1

Transformation towards Sustainability: The Monsanto Experience

7th International Conference of the Greening of Industry Network BUILDING ALLIANCES FOR A SUSTAINALE FUTURE

November 15-18, 1998 Corporate Governance Session

in Rome Italy _____________________________________________________________________ Abstract All major global companies are addressing the challenge of Sustainable Development. Sustainable Development is viewed by many as the major challenge for the next century along with the path into the knowledge and information society. Many different definitions and interpretations of the terms ‘Sustainability’ or ‘Sustainable Development’ are used today depending on the type and nature of industry, the interests of political groups and those of special non-governmental organisations. This presentation shares the experiences of Monsanto Company from the point of view of a the major transnational company (TNC) in approaching the concept of sustainability and translating it into actions for the company. In 1995, CEO Robert Shapiro publicly committed to embracing sustainability as a main theme for the company’s future. Today, three years later, we’ll share the successes, difficulties and limitations we faced in this work and highlight the areas we believe there are opportunities and where we as a company can make a contribution in the transition of society towards greater sustainability. This will include addressing the issue of partnerships and alliances within the context of a demanding and changing marketplace. _____________________________________________________________________ Acknowledgment There are hundreds of people involved in sustainability at Monsanto. It is not possible to list them all but special thanks to Earl Beaver, Carol Braford, Dave Broughton, Kate Fish, Bob Harness, Erika Harms, Rob Horsch, Diane Herndon, John McLean, Paula Menten, Larry O’Neill, Nick Reding and Bob Shapiro. For

Partnership and Leadership: Building Alliances for a Sustainable FutureNovember 15-18, 1998 Seventh International Conference of Greening of Industry Network Rome

2

more details on what is described in this paper, please consult the Monsanto 1997 Sustainable Development Report at www.monsanto.com. Introduction Many people are beginning to appreciate more deeply the bonds between human well-being, social stability and the natural processes of earth that sustain all life. They are realising that the earth’s capacity to continue providing clean air and water, productive soils, and a rich diversity of plant and animal life is central to ensuring quality of life for ourselves and our descendants. This awareness is captured in the concept of "sustainable development". It is a concept still evolving. People define it differently. There are over 100 definitions of sustainable development. Most include ideas of economic growth, of improved quality of life, and of conserving resources and protecting the environment for future generations. But the best known definition is that of the World Commission on Environment and Development. This suggests that development is sustainable where it ‘meets the needs of the present without compromising the ability of future generations to meet their own needs”. While humanity is in the centre of this definition, better protected and managed ecosystems will create a more prosperous future for everyone so the meaning of sustainable development can easily be extended to nature. Bob Shapiro, Monsanto CEO defined it in an interview with Harvard Business Review1) “Sustainable development involves the laws of nature – physics, chemistry, and biology – and the recognition that the world is a closed system. What we thought was boundless has limits, and we’re beginning to hit them. That’s going to change a lot of to day’s fundamental economics, it’s going to change prices, and it’s going to change what’s socially acceptable.” Why Sustainable Development? The challenge is clear. Two global trends are on a collision course: 1. Destruction of the earth’s environmental resources 2. A predicted doubling of the world’s population Although we might not yet have a complete understanding of all the solutions, Sustainable Development captures the sense of what needs to be done. Monsanto’s strategy, like that of any successful company, is both to contribute to and benefit from Sustainable Development. This requires an in depth understanding - on a global scale - of nature’s interconnections and limits and the anticipation of emerging trends not only in

legislation, but also in cultural and social contexts. Companies which understand the external influences to their operating space and adjust their business strategies accordingly will be able to successfully navigate into the future. Figure 1: Navigating a Closed System: The Earth

Time

Ope

ratin

gSp

ace

WORLDWater

Finite Land

Climate

Biodiversity

Population Growth

Regulatory PressurePrice Shifts

Competitor

radar

radar

Navigating a Closed System: The Earth

Stakeholder Views

WasteResources

Stability/Security

PEOPLE

successful company

3

Sustainable Development and Monsanto: Approach and Chronology • Late 1980s, early 1990s – Monsanto breaks new ground in environmental stewardship

with its comprehensive environmental “Pledge” and with programs like a global 90 percent reduction in hazardous air emissions by end of 1992 (goal met).

• 1994 – Twenty-five of Monsanto’s leaders meet with Paul Hawken, Peter Raven and other environmental thinkers to begin defining how Monsanto could contribute to global sustainable development.

• 1995 – Several hundred Monsanto people from around the world meet at a Global Forum to help chart future direction for the company and to create new ways to work together in the 21st century. Sustainable development is embraced as an operating principle and a business opportunity.

• 1996 – Seven teams involving 120 Monsanto people organize to improve knowledge and action on these issues : sustainability indicators, eco-efficiency, full-cost accounting, new products and businesses, water, world hunger, and communications about sustainable development (see below).

• 1997 – New business sector is established to create market opportunities meeting global needs for economic growth in harmony with the environment and society. This sector also engages all other business units in defining specific sustainability goals for company. Areas being explored are: monitoring throughput (energy, water, raw materials) in Monsanto operations, determining criteria for sustainable products, and engaging the whole work force in learning about sustainable development.

• 1998 – Announcement of merger with American Home Products. Sustainable Development will remain an important issue for the new corporation.

In Monsanto's 1996 Environmental Annual Review2), we reported on the activities of seven volunteer teams formed to work on sustainable development issues. To understand the wide spectrum of sustainable development issues described in Agenda 213)- a broad based approach to the many issues was necessary in order to create a base on which the company could build its own sustainable development programs. The teams concluded their work when the company restructured in 1997. The teams were: • The Eco-Efficiency Team and the Input/Output Analysis Tool The Eco-Efficiency Team developed a tool for breaking down any industrial process into

its requirements for energy, feedstocks and water and its production of wastes. The tool tracks all waste associated with a product, and looks at all life cycle stages, both upstream and downstream and allows to do "what-ifs" comparisons or to compare the impact of shipment methods, for example rail vs. truck.

• The Full Cost Accounting Team

This team devised a way to account for the environmental and societal costs of business activity. Full Cost Accounting identifies costs that don't show up on conventional financial statements, but have no less of a financial impact for our inability to recognize and quantify them. After analyzing our own measurement systems for two years and benchmarking against other companies, we have a system for attributing costs incurred by the company such as safety and environmental management, to the products they are most closely associated with. Work on how to capture extrinsic costs, like cost to society for emissions dispersed or resources used

4

is still evolving as Full Cost Accounting is an evolving concept and cannot be done quickly.

• The Sustainability Index Team This team developed a Product Sustainability Screening Matrix that can be applied to the

life cycle of any product to measure its impact on the environment from cradle to grave -- or ideally, from cradle to cradle, when recycling completes the loop. The matrix looks at life cycle stages against resource criteria as well as social, environmental and economic factors and incorporates both quantitative and qualitative criteria. The index is useful to find strengths and weaknesses and areas of opportunities for improvement around our products.

• The New Products and Businesses Team and • The Water Team

Both these teams pursued new technologies and new businesses to meet sustainability needs. The Water Team consulted with global water experts to identify needs and projected what products or services might fill those needs in the future. The team considered new water treatment technologies for industrial use and drinking water and addressed such problems as the growing salinity of irrigated agricultural lands. The New Business Team also looked into new water technologies as well as other business opportunities. But while the Water Team examined longer-term needs, the New Business Team applied a shorter-term business focus.

• The World Hunger Team

This team tackled the seemingly intractable problem of chronic hunger in many parts of the world. It also squarely faced the most ominous demographic trend facing the world, namely, the expected doubling of the world's population over the next 30-35 years. The focus of this team was to look for ways to leverage the company resources to alleviate the causes of world hunger. Unlike times in the past, such as the early 1960s, the problem is not a worldwide food shortage. Instead, it is poverty, the inability of many people to acquire the food they need.

• The Communications and Education Team This team was in charge of helping to move sustainability from hallway talk to

desktops. It has developed training programs and materials to help spread the sustainability initiative throughout the company, informed of progress on sustainability, installed little “visible difference” projects that included replacing virgin stock in photocopiers with recycled paper, for example, and sending energy conservation stickers worldwide that remind employees to turn off lights and computers.

Corporate Restructuring Reinforced Sustainability's Role In September 1997, after a 96-year history in the chemical industry, Monsanto Company spun off its industrial chemicals business to create Solutia Inc. The new Monsanto transformed itself into a life sciences company and now devotes all of its energies to the business areas of agriculture, food and health with biology as the key science between them. This spin-off concluded the work of the seven teams as the original team members have been absorbed into the new organisations. Building on the foundations laid by these teams, “sustainability” was named as one of the new life science company's Business Sectors whose task it became to evaluate opportunities in four general areas: energy, water, environmental solutions and green products. The dedicated mission of the 230 people in this sector is to find and bring to market more sustainable products. The Water

5

and New Product Development teams are now a key part of this group. The World Hunger team efforts are now part of Monsanto's participation in the microcredit movement. The work of the Sustainability Indicators, the Full Cost Accounting, the Eco-efficiency and Education teams now serves as a foundation within the MTC sustainability team, a sector subteam. Operating businesses in the Sustainable Development Sector include EnviroChem pollution-control and water-treatment systems, a leading global supplier of systems for air pollution control, odour control and biofiltration; and biodegradable plastics/polymers. Under development is also an innovative, electrochemical, portable water-treatment technology called ECA, with potential uses ranging from drinking water purification to

uses in the food industry and other businesses (see Figure 2 on left). and a biodegradable plastic material (polymer), called Biopol that may one day be produced in growing plants.

• Longer term, this sector is exploring opportunities that include improvements in land use, aquaculture, fresh water availability, and developing “smart plants” for the home and garden with built-in abilities to combat insect damage or diseases. Evaluation of the

Sustainability of Production and Products To identify the best opportunities for making its products more sustainable, a company must understand what is involved in the manufacture, use, recycle or disposal of its products. This means studying quantities of materials, energy and other “inputs” used to make products as well as the nature and quantity of wastes that result. The products made and resulting wastes or usable byproducts are called “outputs.” Equally important is to understand both the value of using the products and the environmental and other effects that result. Altogether, this sort of evaluation can be loosely called a “life-cycle assessment.” We have started doing this kind of evaluation on some of our products in a two part process. The first part concerns the flow of materials from the earth through processing to product creation, use, recycling or disposal. At each step, inputs and outputs are quantified with an eye toward minimising environmental effects. The second part involves looking at product use in greater detail and describes the agricultural and ecological effects of using particular Monsanto products. Due to the complexity of the life cycle, this process for evaluating the manufacture and use of our products is still in an elementary phase and does not capture every input and output and effect of product use, just the major ones. It is a starting point, however and we expect to refine and improve it continually. For a schematic diagram of the process, please consult pages 4 and 5 of the 1997 Sustainable Development Report4) .

(actual size: 9 inches in length, 5 inches in diameter)

ECO- EFFICIENCY: NEW PRODUCTSUNDER DEVELOPMENT

ECAELECTRO-CHEMICAL ACTIVATIONu uses ordinary water and table salt in an innovative process to purify wateru applications from drinking water to industrial water treatmentu creates solutions for Sterilizing and Disinfecting

The portable ECA system can treatthousands of litersof contaminated water per hour. Iteliminates the needfor treatment chemicals and ismore energy- efficientthan alternative methods.

ECA Reactor

6

Partnerships and Alliances Sustainable development is concerned with distinctly separate areas in which progress needs to be made, economy, environment, society including their interdependencies. For example, economic development both influences, and is influenced by, social change. Therefore no single government, organisation or corporation can address the challenges in isolation. Ultimately, success must occur at the global level, however this will happen because new policies are developed and implemented at several other levels; regional, national, company, individual. Alliances and partnerships with others are an essential part of moving forward. The following lists a few examples of areas where we are engaged. La Amistad - The Friendship As a company involved in agriculture, soil as an essential raw material provider, a warehouse of nutrients, a renewable resource. The degradation of productive farmland through soil erosion is a global problem. It is estimated that some 25 billion tons of topsoil is lost annually. (This is roughly the equivalent of the topsoil in the state of Missouri). Increased use of reduced-tillage techniques can slow and eventually halt this trend. An Argentinean farmer describes the importance of topsoil as 7 centimeters that determine how many people the earth can feed. No-till farming eliminates plowing to prepare land for planting seeds ad for weed control. Instead, crop residue is left on fields, and seeds and nutrients are placed in narrow rows or in drilled holes. Weed control is accomplished with herbicides such as Monsanto’s Roundup. Because the soil is not disturbed or exposed through plowing, it is much less susceptible to erosion from both water and wind. No-till has been shown to decrease erosion rates by 90 percent and nutrient and pesticide runoff by 70 percent over conventional tillage. And less plowing means less fuel used in tractor engines, fewer emissions, and less time and labor on the farmer’s part. Conservation tillage (con-till) is a related practice that may include some plowing but that also leaves at least 30 percent of plant residue on fields. Again, the benefits are better erosion control and fewer tractor trips across fields. The beneficiaries of reduced tillage include a biologically rich area in Costa Rica called La Amistad or “The Friendship.” This 1.1 million-hectare region of rainforest parks and reserves, straddling the border of Costa Rica and Panama, contains 90 percent of the region’s flowering plant species, 70 percent of its wild bird species, and an abundance of other wildlife. It is designated a “biosphere reserve” by the United Nations. La Amistad is struggling to co-exist with the human species. Its edges are being eaten away by neighboring small farmers, who grow coffee, corn and vegetables. They encroach on La Amistad because their own hillside lands have been ruined by erosion. “These growers are just struggling to make a living,” says Monsanto marketing manager Erika Harms. “Helping people understand how to relate differently to their environment is the answer to protecting the park. Part of this answer is more effective use of conservation tillage in which Roundup plays a role.” Conservation International (CI) is an organization, an international nonprofit group dedicated to protecting the earth’s biologically richest ecosystems. Monsanto joined the CI program that help farmers in the La Amistad buffer zone to protect and improve the productivity of their own land so they will not be tempted to encroach on La Amistad ground. Activities include educational scholarships for children with leadership skills, seminars on no-till, programs on safe management of pesticides, reprinting bulletins on soil and water conservation, and instruction on organic gardening.

7

Alliance with NGO’s in Africa To help break the cycle of poverty in sub-Saharan Africa partnership with local government research and extension services and with two non-governmental organizations (NGOs) – SG 2000 in Ghana and Winrock International in Senegal. In partnership with these groups, in 1992 Monsanto began to facilitate the transfer of Monsanto’s con-till technology to small-scale rice and maize farmers in these areas. These regions were typical of Africa as a whole, which is facing severe problems. The annual rate of population growth since 1980 is 3.1 percent, up from a 2.7 percent rate between 1965 and 1980. The rate of agricultural growth is constant at about 1.8 percent. Food availability is falling short; it now meets only 85 percent of requirements. Problems such as rapid deforestation, field abandonment, loss of fertility, soil degradation, and severe erosion are rampant. Traditional means of preparing the fields and getting rid of weeds before planting included plowing and manual hoeing, which is so slow that by the time the farmer finishes a field, the weeds have grown again where she/he began. It was obvious that to improve the situation it would be necessary to change local farming practices. Con-till methods were introduced along with improved crop varieties. As a result, farmers began to restore soil fertility, protect the soil from erosion and degradation, and use less labor. Yield increases of 20 to 50 percent have been realized. Labor needs have been reduced by 20 to 30 percent using con-till practices and preplant applications of Monsanto Roundup Dry herbicide. Microcredit Initiatives Monsanto is engaged in the efforts to meet the worlds microcredit summit goal of reaching 100 million of the world’s poorest families, especially the women of those families, with credit for self-employment and other business and financial services by 2005. Through microcredit loans to people in impoverished regions of the world, we are able to help these areas break the cycle of poverty, and contribute both to improved quality of life and to building infrastructure that will encourage the growth of new markets. One of the questions CEO Bob Shapiro is frequently asked is why companies want to be involved in microcredit. There are people who are shareowners and investors, who want to know why a company is diverting its time and attention to a subject that doesn’t seem to be directly relevant to the financial objectives of the company. And at the other end of the spectrum he is asked the question by NGOs, activists and others who are concerned that a corporation must have some ulterior and exploitative purpose in being part of a movement that is designed to aid the poorest people in the world. He believes that companies ought to be and increasingly will be involved in the microcredit movement, partially very selfish reasons – because as people emerge from poverty and take part in the world economy they become good customers and good suppliers. They take part in the economic life of a global economic system – not simply as the passive, helpless victims of that system, but as active participants and contributors to it. Our company has been trying for the last year to find projects in which to become engaged. Microcredit in our view is a movement that is about partnership – it’s about linkage – and we’re excited about creating new partnerships and new linkages. I believe that the microcredit movement today is the most remarkable movement in the world (extract from speech of Robert B. Shapiro at Microcredit Conference, New York City June 27, 1998).

8

Agricultural Biotechnology and Sustainable Development Monsanto is a global player in agricultural biotechnology. There is a challenge of feeding more people a better diet without plowing up lots of remaining wild lands. “Making available cropland as productive as possible is key to reducing hunger and environmental destruction, by sparing other areas for forests and other uses,” says former U.S. President Jimmy Carter, now active on issues of global hunger. Most of the earth's land best suited for agriculture is already being farmed. If yields do not increase to keep pace with a growing population, another 9 million square miles will be needed. Environmentally sensitive areas could be severely harmed. High-yield farming requires the effective combination of many components: improved crop varieties, enhanced soil fertility, and integrated pest management with targeted pesticide use. Yield improvements being provided by Monsanto’s biotechnology-improved seeds are beginning to contribute to the mix. These products include insect-protected cotton, potatoes, and corn and herbicide-tolerant soybeans, cotton and canola. They have been available in limited quantities for only a year or two, but data from farmers indicate the seeds can contribute to crop-yield improvements due to superior pest control. For example, last year in the U.S., Monsanto’s insect-protected YieldGard corn provided an 8 percent yield improvement over standard corn hybrid varieties. The company’s insect-protected cotton provided a 7 percent yield improvement. To date Monsanto’s Roundup Ready soybeans grown with the aid of Roundup herbicide have provided about 5 percent more crop than soybeans treated with a traditional herbicide program. As seeds continue to be enhanced through biotechnology and plant breeding, these numbers may increase. Historically, annual crop-yield improvements have been in the 1 to 2 percent range. Agricultural biotechnology holds promise for dramatic reductions in some agricultural inputs. Biotechnology-improved seeds are demonstrating their ability to reduce the inputs and related resources required for farming. Seeds with the Bt trait can dramatically reduce the need for externally applied insecticides. The raw materials, including fuel, associated with the manufacture, transportation and use of these insecticides are saved as well. Data thus far are showing attractive yield improvements from these crops. And growers also are being rewarded with more freedom resulting from less time and effort needed to grow

the crops. Figure 3 on the left depicts measured insecticide reductions in the U.S. with NewLeaf potato and Bollgard cotton, both crops protected against insects and disease. Other benefits are realized from raw materials and energy not used to produce these chemicals or the packaging for them as well as from energy not used to transport the products. This illustrates a key

connection between agricultural biotechnology and sustainability,” says Rob Horsch, co-

INSECTICIDE REDUCTION WITH INSECT- PROTECTED CROPS *

* Includes only growers who planted Bollgard or NewLeaf and applies only tocotton insecticide treatments for budworm, bollworm, and pink bollworm andonly to potato insecticide treatments for Colorado potato beetle.

Bollgard Cotton

NewLeaf Potato

Percent Reduction in Insecticide Applications*

1996 1997

90% reduction on 1.8 million acres

in the U.S.

85% reduction on 2.5 million acres

in the U.S.

40% reduction on 10 000 acres in the

U.S. and Canada

40% reduction on 30 000 acres in the

U.S. and Canada

9

head of the Sustainable Development Sector. “Biotechnology allows us to substitute information for ‘stuff.’ This means that instead of having to protect crops with external insecticide applications, seeds have the built-in capabilities to fight insects which saves the resources that would otherwise be needed to make, distribute and use the insecticides. Concerns Not everyone is sanguine about the connections between sustainable development and agricultural biotechnology. Concerns expressed by some people include the human safety of biotechnology-improved food crops, increased herbicide use, possible ecological disruption from a novel gene’s moving to an unintended plant species, or from insects’ developing resistance to proteins that act as pesticides. These issues are given careful consideration during government regulatory reviews for crops improved through biotechnology. This review process may consume five of the 10 years it often takes to bring a biotechnology-improved crop from research to the market place. A fuller discussion of this process follows. • Crops with bioengineered genes cannot be grown or consumed without reviews by

various government regulatory agencies. These reviews cover human safety, environmental effects and impact on agricultural practices. The studies examined by the agencies are done by the companies seeking the approvals as well as by independent researchers.

• Numerous specific issues are examined during regulatory reviews. These may include potential allergenic effects among people from the modified food, unintended changes in the nutritional content of foods, and the potential for environmental problems. To address any outstanding concerns, limitations and conditions may be imposed on where and how the crops may be grown and on whether resulting food must be labeled. Thus, in the U.S., regulations require that acreage planted with cotton given the Bt (Bacillus thuringiensis) gene for natural insect protection must be accompanied by plantings of standard cotton to minimize the possibility that insects will become resistant to the Bt gene.

• Regarding possible “outcrossing” of a gene to an unintended plant species, regulators may consider the proximity and prevalence of related plants and the consequences should outcrossing occur. For example, if a gene that allows a plant to tolerate a particular herbicide were able to cross to a weedy species present nearby, the question of alternative herbicides to control that weed would be examined. Judgment is used by biotechnology companies as well. Thus, Monsanto is not pursuing herbicide tolerance in crops such as sorghum that has a serious weedy relative (johnson grass) in the U.S.

• Bio-engineered crops undergo testing on farm fields in various regions and growing conditions prior to final approval by regulatory agencies. Globally, since 1982, more than 3,600 on-farm tests involving 56 different crops and 34 countries have been governmentally authorized.

“As scientific knowledge about the benefits and potential risks of biotechnology continues to evolve, everyone involved – the companies, the regulators, the research institutions – will adjust their thinking on the type of safety studies to be done and the ways in which the crops are grown. We want to keep driving down risks to minuscule levels,” says Bob Harness, who has worked extensively in international regulatory systems for Monsanto. “When discussing biotechnology in agriculture, we need to remember as well that the question of risk occurs in a context of other key factors,” he says. “Given future population growth, the risk of not continuing to pursue high-yield agriculture, including biotechnology, is very real and grave. It might mean the destruction of millions of acres of undeveloped land, with disastrous biodiversity consequences, to feed our new fellow

10

human beings. It’s against this backdrop that potential risks and benefits of biotechnology, or of any other new agricultural technology, must be assessed.” Conclusions In the discontinuities are opportunities. The growing disconnection’s between how the world operates today and the ability of ecosystems to continue absorbing all this will create major opportunities for companies to develop more sustainable ways of doing things. “We recognise that there are many things we should have done differently. In the future, we intend to be more responsive to the public and more helpful to people wanting to learn more about agricultural biotechnology. We remain confident in the safety of these products as demonstrated in studies and risk assessments by ourselves and others as well as by regulatory reviews around the world. Even so, we must respect the feelings of those who remain concerned and worried. The benefits of agricultural biotechnology make it imperative that we continue forward. Our belief is that if society turns its back on biotechnology and other advancements, it will not be able to meet its needs, even if more rain forests and wildlife habitats are destroyed to create additional farmland. This past year at Monsanto, we’ve reorganised the way we work as individuals and the way we work together. The pursuit of sustainable development is more a journey than a destination for a company such as Monsanto. Despite the fact, that no technological breakthroughs can be reported, we can, and are, making progress. We’re determined to stay on the path. Whether we’ll ever be able to say “we’ve arrived” remains a question mark and a judgement to be made by others. (extract from vice chairman’s letter in 1997 Sustainable Development Report). References 1. Growth Through Global Sustainability: An interview with Monsanto’s CEO, Robert

B. Shapiro, reprint 97110 2. Monsanto 1996 Environmental Annual Review: Pursuing Sustainability 3. Agenda 21: The United Nations Programme of Action for Sustainable Development,

ISBN: 92-1-100509-4 4. Monsanto 1997 Report on Sustainable Development including Environmental, Safety

and Health Performance” issued March 1998

Contact Martina Bianchini

Manager, Sustainable Development and External Affairs Monsanto Services International

270-272 Ave de Tervuren 1150 Brussels - Belgium

Tel 0032-2-776-4589 Fax 0032-2-776-4057

email: martina.bianchini@monsanto.com 1) http://www.monsanto.com