If the Technology giant Hewlett-Packard Development Company (HP) were to pay the environmental external costs caused by its operations and supply chain in 2010, it could face a bill of more than US$1.2 billion. When a firm uses a natural resource or releases pollution, society usually picks up the tab for resulting damage to the environment or human health. As these environmental costs are not usually recorded on a company’s balance sheet, they are external.
As shown in Chart 1 below, HP’s supply chain accounts for 98% of the company’s estimated environmental external costs (excluding downstream impacts from products in use). Direct (first-tier) suppliers, such as electricity and logistics providers, account for one-quarter of these costs.
Chart 1: Breakdown of HP’s environmental external costs by source
If environmental liabilities were internalised through policy measure such as taxes and emissions trading, and passed on by suppliers, these costs could equate to 1% of revenue and shave almost 8% off HP’s earnings before interest, taxation, depreciation and amortisation (EBITDA).
As the world’s largest Information Technology company, HP can influence the environmental sustainability agenda. So what is it doing to mediate environmental risks? Its environmental strategy focuses on helping customers to use IT to improve resource efficiency, making operations more efficient and reducing waste. Since the majority of HP’s impacts are in its supply chain, an initiative to use life cycle assessments to identify impacts and opportunities to improve the energy and resource efficiency of products could cut environmental costs most. Life cycle action includes looking at the environmental performance of materials and product manufacturing. HP is working with suppliers to improve energy efficiency, and encourages them to set performance targets and engage with their own suppliers.
This builds on work to measure the greenhouse gas (GHG) emissions associated with HP’s largest suppliers, which made it the first major tech company to publish supply chain emissions in 2008. Through more engagement with first-tier suppliers, HP has seen improvements in reported emissions and the number of suppliers disclosing carbon targets over the past three years. The firm is also learning from a trial programme, run by Business for Social Responsibility, to help eight suppliers in China cut their energy use, GHG emissions and costs.
Trucost data show that GHG emissions account for 41% of the company’s environmental external costs. To tackle its exposure to other environmental costs, HP could expand its supplier engagement to include impacts such as emissions of air pollutants such as particulates, sulphur oxides and volatile organic compounds, as well as water use, which has increased across its own operations since 2008.
This could help expand the gap between HP sector peers. HP is 5% less exposed to environmental costs than the average for 10 U.S.-based companies in the Computer Hardware ICB subsector. It was ranked second, after IBM, in Newsweek’s 2011 Green Rankings of U.S. companies, and achieved a higher score on environmental management.