Richard Sieg
Inmar Regulatory Counsel

2008-2009 was a bellwether year for the rise of sustainability in corporate America.  While some retailers were already hard at work prior to that time, the occurrence of headlines on sustainability efforts has increased significantly since then.

Interestingly, these efforts in sustainability are not driven by regulatory agencies.  Instead, the companies themselves and their shareholders are a catalyst for the recent active, successful phase of the sustainability movement.  Bloomberg BNA published an article in December of 2013, calling this time period the beginning of the “Social Response Product Development” phase of the sustainability movement.

As shown in the table below, BNA and the Governance & Accountability Institute, Inc. reported that in just three years the number of S&P 500 companies filing sustainability Reports jumped dramatically from 19% to 72%.  The companies themselves have successfully created the wave that is sustainability in corporate America.  As early as 2008, the Retail Industry Leader Association (RILA) and the U.S. Environmental Protection Agency (EPA) told BNA they were developing a “web tool designed to provide one-stop access to retail-related environmental information, sustainability tools, and regulations…”  Yes, retail was ahead of the wave.

Percent of Companies Publishing  Sustainability Reports
Year S&P 500 Fortune 500
2010 19 20
2011 52 57
2012 72

Sources: Governance & Accountability Institute, Inc., Sustainability – What Matters?, 2014, and BNA Daily Env’t Report, Majority of S&P 500, Fortune 500 Companies Report on Environmental Impacts, Study Says, Dec. 19, 2012.

Reverse Distribution

For many years, EPA’s Office of Solid Waste has understood the wisdom of sustainability.  One element of sustainability is embedded within the federal hazardous waste law.  As found in 42 U.S.C. 6902(a)(6), an expressed sustainability objective includes “minimizing the generation of hazardous waste and the land disposal of hazardous waste by encouraging process substitution, materials recovery, properly conducted recycling and reuse, and treatment.”  EPA’s Reduce, Reuse and Recycle initiative encourages companies managing materials to do so in a sustainable manner. You can learn more about the initiative at http://www2.epa.gov/recycle.

Of course, retail sustainability is bigger than reducing the generation of waste.  It also covers energy usage (including transportation), water usage, land use and development, and much more.  I find it very interesting how the retail sustainability programs intersect with the EPA Reduce, Reuse and Recycle initiative.  Reverse distribution is a critical element of this intersection.

Reverse distribution includes centralized collection of unsaleables, important data collection for manufacturers and retailers, product tracking and credit and expert management of returns for their final disposition.  The benefits of economies of scale alone unleash these consumer products for the secondary market, when appropriate.  Whether you consider this “reduce” or “reuse,” it is sustainability.  The data obtained through reverse logistics allows manufacturers to evaluate its product packaging and to make packaging changes for the purpose of reducing unsaleables.  Similarly, data given to retailers allow those retailers to evaluate their processes to reduce the generation of unsaleables.  This is an obvious example of the  “Reduce” element of the EPA initiative. Liquidation and donation of consumer products easily fit into the EPA “Reduce” and/or “Reuse” categories as well.  Refurbishment and reuse of electronic devices through reverse logistics is certainly “Reuse.”

For those items that cannot be sold or liquidated, recycling opportunities, when available, can be sought out by the reverse distributor. Also, the carbon footprint, through transportation, would be much worse if returns could not be managed through reverse logistics providers more able to streamline and/or consolidate transportation for retailers and manufacturers.  This is the stuff of sustainability.

Through the years, EPA has embraced reverse distribution as a sound framework for managing retail returns.  EPA is currently evaluating how it might reasonably ease the burden on retailers in the management of hazardous waste, all the while maintaining a proper balance with its mission of protecting human health and the environment.

EPA guidance documents, particularly in the area of pharmaceutical returns, have suggested that the point of generation of hazardous waste (when a retailer uses the reverse logistics framework) is at the reverse distributor, if the return has “potential value.”  This makes sense when you look at the process through the lens of sustainability.  Envision a hypothetical regulatory scheme where the generation point of waste consumer products is instead identified as the retail store.  In that scheme, each store would have to manage product that is earmarked for disposal as waste, even if a credit might be associated with the product.

Would such a scheme be a truly sustainable approach?  I would argue that except for the largest retailers, such a program would be unlikely to develop sustainable uses or reuses for many unsaleables and the carbon footprint would be worsened because of the level of transportation resources that would have to be devoted to the larger number of collection points in this model. This is the message that needs to be sent to states interpreting their laws and regulations in such a way; sustainable solutions are unlikely to gain traction in that scenario.

The public policy issue is clear: If a state wants to reduce the generation of waste, then the state needs to learn how reverse distribution empowers the industry to find sustainable uses of returned products.

It is true that not all items are managed through the three Rs.  Brand protection and other principles have led to destroy dispositions by the manufacturers.  But, as the sustainability movement takes hold, perhaps those manufacturers will begin to see recycling opportunities as an equivalent option to destruction.  This is more likely to occur in states that have not placed undue burdens on the recycling of consumer products.  That is the second message that we need to send to some of the states.

Try to envision whether a retail industry sustainability program could be as successful as exists today if the regulatory scheme designates retail stores as the point of waste generation.  Reverse logistics, with its economies of scale, utilizing area- and region-based distribution, makes the likelihood if success of such a vision difficult for me to see as truly a best-case prospect for meeting sustainability goals.

The reverse logistics provider model is a more sustainable approach, and its framework is simpler for EPA and state regulators to oversee and manage than the store-by-store approach.  As the wave that is sustainability continues to grow, we need to work with states to ensure they see the enhanced efficiencies and effectiveness of managing all retailer returns through reverse distribution models.

What do you think? What are your challenges with sustainability? Contact Richard Sieg at Richard.Sieg@inmar.com with your questions or thoughts.

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