&D initiatives include: defining and developing guidelines for determining environmentally acceptable end-points for remediation activities related to organic contaminated soils, sludges and sediments; improving air-monitoring methods for measurement of several hazardous air pollutants and high molecular weight volatile hydrocarbons; focusing on PCBs and mercury in sediments; cyanide in groundwater and surface water; passive bio-remediation of hydrocarbon contaminated soils associated with underground storage takes; and biodegradation and containment of PCBs and poly-

Community Participation
Community outreach has always been a key aspect of Alcoas daily plant operations. As the issues become more complex, these partnerships are solidifying. In Davenport, Iowa, Alcoa uses community surveys as a way of ensuring its awareness of community concerns. Focus groups of interested community members were used to solicit comments and suggestions on a conceptual plan to reclaim the land at the former mine site in Bauxite, Alaska. In a separate ef-

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nuclear aromatic hydrocarbons associated with soils and sludges. examples of Alcoas efforts is the Wellard wetlands project. Carefully planned excavation resulted in reuse of the material in construction. The land was then rehabilitated, which turned a 25-hectare area of claybased, non-productive farmland into a thriving wetland and bird sanctuary, where hundreds of water birds safely live and breed. Wellard is now host to more than 84 bird species. In 1994, Alcoa Chairman Paul ONeill issued a new goal and measurement for all of Alcoas businesses zero citations for failure to comply with laws and regulations in Alcoas worldwide business locations. In addition, business unit presidents are required to note even the smallest infractions in their weekly business reports. Since 1992, Alcoa has paid approximately US$1.5 million in fines and penalties. A fine imposed in 1993 at a closed facility in Anderson County, Texas, was US$750,000. In 1994, Alcoa tracked compliance issues on a worldwide basis, but none were noted for non-US locations. Total EHS fines and penalties worldwide were US$300,000 in 1994. By 1997, this figure had been reduced to US$167,000. In late 1994, Alcoa concluded that large-scale complex remediation issues are best managed by a team of technical and regulatory experts who are fully dedicated to remediation projects. A Remediation Work Group (RWG) was formed with this concept in mind. The group reports to the executive vice president EHS and general counsel and is responsible for managing the companys highest priority remediation sites. Among these sites are Massena, New York and Point Comfort, Texas. At Massena, work focuses on cleaning up historic discharges of PCBs in on-site waste units and sediments in the Grasse River. At Point Comfort, the RWG is working closely with the regulatory community and Natural Resource Trustees to better understand the effects of mercury and other contaminants on the environment. Alcoa is currently involved as a potential liable party at 45 Superfund sites. These sites are generally closed or abandoned waste management facilities that were used by Alcoa, or where Alcoa waste was accepted. The majority of these sites are jointly-funded by a large number of companies and Alcoas potential liability is small.

Training Programs
Alcoa employees everywhere now have quick and easy access to benchmark technologies, information and resources via the Alcoa intranet. The new EHS home page offers a library, learning center, Alcoa EHS performance data and other useful information, as well as a link to important EHS documents that pertain to policy and mandatory procedures. EHS launched an ambitious effort to ensure that all Alcoa employees can obtain the environmental heath and safety knowledge and skills they need to perform their jobs. An EHS curriculum was developed as a guide to provide recommendations for courses by target audiences. Because it offers a variety of choices based on individual needs and skill levels, the EHS curriculum can be used to develop annual training plans and priorities. The curriculum is located on the EHS home page with links to course materials so that Alcoa users around the globe can download training materials such as instructors guides and overheads.

Liabilities and Remediation


The aluminum extraction process is associated with serious environmental impacts. During the refining process, the crushed bauxite is mixed with a hot, strong alkaline liquid that dissolves the alumina contained in the bauxite. Waste material, composed mainly of coarse sand and finer mud (silica and iron oxides), have then to be deposited in residue areas. In Australia, for example, about one third of the bauxite is recoverable as alumina. Thus for every ton of alumina, two tons of residue are produced, which is then stored in secure impoundments. Over the years, substantial technical improvements have been made in residue management. Underdrain systems are installed and tough waterproof synthetic liners cover the clay seals of the impoundments. Residues are thickened before placement in the disposal areas, and can be mounded, or stacked, to increase the amount of material that can be disposed of per acre of land. Along with technical improvements, a philosophical change has occurred in how residue areas are managed. The focus is now increasingly on rehabilitation of areas and restoration to previous standards and use as managed wildlife areas. One of the most notable

Measuring Progress
Audits are an integral part of an effective EHS man-

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agement system. Alcoa conducts EHS audits globally to determine overall conformity with corporate, business unit and regulatory policy and objectives. In 1998, the EHS audits were combined with the financial and information technology audits. These combined audits are systematic, rigorous processes that document best practices and highlight areas for improvement. Audits are conducted by cross-functional teams comprised of business unit and central resource experts, as well as external representation to provide objectivity and new ideas. Alcoa is committed to acting on the audit findings. The scope of the environmental portion of Alcoas audit process includes air, water, solid and hazardous waste materials, toxic substances such as PCBs and asbestos, waste minimization, land management and prevention/control of chemical releases. Management systems and resources associated with these issues are also audited. All active and inactive operating, warehouse and transportation facilities worldwide in which Alcoa has a majority ownership and/ or operating control are covered by the audit system. Each facility is audited at least once every three years. A facility that receives an unsatisfactory rating or fails to implement corrective actions from a previous audit, is audited again the following year. During 1994, 49 audits were conducted and of these, 42 were satisfactory. In 1995, out of 50 audit sites, 46 were found satisfactory. In 1996, 17 US and 22 overseas sites were audited and 37, or 95 percent, received a satisfactory rating. Audit findings deemed excellent are widely communicated among all locations to provide case models and promote technology transfer. Following an audit, the facility manager must prepare a detailed audit response and action plan that analyzes the nature of the deficiencies and outlines corrective action. Progress reports are submitted during the year. which asked US industry to voluntarily reduce the release of 17 selected toxic chemicals by 33 percent by the end of the calendar year 1992, and 50 percent by 1995. Alcoa committed itself to exceeding the EPAset targets and pledged to reduce emissions of these chemicals by 39 percent at the end of 1992 and by 51 percent by the end of 1995. In 1994, Alcoa was recognized by the EPA for exceeding its voluntary pledge to reduce releases of 33/50 program chemicals by 51 percent by 1995. Alcoa achieved a 61 percent reduction by the end of 1993 and set new goals for 1995. In September 1994, Alcoa committed itself to a 75 percent emissions reduction by 1995, from all Alcoa US operating units in the program. In 1994, Alcoa implemented a worldwide pollution prevention program to coordinate, support and track voluntary pollution prevention initiatives. Collectively, the goals add up to a 20 percent reduction in priority waste from Alcoa operations in 1995. In keeping with its philosophy that each business unit knows best what its respective financial and non-financial targets should be, each business unit was asked to establish quantitative goals to reduce its Business Priority Pollutants in 1995. The collective average commitment exceeded 20 percent, relative to baselines. The Superfund Amendments and Reauthorization Act (SARA) of 1986 established the Toxic Release Inventory (TRI), which required businesses to report emissions, discharges and off-site transfers of certain chemicals listed in the regulation. Alcoa US locations reported TRI chemical releases of about 6.5 million lbs, about 25 percent less than in 1992 and 54 percent less than the 1988 base year. As in past years, atmospheric releases were the largest but were 27 percent lower than in 1992.

Internal, Operational
Alcoa is a corporate partner in Green Lights, a volunteer program developed by the EPA. As part of this program, Alcoas US plants survey existing lighting systems and replace older lighting systems with more energy efficient ones when significant energy savings can be identified. Through 1996, 33 million sq ft of floor space in US facilities had been surveyed to identify areas where upgrades would result in significant energy conservation. Of these, 30 percent met Green Lights criteria for upgrading with high efficiency sys-

Environmental Programs
This section looks at the range of environmental and sustainable development programs that Alcoa has pursued - singularly and collaboratively - as part of its sustainability strategies.

Internal, Product Related


Alcoa was a part of the US EPAs 33/50 program

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CORPORATE INCENTIVES AND ENVIRONMENTAL DECISION MAKING


tems. These upgrades were completed in 1997. Energy reductions from upgrades made between 1987 and 1997 exceeded 24 million kWh/year. Alcoa recently established a new program called One Million Trees. Alcoas goal under this program is to have each Alcoa employee plant a tree each year for the next ten years. This would result in over a million trees being planted by Alcoas EHS ambassadors. weight, strength, formability, corrosion resistance and recyclability make aluminum an ideal material for automotive structures. One automobile company (Audi) has been closely working with Alcoa to develop the Audi Space Frame (ASF) concept car. Audi believes that aluminum is the environmentally appropriate automotive manufacturing material. An aluminum body weighs 30-40 percent less than a comparable steel body; aluminum can be recycled back into the same applications - panels to panels, for example - for a long period of time. Another reason for adopting aluminum is that when pressed steel panels are stamped out, about 60 percent of the energy intensive metal remains unused. For the ASF body, Audi employs a high percentage of castings and extrusions that, unlike pressed steel, can be made with little wastage. This reduces the energy premium for the manufacture of an aluminum body as compared with steel from a factor of 4.5 to about a factor of two. The first car into which the ASF body has been incorporated is the Audi A8, an all-aluminum luxury

External
In 1994, Alcoa Rigid Packing and local partners broadened their efforts to tell the recycling story worldwide. Alcoas long-standing efforts to promote aluminum recycling have led employees to think of recycling as a way of life, not as an environmental goal or strategy. Employees are consistently developing programs throughout Alcoa to expand traditional office responsibilities and plan recycling efforts. Among such programs are a package return program for can sheet customers, which guarantees that all of the materials returned will be reused or recycled. A program of return and reuse started by Alcoa employees at the Itapissuma plant in Brazil will extend the useful life of shipping boxes. In fall 1996, working with the Aluminum Association, Alcoa organized and conducted a comprehensive life-cycle inventory of primary and secondary aluminum processing. Data was collected on energy, water and materials consumption as well as on emissions, wastewater and solid wastes in mining, refining, smelting and fabricating facilities representing 89 percent of the North American aluminum industry. After data validation and modeling, a life-cycle profile of aluminum automotive products was published in 1997. Bio-remediation is the use of naturally occurring processes to lessen or eliminate pollution. Alcoa has established itself as a leading researcher in bioremediation of polychlorinated biphenyls. Recently, the US Deparment of Energy awarded the Alcoa EHS Technology Center a three-year US$440,300 contract to study how PCBs are affected in soil, sludge and sediments and how to accelerate natural redemption processes. The automobile industry is the focus of a major Alcoa initiative that will aim towards making transportation more sustainable. The combination of light

Table 2: Material in a typical US automobile (kg)


Material 1978 Carbon steel 870 High-strength steel 60 Stainless steel 12 Other steels 25 Iron 232 Plastics 82 Fluids 90 Rubber 67 Aluminum 51 Glass 39 Copper 17 Zinc castings 14 Other 62 Total 1621 1988 % change 654 -25 105 74 14 19 20 -19 207 -11 101 23 81 -10 61 -8 68 32 38 -2 22 32 9 -33 57 -9 1437 -11

Source: H A Stark, ed, Wards Automotive Handbook, (Detroit: Wards Communications, 1988) as produced in T E Graedel and B R Allenby, Industrial Ecology, (Englewood Cliffs: Prentice Hall, 1995).

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ALCOA
flagship first introduced to North America in the fall of 1996. As a result of using aluminum, the Audi A8s frame is 40 percent lighter than traditional steel frames. In creating the A8, the paradigm stating that the only way to get safer was to get heavier was broken. Instead, using the ASF technology, Audi achieved significant weight savings over competitive models while delivering abundant room and unsurpassed amenities in an elegant automobile that performs like a sports sedan. Safety was not compromised - the A8 recently achieved the 5-star government safety rating. Aluminum is finding increasing uses in traditional automobiles, as shown in Table 2. A totally different aspect of Alcoas approach to collaboration on natural resource issues is illustrated by recently announced plans to provide drinking water to San Antonio, Texas. At present, this city of over one million people relies entirely on ground water from the sensitive Edwards aquifer. Repeated efforts to build a major surface water reservoir have been defeated in bond elections. Alcoa operates a large aluminum smelter and, as a source of electrical power, a lignite mine about 120 miles northeast of San Antonio. Alcoa pumps about 30,000 acre-feet a year to keep its coal mine dry. This water - drawn from the CarrizoWilcox aquifer - is of good quality, and is currently released into the Brazos River. Under Texas law, ground water is not regulated and can be used by the landowners as they see fit. Alcoa plans to redirect the pumped water to a pipeline that the city of San Antonio will build. There is also a plan to develop a new lignite mine, with water pumped from this facility also sold to San Antonio. The two projects combined would provide about 40 percent of San Antonios current water requirements. Alcoa would realize over US$1 million a year in water charges and management fees. The plan is certain to be controversial, and may require Alcoa to accept management of its ground water by a newly-formed management district composed of water users and suppliers. gressively focusing on their customers. Other changes seem to help with the bottom line, such as globalization and de-centralization. Alcoa has moved aggressively in both directions over the course of the last decade. The company has also embraced the goals of prudent environmental management and sustainable development, and found that business improved by pursuing these objectives. Alcoa leaders have evidence that business units with sound environmental and health performance will also perform well financially. Three indicators - environmental excellence, high standards of worker safety and financial profitability - are positively related. Alcoa believes that corporate sustainability and sustainable development are compatible concepts. Company survival in the 21st century will depend on maintaining this approach and further reducing energy consumption and environmental impacts. Alcoa is committed to linking globalization to sustainable development. This strategy broadens Alcoas environmental leadership, a strategy developed over the course of several decades. The company took the lead in technologies such as dry scrubbers for fluoride emissions, bauxite residue management systems and mine rehabilitation. It now embraces a pro-active policy on climate change and energy efficiency. Alcoa recently announced that chairman ONeill, on his retirement in 2001 (he retires as CEO in May 1999, but remains as chairman of the board until the end of 2000), will be succeeded in this position by the former president of Alcoas Brazilian subsidiary. This is an important step towards making Alcoa into a truly international company. The systems in place - in particular the innovative review process - suggest that the commitment to energy efficiency, environmental excellence and community and worker safety will continue and ensure the sustainability of Alcoas operations throughout the world.

Conclusion
During times of rapid change, companies differ greatly in their effectiveness and speed in identifying and transforming information of strategic importance into business plans and operations. Research has shown that corporations can maintain profits by ag-

Endnotes
Five valuesintegrity, reliability, safety and health, quality of work, treatment of people and accountability were adopted without controversy. A sixth value, profitability was also included although ONeill argued that it was not appropriate.
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